TAT’s selected historical information is derived from the audited consolidated financial statements of TAT as of December 31, ~~2011~~2012 and ~~2010~~2011 and for each of its fiscal years ended December 31, 2012, 2011 ~~2010~~ and ~~2009,~~2010, which are included elsewhere in this annual statement, and have been prepared in accordance with U.S. GAAP. The selected financial data for the year ended December 31, ~~2008~~2009 and December 31, ~~2007~~2008 is derived from ~~other~~ audited consolidated financial statements of TAT not included in the annual statements, which have been prepared in accordance with U.S. GAAP. The selected consolidated financial data set forth below should be read in conjunction with and are qualified by reference to Item 5, “Operating and Financial Review and Prospects”, and our consolidated financial statements and notes thereto included elsewhere in this annual report.

Income Statement Data:

Year Ended December 31,
2011 2010 2009 2008 2007
(in thousands, except per share data)
Revenues:
Products $ 47,508 $ 38,954 $ 34,751 $ 31,724 $ 18,928
Services 37,889 40,801 48,340 71,565 69,776
Total revenues 85,397 79,755 83,091 103,289 88,704
Cost of revenues:
Products 34,076 32,052 23,115 22,977 13,399
Services 32,143 29,136 43,780 57,586 51,808
Write down of inventory and impairment charges of  long lived assets 5,763 3,500 - - -
Total cost of revenues 71,982 64,688 66,895 80,563 65,207
Gross profit 13,415 15,067 16,196 22,726 23,497
Operating expenses:
Research and development, net 786 651 680 - -
Selling and marketing expenses 3,439 3,475 3,719 4,369 3,719
General and administrative expenses 10,949 12,832 14,979 12,407 10,995
Impairment of goodwill and intangible assets - 4,704 - - -
Other income (169 ) - - - -
Gain from sale of the propellers & parts businesses - - (4,400 ) - -
Operating income (loss) (1,590 ) (6,595 ) 1,218 5,950 8,783
Financial income (expenses), net (380 ) (111 ) 149 1,174 701
Other income (expenses), net - (200 ) - (236 ) *26,478
Gain from dilution of interests in affiliated company 240 - - - -
Income (loss) from operations before income taxes (1,730 ) (6,906 ) 1,367 6,888 35,962
Income taxes (benefit) (316 ) (4,153 ) (765 ) 1,795 3,212
Share in results of affiliated company and impairment of share in affiliated company 331 (4,510 ) (32 ) 674 -
Net income (loss) (1,083 ) (7,263 ) 2,100 5,767 *32,750
Net loss (income) attributable to non controlling interest 53 (123 ) (347 ) (1,499 ) (771 )
Net income (loss) attributable to TAT Technologies’ shareholders $ (1,030 ) $ (7,386 ) $ 1,753 $ 4,268 $ 31,979
Basic net income (loss)  per share $ (0.12 ) $ (0.84 ) $ 0.22 $ 0.65 $ 5.04
Diluted net income (loss)  per share $ (0.12 ) $ (0.84 ) $ 0.22 $ 0.65 $ 4.99
Weighted average number of shares used in computing basic net income (loss) per share 8,815 8,815 7,894 6,546 6,344
Weighted average number of shares used in computing diluted net income (loss) per share 8,815 8,815 7,894 6,566 6,408
Cash dividend per share $ - $ - $ 0.85 $ - $ 0.40

~~________________________~~

	Year Ended December 31,
	2012			2011			2010			2009			2008
	(in thousands, except share and per share data)
Revenues:
Products	$	46,270		$	47,508		$	38,954		$	34,751		$	31,724
Services		41,652			37,889			40,801			48,340			71,565
Total revenues		87,922			85,397			79,755			83,091			103,289
Cost of revenues:
Products		33,220			34,076			32,052			23,115			22,977
Services		33,362			32,143			29,136			43,780			57,586
Write down of inventory and impairment charges of long lived assets		-			5,763			3,500			-			-
Total cost of revenues		66,582			71,982			64,688			66,895			80,563
Gross profit		21,340			13,415			15,067			16,196			22,726
Operating expenses:
Research and development, net		1,152			786			651			680			-
Selling and marketing expenses		3,426			3,439			3,475			3,719			4,369
General and administrative expenses		11,487			10,949			12,832			14,979			12,407
Impairment of goodwill and intangible assets		1,015			-			4,704			-			-
Other expenses (income)		9			(169	)		-			-			-
Gain from sale of the propellers & parts businesses		-			-			-			(4,400	)		-
Operating income (loss)		4,251			(1,590	)		(6,595	)		1,218			5,950
Financial income (expenses), net		(181	)		(380	)		(111	)		149			1,174
Other expenses, net		-			-			(200	)		-			(236	)
Gain from dilution of interests in affiliated company		-			240			-			-			-
Income (loss) from operations before taxes on income		4,070			(1,730	)		(6,906	)		1,367			6,888
Taxes on income (tax benefit)		2,086			(316	)		(4,153	)		(765	)		1,795
Share in results of affiliated company and impairment of share in affiliated company		(3,756	)		331			(4,510	)		(32	)		674
Net income (loss)		(1,772	)		(1,083	)		(7,263	)		2,100			5,767
Net loss (income) attributable to non controlling interest		58			53			(123	)		(347	)		(1,499	)
Net income (loss) attributable to TAT Technologies’ shareholders	$	(1,714	)	$	(1,030	)	$	(7,386	)	$	1,753		$	4,268
Basic and diluted net income (loss) per share attributable to controlling interest	$	(0.19	)	$	(0.12	)	$	(0.84	)	$	0.22		$	0.65
Weighted average number of shares used in computing basic and diluted net income (loss) per share		8,808,075			8,815,003			8,815,003			7,893,639			6,546,055
Cash dividend per share	$	0.28		$	-		$	-		$	0.85		$	-

* Includes gain from Limco initial public offering of $26,375

Balance Sheet Data:

	As of December 31,											As of December 31,
	2011		2010		2009		2008		2007			2012		2011		2010		2009		2008
	(in thousands)											(in thousands)
Working capital	$	73,051	$	70,462	$	76,748	$	90,616	$	79,458	$	71,430	$	70,665	$	70,462	$	76,748	$	90,616
Total assets		115,318		121,427		124,491		135,930		113,407		107,511		115,318		121,427		124,491		135,930
Long-term liabilities, excluding current maturities		9,333		5,294		13,556		12,925		4,756		6,421		9,333		5,294		13,556		12,925
Shareholders’ equity	$	86,370	$	88,059	$	94,866	$	76,077	$	72,793	$	82,233	$	86,370	$	88,059	$	94,866	$	76,077

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Investing in our Ordinary shares involves certain risks and uncertainties. You should carefully consider the risks and uncertainties described below before investing in our Ordinary shares. Our business, prospects, financial condition and results of operations could be adversely affected due to any of the following risks. In that case, the value of our Ordinary shares could decline, and you could lose all or part of your investment.

Risks Related to Our Business and Our Industry

The aerospace industry is subject to significant government regulation and oversight, and TAT and its subsidiaries may incur significant additional costs to comply with these regulations.

The aerospace industry is highly regulated in the United States and in other countries. TAT and its subsidiaries must be certified or accepted by the FAA, the United States Department of Defense, the European Aviation Safety Agency, or EASA, and similar agencies in foreign countries and by individual original equipment manufacturers, or OEMs, in order to manufacture, sell and service parts used in ~~aircrafts.~~aircraft. If any of the material certifications, authorizations or approvals of TAT or its subsidiaries are revoked or suspended, then the operations of TAT or its subsidiaries, as the case may be, will be significantly curtailed and TAT and its subsidiaries could be subjected to significant fines and penalties. In the future, new and more demanding government regulations may be adopted or industry oversight may be increased. TAT and its subsidiaries may have to incur significant additional costs to achieve compliance with new regulations or to reacquire a revoked or suspended license or approval, which could materially reduce profitability.

TAT competes with a number of established companies in all aspects of TAT’s business, many of which have significantly greater resources or capabilities than TAT.

For the OEM of heat management solutions, TAT’s major competitors are other OEMs who manufacture heat transfer components, including manufacturers based in the U.S. such as the Hughes-Treitler division of Ametek Inc., Lytron Inc., ~~Kintex,~~ Niagara Thermal, Hamilton Sundstrand, Honeywell International, Liebherr-Aerospace Toulouse S.A., Stewart Werner South Wind Corp., United Aircraft Products and Triumph Thermal Systems, manufacturers based in Europe such as I.M.I. Marston Ltd., Dunlop Aerospace (including Serck Aviation) and manufacturers based in Asia such as Sumitomo Precision Products from Japan. ~~Some~~Many of TAT’s competitors are far larger, have substantially greater resources, including technical, financial, research and development, marketing and distribution capabilities than TAT, and enjoy greater market recognition. These competitors may be able to achieve greater economies of scale and may be less vulnerable to price competition than TAT. TAT may not be able to offer its products as part of integrated systems to the same extent as its competitors or successfully develop or introduce new products that are more cost effective or offer better performance than those of its competitors. Failure to do so could adversely affect TAT’s business, financial condition and results of operations.

For the OEM of electric motion systems, TAT’s major competitors are mainly large companies that provide standard products and companies that provide special customized solutions. As the providers of the systems in which TAT’s products are integrated usually tend to prefer local manufacturers for the purchase of the components, penetrating markets outside of Israel requires either high levels of product innovation or lower prices compared to the prices offered by such competitors or a local marketing and engineering presence in these countries.

For the Heat Transfer Services and Products, TAT’s major competitors are the service divisions of OEMs, the in-house maintenance services of a number of commercial airlines and other independent service providers, including Triumph Accessories (Triumph Corporation), LORI Heat Transfer Center of Honeywell (Tulsa, Oklahoma), SECAN-Honeywell (France) and Drake Air – Ametek (Tulsa, Oklahoma).

For the MRO services for Aviation Components, TAT’s major competitors are the service divisions of OEMs, the in-house maintenance services of a number of commercial airlines and other independent service providers, including Standard Aero Group Inc., Aerotech International Inc., Honeywell International, AAR Corp., Messier-Dowty Aerospace (MD), Hawker Pacific and APRO.

Competition in the MRO market is based on price, quality, engineered solutions, ability to provide a broad range of services, ~~turn-around time,~~ and the ability to perform repairs and overhauls rapidly. A number of our competitors have inherent competitive advantages. For example, we compete with the service divisions of large OEMs ~~who in some cases have design authority with respect to their OEM products and~~which are able to derive significant brand recognition from their OEM manufacturing activities. We also compete with the in-house service divisions of large commercial airlines and there is a strong incentive for an airline to fully-utilize the services of its maintenance employees and facilities.

Further, TAT’s competitors may have additional competitive advantages, such as:

· The ability to adapt more quickly to changes in customer requirements and industry conditions or trends;

· Greater access to capital;

· Stronger relationships with customers and suppliers;

· Greater name recognition; and

· Access to superior technology and marketing resources.

If TAT is unable to overcome these competitive disadvantages, then TAT’s business, financial condition and results of operations would be adversely affected.

TAT derives a material part of its revenues from several major customers. If TAT loses any of these customers or they reduce the amount of business they do with TAT, TAT’s revenues may be seriously affected.

Five customers accounted for approximately ~~21.3%~~20.8%, ~~21.6%~~21.3% and ~~18.3%~~21.6% of TAT’s revenues for the years ended December 31, 2012, 2011 ~~2010~~ and ~~2009,~~2010, respectively. TAT’s major customers may not maintain the same volume of business with TAT in the future. If TAT loses any of these customers or they reduce the amount of business they do with TAT, TAT’s revenues may be seriously affected.

A part of the revenues of TAT and its subsidiaries are from contracts with the U.S. and Israeli governments and are subject to special risks. A loss of all, or a major portion, of the revenues of TAT or any of its subsidiaries from government contracts could have a material adverse effect on TAT’s operations.

A portion of the revenues of TAT and its subsidiaries are from contracts with the U.S. and Israeli governments. Sales to the U.S. and Israeli governments accounted for approximately ~~7.3%~~4.4%, 7.3% and ~~5.7%~~7.3% of TAT’s revenues on a consolidated basis for the years ended December 31, 2012, 2011 ~~2010~~ and ~~2009,~~2010, respectively.

Business with the U.S. and Israeli governments, as well as with the governments of other countries, is subject to risks which are not as relevant in business with private parties. These risks include the ability of the governmental authorities to unilaterally:

Suspend TAT or any of its subsidiaries from receiving new contracts pending resolution of alleged violations of procurement laws or regulations;

Terminate existing contracts, with or without cause, at any time;

Condition the receipt of new contracts on conditions which are beyond the control of TAT;

Reduce the value of existing contracts;

Audit the contract-related costs and fees of TAT and its subsidiaries, including allocated indirect costs; and

Control or prohibit the export of the products of TAT and its subsidiaries.

A decision by a governmental authority to take any or all of the actions listed above could materially reduce the sales and profitability of TAT and its subsidiaries. Most of the U.S. Government contracts of TAT and its subsidiaries can be terminated by the U.S. Government either for its convenience or if TAT or any of its subsidiaries defaults by failing to perform under the contract. Termination for convenience provisions generally provide only for the recovery of costs incurred or committed, settlement expenses and profit on the work completed by TAT and its subsidiaries prior to termination.

Declines in military/defense budgets may result in reduced demand for the products and manufacturing services of TAT and its subsidiaries. Any decline could result in reduction in the business revenues of TAT and its subsidiaries and adversely affect their business, results of operations and financial condition.

If TAT does not receive the governmental approvals necessary for the export of its products, TAT’s revenues may decrease. Similarly if TAT’s suppliers and partners do not receive their government approvals necessary to export their products or designs to TAT, TAT’s revenues may decrease.

Under Israeli law, the export of certain of the products and know-how of TAT is subject to approval by the Israeli Ministry of Defense. To initiate sales proposals with regard to exports of the products and know-how of TAT and to export such products or know-how, TAT must obtain permits from the Ministry of Defense. TAT may not be able to receive in a timely manner, or at all, all the required permits for which it may apply in the future.

Similarly, under foreign laws the export of certain military products, technical designs and spare parts require the prior approval of, or export license from, such foreign governments. In order to maintain the third party production, certain co-development activities and procurements required for the performance of certain contracts, TAT must receive detailed technical designs, products or product parts’ samples from its strategic partners or suppliers. TAT may not be able to receive all the required permits and/or licenses in a timely manner, or at all. Consequently, TAT’s revenues may decrease.

TAT depends on a limited number of suppliers of components for certain of its products and if TAT or any of its subsidiaries is unable to obtain these components when needed, they would experience delays in manufacturing their products and TAT’s financial results could be adversely affected.

TAT relies on a limited number of key suppliers for parts for certain of its OEM and MRO services. Certain of these suppliers are currently the sole source of one or more components upon which TAT is dependent. Suppliers of some of these components require TAT to place orders with significant lead-time to assure supply in accordance with TAT’s requirements. If TAT were to engage in a commercial dispute with or be unable to obtain adequate supplies of parts from these suppliers at commercially reasonable prices or required lead time, TAT’s operations could be interrupted. Increased costs associated with supplied materials or components could increase TAT’s costs and reduce TAT’s profitability if TAT is unable to pass these cost increases on to its customers.

910

TAT may face increased costs and a reduced supply of raw materials. TAT may not be able to recoup future increases in the cost of raw materials or in electric power costs for its operations through price increases for its products.

In recent years, the cost of raw materials and components used by TAT has fluctuated significantly due to market and industry conditions. The cost of electric power used in TAT’s operations has also fluctuated significantly in the last several years. TAT may not be able to recoup future increases in the cost of raw materials and components or electric power costs through price increases for its products.

TAT faces special risks from international sales operations which may have a material adverse effect on TAT’s business, operating results and financial condition.

In the years ended December 31, 2012, 2011 and 2010, approximately 78.9%, 77.4% and ~~2009, approximately 77.4%,~~ 70.3% ~~and 76.3%~~ of TAT’s sales, respectively, resulted from TAT’s international operations (out of Israel). This source of revenue is subject to various risks, including:

Governmental embargoes or foreign trade restrictions;

Changes in U.S. and foreign governmental regulations;

Changes in foreign exchange rates;

Tariffs;

Other trade barriers;

Political, economic and social instability; and

Difficulties collecting accounts receivable.

Accordingly, TAT and its subsidiaries may encounter significant difficulties in connection with the sale of its products in international markets.

1011

TAT may engage in future acquisitions that could dilute TAT’s shareholders’ equity and harm TAT’s business, results of operations and financial condition.

TAT has pursued, and will continue to pursue, growth opportunities through internal development and acquisition of complementary businesses, products and technologies. TAT is unable to predict whether or when any prospective acquisition will be completed. The process of integrating an acquired business may be prolonged due to unforeseen difficulties and may require a disproportionate amount of TAT’s resources and management’s attention. TAT may not be able to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into its operations, or expand into new markets. Further, once integrated, acquisitions may not achieve comparable levels of revenues, profitability or productivity as TAT’s existing business or otherwise perform as expected. The occurrence of any of these events could harm TAT’s business, financial condition or results of operations. Future acquisitions may require substantial capital resources, which may require TAT to seek additional debt or equity financing.

Future acquisitions by TAT could result in the following, any of which could materially harm TAT’s results of operations or the price of TAT’s Ordinary shares:

Issuance of equity securities that would dilute TAT’s shareholders’ percentages of ownership;

Large one-time write-offs;

The incurrence of debt and contingent liabilities;

Difficulties in the assimilation and integration of operations, personnel, technologies, products and information systems of the acquired companies;

Diversion of management’s attention from other business concerns;

Contractual disputes;

Risks of entering geographic and business markets in which TAT has no or only limited prior experience; and

Potential loss of key employees of acquired organizations.

1112

Rapid technological changes may adversely affect the market acceptance of the products of TAT.

The aerospace and defense markets in which TAT competes are subject to technological changes, introduction of new products, change in customer demands and evolving industry standards. The future success of TAT will depend upon its ability to keep pace with technological developments and to timely address the increasingly sophisticated needs of its customers by supporting existing and new technologies and by developing and introducing enhancements to its current products and new products. TAT may not be able to successfully develop and market enhancements to its products that will respond to technological change, evolving industry standards or customer requirements. TAT may experience difficulties that could delay or prevent the successful development, introduction and sale of such enhancements; and such enhancements may not meet the requirements of the market or achieve any significant degrees of market acceptance. If release dates of any new products or enhancements of TAT are delayed, or if when released, they fail to achieve market acceptance, TAT’s business, operating results and financial condition would be materially adversely affected.

TAT has fixed-price contracts with some of its customers and TAT bears the risk of costs in excess of its estimates. In addition, TAT may not be able to pass on increased costs to its customers.

TAT has entered into multi-year, fixed-price contracts with some of its MRO and OEM customers. Pursuant to these contracts, TAT realizes all the benefits or costs resulting from any increases or decreases in the cost of providing services to these customers. Several of TAT’s contracts do not permit TAT to recover for increases in raw material prices, taxes or labor costs and other contracts may permit, to a limited extent, of periodic price ~~adjustment.~~adjustments. Any increase in these costs could increase the cost of operating the business of TAT and reduce its profitability. Factors such as inaccurate pricing and increases in the cost of labor, materials or overhead may result in cost over-runs and losses on those agreements. TAT may not succeed in obtaining anthe agreement of a customer to re-price a particular product, and may not be able to recoup previous losses resulting from incomplete or inaccurate engineering data. In addition, as costs increase, TAT may not be able to pass on such ~~increase~~increased costs to its other customers. This could materially Impact TAT’s profitability.

1213

TAT depends on its key executives, and may not be able to hire and retain additional key employees or successfully integrate new members of its team and the loss of key employees could have a material adverse effect on TAT’s business.

TAT’s success will depend largely on its continued reliance on the experience and expertise of its senior management. Any of the senior managers of TAT may terminate his employment with TAT and seek employment with others who may seek his expertise. The loss of the expertise of senior management of TAT through death, disability or termination of employment would have a material and adverse effect on TAT’s business, financial condition and results of operations. TAT is not the beneficiary of life or disability insurance covering any of the executives, key employees or other personnel of TAT.

TAT depends on its manufacturing and MRO facilities and any material damage to these facilities may adversely impact TAT’s operations.

TAT believes that its results of operations will be dependent in large part upon its ability to manufacture and deliver OEM products and to provide MRO services promptly upon receipt of orders and to provide prompt and efficient service to its customers. As a result, any material disruption of TAT’s ~~day-today~~day-to-day operations could have a material adverse effect on their business, customer relations and profitability. TAT relies on its Gedera, Israel, Kibbutz Marom-Golan, Israel, Kernersville and Winston-Salem, North Carolina and Tulsa, Oklahoma facilities for the production of its OEM products and provision of its MRO services. A war, fire, flood, earthquake or other disaster or condition that significantly damaged or destroyed any of these facilities would have a material adverse effect on the operations of TAT.

TAT uses equipment that is not easily repaired or replaced, and therefore material equipment failures could cause TAT or its subsidiaries to be unable to meet quality or delivery expectations of its customers.

Many of the service and manufacturing processes of TAT are dependent on equipment that is not easily repaired or replaced. As a result, unexpected equipment failures could result in production delays or the manufacturing of defective products. The ability of TAT to meet the expectations of its customers with respect to on-time delivery of repaired components or quality OEM products is critical. The failure by TAT to meet the quality or delivery expectations of its customers could lead to the loss of one or more of its significant customers.

1314

TAT may fail to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.

The Sarbanes-Oxley Act of 2002 imposes certain duties on TAT and TAT’s executives and directors. TAT’s efforts to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 governing internal controls and procedures for financial reporting have resulted in increased general and administrative expense and a diversion of management time and attention, and TAT expects these efforts to require the continued commitment of significant resources. TAT may identify material weaknesses or significant deficiencies in its assessments of its internal controls over financial reporting. Failure to maintain effective internal controls over financial reporting could result in investigation or sanctions by regulatory authorities and could have a material adverse effect on TAT’s operating results, investor confidence in TAT’s reported financial information and the market price of TAT’s Ordinary shares.

TAT has potential exposure to liabilities arising under environmental laws and regulations.

The business operations and facilities of TAT are subject to a number of federal, state, and local laws and regulations that govern the discharge of pollutants and hazardous substances into the air and water as well as the handling, storage and disposal of such materials and other environmental matters. Compliance with such laws as they relate to the handling, storage and disposal of hazardous substances is a significant obligation for TAT at each of its facilities. TAT would be subject to serious consequences, including fines and other sanctions, and limitations on the operations of TAT due to changes to, or revocations of, the environmental permits applicable to its facilities if it fails to comply. The adoption of new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new cleanup requirements could require TAT to incur costs and become subject to new or increased liabilities that could increase the operating costs of TAT and adversely affect the manner in which TAT conducts its business.

Under certain environmental laws, liability associated with investigation or remediation of hazardous substances can arise at a broad range of properties, including properties currently or formerly operated by TAT or any of its predecessors, as well as properties to which TAT sent hazardous substances or wastes for treatment, storage, or disposal. Costs and other obligations can arise from claims for toxic torts, natural resource and other damages, as well as the investigation and clean-up of contamination at such properties. Under certain environmental laws, such liability may be imposed jointly and severally, so TAT may be responsible for more than its proportionate share and may even be responsible for the entire liability at issue. The extent of any such liability can be difficult to predict.

1415

TAT is exposed to potential liabilities arising from product liability and warranty claims.

TAT’s operations expose TAT to potential liabilities for personal injury or death as a result of the failure of an aircraft component that has been designed, manufactured, serviced or supplied by TAT. TAT believes that, in an effort to improve operating margins, some customers have delayed the replacement of parts beyond their recommended lifetime, which may undermine aircraft safety and increase the risk of liability of TAT and its subsidiaries.

There can be no assurance that TAT will not experience any material product liability losses in the future, that it will not incur significant costs to defend such claims, that its insurance coverage will be adequate if claims were to arise or that it would be able to maintain insurance coverage in the future at an acceptable cost. A successful claim brought against TAT or its subsidiaries in excess of its available insurance coverage may have a material adverse effect on TAT’s business.

In addition, in the ordinary course of business of TAT, contractual disputes over warranties can arise. TAT may be subject to requests for cost sharing or pricing adjustments from its customers as a part of its commercial relationships with them, even though they have agreed to bear these risks.

Risk Factors Related to Our Ordinary Shares

TAT’s share price has been volatile in the past and may decline in the future.

TAT’s Ordinary shares have experienced significant market price and volume fluctuations in the past and may experience significant market price and volume fluctuations in the future in response to factors such as the following, some of which are beyond TAT’s control:

Quarterly variations in TAT’s operating results;

Operating results that vary from the expectations of securities analysts and investors;

Changes in expectations as to TAT’s future financial performance, including financial estimates by securities analysts and investors;

Announcements of technological innovations or new products by TAT or TAT’s competitors;

Announcements by TAT or TAT’s competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

~~Changes in the status of TAT’s intellectual property rights;~~

Announcements by third parties of significant claims or proceedings against us;

Additions or departures of key personnel;

Future sales of TAT’s Ordinary shares;

De-listing of TAT’s shares from the NASDAQ Global Market; ~~and~~

Stock market price and volume ~~fluctuation.~~fluctuation; and

Legal proceedings against TAT’s controlling shareholders

Domestic and international stock markets often experience extreme price and volume fluctuations. Market fluctuations, as well as general political and economic conditions, such as a recession or interest rate or currency rate fluctuations or political events or hostilities in or surrounding Israel, could adversely affect the market price of TAT’s Ordinary shares.

In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of its securities. TAT may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention and resources both of which could have a material adverse effect on TAT’s business and results of operations.

Substantial future sales of TAT’s Ordinary shares by TAT’s principal shareholders may depress TAT’s share price.

TAT’s principal shareholder, Isal Amlat Investment (1993) Ltd., or Isal Amlat, beneficially owns (through its 94% interest in KMN Industries Ltd.) ~~53.89%~~54.00% of TAT’s outstanding shares of which ~~43.6%~~43.7% of TAT’s outstanding shares are held directly by its subsidiary, TAT Industries Ltd. If Isal Amlat ~~sells substantial amounts~~and its affiliates have defaulted under certain of ~~TAT’s~~their loans and a receiver has been appointed for the Ordinary shares ~~or if~~held by Isal Amlat and its affiliates. Such shares are subject to sale by the ~~perception exists that TAT’s principal shareholders may sell~~receiver which sale would result in a ~~substantial number~~change of ~~TAT’s Ordinary shares,~~control of TAT. As a result of the possibility of such a sale, the market price of TAT’s Ordinary shares may fall. Any substantial sales of TAT’s shares by the receiver in the public market also might make it more difficult for TAT to sell equity or equity-related securities in the future at a time, in a place and on terms TAT deems appropriate.

1617

Risks Relating to Our Location in Israel

Because TAT has significant operations in Israel, TAT may be subject to political, economic and other conditions affecting Israel that could increase TAT’s operating expenses and disrupt TAT’s business.

TAT is incorporated under the laws of Israel, and TAT’s executive offices, manufacturing plant and research and development facilities are located in the State of Israel. As a result, political, economic and military conditions affecting Israel directly influence TAT. Any major hostilities involving Israel, a full or partial mobilization of the reserve forces of the Israeli army, the interruption or curtailment of trade between Israel and its present trading partners, or a significant downturn in the economic or financial condition of Israel could have a material adverse effect on TAT’s business, financial condition and results of operations.

Since the establishment of the State of Israel in 1948, Israel and its Arab neighbors have engaged in a number of armed conflicts. A state of hostility, varying from time to time in intensity and degree, has led to security and economic problems for Israel. Major hostilities between Israel and its neighbors may hinder Israel’s international trade and lead to economic downturn. This, in turn, could have a material adverse effect on TAT’s operations and business. There has been an increase in unrest and terrorist activity in Israel, which began in September 2000 and which has continued with varying levels of severity. The future effect of this deterioration and violence on the Israeli economy and TAT’s operations is unclear. Since June 2007, when Hamas effectively took control of the Gaza Strip, there have been extensive hostilities along the Gaza Strip. Ongoing violence between Israel and the Palestinians as well as tension between Israel and ~~Syria, Lebanon~~its Arab neighbors and Iran may have a material adverse effect on TAT’s business, financial conditions and results of operations.

Furthermore, there are a number of countries, primarily in the Middle East, that restrict business with Israel or Israeli companies, and TAT is precluded from marketing its products to these countries. Restrictive laws or policies directed towards Israel or Israeli businesses may have an adverse impact on TAT’s operations, TAT’s financial results or the expansion of TAT’s business.

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TAT may be adversely affected by a change in the exchange rate of the NIS against the dollar. Because exchange rates between the NIS and the dollar fluctuate continuously, exchange rate fluctuations, particularly larger periodic devaluations, may have an impact on TAT’s profitability and period to period comparisons of TAT’s results.

TAT’s financial statements are stated in dollars, while a portion of TAT’s expenses, primarily labor expenses, isare incurred in NIS and a part of TAT’s revenues are quoted in NIS. Additionally, certain assets, as well as a portion of TAT’s liabilities, are denominated in NIS. Because exchange rates between the NIS and the dollar fluctuate continuously, exchange rate fluctuations, particularly larger periodic devaluations, may have an impact on TAT’s profitability and period to period comparisons of TAT’s results. TAT’s results may be adversely affected by the devaluation of the NIS in relation to the dollar (or if such devaluation is on lagging basis), if TAT’s revenues in NIS are higher than TAT’s expenses in NIS and/or the amount of TAT’s assets in NIS are higher than TAT’s liabilities in NIS. Alternatively, TAT’s results may be adversely affected by an appreciation of the NIS in relation to the dollar (or if such appreciation is on a lagging basis), if the amount of TAT’s expenses in NIS are higher than the amount of TAT’s revenues in NIS and/or the amount of TAT’s liabilities in NIS are higher than TAT’s assets in NIS.

TAT’s results of operations may be negatively affected by the obligation of its personnel to perform military service.

Many of TAT’s employees and some of TAT’s directors and officers in Israel are obligated to perform annual reserve duty in the ~~Israeli~~Israel Defense Forces and may be called for active duty under emergency circumstances at any time. If a military conflict or war arises, these individuals could be required to serve in the military for extended periods of time. TAT’s operations could be disrupted by the absence for a significant period of one or more of TAT’s executive officers or key employees or a significant number of other employees due to military service. Any disruption in TAT’s operations could adversely affect TAT’s business.

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Your rights and responsibilities as a shareholder will be governed by Israeli law and differ in some respects from the rights and responsibilities of shareholders under U.S. law.

TAT is incorporated under Israeli law. The rights and responsibilities of holders of TAT’s Ordinary shares are governed by TAT’s memorandum of association, articles of association and by Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, each shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising his or her rights and fulfilling his or her obligations toward the company and other shareholders and to refrain from abusing his power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters. Israeli law provides that these duties are applicable in shareholder votes on, among other things, amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and interested party transactions requiring shareholder approval. In addition, a controlling shareholder of an Israeli company, or a shareholder who knows that he or she possesses the power to determine the outcome of a shareholder vote or who has the power to appoint or prevent the appointment of a director or officer in the company, has a duty of fairness toward the company. However, Israeli law currently does not define the substance of this duty of fairness. Because Israeli corporate law has undergone extensive revision in recent years, there is relatively little case law available to assist in understanding the implications of these provisions that govern shareholder behavior.

Israeli law may delay, prevent or make difficult an acquisition of TAT, which could prevent a change of control and, therefore, depresses the price of TAT’s shares.

Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. Furthermore, Israeli tax considerations may make potential transactions unappealing to TAT or to some of TAT’s shareholders. These provisions of Israeli law may delay, prevent or make difficult an acquisition of TAT, which could prevent a change of control and therefore depress the price of TAT’s shares.

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Investors and TAT’s shareholders generally may have difficulties enforcing a U.S. judgment against TAT, TAT’s executive officers and directors or asserting U.S. securities laws claims in Israel.

TAT is incorporated in Israel and the majority of TAT’s executive officers and directors reside outside the United States. Service of process upon them may be difficult to effect within the United States. Furthermore, many of TAT’s assets and most of the assets of TAT’s executive officers and directors are located outside the United States. Therefore, a judgment obtained against TAT or certain of its executive officers and directors in the United States, including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court. It also may be difficult for you to assert U.S. securities law claims in original actions instituted in Israel. However, subject to certain time limitations and other conditions, Israeli courts may enforce final judgments of United States courts for liquidated amounts in civil matters, including judgments based upon the civil liability provisions of those and similar acts.

As a foreign private issuer whose shares are listed on the NASDAQ Global Market, TAT may follow certain home country corporate governance practices instead of certain NASDAQ requirements.

As a foreign private issuer whose shares are listed on the NASDAQ Global Market, TAT is permitted to follow certain home country corporate governance practices instead of certain requirements of the NASDAQ Marketplace Rules. A foreign private issuer that elects to follow a home country practice instead of such requirements must submit to NASDAQ in advance a written statement from an independent counsel in such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws. In addition, a foreign private issuer must disclose in its annual reports filed with the Securities and Exchange Commission or on its website each such requirement that it does not follow and describe the home country practice followed by the issuer instead of any such requirement. As a foreign private issuer listed on The NASDAQ Global Market, TAT may follow TAT’s home country law, instead of the NASDAQ Marketplace Rules, which require that TAT obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of TAT, certain transactions other than a public offering involving issuances of a 20% or more interest in TAT and certain acquisitions of the stock or assets of another company.

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Item 4. Information on the Company

History and Development of TAT

TAT was incorporated under the laws of the State of Israel in April 1985 under the name Galaxy Graphics Ltd. TAT changed its name to Galagraph Ltd. in August 1986 and to TAT Technologies Ltd. in May 1992. TAT is a public limited liability company under the Israeli Companies Law 1999-5759, or the Israeli Companies Law, and operates under this law and associated legislation. TAT’s registered offices and principal place of business are located at Re’em Industrial Park, Neta Boulevard, Bnei Ayish, Gedera 70750, Israel and its telephone number is +972-8-8268-500. TAT’s address on the Internet is ~~www.tat-technologies.com.~~www.tat-technologies.com. The information on TAT’S website is not incorporated by reference into this annual report.

TAT was founded in 1985 to develop the computerized systems business of its parent company, TAT Industries Ltd. (or TAT Industries), a publicly held Israeli corporation then engaged in the manufacture and sale of aeronautical equipment. In December 1991, TAT acquired the heat exchange operations of TAT Industries and in 2000, TAT purchased the remaining operations of TAT Industries relating to the manufacture and maintenance of aviation accessories and leased certain of its properties.

In March 1987, TAT completed the initial public offering of its securities in the United States. TAT was listed on the NASDAQ Global Market (then known as the NASDAQ National Market) from its initial public offering until July 1998 when the listing of TAT’s Ordinary shares was transferred to the NASDAQ Capital Market. On June 24, 2009 TAT’s Ordinary shares resumed trading on the NASDAQ Global Market. Since August 2005 TAT’s shares have been traded also on the Tel Aviv Stock Exchange (TASE).

TAT is a provider of a variety of services and products to the commercial and military aerospace and defense industries through its Gedera facility, as well as through its subsidiaries, Bental, in Israel, and Limco and Piedmont in the ~~U.S.~~U.S (Limco and Piedmont are held by TAT through Limco-Piedmont Inc. (“Limco-Piedmont”)).

Limco provides Heat Transfer MRO services and products to the aerospace industry. Limco’s Federal Aviation Administration, or FAA, certified repair station (located in Oklahoma) provides aircraft with MRO services for airlines, air cargo carriers, maintenance service centers and the military, especially for heat transfer components. In addition to Limco’s MRO services Limco is an OEM of heat transfer products for airplane manufacturers and other selected related products.

In July 2005, Limco acquired Piedmont Aviation Component Services, LLC (“Piedmont”), a company certified by the FAA to perform maintenance, repair and overhaul services on APUs and landing gears. Piedmont’s FAA, certified repair station (located in North Carolina) provides MRO services for airlines, air cargo carriers, maintenance service centers and the military, especially for landing gear and auxiliary power units (APU).

In July 2007, Limco-Piedmont ~~Inc. (“Limco-Piedmont”),~~ completed an initial public offering of its shares of Common stock and Limco-Piedmont’s shares were listed on the NASDAQ Global Market (symbol: LIMC) until July 2, 2009, when TAT acquired all of the publicly held shares of Limco-Piedmont (approximately 32% of Limco-Piedmont’s total shares) in a stock for stock merger. As a result of such merger, Limco-Piedmont again became a wholly-owned subsidiary of TAT.

On January 1, 2008, TAT established a wholly-owned subsidiary under the laws of the State of California, TAT-GAL Inc., which acts as purchasing agent for TAT’s operations.

Following a series of transactions occurring between March 2008 and March 2009, TAT acquired 70% control of Bental. The acquisition of Bental shares (for an aggregate price of $9,192) was financed by loans in a total amount of $6.25 million received from Bank Mizrahi and TAT’s internal resources.

On December 19 2007, Isal Amlat Industries (1993) Ltd., an Israeli company publicly traded on the Tel Aviv Stock Exchange (“Isal Amlat”), through KMN Industries Ltd. in which Isal Amlat holds 94% of the issued share capital ("KMN Industries"), purchased the controlling interests in TAT and in TAT Industries, TAT’s controlling shareholder, by purchasing from Mr. Shlomo Ostersetzer, the former Chairman of TAT’s Board of Directors and TAT’s former President, Mr. Dov Zeelim, the former Vice Chairman of TAT’s Board of Directors and TAT’s former Chief Executive Officer, and FIMI Opportunity Fund, or FIMI, 10% of TAT's then outstanding Ordinary shares for consideration of NIS 50.4M, and 54% of TAT Industries' then outstanding Ordinary shares for consideration of NIS 105.3M.

The agreement between KMN Industries and Mr. Zeelim, as amended on January 31, 2008, provided KMN Industries with additional shares in TAT Industries purchased from Mr. Zeelim.

Pursuant to an agreement between KMN Industries and Mr. Zeelim entered into in May 2008, in connection with Mr. Zeelim’s resignation from the office of Chief Executive Officer of TAT, Mr. Zeelim exercised his put option on June 12, 2008 and 4.17% of TAT Industries' then outstanding Ordinary shares were purchased by KMN Industries.

On July 17, 2008 KMN Industries and FIMI amended the terms of their agreement. Accordingly, 141,443 of TAT’s Ordinary shares constituting then 2% of TAT's outstanding shares were purchased by KMN Industries in December 2008 at a price per share of $19.343 and the remaining 100,000 of TAT’s Ordinary shares constituting then 1.1% of TAT's outstanding shares were purchased by KMN Industries in November 2009 for a total consideration of $2.0 million.

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On March 11, 2009 and on August 13, 2009, TAT’s board of directors authorized its management to enter into engagements with Oppenheimer Israel Investment House for the blind trust purchase of TAT’s shares under rule 10b5-1 of the Securities Exchange Act of 1934. The first purchase plan was terminated on March 26, 2009, with TAT having purchased 4,650 Ordinary shares for an aggregate price of $26,000. The second purchase plan authorized Oppenheimer Israel to purchase shares of TAT in the aggregate amount of up to $2 million (approximately NIS 7.8 million) over a period of six months and at a price not exceeding $9 per share. A total of 253,390 Ordinary shares were purchased, representing about 2.8% of the Company's share capital in consideration of approximately $2 million (an average of $7.90 per share). Both plans ended and the purchased shares became dormant as defined in the Israeli Companies Law.

In September, 2011 Isal Amlat purchased an aggregate of 18,600 Ordinary shares of TAT at an average price of 20.39 NIS per share (approximately $5.54 per share). Such purchases were made on the Tel Aviv Stock Exchange. Following such purchases, Isal beneficially ~~owns~~owned 4,750,951 Ordinary shares, representing ~~53.89 %~~54.00% of TAT’s Ordinary shares.

On May 21, 2012, TAT’s Board of Directors approved a stock repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934. The plan was for a period of 6 months (subject to extension) and provided for the purchase of shares in an aggregate amount of up to $0.5 million U.S. dollars and for a price not exceeding $7.5 per share. Such plan replaced and superseded a prior repurchase plan approved by TAT’s Board of Directors’ on February 21, 2012. On November 21, the term of such stock repurchase plan ended. As of such date, the Company had purchased 16,433 shares for approximately $71,000 (average of $4.32 per share) constituting less than 0.1% of TAT’s issued shares. The purchased shares became dormant as defined in the Israeli Companies Law.

On December 4, 2009, TAT’s indirect subsidiary, Piedmont, acquired 288,334 shares of Class B Common stock of First Aviation Services Inc., or FAvS, representing 37% of FAvS's then share capital and $750,000 of FAvS Preferred Shares (entitling Piedmont to cash dividends at an annual rate of 12% payable quarterly or at the discretion of FAvS to PIK dividends payable in additional Preferred Shares at an annual rate of 15%). In consideration for such shares, Piedmont transferred to FAvS its propellers and parts businesses and guaranteed for a period of up to two years up to $7 million of the bank debt incurred by FAvS to fund the transaction described in the next paragraph. FAvS is a provider of ~~products and services for the global aviation industry and provides supply chain management services and~~ maintenance and repair services for various wheels, brakes and starter/generators.

As part of the transaction described above, FAvS also acquired all the assets and liabilities of Aerospace Turbine Rotables ("AeTR") for a cash consideration of $7 million (guaranteed by Piedmont). AeTR specializes in renovation and repair of landing gear, safety equipment and hydraulic and electrical components for corporate, regional and military aircraft.

~~FAvS's~~FAvS' shares are quoted over the counter (OTC). FAvS' share value as of the closing date (December 4, 2009) and as of December 31, 2009, 2010, 2011 and ~~2011~~2012 was $17.8, $15.0, $12.4, $5.45 and ~~$5.45,~~$7.00, respectively (share value adjusted as result of a 1 for 20 reverse stock split).

TAT believes that the share value does not reflect the fair value of FAvS' share, because the extremely low trading volume in FAvS' shares does not reflect an active market. Therefore the fair value of FAvS, at the transaction date, was based on an appraisal performed by management, which included a number of factors, including the assistance of independent appraisers. According to the appraisal, FAvS' fair value amounted to $22.549 million as of November 30, 2009. As a result of the sale of Piedmont’s propellers and spare parts businesses, TAT recorded a capital gain in the amount of approximately $4.4 million in its statement of income for the year ended December 31, 2009.

On October 1, 2010, Piedmont agreed to secure the guarantee mentioned above for $6.6 million, by providing a letter of credit to the lender for FAvS. Such guaranty was for a period of 15 months ending December 31, 2011 and its amount was to be reduced as such debt ~~amortizes~~amortized in increments of $0.1 million per month. Piedmont was also granted a second lien on the assets of FAvS to secure the repayment obligations of FAvS in the event that the letter of credit is drawn upon. Piedmont also entered into an intercreditor agreement with the lender to FAvS which ~~will subordinate~~subordinated Piedmont’s claims if the letter of credit is drawn upon to the obligations of FAvS to the lender. This guarantee was later ~~further extended,~~terminated on March 2013, see below.

As of December 31, 2010, TAT recognized an impairment charge of $1.8 million of its then 37% interest in FAvS that was based on an independent appraisal. The impairment was due to a decline in FAvS’ profitability margins and future forecasted sales levels.

A commercial dispute ~~has existed~~ between Piedmont and FAvS relating to the propeller maintenance business which had been contributed to FAvS by Piedmont as part of the transaction discussed ~~above. The commercial dispute began~~above arose in April 2010 when a customer of the propeller maintenance business requested reimbursement from FAvS for damages to certain propellers. FAvS then sought reimbursement from Piedmont for such amounts. Although Piedmont rejected all of FAvS’ claims with regards to Piedmont’s responsibility for the claimed damages, in July 2010, the parties reached an agreement pursuant to which Piedmont loaned $700,000 to FAvS and agreed to bear a portion of the additional cost of the replacement of propeller blades that FAvS would be responsible for. In exchange FAvS agreed to waive all claims against Piedmont with respect to such customer. Such loan was subsequently forgiven.

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Notwithstanding such waiver, in the last quarter of 2010, FAvS again asserted claims against Piedmont relating to the propeller maintenance business including claims not previously asserted. After reviewing this issue during the 2010 fourth quarter and thereafter, Piedmont estimated the additional liability it may bear and accordingly wrote off the loan and recorded an accrual, which it believed, ~~covers~~covered its potential cost in connection with this matter.

In order to finally settle all disputes between them, on June 30, 2011 Piedmont and FAvS entered into a Settlement Agreement and Release (the “Settlement Agreement”). Pursuant to the Settlement Agreement, each party fully released the other party and acknowledged that the settlement was a compromise of disputed claims and was not to be construed as an admission of liability or wrongdoing. In addition, each party agreed not to disparage the other and Piedmont paid an aggregate of $700,000 to FAvS.

Simultaneously with the execution of the Settlement Agreement, Mr. ~~Aaron~~ Hollander, the Chief Executive Officer and controlling stockholder of FAvS, purchased 166,113 shares of Class A Common Stock of FAvS at a price of $18.06 per share (for an aggregate price of $3 million) (share price and share amount adjusted as result of a 1 for 20 reverse stock split) following which ~~Piedmont’~~Piedmont’s interest in FAvS was diluted to 30.6% ~~(30.02%~~(29.64% as of December 31, ~~2011)~~2012). In addition, Piedmont agreed to extend its guarantee of the bank debt incurred by FAvS to fund the AeTR transaction through June 30, 2013 and to continue to provide a letter of credit to secure such guarantee. The amortization schedule for such debt was revised so that no amortization ~~will~~would occur until June 30, 2012. Thereafter the debt ~~will amortize~~amortized at the rate of $200,000 per month. As of December 31, ~~2011,~~2012, the guaranty amount ~~is $5.8~~was $4.6 million. The guaranty was terminated in March 2013, see below.

The Stockholders Agreement entered into in 2009 between Piedmont and Mr. Hollander was also amended to delete the reciprocal drag along rights and to provide that Piedmont may designate one member to the Board of Directors of FAvS (rather than the two provided in the original agreement). Finally, the Rights Agreement entered into in 2009 between Piedmont and FAvS was amended so that Piedmont’s right to approve certain material corporate actions by FAvS has been limited to the right to approve contracts or agreements with affiliates of FAvS. The amendment also provides that the approval of Piedmont will not be required if FAvS seeks to raise additional capital from Mr. Hollander so long as the consideration being paid by Mr. Hollander is not less than the consideration that would be paid by a third-party in an arms-length transaction and is fair, equitable and reasonable under the circumstances.

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In connection with the Settlement Agreement and the dilution in Piedmont’s interest in FAvS, Piedmont recorded, at June 30, 2011, a gain in the amount of $0.24 million related to the $3 million capital investment in FAvS.

In June, 2012, FAvS entered into a transaction with Mr. Hollander, pursuant to which FAvS borrowed $3 million from Mr. Hollander, secured by a third lien on the assets of FAvS. The loan bears annual interest at 10% and in addition Mr. Hollander was issued warrants to purchase shares of Class A Common Stock of FAvS, representing 15% of FAvS post-exercise shareholders’ equity, at an exercise price of $7.00 per share.

Pursuant to the terms and conditions of the transaction, management believed that there were indicators of impairment with respect to TAT’s investment in FAvS. Accordingly, the Company performed an impairment test of its investment in FAvS, with the assistance of a third party valuation. Based on the results of this test the Company determined that its investment in FAvS was impaired by $3.3 million. The impairment was due to a decline in FAvS’ profitability margins and future forecasted sales levels which related to the business of API, one of FAvS subsidiaries, and approximates TAT’s share in the loss resulting from the API Transaction discussed below.

On March 18, 2013 FAvS sold 97% of the stock of API for a total purchase price of $16.5 million, of which $15.9 million was used to repay debt (the “API Transaction”). The sale resulted in FAvS retaining a 3% equity interest in the API business. The API transaction resulted in a loss from discontinued operations and write-down of the API business of $11.5 million which is included in the FAvS loss for the year ended December 31, 2012. Simultaneously with the transaction FAvS paid-off its Term Loan in the amount of $4 million thereby terminating the guaranty and releasing the Letter of Credit provided by TAT to secure such guaranty. Accordingly the restricted deposit associated with the above Letter of Credit, was released as well.

In October 2012 two lenders to TAT’s controlling stockholders, KMN Industries and TAT Industries (herein “Controlling Stockholders”), filed separate petitions to the court to enforce liens granted to such lenders by each of the Controlling Stockholders in certain collaterals including KMN Industries’ holdings of an approximately 80% ownership interest in TAT Industries (which owns approximately 43% of TAT) and KMN Industries’ direct holdings in TAT (which represents approximately 10% of TAT).

On December 18, 2012 the court appointed permanent receivers on behalf of the two lenders mentioned above for the purpose of jointly enforcing the liens granted to such lenders. Such collateral is subject to sale which will result in a change of control of TAT. On March 15, 2013 the receivers of TAT’s shares mentioned above announced a tender to purchase such shares. Pursuant to the tender all proposals to acquire such shares must be submitted no later than April 25, 2013. As of the date hereof, the Company has no information with respect to any proposals received.

On January 3, 2013 the Israeli court appointed a temporary liquidator for Isal Amlet, the controlling shareholder of TAT Industries, following the request of the trustee to debentures issued by Isal Amlet. On January 28, 2013 such court has issued a Liquidation Order for Isal Amlet, effective as of end of May 2013.

A. Business Overview

Overview

TAT provides a variety of services and products to the commercial and military aerospace and defense industries and operates under four segments: (i) Original Equipment Manufacturing or “OEM” of Heat Management Solutions (ii) OEM of Electric Motion Systems (iii) Heat Transfer Services and Products, and (iv) Maintenance, Repair and Overhaul or “MRO” services for Aviation Components, each with the following characteristics.

TAT’s activities in the field of OEM of Heat Management Solutions primarily relate to its Gedera facility and include (i) the design, development, manufacture and sale of a broad range of heat transfer components (such as heat exchangers, pre-coolers and oil/fuel hydraulic coolers) used in mechanical and electronic systems on-board commercial, military and business aircraft; (ii) the manufacture and sale of environmental control and cooling systems and (iii) a variety of other electronic and mechanical aircraft accessories and systems such as pumps, valves, power systems and turbines.

TAT’s activities in the field of OEM of Electric Motion Systems primarily relate to its subsidiary, Bental, and include the design, development, manufacture and sale of a broad range of electrical motors, alternators, blowers' drivers and actuators for different applications for airborne and ground systems.

TAT’s activities in the field of Heat Transfer services and products primarily relate to its subsidiary, Limco, and include the maintenance, repair and overhaul of heat transfer equipment and to a lesser extent, the manufacturing of certain heat transfer products. TAT’s Limco subsidiary operates an FAA certified repair station, which provides heat transfer MRO services and products for airlines, air cargo carriers, maintenance service centers and the military. Limco is also certified by the European Aviation Safety Agency, or EASA, and the Civil Aviation Administration of ~~Vietnam (CAAV) and~~ Thailand (Thai).

TAT’s activities in the field of MRO services for aviation components primarily relate to its subsidiary, Piedmont, and includes the maintenance, repair and overhaul of APUs, landing gear and other aircraft components. TAT’s Piedmont subsidiary operates an FAA certified repair station, which provides aircraft component MRO services for airlines, air cargo carriers, maintenance service centers and the military.

As mentioned above under ‘History and Development of TAT’, Piedmont’s Parts services division, was operated until December 4, 2009, when it was sold to FAvS, in which TAT now holds an equity interest of approximately ~~30.02%~~29.64%.

FAvS, together with its subsidiaries, is one of the leading suppliers of aircraft parts and components to the aviation industry worldwide, and is a provider of third party logistics and inventory management services to the aerospace industry. FAvS distributes the products of over 150 parts and component manufacturers and suppliers. In addition, FAvS offers maintenance, repair and overhaul services through three Federal Aviation Administration authorized facilities. Customers of FAvS include passenger and cargo airlines, general aviation, and military operators.

OEM of Heat Management Solutions

TAT ~~provides~~is an OEM of Heat management solutions, primarily through its Gedera facility, to the aerospace and defense industries. The main OEM activity of Gedera is the design and manufacture of a complete line of heat transfer products, including heat exchangers, pre-coolers, oil coolers and cold plates, or heat transfer products. Heat transfer products facilitate the necessary removal and dissipation of heat generated during the operation of mechanical and electronic systems. Gedera’s heat transfer products are generally integrated into a complete cooling system. Using Gedera’s technological expertise, Gedera designs each of its heat transfer products to meet the specific space, power, performance and other needs of its customers. Gedera’s heat transfer products are marketed worldwide for applications in commercial and military aircraft and electronic systems, the primary users of such equipment. Gedera’s customers include Liebherr-Aerospace Toulouse S.A., or Liebherr, Boeing McDonnell Douglas Aerospace, or Boeing, Israel ~~Aircraft~~Aerospace Industries, or IAI, Cessna Aircraft Company, or Cessna, Cirrus Aircraft Inc., or Cirrus, Pilatus Aircraft Ltd, or Pilatus, Embraer Empresa Brasileira de Aeronáutica S.A., or Embraer, Eaton Aerospace LLC, or Eaton, Parker Hannifin Corporation, or Parker, as well as the United States Air Force, United States Army, and Navy. Such customers typically enter into supply contracts with Gedera pursuant to which Gedera manufactures specified heat transfer products in connection with the customers’ production or retrofitting of particular aircraft equipment. Such supply contracts are generally long term engagements that may have terms of ten years or more.

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As part of its OEM activities, Gedera is also engaged in the design, development and manufacture of complete environmental control systems and complete cooling systems. This product line principally includes cooling systems for electronic systems (used in airborne military platforms), ground cooling systems (used in military facilities, tents, vehicles and other military applications) and Vapor Cycle air conditioning systems (or ECS — Environmental Cooling Systems) used in light aircraft.

In addition, Gedera designs, develops and manufactures aviation and flow control accessories. These accessories include fuel components, such as valves and pumps, secondary power systems, and various instrumentation and electronic assemblies. Customers for Gedera’s aviation accessories include Lockheed-Martin Corp, Teledyne Continental Motors, the Israeli Air Force, IAI, Elbit Systems, or Elbit, as well as the United States Air Force and Navy.

Gedera also provides limited MRO services for military ~~and commercial~~ customers, mainly for aviation accessories as well as for certain heat transfer products. Gedera currently overhauls emergency power systems, hydrazine tanks, jet fuel starters, and cooling turbines and valves for F-16s. In addition, Gedera overhauls anti-icing valves and starters for the Apache helicopter. Customers for Gedera’s MRO services include the Israeli Air Force, IAI, NATO, as well as the United States Air Force, United States Army, and Navy.

Gedera relies on highly qualified personnel and strong engineering, development and manufacturing capabilities that enable it to support its customers from the early stages of development of their product and system specifications.

TAT estimates the size of the markets in which Gedera operates to be significant based on the scope of development projects and purchasing processes of its customers. Many of the projects Gedera is engaged in are lengthy and complex, which account for its long term supplier relationships and the customer loyalty it enjoys. TAT plans to expand its Gedera operations in the OEM segment, among other things, by transitioning from the manufacture of standalone components to the development and manufacture of complete systems/sub ~~systems.~~systems, and by targeting strategic territories with high commercial potential.

OEM of Electric Motion Systems

Through its subsidiary, Bental, TAT is an OEM of a wide range of innovative electric motion components and systems for the defense, aerospace and industrial markets. Bental designs and manufactures high performance, high precision motion systems and sub-systems that operate under challenging conditions. Bental specializes in innovative motion technologies such as brush and brushless motors, permanent magnet generators, electronic drivers and controllers, servo actuators, stabilized payload systems and more. Bental’s products are integrated into various aviation and defense platforms and applications, including turret and gun control systems for armored fighting vehicles (AFVs), unmanned air, naval and ground vehicles (UAVs, USVs, UGVs), tanks and military vehicles, missiles, jet engines, cryogenic coolers for thermal imaging systems, optical systems, rotational drives for large antennae pedestals and more.

Bental’s products have to comply with severe performance requirements, environmental conditions, quality assurance and industry standards. Bental usually manufactures relatively small series of products, custom designed for specific customer orders. Bental’s products are designed either of its own initiatives or pursuant to customer specifications. Bental relies on highly qualified personnel and strong engineering, development and manufacturing capabilities that enable it to support its customers from the early stages of development of their product and system specifications. Bental targets customers mainly in the defense market and to a lesser extent, in the commercial market. Its customers include military forces, defense industries, commercial manufacturers of military equipment, commercial airlines, aircraft manufacturers, and other manufacturers of machinery. Bental is a certified supplier to IAI, Rafael, Israeli Ministry of Defense (MOD), Aeronautics, Raytheon, Elbit Systems, Pall Aeropower, Kodak (Creo), IBM, Galileo Avionica and others.

TAT estimates the size of Bental’s market for its products to be significant based on the scope of development projects and purchasing processes of its customers. Many of the projects Bental is engaged in are lengthy and complex, which account for its long term supplier relationships and the customer loyalty it enjoys.

Bental plans to expand its OEM operations, among other things, by transitioning from the manufacture of standalone components to the development and manufacture of complete ~~systems.~~systems, by extending its operation towards commercial aviation market, by developing Product Manufacturing Authorization, or PMA products and by targeting international markets.

Heat Transfer Services and Products

Through its subsidiary, Limco, TAT provides Heat Transfer services and products to the aerospace industry. Limco’s FAA certified repair station provides aircraft component MRO services for airlines, air cargo carriers, maintenance service centers and the military. Limco is also certified by ~~the European Aviation Safety Agency, or~~ EASA, and the Civil Aviation Administration of ~~Vietnam (CAAV) and~~ Thailand (Thai). Limco specializes in MRO services for components of aircraft, such as heat transfer products and pneumatic ducting. Generally, manufacturer specifications, government regulations and military maintenance regimens require that aircraft components undergo MRO servicing at regular intervals or as necessary. Aircraft ~~components~~Heat Exchangers typically require MRO services, including repairs and installation of replacement units, after three to ten years of service or sooner if required. Aircraft manufacturers typically provide warranties on new aircraft and their components and subsystems, which may range from one to five years depending on the bargaining power of the purchaser. Warranty claims are generally the responsibility of the OEM during the warranty period. Limco’s business opportunity usually begins upon the conclusion of the warranty period for these components and subsystems. Limco’s customers include major US domestic and international airlines, air cargo carriers, maintenance service centers, ~~Original Equipment Manufacturers~~OEMs such as commercial and military aircraft manufacturers and defense contractors, and the U.S. government (Army, Air Force and ~~Air forces)~~Coast Guard). Such customers typically enter into MRO contracts with Limco which are generally long term engagements that may have terms of one to ten years or more.

Limco is authorized by leading OEMs of aerospace products to provide MRO services for their systems. For example, Limco is a well recognized Hamilton Sundstrand repair center, providing MRO services for all of its air-to-air heat transfer products. Limco’s repair station is certified by the FAA and ~~the European Aviation Safety Agency, or~~ EASA.

In addition to its MRO services, Limco also manufactures heat transfer products used in commercial, regional, business and military aircraft, complete environmental control systems and cooling systems for electronics. Customers for Limco’s heat transfer products include the U.S. Army, Air Force and Navy, Raytheon, Boeing, Bell Helicopters, Vought Aircraft, Spirit and Gulfstream.

Limco relies on highly qualified personnel with strong manufacturing, engineering and development capabilities that enable it to provide excellent MRO services while supporting customers’ specifications in the development of their new products and systems.

TAT estimates the size of the markets in which Limco operates to be significant based on the number of aircraft requiring MRO services provided by Limco along with the customer loyalty Limco enjoys. TAT plans to expand its Limco operations in the MRO segment, among other things, by developing MRO capabilities for additional types of heat transfer products with significant commercial potential.

MRO services for Aviation Components

Through its subsidiary, Piedmont, TAT provides MRO services for aviation components to the aerospace industry. Piedmont’s FAA and EASA certified repair station provides aircraft component MRO services mainly for airlines, air cargo carriers and maintenance service centers. Piedmont specializes in MRO services for components of aircraft, such as APUs and landing ~~gear and parts manufacturing.~~gears. Generally, manufacturer specifications, government regulations and military maintenance regimens require that aircraft components undergo MRO servicing at regular intervals or as necessary. Aircraft components typically require MRO services, including repairs and installation of replacement units, after three to ten years of service or sooner if required. Aircraft manufacturers typically provide warranties on new aircraft and their components and subsystems, which may range from one to five years depending on the bargaining power of the purchaser. Warranty claims are generally the responsibility of the OEM during the warranty period. Piedmont’s business opportunity usually begins upon the conclusion of the warranty period for these components and subsystems. Piedmont’s customers mainly include US domestic and international airlines, air cargo carriers and maintenance service centers. Such customers typically enter into MRO contracts with Piedmont which are generally long term engagements that may have terms of one to ten years or more.

Piedmont is licensed by ~~leading OEMs of aerospace products to provide MRO services for their systems. For example, Piedmont is licensed by~~ Honeywell as an authorized repair center, to provide MRO services for ~~three~~several of its APU models. Piedmont’s repair station is certified by the FAA and ~~the European Aviation Safety Agency, or~~ EASA.

Piedmont relies on highly qualified personnel with strong manufacturing, engineering and development capabilities that enable it to provide excellent MRO services.

TAT estimates the size of the markets in which Piedmont operates to be significant based on the number of aircraft requiring MRO ~~services.~~services provided by Piedmont. TAT plans to expand its Piedmont operations in the MRO segment, by using Piedmont’s experience and reputation to develop MRO capabilities for additional types of APU and landing gear with significant commercial ~~potential.~~potential and by offering additional supplementary services such as machining, plating and grinding, or MPG.

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Business Strategy

TAT’s principal strategy is as follows:

Enhancing OEM Capabilities — ~~TAT,~~TAT’s goal through Gedera, Limco and Bental ~~intends~~is to capitalize on its technical expertise, experience and reputation in the markets of heat management solutions and electrical motion systems, to expand the scope of its OEM offerings both in the airborne and ground segments, for the commercial and defense industries. TAT also intends to continue the transition from the development and manufacture of single components to the development and manufacture of complete systems.

Expand the scope of MRO services - TAT’s goal is to use its technical expertise, engineering resources and facilities to provide MRO services for additional types of aircraft and additional aircraft systems, subsystems and components and intends to develop the required technical expertise to provide these additional MRO services.

Increasing Market Share — TAT plans to continue its aggressive marketing efforts for new customers as well as to ~~enhance~~expand its activities with its flagship customers. As part of TAT’s efforts to achieve greater penetration in the international markets, TAT intends to expand its marketing presence in Western Europe, which is TAT’s second largest market, and to substantially increase its presence in Asian, Far East, South American nations, East Europe and Africa, which are fast growing markets where TAT has had limited sales to date.

Penetrating the PMA Market — TAT’s goal, through Bental is to capitalize on its technical expertise, experience and reputation in the markets of electric motion systems, to expand the scope of its OEM offerings to the Product Manufacturing Authorization, or PMA as a supplier of off the shelf, cataloged electric motion motors for the commercial and defense industries.

Effective synergy among group members — TAT plans to enhance the synergies between its various businesses by, among other things, using Gedera’s OEM design capabilities to provide Limco enhanced capabilities to repair heat transfer systems and products, enabling Limco to compete more effectively in the industry and by supplying to Limco heat transfer components which should enable Limco to reduce prices on its MRO services. In addition, TAT believes that its acquisition of Bental provides ~~significant~~ growth potential and plans to capitalize on its affiliation with Bental by penetrating new markets such as the market for ground systems and introducing technologically innovative products to its existing customers.

Organic growth and M&A — In addition to growing the existing businesses of Gedera, Limco and Bental, TAT also believes that additional acquisition opportunities exist that will complement its OEM and MRO businesses. TAT will continue to pursue targeted complementary business acquisitions which will broaden the scope and depth of its OEM and MRO operations and increase its market share.

~~Products~~Heat Transfer Services and ~~Services~~

~~OEM of Heat Management Solutions~~Products

Through its ~~Gedera facility,~~subsidiary, Limco, TAT ~~manufactures~~provides Heat Transfer services and products to the aerospace industry. Limco’s FAA certified repair station provides aircraft component MRO services for airlines, air cargo carriers, maintenance service centers and the military. Limco is also certified by EASA, and the Civil Aviation Administration of Thailand (Thai). Limco specializes in MRO services for components of aircraft, such as heat transfer products and pneumatic ducting. Generally, manufacturer specifications, government regulations and military maintenance regimens require that aircraft components undergo MRO servicing at regular intervals or as necessary. Aircraft Heat Exchangers typically require MRO services, including repairs and installation of replacement units, after three to ten years of service or sooner if required. Aircraft manufacturers typically provide warranties on new aircraft and their components and subsystems, which may range from one to five years depending on the bargaining power of the purchaser. Warranty claims are generally the responsibility of the OEM during the warranty period. Limco’s business opportunity usually begins upon the conclusion of the warranty period for these components and subsystems. Limco’s customers include major US domestic and international airlines, air cargo carriers, maintenance service centers, OEMs such as commercial and military aircraft manufacturers and defense contractors, and the U.S. government (Army, Air Force and Coast Guard). Such customers typically enter into MRO contracts with Limco which are generally long term engagements that may have terms of one to ten years or more.

Limco is authorized by leading OEMs of aerospace products to provide MRO services for their systems. For example, Limco is a ~~wide range~~well recognized Hamilton Sundstrand repair center, providing MRO services for all of its air-to-air heat transfer products. Limco’s repair station is certified by the FAA and EASA.

In addition to its MRO services, Limco also manufactures heat transfer products used ~~on board~~in commercial, regional, business and military aircraft, ~~air conditioning systems,~~complete environmental control systems and cooling systems for ~~electronics~~electronics. Customers for military use. These products/systems are manufactured in compliance with all of the stringent quality assurance standards that apply to the manufacture of aircraft parts. Gedera’s quality systems comply with ISO 9001, AS9100, Boeing quality systems approval D6-82479 and FAR 21.303 (the FAA standard for Parts Manufacturer Approval).

~~Heat Transfer Products~~

Gedera manufactures a wide range of heat transfer products. Gedera specializes in the design and manufacturing of highly efficient, compact and reliable heat transfer products that are designed to meet stringent constraints such as size, weight and applicable environmental conditions. Heat transfer products, such as heat exchangers, precoolers, evaporators, oil coolers and cold plates, are integral components of a wide variety of environmental control systems and mechanical and engine systems, as well as a wide range of electronic systems. These systems generate heat during operation that must be removed and dissipated. Heat transfer products facilitate the exchange of the heat created through the operation of these systems by transmitting the heat from a hot medium (air, oil or other fluids) to a cold medium for disposal.

In the aerospace industry, there is a constant need for improvements in performance, weight, cost and reliability. In addition, as electronic systems become smaller and more densely packed, the need for sophisticated and efficient heat transfer components to provide the cooling functions becomes more critical. Using Gedera’s technological expertise, TAT believes it is well positioned to respond to these industry demands through continued new product development and product improvements.

~~Gedera’s principal~~Limco’s heat transfer products include ~~air-to-air heat exchangers~~the U.S. Army, Air Force and ~~precoolers~~Navy, Raytheon, Boeing, Bell Helicopters, Vought Aircraft, Spirit and ~~liquid-to-air heat exchangers. Typically, the air-to-air heat exchangers~~Gulfstream.

Limco relies on highly qualified personnel with strong manufacturing, engineering and ~~precoolers cool a jet engine’s hot “bleed air” which, when cooled, is then used~~development capabilities that enable it to provide excellent MRO services while supporting customers’ specifications in the ~~aircraft’s~~development of their new products and systems.

MRO services for Aviation Components

Through its subsidiary, Piedmont, TAT provides MRO services for aviation components to the aerospace industry. Piedmont’s FAA and EASA certified repair station provides aircraft component MRO services mainly for airlines, air ~~conditioning, pressurization~~cargo carriers and ~~pneumatic systems. The liquid-to-air heat exchangers cool liquids~~maintenance service centers. Piedmont specializes in MRO services for components of aircraft, such as ~~engine oil, hydraulic oil~~APUs and ~~other liquid coolants used~~landing gears. Generally, manufacturer specifications, government regulations and military maintenance regimens require that aircraft components undergo MRO servicing at regular intervals or as necessary. Aircraft components typically require MRO services, including repairs and installation of replacement units, after three to ten years of service or sooner if required. Aircraft manufacturers typically provide warranties on new aircraft and their components and subsystems, which may range from one to five years depending on the bargaining power of the purchaser. Warranty claims are generally the responsibility of the OEM during the warranty period. Piedmont’s business opportunity usually begins upon the conclusion of the warranty period for these components and subsystems. Piedmont’s customers mainly include US domestic and international airlines, air cargo carriers and maintenance service centers. Such customers typically enter into MRO contracts with Piedmont which are generally long term engagements that may have terms of one to ten years or more.

Piedmont is licensed by Honeywell as an authorized repair center, to provide MRO services for several of its APU models. Piedmont’s repair station is certified by the FAA and EASA.

Piedmont relies on highly qualified personnel with strong manufacturing, engineering and development capabilities that enable it to provide excellent MRO services.

TAT estimates the size of the markets in ~~other systems.~~which Piedmont operates to be significant based on the number of aircraft requiring MRO services provided by Piedmont. TAT plans to expand its Piedmont operations in the MRO segment, by using Piedmont’s experience and reputation to develop MRO capabilities for additional types of APU and landing gear with significant commercial potential and by offering additional supplementary services such as machining, plating and grinding, or MPG.

Gedera provides one to all of the different types of heat transfer products in certain aircraft. Wide body planes generally require seven different types of heat transfer components, while regional aircraft and helicopters contain approximately three types. Gedera’s heat exchangers and precoolers are generally sold for between $1,000 and $20,000 per unit. A significant portion of Gedera’s heat transfer products are sold to customers in connection with the original manufacture or retrofitting of particular aircraft equipment. Gedera generally enters into long-term supply contracts with its customers, which require Gedera to supply heat transfer products as part of a larger project.Business Strategy

~~Gedera also manufactures heat dissipation equipment, such~~TAT’s principal strategy is as evaporators, cold plates, cooling chests, heat sinks and old walls (which may be air-to-air, liquid-to-air or liquid-to-liquid), which control and dispose of heat emitted by the operation of various electronic systems. These heat dissipation products are currently utilized mainly in radar systems, avionics, electronic warfare systems and various pods for targeting, navigation and night vision.follows:

Gedera’s customers for heat transfer products/systems include: Liebherr, Boeing, IAI, Cessna, Bell Helicopter, Raytheon Aircraft Company, as well as the United States Air Force and Navy. As a result of the specialized nature of the systems in which Gedera’s parts are included, spare and replacement parts for the original heat transfer products/systems are usually provided by Gedera.

Enhancing OEM Capabilities — TAT’s goal through Gedera, Limco and Bental is to capitalize on its technical expertise, experience and reputation in the markets of heat management solutions and electrical motion systems, to expand the scope of its OEM offerings both in the airborne and ground segments, for the commercial and defense industries. TAT also intends to continue the transition from the development and manufacture of single components to the development and manufacture of complete systems.

~~Aviation And Flow Control Accessories~~

Gedera is also engaged in the design, development and manufacture of aviation and flow control accessories. These accessories include fuel component systems, such as valves and pumps, secondary power systems, various instrumentation and electronic assemblies. Gedera’s customers for the design, development and manufacture of aviation and flow control accessories include Lockheed-Martin, Boeing, Teledyne, the Israeli Air Force, IAI, as well as the U.S. Air Force and Navy.

Increasing Market Share — TAT plans to continue its aggressive marketing efforts for new customers as well as to expand its activities with its flagship customers. As part of TAT’s efforts to achieve greater penetration in the international markets, TAT intends to expand its marketing presence in Western Europe, which is TAT’s second largest market, and to substantially increase its presence in Asian, Far East, South American nations, East Europe and Africa, which are fast growing markets where TAT has had limited sales to date.

~~Cooling And Air-Conditioning Systems~~

Gedera is also engaged in the design, development and manufacture of complete environmental control systems and cooling systems. This product line includes ground cooling systems used in military facilities, tents, vehicles and other military applications. It also includes Vapor Cycle air conditioning systems (or ECS — Environmental Cooling Systems) used in light aircraft. Gedera offers mobile cooling and air conditioning solutions for military applications such as mobile command and control units, command and control vehicles, armored vehicles, mobile broadcast units, mobile hospitals, etc. In addition, Gedera offers air conditioning systems for light airplanes and helicopters, either as part of the development process of new aircraft or as an upgrade for existing aircraft. Gedera designs, develops and manufactures the air conditioning systems based on customer specifications, while providing a complete engineering solution in compliance with strict military and civil standards. Gedera’s systems are used for military applications in Israel and abroad and are tested under strict standards and in battle field proven conditions.

~~OEM of Electric Motion Systems~~

Effective synergy among group members — TAT plans to enhance the synergies between its various businesses by, among other things, using Gedera’s OEM design capabilities to provide Limco enhanced capabilities to repair heat transfer systems and products, enabling Limco to compete more effectively in the industry and by supplying to Limco heat transfer components which should enable Limco to reduce prices on its MRO services. In addition, TAT believes that its acquisition of Bental provides growth potential and plans to capitalize on its affiliation with Bental by penetrating new markets such as the market for ground systems and introducing technologically innovative products to its existing customers.

Through its Bental subsidiary in Israel, TAT designs, develops and manufactures a wide range of innovative motion systems and other electro-mechanical solutions for the defense, aerospace and industrial markets. Bental’s primary product lines are electric motors, actuators and alternators, and include the following list of products: customized electrical motors, alternators, drivers, actuators, stabilized payload control systems, propulsion motors, starter generators, blowers, turret & gun control system motors and more. Such products are integrated into various platforms and applications such as turret & gun control systems and other systems of military ground vehicles, unmanned aerial, naval and ground vehicles (UAV’s, USVs, UGVs), missiles, jet engines, cryo-coolers for thermal imaging systems, optical systems, rotational drives for large antennae pedestals, medical equipment, semi conductor industry process, testing and quality assurance equipment, large printing machines and diamond polishing spindles. Bental’s customers include IAI, Israeli MOD, Rafael, Raytheon, Elbit Systems, Pall Aeropower, Kodak (Creo), IBM, Galileo Avionica and others. Bental’s products are manufactured based on customer specifications, often with special performance requirements which are suited for extreme environmental conditions for military and commercial applications. Bental’s products are manufactured in compliance with ISO 9001-2000 and are subject to strict quality control and inspection procedures that are carried out through all steps of design and manufacture.

~~Electric Motors~~

Bental develops, designs and manufactures different types of electric motors for use in an array of motion systems which are designed to comply with special performance requirements and be suitable for extreme environmental conditions for military ground equipment and remote-piloted vehicle applications. Bental also develops, designs and manufactures electric motors for special uses for customers in the commercial segment. In addition, Bental provides maintenance and repair services for the equipment manufactured by it. Bental also imports mass produced motors in large quantities pursuant to special orders from its customers in Israel.

~~Actuators~~

Bental develops, designs and manufactures an array of actuators for unmanned aerial vehicles and remote-piloted vehicle and other aerospace applications, to comply with special performance requirements and extreme environmental conditions.

Bental’s Rotary Servo Actuator (RSA) systems are developed with tactical UAV manufacturers in mind. The RSA systems are high performance, low-weight compact servo actuators used for various aviation and UAV applications. The systems include motor, reduction gear, feedback sensor and electronic servo control & amplifier.

~~Alternators~~

Bental develops, designs and manufactures different types of alternators for automatic pilot and other military applications, to comply with special performance requirements and extreme environmental conditions.

The product line of brushless direct current alternators is based on rare earth magnet technology. The systems are capable of supplying very high power. The alternator product family is designed to serve aerospace and other defense applications. Bental’s systems are comprised of the alternator and Generator Control Unit (GCU).

Heat Transfer Services and Products

Through its subsidiary, Limco, TAT provides Heat Transfer services and products to the aerospace industry. Limco’s FAA certified repair station provides aircraft component MRO services for airlines, air cargo carriers, maintenance service centers and the military. Limco is also certified by EASA, and the Civil Aviation Administration of Thailand (Thai). Limco specializes in MRO services for components of aircraft, such as heat transfer products and pneumatic ducting. Generally, manufacturer specifications, government regulations and military maintenance regimens require that aircraft components undergo MRO servicing at regular intervals or as necessary. Aircraft Heat Exchangers typically require MRO services, including repairs and installation of replacement units, after three to ten years of service or sooner if required. Aircraft manufacturers typically provide warranties on new aircraft and their components and subsystems, which may range from one to five years depending on the bargaining power of the purchaser. Warranty claims are generally the responsibility of the OEM during the warranty period. Limco’s business opportunity usually begins upon the conclusion of the warranty period for these components and subsystems. Limco’s customers include major US domestic and international airlines, air cargo carriers, maintenance service centers, OEMs such as commercial and military aircraft manufacturers and defense contractors, and the U.S. government (Army, Air Force and Coast Guard). Such customers typically enter into MRO contracts with Limco which are generally long term engagements that may have terms of one to ten years or more.

MRO services for Aviation Components

Through its subsidiary, Piedmont, TAT provides MRO services for aviation components to the aerospace industry. Piedmont’s FAA and EASA certified repair station provides aircraft component MRO services mainly for airlines, air cargo carriers and maintenance service centers. Piedmont specializes in MRO services for components of aircraft, such as APUs and landing gears. Generally, manufacturer specifications, government regulations and military maintenance regimens require that aircraft components undergo MRO servicing at regular intervals or as necessary. Aircraft components typically require MRO services, including repairs and installation of replacement units, after three to ten years of service or sooner if required. Aircraft manufacturers typically provide warranties on new aircraft and their components and subsystems, which may range from one to five years depending on the bargaining power of the purchaser. Warranty claims are generally the responsibility of the OEM during the warranty period. Piedmont’s business opportunity usually begins upon the conclusion of the warranty period for these components and subsystems. Piedmont’s customers mainly include US domestic and international airlines, air cargo carriers and maintenance service centers. Such customers typically enter into MRO contracts with Piedmont which are generally long term engagements that may have terms of one to ten years or more.

Piedmont is licensed by Honeywell as an authorized repair center, to provide MRO services for several of its APU models. Piedmont’s repair station is certified by the FAA and EASA.

Piedmont relies on highly qualified personnel with strong manufacturing, engineering and development capabilities that enable it to provide excellent MRO services.

TAT estimates the size of the markets in which Piedmont operates to be significant based on the number of aircraft requiring MRO services provided by Piedmont. TAT plans to expand its Piedmont operations in the MRO segment, by using Piedmont’s experience and reputation to develop MRO capabilities for additional types of APU and landing gear with significant commercial potential and by offering additional supplementary services such as machining, plating and grinding, or MPG.

Business Strategy

TAT’s principal strategy is as follows:

Effective synergy among group members — TAT plans to enhance the synergies between its various businesses by, among other things, using Gedera’s OEM design capabilities to provide Limco enhanced capabilities to repair heat transfer systems and products, enabling Limco to compete more effectively in the industry and by supplying to Limco heat transfer components which should enable Limco to reduce prices on its MRO services. In addition, TAT believes that its acquisition of Bental provides growth potential and plans to capitalize on its affiliation with Bental by penetrating new markets such as the market for ground systems and introducing technologically innovative products to its existing customers.

Products and Services

OEM of Heat Management Solutions

Through its Gedera facility, TAT manufactures a wide range of heat transfer products used on board aircraft, air conditioning systems, environmental control systems and cooling systems for electronics for military use. These products/systems are manufactured in compliance with all of the stringent quality assurance standards that apply to the manufacture of aircraft parts. Gedera’s quality systems comply with ISO 9001, AS9100, Boeing quality systems approval D6-82479 and FAR 21.303 (the FAA standard for Parts Manufacturer Approval).

Heat Transfer Products

Gedera’s principal heat transfer products include air-to-air heat exchangers and precoolers and liquid-to-air heat exchangers. Typically, the air-to-air heat exchangers and precoolers cool a jet engine’s hot “bleed air” which, when cooled, is then used in the aircraft’s air conditioning, pressurization and pneumatic systems. The liquid-to-air heat exchangers cool liquids such as engine oil, hydraulic oil and other liquid coolants used in other systems.

Gedera provides one to all of the different types of heat transfer products in certain aircraft. Wide body planes generally require seven different types of heat transfer components, while regional aircraft and helicopters contain approximately three types. Gedera’s heat exchangers and precoolers are generally sold for between $2,000 and $20,000 per unit. A significant portion of Gedera’s heat transfer products are sold to customers in connection with the original manufacture or retrofitting of particular aircraft equipment. Gedera generally enters into long-term supply contracts with its customers, which require Gedera to supply heat transfer products as part of a larger project.

Gedera also manufactures heat dissipation equipment, such as evaporators, cold plates, cooling chests, heat sinks and old walls (which may be air-to-air, liquid-to-air or liquid-to-liquid), which control and dispose of heat emitted by the operation of various electronic systems. These heat dissipation products are currently utilized mainly in radar systems, avionics, electronic warfare systems and various pods for targeting, navigation and night vision.

Aviation And Flow Control Accessories

Cooling And Air-Conditioning Systems

Gedera is also engaged in the design, development and manufacture of complete environmental control systems and cooling systems. This product line includes ground cooling systems used in military facilities, tents, vehicles and other military applications. It also includes Vapor Cycle air conditioning systems (or ECS — Environmental Cooling Systems) used in light aircraft. Gedera offers mobile cooling and air conditioning solutions for military applications such as mobile command and control units, command and control vehicles, armored vehicles, mobile broadcast units, mobile hospitals, etc. In addition, Gedera offers a generic complete cooling systems for aircraft systems such as environmental control systems, engine starter systems and hydraulic systems and also offers air conditioning systems for light airplanes and helicopters, either as part of the development process of new aircraft or as an upgrade for existing aircraft. Gedera designs, develops and manufactures the air conditioning systems based on customer specifications, while providing a complete engineering solution in compliance with strict military and civil standards. Gedera’s systems are used for military applications in Israel and abroad and are tested under strict standards and in battle field proven conditions.

OEM of Electric Motion Systems

Through its Bental subsidiary in Israel, TAT designs, develops and manufactures a wide range of innovative motion systems and other electro-mechanical solutions for the defense, aerospace and industrial markets. Bental’s primary product lines are electric motors, actuators and alternators, and include the following list of products: customized electrical motors, alternators, drivers, actuators, stabilized payload control systems, propulsion motors, starter generators, blowers, turret & gun control system motors and more. Such products are integrated into various platforms and applications such as turret & gun control systems and other systems of military ground vehicles, unmanned aerial, naval and ground vehicles (UAV’s, USVs, UGVs), missiles, jet engines, cryo-coolers for thermal imaging systems, optical systems, rotational drives for large antennae pedestals, medical equipment, semi conductor industry process, testing and quality assurance equipment, large printing machines and diamond polishing spindles. Bental’s customers include IAI, Israeli MOD, Rafael, Raytheon, Elbit Systems, Pall Aeropower, Kodak (Creo), IBM, Galileo Avionica and others. Bental’s products are manufactured based on customer specifications, often with special performance requirements which are suited for extreme environmental conditions for military and commercial applications. Bental’s products are manufactured in compliance with ISO 9001and are subject to strict quality control and inspection procedures that are carried out through all steps of design and manufacture.

Electric Motors

Actuators

Alternators

Heat Transfer Services and Products

MRO Services For Heat Transfer Products

Through its Limco subsidiary in the U.S., TAT provides MRO services for Heat Transfer products. The demand for MRO services is driven by the size and age of the aircraft fleet, aircraft utilization and regulations by the FAA and other governmental authorities.

Due to the increased maintenance costs of their aging fleets many carriers are seeking ways to reduce costs, minimize down-time, increase aircraft reliability and extend time between overhauls. One of the ways they are accomplishing these goals is through the outsourcing of more of their maintenance and support functions to reliable third parties. Limco also believes that commercial carriers who have made the decision to outsource their MRO requirements are searching for MRO service providers with a wide-range of service capabilities. These MRO service providers allow the carriers to concentrate their outsourcing of MRO services to a select group of third party providers. The global military aircraft fleet also presents similar opportunities for MRO service providers. Recent military operations around the world have significantly increased usage of the global military aircraft fleet and resulted in a higher rate of maintenance activity. Limco believes that an aging military fleet and the increased use of upgrade programs aimed at extending the useful life of aircraft will provide continued MRO growth opportunities.

Limco specializes in the repair and overhaul of heat transfer ~~products and pneumatic ducting.~~products. Heat transfer products are devices that efficiently transfer heat from one fluid to another or from hot air to colder air in various cooling systems and are essential components of an aircraft. These products include heat exchangers, oil coolers, pre-coolers, re-heaters, condensers, water separators and evaporators.

Limco is continually increasing its MRO capabilities based upon market need or customer request. Limco’s capabilities include heat transfer components used in aircraft and systems manufactured by Airbus, Boeing, Bombardier, Cessna, Embraer, Lockheed Martin, Fokker, Fairchild, Gulfstream, British Aerospace and others.

One of Limco’s operational strengths and competitive advantages is the close cooperation with TAT’s Gedera facility. Through Gedera’s core manufacturing capabilities and engineering expertise, Limco enjoys a constant supply source of cores of the highest quality necessary in order to ~~performing~~perform its MRO services for Heat Transfer products. In addition, Limco benefits from Gedera’s varying engineering and development capabilities relevant to Limco’s Heat Transfer services.

Limco performs MRO services at its repair station in Tulsa, Oklahoma which is ISO9000 and AS9100 certified and licensed by the FAA and EASA, as well as by the Civil Aviation Administration of ~~Vietnam and~~ Thailand, to provide MRO services. Limco’s Oklahoma facilities provided MRO services for heat transfer ~~products and pneumatic air-handling ducting.~~products.

Limco offers MRO services for heat transfer components to its customers on multiple levels. If the damage is significant, Limco will remanufacture the unit, which generally entails replacing the core matrix of the damaged or old heat transfer product in lieu of replacing the entire unit with a new one. Limco designs and develops these customized remanufactured units as a cost effective alternative to new part replacement. In the event of less severe damage, Limco will either overhaul or repair the unit as necessary. Re-manufactured units carry warranties ~~identical~~similar to those provided to new units.

Limco specializes in providing fast and efficient quality repair and overhaul of pneumatic air-handling ducting that is used in airframes, air conditioning systems, anti-icing systems, engines and exhaust systems.

OEM Authorizations And Licenses

Limco believes that establishing and maintaining relationships with OEMs of aircraft systems and components, is an important factor in achieving sustainable success as an independent MRO service provider. OEMs grant participants in the overhaul and repair services market authorizations or licenses to perform repair and overhaul services on the equipment they manufacture. OEMs maintain tight controls over their authorized and licensed MRO service providers, in order to maintain high quality of service to their customers, and generally grant very few authorizations or licenses. Obtaining OEM authorizations requires sophisticated technological capabilities, experience-based industry knowledge and substantial capital investment. Limco believes that service providers that have received OEM authorizations and licenses gain a competitive advantage because they typically receive discounts on parts, technical information, OEM warranty support and use of the OEM name in marketing. Limco is an independent MRO service provider that is a well recognized repair center of Hamilton Sundstrand, the largest heat transfer equipment manufacturer, for its air-to-air heat transfer equipment in North America.

Each of the authorizations or licenses that Limco has with OEMs is in the form of a contractual arrangement. Some of these contracts require Limco to pay an authorization fee to the OEM and, in some cases, Limco is also required to pay annual authorization fees and royalties, or to fulfill other conditions set by the OEM.

OEM Capabilities

In addition to its MRO services, Limco also acts as an OEM manufacturer of heat transfer products used mainly in military aircraft and also in commercial, regional and business aircraft. Limco specializes in the design and manufacturing of highly efficient heat transfer components, which are designed to meet stringent constraints such as size, weight and applicable environmental conditions. These units include heat exchangers, oil coolers, pre-coolers, re-heaters, condensers, fuel heaters and evaporators.

Limco also manufactures air conditioning systems, complete environmental control systems and cooling systems for electronics. Limco currently offers approximately 80 OEM parts to the aerospace industry. These parts are manufactured in compliance with the stringent quality assurance standards that apply to the manufacture of aircraft parts.

Limco’s quality systems are ISO9000 and AS9100 certified and Limco has both Boeing quality systems approval D6-82479 and FAR 21.303 (the FAA standard for Parts Manufacturer Approval).

MRO Services for Aviation Components

Through its Piedmont subsidiary in the U.S., TAT provides MRO services for aviation components, APUs and Landing Gear. As previously mentioned, the demand for MRO services is driven by the size and age of the aircraft fleet, aircraft utilization and regulations by the FAA and other governmental authorities.

Due to the increased maintenance costs of their aging fleets many carriers are seeking ways to reduce costs, minimize down-time, increase aircraft reliability and extend time between overhauls. One of the ways they are accomplishing these goals is through the outsourcing of more of their maintenance and support functions to reliable third parties. Piedmont also believes that commercial carriers who have made the decision to outsource their MRO requirements are searching for MRO service providers with a wide-range of service capabilities. These MRO service providers allow the carriers to concentrate their outsourcing of MRO services to a select group of third party providers. The global military aircraft fleet also presents similar opportunities for MRO service providers. ~~Recent military operations around the world have significantly increased usage of the global military aircraft fleet and resulted in a higher rate of maintenance activity.~~ Piedmont believes that an aging military fleet and the increased use of upgrade programs aimed at extending the useful life of aircraft will provide continued MRO growth opportunities.

Piedmont specializes in the repair and overhaul of APUs and landing gear. APUs are relatively small, self-contained generators used to start jet engines, usually with compressed air, and to provide electricity, hydraulic pressure and air conditioning while an aircraft is on the ground. In many aircraft, an APU can also provide electrical power during in-flight emergency situations. Landing gear are the structure that support an aircraft on the ground and allow it to taxi, takeoff and land.

Piedmont performs MRO services at its repair station in North Carolina, which is AS9001 certified and licensed by the FAA and EASA to provide MRO services.

Piedmont specializes in providing MRO services for APU models manufactured primarily by Honeywell, ~~and Hamilton,~~ and in providing MRO services for landing gear for regional aircraft manufactured by Bombardier Canadair Regional Jet, ATR, British Aerospace Jet Stream and Bombardier Dash 8.

OEM Authorizations And Licenses

Piedmont believes that establishing and maintaining relationships with OEMs of aircraft systems and components is an important factor in achieving sustainable success as an independent MRO service provider. OEMs grant participants in the overhaul and repair services market authorizations or licenses to perform repair and overhaul services on the equipment they manufacture. OEMs maintain tight controls over their authorized and licensed MRO service providers, in order to maintain high quality of service to their customers, and generally grant few authorizations or licenses. Obtaining OEM authorizations requires sophisticated technological capabilities, experience-based industry knowledge and substantial capital investment. Piedmont believes that service providers that have received OEM authorizations and licenses gain a competitive advantage because they typically receive discounts on parts, technical information, OEM warranty support and use of the OEM name in marketing. Piedmont is an authorized repair station licensed by Honeywell, the largest manufacturer of APUs, for several of its APU models. ~~Piedmont is also a well-recognized repair center of Messier Dowty~~

Machining, Plating and ~~Goodrich Landing Gear.~~Grinding, or MPG Services

~~Each~~Piedmont extended the provision of ~~the authorizations~~MPG services, either as supplementary to its traditional MRO services or ~~licenses~~as stand-alone services. Piedmont believes that ~~Piedmont has~~establishing and maintaining relationships with customers to its MPG shop is an ~~OEM is~~important factor in ~~the form of~~achieving sustainable success as an independent MRO service provider and creates a contractual arrangement. Some of these contracts require Piedmont to pay an authorization fee to the OEM and, in some cases, Piedmont is also required to pay annual authorization fees and royalties, or to fulfill other conditions set by the OEM.competitive advantage.

~~Customers~~

Customers.

General

TAT targets both the commercial and defense markets for aviation and ground applications. Our customers include commercial manufacturers of military equipment, commercial airlines, aircraft manufacturers, military forces, defense industries, and other manufacturers of electronic systems, aviation units and machinery in the U.S., Europe, Asia, South America and Israel.

Major Customers

OEM Customers

TAT provides, primarily through Gedera and Bental, OEM services worldwide to customers in the commercial, defense and industrial markets. TAT currently sells its OEM products and systems to approximately 200 commercial and military aircraft manufacturers and defense contractors, and the U.S. and Israeli governments.

TAT’s leading OEM customers are set in the following table:

Aircraft manufacturers	Boeing McDonnell Douglas Aerospace, Airbus, Cessna Aircraft Company, Bombardier, Cirrus Aircraft Inc., Pilatus Aircraft Ltd, Embraer Empresa Brasileira de Aeronáutica S.A, Bell Helicopters, Lockheed Martin,
System manufacturers/integrators and Defense Contractors	Liebherr-Aerospace, Thales Electron Devices, Honeywell International, Rafael, Elbit, IAI, LockheedAeronautics, Schiebel, Martin, Fairchild, British Aerospace, EADS, Eaton Aerospace, Parker Hannifin Corporation.
Industry players	Kodak (Creo), IBM

The development projects and purchasing processes of many of TAT’s OEM customers are lengthy and complex and accordingly, involve long term supply contracts with several of its material customers. These agreements provide for delivery schedules that are customized for the relevant product or service. With some of its customers, TAT enters into master purchase orders in which the anticipated supply quantities as well as the prices for the supplied products are determined for a certain period, and the actual purchase orders are fulfilled based on customer demands from time to time. In addition, TAT also enters into master agreements that determine supply quantities and prices for a set period, but under which the customer is not obligated to purchase any quantity of products.

MRO Customers

TAT services approximately 200 MRO customers, primarily through Limco and Piedmont, including major USU.S. domestic and international airlines, air cargo carriers, maintenance service centers, the ~~U.S~~U.S. military and navy and other military air forces. TAT is not a party to any OEM manufacturing contracts, and acts solely upon orders received from its MRO services’ customers.

TAT’s leading MRO customers are set in the following table:

Domestic and International Airlines and Air Cargo carriers	Lufthansa, ~~Qantas,~~, Singapore Airlines, ~~KLM,~~Air France-KLM, SAS, ~~Swissair, Airfrance,~~Swiss, ELAL, Delta, ~~Continental,~~United, US Airways, Air Canada Jazz, Air Wisconsin, Austrian Airlines
Maintenance Service Centers	Fokker, Honeywell International, Kellstrom Commercial, Aerokool
Government and Air forces	U.S. Army, Air Force and Navy; Israeli Air force; NATO Air-forces

TAT has a large and diverse MRO services customer base and therefore, TAT believes that the termination by any one or more of its material customers of their relationship with TAT will not materially affect TAT’s results of operations. Due to the long term relationships of TAT with many of its customers, their relative financial stability and their ~~high level of~~ loyalty to TAT, TAT anticipates that the risk of major customer terminations is low. TAT also makes significant efforts to penetrate new markets and to broaden its customer base in order, among other things, to reduce the risk of relying on a small number of customers.

Military Contracts

Sales to the U.S. and Israeli governments accounted for approximately ~~4.7%~~3.6% and ~~2.6%~~0.7% of TAT’s revenues for the year ended December 31, 2012, approximately 4.7% and 2.6% of its revenues for the year ended December 31, 2011 and approximately 3.7% and 3.6% of its revenues for the year ended December 31, 2010, ~~and approximately 3.1% and 2.6% of its revenues for the year ended December 31, 2009,~~ respectively.

Many of TAT’s contracts are competitively bid and awarded on the basis of technical merit, personnel qualifications, experience and price. TAT also receives some contract awards involving special technical capabilities on a negotiated, noncompetitive basis due to TAT’s technical capabilities.

TAT provides products under government contracts that usually require performance over a period of several months to several years. Long-term contracts for the U.S. military may be conditioned upon continued availability of congressional appropriations. Variances between anticipated budget and congressional appropriations may result in a delay, reduction or termination of these contracts.

The vast majority of the governmental contracts to which TAT is party to are fixed-price contracts, some of which contain fixed price escalation mechanism. Under these contracts TAT agrees to perform specific work for a fixed price and, accordingly, realizes the benefit or detriment to the extent that the actual cost of performing the work differs from the contract price. The allowable government contract costs and fees of TAT are subject to audit and may result in non-reimbursement of some contract costs and fees. While governments reserve the right to conduct further audits, audits conducted for periods through fiscal year ~~2011~~2012 have resulted in no material cost recovery disallowances for TAT.

The eligibility of TAT to perform under their government contracts requires TAT to maintain adequate security measures. TAT have implemented security procedures that they believe adequately satisfies the requirements of their current government contracts.

Sales and Marketing

Gedera

Gedera derives its revenues mainly from sales to customers in the United States, Israel and Europe. The below tables detail Gedera’s (i) geographic revenues; and (ii) revenues derived from commercial and defense customers, for the years ended December 31, ~~2011~~2012 and ~~2010,~~2011, before elimination of intercompany sales of ~~$4.0~~$3.0 million and ~~$3.7~~$4.0 million, respectively.

	Year Ended December 31,										Year Ended December 31,
	2011					2010					2012					2011
Geographic Region	Revenues In Thousands		Percentage			Revenues In Thousands		Percentage			Revenues In Thousands		Percentage			Revenues In Thousands		Percentage
North America	$	14,678		48.9	%	$	11,171		37.7	%	$	11,064		35.7	%	$	14,678		48.9	%
Europe		5,771		19.2			5,196		17.5			6,570		21.2			5,771		19.2
Israel		8,218		27.4			10,877		36.7			9,326		30.1			8,218		27.4
Other		1,353		4.5			2,407		8.1			4,072		13.1			1,353		4.5
Total	$	30,020		100	%	$	29,651		100	%	$	31,032		100	%	$	30,020		100	%

	Year Ended December 31,
	2012					2011
	Revenues In Thousands		Percentage			Revenues In Thousands		Percentage
Commercial Customers	$	14,019		45.2	%	$	10,040		33.4	%
Defense Customers		17,013		54.8			19,980		66.6
Total	$	31,032		100	%	$	30,020		100	%

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Year Ended December 31,
2011 2010

Revenues
In Thousands
Percentage
Revenues
In Thousands
Percentage
Commercial Customers $ 10,040 33.4 % $ 10,595 35.7 %
Defense Customers 19,980 66.6 19,056 64.3
Total $ 30,020 100 % $ 29,651 100 %

Bental

Bental derives its revenues mainly from sales to customers in Israel. The below tables detail Bental’s (i) geographic revenues; and (ii) revenues driven from commercial and defense customers, for the years ended December 31, ~~2011~~2012 and ~~2010.~~2011.

	Year Ended December 31,										Year Ended December 31,
	2011					2010					2012					2011
Sources of Revenues	Revenues in Thousands		Percentage			Revenues In Thousands		Percentage			Revenues in Thousands		Percentage			Revenues In Thousands		Percentage
North America	$	480		4.1	%	$	103		0.8	%	$	595		5.9	%	$	480		4.1	%
Europe		277		2.4			371		2.8			435		4.4			277		2.4
Israel		10,727		92.0			12,346		94.6			8,897		88.9			10,727		92.0
Other		174		1.5			226		1.8			80		0.8			174		1.5
Total	$	11,658		100	%	$	13,046		100	%	$	10,007		100	%	$	11,658		100	%

	Year Ended December 31,
	2012					2011
	Revenues In Thousands		Percentage			Revenues In Thousands		Percentage
Commercial Customers	$	440		4.4	%	$	937		8.0	%
Defense Customers		9,567		95.6			10,721		92.0
Total	$	10,007		100	%	$	11,658		100	%

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Year Ended December 31,
2011 2010

Revenues
In Thousands
Percentage
Revenues
In Thousands
Percentage
Commercial Customers $ 937 8.0 % $ 735 5.6 %
Defense Customers 10,721 92.0 12,311 94.4
Total $ 11,658 100 % $ 13,046 100 %

Limco

Limco derives its revenues mainly from sales to customers in the US and Europe. The below tables details Limco’s (i) geographic revenues and (ii) revenues derived from commercial and defense customers, for the years ended December 31, 2012 and 2011, ~~and 2010,~~ respectively.

	Year Ended December 31,
	2012					2011
Sources of Revenues	Revenues in Thousands		Percentage			Revenues In Thousands		Percentage
North America	$	20,175		72.8	%	$	22,583		81.8	%
Europe		3,210		11.6			2,657		9.6
Israel		468		1.7			297		1.1
Other		3,856		13.9			2,066		7.5
Total	$	27,709		100	%	$	27,603		100	%

Year Ended December 31,
2011 2010

Sources of Revenues

Revenues
in Thousands
Percentage
Revenues
In Thousands
Percentage
North America $ 22,583 81.8 % $ 19,737 80.3 %
Europe 2,657 9.6 3,350 13.7
Israel 297 1.1 146 1.0
Other 2,066 7.5 1,235 5.0
Total $ 27,603 100 % $ 24,468 100 %

	Year Ended December 31,
	2012					2011
	Revenues In Thousands		Percentage			Revenues In Thousands		Percentage
Commercial Customers	$	15,240		55.0	%	$	14,340		52.0	%
Defense Customers		12,469		45.0			13,263		48.0
Total	$	27,709		100	%	$	27,603		100	%

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Year Ended December 31,
2011 2010

Revenues
In Thousands
Percentage
Revenues
In Thousands
Percentage
Commercial Customers $ 14,340 52.0 % $ 12,283 50.2 %
Defense Customers 13,263 48.0 12,185 49.8
Total $ 27,603 100 % $ 24,468 100 %

Piedmont

Piedmont derives its revenues mainly from sales to customers in the US and Europe. The below tables details Piedmont’s geographic revenues and (ii) revenues derived from commercial and defense customers, for the years ended December 31, ~~2011~~2012 and ~~2010,~~2011, respectively.

	Year Ended December 31,										Year Ended December 31,
	2011					2010					2012					2011
Sources of Revenues	Revenues in Thousands		Percentage			Revenues In Thousands		Percentage			Revenues in Thousands		Percentage			Revenues In Thousands		Percentage
North America	$	13,677		67.9	%	$	5,870		35.9	%	$	16,442		73.3	%	$	13,677		67.9	%
Europe		5,596		27.8			5,223		32.0			4,717		21.0			5,596		27.8
Israel		90		0.4			264		1.6			-		-			90		0.4
Other		783		3.9			4,976		30.5			1,283		5.7			783		3.9
Total	$	20,146		100	%	$	16,333		100	%	$	22,442		100	%	$	20,146		100	%

	Year Ended December 31,										Year Ended December 31,
	2011					2010					2012					2011
	Revenues In Thousands		Percentage			Revenues In Thousands		Percentage			Revenues In Thousands		Percentage			Revenues In Thousands		Percentage
Commercial Customers	$	20,146		100	%	$	16,333		100	%	$	22,442		100	%	$	20,146		100	%
Defense Customers		-		-			-		-			-		-			-		-
Total	$	20,146		100	%	$	16,333		100	%	$	22,442		100	%	$	20,146		100	%

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Gedera, Bental, Limco and Piedmont market their products and services through their respective marketing staffs and a worldwide network of independent representatives. Gedera’s, Bental’s, Limco’s and Piedmont’s representatives are strategically located near key customer sites in offices throughout the United States, Europe, the Middle East, Asia and South America. Their staff is in regular contact with engineering and procurement personnel and program managers of existing and target customers to identify new programs and needs for their products, obtain requests for quotations and identify new product opportunities. Gedera’s, Bental’s, Limco’s and Piedmont’s marketing activities also include advertising in technical publications which target heat transfer components and related markets, attending exhibitions, trade shows and professional conferences, organizing seminars and direct mailing of advertisements and technical brochures to current and potential customers and advertising in technical publications which target relevant products and related markets.

Backlog

At December 31, 2012, TAT had a backlog of approximately $52.7 million for products and services. TAT anticipates that approximately $31.8 million of such backlog will be delivered by December 31, 2013 and approximately $20.9 million will be delivered by December 31, 2014 and thereafter. At December 31, 2011, TAT had a backlog of approximately $55.4 million for products and services. TAT anticipates that approximately $35.8 million of such backlog will be delivered by December 31, 2012 and approximately $19.6 million will be delivered by December 31, 2013 and thereafter. At December 31, 2010, TAT had a backlog of approximately $52.3 million for products and services.

Product and Service Warranties

TAT provides warranties for its products and services ranging from one to three years, which vary with respect to each contract and in accordance with the nature of each specific product. To date, TAT’s warranty costs have not been substantial. As of December 31, ~~2011,~~2012, the combined warranty reserve for TAT was ~~$288~~$276 thousand.

Competitive Environment

OEM of Heat Management Solutions

The aerospace and defense OEM industries in general and specifically, the commercial and military aviation markets, are characterized by intense competition and the need to constantly be in the forefront of technological innovations in order to be able to offer advanced and attractive products. Competition in these OEM markets is also based on price, quality and turn-around time. TAT estimates the market size of heat management solutions to be significant based on the scope of development projects and purchasing processes of the potential customers. TAT estimates that due to the high barriers to enter the aerospace and defense OEM industries, which include the need for highly qualified and trained personnel, technologically advanced facilities and the need to obtain appropriate governmental approvals, there are a small number of competing suppliers in the markets in which it operates. The nature of the projects in the OEM industry, which are often time consuming and complex also require long term supplier relationships and customer loyalty in order to succeed.

TAT’s competitors in the global OEM aerospace and defense industries can be divided into two main groups:

Complete system manufacturers that either independently or through subcontractors, design, develop and manufacture complete systems (such as a manufacturer of a cooling system for aircraft hydraulic systems) directly for the platform manufacturer (i.e. hydraulic system; business jet). Although these companies have the capabilities to design and manufacture each standalone component in a complete system (i.e. a heat exchanger integrated in the cooling system for hydraulic systems) it is unlikely that such companies will compete with TAT in projects where there is a specific requirement for a stand-alone component. These companies will compete on complete systems and/or projects where the components/products TAT develops are part of the complete system. In such cases it is very likely that these companies will subcontract to companies such as TAT the design and manufacturing of one or a few components in the system.

Component manufacturers for which the design and manufacture of components (such as heat exchangers) is the main business (and which are normally placed in the “value chain” one level below the system manufacturers, such as a manufacturer of a cooling system for aircraft’s Hydraulic system and two levels below the platform manufacturer such as manufacturer of a new aircraft). For certain platform, although some of the Component manufacturers have the capabilities to design, develop and manufacture a complete system (i.e. environmental cooling system for business jet), these companies will usually not compete on projects for complete systems in which their manufactured component constitutes a small part of the complete system, mainly due to the extreme competitive barriers to entry and to their inability to move up the “value chain” from a component supplier to a whole system manufacturer. These companies are likely to compete in projects where there is a specific requirement for a standalone aviation component (such as a heat exchanger) and in tenders by manufacturers of complete systems or products for sub-contractors.

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The major competitors of TAT in the area of OEM of Heat Management Solutions include manufacturers in the U.S. such as Honeywell International,., Hughes-Treitler division of Ametek Inc., Lytron Inc., Kintex, Niagra Thermal, Hamilton Sundstrand, Stewart Werner South Wind Corp., United Aircraft Products and Triumph Thermal Systems, manufacturers based in Europe such as I.M.I. Marston Ltd., Dunlop Aerospace (including Serck Aviation), Liebherr-Aerospace Toulouse S.A and manufacturers based in Asia such as Sumitomo Precision Products from Japan. Such competitors may enjoy competitive advantages over Gedera, such as:

·	The ability to independently offer systems in addition to components;

·	Greater access to capital;

·	Stronger relationships with customers and suppliers;

·	Better name recognition;

·	Access to superior technology and marketing resources; and

·	The ability to adapt more quickly to changes in customer requirements and industry conditions or ~~trends;~~

~~The ability to independently offer systems in addition to components;~~

~~Greater access to capital;~~

~~Stronger relationships with customers and suppliers;~~

~~Better name recognition; and~~

~~Access to superior technology and marketing resources.~~trends.

Heat Transfer Services

The market for Heat Transfer services and products is highly competitive. Competition in this market is based on quality, price, and the ability to provide a broad range of services and to perform repairs and overhauls rapidly. TAT’s competitors in the global Heat Transfer Services can be divided into two main groups:

Service Divisions of OEMs – generally, each OEM of products in the heat management solutions segment has the necessary capabilities to provide MRO services for products it designs and manufactures throughout their lifetime – commencing the initial production period and through the after-market period (service divisions of OEMs). These service divisions of OEMs may also acquire capabilities to service other OEM’s products and to become a provider of MRO services.

4952

Service Centers – which provide MRO services for broad range of components and systems. These Service Centers can be either the in-house maintenance services of a number of commercial airlines or other independent service providers.

Accordingly, in the areas of OEM operations, manufacturers of components can compete with manufacturers of complete systems, mainly for small systems. Such OEM manufacturers can also compete for the provisions MRO services, with other providers of MRO service.

For heat transfer MRO services TAT’s major competitors are the Triumph Accessories, Elite, Drake Air, LORI Heat Transfer Center of Honeywell and SECAN-Honeywell (France).

A number of Limco’s competitors have inherent competitive advantages. For example, Limco competes with the service divisions of large OEMs who in some cases have design authority with respect to their OEM products and are able to derive significant brand recognition from their OEM manufacturing activities. Limco also competes with the in-house service divisions of large commercial airlines and there is a strong incentive for an airline to fully utilize the services of its maintenance employees and facilities. Further, Limco’s competitors may have additional competitive advantages, such as:

The availability of large quantities of expensive spare parts;

Greater access to capital;

Stronger relationships with customers and suppliers;

Better name recognition;

Access to superior technology and marketing resources; and

The ability to adapt more quickly to changes in customer requirements and industry conditions or ~~trends;~~

~~Greater access to capital;~~

~~Stronger relationships with customers and suppliers;~~

~~Better name recognition; and~~

~~Access to superior technology and marketing resources.~~trends.

~~OEM of Electric Motion Systems~~

OEM of Electric Motion Systems

The market in which Bental operates is highly competitive and is characterized by large customers that are related to the defense and/or aerospace governmental agencies in their countries. Bental’s market is also subject to strict import and export regulations and to the budgetary constraints imposed by the governments of such countries. Bental is required to constantly be at the forefront of technological innovations in order to be able to offer advanced innovative products to its customers. Bental’s operations require highly qualified and trained engineering, manufacturing, information and quality assurance personnel.

An analysis of the market participants in the global market of electric motion systems shows that it is comprised mainly of large companies that provide standard products and niche companies that provide special customized solutions. With respect to the markets outside Israel, the providers of the systems in which Bental’s products are integrated tend to prefer local manufacturers for the purchase of the components and therefore, the penetration of these markets requires product innovation and local presence. In the Israeli market, the competition is mainly against imported components. Bental’s major competitors in this segment are: for electric motors - Danaher Motion — Kollmorgen (USA), Artus Pacific Scientific (Europe), Moog Components Group (USA) Aveox (USA), Ametek (USA), ICPE (Europe); For actuators - Kearfott Corp. (USA), Moog Components Group (USA), Pegasus Actuators (Europe), M.T.C Ltd. (Israel); for alternators - Sullivan Products (USA), Prestolite (USA), Sermat (Europe).

MRO Services for Aviation Components

The market for MRO services, in which Piedmont operates, is highly competitive. Competition in this market is based on quality, price, and the ability to provide a broad range of services and to perform repairs and overhauls rapidly. Piedmont’s primary MRO services competitors are the service divisions of OEMs, the in-house maintenance services of a number of commercial airlines and other independent service providers. For APU and landing gear MRO services Piedmont’s major competitors are Standard Aero Group Inc., Aerotech International Inc., Honeywell ,International, Chase Aerospace, Professional, Messier-Dowty Aerospace (MD), AAR Corp., Hawker Pacific and APRO.

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A number of Piedmont’s competitors have inherent competitive advantages. For example, Piedmont competes with the service divisions of large OEMs who in some cases have design authority with respect to their OEM products and are able to derive significant brand recognition from their OEM manufacturing activities. Piedmont also competes with the in-house service divisions of large commercial airlines and there is a strong incentive for an airline to fully utilize the services of its maintenance employees and facilities. Further, Piedmont’s competitors may have additional competitive advantages, such as:

The ability to adapt more quickly to changes in customer requirements and industry conditions or ~~trends;~~ortrends;

Greater access to capital;

Stronger relationships with customers and suppliers;

Better name recognition; and

Access to superior technology and marketing resources.

Competitive Strengths

We believe that TAT’s success can be attributed to several critical factors, including the following:

Active efforts to preserve its customer base in existing projects, while actively making efforts to broaden and increase its engagements with such clients.

Conducting marketing activities ~~geared~~aiming at penetrating new geographical markets and obtaining new customers, while taking advantage of the unique knowledge and expertise that Gedera, Bental, ~~Limco and~~Limcoand Piedmont gained in various areas.

Entering into additional related operating segments that will enable Gedera, Bental, Limco and Piedmont to fulfill its growth potential.

Providing its customers with the best value, including competitive prices, by tailoring service packages that combine the design and planning of an OEM component, the manufacture of such component, ~~and the~~andthe provision of maintenance services.

Extending MRO capabilities in order to establish a ‘one-stop-shop’ center for comprehensive MRO services for the types of aircraft Limco and Piedmont target.

Enhancing its engineering capabilities in order to support customer needs related to new projects and in order to certify MRO services that differ from processes previously approved by the FAA or ESAA. This will allow shortening the long and complex approval process, streamlining the design and certification process, and reducing costs.

Constant search for new technologies and manufacturing techniques in the heat management solutions line.

Innovations and improvements ~~geared~~aiming at enhancing the quality and performance of Gedera’s, Bental’s, Limco’s and Piedmont’s existing products.

Cutting delivery times and reducing costs.

Entrepreneurship and innovation in the development of new products in an effort to become a market leader and to enter into long term platforms.

Engineering and Manufacturing

As of December 31, ~~2011,~~2012, TAT, had ~~534~~493 employees engaged in manufacturing, repair, and testing of products and in engineering (out of a total of ~~610~~575 employees). TAT believes that its engineering staff provides it with the ability to support its customers with innovative and efficient products while maintaining short product development cycles, high quality design and competitive pricing.

Gedera’s engineering staff has extensive knowledge and experience related to its heat transfer components. Most of Gedera’s product lines have a designated project manager who is an experienced engineer and is in charge of all the activities in his area. The product manager interfaces with the customer, engineering department, manufacturing department and vendors, and is responsible for all aspects of the program including scheduling, adherence to specifications, customer support and reporting.

In general, Gedera has manufacturing capabilities for most of the components of its heat transfer components. Gedera also manufactures the necessary tools, fixtures, test equipment and special jigs required to manufacture, assemble and test these products. Gedera developed proprietary design techniques which assist in the mechanical design and manufacturing of its products. All of Gedera’s products are inspected and tested by trained inspectors using highly sophisticated test equipment in accordance with customer requirements.

Bental’s engineering staff has extensive knowledge and experience related to its electric motion systems. Most of Bental’s product lines have a designated project manager who is an experienced engineer and is in charge of all the activities in his area. The product manager interfaces with the customer, engineering department, manufacturing department and vendors, and is responsible for all aspects of the program including scheduling, adherence to specifications, customer support and reporting.

Limco’s engineering department enhances its ability to provide its customers with high-end top quality MRO services, supports the provision of MRO services for new products with commercial potential and supports its OEM activity. Limco’s engineering department employs several certified mechanical and aerospace ~~engineers, including a Designated Engineering Representative, or DER, certified by the FAA.~~engineers. Limco’s multi-disciplinary team of engineers specializes, among others, in heat transfer components and supports all processes of thermal and structural analysis, mechanical and metallurgical research and development for manufacturing design. All of Limco’s engineers have direct experience with aerospace component repair and have experience with the process of obtaining supplemental type certificates from the FAA and in obtaining FAA product manufacturing authorizations. ~~Limco’s~~Limco utilizes onsite DER at Piedmont facility who is certified by the FAA to approve the repair of engines, mechanical systems and equipment, which enables Limco to respond quickly to its customers’ needs. Having a DER available on staff allows Limco to enter the market for a particular type of service more quickly than those of its competitors who do not ~~employ~~an immediate access to a DER. Limco works directly with the FAA Aircraft Certification Office in obtaining approvals on projects that are outside its DER’s authority.

Piedmont’s engineering department enhances its ability to provide its customers with high-end top quality MRO services and supports the provision of MRO services for new products with commercial potential. Piedmont’s engineering department employs several certified mechanical and aerospace engineers, including a Designated Engineering Representative, or DER, certified by the FAA. Piedmont’s engineers have direct experience with aerospace component repair and have experience with the process of obtaining supplemental type certificates from the FAA and in obtaining FAA product manufacturing authorizations. Piedmont’s onsite DER is certified by the FAA to approve the repair of APUs and equipment, which enables Piedmont to respond quickly to its customers’ needs. Having a DER on staff allows Piedmont to enter the market for a particular type of service more quickly ~~that~~than its competitors who do not employ a DER. Piedmont works directly with the FAA Aircraft Certification Office in obtaining approvals on projects that are outside its DER’s authority.

Research and Development

The technological developments in the markets in which ~~TAT’s OEM segments operate,~~TAT operates, increase the need to constantly examine the use of new materials and technology in an effort to improve both the physical characteristics of the products (size, weight), as well as their performance (optimal heat transfer, higher reliability and increased lifespan). TAT also develops new products and enhanced functionalities to its existing products based on customer demands and by the competitive environment and market potential. TAT invests resources to attain such technological and product improvements in cooperation with its customers.

Source and Availability of Raw Materials and Spare Parts

Gedera, Bental, Limco and Piedmont acquire most of the components for the manufacture of their products from a limited number of suppliers and subcontractors, most of whom are located in Israel and the United States. Certain of these suppliers are currently the sole source of one or more components upon which Gedera, Bental, Limco and Piedmont are dependent. Since many of Gedera’s, Bental’s, Limco’s and Piedmont’s purchases require long lead-times, a delay in the supply of an item can significantly delay the delivery of a product. Generally, Gedera, Bental, Limco and Piedmont have not experienced difficulty in obtaining timely deliveries of necessary components. The raw materials used in Gedera’s, Bental’s, Limco’s and Piedmont’s manufacturing programs are generally readily available metals and alloys. Gedera, Bental, Limco and Piedmont have not had any difficulty in obtaining such materials in the past and if they are unable to obtain these components when needed, Gedera, Bental, Limco and Piedmont would experience delays in manufacturing their products and their financial results could be adversely affected.

Gedera, Bental, Limco and Piedmont select their suppliers primarily based on their ability to ensure that their parts are serviceable and traceable to OEM-approved sources, their delivery performance and their ability to help reduce their total cost of procuring those parts. For quality control, cost and efficiency reasons, Gedera, Bental, Limco and Piedmont generally purchase supplies only from vendors with whom they have ongoing relationships or who their customers have previously approved.

Authorizations from OEMs often require that TAT purchases component parts that are needed for its MRO services from the OEM or its designated distributors. Gedera and Piedmont ~~has an agreement~~have separate agreements with Honeywell under which Honeywell has agreed to sell Gedera and Piedmont certain parts at a discount for a period of five years, ending August 28, 2017 and May 31, ~~2014.~~2014, respectively.

When deemed essential, Gedera, Bental, Limco and Piedmont have been and are investing efforts in order to qualify second sources or have identified alternate sources for many of its parts needs.

Israeli Export Policy

Exports of military related products are subject to the military export policy of the State of Israel. Current Israeli Government policy encourages exports to approved customers, provided that such exports do not run counter to Israeli policy or national security considerations. Gedera and Bental must obtain a permit to initiate a sales proposal and ultimately an export license for the transaction is required. Gedera and Bental may not be able to obtain export permits or licenses in the future. In addition, governmental policy with respect to military exports may be altered. However, to date Gedera and Bental have not encountered any significant difficulties in obtaining necessary permits or licenses for sale of their products.

Proprietary Rights

At the present time Gedera, Bental, Limco and Piedmont do not own any patents. Gedera, Bental, Limco and Piedmont rely on laws protecting trade secrets, and consider such items proprietary, but TAT believes that Gedera, Bental, Limco and Piedmont’s success depends less on the ownership of such proprietary rights than on their innovative skills, technical competences marketing and engineering abilities. Gedera, Bental, Limco and Piedmont have no material registered trademarks.

B. Government Regulations

Aerospace and Safety Regulations

The commercial aerospace industry is highly regulated by the FAA in the United States, EASA in Europe, the Civil Aviation Authority in England and other governmental authorities elsewhere in the world, while the military aerospace industry is governed by military quality specifications established by the U.S. Department of Defense for the manufacturing and repair industries and ISO-9000. TAT is required to be certified by one or more of these entities and, in some cases, by individual OEMs. TAT must also satisfy the requirements of its customers, including OEMs and airlines that are subject to FAA regulations and to evolving industry standards, and provide these customers with products that comply with the government regulations applicable to commercial flight operations. TAT believes it currently satisfies or exceeds these FAA maintenance standards in its repair and overhaul activities. Each of its repair stations is approved by the FAA. TAT also believes it currently satisfies all industry standards in its facilities.

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TAT’s operations are also subject to a variety of worker and community safety laws including the Occupational Safety and Health Act of 1970, known as OSHA, which mandates general requirements for safe workplaces for all US employees In addition, OSHA provides special procedures and measures for the handling of certain hazardous and toxic substances. TAT believes that its operations are in material compliance with OSHA’s health and safety requirements.

TAT believes that it is in material compliance with US, European and other governmental regulations affecting the aerospace and defense industry.

Israeli Regulations

TAT’s operations in Israel are subject to supervision by the Ministry of Defense and Civil Aviation Administration. Gedera and Bental are certified by the Israeli Air Force and the Ministry of Defense for both manufacturing and maintenance. Gedera is also licensed as a repair station for certain components by the Israeli Civil Aviation Administration. In addition, Gedera’s and Bental’s export of certain products and/or know-how is subject to approval by the Department for the Control of the Defense Export of the Israeli Ministry of Defense, known as API. Permits from API must be obtained for the initiation of sales proposals with regard to such exports, as well as for the actual export of such products.

Environmental Matters

TAT’s operations are subject to a number of federal, state and local environmental laws in the United States and Israel, and to regulation by government agencies, including the U.S. Environmental Protection Agency. Among other matters, these regulatory authorities impose requirements that regulate the emission, discharge, generation, management, transportation and disposal of pollutants and hazardous substances. These authorities may require TAT to initiate actions to remediate the effects of hazardous substances which may be or have been released into the environment, and require TAT to obtain and maintain permits in connection with TAT’s operations. This extensive regulatory framework imposes significant compliance burdens and risks.

Although TAT seeks to maintain its operations and facilities in compliance with applicable environmental laws, there can be no assurance that TAT has no violations, or that change in such laws, regulations or interpretations of such laws or in the nature of TAT’s operations will not require TAT to make significant additional expenditures to ensure compliance in the future. Currently, TAT does not believe that it will have to make material capital expenditures for its operations to comply with environmental laws or regulations, or to incur material costs for environmental remediation during the ~~2012~~2013 fiscal year.

TAT has received no material third party environmental claims relating to its facilities, and TAT believes that it has all material licenses and certifications that are required in the jurisdictions in which it operates.

C. ~~Organizational Structure~~

Isal Amlat is currently the beneficial owner of 53.89% of TAT’s outstanding shares, through its 94% holding in KMN Industries, 10.27% of such shares are held directly by it, and 43.63% of such shares are held directly by TAT’s parent company TAT Industries. Isal Amlat owns 79.3% of the outstanding shares of TAT Industries. Isal Amlat is 81.68% controlled by KMN Holdings Ltd., an Israeli company publicly traded on the Tel Aviv Stock Exchange.

~~On January 1, 2008, TAT established a wholly-owned subsidiary under the laws of the State of California, TAT-GAL Inc., which acts as purchasing agent for TAT’s operations.~~

D. Property, Plants and Equipment

The Gedera facility is located in Park Re’em near Gedera. The Park Re’em’s location houses TAT’s executive offices, Gedera’s research and development and manufacturing operations and includes approximately 344,000 square ~~foot~~feet facility. The land of this facility is leased by TAT Industries from the Israel Land Authority, or ILA pursuant to a lease that expires in 2016 with respect to one plot (237,000 square feet) and 2020 with respect the other plot (107,000 square feet). The leases term may be extended for a subsequent period of up to ~~49years,~~49 years, subject to payment to be calculated according to the ILA's rules. Approximately 43,000 square feet of the facility was sub-leased to TAT in 1991 until 2020 for rental fees which were paid in advance for the whole sub-lease period. TAT sub-leases the remaining 301,000 square feet of the facility from TAT Industries pursuant to an agreement TAT entered into in connection with the purchase of the operations relating to the manufacture of aviation accessories of TAT Industries in February 2000. The agreement is for a period of 24 years and 11 months and the rental fee is subject to revaluation every fifth year. From 2000 to 2004, TAT paid TAT Industries annual rental fees of approximately $300,000 per year, with an additional incremental payment of 2% per year. In 2005 the rental fee was reviewed by a real estate appraiser, and as a result was increased to $310,000 per year with an additional incremental payment of 2% per year. In 2010 the rental fee was reviewed again by a real estate appraiser, and as a result was increased to $400,000 per year with an additional incremental payment of 2% per year. Total rental payment TAT paid to TAT Industries during 2012 and 2011 were $416,000 and ~~2010 were~~ $408,000, ~~and $371,000,~~ respectively. See also Item 7.B "Major Shareholders and Related Party Transactions – Related Party Transactions – Management and Services Agreement with TAT ~~Industries".~~Industries."

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The operations of Bental are conducted in Kibbutz Marom-Golan. The Marom-Golan ~~location includes~~facility is located on a 54,000 square feet ~~facility~~land, that houses Bental’s offices, research and development and manufacturing ~~operations.~~operations that include all together approximately 18,500 square feet. The facility is leased from Bental Investments Cooperative Agricultures Society Ltd. and from Kibbutz Marom-Golan pursuant to a lease that expires in December 2013 (for a 14,500 square feet plot) and June 2027 (for a 4,000 square feet plot), respectively. The lease agreement may be extended for subsequent periods upon terms. Total rental payment Bental paid in 2012 and 2011 was $51,000 and ~~2010 was~~ $53,000, ~~and $54,000,~~ respectively.

Limco owns and operates a 55,000 square feet manufacturing plant in Tulsa, Oklahoma which has historically supported all its business, including its aftermarket heat transfer component repair station. This facility also has housed Limco’s administration, engineering, quality control and support services. Limco also leases an additional 9,000 square feet repair station adjacent to its Tulsa manufacturing plant which has supported its heat transfer component and pneumatic ducting MRO services.

Piedmont leases approximately 56,000 square feet space for its facility in Kernersville, North Carolina to support its aftermarket APU, Landing Gear and related component repair station. In ~~2011~~2012 and ~~2010,~~2011, the annual rental expense for this property was ~~$70,000~~$78,000 and ~~$69,000~~$70,000 , respectively for each one of these years. The lease, ~~which~~ expires on ~~November 1, 2012, provides for a renewal option for a five year term.~~October 31, 2016. Piedmont also leases approximately 32,000 square feet for its facility in Winston Salem, North Carolina to support its plating and machining shop as well as related component repairs. In ~~2011~~2012 and ~~2010,~~2011, the annual rental expense for this property was ~~$50,000~~$48,000 for each one of these years. The lease expires on ~~November 1, 2016.~~

December 31, 2017.

Item 4A. Unresolved ~~Staff~~S taff Comments

Not applicable.

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Item 5. ~~Operating~~Operating and Financial Review and Prospects

Operating Results

The following discussion of our results of operations should be read together with our consolidated financial statements and the related notes, which appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our current plans, estimates and beliefs and involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report.

Overview

TAT provides a variety of services and products to the aerospace and defense industries under four segments: (i) OEM of Heat Management Solutions; (ii) OEM of Electric Motion Systems; (iii) Heat Transfer Services and Products; and (iv) MRO services for Aviation Components.

TAT’s activities in the field of OEM of Heat Management Solutions primarily relate to its Gedera facility and include the (i) design, development, manufacture and sale of a broad range of heat transfer products (such as heat exchangers, pre-coolers and oil/fuel hydraulic coolers) used in mechanical and electronic systems on-board commercial, military and business aircraft; and (ii) manufacture and sale of environmental control and cooling systems and (iii) a variety of other electronic and mechanical aircraft accessories and systems such as pumps, valves, power systems and turbines. It also includes, to a lesser extent, the maintenance services for heat transfer products and flow control accessories.

TAT’s activities in the field of Heat Transfer Services and Products primarily relate to its subsidiary, Limco, and include the maintenance, repair and overhaul of heat transfer products and other aircraft component. Limco operates an FAA certified repair station, which provides aircraft component MRO services for airlines, air cargo carriers, maintenance service centers and the military. In addition to its MRO services, Limco also manufactures heat transfer products used in commercial, regional, business and military aircraft.

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TAT’s MRO services for Aviation Components primarily relate to its subsidiary, Piedmont, and include the maintenance, repair and overhaul of APUs, and landing gear. Piedmont operates an FAA certified repair station, which provides aircraft component MRO services for airlines, air cargo carriers, maintenance service centers and the military.

TAT’s Parts services division, operated as an operational segment until December 4, 2009, focused on inventory management and sale of APU parts, propellers and landing gear. On December 4, 2009, TAT sold its propellers MRO business and parts services segment to FAvS (See “Item 4 – Information of the Company; History and development of TAT”).

TAT is reliant on the commercial and military aviation and defense industries. Any downturn in these industries could decrease demand for its services and products and negatively impact its financial condition. The commercial airline industry is cyclical and has historically been subject to fluctuations due to general economic and political conditions, such as fuel and labor costs, price competition, downturns in the global economy and national and international events.

TAT’s revenues from OEM operations generally have higher gross margins than from MRO ~~services which generally have higher gross margins than parts services, where the historical gross margins are generally lower.~~services. Respectively, the manufacture of OEM products require higher level of expertise, associated labor and initial investments than does the provision of MRO ~~services and of parts~~ services.

TAT’s cost of revenues for OEM operations and MRO services consists of component and material costs, direct labor costs, shipping expenses, royalties, overhead related to manufacturing and depreciation of manufacturing equipment. ~~TAT’s cost of revenues for parts services consisted primarily of the cost of the parts and shipping expenses.~~ TAT’s gross margin is affected by the proportion of its revenues generated from each of its operational segments.

The principal factors that affect the operating income of TAT’s four segments in addition to their gross profit, is the amount TAT expends for selling and marketing expenses and general and administrative expenses. While TAT plans to tightly monitor and save on its operating expenses, TAT believes that these operating expenses may increase in the future in accordance with its plans to grow the business of these segments.

TAT’s research and development expenses are related to new products and technologies or significant improvement in existing products and technologies, primarily within the OEM operations in Israel and ~~became relatively material during year 2009~~in the Heat Transfer Services and ~~thereafter.~~Products operating segment in the U.S.

TAT’s selling and marketing expenses ~~for all its operational segments moderately decreased~~ during the past year were similar to previous year. While TAT plans to tightly monitor and save on its operating expenses, TAT believes that its selling and marketing expenses may increase in the future in accordance with its plans to grow the business of these segments.

TAT’s general and administrative expenses have ~~decreased~~increased during ~~2011,~~2012, following a decrease in ~~2010 compared~~2011compared to the previous year. The increase in 2012 was primarily as result of a provision recorded for a doubtful debt and a decrease in FAvS participation in certain operating expenses during year 2012 in the MRO services for aviation components operating segment. The decrease in 2011 was primarily as result of $1.8 million non-recurring expense recorded in the fourth quarter of 2010 related to the Parts services operations and the Propellers MRO operations contributed to FavS. The decrease in 2010 was primarily as a result of one time expenses occurred in 2009 associated with the write off of a customer debt, the merger of TAT with its a wholly-owned subsidiary, Limco and relocation expenses born by Limco (see further below). While TAT plans to tightly monitor and save on its operating expenses, TAT believes that its general and administration expenses may increase in the future in accordance with its plans to grow the business of these segments.

In July 2005, Limco acquired Piedmont for approximately $20.2 million, which included $5.3 million in cash and the assumption of approximately $8.7 million of bank indebtedness and $5.6 million of other liabilities of Piedmont. The acquisition was accounted for using the purchase method of accounting as determined in the relevant accounting standards and accordingly, the purchase price was allocated to the assets acquired and the liabilities assumed based on the estimated fair value at the date of acquisition.

In July 2007, Limco completed an initial public offering of its shares of Common stock. In connection with the initial public offering, Limco sold an aggregate amount of 4,205,000 shares of its Common stock (including over allotment option shares) and TAT sold an aggregate amount of 855,000 shares of Limco’s Common stock held by TAT (including over allotment option shares), at a price to the public of $11.00 per share. Net proceeds to Limco from the offering were approximately $41.2 million and net proceeds to TAT from the offering were approximately $8.7 million. As a result, TAT recognized a net capital gain of approximately $26.4 million net of taxes of $1.2 for the year ended December 31, 2007.

In July 2009, TAT acquired all of the publicly held shares of Limco (approximately 32% of Limco’s total shares). Under the terms of the merger agreement, Limco's stockholders received one half of an Ordinary share of TAT for each share of Limco Common stock they ~~own.~~own following which they held approximately 27.8% of the then share capital of TAT. As a result of such merger, Limco again became a wholly-owned subsidiary of TAT.

On December 4, 2009, TAT’s indirect subsidiary, Piedmont, acquired 288,334 shares of Class B Common stock of First Aviation Services Inc., or FAvS, representing 37% of FAvS's then share capital (total number of shares acquired is adjusted to reflect of a 1 for 20 reverse stock split) and $750,000 of FAvS' Preferred Shares (entitling Piedmont to cash dividends at an annual rate of 12% payable quarterly or at the discretion of FAvS to PIK dividends payable in additional Preferred Shares at an annual rate of 15%). In consideration for such shares, Piedmont transferred to FAvS its propellers and parts businesses and guaranteed for a period of up to two years up to $7 million of the bank debt incurred by FAvS to fund the transaction described in the next paragraph. FAvS is a provider of ~~products and services for the global aviation industry and provides supply chain management services and~~ maintenance and repair services for various wheels, brakes and starter/generators.

On December 4, 2009 and as part of the above mentioned transaction, FAvS also acquired all the assets and liabilities of Aerospace Turbine Rotables ("AeTR"). AeTR specializes in renovation and repair of landing gear, safety equipment and hydraulic and electrical components for corporate, regional and military aircraft.

FAvS' shares are quoted over the counter (OTC) at the NASDAQ stock market. FAvS' share value as of the closing date (December 4, 2009) and as of December 31, 2009, 2010, 2011 and ~~2011~~2012 was $17.8, $15.0, $12.4, $5.45, and ~~$5.45,~~$7.00, respectively (share value adjusted as result of a 1 for 20 reverse stock split). TAT believes that the share value does not reflect the fair value of FAvS shares, because the extremely low trading volume in FAvS' shares does not reflect an active market. Therefore the fair value of FAvS was based on an appraisal performed by management, which included a number of factors, including the assistance of independent appraisers. According to the appraisal, FAvS' fair value amounted to $22.549 million as of November 30, 2009. As a result of the sale of Piedmont’s propellers and spare parts businesses, TAT recorded a capital gain in the amount of $4.4 million in its statement of income.

During the year ended December 31, 2010, TAT recorded write down of inventory in the amount of $3.5 million attributable to inventory of the MRO segment. In 2010 management recognized that the aviation industry is not recovering quickly enough, as it previously estimated, from year 2009 recession and that the industry does not pick up growth rates as were in prior years. As a result management estimated a decline in future forecasted sales levels and profitability margins resulting from the said anticipated weakness in the global aviation industry in general and to a greater extent in the U.S., where the MRO segment is operated under Limco and Piedmont.

During the year ended December 31, 2010, the Company performed its annual impairment test of goodwill. Based on the results of this test, the Company encountered adverse changes in the business climate including a weak U.S. and global economy which resulted in a reduction in demand for the MRO services. In year 2010 management also recognized that the aviation industry is not recovering quickly enough, as it previously estimated, from year 2009 recession and that the industry does not pick up growth rates as were in prior years. As a result management estimated a decline in future forecasted sales levels and profitability margins resulting from the said anticipated weakness in the global aviation and revised its future cash flow expectations, which lowered the fair value estimates of a certain reporting unit. The Company determined under the second step of its annual test that the fair value of goodwill at its MRO reporting unit was less than the carrying value for this reporting unit. The Company recorded a $4.2 million impairment charge in the third quarter of 2010 to reflect the implied fair value of goodwill for the MRO reporting unit

During 2010, the Company also reviewed its other intangible assets for impairment, in accordance with ASC 360. The Company estimated the fair value of its other intangible assets using a discounted cash flow analysis and compared those values to the carrying value of the assets. The Company concluded, based on this comparison, that customer relations were impaired at its MRO reporting unit. The Company recorded a $0.48 million impairment charge during the year ended December 31, 2010 to reflect the fair value of those customer relations for the MRO reporting unit.

As of December 31, 2010, TAT recognized an impairment charge of $1.8 million of its 37% interest in FAvS, which was performed with the assistance of an independent appraisal.

During the year ended December 31, 2011, the Company recorded a write down of inventory in the amount of $2.5 million under cost of revenues, attributable to inventory of the MRO for Aviation Components operating segment. The write down was due to management’s estimate of the continued decline in future forecasted sales levels and profitability margins in certain product lines in this operating segment resulting from the weakness in these areas of business.

In addition, although revenues in the MRO for Aviation Components operating segment have increased in 2011 compared to 2010, profit margins were lower than anticipated. Accordingly, the Company reviewed the MRO for Aviation Components’ long lived assets for impairment by estimating the fair value of this segment’s operations and the fair value of its specific long lived assets, and comparing those values to the carrying value of the assets.

The Company concluded, based on this valuation, that certain fixed assets and intangible asset amounting to $1.9 million and $1.1 million, respectively at its MRO for Aviation Components operating segment were impaired.

Due to management estimates of a continuing decline in sales levels in the OEM of Electric Motion Systems operating segment, resulting from the weakness in the Israeli defense market, the Company reviewed indications for impairment of certain identifiable assets in this segment. Accordingly, the Company reviewed these assets for impairment by estimating their fair value based on their net selling price and comparing those values to the carrying value of the assets. As a result the Company concluded that the intangible asset ‘Customer Relations’ at its OEM of Electric Motion Systems operating segment in the amount of $0.3 million was impaired.

Accordingly, the Company recorded a $3.3 million impairment charges during the quarter ended September 30, 2011 to reflect the fair value of the long lived assets mention above.

During the second quarter ended June 30, 2012, management believed that there were indicators of impairment of goodwill in its OEM of Electric Motion System reporting unit, primarily due to a decline in future forecasted sales levels and profitability margins resulting from the continued weakness in the defense industry. Accordingly, the Company performed an impairment test of goodwill, as of June 30, 2012, for this reporting unit, with the assistance of a third party valuation. Based on the results of this test, the Company determined that the entire balance of goodwill included in this reporting unit was impaired and recorded an impairment charge of $1.0 million

In addition, in June 2012, FAvS entered into a transaction with its controlling stockholder, Mr. Hollander, pursuant to which FAvS borrowed $3 million from Mr. Hollander, secured by a third lien on the assets of FAvS. The loan bears interest at 10% and in addition Mr. Hollander was issued warrants to purchase shares of Class A Common Stock of FAvS, representing 15% of FAvS post-exercise shareholders’ equity, at an exercise price of $7.00 per share. Pursuant to the terms and conditions of the transaction, management believed that there were indicators of impairment with respect to TAT’s investment in FAvS. Accordingly, the Company performed an impairment test of its investment in FAvS, with the assistance of a third party valuation. Based on the results of this test the Company determined that its investment in FAvS was impaired by $3.3 million. The impairment was due to a decline in FAvS’ profitability margins and future forecasted sales levels which related to the business of API, one of FAvS subsidiaries, and approximates TAT’s share in the loss resulting from the API Transaction discussed below.

On March 18, 2013 FAvS sold 97% of the stock of API for a total purchase price of $16.5 million, out of which $15.9 million was used to repay debt (the “API Transaction”). The sale resulted in FAvS retaining a 3% equity interest in the API business. The API transaction resulted in a loss from discontinued operations and write-down of the API business of $11.5 million which is included in the FAvS loss for the year ended December 31, 2012. Simultaneously with the transaction FAvS paid-off its Term Loan in the amount of $4 million thereby terminating the guaranty and releasing the Letter of Credit provided by TAT to secure such guaranty. Accordingly the restricted deposit associated with the above Letter of Credit, was released as well.

Sources of Revenues

TAT, directly and through its subsidiaries, provides a variety of services and products to the commercial and military aerospace and defense industries, such as the manufacture, maintenance and repair of a broad range of heat transfer components (such as heat exchangers, pre-coolers and oil/fuel hydraulic coolers) used in mechanical and electronic systems on-board commercial, military and business aircraft; other environmental control and cooling systems a variety of other electronic and mechanical aircraft accessories and a wide range of electric motion systems.

TAT specializes in the repair and overhaul of heat transfer products, APUs, landing gear and pneumatic ducting. TAT is a well recognized repair center for heat transfer products of Hamilton Sundstrand, a leading provider of aerospace products, to provide MRO services for all of its air-to-air heat transfer products, and an authorized repair center by Honeywell, a leading manufacturer of aerospace products and aerospace services provider, to provide MRO services for several of their APU models. TAT’s repair stations are certified by the FAA and the EASA as well as by the Civil Aviation Administration of Vietnam (CAAV) and Thailand (Thai) .

TAT’s Parts services division, operated until December 4, 2009, focused on inventory management and sale of APU parts, propellers and landing gear. On December 4, 2009, TAT sold its parts segment and its MRO propellers business to FAvS (See “Item 4 – Information of the Company; History and development of TAT”).

The following table reflects the geographic breakdown of TAT’s revenues for each of the three years ended December 31, ~~2011:~~

Years Ended December 31,
2011 2010 2009

Revenues
in
Thousands

% of
Total
Revenues

Revenues
in
Thousands

% of
Total
Revenues

Revenues
in
Thousands

% of
Total
Revenues

Sale of products
North America $ 20,988 29.6 % $ 7,531 19.3 % $ 7,554 21.7 %
Europe 6,048 16.1 % 5,567 14.3 % 5,788 16.7 %
Israel 18,945 50.3 % 23,223 59.6 % 19,613 56.4 %
Other 1,527 4.0 % 2,633 6.8 % 1,796 5.2 %
Total $ 47,508 100.00 % $ 38,954 100.00 % $ 34,751 100.00 %
2012:

Years Ended December 31,
2011 2010 2009

Revenues
in
Thousands

% of
Total
Revenues

Revenues
in
Thousands

% of
Total
Revenues

Revenues
in
Thousands

% of
Total
Revenues

Services
North America $ 26,403 75.9 % $ 25,607 62.8 % $ 34,043 70.4 %
Europe 8,253 17.3 % 8,573 21.0 % 10,767 22.3 %
Israel 384 0.8 % 410 1.0 % 95 0.2 %
Other 2,849 6.0 % 6,211 15.2 % 3,435 7.1 %
Total $ 37,889 100.00 % $ 40,801 100.00 % $ 48,340 100.00 %

	Years Ended December 31,
	2012					2011					2010
	Revenues in Thousands		% of Total Revenues			Revenues in Thousands		% of Total Revenues			Revenues in Thousands		% of Total Revenues
Sale of products
North America	$	17,068		34.7	%	$	20,988		29.6	%	$	7,531		19.3	%
Europe		9,828		19.9	%		6,048		16.1	%		5,567		14.3	%
Israel		18,223		37.0	%		18,945		50.3	%		23,223		59.6	%
Other		4,151		8.4	%		1,527		4.0	%		2,633		6.8	%
Total	$	49,270		100.00	%	$	47,508		100.00	%	$	38,954		100.00	%

6669

	Years Ended December 31,
	2012					2011					2010
	Revenues in Thousands		% of Total Revenues			Revenues in Thousands		% of Total Revenues			Revenues in Thousands		% of Total Revenues
Services
North America	$	28,120		72.8	%	$	26,403		75.9	%	$	25,607		62.8	%
Europe		5,105		13.2	%		8,253		17.3	%		8,573		21.0	%
Israel		288		0.7	%		384		0.8	%		410		1.0	%
Other		5,139		13.3	%		2,849		6.0	%		6,211		15.2	%
Total	$	38,652		100.00	%	$	37,889		100.00	%	$	40,801		100.00	%

TAT’s revenues from its four operational segments for the three years ended December 31, ~~2010~~2012 were as follows:

	Year Ended December 31,																		Year Ended December 31,
	2011						2010						2009						2012						2011						2010
	Revenues in Thousands			% of Total Revenues			Revenues in Thousands			% of Total Revenues			Revenues in Thousands			% of Total Revenues			Revenues in Thousands			% of Total Revenues			Revenues in Thousands			% of Total Revenues			Revenues in Thousands			% of Total Revenues
Revenues
OEM of Heat Management Solutions	$	30,020			35.2	%	$	29,651			37.2	%	$	28,617			34.4	%	$	31,032			35.3	%	$	30,020			35.2	%	$	29,651			37.2	%
Heat Transfer Services and Products *		27,603			32.3			24,468			30.7	%		17,495			13.8	%		27,709			31.5	%		27,603			32.3	%		24,468			30.7	%
MRO services for Aviation Components *		20,146			23.6			16,333			20.4	%		24,788			37.1	%		22,442			25.5	%		20,146			23.6	%		16,333			20.4	%
OEM of Electric Motion Systems		11,658			13.6			13,046			16.4	%		11,321			13.6	%		10,007			11.4	%		11,658			13.6	%		13,046			16.4	%
Parts services **		-			-			-			-	%		6,057			7.3	%
Eliminations		(4,030	)		(4.7	)%		(3,743	)		(4.7	)%		(5,187	)		(6.2	)%		(3,268	)		(3.7	)%		(4,030	)		(4.7	)%		(3,743	)		(4.7	)%
Total revenues	$	85,397			100.00	%	$	79,755			100.00	%	$	83,091			100.00	%	$	87,922			100.00	%	$	85,397			100.00	%	$	79,755			100.00	%

As of January 1, 2011, TAT began reporting its operations based on four operating segments, after dividing its MRO Services operating segment into two separate segments: Heat Transfer Services and Products and MRO services for Aviation Components. Accordingly, the revenues and costs reported for the ~~three months and nine months periods~~twelve month period ended ~~September 30,~~December 31, 2010 for MRO Services operating segment were divided between these two new operating segments. Additionally, the operating segment name of ‘OEM of Heat Transfer Products’ was changed to 'OEM of Heat Management Solutions'.

**	~~Operated until December 4, 2009~~Costs and Expenses

~~Costs and Expenses~~

Cost of revenues TAT’s cost of revenues for OEM operations and MRO services consist of component and material costs, direct labor costs, royalties, shipping expenses, overhead related to manufacturing and depreciation of manufacturing equipment. TAT’s cost of revenues for parts services in years 2009 (until December 4, 2009, when parts services segment was sold to FAvS) and 2008 consisted primarily of the cost of the parts and shipping expenses. Cost of revenues for 2011 ~~and 2010~~ also included non-recurring expenses associated with a write down of inventory and impairment charges of long lived assets.

TAT’s gross margin was affected by the proportion of TAT’s revenues generated from OEM operations and MRO services ~~and Parts Services~~ in each of the reported years, as well as by non-recurring expenses associated with a write down of inventory and impairment charges of long lived assets recorded in ~~2011 and 2010.~~2011.

Research and development expenses, net. Research and development expenses, net are related to new products and technologies or to a significant improvement of products and technologies, net of grants and participations received.

Selling and marketing expenses. Selling and marketing expenses consist primarily of commission payments, compensation and related expenses of TAT’s sales teams, attendance at trade shows, advertising expenses and related costs for facilities and equipment.

General and administrative expenses. General and administrative expenses consist of compensation and related expenses for executive, finance and administrative personnel, professional fees, other general corporate expenses and related costs for facilities and equipment.

Impairment of goodwill and intangible assets. During the second quarter ended June 30, 2012, management believed that there were indicators of impairment of goodwill in its OEM of Electric Motion System reporting unit, primarily due to a decline in future forecasted sales levels and profitability margins resulting from the continued weakness in the defense industry. Accordingly, the Company performed an impairment test of goodwill, as of June 30, 2012, for this reporting unit, with the assistance of a third party valuation. Based on the results of this test, the Company determined that the entire balance of goodwill included in this reporting unit was impaired and recorded an impairment charge of $1.0 million. During the quarter ended September 30, 2010, TAT performed its annual impairment test of goodwill. Based on the results of this test TAT recorded goodwill impairment charge for the goodwill included in the MRO Services segment. In addition, the Company recorded an impairment charge related to Intangible assets ‘Customer Relations’ in the MRO Services segment.

Financial income (expense), net. Financial income (expense), net consists of income and interest expense. Interest expense relates to the interest paid to banks and changes in the rate of the NIS against the U.S. dollar.

Other income (expense). Other income (expense) results from capital gain on sale of property and equipment and from other-than-temporary impairment loss on auction rate securities recorded in 2010.

Tax expense (income). Tax expense consists of Israeli, U.S. federal, state and local taxes on the income of TAT’s business and changes in deferred tax assets (liabilities).

Impairment of share in associated company. During the quarter ended June 30, 2012 TAT recognized an impairment with respect to its approximately 30% interest in FAvS’, which was based on an independent appraisal. During the quarter ended December 31, 2010, TAT performed an impairment testing of its investment in FAvS, due to certain indicators suggesting such test. Based on the results of this test the Company determined that its investment in FAvS was impaired due to a decline in FAvS’ profitability margins and future forecasted sales levels.

Impact of Critical Accounting Policies

TAT’s consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require management to make certain estimates, judgments and assumptions based upon information available at the time that they are made, historical experience and various other factors that are believed to be reasonable under the circumstances. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. While all the accounting policies impact the financial statements, certain policies may be viewed to be critical. These policies are those that are both most important to the portrayal of TAT’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments and estimates. Actual results could differ from those estimates.

In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles in the United States and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result. Management has reviewed these critical accounting policies and related disclosures with TAT’s Audit Committee.

TAT’s management believes the significant accounting policies which affect management’s more significant judgments and estimates used in the preparation of TAT’s consolidated financial statements and which are the most critical to aid in fully understanding and evaluating the reported financial results include ~~revenue recognition, inventory valuation, goodwill and intangible assets, income taxes, doubtful debts and fair value estimation of~~ the ~~FAvS transaction that was based on an appraisal performed by management, which included a number of factors, including, in some cases, the assistance of independent appraisers.~~following:

Revenue recognition

Inventory valuation

Goodwill, Intangible assets and Long-lived assets

Income taxes

Doubtful debts

Fair value estimation of TAT’s investment in FavS, performed by management with the assistance of a third party valuation.

Segments

TAT operates under four segments: (i) Original Equipment Manufacturing or “OEM” of Heat Management Solutions (ii) OEM of Electric Motion Systems (iii) Heat Transfer Services and Products, and (iv) Maintenance, Repair and Overhaul or “MRO” services for Aviation Components.

Until December 31, 2010, TAT operated under three segments. Commencing January 1, 2011, TAT began reporting its operations based on four operating segments, after dividing its MRO Services operating segment into two separate segments: Heat Transfer Services and Products; and MRO services for Aviation Components. Additionally, the operating segment name of ‘OEM of Heat Transfer Products’ was changed to 'OEM of Heat Management Solutions'.

Commencing December 4, 2009, following the sale of TAT’s parts segment and its MRO propellers business to FAvS (as part of the transaction described under “Item 4 – Information of the Company; History and Development of TAT”) and until December 31, 2010, TAT reported its operations based on three operating segments.

~~Until December 4, 2009, TAT also operated an additional segment – the Parts segment, that focused on sales of parts for APU's, propellers, landing gear and other aviation components.~~

~~The OEM of electrical motion systems segment was added with the consolidation of Bental, following its acquisition on August 18, 2008.~~

TAT evaluates segment performance based on revenue and operating income. The operating income reported in TAT's segments excludes corporate and other unallocated amounts. Although such amounts are excluded from the business segment results, they are included in reported consolidated earnings. Corporate and unallocated amounts include executive level expenses and certain expenses related to accounting and finance, human resources and information technology departments.

TAT’s activities in the area of OEM of Heat Management Solutions primarily relate to its Gedera facility and include (i) the design, development, manufacture and sale of a broad range of heat transfer products (such as heat exchangers, pre-coolers and oil/fuel hydraulic coolers) used in mechanical and electronic systems on-board commercial, military and business aircraft; (ii) the manufacture and sale of environmental control and cooling systems and (iii) a variety of other electronic and mechanical aircraft accessories and systems such as pumps, valves, power systems and turbines. It also includes, to a lesser extent, the maintenance services for heat transfer products and flow control accessories.

TAT’s activities in the area of OEM of Electric Motion Systems primarily relate to its subsidiary, Bental, and include the design, development, manufacture and sale of a broad range of electrical motor applications for airborne and ground systems.

TAT’s activities in the field of Heat Transfer Services and Products primarily relate to its subsidiary, Limco, and include the maintenance, repair and overhaul of heat transfer equipment and in a lesser extent, the manufacturing of certain heat transfer products. TAT’s Limco subsidiary operates an FAA certified repair station, which provides heat transfer MRO services and products for airlines, air cargo carriers, maintenance service centers and the military.

TAT’s activities in the field of MRO services for Aviation Components primarily relate to its subsidiary, Piedmont, and includes the maintenance, repair and overhaul of APUs, landing gear and other aircraft components. TAT’s Piedmont subsidiary operates an FAA certified repair station, which provides aircraft component MRO services for airlines, air cargo carriers, maintenance service centers and the military.

Revenue Recognition

TAT generates its revenues from the sale of products and systems (the OEM segments) and from providing MRO Services (remanufacture, repair and overhaul services and long-term service contracts) ~~and, until December 4, 2009, parts services.~~.

Revenues from the sale of products and services are recognized in accordance with ASC 605-10-S99 when persuasive evidence of an arrangement exists, delivery of the product has occurred, provided the collection of the resulting receivable is probable, the price is fixed or determinable and no significant obligation exists. TAT does not grant a right of return.

Revenues from product sales are recognized when product is shipped to the customer and title passes to the customer.

Revenues from multi-year, fixed price contracts for OEM customers are recognized when a product is shipped (and title passes) to the customer. Management provides for losses, if expected for the remaining portion of such contracts. For the years ended December 31, 2012, 2011 ~~2010~~ and ~~2009,~~2010, no losses have been recognized for such fixed price contracts.

Revenues from MRO services are recognized as services are performed, at the time when the customer-owned material is shipped back to the customer.

Revenue from maintenance contracts are accounted according to ASC 605-10-S99. Accordingly, revenues from maintenance contracts are recognized over the contract period in proportion to the costs expected to be incurred in performing services under the contract. TAT estimates the costs that are expected to be incurred based on its experience with the aggregate costs incurred and to be incurred on contracts of this nature. The cost incurred related to the maintenance contracts are not incurred on a straight-line basis, as the timing to provide the maintenance services is dependent on when parts under these contracts require maintenance, therefore TAT accrues revenue based on anticipated costs per contract as costs are incurred. These revenues are then compared to actual results and adjusted to either deferred revenue for results greater than historical estimates or expensed in those cases of performances less than historical estimates. These accounts are reviewed monthly and adjusted as needed based on cost structures.

Revenues from royalties from sales of products developed with TAT’s intellectual property, technology and technical assistance are recognized when the related sales are made.

Valuation of Goodwill, Intangible Assets and Long-Lived Assets

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations.

In conjunction with acquisitions of assets, we allocate the purchase price based upon the relative fair values of the assets acquired and liabilities assumed. In connection with a business combination, amounts assigned to intangible assets are based upon fair value. We regularly assess whether indefinite life intangibles and goodwill have been impaired and will adjust the carrying values of these assets whenever events or changes in circumstances indicate that some or all of the carrying value of the assets may not be recoverable. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operating performances of our businesses and products. Future events could cause us to conclude that impairment indicators exist and that the carrying values of our intangible assets or goodwill are impaired. Any resulting impairment loss could have a material adverse impact on our financial position and results of operations.

7275

We evaluate the recoverability and measure the possible impairment of goodwill. The impairment test is a two-step process that begins with the estimation of the fair value of the reporting unit. The first step screens for potential impairment, and the second step measures the amount of the impairment, if any. Our estimate of fair value considers publicly available information regarding the market capitalization of the company, as well as (1) publicly available information regarding comparable publicly traded companies in the aviation industry, (2) the financial projections and future prospects of our business, including its growth opportunities and likely operational improvements, and (3) comparable sales prices, if available. As part of the first step to assess potential impairment, we compare, on an operating unit level, our estimate of fair value for such operating unit to the book value of the operating unit. If the book value of any of the operating units is greater than the estimate of its fair value, we would then proceed to the second step to measure the impairment, if any. The second step measures the amount of impairment by comparing the implied fair value of goodwill with its carrying value. Such implied fair value is determined by allocating the fair value of the operating unit to all of the assets and liabilities of that unit as if the operating unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the operating unit. The excess of the fair value of the operating unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the carrying amount of the operating unit’s goodwill is greater than its implied fair value, an impairment loss will be recognized in the amount of the excess.

We have determined September 30 of each year as the date of the annual impairment test for goodwill and other indefinite life intangible assets.

During the second quarter ended ~~September~~June 30, ~~2011, we~~2012, management believed that there were indicators of impairment of goodwill in its OEM of Electric Motion System reporting unit, primarily due to a decline in future forecasted sales levels and profitability margins resulting from the continued weakness in the defense industry. Accordingly, the Company performed ~~the annual~~an impairment test of goodwill, ~~resulting from the acquisition~~as of ~~Bental, the of Electric Motion Systems~~June 30, 2012, for this reporting unit, inwith the ~~amount~~assistance of ~~$1.0 million. We found that the implied fair value of the goodwill is greater than its carrying amount.~~a third party valuation. Based on the results of this test, the ~~test, we~~Company determined that the ~~carrying amount~~entire balance of goodwill ~~was not impaired.~~

~~The fair value of the OEM of Electric Motion Systems~~included in this reporting unit ~~exceeded its carrying value by approximately $100,000 or 1.1%~~was impaired and ~~thus was at risk~~recorded an impairment charge of failing step one of the goodwill impairment test, and is therefore at risk of a future impairment in the event of unfavorable changes in the forecasted cash flows or the key assumptions used in the analysis, including the weighted average cost of capital (discount rate) and growth rates utilized in the discounted cash flow analysis.$1.0 million.

7376

~~The Company determined~~During the ~~fair value of the OEM of Electric Motion Systems reporting unit using the discounted cash flows method. The material assumptions used for~~quarter ended September 30, 2011, annual test were three years of projected net cash flows (in accordance with the Company’s budget), a discount rate of 18% and a long-term growth rate of 1.95%. The Company considered historical rates and current market conditions when determining the discount and growth rates to use in its analyses. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for its goodwill.

If the estimated discount rate used in discounting future cash flows of the OEM of Electric Motion Systems reporting unit, based on Company’s budget and forecasts, would have been higher by 1%, the Company would have recognized an impairment charge of goodwill of approximately $480,000.

If the estimated long-term growth rate used in calculating the terminal value, based on Company’s budget and forecasts, would have been lower by 1%, the Company would have recognized an impairment charge of goodwill of approximately $140,000.

~~In addition,~~ although revenues in the MRO for Aviation Components operating segment have increased in 2011 compared to 2010, profit margins for this operating segment were lower than anticipated. Accordingly, the Company reviewed certain of its long lived assets for impairment by estimating their fair value based on their net selling price and comparing those values to the carrying value of the assets. The Company concluded, based on this valuation, that certain fixed assets and intangible assets amounting to $1.9 million and $1.1 million, respectively at its MRO for Aviation Components operating segment were impaired.

Due to management estimates of a continuing decline in sales levels in the OEM of Electric Motion Systems operating segment resulting from the weakness in the Israeli defense market, the Company reviewed indications for impairment of certain identifiable assets in this segment. Accordingly, the Company reviewed these assets for impairment by estimating their fair value based on their net selling price and comparing those values to the carrying value of the assets. As a result the Company concluded that the intangible asset ‘Customer Relations’ at its OEM of Electric Motion Systems operating segment in the amount of $0.3 million was impaired.

Accordingly, the Company recorded a $3.3 million impairment charges during the quarter ended September 30, 2011 to reflect the fair value of the long lived assets mentioned above.

During the quarter ended September 30, 2010, we performed the annual impairment test of goodwill. Based on the results of this test, we determined that the goodwill included in the MRO Services segment, was impaired by $4.2 million. In addition, we determined that an intangible asset ‘Customer Relations’ related to the MRO Services segment, was impaired by $0.48 million. The impairment was due to a decline in future forecasted sales levels and profitability margins resulting from the weakness in the global aviation industry in general and to a greater extent in the U.S.

Following the above impairment tests performed in 2011 and 2010, the remaining $1.1 million of goodwill on the balance sheet as of December 31, 2011, is a result of the acquisition of Bental in August 2008.

As of December 31, ~~2011,~~2012, there are no goodwill or other remaining identifiable intangible assets included on the balance sheet.

Investment in Company Accounted for using the Equity Method

Investment in which the Company exercises significant influence, which is not considered subsidiary ("associate"), is accounted for the equity method, whereby the Company recognizes its proportionate share of the company's net income or loss after the date of investment. The Company reviews this investment for impairment whenever events indicate the carrying amount may not be recoverable.

On December 4, 2009, the Company, through its subsidiary Piedmont, signed an investment agreement with FAvS. According to the agreement Piedmont was issued 288,334 shares of Class B Common stock of First Aviation Services Inc., or FAvS, represented 37% of FAvS's then share capital (total number of shares acquired is adjusted as result of a 1 for 20 reverse stock split) and $ 750 thousand of FAvS Preferred shares (entitlement to cash dividends at an annual rate of 12% payable quarterly or to additional Preferred shares at an annual rate of 15%) in return for Piedmont's propeller and parts businesses. The net assets value as of December 4, 2009, of the propeller and parts businesses was $4,325 thousand, the fair value of FAvS' Ordinary shares and Preferred shares was $8,931 thousand (including businesses' acquisition expenses of $200 thousand). Accordingly, the Company recorded $4.4 million of capital gain.

FAvS audited consolidated financial statements for 2010, included a restatement to its 2009 financial statements in connection with the FAvS - Piedmont transaction described above. According to the restatement, FAvS restated the original transaction by accruing losses in its business combination accounting and not recording a loss related to a specific maintenance contract contributed to FAvS as part of the FAvS – Piedmont transaction (and which was the basis of the dispute between FAvS and the Company discussed in Item 4. - Information on the Company – History and Development of TAT). Management of TAT is of the opinion that the restatement as reported in the FAvS consolidated financial statements is incorrect, that the loss incurred by this maintenance contract is an event that occurred only after the FAvS 2009 financial statements were issued, that FAvS nor the company did not and could not then know that this contract would result in a loss at the time that the audited financial statements for 2009 were issued and that such losses should be recorded in 2010. Consequently, management of TAT revised the FAvS 2010 financial statements by determining the amounts of losses recorded in 2010 and also performed an impairment test as of December 31, 2010, on its investment in FAvS.

~~Accordingly, as~~As of December 31, 2010, the Company recorded a $4.5 million loss from its share in the loss and impairment of its 37% interest in FAvS. ~~Included~~

In June, 2012, FAvS entered into a transaction with its controlling stockholder, Mr. Hollander, pursuant to which FAvS borrowed $3 million from Mr. Hollander, secured by a third lien on the assets of FAvS. The loan bears interest at 10% and in ~~this amount are (i)~~addition Hollander was issued warrants to purchase shares of Class A Common Stock of FAvS, representing 15% of FAvS post-exercise shareholders’ equity, at an exercise price of $7.00 per share.

Pursuant to the terms and conditions of the transaction, management believed that there were indicators of impairment with respect to TAT’s investment in FAvS. Accordingly, the Company performed an impairment ~~charge~~test of ~~$1.8~~its investment in FAvS, with the assistance of a third party valuation. Based on the results of this test the Company determined that its investment in FAvS was impaired by $3.3 million. The impairment was due to a decline in FAvS’ profitability margins and future forecasted sales levels which related to the business of API, one of FAvS subsidiaries, and approximates TAT’s share in the loss resulting from the API Transaction discussed below.

On March 18, 2013 FAvS sold 97% of the stock of API for a total purchase price of $16.5 million, ~~that~~of which $15.9 million was ~~based on an appraisal performed by management~~used to repay debt (the “API Transaction”). The sale resulted in FAvS retaining a 3% equity interest in the API business. The API transaction resulted in a loss from discontinued operations and ~~on an independent valuation; and (ii) a $2.7~~write-down of the API business of $11.5 million which is included in the FAvS loss for the ~~Company’s share~~year ended December 31, 2012. Simultaneously with the transaction FAvS paid-off its Term Loan in ~~FAvS’ loss for year 2010.~~the amount of $4 million thereby terminating the guaranty and releasing the Letter of Credit provided by TAT to secure such guaranty. Accordingly the restricted deposit associated with the above Letter of Credit, was released as well.

FAvS audited consolidated financial statements for the year ended December 31, 2012, which were signed on March 20, 2013, included a restatement of 2011 consolidated results to correct errors in previously reported amounts. TAT's management reviewed the restatement and its effect on the consolidated financial statements of the Company and found it to be immaterial. Accordingly, no restatement was recorded in the Company's consolidated financial statements.

Income Taxes

TAT operates within multiple taxing jurisdictions and is subject to audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. In management’s opinion, adequate provisions for income taxes have been made for all years. Although management believes that its estimates are reasonable, no assurance can be given that the final tax outcome of these issues will not be different than those that are reflected in its historical income tax provisions.

TAT accounts for income taxes in accordance with ASC 740-10. TAT uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax bases of assets and liabilities and net operating loss and credit carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when it is more likely than not that some portion of the deferred tax assets will not be realized. To the extent that TAT’s decisions and assumptions and historical reporting are determined not to be compliant with applicable tax laws TAT may be subject to adjustments in its reported income for tax purposes as well as interest and penalties.

~~In June 2006, FASB issued~~ Interpretation ASC ~~740-10. This interpretation~~740-10 prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. ASC 740-10 also provides guidance on derecognition of tax positions, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. ~~We adopted ASC 740-10 effective January 1, 2007.~~In addition, ASC 740-10 requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and consequently, affect our operating results.

Allowances for Doubtful Accounts

TAT performs ongoing credit evaluations of its customers’ financial condition and requires collateral as deemed necessary. Allowances for doubtful accounts are maintained for estimated losses resulting from the inability of TAT’s customers to make payments. In judging the adequacy of the allowance for doubtful accounts, TAT considers multiple factors including the aging of receivables, historical bad debt experience and the general economic environment. Management applies considerable judgment in assessing the realization of receivables, including assessing the probability of collection and the current credit worthiness of each customer. If the financial condition of TAT’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined by the basis of actual cost or by the average cost method. TAT’s policy for valuation of inventory and commitments to purchase inventory, including the determination of obsolete or excess inventory, requires it to perform a detailed assessment of inventory at each balance sheet date which includes a review of, among other factors, an estimate of future demand for products within specific time frames, valuation of existing inventory, as well as product lifecycle and product development plans. The business environment in which TAT operates, the wide range of products that TAT offers and the relatively short sales-cycles TAT experiences, all contribute to the exercise of judgment relating to maintaining and writing-off of inventory levels. The estimates of future demand that TAT uses in the valuation of inventory are the basis for its revenue forecast, which is also consistent with its short-term manufacturing plan. Inventory reserves are also provided to cover risks arising from non-moving items. Inventory management remains an area of management focus as TAT balances the need to maintain strategic inventory levels to ensure competitive lead times against the risk of inventory obsolescence because of changing technology and customer requirements. TAT writes down obsolete or slow moving inventory in an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand, market conditions and sale forecasts.

During the quarter ended September 30, 2010, we recorded a $3.5 million write down of inventory under cost of revenues, attributable to inventory of the MRO services for Aviation Components operating segment. The write down was due to a decline in future forecasted sales levels and profitability margins resulting from the weakness in the global aviation industry in general and to a greater extent in the U.S.

During the quarter ended September 30, 2011, we recorded a write down of inventory in the amount of $2.5 million under cost of revenues, attributable to inventory of the MRO services for Aviation Components operating ~~segment~~.segment. Although revenues in the MRO for Aviation Components operating segment ~~have~~ increased in the three and nine month periods of year 2011 compared to year 2010, profit margins were lower than anticipated. Accordingly, the write down was due to management’s estimation of the continued decline in future forecasted sales levels and profitability margins in certain product lines in this operating segment resulting from the weakness in these areas of business.

If actual market conditions are less favorable than TAT anticipates, additional inventory write-downs may be required.

~~Warranty Costs~~

TAT provides warranties for its products and services ranging from one to three years, which vary with respect to each contract and in accordance with the nature of each specific product. TAT estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time the product is shipped. TAT periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

~~Marketable Securities~~

Marketable securities consist of available for sale securities, which are primarily debt securities in which TAT invested. If it is determined, based on valuations, that a decline in the fair value of any of the investments is not temporary, an impairment loss is recorded and included in the consolidated statements of income as financial expenses.

In 2010, the Company recorded other-than-temporary impairment loss of $200 thousand on auction rate securities based on a fair value valuation. As of December 31, 2011, the remaining balance of the auction rate securities is presented, at fair value, net of the said impairment loss.

Key Indicators

TAT’s management evaluates its performance by focusing on its key performance indicators, which are revenues, sources of revenues, gross profit and operating income. These key performance indicators are primarily affected by the competitive landscape in which TAT operates and its ability to meet the challenges posed.

The following table presents, for the periods indicated, information concerning TAT’s results of operations:


	Year Ended December 31									Year Ended December 31
	2011			2010			2009			2012			2011			2010
	(in thousands)									(in thousands)
Revenues
OEM of Heat Management Solutions	$	30,020		$	29,651		$	28,617		$	31,032		$	30,020		$	29,651
Heat Transfer Services and Products *		27,603			* 24,468			* 17,495			27,709			27,603			* 24,468
MRO services for Aviation Components *		20,146			* 16,333			* 24,788			22,442			20,146			* 16,333
OEM Electric Motion Systems		11,658			13,046			11,321			10,007			11,658			13,046
Parts services **		-			-			** 6,057
Eliminations		(4,030	)		(3,743	)		(5,187	)		(3,268	)		(4,030	)		(3,743	)
Total revenues		85,397			79,755			83,091			87,922			85,397			79,755
Cost of revenues
OEM of Heat Management Solutions		22,660			22,425			19,809			23,105			22,660			22,425
Heat Transfer Services and Products		20,173			* 18,005			* 15,572			19,671			20,173			* 18,005
MRO services for Aviation Components		17,882			* 14,631			* 22,328			19,044			17,882			* 14,631
OEM Electric Motion System		9,388			10,092			8,021			8,043			9,388			10,092
Parts services		-			-			** 5,879
Write down of inventory and impairment charges of long lived assets		5,763			3,500			-			-			5,763			3,500
Eliminations		(3,884	)		(3,965	)		(4,714	)		(3,281	)		(3,884	)		(3,965	)
Total cost of revenues		71,982			64,688			66,895			66,582			71,982			64,688
Research and development costs, net		786			651			680			1,152			786			651
Selling and marketing expenses		3,439			3,475			3,719			3,426			3,439			3,475
General and administrative expenses		10,949			12,832			14,979			11,487			10,949			12,832
Impairment of goodwill and intangible assets		-			4,704			-			1,015			-			4,704
Other income		(169	)
Capital gain from sale of the propellers & parts businesses		-			-			(4,400	)
Other expenses (income)											9			(169	)		-
Operating income (loss)		(1,590	)		(6,595	)		1,218			4,251			(1,590	)		(6,595	)
Financial income (expense), net		(380	)		(111	)		149
Financial expense, net											(181	)		(380	)		(111	)
Other expenses		-			(200	)		-			-			-			(200	)
Gain from dilution of interests in affiliated company		240			-			-			-			240			-
Income (loss) before income taxes		(1,730	)		(6,906	)		1,367
Income taxes (benefit)		(316	)		(4,153	)		(765	)
Net income (loss) after income taxes		(1,414	)		(2,753	)		2,132
Income (loss) before taxes on income											4,070			(1,730	)		(6,906	)
Taxes on income (tax benefit)											2,086			(316	)		(4,153	)
Net income (loss) after taxes on income											1,984			(1,414	)		(2,753	)
Share in results of affiliated company and impairment of share in affiliated company		331			(4,510	)		(32	)		(3,756	)		331			(4,510	)
Net loss (income) attributable to non controlling interest		53			(123	)		(347	)		58			53			(123	)
Net income (loss) attributable to TAT Technologies’ Shareholders	$	(1,030	)	$	(7,386	)	$	1,753
Net loss attributable to TAT Technologies’ Shareholders										$	(1,714	)	$	(1,030	)	$	(7,386	)

**	~~Operated until December 4, 2009~~

8081

The following table presents, for the periods indicated, information concerning TAT’s results of operations as a percentage of revenues:


	Year Ended December 31,									Year Ended December 31,
	2011			2010			2009			2012			2011			2010
Revenues
OEM of Heat Management Solutions		35	%		37	%		34	%		35	%		35	%		37	%
Heat Transfer Services and Products		32			31			21			32			32			31
MRO services for Aviation Components		24			20			30			26			24			20
OEM Electric Motion Systems		14			17			14			11			14			17
Parts services		-			-			7
Eliminations		(5	)		(5	)		(6	)		(4	)		(5	)		(5	)
Total revenues		100			100			100			100			100			100
Cost of revenues
OEM of Heat Management Solutions		27			28			24			27			27			28
Heat Transfer Services and Products		24			23			19			22			24			23
MRO services for Aviation Components		21			18			27			22			21			18
OEM Electric Motion Systems		11			13			10			9			11			13
Parts services		-			-			7
Write down of inventory and impairment charges of long lived assets		7			4			-			-			7			4
Eliminations		(5	)		(5	)		(6	)		(4	)		(5	)		(5	)
Cost of revenues		84			81			81			76			84			81
Research and development costs, net		1			1			1			1			1			1
Selling and marketing expenses		4			4			4			4			4			4
General and administrative expenses		13			16			18			13			13			16
Impairment of goodwill and intangible assets		-			6			-			1			-			6
Other income		*
Capital gain from sale of the propellers & parts businesses		-			-			(5	)
Other expenses (income)											-			*			-
Operating income (loss)		(2	)		(8	)		1			5			(2	)		(8	)
Financial income (expenses), net		*			*			*
Financial expense, net											*			*			*
Other expenses		-			*			-			*			-			*
Gain from dilution of interests in affiliated company		*			-			-			*			*			-
Income (loss) before income taxes		(2	)		(9	)		1
Income taxes (benefit)		*			(5	)		(1	)
Net Income (loss) after income taxes		(2	)		(4	)		2
Income (loss) before taxes on income											5			(2	)		(9	)
Taxes on income (tax benefit)											3			*			(5	)
Net income (loss) after taxes on income											2			(2	)		(4	)
Share in results of affiliated company and impairment of share in affiliated company		(*	)		(6	)		(*	)		(4	)		(*	)		(6	)
Net loss (income) attributable to non controlling interest		*			*			*			*			*			*
Net income (loss) attributable to TAT Technologies’ Shareholders		(1	) %		(10	) %		2	%		(2	)%		(1	)%		(10	)%

________________________

* Less than one percent.

8182

Year ended December 31, 2012 compared with Year ended December 31, 2011

Revenues. Total revenues were $87.9 million for the twelve months ended December 31, 2012, compared to $85.4 million for the twelve months ended December 31, 2011, an increase of 3.0%. This reflects the increase in revenues in all our significant operating segments - the OEM of Heat Management Solutions segment, the Heat Transfer Services and Products segment and the MRO Services for Aviation Components segment; while revenues in the OEM of Electric Motion Systems operating segment significantly decreased due to growing weakness in the relevant defense markets. This decrease is a continuation of the decrease in revenues this segment had experienced during 2011.

Revenues from OEM of Heat Management Solutions. Revenues from OEM of Heat Management Solutions operating segment increased to $31.0 million for the year ended December 31, 2012 from $30.0 million for the year ended December 31, 2011, an increase of 3.4%.

Revenues from OEM of Electric Motion Systems. Revenues from OEM of Electric Motion Systems operating segment decreased to $10.0 million for the year ended December 31, 2012, from $11.7 million for the year ended December 31, 2011, a decrease of 14.2%. During 2012 and 2011 this segment experienced a gradual decrease in revenues due to growing weakness in the relevant defense markets.

Revenues from Heat Transfer Services and Products. Revenues from Heat Transfer Services and Products operating segment increased to $27.7 million for the year ended December 31, 2012, from $27.6 million for the year ended December 31, 2011, an increase of 0.4%.

Revenues from MRO services for Aviation Components. Revenues from MRO services for Aviation Components operating segment increased to $22.4 million for the year ended December 31, 2012, from $20.1 million for the year ended December 31, 2011, an increase of 23.6%. The increase was attributable to increased sales both to existing and new customers.

Cost of revenues. Cost of revenues was $66.6 million for the twelve months ended December 31, 2012, compared to $66.2 million for the twelve months ended December 31, 2011 (excluding a $5.76 million write down of inventories and impairment charges of long lived assets recorded in the 2011 third quarter), an increase of 0.5%. This reflects (i) the increase in cost of revenues in the OEM of Heat Management Solutions operating segment and in the MRO Services for Aviation Components operating segment, which is primarily attributable to the increase in revenues in these operating segments; partially offset by (ii) the decrease in cost of revenues in the Heat Transfer Services and Products operating segment which is primarily attributable to decreased material costs; and (iii) the decrease in cost of revenues in the OEM of Electric Motion Systems operating segment, which is primarily attributable to the decrease in revenues in this operating segment.

Cost of revenues as a percentage of revenues was 75.7% for the twelve months ended December 31, 2012, compared to 77.5% for the twelve months ended December 31, 2011 (excluding a $5.76 million write down of inventories and impairment charges of long lived assets recorded in the 2011 third quarter). This decrease is primarily attributable to (i) product mix with higher margin products sold during this period along with lower rate of fixed production costs in the MRO Services for Aviation Components operating segment (partially effected by the sale of inventory items that were impaired in approximately $0.6 million in previous years) and in the OEM of Heat Management Solutions operating segments; (ii) product mix with higher margin products in the Heat Transfer Services and Products operating segment; and (iii) similar cost of revenues as a percentage of revenues in the OEM of Electric Motion Systems operating segment.

Cost of revenues for OEM of Heat Management Solutions. Cost of revenues for OEM of Heat Management Solutions operating segment increased to $23.1 million for the year ended December 31, 2012, from $22.6 million for the year ended December 31, 2011, an increase of 2.0%. This increase in mainly attributable to the increase in revenues in 2012.

Cost of revenues as a percentage of revenues in this segment decreased to 74.5% in the year ended December 31, 2012, from 75.5% for the year ended December 31, 2011. Primarily as a result of product mix with higher margin products sold during year 2012 along with lower rate of fixed production costs in 2012 compared with 2011.

Cost of revenues for OEM of Electric Motion Systems. Cost of revenues for OEM of Electric Motion Systems operating segment decreased to $8.0 million for the year ended December 31, 2012, from $9.4 million for the year ended December 31, 2011, a decrease of 14.3%. This decrease is mainly attributable to the decrease in revenues in 2012.

Cost of revenues as a percentage of revenues in this segment was 80.4% in the year ended December 31, 2012, similar to 80.5% in the year ended December 31, 2011.

Cost of revenues for Heat Transfer Services and Products. Cost of revenues for Heat Transfer Services and Products operating segment decreased to $19.7 million for the year ended December 31, 2012 from $20.2 million for the year ended December 31, 2011, a decrease of 2.5%. This decrease is mainly attributable to the decrease in material costs in 2012 compared with 2011.

Cost of revenues as a percentage of revenues in this segment decreased to 71.0% in the year ended December 31, 2012 from 73.1% for the year ended December 31, 2011, primarily as a result of product mix with higher margins sold during year 2012.

Cost of revenues for MRO services for Aviation Components. Cost of revenues for MRO services for Aviation Components operating segment increased to $19.0 million for the year ended December 31, 2012 from $17.9 million for the year ended December 31, 2011, an increase of 6.5%. This increase in mainly attributable to the increase in revenues in 2012.

Cost of revenues as a percentage of revenues in this segment decreased to 84.9% in the year ended December 31, 2012 from 88.8% for the year ended December 31, 2011, Primarily as a result of product mix with higher margin products sold during year 2012 along with lower rate of fixed production costs in 2012 compared with 2011.

Write down of inventory and impairment of long lived assets. For the twelve months ended December 31, 2011, charges under this item were $5.46 million attributable to a write down of inventory and impairment charges of intangible assets and fixed assets in the MRO Services for Aviation Components operation and $0.3 million attributable to impairment of intangible asset ‘Customer Relations’ in the OEM of Electric Motion Systems operating segment.

Research and development, net. Research and Development expenses were $1.2 million for the twelve months ended December 31, 2012, compared to $0.8 million for the twelve months ended December 31, 2011, an increase of 46.6%, and are related to new products and technologies within the OEM operations in Israel and the Heat Transfer Services and Products operating segment.

Research and Development expenses as a percentage of revenues were 1.3% for the twelve months ended December 31, 2012 compared to 0.9% for the twelve months ended December 31, 2011. TAT expects to invest additional resources in research and development activities, and accordingly will continue to incur and record additional research and development expenses in coming years.

Selling and marketing expenses. Selling and marketing expenses were $3.4 million for the twelve months ended December 31, 2012, similar to $3.4 million for the twelve months ended December 31, 2011. This was impacted by (i) the increased expenses in the OEM of Heat Management Solutions operating segment, primarily attributable to increased payroll costs, commissions and exhibition expenses; (ii) similar expenses in the Heat Transfer Services and Products operating segment; offset by (iii) the decreased expenses in the MRO Services for Aviation Components operating segment, attributable to decreased payroll costs, commissions and exhibition expenses; and (iv) the decreased expenses in the OEM of Electric Motion Systems operating segments, primarily attributable to a decrease in exhibition expenses.

Selling and marketing expenses as a percentage of revenues were 3.9 % for the twelve months ended December 31, 2012, similar to 4.0% for the twelve months ended December 31, 2011. TAT expects to continue to invest additional resources in selling and marketing activities in coming years.

General and administrative expenses. General and administrative expenses were $11.5 million for the twelve months ended December 31, 2012, compared to $10.9 million for the twelve months ended December 31, 2011, an increase of 4.9%. The increase in general and administrative expenses was impacted by (i) the increased expenses in the MRO Services for Aviation Components operating segment primarily attributable to a provision recorded for doubtful debt in the first quarter and to a decrease in FAvS’ participation in certain operating expenses; (ii) the increased expenses in the Heat Transfer Services and Products operating segment, primarily attributable to the increase in payroll costs and employee related expenses; partially offset by (iii) the decreased expenses in the OEM of Heat Management Solutions operating segment primarily attributable to decreased payroll costs; and (iv) the decreased expenses in the OEM of Electric Motion Systems operating segment attributable to the increase in exchange rates between the U.S. dollar and the Israeli Shekel.

General and administrative expenses as a percentage of revenues were 13.1% for the twelve months ended December 31, 2012, compared to 12.8% for the twelve months ended December 31, 2011.

Impairment of Goodwill. During the twelve months ended December 31, 2012, the Company recorded an impairment charge of $1.0 million to reflect the impairment of the entire balance of the goodwill included in the OEM of Electric Motion Systems operating segment. This was based on an impairment test performed by the Company, with the assisstance of an independent appraisal.

Operating income (loss). For the twelve months ended December 31, 2012, TAT reported operating income of $5.3 million compared to operating income of $4.2 million for the twelve months ended December 31, 2011 (excluding the above mentioned impairment charge of goodwill recorded in 2012 second quarter and non-recurring write down of inventories and impairment charges of long lived assets recorded in 2011 third quarter), an increase of 26.2%. The increase in operating income is attributable to (i) the increase in operating income in the OEM of Heat Management Solutions operating segment; (ii) the decrease in operating loss in the MRO Services for Aviation Components and the OEM of Electric Motion Systems operating segments; partially offset by (iii) the moderate decrease in operating income in the Heat Transfer Services and Products operating segment.

Financial expenses. Financial expenses for the twelve months ended December 31, 2012 were $2.2 million, similar to $2.2 for the twelve months ended December 31, 2011. Financial expenses during the twelve months ended December 31, 2012 primarily resulted from changes in exchange rates between the U.S. dollar and the Israeli Shekel, realized losses from hedging transactions, bank fees and interest payments on short-term credit and long-term loans.

Financial income. Financial income for the twelve months ended December 31, 2012 was $2.0 million, compared to $1.8 million for the twelve months ended December 31, 2011. Financial income during the twelve month period ended on December 31, 2012 primarily resulted from changes in exchange rates between the U.S. dollar and the Israeli Shekel and between the U.S. dollar and the Euro, change in fair value of unrealized hedging transactions profits, interest received from the Israeli tax authorities for excess payments made in previous years and from interest received on short-term investments.

Taxes on income (tax benefit). Taxes on income for the twelve months ended December 31, 2012, amounted to $2.1 million, compared to a tax benefit of $0.3 million for the twelve months ended December 31, 2011. Taxes on income for the twelve months ended December 31, 2012, were impacted by (i) the decrease in pre-tax loss incurred in 2012 compared to the pre-tax loss incurred in 2011 in the MRO Services for Aviation Components operating segment; partially offset by (ii) the decrease in tax expenses in the OEM of Heat Management Solutions operating segment, mainly due to the adoption of a new tax regulation under the Law for the Encouragement of Capital Investments in 2011; (iii) the decrease in pre-tax income in the Heat Transfer Services and Products operating segment; and (iv) similar tax expense in the OEM of Electric Motion Systems operating segment.

Share in Results of affiliated company. TAT recognized a loss of $0.45 million from its approximately 30% interest in FAvS’s results for the twelve months ended December 31, 2012 compared to income of $0.3 million for the twelve months ended December 31, 2011. Additionally, during the twelve months ended December 31, 2012 TAT recognized an impairment of $3.3 million with respect to its approximately 30% interest in FAvS. This was based on an impairment test performed by the Company, with the assistance of an independent appraisal.

Net loss attributable to noncontrolling interest. TAT recognized net loss of $0.1 million attributable to noncontrolling interest for the twelve months ended December 31, 2012, similar to the net loss attributable to noncontrolling interest for the twelve months ended December 31, 2011. In both periods net loss attributable to noncontrolling interest was attributable to our 70% held Bental subsidiary.

Net loss attributable to controlling interest. TAT recognized net loss of $1.7 million for the twelve months ended December 31, 2012 compared to net loss of $1.0 million for the twelve months ended December 31, 2011. The net loss reported for the twelve months ended December 31, 2012 is the result of a $1.0 million impairment charge of goodwill, recorded in the second quarter of 2012, in TAT’s OEM for Electric Motion Systems operating segment and the $3.3 million impairment charge, also recorded in the second quarter of 2012, with respect to TAT’s investment in FAvS. The net loss reported for the twelve months ended December 31, 2011 was the result of a $5.76 million (before taxes) write down of inventories and impairment charges of long lived assets ($3.61 million, net of taxes). Excluding these impairment charges net income for the twelve month period ended December 31, 2012, was $2.6 million similar to net income of $2.6 million for twelve month period ended December 31, 2011.

Year ended December 31, 2011 compared with Year ended December 31, 2010

Revenues. Total revenues were $85.4 million for the twelve months ended December 31, 2011, compared to $79.8 million for the twelve months ended December 31, 2010, an increase of 7.1%. This reflects (i) the increase in revenues in the Heat Transfer Services and Products operating segment; (ii) the increase in revenues in the MRO Services for Aviation Components operating segment; and (iii) the increase in revenues in the OEM of Heat Management Solutions operating segment. This was partially offset by decreased revenues in the OEM of Electric Motion Systems operating segment for the twelve months ended December 31, 2011 compared to the twelve months ended December 31, 2010 due to growing weakness in the relevant markets.

Revenues from OEM of Heat Management Solutions. Revenues from OEM of Heat Management Solutions segment increased to $30.0 million for the year ended December 31, 2011 from $29.7 million for the year ended December 31, 2010, an increase of 1.2%.

Revenues from OEM of Electric Motion Systems. Revenues from OEM of Electric Motion Systems segment decreased to $11.7 million for the year ended December 31, 2011, from $13.0 million for the year ended December 31, 2010, a decrease of 10.6%. During 2011 this segment experienced a gradual decrease in revenues due to growing weakness in the relevant markets

Revenues from Heat Transfer Services and Products. Revenues from Heat Transfer Services and Products increased to $27.6 million for the year ended December 31, 2011, from $24.5 million for the year ended December 31, 2010, an increase of 12.8%. The increase was attributable to increased sales both to existing and new customers.

Revenues from MRO services for Aviation Components. Revenues from MRO services for Aviation Components increased to $20.1 million for the year ended December 31, 2011, from $16.3 million for the year ended December 31, 2010, an increase of 23.4%. The increase was attributable to increased sales both to existing and new customers.

Cost of revenues. Cost of revenues was $66.2 million for the twelve months ended December 31, 2011 compared to $61.2 million for the twelve months ended December 31, 2010 (excluding write down of inventories and impairment charges of long lived assets), an increase of 8.2%. This primarily reflects (i) the increase in cost of revenues in the Heat Transfer Services and Products operating segment; and (ii) the increase in cost of revenues in the MRO Services for Aviation Components operating segment, attributable to the increase in revenues in these operating segments; partially offset by (iii) the decrease in cost of revenues in the OEM of Electric Motion Systems operating segment attributable to the decrease in revenues in this operating segment.

Cost of revenues as a percentage of revenues was 77.5% for the twelve months ended December 31, 2011, similar to 76.7% for the twelve months ended December 31, 2010 (excluding write down of inventories and impairment charges of long lived assets). This increase is primarily attributable to product mix with higher margin products sold during the twelve months ended December 31, 2011, in the Heat Transfer Services and Products and MRO Services for Aviation Components operating segments; partially offset by product mix with lower margin products sold during the twelve months ended December 31, 2011 in the OEM of Electric Motion Systems operating segment.

All of the following cost of revenues’ data for the operational segments does not reflect the elimination of inter-company transactions.

Cost of revenues for OEM of Heat Management Solutions. Cost of revenues for OEM of Heat Management Solutions was $22.7 million for the year ended December 31, 2011, similar to $22.4 million for the year ended December 31, 2010.

Cost of revenues as a percentage of revenues in this segment was 75.5% in the year ended December 31, 2011, similar to 75.6% for the year ended December 31, 2010.

Cost of revenues for OEM of Electric Motion Systems. Cost of revenues for OEM of Electric Motion Systems segment decreased to $9.4 million for the year ended December 31, 2011, from $10.1 million for the year ended December 31, 2010, a decrease of 7.0%. This decrease is mainly attributable to the decrease in revenues in these operating segments.

Cost of revenues as a percentage of revenues in this segment increased to 80.5% in the year ended December 31, 2011, from 77.4% in the year ended December 31, 2010, primarily as a result of product mix with lower margin products sold during year 2011 and of the higher rate of fixed costs to total costs resulting from the lower revenues in 2011 compared with 2010.

Cost of revenues for Heat Transfer Services and Products. Cost of revenues for Heat Transfer Services and Products increased to $20.2 million for the year ended December 31, 2011 from $18.0 million for the year ended December 31, 2010, an increase of 12.0%. This increase in mainly attributable to the increase in revenues in 2011.

Cost of revenues as a percentage of revenues in this segment decreased to 73.1% in the year ended December 31, 2011 from 73.6% for the year ended December 31, 2010, primarily as a result of product mix with higher margins sold during year 2011.

Cost of revenues for MRO services for Aviation Components. Cost of revenues for MRO services for Aviation Components increased to $17.9 million for the year ended December 31, 2011 from $14.6 million for the year ended December 31, 2010, an increase of 22.2%. This increase in mainly attributable to the increase in revenues in 2011.

Cost of revenues as a percentage of revenues in this segment decreased to 88.8% in the year ended December 31, 2011 from 89.6% for the year ended December 31, 2010, primarily as a result of product mix with higher margins sold during year 2011.

Write down of inventory and impairment charges of long lived assets. For the year ended December 31, 2011, charges under this item were $5.5 million attributable to a non-recurring write down of inventory and impairment charges of intangible assets and fixed assets in the MRO Services for Aviation Components operation and $0.3 million attributable to impairment of intangible asset ‘Customer Relations’ in the OEM of Electric Motion Systems operating segment. For the year ended December 31, 2010, charges under this item were $3.5 million attributable to a non-recurring write down of inventory in the MRO Services operation.

Research and development, net. Research and Development expenses were $0.8 million for the twelve months ended December 31, 2011, similar to $0.7 million for the twelve months ended December 31, 2010, and are related to new products and technologies within the OEM operations in Israel. Research and Development expenses as a percentage of revenues were 1% in the twelve months ended December 31, 2011 and in the twelve months ended December 31, 2010. TAT does expect to continue to incur research and development expenses in coming years.

Selling and marketing expenses. Selling and marketing expenses were $3.4 million for the twelve months ended December 31, 2011, similar to $3.5 million for the twelve months ended December 31, 2010. This reflects an increase in selling and marketing expenses in the OEM of Electric Motion Systems operating segment; partially offset by the decrease in selling and marketing expenses in the MRO Services for Aviation Components operating segment. Selling and marketing expenses as a percentage of revenues were 4.0 % for the twelve months ended December 31, 2011, compared to 4.4% for the twelve months ended December 31, 2010 due to the higher revenues in 2011.

General and administrative expenses. General and administrative expenses decreased to $10.9 million for the twelve months ended December 31, 2011, from $12.8 million for the twelve months ended December 31, 2010, a decrease of 14.7%. This reflects (i) a decrease in the MRO Services for Aviation Components operating segment due to a $1.8 million non-recurring expense recorded in the fourth quarter of 2010 related to the Parts services operations and the Propellers MRO operations contributed to FAvS (see also ~~“Settlement Agreement with FAvS”~~“ FavS Transaction” below); and (ii) a decrease in the OEM of Electric Motion Systems operating segment; offset by (iii) an increase in the Heat Transfer Services and Products operating segment; and (iv) an increase in the OEM of Heat Management Solutions.

General and administrative expenses as a percentage of revenues were 12.8% for the twelve months ended December 31, 2011, compared to 16.1% for the twelve months ended December 31, 2010 primarily due to the non-recurring expense recorded in the fourth quarter of 2010 and to the higher revenues in 2011.

Impairment of Goodwill and Intangible assets. For the year ended December 31, 2010, charges under this item were $4.7 million primarily attributable a $4.2 million impairment of goodwill in the MRO reporting unit and a $0.48 million impairment of ‘Customer Relations’ in the same reporting unit, during the quarter ended September 30, 2010. These impairments were related to adverse changes in the future outlook for MRO services business including a weak U.S. and global economy which resulted in a reduction in projected future demand for the MRO services.

Operating loss. TAT reported an operating loss of $1.6 million for the twelve months ended December 31, 2011, compared to an operating loss of $6.6 million for the twelve months ended December 31, 2010 – a decrease of $5.0 million in operating loss. Excluding the said write down of inventory and impairment charges of long lived assets and goodwill, operating income for the twelve months ended December 31, 2011 was $4.2 million compared to operating income of $1.6 million for the twelve months ended December 31, 2010, an increase of 159%. The increase in operating income (excluding these write downs) is primarily attributable to the increase in income from operations in the Heat Transfer Services and Products operating segment and a decrease in operating loss in the MRO Services for Aviation Components operating segment; partially offset by the decrease in income from operations in the OEM of Heat Management Solutions operating segment and the operating loss in the OEM of Electric Motion Systems operating segment.

Financial expenses. Financial expenses were $2.2 million for the twelve months ended December 31, 2011, compared to $1.7 for the twelve months ended December 31, 2010. Financial expenses during the twelve months ended December 31, 2011 primarily resulted from changes in exchange rates between the U.S. dollar and the Israeli Shekel, change in the fair value of unrealized hedging transactions profits, and interest payments on short-term credit and long-term loans.

Financial income. Financial income for the twelve months ended December 31, 2011 was $1.8 million, compared to $1.6 million for the twelve months ended December 31, 2010. Financial income during the twelve months period ended on December 31, 2011 primarily resulted from changes in exchange rates between the U.S. dollar and the Israeli Shekel and between the U.S. dollar and the Euro, realized profits from hedging transactions, interest received from the Israeli tax authorities for excess payments made in previous years and from interest received on short-term investments.

Other expense, net. Other expense for the twelve months ended December 31, 2010, was $0.2 million and is attributable to other-than-temporary impairment loss on auction rate securities based on fair value estimation.

Taxes. income for the twelve months ended December 31, 2011, amounted to $0.3 million, compared to tax income of $4.1 million for the twelve months ended December 31, 2010. Tax income for the twelve months ended December 31, 2011, is primarily attributable to (i) an increase in pre-tax income in the Heat Transfer Services and Products operating segment; (ii) a decrease in pre-tax loss in the MRO Services for Aviation Components operating segment; (iii) increase in tax expenses in the OEM of Heat Management Solutions operating segment, due to higher income before tax for Israeli tax purposes that was impacted by changes in exchange rates between U.S. dollar and the Israeli Shekel. The increase in the tax expenses was partially offset by the pre-tax losses incurred in the OEM of Electric Motion Systems operating segment.

Share in results of affiliated company and impairment of share in affiliated ~~Company.~~Company. TAT recognized income of $0.33 million from its interest in FAvS’s results for the twelve months ended December 31, 2011 compared to loss of $4.5 million from its interest in FAvS’s results and impairment of its share in FAvS (with the assistance of an independent appraisal) for the twelve months ended December 31, 2010.

On June 30, 2011 TAT’s interests in FAvS were diluted from 36.6% to 30.3% (30.02% as of December 31, 2011) (see also ~~“Settlement Agreement with FAvS”~~“ FavS Transaction” below).

Net loss (income)attributable to noncontrolling interest. TAT recognized an immaterial amount of net loss attributable to noncontrolling interest for the twelve months ended December 31, 2011 compared with net income attributable to noncontrolling interest of $0.1 million for the twelve months ended December 31, 2010, primarily attributable to our 70% held Bental subsidiary.

Net loss attributable to controlling interest. TAT recognized a net loss of $1.0 million for the twelve months period ended on December 31, 2011 compared to net loss of $7.4 million for the twelve months ended on December 31, 2010.

~~Year ended December 31, 2010 compared with Year ended December 31, 2009~~

~~Revenues~~. Total revenues were $79.8 million for the twelve months ended December 31, 2010, compared to $83.1 million for the twelve months ended December 31, 2009, a decrease of 4%. This reflects the contribution of the Parts services and Propellers MRO operations to FAvS and the decrease in revenues in the MRO services for aviation components operating segment; partially offset by (i) the increase in revenues in the Heat Transfer Services and Products operating segment; (ii) the increase in revenues in the OEM of Heat Management Solutions operating segment; and (iii) the increase in revenues in the OEM of Electric Motion Systems operating segment. Excluding the Parts services and Propellers MRO operations contributed to FAvS, total revenues for the twelve months ended December 31, 2010, reflected a 17% increase compared to the twelve months ended December 31, 2009.

~~Revenues from OEM of Heat Management Solutions.~~ Revenues from OEM of Heat Management Solutions operating segment increased to $29.7 million for the year ended December 31, 2010 from $28.6 million for the year ended December 31, 2009, an increase of 3.6%. The increase in that segment’s revenues was attributable to increased sales both to existing and new customers.

~~Revenues from Heat Transfer Services and Products.~~ Revenues from Heat Transfer Services and Products increased to $24.5 million for the year ended December 31, 2010, from $17.5 million for the year ended December 31, 2009, an increase of 39.9%. The increase in that segment’s revenues was attributable to increased revenues to existing and new customers.

~~Revenues from MRO services for aviation components.~~ Revenues from MRO services for aviation components decreased to $16.3 million for the year ended December 31, 2010, from $24.8 million for the year ended December 31, 2009, a decrease of 34.1%. The decrease in MRO services for aviation components revenues in the year ended December 31, 2010, was primarily attributable to the contribution of the Propellers MRO operations to FAvS (which amounted to $9.0 million for the twelve months ended December 31, 2009). Excluding the Propellers MRO operations contributed to FAvS, total revenues from MRO services for the twelve months ended December 31, 2010, reflected a 3.5% increase compared to the twelve months ended December 31, 2009 attributable to increased sales both to existing and new customers.

~~Revenues from OEM of Electric Motion Systems.~~ Revenues from OEM of Electric Motion Systems segment increased to $13.0 million for the year ended December 31, 2010, from $11.3 million for the year ended December 31, 2009, an increase of 15.2%. The increase was attributable to increased sales to existing customers.

~~Revenues from parts services.~~ ~~On December 4, 2009, TAT sold its parts segment to FAvS (See “Item 4 – Information of the Company; History and development of TAT” and further below under~~ ~~General and Administrative Expenses). Revenues from parts services amounted to $6.1 million for the period ended December 4, 2009.~~

~~Cost of revenues~~. Cost of revenues were $64.7 million for the year ended December 31, 2010, compared to $66.9 million for the year ended December 31, 2009, a decrease of 3.3%. Cost of revenues for the year ended December 31, 2010 included a $3.5 million expenses related to a write down of inventories in the MRO services for aviation components operating segment. Cost of revenues, excluding the said $3.5 million inventory write down, for the twelve months ended December 31, 2010, were $61.2 compared to $66.9 million for the twelve months ended December 31, 2009, a decrease of 8.5%. The decrease in cost of revenues was primarily attributable to (i) decreased cost of revenues related to the Parts services and Propellers MRO operations contributed to FavS; and (ii) decrease in cost of revenues in the remaining MRO services for aviation components operations; partially offset by (iii) an increase in cost of revenues in the OEM operations in Israel; and (iv) an increase in cost of revenues in the Heat Transfer Services and Products operations.

Cost of revenues excluding the inventory write down and cost of revenues from the Parts services and Propellers MRO operations contributed to FAvS, as a percentage of revenues was 76.7% for the twelve months ended December 31, 2010, comparing to 80.5% for the twelve months ended December 31, 2009. That was primarily attributable to (i) product mix with higher margin products sold in the Heat Transfer Services and Products and in the MRO services for aviation components operating segment; partially offset by (ii) product mix with lower margin products sold in the OEM operations in Israel affected partially by the NIS currency appreciation to the U.S. Dollar.

~~All of the following cost of revenues data for the operational segments does not reflect the elimination of inter-company transactions.~~

~~Cost of revenues for OEM of Heat~~ ~~Management Solutions~~. Cost of revenues for OEM of Heat Management Solutions increased to $22.4 million for the year ended December 31, 2010, from $19.8 million for the year ended December 31, 2009, an increase of 13.2%. This increase in cost of revenues is primarily attributable to product mix with lower margin (products sold in this segment affected partially by the NIS currency appreciation to the U.S. Dollar). Cost of revenues as a percentage of revenues in this segment increased to 75.6% in the year ended December 31, 2010, from 69.2% for the year ended December 31, 2009, primarily attributable to the reasons mentioned above.

~~Cost of revenues for~~ ~~Heat Transfer Services and Products~~. Cost of revenues for Heat Transfer Services and Products increased to $18.0 million for the year ended December 31, 2010 from $15.6 million for the year ended December 31, 2009, an increase of 15.6%, primarily as a result of the increase in revenues in 2010.

Cost of revenues as a percentage of revenues in this segment decreased to 73.6% in the year ended December 31, 2010 from 89.0% for the year ended December 31, 2009, primarily as a result of product mix with higher margins sold during year 2010.

~~Cost of revenues for MRO~~ ~~services for aviation components~~. Cost of revenues for MRO services for aviation components decreased to $14.6 million for the year ended December 31, 2010 from $22.3 million for the year ended December 31, 2009, a decrease of 34.5%. The decrease in cost of revenues in the year ended December 31, 2010, was primarily attributable to the contribution of the Propellers MRO operations to FAvS (which amounted to $6.9 million for the twelve months ended December 31, 2009). Excluding the Propellers MRO operations contributed to FAvS, total cost of revenues from this operating segment for the twelve months ended December 31, 2010, reflected a 5.17% decrease compared to the twelve months ended December 31, 2009, primarily as a result of product mix with higher margin products sold in 2010 and as a result of additional costs in 2009 related to settlement of Repair Center and Storefront agreements.

Cost of revenues as a percentage of revenues in this segment decreased to 89.6% in the year ended December 31, 2010 from 97.7% (excluding the Propellers MRO operations contributed to FAvS ) for the year ended December 31, 2009, primarily as a result of product mix with higher margins sold during year 2010, as well as to the additional costs in this segment related to the settlement of Repair Center and Storefront agreements.

~~Cost of revenues for OEM of Electric Motion Systems~~. Cost of revenues for OEM of Electric Motion Systems segment increased to $10.1 million for the year ended December 31, 2010, from $8.0 million for the year ended December 31, 2009, and is attributable mainly to the increase in revenues in 2010.

Cost of revenues as a percentage of revenues in this segment increased to 77.4% in the year ended December 31, 2010, from 70.9% in the year ended December 31, 2009, primarily as a result of product mix with lower margins sold during year 2010.

~~Cost of revenues for parts services. On December 4, 2009 TAT sold its parts segment to FAvS (See “Item 4 – Information of the Company; History and development of TAT” and further below under~~ ~~General and Administration Expenses). Cost of revenues for parts services amounted to $5.9 million for the period ended December 4, 2009. Cost of revenues as a percentage of revenues for the period ended December 4, 2009 was 97.1%.~~

~~Research and development~~. Research and Development expenses were $0.7 million for the years ended December 31, 2010 and 2009 and are related to new products and technologies within the OEM operations in Israel. Research and Development expenses as a percentage of revenues were 1% for the years ended December 31, 2010 and 2009. TAT expects to continue to incur and record research and development expenses in coming years.

~~Selling and marketing expenses~~. Selling and marketing expenses decreased to $3.5 million for the year ended December 31, 2010, from $3.7 million for the year ended December 31, 2009. The 7% decrease in selling and marketing expenses was primarily attributable to expenses related to the Parts services operations and Propellers MRO operations contributed to FAVS. Selling and marketing expenses as a percentage of revenues were 4.4% for the twelve months ended December 31, 2010, similar to 4.5% for the twelve months ended December 31, 2009. TAT does expect to continue and invest additional resources in selling and marketing activities in coming years.

~~General and administrative expenses~~. General and administrative expenses decreased to $12.8 million for the year ended December 31, 2010, from $15.0 million for the year ended December 31, 2009. The 14% decrease in general and administrative expenses was primarily attributable to (i) a $1.7 million one time expense recorded in 2009 and associated with the write off of a customer debt in the MRO services for aviation components operating segment, (ii) a $0.6 million of relocation recorded in 2009 expenses as mentioned below, (iii) a decreased cost of payroll and professional services resulting from our U.S. subsidiary, Limco, ceasing to be publicly traded commencing July 2009, and to (iv) expenses related to the Parts services operations and the Propellers MRO operations contributed to FAvS.

~~General and administrative expenses as a percentage of revenues was 16.1% for the year ended December 31, 2010, compared to 18.0% for the year ended December 31, 2009.~~

On July 29, 2009 the Company determined not to go forward with the planned relocation of the operations of Limco’s Tulsa, Oklahoma based subsidiary to the location of Limco’s Piedmont, subsidiary in Kernersville, North Carolina. As a result, the Company incurred relocation expense of $0.6 million for the year ended December 31, 2009.

~~Impairment of Goodwill and Intangible assets~~. For the year ended December 31, 2010, charges under this item were $4.7 million primarily attributable a $4.2 million impairment of goodwill in the MRO services for aviation components reporting unit and a $0.48 million impairment of ‘Customer Relations’ in the same reporting unit, during the quarter ended September 30, 2010. These impairments were related to adverse changes in the future outlook for MRO services business including a weak U.S. and global economy which resulted in a reduction in projected future demand for the MRO services.

~~Capital gain from sale of the propellers & parts businesses.~~ ~~TAT recorded a $4.4 million capital gain in the year ended December 31, 2009, derived from FAvS transaction.~~

~~Operating~~ ~~income~~ ~~(loss).~~ Operating loss was $6.6 million for the year ended December 31, 2010, comparing to an operating income of $1.2 million for the year ended December 31, 2009. The operating loss was attributable to the one time charges related to impairment of goodwill and intangible assets and to the write down of inventories totaled $8.2 million. Excluding these $8.2 million one time charges, operating income was $1.6 million.

~~Financial~~ ~~expenses~~. Financial expenses were $1.7 million for the twelve months ended December 31, 2010, compared to $2.0 million for the twelve months ended December 31, 2009. Financial expenses during the twelve months ended December 31, 2010, primarily resulted from changes in exchange rates between the U.S. dollar and the Israeli Shekel, as well as interest payments on long-term loans.

~~Financial income~~. Financial income for the twelve months ended December 31, 2010 was $1.6 million, compared to $2.2 million for the twelve months ended December 31, 2009. Financial income during the twelve months period ended on December 31, 2010, resulted from changes in exchange rates between the U.S. dollar and the Israeli Shekel, change in the fair value of unrealized forward transactions profits, interest received from the Israeli tax authorities for excess payments made in previous years and from interest received for short-term investments.

~~Other expense.~~ Other expense for the twelve months ended December 31, 2010, was $0.2 million and is attributable to other-than-temporary impairment loss on Auction Rate Securities based on a fair value estimation.

~~Taxes~~. Total tax income for the twelve months ended December 31, 2010, amounted to $4.2 million, compared to tax income of $0.8 million for the twelve months ended December 31, 2009. Tax income for the twelve months ended December 31, 2010, is primarily attributable to a decrease in pre-tax income in the U.S. operations (resulted from (i) the $8.2 million one-time charges recorded for write down of inventory of $3.5 million and impairment of goodwill and intangible assets of $4.7 million, described above, and (ii) the $4.5 million share in loss and impairment of TAT’s 37% interest in FAvS as described further below), as well as to a decrease in pre-tax income in the operations in Israel. Tax income for the twelve months ended December 31, 2009, was primary attributable to loss before tax in the U.S operations, and to an income tax benefit attributable to a settlement of a tax uncertainty in favor of our OEM operations in Israel received in the twelve months ended December 31, 2009, off-set by statutory taxes for the OEM operations in Israel as well as deferred taxes related to capital gain in the U.S.

~~Share in results of affiliated company and impairment of share in affiliated company.~~ The Company recognized a loss of $4.5 million from its share in loss and impairment of 37% interest in FAvS results for the year ended December 31, 2010. The impairment was based on an independent appraisal. TAT recognized an immaterial loss from its Share in income of its interest in FAvS for the month of December 2009.

~~Net income attributable to noncontrolling interest~~. TAT recognized net income attributable to noncontrolling interest of $0.1 million for the twelve months ended December 31, 2010 attributable to our 70% held Bental subsidiary compared with net income attributable to noncontrolling interest of $0.3 million for the twelve months ended December 31, 2009, primarily related to our then 62% held Limco-Piedmont subsidiary.

~~Net income (loss) attributable to controlling interest. For the year ended December 31, 2010, net loss was $7.4 million, compared with net income of $1.8 million for the year ended December 31, 2009.~~

Quarterly Results Of Operations (UNAUDITED)

The following table presents the unaudited consolidated statements of operations data for each of the eight fiscal quarters ended December 31, ~~2011,~~2012, in dollars and as a percentage of revenues. In the opinion of TAT’s management, this unaudited information has been prepared on the same basis as TAT’s audited consolidated financial statements and includes all adjustments, consisting only of normal recurring adjustments, necessary for fair ~~presentation~~statement of the unaudited information for the quarters presented. The results of operations for any quarter are not necessarily indicative of results that TAT might achieve for any subsequent periods.

9294

	Three months ended																								Three months ended
	2011												2010												2012												2011
	Dec. 31,			Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,			June 30,			Mar. 31,
	($ in thousands)																								($ in thousands)
Revenues	$	23,391		$	20,710		$	19,894		$	21,402		$	23,817		$	18,922		$	18,649		$	18,367		$	23,039		$	22,079		$	22,127		$	20,677		$	23,391		$	20,710		$	19,894		$	21,402
Cost of revenues		18,442			16,284			15,801			15,692			17,937			14,915			14,357			13,979			17,779			16,279			16,421			16,103			18,442			16,284			15,801			15,692
Write down of inventory and impairment charges of long lived assets		-			5,763			-			-			-			3,500			-			-															-			5,763			-			-
Gross profit		4,949			(1,337	)		4,093			5,710			5,880			507			4,292			4,388
Gross profit (loss)																										5,260			5,800			5,706			4,574			4,949			(1,337	)		4,093			5,710
Research and Development, net		143			180			198			265			192			132			186			141			313			164			501			174			143			180			198			265
Selling and marketing expenses		957			715			885			882			975			834			960			706			830			783			924			889			957			715			885			882
General and administrative expenses		2,940			2,985			2,555			2,469			4,103			3,104			2,684			2,941			3,233			2,504			2,755			2,995			2,940			2,985			2,555			2,469
Impairment of goodwill and intangible assets		-			-			-			-			-			4,704			-			-			-			-			1,015			-			-			-			-			-
Gain from sale of the propellers & parts businesses		(44	)		(125	)		-			-			-			-			-			-
Other expenses (income)																										(1	)		-			(4	)		14			(44	)		(125	)		-			-
Operating income (loss)		953			(5,092	)		455			2,094			610			(8,267	)		462			600			885			2,349			515			502			953			(5,092	)		455			2,094
Financial income (expenses), net		(334	)		(377	)		122			209			59			261			(384	)		(47	)		(18	)		(40	)		(383	)		260			(334	)		(377	)		122			209
Other expense		-			-			-			-			(200	)		-			-			-
Gain from dilution of interests in affiliated company		-			-			240			-			-			-			-			-			-			-			-			-			-			-			240			-
Income (loss) before income taxes		619			(5,469	)		817			2,303			469			(8,006	)		78			553
Income taxes (benefit)		363			(1,948	)		489			780			(1,378	)		(2,977	)		176			26
Income (loss) before taxes on income																										867			2,309			132			762			619			(5,469	)		817			2,303
Taxes on income (tax benefit)																										190			565			1,063			268			363			(1,948	)		489			780
Share in results of affiliated company and impairment of share in affiliated company		(119	)		167			197			86			(4,879	)		(50	)		213			206			(540	)		136			(3,312	)		(40	)		(119	)		167			197			86
Net income (loss)		137			(3,354	)		525			1,609			(3,032	)		(5,079	)		115			733			137			1,880			(4,243	)		454			137			(3,354	)		525			1,609
Net loss (income) attributable to non controlling interest		(20	)		70			110			(107	)		(26	)		(6	)		(96	)		5			(8	)		(108	)		44			130			(20	)		70			110			(107	)
Net income (loss) attributable to TAT Technologies’ Shareholders	$	117		$	(3,284	)	$	635		$	1,502		$	(3,058	)	$	(5,085	)	$	19		$	738		$	129		$	1,772		$	(4,199	)	$	584		$	117		$	(3,284	)	$	635		$	1,502

Revenues		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0			100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenues		78.8			78.6			79.4			73.3			75.3			78.8			77.0			76.1			77.2			73.7			74.2			77.9			78.8			78.6			79.4			73.3
Write down of inventory and impairment charges of long lived assets		-			27.8			-			-			-			18.5			-			-			-			-			-			-			-			27.8			-			-
Gross profit		21.2			(6.4	)		20.6			26.7			24.7			2.7			23.0			23.9
Gross profit (loss)																										22.8			26.3			25.8			22.1			21.2			(6.4	)		20.6			26.7
Research and Development, net		0.6			0.9			1.0			1.2			0.8			0.7			1.0			0.8			1.4			0.7			2.3			0.8			0.6			0.9			1.0			1.2
Selling and marketing expenses		4.1			3.5			4.4			4.1			4.1			4.4			5.1			3.8			3.6			3.6			4.2			4.3			4.1			3.5			4.4			4.1
General and administrative expenses		12.6			14.4			12.9			11.6			17.2			16.4			14.4			16.0			14.0			11.4			12.4			14.5			12.6			14.4			12.9			11.6
Write off of goodwill and intangible assets		-			-			-			-			-			24.9			-			-			-			-			4.6			-			-			-			-			-
Gain from sale of the propellers & parts businesses		(0.2	)		(0.6	)		-			-			-			-			-			-
Other expenses (income)																										-			*			*			0.1			(0.2	)		(0.6	)		-			-
Operating income (loss)		4.1			(24.6	)		2.3			9.8			2.6			(43.7	)		2.5			3.3			3.8			10.6			2.3			2.4			4.1			(24.6	)		2.3			9.8
Financial income (expenses), net		(1.4	)		(1.8	)		0.6			0.9			0.2			1.4			(2.1	)		(0.3	)		(0.1	)		(0.1	)		(1.7	)		1.3			(1.4	)		(1.8	)		0.6			0.9
Other expense		-			-			-			-			(0.8	)		-			-			-
Gain from dilution of interests in affiliated company		-			-			1.2			-			-			-			-			-			-			-			-			-			-			-			1.2			-
Income (loss) before income taxes		2.7			(26.4	)		4.1			10.7			2.0			(42.3	)		0.4			3.0
Income taxes (benefit)		(1.6	)		(9.4	)		2.5			3.6			(5.8	)		(15.7	)		0.9			0.1
Income (loss) before taxes on income																										3.7			10.5			0.6			3.7			2.7			(26.4	)		4.1			10.7
Taxes on income (tax benefit)																										0.8			2.6			4.8			1.3			(1.6	)		(9.4	)		2.5			3.6
Share in results of affiliated company and impairment of share in affiliated company		(0.5	)		(0.8	)		1.0			*			(20.5	)		(0.3	)		1.1			1.1			(2.3	)		0.6			(15.0	)					(0.5	)		(0.8	)		1.0			*
Net income (loss)		0.6			(16.2	)		2.6			7.1			(12.7	)		(26.9	)		0.6			4.0			0.6			7.3			(19.2	)		2.4			0.6			(16.2	)		2.6			7.1
Net loss (income) attributable to non controlling interest		(0.1	)		0.3			0.6			(0.5	)		(0.1	)		-			(0.5	)		-			*			(0.5	)		0.2			(0.2	)		(0.1	)		0.3			0.6			(0.5	)
Net income (loss) attributable to TAT Technologies’ Shareholders		0.5	%		(15.9	)%		3.2	%		7.0	%		(12.8	)%		(26.9	)%		0.1	%		4.0	%		0.6	%		7.8	%		(19.0	)%		2.6	%		0.5	%		(15.9	) %		3.2	%		7.0	%

~~106~~

(**)	Member of the audit committee and member of the committee that examines the financial statements, prior to the Board of Directors' approval; also a member of the compensation committee.

~~Mr. Rimon Ben-Shaoul~~Zeev Birnboim was elected as the Chairman of TAT’s Board of Directors in ~~April 2011.~~March 2013. Mr. ~~Ben-Shaoul has been~~Birnboim served from 2009 to 2012, as the ~~Chief Executive Officer~~Vice President of ~~Polar Communications Ltd since 2004. Polar Communications Ltd is a holding company focused in the areas~~Business Development, Sales and Marketing of ~~technology and media. From 1997 through 2001~~Krausz Industries Ltd. Prior to that, Mr. ~~Ben-Shaoul~~Birnboim served, ~~as Chief Executive Officer of Clal Industries and Investments Ltd. and prior thereto~~inter alia, as the President & CEO of Vita Pri Hagalil Ltd (2004-2009), as the President & CEO of Smart Storage Ltd. (2002-2004) and ~~Chief Executive Officer~~as the President & CEO of ~~Clal Insurance Company~~Tadiran-Ampa Ltd. (1998-2002). Mr. ~~Ben-Shaoul~~Birnboim holds a BAB.A. in ~~Economics~~economics and ~~Statistics and an~~ MBA from ~~Tel Aviv University.~~

~~Ms. Regina~~ ~~Ungar~~ ~~was elected as a director by our Board of Directors in April 2011. Since December 2010 Ms. Ungar~~Hebrew University and has ~~been~~completed the ~~acting Chief Executive Officer of KMN Holdings Ltd (the ultimate parent of the Company) and the Chairman of the Board of TAT Industries, our parent company. Until October 2010 Ms. Ungar was~~International Senior Vice President of Shrem Fudim Group Ltd. and of Leader Holdings & Investments Ltd., which are holding companies investing in capital market, communication and technology companies. Ms. Ungar holds a BA in Economics and Accounting and an MBA from Tel AvivManagement Program at Harvard University.

Avi Shani has served as an outside director (within the meaning of the Israeli Companies Law) since August 2008 and is a member of TAT’s Audit Committee; in August 2011, Mr. Shani was re-elected to serve as an outside director for a second three-year term. Mr. Shani is also serving as a director of Psagot Providence Funds and of Psagot Pensions Funds. From 2005 until 2008 Mr. Shani served as the CEO of TCM Mobile, a start up company, and prior to that, during years 2000 - 2004 he served as Executive Vice President Investments and Chief Economist of IDB Development, a leading Israeli holding company, in charge of new Investments. Mr. Shani holds a B.A degree in Economics and an MBA, both from Tel Aviv University.

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Iris Shapira was elected as a director and as a member of TAT’s Audit Committee in January 2012. The Audit Committee also determined that Ms. Shapira is qualified as a "director with accounting and financial expertise”. Ms. Shapira has served, since February 2010, as the CFO of Haldor Advanced Technologies Ltd. and, since 2010, as an outside director of Computer Direct Group Ltd. During 2010-2011, she served as an outside director of E.T. View Ltd, and during 2003-2007 as the CFO of Cloverleaf Communications Inc. Prior to that, Ms. Shapira served, inter alia, as the CFO of Emblaze Mobile Technologies Ltd. and of Mofet Venture Capital Fund. Ms. Shapira holds a B.A. in accounting and economics from Tel Aviv University and is a certified CPA (Israel).

Jan Loeb was elected as a director by our Board of Directors in August 2009. Mr. Loeb has served as President of Leap Tide Capital Management, Inc., a capital investment firm, since 2007. From February 2005 through January 2007, he served as a portfolio manager of Amtrust Capital Management, Inc. From February 2004 through January 2005, Mr. Loeb was a Portfolio Manager for Chesapeake Partners, a capital investment firm. From January 2002 through December 2004, Mr. Loeb was a Managing Director of Jefferies & Company, Inc., an investment banking firm based in New York City. From 1994 through 2001, Mr. Loeb was a Managing Director of Dresdner Kleinwort and Wasserstein, Inc., an investment banking firm based in New York City, which was formerly known as Wasserstein Perella & Co., Inc. Mr. Loeb is also a director of American Pacific Corp and was a director of Pernix Therapeutics Holdings, Inc. until September 2011. Mr. Loeb graduated from Baruch College – City University of New York with a baccalaureate in Finance and Investments.

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~~Nati Botbol~~ was elected as a director by our Board of Directors in April 2011. Mr. Botbot has been the Chief Financial Officer of KMN Holdings Ltd. (the ultimate parent of the Company) since April 2011. From 2004 until 2011, Mr. Botbol was an Audit Senior Manager in Ernst &Young Israel. Mr. Botbol holds a BA in Economics and Accounting from Bar Ilan University.

Mr. Yacov Shahar had served as an outside director (within the meaning of the Israeli Companies Law) since August 2010 and is a member of TAT’s Audit Committee. Mr. Shahar served as the Chief Financial Officer and Vice President of Elad Group, Canada, from 2004 through 2005, and between years 1990-2004 he served as a customer relations manager in the business division at Bank Hapoalim. Mr. Shahar holds a B.A. degree in Economics and Mathematics from the Hebrew University of Jerusalem.

Mr. Itsik Maaravi has served as TAT’s Chief Executive Officer since January 2012. Prior to that, Mr. Maaravi served as President of TAT’s Piedmont subsidiary, a position he held since July 2011. From July 2009 through June 2011 Mr. Maaravi was Chief Marketing Officer for Piedmont as well as for the Company’s Limco subsidiary. Between 2000 and June 2009 Mr. Maaravi held senior marketing positions at Kamor Aviation and Israel Aerospace Industries.

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Mr. ~~Paul Hall~~Todd Schwarz has served as Chief Executive Offices of Piedmont since October 2012 and prior thereto as its Chief Financial Officer since January 2011. He began his career with Ernst& Young as a tax specialist in 1989 and immediately before joining Piedmont was the Vice President of Finance and Administration for a regional real estate developer. Mr. Schwarz holds a MBA from the University of Virginia’s Darden School of Business and a B.A. in Accountancy from North Carolina State University.

Dr. Yair Raz has served as ~~Limco-Piedmont Inc.’s~~ Chief Executive ~~Officer~~Offices of Limco since ~~January 2012. Prior~~November 2012.Prior to that ~~Mr. Hall~~,Dr. Raz served as ~~President~~the Chief Operating Officer of ~~TAT’s Limco subsidiary,~~Piedmont Aviation, a position he held since April 2012. From January 2011 to January 2012 Dr. Raz was the BTI Vice President Marketing and Business Development for North America. Between August 2005 and December ~~2009. Between the years 2007 and 2009 Mr. Hall~~2011 Dr. Raz served as ~~Director of Operations for Ametek Aerospace and prior to that, Mr. Hall served as~~General Manager of ~~Operations~~PCI, a PWA and ~~Sales~~BTI Joint Venture in the US. Between 1995 and July 2005 Dr. Raz held a growing responsibility Leadership Positions with ~~Delta Airlines. Mr. Hall~~PCI in the US including Operation Manager, Engineering, Procurement and President Assistant. Between 1998 and 2012 Dr. Raz was also involved with the JV of BTI and PWA in Xian China. Between 1983 and 1995 Dr. Raz held growing leadership positions with BTL in Israel. Those potions included Quality and Plant Management. Dr. Raz holds a ~~B.A~~B.Sc degree in ~~business management~~Mechanical Engineering and a M.Sc degree in Material science from ~~Embry Riddle University.~~the Technion in Haifa and a Phd. degree from La Salle University in the US.

Mr. Shmulik Mandel has served as Bental's Chief Executive Officer since June 2006. Between the years 1998-2006, Mr. Mandel served as the Chairman of the Board of Bental. From 1995 to 1998 Mr. Mandel served as the director of economic affairs for the United Kibutzim Movement in Israel. From 1993 to 2006 Mr. Mandel served as Chairman of the Board of Director of different corporations, among them Atudot Pension Fund Ltd., Lehavot Production and Shield Ltd., Lordan Ltd. and The Investment Company of the Bank for Industrial Development. Mr. Mandel holds a B.S degree in Computer Sciences from the Technion.

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Mr. Yaron Shalem has served as TAT’s Chief Financial Officer since August 2008. Prior to that, between the years 2006 and 2008 Mr. Shalem served as the CFO of OrganiTech USA Inc. —- a provider of high-tech hydroponics factories. Prior to that, during years 2003-2005 Mr. Shalem served as the CFO of Arelnet Ltd. —- a provider of IP based telecom switches. Before that Mr. Shalem was the CFO of CellPay Ltd, an Israeli start-up provider in the Mobile Payment arena. Mr. Shalem is a CPA and holds a B.A. in Economy & Accounting from Tel Aviv University and an MBA degree from Bar-Ilan University.

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Mr. Shlomi Karako has served as TAT’s VP Operations since June 2011. Prior to that, between the years 2009 and 2011 Mr. Karako served as an Executive Vice President at Spectronix ~~Ltd..~~Ltd. From 2005 through 2009 Mr. Karako served as the General Manager of the business jets division of the Israel Aerospace Industry (IAI). Prior to that, Mr. Karako served in the Israeli Air Force (IAF) for 27 years and retired as Colonel – his last position was managing the aircraft department, with responsibility for engineering, maintenance and logistics for all IAF aircraft. Mr. Karako holds a B.Sc in mechanical engineering from Beer-Shiva University and an M.B.A. from Tel Aviv University.

Compensation

The following table sets forth all the compensation TAT paid with respect to all of its directors and executive officers as a group for the year ended December 31, ~~2011.~~2012.

Salaries, fees,
Commissions and bonuses
Other benefits
All directors and executive officers as a group (10 persons) $ 1,782,000 $ 344,000

		Salaries, fees, Commissions and bonuses				Other benefits
All directors and executive officers as a group (10 persons)		$	1,249,000			$	340,000

During the year ended December 31, ~~2011,~~2012, TAT paid its directors, the determined medium amounts permitted by law to an outside director (within the meaning of the Israeli companies Law) which was: a per meeting attendance fee of NIS ~~2,490~~2,540 (approximately ~~$695)~~$658), plus an annual fee of NIS ~~65,600~~68,005 (approximately ~~$18,329)~~$17,627).

On August 18, 2011, the general meeting of our shareholders approved compensation for our chairman, Mr. Ben-Shaoul, at a rate of USD 10,000 per month, commencing on the date of his appointment (April 14, 2011).

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B. Board Practices

Introduction

According to the Israeli Companies Law and our articles of association, the management of our business is vested in our board of directors. The board of directors may exercise all powers and may take all actions that are not specifically granted to another organ in the company (including our ~~shareholders.~~shareholders). Our executive officers are responsible for our day-to-day management. Our executive officers have individual responsibilities established by our chief executive officer and board of directors.

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Election of Directors

Our articles of association provide for a board of directors consisting of such number of directors as may be determined from time to time at a general meeting of shareholders, provided that it shall be no less than two or more than eleven. Our board of directors is currently composed of ~~seven~~five directors, including three independent directors, two of whom also qualify as outside directors within the meaning of the Israeli Companies Law.

Pursuant to our articles of association and in accordance with the Israeli Companies Law, our directors (except the outside directors) are elected at our annual general meeting of shareholders by a vote of the holders of a majority of the voting power represented and voting at such meeting; in addition, directors (except the outside directors) may be appointed by a vote of a majority of directors then in office. All our directors (except the outside directors) hold office until the annual general meeting of shareholders succeeding their election (provided that if no directors are elected at the annual general meeting, the directors in office at the time such meeting was convened shall continue to hold their office) or until their earlier death, resignation, removal or other circumstances as set forth in the Israeli ~~law..~~law. All the members of our Board of Directors (except the outside directors) may be reelected upon completion of their term of office.

The Israeli Companies Law requires the board of directors of a public company to determine a minimum number of directors with ‘‘accounting and financial expertise.’’ Our board of directors determined, accordingly, that at least two directors must have ‘‘accounting and financial expertise,’’ as such term is defined by regulations promulgated under the Israeli Companies Law.

We are exempt from the requirements of the NASDAQ Marketplace Rules with regard to the nomination process of directors since we are a controlled company within the meaning of NASDAQ Marketplace Rule 5615(c)(2). See below in this Item 6. “Directors, Senior Management and Employees - Board Practices - NASDAQ Exemptions for a Controlled Company.”

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Outside and Independent Directors

Outside Directors. Under the Israeli Companies Law, Israeli companies whose shares have been offered to the public or whose shares are listed in an authorized stock exchange (accordingly, such shares are considered as held by "the public") are required to appoint at least two outside directors who meet the independence criteria set by the Israeli Companies Law.

A person is qualified to serve as an outside director only if he or she has “accounting and financial expertise” or “professional qualifications,” as such terms are defined by ~~regulations promulgated under~~ the Israeli Companies ~~Law.~~Regulations (Conditions and Criteria for a Director Who Possesses Accounting Expertise and a Director Who Possesses Professional Competence), 2005. At least one of the outside directors must have “accounting and financial expertise.” Each of our outside directors has “accounting and financial expertise.”

The outside directors are elected by a special majority vote at a shareholders ~~meeting.~~meeting as specified hereinafter. The shareholders voting in favor of their initial election must include at least a majority of the shares (i) of the non-controlling shareholders of the company and (ii) which do not have a personal interest in the approval of the election, as a result of their relationships with the controlling shareholders - who actually voted on the matter (not including abstentions). This minority approval requirement need not be met if the total shareholdings of those non-controlling shareholders and shareholders who do not have a personal interest in the matter as a result of their relationships with the controlling shareholders - who actually vote against their election represent 2% or less of all of the voting rights in the company.

In general, outside directors serve for a three-year term and may be reelected to two additional three-year terms by one of the following mechanisms: (1) the board of directors proposed the re-election of the nominee and the re-election was approved by the majority required for appointment of outside directors for their initial term; or (2) a shareholder holding 1% or more of the company's voting rights proposed the re-election of the nominee, and the re-election was approved by a majority of the votes cast by the shareholders of the company, excluding the votes of controlling shareholders ~~and of~~or those who have a personal interest in the matter as a result of their relationships with the controlling shareholders, provided that the aggregate votes cast in favor of the re-election by shareholders who are not controlling shareholders and do not have a personal interest in the matter as a result of their relationships with the controlling shareholders constitute more than 2% of the company's voting ~~rights.~~rights . An outside director may be removed from office at the initiative of the board of directors at a special general meeting of shareholders, if the board resolves that the statutory requirements for that person’s appointment as outside director no longer exist, or that the outside director has violated his or her duty of loyalty to the company. The resolution of the special general meeting of shareholders regarding the termination of office of an outside director requires the same majority that is required for the election of an outside director. The court may order the termination of the office of an outside director on the same grounds, following a motion filed by a director or a shareholder. If an outside directorship becomes vacant and as result, there is less than two directors who serve as outside directors in the company, the board of directors is required under the Israeli Companies law to convene a shareholders meeting immediately to appoint a new outside director.

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Each committee of the board of directors that is authorized to exercise powers vested in the board of directors must include at least one outside director and the audit committee must include all of the outside directors. An outside director is entitled to compensation as provided in regulations adopted under the Israeli Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with such service.

Until the lapse of two years from termination of office, we may not engage an outside director or his spouse or child, to serve as an office holder and cannot employ or receive services from ~~that person,~~these persons, either directly or indirectly, including through a corporation controlled by that ~~person.~~person; and with regards to a related person (to a such outside director) as defined in the Israeli Companies law which is not a spouse or child – until the lapse of one year from termination of office.

Independent Directors. As a controlled company, within the meaning of NASDAQ Marketplace Rule 5615(c)(2), we are exempt from the NASDAQ Marketplace Rule which requires that a majority of our board of directors qualify as independent directors, within the meaning of the NASDAQ Marketplace Rules. See Item 6. “Directors, Senior Management and Employees - Board Practices - NASDAQ Exemptions for a Controlled ~~Company.”~~Company”.

Audit Committee

Under the Israeli Companies Law, the board of directors of any public company must establish an audit committee. In general, the audit committee must consist of at least three directors and must include all of the outside directors; the majority of the audit committee members must be independent directors within the meaning of the Israeli Companies Law. The audit committee may not include (i) the chairman of the board of directors, (ii) any director employed by the company or by a controlling shareholder of the company (including a company which is controlled by him), (iii) any director providing services to the company or to a controlling shareholder of the company (including to a company which is controlled by him) on an ongoing basis, or (iv) a controlling shareholder or any of the controlling shareholder’s relatives.

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In addition, the NASDAQ Marketplace Rules require us to establish an audit committee comprised of at least three members, all of whom must be independent directors, each of whom is financially literate and satisfies the respective “independence” requirements of the Securities and Exchange Commission and NASDAQ and one of whom has accounting or related financial management expertise at senior levels within a company.

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Our audit committee acts also as a committee for the review and the approval of our financial statements, and as such, assists our board of directors in overseeing the accounting and financial reporting processes of our company and audits of our financial statements, including the integrity of our financial statements, compliance with legal and regulatory requirements, our independent registered public accountants’ qualifications and independence, the performance of our internal audit function and independent registered public accountants, finding any defects in the business management of our company and proposing to our board of directors ways to correct such defects, approving related-party (officers, directors, controlling shareholder, etc.) transactions with the company as required by Israeli law, examining the scope of work and the payment to our independent auditors and such other duties as may be directed by our board of directors. The audit committee may consult from time to time with our independent auditors and internal auditor with respect to matters involving financial reporting and internal accounting controls.

Our audit committee consists of three members of our board of directors (including two outside ~~directors)~~directors and one independent director) who satisfy the respective “independence” requirements of the Securities and Exchange Commission, NASDAQ and Israeli law for audit committee members. Our board of directors has determined that each member of our audit committee qualifies as an audit committee financial expert, as defined by rules of the Securities and Exchange Commission. The audit committee meets at least once each quarter.

Internal Audit

The Israeli Companies Law requires the board of directors of a public company to appoint an internal auditor ~~nominated~~following a recommendation by the audit committee. The role of the internal auditor is to examine, among other things, the compliance of the Company’s conduct with applicable law and orderly business practice. The internal auditor must meet certain statutory requirements of independence. Mr. Doron Cohen has served as our internal auditor since December 24, 2008.

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Directors’ Service Contracts

There are no arrangements or understandings between us and any of our subsidiaries, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination of their employment or service as directors of our company or any of our subsidiaries.

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Approval of Related Party Transactions under Israeli Law

Fiduciary Duties of Office Holders

The Israeli Companies Law codifies the fiduciary duties that “office holders,” including directors and executive officers, owe to a company. An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act at a level of care that a reasonable office holder in the same position would employ under the same circumstances. This includes the duty to utilize reasonable means to obtain (i) information regarding the business feasibility of a given action brought for his approval or performed by him by virtue of his position and (ii) all other information of importance pertaining to the foregoing actions. The duty of loyalty requires that an office holder acts in good faith and for the benefit of the company, including (i) avoiding any conflict of interest between the office holder’s position in the company and any other position he holds or his personal affairs, (ii) avoiding any competition with the company’s business, (iii) avoiding exploiting any business opportunity of the company in order to receive personal gain for the office holder or others, and (iv) disclosing to the company any information or documents relating to the company’s affairs that the office holder has received by virtue of his position as an office holder. Such disclosure is not a breach of the fiduciary duty of the officer to the Company.

Disclosure of Personal Interests of an Office Holder; Approval of Transactions with Office Holders

The Israeli Companies Law requires that an office holder promptly, and no later than the first board meeting at which such transaction is considered, disclose any personal interest that he or she may have and all related material information known to him or her and any documents in their position, in connection with any existing or proposed transaction by us. An office holder who did not disclose his personal Interests, will be observed as breached his Fiduciary Duties. In addition, if the transaction is an extraordinary transaction, that is, a transaction other than in the ordinary course of business or other than on market terms, or likely to have a material impact on the company’s profitability, assets or ~~liabilities.~~liabilities,. The ~~office holder~~Office Holder must also disclose any personal interest held by the office holder’s spouse, ~~siblings, parents, grandparents, descendants, spouse’s descendants and~~brother or sister, parent, grandparent, child as well as brother, sister or parent of such person's spouse or the ~~spouses~~spouse of any of the ~~foregoing,~~above, or by any corporation in which the office holder or his relative (as defined in the Israeli Companies Law) is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager.

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Under the Israeli Companies Law, in general all arrangements as to compensation of office holders who are not directors require the approval byof the compensation committee and the board of directors, including and exculpation, insurance and indemnification of, or an undertaking to, indemnify an office holder who is not a ~~director requires both board of directors and audit committee approval.~~director. The compensation of office holders who are directors must be approved by our ~~audit~~compensation committee, board of directors and the general meeting of our shareholders.

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Some transactions, actions and arrangements involving an office holder (or a third party in which an office holder has an interest) must be approved by the board of directors or as otherwise provided for in a company’s articles of association. ~~In some cases,~~If the transaction is an extraordinary transaction (which defined as a transaction not in the ordinary course of business and for a material value) such a transaction must be approved by the audit committee and by the board of directors itself, and under certain circumstances shareholders’ approval may be required. A director who has a personal interest in a transaction that is considered at a meeting of the board of directors or the audit committee may not be present during the board of directors or audit committee discussions and may not vote on the transaction, unless the transaction is not an extraordinary transaction or the majority of the members of the board or the audit committee have a personal interest, as the case may be. In the event the majority of the members of the board of directors or the audit committee have a personal interest, then the approval of the general meeting of shareholders is also required.

Disclosure of Personal Interests of a Controlling Shareholder; Approval of Transactions with Controlling Shareholders

The disclosure requirements that apply to an office holder also apply to a transaction in which a controlling shareholder of the company has a personal interest. The Israeli Companies Law provides that an extraordinary transaction with a controlling shareholder or an extraordinary transaction with another person in whom the controlling shareholder has a personal interest or a transaction with a controlling shareholder or his relative regarding terms of service and employment, must be approved by the audit committee (or the compensation committee, as the case may be), the board of directors and the ~~shareholders.~~shareholders by a special majority, as follows. The ~~shareholder~~shareholders's general meeting approval for such a transaction must include the majority of the shareholders who have no personal interest in the transaction who voted on the matter (not including abstentions). The transaction can be approved by ~~shareholders~~shareholders' general meeting without this majority approval if the total shareholdings of those shareholders who have no personal interest and voted against the transaction do not represent more than two percent of the voting rights in the company.

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Under the regulations promulgated under the Israeli Companies Law, certain extraordinary transactions between a public company and its controlling shareholder(s) do not require shareholder ~~approval.~~approval . In addition, under such regulations, directors’ compensation and employment arrangements in a public company do not require the approval of the shareholders if both the audit committee and the board of directors agree that such arrangements are solely for the benefit of the company or if the directors’ compensation does not exceed the maximum amount of compensation for outside directors determined by applicable regulations. Also, employment and compensation arrangements for an office holder that is a controlling shareholder of a public company do not require shareholder approval if certain criteria are met. The foregoing exemptions from shareholder approval will not apply if one or more shareholders holding at least 1% of the issued and outstanding share capital of the company or of the company’s voting rights, objects to the use of these exemptions provided that such objection is submitted to the company in writing not later than fourteen days from the date of the filing of a report regarding the adoption of such resolution by the company. If such objection is duly and timely submitted, then the transaction or compensation arrangement of the directors will require shareholders’ approval as detailed above.

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In addition, a private placement of securities that will (i) cause a person to become a controlling shareholder or (ii) increase the relative holdings of a shareholder that holds 5% or more of the company’s outstanding share capital, or (iii) will cause any person to become, as a result of the issuance, a holder of more than 5% of the company’s outstanding share capital in a private placement in which 20% or more of the company’s outstanding share capital prior to the placement are offered, the payment for which (in whole or in part) is not in cash or not under market terms, requires approval by the board of directors and the shareholders of the company.

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Exculpation, Indemnification and Insurance of Directors and Officers

Exculpation of Office Holders

The Israeli Companies Law provides that an Israeli company cannot exculpate an office holder from liability with respect to a breach of his duty of loyalty, but may, if permitted by its articles of association, exculpate in advance an office holder from his liability to the company, in whole or in part, with respect to a breach of his or her duty of care. However, a company may not exculpate in advance a director from his or her liability to the company with respect to a breach of his duty of care in the event of distributions.

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Insurance for Office Holders

The Israeli Companies Law provides that a company may, if permitted by its articles of association, enter into a contract to insure an office holder for acts or omissions performed by the office holder in such capacity for:

· ●

Breach of his or her duty of care to the company or to another person;

·●

Breach of his or her duty of loyalty to the company, provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice the company’s interests;

·●

Monetary liability imposed upon the office holder in favor of another person;

·●

A monetary obligation imposed on the office holder in favor of another person who was injured by a violation, as this term is defined in section 52(54)(a)(1)(a) of the Israeli Securities Law; and

·●

Expenses expended by the office holder, including reasonable litigation expenses, and including attorney's fees, in respect of any proceeding under chapters 8-C, 8-D or 9-A of the Israeli Securities Law or in respect to any monetary sanction.

Indemnification of Office Holders

The Israeli Companies Law provides that a company may, if permitted by its articles of association, indemnify an office holder for acts or omissions performed by the office holder in such capacity for:

·●

Monetary liability imposed on the office holder in favor of another person by any judgment, including a settlement or an arbitrator’s award approved by a court;

·●

Reasonable litigation expenses, including attorney’s fees, actually incurred by the office holder as a result of an investigation or proceeding instituted against him or her by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment against the office holder or the imposition of any monetary liability in lieu of criminal proceedings, or concluded without the filing of an indictment against the office holder and a monetary liability was imposed on the officer holder in lieu of criminal proceedings with respect to a criminal offense that does not require proof of criminal intent;

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· ●

A monetary obligation imposed on the office holder in favor of another person who was injured by a violation, as this term is defined in section 52(54)(a)(1)(a) of the Israeli Securities Law;

· ●

Reasonable litigation expenses, including attorneys’ fees, incurred by such office holder or which were imposed on him by a court, in proceedings the company instituted against the office holder or that were instituted on the company’s behalf or by another person, or in a criminal charge from which the office holder was acquitted, or in a criminal proceeding in which the office holder was convicted of a crime which does not require proof of criminal intent; or

· ●

Any other liability, payment or expense which the Company may indemnify its office holders under the Israeli Company Law, the Israeli Securities Law or other Israeli law.

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In accordance with the Israeli Companies Law, a company’s articles of association may permit the company to:

·●

Undertake in advance to indemnify an office holder, except that with respect to a financial liability imposed on the office holder by any judgment, settlement or court-approved arbitration award, the undertaking must be limited to types of occurrences, which, in the opinion of the company’s board of directors, are, at the time of the undertaking, foreseeable due to the company’s activities and to an amount or standard that the board of directors has determined is reasonable under the circumstances; and

●

Undertake in advance to indemnify an office holder for reasonable litigation expenses, including attorney’s fees, actually incurred by the office holder as a result of an investigation or proceeding instituted against him or her by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment against the office holder or the imposition of any monetary liability in lieu of criminal proceedings, or concluded without the filing of an indictment against the office holder and a monetary liability was imposed on the officer holder in lieu of criminal proceedings with respect to a criminal offense that does not require proof of criminal intent.

·●

Undertake in advance to indemnify an office holder for reasonable litigation expenses, including attorneys’ fees, incurred by such office holder or which were imposed on him by a court, in proceedings the company instituted against the office holder or that were instituted on the company’s behalf or by another person, or in a criminal charge from which the office holder was acquitted, or in a criminal proceeding in which the office holder was convicted of a crime which does not require proof of criminal intent.

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●

Retroactively indemnify an office holder of the company.

Limitations on Exculpation, Insurance and Indemnification

The Israeli Companies Law provides that neither a provision of the articles of association permitting the company to enter into a contract to insure the liability of an office holder, nor a provision in the articles of association or a resolution of the board of directors permitting the indemnification of an office holder, nor a provision in the articles of association exempting an office holder from duty to the company shall be valid, where such insurance, indemnification or exemption relates to any of the following:

· ●

Breach by the office holder of his duty of loyalty, except with respect to insurance coverage or indemnification if the office holder acted in good faith and had reasonable grounds to assume that the act would not prejudice the company;

· ●

Breach by the office holder of his duty of care if such breach was committed intentionally or recklessly, unless the breach was committed only negligently;

· ●

Any act or omission committed with intent to derive an unlawful personal gain; and

· ●

Any fine or forfeiture imposed on the office holder.

In addition, pursuant to the Israeli Companies Law, exemption of, procurement of insurance coverage for, an undertaking to indemnify or indemnification of an office holder must be approved by the ~~audit~~compensation committee (with regards to a “Public Company” or to a “Bond Company”, as determined in the Israeli Companies Law), and the board of directors and, if such office holder is a director or a controlling shareholder or a relative of the controlling shareholder, also by the shareholders general meeting. A special majority at the general meeting is required if a controlling shareholder is interested in such transaction as an office holder or as a relative of an office holder, as described above.

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Our articles of association include provisions which allow us to insure, indemnify and exempt our office holders, subject to the provisions of the Israeli Companies Law. We currently maintain directors’ and officers’ liability insurance to cover liabilities of up to $25 million per claim and in the aggregate; following the approvals by our audit committee and the board of directors in accordance with the conditions of a "framework transaction" approved by the general meeting of shareholders on August 30, 2010, such insurance ~~have~~has been recently renewed twice for additional ~~period~~periods of one year ~~commencing~~ on March 15, ~~2012.~~2012 and on March 15, 2013 through March 15, 2014. In July 2004, our shareholders approved a form of directors and officers letter of indemnification and exemption for liabilities and expenses incurred as a result of their acts in their capacity as directors and officers of our company, in an aggregate amount not to exceed $5.0 million or 25% of our equity capital (net worth).

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On February 8, 2009, following the approval by our board of directors and audit committee, our shareholders approved the purchase of a tail (runoff) policy insuring the directors and officers of our company in office prior to the acquisition of the control by Isal Amlat, as part of Isal Amlat’s obligations under the purchase agreement. The resolution to obtain such policy was adopted by a super majority vote, as required for the approval of transactions with related parties under Israeli law. The policy will be in effect for 7 years, until January 1, 2015. The coverage limit under such policy is 10 million dollars and the premium for such policy is 115,000 dollars for the term of the policy.

Following our acquisition of the shares of Limco-Piedmont held by the public in July 2009 we purchased a tail policy insuring the former directors and officers of Limco-Piedmont. The coverage limit under the policy is $25 million and the premium for such policy is $190,000 dollars for the term of the policy.

In March 2012 our board of directors and audit committee approved the purchase of a directors and officers insurance policy for the directors and officers of our company and its subsidiaries, Limco-Piedmont and Bental, and its controlling shareholder TAT Industries. The coverage limit under the policy is 25 million dollars and the premium for the insurance term (one year) is approximately $100,000.

~~Our audit committee and the~~In March 2013 our board of directors ~~have recently~~and audit committee approved the purchase of a directors and officers insurance policy for one year for the directors and officers of our company, its subsidiaries (Limco-Piedmont and Bental) and its controlling shareholder (TAT Industries). The coverage limit under the policy is 25 million dollars and the premium for the insurance term (one year) is approximately $112,000 out of which approximately $7,500 are charged to TAT Industries.

The 2012 Annual and Extraordinary General Meeting of shareholders of TAT was held on Thursday, June 28, 2012 (the ”Meeting”). Among other topics in the meeting, there was also a proposal to amend the Articles of Association of the Company to reflect recent amendments to the Israeli Companies Law and Israeli Securities Law and subject to this approval, to modify certain amendments to ~~our articles~~the form of ~~association, including~~indemnification and exemption undertaking by the Company to its directors and officers (the "Form"). Those two aforementioned decisions where not approved in the Meeting and therefore the original Articles of Association and Form are still binding the Company, also with ~~regard~~regards to insurance, indemnification and exemption of our office holders, and the Form, provided that they do not contradict provisions in the Israeli Companies Law and Israeli Securitas Law which cannot be prescribed. For further details see TAT immediate reports on Form 6K dated May 23, 2012 (TASE reference number 2012-02-133929) and June 28, 2012 (TSAE reference number 2012-02-170526). Subject to the ~~letter~~approval of ~~indemnification; such amendments are subject~~our audit committee, board of directors and shareholders, TAT intends to ~~our shareholders' approval.~~modify its Articles of Association in order to adjust them to the Israeli Companies Law and Israeli Securities Law.

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NASDAQ Exemptions for a Controlled Company

We are a controlled company within the meaning of NASDAQ Marketplace Rule 5615(c)(2), or Rule 5615(c)(2), because KMN beneficially owns more than 50% of our voting shares.

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Under Rule 5615(c)(2), a controlled company is exempt from the following requirements of NASDAQ Marketplace Rules 5605(b)(1), 5605(d) and 5605(e) that would otherwise require that:

· ●

The majority of the company’s board of directors qualifies as independent directors, as defined under NASDAQ Marketplace Rules.

· ●

The compensation of the chief financial officer and all other executive officers be determined, or recommended to the board of directors for determination, either by (i) a majority of the independent directors or (ii) a compensation committee comprised solely of independent directors.

· ●

Director nominees must either be selected or recommended for the board of directors, either by (a) a majority of independent directors or (b) a nominations committee comprised solely of independent directors.

We intend to continue to rely on these exemptions provided under Rule 5615(c)(2).

C. Employees

As of December 31, ~~2011,~~2012, we and our subsidiaries employed ~~610~~575 employees, of whom ~~467~~439 were employed in manufacturing and quality control, 6754 were employed in engineering and research and development and 7682 were employed in administration, sales and marketing. Of such employees, ~~310~~298 were located in Israel and ~~300~~277 were employed by Limco and Piedmont and located in the United States.

Certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists Association) are applicable to our Israeli employees by order of the Israeli Ministry of Labor. These provisions concern mainly the length of the workday, minimum daily wages for professional workers, contributions to a pension fund, insurance for work-related accidents, procedures for dismissing employees, determination of severance pay and other conditions of employment. We generally provide our employees with benefits and working conditions beyond the required minimums. Furthermore, under the collective bargaining agreements, the wages of most of our employees are linked to the Consumer Price Index, although the extent of the linkage is limited.

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In addition, Israeli law generally requires severance pay upon the retirement or death of an employee or termination of employment without due cause. Furthermore, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute which is similar to the United States Social Security Administration. The payments thereto amount to approximately 12% of wages, with the employee contributing approximately 43% and the employer approximately 56%.

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A general practice followed by us, although not legally required, is the contribution of monies on behalf of its senior employees to a fund known as “Management Insurance.” This fund provides a combination of savings plan, insurance and severance pay benefits to the employee, giving the employee a lump sum payment upon retirement and securing his right to receive severance pay, if legally entitled, upon termination of employment. The employee contributes an amount equal to approximately 5%-6% of his wages and the employer contributes an additional amount of approximately 13-1/3% - 16% of such wages.

D. Share Ownership

Beneficial Ownership of Executive Officers and Directors

Except as set forth under ‘Stock Option Plans’ and in item 7A below, none of our directors and executive officers beneficially owns more than 1% of our outstanding shares.

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Stock Option Plans

On August 14, 2008, TAT’s Board of Directors approved the grant to TAT’s CEO of options to purchase 65,477 Ordinary shares of TAT which represented 1% of the then outstanding share capital on a fully diluted basis. The options are exercisable in 3 equal portions vested after 2, 3 and 4 years commencing on May 19, 2008 and have an exercise price of $6.15 per share. The fair value of the options was calculated based on Black & Scholes model and is $191,000. Compensation expenses (income) attributable to outstanding stock options were $(37) and $49 for the years ended December 31, 2011 and 2010.

~~On December 7, 2011, following the resignation of TAT’s CEO 21,825 stock options expired immediately and the remaining 43,652 stock options expired over the period ending March 6, 2012.~~

In November 2011, our audit committee and board of directors approved a ~~new~~stock option plan ~~according~~(the “Plan”), which was subsequently approved by the Company’s shareholders, on June 28, 2012. According to ~~which~~the plan an aggregate of 380,000 options (“Options”) exercisable into up to 380,000 Ordinary shares, 0.9 NIS par value, of the Company will be granted to certain members of our board of directors and certain ~~office holders~~senior executives in TAT, Limco and Piedmont, at an exercise price of $6.5 per share. ~~Half of the options will~~The Options vest over a ~~three~~three-year period (one-third each year ~~period,~~with the first one-third vesting on ~~a straight line basis, and half~~June 28, 2013), but the vesting of 50% of the Options is subject, in addition, to certain minimum shareholders' equity during a period of 4 years from the grant date. On August 21, 2012, pursuant to the Plan, TAT’s Board of Directors approved the grant of 330,000 Options, which were granted on October 4, 2012 (out of which 45,000 options ~~will vest over a three year period provided that~~were forfeited on October 30, 2012 and an additional 100,000 were forfeited in 2013 through the date of this report).

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

On October 2012 two Israeli lenders to TAT’s ~~shareholders’ equity in any~~controlling stockholders, KMN Industries and TAT Industries (herein “Controlling Stockholders”), filed separate petitions to the court to enforce liens granted to such lenders by each of the ~~four years following~~Controlling Stockholders in certain collateral including KMN Industries’ holdings of an approximately 80% ownership interest in TAT Industries (which owns approximately 43% of TAT) and KMN Industries’ direct holdings in TAT (which represents approximately 10% of TAT).

On December 18, 2012 the ~~grant date will exceed $95 million. This options plan~~court appointed permanent receivers on behalf of the two lenders mentioned above for the purpose of jointly enforcing the liens granted to such lenders. If such liens are enforced, such collateral is subject to sale which would result in a change of control of TAT. On March 15, 2013 the ~~approval~~receivers of TAT’s shares mentioned above announced a tender to purchase such shares. Pursuant to the tender all proposals to acquire such shares must be submitted no later than April 25, 2013.

As of the date hereof, the Company has no information with respect to any proposals received.

In addition on January 3, 2013 the Israeli court appointed a temporary liquidator for Isal Amlet, the controlling shareholder of TAT Industries, following the request of the trustee to debentures issued by ~~our shareholders.~~Isal Amlet. On January 28, 2013 such court has issued a Liquidation Order for Isal Amlet, effective as of end of May 2013.

~~121~~125

~~Item 7. Major Shareholders and Related Party Transactions~~

~~A. Major Shareholders~~

Subject to the appointed of liquidator mentioned above, Isal Amlat, a Tel Aviv Stock Exchange publicly traded company, organized under the laws of the State of Israel, is the beneficial holder of 53.89% of TAT’s outstanding shares (4,750,951 shares), of which 10.27% (905,043 shares) are held by Isal Amlet and 43.6% (3,845,908 shares) are held directly by TAT’s parent company TAT Industries. 79.33% of TAT Industries’ outstanding share capital is held by KMN Industries (KMN). 94% of KMN Industries' outstanding share capital is ~~79.33% controlled~~held by Isal Amlat. 81.68% of Isal ~~Amlat~~Amlat's outstanding share capital is ~~81.68% controlled~~held by KMN Holdings Ltd., an Israeli company publicly traded on the Tel Aviv Stock Exchange, of which 58.63% of its outstanding share capital is ~~58.63% controlled~~held by Ron Elroy. Leap-Tide Capital Management Inc., which is controlled by Mr. Jan Loeb, a member of our board of directors, is the beneficial holder of 5.9% of TAT’s Ordinary shares (522,607 shares). No other shareholder is known to us to be a beneficial owner of 5% or more of TAT’s Ordinary ~~shares~~shares.

The following table sets forth certain information as of April 5, ~~2012,~~2013, regarding the beneficial ownership by all shareholders known to us to own beneficially 5% or more of our Ordinary shares:

Name	Number of Ordinary Shares Beneficially Owned(1)		Percentage of Ownership(2)			Number of Ordinary Shares Beneficially Owned(1)		Percentage of Ownership(2)
Isal Amlat Investments (1993) Ltd. (3)		4,750,951		53.89	%		4,750,951		54.00	%
TAT Industries (4)		3,845,908		43.6	%		3,845,908		43.71	%
Leap-Tide Capital Management Inc.,		522,607		5.9	%		522,607		6.28	%

~~________________________~~

(1)

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Ordinary shares relating to options and warrants currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.

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(2)

The percentages shown are based on ~~8,815,003~~8,798,570 Ordinary shares issued and outstanding as of April 5, ~~2012~~2013 (net of ~~258,040~~274,473 dormant shares).

(3)

~~Includes~~Subject to the appointed of liquidator mentioned above, includes 905,043 Ordinary shares held ~~directly~~ by Isal Amlat (through KMN Industries) and 3,845,908 Ordinary shares held directly by TAT Industries, which is 79.33% ~~controlled~~held by Isal Amlat. As such, Isal Amlat may be deemed to be the beneficial owner of the aggregate 4,750,951 Ordinary shares held directly by itself and TAT Industries. 81.68% of Isal ~~Amlat~~Amlat's outstanding share capital is ~~81.68% controlled~~held by KMN Holdings Ltd., an Israeli company publicly traded on the Tel Aviv Stock Exchange, which 58.63% of its outstanding share capital is ~~58.63% controlled~~held by Ron Elroy.

(4)

Subject to the appointed of permanent receivers as mentioned above, 79.33% of TAT Industries’ outstanding share capital is held by KMN Industries (KMN) and 94% of KMN Industries' outstanding share capital is ~~79.33% controlled~~held by Isal Amlat. As such, MKN Industries (KMN) and Isal Amlat may be deemed to be the beneficial owner of the aggregate 3,845,908 Ordinary shares held directly by TAT Industries. 81.68% of Isal ~~Amlat~~Amlat's outstanding share capital is ~~81.68% controlled~~held by KMN Holdings Ltd., an Israeli company publicly traded on the Tel Aviv Stock Exchange, which 58.63% of its outstanding share capital is ~~58.63% controlled~~held by Ron Elroy.

Significant Changes in the Ownership of Major Shareholders

On March 11, 2009 and on August 13, 2009, TAT’s board of directors authorized its management to engage Oppenheimer Israel Investment House for the blind trust purchase of TAT’s shares under rule 10b5-1 of the Securities Exchange Act of 1934. The first purchase plan, which was discontinued on March 26, 2009, resulted on the purchase of 4,650 shares for a cumulative amount of $ 26 thousand. The second purchase plan, which was discontinued on November 21, 2009, included licensing Oppenheimer Israel to purchase shares of TAT on a foreign stock exchange in an aggregate amount of up to $2 million (approximately NIS 7.8 million) for a period of six months and at a price not exceeding $9 per share. As of December 31, 2010, 253,390 shares were purchased, representing about 2.8% of the Company's share capital in consideration of approximately $2 million (an average of $7.90 per share). The purchased shares became dormant as defined in the Companies Law.

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In September, 2011 Isal Amlat purchased an aggregate of 18,600 Ordinary shares of TAT at an average price of 20.39 NIS per share (approximately $5.54 per share). Such purchases were made on the Tel Aviv Stock Exchange. Following such purchases, Isal beneficially owns 4,750,951 Ordinary shares, representing ~~53.89 %~~54.00% of TAT’s Ordinary shares.

On ~~February 12,~~May 21, 2012, TAT’s ~~board~~Board of ~~directors~~Directors authorized a share repurchase plan (the "Plan"), ~~pursuant~~under Rule 10b5-1 of the Securities Exchange Act of 1934. The plan was for a period of 6 months (subject to ~~which~~extension) and provided for the ~~Company may~~ purchase ~~its Ordinary~~of shares ~~par value NIS 0.9 each (the "Shares"),~~ in ~~the~~an aggregate amount of up to ~~one~~$0.5 million U.S. ~~Dollars (US$1,000,000). The~~dollars. Such plan replaced and superseded a prior repurchase plan approved by TAT’s Board of Directors, on February 21, 2012. On November 21, the term of such stock repurchase plan ended. As of such date, the ~~Plan will commence~~Company had purchased 16,433 shares for approximately $71 thousands (average of $4.32 per share) constituting less than 0.1% of TAT’s issued shares.

On October 2012 two lenders to TAT’s controlling stockholders, KMN Industries and TAT Industries (herein “Controlling Stockholders”), filed separate petitions to the court to enforce liens granted to such lenders by each of the Controlling Stockholders in certain collateral including KMN Industries’ holdings of an approximately 80% ownership interest in TAT Industries (which owns approximately 43% of TAT) and KMN Industries’ direct holdings in TAT (which represents approximately 10% of TAT).

On December 18, 2012 the court appointed permanent receivers on behalf of the two lenders mentioned above for the purpose of jointly enforcing the liens granted to such lenders. If such liens are enforced, such collateral is subject to sale which would result in a change of control of TAT. On March 15, 2013 the receivers of TAT’s shares mentioned above announced a tender to purchase such shares. Pursuant to the tender all proposals to acquire such shares must be submitted no later than April 25, 2013.

As of the date hereof, the Company has no information with respect to any proposals received.

On January 3, 2013 the Israeli court appointed a temporary liquidator for Isal Amlet, the controlling shareholder of TAT Industries, following the ~~publication~~request of the ~~Company's financial results~~trustee to debentures issued by Isal Amlet. On January 28, 2013 such court has issued a Liquidation Order for ~~the first quarter~~Isal Amlet, effective as of ~~2012 (the "Effective Date"). Any such purchases~~end of Shares under the Plan may be made from time to time subject to the limitations of Rule 10b-18 under the Securities Exchange Act of 1934, as amended, until the first anniversary of the Effective Date. The timing and the terms of any purchase of Shares under the Plan (including the amount of Shares and the purchase price) will be determined by the Company, at its sole discretion, based on the management's evaluations regarding the market conditions and the profitability of any such purchase, and subject to applicable law. The Company will fund the purchase of Shares under the Plan from its own resources.May 2013.

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Major Shareholders Voting Rights

Our major shareholders do not have different voting rights.

Record Holders

Based on a review of the information provided to us by our transfer agent, as of April 5, ~~2012,~~2013, there were 4643 holders of record of our Ordinary shares, of which 4340 record holders holding less than 1.0% of our Ordinary shares had registered addresses in the United States. These numbers are not representative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside since many of these Ordinary shares were held of record by brokers or other nominees including CEDE & Co., the nominee for the Depositary Trust Company (the central depositary for the U.S. brokerage community), which held approximately 70% of our outstanding Ordinary shares as of such date.

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B. Related Party Transactions

Management and Services Agreement with TAT Industries

In February 2000, TAT entered into an agreement with TAT Industries, TAT’S controlling shareholder, to purchase operations of TAT Industries relating to the manufacture of aviation accessories and the lease of certain real estate and buildings. Pursuant to the terms of this agreement, all of the employees of TAT Industries were transferred to TAT effective as of January 1, 2000, without any change in the conditions of their employment. TAT Industries pays TAT $50,000 per year for administrative, accounting and secretarial services provided by TAT to TAT Industries. According to the requirements of the Israeli Companies Law, as amended in 2011, in January 2012 our audit committee has reapproved the terms of these services for an additional three years, commencing retroactively as of November 14, 2011.

In addition, pursuant to the terms of the agreement, TAT sub-leases from TAT Industries approximately 301,000 square foot of the Gedera facility ~~for~~until the end of the respective lease agreements TAT Industries has with the Israel Land Authority (see also under Item 4. Information of the Company, C. Property, Plants and).for a period of 24 years and eleven months, for rental fee which is subject to revaluation every fifth year, with an additional incremental payment of 2%. In 2010 the rental fee was revaluated by a real estate appraiser, and as a result was increased to $400,000 per year with an additional incremental payment of 2% per year. Total rental payment TAT paid to TAT Industries during 2012 and 2011 were $416,000 and ~~2010 were~~ $408,000, ~~and $371,000,~~ respectively. See item 4.D "Information on the Company- Property, Plants and Equipment". According to the requirements of the Israeli Companies Law, as amended in 2011, in January 2012 our audit committee has reapproved the terms of the sub-lease until the next revaluation by a real appraiser, due in 2015.

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On April 22, 2012, the Board of Directors of the Company approved and ratified payments made by the Company to certain third parties on account of debts of TAT Industries Ltd., the Company's controlling shareholder ("TAT Industries"), to such third parties. As of December 31, ~~2011 and March 31,~~ 2012 TAT ~~Industries'~~Industries does not have any outstanding debt to TAT (other than a current VAT balance in the ~~Company resulting~~amount of $54,000 resulted from ~~such payments is approximately $720 thousand and $550 thousand, respectively. The debt bears interest at~~ the ~~rate equal to the interest rate agreed between TAT Industries and its lending banks. TAT Industries undertook to repay the debt by the end of the second quarter of 2012.~~two companies’ consolidated Tax Return.

TAT Industries and TAT are reporting to the Value Added Tax Authorities on a consolidated basis.

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Management Agreement with ISAL

On February 8, 2009, following the approval of TAT’s audit committee and board of directors, TAT’s shareholders approved a management agreement with TAT’s controlling shareholder, Isal Amlat. Pursuant to the management agreement, in consideration of the management services provided by Isal Amlat, TAT will pay to Isal Amlat an amount of $100,000 plus VAT per fiscal quarter, commencing retroactively from October 1, 2008. Under the agreement, the scope of services are subject to annual review by the Board of Directors and audit committee and upon their determination that a material change has occurred that requires the update of the agreement, the company will take all actions to obtain all the requisite approvals to such amendment. The Agreementt is subject to the approval of the Company’s stockholders.

~~According to the Israeli Companies Law, as amended in 2011, the management agreement with Isal Amlat was terminated on February 8, 2012.~~ In March 2012, the audit committee and the board of directors of TAT approved a new three-year management agreement with Isal Amlat, ~~which shall be in effect for 3 years~~ commencing as of February 8, 2012 (the "New Management Agreement"). Each of TAT and Isal Amlat shall be entitled to terminate the New Management Agreement subject to a prior written notice of 4 months. Pursuant to the New Management Agreement, in consideration of the management services provided by Isal Amlat, TAT ~~will pay~~pays Isal Amlat management fees in a total annual amount of NIS1,500,000, linked to the Consumers Price Index ~~in respect of the Index known on the date the New Management Agreement,~~ to be paid on a monthly basis, plus VAT. In addition, Isal Amlat ~~will be~~is entitled to repayment of expenses actually borne as part of providing the management services. The audit committee and board of directors of the Company ~~shall~~will examine on a yearly basis, and for the first time in close proximity to the date of publication of the financial reports for the year 2012, the management aervices actually provided to the Company, and shall examine whether a material change has occurred justifying the update of the management fees and/or the conditions of the New Management ~~Agreement; in~~Agreement. The New Management Agreement was approved by the ~~event it shall be resolved such material~~shareholders of TAT on June 28, 2012.

On August 21, 2012 the board of directors of TAT approved, following an approval of TAT’s audit committee, a change ~~has occurred justifying the update of~~to the New Management Agreement ~~the Company shall act in order to receive the required approvals~~with Isal Amlat, effective from such date according to which the ~~law for the execution~~scope of the ~~amendment.~~services provided by Isal Amlat to TAT were reduced and the annual management fees were also reduced by a total amount of NIS570,000 (“reduced amount”) following such a reduction such annual management fee was NIS 930,000.

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In addition, the Company will receive management services from a private company (“Management company”) controlled by Mr. Nathan Galili (“Galili”), CEO of KNM Industries Ltd. (a private company through which Isal Amlat indirectly holding control in the Company). The ~~New Management Agreement~~management services will consist of a half-time of Galili, which value is ~~subject~~more than the reduced amount, and will additionally includes its services as active chairman of Bental. For those services the Company will pay the management company annual management fees equal to the ~~approval~~reduced amount, in addition to NIS7,000 (plus VAT), as a monthly remuneration for travelling expenses to Bental. In addition, if during the service period or within a twelve month period from the end of the ~~shareholders of TAT.~~service period the Company will sell its holding in Bental, for more than $6.6 million (“low threshold”), then the management company will be eligible for a bonus which will be determined as follows:

2% out of the 1st million above the low threshold, the Company will receive for its holding in Bental, plus

Additional 3% out of the 2nd million above the low threshold the Company will receive for its holding in Bental, plus

Additional 5% out of the 3rd million above the low threshold the Company will receive for its holding in Bental.

It is clarified that in any event the amount of the bonus shall not exceed $100 thousand.

Such management services will be provided until February 8, 2015 (the end of term of the new management agreement with Isal Amlat). Each of the parties (TAT and the management company) may terminate the agreement with a prior written notice of four months.

On January 27, 2013 TAT informed Isal Amlat that no management services had been provided by Isal Amlat to TAT during the preceding months, TAT decided to immediately terminate the Management Agreement. At that date TAT ceased paying management fees.

On February 8, 2013 Mr. Galili informed TAT on the termination of the engagement with TAT, effectively immediately while management fees will be paid throughout June 8, 2013 at the end of the four-month notice period. Mr. Galili ceased providing management services on February 8, 2013.

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Inclusion of TAT Industries in a Directors' and Officers' Liability Insurance Policies

Our directors' and officers' liability insurance policy (see Item 6.B "Board Practices- Exculpation, Indemnification and Insurance of Directors and ~~Officers)~~Officers”) includes our parent company, TAT Industries, which bears ~~$7,000~~$7,500 out of the total $112,000 annual premium with respect to the insurance.

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Management Agreement with Bental

On June 14, 2010, following the approval of TAT’s Board of Directors and audit committee, TAT and Bental entered into a management agreement pursuant to which in consideration of management services provided by TAT, Bental will pay to TAT an amount of $120,000 plus VAT per fiscal year, commencing June 2010. The agreement will be in effect until otherwise terminated by the parties

Loan from Bental

On September 7, 2011 TAT received a loan from its subsidiary, Bental, in the total amount of NIS2.5 million (approximately $0.7 million), to be repaid in whole at the end of a 24 month period (the “Term”). The principle amount bears interest of Prime +1% payable on a quarterly basis and may be repaid at any time during the Term upon TAT’s discretion. Simultaneously with such loan, Bental received a loan from an Israeli bank for a similar amount under similar terms and conditions.

~~Offer Made by Isal to Negotiate a Potential Reorganization in Isal's Group~~

~~In February 2012 Isal Amlat offered to negotiate a potential re-organization of Isal Amlat and its subsidiaries (collectively, the "Isal Group"), for the consolidation of the Isal Group's industrial activities in the metal segment (the "Metal Business") with the TAT's activities in the aviation market (the "Reorganization"), by way of a purchase by TAT of the Metal Business. The Reorganization is to be performed according to a general scheme (the "Plan~~") – in which KMN Industries (K.M.N) Ltd., an Israeli company controlled by Isal Amlat, would transfer to TAT its entire holdings in the following companies, representing the Metal Business: (i) 80% of the issued and outstanding share capital of Avigdor Isal Industries Ltd. ("~~Avigdor"); (ii) 100% of the issued and outstanding share capital of Haglil Industries R.S. Ltd. ("Hagalil"); (iii) 100% of the issued and outstanding share capital of A.G.M. Tefen Ltd. ("AGM"); and (iv) 84% of the issued and outstanding share capital of Finkelstein Metals Ltd. ("Finkelstein").~~

Finkelstein is a manufacturer of continuous cast alloy and extrusion alloys made of bronze, aluminum bronze and special brass. Hagalil specializes in the manufacturing of precision rubber and metal rollers for various industries and sectors. Avigdor operates in metal working, having professional capabilities and a wide range of state of the art equipment. AGM specializes in all type of metal working including assembly and final assembly.

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~~Isal Amlat indicated in its offer that it believes that the Plan may contribute to the business of TAT due,~~ ~~inter alia, to operational synergies and the exploitation of the technological capabilities of the Metal Business for the expansion of the current business of the Company in the aviation and defense markets.~~

~~Isal Amlat is in the process of preparing a detailed structure and terms of the Plan and will approach the Company with an updated and detailed offer.~~

~~In connection with the above, our board of directors designated an independent committee consisting of Yankale Shahar, Avi Shani, Iris Shapira and Jan Loeb (the "Committee~~") for the purpose of examining Isal Amlat's offer. The Committee was authorized to (i) examine the Plan and the detailed structure and terms of the Plan and to decide whether or not to accept Isal's offer to negotiate, (ii) negotiate with Isal regarding the terms of such transaction (including its consideration), (iii) decide, whether or not to approve the transaction, and (vi) retain external consultants (including legal counsel and financial advisors) to represent it.

The determination of whether to proceed with the transaction, and, if so, the structure of the transaction, as well as the negotiation of the transaction agreements and the consummation of the transaction is subject to negotiations between the Committee and Isal Amlat regarding the terms of such transaction, signing of a definitive agreement, receipt of required approvals, including the approval of the necessary organs of the Company in accordance with applicable law, the approval of certain creditors and additional approvals, as may be required under and applicable law or contract.

There is no certainty that the Plan will be executed or, if executed, what that ultimate terms will be. Without derogating from the above, the transaction shall be subject to the approval of TAT's shareholders.

Other Transactions

TAT has commercial relationships in the ordinary course of business, with certain companies that are controlled by KMN Holdings, TAT’s indirect controlling shareholder: KMN Trades and Metals, Ika Laboratories Ltd., Alexandrovitzh Ltd. and Haglil Industries Ltd. During fiscal year ~~2011,~~2012, TAT purchased from such companies raw materials and services in an aggregate amount of ~~$796,000,~~$348,000, all in arms length transactions.

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Other Relationships

Mr. Itsik Maaravi, TAT’s Chief Executive Officer and Mr. Yaron Shalem, TAT’s Chief Financial Officer, also serve in the same positions in TAT Industries.

Mr. Maaravi, , TAT’s Chief Executive Officer also serves as a director of FAvS.

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C. Interests of Experts and Counsel

Not applicable.

~~Not applicable.~~Item 8. Financial Information

~~Item~~ ~~8. Financial Information~~

A. Consolidated Statements and Other Financial Information

See the consolidated financial statements, including the notes thereto, included in Item 18.

Legal Proceedings

On November 29, 2011, a Factoring company ("the plaintiff"), filed a claim with the magistrates court in ~~Tel- Aviv~~Tel-Aviv against the Company, Bental and ten others ("the respondents"), jointly and severally, for the amount of 6,151 thousand NIS (approximately $1,620). The plaintiff's case against the Company is based on invoices that were presented to the plaintiff by supplier of the Company (“the supplier”), by virtue of assignment of rights, which were originally issued to the Company by the supplier for certain alleged services. On February 5, 2012 the Company filed for its statement of defense, in which it denied the plaintiff's claims and clarified that it acted according to the deed of assignment of rights, and that the invoices neither represent nor reflect real transactions and/or real services which were rendered. The ~~case is now in its preliminary stages of disclosure of documents and is scheduled for another hearing on July 11, 2012. The~~ Company is of the opinion that its exposure due to the claim filed is not probable to be materialized and thus no provision was recorded in regard of that claim of December 31, ~~2011.~~2012.

~~129~~

Dividend Distribution Policy

The Israel Companies Law also restricts our ability to declare dividends in a way that we can only distribute dividends from profits (as defined in the law), provided that there is no reasonable suspicion that the dividend distribution will prevent us from meeting our existing and future expected obligations as they come due.

B. Significant Changes

Since the date of the annual consolidated financial statements included in this annual report, no significant change has occurred.

133

Item 9. The Offer and ~~Listing~~Listing

A. Offer and Listing Details

Annual Stock Information

The following table sets forth, for each of the years indicated, the high and low sales prices of our Ordinary shares on the NASDAQ Global Market and the TASE:

	NASDAQ Global Market(1)				Tel Aviv Stock Exchange				NASDAQ Global Market(1)				Tel Aviv Stock Exchange
	High		Low		High		Low		High		Low		High		Low
Fiscal Year Ended December 31, 2004		9.80		6.21		—		—		9.80		6.21		—		—
Fiscal Year Ended December 31, 2005		9.35		5.25	NIS 35.50		NIS 29.70			9.35		5.25	NIS 35.50		NIS 29.70
Fiscal Year Ended December 31, 2006		19.52		5.92		82.10		30.25		19.52		5.92		82.10		30.25
Fiscal Year Ended December 31, 2007		28.18		11.37		116.70		47.68		28.18		11.37		116.70		47.68
Fiscal Year Ended December 31, 2008		12.24		3.62		53.00		15.52		12.24		3.62		53.00		15.52
Fiscal Year Ended December 31, 2009		9.13		3.95		33.90		16.53		9.13		3.95		33.90		16.53
Fiscal Year Ended December 31, 2010		9.38		5.19		37.36		18.30		9.38		5.19		37.36		18.30
Fiscal Year Ended December 31, 2011		6.32		4.20		22.19		15.68		6.32		4.20		22.19		15.68
Fiscal Year Ended December 31, 2012										6.05		3.64		23.42		14.81

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 1 -

GENERAL

TAT Technologies Ltd., (“TAT” or ~~“the Company”~~the “Company”) an Israeli corporation, incorporated in 1985, is a leading provider of services and products to the commercial and military aerospace and ground defense industries. Together with its subsidiaries, 100% held, Limco-Piedmont Inc. (“Limco-Piedmont”), 70% held, Bental Industries Ltd. (“Bental”) and 100% held, TAT Gal Inc. (“TAT Gal”) ~~hereafter~~hereinafter collectively referred to as the “Group”, it is principally engaged in the following activities:

Design, development, manufacture and sale of a broad range of heat transfer equipment and solutions;

Remanufacture, overhaul and repair of heat transfer equipment;

Maintenance, repair and overhaul of auxiliary power units, landing gears and related components;

Design, development and manufacture of aviation and flow control accessories including fuel components, secondary power systems, and various instrumentation and electronic assemblies;

Design, development and manufacture of environmental control and cooling systems; and

Production and development of precision electric motion systems, mainly earmarked for the defense industries.

~~The products developed, repaired, and maintained by TAT~~

The products developed, repaired, and maintained by the Group are primarily used for airborne systems on commercial and military aircrafts as well as for defense ground systems. The principal markets of TAT are in Israel, Europe and the United States.

~~As of December 31, 2011, Limco-Piedmont holds 100% of Limco-Airepair Inc. (“Limco”) and of Piedmont Aviation Component Services LLC. (“Piedmont”) and also holds 30.02%~~

As of December 31, 2012, Limco-Piedmont holds 100% of Limco-Airepair Inc. (“Limco”) and of Piedmont Aviation Component Services LLC. (“Piedmont”) and also holds, through Piedmont, 29.64% in First Aviation Services Inc. (“FAvS”), a world-wide distributor of products and services to the aerospace industry and a one-stop-shop for maintenance, repair and overhaul services (for wheels, breaks, propellers and landing gear) for the General Aviation Industry.

TAT’s shares are listed on both the NASDAQ (TATT) and Tel-Aviv stock exchange.

~~TAT's parent company is~~ TAT Industries Ltd., an Israeli corporation whose shares are listed on the Tel-Aviv Stock Exchange ("TAT Industries" ~~or "the parent company"~~)~~. TAT Industries~~ holds ~~43.6% out~~43.71% of TAT's shares, as of December 31, ~~2011.~~2012.

On July 2, 2009, ~~the parent company's~~TAT Industries Audit Committee and Board of Directors approved an agreement with the controlling shareholder of ~~the parent company,~~TAT Industries, KMN Industries Ltd. (formerly: Isal Amlat Industries (1994) Ltd. ~~(hereinafter: "Isal"~~) ("KMN Industries "), according to which ~~Isal~~KMN Industries is empowering ~~the parent company,~~TAT Industries, or anyone on its behalf, to attend and vote at any meeting of TAT shareholders, with its discretion, ~~Isal's~~KMN Industries' shares of TAT. This agreement shall remain in effect as long as ~~Isal~~KMN Industries remains the controlling shareholder, as ~~defined~~ the term "control", is defined in the Israeli Securities Law, 1968. As of December 31, ~~2011, Isal~~2012, KMN Industries holds directly an additional 10.29% ~~out~~ of TAT's shares.

~~F - 11~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands, except share and per share data~~

~~NOTE 2 -~~

~~SIGNIFICANT ACCOUNTING POLICIES~~

~~Accounting principles~~

The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"), applied on a consistence basis, unless otherwise indicated below.

~~Use of estimates in the preparation of financial statement~~

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose the nature of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting years. Actual results could differ from those estimates.

As applicable to these financial statements, the most significant estimates and assumptions relate to: revenue recognition, inventory reserve and write down of inventories, provision for doubtful account, fair value measurement of available for sale marketable securities, impairment of long lived assets and goodwill, fair value estimation of the FAvS transaction, impairment of investment in affiliated company (FAvS), contingencies, provision for taxes and the realizeability of deferred tax assets.

~~Functional currency~~

The majority of TAT's revenues are generated in U.S. dollars ("dollar") and a substantial portion of TAT's costs is incurred in dollars. In addition, a significant portion of TAT's financings has been obtained in dollars. Accordingly, the dollar is the currency of the primary economic environment in which TAT operates and accordingly its functional and reporting currency is the dollar.

Monetary accounts maintained in currencies other than the Dollar are re-measured using the representative foreign exchange rate at the balance sheet date. Operational accounts and non-monetary balance sheet accounts are measured and recorded at the rate in effect at the date of the transaction. The effects of foreign currency re-measurement are recorded in financial income (expenses), net, as appropriate.

For Bental whose functional currency has been determined to be the New Israeli Shekel, assets and liabilities are translated at year-end exchange rates, and statement of income items are translated at average exchange rates prevailing during the year. Resulting translation differences are recorded as a separate component of accumulated other comprehensive income (loss) in equity.

~~Principles of consolidation~~

~~The consolidated financial statements include the accounts of TAT and its subsidiaries.~~

~~In these financial statements, “subsidiaries” are companies that are over 50% controlled, the financial statements of which are consolidated with those of the Company.~~

Intercompany balances and transactions, including profits from intercompany sales not yet realized outside the Group, have been eliminated upon consolidation. Non controlling interests are included in equity.

F - 12

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 1 -

GENERAL (CONT)

In October 2012, two lenders to TAT’s controlling shareholders, KMN Industries and TAT Industries (“Controlling Shareholders”), filed separate petitions to the District court to enforce liens granted to such lenders by each of the Controlling Shareholders in certain collaterals including KMN Industries’ holdings of an approximately 80% ownership interest in TAT Industries (which owns 43.71% of TAT) and KMN Industries’ direct holdings in TAT (which represents 10.29% of TAT). On December 18, 2012, the District court appointed permanent receivers on behalf of the two lenders mentioned above for the purpose of jointly enforcing the liens granted to such lenders. If such liens are enforced, such collateral is subject to sale which would result in the sale of TAT's shares, currently owned by TAT Industries, and/or KMN Industries. On March 15, 2013, the receivers of TAT’s shares mentioned above announced a tender to purchase such shares. Pursuant to the tender all proposals to acquire such shares must be submitted no later than April 18, 2013.

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES ~~(CONT)~~

~~Cash and Cash equivalents~~Accounting principles

All highly liquid investments, which include short-term bank deposits and money market accounts, that are not restricted as to withdrawal or use, and short-term debentures, the period to maturity of which did not exceed three months at the time of investment, are considered to be cash equivalents.

~~Restricted deposits~~The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"), applied on a consistent basis, unless otherwise indicated below.

Restricted deposits primarily consist of cash deposits securing a guarantee provided by the Company to an affiliated company and securing a loan provided to the Company by financial institutions; see note 13(f)(2) and 13(f)(5) for additional information. Classification of restricted deposits as current or non current assets takes into consideration the nature of the restriction and its expected release date.

f.a.

~~Marketable securities~~Use of estimates in the preparation of financial statement

Marketable securities consist mainly of debt securities classified as available-for-sale and are recorded at fair value. The fair value of quoted securities is based on current market value. When securities do not have an active market, fair value is determined using a valuation model. This model is based on reference to other instruments with similar characteristics, or a discounted cash flow analysis, or other pricing models making use of market inputs and relying as little as possible on entity-specific inputs. Changes in fair value, net of taxes, are reflected in other comprehensive income (loss).

~~Realized gains and losses on sale of the securities are included in the consolidated statements of income and loss as financial income or expense.~~

As applicable to these financial statements, the most significant estimates and assumptions relate to: revenue recognition, recoverability of inventory, provision for doubtful accounts, fair value measurement of available for sale marketable securities, impairment of goodwill, intangible assets and long lived assets, impairment of investment in affiliated company, contingencies, provision for taxes and the realizability of deferred tax assets.

~~Other-than-temporary changes in fair value are reflected in the statement of income as other income (loss).~~

Functional currency

An other-than-temporary impairment has occurred if the Company does not expect to recover the entire amortized cost basis of the debt security. If the Company does not intend to sell the impaired debt security, and it is not more likely than not it will be required to sell the debt security before the recovery of its amortized cost basis, the amount of the other-than-temporary impairment recognized in earnings, recorded in financial expense, net, is limited to the portion attributed to credit loss. The remaining portion of the other-than-temporary impairment related to other factors is recognized in other comprehensive income (loss).

The majority of the TAT’s revenues are generated in U.S. dollars ("dollars") and a substantial portion of TAT’s costs are incurred in dollars. In addition, a significant portion of the TAT’s financings has been obtained in dollars. Accordingly, the dollar is the currency of the primary economic environment in which TAT operates and accordingly its functional and reporting currency is the dollar.

F - 13

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

Functional currency (cont)

Limco’s and Piedmont’s (“U.S. subsidiaries”) revenues are generated in dollars and its costs are incurred in dollars. In addition, the U.S. subsidiaries financing has been obtained in dollars. Accordingly, the dollar is the currency of the primary economic environment in which the U.S. subsidiaries operate and accordingly its functional and reporting currency is the dollar.

Monetary accounts maintained in currencies other than the dollar are re-measured using the representative foreign exchange rate at the balance sheet date. Operational accounts and non-monetary balance sheet accounts are measured and recorded at the rate in effect at the date of the transaction. The effects of foreign currency re-measurement are recorded in financial income (expenses), net.

Most of Bental’s revenues are generated in New Israeli Shekel ("NIS") and a substantial portion of Bental’s costs are incurred in NIS. In addition, Bental’s financing has been obtained in NIS. Accordingly, the NIS is the currency of the primary economic environment in which Bental operates and accordingly its functional and reporting currency is the NIS. For Bental whose functional currency has been determined to be the NIS, assets and liabilities are translated at year-end exchange rates, and statement of operations items are translated at average exchange rates prevailing during the year. Resulting translation differences are recorded as a separate component of accumulated other comprehensive income (loss) in equity.

Principles of consolidation

The consolidated financial statements include the accounts of TAT and its subsidiaries. In these financial statements, “subsidiaries” are companies over which TAT has over 50% voting control and the financial statements of which are consolidated with those of the Company.

Intercompany balances and transactions, including profits from intercompany sales not yet realized outside the Group, have been eliminated upon consolidation. Non-controlling interests are included in equity.

Cash and Cash equivalents

All highly liquid investments, which include short-term bank deposits and money market accounts, that are not restricted as to withdrawal or use, and short-term debentures, the period to maturity of which do not exceed three months at the time of investment, are considered to be cash equivalents.

F - 14

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

Restricted deposits

Restricted deposits primarily consist of cash deposits securing a guarantee provided by the Group to an affiliated company and securing a loan provided to the Company by a financial institution; see note 13(f)(2) and 13(f)(5) for additional information. Classification of restricted deposits as current or non current assets takes into consideration the expected release date.

Marketable securities

Marketable securities consist of debt securities classified as available-for-sale and are recorded at fair value. The fair value of quoted securities is based on current market value. When securities do not have an active market, fair value is determined using a valuation model. This model is based on reference to other instruments with similar characteristics, or a discounted cash flow analysis, or other pricing models making use of market inputs and relying as little as possible on entity-specific inputs. Changes in fair value, net of taxes, are reflected in other comprehensive income (loss).

Realized gains and losses on sale of the securities are included in the consolidated statements of operations as financial income (expenses).

An other-than-temporary impairment has occurred if the Group does not expect to recover the entire amortized cost basis of the debt security. If the Group does not intend to sell the impaired debt security, and it is not more likely than not it will be required to sell the debt security before the recovery of its amortized cost basis, the amount of the other-than-temporary impairment recognized in earnings, recorded in financial expense, net, is limited to the portion attributed to credit loss. The remaining portion of the other-than-temporary impairment related to other factors is recognized in other comprehensive income (loss).

Trade accounts receivable, net

TAT’s accounts receivable balances are due from companies primarily in the airline and defense industries. Credit is extended based on evaluation of a customer’s financial condition and generally, collateral is not required. Accounts receivable from sales of services and products are typically due from customers within 30 – 90 days. Accounts receivable balances are stated at amounts due from customer net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. TAT determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, TAT’s

The Group’s accounts receivable balances are due from companies primarily in the airline and defense industries. Credit is extended based on evaluation of a customer’s financial condition and generally, collateral is not required. Trade accounts receivable from sales of services and products are typically due from customers within 30 - 90 days. Trade accounts receivable balances are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than their original contractual payment terms are considered past due. The Group determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, the Group’s previous loss history from such customers, customer’s current ability to pay its obligation to ~~TAT and the condition of the general economy and the industry as a whole.~~ TAT and the condition of the general economy and the industry as a whole. The Group writes-off accounts receivable when they become uncollectible. Payments subsequently received on such receivables are credited to the allowance for doubtful accounts. The allowance for doubtful accounts is determined with respect to specific debts that are doubtful of collection.

F - 15

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

Inventories

Inventories are measured at the lower of cost or market.

Cost of inventories is determined as follows:

Raw materials and parts	-	On the basis of actual cost or standard ~~cost and the first-in, first-out (FIFO) methods which take into account materials.~~ cost.

Work in progress	-	On the basis of actual cost or standard cost which takes into account materials, labor and other direct and indirect manufacturing costs, or identifiable direct costs.

Finished goods	-	On the basis of actual cost or standard cost which takes into account materials, labor and other direct and indirect manufacturing costs, or identifiable direct costs.

Since the Company sells products and services related to airplane accessories (heat transfer equipment, APU's and landing gears) for airplanes that can be in service for 20 to 50 years, it must keep a supply of such products and parts on hand while the airframes are in use. TAT

Since the Group sells products and services related to airplane accessories (heat transfer equipment, defined in note 1, APU's, landing gears etc.) for airplanes that can be in service for 20 to 50 years, it must keep a supply of such products and parts on hand while the airplanes are in use. The Group writes down its inventory for estimated obsolescence and unmarketable inventory equal to the difference between the cost of inventory and estimated market value based upon assumptions for future demand and market conditions.

~~F - 14~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands, except share and per share data~~

~~NOTE 2 -~~

~~SIGNIFICANT ACCOUNTING POLICIES (CONT)~~

Property, plant and equipment

Property, plant and equipment are stated at cost, after deduction of ~~the related~~ investment grants from Israel, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, as follows:

		years

Buildings		25
Machinery and equipment		4 - 10 (mainly 10)
Motor vehicles		6 - 7
Office furniture and equipment		3 - 17 (mainly 7)
Software		3

Leasehold improvements are included in buildings and amortized using the straight line method over the period of the lease contract, or the estimated useful life of the asset, whichever is shorter.

~~Leasehold improvements are included in buildings and amortized using the straight line method over the period of the lease contract, or the estimated useful life of the asset, whichever is shorter.~~

Grants from Office of the Chief Scientist of Israel ("OCS"):

Grants received from the OCS for approved research and development projects are recognized at the time the Company is entitled to such grants, on the basis of the costs incurred and included as a deduction from research and development expenses. Due to the fact that the Company is defined as “Traditional Industry Company” under the OCS regulations these grants are non-royalty bearing.

~~Investment in~~Grants received from the OCS for approved research and development projects are recognized at the time the Company ~~Accounted for using~~is entitled to such grants, on the ~~Equity Method~~basis of the costs incurred and included as a deduction from research and development expenses. Due to the fact that the Company is defined as "Traditional Industry Company", under the OCS regulations, these grants are non-royalty bearing.

Investment in which the Company exercises significant influence, which is not considered subsidiary ("affiliate"), is accounted for using the equity method, whereby the Company recognizes its proportionate share of the affiliated company's net income or loss after the date of investment. Significant influence is presumed to exist when the Company holds between 20%-50% of an affiliated Company’s voting instruments.

~~The Company reviews this investment for impairment whenever events indicate the carrying amount may not be recoverable. See note 3(b).~~

~~Goodwill and identifiable Intangible assets~~

~~Goodwill~~

Goodwill reflects the excess of the consideration paid or transferred plus the fair value of any non-controlling interest in the acquired entity at the acquisition date over the fair values of the identifiable assets acquired and liabilities assumed.

Goodwill is not amortized, but rather tested for impairment by assessing the fair value of the Company’s various reporting units, annually on September 30, or whenever events or circumstances present an indication of impairment.

~~F - 15~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands, except share and per share data~~

~~NOTE 2 -~~

~~SIGNIFICANT ACCOUNTING POLICIES (CONT)~~

~~Goodwill and identifiable Intangible assets (cont)~~

Goodwill impairment testing is a two-step process. The first step involves comparing the fair value of a company’s reporting units to their carrying amount. If the fair value of the reporting unit is determined to be greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is determined to be greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in step one. The implied fair value of the goodwill in this step is compared to the carrying value of goodwill. If the implied fair value of the goodwill is less than the carrying value of the goodwill, an impairment loss equivalent to the difference is recorded.

Determining the fair value of a reporting unit requires the exercise of judgment on the part of management and involves the use of estimates and assumptions, including with respect to: (i) future revenues and operating margins used in order to calculate projected future cash flows; (ii) discount rates reflecting the relevant risks associated with companies comparable to the applicable reporting unit; (iii) competitive and economic environments; and (iv) appropriate industry comparables. There are a number of generally accepted methods used for valuing a business. These methods may be used alone or in combination with one another. The ‘income method’ uses forecasted cash flows as a basis to value the business. An aggregate present value is calculated for future cash flows using a separately computed discount rate. The advantage of this method is that it facilitates an analysis of company-specific forecasted operating data and their impact upon the value of a business. The ‘market-based’ method identifies business entities with publicly traded securities whose business and financial risks are comparable to those of the business being valued. The pricing multiple of the companies selected are used to derive the market value of the business under analysis. This method has the advantage of objectivity since it is based upon external, publicly-available data.

During the year ended December 31, 2010, management concluded that the carrying value of goodwill of the MRO services for aviation components reporting unit, exceeded its implied fair value and, accordingly, recorded an impairment charge in the amount of $4,223. See note 8 for additional information.

~~For the year ended December 31, 2011 and 2009, no impairment charges were recorded.~~

~~Identifiable intangible assets~~

Intangible assets are comprised all of definite life intangible assets. These assets are recorded at fair value at the time of the acquisition, and are carried at such value less accumulated amortization and impairment. The Company amortizes these intangible assets on a straight- line basis over their estimated lives.

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets (or asset group) may not be recoverable. These indicators may include, but are not limited to, significant decreases in the market value of an asset and significant changes in the extent or manner in which an asset is used. If these or other indicators are present, the Company tests for recoverability of the asset by determining whether the estimated undiscounted cash flows attributable to the asset in question are less than their carrying value. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds their fair value. Fair value is determined by applying assumptions that marketplace participants would consider in determining the fair value of long-lived assets (or asset groups).

F - 16

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

l.k.

~~Goodwill and identifiable Intangible assets (cont)~~Investment in Company Accounted for using the Equity Method

~~The Company's intangible assets and their estimated useful lives are as follows:~~

		~~Years~~

~~Customer relationship~~		~~5 - 10~~
~~License for service center~~		5
~~Trade name~~		10
~~Others~~		~~2.5-7~~

~~Impairment~~Investment in which the Group exercises significant influence and which is not considered a subsidiary ("affiliate") is accounted for using the equity method, whereby the Group recognizes its proportionate share of ~~long-lived assets~~the affiliated company's net income or loss after the date of investment. Significant influence is presumed to exist when the Group holds between 20%-50% of an affiliated company’s voting instruments.

The Company tests long-lived assets, including definite life intangible assets, for impairment, whenever events or changes in circumstances indicate that the carrying amount of the asset (asset group) may not be recoverable. When required, the Company records charges for impairment of long-lived assets for the amount by which the present value of future cash flows, or some other fair value measure, is less than the carrying value of these assets (see also notes 7 and 8).

For the year ended December 31, 2009, no impairment charges were recorded. For the years ended December 31, 2011 and 2010, the Company recorded impairment charges in the amount of $3,263 and $489, respectively for long lived assets (both tangible and intangible).

~~As of December 31, 2011 all the Company's intangible assets have been amortized or written off.~~

n.The Group reviews this investment for impairment whenever events indicate the carrying amount may not be recoverable. See note 3(b).

~~Treasury Shares~~l.

Goodwill

Goodwill is not amortized, but rather tested for impairment by assessing the fair value of the Group’s various reporting units, annually on September 30, or whenever events or circumstances present an indication of potential impairment.

~~Company shares held by the Company are presented as a reduction of TAT's shareholders' equity at their cost to the Company.~~

F - 17

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

o.l.

~~Revenue recognition~~Goodwill (cont)

TAT generates its revenues from the sale of products and systems (The OEM segments) and from providing MRO services (remanufacture, repair and overhaul services and long-term service contracts) and parts services.

During the year ended December 31, 2012, management concluded that the carrying value of goodwill of the OEM of Electric Motion Systems reporting unit, exceeded its implied fair value and, accordingly, recorded an impairment charge in the amount of $1,015 (which was the entire balance of goodwill included in this reporting unit). See note 8 for additional information.

Revenues from the sale of products and services are recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, provided the collection of the resulting receivable is reasonably assured, the price is fixed or determinable and no significant obligation exists. TAT does not grant a right of return.

~~Revenues from product sales are recognized when the product is shipped to the customer and title passes to the customer.~~

Revenues from multi-year, fixed price contracts for OEM customers are recognized when a product is shipped (and title passes) to the customer. Management provides for losses, if expected for the remaining portion of such contracts. For the years ended December 31, 2011, 2010 and 2009, no losses have been recognized for such fixed price contracts.

~~Revenues from remanufacture repair and overhaul (MRO) services are recognized as services are performed, at the time when the customer-owned material is shipped back to the customer.~~

Revenues from some maintenance contracts are recognized over the contract period in proportion to the costs expected to be incurred in performing services under the contract. TAT estimates the costs that are expected to be incurred based on its experience with the aggregate costs incurred and to be incurred on contracts of this nature. The costs incurred related to the maintenance contracts are not incurred on a straight-line basis, as the timing to provide the maintenance services is dependent on when parts under these contracts require maintenance. Therefore, TAT accrues revenue as costs are incurred. These revenues are then compared to actual results and adjusted to either deferred revenue for results greater than historical estimates or expensed in those cases of performance less than historical estimates. These accounts are reviewed on a timely basis and adjusted (if required) based on cost structures.

~~Revenues from royalties from sales of products developed with TAT's intellectual property, technology and technical assistance are recognized when the related sales are made.~~

For the year ended December 31, 2011, no goodwill impairment charges were recorded.

~~Shipping~~During the year ended December 31, 2010, management concluded that the carrying value of goodwill of the MRO services for aviation components reporting unit, exceeded its implied fair value and, ~~handling costs~~accordingly, recorded an impairment charge in the amount of $4,223. See note 8 for additional information.

~~Shipping and handling costs billed to customers are included in revenue. The cost of shipping and handling products is included in costs of revenues.~~

Impairment of long-lived assets

The Group tests long-lived assets for impairment, whenever events or changes in circumstances indicate that the carrying amount of the asset (asset group) may not be recoverable. When required, the Group records charges for impairment of long-lived assets for the amount by which the present value of future cash flows, or some other fair value measure, is less than the carrying value of these assets (see also notes 7 and 8).

As of December 31, 2012 and 2011, all the Group’s identifiable intangible assets have been amortized or written off.

Treasury Shares

Company shares held by the Company are presented as a reduction of TAT's shareholders' equity at their cost to the Company.

F - 18

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

q.o.

~~Warranty costs~~Revenue recognition

~~TAT provides warranties for its products and services ranging from one to three years, which vary with respect to each contract and in accordance with the nature of each specific product.~~

TAT estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time the product is shipped. TAT periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

~~Research~~

The Group generates its revenues from the sale of its OEM products and ~~development~~systems and from providing MRO services (remanufacture, maintenance, repair and overhaul services and long-term service contracts) and parts services.

~~Research and development costs, net of grants, are charged to expenses as incurred.~~

~~Fair value measurement~~Revenues from the sale of products are recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, provided the collection of the resulting receivable is reasonably assured, the price is fixed or determinable and no significant obligation exists. The Group does not grant a right of return.

The Group measures fair value and discloses fair value measurements for financial and non-financial assets and liabilities. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

~~The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:~~

~~Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.~~

~~Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.~~

~~Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.~~

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers credit risk in its assessment of fair value.

~~Concentrations of credit risk~~Revenues from product sales are recognized when the product is shipped to the customer and title passes to the customer.

Financial instruments that potentially subject TAT to concentrations of credit risk consist principally of cash and cash equivalents, restricted deposits, marketable securities and accounts receivable.

Revenues from multi-year, fixed price contracts for OEM customers are recognized when a product is shipped (and title passes) to the customer. Management provides for losses as soon as a loss is expected for the remaining portion of such contracts. For the years ended December 31, 2012, 2011 and 2010, no losses have been recognized for such fixed price contracts.

Cash, cash equivalents and restricted deposits are deposited with major banks in Israel and the United States. Such deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold TAT's cash, cash equivalents and restricted deposits are financially sound. Accordingly, minimal credit risk exists with respect to these financial instruments.

Revenues from MRO services are recognized as services are performed, at the time when the customer-owned material is shipped back to the customer.

Revenues from some maintenance contracts are recognized over the contract period in proportion to the costs expected to be incurred in performing services under the contract. The Group estimates the costs that are expected to be incurred based on its experience with the aggregate costs incurred and to be incurred on contracts of this nature. The costs incurred related to the maintenance contracts are not incurred on a straight-line basis, as the timing to provide the maintenance services is dependent on when parts under these contracts require maintenance. Therefore, the Group accrues revenue as costs are incurred. These revenues are then compared to actual results and adjusted to either deferred revenue for results greater than historical estimates or expensed in those cases of performance less than historical estimates. These accounts are reviewed on a timely basis and adjusted (if required) based on cost structures.

Revenues from royalties from sales of products developed with the Group's intellectual property, technology and technical assistance are recognized when the related sales are made.

Shipping and handling costs

Shipping and handling costs billed to customers are included in revenue. The cost of shipping and handling products is included in costs of revenues.

F - 19

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

t.q.

~~Concentrations of credit risk (Cont)~~Warranty costs

TAT's marketable securities include investment in debentures. Management believes that the companies that issued the debentures are financially sound, the portfolio is well diversified, and accordingly, minimal credit risk exists with respect to the marketable securities. See also note 4 for details about auction rate securities impairment loss.

TAT's accounts receivable are derived mainly from sales to customers in the United States, Israel and Europe. TAT generally does not require collateral; however, in certain circumstances TAT may require letters of credit. Management believes that credit risks relating to accounts receivable are minimal since the majority of TAT's customers are world-leading manufacturers of aviation systems and aircrafts, international airlines, governments and air-forces, and world-leading manufacturers and integrators of defense and ground systems. In addition TAT has relatively large number of customers with wide geographic spread which mitigates the credit risk. TAT performs ongoing credit evaluation of its customers' financial condition.

~~The allowance for doubtful accounts for the years ended December 31, 2011 and 2010, was $190 and $2,419, respectively.~~

~~Income taxes~~The Group provides warranties for its products and services ranging from one to three years, which vary with respect to each contract and in accordance with the nature of each specific product.

Income taxes are accounted for in accordance with ASC 740 "Income Taxes". This statement prescribes the use of the asset and liability method, whereby deferred tax assets and liabilities account balances are determined based on temporary differences between financial reporting and tax basis of assets and liabilities and for tax loss carry-forwards. Deferred taxes are measured using the enacted laws and tax rates that will be in effect when the differences are expected to reverse. TAT provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value, see note 16i.

The Group estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time the product is shipped. The Group periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Deferred tax liabilities and assets are classified as current or noncurrent based on the classification of the related asset or liability for financial reporting or, if not related to an asset or liability for financial reporting, according to the expected reversal dates of the specific temporary differences.

Research and development

Taxes which would apply in the event of disposal of investments in subsidiaries have not been taken into account in computing the deferred taxes, as it is the Company’s intention to hold, and not to realize these investments.

Research and development costs, net of grants, are charged to expenses as incurred.

Fair value measurement

~~The Company records deferred taxes related to its share in income (loss) of affiliated company.~~

The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

Dividends distributable from the income of non Israeli subsidiaries: As the Company intend to permanently reinvest retained earnings and has no intention to declare dividends out of such earnings in the foreseeable future it does not record deferred taxes in respect of taxes that would have been paid in such event.

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data or active market data for similar but not identical assets or liabilities.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Group utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers credit risk in its assessment of fair value.

F - 20

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

u.t.

~~Income taxes (Cont)~~Concentrations of credit risk

TAT did not provide for deferred taxes attributable to dividend distribution out of retained tax-exempt earnings from "Approved Enterprise" plans (see note 16b), since it intends to permanently reinvest them and has no intention to declare dividends out of such tax exempt income in the foreseeable future. Management considers such retained earnings to be essentially permanent in duration.

Results for tax purposes for the Company and TAT’s Israeli subsidiary are measured and reflected in NIS and for TAT’s U.S subsidiaries are measured and reflected in U.S Dollars. As explained in (b) above, the consolidated financial statements are presented in U.S. dollars. In accordance with ASC 740, TAT has not provided deferred income taxes on the differences resulting from changes in exchange rate and indexation.

The Company follows a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate resolution. The Company’s policy is to include interest and penalties related to unrecognized tax benefits within income tax expense. Such liabilities are classified as long-term, unless the liability is expected to be resolved within twelve months from the balance sheet date.

~~Derivative financial~~Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, restricted deposits, marketable securities and accounts receivable.

As part of its hedging strategy, TAT enters into forward exchange contracts in order to protect TAT from the risk that the eventual U.S. Dollars cash flows from the sale of products to international customers will be adversely affected by changes in exchange rates. All forward contracts are recognized on the balance sheet at their fair value.

Cash, cash equivalents and restricted deposits are deposited with major banks in Israel and the United States. Such deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold Group's cash, cash equivalents and restricted deposits are financially sound. Accordingly, minimal credit risk exists with respect to these financial instruments.

TAT also enters into forward exchange contracts and options strategies in order to limit the exposure to exchange rate fluctuation associated with payroll expenses mainly incurred in NIS. TAT elected not to follow the designation and documentation processes required to qualify for the hedge accounting method under ASC 815 "Derivative and Hedging", and any gain or loss derived from such instruments is recognized immediately as financial expenses (income).

The Group's marketable securities include investments in debentures. Management believes that the companies that issued the debentures are financially sound, the portfolio is well diversified, and accordingly, minimal credit risk exists with respect to the marketable securities. See also note 4 for details about the auction rate securities impairment loss in 2011.

As of December 31, 2011, TAT had U.S. Dollar-NIS hedging contracts with a notional amount of approximately $14,100 to purchase and sell U.S. Dollars. The fair value of the foreign exchange contracts and the options was $(372) and $100 as of December 31, 2011 and 2010, respectively. The cash flows associated with the contracts are reflected as cash flows from operating activities in the statements of cash flows.

The Group's accounts receivable are derived mainly from sales to customers in the United States, Israel and Europe. The Group generally does not require collateral; however, in certain circumstances the Group may require letters of credit. Management believes that credit risks relating to accounts receivable are minimal since the majority of the Group's customers are world-leading manufacturers of aviation systems and aircrafts, international airlines, governments and air-forces, and world-leading manufacturers and integrators of defense and ground systems. In addition the Group has relatively a large number of customers with wide geographic spread which mitigates the credit risk. The Group performs ongoing credit evaluation of its customers' financial condition.

Income taxes

Income taxes are accounted for in accordance with ASC 740 "Income Taxes". This statement prescribes the use of the asset and liability method, whereby deferred tax assets and liabilities account balances are determined based on temporary differences between financial reporting and tax basis of assets and liabilities and for tax loss carry-forwards. Deferred taxes are measured using the enacted laws and tax rates that will be in effect when the differences are expected to reverse. The Group provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value, see note 15 (i).

Taxes which would apply in the event of disposal of investments in subsidiaries have not been taken into account in computing the deferred taxes, as it is the Group’s intention to hold, and not to realize these investments.

The Group records deferred taxes related to its share in results of its affiliated company.

F - 21

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

With regard to dividends distributable from the income of non-Israeli subsidiaries: as the Group intends to permanently reinvest retained earnings and has no intention to declare dividends out of such earnings in the foreseeable future it does not record deferred taxes in respect of taxes that would have been paid in such event.

The Group did not provide for deferred taxes attributable to dividend distribution out of retained tax-exempt earnings from "Approved/Benefited Enterprise" plans (see note 15b), since it intends to permanently reinvest them and has no intention to declare dividends out of such tax exempt income in the foreseeable future. Management considers such retained earnings to be essentially permanent in duration.

Results for tax purposes for the Company and TAT’s Israeli subsidiary are measured and reflected in NIS and for TAT’s U.S. subsidiaries are measured and reflected in dollars. As explained in (b) above, the consolidated financial statements are presented in dollars. In accordance with ASC 740, TAT has not provided deferred income taxes on the differences resulting from changes in exchange rate and indexation.

The Group follows a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate resolution. The Group’s policy is to include interest and penalties related to unrecognized tax benefits within income tax expense. Such liabilities are classified as long-term, unless the liability is expected to be resolved within twelve months from the balance sheet date.

Derivative financial instruments

TAT enters into forward exchange contracts and options strategies in order to limit the exposure to exchange rate fluctuation associated with payroll expenses mainly incurred in NIS.

Since the contracts do not qualify under ASC 815 "Derivative and Hedging", any gain or loss derived from such instruments is recognized immediately as financial income (expenses). All forward exchange contracts and options are recognized on the balance sheet at their fair value within other receivables or other payables.

As of December 31, 2012, TAT had U.S. Dollar-NIS derivative contracts with a notional amount of approximately $2,700 to purchase and sell Dollars. The fair value of the foreign exchange contracts and the options was $27 and $(372) as of December 31, 2012 and 2011, respectively. The cash flows associated with the contracts are reflected as cash flows from operating activities in the statements of cash flows.

F - 22

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

Basic and diluted ~~earnings (loss)~~net loss per share

Earnings (loss) per share are computed based on the weighted average number of Ordinary shares outstanding during each year (net of treasury shares). Diluted earnings (loss) per share include the potential effect of stock option

Loss per share is computed based on the weighted average number of ordinary shares outstanding during each year. Diluted loss per share includes the potential effect of stock options outstanding during the year, in accordance with ASC 260 "Earnings per Share", using the treasury stock method.

In 2012, 2011 and 2010, outstanding equity awards were not taken into account due to their anti-dilutive effect.

Share-based compensation

The Company applies ASC 718 "Stock based compensation" with respect to employees options, which requires awards classified as equity awards, to be accounted for using the grant-date fair value method. The fair value of share-based awards is estimated using the Black-Scholes valuation model, the payment transaction is recognized as expense over the requisite service period, net of estimated forfeitures. The Company estimated forfeitures based on historical experience and anticipated future conditions.

The Group applies ASC 718 " Stock Based Compensation" with respect to employees options, which requires awards classified as equity awards to be accounted for using the grant-date fair value method. The fair value of share-based awards is estimated using the Black-Scholes valuation model, the payment transaction is recognized as expense over the requisite service period, net of estimated forfeitures. The Group estimates forfeitures based on historical experience and anticipated future conditions.

~~The Company~~

The Group recognizes compensation cost for an award with only service conditions that has a graded vesting schedule using the accelerated method over the requisite service period for the entire award. For an award with performance conditions that has a graded vesting schedule, compensation cost is recognized upon meeting such conditions, using the accelerated method over the requisite service period for the entire award.

The total share-based compensation expenses (income) recognized in the years ended December 31, 2012, 2011 and 2010 in the statements of operations were $8, $(37) and $49, respectively.

Comprehensive income (loss)

Other comprehensive income (loss), net of related taxes where applicable, includes, in addition to net income (loss): (i) currency translation adjustments; and (ii) unrealized holding gains and losses on available-for-sale securities.

~~The components of the Group’s accumulated comprehensive income (loss) for the years presented are as follows:~~

December 31,
2011 2010
Foreign currency translation adjustment $ (1,036 ) $ (424 )
Unrealized gain from available-for-sale securities - 10
Accumulated other comprehensive loss $ (1,036 ) $ (414 )

F - 2223

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. Company’s management assesses such contingent liabilities and estimated legal fees, if any. Such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, Company’s

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Group but which will only be resolved when one or more future events occur or fail to occur. The Group’s management assesses such contingent liabilities and estimated legal fees, if any, and accrues for these costs. Such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Group or unasserted claims that may result in such proceedings, the Group’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

Management applies the guidance in ASC 450-20-25"Loss Contingencies", when assessing losses resulting from contingencies. If the assessment of a contingency indicates that it is probable that a ~~material~~ loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be recorded as accrued expenses in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

aa.

Recently Issued Accounting Principles Not Yet Adopted

In December 2011, the FASB amended its guidance on disclosures about offsetting assets and liabilities. The amendment enhances disclosures regarding financial instruments and derivative instruments that are either (1) offset in accordance with GAAP or (2) subject to an enforceable master netting arrangement. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments.

~~(1)~~

~~In September, 2011, the FASB issued~~The amendments in ASU 2011-08, Intangibles – Goodwill and Other, which simplifies how an entity is required to test goodwill for impairment. This ASU would allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under the ASU, an entity would not2011-11 will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The ASU includes a number of factors to consider in conducting the qualitative assessment. The ASU is effectiveapplied for annual reporting periods beginning on or after January 1, 2013, and interim ~~goodwill impairment tests performed~~periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for ~~fiscal years beginning after December 15, 2011. Early adoption is permitted. This standard is~~all comparative periods presented.

The Company does not ~~expected~~expect ASU 2011-11, which relates to disclosure matters only, to have a material impact on the Company’s ~~reported results of operations or~~consolidated financial ~~position. For 2011, the Company already performed its annual Goodwill impairment testing.~~statements.

~~(2)~~

In June, 2011, the FASB issued ASU No. 2011-05. Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassi~~fied to net income.~~

F - 2324

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

~~NOTE 2 -~~

~~SIGNIFICANT ACCOUNTING POLICIES (CONT)~~

~~aa.~~

~~Recently Issued Accounting Principles Not Yet Adopted (Cont)~~

The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. The Company will adopt ASU 2011-05 retrospectively on January 1, 2012 and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

~~(3)~~

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 changes certain fair value measurement principles and clarifies the application of existing fair value measurement guidance. These amendments include, among others, (1) the application of the highest and best use and valuation premise concepts, (2) measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity and (3) disclosing quantitative information about the unobservable inputs used within the Level 3 hierarchy.

The amendments are effective for interim and annual periods beginning after December 15, 2011 on a prospective basis. The Company does not expect ASU 2011-04 to have a material effect on its consolidated financial statements.

~~F - 24~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands, except share and per share data~~

NOTE 3 -

~~ACQUISITIONS~~INVESTMENT IN AN AFFILIATED COMPANY

~~Limco-Piedmont~~

~~As of December 31, 2011, TAT owned 100% of its U.S. subsidiary Limco-Piedmont.~~

~~(1)~~

In July 2, 2009, TAT completed a merger with Limco-Piedmont. As part of the merger, TAT acquired the entire remaining shares of Limco-Piedmont held by Limco-Piedmont's public shareholders in exchange for 2,520,372 newly issued shares of TAT. Following the acquisition, Limco-Piedmont became a private company wholly-owned by TAT. Upon the merger's completion, Limco-Piedmont's public shareholders held approximately 27.8% of TAT‘s issued share capital.

The transaction was accounted for by the Company in accordance with ASC 810 "Consolidation" (see note 2(c)) whereby a changes in a TAT’s ownership interest while TAT retains its controlling interest be accounted for as equity transactions.

Accordingly, the Company carried the difference between the Non controlling interest obtained and those disposed of to a capital reserve recorded in the consolidated statement of changes in equity under "additional paid in capital". As part of the merger mentioned above, all of Limco – Piedmont's outstanding share options at the time of the merger were cancelled, See note 14(d)(4).

~~(2)~~

On January 29, 2009, Limco-Piedmont's board of directors decided on a plan to relocate the Limco plant in Oklahoma to the Piedmont site in North Carolina in order to achieve cost-effectiveness in joint fixed expenses and to create operating synergy. On July 29, 2009, TAT announced that it had decided not to pursue the plant relocation process. During 2009, an amount of approximately $ 604 was recorded in the income statement in respect of the proposed relocation activity.

Acquisition of stocks of FAvS

On December 4, 2009, the Company, through its subsidiary Piedmont, signed an investment agreement with FAvS. According to the agreement Piedmont was issued 288,334 shares of Class B Common stock of FAvS representing 37% of FAvS' then share capital (share amount adjusted as result of a 1 for 20 reverse stock split) and $ 750 of FAvS Preferred stocks (entitled to cash dividends at an annual rate of 12% payable quarterly or to additional Preferred stocks at an annual rate of 15%) in return for Piedmont's propeller and parts businesses. The net assets value as of December 4, 2009, of the propeller and parts businesses was $4,325, the fair value of FAvS' Common stocks and Preferred stocks was $8,931 (including businesses' acquisition expenses of $200). Accordingly, the Company recorded the difference of $4,400 as capital gain.

On December 4, 2009, the Company, through its subsidiary Piedmont, signed an investment agreement with FAvS. According to the agreement Piedmont was issued 288,334 shares of Class B Common stock of FAvS representing 37% of FAvS' then share capital and $ 750 of FAvS Preferred stocks (entitled to cash dividends at an annual rate of 12% payable quarterly or to additional Preferred stocks at an annual rate of 15%) in return for Piedmont's propeller and parts businesses.

On the date of the above mentioned transaction, FAvS also signed an agreement to purchase all the assets and liabilities of Aerospace Turbine Rotables ("AeTR"). AeTR specializes in renovation and repair of landing gear, safety equipment and hydraulic and electrical components for corporate, regional and military aircraft. Piedmont also provided a guarantee for a period of one year (later renewed for additional periods until finally released on March 2013 as described further below) of up to $ 7,000 with respect to purchase all the assets and liabilities of Aerospace Turbine Rotables ("AeTR"). AeTR specializes in renovation and repair of landing gear, safety equipment and hydraulic and electrical components for corporate, regional and military aircraft. Piedmont also provided a guarantee for a period of one year (later renewed for an additional period) and up to $ 7,000 in respect of FAvS' debt in connection with the acquisition of AeTR (see also note 13(e)).

On October 1, 2010, Piedmont agreed to extend the guarantee for $6,600, by renewing the guarantee to the lender of FAvS. The renewed guarantee was for a period of 15 months that ended on December 31, 2011, and Piedmont was also granted a second lien on the assets of FAvS to secure the repayment obligations of FAvS in the event that the letter of credit is drawn upon. Piedmont also entered into an inter creditor agreement with the lender to FAvS which subordinated Piedmont’s claims if the letter of credit is drawn upon to the obligations of FAvS to the lender.

FAvS' shares are quoted over the counter (OTC) at the PINKSHEET stock market (PINKSHEET: FAVS.PK). FAvS' share value as of December 31, 2012, 2011 and 2010 was $7.0, $5.45 and $12.4, respectively. The Company believes that the share value does not reflect the fair value of FAvS' share, due to very low trading volume in FAvS' shares that do not comprise an active market.

In order to settle the commercial dispute that existed between TAT’s subsidiary, Piedmont and FAvS, on June 30, 2011, Piedmont and FAvS entered into a Settlement Agreement and Release (the “Settlement Agreement”). Pursuant to the Settlement Agreement, each party fully released the other party and acknowledged that the settlement was a compromise of disputed claims and was not to be construed as an admission of liability or wrongdoing. In addition, each party agreed not to disparage the other and Piedmont paid an aggregate amount of $1,400 to FAvS (which amount had been fully reserved during 2010).

F - 25

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 3 -

ACQUISITION (CONT)

b.a.

Acquisition of stocks of FAvS ~~(Cont)~~(cont)

On October 1, 2010, Piedmont agreed to extend the guarantee for $6,600, by providing a letter of credit to the lender of FAvS. The renewed guarantee was for a period of 15 months ending December 31, 2011 and its amount was to be reduced as such debt amortizes in increments of $100 per month. Piedmont was also granted a second lien on the assets of FAvS to secure the repayment obligations of FAvS in the event that the letter of credit is drawn upon. Piedmont also entered into an inter creditor agreement with the lender to FAvS which will subordinate Piedmont’s claims if the letter of credit is drawn upon to the obligations of FAvS to the lender. The said guarantee was further extended and amended following the settlement agreement entered between FAvS and the Company,

Simultaneously with the execution of the Settlement Agreement, the Chief Executive Officer and controlling stockholder of FAvS (“FAvS CEO”), purchased 166,113 shares of Class A Common Stock of FAvS at a price of $18.06 per share, for an aggregate amount of $3,000, while diluting Piedmont’s interest in FAvS from 36.6% to 30.3% (29.64% as of December 31, 2012). In addition, Piedmont agreed to extend its guarantee to the bank debt incurred by FAvS to fund the AeTR transaction through June 30, 2013 and to continue to provide a letter of credit to secure such guarantee. The amortization schedule for such debt was revised so that no amortization will occur until June 30, 2012. Thereafter the debt will amortize at the rate of $200 per month. As of December 31, 2012, the guarantee amount was $4,600. Piedmont secured an amount of $2,300 as of December 31, 2012, in respect of this guarantee. On March 18, 2013, the guarantee was released with the completion of the transaction, as described further below.

FAvS' shares are quoted over the counter (OTC) at the PINKSHEET stock market (PINKSHEET: FAVS.PK). FAvS' share value as of the transaction closing date (December 4, 2009) and as of December 31, 2009, 2010 and 2011 was $17.8, $15.0, $12.4 and $5.45, respectively (share value adjusted as result of a 1 for 20 reverse stock split).The Company believes that the share value does not reflect the fair value of FAvS' share, due to very low trading volume in FAvS' shares that do not comprise an active market. Based on an appraisal performed by management with the assistance of a third party valuation, which included a number of factors, management determined the fair value of FAvS for the above mentioned transaction. According to the valuation, FAvS' fair value amounted to $22,549 as of December 4, 2009, based on which the Company recorded as $4,400 of capital gain.

The Stockholders Agreement initially entered into in 2009 between Piedmont and FAvS CEO was also amended to delete the reciprocal drag along rights and to provide that Piedmont may designate one member to the Board of Directors of FAvS (rather than the two members provided in the original agreement). Finally, the Rights Agreement entered into in 2009 between Piedmont and FAvS was amended so that Piedmont’s right to approve certain material corporate actions by FAvS has been limited to the right to approve contracts or agreements with affiliates of FAvS. The amendment also provided that the approval of Piedmont would not be required if FAvS seeks to raise additional capital from FAvS CEO as long as the consideration that was paid by FAvS CEO was not less than the consideration that would have been paid by a third-party in an arms-length transaction and would have been a fair, equitable and reasonable consideration under the circumstances.

A commercial dispute existed between Piedmont and FAvS relating to the propeller maintenance business which had been contributed to FAvS by Piedmont, as part of the transaction discussed above. The commercial dispute began in April 2010 when a customer of the propeller maintenance business requested reimbursement from FAvS for damages to certain propellers. FAvS then sought reimbursement from Piedmont for such amounts. Although Piedmont rejected all of FAvS’ claims with regards to Piedmont’s responsibility for the claimed damages, in July 2010, the parties reached an agreement pursuant to which Piedmont loaned $700 to FAvS and agreed to bear a portion of the additional cost of the replacement of propeller blades that FAvS would be responsible for. In exchange FAvS agreed to waive all claims against Piedmont with respect to such customer. Such loan was subsequently forgiven.

Notwithstanding such waiver, in the last quarter of 2010, FAvS again asserted claims against Piedmont relating to the propeller maintenance business including claims not previously asserted. After reviewing this issue during the 2010 fourth quarter and thereafter, the Company estimated the additional liability it may bear and accordingly wrote off the loan and recorded an accrual, covered its potential cost in connection with this matter.

In connection with the Settlement Agreement and the dilution in Piedmont’s interest in FAvS, the Company recorded, on June 30, 2011, a gain in the amount of $240 related to the $3,000 capital investment in FAvS by FAvS CEO which was at a higher share price than recorded at Piedmont books.

In order to settle the commercial dispute that existed between TAT’s subsidiary, Piedmont and FAvS, on June 30, 2011, Piedmont and FAvS entered into a Settlement Agreement and Release (the “Settlement Agreement”). Pursuant to the Settlement Agreement, each party fully released the other party and acknowledged that the settlement was a compromise of disputed claims and was not to be construed as an admission of liability or wrongdoing. In addition, each party agreed not to disparage the other and Piedmont paid an aggregate additional amount of $700 to FAvS (which amount had been fully reserved during 2010).

In June 2012, FAvS entered into another transaction with FAvS CEO, pursuant to which FAvS borrowed $3,000 from FAvS CEO, secured by a third lien on the assets of FAvS. The loan bears interest at 10% and in addition FAvS CEO was issued warrants to purchase shares of Class A Common Stock of FAvS, representing 15% of FAvS post-exercise shareholders’ equity, at an exercise price of $7.00 per share. Pursuant to the terms and conditions of the transaction, management believed that there were indicators of impairment with respect to TAT’s investment in FAvS. Accordingly, the Company performed an impairment test of its investment in FAvS, with the assistance of a third party valuation. Based on the results of this test, the Company determined that its investment in FAvS was impaired by $3,300. The impairment was due to a decline in FAvS’ profitability margins and future forecasted sales levels.

F - 26

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 3 -

ACQUISITION (CONT)

b.a.

Acquisition of stocks of FAvS ~~(Cont)~~(cont)

Simultaneously with the execution of the Settlement Agreement, the Chief Executive Officer and controlling stockholder of FAvS (“FAvS CEO”), purchased 166,113 shares of Class A Common Stock of FAvS at a price of $18.06 per share (share amount and price per share adjusted as result of a 1 for 20 reverse stock split), for an aggregate amount of $3,000, while diluting Piedmont’s interest in FAvS from 36.6% to 30.3% (30.02% as of December 31, 2011). In addition, Piedmont agreed to extend its guarantee of the bank debt incurred by FAvS to fund the AeTR transaction through June 30, 2013 and to continue to provide a letter of credit to secure such guarantee. The amortization schedule for such debt was revised so that no amortization will occur until June 30, 2012. Thereafter the debt will amortize at the rate of $200 per month. As of December 31, 2011, the guarantee amount is $5,800. Piedmont secured an amount of $2,900 as of December 31, 2011, in respect of this guarantee.

On March 18, 2013, FAvS closed a transaction according to which it sold the majority of the stock of API, one of its subsidiaries, for a total purchase price of $16,500, out of which $15,900 was used to pay-off the outstanding balance of the FAvS Revolving Line of Credit as of the transaction date. The sale resulted in FAvS retaining a 3% equity interest in the API business. The transaction resulted in a loss from discontinued operations on FAvS books and a write-down of the API business of $11,500 (the “Write Down”) which is included in the FAvS loss for the year ended December 31, 2012. As mentioned above, on June 30, 2012, as a result of certain indications of impairment, the Company recorded an impairment charge of $3,300 in its investment in FAvS (which approximates its share in the said Write-Down). The Company also recorded its share in the losses of FAvS for the year ended on December 31, 2012 in the amount of $456. As such, the transaction on March 18, 2013, did not require an additional impairment by Piedmont. Simultaneously with the transaction, FAvS paid-off its Term Loan in the amount of $4,000 on March 18, 2013, thereby releasing the guarantee issued to the lending bank by the Piedmont. Accordingly the restricted deposit associated with the above guarantee, was released as well as of March 18, 2013.

The Stockholders Agreement entered into in 2009 between Piedmont and FAvS CEO was also amended to delete the reciprocal drag along rights and to provide that Piedmont may designate one member to the Board of Directors of FAvS (rather than the two members provided in the original agreement). Finally, the Rights Agreement entered into in 2009 between Piedmont and FAvS was amended so that Piedmont’s right to approve certain material corporate actions by FAvS has been limited to the right to approve contracts or agreements with affiliates of FAvS. The amendment also provided that the approval of Piedmont would not be required if FAvS seeks to raise additional capital from FAvS CEO as long as the consideration that was paid by FAvS CEO was not less than the consideration that would have been paid by a third-party in an arms-length transaction and would have been a fair, equitable and reasonable consideration under the circumstances.

Financial information

In connection with the Settlement Agreement and the dilution in Piedmont’s interest in FAvS, the Company recorded, at June 30, 2011, a gain in the amount of $240 related to the $3,000 capital investment in FAvS by FAvS CEO which was at a higher share price than recorded at Piedmont books.

The FAvS audited consolidated financial statements as of December 31, 2012, which were signed on March 20, 2013, included a restatement for their 2011 consolidated financial statements for the correction of errors in its previously reported amounts.

~~Financial information~~

Company's management reviewed the restatement and its affect on the consolidated financial statements of the Company and found it to be immaterial. Accordingly, no restatement was recorded in the Company's consolidated financial statements.

Due to losses incurred on maintenance contracts in 2010, Company’s management performed an impairment test, as of December 31, 2010, on its investment in FAvS. As a result, the Company recorded an impairment charge of $1,813 on its investment in FAvS as of December 31, 2010, based on this impairment test, which was performed by management with the assistance of a third party valuation firm.

FAvS audited consolidated financial statements, as of December 31, 2010, signed on March 25, 2011, included a restatement on FAvS' 2009 financial statements in connection with the FAvS - Piedmont transaction. The restatement that was recorded by FAvS management in its financial statements was based on FAvS claims related to the commercial dispute as discussed above. FAvS restated the original transaction by accruing losses in its business combination accounting and not recording a loss as a result of the events as described.

Management was of the opinion that the restatement as reported in FAvS consolidated financial statements for 2010 was incorrect. The restatement related to a specific contract transferred as part of the FAvS – Piedmont transaction to FAvS, which FAvS claimed to have turned out to be a loss contract.

F - 27

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 3 -

ACQUISITION (CONT)

~~Acquisition of stocks of FAvS (Cont)~~Financial information (cont)

Management believed that the loss incurred by this maintenance contract is an event that occurred only after its 2009 financial statements were issued, and it did not and could not know that this contract would result in a loss at the time that the Company's audited financial statements for 2009 were issued. Management believes such losses, should have been recorded in 2010. As a result, management revised the 2010 financial statements of FAvS in determining the amounts of losses recorded in 2010 and performed an impairment test as of December 31, 2010, on its investment in FAvS. The Company recorded an impairment charge of $1,813 in its investment in FAvS as of December 31, 2010, based on this impairment test, which was performed by management with the assistance of a third party valuation firm.

Condensed financial information from FAvS consolidated balance sheets as of December 31, 2012 and 2011:

Below is a table that presents the impact of the adjustment that was done by the Company's management to record the losses, recorded by FAVS as a restatement to its 2009 financial statements, in the year ended December 31, 2010.

	December 31,
	2012		2011

Current assets	$	31,090	$	51,973
Long-term assets		9,742		10,080

Total assets		40,832		62,053

Current liabilities		31,476		38,432
Long-term liabilities		35,672		44,463

Total liabilities	$	67,148	$	82,895

As reported by FAvS Adjustment As used to report FAvS based on Equity Method

Net sales $ 128,463 $ 128,463
Cost of sales 103,392 2,806 (1) 106,198
Gross profit 25,071 22,265
Operating expenses 23,996 23,996
Impairment of goodwill - 3,715 3,715
Income (loss) from operations 1,075 (5,446 )
Non-operating income (expense), net (2,250 ) (2,250 )
Loss before income taxes (1,175 ) (7,696 )
Income tax provision (16 ) (16 )
Net loss (1,191 ) (7,712 )
Dividends on preferred stock (219 ) (219 )
Loss attributable to common stockholders $ (1,410 ) $ (7,931 )

~~(1)~~

~~Represents~~

Condensed financial information from FAvS consolidated statements of operations for each of the ~~adjustments to inventories ($487) and accrued losses on~~two years in the ~~contract ($2,319).~~period ended December 31, 2012:

~~A reconciliation of the share in income (loss), impairment of investment in FAvS and gain from dilution for each of the years ended December 31, 2011 and 2010:~~

	Year ended December 31,
	2012			2011

Net sales	$	21,579		$	20,515

Gross profit		9,202			8,626

Income (loss) from continuing operations		(1,476	)		630

Net loss		(12,979	)		(94	)

Loss attributable to common stockholders	$	(13,271	)	$	(345	)

F - 28

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 3 -

ACQUISITION (CONT)

~~Acquisition~~Financial information (cont)

A reconciliation of ~~stocks~~the share in results of ~~FAvS (Cont)~~affiliated company, impairment of share in affiliated company and gain from dilution of interests in affiliated company for each of the years ended December 31, 2012 and 2011:

Year ended December 31,
2011 2010

Share in income (loss) related to common stockholders $ 218 $ (2,904 )
Share in income related to preferred stock 113 122
Amortization of purchase price fair value adjustment - 85
Impairment of investment - (1,813 )
Gain from dilution of interests in affiliated company 240 -
$ 571 $ (4,510 )

	Year ended December 31,
	2012			2011

Share in income (loss) related to common stockholders	$	(653	)	$	192
Share in income related to preferred stock		197			139
Impairment of in affiliated company		(3,300	)		-
Gain from dilution of interests in affiliated company		-			240

	$	(3,756	)	$	571

NOTE 4 -

AVAILABLE-FOR-SALE - MARKETABLE SECURITIES

							December 31, 2012
							Amortized Cost		Gross Unrealized Gains		Fair Value

Available-for-sale:
Money Market							$	3,341	$	-	$	3,341

	December 31, 2011						December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Fair Value		Amortized Cost		Gross Unrealized Gains		Fair Value

Available-for-sale:
Money Market	$	1,025	$	-	$	1,025	$	1,025	$	-	$	1,025
Auction Rate Securities (1)		1,900		-		1,900		1,900		-		1,900
	$	2,925	$	-	$	2,925	$	2,925	$	-	$	2,925

	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Fair Value

Available-for-sale:
Money Market	$	962	$	-	$	962
Auction Rate Securities (1)		1,950		-		1,950
Trust funds (2)		579		4		583
	$	3,491	$	4	$	3,495

(1)

Auction Rate Securities ~~(hereinafter - ARS)~~("ARS") are a type of long-term bonds (usually issued for a period longer than ten years) issued by corporates, local authorities, institutions of higher education and others for securitization of assets. The ARS ~~bears~~bear a variable interest rate, re-determined by an ~~auctions~~auction held every short period. The ARS interest held by the Company iswas re-determined every 7, 28 or 35 days and will mature on 2019. The ARS held by ~~TAT is~~the Group were issued by SSM Health Care of Oklahoma City, Illinois and Wisconsin municipalities. ~~These financial instruments were classified as short term in~~

In 2012, the financial statements since the Company has intention to exercise them during the next twelve months. As of December 31, 2010, the Company recorded other-than-temporary impairment loss of $200 on Auction Rate Securities based on fair value estimation. In each of the years 2011, 2010 and 2009 the CompanyGroup realized ~~$50~~$100 of the ARS held ~~by it~~for its par value and later in ~~par~~the year realized its entire investment for a consideration of $1,800 which approximated its book value.

F - 29

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 4 -

AVAILABLE-FOR-SALE - MARKETABLE SECURITIES ~~(Cont)~~(CONT)

~~(2)~~

~~Trust funds are a type~~In the year 2011, the Company realized $50 of short-term marketable securities consist a predefined composition of debt securities, corporate bonds, shares and other securities, issued by financial institutions and have an active market. These trust funds are classified as available-for-sale and are recorded at fair value based on market quote.the ARS held for its par value.

~~The marketable securities are classified as short-term based on the Company's intent to realize them within twelve months from the balance sheet date.~~

During the year ended December 31, 2010, the Company recorded an other-than-temporary impairment loss of $200 on Auction Rate Securities based on its estimated fair value.

NOTE 5 -

FAIR VALUE MEASUREMENT

~~Recurring Fair Value Measurements~~

Recurring Fair Value Measurements

The Group measures fair value and discloses fair value measurements for financial assets and liabilities. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company's financial assets measured at fair value on a recurring basis, ~~excluding accrued interest components,~~ consisted of the following types of instruments:

									December 31, 2012
									Level 1		Level 2		Level 3		Total
Assets:
Money Market									$	3,341	$	-	$	-	$	3,341
Derivatives										-		27		-		27
Total									$	3,341	$	27	$	-	$	3,368

	December 31, 2011								December 31, 2011
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money Market	$	1,025	$	-	$	-	$	1,025	$	1,025	$	-	$	-	$	1,025
Auction Rate Securities		-		-		1,900		1,900		-		-		1,900		1,900
Total		1,025		-		1,900		2,925		1,025		-		1,900		2,925

Liabilities:
Liabilities:
Derivatives	$	-	$	372	$	-	$	372	$	-	$	372	$	-	$	372

	December 31, 2010
	Level 1		Level 2		Level 3		Total
Assets:
Money Market	$	962	$	-	$	-	$	962
Derivatives		-		100		-		100
Auction Rate Securities		-		-		1,950		1,950
Trust funds		583		-		-		583
Total	$	1,545	$	100	$	1,950	$	3,595

Consistent with the Company’s investment policy guidelines, the ARS investments held by the Company all had AA credit ratings at the time of purchase.

The carrying amounts of financial instruments, include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value because of their generally short maturities.

The fair values of long-term liabilities were estimated by using level 3 inputs based on discounted future cash flows, using the rate currently available for liabilities of similar terms and maturity. The carrying amount of the Group's long-term liabilities approximates their fair value since interest rate reflects current market rates.

F - 30

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 5 -

FAIR VALUE MEASUREMENT (CONT)

The following table includes a roll-forward of the amounts in the balance sheets for the years ended December 31, 2012 and 2011 (including the change in fair value) for auction rate securities classified within level 3 of the fair value hierarchy.

The fair values of long-term liabilities were estimated by discounting the future cash flows, using the rate currently available for liabilities of similar terms and maturity. The carrying amount of TAT’s long-term liabilities approximates their fair value.

Balance as of January 1, 2011	$	1,950
Realized		(50	)

Balance as of December 31, 2011		1,900
Realized		(1,900	)

Balance as of December 31, 2012	$	-

The following table includes a roll-forward of the amounts in the balance sheet for the years ended December 31, 2011 and 2010 (including the change in fair value) for auction rate securities classified within level 3 of the fair value hierarchy.

Non-Recurring Fair Value Measurements

Balance as of January 1, 2010 $ 2,200

Other –than-temporary impairment loss (200 )
Realized (50 )

Balance as of December 31, 2010 1,950

Realized (50 )

Balance as of December 31, 2011 $ 1,900

The following table presents the Group’s assets measured at fair value on a non-recurring basis for the years ended December 31, 2012 and 2011:

~~Non-Recurring Fair Value Measurements~~

			Fair value measurements using
	As of December 31, 2012		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total losses for the year ended December 31, 2012
Goodwill (1)	$	-	$	-	$	-	$	-	$	1,015
Investment in affiliated company (2)	$	1,264	$	-	$	-	$	1,264	$	3,300

			Fair value measurements using
	As of December 31, 2011		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total losses for the year ended December 31, 2011
Property and equipment (3)	$	1,325	$	-	$	-	$	1,325	$	1,865
License for service center (3)	$	-	$	-	$	-	$	-	$	1,100
Customer relationships (3)	$	-	$	-	$	-	$	-	$	298

~~The following table presents the Group’s assets measured at fair value on a non-recurring basis for the years ended December 31, 2011 and 2010:~~

Fair value measurements using

Year ended December 31, 2011

Quoted prices
in active
markets for
identical assets
(Level 1)

Significant
other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total
losses

Property and equipment (1) $ 1,325 $ - $ - $ 1,325 $ 1,865
License for service center (1) $ - $ - $ - $ - $ 1,100
Customer relationships (1) $ - $ - $ - $ - $ 298

Fair value measurements using

Year ended December 31, 2010

Quoted prices
in active
markets for
identical assets
(Level 1)

Significant
other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total
losses

Goodwill (2) $ - $ - $ - $ - $ 4,223
Customer relationships (3) $ - $ - $ - $ - $ 481
Investment in affiliated company (4) $ 4,449 $ - $ - $ 4,449 $ 1,813

(1)

During the second quarter ended June 30, 2012, management believed that there were indicators of impairment of goodwill in its OEM of Electric Motion System reporting unit and accordingly performed interim goodwill impairment testing as of June 30, 2012, primarily due to a decline in future forecasted sales levels and profitability margins resulting from the continued weakness in the defense industry. Accordingly, the Company performed an impairment test of goodwill for this reporting unit, with the assistance of a third party valuation firm. Based on the results of this test, the Company determined that the entire balance of goodwill included in this reporting unit was impaired and recorded an impairment charge of $1,015.

F - 31

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 5 -

FAIR VALUE MEASUREMENT (CONT)

~~(1)~~(2)

In June 2012, FAvS entered into a transaction with its CEO, pursuant to which FAvS borrowed $3 million from FAvS CEO, secured by a third lien on the assets of FAvS. The loan bears interest at 10% and in addition FAvS CEO was issued warrants to purchase shares of Class A Common Stock of FAvS, representing 15% of FAvS post-exercise shareholders’ equity, at an exercise price of $7.00 per share.

Pursuant to the terms and conditions of the transaction, management believed that there were indicators of impairment with respect to TAT’s investment in FAvS. Accordingly, the Company performed an impairment test of its investment in FAvS, with the assistance of a third party valuation firm. Based on the results of this test the Company determined that its investment in FAvS was impaired by $3,300. The impairment was due to a decline in FAvS’ profitability margins and future forecasted sales levels.

(3)

During the year ended December 31, 2011, the Company reviewed the MRO services for Aviation Components’ long lived assets for impairment by estimating the fair value of ~~this segment’s~~the operations and the fair value of its specific long lived assets, and comparing those values to the carrying value of the assets. The Company concluded, based on this valuation, that certain fixed assets and intangible asset ‘License for Service Center’ amounting to $1,865 and $1,100, respectively at its MRO services for Aviation Components operating segment were impaired. In addition, due to management estimates of a continuing decline in sales levels in the OEM of Electric Motion Systems operating segment, resulting from the weakness in the Israeli defense market, the Company reviewed indications for impairment of certain identifiable assets in this segment. Accordingly, the Company reviewed these assets for impairment by estimating their fair value based on their net selling price and comparing those values to the carrying value of the assets. As a result the Company concluded that the intangible asset ‘Customer Relations’ at its OEM of Electric Motion Systems operating segment in the amount of $298 was impaired.

Accordingly, the Company recorded a total of $3,263 impairment charges in the year ended December 31, 2011 to reflect the fair value of the long lived assets mention above.

NOTE 6 -

INVENTORIES, NET

~~(2)~~Inventories are composed of the following:

	December 31,
	2012		2011

Raw materials and components	$	12,321	$	11,832
Work in process		16,145		16,652
Spare parts		3,897		2,243
Finished goods		668		576

	$	33,031	$	31,303

F - 32

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 6 -

INVENTORIES, NET (CONT)

Inventories are net of reserve for slow moving and surplus production and write down of inventory (as mentioned below) in the amount of $6,569 and $6,589 at December 31, 2012 and 2011, respectively.

During the year ended December 31, 2011, the Company recorded a write down of inventory in the amount of $2,500 attributable to inventory of the MRO services for aviation components segment. The write down was due to management’s estimation of the continued decline in future forecasted sales levels and decline in profitability margins in certain product lines in this operating segment, which were lower than previously anticipated, resulting from the weakness in these areas of business, and was recorded under cost of revenues.

During the year ended December 31, 2010, the Company ~~performed its annual impairment test~~recorded a write down of ~~goodwill. During this year, the Company encountered adverse changes~~inventory in the ~~business climate including a weak U.S. and global economy which resulted in a reduction in demand for the MRO services for aviation components. As a result~~amount of these factors, management revised its future cash flow expectations, which lowered the fair value estimates of a certain reporting unit. The Company determined under the first step of its annual test that the fair value of goodwill at its MRO services for aviation components reporting unit was less than the carrying value for this reporting unit. The Company recorded a $4,223 goodwill impairment charge (which was the entire remaining goodwill for the MRO services for aviation components reporting unit) in the third quarter of 2010,$3,500 attributable to ~~reflect the implied fair value of goodwill for the MRO services for aviation components reporting unit. Calculating the fair value~~inventory of the MRO services for aviation components ~~reporting unit requires the input of significant estimates~~segment. The write down was due to a decline in future forecasted sales levels, and ~~assumptions, some of which are unobservable. The significant estimates and assumptions include business assumptions, historical gross profit, weighted average~~was recorded under cost of ~~capital, terminal growth rate.~~revenues.

~~(3)~~In 2012 and 2011, approximately $669 and $844, respectively, of inventory previously written-down were used or sold in the course of providing MRO services.

NOTE 7 -

PROPERTY, PLANT AND EQUIPMENT, NET

Composition of assets, grouped by major classifications, is as follows:

	December 31,
	2012		2011
Cost:
Land and buildings	$	6,929	$	6,518
Machinery and equipment (1)		36,849		35,176
Motor vehicles		676		869
Office furniture and equipment		2,293		2,189
Software		1,166		955
		47,913		45,707

Less: Accumulated depreciation		35,003		32,768
Depreciated cost	$	12,910	$	12,939

(1)

The cost is net of investment grants received by Bental in the amount of $274 and $326 as of December 31, 2012 and 2011.

Depreciation and amortization expenses amounted to $2,403, $2,732 and $2,719 for the years ended December 31, 2012, 2011 and 2010, respectively (depreciation and amortization expenses do not include impairment charges).

F - 33

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 7 -

PROPERTY, PLANT AND EQUIPMENT, NET (CONT)

During the year ended December 31, 2011, the Company ~~also reviewed its other intangible assets~~recorded impairment of property, plant and equipment in the amount of $1,865, attributable to certain property and equipment items of the MRO services for aviation components segment, based on estimations of the fair value of these assets. The impairment charge was recorded under the cost of revenues item in ~~accordance with ASC 360.~~ the consolidated statements of operations.

During the year ended December 31, 2010, the Company recorded impairment of property, plant and equipment in the amount of $183 attributable to certain machinery and equipment items of the MRO services for aviation components segment based on the reduced forecasted usage of these items, and was recorded as an expense under the cost of revenues item in the consolidated statements of operations.

Liens on property, plant and equipment are discussed at note 13(f).

NOTE 8 -

GOODWILL AND INTANGIBLE ASSETS

Intangible assets:

	December 31,
	2012		2011
Cost:
Customer relationships	$	865	$	865
License for service center		2,050		2,050
Others		136		136
		3,051		3,051
Accumulated amortization and impairment charges:
Customer relationships		865		865
License for service center		2,050		2,050
Others		136		136
		3,051		3,051
Amortized cost	$	-	$	-

Amortization expenses amounted to $539 and $663 for the years ended December 31, 2011 and 2010, respectively (amortization expenses do not include impairment charges).

F - 34

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 8 -

GOODWILL AND INTANGIBLE ASSETS (CONT)

Intangible assets (cont):

For the year ended December 31, 2011, due to decrease in the anticipated profit margins the Company recorded an impairment charge for its intangible assets in the total amount of $1,398, under cost of revenues. This amount is comprised of impairment charge in the amount of $1,100 (the entire asset was written off) in connection with the "Authorized service center" intangible asset at the MRO services for Aviation Components operating segment and $298 (the entire asset was written off) in connection with the ‘Customer Relations’ intangible asset at its OEM of Electric Motion Systems operating segment (see also note 5(3)).

For the year ended December 31, 2010 the Company recorded an impairment charge in the amount of $481 of customer relationship, at the MRO services for Aviation Components operating segment, under operating expenses. The Company estimated the fair value of its ~~other~~ intangible assets using a discounted cash flow analysis and compared those values to the carrying value of the assets. The Company concluded, based on this comparison, that Customer relationship intangible asset was impaired at its MRO services reporting unit. The Company recorded a $481 impairment charge and wrote off this asset in the year ended December 31, 2010.

~~(4)~~b.

AsThe changes in the carrying amounts of goodwill by reportable segment for the fiscal years ended December 31, 2010, The Company recognized an impairment charge of $1,813 of its 37% then interest in FAvS’ that was based on an appraisal performed by management with the assistance of an independent valuation. This valuation was done based on a discounted cash flow analysis, requiring the input of significant estimates2012 and ~~assumptions, some of which~~2011 are ~~unobservable.~~as follows:

	OEM - Electric Motion Systems			Heat Transfer Services and Products			MRO services for Aviation Components			Total

Balance as of January 1, 2011	$	1,156		$	-		$	-		$	1,156

Effect of changes in exchange rate		(114	)		-			-			(114	)

Balance as of December 31, 2011		1,042			-			-			1,042

Effect of changes in exchange rate		(27	)		-			-			(27	)
Goodwill impairment		(1,015	)		-			-			(1,015	)
Balance as of December 31, 2012		-			-			-			-

Goodwill, gross, at December 31, 2012		1,015			456			4,091			5,562
Accumulated impairment losses		(1,015	)		(456	)		(4,091	)		(5,562	)
Goodwill, net, at December 31, 2012	$	-		$	-		$	-		$	-

F - 3235

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

~~NOTE 6 -~~

~~INVENTORIES~~

~~Inventories are composed of the following:~~

December 31,
2011 2010

Raw materials and components $ 11,832 $ 10,746
Work in process 16,652 18,057
Spare parts 2,243 3,027
Finished goods 576 333

$ 31,303 $ 32,163

~~Inventories are net of reserve for slow moving and surplus production and write down of inventory (as mentioned below) in the amount of $6,589 and $4,716 at December 31, 2011 and 2010, respectively.~~

During the year ended December 31, 2010, the Company recorded a write down of inventory in the amount of $3,500 attributable to inventory of the MRO services for aviation components segment. The write down was due to a decline in future forecasted sales levels, and was recorded under cost of revenues.

~~NOTE 7 -~~

~~PROPERTY, PLANT AND EQUIPMENT, NET~~

~~Composition of assets, grouped by major classifications, is as follows:~~

December 31,
2011 2010
Cost:
Land and buildings (1) $ 6,518 $ 6,176
Machinery and equipment (2) 35,545 33,929
Motor vehicles 869 1,290
Office furniture and equipment 2,189 2,077
Software 500 246

45,621 43,718
Less: Accumulated depreciation 32,768 29,275

~~Depreciated cost~~

~~12,853~~

~~14,443~~

~~(1)~~

Includes lease rights to land in the amount of $1 under a sub-lease agreement with TAT Industries. The lease period ends in 2020 and includes a renewal option if TAT Industries exercises the option granted by the Israel Land Administration. See also note 10(a).

~~F - 33~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands, except share and per share data~~

~~NOTE 7 -~~

~~PROPERTY, PLANT AND EQUIPMENT, NET (CONT)~~

~~(2)~~

~~The cost is net of investment grants received by Bental in the amount of $498 and $414 as of December 31, 2011 and 2010.~~

Depreciation and amortization expenses amounted to $2,732, $2,719 and $2,427 for the years ended December 31, 2011, 2010 and 2009, respectively (depreciation and amortization expenses do not include impairment charges).

During the year ended December 31, 2011, the Company recorded impairment of property, plant and equipment in the amount of $1,865, attributable to certain property and equipment items of the MRO services for aviation components segment, based on estimations of the fair value of these assets. Impairment charge was recorded under the cost of revenues item in the consolidated statements of income (loss).

~~Liens on property, plant and equipment are discussed at note 13(f).~~

~~NOTE 8 -~~

~~GOODWILL AND INTANGIBLE ASSETS~~

~~Intangible assets:~~

December 31,

2011

2010

Cost:
Customer relationships $ 865 $ 865
License for service center 2,050 2,050
Others 136 136
3,051 3,051
Accumulated amortization and impairment charges:
Customer relationships 865 428
License for service center 2,050 650
Others 136 23
3,051 1,101
Amortized cost $ - $ 1,950

~~Amortization expense amounted to $539, $663 and $543 for the years ended December 31, 2011, 2010 and 2009, respectively (amortization expenses do not include impairment charges).~~

~~F - 34~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands, except share and per share data~~

~~NOTE 8 -~~

~~GOODWILL AND INTANGIBLE ASSETS (CONT)~~

~~Intangible assets~~ ~~(cont)~~:

For the year ended December 31, 2011, due to decrease in the anticipated profit margins the Company recorded an impairment charge for its intangible assets in the total amount of $1,398, under cost of revenues. This amount is comprised of impairment charge in the amount of $1,100 (the entire asset was written off) in connection with the "Authorized service center", intangible asset at the MRO services for Aviation Components operating segment, and $298 (the entire asset was written off) in connection with the ‘Customer Relations’ intangible asset at its OEM of Electric Motion Systems operating segment ((see also note 5(1)).

In addition, for the year ended December 31, 2010 the Company recorded an impairment charge in the amount of $481 of customer relationship, at the MRO services for Aviation Components operating segment, under operating expenses (see also note 5(3)).

~~The changes in the carrying amounts of goodwill by operating segment for the fiscal years ended December 31, 2011 and 2010 are as follows:~~

OEM - Electric Motion Systems

MRO services *

Total

Balance as of January 1, 2010 $ 1,088 $ 4,223 $ 5,311

Goodwill impairment - (4,223 ) (4,223 )
Effect of changes in exchange rate 68 - 68
Balance as of December 31, 2010 1,156 - 1,156

Effect of changes in exchange rate (114 ) - (114 )
Balance as of December 31, 2011 $ 1,042 $ - $ 1,042

Goodwill, gross, at December 31, 2011 $ 1,042 $ 4,547 $ 5,589
Accumulated impairment losses - (4,547 ) (4,547 )
Goodwill, net, at December 31, 2011 $ 1,042 $ - $ 1,042

~~F - 35~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands, except share and per share data~~

NOTE 8 -

GOODWILL AND INTANGIBLE ASSETS (CONT)

Impairment Assessments

During the year ended December 31, 2011, the Company determined under the first step of its annual test that the fair value of the OEM of Electric Motion Systems reporting unit is greater than its carrying amount. Based on the results of this test the Company determined that the goodwill related to the said reporting unit was not impaired.

During the quarter ended June 30, 2012, management believed that there were indicators of impairment of goodwill in its OEM of Electric Motion System reporting unit as of June 30, 2012, primarily due to a decline in future forecasted sales levels and profitability margins resulting from the continued weakness in the defense industry. Accordingly, the Company performed an impairment test of goodwill for this reporting unit, with the assistance of a third party valuation firm. Based on the results of this test, the Company determined that the entire balance of goodwill included in this reporting unit was impaired and recorded an impairment charge of $1,015.

The fair value of the OEM of Electric Motion Systems reporting unit exceeded its carrying value by approximately $100, or 1.1% and thus was at risk of failing step one of the goodwill impairment test, and is therefore at risk of a future impairment in the event of unfavorable changes in the forecasted cash flows or the key assumptions used in the analysis, including the weighted average cost of capital (discount rate) and growth rates utilized in the discounted cash flow analysis.

The Company determined the fair value of the OEM of Electric Motion Systems reporting unit using the discounted cash flows method. The material assumptions used for 2011 annual test were three years of projected net cash flows (in accordance with the Company’s budget), a discount rate of 18% and a long-term growth rate of 1.95%. The Company considered historical rates and current market conditions when determining the discount and growth rates to use in its analyses. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for its goodwill.

During the year ended December 31, 2010, the Company performed its annual impairment test of goodwill. During this year, the Company encountered adverse changes in the business climate including a weak U.S. and global economy which resulted in a reduction in demand for the MRO services. As a result of these factors, management revised its future cash flow expectations, which lowered the fair value estimates of a certain reporting unit. The Company determined under the first step of its annual test that the fair value of goodwill at its MRO services reporting unit was less than the carrying value for this reporting unit. The Company recorded a $4,223 impairment charge (which was the entire remaining goodwill for this reporting unit) in the third quarter of 2010, to reflect the implied fair value of goodwill for the MRO services reporting unit.

The Company determined the fair value of the MRO services reporting unit using the discounted cash flows method. The material assumptions used for 2010 annual test were four years of projected net cash flows (in accordance with the Company’s budget), a discount rate of 20.0% and a long-term growth rate of 2.79%

The Company determined the fair value of the OEM of Electric Motion Systems reporting unit using the discounted cash flows method. The material assumptions used for 2012 annual test were five years of projected net cash flows (in accordance with the Company’s budget), a discount rate of 17.72% and a long-term growth rate of 2.0%. The Company considered historical rates and current market conditions when determining the discount and growth rates to use in its analyses.

In 2011, the fair value of the OEM of Electric Motion Systems reporting unit exceeded its carrying value by approximately $100, or 1.1% and thus was at risk of failing step one of the goodwill impairment test, and was therefore at risk of a future impairment in the event of unfavorable changes in the forecasted cash flows or the key assumptions used in the analysis, including the weighted average cost of capital (discount rate) and growth rates utilized in the discounted cash flow analysis.

F - 36

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 98 -

~~OTHER BALANCE SHEETS SUPPLEMENTALS~~GOODWILL AND INTANGIBLE ASSETS (CONT)

a.c.

~~Other accounts receivable and prepaid expenses:~~Impairment Assessments (cont):

December 31,
2011 2010

Deferred tax asset $ 2,564 $ 3,536
Current tax provision 1,818 3,320
Prepaid expenses 679 556
Income receivables and grants 340 93
Advance payments 130 191
Derivatives - 100
Related party - 129
Other 216 176

$ 5,747 $ 8,101

During the year ended December 31, 2010, the Company performed its annual impairment test of goodwill. During this year, the Company encountered adverse changes in the business climate including a weak U.S. and global economy which resulted in a reduction in demand for the MRO services. As a result of these factors, management revised its future cash flow expectations, which lowered the fair value estimates of a certain reporting unit. The Company determined under the first step of its annual test that the fair value of goodwill at its MRO services reporting unit was less than the carrying value for this reporting unit. The Company recorded a $4,223 impairment charge (which was the entire remaining goodwill for this reporting unit) in the third quarter of 2010, to reduce the carrying value of goodwill down to the implied fair value of goodwill for the MRO services reporting unit.

~~Other account payable~~The Company determined the fair value of the MRO services reporting unit using the discounted cash flows method. The material assumptions used for 2010 annual test were four years of projected net cash flows (in accordance with the Company’s budget), a discount rate of 20.0% and ~~accrued expenses:~~a long-term growth rate of 2.79%. The Company considered historical rates and current market conditions when determining the discount and growth rates to use in its analyses.

December 31,
2011 2010

Employees and payroll accruals $ 3,608 $ 3,627
Government authorities 570 403
Advances from customers 557 737
Warranty provision 288 341
Accrued royalties 316 272
Derivatives 372 -
Deferred tax liability 179 -
Other accrued expenses 780 2,447

$ 6,670 $ 7,827

F - 37

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 9 -

OTHER BALANCE SHEETS SUPPLEMENTALS

Other accounts receivable and prepaid expenses:

	December 31,
	2012		2011

Deferred tax asset	$	2,122	$	2,564
Government authorities		1,424		1,818
Prepaid expenses		831		809
Income receivables and grants		33		254
Derivatives		27		-
Other		96		216

	$	4,533	$	5,661

Other account payable and accrued expenses:

	December 31,
	2012		2011

Employees and payroll accruals	$	3,358	$	3,608
Accrued expenses (1)		1,757		688
Government authorities		673		570
Advances from customers		731		557
Warranty provision		276		288
Accrued royalties		268		316
Derivatives		-		372
Deferred tax liability		126		179
Other accrued expenses		106		92

	$	7,295	$	6,670

(1)

Includes $750 royalties payable to a supplier in the MRO business, following the reconciliation of an audit.

F - 38

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 10 -

TRANSACTIONS WITH RELATED PARTIES

Transactions with TAT Industries:

	Year ended December 31,						Year ended December 31,
	2011		2010		2009		2012		2011		2010

Management fees (1)	$	50	$	50	$	50	$	50	$	50	$	50
Lease expenses (2)	$	408	$	371	$	335	$	416	$	408	$	371

(1)

According to the agreement between TAT and TAT Industries, TAT Industries will pay the Company an annual management fee in the amount of $50. In addition, the agreement states that in any case of selling or consuming of inventory items whose book value was fully depreciated on TAT Industries books, the Company will pay to TAT Industries half of the selling or consuming value. The management fees are recorded as a reduction of general and administration expenses.

(2)

During 2000, TAT entered into a lease agreement with TAT Industries, pursuant to which the Company leases from TAT Industries approximately 344,000 square feet, including 90,000 square feet of manufacturing, office and storage space, for a period of 24 years and eleven months for an annual rental fee which is subject to revaluation every fifth year by a real estate appraiser, with an additional incremental payment of 2% per year.

In 2010, following a revaluation by a real estate appraiser, the rental fee was increased to $400 per year with an additional incremental payment of 2% per year. The rental fee will be revaluated again in 2015 (the "Next Revaluation"). The Company's Audit Committee has reapproved the said agreement until the Next Revaluation

Balances with related parties:

	December 31,						December 31,
	2011			2010			2012			2011
KMN Capital (USA) Inc. – current asset (1)	$	94		$	144
KMN Capital (USA) Inc. - current asset							$	-		$	94
TAT Industries - current asset ~~(2)~~(1)		724			-			54			724
Total asset	$	818		$	144		$	54		$	818

TAT Industries - current liability (2)	$	-		$	(27	)
Bental Non controlling interest - current liability		(85	)		(62	)	$	(60	)	$	(85	)
FAVS - current liability		(80	)		(48	)		(29	)		(80	)
Isal Amlat Investment (1993) Ltd.								(23	)		-
Total liability	$	(165	)	$	(137	)	$	(112	)	$	(165	)

(1)

~~The outstanding amount paid by KMN Capital (USA) Inc. after December 31, 2011.~~

~~(2)~~

~~As of December 31, 2011 and March 31, 2012, TAT Industries owed the Company approximately $724 and $550, respectively. This debt results~~Results from certain expenses incurred by TAT Industries and ~~born~~borne by the Company. The debt bears interest at the rate equal to the interest rate agreed between TAT Industries and its lending banks.

F - 3839

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 10 -

TRANSACTIONS WITH RELATED PARTIES (CONT)

Transactions with related parties:

Year ended December 31,

2011

2010

2009

Management fee to shareholders (see item e below) $ 400 $ 400 $ 400

	Year ended December 31,
	2012		2011		2010

Management fees to shareholders (see item e below)	$	359	$	400	$	400

Bental is engaged in various agreements with the Non controlling interest and other related parties for the rental, maintenance and other services provided to it, in connection with its plant and operations. Total amount paid by Bental for these services in 2012 and 2011 was $505 and ~~2010 was~~ $526, ~~and $539,~~ respectively.

~~On December 13, 2011 TAT’s Audit Committee~~

In March 2012, the audit committee and ~~Board~~the board of ~~Directors~~directors of TAT approved ~~the extension of~~ a new three-year management agreement with Isal Amlat Investment (1993) Ltd. (“Isal Amlat”) commencing as of February 8, 2012 (the "New Management Agreement"). Each of TAT and Isal Amlat shall be entitled to terminate the ~~controlling shareholder~~New Management Agreement subject to a prior written notice of 4 months. Pursuant to the New Management Agreement, in consideration of the management services provided by Isal Amlat, TAT pays Isal Amlat management fees in a total annual amount of NIS 1,500,000 (approximately $400), linked to the Consumer Price Index to be paid on a monthly basis, plus VAT. In addition, Isal Amlat is entitled to repayment of expenses actually borne as part of providing the management services. The audit committee and board of directors of the Company ~~Isal. According to the agreement, in return for~~will examine on a yearly basis, the management services ~~rendered~~actually provided to the Company, and shall examine whether a material change has occurred justifying the update of the management fees and/or the conditions of the New Management Agreement. The New Management Agreement was approved by the shareholders of TAT on June 28, 2012.

On August 21, 2012, the board of directors of TAT approved, following an approval of TAT’s audit committee, a change to the New Management Agreement with Isal Amlat, effective from such date according to which the scope of the services provided by Isal Amlat to TAT ~~TAT will pay Isal an~~were reduced and the annual management fees were also reduced by a total amount of ~~$100 per quarter for~~NIS 570,000 (approximately $150 - the ~~period commencing in November 2011. The agreement shall be in effect for additional period of three years. Each party may terminate the management agreement by providing a four-month advance notice.~~ “reduced amount”).

Total amount paid by TAT for the management services in 2012, 2011 and 2010, was $359, $397 and $408, respectively. The Agreement is subject to the approval of the Company’s ~~stockholders.~~shareholders.

F - 40

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 10 -

TRANSACTIONS WITH RELATED PARTIES (CONT)

In addition, the Company will receive management services from a private company (“Management company”) controlled by Mr. Nathan Galili (“Galili”), CEO of KNM Industries Ltd. (a private company through which Isal Amlat indirectly holding control in the Company). The management services will consist of a half-time of Galili, which value is more than the reduced amount, and will additionally include its services as active chairman of Bental. For those services the Company will pay the Management company annual management fees equal to the reduced amount, in addition to NIS 7,000 (approximately $2, plus VAT), as a monthly remuneration for travelling expenses to Bental. In addition, if during the service period or within a twelve month period from the end of the service period the Company will sell its holding in Bental, for more than $6,600 (“low threshold”), then the Management company will be eligible for a bonus which will be determined as follows:

2% out of the 1st million above the low threshold, the Company will receive for its holding in Bental, plus an additional 3% out of the 2nd million above the low threshold the Company will receive for its holding in Bental, plus an additional 5% out of the 3rd million above the low threshold the Company will receive for its holding in Bental. It is clarified that in any event the amount of the bonus shall not exceed $100.

Such management services will be provided until February 8, 2015 (the end of term of the new management agreement with Isal Amlat). Each of the parties (TAT and the Management company) may terminate the agreement with a prior written notice of four months.

On January 27, 2013, TAT informed Isal Amlat that no management services had been provided by Isal Amlat to TAT during the preceding months, and that TAT decided to immediately terminate the Management Agreement. At that date TAT ceased paying management fees.

On February 8, 2013, Mr. Galili informed TAT on the termination of the engagement with TAT, effectively immediately while management fees will be paid throughout June 8, 2013 at the end of the four-month notice period.

On August 13, 2009, TAT’s Audit Committee and Board of Directors approved the appointment of Mr. Avi Ortal as CEO of TAT's subsidiary, Limco-Piedmont simultaneously with serving as CEO of KMN Capital (USA) Inc., Mr. Ortal relocated to the U.S. and devoted his time to serving as CEO of the said companies. Mr. Ortal received a salary of approximately $180 a year including a car and an insurance policy for his office as CEO of Limco-Piedmont. Furthermore, Mr. Ortal was entitled to a sum of approximately $180 for his office as CEO of KMN Capital (USA) Inc., Limco-Piedmont beared the actual overall employment costs of Mr. Ortal as CEO of Limco- Piedmont and as CEO of KMN Capital (USA) Inc., KMN Capital (USA) Inc., reimbursed Limco- Piedmont for 50% of said costs. In April 2011, Mr. Ortal advised TAT’s Board of Directors of his intention to terminate his employment with Limco-Piedmont on July 31, 2011. On May 18, 2011, Mr. Ortal entered into a Consulting Agreement with TAT, effective for a period of eight months following the termination of his employment, to provide part-time consulting services to TAT with respect to its U.S. based subsidiaries. Mr. Ortal will receive consulting fees of $20 per month for such services. A total of $180 was paid to Mr. Otral upon his termination of employment. As of December 31, 2011, no further obligations remain to be provided by the Company to Mr. Ortal.

On June 14, 2010, TAT and Bental signed a management services agreement. TAT agreed to provide Bental with various services including investor relations, business development, marketing and advertising consulting, legal services and the appointing of TAT personnel in Bental board of directors. The agreement is effective as of January 1, 2010 and the annual management fees are in the amount of $120.

F - 3941

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 10 -

TRANSACTIONS WITH RELATED PARTIES (CONT)

In December 2009, Piedmont provided a guarantee for a period of one year ~~(later renewed for an additional period)~~ up to $ 7,000 in respect of FAvS' debt taken in connection with the acquisition of AeTR. On June 30, 2011 Piedmont agreed to extend its guarantee through June 30, 2013 and to continue to provide a letter of credit to secure such guarantee. The amortization schedule for such debt was revised so that no amortization will occur until June 30, 2012. Thereafter the debt will amortize at the rate of $200 per month. As of December 31, ~~2011,~~2012, the guarantee amount is ~~$5,800 (see~~$4,600 (such guarantee was released on March 18, 2013, see also note ~~13 (e)~~3(a)).

On September 7, 2011, TAT received a loan from Bental for the total amount of NIS 2.5 million (approximately $700), to be repaid in whole at the end of a 24 month period (the “Term”). The ~~principle~~principal amount bears interest of ~~Prime+~~Prime + 1% payable on a quarterly basis and may be repaid at any time during the term upon TAT’s discretion. Simultaneously with such loan, Bental received a loan from an Israeli bank for similar amount under similar terms and conditions.

NOTE 11 -

~~Resignation of CEO~~SHORT TERM BANK CREDIT AND LONG TERM LOANS

On December 7, 2011, Mr. Shmuel Fledel, the Chief Executive Officer of the Company at the time, resigned from his position, effective at the end of his prior notice period in accordance with his employment agreement. Upon his resignation all stock options held by Mr. Shmuel Fledel were forfeited.

k.a.

~~Nomination~~Terms of ~~new CEO~~the loans and balances:

	Currency of loan	Interest Rate December 31, 2012			Years of Maturity		December 31, 2012

Long-term loan (1)	NIS		5.25	%		2012-2014	$	523
Long-term loan (2)	$		2.50%-3.50	%		2009-2014		2,477
Long-term loan (3)	NIS	Prime + 1		%		2013		670
								3,670

Less - current maturities (1)								(290	)
Less - current maturities (2)								(1,594	)
Less - current maturities (3)								(670	)

							$	1,116

~~On December 13, 2011, TAT’s Audit Committee and Board of Directors approved the appointment of Mr. Itsik Maaravi as CEO of TAT, effective January 1~~st, 2012. Mr. Maaravi was the President of Piedmont, a position he has held since July 2011. From July 2009 through June 2011 Mr. Maaravi was Chief Marketing Officer for Piedmont as well as for Limco. The Company has entered into a new employment agreement with Mr. Maaravi pursuant to which he will be entitled to an annual salary of $250 thousands. Maaravi will be eligible to participate in a bonus plan if and when such a plan is adopted by the Company, and if such bonus plan is adopted, the maximum level according to the bonus plan for meeting target will not be less than 25% of his annual salary. He will also be eligible for a special bonus of $100,000 if in 2013 the Company has sales of at least $125,000 and EBITDA of at least 18%. The agreement has a term of three years subject to early termination upon any of the following: (a) TAT can terminate for cause (fraud, conviction, gross negligence, breach, etc.) immediately; (b) TAT can terminate without cause upon 90 days prior written notice; and (c) Maaravi can terminate upon 90 days prior written notice. The agreement also contains customary non-compete and non-solicitation provisions.

	Currency of loan	Interest Rate December 31, 2011			Years of Maturity		December 31, 2011

Long-term loan (1)	NIS		5.25	%		2012-2014	$	795
Long-term loan (2)	$		2.50%-3.50	%		2009-2014		3,252
Long-term loan (3)	NIS	Prime +1		%		2013		655
								4,702

Less - current maturities (1)								(282	)

							$	4,420

F - 4042

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 11 -

SHORT TERM BANK CREDIT AND LONG TERM LOANS

~~Terms of the loans and balances:~~ (CONT)

Currency
of loan

Interest Rate
December 31, 2011

Years of
Maturity

December 31,
2011

Long-term loan (1) NIS 5.25% 2012-2014 $ 795
Long-term loan (2) $ 2.50%-3.50% (2) 3,252
Long-term loan (3) NIS Prime +1% 2013 655
4,702

Less - current maturities (3) (282 )

$ 4,420

Currency
of loan

Interest Rate
December 31, 2010

Years of
Maturity

December 31,
2010

Long-term loan (1) NIS 5.25% 2011-2014 $ 1,204
Long-term loan (2) $ 2.50%-3.50% (2) 6,250
7,454

Less - current maturities (1) (345 )
Less - current maturities (2) (6,250 )

$ 859

Required principal payments (including current maturities) as of December 31, ~~2011,~~2012, are as follows:

Year	Amount		Amount
2012	$	282
2013		3,310	$	2,554
2014		1,110		1,116
	$	4,702	$	3,670

(1)

The original loan was received by Bental in 2009 from an Israeli bank in the amount of $1,400 to be repaid in quarterly installments over a five years period, commencing 2010. On June 30, 2010, the ~~entire~~remaining balance of the original loan, in the amount of $1,185, was repaid and a new loan in the same amount was taken. This new loan bears annual fixed interest of 5.25% and will be repaid until August 2014 in a quarterly ~~installments~~installments. The loan balance as of December 31, 2012 and 2011 was $523 and $795, respectively (with regard to covenants related to such loan see note 13(f)(3)).

~~F - 41~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands, except share and per share data~~

~~NOTE 11 -~~

~~SHORT TERM BANK CREDIT AND LONG TERM LOANS (CONT)~~

~~Terms of the loans and balances (cont):~~

(2)

Loans received by TAT from an Israeli bank in a total amount of $6,250 out of which $5,000 were received during year 2008 and additional $1,250 were received during year 2009. The loans amount was to be repaid in four annual installments commencing 2011. These loans bear quarterly interest of Libor + 3.5% and Libor + 1.85%, respectively. In May 2011, TAT repaid $750 of principal, in accordance with the original installments schedule. On November 7, 2011, TAT prepaid ~~$2,250,~~$2,250. On November 6, 2012, TAT prepaid $775, following which the remaining balance was ~~$3,252.~~$2,477. In September, 2011, TAT reached agreement with its lending bank to adjust certain financial covenants related to the said loans it was failing to meet at the time. Accordingly, as of December 31, ~~2011~~2012 the Company meets all financial covenants related to such loans (see also note 13(f)(2)).

(3)

On September 7, 2011, Bental received a loan from an Israeli bank in a total amount of NIS2.5 million (approximately $700), to be repaid in whole at the end of a 24 month period (the “Term”). The principal amount bears interest of Prime ~~+1%~~+ 1% payable on a quarterly basis and may be repaid at any time during the term upon Bental’s ~~discretion~~discretion. The loan balance as of December 31, 2012 and 2011 was $670 and $655, respectively (see also note 10(i)).

(4)

In addition, as of December 31, ~~2011~~2012 Piedmont's bank credit balance amounted to ~~$294.~~$32.

~~TAT~~ Group provided certain guarantees and covenants, to secure its long-term loans, see note ~~13e.~~

~~Line of credit~~

On November 15, 2011, Limco-Piedmont renewed its line of credit with a U.S bank for an additional 21 month period ending on August 31, 2013, for borrowings of up to $10,000 under certain conditions. $5,000 of this amount will stand for Limco13(e) and $5,000 will stand for Piedmont. The line of credit bares interest of Libor + 1.5%, and its utilization is subject to compliance with financial covenants agreed between the parties. As of December 31, 2011, approximately $4,340 of the total line of credit was utilized by Limco and Piedmont. In addition, as of December 31, 2011 the Limco-Piedmont meets all financial covenants related to such line of credit (see also note 13(f)~~(1))~~.

F - 4243

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 11 -

SHORT TERM BANK CREDIT AND LONG TERM LOANS (CONT)

Line of credit

On November 15, 2011, Limco-Piedmont renewed its line of credit with a U.S bank for an additional 21 month period ending on August 31, 2013, for borrowings of up to $10,000 under certain conditions. $5,000 of this amount will stand for Limco and $5,000 will stand for Piedmont. The line of credit bears interest of Libor + 1.5%, and its utilization is subject to compliance with financial covenants agreed between the parties. As of December 31, 2012 and 2011, approximately $688 and $4,340, respectively of the total line of credit was utilized by Limco and Piedmont. In addition, as of December 31, 2012 and 2011, Limco-Piedmont met all financial covenants related to such line of credit (see also note 13(f)(1)).

NOTE 12 -

LONG-TERM EMPLOYEE-RELATED OBLIGATIONS

~~Severance pay:~~

Severance pay:

The Company's Israeli based companies ("Israeli companies", TAT and Bental) severance pay for their Israeli employees is calculated pursuant to Israeli Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date. The liability is presented on the undiscounted basis. The Israeli companies record an expense for the net increase in its severance liability.

TAT's liability for all of its Israeli employees is fully covered for by monthly deposits with severance pay funds, insurance policies, Mivtahim Social Insurance Institution Ltd. ("Mivtahim") and by an accrual. The liability covered by deposits with Mivtahim is irrevocably transferred to Mivtahim. Accordingly, neither the amounts accumulated with Mivtahim, nor the corresponding liabilities for severance pay are reflected in the consolidated balance sheet.

TAT’s and Bental’s (the "Israeli companies") liability for severance pay, for their Israeli employees, is calculated pursuant to Israeli Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date. The liability is presented on the undiscounted basis. The Israeli companies record an expense for the net increase in its severance liability.

The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies and includes profits (or loss) accumulated through the balance sheet date.

~~Severance pay expenses for the Israeli companies were $495, $425 and $371 for the years ended December 31, 2011, 2010 and 2009, respectively.~~

Limco-Piedmont sponsors a 401(K) profit sharing plan covering substantially all of its employees. The plan permits the employer to contribute a discretionary amount for a plan year, which the employer designates as qualified non-elective contribution. Contributions to plan by Limco-Piedmont were $188, $167 and $193 for the years ended December 31, 2011, 2010 and 2009, respectively.

~~The group expects to contribute approximately $730 in 2012 to the pension funds and insurance companies in respect of their severance and pension pay obligations.~~

The Israeli companies are required to make severance payment upon dismissal of an employee or upon termination of employment in certain circumstances. The severance payment liability to the employees (based upon length of service and the latest monthly salary - one month’s salary for each year employed) is recorded on the Company's balance sheets under “Employee rights upon retirement.” The liability is recorded as if it were payable at each balance sheet date on an undiscounted basis.

The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrender value of these policies and includes profits (or loss) accumulated through the balance sheet date.

The liability is funded in part from the purchase of insurance policies or by the establishment of pension funds with dedicated deposits in the funds. The amounts used to fund these liabilities are included in the balance sheets under “Amount funded in respect of employee rights upon retirement.” These policies are the Company's assets. However, under employment agreements and subject to certain limitations, any policy may be transferred to the ownership of the individual employee for whose benefit the funds were deposited. In the years ended December 31, 2011, 2010 and 2009, the Israeli companies deposited $313, $281 and $313, respectively, with insurance companies in connection with its severance payment

Severance pay expenses for the Israeli companies were $501, $495 and $425 for the years ended December 31, 2012, 2011 and 2010, respectively.

Limco-Piedmont sponsors a 401(K) profit sharing plan covering substantially all of its employees. The plan permits the employer to contribute a discretionary amount for a plan year, which the employer designates a qualified non-elective contribution. Contributions to plan by Limco-Piedmont were $209, $188 and $167 for the years ended December 31, 2012, 2011 and 2010, respectively.

The Group expects to contribute approximately $730 in 2013 to the pension funds and insurance companies in respect of their severance and pension pay obligations.

F - 4344

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 12 -

LONG-TERM EMPLOYEE-RELATED OBLIGATIONS (CONT)

In accordance with the current employment agreements with certain employees, the Israeli companies make regular deposits with certain insurance companies for accounts controlled by each applicable employee in order to secure the employee’s rights upon retirement. The Israeli companies are fully relieved from any severance pay liability with respect to each such employee after they make the payments on behalf of the employee. The liability accrued in respect of these employees and the amounts funded, as of the respective agreement dates, are not reflected in the Company balance sheets, as the amounts funded are not under the control and management of the Israeli companies and the pension or severance pay risks have been irrevocably transferred to the applicable insurance companies (the “Contribution Plans”).

~~The amounts of severance payment expenses were $43, $253 and $1,658 for the years ended December 31, 2011, 2010 and 2009.~~

The liability is funded in part from the purchase of insurance policies or by the establishment of pension funds with dedicated deposits in the funds. The amounts used to fund these liabilities are included in the balance sheets under “Liability in respect of employee rights upon retirement.” These policies are the Company's assets. However, under employment agreements and subject to certain limitations, any policy may be transferred to the ownership of the individual employee for whose benefit the funds were deposited. In the years ended December 31, 2012, 2011 and 2010, the Israeli companies deposited $292, $313 and $281, respectively, with insurance companies in connection with its severance payment obligations.

~~The Israeli companies expect to pay $1,920~~

In accordance with the current employment agreements with certain employees, the Israeli companies make regular deposits with certain insurance companies for accounts controlled by each applicable employee in order to secure the employee’s rights upon retirement. The Israeli companies are fully relieved from any severance pay liability with respect to each such employee after they make the payments on behalf of the employee. The liability accrued in respect of these employees and the amounts funded, as of the respective agreement dates, are not reflected in the Israeli Companies balance sheets, as the amounts funded are not under the control and management of the Israeli companies and the pension or severance pay risks have been irrevocably transferred to the applicable insurance companies (the “Contribution Plans”).

The amounts of severance payments, actually paid to retired employees, by the Israeli companies were $109, $43 and $253 for the years ended December 31, 2012, 2011 and 2010.

The Israeli companies expect to pay $2,513 in future benefits to their employees during 2012 to 2021 upon their normal retirement age - see breakdown below. The amount was determined based on the employee’s current salary rates and the number of service years that will be accumulated upon the retirement date. These amounts do not include amounts that might be paid to employees that will cease working for the Israeli companies before their normal retirement age.

Year	Amount
2013	$	458
2014		211
2015		298
2016		299
2017		182
Thereafter (through 2021)		1,065

	$	2,513

F - 45

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

Year

Amount

2012 $ 334
2013 198
2014 188
2015 125
2016 123
Thereafter
(through 2021)
952

Total $ 1,920

NOTE 13 -

COMMITMENTS AND CONTINGENT LIABILITIES

Commissions arrangements:

~~TAT~~

The group is committed to pay marketing commissions to sale agents at a range of 1% to 12% of total sales contracts which were received through promotion and distribution carried out by them. Commission expenses were $701, $626 and $750 for the years ended December 31, 2012, 2011 and ~~distribution carried out by them. Commission expenses were $626, $750 and $880 for the years ended December 31, 2011,~~ 2010, ~~and 2009,~~ respectively. The commissions were recorded as part of the selling and marketing expenses.

Royalty commitments:

(1)

TAT is committed to pay royalties to third parties through 2012, of ranging between 9% to 17% of sales of products developed by the third parties. Royalty expenses were $202, $460 ~~$328~~ and ~~$324~~$328 for the years ended December 31, 2012, 2011 ~~2010~~ and ~~2009,~~2010, respectively. The royalties were recorded as part of the cost of revenues.

~~F - 44~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands, except share and per share data~~

~~NOTE 13 -~~

~~COMMITMENTS AND CONTINGENT LIABILITIES (CONT)~~

~~Royalty commitments (cont):~~

(2)

Limco-Piedmont is committed to pay royalties to a third party, of ranging between 3% to 5% of sales of products purchased from the third party, after deducting related costs incurred by Limco-Piedmont. That third party is the exclusive manufacturer of the products for which Limco-Piedmont provide MRO services. In addition, Limco-Piedmont is committed to pay said third party royalties, of ranging between 1.5% to 10% of sales of additional products exclusively manufactured by the third party. Royalty expenses were $232, $201 ~~$111~~ and ~~$150~~$111 for the years ended December 31, 2012, 2011 ~~2010~~ and ~~2009,~~2010, respectively. The royalties were recorded as part of the cost of revenues.

(3)

Bental is committed to pay royalties to the Israeli government on proceeds from the sales of products, in the research and development of which the Israeli government participated by way of grants. Under the terms of Bental’s funding from the Office of the Chief Scientist, royalty payments are computed on the portion of sales from such products at a rate of 2% and 3.5%. The commitment to the Chief Scientist is limited to the amount of the received participation ~~(dollar~~(U.S. dollar linked), with the addition of an annual interest rate based on Libor. As of December 31, ~~2011~~2012 and ~~2010,~~2011, the total amount of royalty bearing grants due by Bental to the Chief Scientist was approximately ~~$82~~$86 and ~~$88,~~$82, respectively.

Lease commitments:

Limco-Piedmont leases some of its operating and office facilities for various terms under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2017. The monthly rental expense ranges from approximately $3.5 to $8. Certain leases contain renewal options as defined in the agreements. Lease expense (excluding related parties) totaled $126, $258 and $246 for the years ended December 31, 2012, 2011, and office facilities for various terms under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2016. The monthly rental expense ranges from approximately $3.5 to $8. Certain leases contain renewal options as defined in the agreements. Lease expense (excluding related parties) totaled $258, $246 and $253 for the years ended December 31, 2011, 2010 ~~and 2009~~ respectively.

~~TAT leases its factory from its parent company; see note 10(a), until 2020.~~

TAT leases its factory from its TAT Industries until 2020; (416$ for the year ended December 31, 2012, see also note 10(a)).

Bental leases an area of its plant from a related party for $50 per annum, under a long-term lease until 2013.

~~As of December 31, 2011, future minimum rental payments under non-cancelable operating leases are as follows:~~

Year

Amount

2012 $ 589
2013 597
2014 606
2015 616
2016 624
Total $ 3,032

F - 4546

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 13 -

COMMITMENTS AND CONTINGENT LIABILITIES ~~(CONT)~~

Lease commitments (cont):

As of December 31, 2012, future minimum rental payments under non-cancelable operating leases are as follows:

Year	Amount
2013	$	601
2014		610
2015		618
2016		627
2017		559

Total	$	3,015

Legal claims contingencies

(1)

On April 8, 2009, a claim was filed with the District Court in Tulsa, Oklahoma, USA by a third party, in person and on behalf of others, against TAT, Limco-Piedmont and its directors. The claim is meant to represent the public shareholders of Limco-Piedmont and seeks monetary compensation for the plaintiffs as a result of the merger, mentioned in note 3a(1), alleging, among other things, illegal management of the merger process and pricing and the non disclosure of significant information regarding the proposed merger. The parties reached a settlement whereby the plaintiffs will receive $250 through an insurance policy of officers and directors in TAT in return for dismissing the claim. On November 12, 2009, the District Court in Tulsa approved the settlement.

On July 3, 2009, Limco-Piedmont signed an agreement settling a commercial dispute ("the agreement") with one of its suppliers. According to the agreement signed between the parties, Limco-Piedmont will serve as the supplier's licensed service center for performing repairs, renovation and servicing of aircraft components for a period of five years ending on May 31, 2014, in return for $3,600. Prior to signing the agreement, Limco-Piedmont's engagement with said supplier was based on older agreements which were to end on May 31, 2011 and July 31, 2010. The fair value of the agreement was based on an valuation performed by management, which included a number of factors, including the assistance of independent valuation based on which Piedmont carried an amount of approximately $1,550 as an expense in the year ended December 31, 2009 for settling the dispute and the remaining balance was carried as an intangible asset in the TAT’s books and was to be amortized over the remaining contractual period. During 2011, this intangible asset was fully written down (see also note 8(a))

~~(2)~~

~~See also note 3(b) for~~For details about the settlement of the commercial dispute between Piedmont and ~~FAvS.~~FAvS See note 3(a).

~~(3)~~(2)

On November 29, 2011, a Factoring company ("the plaintiff"), filed a claim with the magistrates court in ~~Tel- Aviv~~Tel-Aviv against the Company, Bental and ten others ("the respondents"), jointly and severally, for the amount of ~~NIS6,151~~6,151 thousand NIS (approximately $1,620). The plaintiff's case against the Company and Bental is based on invoices that were presented to the plaintiff by supplier of the Company and Bental (“the supplier”), by virtue of assignment of rights, which were originally issued to the Company and Bental by the supplier for certain alleged services. On February 5, 2012, the Company and Bental filed for its statement of defense, in which it denied the plaintiff's claims and clarified that it acted according to the deed of assignment of rights, and that the invoices neither represent nor reflect real transactions and/or real services which were rendered. The ~~case is now in its preliminary stages of disclosure of documents~~Company and ~~is scheduled for another hearing on July 11, 2012. The Company is~~Bental and their legal advisor are of the opinion that ~~its~~their exposure due to the claim filed is not probable to be materialized and thus no provision was recorded in regard of that claim of December 31, ~~2011.~~

~~F - 46~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands, except share and per share data~~

~~NOTE 13 -~~

~~COMMITMENTS AND CONTINGENT LIABILITIES (CONT)~~2012.

Guarantees:

(1)

Bental provides bank guarantees to third parties, in the ordinary course of business, mainly in order to secure certain advances from customers. The maximum credit risk for these guarantees totaled approximately ~~$131~~$97 as of December 31, ~~2011.~~2012.

(2)

In order to secure TAT's liability to the Israeli customs, the Company provided a bank guarantee in the amount of ~~$153.~~$157. The guarantee is linked to the consumer price index and is valid until December ~~2012.~~2013.

(3)

See also note 13(f) for restricted cash deposit against certain loans and ~~guaranties.~~guarantees.

(4)

See also note 10(h) for details of a guarantee provided by Piedmont in respect of FAVS debt. As of December 31, ~~2011,~~2012, the amount of this guarantee is ~~$5,800.~~$4,600 (such guarantee was released on March 18, 2013, see also note 3(a)).

F - 47

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 13 -

COMMITMENTS AND CONTINGENT LIABILITIES (CONT)

Covenants and liens on assets:

In connection with its line of credit, Limco-Piedmont is obligated to meet minimal borrowing base and certain financial covenants. The utilization of the credit line is subject to compliance with the following financial covenants as agreed with the lending U.S bank:

(i)

Tangible net worth of not less than ~~$51,500.~~$51,500 (on August 20, 2012 concluded with the U.S bank to set this covenant at $49,500). As of December 31, 2012 and 2011 Limco-Piedmont’s tangible net worth was ~~$53,879;~~$51,533 and $53,879, respectively;

(ii)

Total liabilities to tangible net worth ratio ~~(“Maximum leverage”)~~ of less than 1.0. As of December 31, 2012 and 2011 Limco-Piedmont’s leverage was ~~0.25;~~0.18 and 0.25, respectively; and

(iii)

Net financial assets of not less than ~~$10,000 (“Minimum liquidity”).~~$10,000. As of December 31, 2012 and 2011 Limco-Piedmont’s net financial assets amount was ~~$24,554.~~$20,667 and $24,554, respectively.

Accordingly, as of December 31, 2012 and 2011 Limco-Piedmont ~~meets~~met all financial ~~covenants as agreed.~~covenants.

In order to secure bank loans in the remaining amount of ~~$3,252 (as~~$2,477 as of December 31, ~~2011),~~2012, TAT granted a specific lien on Bental's shares held by TAT and designated certain deposit in the amount of $350 for pledge upon request from the ~~bank.~~bank (such amount was released on November 7, 2012 together with the prepayment of $775 - see also note 11(a)(2)). In addition, TAT is obligated to meet certain covenants including:

(i)

TAT’s shareholders’ equity will not be less than $30,000 and 30% out of its total ~~assets (as~~assets. As of December 31, 2012 and 2011 TAT’s shareholders’ equity was $82,233 and $86,370, representing 76% and 75%, respectively of its total assets);

(ii)

Bental’s net debt (less cash and designated certain ~~deposit )~~deposit) to its operational profit ratio will be less than ~~4.0 (as~~4.0. As of December 31, 2012 Bental has net financial assets. As of December 31, 2011 the ratio was ~~1.1);~~1.1.

(iii)

Bental’s shareholders’ equity will not be less than ~~NIS25~~NIS 25 million (approximately $6,550) and 50% of its total assets (as of December 31, 2012 and 2011 Bental’s shareholders’ equity was ~~NIS35.5~~NIS34.8 million (approximately $9,335) and NIS 35.5 million (approximately $9,300), representing 70% and 68%, respectively of its total assets); and

(iv)

TAT’s holding interest in Bental will not be less than 70% (as of December 31, 2012 and 2011 TAT’s holding interest in Bental is 70%).

Accordingly, as of December 31, 2012 and 2011, TAT ~~meets~~met all financial covenants as agreed.

F - 4748

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 13 -

COMMITMENTS AND CONTINGENT LIABILITIES (CONT)

Covenants and liens on assets (cont):

In order to secure bank loans in the amount of ~~$1,400~~$1,185 (remaining balance of ~~$795~~$523 as of December 31, ~~2011)~~2012) , Bental granted floating liens on all of its property and assets, fixed lien on its unpaid share capital and goodwill and first priority liens on its property, plant and equipment, checks and other trading instruments. In addition, Bental is obligated to certain covenants including:

(i)

Bental’s debt to EBITDA ratio will be less than ~~3.0 (as~~3.0. As of December 31, 2012 and 2011 the ratio was ~~2.1);~~(2.4) and 2.1, respectively; and

(ii)

Bental’s tangible shareholders’ equity will not be less than ~~NIS20~~NIS 20 million (approximately ~~$5,250)~~$5,300) and not less than 30% of its total ~~assets (as~~assets. As of December 31, 2012 and 2011 Bental’s tangible shareholders’ equity was ~~NIS35.5~~NIS 34.8 million (approximately $9,335) and NIS 35.5 million (approximately $9,300), representing 70% and 69%, respectively of its total ~~assets).~~assets.

Accordingly, as of December 31, ~~2011,~~2012, Bental ~~meets~~met all financial covenants as agreed.

A lien on Bental Approved Enterprise has been registered in favor of the State of Israel (see note ~~16(b)~~15(b) below).

In order to secure the guarantee Piedmont provided to FAvS as mentioned on note 10(h), Piedmont granted a lien on a bank deposit in the amount of ~~$2,904,~~$2,300, which is recorded as restricted deposit in the balance sheet as of December 31, ~~2011 (out of which $2,300 was classified as long-term restricted deposit).~~2012.

NOTE 14 -

SHAREHOLDERS' EQUITY

TAT's Ordinary shares confer upon their holders voting rights, the right to receive dividends, if declared, and any amounts payable upon the dissolution, liquidation or winding up of the affairs of TAT.

On July 2, 2009, TAT completed a merger with Limco-Piedmont. As part of the merger, TAT acquired the entire remaining shares of Limco-Piedmont held by Limco-Piedmont's public shareholders in exchange for 2,520,372 newly issued shares of TAT, see also note 3(a)(1).Treasury purchase plan

~~Treasury~~On May 21, 2012, TAT’s Board of Directors approved a stock repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934. The plan was for a period of 6 months and provided for the purchase of shares in an aggregate amount of up to $0.5 million dollars. Such plan replaced and superseded a prior repurchase plan approved by TAT’s Board of Directors on February 21, 2012. On November 21, 2012, the term of such stock repurchase plan ended. As of such date, the Company had purchased 16,433 shares for approximately $70 thousands (average of $4.29 per share) constituting less than 0.1% of TAT’s issued shares.

On March 11, 2009 and on August 13, 2009, TAT’s board of directors authorized its management to enter into an engagement with Oppenheimer Israel Investment House for the blind trust repurchase of TAT’s shares under rule 10b5-1 of the Securities Exchange Act of 1934.

~~The first repurchase plan (from March 11, 2009) was terminated on March 26, 2009, under which TAT repurchased 4,650 shares for a cumulative amount of $26.~~

F - 4849

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 14 -

SHAREHOLDERS' EQUITY (CONT)

c.The repurchased shares became dormant as defined in the Israeli Companies Law.

~~Treasury purchase plan (cont)~~A reconciliation of opening and closing balances of the number of ordinary shares is presented below:

The second repurchase plan (from August 13, 2009) permitted for Oppenheimer Israel to purchase shares of TAT during trade on a foreign stock exchange at a scope of up to $2,000 in a period of six months from August 13, 2009 and at a price not exceeding $9 per share. The second plan was completed on December 2009, under which 253,390 shares were repurchased, representing approximately 2.8% of the Company's share capital in consideration of approximately $2,000 (an average of $7.9 per share).

~~The repurchased shares under both plans became dormant as defined in the Israeli Companies Law.~~

~~A reconciliation of opening and closing balances of the number of ordinary shares (in thousands) is presented below:~~

	2011		2010		2009			2012			2011
Balance outstanding at beginning of year		8,815		8,815		6,553			8,815,003			8,815,003
Issuance of shares		-		-		2,520
Exercise of options by employees		-		-		-
Purchase of treasury shares		-		-		(258	)		(16,433	)		-
Balance outstanding at end of year		8,815		8,815		8,815			8,798,570			8,815,003

d.c.

Stock option plans

(1)

On August 14, 2008, TAT's Board of Directors approved the grant of 65,477 unregistered options ofin three Series A, B and C to its Chief Executive Officer. Each option of Series A, B and C vests over two, three and four years commencing May 19, 2008, respectively, and expires three years after vesting. Each Series A, B and C option can be exercised into one Ordinary share NIS 0.9 ~~NIS~~ par value, for an exercise price of $6.15 (adjusted for dividend distribution and other equity changes as defined in the option grant terms). Alternatively, the Chief Executive Officer can opt to receive TAT's Ordinary shares based on the value of the appreciation over the exercise price.

The weighted average fair value of stock options granted at the grant date, is $2.69, $2.9 and $3.15, for Series A, B and C, respectively, based on the Black-Scholes option-pricing model with the following weighted average assumptions:

The weighted average fair value of stock options granted at the grant date, is $2.69, $2.9 and $3.15, for Series A, B a C, respectively, based on the Black-Scholes option-pricing model with the following weighted average assumptions:

	Series A			Series B			Series C

Number of options		21,826			21,826			21,825
Weighted average expected stock price volatility		60.05	%		55.96	%		54.57	%
Weighted average expected option life (in years)		3.25			4.25			5.25
Average risk free interest rate		2.72	%		2.94	%		3.15	%
Dividend yield		0	%		0	%		0	%

The expected volatility is based on the historical volatility of the Company’s stock. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the stock options granted. The expected term of options is based on the simplified method as allowed under and ASC 718-10-S99 and 110 issued by the SEC (the “simplified method"). The simplified method assumes the option will be exercised midway between the vesting date and the contractual term of the option. The Company is able to use the simplified method as the options qualify as “plain vanilla” options as defined by ASC 718-10-S99 and since the Company does not have sufficient historical exercise data to provide a reasonable basis to estimate expected term. The dividend yield is derived from the absence of formal dividend distribution plan.

F - 4950

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 14 -

SHAREHOLDERS' EQUITY (CONT)

d.c.

Stock option plans ~~(Cont)~~(cont)

~~The following table is a summary of the activity of TAT's stock Option plan:~~

Year ended December 31,

2011

2010

2009

Number
of
options

Weighted
average
exercise
price

Number
of
options

Weighted
average
exercise
price

Number
of options

Weighted
average
exercise
price

Outstanding at the beginning of the year 65,477 $ 6.15 65,477 $ 6.15 65,477 $ 6.15
Granted - - - - - -
Forfeited (21,825 ) 6.15 - - - -

Outstanding at the end of the year 43,652 $ 6.15 65,477 $ 6.15 65,477 $ 6.15

Exercisable options 43,652 $ 6.15 21,826 $ 6.15 - $ -

Compensation expenses attributable to outstanding stock options were $49 and $63 for the years ended December 31, 2010 and 2009, respectively. Compensation expense is recognized in the statement of income as an operating expense based on the fair value of the option over the requisite service period. Following the resignation of Mr. Fledel, the Company’s Chief Executive Officer on December 7, 2011 (see note 10(j)) the 21,825 unvested stock options forfeited and the remaining 43,652 stock options expired on March 6, 2012. As result, the Company recorded for the year ended December 31, 2011 an income from the expiration of such options, in the total amount of $37.

(2)

~~On November 24, 2011,~~

Following the approval of TAT's Audit committee and Board of Directors, ~~approved, subject to the approval of~~on June 28, 2012, the Company’s shareholders approved the 2012 stock option plan (the “2012 Plan”) to grant ~~of an aggregate of 400,000~~up to 380,000 options to purchase Ordinary shares, 0.9 NIS par value, of the Company to senior executives and certain members of the Board of Directors, at an exercise price of $6.5 per share. ~~Half~~The Options vest over a three-year period (one-third each year), the vesting of 50% of the Options is subject, in addition, to certain minimum shareholders' equity during a period of 4 years from the grant date, unless the optionee is no longer employed by the Company, in which case the options will ~~vest over a three year period,~~be considered forfeited within 30 days. On August 21, 2012, pursuant to the 2012 Plan, TAT’s Board of Directors approved the grant of 330,000 Options, which were granted on ~~a straight line basis, and half~~October 4, 2012 (out of which 45,000 options were forfeited on October 30, 2012).

The fair value of the Company’s stock options ~~will vest over a three~~granted under the 2012 plan for the year ~~period provided that TAT’s shareholders’ equity in its audited financial statements in any of~~ended December 31, 2012 was estimated using the ~~four years~~ following ~~the grant date will exceed $95,000.~~assumptions:

	~~(3)~~	~~On February 25, 2009, Limco-Piedmont's board~~2012

Expected stock price volatility		41.57% - 43.4%
Expected option life (in years)		2.23 - 3.23
Risk free interest rate		0.23% - 0.32%
Dividend yield		9.8%

The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of ~~directors decided to grant options to directors and managers to purchase 230,000 Common stock of Limco-Piedmont ("~~options. The ~~2009 plan"). The optionees included the Company's Chairman, Chief Executive Officer and a director~~volatility factor used in the ~~Company who also served as director in Limco-Piedmont who each received 30,000 options.~~Black-Scholes option pricing model is based on historical stock price fluctuations. The ~~exercise increment for each option was $ 2.16 and its value~~expected term of options is based on the ~~Black & Scholes option pricing model was $ 1.06.~~simplified method. The Company is able to use the simplified method as the options qualify as “plain vanilla” options as defined by ASC 718-10-S99 and since the Company does not have sufficient historical exercise data to provide a reasonable basis to estimate expected term. Expected dividend yield is based upon historical and projected dividend activity and the risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the stock options granted.

F - 5051

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 14 -

SHAREHOLDERS' EQUITY (CONT)

Stock option plans ~~(Cont)~~(cont)

~~The following table summarizes Limco's weighted average assumptions used in the valuation of options (granted under the 2009 plan) for the year ended December 31, 2009:~~

(3)

The following table is a summary of the activity of TAT's stock Option plan:

	Year ended December 31,
	2012					2011					2010
	Number of options			Weighted average exercise price		Number of options			Weighted average exercise price		Number of options		Weighted average exercise price

Outstanding at the beginning of the year		43,652		$	6.15		65,477		$	6.15		65,477	$	6.15
Granted		330,000			6.50		-			-		-		-
Expired		(43,652	)		6.15		-			-		-		-
Forfeited		(45,000	)		6.50		(21,825	)		6.15		-		-

Outstanding at the end of the year		285,000		$	6.50		43,652		$	6.15		65,477	$	6.15

Exercisable options		-		$	-		43,652		$	6.15		21,826	$	6.15

	~~2009~~

~~Weighted average expected stock price volatility~~		56	%
~~Weighted average expected option life (in years)~~		~~3.5~~
~~Average risk free interest rate~~		~~2.87~~	%
~~Dividend yield~~		0	%The weighted-average grant-date fair value of options granted in 2012 was $0.19. There was no aggregate intrinsic value for the options outstanding for the years ended December 31, 2012, 2011 and 2010.

Limco uses the Black-Scholes option pricing model to determine the weighted average fair value of options. The volatility factor used in the Black-Scholes option pricing model is based on historical stock price fluctuations. Due to the relative short period of the time Limco has been public TAT has estimated a 0% forfeiture rate. The expected term of options is based on the simplified method as allowed under and ASC 718-10-S99 and 110 issued by the SEC. The simplified method assumes the option will be exercised midway between the vesting date and the contractual term of the option. Limco is able to use the simplified method as the options qualify as “plain vanilla” options as defined by ASC 718-10-S99 and since Limco does not have sufficient historical exercise data to provide a reasonable basis to estimate expected term. Expected dividend yield is based upon Limco’s historical and projected dividend activity and the risk free interest rate is based upon US Treasury rates appropriate for the expected term of the options.

~~(4)~~

~~Upon~~Compensation expenses (income) attributable to outstanding stock options were $8, $(37) and $49 for the ~~completion~~years ended December 31, 2012, 2011 and 2010, respectively. Compensation expense is recognized in the statement of income as an operating expense based on the fair value of the ~~merger between TAT and Limco-Piedmont, as detailed in note 3(a)(1) above, all options~~option over the requisite service period. As of December 31, 2012, there was $ 19.4 of total unrecognized compensation cost related to nonvested Share based compensation arrangements granted under ~~note 14(d)(3) above were cancelled. Upon~~ the ~~cancellation date, Limco-Piedmont~~Company's 2012 plan. That cost is expected to be recognized over a weighted-average period of 1.44 years.

Following the resignation of Mr. Fledel, the Company’s Chief Executive Officer on December 7, 2011 the 21,825 unvested stock options forfeited and the remaining 43,652 stock options expired on March 6, 2012. As result, the Company recorded ~~expenses totaling $ 542 which as~~for the year ended December 31, 2011 an income from the expiration of such options, in the ~~date~~total amount of ~~cancellation represents the expense over the unvested options.~~$37.

F - 5152

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 14 -

SHAREHOLDERS' EQUITY (CONT)

~~Stock option plans (Cont)~~

~~A summary of Limco-Piedmont’s Option plans activity for the year ended December 31, 2009, is presented below:~~

Number
of options
Weighted average exercise price Weighted average contractual life remaining
Aggregate intrinsic
value

(in thousands)

in years
(in thousands)

Outstanding at January 1, 2009 311 $ 10.01 4.37 $ -
Granted 230 $ 2.25 - -
Cancelled (541 ) $ 6.71 - -

Outstanding at December 31, 2009 - $ - - $ -

Exercisable at December 31, 2009 - $ - - $ -

Market Maker for TAT shares traded in Tel Aviv Stock Exchange

On August 15, 2011, TAT entered into a Market Making agreement for its shares traded on the Tel Aviv Stock Exchange (TASE) with Harel Finance Trade & Securities Ltd. for the purpose of improving liquidity of TAT shares. The agreement is for a 12 month period, subject for TASE’s approval. The agreement will be automatically extended in 12 month periods, unless otherwise terminated by either of the parties giving 30 days notice or in accordance with certain regulatory circumstances. TAT will pay an immaterial fee in connection with the said agreement.

Dividends

On March 11, 2009, TAT’s Board of Directors declared a cash dividend in the total amount of $3,617, or $0.55 per share, for all of the shareholders of Company at the effective date - March 29, 2009. TAT paid the dividend on April 8, 2009.

On April 22, 2012, TAT’s Board declared a cash dividend in the total amount of $2.5 million (approximately NIS 9.4 million), or $0.283 per share (approximately NIS 1.065 per share), for all of the shareholders of TAT. The dividend was paid on May 17, 2012 to shareholders of record on May 3, 2012.

~~On March 11, 2009, Bental’s Board of Directors approved the distribution of cash dividend in the total amount of $2,923. The dividend was paid on April 5, 2009, out of which TAT received $2,046.~~

Accumulated other comprehensive loss

On November 12, 2009, TAT’s Board of Directors declared a cash dividend in the total amount of $2,648 or $0.38 per share, for all of the shareholders of the Company at the effective date November 23, 2009. TAT paid the dividend on December 7, 2009.

As of December 31, 2012, the entire amount of accumulated other comprehensive loss consists of amounts derived from foreign currency translation.

~~On November 24, 2009, Bental’s Board of Directors approved the distribution of cash dividend in the total amount of $1,297. The dividend was paid on December 7, 2009, out of which TAT received $908.~~

~~F - 52~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands, except share and per share data~~

NOTE 15 -

~~EARNINGS (LOSSES) PER SHARE~~

~~The following table sets forth the computation of basic and diluted net earnings (losses) per share:~~

Year ended December 31,
2011 2010 2009
Numerator:

Net earnings (losses) attributed to TAT $ (1,030 ) $ (7,386 ) $ 1,753

Denominator for basic and diluted net earnings (losses) per share:

Weighted average number of basic and diluted shares outstanding during the year 8,815,003 8,815,003 7,893,639

The weighted average number of outstanding options excluded from the calculation of diluted net earnings per share, due to their anti dilutive effect was 63,660 for the year ended December 31, 2011 and 65,477, for the years ended December 31, 2010.

~~NOTE 16 -~~

TAXES ON INCOME ~~TAXES~~

Measurement of taxable income under the Income Tax (Inflationary Adjustments) Law, 1985 (the “Inflationary Adjustments Law”)

In accordance with the above law results for tax purposes, for the Israeli companies, are measured and reflected in real terms in accordance with the changes in the Israeli Consumer Price Index (CPI). Under the Inflationary adjustments law (Amendment No. 20, 2008, hereafter – "the amendment"), that was enacted in the Israeli Parliament on February 26, 2008, the provisions of the Inflationary adjustments law will no longer apply to the Company and Bental in 2008 and thereafter. The amendment specifies transitional provisions regarding the discontinuance of the provisions of the Inflationary adjustments law that have applied to the Company and Bental through the end of 2007.

In accordance with the Inflationary Adjustments Law, the results for tax purposes have been measured through 2007, and reflected in real terms in accordance with the changes in the Israeli Consumer Price Index (CPI). Under the Inflationary Adjustments Law (Amendment No. 20, 2008, (“the amendment”), that was enacted in the Israeli Parliament on February 26, 2008, the provisions of the Inflationary adjustments law will no longer apply to the Company and Bental in 2008 and thereafter. The amendment specifies transitional provisions regarding the discontinuance of the provisions of the Inflationary adjustments law that have applied to the Company and Bental through the end of 2007.

Tax benefits under the Law for the Encouragement of Capital Investments, 1959 ("the Law"):

Some facilities of the Israeli companies in Israel have been granted approved enterprise status under the above law.

The main tax benefits available are:

In respect of income derived from the approved enterprise, the Israeli companies were entitled to reduced tax rates during a period of up to seven years from the year in which such enterprise first earn taxable income (limited to twelve years from commencement of production or fourteen years from the date of approval, whichever is earlier).

Income derived from the approved enterprise is tax exempt during the first two years of the seven year tax benefit period as above, and is subject to a reduced tax rate not exceeding 25% during the remaining years of benefits.

F - 53

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 1615 -

TAXES ON INCOME ~~TAXES~~ (CONT)

Tax benefits under the Law for the Encouragement of Capital Investments, 1959 ("the Law") (cont):

In the event of distribution of a cash dividend from income which was tax exempt as above, the Company and Bental would have to pay the 25% tax in respect of the amount distributed. Company has policy not to distribute cash dividends from such exempt income. As of December 31, 2011, the Company had accumulated a total amount of $6,256 of exempt income.

~~Conditions for the entitlement of benefits~~

In the event of distribution of a cash dividend from income which was tax exempt as above, the Company and Bental would have to pay the 25% tax in respect of the amount distributed. Company has policy not to distribute cash dividends from such exempt income. As of December 31, 2012, the Company had accumulated a total amount of approximately $9,000 of exempt income.

The above mentioned benefits were subject to the fulfillment of the terms specified in the Law, the related regulations and the approval plans as specified above. Failure to fulfill these terms might result the cancellation of the tax benefits (all or some), in which case the Israeli companies will be required to repay all benefits including interest and fines. Management estimates that the Israeli companies comply with all terms as mentioned above.

Conditions for the entitlement of benefits

~~Preferred Enterprises~~

Additional amendments to the Approved Enterprise Law became effective in January 2011 (the “2011 Amendment”). Under the 2011 Amendment, income derived by ‘Preferred Companies’ from ‘Preferred Enterprises’ (both as defined in the 2011 Amendment) would be subject to a uniform rate of corporate tax as opposed to the current incentives that are limited to income from Approved or Benefiting Enterprises during their benefits period. According to the 2011 Amendment, the uniform tax rate on such income, referred to as ‘Preferred Income’, would be 10% in areas in Israel that are designated as Development Zone A and 15% elsewhere in Israel during 2011-2012, 7% and 12.5%, respectively, in 2013-2014, and 6% and 12%, respectively, thereafter. Income derived by a Preferred Company from a ‘Special Preferred Enterprise’ (as defined in the Approved Enterprise) would enjoy further reduced tax rates for a period of ten years of 5% in Zone A and 8% elsewhere. As with dividends distributed from taxable income derived from an Approved Enterprise or Benefiting Enterprise during the applicable benefits period, dividends distributed from Preferred Income would be subject to a 15% tax (or lower, if so provided under an applicable tax treaty), which would generally be withheld by the distributing company. While the Company may incur additional tax liability in the event of distribution of dividends from tax exempt income generated from its Approved and Benefiting Enterprises, no additional tax liability will be incurred by the Company in the event of distribution of dividends from income taxed in accordance with the 2011 Amendment.

Preferred Enterprises

~~Under the transitional provisions of the 2011 Amendment, the Company and Bental elected to irrevocably implement the 2011 Amendment and be regarded as a "preferred enterprise"~~

Additional amendments to the Law became effective in January 2011 (the “2011 Amendment”). Under the 2011 Amendment, income derived by ‘Preferred Companies’ from ‘Preferred Enterprises’ (both as defined in the 2011 Amendment) would be subject to a uniform rate of corporate tax as opposed to the current incentives that are limited to income from Approved or Benefiting Enterprises during their benefits period. According to the 2011 Amendment, the uniform tax rate on such income, referred to as ‘Preferred Income’, would be 10% in areas in Israel that are designated as Development Zone A and 15% elsewhere in Israel during 2011-2012, 7% and 12.5%, respectively, in 2013-2014, and 6% and 12%, respectively, thereafter. Income derived by a Preferred Company from a ‘Special Preferred Enterprise’ (as defined in the Approved Enterprise) would enjoy further reduced tax rates for a period of ten years of 5% in Zone A and 8% elsewhere. As with dividends distributed from taxable income derived from an Approved Enterprise or Benefiting Enterprise during the applicable benefits period, dividends distributed from Preferred Income would be subject to a 15% tax (or lower, if so provided under an applicable tax treaty), which would generally be withheld by the distributing company. While the Company may incur additional tax liability in the event of distribution of dividends from tax exempt income generated from its Approved and Benefiting Enterprises, no additional tax liability will be incurred by the Company in the event of distribution of dividends from income taxed in accordance with ~~respect to its existing Approved and Benefiting Enterprises while waiving benefits provided under the legislation prior to~~ the 2011 Amendment.

Under the transitional provisions of the 2011 Amendment, the Company and Bental elected to irrevocably implement the 2011 Amendment, commencing 2011 and thereafter, and be regarded as a "Preferred Enterprise" with respect to its existing Approved and Benefiting Enterprises while waiving benefits provided under the legislation prior to the 2011 Amendment.

F - 54

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 1615 -

TAXES ON INCOME ~~TAXES~~ (CONT)

Bental is located in area in Israel that is designated as Development Zone A and as such entitled to reduce tax rates of 10% during 2011-2012, 7% in 2013-2014, and 6% thereafter.

TAT is located in area in Israel that is designated as elsewhere and as such entitled to reduce tax rates of 15% during 2011-2012, 12.5% in 2013-2014, and 12.0% thereafter.

Reduction of Israeli corporate tax rate

The statutory rate of the Israeli corporate tax is as follows: 2011- 24%, 2010- 25%, 2009- 26%. In July 2009, the "Knesset" (Israeli Parliament) passed the Law for Economic Efficiency (Amended Legislation for Implementing the Economic Plan for 2009 and 2010), 2009, which prescribes, among others, an additional gradual reduction in the rates of the Israeli corporate tax and real capital gains tax starting 2011 to the following tax rates: 2012 - 23%, 2013 - 22%, 2014 - 21%, 2015 - 20%, 2016 and thereafter - 18%.

The statutory rate of the Israeli corporate tax is as follows: 2012- 25%, 2011- 24% and 2010- 25%. In July 2009, the "Knesset" (Israeli Parliament) passed the Law for Economic Efficiency (Amended Legislation for Implementing the Economic Plan for 2009 and 2010), 2009, which prescribes, among others, an additional gradual reduction in the rates of the Israeli corporate tax and real capital gains tax starting 2011 to the following tax rates: 2012 - 23%, 2013 - 22%, 2014 - 21%, 2015 - 20%, 2016 and thereafter - 18%.

On December 6, 2011, the Knesset (Israel's Parliament) passed a law for changing the tax burden (Legislative Amendments), which cancels, among others, the gradual reduction in the corporate tax rates in Israel. In addition, the corporate tax in Israel will be increased to 25% starting in 2012. The effect of the abovementioned change on the financial statements is immaterial.

On December 6, 2011, the Knesset (Israel's Parliament) passed a law for changing the tax burden (Legislative Amendments), which cancels, among others, the gradual reduction in the corporate tax rates in Israel. In addition, the corporate tax in Israel was increased to 25% from the beginning of 2012. The effect of the abovementioned change on the financial statements is immaterial.

U.S. subsidiaries

U.S. subsidiaries are taxed based on federal and state tax laws. The effective tax rate for 2012, 2011, and ~~state tax laws. The effective tax rate for 2011,~~ 2010 ~~and 2009~~ was 38%.

Tax assessments

~~TAT’s income tax assessments are considered final through 2007.~~

~~Bental income tax assessments are considered final through 2008.~~

~~Limco-piedmont income tax assessments are considered final through 2007.~~

~~TAT-GAL which was incorporated in 2008 has~~

TAT’s income tax assessments are considered final through 2007. TAT’s and TAT Industries’ tax years 2008 through 2011 are under an assessment process by the Israeli Tax authorities. Final tax assessments have not been received ~~final tax assessment~~ yet.

Bental income tax assessments are considered final through 2008.

The Company and its parent company file a consolidated tax report for the Israeli tax authorities. Accordingly, each one the companies are entitled to use its tax losses (resulted from the first year of consolidated tax report) against taxable income of the other company and subject to certain limitations.

Limco-piedmont income tax assessments are considered final through 2007.

TAT-GAL which was incorporated in 2008 has not received final tax assessment yet.

The Company and TAT Industries file a consolidated tax report for the Israeli tax authorities. Accordingly, each one the companies are entitled to use its tax losses (resulted from the first year of consolidated tax report) against taxable income of the other company and subject to certain limitations.

F - 55

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 1615 -

TAXES ON INCOME ~~TAXES~~ (CONT)

Income tax reconciliation:

~~A reconciliation of the theoretical tax expense assuming all income is taxed at the statutory rate to income taxes as reported in the statements of income:~~

Year ended December 31,

2011

2010

2009

Income (loss) before income taxes as reported in the statements of income $ (1,970 ) $ (6,906 ) $ 1,367

Statutory tax rate in Israel 24 % 25 % 26 %

Theoretical tax expenses (income) $ (473 ) $ (1,726 ) $ 355
Increase (decrease) in income taxes resulting from:
Tax adjustment for foreign subsidiaries subject to a different tax rate (28 ) (1,118 ) 402
Reduced tax rate on income derived from "Approved Enterprises" plans 177 - (20 )
Exempt income (10 ) - -
Utilization of disallowed capital losses carryforward (36 ) - -
Deferred taxes on impairment of share in affiliated company - (1,332 ) -
Tax in respect of prior years (80 ) (50 ) *(1,609 )
Non-deductible expenses 134 73 107
Income taxes as reported in the statements of income (loss) $ (316 ) $ (4,153 ) $ (765 )

~~Income~~A reconciliation of the theoretical tax expense assuming all income is taxed at the statutory rate to taxes ~~benefit relating to prior years is a result~~on income (tax benefit) as reported in the statements of an approved enterprise certificate granted to Bental by the Israeli tax authorities in 2009. At the time only when receiving such approval was Bental able to recognize certain tax benefit relating to 2008.income:

	Year ended December 31,
	2012			2011			2010
Income (loss) before taxes on income (tax benefit) as reported in the statements of income	$	4,070		$	(1,730	)	$	(6,906	)

Statutory tax rate in Israel		25	%		24	%		25	%

Theoretical taxes on income (tax benefit)	$	1,018		$	(415	)	$	(1,726	)

Increase (decrease) in taxes on income resulting from:
Tax adjustment for foreign subsidiaries subject to a different tax rate		434			(86	)		(1,118	)
Reduced tax rate on income derived from "Preferred Enterprises" plans		(114	)		177			-
Exempt income		(4	)		(10	)		-
Permanent differences		387			(36	)		-
Valuation allowance		499			-			-
Deferred taxes on impairment of share in affiliated company		-			-			(1,332	)
Tax in respect of prior years		(83	)		(80	)		(50	)
Non-deductible expenses		(51	)		134			73
Taxes on income (tax benefit) as reported in the statements of income (loss)	$	2,086		$	(316	)	$	(4,153	)

Income (loss) before taxes on income ~~taxes~~(tax benefit) is comprised as follows:

	Year ended December 31,									Year ended December 31,
	2011			2010			2009			2012		2011			2010

Domestic (Israel)	$	1,062		$	2,842		$	4,222		$	837	$	964		$	2,766
Foreign (United States)		(3,032	)		(9,748	)		(2,855	)		3,233		(2,694	)		(9,672	)

	$	(1,970	)	$	(6,906	)	$	1,367		$	4,070	$	(1,730	)	$	(6,906	)

F - 56

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 1615 -

TAXES ON INCOME ~~TAXES~~ (CONT)

~~Income taxes (benefit)~~Taxes on income (tax benefit) included in the statements of income:

Year ended December 31,
2011 2010 2009
Current:
Domestic (Israel) $ 371 $ 570 $ 1,163
Foreign (United States) 213 (611 ) (1,188 )

584 (41 ) (25 )
Deferred:
Domestic (Israel) 218 46 (51 )
Foreign (United States) (1,038 ) (4,108 ) 920

(820 ) (4,062 ) 869
Previous years:
Domestic (Israel) (126 ) (50 ) *(1,609 )
Foreign (United States) 46 - -
(80 ) (50 ) (1,609 )

$ (316 ) $ (4,153 ) $ (765 )

Income taxes benefit relating to prior years is a result of an approved enterprise certificate granted to Bental by the Israeli tax authorities in 2009. At the time only when receiving such approval was Bental able to recognize certain tax benefit relating to 2008.

	Year ended December 31,
	2012			2011			2010
Current:
Domestic (Israel)	$	282		$	371		$	570
Foreign (United States)		287			213			(611	)

		569			584			(41	)
Deferred:
Domestic (Israel)		119			218			46
Foreign (United States)		1,481			(1,038	)		(4,108	)

		1,600			(820	)		(4,062	)
Previous years:
Domestic (Israel)		(45	)		(126	)		(50	)
Foreign (United States)		(38	)		46			-
		(83	)		(80	)		(50	)

	$	2,086		$	(316	)	$	(4,153	)

F - 57

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 1615 -

TAXES ON INCOME ~~TAXES~~ (CONT)

Deferred income taxes:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of TAT's deferred tax liabilities and assets are as follows:

December 31,

2011

2010

Deferred tax assets (liabilities):
Allowance for doubtful accounts $ 73 $ 1,001
Unrealized gains 138 192
Provisions for employee benefits 227 394
Inventory 1,939 1,318
Other temporary differences 187 631
Deferred tax assets – short-term- other accounts receivables $ 2,564 $ 3,536

Goodwill and intangible assets $ 1,273 $ 946
Property, plant and equipment 762 -
Provisions for employee benefits and other temporary differences 52 89
Other 124 -
Net operating losses Carryforward 1,458 -
Deferred tax assets – Long-term $ 3,669 $ 1,035

Other temporary differences Deferred tax Liabilities – Short-term- other accounts payable $ (179 ) $ -

Property, plant and equipment and intangible assets (1,388 ) (868 )
Other (25 ) -
Deferred tax Liabilities - Long-term $ (1,413 ) $ (868 )

As of December 31, 2011, TAT did not provide a valuation allowance in respect of deferred tax assets, since management currently believes that it is more likely than not that the deferred tax asset will be realized in the future. For certain capital losses, incurred by the U.S. subsidiaries, the Company provide valuation allowance as it cannot predict its future realization.

	December 31,
	2012			2011
Deferred tax assets (liabilities):
Allowance for doubtful accounts	$	133		$	73
Unrealized gains		131			138
Provisions for employee benefits		270			227
Inventory		1,171			1,939
Other temporary differences		417			187
Deferred tax assets - short-term- other accounts receivables	$	2,122		$	2,564

Goodwill and intangible assets	$	884		$	1,273
Property, plant and equipment		707			762
Provisions for employee benefits and other temporary differences		64			70
Tax credits carryforward		274			106
Capital and state tax losses carryforward		1,823			184
Net operating losses carryforward		606			1,458
Deferred tax assets, before valuation allowance – Long-term		4,358			3,853
Valuation allowance		(1,823	)		(184	)
Deferred tax assets, net – Long-term	$	2,535		$	3,669

Other temporary differences Deferred tax Liabilities – Short-term- other accounts payable	$	(126	)	$	(179	)

Property, plant and equipment and intangible assets		(1,457	)		(1,388	)
Other		(33	)		(25	)
Deferred tax Liabilities - Long-term	$	(1,490	)	$	(1,413	)

TAT does not intend to distribute earnings of a foreign subsidiary aggregating up to $11,600 (tax earnings and profits) as of December 31, 2011, and accordingly, no deferred tax liability has been established relative to these earnings. If such profits and earnings are distributed by cash dividend, it would be taxed at tax rate applicable to such distribution (25%) and an income tax liability of up to approximately $2,900 would be incurred as of December 31, 2011.

TAT does not intend to distribute tax-exempt earnings deriving from Approved Enterprise aggregating approximately $6,800 as of December 31, 2011, and accordingly, no deferred tax liability has been established related to these earnings. See also Note 16(b). If such tax-exempt income is distributed by cash dividend (including a liquidation dividend), it would be taxed at the reduced corporate tax rate applicable to such profits (25%) and an income tax liability of up to approximately $1,700 would be incurred as of December 31, 2011.

As of December 31, 2012, TAT did not provide a valuation allowance in respect of deferred tax assets, since management currently believes that it is more likely than not that the deferred tax asset will be realized in the future. For capital losses and certain state tax losses, incurred by the U.S. subsidiaries, the Company provides valuation allowance as it cannot predict its future realization.

F - 58

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

NOTE 15 -

TAXES ON INCOME (CONT)

The following table summarizes the changes in the valuation allowance for deferred tax assets:

Balance, January 1, 2010	$	-
Addition charged to expenses		200

Balance, December 31,2010		200
Deductions		(16	)

Balance, December 31,2011		184
Addition charged to expenses		1,639

Balance, December 31,2012	$	1,823

~~NOTE 16 -~~

~~INCOME TAXES (CONT)~~TAT does not intend to distribute earnings of a foreign subsidiary aggregating up to approximately $12,000 (tax earnings and profits) as of December 31, 2012, and accordingly, no deferred tax liability has been established relative to these earnings. If such profits and earnings are distributed by cash dividend, it would be taxed at tax rate applicable to such distribution (25%) and an income tax liability of up to approximately $3,000 would be incurred as of December 31, 2012.

TAT does not intend to distribute tax-exempt earnings deriving from Approved Enterprise aggregating approximately $9,000 as of December 31, 2012, and accordingly, no deferred tax liability has been established related to these earnings. See also Note 15(b). If such tax-exempt income is distributed by cash dividend (including a liquidation dividend), it would be taxed at the reduced corporate tax rate applicable to such profits (25%) and an income tax liability of up to approximately $2,250 would be incurred as of December 31, 2012.

A reconciliation of the beginning and ending amount of unrecognized provision is as follows:

Amount

Balance at January 1, 2009 $ -
Additions for tax positions of prior years -
Settlements with tax authorities -
Balance at December 31, 2009 -
Additions for tax positions of prior years 84
Settlements with tax authorities -
Balance at December 31, 2010 $ 84
Additions for tax positions of prior years -
Settlements with tax authorities -
Exchange rate differences 2
Balance at December 31, 2011 $ 86

Unrecognized tax benefits, mainly of a long-term nature, at December 31, 2011, 2010 and 2009 amounted to $2, $84 and $0, respectively. All of the above amounts of unrecognized tax benefits would affect the effective tax rate if recognized. The Group does not expect unrecognized tax benefits to change significantly over the next 12 months.

~~NOTE 17 -~~

~~SEGMENT INFORMATION~~

	Amount

Balance at January 1, 2010	$	-
Additions for tax positions of prior years		84
Balance at December 31, 2010		84
Exchange rate differences		2
Balance at December 31, 2011		86
Exchange rate differences		(2	)
Balance at December 31, 2012	$	84

~~Segment Activities Disclosure:~~Unrecognized tax benefits, mainly of a long-term nature, at December 31, 2012, 2011 and 2010 amounted to $(1), $2 and $84, respectively. All of the above amounts of unrecognized tax benefits would affect the effective tax rate if recognized. The Group does not expect unrecognized tax benefits to change significantly over the next 12 months.

TAT operates under four segments: (i) Original Equipment Manufacturing or “OEM” of Heat Management Solutions (ii) Heat Transfer Services and Products (iii) Maintenance, Repair and Overhaul or “MRO” services for Aviation Components and (iv) OEM of Electric Motion Systems. Until December 31, 2010, TAT operated under three segments. As of January 1, 2011, TAT began reporting its operations based on four operating segments, after dividing its MRO Services operating segment into two separate segments: Heat Transfer Services and Products; and MRO services for Aviation Components. Accordingly, the revenues and costs reported for the year ended December 31, 2010 and 2009 for MRO Services operating segment were divided between these two new operating segments. Additionally, the operating segment name of ‘OEM of Heat Transfer Products’ was changed to 'OEM of Heat Management Solutions'.

F - 59

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands ~~except share and per share data~~

Title of each class	Name of each exchange on which registered
Ordinary Shares, NIS 0.90 Par Value	NASDAQ Global Market

	G.	~~Statement by Experts~~	~~155~~
	H.	~~Documents on Display~~	~~155~~
	I.	~~Subsidiary Information~~	~~156~~
Item 11.	Quantitative and Qualitative Disclosures about Market Risk	~~156~~160
Item 12.	Description of Securities Other than Equity Securities	~~157~~161
PART II			~~157~~161
Item 13.	Defaults, Dividend Arrearages and Delinquencies	~~157~~161
Item 14.	Material Modifications to the Rights of Security Holders	~~157~~161
Item 15.	Controls and Procedures	~~157~~162
Item 15T.	Controls and Procedures	~~157~~162
Item 16.	[Reserved]	~~159~~163
Item 16A.	Audit Committee Financial Expert	~~159~~163
Item 16B.	Code of Ethics	~~159~~164
Item 16C.	Principal Accountants Fees and Services	~~160~~164
Item 16D.	Exemptions from the Listing Standards for Audit Committee	~~161~~165
Item 16E.	Purchase of Equity Securities By Issuer and Affiliated Purchases	~~161~~165
Item 16F.	Change in Registrant’s Certifying Accountant.	~~161~~165
Item 16G.	Corporate Governance.	~~162~~165
PART III			~~163~~167
Item 17.	Financial Statements	~~163~~167
Item 18.	Financial Statements	~~163~~167
Item 19.	Exhibits	~~164~~167


	Year Ended December 31,									Year Ended December 31,
	(in thousands)									(in thousands)
	2011			2010			2009			2012			2011			2010
Net cash provided by (used in) operating activities	$	696		$	3,038		$	(79	)	$	7,738		$	698		$	3,038
Net cash provided by (used in) investing activities		(602	)		(2,986	)		770			(9,912	)		(602	)		(2,986	)
Net cash provided by (used in) financing activities		848			1,358			(8,912	)		(7,545	)		850			1,358
Effect of changes in exchange rate on cash and cash equivalents of foreign currency subsidiary company		(51	)		59			(110	)		68			(51	)		59
Net increase (decrease) in cash and cash equivalents		(805	)		1,469			(8,331	)		(9,651	)		(805	)		1,469
Cash and cash equivalents at beginning of the year		27,037			25,568			33,899			26,232			27,037			25,568
Cash and cash equivalents at end of the year	$	26,232		$	27,037		$	25,568		$	16,581		$	26,232		$	27,037

Contractual Obligations	Payments due by Period										Payments due by Period
	Total		Less than 1 year		1-3 Years		3-5 Years		More than 5 years		Total		Less than 1 year		1-3 Years		3-5 Years		More than 5 years
Long-term debt obligations	$	9,337,000	$	4,917,000	$	4,420,000	$	-	$	-
Debt obligations											$	4,380,000	$	3,265,000	$	1,115,000	$	-	$	-
Operating lease obligations (1)		5,076,860		585,883		1,143,278		1,154,077		2,193,622		3,295,000		904,000		1,580,000		352,000		495,000
Purchase commitments		3,564,343		3,564,343		-		-		-		5,471,000		5,471,000		-		-		-
Estimated long-term loan interest (2)		517,000		254,000		263,000		-		-
Estimated loan interest (2)												170,000		124,000		46,000		-		-
Total	$	18,495,203	$	9,321,226	$	5,826,278	$	1,154,077	$	2,193,622	$	13,316,000	$	9,764,000	$	2,741,000	$	352,000	$	459,000

Name	Age	Position
~~Rimon Ben-Shaoul~~Zeev Birnboim	6763	Chairman of the Board of Directors *
Itsik Maaravi	5253	Chief Executive Officer
~~Regina Ungar~~Todd Schwartz	49	~~Director~~
~~Paul Hall~~	5545	Chief Executive Officer of ~~Limco-Piedmont~~Piedmont
Yair Raz	57	Chief Executive Officer of Limco
Shmuel Mendel	6061	Chief Executive Officer of Bental
Yaron Shalem	3940	Chief Financial Officer
Shlomi Karako	5354	Vice President Operations
Avi Shani	6465	Independent outside Director **
Iris Shapira ~~, *~~	4546	Independent Director **
Jan Loeb	5354	Director
~~Nati Botbol~~	35	~~Director~~
Yankale Shahar	5051	Independent outside Director **

INTRODUCTION		1
PART I		34
Item 1.	Identity of Directors, Senior Management and Advisers	34
Item 2.	Offer Statistics and Expected Timetable	34
Item 3.	Key Information	34
	A.	Selected Financial Data	34
	B.	Capitalization and Indebtedness	56
	C.	Reasons for the Offer and Use of Proceeds	56
	D.	Risk Factors	56
Item 4.	Information on the Company	2122
	A.	Business Overview of Gedera, Bental, Limco and ~~Bental~~Piedmont	2628
	B.	Government Regulations	5659
	C.	~~Organizational Structure~~	58
	D.	Property, Plants and Equipment	5861
Item 4A.	Unresolved Staff Comments	5962
Item 5	Operating and Financial Review and Prospects	6063
	A.	Research and Development, Patents and Licenses	~~104~~106
	B.	Trend Information	~~104~~106
	C.	Off-Balance Sheet Arrangements	~~105~~106
	D.	Tabular Disclosure of Contractual Obligations	~~105~~107
Item 6.	Directors, Senior Management and Employees	~~107~~108
	A.	Directors and Senior Management	~~107~~108
	B.	Board Practices	~~110~~111
	C.	Employees	~~120~~123
	D.	Share Ownership	~~121~~124
Item 7.	Major Shareholders and Related Party Transactions	~~122~~125
	A.	Major Shareholders	~~122~~
	B.	~~Related Party Transactions~~	125
	C.B. Related Party Transactions	129
	C. Interests of Experts and Counsel	~~129~~133
Item 8.	Financial Information	~~129~~133
	A.	Consolidated Statements and Other Financial Information	~~129~~133
	B.	Significant Changes	~~130~~133
Item 9.	The Offer and Listing	~~130~~134
	A.	Offer and Listing Details	~~130~~134
	B.	Plan of Distribution	~~132~~136
	C.	Markets	~~132~~136
	D.	Selling Shareholders	~~132~~136
	E.	Dilution	~~132~~136
	F.	Expense of the Issue	~~132~~136
Item 10.	Additional Information	~~133~~136
	A.	Share Capital	~~133~~136
	B.	Memorandum and Articles of Association	~~133~~136
	C.	Material Contracts	~~137~~
	D.	~~Exchange Controls~~	141
	E.D. Exchange Controls	145
	E. Taxation	~~141~~146
	F.	Dividends and Paying Agents	~~155~~159
	G. Statement by Experts	159
	H. Documents on Display	159
	I. Subsidiary Information	160


Year ended December 31,	Israeli inflation rate%			NIS appreciation (devaluation) to the US dollar rate%			Israeli inflation adjusted for appreciation (devaluation) %			Israeli inflation rate%			NIS appreciation (devaluation) to the US dollar rate%			Israeli inflation adjusted for appreciation (devaluation) %
2003		(1.9	)		7.6			5.7			(1.9	)		7.6			5.7
2004		1.2			1.6			2.8			1.2			1.6			2.8
2005		2.4			(6.8	)		(4.4	)		2.4			(6.8	)		(4.4	)
2006		(0.1	)		8.2			8.1			(0.1	)		8.2			8.1
2007		3.4			9.0			12.4			3.4			9.0			12.4
2008		3.8			1.1			4.9			3.8			1.1			4.9
2009		3.9			0.7			4.6			3.9			0.7			4.6
2010		2.7			6.4			9.1			2.7			6.4			9.1
2011		2.2			(7.7	)		(5.5	)		2.2			(7.7	)		(5.5	)
2012											1.4			2.3			3.7

	Year Ended December 31,						Year Ended December 31,
Services Rendered	2011			2010			2012			2011
Audit (1)		$	291,000		$	259,000		$	257,000		$	291,000
Tax (2)			31,600			22,000			47,000			31,600
Totall		$	322,600		$	281,000
Total								$	304,000		$	322,600

Consolidated Financial Statements of the Company

Index to Financial Statements	F-2
Reports of Independent Registered Public Accounting Firm	F-3
Consolidated Balance Sheets	F-4-F-5
Consolidated Statements of ~~Income~~Operations	F-6-F-7
Consolidated Statements of ~~Changes in~~Comprehensive Income	F-8
Consolidated Statements of Equity	~~F-8~~F-9
Consolidated Statements of Cash Flows	~~F-9-F-10~~F-10-F-11
Notes to Consolidated Financial Statements	~~F-11-F-67~~F-12-F-66

~~Consolidated Financial Statements of FAvS~~

~~Index to Financial Statements~~	~~FAvS-2~~
~~Reports of Independent Registered Public Accounting Firm~~	~~FAvS-3~~
~~Consolidated Balance Sheets~~	~~FAvS-4~~
~~Consolidated Statements of Operations~~	~~FAvS-5~~
~~Consolidated Statements of Stockholders’ Equity and Comprehensive income (Loss)~~	~~FAvS-6~~
~~Consolidated Statements of Cash Flows~~	~~FAvS-7~~
~~Notes to Consolidated Financial Statements~~	~~FAvS-8 – FAvS-23~~

	TAT TECHNOLOGIES LTD.

	By:	/s/ Yaron Shalem
		Yaron Shalem
		Chief Financial Officer (Principal Accounting Officer)

	Page

Report of Independent Registered Public Accounting Firm	F-3

Consolidated Balance Sheets	F-4-F-5

Consolidated Statements of ~~Income (Loss)~~Operations	F-6- F-7

Consolidated Statements of ~~Changes in~~Comprehensive Income	F-8

Consolidated Statements of Equity	~~F-8~~F-9

Consolidated Statements of Cash Flows	~~F-9-F-10~~F-10-F-11

Notes to Consolidated Financial Statements	~~F-11 – F-67~~F-12-F-66

Tel-Aviv, Israel	/s/ Kesselman & Kesselman
April ~~22, 2012~~ 25, 2013	Certified Public Accountants ~~(Isr.~~(lsr.)
	A member firm of PricewaterhouseCoopers International Limited

	TAT Technologies Ltd. Shareholders
									Accumulated
	Share capital					Additional			other									Non
	Number					Paid-in			comprehensive			Treasury			Retained			Controlling			Total
	of Shares			Amount		capital			income (loss)			Shares			earnings			interest			equity

BALANCE AT JANUARY 1, 2009		6,552,671		$	2,204	$	39,476		$	(763	)	$	-		$	35,160		$	28,700		$	104,777
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2009:
Net income		-			-		-			-			-			1,753			347			2,100
Other comprehensive income (loss):
Foreign currency translation		-			-		-			(293	)		-			-			(20	)		(313	)
Reclassification adjustment on marketable securities		-			-		-			112			-			-			35			147
Total comprehensive income																						1,934
Purchase of treasury shares		(258,040	)		-		-			-			(2,018	)		-			-			(2,018	)
Share based compensation expense		-			-		829			-			-			-			138			967
Cash dividends		-			-		-			-			-			(6,265	)		-			(6,265	)
Dividend paid to non- controlling interest		-			-		-			-			-			-			(1,266	)		(1,266	)
Issuance of shares to non- controlling interest (see note 3(a) (1)		2,520,372			586		24,085			-			-			-			(25,194	)		(523	)
BALANCE AT DECEMBER 31, 2009		8,815,003			2,790		64,390			(944	)		(2,018	)		30,648			2,740			97,606
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2010:
Net income (loss)		-			-		-			-			-			(7,386	)		123			(7,263	)
Other comprehensive income:
Foreign currency translation		-			-		-			522			-			-			186			708
Reclassification adjustment on marketable securities		-			-		-			8			-			-			3			11
Total comprehensive loss																						(6,544	)
Share based compensation expense		-			-		49			-			-			-			-			49
BALANCE AT DECEMBER 31, 2010		8,815,003			2,790		64,439			(414	)		(2,018	)		23,262			3,052			91,111
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2011:
Net loss		-			-		-			-			-			(1,030	)		(53	)		(1,083	)
Other comprehensive loss:
Foreign currency translation		-			-		-			(614	)		-			-			(205	)		(819	)
Reclassification adjustment on marketable securities		-			-		-			(8	)		-			-			(3	)		(11	)
Total comprehensive loss																						(1,913	)
Share based compensation income		-			-		(37	)		-			-			-			-			(37	)
BALANCE AT DECEMBER 31, 2011		8,815,003		$	2,790	$	64,402		$	(1,036	)	$	(2,018	)	$	22,232		$	2,791		$	89,161


(1)	Supplemental disclosure of cash flow information:
	Interest paid	$	247		$	245		$	219
	Income taxes paid	$	(1,213	)	$	(1,845	)	$	(1,683	)
	Income taxes refunds	$	2,145		$	2,480		$	2,036

(2)	Acquisition of FAvS:
	On December 4, 2009, the Company, through its subsidiary Piedmont, was issued shares of FAvS, representing 37% of FAvS' share capital, in return for Piedmont's propeller and parts businesses, (see also note 3(b)).
(3)	Merger with Limco-Piedmont:
	On July 2009, TAT completed a merger with Limco-Piedmont. As part of the merger, TAT acquired the entire remaining shares of Limco-Piedmont held by Limco-Piedmont's public shareholders in exchange for 2,520,372 newly issued shares of TAT (see also note 3(a)(1)).


Supplemental disclosure of cash flow information:
Interest paid	$	(255	)	$	(247	)	$	(245	)
Income taxes paid	$	(836	)	$	(1,213	)	$	(1,845	)
Income taxes refunds	$	978		$	2,145		$	2,480

	Year ended December 31, 2011																				Year ended December 31, 2012
	OEM of Heat Management Solutions			OEM - Electric Motion Systems			Heat Transfer Services and Products		MRO services for Aviation Components			Amounts not allocated to segments			Elimination from inter companies sale			Consolidated			OEM of Heat Management Solutions			OEM - Electric Motion Systems			Heat Transfer Services and Products		MRO services for Aviation Components			Amounts not allocated to segments			Elimination from inter companies sale			Consolidated

Revenues
Sale of products and services	$	25,993		$	11,658		$	27,600	$	20,146		$	-		$	-		$	85,397		$	27,944		$	10,007		$	27,529	$	22,442		$	-		$	-		$	87,922
Intersegment revenues		4,027			-			3		-			-			(4,030	)		-			3,088			-			180		-			-			(3,268	)		-
Total revenues		30,020			11,658			27,603		20,146			-			(4,030	)		85,397			31,032			10,007			27,709		22,442			-			(3,268	)		87,922

Cost of revenues		22,660			9,388			20,173		17,882			-			(3,884	)		66,219			23,105			8,043			19,671		19,044			-			(3,281	)		66,582
Write down of inventory and impairment charges of long lived assets		-			298			-		5,465			-			-			5,763
Gross profit		7,360			1,972			7,430		(3,201	)		-			(146	)		13,415			7,927			1,964			8,038		3,398			-			13			21,340

Research and development expenses		455			331			-		-			-			-			786			581			157			414		-			-			-			1,152
Selling and marketing expenses		1,203			619			1,026		591			-			-			3,439			1,476			527			1,049		374			-			-			3,426
General and administrative expenses		3,787			1,501			2,574		2,029			1,058			-			10,949			3,530			1,377			3,270		3,310			-			-			11,487
Impairment of goodwill																						-			1,015			-		-			-			-			1,015
Other expense (income)		(190	)		21			-		-			-			-			(169	)		(13	)		22			-		-			-			-			9
Operating income (loss)		2,105			(500	)		3,830		(5,821	)		(1,058	)		(146	)		(1,590	)		2,353			(1,134	)		3,305		(286	)		-			13			4,251

Financial expense, net		-			-			-		-			(380	)		-			(380	)		-			-			-		-			(181	)		-			(181	)
Loss before income taxes																		$	(1,970	)
Income before taxes on income																																						$	4,070

	Year ended December 31, 2010																		Year ended December 31, 2011
	OEM of Heat Management Solutions		OEM - Electric Motion Systems		Heat Transfer Services and Products		MRO services for Aviation Components			Amounts not allocated to segments			Elimination from inter companies sale			Consolidated			OEM of Heat Management Solutions			OEM - Electric Motion Systems			Heat Transfer Services and Products		MRO services for Aviation Components			Amounts not allocated to segments			Elimination from inter companies sale			Consolidated

Revenues
Sale of products and services	$	26,012	$	13,046	$	24,365	$	16,332		$	-		$	-		$	79,755		$	25,993		$	11,658		$	27,600	$	20,146		$	-		$	-		$	85,397
Intersegment revenues		3,639		-		104		-			-			(3,743	)		-			4,027			-			3		-			-			(4,030	)		-
Total revenues		29,651		13,046		24,469		16,332			-			(3,743	)		79,755			30,020			11,658			27,603		20,146			-			(4,030	)		85,397

Cost of revenues		22,425		10,092		18,005		14,631			-			(3,965	)		61,188			22,660			9,388			20,173		17,882			-			(3,884	)		66,219
Write down of inventory		-		-		-		3,500			-			-			3,500
Write down of inventory and impairment charges of long lived assets																				-			298			-		5,465			-			-			5,763
Gross profit		7,226		2,954		6,464		(1,799	)		-			222			15,067			7,360			1,972			7,430		(3,201	)		-			(146	)		13,415

Research and development expenses		274		377		-		-			-			-			651			455			331			-		-			-			-			786
Selling and marketing expenses		1,186		526		1,014		749			-			-			3,475			1,203			619			1,026		591			-			-			3,439
General and administrative expenses		3,598		1,572		2,049		4,413			1,200			-			12,832			3,787			1,501			3,035		2,626			-			-			10,949
Impairment of goodwill and intangible assets		-		-		456		4,248			-			-			4,704
Other expense (income)																				(190	)		21			-		-			-			-			(169	)
Operating income (loss)		2,168		479		2,945		(11,209	)		(1,200	)		222			(6,595	)		2,105			(500	)		3,369		(6,418	)		-			(146	)		(1,590	)

Financial expense, net		-		-		-		-			(111	)		-			(111	)		-			-			-		-			(380	)		-			(380	)
Other expenses		-		-		-		-			(200	)		-			(200	)
Loss before income taxes																$	(6,906	)
Loss before tax benefit																																				$	(1,970	)

	Year ended December 31, 2009
	OEM of Heat Management Solutions		OEM - Electric Motion Systems		Heat Transfer Services and Products			MRO services for Aviation Components			Parts (*)			Amounts not allocated to segments			Eliminaetion from inter companies sale			Consolidated

Revenues
Sale of products and services	$	24,090	$	11,321	$	16,835		$	24,788		$	6,057		$	-		$	-		$	83,091
Intersegment revenues		4,527		-		660			-			-			-			(5,187	)		-
Total revenues		28,617		11,321		17,495			24,788			6,057			-			(5,187	)		83,091

Cost of revenues		19,809		8,021		20,173			17,727			5,879			-			(4,714	)		66,895
Gross profit		8,808		3,300		(2,678	)		7,061			178			-			(473	)		16,196

Research and development expenses		408		272		-			-			-			-			-			680
Selling and marketing expenses		1,063		629		441			1,227			359			-			-			3,719
General and administrative expenses		3,767		1,176		2,417			3,779			516			3,324			-			14,979
Capital gain		-		-		-			(4,400	)		-			-			-			(4,400	)
Operating income (loss)		3,570		1,223		(5,536	)		6,455			(697	)		(3,324	)		(473	)		1,218

Financial income, net		-		-		-			-			-			149			-			149
Loss before income taxes																				$	1,367

	As of December 31, 2010
	OEM of Heat Management Solutions		OEM - Electric Motion Systems		Heat Transfer Services and Products		MRO services for Aviation Components		Amounts not allocated to segments		Consolidated

Assets	$	36,949	$	17,501	$	21,559	$	23,588	$	21,830	$	121,427
Depreciation and amortization		1,220		671		704		787		-		3,382
Expenditure for segment assets		739		826		625		896		-		3,086
Goodwill		-		1,156		-		-		-		1,156

	As of December 31, 2009
	OEM of Heat Management Solutions		OEM - Electric Motion Systems		Heat Transfer Services and Products		MRO services for Aviation Components		Amounts not allocated to segments		Consolidated

Assets	$	38,354	$	13,888	$	17,998	$	33,222	$	21,029	$	124,491
Depreciation and amortization		1,050		507		756		657		-		2,970
Expenditure for segment assets		846		960		563		2,489		-		4,858
Goodwill		-		1,055		456		3,800		-		5,311

	Warranty provision			Inventory Reserve			Allowance for Doubtful Accounts			Warranty provision			Inventory Reserve			Allowance for Doubtful Accounts

Balance, as of January 1, 2009	$	699		$	2,036		$	154

Additions		71			273			2,394
Write-offs, net of recoveries		(369	)		-			(188	)

Balance, as of December 31, 2009		401			2,309			2,360
Balance, as of January 1, 2010										$	401		$	2,309		$	2,360

Additions		-			3,500			291			112			3,997			259
Write-offs, net of recoveries		(60	)		(1,093	)		(232	)		(172	)		(1,590	)		(200	)

Balance, as of December 31, 2010		341			4,716			2,419			341			4,716			2,419

Additions		-			2,717			31			169			2,717			31
Write-offs, net of recoveries		(53	)		(844	)		(2,260	)		(222	)		(844	)		(2,260	)

Balance, as of December 31, 2011	$	288		$	6,589		$	190			288			6,589			190

Additions											196			649			258
Write-offs, net of recoveries											(208	)		(669	)		(72	)

Balance, as of December 31, 2012										$	276		$	6,569		$	376

~~Report of Independent Registered Public Accounting Firm~~		3

~~Consolidated Financial Statements:~~

	~~Consolidated Balance Sheets~~	4

	~~Consolidated Statements of Operations~~	5

	~~Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)~~	6

	~~Consolidated Statements of Cash Flows~~	7

	~~Notes to Consolidated Financial Statements~~	8

				Class A Common Stock				Class B Common Stock				Preferred Stock									Accum-ulated						Treasury Stock
	Compre-hensive Income (Loss)			Number of Shares		Amount		Number of Shares		Amount		Number of Shares	Amount		Additional Paid-in Capital			Deficit			Other Compre- hensive Income			Sub-Total			Number of Shares		Amount			Total

Balances at January 1, 2010				9,838,234		$	91	5,766,667		$	58	13,500	$	1,350	$	40,233		$	(17,296	)	$	390		$	24,826		1,482,394		$	(7,672	)	$	17,154

Shares issued to directors				101,139			-	-			-	-		-		(515	)		-			-			(515	)	(101,139	)		593			78
Other share-based compensation				17,485			-									(49	)		-			-			(49	)	(17,485	)		103			54
Preferred stock dividend				-			-	-			-	2,341		234		-			(234	)		-			-		-			-			-
Other comprehensive income	$	110		-			-	-			-	-		-		-			-			110			110		-			-			110
Net loss		(1,191	)	-			-	-			-	-		-		-			(1,191	)		-			(1,191	)	-			-			(1,191	)
	$	(1,081	)

Balances at December 31, 2010				9,956,858		$	91	5,766,667		$	58	15,841	$	1,584	$	39,669		$	(18,721	)	$	500		$	23,181		1,363,770		$	(6,976	)	$	16,205

Shares issued to directors				94,088			-	-			-	-		-		(693	)		-			-			(693	)	(94,088	)		768			75
Other share-based compensation				30,000			1	-			-	-		-		17			-			-			18		-			-			18
Preferred stock dividend				-			-	-			-	2,513		251		-			(251	)		-			-		-			-			-
Issuance of Common A				3,322,259			33	-			-	-		-		2,967			-			-			3,000		-			-			3,000
Other comprehensive loss	$	(67	)	-			-	-			-	-		-		-			-			(67	)		(67	)	-			-			(67	)
Net income		791		-			-	-			-	-		-		-			791			-			791		-			-			791
	$	724

Effect of l-for-20 reverse stock split				(12,731,211	)		-	(5,478,334	)		-	-		-		-			-			-			-		(1,208,031	)		-			-

Balances at December 31, 2011				671,994		$	125	288,333		$	58	18,354	$	1,835	$	41,960		$	(18,181	)	$	433		$	26,230		61,651		$	(6,208	)	$	20,022

	~~Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.~~

	~~Level 2 - Inputs to the valuation methodology include:~~

	•	~~quoted prices for similar assets or liabilities in active markets;~~
	•	~~quoted prices for identical or similar assets or liabilities in inactive markets;~~
	•	~~inputs other than quoted prices that are observable for the asset or liability;~~
	•	~~inputs that are derived principally from or corroborated by observable market data by correlation or other means.~~

	~~If the asset or liability has a specified contractual term, the Level 2 input must be observable for substantially the full term of the asset or liability.~~

	~~Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.~~

Plant and equipment consist of the following:

	2011			2010

Machinery and equipment	$	3,454		$	3,099
Buildings and leasehold improvements		1,414			1,667
Computer equipment, software, office furniture, fixtures, vehicles, and other office equipment		7,577			7,341
Construction-in-process		21			14
		12,466			12,121
Less: accumulated depreciation		(10,636	)		(9,654	)
	$	1,830		$	2,467

	2011		2010

Revolving line of credit	$	16,985	$	22,257
Term loan		5,800		6,400
		22,785	$	28,657

	2011					2010
	Number of Shares			Grant Date Fair Value		Number of Shares			Grant Date Fair Value

Outstanding (nonvested) at beginning of year		-		$	-		485		$	43.20
Granted		3,000			8.60
Vested		(1,500	)		8.60		(485	)	$	43.20
Outstanding (nonvested) at end of year		1,500		$	8.60		-		$	43.20

	2011	2010

Expected dividend yield	No		0.0	%
Average risk-free interest rate	options		1.5	%
Expected volatility	issued		33.0	%
Expected life of option	in	5 years
Weighted average fair value of options granted during the year	2011	$	.06

	-	entitled to receive dividends payable in cash quarterly at 12% per annum on the Liquidation Preference amount, as defined. If payment is not made in cash, the dividend shall be increased to 15% per annum and considered payable on the Quarterly Dividend Payment Date, as defined, by the automatic issuance of preferred stock based on the Liquidation Preference amount, as defined.

	-	entitled to be paid, prior to payment or distribution to any other stockholders, $100 per share plus any accrued or accumulated but unpaid dividends, referred to as the Liquidation Preference amount, upon a liquidation event of the Company, as defined.

	2011			2010

Provision (benefit) at federal statutory rate		34.0	%		(34.0	)%
State, net of federal		11.5			-
Other		6.3			7.9
Deferred tax valuation allowance		(32.0	)		27.4
		19.8	%		1.3	%

	2011			2010
Deferred tax assets:
Bad debt	$	166		$	209
Inventory reserve		1,233			1,023
Amortization of tax goodwill		(206	)		30
Net operating loss carryforwards		8,520			9,674
Other		845			500
		10,558			11,436
Valuation allowance		(10,558	)		(11,436	)
Net deferred income tax assets	$	-		$	-

	2011		2010

Denominator for basic net income (loss) per share – weighted average shares		874,644		783,710
Effect of dilutive employee stock options		705		-

Denominator for net income (loss) per share – assuming dilution – adjusted weighted average shares		875,349		783,710