Future sales of TAT’s ~~Ordinary~~ordinary shares;

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

Stock market price and volume 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~~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~~ordinary shares by TAT’s principal shareholders may depress TAT’s share price.

TAT’s principal shareholders, FIMI Israel Opportunity FIVE, Limited Partnership and FIMI Opportunity V, L.P., or the FIMI Funds, beneficially own together 53.7% of TAT’s outstanding shares. If FIMI shall sell a substantial number of TAT’s ~~Ordinary~~ordinary shares or if the perception that TAT’s principal shareholders may sell a substantial number of TAT’s ~~Ordinary~~ordinary shares exists, the market price of TAT’s ~~Ordinary~~ordinary shares may fall. Any substantial sales of TAT’s shares 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.

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 the state 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. 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 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.

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, are 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 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.

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~~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.

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.

~~Item 4. Info~~rm~~ation on the Company~~

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. 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 then 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~~ordinary shares was transferred to the NASDAQ Capital Market. On June 24, 2009 TAT’s ~~Ordinary~~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 (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 its 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 of 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 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 $9.2 million) 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 then 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 entities controlled by FIMI 2001 Ltd., or FIMI 2001, 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 2001 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.

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 owned 4,750,951 Ordinary shares, representing 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 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.

TAT believes that FAvS' share market value (FAvS' shares are quoted over the counter - OTC) does not reflect the actual 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, 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 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 subordinated Piedmont’s claims if the letter of credit is drawn upon to the obligations of FAvS to the lender. This guarantee was later 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 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 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.

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, 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. 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’s interest in FAvS was diluted to 30.6% (29.36% as of December 31, 2013). 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 would occur until June 30, 2012. Thereafter the debt amortized at the rate of $200,000 per month. Such 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.

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, TAT performed an impairment test of its investment in FAvS, with the assistance of a third party valuation. Based on the results of this test TAT 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 described 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 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.

On December 18, 2012 the court appointed permanent receivers on behalf of the two lenders mentioned above for the purpose of jointly realizing the liens granted to such lenders. On March 15, 2013 the receivers of TAT’s shares initiated a bid process for the sale of such shares. On August 7, 2013 the receivers informed TAT that a transaction for the sale of 4,732,351 Ordinary shares of TAT, constituting 53.8% of TAT’s outstanding Ordinary shares as of the date of the transaction, closed after receiving all required approvals and transfer of the agreed consideration by the FIMI Funds.

On February 18, 2014, we entered into an agreement to sell our entire interest in Bental, constituting 70% of Bental’s issued and outstanding share capital, to Bental Investments Agshah Ltd. (“Bental Investments”), for an aggregate consideration of $5 million. Following such transaction, Bental Investments will hold 100% of Bental’s outstanding share capital. Closing of the transaction is expected to take place within the next several weeks.

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~~three 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)~~(iii) 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~~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 actuatorsMRO services for ~~different applications for airborne and ground systems.~~

~~TAT’s activities in the field of Heat Transfer services and~~heat transfer products primarily relate to its subsidiary, Limco, and include the maintenance, repair and overhaul of heat transfer equipment and to a lesser extent, the OEM 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, the Civil Aviation Administration of Thailand (Thai), the Civil Aviation Administration of Indonesia and the Civil Aviation Administration of Brazil.

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 29.36%.

FAvS, together with its subsidiaries, offers maintenance, repair and overhaul services through two Federal Aviation Administration authorized facilities. Customers of FAvS include passenger and cargo airlines, general aviation, and military operators.

OEM of Heat Management Solutions

TAT is an OEM of ~~Heat~~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~~comprehensive 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 systems. 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 Aircraft Company, or Boeing, Israel 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.

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), and 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.~~pumps. 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 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, 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.

Heat Transfer Services and Products

Through its subsidiary, Limco, TAT provides ~~Heat Transfer~~ services and products to the aerospace ~~industry.~~industry in the field of heat transfer. 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, the Civil Aviation Administration of Thailand (Thai), the Civil Aviation Administration of Indonesia and the Civil Aviation Administration of Brazil. Limco specializes in MRO services for components of aircraft, such as heat transfer products and ~~Ozone Converters.~~ozone converters. 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~~heat exchangers typically require MRO services, including repairs and installation of replacement units, after three to five 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 five years or more.

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Limco is recognized 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 many 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 in commercial, regional, business and military aircraft, ~~complete environmental control systems and cooling systems for electronics.~~on the OEM basis. Customers for Limco’s heat transfer products include the U.S. Army, Air Force and Navy, Raytheon, Boeing, Bell Helicopter, Vought Aircraft, Enstrom Helicopter, Cobham 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.~~centers and to a lesser extent the military, primarily for landing gear and auxiliary power units (APU). 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 include 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.

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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:

Enhancing OEM Capabilities — TAT’s goal through Gedera and Limco is to capitalize on its technical expertise, experience and reputation in the markets of heat management solutions, 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.

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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 Asia, South America, East Europe and Africa, which are fast growing markets where TAT has had limited sales to date.

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.

Organic growth and M&A — In addition to growing the existing businesses of Gedera and Limco, 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 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 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 ~~pre-coolers, 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 used 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 heat transfer products include ~~air-to-air~~ heat exchangers and ~~pre-coolers and liquid-to-air heat exchangers.~~cold parts. Typically, ~~the~~ air-to-air heat exchangers ~~and pre-coolers~~ cool a jet engine’s ~~hot “bleed air”~~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~~others used in other systems.

Gedera provides one stop shop 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 pre-coolers~~ 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 other heat ~~dissipation~~transfer equipment, such as ~~evaporators, cold plates,~~ cooling ~~chests,~~chassis, heat sinks and cold 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~~Such products are currently utilized mainly in radar systems, avionics, electronic warfare systems and various pods for targeting, navigation and night vision.

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.

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,~~components such as valves and ~~pumps, secondary power systems, various instrumentation and electronic assemblies.~~pumps. 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.

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~~power electronics cooling systems based on customer specifications, while providing a complete engineering solution in compliance with strict military and civil aviation 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.~~standards.

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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~~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. ~~Heat transfer~~These 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 including oil coolers, pre-coolers, re-heaters, condensers, water separators, fuel heaters 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, Liebherr-Aerospace, 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 perform its MRO services for ~~Heat Transfer~~heat transfer products. In addition, Limco benefits from Gedera’s varying engineering and development capabilities relevant to Limco’s ~~Heat Transfer services.~~services in the field of heat transfer.

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 Thailand (Thai), the Civil Aviation Administration of Indonesia and the Civil Aviation Administration of Brazil, to provide MRO services. Limco’s Oklahoma facilities provided MRO services for heat transfer 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 similar to those provided to new units.

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.

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,~~precoolers, reheaters, 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.~~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. 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 in providing MRO services for landing gear for regional aircraft manufactured by Bombardier Canadair Regional Jet (CRJ 100/200), ATR ~~British Aerospace Jet Stream~~(42/72), Embraer (E170) 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.

Machining, Plating and Grinding, or MPG Services

Piedmont extended the provision of MPG services, either as supplementary to its traditional MRO services or as stand-alone services. Piedmont believes that establishing and maintaining relationships with customers to its MPG shop is an important factor in achieving sustainable success as an independent MRO service provider and creates a competitive advantage.

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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 Aircraft Company, Airbus, Cessna Aircraft Company, Bombardier, Cirrus Aircraft Inc., Pilatus Aircraft Ltd., Embraer, Bell Helicopter, Lockheed Martin.
System manufacturers/integrators and Defense Contractors	Liebherr-Aerospace, Thales, ~~Electron Devices,~~ Honeywell International, Rafael, Elbit, IAI, Lockheed, ~~Aeronautics, 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.

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MRO Customers

TAT services approximately 200 MRO customers, primarily through Limco and Piedmont, including major U.S. domestic and international airlines, air cargo carriers, maintenance service centers, the U.S. military and navy and other military air forces. In this capacity, 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	Singapore Airlines, Air France-KLM, SAS, Swiss, EL AL, Delta, United, US Airways, Air Canada Jazz, ~~Air Wisconsin,~~Republic Airways, Expressjet, DHL, Austrian Airlines, TAM, Saudia, Interjet, Thai, Korean Air, Air India, FedEx and Cargolux.
Maintenance Service Centers	Fokker, Honeywell International, Kellstrom Commercial, Aerokool, Lufthansa Technik, UTAS-Hamilton, SR Technics, Evergreen Aviation Component ~~Services.~~ Services, Gulfstream.
Government and Air forces	U.S. Army, Air Force and Navy; Israeli Air force; NATO Air-forces

Due to the long term relationships of TAT with many of its customers, their relative financial stability and their 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.

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Military Contracts

Sales to the U.S. and Israeli governments accounted for approximately ~~3.6%~~6.4% and ~~0.6%~~0.3% of TAT’s revenues for the year ended December 31, 2014, approximately 3.6% and 0.6% of its revenues for the year ended December 31, 2013 and approximately 4.1% and 0.5% of its revenues for the year ended December 31, 2012, ~~and approximately 5.4% and 1.2% of its revenues for the year ended December 31, 2011,~~ 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 ~~2013~~2014 have resulted in no material cost recovery disallowances for TAT.

The eligibility of TAT to perform under its government contracts requires TAT to maintain adequate security measures. TAT has implemented security procedures that it believes adequately satisfies the requirements of its current government contracts.

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Sales and Marketing

Gedera

Gedera derives its revenues mainly from sales to customers in the United States, Israel and Europe. The tables below ~~tables~~ detail Gedera’s (i) geographic revenues; and (ii) revenues derived from commercial and defense customers, for the years ended December 31, ~~2013~~2014 and ~~2012,~~2013, before elimination of intercompany sales of ~~$4.0~~$5.6 million and ~~$3.0~~$4.0 million, respectively.

	Year Ended December 31,										Year Ended December 31,
	2013					2012					2014					2013
Geographic Region	Revenues In Thousands		Percentage			Revenues In Thousands		Percentage			Revenues In Thousands		Percentage			Revenues In Thousands		Percentage
North America	$	14,679		47.1	%	$	11,064		35.7	%	$	15,479		54.9	%	$	14,679		47.1	%
Europe		2,302		7.4			1,966		6.3			2,257		8.0			2,302		7.4
France		5,482		17.6			4,604		14.8			3,642		12.9			5,482		17.6
Israel		6,359		20.4			9,326		30.1			5,035		17.9			6,359		20.4
Other		2,316		7.4			4,072		13.1			1,771		6.3			2,316		7.4
Total	$	31,138		100	%	$	31,032		100	%	$	28,184		100	%	$	31,138		100	%

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;

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.

~~116~~112

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.

Retroactively indemnify an office holder of the company.

~~117~~113

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.

Pursuant to our articles of association, the total amount of indemnification that we will pay (in addition to amounts received from an insurance company, if any) to all officers of the company, in aggregate, shall not exceed, in all circumstances, more than 25% of the company's shareholders equity as set forth in the company's recent consolidated financial statements prior to the date that the indemnity is paid. 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 has been renewed several times through July 14, ~~2014~~2015 (see below).

In November 2013, 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 25% of our equity capital (net worth).

~~118~~114

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 September 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 (runoff) policy insuring the former directors and officers of Limco-Piedmont. The policy will be in effect for 7 years, until July 2, 2016. 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 2013 our board of directors 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 (renewed under the same terms for additional 5 months, ending on July 14, ~~2014,~~2015, with a total premium of approximately $63,000).

The 2013 Annual and Extraordinary General Meeting of shareholders of TAT was held on November 14, 2013. 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 the form of indemnification and exemption undertaking by the Company to its directors and officers. Those two aforementioned decisions were approved in such general meeting.

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 the FIMI Funds beneficially own more than 50% of our voting shares.

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.

~~119~~

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

115

C. Employees

As of December 31, ~~2013,~~2014, we and our subsidiaries employed ~~478~~507 employees, ~~(excluding Bental’s employees),~~ of whom ~~392~~422 were employed in manufacturing and quality control, 30 were employed in engineering and research and development and 5655 were employed in administration, sales and marketing. Of such employees, ~~202~~208 were located in Israel and ~~276~~299 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.

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%.

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 or her 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~~or her wage and the employer contributes an additional amount of approximately 13-1/3% - 16% of such ~~wages.~~wage.

~~120~~116

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.

Stock Option Plans

In November 2011, our audit committee and board of directors approved ~~the 2012~~a stock option plan (the ~~“2012 Plan”~~“Plan”), which was subsequently approved by the Company’s shareholders, on June 28, 2012. According to the ~~2012~~ 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~~may be granted to certain members of our board of directors and certain senior executives in TAT, Limco and Piedmont, at an exercise price not less than the fair market value of ~~$6.5 per share.~~ the shares covered by the option on the date of grant .

The Options vest over a three-year period (one-third each ~~year with the first one-third vesting on June 28, 2013)~~year), 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 ~~2012~~ Plan, TAT’s Board of Directors approved the grant of 330,000 Options, at an exercise price of $6.5 per share, which were granted on October 4, 2012 (out of which 178,333 options were forfeited through December 31, ~~2013)~~2014).

On March 19, 2014, pursuant to the ~~2012~~ Plan, TAT’s Board of Directors approved the grant of 195,000 Options, at an exercise price of $8.79 per share, which were granted on June 23, 2014 (out of which 40,000 options were forfeited through December 31, 2014).

On November 30, 2014, pursuant to ~~senior executives.~~the Plan, TAT’s Board of Directors approved the grant of 20,000 Options, at an exercise price of $7.34 per share, which were granted on November 30, 2014.

117

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

A. Major Shareholders

FIMI Opportunity V, L.P. and FIMI Israel Opportunity FIVE, Limited Partnership, or the FIMI Funds, are the beneficial holders of ~~53.8%~~53.7% of TAT’s ~~Ordinary~~ordinary shares (4,732,351 shares). 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~~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~~ordinary shares.

~~121~~

The following table sets forth certain information as of February ~~28, 2014,~~12, 2015, regarding the beneficial ownership by all shareholders known to us to own beneficially 5% or more of our ~~Ordinary~~ordinary shares:

��

Name	Number of Ordinary Shares Beneficially Owned(1)		Percentage of Ownership(2)
FIMI Funds (3)		4,732,351		53.7	%
Leap-Tide Capital Management Inc.		522,607		5.9	%

________________________

~~________________________~~

(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.

(2)

The percentages shown are based on ~~8,805,236 Ordinary~~8,808,344 ordinary shares issued and outstanding as of February ~~28, 2014~~12, 2015 (net of 274,473 dormant shares).

(3)

Based on a Schedule 13D filed on August 14, 2013, FIMI Opportunity V, L.P., FIMI Israel Opportunity Five, Limited Partnership (together, the "FIMI Funds"), FIMI FIVE 2012 Ltd., Shira and Ishay Davidi Management Ltd. and Mr. Ishay Davidi share voting and dispositive power with respect to the 4,732,351 ~~Ordinary~~ordinary shares held by the FIMI Funds. FIMI FIVE 2012 Ltd. is the managing general partner of the FIMI Funds. Shira and Ishay Davidi Management Ltd. controls FIMI FIVE 2012 Ltd. Mr. Ishay Davidi controls Shira and Ishay Davidi Management Ltd. and is the Chief Executive Officer of all the entities listed above. The principal business address of each of the above entities and of Mr. Davidi is c/o FIMI FIVE 2012 Ltd., Electra Tower, 98 Yigal Alon St., Tel-Aviv 67891, Israel.

~~122~~118

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 Israeli Companies Law.

On May 21, 2012, TAT’s Board of Directors authorized a share 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. 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 $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 then controlling shareholders, KMN Industries and TAT Industries, filed separate petitions to the court to enforce liens granted to such lenders by each of the controlling shareholders in certain collateral including KMN Industries’ holdings of an approximately 80% ownership interest in TAT Industries (which in turn owned approximately 43% of TAT's outstanding share capital) and KMN Industries’ direct holdings in TAT (which represented approximately 10% of TAT's outstanding share capital).

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. On March 15, 2013 the receivers of TAT’s shares announced a tender process for the sale of such shares.

~~123~~

On August 7, 2013 the receivers informed TAT that the FIMI Funds acquired 4,732,351 ~~Ordinary~~ordinary shares of TAT constituting 53.8% of TAT’s outstanding share capital as of the transaction date, after receiving all required court approvals and the transfer of the consideration by the FIMI Funds to the receivers.

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 March ~~2, 2014,~~9, 2015, there were 4341 holders of record of our ~~Ordinary~~ordinary shares, of which 3738 record holders holding less than 1.0% of our ~~Ordinary~~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~~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~~ordinary shares as of such date.

119

B. Related Party Transactions

Management and Services Agreement with TAT Industries

In February 2000, TAT entered into an agreement with TAT Industries, TAT’s then 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 the 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. Until January 31, 2014, following the sale of TAT’s shares to FIMI, TAT Industries paid TAT $50,000 per year for administrative, accounting and secretarial services ~~provided by~~revaluated TAT to TAT Industries. On January 31, 2014 the services agreement between TAT and TAT Industries was terminated, effective as of such date.

~~124~~

In addition, pursuant to the terms of the agreement, TAT sub-leases from TAT Industries approximately 301,000 square foot of the Gedera facility until the end of the respective lease agreements TAT Industries has with the Israel Land Authority (see also under Item 4. Information on the Company, C. Property, Plants and Equipment) 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. In 2015 the rental fee was revaluated by a real estate appraiser, and as a result was increased to $656,000 per year with an additional incremental payment of 2% per year. Total rental payment TAT paid to TAT Industries during 2014 and 2013 were $432,000 and ~~2012 were~~ $424,000, ~~and $416,000,~~ respectively. See item 4.C "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. The re-approval of the terms of the sub-lease upon the revaluation to be conducted by an appraiser on 2015 shall not require the approval of our audit committee as TAT Industries is no longer considered a related party.

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 then controlling shareholder, to such third parties. As of December 31, 2013 TAT Industries does not have any outstanding debt to TAT.

120

Through November 2013, TAT Industries and TAT reported to the Value Added Tax Authorities on a consolidated basis.

Management Agreement with ISAL

In March 2012, the audit committee and the board of directors of TAT approved a new three-year management agreement with Isal Amlat, commencing as of February 8, 2012 (the "New Management Agreement"). Each of TAT and Isal Amlat were 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 paid Isal Amlat management fees in a total annual amount of NIS1,500,000 linked to the Consumers Price Index payable on a monthly basis, plus VAT. In addition, Isal Amlat was entitled to repayment of expenses actually borne as part of providing the management services. 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 were reduced and the annual management fees were also reduced by a total amount of NIS570,000, following such a reduction such annual management fee was NIS 930,000.

~~125~~

In addition, the Company received management services from a private company controlled by Mr. Nathan Galili (“Galili”), CEO of KNM Industries Ltd. (a private company through which Isal Amlat indirectly held control in the Company). The management services consisted of a half-time position of Galili, which value is more than the reduced amount, and additionally included his services as active chairman of Bental. For those services the Company paid the management company annual management fees equal to the 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 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 1~~st ~~million above the low threshold, the Company will receive for its holding in Bental, plus~~

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

~~Additional 5% out of the 3~~rd ~~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, and that TAT decided to immediately terminate the Management Agreement. At that date TAT ceased paying management fees.

121

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

~~126~~

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”) included our former parent company, TAT Industries, through October 20, 2013. TAT Industries bore $7,500 out of the total $112,000 annual premium with respect to the insurance.

~~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. Such management fees were paid until June 30, 2013, following which the extent of such services reduced significantly together with the intent of the Company to sell its entire interest in Bental.

~~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. On September 8, 2013 Bental repaid the loan to the bank, and TAT repaid the loan amount to Bental.

Other Relationships

Mr. Itsik Maaravi, TAT’s Chief Executive Officer and Mr. Yaron Shalem, former TAT’s Chief Financial Officer, also served in the same positions in TAT Industries, until January 6, 2014 and December 1, 2013, respectively.

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

C. Interests of Experts and Counsel

Not applicable.

~~127~~

Item ~~8. Financ~~8~~ial~~. Financial Information

A. Consolidated Statements and Other Financial Information

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

122

Legal Proceedings

On November 29, 2011, a factoring company ("the plaintiff"), filed a claim with the magistrates court in 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 thousand). 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 plaintiff and the Company ishave reached a settlement agreement pursuant to which the court proceedings against the Company and Bental would be terminated and the court shall not award payment of ~~the opinion that its exposure due~~legal expenses to the ~~claim filed is not probable to be materialized and thus no provision was recorded in regard of that claim of December 31, 2013.~~Company. The court confirmed such settlement agreement on March 9, 2015.

Dividend Distribution Policy

On May 7, 2014, TAT distributed a cash dividend in an aggregate amount of $2 million to its shareholders. 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

On February 18, 2014, we entered into an agreement to sell our entire interest in Bental, constituting 70% of Bental’s issued and outstanding share capital, to Bental Investments Agshah Ltd. (“Bental Investments”), for an aggregate consideration of $5 million. ~~Following such transaction, Bental Investments will hold 100% of Bental’s outstanding share capital.~~ Closing of the transaction ~~is expected to take~~took place ~~within~~on March 27, 2014 after receiving all required approvals for the ~~next several weeks.~~closing. Following such transaction, the Company does not hold any shares of Bental.

~~128~~123

On March 11, 2015, Piedmont Aviation Component Services, LLC , an indirect subsidiary of TAT, entered into an agreement to sell 237,932 shares of Class B Common Stock of FAvS representing 23.18% of FAvS' share capital and its entire holdings (16,253) of FAvS' Series A Preferred stock. The purchase price for the Class B Shares is $8.40 per Class B Shares, for an aggregate purchase price of $1,999, and the purchase price for the Series A Preferred stock is $100 per Preferred Share, for an aggregate purchase price of $1,625. The total gain from the sale of FAvS' stock is $1,395.

Item 9.9. The Offer and 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~~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		6.05		3.64		23.42		14.81
Fiscal Year Ended December 31, 2013		8.05		5.58		28.93		20.60		8.05		5.58		28.93		20.60
Fiscal Year Ended December 31, 2014										8.54		5.85		30.13		23.28

(1) On June 24, 2009 TAT’s ~~Ordinary~~ordinary shares began trading on the NASDAQ Global Market.

~~129~~124

Quarterly Stock Information

The following table sets forth, for each of the full financial quarters in the two most recent full financial years and any subsequent period, the high and low sales prices of our ~~Ordinary~~ordinary shares on the NASDAQ Global Market and the TASE:

	NASDAQ Global Market				Tel Aviv Stock Exchange				NASDAQ Global Market				Tel Aviv Stock Exchange
	High		Low		High		Low
2012
First Quarter		4.58		4.12	NIS 17.50		NIS 15.31
Second Quarter		4.80		4.12		17.96		15.26
Third Quarter		4.47		3.64		17.15		14.84
Fourth Quarter		6.04		3.66		23.42		14.81
									High		Low		High		Low
2013
First Quarter		7.22		5.58	NIS 26.93		NIS 20.60			7.22		5.58	NIS 26.93		NIS 20.60
Second Quarter		7.06		6.01		25.82		22.02		7.06		6.01		25.82		22.02
Third Quarter		8.05		6.67		28.47		24.62		8.05		6.67		28.47		24.62
Fourth Quarter		8.05		7.40		28.93		25.49		8.05		7.40		28.93		25.49

2014
First Quarter(through March 17, 2014)		8.54		7.95	NIS 29.89		NIS 27.22
First Quarter										8.54		7.95	NIS 30.13		NIS 27.22
Second Quarter										8.39		7.47		29.63		24.87
Third Quarter										8.00		7.10		28.88		24.01
Fourth Quarter										7.47		5.85		27.78		23.28

2015
First Quarter(through March 15, 2015)										6.8		6.16	NIS 26.1		NIS 24.3

~~147~~

��

A corporation or other entity taxable as a corporation for U.S. federal income tax purposes created or organized in or under the laws of the United States, any State or the District of Columbia;

An estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

Any trust if (A)(i) a court within the United States is able to exercise primary supervision over the administration of the trust and (ii) one or more United States persons have the authority to control all substantial decisions of the trust, or (B) such trust validly elects to be treated as a United States person.

The term “Non-U.S. Holder” means a beneficial owner of an ~~Ordinary~~ordinary share that is an individual, corporation, estate or trust and is not a U.S. Holder. The tax consequences to a Non-U.S. Holder may differ substantially from the tax consequences to a U.S. Holder. Certain aspects of U.S. federal income tax relevant to a Non-U.S. Holder are discussed below.

140

This description is based on provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof, and the US-Israel Tax Treaty, each as in effect as of the date of this prospectus. These sources may change, possibly with retroactive effect, and are open to differing interpretations. This description does not discuss all aspects of U.S. federal income taxation that may be applicable to investors in light of their particular circumstances or to investors who are subject to special treatment under U.S. federal income tax law, including:

Insurance companies;

Dealers in stocks, securities or currencies;

Financial institutions and financial services entities;

Real estate investment trusts;

Regulated investment companies;

Persons that receive ~~Ordinary~~ordinary shares in connection with the performance of services;

Tax-exempt organizations;

Persons that hold ~~Ordinary~~ordinary shares as part of a straddle or appreciated financial position or as part of a hedging, conversion or other integrated instrument;

Persons who hold the ~~Ordinary~~ordinary shares through partnerships or other pass-through entities;

Individual retirement and other tax-deferred accounts;

Expatriates of the United States and certain former long-term residents of the United States;

Persons liable for the alternative minimum tax;

Persons having a “functional currency” other than the U.S. dollar; and

Direct, indirect or constructive owners of 10% or more, by voting power or value, of our company.

~~148~~

If a partnership or an entity treated as a partnership for U.S. federal income tax purposes owns ~~Ordinary~~ordinary shares, the U.S. federal income tax treatment of a partner in such a partnership will generally depend upon the status of the partner and the activities of the partnership. A partnership that owns ~~Ordinary~~ordinary shares and the partners in such partnership should consult their tax own advisors about the U.S. federal income tax consequences of holding and disposing of ~~Ordinary~~ordinary shares.

This discussion does not consider the possible application of U.S. federal gift or estate tax or alternative minimum tax.

All investors are urged to consult their own tax advisors as to the particular tax consequences to them of an investment in our ~~Ordinary~~ordinary shares, including the effect and applicability of United States federal, state, local and foreign income and other tax laws (including estate and gift tax laws) and tax treaties.

141

Distributions Paid on the Ordinary Shares

Subject to the discussion below under “Passive Foreign Investment Company Considerations,” a U.S. Holder generally will be required to include in his or her gross income as ordinary dividend income the amount of any distributions paid on the ~~Ordinary~~ordinary shares, including the amount of any Israeli taxes withheld, to the extent that those distributions are paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Subject to the discussion below under “Passive Foreign Investment Company Considerations,” distributions in excess of our earnings and profits will be applied against and will reduce the U.S. Holder’s tax basis in its ~~Ordinary~~ordinary shares and, to the extent they exceed that tax basis, will be treated as gain from a sale or exchange of those ~~Ordinary~~ordinary shares. Our dividends will not qualify for the dividends-received deduction applicable in some cases to U.S. corporations.

Dividends that we pay in NIS, including the amount of any Israeli taxes withheld therefrom, will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day such dividends are received, regardless of whether the payment is in fact converted into U.S. dollars. A U.S. Holder who receives payment in NIS and converts NIS into U.S. dollars at an exchange rate other than the rate in effect on such day will have a foreign currency exchange gain or loss that would be treated as ordinary income or loss. U.S. Holders should consult their own tax advisors concerning the U.S. tax consequences of acquiring, holding and disposing of NIS.

~~149~~

Subject to certain limitations, “qualified dividend income” received by a non-corporate U.S. Holder in tax years beginning on or before December 31, 2010 will be subject to tax at a reduced maximum tax rate of 15%. Distributions taxable as dividends paid on the ~~Ordinary~~ordinary shares should qualify for the 15% rate provided that we are not a passive foreign investment company (as described below) for U.S. tax purposes and that either: (i) we are entitled to benefits under the income tax treaty between the United States and Israel (the “U.S.-Israel Tax Treaty”) or (ii) the ~~Ordinary~~ordinary shares are readily tradable on an established securities market in the United States and certain other requirements are met. We believe that we are entitled to benefits under the U.S.-Israel Tax Treaty and that the ~~Ordinary~~ordinary shares currently will be readily tradable on an established securities market in the United States. However, no assurance can be given that the ~~Ordinary~~ordinary shares will remain readily tradable. The rate reduction does not apply unless certain holding period requirements are satisfied. With respect to the ~~Ordinary~~ordinary shares, the U.S. Holder must have held such shares for at least 61 days during the 121-day period beginning 60 days before the ex-dividend date. The rate reduction also does not apply to dividends received from passive foreign investment companies, see discussion below, or in respect of certain hedged positions or in certain other situations. The legislation enacting the reduced tax rate contains special rules for computing the foreign tax credit limitation of a taxpayer who receives dividends subject to the reduced tax rate. U.S. Holders of ~~Ordinary~~ordinary shares should consult their own tax advisors regarding the effect of these rules in their particular circumstances.

142

Subject to the discussion below under “Information Reporting and Back-up Withholding,” a Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on dividends received on ~~Ordinary~~ordinary shares unless that income is effectively connected with the conduct by that Non-U.S. Holder of a trade or business in the United States, in which case a corporate Non-U.S. Holder may also be subject to the U.S. branch profits tax.

Foreign Tax Credit

Any dividend income resulting from distributions we pay to a U.S. Holder with respect to the ~~Ordinary~~ordinary shares generally will be treated as foreign source income for U.S. foreign tax credit limitation purposes. Subject to certain conditions and limitations, Israeli tax withheld on dividends may be deducted from taxable income or credited against a U.S. Holder’s U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, any dividend that we distribute generally will constitute “passive category income,” or, in the case of certain U.S. Holders, “general category income.” The rules relating to the determination of foreign source income and the foreign tax credit are complex, and the availability of a foreign tax credit depends on numerous factors. Each investor who is a U.S. Holder should consult with its own tax advisor to determine whether its income with respect to the ~~Ordinary~~ordinary shares would be foreign source income and whether and to what extent that investor would be entitled to a foreign tax credit.

~~150~~143

Disposition of Ordinary Shares

Upon the sale or other disposition of ~~Ordinary~~ordinary shares, subject to the discussion below under “Passive Foreign Investment Company Considerations,” a U.S. Holder generally will recognize capital gain or loss equal to the difference between the amount realized on the disposition and the holder’s adjusted tax basis in the ~~Ordinary~~ordinary shares. U.S. Holders should consult their own advisors with respect to the tax consequences of the receipt of a currency other than U.S. dollars upon such sale or other disposition.

Gain or loss upon the disposition of the ~~Ordinary~~ordinary shares will be treated as long-term if, at the time of the sale or disposition, the ~~Ordinary~~ordinary shares were held for more than one year. The deductibility of capital losses by a U.S. Holder is subject to limitations. In general, any gain or loss recognized by a U.S. Holder on the sale or other disposition of ~~Ordinary~~ordinary shares will be U.S. source income or loss for U.S. foreign tax credit purposes. U.S. Holders should consult their own tax advisors concerning the source of income for U.S. foreign tax credit purposes and the effect of the U.S.-Israel Tax Treaty on the source of income.

that gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States, and, if a tax treaty applies, is attributable to a permanent establishment or fixed base of the Non-U.S. Holder in the United States; or

in the case of any gain realized by an individual Non-U.S. Holder, that holder is present in the United States for 183 days or more in the taxable year of the sale or exchange, and other conditions are met.

~~151~~144

Passive Foreign Investment Company Considerations

Special U.S. federal income tax rules apply to U.S. Holders owning shares of a passive foreign investment company. A non-U.S. corporation will be considered a passive foreign investment company for any taxable year in which, after applying certain look-through rules, 75% or more of its gross income consists of specified types of passive income, or 50% or more of the average value of its assets consists of assets that produce, or are held for the production of, passive income. For this purpose, passive income includes dividends, interest, royalties, rents, annuities and the excess of gains over losses from the disposition of assets which produce passive income.

If we were classified as a passive foreign investment company, a U.S. Holder could be subject to increased tax liability upon the sale or other disposition of ~~Ordinary~~ordinary shares or upon the receipt of amounts treated as “excess distributions.” Under these rules, the excess distribution and any gain would be allocated ratably over the U.S. Holder’s holding period for the ~~Ordinary~~ordinary shares, and the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which we were a passive foreign investment company would be taxed as ordinary income. The amount allocated to each of the other taxable years would be subject to tax at the highest marginal tax rate in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed on the resulting tax allocated to such other taxable years. The tax liability with respect to the amount allocated to years prior to the year of the disposition, or “excess distribution,” cannot be offset by any net operating losses. In addition, holders of stock in a passive foreign investment company may not receive a “step-up” in basis on shares acquired from a decedent. If we are a passive foreign investment company in any year, a U.S. Holder would be required to file an annual return on IRS Form 8621 regarding distributions received with respect to ~~Ordinary~~ordinary shares and any gain realized on the disposition of ~~Ordinary~~ordinary shares.

Based on our current and projected income, assets and activities, we do not believe that we will be a passive foreign investment company for our current taxable year. However, because the determination of whether we are a passive foreign investment company is based upon the composition of our income and assets from time to time, we cannot be certain that we will not be considered a passive foreign investment company for the current taxable year or any future taxable year.

145

The passive foreign investment company tax consequences described above will not apply to a U.S. Holder if the U.S. Holder makes an election to treat us as a qualified electing fund, or QEF. If a U.S. Holder makes a timely QEF election, the U.S. Holder would be required to include in income for each taxable year it’s pro rata share of our ordinary earnings as ordinary income and it’s pro rata share of our net capital gain as long-term capital gain, whether or not such amounts are actually distributed to the U.S. Holder. However, a U.S. Holder would not be eligible to make a QEF election unless we comply with certain applicable information reporting requirements. We will provide U.S. Holders with the information needed to report income and gain under a QEF election should we become a passive foreign investment company.

~~152~~

As an alternative to making a QEF election, a U.S. Holder of passive foreign investment company stock which is publicly traded may in certain circumstances avoid certain of the tax consequences generally applicable to holders of a passive foreign investment company by electing to mark the stock to market annually and recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the passive foreign investment company stock and the U.S. Holder’s adjusted tax basis in the passive foreign investment company stock. Losses would be allowed only to the extent of net mark-to-market gain previously included by the U.S. Holder under the election for prior taxable years. Income recognized and deductions allowed under the mark-to-market provisions, as well as any gain or loss on the disposition of ~~Ordinary~~ordinary shares with respect to which the mark to market election is made, are generally treated as ordinary income or loss (except that loss is treated as capital loss to the extent the loss exceeds the net mark-to-market gains, if any, that a U.S. Holder included in its income with respect to such ~~Ordinary~~ordinary shares in prior years). However, gain or loss from the disposition of ~~Ordinary~~ordinary shares (as to which a “mark-to-market” election was made) in a year in which we are no longer a passive foreign investment company, will be capital gain or loss. The mark-to-market election is available for so long as our ~~Ordinary~~ordinary shares constitute “marketable stock,” which includes stock of a passive foreign investment company that is “regularly traded” on a “qualified exchange or other market.” Generally, a “qualified exchange or other market” includes a national securities exchange that is registered with the Securities and Exchange Commission or the national market system established pursuant to Section 11A of the Securities Exchange Act of 1934. A class of stock that is traded on one or more qualified exchanges or other markets is “regularly traded” on an exchange or market for any calendar year during which that class of stock is traded, other than in the minimized quantities, on at least 15 days during each calendar quarter. We believe that The NASDAQ Global Market will constitute a qualified exchange or other market for this purpose. However, we cannot be certain that our ~~Ordinary~~ordinary shares will continue to trade on The NASDAQ Global Market or that the ~~Ordinary~~ordinary shares will be regularly traded for this purpose.

~~153~~146

The rules applicable to owning shares of a passive foreign investment company are complex, and each holder who is a U.S. Holder should consult with its own tax advisor regarding the consequences of investing in a passive foreign investment company.

Information Reporting and Backup Withholding

Payments in respect of ~~Ordinary~~ordinary shares may be subject to information reporting to the U.S. Internal Revenue Service and to U.S. backup withholding tax at a rate equal to the fourth lowest income tax rate applicable to individuals (which, under current law, is 28%). Backup withholding will not apply, however, if you (i) are a corporation or come within certain exempt categories, and demonstrate the fact when so required, or (ii) furnish a correct taxpayer identification number and make any other required certification. U.S. Holders who are required to establish their exempt status generally must provide such certification on IRS Form W-9.

Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a U.S. Holder’s U.S. tax liability, and a U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS.

Any U.S. holder who holds 10% or more in vote or value of our ~~Ordinary~~ordinary shares will be subject to certain additional United States information reporting requirements.

U.S. Gift and Estate Tax

An individual U.S. Holder of ~~Ordinary~~ordinary shares will generally be subject to U.S. gift and estate taxes with respect to ~~Ordinary~~ordinary shares in the same manner and to the same extent as with respect to other types of personal property.

~~F. Dividends and Paying Agents~~

~~Not applicable.~~

~~154~~147

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

We are subject to the reporting requirements of the United States Securities Exchange Act of 1934, as amended, as applicable to “foreign private issuers” as defined in Rule 3b-4 under the Exchange Act, and in accordance therewith, we file annual and interim reports and other information with the Securities and Exchange Commission.

As a foreign private issuer, we are exempt from certain provisions of the Exchange Act. Accordingly, our proxy solicitations are not subject to the disclosure and procedural requirements of Regulation 14A under the Exchange Act and transactions in our equity securities by our officers and directors are exempt from reporting and the “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. However, we make available on our website www.tat-technologies.com, our annual audited financial statements, which have been examined and reported on, with an opinion expressed by an independent public accounting firm, and we intend to file reports with the Securities and Exchange Commission on Form 6-K containing unaudited financial information for the first three quarters of each fiscal year.

This annual report on Form 20-F and the exhibits thereto and any other document we file pursuant to the Exchange Act may be inspected without charge and copied at prescribed rates at the following Securities and Exchange Commission public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549; and on the Securities and Exchange Commission Internet site (http://www.sec.gov) and on our website www.tat-technologies.com. You may obtain information on the operation of the Securities and Exchange Commission’s public reference room in Washington, D.C. by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Exchange Act file number for our Securities and Exchange Commission filings is 0-16050.

148

In addition, since August 16, 2005 we are also listed on the TASE. From such date we submit copies of all our filings with the SEC to the Israeli Securities Authority and TASE. Such copies can be retrieved electronically through the TASE internet messaging system (www.maya.tase.co.il) and, in addition, through the MAGNA distribution site of the Israeli Securities Authority (www.magna.isa.gov.il).

~~155~~

The documents concerning our company which are referred to in this annual report may also be inspected at our offices located at Re’em Industrial Park Neta, Boulevard Bnei Ayish, Gedera, Israel.

I. Subsidiary Information

Not applicable.

Item ~~11. Quanti~~11~~tative~~. Quantitative and Qualitative Disclosures about Market Risk

We do not own and have not issued any market risk sensitive instruments about which disclosure is required to be provided pursuant to this Item.

Effects of Changes in Interest Rates

We pay interest on our long-term loans facilities in accordance with the nature of each loan. For loans that bear Libor Rate, we pay interest at a rate per annum equal to up to 3.5% in excess of the Libor Rate. As a result, changes in the general level of interest rates directly affect the amount of interest payable by us under these facilities. As of December 31, ~~2013~~2014 we do not have any loans that bear fixed interest rate or linked to the Consumer Price Index (the “CPI”).

Effects of Currency Exchange Fluctuations

Our financial statements are stated in dollars, while a portion of our expenses, primarily labor expenses, is incurred in NIS and a part of our revenues are quoted in NIS. The company entered into Forward transactions in order to minimize its currency risk from expenses paid in NIS. Additionally, certain assets, as well as a portion of our liabilities, are denominated in NIS. As a result, our operations may be affected by fluctuations of the U.S. dollar/NIS exchange rate. In 2014, the NIS appreciated against the U.S. dollar by 12%, while in 2013 the NIS appreciated against the U.S. dollar by ~~7.0%, while in 2012 the NIS appreciated against the U.S. dollar by 2.3%~~7.5%. We estimate that a devaluation of 1% of the U.S. dollar against the NIS would result in a decrease of approximately ~~$150,000~~$152,000 in our operating income.

149

Item 12. Description of Securities Other than Equity Securities

Not Applicable.

~~156~~

PART II

Item 13. Defaults, ~~Divid~~end Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders

None.

Item 15. Controls and Procedures

~~Not applicable~~.

(a)

Disclosure Controls and Procedures

~~Item 15T. Controls and Procedures~~

~~Disclosure Controls and Procedures~~

��

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our chief executive officer and chief financial officer to allow timely decisions regarding required disclosure. Our management, including our chief executive officer and chief financial officer, conducted an evaluation of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e), as of the end of the period covered by this Annual Report on Form 20-F. Based upon that evaluation, our chief executive officer and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were effective.

~~Management's Annual Report on Internal Control over Financial Reporting~~

150

(b)

Management's Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

~~157~~

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, ~~2013.~~2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework ~~(1992)~~(2013). Based on that assessment, our management concluded that as of December 31, ~~2013,~~2014, our internal control over financial reporting is effective.

151

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial report. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

~~Changes in Internal Control over Financial Reporting~~

(d)

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal ~~controls~~control over financial reporting.

~~158~~

Item 16. ~~[Reserved]~~[Reserved]

Item 16A. Audit Committee Financial Expert

Our board of directors has determined that each member of our audit committee each of whom also qualifies as independent director, meets the definition of an audit committee financial expert, as defined by rules of the Securities and Exchange Commission. For a brief listing of the relevant experience of the member of our audit committee, see Item 6.A. “Directors, Senior Management and Employees — Directors and Senior Management.”

Item 16B. Code of Ethics

We have adopted a code of ethics that applies to our chief executive officer and all senior financial officers of our company, including the chief financial officer, chief accounting officer or controller, or persons performing similar functions. The code of ethics is publicly available on our website at www.tat-technologies.com . Written copies are available upon request. If we make any substantive amendment to the code of ethics or grant any waivers, including any implicit waiver, from a provision of the codes of ethics, we will disclose the nature of such amendment or waiver on our website.

152

Item 16C. Principal Accountant Fees and Services

Fees Paid to Independent Public Accountant

The following table sets forth, for each of the years indicated, the fees paid to our principal independent registered public accounting firm. All of such fees were pre-approved by our Audit Committee.

		Year Ended December 31,			Year Ended December 31,
Services Rendered		2013		2012	2014			2013
Audit (1)	$	210,000	$	257,000		$	193,000		$	210,000
Tax (2)		65,000		47,000			40,000			65,000
Total	$	275,000	$	304,000		$	233,000		$	275,000

(1)

Audit fees are for audit services for each of the years shown in the table, including fees associated with the annual audit and reviews of our quarterly financial results, consultations on various accounting issues and audit services provided in connection with other statutory or regulatory filings.

(2)

Tax fees relate to professional services rendered for tax compliance and tax advice. These services include assistance regarding international and Israeli taxation.

~~159~~

Pre-Approval Policies and Procedures

Our Audit Committee has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent registered public accounting firm Kesselman & Kesselman, a member of PricewaterhouseCoopers International Ltd. Pre-approval of an audit or non-audit service may be given as a general pre-approval, as part of the audit committee’s approval of the scope of the engagement of our independent auditor, or on an individual basis. Any proposed services exceeding general pre-approved levels also require specific pre-approval by our audit committee. The policy prohibits retention of the independent public accountants to perform the prohibited non-audit functions defined in Section 201 of the Sarbanes-Oxley Act or the rules of the SEC, and also requires the Audit Committee to consider whether proposed services are compatible with the independence of the public accountants.

153

Item 16D. Exemptions from the Listing Standards for Audit Committee

Not Applicable.

Item 16E. Purchase of Equity Securities By The Issuer and Affiliated Purchasers

Not Applicable.

Item 16F. Change in Registrant’s Certifying Accountant.

Not Applicable.

Item 16G. Corporate Governance

The following are the significant ways in which our corporate governance practices differ from those followed by domestic companies under the Nasdaq Rules:

Shareholder Approval. Although the Nasdaq Rules generally require shareholder approval of equity compensation plans and material amendments thereto, we follow Israeli Companies Law, which is to have such plans and amendments approved only by the board of directors, unless such arrangements are for the compensation of directors, Chief Executive Officer or a transaction with the controlling shareholder, in which case they also require the approval of the compensation committee and the shareholders.

~~160~~

In addition, rather than follow the Nasdaq Rules requiring shareholder approval for the issuance of securities in certain circumstances, we follow Israeli law, under which a private placement of securities requires approval by our board of directors and shareholders if it will cause a person to become a controlling shareholder (generally presumed at 25% ownership) or if:

The securities issued amount to 20% or more of our outstanding voting rights before the issuance;

Some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and

The transaction will increase the relative holdings of a shareholder that holds 5% or more of our outstanding share capital or voting rights or that it will cause any person to become, as a result of the issuance, a holder of more than 5% of our outstanding share capital or voting rights.

Annual Reports. While the Nasdaq Rules generally require that companies send an annual report to shareholders prior to the annual general meeting, we follow the generally accepted business practice for companies in Israel. Specifically, we file annual reports on Form 20-F, which contain financial statements audited by an independent registered public accounting firm, electronically with the SEC and post a copy on our website.

~~161~~154

PART III

Item 17. Financial Sta~~tements~~Statements

We have elected to furnish financial statements and related information specified in Item 18.

Item 18. Financial Statements

Consolidated Financial Statements of the Company

~~Index to Financial Statements~~	~~F-2~~
~~Reports~~Report of Independent Registered Public Accounting Firm	~~F-3~~F-2
Consolidated Balance Sheets	~~F-4-F-5~~F-3-F-4
Consolidated Statements of Operations	~~F-6-F-7~~F-5-F-6
Consolidated Statements of Comprehensive Income	~~F-8~~F-7
Consolidated Statements of Changes in Equity	~~F-9~~F-8
Consolidated Statements of Cash Flows	~~F-10-F-11~~F-9-F-10
Notes to Consolidated Financial Statements	~~F-12-F-67~~F-11-F-56

Item 19. ~~Exh~~ib~~its~~Exhibits

The following exhibits are filed as a part of this Annual Report:

1.1 Memorandum of Association of the Registrant (1)

1.2 Articles of Association of the Registrant (filed herewith) (8)

2.1 Specimen Certificate for Ordinary Shares (1)

4.1 2012 Stock Option Plan (7)

4.2	Agreement dated February 10, 2000, by and between the Registrant and TAT Industries Ltd. (English summary translation) (2)

4.3	English translation of Share Sales Agreement, dated March 27, 2008, by and between the Registrant and Bental Investments Cooperative Agricultures Society Ltd. (5)

~~162~~

4.4	English translation of Shareholders’ Agreement, dated May 21, 2008, by and between the Registrant, Tat Industries Ltd. and Bental Investments Cooperative Agricultures Society Ltd. (5)

155

4.5	English translation of Amendment to the Share Sales and Options Agreement and the Shareholders’ Agreement, dated May 21, 2008, by and between the Registrant, Tat Industries Ltd. and Bental Investments Cooperative Agricultures Society Ltd. (5)

4.6	English translation of Share Sales Agreement dated April 15, 2008, by and between the Registrant and Mivtach Shamir Investments (1993) Ltd. (5)

4.7	Agreement and Plan of Merger dated April 3, 2009 by and between the Registrant, Limco-Piedmont, Inc. and LIMC Acquisition Company (4)

4.8	TAT's Executive and Directors Compensation Policy ~~(filed herewith)~~(8)

4.9	Form of Officers Indemnification Undertaking ~~(filed herewith)~~(8)

5.0	~~Reports~~Report of ~~Other Certified~~Independent Registered Public ~~Accountants filed: First Aviation Services Inc.~~Accounting Firm

8 List of Subsidiaries of the Registrant

12.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended

12.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended

13.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

13.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

14.1	Consent of ~~Kesselman & Kesselman, a member~~independent registered public accounting firm ~~of PricewaterhouseCoopers International Limited.~~

14.2	Consent of ~~Dixon Hughes Goodman LLP~~registered public accounting firm

_________________

(1)	Filed as an exhibit to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 1992, and incorporated herein by reference.

~~163~~156

(2)	Incorporated by reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 1999, and incorporated herein by reference.

(3)	Incorporated by reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2006, and incorporated herein by reference.

(4)	Filed as an exhibit to the Registrant’s Registration Statement on Form F-4 filed on May 7, 2009 and incorporated herein by reference.

(5)	Filed as an exhibit to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2007, and incorporated herein by reference.

(6)	Filed as an exhibit to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2010, and incorporated herein by reference.

(7)	Filed as an exhibit to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2012, and incorporated herein by reference.

(8)	Filed as an exhibit to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2013, and incorporated herein by reference.

~~164~~157

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

	TAT TECHNOLOGIES LTD.

	By:	/s/ Tiko Gadot
		Tiko Gadot
		Chief Financial Officer (Principal Accounting Officer)

Date: March 22, 2015

~~Date: March 19, 2014~~

~~165~~

158

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

~~CONSOLIDATED FINANCIAL STATEMENTS~~

CONSOLIDATED FINANCIAL STATEMENTS

~~AS OF DECEMBER 31, 2013~~

AS OF DECEMBER 31, 2014

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, ~~2013~~2014

IN U.S. DOLLARS

INDEX

	Page

Report of Independent Registered Public Accounting Firm	~~F-3~~F-2

Consolidated Balance Sheets	~~F-4 - F-5~~F-3-F-4

Consolidated Statements of Operations	~~F-6 - F-7~~F-5-F-6

Consolidated Statements of Comprehensive Income	~~F-8~~F-7

Consolidated Statements of Changes in Equity	~~F-9~~F-8

Consolidated Statements of Cash Flows	~~F-10 - F-11~~F-9-F-10

Notes to Consolidated Financial Statements	~~F-12 - F-67~~F-11-F-56

~~F - 2~~

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders of

TAT Technologies Ltd.

We have audited the accompanying consolidated balance sheets of TAT Technologies Ltd. and its subsidiaries (the "Company") as of December 31, ~~2013~~2014 and ~~2012,~~2013, and the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, ~~2013.~~2014. These consolidated financial statements are the responsibility of the Company’s Board of Directors and management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of First Aviation Services Inc., an equity method investee, as of and for the years ended December 31, 2014, 2013 and 2012. The First Aviation Services Inc. financial statements audited by other auditors were prepared on a "historical" basis (prior to basis adjustments primarily related to impairment charges recorded by the Company) and reflect total net assets of ~~$8,140,000~~$8,935,000 and ~~$5,160,000~~$8,140,000 as of December 31, ~~2013~~2014 and ~~2012,~~2013, respectively, and total net income ~~(loss)~~ of $727,000, $3,158,000 and ~~($12,979,000)~~$(12,979,000) for the years ended December 31, 2014, 2013 and 2012, respectively (subsequently adjusted by the Company to net assets of ~~$2,289,000~~$2,556,000 and ~~$1,264,000,~~$2,289,000, and net income ~~(loss)~~ of $267,000, $1,025,000 and ~~($3,756,000)~~$(3,756,000), respectively, to reflect the share in the results of First Aviation Services Inc. and other adjustments primarily related to impairment charges recorded by the Company). We audited the adjustments necessary to convert the “historical” basis financial statements of First Aviation Services Inc. to the basis reflected in the Company’s consolidated financial statements. The First Aviation Services Inc. financial statements were audited by other auditors (whose report thereon dated March ~~6, 2014~~4, 2015 expressed an unqualified opinion on those financial statements) has been furnished to us, and our opinion expressed herein, insofar as it relates to the historical amounts included for First Aviation Services Inc., is based solely on the report of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Company’s Board of Directors and management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, ~~2013~~2014 and ~~2012~~2013 and the results of their operations and their cash flows for each of the three years in the period ended December 31, ~~2013,~~2014, in conformity with accounting principles generally accepted in the United States of America.

Tel-Aviv, Israel	/s/ Kesselman & Kesselman
March ~~19, 2014~~22, 2015	Certified Public Accountants (lsr.)
	A member firm of PricewaterhouseCoopers International Limited

Kesselman & Kesselman, Trade Tower, 25 Hamered Street, Tel-Aviv 6812508, Israel,

P.O Box 50005 Tel-Aviv 6150001 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il

F - 32

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S dollars in thousands

	December 31,				December 31,
	2013		2012		2014		2013
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	19,814	$	17,786	$	22,894	$	19,814
Short-term bank deposits		10,059		10,048		5,089		10,059
Short-term restricted deposits		-		2,307
Accounts receivable-trade, net		18,387		21,156		15,657		18,387
Other accounts receivable and prepaid expenses		3,314		4,587		4,298		3,314
Inventories, net		29,395		33,031		35,404		29,395
Assets held for sale		9,959		-		-		9,959

Total current assets		90,928		88,915		83,342		90,928

INVESTMENT AND OTHER NON CURRENT ASSETS:
Investment in an affiliated company		2,289		1,264		2,556		2,289
Funds in respect of employee rights upon retirement		2,900		3,318		2,496		2,900
Deferred income taxes		1,616		2,535		1,550		1,616
		6,805		7,117		6,602		6,805

PROPERTY, PLANT AND EQUIPMENT, NET		11,147		12,910		11,524		11,147

Total long-term assets		17,952		20,027		18,126		17,952

Total assets	$	108,880	$	108,942	$	101,468	$	108,880

The accompanying notes are an integral part of the consolidated financial statements.

F - 43

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S dollars in thousands, except share data

	December 31,						December 31,
	2013			2012			2014			2013
LIABILITIES AND EQUITY

CURRENT LIABILITIES:
Short term bank loan and current maturities of long-term loans	$	910		$	3,274		$	-		$	910
Accounts payable trade	��	6,941			6,804			5,886			6,941
Other accounts payable and accrued expenses		5,815			7,407			5,651			5,815
Liabilities held for sale		3,428			-			-			3,428

Total current liabilities		17,094			17,485			11,537			17,094

NON CURRENT LIABILITIES:
Long-term loans, net of current maturities		-			1,116
Other long-term liabilities		58			-			34			58
Liability in respect of employee rights upon retirement		3,140			3,815			2,655			3,140
Deferred income taxes		1,058			1,490			1,774			1,058

Total long-term liabilities		4,256			6,421			4,463			4,256


COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 14)

Total liabilities		21,350			23,906			16,000			21,350

EQUITY:
Ordinary shares of NIS 0.9 par value :
Authorized: 10,000,000 shares at December 31, 2013 and 2012; Issued: 9,079,709 and 9,073,043 shares at December 31, 2013 and 2012, respectively; Outstanding: 8,805,236 and 8,798,570 shares at December 31, 2013 and 2012, respectively		2,792			2,790
Authorized: 10,000,000 shares at December 31, 2014 and 2013; Issued: 9,082,817 and 9,079,709 shares at December 31, 2014 and 2013, respectively; Outstanding: 8,808,344 and 8,805,236 shares at December 31, 2014 and 2013, respectively								2,793			2,792
Additional paid-in capital		64,454			64,410			64,491			64,454
Treasury stock, at cost, 274,473 shares at December 31, 2013 and 2012		(2,088	)		(2,088	)
Treasury stock, at cost, 274,473 shares at December 31, 2014 and 2013								(2,088	)		(2,088	)
Accumulated other comprehensive loss		(429	)		(897	)		-			(429	)
Retained earnings		20,840			18,018			20,272			20,840
Total shareholders' equity		85,569			82,233			85,468			85,569
Non-controlling interest		1,961			2,803			-			1,961
Total equity		87,530			85,036			85,468			87,530

Total liabilities and equity	$	108,880		$	108,942		$	101,468		$	108,880

The accompanying notes are an integral part of the consolidated financial statements.

F - 54

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S dollars in thousands

	Year ended December 31,									Year ended December 31,
	2013			2012			2011			2014			2013			2012
Revenues:
Products	$	34,364		$	36,263		$	36,837		$	31,363		$	34,364		$	36,263
Services		45,187			41,652			36,902			49,363			45,187			41,652
		79,551			77,915			73,739			80,726			79,551			77,915

Cost of revenues:
Products		24,892			25,177			24,914			23,340			24,892			25,177
Services		35,987			33,362			31,794			40,286			35,987			33,362
Write down of inventory and impairment charges of long lived assets		-			-			5,465
		60,879			58,539			62,173			63,626			60,879			58,539

Gross profit		18,672			19,376			11,566			17,100			18,672			19,376

Operating expenses:
Research and development, net		713			995			455			1,070			713			995
Selling and marketing		3,150			2,899			2,819			3,203			3,150			2,899
General and administrative		9,512			10,110			9,450			9,019			9,512			10,110
Other income		(20	)		(13	)		(190	)		(11	)		(20	)		(13	)

		13,355			13,991			12,534			13,281			13,355			13,991

Operating income (loss) from continuing operations		5,317			5,385			(968	)
Operating income from continuing operations											3,819			5,317			5,385

Financial expenses		(947	)		(2,094	)		(2,121	)		(2,510	)		(947	)		(2,094	)
Financial income		897			1,988			1,701			1,216			897			1,988
Gain from dilution of interests in affiliated company		-			-			240

Income (loss) from continuing operations before taxes on income		5,267			5,279			(1,148	)
Income from continuing operations before taxes on income											2,525			5,267			5,279

Taxes on income (tax benefit)		1,041			2,090			(335	)
Taxes on income											1,360			1,041			2,090

Net income (loss) from continuing operations after taxes on income		4,226			3,189			(813	)
Net income from continuing operations after taxes on income											1,165			4,226			3,189

Share in results of affiliated company and impairment of share in affiliated company		1,025			(3,756	)		331			267			1,025			(3,756	)

Net income (loss) from continuing operations		5,251			(567	)		(482	)		1,432			5,251			(567	)

Net loss from discontinued operations, net of tax		(2,429	)		(1,147	)		(548	)		-			(2,429	)		(1,147	)

Net income (loss) attributable to TAT Technologies Ltd. shareholders	$	2,822		$	(1,714	)	$	(1,030	)	$	1,432		$	2,822		$	(1,714	)

The accompanying notes are an integral part of the consolidated financial statements.

F - 65

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Year ended December 31,
	2014		2013			2012
Basic and diluted income (loss) per share:
Net income (loss) from continuing operations per share attributable to controlling interest	$	0.16	$	0.60		$	(0.06	)
Loss from discontinued operations per share attributable to controlling interest		-		(0.28	)		(0.13	)
	$	0.16	$	0.32		$	(0.19	)

Weighted average number of shares outstanding:
Basic		8,805,495		8,799,237			8,808,075
Diluted		8,826,542		8,808,920			8,808,075

The accompanying notes are an integral part of the consolidated financial statements.

Year ended December 31,

2013

2012

2011

Basic and diluted income (loss) per share
Net income (loss) from continuing operations per share attributable to controlling interest $ 0.60 $ (0.06 ) $ (0.05 )
Loss from discontinued operations per share attributable to controlling interest (0.28 ) (0.13 ) (0.07 )
$ 0.32 $ (0.19 ) $ (0.12 )

Weighted average number of shares outstanding
Basic 8,799,237 8,808,075 8,815,003
Diluted 8,808,920 8,808,075 8,815,003

F - 6

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

U.S dollars in thousands

	Year ended December 31,
	2014		2013		2012
Net income (loss)	$	1,432	$	1,780	$	(1,772	)
Other comprehensive income
Foreign currency translation adjustments		429		668		209
Total other comprehensive income		429		668		209

Comprehensive income (loss)	$	1,861	$	2,448	$	(1,563	)

Comprehensive loss (income) attributable to non-controlling interest		-		842		(12	)
Comprehensive income (loss) attributable to shareholders	$	1,861	$	3,290	$	(1,575	)

The accompanying notes are an integral part of the consolidated financial statements.

F - 7

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~CHANGES IN EQUITY

U.S dollars in thousands, except share data

Year ended December 31,

2013

2012

2011

Net income (loss) $ 1,780 $ (1,772 ) $ (1,083 )
Other comprehensive income (loss):
Foreign currency translation adjustments 668 209 (819 )
Unrealized loss on marketable securities, net of tax - - (11 )
Total other comprehensive income (loss) 668 209 (830 )

Comprehensive income (loss) $ 2,448 $ (1,563 ) $ (1,913 )

Comprehensive loss (income) attributable to non-controlling interest 842 (12 ) 261
Comprehensive income (loss) attributable to shareholders $ 3,290 $ (1,575 ) $ (1,652 )

	TAT Technologies Ltd. Shareholders
								Accumulated
	Share capital				Additional			other									Non-
	Number of shares issued		Amount		paid-in capital			comprehensive income (loss)			Treasury shares			Retained earnings			controlling interest			Total equity

BALANCE AT JANUARY 1, 2012		9,073,043		2,790		64,402			(1,036	)		(2,018	)		22,232			2,791			89,161
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2012:
Comprehensive income (loss)		-		-		-			139			-			(1,714	)		12			(1,563	)
Dividend distributed		-		-		-			-			-			(2,500	)		-			(2,500	)
Purchase of treasury shares		-		-		-			-			(70	)		-			-			(70	)
Share based compensation expenses		-		-		8			-			-			-			-			8
BALANCE AT DECEMBER 31, 2012		9,073,043	$	2,790	$	64,410		$	(897	)	$	(2,088	)	$	18,018		$	2,803		$	85,036
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2013:
Comprehensive income (loss)		-		-		-			468			-			2,822			(842	)		2,448
Share based compensation expenses		-		-		3			-			-			-			-			3
Exercise of options		6,666		2		41			-			-			-			-			43
BALANCE AT DECEMBER 31, 2013		9,079,709	$	2,792	$	64,454		$	(429	)	$	(2,088	)	$	20,840		$	1,961		$	87,530
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2014:
Comprehensive income		-		-		-			429			-			1,432			-			1,861
Share based compensation expenses		-		-		38			-			-			-			-			38
Exercise of option		3,108		1		(1	)		-			-			-			-			-
Dividend distributed		-		-		-			-			-			(2,000	)		-			(2,000	)
Sale of subsidiary		-		-		-			-			-			-			(1,961	)		(1,961	)
BALANCE AT DECEMBER 31, 2014		9,082,817	$	2,793	$	64,491		$	-		$	(2,088	)	$	20,272		$	-		$	85,468

The accompanying notes are an integral part of the consolidated financial statements.

F - 8

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~CHANGES IN EQUITY~~CASH FLOWS

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

	Year ended December 31,
	2014			2013			2012

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) attributable to TAT Technologies Ltd. shareholders	$	1,432		$	2,822		$	(1,714	)
Net loss from discontinued operations		-			2,429			1,147
Income (loss) from continuing operations		1,432			5,251			(567	)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,069			1,859			1,906
Exchange differentials of loans		(1	)		23			16
Write down of inventory		-			67			-
Gain (loss) on sale of property and equipment		10			(20	)		(12	)
Gain from change in fair value of derivatives		-			(27	)		(399	)
Interest from short-term bank deposits and restricted deposits		(128	)		(11	)		(48	)
Provision for doubtful accounts		-			17			258
Share in results of affiliated company and impairment of share in affiliated company		(267	)		(1,025	)		3,756
Share based compensation expenses		38			3			8
Liability in respect of employee rights upon retirement		(485	)		286			396
Deferred income taxes, net		1,229			71			1,712
Changes in operating assets and liabilities:
Amounts due to (from) related parties, net		5			(63	)		711
Decrease (increase) in trade accounts receivable		2,730			(1,001	)		(979	)
Decrease (increase) in other accounts receivable, prepaid expenses and other		(833	)		1,195			266
Decrease (increase) in inventories, net		(6,009	)		659			(2,908	)
Increase (decrease) in trade accounts payable		(509	)		278			581
Increase (decrease) in other accounts payable and accrued expenses		(715	)		(417	)		1,197
Increase (decrease) in other long-term liabilities		(24	)		58			(2	)
Net cash provided by (used in) operating activities		(1,458	)		7,203			5,892

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities		-			-			1,900
Proceeds from sale of subsidiary (A)		2,176			-			-
Funds in respect of employee rights upon retirement		352			(48	)		(457	)
Proceeds from sale of property and equipment		19			51			50
Purchase of property and equipment		(3,021	)		(2,240	)		(2,147	)
Investment in short-term deposit		-			-			(10,000	)
Maturities of short-term deposits		5,098			-			-
Proceeds released from restricted deposits		-			2,307			947
Net cash provided by (used in) investing activities	$	4,624		$	70		$	(9,707	)

TAT Technologies Ltd. Shareholders

Share capital
Accumulated

Number of shares issued

Amount

Additional paid-in capital

other comprehensive income (loss)

Treasury shares

Retained earnings

Non-controlling interest

Total equity

BALANCE AT JANUARY 1, 2011 9,073,043 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 )
Foreign currency translation - - - (614 ) - - (205 ) (819 )
Adjustment on marketable securities - - - (8 ) - - (3 ) (11 )
Share based compensation income - - (37 ) - - - - (37 )
BALANCE AT DECEMBER 31, 2011 9,073,043 2,790 64,402 (1,036 ) (2,018 ) 22,232 2,791 89,161
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2012:
Net loss - - - - - (1,714 ) (58 ) (1,772 )
Foreign currency translation - - - 139 - - 70 209
Dividend distributed - - - - - (2,500 ) - (2,500 )
Purchase of treasury shares - - - - (70 ) - - (70 )
Share based compensation expenses - - 8 - - - - 8
BALANCE AT DECEMBER 31, 2012 9,073,043 $ 2,790 $ 64,410 $ (897 ) $ (2,088 ) $ 18,018 $ 2,803 $ 85,036
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2013:
Net income (loss) - - - - - 2,822 (1,042 ) 1,780
Foreign currency translation - - - 468 - - 200 668
Share based compensation expenses - - 3 - - - - 3
Exercise of options 6,666 2 41 - - - - 43
BALANCE AT DECEMBER 31, 2013 9,079,709 $ 2,792 $ 64,454 $ (429 ) $ (2,088 ) $ 20,840 $ 1,961 $ 87,530

The accompanying notes are an integral part of the consolidated financial statements.

F - 9

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

	Year ended December 31,
	2014			2013			2012
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term loans	$	(883	)	$	(2,286	)	$	(776	)
Dividend paid		(2,000	)		-			(2,500	)
Repayments of short-term loans		(26	)		(719	)		(4,542	)
Short-term credit received from a bank		-			26			627
Repurchase of treasury shares		-			-			(70	)
Exercise of options		-			43			-
Net cash used in financing activities		(2,909	)		(2,936	)		(7,261	)
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Cash provided by operating activities of discontinued operations		-			685			2,054
Cash provided by investing activities of discontinued operations		-			(31	)		(226	)
Cash used in financing activities of discontinued operations		-			(304	)		(285	)
Effect of exchange rate changes on cash and cash equivalents of discontinued operations		-			164			90
Net cash provided by discontinued operations		-			514			1,633

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		257			4,851			(9,443	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		22,637			17,786			27,229


CASH AND CASH EQUIVALENTS AT END OF YEAR		22,894			22,637			17,786
LESS – CASH AND CASH EQUIVALENT OF DISCONTINUED OPERATIONS AT END OF YEAR		-			2,823			2,309
CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS AT END OF YEAR	$	22,894		$	19,814		$	15,477


Supplementary information on investing activities not involving cash flows:
Purchase of property and equipment on credit	$	44		$	590		$	-

Supplemental disclosure of cash flow information:
Interest paid	$	(15	)	$	(89	)	$	(209	)
Interest received	$	221		$	177		$	265
Income taxes paid	$	(571	)	$	(961	)	$	(813	)
Income taxes refunds	$	613		$	1,383		$	780

(A) Proceeds from sale of subsidiary
Assets held for sale (excluding cash in the amount of $2,823)		7,136			-		-
Liabilities held for sale		(3,428	)		-		-
Non-controlling interest		(1,532	)		-		-
	$	2,176		$	-	$	-

Year ended December 31,

2013

2012

2011

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) attributable to TAT Technologies Ltd. shareholders $ 2,822 $ (1,714 ) $ (1,030 )
Net loss from discontinued operations 2,429 1,147 548
Income (loss) from continuing operations 5,251 (567 ) (482 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 1,859 1,906 2,618
    Exchange differentials of loans
23 16 (19 )
Write down of inventory 67 - 2,500
Impairment of goodwill, intangible assets and other long lived assets - - 2,965
Gain on sale of property and equipment (20 ) (12 ) (190 )
Loss (gain) from change in fair value of derivatives (27 ) (399 ) 372
Interest from short-term bank deposits and restricted deposits (11 ) (48 ) -
Provision for doubtful accounts 17 258 31
Share in results of affiliated company and impairment of share in affiliated company (1,025 ) 3,756 (331 )
Gain from dilution of interests in affiliated company - - (240 )
Share based compensation expenses (income) 3 8 (37 )
Liability in respect of employee rights upon retirement 286 396 (86 )
Deferred income taxes, net 71 1,712 (863 )
Changes in operating assets and liabilities:
    Amounts due to (from) related parties, net (63 ) 711 (674 )
    Increase in trade accounts receivable (1,001 ) (979 ) (1,717 )
Decrease in other accounts receivable, prepaid expenses and other 1,195 266 1,161
    Decrease (increase) in inventories, net 659 (2,908 ) (2,021 )
    Increase (decrease) in trade accounts payable 278 581 (82 )
    Increase (decrease) in other accounts payable and accrued expenses (417 ) 1,197 (1,498 )
    Increase (decrease) in other long-term liabilities 58 (2 ) -
Net cash provided by operating activities 7,203 5,892 1,407

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of  marketable securities - 1,900 50
Funds in respect of employee rights upon retirement (48 ) (457 ) 103
Proceeds from sale of property and equipment 51 50 217
Purchase of property and equipment (2,240 ) (2,147 ) (2,953 )
Investment in short-term deposit - (10,000 ) -
Proceeds released from restricted deposits 2,307 947 1,822
Net cash provided by (used in) investing activities $ 70 $ (9,707 ) $ (761 )

The accompanying notes are an integral part of the consolidated financial statements.

F - 10

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~U.S. dollars in thousands~~

Year ended December 31,
2013 2012 2011
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term loans $ (2,286 ) $ (776 ) $ (3,021 )
Proceeds from long-term loans received - - 674
Dividend paid - (2,500 ) -
Repayments of short-term loans (719 ) (4,542 ) (796 )
Short-term credit received from a bank 26 627 2,645
Repurchase of treasury shares - (70 ) -
Exercise of options 43 - -
Net cash used in financing activities (2,936 ) (7,261 ) (498 )
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Cash provided by operating activities of discontinued operations 685 2,054 148
Cash provided by (used in) investing activities of discontinued operations (31 ) (226 ) 272
Cash used in financing activities of discontinued operations (304 ) (285 ) (351 )
Effect of exchange rate changes on cash and cash equivalents of discontinued operations 164 90 (29 )
Net cash provided by discontinued operations 514 1,633 40

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,851 (9,443 ) 188
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 17,786 27,229 27,041

CASH AND CASH EQUIVALENTS AT END OF YEAR 22,637 17,786 27,229
LESS – CASH AND CASH EQUIVALENT OF DISCONTINUED OPERATIONS AT END OF YEAR 2,823 2,309 676
CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS AT END OF YEAR $ 19,814 $ 15,477 $ 26,553

Supplementary information on investing activities not involving cash flows:
Purchase of property and equipment on credit $ 590 $ - $ -

Supplemental disclosure of cash flow information:
Interest paid $ (89 ) $ (209 ) $ (184 )
Income taxes paid $ (961 ) $ (813 ) $ (966 )
Income taxes refunds $ 1,383 $ 780 $ 1,793

~~The accompanying notes are an integral part of the consolidated financial statements.~~

~~F - 11~~

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 1 -

GENERAL

TAT Technologies Ltd., (“TAT” or 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”) (with respect to the sale of the entire interest in Bental see note 1(d) and 4) and 100% held, TAT Gal Inc. (“TAT Gal”) 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;~~assemblies and

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.~~systems.

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, ~~2013,~~2014, Limco-Piedmont holds 100% of Limco-Airepair Inc. (“Limco”), of Piedmont Aviation Component Services LLC. (“Piedmont”) and holds, through Piedmont, ~~29.36%~~28.08% in First Aviation Services Inc. (“FAvS”), a world-wide service provider to the aerospace industry and a one-stop-shop for maintenance, repair and overhaul services (for propellers and landing gear) for the General Aviation Industry.

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

In October 2012 two lenders to TAT’s then controlling shareholders, KMN Industries and TAT Industries (herein “Controlling Shareholders”), filed separate petitions to the court to enforce certain liens granted to such lenders by each of the Controlling Shareholders. Such liens consisted of KMN Industries’ holdings of an approximately 80% ownership interest in TAT Industries (which in turn owned approximately 43% of the issued share capital of TAT) and KMN Industries’ direct holdings in TAT (which represented approximately 10% of the issued share capital of TAT). On December 18, 2012 the court appointed permanent receivers on behalf of the two lenders mentioned above for the purpose of jointly realizing the liens granted to such lenders. On March 15, 2013 the receivers of TAT’s shares initiated a bid process for the sale of such shares. On August 7, 2013 the receivers informed TAT that a transaction for the sale of 4,732,351 Ordinary shares of TAT, constituting 53.8% of TAT’s outstanding Ordinary shares as of the date of the transaction, closed after receiving all required approvals and transfer of the agreed consideration by FIMI Israel Opportunity FIVE, Limited Partnership and FIMI Opportunity V, L.P. (“FIMI Funds”).

F - 1211

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 1 -

GENERAL (CONT)

On February 18, 2014 TAT entered into an agreement to sell its entire interest in Bental, constituting 70% of Bental’s issued and outstanding share capital, to Bental Investments Agshah Ltd. (“Bental Investments”), for an aggregate consideration of $5,000, reflecting an impairment of $3,319 (out of which $2,323 attributed to controlling interest), which is reported in Income (loss) from discontinued operations in the consolidated statement of operations for the year ended December 31, 2013 (see also note 4).

The Company determined Bental met the criteria for held for sale and discontinued operations as of December 31, 2013.

Closing of the transaction occurred on March 27, 2014 after receiving all required approvals to consummate the closing.

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 consistent 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, recoverability of inventory, provision for doubtful accounts, 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.

F - 1312

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)

Functional currency

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 financing 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.

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.

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. Although Bental has been accounted for as a discontinued operation, the currency impact of its business is not removed from other comprehensive income (loss).

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.

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.

F - 1413

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

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.

Short-term bank deposits

Bank deposits with maturities of more than three months but less than one year are included in short-term deposits. Such short-term deposits are in Dollars and bear interest at an average annual rate of ~~0.60%.~~approximately 0.6% in 2014 and 2013.

~~Restricted deposits~~

Restricted deposits primarily consisted of cash deposits which secured a guarantee provided by the Group to an affiliated company and a loan provided to the Company by a financial institution; see note 14(f)(5) for additional information. Classification of restricted deposits as current or non-current assets takes into consideration the expected release date.

Accounts receivable-trade, net

The Group’s accounts receivable balances are due from customers 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. The Group writes-off accounts receivable when they become uncollectible. Payments subsequently received on such receivables are credited against earnings. The allowance for doubtful accounts is determined with respect to specific debts that are doubtful of collection.

F - 1514

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

h.g.

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.

Work in progress and 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 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.

i.h.

Property, plant and equipment

Property, plant and equipment are stated at cost, after deduction of the related investment grants, 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.

j.i.

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 the fact that the Company is defined as "Traditional Industry Company", under the OCS regulations, these grants are non-royalty bearing.

F - 1615

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

k.j.

Investment in ~~Company Accounted~~company accounted for using the Equity Method

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 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% to 50% of an affiliated company’s voting instruments.

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

l.k.

Impairment of long-lived assets

Long-lived assets, including definite life intangible assets, held and used by an entity 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. In the event that the sum of the expected future cash flows (undiscounted and without interest charges) of the long-lived assets (or asset group) is less than the carrying amount of such assets, an impairment charge would be recognized and the assets (or asset group) would be written down to their estimated fair values (see also notes 86 and 9).

m.l.

Treasury Shares

Company shares held by the Company are presented as a reduction of 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~~

~~NOTE 2 -~~

~~SIGNIFICANT ACCOUNTING POLICIES (CONT)~~

n.m.

Revenue recognition

The Group generates its revenues from the sale of OEM products and systems, providing MRO services (remanufacture, maintenance, repair and overhaul services and

long-term service contracts) and parts services.

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.

Revenues from multi-year, fixed price contracts for OEM customers are recognized when a product is shipped (and title passed) 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, 2014, 2013 ~~2012~~ and ~~2011,~~2012, no losses have been recognized for such fixed price contracts.

Revenues from MRO services are recognized when services are completed and the item is shipped back to the customer.

F - 16

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

Revenue recognition (cont.)

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 recognized 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.

o.n.

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 - 18~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 2 -~~

~~SIGNIFICANT ACCOUNTING POLICIES (CONT)~~

p.o.

Warranty costs

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.

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.

q.p.

Research and development

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

r.q.

Fair value measurement

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.

F - 17

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

Fair value measurement (cont.)

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 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 - 19~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 2 -~~

~~SIGNIFICANT ACCOUNTING POLICIES (CONT)~~

s.r.

Concentrations of credit risk

Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.

Cash and cash equivalents 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 and cash equivalents are financially sound. Accordingly, minimal credit risk exists with respect to these financial instruments.

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.

F - 18

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

t.s.

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 ~~17(i)~~17(h).

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.

Taxes which would apply in the event of disposal of investments in foreign subsidiaries have not been taken into account in computing the deferred taxes, when the Group’s intention is to hold, and not to realize the investments.

Following the recognition of Bental as held for sale and discontinued operations as of December 31, 2013, (see note 4) the Company computed the deferred tax asset derived from the estimated loss for tax purposes incurred inon the sale of its entire interest in Bental. For such capital loss as of December 31, 2014 and 2013 the Company ~~provides~~provided a full valuation allowance as it cannot predict its future realization.

The Group records deferred taxes related to its share in results of its affiliated company.

~~F - 20~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 2 -~~

~~SIGNIFICANT ACCOUNTING POLICIES (CONT)~~

~~Income taxes (cont)~~

With regard to dividends distributable from the income of ~~non-Israeli~~foreign 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 ~~17(b)~~17(a)), 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. The payment of dividend in 2014 was paid from earnings from regular income of the Israeli company.

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.

F - 19

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES (CONT)

Income taxes (cont.)

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 financial income ~~tax expense.~~(expense). Such liabilities are classified as long-term, unless the liability is expected to be resolved within twelve months from the balance sheet date.

~~F - 21~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 2 -~~

~~SIGNIFICANT ACCOUNTING POLICIES (CONT)~~

u.t.

Held for sale classification and Discontinued operations

A business is reported as held for sale when management has approved or received approval to sell the business and is committed to a formal plan, the business is available for immediate sale, the business is being actively marketed, the sale is anticipated to occur during the next 12 months and certain other specified criteria are met. A business classified as held for sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying value of the business exceeds its estimated fair value, a loss is recognized.

Assets and liabilities related to a business classified as held for sale are segregated in the consolidated balance sheet in the period in which the business is classified as held for sale.

Operations of a business are reported as discontinued operations if the business is classified as held for sale, the operations and cash flows of the business have been or will be eliminated from our ongoing operations as a result of a disposal transaction and we will not have any significant continuing involvement in the operations of the business after the disposal transaction. The results of discontinued operations are reported in discontinued operations in the consolidated statement of operations for current and prior periods commencing in the period in which the business meets the criteria of a discontinued operation, and include any gain or loss recognized on closing or adjustment of the carrying amount to fair value less cost to sell.

Depreciation is not recorded on assets of a business while it is classified as held for sale.

At December 31, 2013, held for sale assets and liabilities consisted of Bental, the OEM of Electric Motion Systems operating segment, and its results of operations are presented as discontinued operations in the consolidated statement of operations (see also note 4).

F - 2220

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)

w.u.

Basic and diluted net Earnings per share

Earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year. Diluted earnings (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.

x.v.

Share-based compensation

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 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, 2013, 2012 and 2011 in the statements of operations were $3, $8 and $(37), respectively.~~

y.w.

Comprehensive income ~~(loss)~~

Comprehensive income, ~~(loss),~~ net of related taxes where applicable, includes, in addition to net income, ~~(loss): (i) currency~~Currency translation ~~adjustments;~~adjustments. The accumulated other compressive income related entirely to Bental and ~~(ii) unrealized holding gains and losses on available-for-sale securities.~~was reclassified from AOCI to discontinued operation upon the sale of Bantal.

~~F - 23~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 2 -~~

~~SIGNIFICANT ACCOUNTING POLICIES (CONT)~~

z.x.

Contingencies

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.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

F - 21

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)

~~aa.~~

~~Reclassifications:~~

~~Certain comparative amounts previously reported as cash and cash equivalents have been reclassified to accounts payable and accounts receivable.~~

~~ab.~~y.

Recently Issued Accounting Principles

(1)

In May 2014, the Financial Accounting Standards Board of the United States (the “FASB”) issued guidance related to revenue from contracts with customers. Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The updated standard will replace most existing revenue recognition guidance under GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard will be effective for the Company in the first quarter of 2017. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

~~In February 2013,~~

(2)

In August 2014, the FASB issued amended guidance related to disclosure of uncertainties about an entity’s ability to continue as a going concern. The new guidance requires management to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and, as necessary, to provide related footnote disclosures. The guidance has an effective date of December 31, 2016. The Company believes that the adoption of this new standard will not have a material impact on its consolidated financial statements.

Derivative Instruments

The Company uses derivative financial instruments to manage exposure to movement in exchange rate. The use of these financial instruments reduces the ~~FASB issued accounting standard update ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting~~exposure of ~~Amounts Reclassified Out~~these risks. The Company recognizes the fair value of ~~Accumulated Other Comprehensive Income. Previously, information about amounts reclassified out~~all derivative instruments as either assets or liabilities at fair value on the consolidated balance sheets with changes in fair value recorded directly to the statement of ~~accumulated other comprehensive income and their corresponding effect~~operations. Fair value is based on ~~net income had been presented in separate places throughout~~market quotes for similar instruments with the financial statements. ASU No. 2013-02 requires entities to present this information in one centralized disclosure in the financial statements; however, it emphasized that there is no change in the current requirements for reporting net income or other comprehensive income in financial statements. The adoption of ASU No. 2013-02 did not have a material effect on Company’s consolidated financial statements.same duration.

F - 2422

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 3 - INVESTMENT IN AN AFFILIATED COMPANY

~~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 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 FAvS' debt in connection with the acquisition of AeTR (see also note 14(e)).

As of December 31, 2014 and 2013, the company has 28.08% and 29.36% of First Aviation Services, a provider of repair and overhaul, rotables management and related engineering services to the aviation industry worldwide.

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, 2013, 2012 and 2011 was $6.60, $7.0 and $5.45, 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.

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.

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~~

NOTE 3 - ~~ACQUISITION~~INVESTMENT IN AN AFFILIATED COMPANY (CONT)

~~Acquisition of stocks of FAvS (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, for an aggregate amount of $3,000, while diluting Piedmont’s interest in FAvS from 36.6% to 30.3% (29.36% as of December 31, 2013). 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. On March 18, 2013, the guarantee was released with the completion of the transaction, as described further below.

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.

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 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~~

~~NOTE 3 - ACQUISITION (CONT)~~

~~Acquisition of stocks of FAvS (cont)~~

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 were used to pay-off the outstanding balance of 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, no additional impairment was required to be recorded by Piedmont at the time of the closing of the sale of API. 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.

Financial information

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.

Company's management reviewed the restatement and its effect on the consolidated financial statements of the Company and found it to be immaterial to the Company’s financial statements for all periods reported. Accordingly, no restatement was recorded in the Company's consolidated financial statements.

Condensed financial information from FAvS consolidated balance sheets as of December 31, ~~2013~~2014 and ~~2012:~~

December 31,

2013

2012

Current assets $ 10,179 $ 31,090
Long-term assets 8,954 9,742
Total assets 19,133 40,832

Current liabilities 6,522 31,476
Long-term liabilities 4,471 4,196
Total liabilities $ 10,993 $ 35,672

~~F - 27~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~2013:

~~NOTE 3 - ACQUISITION (CONT)~~

~~Financial information (cont)~~

	December 31,
	2014		2013

Current assets	$	10,596	$	10,179
Long-term assets		8,927		8,954
Total assets		19,523		19,133

Current liabilities		5,964		6,522
Long-term liabilities		4,624		4,471
Total liabilities	$	10,588	$	10,993

Condensed financial information from FAvS consolidated statements of operations for each of the three years in the period ended December 31, ~~2013:~~2014:

	Year ended December 31,									Year ended December 31,
	2013			2012			2011			2014		2013			2012

Net sales	$	23,445		$	21,579		$	20,515		$	24,442	$	23,445		$	21,579
Gross profit		6,182			9,202			8,626			7,342		6,182			9,202
Loss from continuing operations		(341	)		(1,476	)		630
Income (loss) from continuing operations											827		(341	)		(1,476	)
Net income (loss)		3,158			(12,979	)		(94	)		727		3,158			(12,979	)
Income (loss) attributable to common stockholders	$	2,821		$	(13,271	)	$	(345	)	$	336	$	2,821		$	(13,271	)

A reconciliation of the share in results of affiliated company and impairment of share in affiliated company for each of the years ended December 31, 2014, 2013 ~~2012~~ and ~~2011:~~2012:

	Year ended December 31,							Year ended December 31,
	2013		2012			2011		2014		2013		2012

Share in income (loss) related to common stockholders	$	837	$	(653	)	$	192	$	49	$	838	$	(653	)
Share in income related to preferred stock		187		197			139		218		187		197
Impairment of in affiliated company		-		(3,300	)		-
Gain from dilution of interests in affiliated company		-		-			240
Impairment in affiliated company									-		-		(3,300	)
Net income (loss)	$	1,024	$	(3,756	)	$	571	$	267	$	1,025	$	(3,756	)

F - 2823

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 4 - HELD FOR SALE CLASSIFICATION AND DISCONTINUED OPERATIONS

On February 18, 2014 TAT entered into an agreement to sell its entire interest in Bental, the OEM of Electric Motion Systems operating segment, constituting 70% of Bental’s issued and outstanding share capital, to Bental Investments Agshah Ltd. (“Bental Investments”), for an aggregate consideration of ~~$5 million,~~$5,000, reflecting an impairment of $3,319 (out of which $2,323 attributed to controlling interest), which is reported in Income (loss) from discontinued operations in the consolidated statement of operations for the year ended December 31, 2013. In addition the Company recorded a loss from discontinued operations of $152 for the year ended on December 31, 2013 (out of which $106 attributed to controlling interest).

The impairment amount is based on the selling price, which is categorized as level 32 measurement.

Closing of the transaction ~~is expected~~took place on March 27, 2014 after receiving all required approvals to ~~take place within~~consummate the ~~next several weeks.~~transaction.

The following table summarizes the components of assets and liabilities held-for-sale in the consolidated balance sheet as of December 31, 2013:

	December 31,
	2013
Assets:
Cash and cash equivalents	$	2,823
Trade accounts receivable		4,067
Other accounts receivable and prepaid expenses		196
Inventories, net		2,983
Funds in respect of employee right upon retirement		778
Deferred income taxes		29
Property, plant and equipment, net		2,402
Assets of businesses held for sale		13,278
Less: impairment		(3,319	)
Total assets held for sale	$	9,959

Liabilities:
Trade accounts payables	$	946
Other accounts payable and accrued expenses		1,109
Long-term loans, net of current maturities		248
Liability in respect of employee rights upon retirement		1,070
Deferred income taxes		55
Total liabilities held for sale	$	3,428

F - 2924

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 4 - HELD FOR SALE CLASSIFICATION AND DISCONTINUED OPERATIONS (CONT)

The following are amounts related to Bental included in net loss from discontinued operations:

Year ended December 31,

2013

2012

2011

Revenues $ 9,589 $ 10,008 $ 11,658

Loss before taxes on income (tax benefit) $ (148 ) $ (191 ) $ (158 )

Loss from discontinued operations, net of tax ($5, $3 and $19 in 2013, 2012 and 2011, respectively) $ (3,471 ) $ (1,205 ) $ (601 )
Loss from discontinued operations attributable to non-controlling interest 1,042 58 53
Loss from discontinued operations attributable to TAT Technologies Ltd. shareholders $ (2,429 ) $ (1,147 ) $ (548 )

~~F - 30~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

	Year ended December 31,
	2013			2012

Revenues	$	9,589		$	10,008

Loss before taxes on income (tax benefit)	$	(148	)	$	(191	)

Loss from discontinued operations, net of tax ($5 and $3 in 2013 and 2012, respectively)	$	(3,471	)	$	(1,205	)
Loss from discontinued operations attributable to non-controlling interest		1,042			58
Loss from discontinued operations attributable to TAT Technologies Ltd. shareholders	$	(2,429	)	$	(1,147	)

NOTE 5 - AVAILABLE-FOR-SALE - MARKETABLE SECURITIES

	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Fair Value
Available-for-sale:
Money Market	$	1,136	$	-	$	1,136

	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Fair Value
Available-for-sale:
Money Market	$	1,136	$	-	$	1,136

December 31, 2012

Amortized Cost

Gross
Unrealized
Gains

Fair
Value

Available-for-sale:
Money Market $ 3,341 $ - $ 3,341

F - 25

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 6 - FAIR VALUE MEASUREMENT

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 and liabilities measured at fair value on a recurring basis, consisted of the following types of instruments:

	December 31, 2013								December 31, 2014
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money Market	$	1,136	$	-	$	-	$	1,136	$	1,136	$	-	$	-	$	1,136

Liabilities:
Forward transactions									$	-	$	463	$	-	$	463

	December 31, 2012								December 31, 2013
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money Market	$	3,341	$	-	$	-	$	3,341	$	1,136	$	-	$	-	$	1,136
Derivatives		-		27		-		27
Total	$	3,341	$	27	$	-	$	3,368

As of December 31, 2014, the company has six open forward contracts with a notional total amount of $4,800.

The carrying amounts of financial instruments include cash and cash equivalents, short-term bank deposits, accounts receivable, accounts payable, forward transactions and accrued liabilities, approximate fair value because of their generally short maturities.

The fair ~~values~~value of the Group's long-term ~~liabilities were~~loan was 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~~loan approximates ~~their~~its fair value since the interest rate reflects current market rates.

F - 3126

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 6 - FAIR VALUE MEASUREMENT (CONT)

Non-Recurring Fair Value Measurements

As for the fair value measurement related to the impairment of Bental as of December 31, 2013, see note 4.

The following table presents the Group’s assets measured at fair value on a non-recurring basis for the year ended December 31 2012:

			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

~~(*)~~

(*)

Excluding discontinued operations for the year ended on December 31, 2012

(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~~Systems 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.

(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.

F - 3227

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 7 -

INVENTORIES, NET

Inventories are composed of the following:

	December 31,				December 31,
	2013 (*)		2012		2014		2013(*)

Raw materials and components	$	9,648	$	12,321	$	11,333	$	9,648
Work in process		14,044		16,145		14,600		14,044
Spare parts		4,742		3,897		8,956		4,742
Finished goods		961		668		515		961

	$	29,395	$	33,031	$	35,404	$	29,395

(*) Excluding held for sale assets at December 31, 2013

~~Inventories are net of reserve for slow moving.~~

~~Write down of inventory (as mentioned below) is in the amount of $1,147 and $1,430 at December 31,~~In 2014, 2013 and 2012, ~~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 levelsapproximately $202, $350 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.

~~In 2013, 2012 and 2011, approximately $350,~~ $1,892, ~~and $1,501,~~ respectively, of inventory previously written-down were used or sold in the course of providing MRO services.

~~F - 33~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

NOTE 8 - PROPERTY, PLANT AND EQUIPMENT, NET

Composition of assets, grouped by major classifications, is as follows:

	December 31,				December 31,
	2013 (*)		2012		2014		2013(*)
Cost:
Land and buildings	$	5,582	$	6,929	$	6,232	$	5,582
Machinery and equipment ~~(1)~~		34,696		36,849		36,299		34,696
Motor vehicles		418		676		334		418
Office furniture and equipment		1,559		2,293		1,646		1,559
Software		1,166		1,166		1,197		1,166
		43,421		47,913		45,708		43,421

Less: Accumulated depreciation		32,274		35,003		34,184		32,274
Depreciated cost	$	11,147	$	12,910	$	11,524	$	11,147

(*) Excluding held for sale assets at December 31, 2013

~~(1)~~

~~The cost is net of investment grants received by Bental in the amount of $274 as of December 31, 2012.~~

Depreciation and amortization expenses amounted to $2,069, $1,859 ~~$1,906~~ and ~~$2,618~~$1,906 for the years ended December 31, 2014, 2013 ~~2012~~ and ~~2011,~~2012, 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. The impairment charge was recorded under the cost of revenues item in the consolidated statements of operations.

~~Liens on property, plant and equipment are discussed at note 14(f).~~

F - 3428

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 9 - GOODWILL AND INTANGIBLE ASSETS

Intangible assets:

	December 31,						December 31,
	2013			2012			2014			2013
License for service center
Cost	$	2,050		$	2,050		$	2,050		$	2,050
Accumulated amortization and impairment charges		(2,050	)		(2,050	)		(2,050	)		(2,050	)
Amortized cost	$	-		$	-		$	-		$	-

~~Amortization expenses amounted to $539 for the year ended December 31, 2011 (amortization expenses do not include impairment charges).~~

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 6(2)).

~~F - 35~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 9 - GOODWILL AND INTANGIBLE ASSETS (CONT)~~

Impairment Assessments

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 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.

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.

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.

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.

F - 3629

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 10 - OTHER BALANCE SHEETS SUPPLEMENTALS

Other accounts receivable and prepaid expenses:

	December 31,				December 31,
	2013 (*)		2012		2014		2013 (*)

Deferred tax asset	$	1,589	$	2,122	$	1,694	$	1,589
Government authorities		1,154		1,424		1,568		1,154
Prepaid expenses		498		831		971		498
Income receivables and grants		-		33
Derivatives		-		27
Amounts due from related parties		5		54		-		5
Other		68		96		65		68

	$	3,314	$	4,587	$	4,298	$	3,314

(*) Excluding held for sale assets at December 31, 2013

Other account payable and accrued expenses:

	December 31,				December 31,
	2013(*)		2012		2014		2013 (*)

Employees and payroll accruals	$	3,077	$	3,358	$	2,149	$	3,077
Accrued expenses (**)		732		1,757
Accrued expenses						535		732
Government authorities		483		673		428		483
Advances from customers		840		731		741		840
Warranty provision		229		276		251		229
Accrued royalties		336		268		368		336
Deferred tax liability		40		126		592		40
Amounts due to related parties		-		112
Forward transactions						463		-
Other accrued expenses		78		106		124		78

	$	5,815	$	7,407	$	5,651	$	5,815

(*) Excluding held for sale assets at December 31, 2013

~~(**) Includes $750 royalties payable to a supplier in the MRO business, at December 31, 2013, following a reconciliation of an audit.~~

F - 3730

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 11 -

TRANSACTIONS WITH RELATED PARTIES

Transactions with TAT ~~Industries:~~Industries LTD. (“TAT Industries”):

	Year ended December 31,						Year ended December 31,
	2013		2012		2011		2014		2013		2012

Management fees (1)	$	29	$	50	$	50		-		29		50
Lease expenses (2)	$	424	$	416	$	408	$	-	$	424	$	416

(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. The management fees are recorded as a reduction of general and administration expenses. Such services provided to TAT Industries until the purchase of TAT’s shares by FIMI Funds on August 7, 2013 (see also note 1).

(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.

As of August 7, 2013, following the sale of TAT’s shares to FIMI, TAT Industries is no longer considered as related party.

Balances with related parties:

December 31,

2013

2012

TAT Industries - current asset (1) $ - $ 54
FAVS - current asset 5 -
Total asset $ 5 $ 54

Bental Non-controlling interest - current liability $ - $ (60 )
FAVS - current liability - (29 )
Isal Amlat Investment (1993) Ltd. - (23 )
Total liability $ - $ (112 )

~~(1)~~

~~Results from certain expenses incurred by TAT Industries and borne by the Company. The debt bears interest at the rate equal to the interest rate agreed between TAT Industries and its lending banks.~~

	December 31,
	2014		2013
FAVS - current asset		-		5
Total asset	$	-	$	5

F - 3831

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 11 -

TRANSACTIONS WITH RELATED PARTIES (CONT)

Transactions with related parties:

Year ended December 31,

2013

2012

2011

Management fees to shareholders (see item e below) $ - $ 359 $ 400

	Year ended December 31,
	2014		2013		2012

Management fees to shareholders (see item e below)	$	-	$	-	$	359

Bental iswas 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 2013 ~~2012~~ and ~~2011~~2012 was $432 and $505, ~~and $526,~~ respectively. See also note 1(d).

In March 2012, the audit committee and the board of directors of TAT approved 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 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 will examine on a yearly basis, the management services 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 were reduced and the annual management fees were also reduced by a total amount of NIS 570,000 (approximately $150 - the “reduced amount”).

Total amount paid by TAT for the management services in 2012, ~~and 2011,~~ was ~~$359 and $397, respectively.~~$359.

F - 32

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 11 -

TRANSACTIONS WITH RELATED PARTIES (CONT)

In addition, the Company received 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.

~~F - 39~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 11 -~~

~~TRANSACTIONS WITH RELATED PARTIES (CONT)~~

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 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 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 was effective since January 1, 2010 and the annual management fees were in the amount of $120. Such management fees were paid until June 30, 2013, following which the extent of such services reduced significantly together with the intent of the Company to sell its entire interest in Bental (see also note 4).

In December 2009, Piedmont provided a guarantee for a period of one year up to $7,000 in respect of FAvS' debt taken in connection with the acquisition of AeTR. As of December 31, 2012, the guarantee amount is $4,600 (such guarantee was released on March 18, 2013, see also note 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 principal 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 similar amount under similar terms and conditions. Such loan amount was repaid by TAT to Bental on September 8, 2013, which in turn Bental made, on the same date, an on time repayment of the loan in the total amount of NIS2.5 million (approximately $693).

F - 4033

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 12 - SHORT TERM BANK CREDIT AND LONG TERM LOANS

Terms of the long-term loans and balances:

Interest Rate

Currency
of loan
December 31, 2013
Years of
Maturity

December 31,
2013

Current maturities of long-term loan (2) $ 2.50%-3.50 % 2009-2014 $ 884
As of December 31, 2014, there were no long-term loans and balances.

Interest Rate

Currency
of loan
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

		Interest Rate
	Currency of loan	December 31, 2013	Years of Maturity	December 31, 2013

Current maturities of long-term loan (*)	$	2.50%-3.50%	2009-2014	$	884

~~(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 year period, commencing 2010. On June 30, 2010, the 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 quarterly installments. The loan balance as of December 31, 2013 and 2012 was $248 (presented as part of the liabilities held for sale) and $523, respectively (with regard to covenants related to such loan see note 14(f)(3)).

~~(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. Through November, 2012 TAT prepaid $3,775, following which the remaining balance was $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. On May 1, 2013, the Company made a payment of $1,593 in accordance with its payment schedule following which the remaining balance was $884. As of December 31, 2013 the Company met all financial covenants related to such loans (see also note 14(f)(2)).

~~F - 41~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 12 - SHORT TERM BANK CREDIT AND LONG TERM LOANS (CONT)~~

~~(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 full at the end of a 24 month period (the “Term”). The principal amount bears interest of Prime + 1% payable on a quarterly basis and may be repaid at any time during the term upon Bental’s discretion. On September 8, 2013 Bental made an on time repayment of the loan in the total amount of NIS2.5 million (approximately $693) (see also note 11(h)).

Group provided certain guarantees and covenants to secure its long-term loans, see note 14(e) and 14(f).

As of December 31, 2014 and 2013 TAT's short-term bank credit balance amounted to ~~$26.~~$0 and $26, respectively.

~~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 (not renewed further in 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, approximately $688 of the total line of credit was utilized by Limco and Piedmont. In addition, as of December 31, 2012 Limco-Piedmont met all financial covenants related to such line of credit (see also note 14(f)(1)).

~~F - 42~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

NOTE 13 -

LONG-TERM EMPLOYEE-RELATED OBLIGATIONS

Severance pay:

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~~company records 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"). 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.

F - 34

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 13 -

LONG-TERM EMPLOYEE-RELATED OBLIGATIONS (CONT)

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.

Severance pay expenses for TAT were $555, ~~$495~~$555 and ~~$425~~$495 for the years ended December 31, 2014, 2013 ~~2012~~ and ~~2011,~~2012, 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 $251, $253 ~~$209~~ and ~~$188~~$209 for the years ended December 31, 2014, 2013 ~~2012~~ and ~~2011,~~2012, respectively.

The Group (excluding discontinued operation) expects to contribute approximately $820 in ~~2014~~2015 to the pension funds and insurance companies in respect of their severance and pension pay obligations.

The Israeli ~~companies are~~company is 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 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~~

~~F - 43~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 13 -~~

~~LONG-TERM EMPLOYEE-RELATED OBLIGATIONS (CONT)~~

~~In accordance with~~According to Section 14 of the ~~current employment agreements with~~Israeli Severance Pay Law, the Israeli company liability for certain employees, ~~the Israeli companies~~according to their employment agreements, 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~~company is 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~~Company balance sheets, as the amounts funded are not under the control and management of the Israeli ~~companies~~company and the pension or severance pay risks have been irrevocably transferred to the applicable insurance companies (the “Contribution Plans”).

F - 35

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 13 -

LONG-TERM EMPLOYEE-RELATED OBLIGATIONS (CONT)

The amounts of severance payments, actually paid to retired employees, by TAT were $568, $226 ~~$26~~ and ~~$23~~$26 for the years ended December 31, 2014, 2013 ~~2012~~ and ~~2011.~~2012.

TAT ~~expect~~expects to pay ~~$1,868~~$1,538 in future benefits to their employees during ~~2014~~2015 to ~~2022~~2024 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~~company before their normal retirement age.

Year

Amount

2014 $ 282
2015 189
2016 261
2017 198
2018 248
Thereafter (through 2023)
800
$ 1,978

~~F - 44~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

Year	Amount
2015	$	201
2016		132
2017		152
2018		298
2019		168
Thereafter (through 2024)		587
	$	1,538

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES

Commissions arrangements:

The ~~group~~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, $781 ~~$670~~ and ~~$579~~$670 for the years ended December 31, 2014, 2013 ~~2012~~ and ~~2011,~~2012, 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 ~~2013, of~~2014, ranging ~~between 9%~~from 12% to 17% of sales of products developed by the third parties. Royalty expenses were $270, $177 and $202 for the years ended December 31, 2014, 2013 and 2012, respectively. The royalties were recorded as part of the cost of revenues.

(2)

Limco-Piedmont is committed to pay royalties to a third party, 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, ranging ~~between~~ 1.5% to 10% of sales of additional products exclusively manufactured by the third party. In addition, Limco-Piedmont is committed to pay said third party royalties, ranging from 10% to 20%, on parts reclaimed to use in MRO services or sold to our customers when they are manufactured by the third party. Royalty expenses were $680, $400 ~~$232~~ and ~~$201~~$232 for the years ended December 31, 2014, 2013 ~~2012~~ and ~~2011,~~2012, 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 (U.S. dollar linked), with the addition of an annual interest rate based on Libor. As of December 31, 2012 the total amount of royalty bearing grants due by Bental to the Chief Scientist was approximately $86.

F - 36

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES

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 $271, $215 ~~$233~~ and ~~$239~~$233 for the years ended December 31, 2014, 2013, ~~2012,~~ and ~~2011~~2012 respectively.

TAT leases its factory from TAT Industries until 2020; ~~(related party rent expense of $424 for the year ended December 31, 2013, see~~(see also note 11(a)).

~~F - 45~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (CONT)~~

~~Lease commitments (cont):~~

As of December 31, ~~2013,~~2014, future minimum rental payments under non-cancelable operating leases are as follows:

Year	Amount		Amount
2014	$	636
2015		646	$	814
2016		623		814
2017		534		762
2018		468		700
2019 and thereafter		964
2019				714
2020				729
Total	$	3,871	$	4,533

Legal claims ~~contingencies~~contingencies:

(1)

~~For details about the settlement of the commercial dispute between Piedmont and FAvS See note 3(a).~~

~~(2)~~

On November 29, 2011, a Factoring company ("the plaintiff"), filed a claim with the magistrates court in Tel-Aviv against the Company ~~Bental~~ and ~~ten~~eleven others ("the respondents"), jointly and severally, for the amount of NIS6,151 thousand (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 Company and ~~Bental and their~~its legal advisor are of the opinion that ~~their~~its exposure due to the claim filed is not probable and thus no provision was recorded in regard of that claim of December 31, ~~2013.~~2014.

F - 37

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (CONT)

Guarantees:

(1)

In order to secure TAT's liability to the Israeli customs, the Company provided a bank guarantee in the amount of ~~$241.~~$215. The guarantee is linked to the consumer price index and is valid until ~~December 2014.~~September 2015.

(2)

~~See also note 14(f) for restricted cash deposit against certain loans~~In order to secure the TAT's liability to the lessor of its premises, the Company provided a bank guarantee in the amount of $383. The guarantee is linked to the consumer price index and ~~guarantees.~~is valid until June 2015.

~~(3)~~f.

~~See also note 11(g) for details of a guarantee provided by Piedmont in respect of FAvS’ debt. As of December 31, 2012, the amount of this guarantee was $4,600 (such guarantee was released~~Covenants and liens on ~~March 18, 2013, see also note 3(a)).~~assets

In order to secure bank loans in the amount of $884 as of December 31, 2013, TAT granted a specific lien on Bental's shares held by TAT - see also note 12(a)). In addition, TAT is obligated to meet certain covenants, all of which have been met. Such covenants were released during 2014, as the remaining amount of the loan has been fully repaid.

Vehicle Lease and Maintenance Agreements

The Company entered into several three-year lease and maintenance agreements for vehicles which are regularly amended as new vehicles are leased. The current monthly lease fees aggregate approximately $35,000. The expected lease payments for the years ending December 31, 2015, 2016 and 2017 are approximately $414,000, $110,000 and $12,000, respectively.

F - 4638

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

~~NOTE 14 -~~

~~COMMITMENTS AND CONTINGENT LIABILITIES (CONT)~~

~~Covenants and liens on assets:~~

In connection with its line of credit, Limco-Piedmont was obligated to meet minimal borrowing base and certain financial covenants. The utilization of the credit line was 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 (on August 20, 2012 concluded with the U.S bank to set this covenant at $49,500). As of December 31, 2012 Limco-Piedmont’s tangible net worth was $51,533;~~

~~(ii)~~

~~Total liabilities to tangible net worth ratio of less than 1.0. As of December 31, 2012 Limco-Piedmont’s leverage was 0.18; and~~

~~(iii)~~

~~Net financial assets of not less than $10,000. As of December 31, 2012 Limco-Piedmont’s net financial assets amount was $20,667.~~

~~Accordingly, as of December 31, 2012 Limco-Piedmont met all financial covenants (such credit line not renewed further in 2013 – see also note 12(c)).~~

In order to secure bank loans in the remaining amount of $884 as of December 31, 2013, TAT granted a specific lien on Bental's shares held by TAT - see also note 12(a)(2)). In addition, TAT is obligated to meet certain covenants, all of which have been met.

~~F - 47~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 14 -~~

~~COMMITMENTS AND CONTINGENT LIABILITIES (CONT)~~

~~Covenants and liens on assets (cont):~~

In order to secure bank loans in the amount of $1,185 (remaining balance of $248 as of December 31, 2013) , 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 of December 31, 2013 and 2012 the ratio was (7.2) and (2.4), respectively; and~~

~~(ii)~~

Bental’s tangible shareholders’ equity will not be less than NIS 20 million (approximately $5,760) and not less than 30% of its total assets. As of December 31, 2013 and 2012 Bental’s tangible shareholders’ equity was NIS 34.0 million (approximately $9,789) and NIS 34.8 million (approximately $9,335), representing 74% and 70%, respectively of its total assets.

~~Accordingly, as of December 31, 2013, Bental met all financial covenants as agreed.~~

~~A lien on Bental Approved Enterprise has been registered in favor of the State of Israel (see note 17(b) below).~~

In order to secure the guarantee Piedmont provided to FAvS as mentioned on note 11(g), Piedmont granted a lien on a bank deposit in the amount of $2,300, which is recorded as restricted deposit in the balance sheet as of December 31, 2012. Such guarantee and restricted deposit were released on March 18, 2013(see also note 3(a)).

NOTE 15 - SHAREHOLDERS' ~~EQUITY:~~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.

Treasury purchase plan

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 $500. 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 (average of $4.29 per share) constituting less than 0.1% of TAT’s issued shares.

~~F - 48~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 15 - SHAREHOLDERS' EQUITY (CONT)~~

The repurchased shares became dormant as defined in the Israeli Companies Law.

A reconciliation of opening and closing balances of the number of ordinary shares outstanding is presented below:

	2013		2012			2011		2014		2013		2012
Balance outstanding at beginning of year		8,798,570		8,815,003			8,815,003		8,805,236		8,798,570		8,815,003
Purchase of treasury shares		-		(16,433	)		-		-		-		(16,433	)
Exercise of options		6,666		-			-		3,108		6,666		-
Balance outstanding at end of year		8,805,236		8,798,570			8,815,003		8,808,344		8,805,236		8,798,570

Stock option plans:

(1)

On August 14, 2008, TAT's Board of Directors approved the grant of 65,477 unregistered options in 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 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 Black-Scholes option-pricing model.~~

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 for the year ended December 31, 2011 an income from the expiration of such options, in the total amount of $37.

~~F - 49~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 15 - SHAREHOLDERS' EQUITY (CONT)~~

~~Stock option plans (cont)~~

~~(2)~~

Following the approval of TAT's Audit committee and Board of Directors, on June 28, 2012, the Company’s shareholders approved the 2012 stock option plan (the “2012 Plan”) to grant 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.~~as determined in the stock option plan. 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~~employee is no longer employed by the Company, in which case the options will be considered forfeited within 30 days.

(2)

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 October 4, ~~2012.~~2012 (which is also considered the grant date).

F - 39

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 15 - SHAREHOLDERS' EQUITY (CONT)

Stock option plans (cont) :

(3)

On March 19, 2014, pursuant to the 2012 Plan, TAT’s Board of Directors approved the grant of 195,000 Options, at an exercise price of $8.79 per share, to senior executives, which were granted on June 23, 2014 (which is also considered the grant date).

(4)

On November 30, 2014, pursuant to the 2012 Plan, TAT’s Board of Directors approved the grant of 20,000 Options, at an exercise price of $7.34 per share, to senior executives, which were granted on November 30, 2014.

The fair value of the Company’s stock options granted under the 2012 plan for the years ended December 31, 2014 and 2012 (for the year ended December 31, ~~2012~~2013, no options were granted) was estimated using the following assumptions:

		~~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%~~

	2014	2012

Expected stock price volatility	37.23% - 39.14%	41.57% - 43.4%
Expected option life (in years)	2.87 - 4	2.23 - 3.23
Risk free interest rate	0.48% - 1.34%	0.23% - 0.32%
Dividend yield	5% - 4.6%	9.8%

The Company 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. The expected term of options is based on the 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 - 5040

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 15 - SHAREHOLDERS' EQUITY (CONT)

Stock option plans (cont):

(5)

The following table is a summary of the activity of TAT's stock Option plan:

	Year ended December 31,
	2014
	Number of options			Weighted average exercise price

Outstanding at the beginning of the year		145,000		$	6.5
Granted		215,000			8.66
Expired		-			-
Forfeited		(40,000	)		8.79
Exercised (*)		(85,000	)		6.5

Outstanding at the end of the year		235,000			8.28

Exercisable options		20,000		$	6.5

(*) The aggregate intrinsic value for the options exercised by employees during 2014 was approximately $21.

The weighted-average grant-date fair value of options granted in 2014 was $1.13 and $0.19 in 2012. The aggregate intrinsic value for the options outstanding as of December 31, 2014, 2013 and 2012 was $0, $212 and $0, respectively.

As of December 31, 2014 total unrecognized compensation cost was $70.8 and is expected to be recognized over a weighted-average period of 1.41 years.

F - 41

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 15 - SHAREHOLDERS' EQUITY (CONT)

~~Stock option plans (cont)~~

~~(3)~~

~~The following table is a summary of the activity of TAT's stock Option plan:~~

Year ended December 31,

2013

Number
of
options

Weighted
average
exercise
price

Outstanding at the beginning of the year 285,000 $ 6.50
Granted - -
Expired - -
Forfeited (133,334 ) 6.50
Exercised (6,666 ) 6.50

Outstanding at the end of the year 145,000 $ 6.50

Exercisable options 24,167 $ 6.50

The weighted-average grant-date fair value of options granted in 2012 was $0.19. The aggregate intrinsic value for the options outstanding as of December 31, 2013, 2012 and 2011 was $212, $0 and $0, respectively.

Compensation expenses (income) attributable to outstanding stock options were $3, $8 and $(37) for the years ended December 31, 2013, 2012 and 2011, 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. As of December 31, 2013 and 2012 total unrecognized compensation cost related to nonvested Share based compensation arrangements granted under the Company's 2012 plan was $17.8 and $46.9, respectively. That cost is expected to be recognized over a weighted-average period of 1.04 years.

~~F - 51~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 15 - SHAREHOLDERS' EQUITY (CONT)~~

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.

f.e.

Dividends

On ~~April 22, 2012,~~March 19, 2014, TAT’s Board declared a cash dividend in the total amount of ~~$2.5~~$2 million (approximately NIS ~~9.4~~6.9 million), or ~~$0.283~~$0.22 per share (approximately NIS ~~1.065~~0.76 per share), for all of the shareholders of TAT. The dividend was paid on May ~~17, 2012~~7, 2014 to shareholders of record on ~~May 3, 2012.~~April 21, 2014.

g.f.

Accumulated other comprehensive loss

As of December 31, 2013, the entire amount of accumulated other comprehensive loss consists of amounts derived from foreign currency translation and is related to Bental.

On March 27, 2014 after receiving all required approvals to consummate the closing, TAT sold its entire interest in Bental (see also note 4).

NOTE 16 - EARNINGS (LOSS) PER SHARE (“EPS”)

Basic and diluted earnings (loss) per share are based on the weighted average number of ordinary shares outstanding. Diluted EPS is based on those shares used in basic EPS plus shares that would have been outstanding assuming issuance of ordinary shares for all dilutive potential ordinary shares outstanding.

	Year ended December 31,									Year ended December 31,
	2013			2012			2011			2014		2013			2012
Numerator for EPS:
Net income (loss) from continuing operations	$	5,251		$	(567	)	$	(482	)	$	1,432	$	5,251		$	(567	)
Net loss from discontinued operations, net of tax		(2,429	)		(1,147	)		(548	)		-		(2,429	)		(1,147	)

Denominator for EPS:
Weighted average shares outstanding – basic		8,799,237			8,808,075			8,815,003			8,805,495		8,799,237			8,808,075
Dilutive shares		9,683			-			-			21,047		9,683			-
Weighted average shares outstanding – diluted (*)		8,808,920			8,808,075			8,815,003

Weighted average shares outstanding – diluted											8,826,542		8,808,920			8,808,075
EPS attributable to controlling interest:
Basic and diluted
Net income (loss) from continuing operations	$	0.60		$	(0.06	)	$	(0.05	)	$	0.16	$	0.60		$	(0.06	)
Loss from discontinued operations	$	(0.28	)	$	(0.13	)	$	(0.07	)	$	-	$	(0.28	)	$	(0.13	)

~~(*) Dilutive shares are calculated using the treasury stock method and include dilutive shares from share-based employee compensation plans.~~

Diluted income (loss) per share does not include 175,000, 0 and 330,000 options, for the years ended December 31, 2014, 2013 and 2012 respectively because the options are anti-dilutive.

Dilutive shares are calculated using the treasury stock method and include dilutive shares from share-based employee compensation plans

F - 5242

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 17 -

TAXES ON INCOME

~~Measurement of taxable income under the Income Tax (Inflationary Adjustments) Law, 1985 (the “Inflationary Adjustments Law”)~~

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.

b.a.

Tax benefits under the Law for the Encouragement of Capital Investments, 1959 ("the Law"):

Some facilities of the Israeli ~~companies~~company 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~~company 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.

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, ~~2013,~~2014, the Company had accumulated a total amount of approximately ~~$9,700~~$1,728 of exempt ~~income (out of which $7,750 relates to Bental which determined as discontinued operation as of December 31, 2013).~~income.

Conditions for the entitlement of benefits

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.

F - 5343

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 17 -

TAXES ON INCOME (CONT)

b.a.

Tax benefits under the Law for the Encouragement of Capital Investments, 1959 ("the Law") (cont):

Preferred Enterprises

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 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.

Under a recent amendment, announced in August 2013, beginning in 2014, dividends paid out of income attributed to a Preferred Enterprise will be subject to a withholding tax rate of 20% (instead of 15%). In addition, tax rates under the Preferred Enterprise were also raised effective as of January 1, 2014 to 9% in Zone A and 16% elsewhere (instead of the 6% and 12%, respectively).

~~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, and 9% in 2014 and 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, and 16% in 2014 and thereafter.

F - 54

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 17 -~~

~~TAXES ON INCOME (CONT)~~

~~Corporate tax rate in Israel~~

The statutory rate of the Israeli corporate tax is as follows: 2013 and 2012 - 25%, 2011- 24%. 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 prescribed, among others, an additional gradual reduction in the rates of the Israeli corporate tax and real capital gains tax starting 2011.

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 2012 and thereafter.

On July 30, 2013, the Israeli Parliament (the Knesset) approved the second and third readings of the Economic Plan for 2013-2014 (“Amended Budget Law”) which consists, among others, of fiscal changes whose main aim is to enhance long-term collection of taxes. These changes include, among others, raising the Israeli corporate tax rate from 25% to 26.5%.

~~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 statutory tax rate for 2013, 2012, and 2011 was 38%.~~

~~Tax assessments~~

~~TAT’s income tax assessments are considered final through 2011. In 2013, a tax assessment for the years 2008 through 2011 was finalized by the Israeli tax authorities.~~

~~Bental income tax assessments are considered final through 2009.~~

~~Limco-piedmont income tax assessments are considered final through 2009.~~

~~TAT-GAL which was incorporated in 2008 has not received final tax assessment yet.~~

~~F - 55~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 17 - TAXES ON INCOME (CONT)~~

~~Income tax reconciliation:~~

~~A reconciliation of the theoretical tax expense assuming all income is taxed at the statutory rate to taxes on income (tax benefit) as reported in the statements of income:~~

Year ended December 31,

2013

2012

2011

Income (loss) before taxes on income (tax benefit) as reported in the statements of income $ 5,267 $ 5,279 $ (1,148 )

Statutory tax rate in Israel 25 % 25 % 24 %

Theoretical taxes on income (tax benefit) $ 1,317 $ 1,320 $ (276 )

Increase (decrease) in taxes on income resulting from:
Tax adjustment for foreign subsidiaries subject to a different tax rate 453 434 (73 )
Reduced tax rate on income derived from "Preferred Enterprises" plans (255 ) (143 ) 103
Change in enacted tax rates 34 - -
Exempt income - (4 ) (10 )
Valuation allowance 294 499 -
Tax in respect of prior years (342 ) (83 ) (24 )
Permanent differences (460 ) 67 (55 )
Taxes on income (tax benefit) as reported in the statements of income (loss) $ 1,041 $ 2,090 $ (335 )

~~Income (loss) before taxes on income (tax benefit) is comprised as follows:~~

Year ended December 31,
2013 2012 2011

Domestic (Israel) $ 1,942 $ 2,046 $ 1,547
Foreign (United States) 3,325 3,233 (2,695 )

$ 5,267 $ 5,279 $ (1,148 )

~~F - 56~~

~~TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands~~

~~NOTE 17 - TAXES ON INCOME (CONT)~~

~~Taxes on income (tax benefit) included in the statements of income:~~

Year ended December 31,
2013 2012 2011
Current:
Domestic (Israel) $ 160 $ 282 $ 373
Foreign (United States) 334 295 213

494 577 586
Deferred:
Domestic (Israel) 15 115 245
Foreign (United States) 874 1,481 (1,142 )

889 1,596 (897 )
Previous years:
Domestic (Israel) (209 ) (45 ) (71 )
Foreign (United States) (133 ) (38 ) 47

(342 ) (83 ) (24 )

$ 1,041 $ 2,090 $ (335 )

~~F - 57~~44

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 17 -

TAXES ON INCOME (CONT)

i.b.

Corporate tax rate in Israel

The corporate tax rate for Israel is 26.5%, 25% and 25% for the year ended December 31, 2014, 2013 and 2012.

U.S. subsidiaries

U.S. subsidiaries are taxed based on federal and state tax laws. The statutory tax rate for 2014, 2013, and 2012 was 38%.

Tax assessments

TAT’s income tax assessments are considered final through 2011.

Limco-piedmont income tax assessments are considered final through 2009.

TAT-GAL which was incorporated in 2008 has not received final tax assessment yet.

Income tax reconciliation:

A reconciliation of the theoretical tax expense assuming all income is taxed at the statutory rate to taxes on income (tax benefit) as reported in the statements of income:

	Year ended December 31,
	2014			2013			2012
Income before taxes on income as reported in the statements of income	$	2,525		$	5,267		$	5,279

Statutory tax rate in Israel		26.5	%		25	%		25	%

Theoretical taxes on income	$	669		$	1,317		$	1,320

Increase (decrease) in taxes on income resulting from:
Tax adjustment for foreign subsidiaries subject to a different tax rate		457			453			434
Reduced tax rate on income derived from "Preferred Enterprises" plans		156			(255	)		(143	)
Change in enacted tax rates		-			34			-
Exempt income		-			-			(4	)
Valuation allowance		(100	)		294			499
Tax in respect of prior years		(44	)		(342	)		(83	)
Permanent differences		222			(460	)		67
Taxes on income as reported in the statements of income	$	1,360		$	1,041		$	2,090

Income (loss) before taxes on income (tax benefit) is comprised as follows:

	Year ended December 31,
	2014			2013		2012

Domestic (Israel)	$	(1,659	)	$	1,942	$	2,046
Foreign (United States)		4,184			3,325		3,233

	$	2,525		$	5,267	$	5,279

F - 45

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 17 - TAXES ON INCOME (CONT)

Taxes on income (tax benefit) included in the statements of income:

	Year ended December 31,
	2014			2013			2012
Current:
Domestic (Israel)	$	(94	)	$	160		$	282
Foreign (United States)		237			334			295

		143			494			577
Deferred:
Domestic (Israel)		(36	)		15			115
Foreign (United States)		1,297			874			1,481

		1,261			889			1,596
Previous years:
Domestic (Israel)		-			(209	)		(45	)
Foreign (United States)		(44	)		(133	)		(38	)

		(44	)		(342	)		(83	)

	$	1,360		$	1,041		$	2,090

F - 46

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 17 - TAXES ON INCOME (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,						December 31,
	2013			2012			2014			2013
Deferred tax assets (liabilities):
Allowance for doubtful accounts	$	47		$	133		$	47		$	47
Unrealized gains		146			131			174			146
Provisions for employee benefits		277			270			259			277
Inventory		920			1,171			957			920
Other temporary differences		199			417			257			199
Deferred tax assets - short-term- other accounts receivables	$	1,589		$	2,122		$	1,694		$	1,589

Goodwill and intangible assets	$	671		$	884		$	533		$	671
Property, plant and equipment		18			707			21			18
Provisions for employee benefits and other temporary differences		38			64			26			38
Tax credits carryforward		447			274			558			447
Capital and state tax losses carryforward		3,306			1,823			3,574			3,306
Net operating losses carryforward		419			606			373			419
Other		23			-			39			23
Deferred tax assets, before valuation allowance – Long-term		4,922			4,358			5,124			4,922
Valuation allowance		(3,306	)		(1,823	)		(3,574	)		(3,306	)
Deferred tax assets, net – long-term	$	1,616		$	2,535		$	1,550		$	1,616

Other temporary differences deferred tax liabilities – short-term- other accounts receivable	$	(40	)	$	(126	)	$	(592	)	$	(40	)

Property, plant and equipment and intangible assets		(1,003	)		(1,457	)		(1,736	)		(1,003	)
Other		(55	)		(33	)		(38	)		(55	)
Deferred tax Liabilities - Long-term	$	(1,058	)	$	(1,490	)	$	(1,774	)	$	(1,058	)

As of December 31, ~~2013,~~2014, TAT did not provide a valuation allowance in respect of deferred tax assets related to capital losses and state tax losses, 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 - 5847

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 17 -

TAXES ON INCOME (CONT)

The following table summarizes the changes in the valuation allowance for deferred tax assets:

Balance, January 1, 2011	$	200
Balance, January 1, 2012				$	184
Addition charged to expenses		(16	)		1,639

Balance, December 31, 2011		184
Addition charged to expenses		1,639

Balance, December 31,2012		1,823
Balance, December 31, 2012					1,823
Addition charged to expenses		1,483			1,483

Balance, December 31,2013	$	3,306			3,306
Addition charged to expenses					268

Balance, December 31,2014				$	3,574

TAT does not intend to distribute earnings of a foreign subsidiary aggregating up to approximately ~~$11,400~~$10,849 (tax earnings and profits) as of December 31, ~~2013,~~2014, 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 ~~$2,850~~$2,712 would be incurred as of December 31, ~~2013.~~2014.

TAT does not intend to distribute tax-exempt earnings deriving from Approved Enterprise aggregating approximately ~~$9,700~~$1,728 as of December 31, ~~2013,~~2014, and accordingly, no deferred tax liability has been established related to these earnings. 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 ~~$2,425~~$432 would be incurred as of December 31, ~~2013 (See also note 17(b)).~~2014.

j.i.

A reconciliation of the beginning and ending amount of unrecognized provision is as follows:

Amount

Balance at January 1, 2011 $ 84
Exchange rate differences 2
Balance at December 31, 2011 86
Exchange rate differences (2 )
Balance at December 31, 2012 84
Exchange rate differences 6
Utilization upon assessment (90 )
Balance at December 31, 2013 $ -

Unrecognized tax benefits, mainly of a long-term nature, at December 31, 2013, 2012 and 2011 amounted to $(84), $(2) and $2, respectively. All of the above amounts of unrecognized tax benefits would affect the effective tax rate if recognized.

	Amount

Balance at January 1, 2012	$	86
Exchange rate differences		(2	)
Balance at December 31, 2012		84
Exchange rate differences		6
Utilization upon assessment		(90	)
Balance at December 31, 2013		-
Exchange rate differences		-
Utilization upon assessment		-
Balance at December 31, 2014	$	-

F - 5948

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 18 -

SEGMENT INFORMATION

Segment Activities Disclosure:

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

Components.

OEM of Heat Management Solutions primarily includes the design, development, manufacture and sale of (i) 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) environmental control and cooling systems on board aircraft and for ground applications; and (iii) a variety of other electronic and mechanical aircraft accessories and systems such as pumps, valves, power systems and turbines.

Heat Transfer Services and Products primarily ~~includes~~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.

MRO services for Aviation Components primarily ~~includes~~include 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.

~~OEM of Electric Motion Systems primarily includes the design, development, manufacture and sale of a broad range of electrical motor applications for airborne and ground systems.~~

The Group’s chief operating decision-maker (CEO of the Company) evaluates performance, makes operating decisions and allocates resources based on financial data consistent with the presentation in the accompanying financial statements.

TAT evaluates segment performance based on revenue and operating income. The operating income reported in TAT's segments excludes other unallocated amounts. Although such amounts are excluded from the business segment results, they are included in reported consolidated earnings.

On February 18, 2014 TAT entered into an agreement to sell its entire interest in Bental, the OEM of Electric Motion Systems operating segment, constituting 70% of Bental’s issued and outstanding share ~~capital~~capital. Closing of the transaction took place on March 27, 2014 after receiving all required approvals to consummate the closing. (for additional information see note 4).

F - 6049

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 18 -

SEGMENT INFORMATION (CONT)

Segments statement operations disclosure:

The following financial information is the information that management uses for analyzing the segment results. The figures are presented in consolidated method as presented to management.

The following financial information is a summary of the operating income of each operational segment:

	Year ended December 31, 2013																	Year ended December 31, 2014
	OEM of Heat Management Solutions			Heat Transfer Services and Products		MRO services for Aviation Components			Amounts not allocated to segments			Elimination of inter-company sales			Consolidated			OEM of Heat Management Solutions			Heat Transfer Services and Products		MRO services for Aviation Components		Amounts not allocated to segments			Elimination of inter-company sales			Consolidated

Revenues
Sale of products and services	$	27,326		$	29,796	$	22,429		$	-		$	-		$	79,551		$	22,871		$	30,121	$	27,734	$	-		$	-		$	80,726
Intersegment revenues		3,812			111		-			-			(3,923	)		-			5,314			229		-		-			(5,543	)		-
Total revenues		31,138			29,907		22,429			-			(3,923	)		79,551			28,185			30,350		27,734		-			(5,543	)		80,726

Cost of revenues		24,141			21,600		19,224			-			(4,086	)		60,879			23,249			22,205		23,502		-			(5,330	)		63,626
Gross profit		6,997			8,307		3,205			-			163			18,672			4,936			8,145		4,232					(213	)		17,100

Research and development		415			298		-			-			-			713			841			229		-		-			-			1,070
Selling and marketing		1,520			1,145		485			-			-			3,150			1,538			1,058		607		-			-			3,203
General and administrative		3,158			3,093		3,261			-			-			9,512			2,717			3,313		2,989		-			-			9,019
Other expense (income)		(20	)		-		-			-			-			(20	)
Other income																			(11	)		-		-		-			-			(11	)
Operating income (loss)		1,924			3,771		(541	)		-			163			5,317			(149	)		3,545		636					(213	)		3,819

Financial expense, net		-			-		-			(50	)		-			(50	)		-			-		-		(1,294	)		-			(1,294	)
Income before taxes on income															$	5,267															$	2,525

F - 6150

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 18 - SEGMENT INFORMATION (CONT)

Segments statement operations disclosure (cont)

	Year ended December 31, 2012
	OEM of Heat Management Solutions			OEM of Electric Motion Systems			Heat Transfer Services and Products		MRO services for Aviation Components			Amounts not allocated to segments			Elimination of inter-company sales			Adjustment to the consolidated financial statements			Consolidated			Year ended December 31, 2013
																								OEM of Heat Management Solutions			Heat Transfer Services and Products		MRO services for Aviation Components			Amounts not allocated to segments			Elimination of inter-company sales			Consolidated
Revenues
Sale of products and services	$	27,944		$	10,008		$	27,529	$	22,442		$	-		$	-		$	(10,008	)	$	77,915		$	27,326		$	29,796	$	22,429		$	-		$	-		$	79,551
Intersegment revenues		3,088			-			180		-			-			(3,268	)		-			-			3,812			111		-			-			(3,923	)		-
Total revenues		31,032			10,008			27,709		22,442			-			(3,268	)		(10,008	)		77,915			31,138			29,907		22,429			-			(3,923	)		79,551

Cost of revenues		23,105			8,043			19,671		19,044			-			(3,281	)		(8,043	)		58,539			24,141			21,600		19,224			-			(4,086	)		60,879
Gross profit		7,927			1,965			8,038		3,398			-			13			(1,965	)		19,376			6,997			8,307		3,205			-			163			18,672

Research and development		581			157			414		-			-			-			(157	)		995			415			298		-			-			-			713
Selling and marketing		1,476			527			1,049		374			-			-			(527	)		2,899			1,520			1,145		485			-			-			3,150
General and administrative		3,530			1,377			3,270		3,310			-			-			(1,377	)		10,110			3,158			3,093		3,261			-			-			9,512
Other expense (income)		(13	)		21			-		-			-			-			(21	)		(13	)
Other income																									(20	)		-		-			-			-			(20	)
Operating income (loss)		2,353			(117	)		3,305		(286	)		-			13			117			5,385			1,924			3,771		(541	)		-			163			5,317

Financial expense, net		-			-			-		-			(106	)		-			-			(106	)		-			-		-			(50	)		-			(50	)
Income before taxes on income																					$	5,279																$	5,267

F - 6251

TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 18 -

SEGMENT INFORMATION (CONT)

Segments statement operations disclosure (cont)

	Year ended December 31, 2011																							Year ended December 31, 2012
	OEM of Heat Management Solutions			OEM of Electric Motion Systems			Heat Transfer Services and Products		MRO services for Aviation Components			Amounts not allocated to segments			Elimination of inter-company sales			Adjustment to the consolidated financial statements			Consolidated			OEM of Heat Management Solutions			Heat Transfer Services and Products		MRO services for Aviation Components			Amounts not allocated to segments			Elimination of inter-company sales			Consolidated

Revenues
Sale of products and services	$	25,993		$	11,658		$	27,600	$	20,146		$	-		$	-		$	(11,658	)	$	73,739		$	27,944		$	27,529	$	22,442		$	-		$	-		$	77,915
Intersegment revenues		4,027			-			3		-			-			(4,030	)		-			-			3,088			180		-			-			(3,268	)		-
Total revenues		30,020			11,658			27,603		20,146			-			(4,030	)		(11,658	)		73,739			31,032			27,709		22,442			-			(3,268	)		77,915

Cost of revenues		22,662			9,388			20,173		17,882			-			(4,009	)		(9,388	)		56,708			23,105			19,671		19,044			-			(3,281	)		58,539
Write down of inventory and impairment charges of long lived assets		-			-			-		5,465			-			-			-			5,465
Gross profit		7,358			2,270			7,430		(3,201	)		-			(21	)		(2,270	)		11,566			7,927			8,038		3,398			-			13			19,376

Research and development		455			331			-		-			-			-			(331	)		455			581			414		-			-			-			995
Selling and marketing		1,202			619			1,026		591			-			-			(619	)		2,819			1,476			1,049		374			-			-			2,899
General and administrative		3,789			1,499			3,035		2,626			-			-			(1,499	)		9,450			3,530			3,270		3,310			-			-			10,110
Other expense (income)		(190	)		21			-		-			-			-			(21	)		(190	)
Other income																									(13	)		-		-			-			-			(13	)
Operating income (loss)		2,102			(200	)		3,369		(6,418	)		-			(21	)		200			(968	)		2,353			3,305		(286	)		-			13			5,385

Financial expense, net		-			-			-		-			(420	)		-			-			(420	)		-			-		-			(106	)		-			(106	)
Income before taxes on income																					$	(1,388	)															$	5,279

Title of each class	Name of each exchange on which registered
Ordinary Shares, NIS 0.90 Par Value	NASDAQ Global Market

	As of December 31,											As of December 31,
	2013		2012		2011		2010		2009			2014		2013		2012		2011		2010
	(in thousands)											(in thousands)
Working capital	$	73,834	$	71,430	$	70,665	$	70,462	$	76,748	$	71,805	$	73,834	$	71,430	$	70,665	$	70,462
Total assets		108,880		108,942		115,318		121,427		124,491		101,468		108,880		108,942		115,318		121,427
Long-term liabilities, excluding current maturities		4,256		6,421		9,333		5,294		13,556		4,463		4,256		6,421		9,333		5,294
Shareholders’ equity	$	85,569	$	82,233	$	86,370	$	88,059	$	94,866	$	85,468	$	85,569	$	82,233	$	86,370	$	88,059

	Year Ended December 31,
	2014						2013
Sources of Revenues	Revenues in Thousands		Percentage				Revenues In Thousands		Percentage
North America	$	19,124		69.0	%		$	14,643		65.3	%
Europe		4,004		14.4				3,713		16.6
Netherland		1,734		6.3				1,553		6.9
Israel		-		-				-		-
Other		2,872		10.4				2,521		11.2
Total	$	27,734		100	%	��	$	22,430		100	%

	Years Ended December 31,
	2013					2012					2011
	Revenues in Thousands		% of Total Revenues			Revenues in Thousands		% of Total Revenues			Revenues in Thousands		% of Total Revenues
Sale of products (*)
North America	$	18,016		52.4	%	$	16,475		45.4	%	$	21,495		58.0	%
Europe		2,292		6.7	%		1,966		5.4	%		2,507		6.9	%
France		5,482		16.0	%		4,604		12.7	%		3,264		8.9	%
Israel		6,248		18.2	%		9,147		25.2	%		8,218		22.5	%
Other		2,326		6.7	%		4,071		11.2	%		1,353		3.7	%
Total	$	34,364		100.0	%	$	36,263		100.0	%	$	36,837		100.0	%

	Years Ended December 31,
	2013					2012					2011
	Revenues in Thousands		% of Total Revenues			Revenues in Thousands		% of Total Revenues			Revenues in Thousands		% of Total Revenues
Services
North America	$	27,639		61.2	%	$	25,648		61.6	%	$	25,416		68.9	%
Europe		7,658		16.9	%		4,624		11.1	%		3,875		10.5	%
Netherland		1,553		3.4	%		3,303		7.9	%		4,378		11.9	%
Israel		612		1.4	%		468		1.1	%		384		1.0	%
Other		7,725		17.1	%		7,609		18.3	%		2,849		7.7	%
Total	$	45,187		100.0	%	$	41,652		100.0	%	$	36,902		100.0	%

				Page

INTRODUCTION				1
~~PART I~~		4
PART I				3
Item 1.	Identity of Directors, Senior Management and Advisers			43
Item 2.	Offer Statistics and Expected Timetable			43
Item 3.	Key Information			43
	A.	Selected Financial Data	4	3
	B.	Capitalization and Indebtedness	6	5
	C.	Reasons for the Offer and Use of Proceeds		5
	D.	Risk Factors		6
	D. ~~Risk Factors~~	7
Item 4.	Information on the Company			2223
	A.	Business Overview of Gedera, ~~Bental,~~ Limco and Piedmont	29	25
	B.	Government Regulations	57	52
	C.	C. Property, Plants and Equipment	59	54
Item 4A.	Unresolved Staff Comments			6055
Item 5	Operating and Financial Review and Prospects			6055
	A.	Research and Development, Patents and Licenses	98	92
	B.	Trend Information	98	92
	C.	Off-Balance Sheet Arrangements	98	92
	D.	Tabular Disclosure of Contractual Obligations	99	93
Item 6.	Directors, Senior Management and Employees			~~100~~94
	A.	Directors and Senior Management		94
	B.	Board Practices		100
	B. ~~Board Practices~~ C.	~~104~~Employees		116
	C. ~~Employees~~ D.	~~120~~Share Ownership
	D. ~~Share Ownership~~	~~121~~117
Item 7.	Major Shareholders and Related Party Transactions			~~121~~118
	A.	Major Shareholders	~~121~~	118
	B.	Related Party Transactions	~~124~~	120
	C.	Interests of Experts and Counsel	~~127~~	122
Item 8.	Financial Information			~~128~~122
	A.	Consolidated Statements and Other Financial Information	~~128~~	122
	B.	Significant Changes	~~128~~	123
Item 9.	The Offer and Listing		~~129~~	124
	A.	Offer and Listing Details	~~129~~	124
	B.	Plan of Distribution	~~130~~	126
	C.~~Markets~~	~~131~~Markets		126
	D.	Selling Shareholders	~~131~~	127
	E.	Dilution		E. ~~Dilution~~127	~~131~~
	F.	Expense of the Issue		127	~~131~~
Item 10.	Additional Information			~~131~~ 127
	A.	Share Capital		127	~~131~~
	B.	Memorandum and Articles of Association		127	~~131~~
	C.	Material Contracts	~~136~~	132
	D.	Exchange Controls	~~140~~	133
	E.~~Taxation~~	~~141~~Taxation		133
	F.	Dividends and Paying Agents	~~154~~	148
	G.	Statement by Experts		148	~~155~~
	H.	Documents on Display	~~155~~
	I. ~~Subsidiary Information~~148	~~156~~

	I.	Subsidiary Information	149
Item 11.	Quantitative and Qualitative Disclosures about Market Risk		~~156~~149
Item 12.	Description of Securities Other than Equity Securities		~~156~~
~~PART II~~		~~157~~150
PART II			150
Item 13.	Defaults, Dividend Arrearages and Delinquencies		~~157~~ 150
Item 14.	Material Modifications to the Rights of Security Holders		~~157~~ 150
Item 15.	Controls and Procedures		~~157~~ 150
~~Item 15T.~~	~~Controls and Procedures~~	~~157~~
Item 16.	[Reserved]		~~159~~152
Item 16A.	Audit Committee Financial Expert		~~159~~152
Item 16B.	Code of Ethics		~~159~~152
Item 16C.	Principal Accountants Fees and Services		~~159~~153
Item 16D.	Exemptions from the Listing Standards for Audit Committee		~~160~~154
Item 16E.	Purchase of Equity Securities By Issuer and Affiliated Purchases		~~160~~ 154
Item 16F.	Change in Registrant’s Certifying Accountant.		~~160~~ 154
Item 16G.	Corporate Governance.		~~160~~
~~PART III~~		~~160~~ 154
PART III			155
Item 17.	Financial Statements		~~162~~155
Item 18.	Financial Statements		~~162~~155
Item 19.	Exhibits		~~162~~155


	Year Ended December 31									Year Ended December 31
		2013(*)			2012(*)			2011(*)		2014			2013			2012
	(in thousands)									(in thousands)
Revenues
OEM of Heat Management Solutions	$	31,138		$	31,032		$	30,020		$	28,185		$	31,138		$	31,032
Heat Transfer Services and Products		29,907			27,709			27,603			30,350			29,907			27,709
MRO services for Aviation Components		22,429			22,442			20,146			27,734			22,429			22,442
Eliminations		(3,923	)		(3,268	)		(4,030	)		(5,543	)		(3,923	)		(3,268	)
Total revenues		79,551			77,915			73,739			80,726			79,551			77,915
Cost of revenues
OEM of Heat Management Solutions		24,141			23,105			22,662			23,249			24,141			23,105
Heat Transfer Services and Products		21,600			19,671			20,173			22,205			21,600			19,671
MRO services for Aviation Components		19,224			19,044			17,882			23,502			19,224			19,044
Write down of inventory and impairment charges of long lived assets		-			-			5,465
Eliminations		(4,086	)		(3,281	)		(4,009	)		(5,330	)		(4,086	)		(3,281	)
Total cost of revenues		60,879			58,539			62,173			63,626			60,879			58,539
Research and development costs, net		713			995			455			1,070			713			995
Selling and marketing		3,150			2,899			2,819			3,203			3,150			2,899
General and administrative		9,512			10,110			9,450			9,019			9,512			10,110
Other income		(20	)		(13	)		(190	)		(11	)		(20	)		(13	)
Operating income (loss) from continuing operations		5,317			5,385			(968	)
Operating income from continuing operations											3,819			5,317			5,385
Financial expense, net		(50	)		(106	)		(420	)		(1,294	)		(50	)		(106	)
Gain from dilution of interests in affiliated company		-			-			240			-			-			-
Income (loss) from continuing operations before taxes on income		5,267			5,279			(1,148	)
Taxes on income (tax benefit)		1,041			2,090			(335	)
Net income (loss) from continuing operations after taxes on income		4,226			3,189			(813	)
Income from continuing operations before taxes on income											2,525			5,267			5,279
Taxes on income											1,360			1,041			2,090
Net income from continuing operations after taxes on income											1,165			4,226			3,189
Share in results of affiliated company and impairment of share in affiliated company		1,025			(3,756	)		331			267			1,025			(3,756	)
Net income (loss) from continuing operations		5,251			(567	)		(482	)		1,432			5,251			(567	)
Net loss from discontinued operations, net of tax		(2,429	)		(1,147	)		(548	)					(2,429	)		(1,147	)
Net income (loss) attributable to TAT Technologies Ltd. shareholders	$	2,822		$	(1,714	)	$	(1,030	)	$	1,432		$	2,822		$	(1,714	)


	Year Ended December 31,							Year Ended December 31,
		2013(**)		2012(**)		2011(**)		2014			2013			2012
Revenues
OEM of Heat Management Solutions		39.1	%	39.8	%	40.7	%		34.9	%		39.1	%		39.8	%
Heat Transfer Services and Products		37.6		35.6		37.4			37.6			37.6			35.6
MRO services for Aviation Components		28.2		28.8		27.3			34.4			28.2			28.8
Eliminations		(4.9	)	(4.2	)	(5.4	)		(6.9	)		(4.9	)		(4.2	)
Total revenues		100.0		100.0		100.0			100.0			100.0			100.0
Cost of revenues
OEM of Heat Management Solutions		30.3		29.7		30.7			28.8			30.3			29.7
Heat Transfer Services and Products		27.2		25.2		27.4			27.5			27.2			25.2
MRO services for Aviation Components		24.2		24.4		24.3			29.1			24.2			24.4
Write down of inventory and impairment charges of long lived assets		*		*		7.3			-			*			*
Eliminations		(5.1	)	(4.2	)	(5.3	)		(6.6	)		(5.1	)		(4.2	)
Cost of revenues		76.5		75.1		84.4			78.8			76.5			75.1
Research and development costs, net		0.9		1.3		0.6			1.3			0.9			1.3
Selling and marketing		4.0		3.7		3.8			4.0			4.0			3.7
General and administrative		12.0		13.0		12.8			11.2			12.0			13.0
Other income		-		-		(0.3	)		*			-			-
Operating income (loss) from continuing operations		6.7		6.9		(1.3	)		4.7			6.7			6.9
Financial expense, net		(0.1	)	(0.1	)	(0.6	)		(1.6	)		(0.1	)		(0.1	)
Gain from dilution of interests in affiliated company		-		-		0.3			-			-			-
Income (loss) from continuing operations before taxes on income		6.6		6.8		(1.6	)		3.1			6.6			6.8
Taxes on income (tax benefit)		1.4		2.7		0.5			1.6			1.4			2.7
Net income (loss) from continuing operations after taxes on income		5.2		4.1		(1.1	)		1.5			5.2			4.1
Share in results of affiliated company and impairment of share in affiliated company		1.3		(4.8	)	0.5			*			1.3			(4.8	)
Net income (loss) from continuing operations		6.5		*		*			1.8			6.5			*
Net loss from discontinued operations, net of tax		(3.0	)	(1.5	)	(0.7	)		-			(3.0	)		(1.5	)
Net income (loss) attributable to TAT Technologies’ Shareholders		3.5	%	(2.2	)%	(1.4	)%		1.8	%		3.5	%		(2.2	)%

	Three months ended																								Three months ended
	2013												2012												2014												2013
	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	$	21,197		$	18,957		$	19,819		$	19,578		$	19,947		$	19,643		$	19,449		$	18,874		$	21,385		$	20,324		$	20,600		$	18,417		$	21,196		$	18,957		$	19,819		$	19,579
Cost of revenues		16,406			14,887			14,983			14,603			15,315			14,699			14,132			14,392			16,001			16,369			16,467			14,789			16,406			14,888			14,982			14,603
Gross profit (loss)		4,791			4,070			4,836			4,975			4,632			4,944			5,317			4,482			5,384			3,955			4,133			3,628			4,790			4,069			4,837			4,976
Research and Development, net		107			177			205			224			250			136			480			129			185			324			306			255			108			177			204			224
Selling and marketing		816			768			800			766			695			663			781			760			788			776			889			750			816			768			800			766
General and administrative		2,554			2,206			2,439			2,313			2,905			2,165			2,416			2,624			2,248			2,216			2,279			2,276			2,555			2,205			2,439			2,313
Other income		(7	)		-			(6	)		(7	)		(9	)		-			(4	)		-			-			(4	)		-			(7	)		(7	)		-			(6	)		(7	)
Operating income from continuing operations		1,321			919			1,398			1,679			791			1,980			1,644			969			2,163			643			659			354			1,321			919			1,400			1,680
Financial income (expenses), net		(56	)		(27	)		17			16			54			(31	)		(404	)		275			(511	)		(812	)		18			11			(57	)		(26	)		17			16
Income from continuing operations before taxes on income		1,265			892			1,415			1,695			845			1,949			1,240			1,244			1,652			(169	)		677			365			1,264			893			1,417			1,696
Taxes on income (tax benefit)		(139	)		245			452			483			194			572			1,008			316			550			315			398			97			(140	)		245			453			483
Share in results of affiliated company and impairment of share in affiliated company		(91	)		18			187			911			(540	)		136			(3,312	)		(40	)		45			48			32			142			(91	)		18			187			911
Net income (loss) from continuing operations		1,313			665			1,150			2,123			110			1,513			(3,080	)		888			1,147			(436	)		311			410			1,310			666			1,151			2,124
Net income (loss)from discontinued operations, net of tax		(2,005	)		118			(126	)		(416	)		19			257			(1,119	)		(304	)		-			-			-			-			(2,006	)		119			(126	)		(416	)
Net income (loss) attributable to TAT Technologies’ Shareholders	$	(692	)	$	783		$	1,024		$	1,707		$	129		$	1,770		$	(4,199	)	$	584		$	1,147		$	(436	)	$	311		$	410		$	(696	)	$	785		$	1,025		$	1,708

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		77.4			78.5			75.6			74.6			76.8			74.8			72.7			76.2			74.8			80.5			79.9			80.3			77.4			78.5			75.6			74.6
Gross profit (loss)		22.6			21.5			24.4			25.4			23.2			25.2			27.3			23.8			25.2			19.5			20.1			19.7			22.6			21.5			24.4			25.4
Research and Development, net		0.5			0.9			1.0			1.1			1.3			0.7			2.5			0.7			0.9			1.6			1.5			1.4			0.5			0.9			1.0			1.1
Selling and marketing		3.8			4.1			4.0			3.9			3.5			3.4			4.0			4.0			3.7			3.8			4.3			4.1			3.8			4.1			4.0			3.9
General and administrative		12.1			11.6			12.4			11.8			14.4			11.0			12.4			13.9			10.5			10.9			11.1			12.4			12.1			11.6			12.4			11.8
Other income		-			*			*			*			-			*			*			0.1			-			*			-			*			-			*			*			*
Operating income (loss) from continuing operations		6.2			4.9			7.0			8.6			4.0			10.1			8.4			5.1			10.1			3.2			3.2			1.9			6.2			4.9			7.0			8.6
Financial income (expenses), net		(0.2	)		(0.1	)		0.1			0.1			0.2			(0.2	)		(2.0	)		1.5			(2.4	)		(4.0	)		0.1			0.1			(0.2	)		(0.1	)		0.1			0.1
Income (loss) from continuing operations before taxes on income		6.0			4.8			7.1			8.7			4.2			9.9			6.4			6.6			7.7			(0.8	)		3.3			2.0			6.0			4.8			7.1			8.7
Taxes on income (tax benefit)		(0.2	)		1.3			2.2			2.5			1.0			2.9			5.2			1.7			2.6			1.5			1.9			0.5			(0.2	)		1.3			2.2			2.5
Share in results of affiliated company and impairment of share in affiliated company		(0.4	)		0.1			0.9			4.6			(2.7	)		0.7			(17.0	)		(0.2	)		0.2			0.2			0.2			0.8			(0.4	)		0.1			0.9			4.6
Net income (loss) from continuing operations		6.2			3.5			5.8			10.8			0.6			7.7			(15.9	)		4.7			5.4			(2.1	)		1.5			2.2			6.2			3.5			5.8			10.8
Net income (loss)from discontinued operations, net of tax		(9.5	)		0.6			(0.6	)		(2.1	)		*			1.3			(5.7	)		(1.6	)		-			-			-			-			(9.5	)		0.6			(0.6	)		(2.1	)
Net income (loss) attributable to TAT Technologies’ Shareholders		(3.3	)%		4.1	%		5.2	%		8.7	%		0.6	%		9.0	%		(21.6	)%		3.1	%		5.4	%		(2.1	)%		1.5	%		2.2	%		(3.3	)%		4.1	%		5.2	%		8.7	%

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		1.4			2.3			3.7
2013	2.0	7.5	9.5		2.0			7.5			9.5
2014					(0.2	)		12			11.8

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
Debt obligations	$	883,000	$	883,000	$	-	$	-	$	-
Operating lease obligations (1)		2,994,000		993,000		1,483,000		568,000		-			5,070,000			1,228,000			1,698,000			1,415,000			729,000
Purchase commitments		4,019,000		4,019,000		-		-		-			3,218,000			3,218,000			-			-			-
Estimated loan interest (2)		8,000		8,000		-		-		-
Total	$	7,904,000	$	5,903,000	$	1,483,000	$	568,000	$	-		$	8,288,000		$	4,446,000		$	1,698,000		$	1,415,000		$	729,000

Name	Age	Position
Samuel Vlodinger	6364	Chairman of the Board of Directors
Itsik Maaravi	5455	Chief Executive Officer
Todd Schwartz	4647	Chief Executive Officer of Piedmont
Yair Raz	5859	Chief Executive Officer of Limco
Tiko Gadot	5556	Chief Financial Officer
~~Noam Reshef~~Tamir Ziv	3743	Vice President Operations
Avi Shani (1)(2)(3)(4)(5)	6667	Outside Director
Dafna Gruber (1)(3)(4)(5)	4849	Independent Director
Jan Loeb	5556	Director
Ron Ben-Haim	4546	Director
Aviram Halevi (1)(2)(3)(4)(5)	5657	Outside Director

		Salaries, fees, Commissions and bonuses				Other benefits
All directors and executive officers as a group (12 persons)		$	1,462,000			$	167,000

Name and Principal Position(2)	Base Salary		Benefits and Perquisites(3)		Variable Compensation(4)		Equity-Based Compensation(5)		Total
Itsik Maaravi, CEO	$	301,929	$	37,313	$	27,103	$	21,580	$	387,925
Todd Schwartz, CEO of Piedmont	$	153,208	$	27,448	$	20,000	$	7,315	$	207,971
Yair Raz, CEO of Limco	$	160,000	$	26,609	$	30,000	$	10,795	$	227,404
Tiko Gadot, CFO	$	215,070	$	25,342	$	-	$	12,145	$	252,557
Tamir Ziv, VPO	$	163,371	$	25,841	$	-	$	-	$	189,212

(1)	All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.
(2)	All current executive officers listed in the table are full-time employees. Cash compensation amounts denominated in currencies other than the U.S. dollar were converted into U.S. dollars at the average conversion rate for the year ended December 31, 2014.
(3)	Amounts reported in this column include benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites may include, to the extent applicable to each executive, payments, contributions and/or allocations for savings funds, pension, severance, vacation, car or car allowance, medical insurances and benefits, risk insurances (e.g., life, disability, accident), convalescence pay, payments for social security, tax gross-up payments and other benefits and perquisites consistent with our guidelines.
(4)	Amounts reported in this column refer to Variable Compensation such as commission, incentive and bonus payments as recorded in our financial statements for the year ended December 31, 2014.
(5)	Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2014 with respect to equity-based compensation granted to the Covered Executive.

		Active Chairman				CEO
Company Target			~~100~~	%		100%	80% - 90	%90%
Personal KPI	NONE	NONE			~~NONE~~
Personal Evaluation		NONE					0%~~-20~~	%-20%

	Reference points			Actual achieved			Reference points			Actual achieved
Company Target		80	%		62.4	%		80	%		26.6	%
Sales		40	%		37.6	%		40	%		33.2	%
Gross profit		30	%		24.8	%		30	%		-	%
EBITDA		30	%		-	%		30	%		-	%
Personal Evaluation		20	%		20	%		20	%		10	%
Total		100	%		82.4	%		100	%		36.6	%

	Amount

Balance at January 1, 2011	$	84
Exchange rate differences		2
Balance at December 31, 2011		86
Exchange rate differences		(2	)
Balance at December 31, 2012		84
Exchange rate differences		6
Utilization upon assessment		(90	)
Balance at December 31, 2013	$	-

	Warranty provision			Allowance for Doubtful Accounts

Balance, as of January 1, 2011		341			2,419

Additions		169			31
Utilization		(222	)		-
Write-offs, net of recoveries		-			(2,260	)

Balance, as of December 31, 2011		288			190

Additions		196			258
Utilization		(208	)		-
Write-offs, net of recoveries		-			(72	)

Balance, as of December 31, 2012	$	276		$	376

							Warranty provision			Allowance for Doubtful Accounts


Balance, as of January 1, 2012							$	288		$	190
Additions		186			17			196			258
Utilization		(190	)		-
Write-offs, net of recoveries		-			(270	)
Deductions								(208	)		(72	)

Balance, as of December 31, 2012								276			376
Additions								186			17
Deductions								(190	)		(270	)

Less: Held for sale		(43	)		-			(43	)		-

Balance, as of December 31, 2013	$	229		$	123			229			123
Additions								286			107
Deductions								(264	)		(105	)

Balance, as of December 31, 2014							$	251		$	125