| • · | Increasing Market Sharemarket share — TAT plans to continue itscontinuing aggressive marketing efforts forto win new customers as well as to expand its activities with its flagship customers.existing customers, partly by focusing on cross selling opportunities between our different businesses. As part of TAT’sour efforts, to achieve greater penetration in international markets, TAT intendswe also intend to expand itsour marketing presence in existing territories, like the U.S.United States and Western Europe andas well as new territories, where TAT currently has a smaller business volume,presence and fewer customers, such as Eastern Europe, SouthLatin America and Asia. |
Effective synergy among group members — enhancing the synergies between our various businesses. For example, by supplying Limco with heat transfer components manufactured in Gedera, we enable Limco to offer a superior product and more competitive pricing on its MRO services, thereby improving Limco's overall competitive position in the market. · | 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 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 our existing businesses organically as detailed above, we intend to evaluate complementary acquisition opportunities. |
· | 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. In October 2015, TAT acquired the entire share capital of Turbochrome Ltd., which provides MRO services for jet engine components. 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.
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Products and Services OEM of Heat Transfer Solutions and Aviation ComponentsAccessories
Through its Gedera facility, TAT manufactures a wide range of heat transfer productssolutions used onboardon board aircraft, air conditioning systems, environmental control systems and cooling systems for electronics for military use. These products/systemssolutions are manufactured in compliance with all of the stringent quality assurance standards that apply to the manufacture of aircraft parts. Gedera’s quality system complies with ISO 9001, AS9100, Boeing quality systems approval D6-82479 and FAR 21.303 (the FAA standard for Parts Manufacturer Approval). and NADCAP for non-destructive testing and welding. Heat Transfer ProductsSolutions Gedera manufacturesWe manufacture a wide range of heat transfer products.solutions in our Gedera facility. Gedera specializes in the design and manufacture of highly efficient, compact and reliable heat transfer productssolutions that are designed to meet stringent constraints such as size, weight and environmental conditions. Heat transfer products,solutions, such as heat exchangers and cold plates, are integral components of a wide variety of environmental control, 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 productssolutions facilitate the exchange of 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 productssolutions include heat exchangers and cold plates. Typically, air-to-air heat exchangers cool a jet engine’s 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 others used in other systems.
Gedera provides a one stop shopone-stop-shop for all of the different types of heat transfer products.solutions. Gedera’s heat exchangers are generally sold forpriced between approximately $2,000 and $40,000$45,000 per unit. A significant portion of Gedera’s heat transfer productssolutions 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 transfer equipment,solutions, such as cooling chassis, heat sinks and cold wallsplates (which may be air-to-air, liquid-to-air or liquid-to-liquid), to control and dispose heat emitted by the operation of various electronic systems. 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/systemssolutions are also usually provided by Gedera.
Aviation and Flow Control Accessories Gedera is also engaged in the design, development, manufacture and manufacture ofMRO services for aviation and flow control accessories. These accessories include components such as valves and pumps. Gedera’s customers for the design, development and manufacture of aviation and flow control accessories include Lockheed-Martin, Boeing, Continental, the Israel Air Force, IAI, Rafael as well as the U.S. Air Force and Navy. Cooling and Air-ConditioningAir 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 solutionsmainly 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 designs, develops and manufactures power electronics cooling systems based on customer specifications, while providing a complete engineering solution in compliance with strict civil aviation standards. Gedera’s systems are used in Israel and abroadglobally and are tested under strict standards.
MRO Services for Heat Transfer ServicesComponents and ProductsOEM of Heat Transfer Solutions MRO Services for Heat Transfer ProductsComponents Through its Limco subsidiary in the U.S., TAT provides MRO services for heat transfer products.components. The demand for MRO services is driven by the size and age of the aircraft fleet (including new aircrafts entering into service), aircraft utilization and regulations set OR promulgated 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 goalsway to accomplish this goal is through the outsourcing of more of their maintenance and support functions to reliable third parties. Limco also believesFurthermore, we believe that commercial carriers who have mademaking the decision to outsource their MRO requirements are searching for MRO service providers with a wide-range of service capabilities. Such 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. We believe that an aging military fleet and the increased use of upgrade programs aimed at extending the useful life of military aircraft will provide continued MRO growth opportunities.
Limco specializes in the repair and overhaul of heat transfer components. These components include heat exchangers, oil coolers, pre-coolers, reheaters, condensers, water separators, fuel heaters, evaporators and ozone converters.
Limco is continually expanding its MRO capabilities based on market need and/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, Collins Aerospace, Honeywell 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 components. In addition, Limco benefits from Gedera’s varied engineering and development capabilities relevant to Limco’s services in the field of heat transfer components.
Limco performs MRO services at its repair station in Tulsa, Oklahoma which has ISO9001, AS9110 and AS9100 certification, NADCAP certification for dye penetrant testing, welding and heat treating,, and is licensed to provide MRO services by the FAA and EASA, as well as by the civil aviation Administrations of Thailand, Indonesia and China.
Limco offers different or various MRO services for heat transfer components. If the damage is significant, Limco will remanufacture the unit, which generally entails replacing the core matrix of the damaged or old heat transfer component 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 which are often equal or better than 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 independent MRO service providers authorization to perform repair and overhaul services on their behalf. OEMs generally grant very few authorizations and maintain tight controls over their authorized MRO service providers in order to maintain high quality of service to their customers. Obtaining OEM authorization requires sophisticated technological capabilities, experience-based industry knowledge and substantial capital investment. Furthermore, Limco believes that service providers that have OEM authorization gain a competitive advantage as they typically receive discounts on parts, technical information and OEM warranty support. Limco is an independent MRO service provider that is a well-recognized repair center of Collins Aerospace (Hamilton Sundstrand), one of the largest heat transfer solutions manufacturers in North America or in the United States. OEM of Heat Transfer Solutions In addition to its MRO services, Limco also acts as an OEM manufacturer of heat transfer solutions used mainly in military aircraft and other ground applications and to a lesser extent, in commercial, regional and business aircraft. Limco specializes in the design and manufacture of highly efficient heat transfer solutions, which are designed to meet stringent constraints such as size, weight and applicable environmental conditions. These units include heat exchangers, oil coolers, precoolers, reheaters, condensers, fuel heaters and evaporators.
Limco also manufactures demineralizer systems for U.S. Navy vessels, including ships and nuclear submarines. Limco currently offers tens of OEM parts to the aerospace and ground defense industries. These parts are manufactured in compliance with the stringent quality assurance standards that apply to the manufacture of aircraft and military parts.
Limco’s quality systems are ISO9001, AS9110, AS9100 and NADCAP for non-destructive testing, welding and heat treating and FAR 21.303 (the FAA standard for Parts Manufacturer Approval).
MRO Services for Aviation Components
Through its Piedmont subsidiary, TAT provides MRO services for aviation components, including APUs and landing gear. As previously mentioned, the demand for MRO services is driven by the size and age of the aircraft fleet, aircraft utilization and regulations by the FAA and other governmental authorities.
Due to 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 way to accomplish this goal is through the outsourcing of more of their maintenance and support functions to reliable third parties. Furthermore, we also believe that commercial carriers making the decision to outsource their MRO requirements are searching for MRO service providers that offer 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. Limco believesWe believe that an aging military fleet and the increased use of upgrade programs aimed at extending the useful life of aircraftaircrafts will provide continued MRO growth opportunities.
Piedmont specializes in the repair and overhaul of APUs and landing gear.gears. 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 gears 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 Greensboro, North Carolina, which is licensed by the FAA and EASA and also certified to AS9001 standards.EASA. Piedmont specializes in providing comprehensive repair and overhaul services for APU models manufactured by both Honeywell and Hamilton Sundstrand.Sundstrand, two leading OEMs in the United States. In addition, Piedmont provides full repair, overhaul, machining, plating and grinding services for landing gear systems for commercial and military aircraft. The companyPiedmont has a richlong history in providing landing gear MRO services for regional airliners, including aircraft manufactured by Bombardier (CRJ 100/200/Dash8), the French-Italian ATR (42/72), Gulfstream (G4), Lockheed martin (P3/C130) and the Brazilian Embraer (E170/E190). OEM Authorizations and Licenses
Limco believes that establishing and maintaining relationships During 2020 Piedmont stopped providing services to the CRJ platform. At the end of 2020 Piedmont signed a new exclusive contract with OEMs of aircraft systems and components is an important factor in achieving sustainable successHoneywell as an independent MRO service provider. OEMs grant participantsHoneywell's exclusive rental bank provider for the APU 331-500 (used in the overhaulBoeing 777 platform) . By signing this agreement with Honeywell and purchasing 18 APU331-500 engines Piedmont entered into a new segment of APU leasing. Piedmont also signed an MOU to be an authorized repair services market authorization to perform repair and overhaul services on their behalf. OEMs maintain tight controls over their authorized MRO service providers, in order to maintain high quality of service to their customers, and generally grant very few authorizations. Obtaining OEM authorizations requires sophisticated technological capabilities, experience-based industry knowledge and substantial capital investment. Limco believes that service providers that have received OEM authorization gain a competitive advantage because they typically receive discounts on parts, technical information and OEM warranty support. Limco is an independent MRO service provider that is a well-recognized repair center of UTC Aerospace Systems (Hamilton Sundstrand), one ofstation for the largest heat transfer equipment manufacturers of heat transfer equipment in North America.331-500 APU.
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, precoolers, reheaters, condensers, fuel heaters and evaporators.
Limco also manufactures demineralizer systems for U.S. naval vessels including ships and nuclear submarines. 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 ISO9001, AS9110, AS9100 and NADCAP for non-destructive testing certified and FAR 21.303 (the FAA standard for Parts Manufacturer Approval).
MRO Services for Aviation Components
Through its Piedmont subsidiary in the U.S., TAT provides MRO services for aviation components, APUs and landing gear. As previously mentioned, the demand for MRO services is driven by the size and age of the aircraft fleet, aircraft utilization and regulations by the FAA and other governmental authorities.
Due to 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 gears 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 (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 marketindependent MRO service providers authorizations or licenses to perform repair and overhaul services on the equipment they manufacture. OEMs generally grant few authorizations or licenses and 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.customers. 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 becauseas 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 has extended its services to include the provision of MPG services, either as supplementary to its traditional MRO services or as stand-alone services. Piedmont believesWe believe that establishing and maintaining customer relationships with customers to itsour MPG shop is an important factor in achieving sustainable success as an independent MRO service provider and creates a competitive advantage. Overhaul and Coating of Jet Engine Components
Through its subsidiary, Turbochrome, TAT provides MRO services for jet engine components to the aerospace industry. Turbochrome’s FAA- and EASA-certified repair station provides its services mainly to maintenance service centers, airlines and the military. Turbochrome specializes in MRO services for engine components such as turbine vanes and blades, compressor vanes and blades, fan blades and after burner flaps. Generally, manufacturer specifications, government regulations and military maintenance regimens require that engine components undergo MRO servicing at regular intervals or as necessary. Commercial engine components typically require MRO services after three to five years of service or sooner if required. Engine manufacturers typically provide warranties on new engines and their components and subsystems, which may range from one to five years depending on the bargaining power of the purchaser. Engine manufacturers may also offer extended warranty agreements for 10 to 15 years for the engines. Warranty claims are generally the responsibility of the OEM during the warranty period. Turbochrome’s business opportunity usually begins upon the conclusion of the warranty period for these components. Turbochrome offers its customers DER (Designated Engineering Representatives) and DOA (Design Organization Approval) repairs approved by the FAA and EASA. Turbochrome’s customers include U.S. domestic and international airlines, maintenance service centers and the military.
TAT estimates the size of the markets in which Turbochrome operates to be significant based on the number of jet engines requiring MRO services provided by Turbochrome. Turbochrome plans to expand its operations in the MRO segment by using Turbochrome’s experience and reputation to develop MRO capabilities for additional types of jet engine components with significant commercial potential.
Turbochrome’s quality system complies with ISO 9001 and AS9100, and with EASA part 145, FAA FAR 145 for the civil parts, the Israel Laboratory Accreditation Authority under ISO/IEC 17025:20 and NADCAP for 3 manufacturing procedures. Manufacturing of masking and coating materials
Through its Turbochrome facility, TAT manufactures a wide range of masking and coating materials for the aviation industry. These products are manufactured in compliance with all of the stringent quality assurance standards that apply to the maintenance of aircraft engine components.
Customers
General
TAT targets botha broad range of customers within the commercial and defense markets for aviationmilitary aerospace and ground applications.defense industries. Our customers include commercial manufacturers of military equipment, commercial airlines, aircraft manufacturers, military forces, the defense industries,industry, and other manufacturers of electronic systems, aviation units and machinery in the U.S.,United States, Europe, CIS, Asia, SouthLatin America and Israel. During 20152020, TAT had revenues generated by more than 500 customers worldwide. Major Customers
OEM Customers
TAT, primarily through its Gedera facility, sells its OEM productssolutions and systems to commercial and military aircraft manufacturers and defense contractors and to the U.S. and Israeli governments.
Partial lists of OEM customers are set in the following table:
Aircraft manufacturers | Boeing, Aircraft Company, Cessna, Aircraft Company, Pilatus, Aircraft Ltd., Embraer, Lockheed Martin.Martin, Honda Aircraft, Cirrus, IAI, Parker. | System manufacturers/integrators and Defense Contractorsdefense contractors | Liebherr-Aerospace,Liebherr, Thales, Honeywell International, Rafael, Elbit, IAI, Lockheed EADS,Martin, Eaton Aerospace, Parker Hannifin Corporation, Raytheon.Safran (Snecma). |
The development projects and purchasing processes of many of TAT’s OEM customers are lengthy and complex and accordingly, with some customers, TAT enters into frame agreements that determine certain legal conditions, but under which the customer is not obligated to purchase any quantity of products. Typically, customers issue purchase orders with the required supply quantity, price, lead times and other related terms. MRO Customers
TAT services MRO customers primarily through Limco, Piedmont and Turbochrome, including major U.S. domestic and international airlines, air cargo carriers, maintenance service centers, the U.S. military and navyArmed Forces and other military air forces.forces from around the world.
TAT’s partial list of MRO customers is set forth in the following table:
U.S. Domestic and International Airlinesinternational airlines and Air Cargoair cargo carriers | Singapore Airlines, Air France-KLM, FedEx, SAS, Swiss, EL AL, Delta Airlines, United, US Airways, Air Canada Jazz, Republic Airways, Expressjet, DHL, Austrian Airlines, TAM, Saudia, Interjet, Thai, Korean Air, Air India, FedEx, Swiftair, Allegiant Air, Empire Airlines, Mountain Air Cargo, Alliance Airlines, CAM – Cargo Aircraft Management, ASL airlines, Virgin Australia. | Maintenance service centers | Fokker, Honeywell International, Kellstrom Commercial, Aero Kool, Lufthansa Technik, UTAS-Hamilton Sundstrand, SR Technics, Embraer, Evergreen Aviation Component Services, Turkish Technic, Delta Tech Ops, ST Aerospace Engineering, , Gulfstream, IAI, Aerothrust, Summit Aviation, Haeco Americas, Jet Engine Technologies, Turbine Engine Solution, Turbine Engine Center and Cargolux. | Maintenance Service Centers | Fokker, Honeywell International, Kellstrom Commercial, Aerokool, Lufthansa Technik, UTAS-Hamilton Sundstrand, SR Technics, Evergreen Aviation Component Services, Gulfstream, Bell Helicopters,.
| GovernmentGovernments and Airmilitary air forces | U.S. Army, U.S. Air Force and U.S. Navy; Israeli Air force;Ministry of Defense, IAF; Belgium Air Force, Polish Air Force, Portuguese Air Force |
Military Contracts Sales to the U.S. and Israeli governmentsgovernment, our largest government customer, accounted for approximately 4.9% and 0.6%6.1% of TAT’s revenues for the year ended December 31, 2015,2020, approximately 6.4% and 0.4%2.1% of itsour revenues for the year ended December 31, 20142019 and approximately 3.6% and 0.6%2.4% of itsour revenues for the year ended December 31, 2013, respectively.2018.
Many of TAT’s military contracts are competitively bid and awarded on thea competitive basis ofbased on 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, reductionmodification of scope 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 pricefixed-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 20152019 have resulted in no material cost recovery disallowances for TAT.
TheTAT’s eligibility of TAT to perform under its government contracts requires TATus to maintain adequate security measures. TAT has implemented security procedures that it believes adequately satisfies the requirements of its current government contracts.
Backlog and Long-Term Agreements
Our backlog includes the following: (i) actual purchase orders, and (ii) our maximalthe maximum estimated sales that we expect to generate from long-term agreements for which we do not have actual purchase orders.orders. It should be noted that inunder these long-term agreements there is no legal obligation from the customer to purchase our products or services, yet typically none of our customers would not sign such an agreement unless there is a specific business opportunity. As such, backlog information may not necessarily be indicative of future sales.
As of December 31, 2015, we had2020, our backlog included: (i) outstanding purchase orders representing an aggregate amount of $42$38 million, and (ii) sales that we expect to generate from long-term agreements (the longest of which is until 2030),2033) for which we haven’thave not yet received yet actual purchase orders in an aggregate amount of $184$185 million.Backlog information may not necessarily represent an indication of future sales.
Product and Service Warranties
TAT provides warranties for its products and services ranging from one to three years, which vary with respect to each contract and in accordance withdepending on the nature of eachthe specific product. To date, TAT’s warranty costs have not been substantial. As of December 31, 2015,2020, the combined warranty reserve for TAT was $324 thousand.$0.3 million.
Competitive Environment OEM of Heat Transfer Solutions and Aviation Components and Heat Transfer ProductsAccessories The aerospace and defense OEM industries in general and specifically, the commercial and military aviation markets, are characterized by intense competition and the need to constantly be in the forefront of technological innovations in order to be able to offer advancedtechnologically-advanced and attractive products. Competition in these OEM markets is also based on price, quality and turn-around time.on time delivery. TAT estimates the market size of heat managementtransfer solutions to be significant based on the scope of development projects and purchasing processes of the potential customers. TAT estimates that there is a small number of competing suppliers in the aerospace and defense OEM markets due to the high barriers to enter the aerospace and defense OEM industries,entry to these markets, which include the need for highly qualified and trained personnel, technologically advanced facilities and the need to obtain appropriate governmental approvals, there are a small number of competing suppliers in the markets in which it operates.approvals. The nature of the projects in the commercial and military aviation OEM industry, which are often time consuming and complex, also require long termlong-term supplier relationships and customer loyalty in order to succeed.
TAT’s competitors in the global OEM aerospace and defense industries can be divided into two main groups:
· | • | Complete system manufacturers that either independently or through subcontractors, design, develop and manufacture complete systems (such as a manufacturer of aircraft hydraulic systems) directly for the platform manufacturer (i.e., for business jets). Although some of these companies have the capabilities to design and manufacture each standalone component in a complete system (i.e. a heat exchanger integrated in hydraulic systems) it is unlikely that such companies will compete with TAT in projects where there is a specific requirement for a stand-alone component. These companies will typically compete on bids for complete systems and/or projects where the components/products TAT develops are part of the complete system. In such cases, it is very likely that these companies will subcontract to companies such as TAT the design and manufacturing of one or a few components in the system. Although some of these companies have the capabilities to design and manufacture each standalone component in a complete system (i.e., a heat exchanger integrated in hydraulic systems) they usually do not compete with TAT in projects where there is a specific requirement for a stand-alone component. |
· | • | Component manufacturers, such as TAT, for which the design and manufacture of components (such as heat exchangers)exchangers or other types of heat transfer solutions) is the main business (and which are normally placedsituated in the “value chain” one leveltier below the system manufacturers, such as a manufacturer of an aircraft’s hydraulic system and two tiers below the platform manufacturer, such as a manufacturer of a new aircraft). These companies typically compete in projects where there is a specific requirement for a standalone aviation component (such as a heat exchanger or other types of heat transfer solutions) and in tenders by manufacturers of complete systems or products for sub-contractors. Although some of the component manufacturers have the capabilities to design, develop and manufacture a complete system (i.e., environmental control system for a business jet) for a certain platform, these companies will usually do not compete on projects for complete systems in which their manufactured component constitutes a small part of the complete system, mainly due to the extreme competitivehigh barriers to entry and to their inabilitythe difficulty to move up the “value chain” from a component supplier to a whole system manufacturer. These companies are likely to compete in projects where there is a specific requirement for a standalone aviation component (such as a heat exchanger) and in tenders by manufacturers of complete systems or products for sub-contractors. |
The major competitors of TAT in the area of OEM of Heat Transfer Solutions, Aviation Componentsheat transfer solutions and Heat Transfer Productsaviation accessories include manufacturers in the U.S.United States such as Honeywell,the Hughes-Treitler division of Ametek, Inc., Lytron, Inc., Kintex, NiagraNiagara Thermal, UTC Aerospace Systems (Hamilton Sundstrand), Stewart Warner South Wind Corp.,Hamilton Sundstrand, Honeywell International and Triumph Thermal Systems,Systems; manufacturers based in Europe such as I.M.I. Marston, Ltd., Serck Aviation, Secan, BEHRa subsidiary of Hamilton Sundstrand, Safran and Liebherr; and manufacturers based in Asia such as Sumitomo Precision Products from Japan. SuchThese competitors may enjoy competitive advantages over Gedera, such as:
The ability to adapt faster to changes in customer requirements and industry conditions or trends; | · The ability to independently offer systems in addition to components;
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Greater access to capital; | · Greater access to capital;
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Stronger relationships with customers and suppliers; | · Stronger relationships with customers and suppliers;
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Greater name recognition;
| · Better name recognition;
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Access to superior technology and greater marketing resources;
| · Access to superior technology and marketing resources; andAbility to offer complete systems in addition to components; and
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The ability to bundle heat transfer solutions and other aircraft components.
| · The ability to adapt more quickly to changes in customer requirements and industry conditions or trends.
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MRO Services for Heat Transfer ServicesComponents The market for maintenance, repair and overhaul (MRO)MRO services in the field of heat transfer components is highly competitive. Competition in this market is based on price, turnaround time, quality price, and the ability to provide a broad rangebreadth of services and to perform repairs and overhauls rapidly.services. TAT’s global competitors in services in the field of servicing heat transfer components can be divided into two main groups:
· | • | Service Divisionsdivisions of OEMs – generally, each OEM of products in the heat managementtransfer solutions segment has the necessary capabilities to provide MRO services for products it designs and manufactures throughout theirits lifetime, – commencing onwith the initial productionwarranty period and through the after-market period. These serviceService divisions of OEMs may also acquire capabilities to service products of other OEM’s productsOEMs to further expand their MRO services. |
· | Service CentersService centers – which often provide MRO services for a broad range of components and systems. These Service Centers can be either the in-house maintenance services of commercial airlines or other independent service providers.
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Accordingly, in the areas of OEM operations, manufacturers of components and systems. These service centers can compete with manufacturersbe either the in-house maintenance services of complete systems. Such OEM manufacturers can also compete for the provision of MRO services withcommercial airlines or other independent service providers, of MRO services.such as TAT or Limco.
For heat transfer MRO services, TAT’s major competitors are the Triumph Accessory Services,Thermal Systems, Lori Heat Transfer Center of Honeywell, Drake Air-Air – Ametek, Honeywell-LORI,Liebherr-Aerospace, American Cooler Service, Elite Aerospace, Hamilton Malaysia, Lufthansa Technik, Meggitt (Elite) and SECAN.others. A number ofAs an independent MRO service provider, Limco’s competitors have inherent competitive advantages. For example, Limco competes with the service divisions of large OEMs whowhich in some cases have design authority with respect to their OEM productssolutions and are able to derive significant brand recognitionpricing advantages from their OEM manufacturing activities. Limco also competes with the in-house service divisions of large commercial airlines andwhere there is a strong incentive for an airline to fully utilize the services of its maintenance employees and facilities. Further, Limco’s competitors may have additional competitive advantages, such as:
| · | Ability to bundle heat transfer and other aircraft components; |
44Access to greater marketing resources;
Access to superior technology; and Greater resources which allows for better turnaround time.
| · | Regional support near customers’ location; and |
| · | Access to marketing resources. |
MRO Services for Aviation Components The market for MRO services in which Piedmont operates is highly competitive. Competition in this market is based on quality, price, turnaround time and the ability to provide a broad rangebreadth of services and to perform repairs and overhauls rapidly.services. Piedmont’s primary MRO services competitors are the service divisions of OEMs, the in-house maintenance services of a number ofvarious commercial airlines and other independent service providers.providers, such as TAT or Piedmont. For APU and landing gear MRO services Piedmont’s major competitors are Standard Aero Group Inc.Group., Aerotech International, Inc., Honeywell International, Chase Aerospace, Professional Aviation, Messier-Dowty Aerospace (MD), AAR, Corp., Hawker Pacific, APRO and APRO.others.
A number of Piedmont’s competitors have inherent competitive advantages. For example, Piedmont competes with the service divisions of large OEMs whowhich in some cases have design authority with respect to their OEM products and are able to derive significant brand recognition from their OEM manufacturing activities. Piedmont also competes with the in-house service divisions of large commercial airlines andwhere there is a strong incentive for an airline to fully utilize the services of its maintenance employees and facilities. Further, Piedmont’s competitors may have additional competitive advantages, such as:
| · The ability to adapt more quickly to changes in customer requirements and industry conditions or trends;
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| · Greater access to capital;
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| · Stronger relationships with customers and suppliers;
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| ·Better name recognition; and
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| · Access to superior technology and marketing resources.
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Ability to bundle aviation and other aircraft components;Stronger relationships with customers and suppliers; Regional support near customers’ location; Access to greater marketing resources; Access to superior technology Greater access to capital; and Greater resources which allows for better turnaround time.
Overhaul and Coating of Jet Engine Components The market for MRO services in which Turbochrome operates is highly competitive. Competition in this market is based on quality, price, level of service and turnaround time. Turbochrome’s primary MRO services competitors are the service divisions of OEMs, the in-house maintenance services of a number ofvarious commercial airlines and other independent service providers.providers, including Safran (Snecma), General Electric, GKN, PAS, Chromalloy Southwest, MCT Japan and others. With respect to Fan Blades, Turbochrome's major competitors are Snecma, General Electric, GKNcoating and PAS. With respect to JT8D, Turbochrome's major competitors are Chromalloy Southwest and MCT Japan. With respect tomasking materials, Turbochrome's major competitor is APV Coatings.
A number of Turbochrome’s competitors have inherent competitive advantages. For example, Turbochrome competes with the service divisions of large OEMs who in some caseswhich may have design authority with respect to their OEM products and are able to derive significant brand recognition from their OEM manufacturing activities. Turbochrome also competes with the in-house service divisions of large commercial airlines and there is a strong incentive for an airline to fully utilize the services of its maintenance employees and facilities. Further, Turbochrome’s competitors may have additional competitive advantages, such as:
| · The ability to adapt more quicklyThe ability to adapt faster to changes in customer requirements and industry conditions or trends; |
| · Strong relationship with the OEM'sAbility to bundle jet engine and other aircraft components; |
Stronger relationships with customers, OEMs and suppliers; | · Greater access to capital;Lower cost structure; |
Regional support near customers’ location; | · Stronger relationships with customers and suppliers;Access to greater marketing resources; |
Access to superior technology; | · Better name recognition;Greater access to capital; and |
Greater resources which allows for better turnaround time | · Access to superior technology and marketing resources.
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Competitive Strengths We believe that TAT’s success can be attributed to several critical factors, including the following: | ·Active efforts to preserve its customer base in existing projects, while actively making efforts tobroaden and increase its engagements with such clients.
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Engaging in active efforts to preserve its customer base in existing projects, while working to broaden and increase its involvement with such clients. | · | Conducting marketing activities aiming at penetrating new geographical markets and obtaining newcustomers, while taking advantage of the unique knowledge and expertise that TAT and its subsidiaries gained in various areas. |
| · Entering into additional related operating segments that will enable TAT and its subsidiaries to fulfill their growth potential.
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Conducting marketing activities aimed at penetrating new geographical markets and winning new customers, while taking advantage of the unique knowledge and expertise that TAT and its subsidiaries have gained in various areas. Entering into additional related operating segments that will enable TAT and its subsidiaries to fulfill their growth potential. | · | Providing its customers with the best value, including competitive prices, by tailoring service packages that combine the design and planning of an OEM component, the manufacture of such component, andthe provision of maintenance services. |
| · | Extending MRO capabilities in order to establish a ‘one-stop-shop’ center for comprehensive MRO services for the types of aircraft Limco and Piedmont target. |
| · | Enhancing its engineering capabilities in order to support customer needs related to new projects and in order to certify MRO services that differ from processes previously approved by the FAA, EASA or other regulatory authorities. This will allow shortening the long and complex approval process, streamlining the design and certification process and reducing costs. |
| · | Constant search for new technologies and manufacturing techniques in the heat management solutions line. |
| · | Innovations and improvements aiming at enhancing the quality and performance of existing products of TAT and its subsidiaries. |
| · | Cutting delivery times and reducing costs. |
| · | Entrepreneurship and innovation in the development of new products in an effort to become a market leader and to enter into long term platforms. |
Engineering and Manufacturing
As of December 31, 2015, TAT had 549 employees engaged in manufacturing, repair, testing of products and engineering (out of a total of 623 employees). TAT believes that its engineering staff provides it with the abilitybest value, including competitive prices, by tailoring comprehensive service packages that combine the design and planning of an OEM component, the manufacture of such component, and the provision of maintenance services.
Extending MRO capabilities in order to establish a ‘one-stop-shop’ center for comprehensive MRO services for the types of aircraft Limco and/or Piedmont and/or Turbochrome target. Enhancing our engineering capabilities in order to support itscustomer needs related to new projects and in order to certify MRO services that differ from processes previously approved by the FAA, EASA or other regulatory authorities. This allows shortening the long and complex approval process, streamlining the design and certification process and reducing costs. Leveraging operational efficiencies to achieve shorter delivery times and reduce costs. Investing in new technologies and manufacturing techniques in the heat transfer solutions product line. Investing in innovations and improvements aimed at enhancing the quality and performance of our existing solutions and services as well as the development of new products in an effort to strengthen our market position and enter into more advanced platforms. Engineering
We believe that our engineering capabilities is a strategic core competency and key competitive advantage, which allows us to effectively compete in the market with companies which, in many cases, have better name recognition and greater resources than we do. Our strong engineering capabilities enable us to meet our customers’ increasingly complex demands to deliver high-quality and cost-effective solutions while maintaining efficient development cycles. These capabilities are based on proprietary technological expertise and know-how developed by highly-experienced multi-disciplinary teams over the years. We believe that this proprietary knowledge coupled with our innovative and problem-solving approach allows us to provide our customers with innovativean overall superior solution – in both manufacturing and efficient products while maintaining short product development cycles, highMRO services – in terms of quality, designcost and competitive pricing.turnaround time. Our strong engineering capabilities are a key factor in preserving customer loyalty as well as supporting our efforts to expand our services to new areas of growth.
Gedera’s engineering staff has an extensive knowledge and experience in designing Heat Transfer Products. The lead engineer for each product is in charge of all changes to the product. heat transfer solutions. In general, Gedera has manufacturing capabilities for most of the Heat Transfer Components.heat transfer solutions. Gedera manufactures the necessary tools, fixtures, test equipment and special jigs which are required to manufacture, assemble and test these products. Gedera developed proprietary design and analysis techniques which assist in the mechanical and thermal design of its products. All of Gedera’s products are inspected and tested by trained inspectors using highly sophisticated test equipment in accordance with its customer requirements.
Limco’s engineering department enhances its ability to provide its customers with high-end top qualitytop-quality MRO services, supports the development of MRO services for new products with commercial potential and supports its OEM activity. Limco’s engineering department employs several certified mechanical and aerospace engineers. Limco’s multi-disciplinary team of engineers specializes in, among others, in heat transfer solutions and components and supports all processes of thermal and structural analysis, mechanical and metallurgical research and development for manufacturing design. Limco’s engineers have direct experience with aerospace component repair and with obtaining supplemental type certificates from the FAA. Limco’s engineering department supports the development of new repairs capabilities with repairs that extend beyond the limits of the component maintenance manual and utilizes Designated Engineering Representatives (DER)DER to obtain the necessary FAA approvals.
Piedmont’s engineering department employs experienced mechanical and aerospace engineers with repair station and manufacturing experience in both engineering and quality. Piedmont also has an FAA certified Designated Engineering Representative (DER)FAA-certified DER on staff with delegations in PowerplantPower plant (APUs) & Mechanical Systems and with special delegation to manage and approve Repair Specifications. Besidesrepair specifications. In addition to developing quality major repairs, Piedmont’s engineers have experience in obtaining Supplemental Type Certificatessupplemental type certificates and Parts Manufacturer Approvalsparts manufacturer approvals while working directly with the FAA Aircraft Certification Office. The Piedmont engineering team is dedicated to providing its worldwide customers with safe, reliable and economical solutions in the repair of APU, landing gear, line replaceable units and associated equipment.
Turbochrome’s engineering department enhances its ability to provide its customers with high-end top qualitytop-quality MRO services. Turbochrome’s engineering department employs several certified mechanical and metallurgical engineers. Turbochrome’s multi-disciplinary team of engineers specializes in, among other things, in heat transferturbine components and supports all processes of thermal and structural analysis and mechanical and metallurgical research and development. Turbochrome’s engineers have substantial experience with aerospace component repair and with obtaining DER and DOA certificates from the FAA and EASA.
Research and Development
The technological developments in theTAT’s markets in which TAT operates, increasedrive the need to constantly examine the use of new materials and technologytechnologies in an effort to improve both the physical characteristics of the products (size, weight), as well as their performance (optimal heat transfer, higher reliability and increased lifespan). TAT also develops new products and enhanced functionalities tofor its existing products based on customer demands and byin response to the competitive environment and market potential. TAT invests resources to attain such technological and product improvements in cooperation with its customers.
Source and Availability of Raw Materials and Spare Parts
TAT and its subsidiaries acquire most of the components for the manufacture of their products and provision of their services from a limited number of suppliers and subcontractors, most of whom arethe majority located in Israel and the United States. CertainSome of these suppliers are currently the sole source of one or more components upon which TAT and its subsidiaries are dependent. Since many of TAT's and its subsidiaries’ purchases require long lead-times,lead times, a delay in the supply of an item can significantly delay the delivery of a product. Generally, TAT and its subsidiaries have not experienced significant difficulty in obtaining timely deliveries of necessary components. The raw materials used in manufacturing programs are generally readily available metals and alloys. TAT and its subsidiaries have not had any difficulty in obtaining such materials in the past andcomponents; however, if they are unable to obtain these components when needed, they would experience delays in manufacturing their products and their financial results could be adversely affected.
The raw materials used in manufacturing programs are generally readily available metals and alloys. TAT and its subsidiaries have not had any significant difficulty in obtaining such materials in the past.
TAT and its subsidiaries select their suppliers primarily based on their ability to ensure that their parts are serviceable and traceable to OEM-approved sources, their delivery performance and their ability to help reduce theirthe total cost of procuring those parts. For quality control, cost and efficiency reasons, TAT and its subsidiaries generally purchase supplies only from vendors with whomwho they have ongoing relationships or who their customers have previously approved.
Authorizations from OEMs often require that TAT purchase component parts that are needed for its MRO services from the OEM or its designated distributors.
When deemed essential,Wherever possible, TAT and its subsidiaries have beenmade and are investing efforts in ordercontinue to make an effort to qualify second sources or have identified alternate sources for many of itstheir parts needs.
Israeli Export Policy Exports of military related products are subject to the military export policy of the State of Israel. CurrentCurrently the Israeli Government policygovernment encourages exports to approved customers, provided that such exports do not run counter to Israeli policy or national security considerations. Gedera must obtain a permit prior to initiateinitiating a sales proposal and ultimately an export license for the transaction is required. GederaIsraeli law also regulates the export of “dual use” items (items that are typically sold for civilian uses or purposes but that may also have military purposes).
While we have been successful in obtaining export permits in the past, we may not be able to obtain the necessary export permits or licenses in the future. In addition, governmental policy with respect to military exports (or dual use items) may be altered. However, to date Gedera has not encountered any significant difficulties in obtaining necessary permits or licenses for sale of its products.
U.S. Export Regulations.Regulations Our U.S. subsidiaries' exportExport of defense products, military technical data and technical services by our U.S. subsidiaries to Israel and other countries is subject to applicable approvals ofby the U.S. government under the U.S. International Traffic in Arms Regulations (ITAR)(“ITAR”). Such approvals are typically in the form of an export license or a technical assistance agreement (TAA)(“TAA”). Other U.S. companies wishing to export defense products or military relatedmilitary-related services and technology to our Israeli and other non-U.S. entities are also required to obtain such export licenses and TAAs. An application for an export license or a TAA requires disclosure of the intended end user and the use of the technology. Pursuant to recent export control reform initiatives in the U.S.,United States, a greater part of our U.S. subsidiaries’ and our U.S. suppliers' activities are becoming subject to control under the Export Administration Act "dual use" regulations. The U.S. government may deny an export authorization if it determines that a transaction is counter to U.S. policy or national security.
Proprietary Rights
At the present time, TAT and its subsidiaries do not own any patents. TAT and its subsidiaries rely on laws protecting trade secrets, and consider such items proprietary, but TAT believesproprietary; however, we believe that itsour success depends less on the ownership of such proprietary rights than on theirour innovative skills, technical competences, marketing and engineering abilities. TAT and its subsidiaries have no material registered trademarks.
B. Government Regulations Aerospace and Safety Regulations The commercial aerospace industry is highly regulated by the FAA in the United States, EASA in Europe, the Civil Aviation Authority in England and other governmental authorities elsewhere in the world, while the military aerospace industry is governed by military quality specifications established by the U.S. Department of Defense for the manufacturing and repair industries and ISO-9000. TAT is required to be certified by one or more of these entities and, in some cases, by individual OEMs. TAT must also satisfy the requirements of its customers, including OEMs and airlines that are subject to FAA regulations and to evolving industry standards, and provide these customers with products that comply with the government regulations applicable to commercial flight operations. TAT believes it currently satisfies or exceeds these FAA maintenance standards in its repair and overhaul activities. Each of itsOur active or operating repair stations isin Israel and the United States are approved by the FAA.FAA (while TAT-Engineering, our joint venture in Russia, is currently pursuing such certification or is currently in process of pursuing such certification). TAT also believes it currently satisfies all industry standards in its facilities.
TAT’s operations are also subject to a variety of worker and community safety laws including the Occupational Safety and Health Act of 1970, known as OSHA, which mandates general requirements for safe workplaces for all USU.S. employees. In addition, OSHA provides special procedures and measures for the handling of certain hazardous and toxic substances. TAT believes that its operations are in material compliance with OSHA’s health and safety requirements.
TAT believes that it is in material compliance with US,U.S., European and other governmental regulations affecting the aerospace and defense industry.industries. Israeli Regulations TAT’s operations in Israel are subject to supervision by the Israeli Ministry of Defense and Civil Aviation Administration.Administration of Israel. Gedera is certified by the Israeli Air ForceIAF and the Israeli Ministry of Defense for both manufacturing and maintenance. Gedera is also licensed as a repair station for certain components by the Israeli Civil Aviation Administration.Administration of Israel. In addition, Gedera’s export of certain products and/or know-how is subject to approval by the Department for Control of Defense Export Controls Agency (“DECA”) of the Israeli Ministry of Defense, known as API. Permits from API must be obtained for the initiation ofDefense. DECA permits are required prior to submitting sales proposals with regard to such exports, as well as for the actual export of such products. Environmental Matters TAT’s operations are subject to a number of stringent federal, state and local environmental laws in the United States and Israel, andas well as to regulation set or promulgated by government agencies, including the U.S. Environmental Protection Agency. Among other matters, these regulatory authorities impose requirements that regulate the emission, discharge, generation, management, transportation and disposal of pollutants and hazardous substances. These authorities may require TAT to initiate actions to remediate the effects of hazardous substances which may be or have been released into the environment and require TAT to obtain and maintain permits in connection with TAT’s operations. This extensive regulatory framework imposes significant compliance burdens and risks. Recently, the Israeli Water Authority requested that TAT perform sampling of certain groundwater wells in TAT’s facility in Gedera.
Although TAT seeks to maintain its operations and facilities in compliance with applicable environmental laws, there can be no assurance that TAT has no violations, or that change in such laws, regulations or interpretations of such laws, will not require TAT to make significant additional expenditures to ensure compliance in the future. Currently, TAT does not believe that it will have to make material capital expenditures for its operations to comply with environmental laws or regulations, or to incur material costs for environmental remediation during the 2016 fiscal year. TAT has received no material third party environmental claims relating to its facilities, and TAT believes that it has all material licenses and certifications that are required in the jurisdictions in which it operates.
C. Property, Plants and Equipment
The Gedera facility is located in Park Re’em near Gedera. The Park Re’em locationThis facility is approximately 348,000 square feet and houses TAT’s executive offices, Gedera’s research and development and manufacturing operations and includes approximately 344,000 square feet facility.operations. The land of this facility is leased by TAT Industries Ltd. from the Israel Land Authority or ILA pursuant to a lease that expires in 2016 with respect to one plot (237,000 square feet) and 2020 with respect the other plot (107,000 square feet)(“ILA”). The term of the leases may be extended for a subsequent period of up to 49 years, subject to payment to be calculated according to the ILA's rules. Approximately 43,00026,000 square feet of the facility are sub-leased to TAT from 1991 until 2020 for rental fees.2020. TAT sub-leases the remaining 301,000322,000 square feet of the facility from TAT Industries pursuant to an agreement TAT entered into in connection with the purchase of the operations relating to the manufacture of aviation accessories of TAT Industries in February 2000. The lease agreement expires in November 2024. In 20152019, the rental fee was reviewed by a real estate appraiser and as a result waswho determined that the rental fee willwould be $656,000 per year with an additional incremental payment of 2%$1.2 million per year. Total rental payments TAT paid to TAT Industries during 2015, 20142020, 2019 and 20132018 were $667,000, $427,000$1,200, $787 and $424,000,$767 thousand, respectively.
Due to the adverse impact of COVID-19 on the aerospace industry and consequently on TAT’s business, TAT has resolved to take additional actions in fiscal year 2021 to change its cost structure and reduce costs in order to cope effectively with the impact of COVID-19 on its business. Specifically, we intend to execute a plan during 2021 by which we would transfer our activity from our leased facility in Gedera to a facility in Tulsa, Oklahoma (see information regarding such facility in the immediately following three paragraphs) and to a facility in Kiryat Gat, Israel which is leased by our wholly-owned subsidiary Turbochrome. The facility in Kiryat Gat is approximately 135,000 square feet, and the land on which the facility is located is leased from the ILA. The leasehold rights are for a period ending in 2045 and are recorded in Turbochrome's name. Turbochrome paid the entire lease payments due until 2045 in a one-time payment (discounted to present value).
Limco owns and operates a 55,000 square feet manufacturing plant in Tulsa, Oklahoma which has historically supported all its business, including its aftermarket heat transfer component repair station. This facility also has housed Limco’s administration, engineering, quality control and support services.
Limco also leases building #2, building #3, building #4, and building #5. Building #2 lease is effective from June 1, 2017 to May 31, 2022 and any time after March 31, 2019 lessee or lessor may terminate the lease by giving lessee or lessor six months advance written notice. The rent for building #2 is $4,120 per month plus the annual percentage increase in the CPI-W. Building #3 lease expired on January 31, 2014, however, the lease has renewed automatically from year to year since that date. Either party has the right to cancel the lease with 30 days’ advance notice prior to the annual expiration of the term. The rent for building #3 is $1,505.58 per month plus the annual percentage increase in the CPI-W. Building #4 lease is effective from April 1, 2017 to March 31, 2030. The early termination option on Building #4 states that at any time after March 31, 2019, the lessee or lessor may terminate the lease by giving the lessee or lessor 6 months advance written notice. The rent is $2,854.04 per month for building #4 plus the annual percentage increase in the CPI-W. The lease on building #5 expires on March 31, 2030. Building #5 has an additional 16,000 square feet repair station adjacent to its Tulsa manufacturing plant which has supported its heat transfer componentearly termination option effective after March 31, 2019 with six months advance written notice. The rent is $4,100.00 per month for building #5 plus the annual percentage increase in the CPI-W.
In 2020, 2019 and pneumatic ducting MRO services. In 2015, 2014 and 2013,2018, the rental expense for this property was $50,700, $51,600$149, $144 and $50,000,$92 thousand, respectively, for each one of these years.
In the second half of 2015, Piedmont leased approximately 82,000 square feet in Greensboro, North Carolina, for its new landing gear component and overhaul repair station as well as the MPG operation. The lease expires in October 31, 2016. on June 30, 2025. In 2020, 2019 and 2018 the rental expense was $357 thousand, respectively, for each one of these years. In addition, Piedmont leases approximately 56,000 square feet space for its facility in Kernersville, North Carolina to support its aftermarket APU component and overhaul repair station. During 2018, Piedmont vacated the first floor of the facility while continuing to lease the second floor space, approximately 28,000 square feet. In 2015, 20142020, 2019 and 2013,2018, the rental expense for this property was $78,000$324 thousand for each one of these years.year respectively . The lease expires inexpired on October 31, 2016. Piedmont also leases approximately 32,000 square feet for its facility in Winston Salem, North Carolina to support its landing gear component2016 and overhaul repair station as well as the machining, plating & grinding operation. In 2015, 2014 and 2013, the rental expense for this property was $76,000 for each one of these years. The lease expires on December 31, 2017. Piedmont also leased approximately 10,000 square feet of storage space in Winston-Salem near its main facility starting in 2014 on ais now extended month to month lease. In 2015 and 2014 Piedmont’s expense for this property was $19,000 and $14,000 respectively for each one of these years. Piedmont began a new lease in April 2015 for an approximate 82,000 square feet space to be used for its landing gear component and overhaul repair station as well as the machining, plating & grinding operation beginning in the second quarter of 2016. The lease expires on June 30, 2025. In 2015 the rental expense for this property was $195,000.month. Turbochrome operates a 135,000 square feet manufacturing plant in Qiryat Gat, Israel which supports all its business. The land on which the plant is based is leased from the Israeli Land Administration. The leasehold rights are for a period ending in 2045 and are recorded on Turbochrome's name. The Company had paid the entire lease payments due until 2045 in a one-time payment (discounted to present value).
Item 4A.Unresolved StaffStaff Comments
Not applicable.
Item 5.Operating and Financial Review and Prospects Operating Results
The following discussion of our results of operations should be read together with our consolidated financial statements and the related notes, which appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our current plans, estimates and beliefs and involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report.
Overview TAT provides a variety of services and products to the aerospace and defense industries under four segments: (i) original equipment manufacturing or “OEM” of heat transfer solutions and aviation components (ii) heat transfer services and products (iii) maintenance, repair and overhaul or “MRO” services of aviation components in the area of landing gear and auxiliary power units, and (iv) overhaul and coating of jet engine components.
TAT’s activities in the field of OEM of Heat Transfer Solutions and Aviation Components primarily relate to its Gedera facility and include the (i) design, development, manufacture and sale of a broad range of heat transfer products (such as heat exchangers, pre-coolers and oil/fuel hydraulic coolers) used in mechanical and electronic systems on-board commercial, military and business aircraft; and (ii) manufacture and sale of environmental control and cooling systems and (iii) a variety of other electronic and mechanical aircraft accessories and systems such as pumps, valves, power systems and turbines.
TAT’s activities in the field of heat transfer services and products primarily relate to its subsidiary, Limco, and include the maintenance, repair and overhaul of heat transfer products and to a lesser extent, the manufacturing of certain heat transfer products. Limco operates an FAA certified repair station, which provides aircraft component MRO services for airlines, air cargo carriers, maintenance service centers and the military.
TAT’s MRO services for aviation components primarily relate to its subsidiary, Piedmont, and include the maintenance, repair and overhaul of APUs and landing gear. Piedmont operates an FAA certified repair station, which provides aircraft component MRO services for airlines, air cargo carriers, maintenance service centers and the military.
TAT’s activities in the area of jet engine overhaul relate to its subsidiary, Turbochrome, and include the overhaul and coating of jet engine components, including turbine vanes and blades, fan blades, variable inlet guide vanes and afterburner flaps.
TAT is reliant on the robustness of the commercial and military aviationaerospace and ground defense industries. Any downturn in these industries could decreaseweaken demand for its servicessolutions and productsservices and negatively impact its financial condition.results. The commercial airline industry is cyclical and has historically been subject to fluctuations due to general economic and political conditions, such as fuel and labor costs, price competition, downturns in the global economy and national and international events. TAT’s revenues from OEM operations generally have higher gross margins than from MRO services. Respectively, the manufacturing of OEM products require higher level of expertise, associated labor and initial investments than does the provision of MRO services.
TAT’s cost of revenues for OEM operations and MRO services consists of component and material costs, direct labor costs, quality assurance costs, shipping expenses, royalties, overhead related to manufacturing and depreciation of manufacturing equipment. TAT’s gross margin is affected by the proportion of its revenues generated from each of its operational segments.
The principal factors that affect the operating income of TAT’s four segments, in addition to their gross profit, is the amount TAT expends forexpenditure on selling and marketing expenses and general and administrative expenses. While TAT plans to tightly monitor and save onclosely monitors its operating expenses TAT believesto prevent unnecessary spending, we believe that these operating expenses may increase in the future in accordance with itsour plans to grow the business of these segments.business.
TAT’s research and development expenses are related to new products and technologies or significant improvement inof existing products and technologies.
TAT’s selling and marketing expenses are related to commission payments, compensation and related expenses of TAT’s sales teams, attendance atparticipation in trade shows, travel expenses, advertising expenses and related costs for facilities and equipment. TAT’s general and administrative expenses are related to compensation and related expenses for executive, finance and administrative personnel, professional fees such as legal, audit, SOX, internal audit, other general corporate expenses and related costs for facilities and equipment. Sources of Revenues TAT, directly and through its subsidiaries, provides a variety of servicessolutions and productsservices to the commercial and military aerospace and ground defense industries, including:
| (i) | Original equipment manufacturing or “OEM”OEM of heat transfer productssolutions and aviation components, such as heat exchangers, pre-coolers and oil/fuel hydraulic coolers (through our Gedera facility);
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| (ii) | HeatMRO services for heat transfer servicescomponents and productsOEM of heat transfer solutions (through our Limco subsidiary);
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| (iii) | Maintenance, repair and overhaul or “MRO”MRO services for aviation components (through our Piedmont subsidiary); and
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| (iv) | Overhaul and coating of jet engine components (through our Turbochrome subsidiary). |
TAT’s revenues from its four operational segments for the three years ended December 31, 20152020 were as follows: | | Year Ended December 31, | | | | 2015 | | | 2014 | | | 2013 | | | | Revenues in Thousands | | | % of Total Revenues | | | Revenues in Thousands | | | % of Total Revenues | | | Revenues in Thousands | | | % of Total Revenues | | Revenues (*) | | | | | | | | | | | | | | | | | | | OEM of Heat Transfer Solutions and Aviation Components | | $ | 27,351 | | | | 32 | % | | $ | 28,185 | | | | 35 | % | | $ | 31,138 | | | | 39 | % | Heat Transfer Services and Products | | | 31,001 | | | | 36 | % | | | 30,350 | | | | 38 | % | | | 29,907 | | | | 38 | % | MRO services for Aviation Components | | | 29,665 | | | | 35 | % | | | 27,734 | | | | 34 | % | | | 22,429 | | | | 28 | % | Overhaul and coating of jet engine components (**) | | | 1,905 | | | | 2 | % | | | - | | | | - | % | | | - | | | | - | % | Eliminations | | | (4,315 | ) | | | (5 | )% | | | (5,543 | ) | | | (7 | )% | | | (3,923 | ) | | | (5 | )% | Total revenues | | $ | 85,607 | | | | 100.0 | % | | $ | 80,726 | | | | 100.0 | % | | $ | 79,551 | | | | 100.0 | % |
| | Year Ended December 31, | | | | 2020 | | | 2019 | | | 2018 | | | | Revenues in Thousands | | | % of Total Revenues | | | Revenues in Thousands | | | % of Total Revenues | | | Revenues in Thousands | | | % of Total Revenues | | Revenues | | | | | | | | | | | | | | | | | | | OEM of heat transfer solutions and aviation components | | $ | 26,071 | | | | 33.3 | % | | $ | 26,589 | | | | 26.1 | % | | $ | 24,707 | | | | 26.5 | % | MRO services for heat transfer components and OEM of heat transfer solutions | | | 20,835 | | | | 26.5 | % | | | 34,433 | | | | 33.7 | % | | | 31,344 | | | | 33.6 | % | MRO services for aviation components | | | 31,189 | | | | 39.7 | % | | | 38,687 | | | | 37.9 | % | | | 32,487 | | | | 34.9 | % | Overhaul and coating of jet engine components | | | 3,546 | | | | 4.5 | % | | | 8,610 | | | | 8.4 | % | | | 9,697 | | | | 10.4 | % | Eliminations | | | (3,141 | ) | | | (4 | )% | | | (6,287 | ) | | | (6.2 | )% | | | (5,057 | ) | | | (5.4 | )% | Total Revenues | | $ | 75,359 | | | | 100 | % | | $ | 102,032 | | | | 100 | % | | $ | 93,178 | | | | 100 | % |
(*) Excluding discontinued operations for the year ended on December 31, 2013.60 (**) The results are for the period from October 19, 2015 (date of acquisition) to December 31, 2015.
The following table reflects the geographic breakdown of TAT’s revenues for each of the three years ended December 31, 2015:2020: | | Years Ended December 31, | | | | 2020 | | | 2019 | | | 2018 | | | | Revenues in Thousands | | | % of Total Revenues | | | Revenues in Thousands | | | % of Total Revenues | | | Revenues in Thousands | | | % of Total Revenues | | | | | | | | | | | | | | | | | | | | | United States | | $ | 47,095 | | | | 62.5 | % | | $ | 61,930 | | | | 60.7 | % | | $ | 54,032 | | | | 58.0 | % | Israel | | | 6,851 | | | | 9.1 | % | | | 7,088 | | | | 6.9 | % | | | 6,924 | | | | 7.4 | % | Other | | | 21,413 | | | | 28.4 | % | | | 33,014 | | | | 32.4 | % | | | 32,222 | | | | 34.6 | % | Total | | $ | 75,359 | | | | 100.0 | % | | $ | 102,032 | | | | 100.0 | % | | $ | 93,178 | | | | 100.0 | % |
| | Years Ended December 31, | | | | 2015 | | | 2014 | | | 2013 | | | | Revenues in Thousands | | | % of Total Revenues | | | Revenues in Thousands | | | % of Total Revenues | | | Revenues in Thousands | | | % of Total Revenues | | | | | | | | | | | | | | | | | | | | | United states | | $ | 52,751 | | | | 62 | % | | $ | 50,153 | | | | 62 | % | | $ | 45,655 | | | | 57 | % | Europe | | | 18,336 | | | | 21 | % | | | 16,419 | | | | 20 | % | | | 16,985 | | | | 21 | % | Israel | | | 4,916 | | | | 6 | % | | | 5,641 | | | | 7 | % | | | 6,860 | | | | 9 | % | Other | | | 9,604 | | | | 11 | % | | | 8,513 | | | | 11 | % | | | 10,051 | | | | 13 | % | Total | | $ | 85,607 | | | | 100.0 | % | | $ | 80,726 | | | | 100.0 | % | | $ | 79,551 | | | | 100.0 | % | | |
(*) Excluding discontinued operations for the year ended on December 31, 2013.
Cost of revenuesrevenues. TAT’s cost of revenues for OEM operations and MRO services consist of component and material costs, direct labor costs, quality-assurancequality assurance costs, royalties, shipping expenses, overhead related to manufacturing and depreciation of manufacturing equipment.
TAT’s gross margin was affected by the proportion of TAT’s revenues generated from OEM operations and MRO services in each of the reported years.
Research and development expenses, net. Research and development expenses, net are related to new products and technologies or to a significant improvement of products and technologies, net of grants and participations received.
Selling and marketing expenses. Selling and marketing expenses consist primarily of commission payments, compensation and related expenses of TAT’s sales teams, attendance atparticipation in trade shows, travel expenses, advertising expenses and related costs for facilities and equipment.
General and administrative expenses. General and administrative expenses consist of compensation and related expenses for executive, finance and administrative personnel, professional fees such as legal, audit, SOX, internal audit, other general corporate expenses and related costs for facilities and equipment.
Other income (expense). Other income (expense) results from capital gain on sale of property and equipment and onetime expenses, which in 2015 are mainly attributed to the Turbochrome acquisition and related expenses.
Gain on bargain purchase. Gain on bargain purchase is related to the acquisition of Turbochrome and represents the excess of the estimated fair value of the assets and liabilities acquired over the purchase price.
Financial income (expense), net.Financial income (expense), net consists of exchange rate and interest income (expense).or expense. Interest income (expense)or expense relates to the interest received from (paid to)or paid to banks and changes in the rate of the NIS or other currencies against the U.S. dollar.
Tax expense (income).Tax expense consists of Israeli and U.S. federal and state taxes on the income of TAT’s business and changes in deferred tax assets (liabilities).or liabilities. Net loss from discontinued operations. Consists of a $2.2 million loss from the impairment of the entire interest in Bental (the assets and liabilities of which were segregated at the end of 2013 and classified as held for sale). In addition, the Company recorded a loss from discontinued operations of $0.2 million for the year ended on December 31, 2013.
Critical Accounting Policies and Estimates
TAT’s consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require management to make certain estimates, judgments and assumptions based upon information available at the time that they are made, historical experience and various other factors that are believed to be reasonable under the circumstances. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. While all the accounting policies impact the financial statements, certain policies may be viewed to be critical. These policies are those that are both most important to the portrayal of TAT’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments and estimates. Actual results could differ from those estimates.
In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles in the United StatesU.S. GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result. Management has reviewed these critical accounting policies and related disclosures with TAT’s Audit Committee.audit committee.
TAT’s management believes the significant accounting policies which affect management’s more significant judgments and estimates used in the preparation of TAT’s consolidated financial statements and which are the most critical to aid in fully understanding and evaluating the reported financial results include the following:
| · | Allowance for doubtful accounts |
| · | Acquisitions and other intangible assets |
Revenue Recognition
TAT 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 product sales are recognized when product is shipped to the customer and title passes to the customer.
Revenues from multi-year, fixed price contracts for OEM customers are recognized when a product is shipped (and title passes) to the customer. Management provides for losses, if expected for the remaining portion of such contracts.
Revenues from MRO services are generally recognized when services are completed and the item is shipped back to the customer. In cases in which contracts require exchanging a defective landing gear for a restored gear, the non-refundable minimum amounts from these contracts are recognized on the exchange date (delivery of the product has occurred), and any additional amounts billed to the customer for excess hours of repair, are recognized when the customer approve the price for these additional services.
Revenues from maintenance contracts are recognized over the contract period in proportion to the costs expected to be incurred in performing services under the contract. The Group estimates the costs that are expected to be incurred based on its historical experience. 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 contracts are reviewed on a timely basis and adjusted (if required) based on total expected cost.
Revenues from royalties from sales of products developed with TAT’s intellectual property, technology and technical assistance are recognized when the related sales are made.
Inventory valuation
Inventories are stated at the lower of cost or market.and net realizable value. Cost of raw material and parts is determined using the moving average basis. Cost of work in progress and finished products is calculated based on actual costs and the capitalized production costs, mainly labor and overhead and is determined based on the average basis. TAT’s policy for valuation of inventory and commitments to purchase inventory, including the determination of obsolete or excess inventory, requires it to perform a detailed assessment of inventory at each balance sheet date which includes a review of, among other factors, an estimate of future demand for products within specific time frames, valuation of existing inventory, as well as product lifecycle and product development plans. The business environment in which TAT operates, the wide range of products that TAT offers and the relatively short sales-cyclessales cycles TAT experiences, all contribute to the exercise of judgment relating to maintaining and writing-off of inventory levels. The estimates of future demand that TAT uses in the valuation of inventory are the basis for its revenue forecast, which is also consistent with its short-term manufacturing plan. Inventory reserves are also provided to cover risks arising from slow-moving items. Inventory management remains an area of management focus as TAT balances the need to maintain strategic inventory levels to ensure competitive lead times against the risk of inventory obsolescence because ofdue to changing technology and customer requirements. TAT writes down obsolete or slow movingslow-moving inventory in an amount equal to the difference between the cost of inventory and the net realizable value based upon assumptions about future demand, market conditions and sale forecasts.
If actual market conditions are less favorable than TAT anticipates, additional inventory write-downs may be required.
Income Taxes
TAT operates within multiple tax jurisdictions and is subject to audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. In management’s opinion, adequate provisions for income taxes have been made for all years. Although management believes that its estimates are reasonable, no assurance can be given that the final tax outcome of these issues will not be different than those that are reflected in its historical income tax provisions.
TAT uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax bases of assets and liabilities and net operating loss and credit carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when it is more likely than not that some portion of the deferred tax assets will not be realized. To the extent that TAT’s decisions and assumptions and historical reporting are determined not to be compliant with applicable tax laws, TAT may be subject to adjustments in its reported income for tax purposes as well as interest and penalties.
According to an acceptable interpretation that prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The interpretation also provides guidance on de recognitionde-recognition of tax positions, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. In addition, the Interpretationinterpretation requires significant judgment inwith respect to determining what constitutes an individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and consequently, affect our operating results.
Losses generated prior to January 1, 2018 will still be subject to the 20-year carryforward limitation. Other potential impacts due to the Act include the repeal of the domestic manufacturing deduction, modification of taxation of controlled foreign corporations, a base erosion anti-abuse tax, modification of interest expense limitation rules, modification of limitation on deductibility of excessive executive compensation, and taxation of global intangible low-taxed income. Allowances for Doubtful Accounts
TAT performs ongoing credit evaluations of its customers’ financial condition and requires collateral as deemed necessary. Allowances for doubtful accounts are maintained for estimated losses resulting from the inability of TAT’s customers to make payments. In judging the adequacy of the allowance for doubtful accounts, TAT considers multiple factors including the aging of receivables, historical bad debt experience and the general economic environment. Management applies considerable judgment in assessing the realization of receivables, including assessing the probability of collection and the current credit worthiness of each customer. If the financial condition of TAT’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. On February 25, 2016, Republic Airways Holdings Inc., a customer of Piedmont, announced that it and certain of its subsidiaries have filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. The Company and Piedmont are currently assessing the implications of Republic's voluntary petition for bankruptcy on the maintenance support agreement with Republic. As of the date hereof, there are outstanding receivables from Republic of several hundred thousand U.S. dollars.
Acquisitions and Other Intangible Assets
We accounted for the Turbochrome acquisition using the acquisition method of accounting in accordance with U.S. GAAP accounting rules for business combinations, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of net assets acquired, including identified intangible assets, is recorded as goodwill. If the estimated fair value of the net assets acquired exceeds the purchase price, the resulting bargain purchase is recognized as a gain in the consolidated statement of operations.
The valuations and useful life assumptions are based on information available on or about the acquisition date and are based on expectations and assumptions that are considered reasonable by management.
Management determined the estimated fair values of the intangible assets with the assistance of third-party experts. The judgments made in determining estimated fair values assigned to assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations.
The bargain purchase gain from the acquisition of Turbochrome was primarily related to the fair market value of certain the property, plant and equipment , in relation to replacement costs, and on the Company's expectation regarding its ability to increase the services that can be provided to Turbochrome's existing customers and to its own customers.
The acquisition of Turbochrome was funded through cash on hand and an earn-out payment (up to $2 million). The earn-out Payment is based on the actual revenues of Turbochrome during the calendar years 2015 and 2016. The contingent consideration liability was computed on expected revenue to be generated by the acquired company using a binomial tree model income approach. The Company will reassess the fair value of the contingent consideration on a quarterly basis and record any applicable adjustments to earnings in the period they are determined.
Key Indicators TAT’s management evaluates its performance by focusing on key performance indicators, which are revenues, sources of revenues, gross profit and operating income. These key performance indicators are primarily affected by the competitive landscape in which TAT operates and its ability to meet the challenges posed.
The following table presents, for the periods indicated, information concerning TAT’s results of operations:
| | Year Ended December 31 | | | | 2020 | | | 2019 | | | 2018 | | | | (in thousands) | | Revenues | | | | | | | | | | OEM of heat transfer solutions and aviation components | | $ | 26,071 | | | $ | 26,589 | | | | 24,707 | | MRO services for heat transfer components and OEM of heat transfer solutions | | | 20,835 | | | | 34,433 | | | | 31,344 | | MRO services for aviation components | | | 31,189 | | | | 38,687 | | | | 32,487 | | Overhaul and coating of jet engine components | | | 3,546 | | | | 4,057 | | | | 4,240 | | Eliminations | | | (3,141 | ) | | | (6,287 | ) | | | (5,057 | ) | Total revenues | | | 75,359 | | | | 97,479 | | | | 87,721 | | Cost of revenues | | | | | | | | | | | | | OEM of heat transfer solutions and aviation components | | | 21,703 | | | | 23,998 | | | | 25,612 | | MRO services for heat transfer components and OEM of heat transfer solutions | | | 17,885 | | | | 27,852 | | | | 27,659 | | MRO services for aviation components | | | 26,961 | | | | 33,337 | | | | 28,561 | | Overhaul and coating of jet engine components | | | 3,312 | | | | 3,460 | | | | 3,287 | | Eliminations | | | (2,937 | ) | | | (6,468 | ) | | | (5,343 | ) | Total cost of revenues | | | 66,924 | | | | 82,179 | | | | 79,776 | | Gross profit | | | 8,435 | | | | 15,300 | | | | 7,945 | | Research and development costs, net | | | 185 | | | | 113 | | | | 458 | | Selling and marketing | | | 4,369 | | | | 4,929 | | | | 4,754 | | General and administrative | | | 7,612 | | | | 7,654 | | | | 7,901 | | Other expenses (income) | | | 315 | | | | - | | | | (4 | ) | Operating income (loss) | | | (4,046 | ) | | | 2,604 | | | | (5,164 | ) | Financial expense, net | | | (770 | ) | | | (422 | ) | | | (88 | ) | Income (loss) before taxes on income (tax benefit) | | | (4,816 | ) | | | 2,182 | | | | (5,252 | ) |
Taxes on income (tax benefit) | | | (1,517 | ) | | | | | | | (1,464 | ) | income (loss) before equity investment | | | (3,299 | ) | | | 1,593 | | | | (3,788 | ) | Share in results of affiliated company and impairment of share in affiliated companies | | | (185 | ) | | | (132 | ) | | | (140 | ) | Net income (loss) from continued operation | | $ | (3,484 | ) | | $ | 1,461 | | | $ | (3,928 | ) | Net loss from discontinued operation | | | (1,845 | ) | | | (655 | ) | | | (480 | ) | Net income (loss) | | $ | (5,329 | ) | | $ | 806 | | | $ | (4,408 | ) |
| | | | | | Year Ended December 31 | | | | 2015 | | | 2014 | | | 2013 | | | | (in thousands) | | Revenues | | | | | | | | | | OEM of Heat Transfer Solutions and Aviation Components | | $ | 27,351 | | | $ | 28,185 | | | $ | 31,138 | | Heat Transfer Services and Products | | | 31,001 | | | | 30,350 | | | | 29,907 | | MRO Services for Aviation Components | | | 29,665 | | | | 27,734 | | | | 22,429 | | Overhaul and Coating of Jet Engine Components | | | 1,905 | | | | - | | | | - | | Eliminations | | | (4,315 | ) | | | (5,543 | ) | | | (3,923 | ) | Total revenues | | | 85,607 | | | | 80,726 | | | | 79,551 | | Cost of revenues | | | | | | | | | | | | | OEM of Heat Transfer Solutions and Aviation Components | | | 23,887 | | | | 23,249 | | | | 24,141 | | Heat Transfer Services and Products | | | 22,541 | | | | 23,101 | | | | 22,464 | | MRO Services for Aviation Components | | | 28,474 | | | | 23,502 | | | | 19,224 | | Overhaul and Coating of Jet Engine Components | | | 1,485 | | | | | | | | | | Eliminations | | | (4,445 | ) | | | (5,330 | ) | | | (4,086 | ) | Total cost of revenues | | | 71,942 | | | | 64,522 | | | | 61,743 | | Gross profit | | | 13,665 | | | | 16,204 | | | | 17,808 | | Research and development costs, net | | | 890 | | | | 1,070 | | | | 713 | | Selling and marketing | | | 2,903 | | | | 3,203 | | | | 3,150 | | General and administrative | | | 8,469 | | | | 8,123 | | | | 8,668 | | Other expenses (income) | | | 631 | | | | (11 | ) | | | (20 | ) | Gain on bargain purchase | | | (4,833 | ) | | | - | | | | - | | | | | 8,060 | | | | 12,385 | | | | 12,511 | | Operating income from continuing operations | | | 5,605 | | | | 3,819 | | | | 5,297 | | Financial expense, net | | | (349 | ) | | | (1,294 | ) | | | (50 | ) | Income from continuing operations before taxes on income | | | 5,256 | | | | 2,525 | | | | 5,247 | | Taxes on income | | | 644 | | | | 1,360 | | | | 1,041 | | Net income from continuing operations after taxes on income | | | 4,612 | | | | 1,165 | | | | 4,206 | | Share in results of affiliated company and impairment of share in affiliated company | | | 1,237 | | | | 267 | | | | 1,025 | | Net income from continuing operations | | | 5,849 | | | | 1,432 | | | | 5,231 | | Net loss from discontinued operations, net of tax | | | - | | | | - | | | | (2,429 | ) | Net income attributable to TAT Technologies Ltd. shareholders | | $ | 5,849 | | | $ | 1,432 | | | $ | 2,802 | |
The following table pents,presents, for the periods indicated, information concerning TAT’s results of operations as a percentage of revenues:
| | | | | | Year Ended December 31, | | | | 2015 | | | 2014 | | | 2013 | | Revenues | | | | | | | | | | OEM of Heat Transfer Solutions and Aviation Components | | | 31.9 | % | | | 34.9 | % | | | 39.1 | % | Heat Transfer Services and Products | | | 36.2 | | | | 37.6 | | | | 37.6 | | MRO Services for Aviation Components | | | 34.7 | | | | 34.4 | | | | 28.2 | | Overhaul and Coating of Jet Engine Components | | | 2.2 | | | | - | | | | - | | Eliminations | | | (5 | ) | | | (6.9 | ) | | | (4.9 | ) | Total revenues | | | 100 | | | | 100 | | | | 100 | | Cost of revenues | | | | | | | | | | | | | OEM of Heat Transfer Solutions and Aviation Components | | | 27.9 | | | | 28.8 | | | | 30.3 | | Heat Transfer Services and Products | | | 26.3 | | | | 28.6 | | | | 28.2 | | MRO Services for Aviation Components | | | 33.3 | | | | 29.1 | | | | 24.2 | | Overhaul and Coating of Jet Engine Components | | | 1.7 | | | | - | | | | - | | Eliminations | | | (5.1 | ) | | | (6.6 | ) | | | (5.1 | ) | Cost of revenues | | | 84 | | | | 79.9 | | | | 77.6 | | Gross profit | | | 15.9 | | | | 20.1 | | | | 22.4 | | Research and development costs, net | | | 1 | | | | 1.3 | | | | 0.9 | | Selling and marketing | | | 3.4 | | | | 4.0 | | | | 4.0 | | General and administrative | | | 9.9 | | | | 10.1 | | | | 10.9 | | Other income | | | 0.7 | | | | * | | | | * | | Gain on bargain purchase | | | (5.6 | ) | | | - | | | | - | | | | | 9.4 | | | | 15.3 | | | | 15.7 | | Operating income from continuing operations | | | 6.5 | | | | 4.7 | | | | 6.7 | | Financial expense, net | | | (0.4 | ) | | | (1.6 | ) | | | (0.1 | ) | Income from continuing operations before taxes on income | | | 6.1 | | | | 3.1 | | | | 6.6 | | Taxes on income | | | 0.8 | | | | 1.6 | | | | 1.4 | | Net income from continuing operations after taxes on income | | | 5.3 | | | | 1.5 | | | | 5.2 | | Share in results of affiliated company and impairment of share in affiliated company | | | 1.4 | | | | * | | | | 1.3 | | Net income from continuing operations | | | 6.7 | | | | 1.8 | | | | 6.5 | | Net loss from discontinued operations, net of tax | | | | | | | - | | | | (3.0 | ) | Net income attributable to TAT Technologies’ Shareholders | | | 6.7 | % | | | 1.8 | % | | | 3.5 | % |
| | Year Ended December 31, | | | | 2020 | | | 2019 | | | 2018 | | Revenues | | | | | | | | | | OEM of heat transfer solutions and aviation components | | | 30.6 | % | | | 27.5 | % | | | 28.2 | % | MRO services for heat transfer components and OEM of heat transfer solutions | | | 27.4 | | | | 35.2 | | | | 35.7 | | MRO services for aviation components | | | 41.4 | | | | 39.5 | | | | 37.0 | | Overhaul and coating of jet engine components | | | 4.7 | | | | 4.2 | | | | 4.8 | | Eliminations | | | (4.1 | ) | | | (6.4 | ) | | | (5.7 | ) | Total revenues | | | 100 | | | | 100 | | | | 100 | | Cost of revenues | | | | | | | | | | | | | OEM of heat transfer solutions and aviation components | | | 28.8 | | | | 24.6 | | | | 29.1 | | MRO services for heat transfer components and OEM of heat transfer solutions | | | 23.7 | | | | 28.5 | | | | 31.5 | | MRO services for aviation components | | | 35.7 | | | | 34.2 | | | | 32.5 | | Overhaul and coating of jet engine components | | | 4.4 | | | | 4.2 | | | | 3.7 | | Eliminations | | | (3.8 | ) | | | (6.6 | ) | | | (6.1 | ) | Cost of revenues | | | 88.8 | | | | 84.9 | | | | 90.7 | | Gross profit | | | 11.2 | | | | 15.1 | | | | 9.3 | | Research and development costs, net | | | 0.2 | | | | 0.1 | | | | 0.5 | | Selling and marketing | | | 5.9 | | | | 5 | | | | 5.4 | | General and administrative | | | 10.1 | | | | 7.8 | | | | 9 | | Other income | | | 0.4 | | | | * | | | | * | | | | | 16.6 | | | | 12.9 | | | | 14.9 | | Operating income (loss) | | | (5.4 | ) | | | 2.2 | | | | (5.6 | ) | Financial expense, net | | | (1 | ) | | | (0.4 | ) | | | (0.1 | ) | Income (loss) before taxes on income (tax benefit) | | | (6.4 | ) | | | 1.8 | | | | (5.7 | ) | Taxes on income (tax benefit) | | | (2 | ) | | | 0.6 | | | | (1.6 | ) | income (loss) before equity investment | | | (4.4 | ) | | | 1.2 | | | | (4.1 | ) | Share in results of affiliated company and impairment of share in affiliated companies | | | (0.2 | ) | | | (0.1 | ) | | | (0.2 | ) | Net income (loss) from continued operation | | | (4.6 | ) | | | 1.1 | | | | (4.3 | ) | Net loss from discontinued operation | | | (2.5 | ) | | | (0.2 | ) | | | (0.4 | ) | Net income (loss) | | | (7.1 | )% | | | (0.4 | )% | | | (4.8 | )% |
________________________ * Less than one percent.0.1 percent Year ended December 31, 20152020 compared with Year ended December 31, 20142019
The COVID-19 pandemic has significantly increased global economic and demand uncertainty, and has impacted TAT’s businesses, operations and the aerospace sector as a whole. In response, TAT has taken immediate actions to conserve cash and reduce costs. The financial impact of the COVID-19 pandemic cannot be reasonably estimated at this time. TAT will continue to consider and proactively implement cost and working capital efficiencies so that TAT can respond to these uncertain market conditions.
Revenues. Total revenues were $85.6$75.4 million for the twelve months ended December 31, 2015,2020, compared to $80.7$97.5 million for the twelve months ended December 31, 2014, an increase2019, a decrease of 6%22.7%. This reflects (i) the decrease in revenues in the OEM of Heat Transfer Solutionsheat transfer solutions and Aviation Componentsaviation accessories segment; (ii) the increase in revenues in the Heat Transfer Services and Products segment; (iii) the increasedecrease in revenues in the MRO Servicesservices for Aviation Componentsheat transfer components and OEM of heat transfer solutions segment; (iii) the decrease in revenues in the MRO services for aviation components segment; and (iv) consolidation for the first timedecrease in revenue in the fourth quarteroverhaul and coating of 2015 of the Overhaul and Coating of Jet Engine Components segment.jet engine components segment.
Revenues from OEM of Heat Transfer Solutionsheat transfer solutions and Aviation Components.aviation components. Revenues from the OEM of Heat Transfer Solutions and Aviation Componentsthis operating segment decreased to $27.4$26 million for the year ended December 31, 20152020 from $28.2$26.6 million for the year ended December 31, 2014,2019, a decrease of 3% mainly due to decrease in sales of aviation components.0.2%.
Revenues from Heat Transfer ServicesMRO services for heat transfer components and Products.OEM of heat transfer solutions. Revenues from the Heat Transfer ServicesMRO services for heat transfer components and ProductsOEM of heat transfer solutions operating segment increaseddecreased to $31$20.8 million for the year ended December 31, 2015,2020, from $30.4$34.4 million for the year ended December 31, 2014, an increase2019, a decrease of 2.1% mainly due to an increase in demand for heat transfer products and services. 39.5%.
Revenues from MRO Servicesservices for Aviation Components.aviation components. Revenues from MRO Servicesservices for Aviation Componentsaviation components operating segment increaseddecreased to $29.7$31.2 million for the year ended December 31, 2015,2020, from $27.7$38.7 million for the year ended December 31, 2014, an increase of 7.2%. During a periodic assessment of its long-term projects, the Company updated its estimates of profits expected to be earned from several long-term contracts. This assessment resulted in2019, a decrease in revenues for the year ended December 31, 2015 in an amount of $2.1 mainly due to higher cost accrued and lower revenues expected of those long term projects19.4%.
Revenues from overhaul and coating of jet engine components. Revenues from Overhauloverhaul and Coatingcoating of Jet Enginejet engine components operating segment is $1.9decreased to $3.5 million for the period as of October 19, 2015 untilyear ended December 31, 2015. This is2020, from $4.1 million for the first time that the segment is being consolidated following the acquisitionyear ended December 31, 2019 a decrease of Turbochrome by the Company.14.6%, mainly due to lower demand for overhaul and coating of jet engine components.
Cost of revenues.revenues. Cost of revenues was $71.9$66.9 million for the twelve months ended December 31, 2015,2020, compared to the $64.5$82.2 million for the twelve months ended December 31, 2014, an increase2019, a decrease of 11.5%18.6%. This is primarily attributable to the increase in the cost of revenue mainly in the MRO Services for Aviation Components segment and a consolidation for the first time in the fourth quarter of 2015 of Overhaul and Coating of Jet Engine components segment.
Cost of revenues as a percentage of revenues was 84%increased to 88.8% for the twelve months ended December 31, 2015, compared to 79.9%2020, from 84.9% for the twelve months ended December 31, 2014. 2019. This is primarily attributable an increasedue to certain fixed expenses that could not be adjusted to the decline in revenues. Cost of revenues was partially offset by a portion of the cost of revenue in the MRO Services for Aviation Components segmentU.S. Payroll Protection Program (“PPP”) loan that has been forgiven and recognized as a grant (see “Liquidity and Capital Resources” below).
Cost of revenues for OEM of Heat Transfer Solutionsheat transfer solutions and Aviation Componentsaviation accessories. Cost of revenues for the OEM of Heat Transfer Solutions and Aviation Componentsthis operating segment increased to $23.9was $21.7 million for the year ended December 31, 2015, from $23.22020, compared to $24 million for the year ended December 31, 2014, an increase2019, a decrease of 2.7%9.6%.
Cost of revenues as a percentage of revenues in this segment increased to 93.8% in the year ended December 31, 2020, from 90.2% for the year ended December 31, 2019. The increase is primarily attributabledue to product mix, increasecertain fixed expenses that could not be adjusted to the decline in direct labor costs, quality-assurance costsrevenues.
Cost of revenues for MRO services for heat transfer components and overhead relatedOEM of heat transfer solutions. Cost of revenues for the MRO services for heat transfer components and OEM of heat transfer solutions operating segment decreased to manufacturing during 2015.$17.9 million for the year ended December 31, 2020 from $27.9 million for the year ended December 31, 2019, a decrease of 35.8%.
Cost of revenues as a percentage of revenues in this segment increased to 87.3%86.6% in the year ended December 31, 2015,2020 from 82.5%80.8% for the year ended December 31, 2014.2019. The increase is primarily as a result of product mix with lower margin sold duringdue to the year 2015 along with higher rate of fixed production costsdecrease in 2015 compared with 2014.revenues.
Cost of revenues for Heat Transfer Services and Products. Cost of revenues for the Heat Transfer Services and Products operating segment decreased to $22.5 million for the year ended December 31, 2015 from $23.1 million for the year ended December 31, 2014, a decrease of 2.4%. The decrease is primarily attributable to lower material cost.
Cost of revenues as a percentage of revenues in this segment decreased to 72.7% in the year ended December 31, 2015 from 76.1% for the year ended December 31, 2014, primarily as a result of reductions in material cost and no increase in headcount.
Cost of revenues for MRO services for Aviation Componentsaviation components. Cost of revenues for MRO services for Aviation Componentsaviation components operating segment increaseddecreased to $28.4$26.9 million for the year ended December 31, 20142020 from $23.5$33.3 million for the year ended December 31, 2014, an increase of 20.9%. This increase is primarily attributed to the increase in labor and material cost compared to the rate of increase in sales during 2015. Cost of revenues as a percentage of revenues in this segment increased to 96% in the year ended December 31, 2015 from 84.7% for the year ended December 31, 2014. The increase is primarily attributable to: (i) the increase in the cost of revenue due to the type of services and the cost that was accumulated to certain services, and (ii) the fact that during a periodic assessment of its long-term projects, the Company updated its estimates of profits expected to be earned from several long-term contracts. This assessment resulted in a decrease in revenues for the year ended December 31, 2015 in an amount of $2.1, while the accrued cost of revenue was not changed.
Cost of revenues for Overhaul and Coating of Jet Engine components. Cost of revenues for the Overhaul and Coating of Jet Engine Components segment was $1.5 million for the period as of October 19, 2015 until December 31, 2015.
Cost of revenues as a percentage of revenues in this segment was 78% in the period from October 19, 2015 until December 31, 2015.
Research and development, net. Research and Development expenses were $0.9 million for the twelve months ended December 31, 2015, compared to $1.1 million for the twelve months ended December 31, 2014,2019, a decrease of 16.8%19.2%.
Research and Development expenses as a percentage of revenues were 1% for the twelve months ended December 31, 2015 compared to 1.3% for the twelve months ended December 31, 2014. TAT expects to invest additional resources in research and development activities, and accordingly will continue to incur and record additional research and development expenses in coming years.
Selling and marketing. Selling and marketing expenses were $2.9 million for the twelve months ended December 31, 2015, compared to $3.2 million for the twelve months ended December 31, 2014, a decrease of 9.4% mainly due to decrease in labor and direct expenses.
Selling and marketing expenses as a percentage of revenues were 3.4% for the twelve months ended December 31, 2015, compared to 4.0% for the twelve months ended December 31, 2014. TAT expects to invest additional resources in selling and marketing activities in coming years.
General and administrative. General and administrative expenses were $8.5 million for the twelve months ended December 31, 2015, compared to $8.1 million for the twelve months ended December 31, 2014, an increase of 4.3%. The increase in general and administrative expenses was mainly attributable to the first time consolidation in the fourth quarter of 2015 of the Overhaul and Coating of Jet Engine Components segment after the closing of Turbochrome's acquisition.
General and administrative expenses as a percentage of revenues were 9.9% for the twelve months ended December 31, 2015, compared to 10.1% for the twelve months ended December 31, 2014.
Other expenses (income). For the twelve months ended December 31, 2015, TAT reported other expenses of $0.6 million, an increase of 100% from the year ended December 31, 2014. The increase in other expenses is mainly attributable to acquisition expenses related to Turbochrome's acquisition.
Gain on bargain purchase. For the twelve months ended December 31, 2015, TAT reported a gain on bargain purchase of $4.8 million. The gain on bargain purchase from the acquisition of Turbochrome is a result of the excess of the estimated fair value of certain assets and liabilities acquired over the purchase price of Turbochrome.
Financial expenses. Financial expenses for the twelve months ended December 31, 2015 were $1.3 million, compared to $2.5 for the twelve months ended December 31, 2014. The decrease is primary attributable to the losses on forward transactions that were entered into in order to minimize its currency risk from expenses paid in NIS during the twelve months ended December 31, 2014, and had lower influence during the twelve months ended December 31, 2015. The decrease is also attributed to the changes in exchange rates between the U.S. dollar and the Israeli Shekel.
Financial income. Financial income for the twelve months ended December 31, 2015 was $0.9 million, compared to $1.2 million for the twelve months ended December 31, 2014. Financial income during the twelve month period ended on December 31, 2014 primarily resulted from changes in exchange rates between the U.S. dollar and the Israeli Shekel, interest received from the Israeli tax authorities for excess payments made in previous years and from interest received on short-term investments.
Taxes on income. Taxes on income for the twelve months ended December 31, 2015, amounted to $0.6 million (effective tax rate of 11%), compared to $1.4 million (effective tax rate of 56%) for the twelve months ended December 31, 2014. The decrease is mainly attributed to the fact that the gain from barging purchase of $4.8 million is not taxable.
Share in results of equity investment of affiliated company. TAT recognized income of $1.2 million mainly from the sale of 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 for the twelve months ended December 31, 2015 compared to an income of $0.3 million for the twelve months ended December 31, 2014.
Net income from continuing operations. TAT recognized net income from continuing operations of $5.8 million for the twelve months ended December 31, 2015 compared to net income of $1.4 million for the twelve months ended December 31, 2014. The increase is primarily attributable to the gain on bargain purchase of $4.8 million related to the acquisition of Turbochrome. The increase was offset by a periodic assessment of profit estimates for several long-term contracts of TAT, which resulted in a decrease of $1.4 million in net income for the same period.
Year ended December 31, 2014 compared with Year ended December 31, 2013
Revenues. Total revenues were $80.7 million for the twelve months ended December 31, 2014, compared to $79.5 million for the twelve months ended December 31, 2013, an increase of 1.5%. This reflects (i) the decrease in revenues in the OEM of Heat Transfer Solutions and Aviation Components segment; (ii) the increase in revenues in the Heat Transfer Services and Products segment; and (iii) the increase in revenues in the MRO Services for Aviation Components segment.
Revenues from OEM of Heat Transfer Solutions and Aviation Components. Revenues from the OEM of Heat Transfer Solutions and Aviation Components operating segment decreased to $28.2 million for the year ended December 31, 2014 from $31.0 million for the year ended December 31, 2013, a decrease of 9.5%.
Revenues from Heat Transfer Services and Products. Revenues from the Heat Transfer Services and Products operating segment increased to $30.4 million for the year ended December 31, 2014, from $29.9 million for the year ended December 31, 2013, an increase of 1.5%.
Revenues from MRO services for Aviation Components. Revenues from the MRO Services for Aviation Components operating segment increased to $27.7 million for the year ended December 31, 2014, from $22.4 million for the year ended December 31, 2013, an increase of 23.7%. The increase was attributable to increased sales both to existing and new customers.
Cost of revenues. Cost of revenues was $64.5 million for the twelve months ended December 31, 2014, compared to the $61.7 million for the twelve months ended December 31, 2013, an increase of 4.5%. This reflects (i) the decrease in revenues in the OEM of Heat Transfer Solutions and Aviation Components segment; (ii) the increase in revenues in the Heat Transfer Services and Products segment; and (iii) the increase in revenues in the MRO Services for Aviation Components segment, which is primarily attributable to the increase in material cost associated with the increase in revenues
Cost of revenues as a percentage of revenues was 79.9% for the twelve months ended December 31, 2014, compared to 77.6% for the twelve months ended December 31, 2013. This is primarily attributable to product mix with lower margin products sold during 2014 in the OEM of Heat Transfer Solutions and Aviation Components, in the Heat Transfer Services and Products and in the MRO Services for Aviation operating segments.
Cost of revenues for OEM of Heat Transfer Solutions and Aviation Components. Cost of revenues for the OEM of Heat Transfer Solutions and Aviation Components operating segment increased to $23.2 million for the year ended December 31, 2014, from $24.1 million for the year ended December 31, 2013, an decrease of 3.7%. This decrease in primarily attributable to the decrease in revenues in 2014.
Cost of revenues as a percentage of revenues in this segment increased to 82.5%86.4% in the year ended December 31, 2014,2020 from 77.5%86.3% for the year ended December 31, 2013.2019. The increase is primarily due to assets impairment in a total amount of $0.5 million as a resultresults of product mix with lower margin products sold during year 2014 along with higher rate of fixed production costs in 2014 compared with 2013.the company's decision to sell assets relating to the CRJ landing gear operation.
Cost of revenues for Heat Transfer Servicesoverhaul and Productscoating of jet engine components. Cost of revenues for Heat Transfer Servicesthe overhaul and Products operatingcoating of jet engine components segment increaseddecreased to $23.1$3.3 million for the year ended December 31, 20142020 from $22.5$3.5 million for the year ended December 31, 2013, an increase2019, a decrease of 2.7%5.7%. This increase in primarily attributable to the increase in material cost associated with the increase in revenues in 2014.
Cost of revenues as a percentage of revenues in this segment increased to 76.1%93.5% in the year ended December 31, 20142020 from 75.1% for the year ended December 31, 2013, primarily as a result of product mix with lower margins sold during year 2014. Cost of revenues for MRO services for Aviation Components. Cost of revenues for MRO Services for Aviation Components operating segment increased to $23.5 million for the year ended December 31, 2014 from $19.2 million for the year ended December 31, 2013, an increase of 22.3%.
Cost of revenues as a percentage of revenues in this segment decreased to 84.7%85.3% in the year ended December 31, 2014 from 85.7% for2019. The increase is primarily the year ended December 31, 2013, primarily as a result of product mix with higher margin products soldlower sales compared to 2019 due to a decision during year 2014.2020 to discontinue the JT8D jet engines blades reconditioning operation.
Research and development, net. Research and Developmentdevelopment expenses were $1.1$0.2 million for the twelve months ended December 31, 2014,2020, compared to $0.7$0.1 million for the twelve months ended December 31, 2013, an increase of 50.1%, and are related to new products and technologies within the OEM of Heat Transfer Solutions and Aviation Components and the Heat Transfer Services and Products operating segments.2019.
Research and Developmentdevelopment expenses as a percentage of revenues were 1.3%0.2% for the twelve months ended December 31, 20142020 compared to 0.9%0.1% for the twelve months ended December 31, 2013. TAT expects to invest additional resources in research and development activities, and accordingly will continue to incur and record additional research and development expenses in coming years.2019.
Selling and marketing. Selling and marketing expenses were $3.2$4.4 million for the twelve months ended December 31, 2014,2020, compared to $3.1$4.9 million for the twelve months ended December 31, 2013, an increase of 1.7%. This was due to increased expenses in the Heat Transfer Services and Products segment, primarily attributable to an increase in commission’s costs.2019.
Selling and marketing expenses as a percentage of revenues were 4.0%5.9% for the twelve months ended December 31, 2014, similar2020, compared to 4.0%5% for the twelve months ended December 31, 2013. TAT expects2019, mainly due to invest additional resourcesthe decrease in sellingsales during 2020 compared to 2019 and marketing activities in coming years.the recruitment of a new sales group team during 2020.
General and administrative. General and administrative expenses were $8.1$7.6 million for the twelve months ended December 31, 2014,2020, compared to $8.7$7.7 million for the twelve months ended December 31, 2013,2019, a decrease of 6.9%1.3%. The decrease in general and administrative expenses was impacted by the decrease in general and administrative expenses in the OEM of Heat Transfer Solutions and Aviation Components operating segment, primarily attributable to the decrease in bonuses.
General and administrative expenses as a percentage of revenues were 10.1% for the twelve months ended December 31, 2014,2020, compared to 10.9%7.9% for the twelve months ended December 31, 2013.2019, mainly due to the decrease in sales during 2020 compared to 2019.
Operating income from continuing operationsFinancial expenses, net.. For Financial expenses, net for the twelve months ended December 31, 2014, TAT reported operating income of $3.82020 were $0.8 million, compared to operating income of $5.3$0.4 million for the twelve months ended December 31, 2013, a decrease of 28.3%.2019. The decrease in operating income isincrease was mainly attributable to (i) the decreaseexchange rate differences due to increasing in operating income inILS compared to the OEM of Heat Transfer Solutions and Aviation Components operating segment; (ii) partially offset by the increase in operating income in the MRO Services for Aviation operating segments.USD during 2020.
Financial expenses.Other income (expenses). FinancialOther expenses for the twelve months ended December 31, 20142020 were $2.5$0.3 million, compared to $0.9 for the twelve months ended December 31, 2013. Financial expenses during the twelve months ended December 31, 2014 primarily resulted from losses on Forward transactions which the company entered in order to minimize its currency risk from expenses paid in NIS, changes in exchange rates between the U.S. dollar and the Israeli Shekel, bank fees and interest payments on long-term loans.
Financial income. Financial income for the twelve months ended December 31, 2014 was $1.2 million, compared to $0.9$0 million for the twelve months ended December 31, 2013. Financial income during2019. This is due to impairment of the twelve month period ended on December 31, 2014 primarily resulted from changes in exchange rates between the U.S. dollarcostumers relationship intangible asset related to Overhaul and the Israeli Shekel, interest received from the Israeli tax authorities for excess payments made in previous years and from interest received on short-term investments.coating of jet engine components segment.
Taxes on income.income (tax benefit). TaxesTax benefit for the twelve months ended December 31, 2020, amounted to $1.5 million, compared to $0.6 million taxes on income for the twelve months ended December 31, 2014, amounted to $1.4 million, compared to $1.0 million2019.
Share in results of equity investment of affiliated companies. Share in results of equity investment of affiliated companies for the twelve months ended December 31, 2013. Taxes on income for2020, amounted to a loss of $ 0.2 million during 2020 with no significant change from the twelve months ended December 31, 2014, were impacted by tax expenses recorded in the MRO Services for Aviation operating segments.2019. Share in Results of affiliated company. TAT recognized income of $0.3 million from its approximately 28% interest in FAvS’ results for the twelve months Year ended December 31, 20142019 compared to an income of $1 million for the twelve monthswith Year ended December 31, 2013.2018
Net income from continuing operations. TAT recognized net income from continuing operations of $1.4 millionSubject to the immediately following sentence, please see Item 5 on Form 20-F for the twelve monthsYear ended December 31, 2014 compared to net income of $5.2 million2019 filed on March 19, 2020 for the twelve months ended December 31, 2013. Net loss from discontinued operations. For the twelve months ended December 31, 2013, TAT recognized an impairment of $3.3 million attributablethis comparison. Due to the saleCompany’s management decision to discontinue the JT8D engine blades reconditioning activity as part of our entire interesta strategic change in Bental,Turbochrome's business, the OEM of Electric Motion Systems (out of which $2.3 million attributed to controlling interest), as mentioned above.
Net income (loss) from continuing operations attributable to controlling interest. TAT recognized net income of $1.4 million for the twelve months ended December 31, 2014 compared to net loss of $2.8 million for the twelve months ended December 31, 2013.
TAT expects its operating results to fluctuatematerial change in the future asfinancial results of the Company previously presented for fiscal years 2019 and 2018, is a resultdecrease of various factors, many of whichapproximately $5 million in revenues for each such fiscal year. Changes to gross profit and operating income from operations for such fiscal years are outside of TAT’s control, including the timing of orders, the provision of services and deliveries. Consequently, TAT believes that period-to-period comparisons of its operating results may not necessarily be meaningful, and as a result, you should not rely on them as an indication of future performance.immaterial.
Conditions in Israel
TAT is incorporated under the laws of the State of Israel, and its principal executive offices and manufacturing and research and development facilities are located in the State of Israel. See “RISK FACTORS” for a description of governmental, economic, fiscal, monetary or political policespolicies or factors that have materially affected or could materially affect TAT’s operations.
Trade Relations
Israel is a member of the United Nations, the International Monetary Fund, the International Bank for Reconstruction and Development and the International Finance Corporation. Israel is a member of the World Trade Organization and is a signatory to the General Agreement on Tariffs and Trade. In addition, Israel has been granted preferences under the Generalized System of Preferences from the United States, Australia, Canada and Japan. These preferences allow Israel to export the products covered by such programs either duty-free or at reduced tariffs. Israel and the European Union Community, known now as the “European Union,” concluded a Free Trade Agreement in July 1975 that confers some advantages with respect to Israeli exports to most European countries and obligates Israel to lower its tariffs with respect to imports from these countries over a number of years. In 1985, Israel and the United States entered into an agreement to establish a Free Trade Area. The Free Trade Area has eliminated all tariff and some non-tariff barriers on most trade between the two countries. On January 1, 1993, an agreement between Israel and the European Free Trade Association, known as the “EFTA,” established a free-trade zone between Israel and the EFTA nations. In November 1995, Israel entered into a new agreement with the European Union, which includes a redefinition of rules of origin and other improvements, such as allowing Israel to become a member of the Research and Technology programs of the European Union. In recent years, Israel has established commercial and trade relations with a number of other nations, including Russia, China, India, Turkey and other nations in Eastern Europe and the Asia-Pacific region.
Impact of Currency Fluctuation and of Inflation
TAT reports its financial results in dollars and receives payment primarily in dollars or dollar-linked NIS for all of its sales while it incurs a portion of its expenses, principally salaries and related personnel expenses in Israel, in NIS. Additionally, certain assets, as well as a portion of its liabilities, are denominated in NIS. Therefore, the dollar cost of its operations is influenced by the extent to which any inflation in Israel is offset on a lagging basis, or is not offset by the devaluation of the NIS in relation to the U.S. dollar. When the rate of inflation in Israel exceeds the rate of devaluation of the NIS against the U.S. dollar, the dollar cost of operations in Israel increases. If the dollar cost of operations in Israel increases, its dollar-measured results of operations will be adversely affected. TAT cannot assure you thatIt is uncertain whether TAT will not be materially and adversely affected in the future if inflation in Israel exceeds the devaluation of the NIS against the dollar or if the timing of the devaluation lags behind inflation in Israel. The following table presents information about the rate of inflation in Israel, the rate of devaluation (appreciation) of the NIS against the U.S. dollar, and the rate of inflation of Israel adjusted for the devaluation:
Year ended December 31, | | Israeli inflation rate% | | | NIS appreciation (devaluation) to the US dollar rate% | | | Israeli inflation adjusted for appreciation (devaluation) % | | 2003 | | | (1.9 | ) | | | 7.6 | | | | 5.7 | | 2004 | | | 1.2 | | | | 1.6 | | | | 2.8 | | 2005 | | | 2.4 | | | | (6.8 | ) | | | (4.4 | ) | 2006 | | | (0.1 | ) | | | 8.2 | | | | 8.1 | | 2007 | | | 3.4 | | | | 9.0 | | | | 12.4 | | 2008 | | | 3.8 | | | | 1.1 | | | | 4.9 | | 2009 | | | 3.9 | | | | 0.7 | | | | 4.6 | | 2010 | | | 2.7 | | | | 6.4 | | | | 9.1 | | 2011 | | | 2.2 | | | | (7.7 | ) | | | (5.5 | ) | 2012 | | | 1.4 | | | | 2.3 | | | | 3.7 | | 2013 | | | 2.0 | | | | 7.5 | | | | 9.5 | | 2014 | | | (0.2 | ) | | | 12 | | | | 11.8 | | 2015 | | | (0.1 | ) | | | 0.3 | | | | 0.2 | |
A devaluation of the NIS in relation to the U.S. dollar has the effect of reducing the U.S. dollar amount of any of its expenses or liabilities which are payable in NIS, unless these expenses or payables are linked to the U.S. dollar. This devaluation also has the effect of decreasing the U.S. dollar value of any asset which consists of NIS or receivables payable in NIS, unless the receivables are linked to the U.S. dollar. Conversely, any increase in the value of the NIS in relation to the U.S. dollar has the effect of increasing the U.S. dollar value of any unlinked NIS assets and the U.S. dollar amounts of any unlinked NIS liabilities and expenses. During the 2013 the NIS appreciated against the U.S. dollar by 7.5%. Such trend was continued through the end of 2014, during which the NIS appreciated by additional 12% by the end of 2014. During 2015 the exchange rates between the NIS and the U.S. dollar have not changed materially. Through March 21, 2016 exchange rates between the NIS and the U.S. dollar have not changed materially compared to the corresponding average rate as of December 31, 2015.
Because exchange rates between the NIS and the dollar fluctuate continuously, exchange rate fluctuations and especially larger periodic devaluations will have an impact on TAT’s profitability and period-to-period comparisons of its results. The effects of foreign currency re-measurements are reported in TAT’s consolidated financial statements in current operations. Although TAT cannot assure youhedges a portion of its exchange rate risk through the use of forward contracts and other derivative instruments, there is no certainty that in the future its results of operations may not be materially adversely affected by currency fluctuations.
Corporate Tax Rate Israeli companies are generally subject to corporate tax on their taxable income (including capital gains). The regular corporate tax rate for Israel is 26.5%was 23% for the year ended December 31, 2014 and 2015, and 25% for the year ended2018 , December 31, 2013. In 20162019 and thereafter the regular corporate tax rate is set to be 25%.December 31, 2020. However, the rate is effectively reduced for income derived from an approved enterpriseApproved and beneficiary enterprise. Until December 31, 2010, TAT has elected to participate in the alternative package of tax benefits for its current approved enterprise and beneficiary enterprise underBeneficiary Enterprises, as defined by the Law for the Encouragement of Capital Investments, 1959, as amended (the "Investment Law"). Until December 31, 2010, TAT elected to participate in the alternative package of tax benefits for its current Approved and Beneficiary Enterprises. Pursuant to such law, the income derived from those enterprises was exempt from Israeli corporate tax for a specified benefit period (except to the extent that dividends are distributed from tax exempt income generated from the Approved and Beneficiary Enterprises or during the tax-exemption period other than upon liquidation) and subject to reduced corporate tax rates for an additional period. AdditionalCertain amendments to the Investment 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 reduced corporate tax rate of corporate tax as opposed to the current incentives that are limited to income from Approved or BenefitingBeneficiary 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 Israel’s 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. As with dividendsDividends 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 Companya company may incur additional tax liability in the event of distribution of dividends from tax exempt income generated from its Approved and BenefitingBeneficiary Enterprises, no additional tax liability will be incurred by the Companycompany 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 CompanyTAT elected to irrevocably implement the 2011 Amendment with respect to its existing Approved and BenefitingBeneficiary Enterprises while waiving benefits provided under the legislation prior to the 2011 Amendment. UnderAccording to a more recent amendment which was announced in August 2013 beginningand implemented 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) with respect to Preferred Income as defined in the Investment law. In 2017, following the approval of the Israeli Budget Law for 2017 and 2018 (the “Budget Law”), the tax rate under a Preferred Enterprise with respect to Preferred Income as defined in the Investment law, generated in a Development Zone A will drop effective as of January 1, 2017, to 7.5%, while the tax rate of Preferred Income derived elsewhere in Israel remains 16%.
Certain investment income derived by TAT from investments may not be regarded by the Israeli tax authorities as income from TAT’s approved and beneficiary enterprisesPreferred Enterprise and consequently may be taxed at the regular statutory rate in Israel. Certain of TAT’s subsidiaries operate in and are subject to the tax laws of various other jurisdictions, primarily the United States. TAT’s U.S. subsidiaries are taxed based on federal and state tax laws. The U.S. federal statutory flat tax of TAT’s U.S. subsidiaries was 38% in therate for tax years ended December 31, 2015, 20142018 and 2013, respectively.2019 is 21%,
Recently Issued Accounting Standards Recently adopted accounting pronouncements:
| 1. | During November 2015,In June 2016, the FASB issued ASU 2015-17, Balance Sheet ClassificationNo. 2016-13, Financial Instruments—Credit Losses ("Topic 326"): Measurement of Deferred Taxes, which simplifiesCredit Losses on Financial Instruments. The guidance replaces the presentationcurrent incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of deferred income taxes. ASU 2015-17 provides presentation requirementsa broader range of reasonable and supportable information to classify deferred tax assets and liabilities as noncurrent in a classified statement of financial position.inform credit loss estimates. The standard isguidance will be effective for the fiscal yearsyear beginning after December 15, 2016,on January 1, 2020, including interim periods within that reporting period. Early adoption is permitted for any interim and annual financial statements thatyear. The new standard does not have not yet been issued. We early adopted ASU 2015-17 effective October 31, 2015, retrospectively. Adoption resulted in a $1.1 million decrease in other accounts receivable and prepaid expenses, a $0.9 million increase in Long-term deferred tax assets, net, and a $0.2 million decrease in long-term deferred tax liability, net in our consolidated balance sheets at December 31, 2014. Adoption had no impact on our results of operations and cash flow. |
| (2) | In September 2015, the FASB issued ASU 2015-16, Business Combinations - Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement to restate prior period financial statements for measurement period adjustments. The guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. We early adopted this guidance in our fourth quarter of fiscal 2015. See “Note 3 — Acquisitions”. Adoption had no impactmaterial effect on the Company's financial statements as of December 31, 2015.upon adoption. |
Accounting pronouncements issued but not yet adopted:
| (3)1. | In February 2015,December 2019, the FASB issued amended guidance on currentASU 2019-12, “Simplifying the Accounting for Income Taxes. (Topic 740)” ("the Update"). The amendments in this Update simplify the accounting for consolidation of certain entities. Pursuantincome taxes by removing the following exceptions in ASC 740: 1. Exception to this guidance, reporting enterprises should evaluate whether (a) they should consolidate limited partnershipsthe incremental approach for intra-period tax allocation when there is a loss from continuing operations and similar entities, (b) fees paidincome or a gain from other items; 2. Exception to the requirement to recognize a decision maker or service provider are variable interestsdeferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; 3. Exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary;4. Exception to the general methodology for calculating income taxes in an interim period when a variable interest entity ("VIE"), and (c) variable interests in a VIE held by related parties ofyear-to-date loss exceeds the reporting enterprise require the reporting enterprise to consolidate the VIE. The guidance is effectiveanticipated loss for the interim and annual periods beginning on or after December 15, 2015. The Company does not expect this guidance to have a material effect on its consolidated financial statements at the time of adoption of this standard.year. |
In addition, this Update also simplify the accounting for income taxes in certain topics as follows: 1. Requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax; 2. Requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction;3. Specifying that an entity can elect (rather than required to) allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements;4. Requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. | (4) | In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 (ASU 2014-09) "Revenue from Contracts with Customers." ASU 2014-09 will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue upon the transfer of goods or services to customers in an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of the time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. |
The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance isamendments in this Update are effective for thefiscal years, and interim and annual periods beginning on or after December 15, 2017 (early adoption is permitted in annual periodswithin those fiscal years, beginning after December 15, 2016). The guidance permits the use of either a retrospective or cumulative effect transition method.2020. The Company is currently evaluating the impacteffects of the amended guidancethis Update on its consolidated financial statements. | (5) | In July 2015, the FASB issued guidance on current accounting for inventory measurement. The new guidance requires entities to measure inventory at the lower of cost or net realizable value. Net realizable value is defined by the guidance as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The guidance is effective for the interim and annual periods beginning on or after December 15, 2016 (early adoption is permitted). The Company is currently evaluating the impact of the new guidance on its consolidated financial statements. |
| (6) | In February 2016, the FASB issued ASU 2016-02 – Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. ASC 842 supersedes the previous leases standard, ASC 840 Leases. The standard is effective on January 1, 2019, with early adoption permitted. The Company is in the process of evaluating the impact of this new guidance on its financial statements. |
Liquidity and Capital Resources
As of December 31, 2015,2020, TAT had cash and cash equivalents and short-term bank deposits of $26.8$24.3 million compared with cash and cash equivalents and short-term bank deposits of $28to $15.9 million as of December 31, 2014.2019, an increase of $8.3 million primarily due to changes in working capital, government supported loans granted connection with the COVID-19 governmental support and credit lines from commercial banks.
During 2020, TAT received loans in the amount of $3.4 million from commercial banks. These loans are guaranteed by the Israeli government. The loans bear annual interest of 3.1% (Prime Rate+1.5%) which will be paid in equal monthly instalments from June 2021 through May 2025.
In addition, during 2020 TAT received a loan of approximately $3.1 million under the U.S. Small Business Administration Payroll Protection Program (“PPP”) which was created under the Coronavirus Aid, Relief and Economic Security Act. Under the PPP, repayment of the loan, including interest, may be forgiven based on payroll expenses, rent, utilities and other qualifying expenses incurred during a certain period following receipt of the loan, provided that TAT will adhere to specific requirements outlined in the PPP. Based on SBA's forgiveness approval notice and the legal advice received in connection therewith, out of the $3.1M PPP loan, an amount of $1.7M has been recognized as a grant. As of December 31, 2020, the balance of the PPP loans is $1.4M, which is currently audited by the SBA.
In November 2020 TAT received a short-term credit line of $3M from a banking institution in the US. The loan bears an annual interest rate of 3.6% and can be renewed by the end of the year for an additional year. The loan has financial covenants such as a) tangible net worth to funded debt ratio of not less than 3 to 1, b) positive EBITDA, and c) minimum eligible accounts receivable of $3 million.
Capital expenditures for the years ended December 31, 2015, 20142020, 2019 and 20132018 were approximately $3.3$11 million, $3$3.8 million and $2.2$4.2 million, respectively. TAT funded these expenditures mainly from cash flows from operations and alsonew credit line from financing activities.banks. TAT expects that its available cash and cash equivalents and cash flow that will be generated from operations will be sufficient to enable it to fund its capital expenditures.
TATManagement believes that anticipated cash flow from operations and its current cash balances will be sufficient to meet its cash requirements for at least 12 months.months from the financial statement issuance date. TAT’s future capital requirements will depend on many factors, including its rate of revenue growth, the expansion of its selling and marketing activities, costs associated with expansion into new markets and the timing of the introduction of new products and services.
Cash Flows
The following table summarizes TAT’s cash flows for the periods presented: | | | | | | Year Ended December 31, | | | | (in thousands) | | | | 2015 | | | 2014 | | | 2013 | | Net cash provided by (used in) operating activities | | $ | 733 | | | $ | (1,458 | ) | | $ | 7,203 | | Net cash provided by (used in) investing activities | | | (4,470 | ) | | | 4,624 | | | | 70 | | Net cash used in financing activities | | | (469 | ) | | | (2,909 | ) | | | (2,936 | ) | Net cash provided by discontinued operations | | | - | | | | - | | | | 514 | | Net increase (decrease) in cash and cash equivalents | | | (4,206 | ) | | | 257 | | | | 4,851 | | Cash and cash equivalents at beginning of the year | | | 22,894 | | | | 22,637 | | | | 17,786 | | Cash and cash equivalents at end of the year | | | 18,688 | | | | 22,894 | | | | 22,637 | | Less – Cash and cash equivalents of discontinued operations at end of year | | | - | | | | - | | | | 2,823 | | Cash and cash equivalents of continuing operations at end of year | | $ | 18,688 | | | $ | 22,894 | | | $ | 19,814 | |
| | | | | | Year Ended December 31, | | | | (in thousands) | | | | 2020 | | | 2019 | | | 2018 | | Net cash provided by operating activities | | $ | 5,947 | | | $ | 3,551 | | | $ | 2,155 | | Net cash used in investing activities | | | (5,407 | ) | | | (3,279 | ) | | | (3,841 | ) | Net cash provided by (used in) financing activities | | | 7,652 | | | | - | | | | 197 | | Net cash provided by (used in) discontinued activities | | | 153 | | | | (263 | ) | | | (75 | ) | Net increase (decrease) in cash and cash equivalents | | | 8,345 | | | | 9 | | | | (1,564 | ) | Cash and cash equivalents at beginning of the year | | | 15,959 | | | | 15,950 | | | | 17,514 | | Cash and cash equivalents at end of the year | | $ | 24,304 | | | $ | 15,959 | | | $ | 15,950 | |
The net cash provided by (used in) operating activities for the year ended December 31, 20152020, amounted to approximately $0.7$5.9 million, compared to $(1.4)net cash provided by operating activities of $3.5 million for the year ended December 31, 20142019 and $7.2net cash provided by operating activities of $2.2 million for the year ended December 31, 2013.2018.
Net cash provided by operating activities for the year ended December 31, 2020 was principally derived from the following adjustments of non-cash line items: an upward adjustment of $4.3 million for depreciation and amortization; an upward adjustment of $9.5 million for decrease in trade accounts receivable; an upward adjustment of $1.6 million for decrease in inventory; an upward adjustment of $0.6 million for increase in non-cash finance expenses. This was offset by $5 million loss; a downward adjustment of $5.3 million for decrease in trade accounts payables; a downward adjustment of $1.4 million for decrease in deferred income taxes, net and a downward adjustment of $0.3 million in accrued expenses.
Net cash provided by operating activities for the year ended December 31, 20152019 was principally derived from $5.8 million of net income and from the following adjustments forof non-cash line items: an upwards adjustment of $2.8$4.3 million for depreciation and amortization; an upward adjustment of $0.5$2.5 million for increasedecrease in other accounts payablecurrent assets and accruedprepaid expenses; and an upwardsupward adjustment of $0.4$3.3 million for increase in trade accounts payable.account payable and an upward adjustment of $1 million for increase in accrued expenses. This was offset withby a downward adjustment of $1.2$5.7 million for shareincrease in results and sale of equity investment of affiliated company;inventory; a downward adjustment of $2.4$2 million for increase in trade accounts receivable; a downward adjustment of $0.6 million for increase in inventory; and a downward adjustment of $4.8 million for onetime gain on bargain purchase. Net cash used in operating activities for the year ended December 31, 2014 was principally derived from $1.4 million of net income from continuing operations and from the following adjustments for non-cash line items: an upwards adjustment of $2.1 million for depreciation and amortization; an upwards adjustment of $2.7 million for decrease in accounts receivable; and an upward adjustment of $1.2 million for decrease in net deferred income tax asset. This was offset with a downward adjustment of $0.3 million for share in results of affiliated company; an downward adjustment of $6 million for increase in inventories; a downward adjustment of $0.5$0.9 million for decrease in liability in respect of employee rights upon retirement; a downward adjustment of $0.8 million for increase in other accounts receivable, prepaid expensesretirement and funds in respect of employee rights upon retirement; a downward adjustment of $0.5 million for decrease in accounts payable and a downward adjustment of $0.7 million for decrease in other accounts payable and accrued expenses.deferred income taxes, net.
Net cash provided by operating activities for the year ended December 31, 20132018 was principally derived from $5.3 million of net income from continuing operations and from the following adjustments forof non-cash line items: an upwardupwards adjustment of $1.9$4.1 million for depreciation and amortization; an upwardsupward adjustment of $1$6.5 million for decrease in othertrade accounts receivable, prepaid expenses and funds in respect of employee rights upon retirement;receivable; an upward adjustment of $0.7$0.4 million for decrease in inventories;loss from derivatives; and an upwardsupward adjustment of $0.3 million for increase in share-based compensation. This was offset by $3.9 million loss; a downward adjustment of $1.6 million for increase in other account receivables; a downward adjustment of $2 million for decrease in accrued expenses; a downward adjustment of $1.1 million for decrease in trade accounts payable; and a downward adjustment of $0.6 million for decrease in liability in respect of employee rights upon retirement; an upwards adjustment of $0.3 million for increase in other accounts payable and accrued expenses and an upwards adjustment of $0.1 million for decrease in net deferred income tax asset. This was offset with a downward adjustment of $1.0 million for share in results of affiliated company; a downward adjustment of $1.2 million for increase in accounts receivable; and a downward adjustment of $0.4 million for decrease in other accounts payable and accrued expenses.retirement.
Net cash used in investing activities was approximately $(4.5) million for80
In the year ended December 31, 2015, compared to2020, the net cash providedused by investing activities of $4.6were primarily attributable to $3.9 million for the year ended December 31, 2014 and net cash used in investing activities of approximately $0.1 million for the year ended December 31, 2013.
Of the cash provided by investing activities in the year ended December 31, 2015 approximately $3.3 million was used for the purchase of property and equipment primarily production equipment and building improvements, $8.1$1.5 million was used for investment in short-term deposit and $1.8 million was used for an acquisition of a subsidiary (net of cash acquired). this was offset by $5.1 million from maturities of short-term deposits and $3.6 million from proceeds from the sale of an equity investment in an affiliated company.
Of the cash provided by investing activities in the year ended December 31, 2014 approximately $3 million was used for the purchase of property and equipment, primarily production equipment and building improvements, offset by $5.1 million from maturities of short-term deposits and $2.2 million from the sale of a subsidiary.intangible assets.
Of the cash used in investing activities in the year ended December 31, 2013 approximately $2.3 million was used for the purchase of property and equipment, primarily production equipment and building improvements, offset by $2.3 million from the release of restricted deposit.
Net cash used in financing activities was approximately $0.5 million for the year ended December 31, 2015, compared to net cash used in financing activities of approximately $2.9 million for the year ended December 31, 2014 and net cash used in financing activities of approximately $2.9 million for the year ended December 31, 2013.
In the year ended December 31, 2015,2019, the net cash used in financingby investing activities waswere primarily attributable to repayments$3.3 million purchase of $0.5 million of short-term loans.property and equipment.
In the year ended December 31, 2014,2018, the net cash used in financingby investing activities waswere primarily attributable to repayments$4.3 million purchase of $0.9 million of long-term creditproperty and payment of $2 million of cash dividend.equipment.
In the year ended December 31, 2013,2020, the net cash usedprovided by financing activities were primarily attributable to a $3.0 million short term line of credit received from a commercial bank to loans of $3.7 million received in connection with the PPP loan program from the US SBA and in connection with a loan guaranteed by Israeli government due to Covid-19 government support.
In the year ended December 31, 2018, the net cash provided by financing activities was primarily attributable to repaymentsexercise of $0.7 million of short-term credit and repayments of $2.3 million of long-term loans.options. A. Research and Development, Patents and Licenses Not applicable.
In recent years, trends in the aerospace industry in which we operate havehas been impacted by the increase in number of commercial and defense aircraft, increase in number ofcommercial passenger traffic and a corresponding increase in airlines’ revenue. ThereThe Covid-19 pandemic did, however, result in a slow-down in commercial aviation markets and there is no assurance that such increase in the number of aircraft, passenger traffic and airlines revenuethese trends will continue in the future. AirplaneCommercial carriers continue withremain committed to their efforts to reduce cost of MRO activities and increase efficiencies.
In recent years, consolidation in the aerospace industry affected competition. This consolidation decreased the number of competitors, but increased the relative size and resources of our competitors. However, we believe in our ability to compete on the basis of our deep know how, manufacturing expertise and long-term relationship with our existing and new customers.
C. Off-Balance Sheet Arrangements
We are not a party to any material off-balance sheet arrangements. In addition, we have no unconsolidated special purpose financing or partnership entities that are likely to create material contingent obligations.
D. Tabular Disclosure of Contractual Obligations
The following table summarizes our minimum contractual obligations and commercial commitments as of December 31, 20152020, and the effect we expect them to have on our liquidity and cash flow in future periods (not include future liabilities from held for sale operating segment). Contractual Obligations | | Payments due by Period (Amounts in Thousands US$) | | | | Total | | | Less than 1 year | | | 1-3 Years | | | 3-5 Years | | | More than 5 years | | Operating lease obligations | | | 7,907 | | | | 1,800 | | | | 3,276 | | | | 2,334 | | | | 497 | | Purchase commitments | | | 8,577 | | | | 7,721 | | | | 856 | | | | - | | | | - | | Total | | $ | 16,484 | | | $ | 9,521 | | | $ | 4,132 | | | $ | 2,334 | | | $ | 497 | |
Contractual Obligations | | Payments due by Period | | | | Total | | | Less than 1 year | | | 1-3 Years | | | 3-5 Years | | | More than 5 years | | Operating lease obligations | | | 8,491,000 | | | | 1,492,000 | | | | 2,367,000 | | | | 2,105,000 | | | | 2,527,000 | | Purchase commitments | | | 3,667,000 | | | | 3,667,000 | | | | - | | | | - | | | | - | | Total | | $ | 12,158,000 | | | $ | 5,159,000 | | | $ | 2,367,000 | | | $ | 2,105,000 | | | $ | 2,527,000 | |
In addition, we have long-term liabilities for severance pay that are calculated pursuant to Israeli severance pay law generally based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date. Employees are entitled to one month’s salary for each year of employment or a portion thereof. As of December 31, 2015,2020, our severance pay liability, net was $245,000.$ 224 thousand.
TAT expects to pay $1,409 thousand in future benefits to their employees during 2020 through 2029 upon their normal retirement age. 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 company before their normal retirement age. In October 2015, TAT completed the acquisition of Turbochrome Ltd. for approximately $3.5 million. In addition, TAT may pay an earn-out, capped at $2 million, in the event that Turbochrome meets certain annual revenue targets in 2015 and 2016. According to the results of Turbochrome for the year 2015, Turbochrome met the revenue target for 2015 and, subject to the terms of the share purchase agreement, TAT will be obligated to pay to Chromalloy American LLC (the previous shareholder of Turbochrome), $500 as an earn out payment with respect to fiscal year 2015 revenues.
TAT also has the the following Guaranteesguarantees as of December 31, 2015: | · | In order to secure TAT's liability to the Israeli customs, the Company provided a bank guarantee in the amount of $214. The guarantee is linked to the consumer price index and is valid until December 2016. |
| · | In order to secure the TAT's liability to the lessor of its premises, the Company provided a bank guarantee in the amount of $658. The guarantee is linked to the consumer price index in Israel and is valid until July 2016. |
| · | In order to secure Turbochrome liability to the Israeli customs, the Company provided a bank guarantee in the amount of $256. The guarantee is linked to the consumer price index in Israel and is valid until December 2016. | 2020:
In order to secure TAT's liability to the Israeli customs, TAT provided bank guarantees in the amount of $132 thousand. The guarantees are linked to the consumer price index and are valid until January 2023. In order to secure TAT's liability to the lessor of its premises, TAT provided a bank guarantee in the amount of $849 thousand. The guarantee is linked to the consumer price index in Israel and is valid until January 2022.
Item 6.Directors, Senior Management and Employees
A. Directors and Senior Management
Set forth below are the name, age, principal position and a biographical description of each of our directors and executive officers, as of the date hereof: Name | | Age | | Position | | Samuel VlodingerAmos Malka | | 6568 | | Chairman of the Board of Directors | | Itsik MaaraviIgal Zamir | | 5655 | | Chief Executive Officer until April 30, 2016and President | | Igal ZamirEhud Ben - Yair | | 50 | | Chief Executive Officer as of April 30, 2016 | | Guy Nathanzon | | 4457 | | Chief Financial Officer | | Eyal Lipetz-EliassiYair Raz | | 4565 | | Chief Marketing OfficerEVP Global Strategy | | Rick ReedEitan Shabtay | | 6151 | | Chief Executive OfficerEVP Engineering and Technologies | | Ohad Milo | | 46 | | General Manager of Gedera | | Adi Fine | | 47 | | EVP Human Resources | | Dave Thomas | | 57 | | General Manager of Piedmont | | Yair RazGreg Watson | | 6051 | | Chief Executive OfficerGeneral Manager of Limco | | Tamir ZivMichael Chen* | | 4456 | | Vice President OperationsGeneral Manager of Turbochrome | | Motty KatzRon Ben-Haim | | 6551 | | Turbochrome's Site Manager and Chief Operations and Engineering OfficerDirector | | Amos MalkaAmiram Boehm | | 6349 | | Director | | Avi Shani (1)(2)(3)(4)(5) | | 6873 | | External Director | | Dafna Gruber (1)(3)(4)(5) | | 5155 | | Independent Director | | Jan Loeb | | 57 | | Director | | Ron Ben-Haim | | 47 | | Director | | Aviram Halevi (1)(2)(3)(4)(5) | | 5863 | | External Director | |
(1) “Independent Director” under the applicable SEC and NASDAQ Marketplace Rules and the applicable rules of the U.S. Securities and Exchange Commission.
(2) “External Director” as required by Israel’sthe Israeli Companies Law
(3) Member of Audit Committee. the audit committee
(4) Member of the compensation committee that examines TAT's financial statements prior to the Board of Directors' approval.
(5) Member of Compensation Committee.* Michael Chen ended his role as Turbochrome's General Manager on December 31,2020.
Mr. Samuel VlodingerIgal Zamir was elected by our Board of Directors as the Chairman of the Board of Directors in August 2013. Mr. Vlodinger has been a senior partner in FIMI since 2009. Prior to joining FIMI, Mr. Vlodinger held senior management positions in several industrial companies and has been an active private equity investor. Mr. Vlodinger holds a B.Sc. in industrial engineering from the Technion, Institute of Technology. Mr. Vlodinger currently serves as the chairman of the board of directors of Raval ACS, Ltd. and Ginegar Plastic Industries, Ltd. Mr. Itsik Maaravi has served asappointed TAT’s Chief Executive Officer since January 2012 and will step down from this position onPresident in April 30, 2016. Prior to that, Mr. Maaravi served as President of TAT’s Piedmont subsidiary, a position he held since July 2011. From July 2009 through June 2011 Mr. Maaravi was Chief Marketing Officer for Piedmont as well as for the Company’s Limco subsidiary. Between 2000 and June 2009 Mr. Maaravi held senior marketing positions at Kamor Aviation and Israel Aerospace Industries.
Mr. Igal Zamir will serve as TAT’s Chief Executive Officer effective as of April 30, 2016. Prior to joining TAT, from 2009 until 2013, Mr. Zamir served as President at Mapco Express, a wholly-owned subsidiary of Delek US Holdings Inc., a NYSE-listed company which owns and operates 370 convenient stores and gas stations in the southeastern region of the U.S.United States. Prior to Mapco Express, from 2006 until 2009, Mr. Zamir served as CEO of Metrolight, a provider of proprietary energy saving solutions in High Intensity Discharge (HID) lighting systems. Prior to Metrolight fromFrom 1998 until 2004, Mr. Zamir served as CEO of Rostam, the world's largest anda leading provider of private label tampons.feminine hygiene products. Mr. Zamir holds B.S.a B.Sc. in industrial engineeringIndustrial Engineering from Tel-AvivTel Aviv University Israel and an MBA from Bar-Ilan University, Israel. University.Mr. Eyal Lieptez-EliassiEhud Ben-Yair was appointed as TAT's Chief Financial Officer in May 2018. Prior to joining TAT, Mr. Ben- Yair served as the Chief Financial Officer of SHL Telemedicine, a public company traded on the Swiss stock exchange (SIX- SHLTN) engaging in the field of digital health. Between 2012-2016, Mr. Ben Yair has served as TAT's VP Marketing since 2015.the Chief Financial Officer of Opgal Optronics, a subsidiary of Elbit Systems (NASDAQ – ESLT), a company developing and manufacturing thermal imaging cameras for military and civilian aerospace markets. Prior to that, Mr. EliassiBen- Yair has served for 8 years as Israel Countrythe Chief Financial Officer of Orad Hi-Tech Systems, a public company traded on the AIM and German stock exchange (OHT), a company developing, manufacturing and selling proprietary hardware to TV stations and broadcasters. Mr. Ben Yair is a Certified Public Accountant and holds a B.A. in Economics and Accounting from the Ben-Gurion University in Israel.
Dr. Yair Raz was appointed as TAT's EVP Global Strategy since September 2019. In the years 2012-2019 Dr. Raz served as the President of Limco Airepair Inc., a subsidiary of TAT Technologies Ltd. His work experience includes the following rolls: COO of Piedmont Aviation, VP Operation, GM and later CEO at Precision Components International (1995-2012), and Plant Manager & Innovation Based Growth Leader at DuPontBlades Technology Limited (1991-1994). Between 1983 to 1991 Dr. Raz had growing responsibility rolls as Lab, Quality and hasproduction manager. Dr. Raz holds a Bachelor of Science degree in Mechanical Engineering and Master of Science in Materials from the Technion-Israel Institute of Technology and Doctorate in Philosophy Degree in Business Administration from La Salle University, Louisiana.
Mr. Eitan Shabtay was appointed as TAT’s EVP Engineering and Technologies in September 2019. Mr. Shabtay began his professional career in 1992 at the IDF and served for 15 years. In his final position there he acted as Deputy Head of the Mechanical Research Department, tasked with developing innovative and complex systems that are at the forefront of technology. From 2006-07 Mr. Shabtay served as the VP R&D of Pulsar, a start-up company developing a solution for Magnetic Pulse Welding (MPW). From 2008-09 he was the VP R&D of IQwind, a start-up company in the clean-tech field, developing a unique gearbox for improving the efficiency of wind turbines.
From 2010-11 he served as VP Programs of Plasan Sasa. In his last position prior to joining TAT Technologies, Mr. Shabtay served as a senior R&D Manager in Elbit Systems and led variousthe development of multidisciplinary complex airborne commercial transactionssystems as well as a variety of electro-optical products and international business development activities within the Finance, High-Tech and Aerospace sectors.systems. Mr. EliassiShabtay holds a B.Sc. in AerospaceIn Mechanical Engineering (cum laude) from the Technion – Israel Institute of Technology (1991), M.Sc. in Mechanical Engineering from Tel-Aviv University, Israel (1997) and M.A.MBA (summa cum laude) from Ben-Gurion University, Israel (2000).
Mr. Ohad Milo was appointed General Manager of TAT Gedera in Business AdministrationOctober 2018. Before joining TAT, between 2012 and 2018, Mr. Milo served as CEO of 4 subsidiaries of IAI (Israeli Aerospace Industries) owned Elbatech group. Prior to Elbatech, from Manchester University.2010 until 2012, Mr. Milo served as CEO of TMC Systems, a start-up company owned by Pointer Telocation Ltd. (Nasdaq CM: PNTR).
Between 2000 and 2010, Mr. Milo held various management positions at Sanmina Corporation (Nasdaq CM: SANM), most recently as VP Sales and Account Management at Sanmina's subsidiary in Israel.
Mr. Milo holds a B.Sc. in Industrial Engineering from Tel Aviv University and an MBA from the Technion - Israeli Institute of Technology.
Mr. Rick ReedMs. Adi Fine haswas appointed as TAT’s EVP Human Resources in October 2020. Prior to joining TAT, from 2015 to 2020, Ms. Fine worked for Amdocs, a global Hi-Tech company listed in Nasdaq. First, she served as Piedmont’s President since March 2016.head of HR for Amdocs Optima, a global organization which is a former acquisition of Comverse, and later was promoted to serve as a global head of leadership. Prior to that, Ms. Fine served as head of Human Resources for various organizations in the Hi-Tech, Finance and insurance industries. Overall, Ms. Fine has 25 years of professional experience in the human resources and organizational development domains.
Mr. Reed Dave Thomas was with Triumph Actuation Systems, LLC, a subsidiaryappointed General Manager of The Triumph Group, Inc.,Piedmont in June 2019 after serving as Company President.Vice President of Operations and Supply Chain beginning August 2018. Before joining TAT, from 2017 to 2018, Mr. Reed was formerly with Piedmont Aviation, Inc. from February 1978 to June 2000, serving in senior engineering and operations management positions with both the Airline Division and the General Aviation Group, which included extensive aircraft and component MRO capabilities.
Dr. Yair Raz hasThomas served as Chief Executive Officer of Limco since November 2012.Director North American Assembly at Volvo Trucks in VA. Prior to Volvo, between 2009 and 2017 Mr. Thomas served as Director Global Operational Excellence at B/ E Aerospace Inc.; as well as, various executive level positions including Vice President Operations and General Manager at B/E Aerospace Mexico. Prior to that, Dr. Razbetween 2004 and 2009, Mr. Thomas served as the Chief Operating Officer of Piedmont Aviation, a position he held since April 2012. From January 2011 to January 2012 Dr. Raz was the BTI Vice President Marketing and Business Developmentin Quality Management for North America. Between August 2005 and December 2011 Dr. Raz served as General Manager of PCI, a PWA and BTI Joint Venture in the US. Between 1995 and July 2005 Dr. RazToyota Motor Manufacturing Indiana. Prior 2004, Mr. Thomas held various management positions with PCITop Tier Automotive OEMs such as Lear, Gencorp, & Cooper Standard Automotive. Mr. Thomas holds an M.B.A. in Management from Atlanta University and completed his Doctorate in Feb 2020. Mr. Thomas is also a Certified Lean Professional and Examiner from SME/SHINGO.
Mr. Greg Watson was appointed General Manager of Limco in September 2019. Prior to joining TAT, Greg served as a General Manager at UTC Aerospace Systems where he had full operational and fiscal responsibility for two North American Word Wide Repair MRO facilities – Miramar, Florida and Santa Isabel, Puerto Rico. While at UTC, Greg also served as site director for divisions in the US including operation manager, engineering, procurementUnited States and president assistant. Between 1998Canada. Greg has additional experience as the Director of Operations for a greenfield MRO project located in Queretaro, Mexico with Messier Services America. Greg began his career as an automotive mechanic and 2012 Dr. Raz quickly worked his way up as a valve technician and technical representative before transitioning to various senior leadership roles within the MRO environment. Mr. Watson holds an Executive Business Administration degree from York University – Toronto, Canada and is working towards acquiring his MBA.
Mr. Michael Chen was also involved with the JVappointed General Manager of BTITurbochrome in January 2018. Before joining TAT Technologies, between 2013 and PWA in Xian China. Between 1983 and 1995 Dr. Raz2017, Mr. Chen served as CEO of Seraphim Optronics Ltd. Prior to Seraphim, from 1999 until 2013, Mr. Chen held various management positions with BTL in Israel. Thoseat Electro Optics ELOP Industries, a subsidiary of ELBIT System. Between 2007 and 2009, Mr. Chen served as VP Operations at Atlantium Ltd. Between 1996 and 1999 Mr. Chen held engineering positions included Quality and plant Management. Dr. Razat ORLITE Industries Ltd. Mr. Chen holds a B.Sc degreeB.Sc. in Mechanical Engineering from Tel Aviv University and an M.Sc degree in Material ScienceMBA from the Technion Institute of Technology and a Phd. degree from La SalleHeriot-Watt University in the US.Edinburgh.
Mr. Tamir Ziv currently holds the position of VP Engineering and COO of TAT. Mr. Ziv served as TAT’s Director of Engineering since November 2013, and was appointed Director of Business Units in November 2012. Mr. Ziv has over a decade of experience in aircraft design and structural integrity analyses. Mr. Ziv worked at Cessna Aircraft Company with the responsibly to ensure the structural integrity of all business jet platforms. In addition, Mr. Ziv worked at Lockheed Martin in Fort Worth, Texas on the F35-JSF (Joint Strike Fighter) and F16 aircrafts overseeing wing to body structural integrity group. Mr. Tamir Ziv holds a B.Sc in Aerospace Engineering from Embry Riddle Aeronautical University (Daytona Beach, Florida) and M.Sc in Aerospace Engineering from Wichita State University (Wichita, Kansas).Directors
Mr. Motty Katz has been appointed as Site manager and Chief Operations and Engineering Officer at Turbochrome Ltd. since October 2015. Prior to his appointment, Mr. Katz served as Operations and Engineering manager since 1994 till 2015. Prior to that, between the years 1986-1994 Mr. Katz served as Head of Engineering Department. Prior to that Mr. Katz worked as Chemical & Metallurgical Laboratory Manager (1983-1986). Prior to that Mr. Katz served as laboratory metallurgical engineer between the years 1979-1983. Prior to Turbochrome Mr. Katz served for 2 years (1977-1979) as researcher at Ben Gurion University as well as a lecturing and Lab Instructor. During his 37 years career with Turbochrome (formerly – Chromalloy Israel) Mr. Katz was in charge of developing the most advanced Turbochrome’s repair capabilities as well as development of manufacturing lines advanced products. Mr. Katz holds a B.Sc in Materials Engineering and M.Sc in Materials Engineering from Ben-Gurion University, Israel.
Mr. Amos Malka was elected as a director byChairman of our Board of Directors in AprilJune 2016. Since 2008, Mr. Malka has been a Founder and Chairman of Nyotron Information Security Ltd., a privately-held cyber security provider based in Israel and in Silicon Valley. Since 2016, Mr. Malka is also serving as a Founderthe founder and Chairmanchairman of Spire Security Solutions Ltd., a security, intelligence and cyber security.security provider. From 2018 Mr. Malka is the Chairman of the Board of Directors of Aitech Rugged Group Inc. From 2007 until 2015, Mr. Malka served as the Chairman of the Boardchairman and CEO of Logic Industries Ltd. From 2007 -until 2010, he also served as Chairman of the Boardchairman of Plasan Sasa LTD., an armored vehicle manufacturer. From 2005 -until 2007, he served as the Chairmanchairman of the Board of Albar. Albar, is one of thea leading companiescompany in the Israeli automobile sector. From 2002 -until 2005, heMr. Malka served as the CEO of Elul Technologies Ltd., Israel's largest aerospace and defense business development and consulting company.company.Mr. Malka also serves on the boards of directors of Imagesat International and Delek Automotive System. Mr. Malka Retiredretired from the IDF in 2002 at the rank of Major General, after 31 years of military career.service. He served as commander of the IDF Ground Forces Command, and later as Head of the Israeli Defense Intelligence, a post he held until his retirement in 2002. Mr. Malka holds B.A. in historyHistory from Tel Aviv University, (1987),Israel. He also graduated from the IDF Staff & Command College (1979-80) and its National Defense Academy (1986-87).Academy.
Mr. Avi Shani has served as an external director since 2008 and is a member of TAT’s Audit Committee; in July 2014, Mr. Shani was re-elected to serve as an external director for a second three-year term. Mr. Shani is also serving as a director of Harel Sal, with Malibu investment and Ecommunity. From 2005 until 2008 Mr. Shani served as the CEO of TCM Mobile, a startup company, and prior to that, during years 2000 - 2004 he served as Executive Vice President Investments and Chief Economist of IDB Development, a leading Israeli holding company, in charge of new Investments. Mr. Shani holds a B.A degree in Economics and an MBA, both from Tel Aviv University.
Ms. Dafna Gruber was elected as al director by our Board of Directors in November 2013 Ms. Gruber is serving as the chief financial officer of Clal Industries Ltd., a private company, from October 2015. From April 2007 until April 2015, Ms. Gruber served as the chief financial officer of Nice Systems Ltd., a public company traded on NASDAQ and TASE. From 1996 until May 2007, Ms. Gruber was part of Alvarion Ltd., a public company traded on NASDAQ and TASE, mostly as chief financial officer.. Ms. Gruber serves as an external director at Nova Measuring systems Ltd. a public company traded on NASDAQ and TASE, since April 2014. Ms. Gruber is a certified public accountant and holds a Bachelor’s degree in Accounting and Economics from Tel Aviv University, Israel.
Mr. Jan Loeb was elected as a director by our Board of Directors in August 2009. Mr. Loeb has served as President of Leap Tide Capital Management, Inc., a capital investment firm, since 2007. From February 2005 through January 2007, he served as a portfolio manager of Amtrust Capital Management, Inc. From February 2004 through January 2005, Mr. Loeb was a Portfolio Manager for Chesapeake Partners, a capital investment firm. From January 2002 through December 2004, Mr. Loeb was a Managing Director of Jefferies & Company, Inc., an investment banking firm based in New York City. From 1994 through 2001, Mr. Loeb was a Managing Director of Dresdner Kleinwort and Wasserstein, Inc., an investment banking firm based in New York City, which was formerly known as Wasserstein Perella & Co., Inc. Mr. Loeb is the Chief Executive Officer of Acorn Energy Inc. a publicly traded company that among other assets owns an Israeli defense company. Mr. Loeb graduated from Baruch College – City University of New York with a baccalaureate in Finance and Investments.
Mr. Ron Ben-Haim was elected as a director by ourjoined TAT’s Board of Directors in August 2013. Mr. Ben-Haim has beenis a partner inat FIMI Opportunity Fund since 2006. Mr. Ben Haim was previously with Compass Advisers, LLP, an investment banking firm basedwith offices in New York and in Tel Aviv and with the Merrill Lynch Mergers & Acquisitions group in New York. Prior to Merrill Lynch, Mr. Ben-Haim worked at Teva PharmaceuticalsPharmaceutical Industries in production management. Mr. Ben-Haim holds a B.Sc. in industrial engineeringIndustrial Engineering from the Tel Aviv University and an MBA from New York University. In his capacity at FIMI, Mr. Ben-Haim currently serves on the board of directors of Tadir-Gan Precision Products, Ltd., Nirlat Paints,Orbit Technologies, Ltd., Alony, Ltd., Hadera Paper Ltd.Aitech Rugged Group, Inc., Magal Security Systems, Ltd., Polyram Plastic Industries, Ltd., Rivulis Irrigation,Inrom Industries, Ltd., Oxygen and Argon Works,G1 Security Solutions, Ltd. and Overseas Commerce,And Simplivia Ltd.
Mr. Amiram Boehm joined TAT's Board of Directors in June 2016. Mr. Boem is a partner at FIMI Opportunity Fund since 2006. Prior to joining FIMI, from 1999 until 2004, Mr. Boehm served as Head of Research at Discount Capital Markets, the investment arm of Israel Discount Bank. In his capacity at FIMI, Mr. Boehm currently also serves as the Managing Partner and Chief Executive Officer of FITE GP (2004) as well as a director of Ham-Let (Israel-Canada) Ltd., Hadera Paper Ltd., Rekah Pharmaceuticals Ltd., Pharm-up Ltd., Galam Ltd., Delekson Ltd. and DIMAR Ltd. Mr. Boehm previously served as a director of Magal S3 Security Systems Ltd., Scope Metal Trading, Ltd., Inter Industries, Ltd., Global Wire Ltd. , Telkoor Telecom Ltd. and Solbar Industries Ltd. Mr. Boehm holds a B.A. in Economics and LL.B. from Tel Aviv University and a Joint MBA from Northwestern University and Tel Aviv University.
Mr. Aviram HaleviAvi Shani was electedjoined TAT’s Board of Directors as an external director in 2008. In June 2017, Mr. Shani was re-elected to serve as an external director for another three-year term. From 2005 until 2008, Mr. Shani served as the CEO of TCM Mobile Ltd. Prior to that, from 2000 until 2004, he served as Executive Vice President Investments and Chief Economist of IDB Development, a leading Israeli holding company, responsible for the company’s new investments. Since 2012 until 2018 Mr. Shani served on the board of directors of Harel Sal and Ecommunity. Mr. Shani holds a B.A. in Economics and an MBA, both from Tel Aviv University.
Ms. Dafna Gruber (within the meaning of the Israeli Companies Law) by ourjoined TAT’s Board of Directors as an independent director in November 2013. Since 2019 until February 2021 Ms. Gruber served as chief financial officer of Aqua Security, a private company. from 2017 until 2018, Ms. Gruber served as chief financial officer of Landa Corporation Ltd., a private company. From 2015 until 2017, Ms. Gruber served as the chief financial officer of Clal Industries Ltd., a private holding company. From 2007 until 2015, Ms. Gruber served as the CFO of NICE Ltd., a public company traded on NASDAQ and the TASE. From 1996 until April 2007, Ms. Gruber was part of Alvarion Ltd., a company which traded on NASDAQ and the TASE, mostly as the company’s CFO. Ms. Gruber serves as an independent director at Nova Measuring Systems Ltd., a public company traded on NASDAQ and the TASE, Tufin Software Technologies Ltd. a public company traded on NYSE and Cognyte Software Ltd., a public company traded on NASDAQ. Ms. Gruber is a Certified Public Accountant (Israel) and holds a Bachelor’s degree in Accounting and Economics from Tel Aviv University, Israel.
Mr. Aviram Halevi joined TAT’s Board of Directors as an external director in November 2013. In June 2016, Mr. Halevi has been since 2011was re-elected to serve as an external director for another three-year term. Mr. Halevi is the ownerfounder and CEO of Intel System Ltd., a provider of business intelligence services. Prior to that, from 2007 throughuntil 2010, Mr. Halevi served as the CEO of Terrogence Ltd., a producer of intelligence data for commercial markets. Mr. Halevi holds a B.Sc. in geologyGeology from Queens College, (of City University of New York) the University of TorontoCUNY, and an MBA from Tel Aviv University.
Compensation
The following table sets forth all compensation TAT paid with respect to all of its directors and executive officers as a group for the year ended December 31, 2015.2020.
| | Salaries, fees, Commissions and bonuses | | | Other benefits | | All directors and executive officers as a group (11 persons) | | $ | 1,460,000 | | | $ | 110,000 | |
| | Salaries, fees, Commissions and bonuses (Amounts in Thousands US$) | | | Other benefits (Amounts in Thousands US$) | | All directors and executive officers as a group (16 executives) | | $ | 2,754 | | | $ | 138 | |
During the year ended December 31, 2015,2020, TAT paid its directors (except for its active chairman of the Board of Directors, Mr. Amos Malka), the fixed medium amounts permitted by law to an external director (within the meaning of the Israeli companiesCompanies Law) which was a per meeting attendance fee of NIS 2,5952,585 (approximately $665)$725), plus an annual fee of NIS 69,68069,400 (approximately $17,858)$19,473). Pursuant to its agreement with Mr. Amos Malka, TAT's active chairman of the Board of Directors, TAT paid Mr. Malka a monthly fee of NIS 40,000 plus VAT. Mr. Malka had been previously granted options to purchase 50,000 ordinary shares of TAT and is not currently entitled to receive any bonus. The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Israeli Companies Law) during or with respect to the year ended December 31, 2015,2020, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”
For purposes of the table and the summary below, and in accordance with the above mentionedabove-mentioned securities regulations, “compensation” includes base salary, bonuses, equity-based compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking to provide such compensation.
Information Regarding Covered Executives (1) (Amounts in Thousands US$) | | Name and Principal Position(2) | | Base Salary | | | Benefits and Perquisites(3) | | | Variable Compensation(4) | | | Equity-Based Compensation(5) | | | Total | | Igal Zamir, CEO and President | | | 336 | | | | 81 | | | | 110 | | | | 2 | | | | 529 | | Ehud Ben- Yair, CFO | | | 215 | | | | 62 | | | | 48 | | | | 18 | | | | 343 | | Ohad Milo, President of Gedera | | | 158 | | | | 50 | | | | 37 | | | | 24 | | | | 269 | | Dave Thomas, President of Piedmont | | | 190 | | | | 13 | | | | 117 | | | | 31 | | | | 351 | | Greg Watson, President of Limco | | | 203 | | | | 13 | | | | 20 | | | | 2 | | | | 238 | |
Information Regarding the Covered Executive(1) | | Name and Principal Position(2) | | Base Salary | | | Benefits and Perquisites(3) | | | Variable Compensation(4) | | | Equity-Based Compensation(5) | | | Total | | Itsik Maaravi, CEO (7) | | $ | 302,665 | | | $ | - | | | $ | - | | | $ | 8,431 | | | $ | 311,096 | | Tiko Gadot, CFO (6) | | $ | 199,100 | | | $ | 20,899 | | | $ | - | | | $ | - | | | $ | 219,999 | | Tamir Ziv, COO | | $ | 163,271 | | | $ | 22,282 | | | $ | - | | | $ | 6,995 | | | $ | 192,548 | | Yair Raz, CEO of Limco | | $ | 163,573 | | | $ | 18,780 | | | $ | 5,481 | | | $ | 9,664 | | | $ | 197,498 | | Todd Schwartz, CEO of Piedmont (6) | | $ | 170,231 | | | $ | 17,987 | | | $ | - | | | $ | 3,500 | | | $ | 191,718 | |
| (1) | All amounts reported in the table are in terms of cost to our company,TAT, as recorded in our financial statements. | | (2) | All executive officers listed in the table are or were full-time employees during 2015. 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, 2015.2020. | | (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 insurancesinsurance and benefits, risk insurancesinsurance (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,mainly bonus payments according to the company's incentive and bonus paymentsplan as recorded in our financial statements for the year ended December 31, 2015.2019 and were paid during 2020 in respect of performance related to fiscal year 2019 results. | | (5) | Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 20152020 in connection with respect to equity-based compensation granted to the Covered Executive. | (6) | The executive is no longer engaged by the Company. Termination of engagement was during 2015. | (7) | Itsik Maaravi will step down from his position as CEO of the Company on April 30, 2016. |
Introduction According to the Israeli Companies Law and our articles of association, the management of our business is vested in our board of directors. The board of directors may exercise all powers and may take all actions that are not specifically granted to another organ in the Company (including our shareholders). Our executive officers are responsible for our day-to-day management. Our executive officers have individual responsibilities established by our chief executive officer and board of directors. Election of Directors Our articles of association provide for a board of directors consisting of such number of directors as may be determined from time to time at a general meeting of shareholders, provided that it shall be no less than two or more than eleven. Our board of directors is currently composed of six directors, including three independent directors, two of whom also qualify as external directors within the meaning of the Israeli Companies Law. Pursuant to our articles of association and in accordance with the Israeli Companies Law, our directors (except for the external directors) are elected at our annual general meeting of shareholders by a vote of the holders of a majority of the voting power represented and voting at such meeting; in addition, directors (except for external directors) may be appointed by a vote of a majority of directors then in office. All our directors (except for external directors) hold office until the annual general meeting of shareholders succeeding their election (provided that if no directors are elected at the annual general meeting, the directors in office at the time such meeting was convened shall continue to hold their office) or until their earlier death, resignation, removal or other circumstances as set forth in the Israeli law. All the members of our Boardboard of Directorsdirectors (except for external directors) may be reelectedre-elected upon completion of their term of office. The Israeli Companies Law requires the board of directors of a public company to determine a minimum number of directors with ‘‘accounting and financial expertise’’. Our board of directors determined, accordingly, that at least two directors must have ‘‘accounting and financial expertise’’ as such term is defined by regulations promulgated under the Israeli Companies Law. We are exempt from the requirements of the NASDAQ Marketplace Rules with regard to the nomination process of directors since we are a controlled company within the meaning of NASDAQ Marketplace Rule 5615(c)(2). See below in this Item 6. “Directors, Senior Management and Employees - Board Practices - NASDAQ Exemptions for a Controlled Company.”
External and Independent Directors
External Directors. Under the Israeli Companies Law, Israeli companies whose shares have been offered to the public or whose shares are listed in an authorized stock exchange (accordingly, such shares are considered as held by "the public") are required to appoint at least two external directors who meet the independence criteria set by the Israeli Companies Law.
A person is qualified to serve as an external director only if he or she has “accounting and financial expertise” or “professional qualifications,” as such terms are defined by the Israeli Companies Regulations (Conditions and Criteria for a Director Who Possesses Accounting Expertise and a Director Who Possesses Professional Competence), 2005. At least one of the external directors must have “accounting and financial expertise.” Each of our external directors has “accounting and financial expertise.”
External directors are elected by a majority vote at a shareholders’ meeting. In addition to the majority vote, the shareholder approval of the election of an external director must satisfy either of two additional tests:
| · | The majority includes at least a majority of the shares voted by shareholders other than controlling shareholders or shareholders who have a personal interest in the election of the external directors (excluding a personal interest that is not related to a relationship with the controlling shareholders); or |
The majority includes at least a majority of the shares voted by shareholders other than controlling shareholders or shareholders who have a personal interest in the election of the external directors (excluding a personal interest that is not related to a relationship with the controlling shareholders); or
| · | The total number of shares held by non-controlling shareholders and disinterested shareholders that voted against the election of the external director does not exceed 2% of the aggregate voting rights of our company. |
The total number of shares held by non-controlling shareholders and disinterested shareholders that voted against the election of the external director does not exceed 2% of the aggregate voting rights of the company.
In general, external directors serve for a three-year term and may be reelectedre-elected to two additional three-year terms by one of the following mechanisms: (1) the board of directors proposes the re-election of the nominee and the re-election is approved by the majority required for appointment of external directors for their initial term; or (2) a shareholder holding 1% or more of the company's voting rights proposes the re-election of the nominee, and the re-election is approved by a majority of the votes cast by the shareholders of the company, excluding the votes of controlling shareholders or those who have a personal interest in the nomination, provided that the aggregate votes cast in favor of the re-election by shareholders who are not controlling shareholders and do not have a personal interest in the nomination constitute more than 2% of the company's voting rights .rights. Israeli companies listed on certain stock exchanges outside Israel, including The NASDAQ Global Market, such as our company, may appoint an external director for additional terms of not more than three years subject to certain conditions. Such conditions include the determination by the audit committee and board of directors, that in view of the director's professional expertise and special contribution to the company's board of directors and its committees, the appointment of the external director for an additional term is in the best interest of the company.
An external director may be removed from office at the initiative of the board of directors at a special general meeting of shareholders, if the board resolves that the statutory requirements for that person’s appointment as external director no longer exist, or that the external director has violated his or her duty of loyalty to the company. The resolution of the special general meeting of shareholders regarding the termination of office of an external director requires the same majority that is required for the election of an external director. The court may order the termination of the office of an external director on the same grounds, following a motion filed by a director or a shareholder. If an external directorship becomes vacant and as a result there is lessare fewer than two directors who serve as external directors in the company, the board of directors is required under the Israeli Companies law to convene a shareholders meeting immediately to appoint a new external director.
Each committee of the board of directors that is authorized to exercise powers vested in the board of directors must include at least one external director and the audit committee must include all of the external directors. An external director is entitled to compensation as provided in regulations adopted under the Israeli Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with such service. Until the lapse of two years from termination of office, we may not engage an external director or his spouse or child, to serve as an office holder and cannot employ or receive services from these persons, either directly or indirectly, including through a corporation controlled by that person; and with regards to a related person (to a such external director) as defined in the Israeli Companies law which is not a spouse or child – until the lapse of one year from termination of office. Independent Directors. As a controlled company, within the meaning of NASDAQ Marketplace Rule 5615(c)(2), we are exempt from the NASDAQ Marketplace Rule which requires that a majority of our board of directors qualify as independent directors, within the meaning of the NASDAQ Marketplace Rules. See Item 6. “Directors, Senior Management and Employees - Board Practices - NASDAQ Exemptions for a Controlled Company”.
Audit Committee
Under the Israeli Companies Law, the board of directors of any public company must establish an audit committee. In general, the audit committee must consist of at least three directors and must include all of the external directors; furthermore, a majority of the audit committee members must comply with the director independence requirements prescribed by the Israeli Companies Law. The audit committee may not include (i) the chairman of the board of directors, (ii) any director employed by the Company or by a controlling shareholder of the company (including a company which is controlled by the controlling shareholder), (iii) any director providing services to the company or to a controlling shareholder of the company (including to a company which is controlled by the controlling shareholder) on an ongoing basis, or (iv) a controlling shareholder or any of the controlling shareholder’s relatives.
In addition, the NASDAQ Marketplace Rules require us to establish an audit committee comprised of at least three members, all of whom must be independent directors, each of whom is financially literate and satisfies the respective “independence” requirements of the Securities and Exchange CommissionSEC and NASDAQ and one of whom has accounting or related financial management expertise at senior levels within a company.
Our audit committee acts also as a committee for the review and the approval of our financial statements, and as such, assists our board of directors in overseeing the accounting and financial reporting processes of our company and audits of our financial statements, including the integrity of our financial statements, compliance with legal and regulatory requirements, our independent registered public accountants’ qualifications and independence, the performance of our internal audit function and independent registered public accountants, finding any defects in the business management of our company and proposing to our board of directors ways to correct such defects, approving related-party (officers, directors, controlling shareholder, etc.) transactions with the company as required by Israeli law, examining the scope of work and the payment to our independent auditors and such other duties as may be directed by our board of directors. The audit committee may consult from time to time with our independent auditors and internal auditor with respect to matters involving financial reporting and internal accounting controls.
Our audit committee consists of three members of our board of directors (including two external directors and one independent director) who satisfy the respective “independence” requirements of the Securities and Exchange Commission,SEC, NASDAQ and Israeli law for audit committee members. Our board of directors has determined that each member of our audit committee qualifies as an audit committee financial expert, as defined by rules of the Securities and Exchange Commission.SEC. The audit committee meets at least once each quarter.
Compensation Committee
Under the Israeli Companies Law, the board of directors of any public company must establish a compensation committee. The compensation committee must consist of at least three directors, include all of the external directors (including one external director serving as the chair of the compensation committee), and a majority of the committee members must comply with the director independence requirements prescribed by the Israeli Companies Law. Similar to the rules that apply to the audit committee, the compensation committee may not include the chairman of the board, or any director employed by us, by a controlling shareholder or by any entity controlled by a controlling shareholder, or any director providing services to us, to a controlling shareholder or to any entity controlled by a controlling shareholder on a regular basis, or any director whose primary income is dependent on a controlling shareholder, and may not include a controlling shareholder or any of its relatives. Individuals who are not permitted to be compensation committee members may not participate in the committee’s meetings other than to present a particular issue; provided, however, that an employee that is not a controlling shareholder or relative may participate in the committee’s discussions but not in any vote, andvote; other than the company’s legal counsel and corporate secretary who may participate in the committee’s discussions and votes if requested by the committee.
The compensation committee’s duties include recommending to the board of directors a compensation policy for executives and monitor its implementation, approve compensation terms of executive officers, directors and employees affiliated with controlling shareholders, make recommendations to the board of directors regarding the issuance of equity incentive awards under our equity incentive plan and exempt certain compensation arrangements from the requirement to obtain shareholder approval under the Israeli Companies Law. The compensation committee meets at least twice a year, with further meetings to occur, or actions to be taken by unanimous written consent, when deemed necessary or desirable by the committee or its chairperson. Our compensation committee consists of our two external directors and an independent director under the respective requirements of the SEC and NASDAQ and complies with the Israeli Companies Law criteria for compensation committee members.
Internal Audit
The Israeli Companies Law requires the board of directors of a public company to appoint an internal auditor following a recommendation by the audit committee. The role of the internal auditor is to examine, among other things, the company’s compliance of the Company’s conduct with applicable law and orderly business practice. The internal auditor must meet certain statutory requirements of independence. Mr. Doron Cohen has served as our internal auditor since December 24, 2008.
Directors’ Service Contracts
There are no arrangements or understandings between us and any of our subsidiaries, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination of their employment or service as directors of our company or any of our subsidiaries.
Chairman of the Board
Under the Israeli Co mpaniesCompanies Law, the general manager of a company (or a relative of the general manager) may not serve as the chairman of the board of directors, and the chairman of the board of directors (or a relative of the chairman of the board of directors) may not serve as the general manager, unless approved by the shareholders by a special majority vote prescribed by the Israeli Companies Law. The shareholder vote cannot authorize the appointment for a period of longer than three years, which period may be extended from time to time by the shareholders with a similar special majority vote. The chairman of the board of directors shall not hold any other position with the company (except as general manager if approved in accordance with the above procedure) or in any entity controlled by the company, other than as chairman of the board of directors of a controlled entity, and the company shall not delegate to the chairman duties that, directly or indirectly, make him or her subordinate to the general manager.
Approval of Related Party Transactions under Israeli Law
Fiduciary Duties of Office Holders
The Israeli Companies Law codifies the fiduciary duties that “office holders,” including directors and executive officers, owe to a company. An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act at a level of care that a reasonable office holder in the same position would employ under the same circumstances. This includes the duty to utilize reasonable means to obtain (i) information regarding the business feasibility of a given action brought for his approval or performed by him by virtue of his position and (ii) all other information of importance pertaining to the foregoing actions. The duty of loyalty requires that an office holder acts in good faith and for the benefit of the company, including (i) avoiding any conflict of interest between the office holder’s position in the company and any other position he holds or his personal affairs, (ii) avoiding any competition with the company’s business, (iii) avoiding exploiting any business opportunity of the company in order to receive personal gain for the office holder or others, and (iv) disclosing to the company any information or documents relating to the company’s affairs that the office holder has received by virtue of his position as an office holder.
Disclosure of Personal Interests of an Office Holder; Approval of Transactions with Office Holders
The Israeli Companies Law requires that an office holder promptly, and no later than the first board meeting at which such transaction is considered, disclose any personal interest that he or she may have and all related material information known to him or her and any documents in their position, in connection with any existing or proposed transaction by us. An office holder who did not disclose his or her personal interests will be deemed as breaching his or her fiduciary duties. duties. In addition, if the transaction is an extraordinary transaction, that is, a transaction other than in the ordinary course of business or other than onin accordance with market terms, or likely to have a material impact on the company’s profitability, assets or liabilities, the office holder must also disclose any personal interest held by the office holder’s spouse, brother or sister,sibling, parent, grandparent, child as well as brother, sistersibling or parent of such person's spouse or the spouse of any of the above, or by any corporation in which the office holder or his relative (as defined in the Israeli Companies Law) is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager.
Under the Israeli Companies Law, in general, all arrangements as to compensation of office holders who are not directors (other than the Chief Executive Officer) require the approval of the compensation committee and the board of directors, including exculpation, insurance and indemnification of, or an undertaking to, indemnify an office holder who is not a director. The compensation of office holders who are directors and compensation of the Chief Executive Officer must be approved by ourthe compensation committee, board of directors and the general meeting of our shareholders.
Some transactions, actions and arrangements involving an office holder (or a third party in which an office holder has an interest) must be approved by the board of directors or as otherwise provided for in a company’s articles of association. If the transaction is an extraordinary transaction (which is defined as a transaction not in the ordinary course of business and for a material value) such a transaction must be approved by the audit committee and by the board of directors itself, and under certain circumstances shareholders’shareholder approval may be required. A director who has a personal interest in a transaction that is considered at a meeting of the board of directors or the audit committee may not be present during the board of directors or audit committee discussions and may not vote on the transaction, unless the transaction is not an extraordinary transaction or the majority of the members of the board or the audit committee have a personal interest, as the case may be. In the event the majority of the members of the board of directors or the audit committee have a personal interest, then the approval of the general meeting of shareholders is also required.
Disclosure of Personal Interests of a Controlling Shareholder; Approval of Transactions with Controlling Shareholders
The disclosure requirements that apply to an office holder also apply to a transaction in which a controlling shareholder of the company has a personal interest. The Israeli Companies Law provides that an extraordinary transaction with a controlling shareholder or an extraordinary transaction with another person in whom the controlling shareholder has a personal interest or a transaction with a controlling shareholder or his relative regarding terms of service and employment, must be approved by the audit committee (or the compensation committee, as the case may be), the board of directors and the shareholders by a special majority, as follows. The shareholders’ approval must include the majority of shares voted at the meeting. In addition to the majority vote, the shareholder approval must satisfy either of two additional tests: | · | The majority includes at least a majority of the shares voted by shareholders who have no personal interest in the transaction; or |
| · | The total number of shares held by disinterested shareholders that voted against the approval of the transaction does not exceed 2% of the aggregate voting rights of our company. |
The majority includes at least a majority of the shares voted by shareholders who have no personal interest in the transaction; or
The total number of shares held by disinterested shareholders that voted against the approval of the transaction does not exceed 2% of the aggregate voting rights of our company.
Under theAccording to regulations promulgated under the Israeli Companies Law, certain extraordinary transactions between a public company and its controlling shareholder(s) do not require shareholder approval. In addition, under such regulations, directors’ compensation and employment arrangements in a public company do not require the approval of the shareholders if both the audit committee and the board of directors agree that such arrangements are solely for the benefit of the company or if the directors’ compensation does not exceed the maximum amount of compensation for external directors determined by applicable regulations. Also, employment and compensation arrangements for an office holder that is a controlling shareholder of a public company do not require shareholder approval if certain criteria are met. The foregoing exemptions from shareholder approval will not apply if one or more shareholders holding at least 1% of the issued and outstanding share capital of the company or of the company’s voting rights, objects to the use of these exemptions provided that such objection is submitted to the company in writing not later than fourteen days from the date of the filing of a report regarding the adoption of such resolution by the company. If such objection is duly and timely submitted, then the transaction or compensation arrangement of the directors will require shareholders’ approval as detailed above.
In addition, a private placement of securities that will (i) cause a person to become a controlling shareholder or (ii) increase the relative holdings of a shareholder that holds 5% or more of the company’s outstanding share capital, or (iii) will cause any person to become, as a result of the issuance, a holder of more than 5% of the company’s outstanding share capital in a private placement in which 20% or more of the company’s outstanding share capital prior to the placement are offered, the payment for which (in whole or in part) is not in cash or not under market terms, requires approval by the board of directors and the shareholders of the company.
Compensation of Executive Officers and Directors
In accordance with the Israeli Companies Law, we have adopted a compensation policy for our executive officers and directors. The purpose of the policy is to describe our overall compensation strategy for our executive officers and directors and to provide guidelines for setting their compensation, as prescribed by the Israeli Companies Law. In accordance with the Israeli Companies Law, the policy must be reviewed and readopted at least once every three years.
Approval of the compensation committee, the board of directors and our shareholders, in that order, is required for the adoption of the compensation policy. The shareholders’ approval must include the majority of shares voted at the meeting. In addition to the majority vote, the shareholder approval must satisfy either of two additional tests:
| · | The majority includes at least a majority of the shares voted by shareholders other than our controlling shareholders or shareholders who have a personal interest in the adoption of the compensation policies; or |
| · | The total number of shares held by non-controlling shareholders and disinterested shareholders that voted against the adoption of the compensation policies does not exceed 2% of the aggregate voting rights of our company. |
Under the Israeli Companies Law, the compensation arrangements for officers (other than the Chief Executive Officer) who are not directors require the approval of the compensation committee and the board of directors; provided, however, that if the compensation arrangement is not in compliance with our executive compensation policy, the arrangement may only be approved by the compensation committee and the board of directors for special reasons to be noted, and the compensation arrangement shall also require a special shareholder approval. If the compensation arrangement is an immaterial amendment to an existing compensation arrangement of an officer who is not a director and is in compliance with our executive compensation policy, the approval of the compensation committee is sufficient.
Arrangements regarding the compensation of the Chief Executive Officer and directors require the approval of the compensation committee, the board of directors and our shareholders, in that order. In certain limited cases, the compensation of a new Chief Executive Officer who is not a director may be the approved without approval of the shareholders.
Variable Cash Incentive
The compensation committee and board of directors may adopt, from time to time, a Cash Incentive Plan,cash incentive plan, which will set forth for each executive certain targets which form such executive'sexecutives on target cash payment (the “On Target Cash Plan”) and the rules or formula for calculation of the On Target Cash Plan payment once actual achievements are known.
The Compensationcompensation committee and Boardboard of Directorsdirectors may include inter-alia, in the On Target Cash Plan predetermined thresholds and caps to correlate an executive’s On Target Cash Plan payments with actual achievements.
The actual payment of the annual On Target Cash Plan for the active chairman of the board of directors (the "Active Chairman"“Active Chairman”), the CEO and other executives in a given year shall be capped as determined by our board of directors, but in no event shall exceed the ratio set forth in the table below.
The CEO's and Active Chairman's individual On Target Cash PlanPlans may be composed based on thea mix of (i) the Company Target;company target; (ii) Personal Target;personal targets (KPIs); and (iii) Personal Evaluation.personal evaluation. The weight to be assigned to each of the components per each of the executives shall be as set forth in the table below.
| Active Chairman | CEO | Other Executives | Company Target | 100% | 80%75% - 90%100% | 50%-100% | Personal KPIKPIs | NONE | NONE | 0%-30% | Personal Evaluation | NONE | 0%-25% | 0%-20% |
The Company Targetcompany target shall be determined in accordance with all or part of pre-determined targets of the sales budget, gross profit, operating profit, EBITDA, net income and EBITDA,net cash from operating activities, all in accordance with the Company’sTAT’s annual budget. If a company target shall apply to a Chief Executive Officer or a President of a subsidiary, such target may be applied up to 100% with respect to the financial results of the relevant subsidiary, and the remaining cash incentive with respect to the financial results of TAT and its subsidiaries on a consolidated basis.
The board of directors may determine to exclude certain profits or loss items from the company target including, but not limited to, certain expenses related to acquisition of a new company, certain expenses related to distribution of dividend, certain items of revenue or any other items per the board of directors’ sole discretion.
With regard to each one of the Company's measurable targets, reference points shall be determined in terms of numerical values, so that compliance with the precise numerical target as determined in the On Target Cash Plan shall constitute compliance with 100% of the target, and also, numerical values shall be determined which will constitute the lower threshold for compliance with the target. The actual rate of compliance with the targets shall be calculated in accordance with the said reference points. Failure to comply with the minimum threshold of at least 75% of a specific target shall not entitle the executive to an On Target Cash Plan payment of a bonus in respect of the said target. In the event of compliance at a rate of 75% or more with a specific target, the annual On Target Cash Plan shall be calculated in accordance with a key (i.e. linear, steps, etc.) which shall determine – in relation to the point of compliance with the target – the amount of the bonuspayment in terms of a percentage of the executive annual base salary, all as shall be set forth in the On Target Cash Plan. In this respect, the compensation committee and the board of directors shall have the right to determine a higher (but not lower) entitlement threshold.
The annual bonuscash incentive shall be paid to the executive in the following manner:
- 80% of the amount of the annual bonusOn Target Cash Plan payment will be paid following the approval of the financial statements of the relevant year by the board of directors.
- 20% of the amount of the annual bonusOn Target Cash Plan payment shall be deferred by one year, and shall be paid following the approval of the financial statements of such year (“Deferred Bonus”) by the board of directors.
The executive's eligibility to the payment of the Deferred Bonus shall be subject to the following cumulative conditions: (i) the CompanyTAT recorded a positive net profitEBITDA for the following year; and (ii) the executive hadTAT did not ceased to provide services to the Company during the year in which the Deferred Bonus is paid resulting from one of the followings: (a) the executive had not terminated the engagement with the Company; or (b) the Company had not terminated theterminate its engagement with the executive for "cause".cause.
The CEO is not entitled to receive a cash bonus for fiscal year 2015, as he did not achieve the targets pre-determined by TAT.
Indemnification and Insurance of Directors and Officers
Insurance of Office Holders
The Israeli Companies Law provides that a company may, if permitted by its articles of association, enter into a contract to insure an office holder for acts or omissions performed by the office holder in such capacity for: · | Breach of his or her duty of care to the company or to another person; |
· | Breach of his or her duty of loyalty to the company, provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice the company’s interests; |
· | Monetary liability imposed upon the office holder in favor of another person; |
· | A monetary obligation imposed on the office holder in favor of another person who was injured by a violation, as this term is defined in section 52(54)(a)(1)(a) of the Israeli Securities Law; and |
Breach of his or her duty of care to the company or to another person;
104Breach 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, 1968 (“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. · | 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 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; · | 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 |
· | 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 |
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; · | 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. |
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;
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.
In accoranceaccordance 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 |
105
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 attorney’s fees, actually incurred by the office holder as a result of an investigation or proceedingUndertake 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 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 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. |
· | 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. |
Retroactively indemnify an office holder of the company.
Limitations on Exculpation, Insurance and Indemnification
The Israeli Companies Law provides that neither a provision of the articles of association permitting the company to enter into a contract to insure the liability of an office holder, nor a provision in the articles of association or a resolution of the board of directors permitting the indemnification of an office holder, nor a provision in the articles of association exempting an office holder from duty to the company shall be valid, where such insurance, indemnification or exemption relates to any of the following:
· | Breach by the office holder of his duty of loyalty, except with respect to insurance coverage or indemnification if the office holder acted in good faith and had reasonable grounds to assume that the act would not prejudice the company; |
· | Breach by the office holder of his duty of care if such breach was committed intentionally or recklessly, unless the breach was committed only negligently; |
· | Any act or omission committed with intent to derive an unlawful personal gain; and |
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 fine or forfeiture imposed on the office holder. |
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 maintain a directors’ and officers’ liability insurance policy with a per claim and aggregate coverage limit of $25$10 million, including legal costs incurred in Israel. In addition, our audit committee, board of directors and shareholders resolved to indemnify our office holders, pursuant to a standard indemnification agreement that provides for indemnification of an office holder in an aggregate amount not to exceed 25% of our equity capital (net worth). To date, we have provided letters of indemnification to all of our officers and directors.
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.
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 FundsOpportunity V, L.P. and FIMI Israel Opportunity FIVE, Limited Partnership (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. |
The majority of the company’s board of directors qualifies as independent directors, as defined under NASDAQ Marketplace Rules.
107The 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 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. · | Director nominees must either be selected or recommended for the board of directors, either by (a) a majority of independent directors or (b) a nominations committee comprised solely of independent directors. |
We intend to continue to rely on these exemptions provided under Rule 5615(c)(2).
C. Employees
As of December 31, 2015, we2020, TAT and ourits subsidiaries employed 623422 employees, of whom 510351 were employed in manufacturing and quality control, 3924 were employed in engineering and research and development and 7469 were employed in general & administration, sales and marketing. Of such employees, 308188 were located in Israel and 315233 were employed by Limco and Piedmont and located in the United States.
Employees in Israel are employed under collective or individual employment agreements. Senior employees in special positions and members of management are employed under individual agreements. Collective bargaining agreements are signed for specified terms and are renewed from time to time. On January 14, 2021, a new short term collective agreement was signed in Gedera with the Union, which will be in effect until March 31, 2021. The agreement relates to several compensation and welfare aspects. Currently, there are discussions between Gedera and the Union to renew the collective bargaining agreement for a longer term. The collective bargaining agreements govern certain aspects of our employer-employee relations, such as termination procedures, annual salary increases, eligibility for certain compensation terms and employee welfare.
In Turbochrom, a new collective bargaining agreement with the Union was signed on January 19, 2020 and will be in effect until March 31, 2022. The agreement is an extension of the previous agreement that was valid for a period of three years.
Certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the CoordinationCoordinating Bureau of Economic Organizations (including the Industrialists Association)Manufacturers Association of Israel) are applicable to our Israeli employees by order of the Israeli Ministry of Labor.Economy and Industry. These provisions concern mainly the length of the workday, minimum daily wages for professional workers, contributions to a pension fund,contributions, insurance for work-related accidents, procedures for dismissingterminating employees, determination of severance pay and other conditions of employment.employment terms. We generally provide our employees with benefits and working conditions beyondexceeding the required minimums. Furthermore, under the collective bargaining agreements, the wages of most of our employees are linked to the Consumer Price Index,CPI in Israel, 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. TheThese 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 its107
We currently also generally grant senior employees tobased in Israel participation in a fund known as “Management Insurance.” This fundparticular insurance product called “management insurance”. Management insurance provides a combination of savings plan, insurance and severance pay benefits to the employee, giving the employee a lump sum payment upon retirement (rather than receiving annuity payments) and securing his or her right to receive severance pay, if legally entitled, upon termination of employment. TheIn general, the employee contributes an amount equal to approximately 5%-6% to 6% of his or her wage and the employer contributes an additional amount of approximately 13-1/3% -to 16% of such wage. Management insurance is not a legally mandated by Israeli law. Limco-Piedmont sponsors a 401(K) QACA safe harbor profit sharing plan covering substantially all of its employees.employees in the United States. The plan requires the employer to contribute a match which is currently done on a payroll period basis, matching 100% of the first 2% and 50% of the next three percentage.3%. In addition, the plan allows for a discretionary qualified non-elective contribution for the plan year.
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 a stock option plan (the “Plan”), which was subsequently approved by the Company’sTAT’s shareholders, on June 28, 2012. According to the planPlan an aggregate of 380,000980,000 options exercisable into up to 380,000 Ordinary980,000 ordinary shares, 0.9 NIS par value, of the CompanyTAT may be granted to certain members of our board of directors and certain senior executives in TAT at an exercise price not less than the fair market value of the shares covered by the option on the date of grant. TheIn general, the options vest over a period of 4 years as follows: 25% of the options vest upon the lapse of 12 months following the date of grant and the remaining 75% vest on a quarterly basis over the remaining 3-year period. In addition, certain options that were previously granted vest over a three-year period (one-third each year), but and the vesting of 50% of the Optionssuch options is subject, in addition, to certain minimum shareholders' equity.equity during a period of 4 years from the date of grant. Pursuant to the Plan, any options that are cancelled or not exercised within the option period determined in the relevant option agreement will become available for future grants. Our board of directors has elected to allot options to Israeli employees under Israel’s capital gain tax treatment.
On August 30, 2018 the Company's compensation committee, followed by the Board of Directors, approved the amended and restated company's 2012 Plan. On October 4, 2018 the company's amended and restated 2012 stock plan was approved at the annual general meeting of shareholders. As part of the company's 2012 Plan’s amendments it was determined that if the Company declares a cash dividend to its shareholders, and the distribution date of such dividend will precede the exercise date of an Option, including for the avoidance of doubt, Options that have yet to become vested and Options which have been granted prior to the adoption of such amendment to the Plan, the exercise price of the option shall be reduced in the amount equal to the cash dividend per share distributed by the Company. In addition, the maximum number of ordinary shares of the Company that may be issued under the 2012 Plan was increased by 300,000 Ordinary Shares such that after such increase the option pool is equal to an aggregate amount of 980,000 ordinary shares of the Company.
As of December 31, 2015,2020, options to purchase 277,500621,460 ordinary shares were outstanding under the Plan, exercisable at an average exercise price of $7.6$7.26 per share. No options were exercised during 2015.
Item 7.Major ShareholdersShareholders and Related Party Transactions
FIMI Opportunity V, L.P. and FIMI Israel Opportunity FIVE, Limited Partnership, or the FIMI Funds, are the beneficial holders of 53.7% of TAT’s 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 shares (522,607 shares). No other shareholder is known to us to be a beneficial owner of 5% or more of TAT’s ordinary shares.
The following table sets forth certain information as of April 18, 2016,December 31, 2020, regarding the beneficial ownership by all shareholders known to us to own beneficially 5% or more of our ordinary shares:
| | Number of Ordinary Shares Beneficially Owned(1) | | | Percentage of Ownership(2) | | FIMI Funds (3) | | | 5,254,908 | | | | 59.21 | % | Yelin Lapidot Holdings Management Ltd. (4) | | | 587,261 | | | | 6.62 | % |
| | 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 CommissionSEC 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 8,828,4448,874,696 ordinary shares issued and outstanding as of April 18, 2016December 31, 2020 (net of 274,473 dormant shares). |
| (3) | Based on a Schedule 13D filed on August 14, 2013, and on Schedule 13D/A filed on December 12, 2016, FIMI Opportunity V, L.P., FIMI Israel Opportunity Five, Limited Partnership (together, the "FIMI Funds"),Funds, FIMI FIVE 2012 Ltd., Shira and Ishay Davidi Management Ltd. and Mr. Ishay Davidi share voting and dispositive power with respect to the 4,732,3515,254,908 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 the 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,Tel Aviv 6789141, Israel. |
| (4) | This information is based on information provided in the Schedule 13G/A filed with the SEC by Dov Yelin, Yair Lapidot and Yelin Lapidot Holdings Management Ltd. (collectively, “Yelin Lapidot”) on February 10, 2020. The business address of Yelin Lapidot is 50 Dizengoff Street, Dizengoff Center, Gate 3, Top Tower, 13th floor, Tel Aviv 64332, Israel. |
| (5) | This information is based on information provided in the Schedule 13G/A filed with the SEC by Itshak Sharon (Tshuva), Delek Group Ltd. And The Phoenix Holdings Ltd. on February 18, 2020. The business address of Itshak Sharon (Tshuva) and Delek Group Ltd. is 19 Abba Eban blvd, P.O.B. 2054, Herzliya, 4612001, Israel and the address of the Phoenix Holdings Ltd. is Derech Hashalom 53, Givataim, 53454, Israel. |
Significant Changes in the Ownership of Major Shareholders
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 appointedcourt-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.
On August 7, 2013, the court-appointed permanent receivers informed TAT that the FIMI Funds acquired 4,732,351 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.
On December 12, 2016, FIMI Funds acquired an additional 522,557 ordinary shares of TAT constituting 5.7% of TAT’s outstanding share capital as of the transaction date.
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 18, 2016,December 31, 2019, there were 3932 holders of record of our ordinary shares, of which 3429 record holders holding less than 1.0% of our ordinary shares had registered addresses in the United States. These numbers are not representative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside since many of these ordinary shares were held of record by brokers or other nominees including CEDE & Co., the nominee for the Depositary Trust Company (the central depositary for the U.S. brokerage community), which held approximately 69% of our outstanding ordinary shares as of such date.
B. Related PartyParty Transactions
The amounts in the table below refer to TAT engineering joint venture and affiliates.
Transactions:
| | Year ended December 31, | | | | 2020 | | | 2019 | | | 2018 | | | | | | | | | | | | Income - | | | | | | | | | | Sales to related-party company (*) | | $ | 173 | | | $ | 596 | | | $ | 1,251 | | Cost and expenses - | | | | | | | | | | | | | Supplies from related party (*) | | $ | 362 | | | $ | 552 | | | $ | 59 | |
Balances:
| | December 31, | | | | 2020 | | | 2019 | | | | | | | | | Trade receivables and other receivables (*) | | $ | 740 | | | $ | 706 | | Trade payables and other payables (*) | | $ | 122 | | | $ | 154 | |
(*) includes mainly transactions with affiliated companies.
C. Interests of Experts and Counsel
Not applicable.
C. Interests of Experts and Counsel112
Not applicable.
Item 8.Financial Information
A. Consolidated Statements and Other Financial Information
See the consolidated financial statements, including the notes thereto, included in Item 18.
Legal Proceedings
On November 29, 2011,We are party to ongoing litigation in the ordinary course of business and other legal proceedings. For a factoring company ("the plaintiff"), filed a claim with the magistrates courtdiscussion of these matters, see Note 13 to our consolidated financial statements included elsewhere 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, 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 have 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 legal expenses to the Company. The court confirmed such settlement agreement on March 9, 2015.this annual report.
Dividend Distribution Policy
The IsraelIsraeli Companies Law also restricts our ability to declare dividends in a waymandates 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
Not applicable.
Item 9.The Offer and Listing
B. Significant Changes
In 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 $1,198. The company owns 4.9% of FAvS’ after the transaction.
On October 19, 2015, the company completed the acquisition for acquires 100% of Turbochrome Ltd. shares for approximately US$ 3.5 million (subject to certain price adjustments). The acquisition was funded through cash on hand. TAT shall pay additional amounts of up to US$ 2 million in the event that Turbochrome Ltd. meets certain annual revenue targets in 2015 and 2016. Turbochrome Ltd., located in Kiryat Gat, Israel, specializes in overhaul and coating of jet engine components, including turbine vanes and blades, fan blades, variable inlet guide vanes and afterburner flaps. In connection with the acquisition, the company recognized a bargain purchase gain of $4.8 million in the Consolidated Statement of Operations for the year ended December 31, 2015. The bargain purchase gain is a result of the excess of the estimated fair value of the assets and liabilities acquired over the purchase price.
On November 25, 2015, the company signed an agreement with Engineering Holding of Moscow, Russia, to establish a new maintenance facility for heat exchangers. The new company, TAT-Engineering LLC, is based in Novosibirsk’s Tolmachevo airport. TAT - Engineering, LLC shall provide services of minor repair, overhaul and recore of aviation heat transfer products. According to the joint venture agreement TAT owns 51% of TAT-Engineering LLC's shares and the remaining 49% are held by Engineering. The new entity was established in January 2016, and there is no activity related to TAT-Engineering LLC in 2015.
Item 9. The Offer and ListingA.A. Offer and Listing Details
Annual Stock Information
The following table sets forth, for each of the years indicated, the high and low sales prices of our ordinary shares on the NASDAQ Global Market and the TASE:
| | | | | | | | | | | | | | | | | | | | Fiscal Year Ended December 31, 2004 | | | 9.80 | | | | 6.21 | | | | — | | | | — | | Fiscal Year Ended December 31, 2005 | | | 9.35 | | | | 5.25 | | | NIS | 35.50 | | | NIS | 29.70 | | Fiscal Year Ended December 31, 2006 | | | 19.52 | | | | 5.92 | | | | 82.10 | | | | 30.25 | | Fiscal Year Ended December 31, 2007 | | | 28.18 | | | | 11.37 | | | | 116.70 | | | | 47.68 | | Fiscal Year Ended December 31, 2008 | | | 12.24 | | | | 3.62 | | | | 53.00 | | | | 15.52 | | Fiscal Year Ended December 31, 2009 | | | 9.13 | | | | 3.95 | | | | 33.90 | | | | 16.53 | | Fiscal Year Ended December 31, 2010 | | | 9.38 | | | | 5.19 | | | | 37.36 | | | | 18.30 | | Fiscal Year Ended December 31, 2011 | | | 6.32 | | | | 4.20 | | | | 22.19 | | | | 15.68 | | Fiscal Year Ended December 31, 2012 | | | 6.05 | | | | 3.64 | | | | 23.42 | | | | 14.81 | | Fiscal Year Ended December 31, 2013 | | | 8.05 | | | | 5.58 | | | | 28.93 | | | | 20.60 | | Fiscal Year Ended December 31, 2014 | | | 8.54 | | | | 5.85 | | | | 30.13 | | | | 23.28 | | Fiscal Year Ended December 31, 2015 | | | 7.76 | | | | 6.11 | | | | 29.65 | | | | 24.26 | |
(1) On June 24, 2009 TAT’s ordinary shares began trading on the NASDAQ Global Market.
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 shares on the NASDAQ Global Market and the TASE:
| | | | | | | | | | | | | | | | | | | | 2014 | | | | | | | | | | | | | 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 | | | 7.03 | | | | 6.11 | | | NIS | 27.98 | | | NIS | 24.26 | | Second Quarter | | | 7.03 | | | | 6.57 | | | | 28.13 | | | | 25.2 | | Third Quarter | | | 7.23 | | | | 6.28 | | | | 28.00 | | | | 24.61 | | Fourth Quarter | | | 7.76 | | | | 6.5 | | | | 29.65 | | | | 26.72 | | | | | | | | | | | | | | | | | | | 2016 | | | | | | | | | | | | | | | | | First Quarter | | | 7.45 | | | | 6.74 | | | NIS | 28.3 | | | NIS | 27.42 | |
Monthly Stock Information
The following table sets forth, for the most recent six months, the high and low sales prices of our ordinary shares on the NASDAQ Global Market and the TASE:
| | | | | | | | | | | | | | | | | | | | October 2015 | | | 7.2 | | | | 6.5 | | | NIS | 27.99 | | | NIS | 27.00 | | November 2015 | | | 7.76 | | | | 6.72 | | | | 29.57 | | | | 26.72 | | December 2015 | | | 7.47 | | | | 6.86 | | | | 29.65 | | | | 27.35 | | January 2016 | | | 7.45 | | | | 6.4 | | | | 28.1 | | | | 26.87 | | February 2016 | | | 7.14 | | | | 6.57 | | | | 27.69 | | | | 26.67 | | March 2016 | | | 7.09 | | | | 6.8 | | | NIS | 27.57 | | | NIS | 26.41 | |
Not applicable. C. MarketsB. Plan of Distribution
Not applicable.
C. Markets
Our ordinary shares are traded on the NASDAQ Global Market under the symbol “TATT”. On August 16, 2005, we listed our shares for trade on the TASE as a dual listed company.
D. Selling Shareholders
Not applicable.
Not applicable.
Not applicable.
Item 10.Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Set out below is a description of certain provisions of our memorandum of association, articles of Associationassociation and of the Israeli Companies Law related to such provisions. This description is only a summary and does not purport to be complete and is qualified by reference to the full text of the memorandum of association and articles of association, which are incorporated by reference as exhibits to this Annual Report,annual report, and to Israeli law.
Purposes and Objects of the Company
We are a public company registered with the Israeli Companies Registry and have been assigned company number 52-0035791. Section 2 of our memorandum of association provides that we were established for the purpose of engaging in the business of providing services of planning, development, consultation and instruction in the electronics field. In addition, the purpose of our company is to perform various corporate activities permissible under Israeli law.
On February 1, 2000, the Israeli Companies Law came into effect and superseded most of the provisions of the Israeli Companies Ordinance (New Version), 5743-1983, except for certain provisions which relate to liens, bankruptcy, dissolution and liquidation of companies. Under the Israeli Companies Law, various provisions, some of which are detailed below, overrule the current provisions of our articles of association.
The
Powers of the Directors
Under the provisions of the Israeli Companies Law which prevails over our articles of association in certain issues, a director cannot participate in a meeting nor vote on a proposal, arrangement or contract in which he or she is materially interested except in cases where a majority of the directors are materially interested in the same transaction. In addition, our directors cannot vote on compensation to themselves without the approval of our compensation committee and our shareholders at a general meeting, except for certain cases in which there is no need for the approval of the general meeting in accordance with the regulations promulgated under the Israeli Companies Law. See Item 6. “Directors, Senior Management and Employees – Board Practices – Approval of Related Party Transactions Under Israeli Law.”
The authority of our directors to enter into borrowing arrangements on our behalf is not limited, except in the same manner as any other transaction by us. Our articles of association do not impose any mandatory retirement or age-limit requirements on our directors and our directors are not required to own shares in our company in order to qualify to serve as directors.
Rights Attached to Shares
Our authorized share capital consists of 10,000,00013,000,000 ordinary shares of a nominal value of NIS 0.90 each. All outstanding ordinary shares are validly issued, fully paid and non-assessable. The rights attached to the ordinary shares are as follows:
Dividend rights115. Holders of our ordinary shares are entitled to the full amount of any cash or share dividend subsequently declared. The board of directors may declare dividends in accordance with the provisions of the Israeli Companies Law as mentioned above. See Item 8.A. “Financial Information – Consolidated and Other Financial Information – Dividend Distribution Policy”. If after one year a dividend has been declared and it is still unclaimed, the board of directors is entitled to invest or utilize the unclaimed amount of dividend in any manner to our benefit until it is claimed. We are not obligated to pay interest or linkage differentials on an unclaimed dividend.
Voting rights. Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. Such voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.
The quorum required for any meeting of shareholders consists of at least two shareholders present in person or represented by proxy who hold or represent, in the aggregate, at least one third of the voting rights of the issued share capital. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or any time and place as the directors designate in a notice to the shareholders. At the reconvened meeting, the required quorum consists of any two members present in person or by proxy.
Under our articles of association, any resolution, including resolutions amending our memorandum of association or articles of association, winding-up, authorization of a class of shares with special rights, or other changes as specified in our articles of association, requires approval of the holders of a majority of the voting rights represented at the meeting, in person, by proxy or by written ballot, and voting thereon.
Please refer to Exhibit 2.1 for Items 10.B.3, B.4, B.5, B.6, B.7, B.8, B.9 and B.10.
Pursuant to the Israeli Companies Law and our articles of association, our directors (other than external directors) are elected at our annual general meeting of shareholders by a vote of the holders of a majority of the voting power represented and voting at such meeting and hold office until the next annual general meeting of shareholders and until their successors have been elected. All the members of our board of directors (except the external directors) may be reelected upon completion of their term of office. For information regarding the election of external directors, see Item 6. “Directors, Senior Management and Employees – Board Practices — Election of Directors.”
Rights to share in our company’s profits. Our shareholders have the right to share in our profits distributed as a dividend and any other permitted distribution. See this Item 10B. “Additional Information – Memorandum and Articles of Association – Rights Attached to Shares – Dividend rights.”
Rights to share in surplus in the event of liquidation. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion to the nominal value of their holdings. This right may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Liability to capital calls by our company. Under our memorandum of association and the Israeli Companies Law, the liability of our shareholders is limited to the par value of the shares held by them.
Limitations on any existing or prospective major shareholder. See Item 6. “Directors and Senior Management –Board Practices - Approval of Related Party Transactions Under Israeli Law.”
Changing Rights Attached to Shares
According to our articles of association, in order to change the rights attached to any class of shares, unless otherwise provided by the terms of the class, such change must be adopted by a general meeting of the shareholders and by a separate general meeting of the holders of the affected class with a majority of the voting rights represented at the meeting, in person, by proxy or by written ballot, and voting thereon.
Annual and Extraordinary Meetings
Under the Israeli Companies Law a company must convene an annual meeting of shareholders at least once every calendar year and within fifteen months of the last annual meeting. The agenda of the annual meeting includes discussing the financial statements and the report of the board of directors and may also include the appointment of directors and independent auditors as well as other issues. Depending on the matter to be voted upon, notice of at least 21 days or 35 days prior to the date of the meeting is required. Our board of directors may, at its discretion, convene additional meetings as “special general meetings”. With respect to “special general meetings" notice of at least 35 days prior to the date of the meeting is required. In addition, the board must convene a special general meeting upon (1) the demand of two of the directors or 25% of the nominated directors; and (2) one or more shareholders having at least 5% of the outstanding share capital and at least 1% of the voting power in the company, or one or more shareholders having at least 5% of the voting power in the company. See Item 10B. “Additional Information - Memorandum and Articles of Association - Rights Attached to Shares - Voting Rights.”
Limitations on the Rights to Own Securities in Our Company
Neither our memorandum of association or our articles of association nor the laws of the State of Israel restrict in any way the ownership or voting of shares by non-residents, except with respect to subjects of countries which are in a state of war with Israel.
Provisions Restricting Change in Control of Our Company
The Israeli Companies Law requires that mergers between Israeli companies be approved by the board of directors and general meeting of shareholders of both parties to the merger transaction. The approval of the board of directors of both companies is subject to such boards’ confirmations that there is no reasonable doubt that after the merger the surviving company will be able to fulfill its obligations towards its creditors. Each company must notify its creditors about the contemplated merger. Under the Israeli Companies Law, our articles of association are deemed to include a requirement that such merger be approved by an extraordinary resolution of the shareholders, as explained above. The approval of the merger by the general meetings of shareholders of the companies is also subject to additional approval requirements as specified in the Israeli Companies Law and regulations promulgated there under. See also Item 6. “Directors, Senior Management and Employees – Board Practices – Approval of Related Party Transactions Under Israeli Law.”
Disclosure of Shareholders Ownership
The Israeli Securities Law, 5728-1968 and regulations promulgated thereunder contain various provisions regarding the ownership threshold above which shareholders must disclose their share ownership. However, these provisions do not apply to companies, such as ours, whose shares are publicly traded in Israel as well on the NASDAQ Global Market. We are required pursuant to the Israeli Securities Law and the regulations promulgated thereunder to submit to the Israeli Securities Authority and the TASE, through a public immediate report, among other things, all information that we receive from our shareholders regarding their shareholdings in our company, provided that such information was published or is required to be published under applicable foreign law.
Changes in Our Capital
The board of directors has the right to issue shares. Changes in our capital are subject to the approval of the shareholders at a general meeting by a majority of the voting rights represented at the meeting, in person, by proxy or by written ballot, and voting thereon.
There are no restrictions on the rights of nonresident or foreign shareholders to hold or vote our ordinary shares.
Israeli law and regulations do not impose any material foreign exchange restrictions on non-Israeli holders of our ordinary shares. In May 1998, a new “general permit” was issued under the Israeli Currency Control Law, 1978, which removed most of the restrictions that previously existed under such law, and enabled Israeli citizens to freely invest outside of Israel and freely convert Israeli currency into non-Israeli currencies.
Non-residents of Israel who purchase our ordinary shares will be able to convert dividends, if any, thereon, and any amounts payable upon our dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of our ordinary shares to an Israeli resident, into freely-repatriable dollars, at the exchange rate prevailing at the time of conversion, provided that the Israeli income tax has been withheld (or paid) with respect to such amounts or an exemption has been obtained.
The following is a discussion of Israeli and United States tax consequences material to our shareholders. To the extent that the discussion is based on new tax legislation which has not been subject to judicial or administrative interpretation, the views expressed in the discussion might not be accepted by the tax authorities in question. The discussion is not intended, and should not be construed, as legal or professional tax advice and does not exhaust all possible tax considerations.
You are urged to consult your own tax advisor as to the Israeli, United States and other tax consequences of the purchase, ownership and disposition of our ordinary shares, including, in particular, the effect of any non-Israeli, state or local taxes.
Israeli Tax Considerations
The following is a summary of the principal Israeli tax laws applicable to us, of the Israeli Government programs from which we benefit and of the Income Tax Law (Inflationary Adjustments), 1985. This section also contains a discussion of material Israeli tax consequences to our shareholders who are not residents or citizens of Israel. This summary does not discuss all aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances, or to some types of investors subject to special treatment under Israeli law. Examples of investors subject to special treatment under Israeli law include residents of Israel, traders in securities, or persons who own, directly or indirectly, 10% or more of our outstanding voting capital, all of whom are subject to special tax regimes not covered in this discussion. Some parts of this discussion are based on new tax legislation that has not been subject to judicial or administrative interpretation. The discussion should not be construed as legal or professional tax advice and does not cover all possible tax consequences.
General Corporate Tax Structure Israeli companies are generally subject to corporate tax on their taxable income (including capital gains). The regular corporateat the rate of 23% in 2018 and thereafter. However, the effective tax rate payable by a company that derives income from an Approved Enterprise, a Benefited Enterprise, a Preferred Enterprise or a Technology Enterprise may be considerably less. Capital Gain derived by an Israeli resident company and / or royalties for Israel is 26.5% forwhich no tax clearance has been obtained from the year ended December 31, 2014 and 2015, and 25% for the year ended December 31, 2013. As of 2016ITA are subject to tax at the regular corporate tax rate is set to be 25%(23% in 2018 and thereafter).
Tax Benefits under the Law for the Encouragement of Capital Investments, 1959 We have one capital investment program that has been granted “approved enterprise”“Approved Enterprise” status under the Law for the Encouragement of Capital Investments, 1959, commonly referred to as the Investment Law,“Investment Law”, and one program that qualify as a “beneficiary enterprise”“Benefited Enterprise” pursuant to an amendment to the Investment Law that came into effect on April 1, 2005.2005 (the “April 2005 amendment”). These programs were waived as part of the "Preferred enterprise"Enterprise" which is part of the "2011 Amendment" mentioned below..
Prior to the April 2005 amendment, the Investment Law provided that capital investments in a production facility (or other eligible assets), may be designated as an approved enterpriseApproved Enterprise upon prior approval from the Investment Center of the Israel Ministry of Industry, Trade and Labor or the Investment Center.(the “Investment Center”).
OnThe April 1, 2005 an amendment to the Investment Law came into effect, which revised the criteria for investments qualified to receive tax benefits. An eligible investment program under that amendment provided for benefits as a beneficiary enterpriseBenefited Enterprise (rather than the previous terminology of approved enterprise)Approved Enterprise). Among other things, the April 2005 amendment provided tax benefits to both local and foreign investors. Companies that meet the specified criteria received the tax benefits without need for prior approval and instead, a company was to claim the tax benefits offered by the Investment Law directly in its tax returns.
The period of tax benefits for the then new beneficiary enterprise commences in the year that is the later of: (i) the year in which taxable income is first generated by a company, or (ii) a year selected by the company for commencement, on the condition that the company meets certain provisions provided by the Investment Law. The amendment does not apply to investment programs approved prior to December 31, 2004 and applies only to new investment programs. We began to generate income under the provision of the new amendment as of the beginning of 2006.
After expiration of the initial tax exemption period, the company is eligible for what was considered then a reduced corporate tax rate of 10% to 25%, depending on the extent of foreign investment in the company, for the following five to eight years, depending on the extentgeographic location of foreign investment in the company.Benefited Enterprise within Israel. The benefits period was limited to 12 years from completion of the investment under the approved plan or 14 years from the date of the approval, whichever is earlier. A company in which more than 25% of the shareholders are non-residents of Israel, defined under the Investment Law as a Foreign Investors Company, may be eligible for benefits for an extended period of up to ten years. If a company distributes dividends from tax-exempt approved enterpriseApproved Enterprise and/or beneficiary enterpriseBenefited Enterprise income, the company will be taxed on the otherwise exempt income at the same reduced corporate tax rate that applies to it after the initial exemption period. Distribution of dividends derived from approved enterpriseApproved Enterprise and beneficiary enterpriseBenefited Enterprise income that was taxed at reduced rates, but not tax exempt, does not result in additional tax consequences to the company. Shareholders who receive dividends derived from approved enterprise and beneficiary enterpriseBenefited Enterprise income arewere generally taxed at a rate of 15%, which iswas withheld and paid by the Companycompany paying the dividend, if the dividend iswas distributed during the benefits period or within the following 12 years.
The benefits available to an approved enterpriseApproved Enterprise and beneficiary enterpriseBenefited Enterprise were conditioned upon terms stipulated in the Investment Law and the related regulations (which include making specified investments in property and equipment, and financing a percentage of these investments with share capital), and, for an approved enterprise,Approved Enterprise, the conditions contained in the certificate of approval from the Investment Center. If we do not fulfill these conditions, in whole or in part, the benefits can be cancelled and we may be required to refund the amount of the benefits, linked to the Israeli consumer price indexCPI in Israel plus interest. We believe that our approved enterpriseApproved Enterprise and beneficiary enterpriseBenefited Enterprise programs currently operatewere operated in compliance with all applicable conditions and criteria, but we cannot assure you that they will continue to do so.criteria.
We havehad derived a material portion of our operating income from our approved enterpriseApproved Enterprise and beneficiary enterpriseBenefited Enterprise facilities. We were therefore eligible for a tax exemption for a limited period on undistributed approved enterpriseApproved Enterprise and beneficiary enterpriseBenefited Enterprise income. We intend to reinvest the entire amount of our tax-exempt income and not to distribute this income as a dividend.dividend
Until December 31, 2010, TAT and Turbochrome have elected to participate in the alternative package of tax benefits for their Approved and Benefited Enterprise under the law.
Pursuant to such Law, the income derived from those enterprises was exempted from Israeli corporate tax for a specified benefit period (except to the extent that dividends are distributed during the tax-exemption period other than upon liquidation) and subject to reduced corporate tax rates for an additional period.
In the event of distribution of a dividend from income which was tax exempt as above, the company would have to pay a regular corporate tax rate in respect of the amount distributed.
Tax Benefits under the 2011 Amendment
Under the transitional provisions of the 2011 Amendment, the company elected to irrevocably implement the 2011 Amendment with respect to its existing Approved and Beneficiary Enterprises while waiving benefits provided under the legislation prior to the 2011 Amendment.
Dividends paid out of income attributed to a Preferred Enterprise will be subject to a withholding tax at the source at the rate of 20%, or such lower rate as may be provided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (although, if the funds are subsequently distributed to individuals or to non-Israeli residents (individuals and corporations), the withholding tax would apply).
As of January 1, 2014, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to its income derived from its Preferred Enterprise, unless the Preferred Enterprise is located in development area A, in which case the tax rate as of January 1, 2017 was 7.5% (our operations are currently not located in development area A). Income which is not derived from Preferred Enterprise is subject to the regular corporate tax rate (24% in tax year 2017 and 23% as of January 1, 2018).
TAT is located in an area in Israel that is designated as elsewhere and as such is entitled to reduce tax rates of 16% (as of 2014).
Turbochrome is located in an area in Israel that is designated as Zone A and as such entitled to reduce tax rates of 7.5% (as of 2017).
Tax Benefits under the 2017 Amendment
An amendment to the Investment Law, which became effective as of January 1, 2017, provides new tax benefit to Preferred companies for two types of "Technology Enterprise", as described below, and is in addition to the other existing tax beneficial programs under the Investment Law.
The new incentives regime will apply to "Preferred Technological Enterprises" that meet certain conditions, as detailed in the 2017 amendment. Preferred Technological Enterprises will be subject to a corporate tax rate of 12% unless the Preferred Technological Enterprise is located in development zone A, in which case the rate will be 7.5% with respect to the portion of income derived from intellectual property developed in Israel. The withholding tax on dividends from income derived from intellectual property of the Preferred Technological Enterprises will be 4% for dividends paid to a foreign parent company holding at least 90% of the shares of the distributing company. For other dividend distributions, the withholding tax rate will be 20% (or a lower rate under a tax treaty, if applicable). We cannot assure you that we will continue to qualify as an Industrial Company or that the benefits described above will be available to us in the future. Tax Benefits and Grants for Research and Development
Israeli tax law allows, under specific conditions, a tax deduction in the year incurred for expenditures, including capital expenditures, relating to scientific research and development projects, if the expenditures are approved by the relevant Israeli government ministry, determined by the field of research, and the research and development is for the promotion of the company and is carried out by or on behalf of the company seeking such deduction. Expenditures not so approved are deductible over a three-year period. However, expenditures from proceeds made available to us through government grants are not deductible according to Israeli law.
Tax Benefits under the Law for the Encouragement of Industry (Taxes), 1969
According to the Law for the Encouragement of Industry (Taxes), 1969 or the Industry(the “Industry Encouragement Law,Law”), an Industrial Company‘Industrial Company’ is aan Israeli resident company, resident in Israel,with at least 90% of the income of which, in a given tax year, determined in Israeli currency (exclusive of income from some government loans, capital gains, interest and dividends),loans) is derived from an industrial enterpriseIndustrial Enterprise owned by it.it and located in Israel or in the "Area", in accordance with the definition in the section 3a of the Ordinance. An “industrial enterprise”‘Industrial Enterprise‘ is defined as an enterprise whose major activity in a given tax year is industrial production activity.
Under the Industry Encouragement Law, Industrial Companies are entitled to the following preferred corporate tax benefits:
· | Amortization of purchases of acquired technology and patents over an eight-year period for tax purposes; |
· | Amortization of specified expenses incurred in connection with a public issuance of securities over a three-year period for tax purposes; |
· | Right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli Industrial Companies; and |
Amortization of specified expenses incurred in connection with a public issuance of securities over a three-year period for tax purposes; · | Accelerated depreciation rates on equipment and buildings. |
Right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli Industrial Companies; and
Accelerated depreciation rates on equipment and buildings.
Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority. Additional amendments to the Investment 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 previous years’ incentives that were 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 elects to irrevocably implement the 2011 Amendment with respect to its existing Approved and Benefiting Enterprises while waiving benefits provided under the legislation prior to the 2011 Amendment.
Under a more recent amendment to the Investment Law, 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).
We cannot assure you that we will continue to qualify as an Industrial Company or that the benefits described above will be available to us in the future, which would entail the loss of the benefits that relate to this status.
Special Provisions Relating to Taxation under Inflationary Conditions
The Income Tax Law (Inflationary Adjustments), 1985, referred to as the Inflationary Adjustments Law, which attempts to overcome the problems presented to a traditional tax system by an economy undergoing rapid inflation. The Inflationary Adjustments Law is highly complex.
On February 26, 2008, the Israeli Parliament (the Knesset) enacted the Income Tax Law (Inflationary Adjustments) (Amendment No. 20) (Restriction of Effective Period), 2008 which we refer to as the Inflationary(the “Inflationary Adjustments Amendment.Amendment”). In accordance with the Inflationary Adjustments Amendment, the effective period of the Inflationary Adjustments Law will cease at the end of the 2007 tax year and as of the 2008 tax year the provisions of the law shallare no longer apply, other than the transitional provisions intended at preventing distortions in the tax calculations. In accordance with the Inflationary Adjustments Amendment, commencing the 2008 tax year, income for tax purposes willis no longer be adjusted to a real (net of inflation) measurement basis. Furthermore, the depreciation of inflation immune assets and carried forward tax losses willare no longer be linked to the Israeli consumer price index.CPI in Israel.
Taxation of Dividends Paid on our Ordinary Shares Taxation of Israeli Shareholders
A distribution of dividends from income, which is not attributed to an Approved Enterprise/ Benefited Enterprise/ Preferred Enterprise to an Israeli resident individuals areindividual, will generally be subject to Israeli income tax, on the receipt of dividends paid on our ordinary shares, other than bonus shares (share dividends) or stock dividends, at the rate of 25%, or 30% (or based on the applicable tax treaty) for a shareholderrecipient that is considered a material shareholder"Controlling Shareholder" (within the meaning of the Israeli Income Tax Ordinance) at the time of distribution or at any time during the 12-month period preceding such distribution.
However, dividends distributed from taxable income accrued during the benefits period of a Benefited Enterprise, subject to certain time limitations, are generally subject to Israeli income tax at the reduced rate of 15% (or based on the applicable tax treaty). Dividends paid on our ordinary sharesout of income attributed to a Preferred Enterprise are generally subject to Israeli companies are generally exempt from such tax. Dividends paid to Israeli individuals from income derived from any of our approved enterprises or beneficiary enterprises are subject to tax which is withheld at the source at the rate of 15%20% (or based on the applicable tax treaty). Dividends
Generally, Israeli resident corporations are exempt from Israeli corporate tax on the receipt of dividends paid toon shares of Israeli Individualsresident corporations and that the dividends was fully taxed in corporate tax rate in Israel, unless the dividends are distributed from taxable income derived from anythat has accrued during the benefits period of our preferred enterprisesApproved Enterprise of Benefited Enterprise, in which case they are subject to tax, which is withheld at the source,taxable at the rate of 20%15% (if the distributing company did not elect until June 30, 2015 to irrevocably implement the 2011 Amendment with respect to its existing Approved and Beneficiary Enterprises).
3% surtax will apply with respect to individuals on top of the aforementioned tax rates when annual taxable income exceeds NIS 649,560 (with respect to 2019). In general, dividends paid to Israeli companies are not subject to withholding tax. The amount is updated every year.
It should be mentionednoted that we cannot assure you that we will designate the profits that are being distributed in a way that will reduce shareholders’ tax liability to those tax rates.
Taxation of Non-Israeli Shareholders
Non-residents of Israel areThe Ordinance generally provides that a non-Israeli resident (either individual or corporation) is subject to, an Israeli income tax on income accrued or derived from sources in Israel, including passive income such as dividends. As of January 1, 2012, on distributions of dividends by an Israeli company to non-Israeli shareholders, other than bonus shares and stock dividends, income tax is applicable at the rate of 25%, or 30% forif the recipient is a shareholder that is considered a significant shareholder"Controlling Shareholder" at the time of distribution or at any time during the 12-month period preceding such distribution, unless a different rate is provided in a treaty between Israel and the shareholder’s country of residence.
As aforesaid, dividends derived from any of our income generated by an Approved Enterprise (oror Benefited Enterprise)Enterprise, are subject to withholding tax at a rate of 15%, and dividends derived from any of our income generated by a Preferred Enterprise are subject to withholding tax at a rate of 20%.
It should be noted that 3% surtax will apply on individuals on top of the aforementioned tax rates when annual taxable income exceeds NIS 649,560 (with respect to 2020). The amount is updated every year.
Under the U.S.-IsraelUnited States-Israel Tax Treaty, the maximum withholdingrate of tax withheld at source in Israel on dividends paid to a holder of our ordinary shares who is a treaty U.S. resident (for purposes of the United States-Israel Tax Treaty) is 25%,. However, generally the maximum rate of withholding tax on dividends, not generated by Approved / Benefited / Preferred Enterprises, that are paid to a U.S. corporation holding at least 10% or 15% ifmore of our outstanding voting capital from the start of the tax year preceding the distribution of the dividend through (and including) the distribution of the dividends, are generated by an Approved Enterprise (or Benefited Enterprise or Preferred Enterprises). However, if the income out of which the dividend is being paid is not attributable to an Approved Enterprise (or Benefited Enterprise or Preferred Enterprises) and not12.5%, provided that no more than 25% of our gross income of such preceding year consists of certain types of dividends and interest or dividends, then suchif a certificate for a reduced withholding tax rate is reducedobtained in advance from the Israeli Tax Authority. Notwithstanding the foregoing, dividends distributed from income attributed to 12.5%an Approved Enterprise, Benefited Enterprise or a Preferred Enterprise are subject to withholding tax rate of 15% for a non-resident that issuch a U.S. corporation and holds 10% or more ofshareholder, provided that the condition related to our issued voting power duringgross income for the part ofprevious year (as set forth in the tax year that precedes the date of payment of the dividend and during the whole of its prior tax year.previous sentence) is met.
The aforementioned rates under the United States-Israel Tax Treaty will not apply if the dividend income was derived through a permanent establishment of the U.S. resident in Israel.
When the amount of tax due is not fully withheld at source, such non-Israeli resident is obligated to file a tax return, report his or her Israeli income and pay the balance of the amount of tax due.
Capital gains taxes applicable to non-Israeli shareholders
Capital gains from the sale of our ordinary shares by non-Israeli shareholders are exempt from Israeli taxation, provided that the capital gain is not derived from a permanent establishment in Israel.Israel according to section 97(b2) to the Israeli income tax ordinance. In addition, the U.S.-Israel tax treatyTax Treaty exempts U.S. residents who hold less than 10% of our voting rights, and who held less than 10% of our voting rights during the 12 months prior to a sale of their shares, from Israeli capital gains tax in connection with such sale.
United States Federal Income Tax Consequences
The following discussion summarizes the material U.S. federal income tax considerations generally applicable to the purchase, ownership and disposition of our ordinary shares. Unless otherwise stated, this summary deals only with shareholders that are U.S. Holders (as defined below) who hold their ordinary shares as capital assets.
As used in this section, the term “U.S. Holder” means a beneficial owner of an ordinary share who is:
· | An individual citizen or resident of the United States or an individual treated as a U.S. citizen or resident for U.S. federal income tax purposes; |
· | 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 |
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; · | 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. |
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 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. 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-IsraelU.S.-Israel Tax Treaty, each as in effect as of the date of this prospectus.annual report. In addition, this description also relates to the Tax Cuts and Jobs Act (“TCJA”) signed into law on December 22, 2017. 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:
· | Dealers in stocks, securities or currencies; |
· | Financial institutions and financial services entities; |
Dealers in stocks, securities or currencies;
· | Real estate investment trusts; |
Financial institutions and financial services entities; · | Regulated investment companies; |
· | Persons that receive ordinary shares in connection with the performance of services; |
Real estate investment trusts; · | Tax-exempt organizations; |
· | Persons that hold ordinary shares as part of a straddle or appreciated financial position or as part of a hedging, conversion or other integrated instrument; |
Regulated investment companies; · | Persons who hold the ordinary shares through partnerships or other pass-through entities; |
· | Individual retirement and other tax-deferred accounts; |
Persons that receive ordinary shares in connection with the performance of services;
· | Expatriates of the United States and certain former long-term residents of the United States; |
Tax-exempt organizations; · | Persons liable for the alternative minimum tax; |
· | Persons having a “functional currency” other than the U.S. dollar; and |
Persons that hold ordinary shares as part of a straddle or appreciated financial position or as part of a hedging, conversion or other integrated instrument; · | Direct, indirect or constructive owners of 10% or more, by voting power or value, of our company. |
Persons who hold the 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.
If a partnership or an entity treated as a partnership for U.S. federal income tax purposes owns 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 shares and the partners in such partnership should consult their own tax own advisors about the U.S. federal income tax consequences of holding and disposing of 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 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.
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 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 shares and, to the extent they exceed that tax basis, will be treated as gain from a sale or exchange of those ordinary shares. OurIn some cases, 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.
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 generally be subject to taxtaxation in the U.S at a reduced maximum taxlower rate of 15%.than ordinary income. Distributions taxable as dividends paid on the ordinary shares should qualify for the 15%lower tax 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 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 shares currently will be readily tradable on an established securities market in the United States. However, no assurance can be given that the ordinary shares will remain readily tradable. The rate reduction does not apply unless certain holding period requirements are satisfied. With respect to the 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 shares should consult their own tax advisors regarding the effect of these rules in their particular circumstances. 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 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 shares generally willmay be treated as foreign source income for U.S. foreign tax credit limitation purposes. SubjectFor all taxable years ended until December 31, 2017, and 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, in general, any dividend that we distribute generally willshould constitute “passive category income,” or, in the case of certain U.S. Holders, “general category income.”
Starting January 1, 2018, and with respect to our corporate U.S. Holders, the TCJA provides a 100% deduction for the foreign-source portion of dividends received after January 1, 2018 from “specified 10-percent owned foreign corporations” by U.S. corporate holders, subject to a one-year holding period. No foreign tax credit, including Israeli withholding tax (or deduction for foreign taxes paid with respect to qualifying dividends) would be permitted for foreign taxes paid or accrued with respect to a qualifying dividend. Deduction would be unavailable for “hybrid dividends.” The dividend received deduction enacted under the TCJA may not apply to dividends from a passive foreign investment company.
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 shares would be foreign source income and whether and to what extent that investor would be entitled to a foreign tax credit.
Disposition of Ordinary Shares
Upon the sale or other disposition of ordinary shares, subject to the discussion below under “Passive Foreign Investment Company Considerations,” a U.S. Holder generally willshould 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 shares. U.S. Holders should consult their own tax 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 shares will be treated as long-term if, at the time of the sale or disposition, the 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 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.
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 any gain realized on the sale or exchange of ordinary shares unless:
· | 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. |
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.
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 includesmay include 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 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 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 stockshares 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 shares and any gain realized on the disposition of 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.
The passive foreign investment company tax consequences described above will not apply to a U.S. Holder if the U.S. Holder makes ana timely election to treat us as a qualified electing fund or QEF.(“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’sits pro rata share of our ordinary earnings as ordinary income and it’sits 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. 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 shares with respect to which the mark to marketmark-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 shares in prior years). However, gain or loss from the disposition of 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 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 CommissionSEC 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 shares will continue to trade on The NASDAQ Global Market or that the ordinary shares will be regularly traded for this purpose.
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.
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Certain U.S. Holders that are individuals, estates or trusts may be subject to a 3.8% Medicare tax on all or a portion of their “net investment income,” which may include all or a portion of their dividend income and net gains from the disposition of ordinary shares and warrants. Each U.S. Holder that is an individual, estate or trust is urged to consult its tax advisors regarding the applicability of the Medicare tax to its income and gains in respect of its investment in our ordinary shares and warrants, including with respect to the eligibility to claim foreign tax credit against such tax.Information Reporting and Backup Withholding
Payments in respect of ordinary shares may be subject to information reporting to the U.S. Internal Revenue Service (the “IRS”) 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%24%). 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 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 shares will generally be subject to U.S. gift and estate taxes with respect to ordinary shares in the same manner and to the same extent as with respect to other types of personal property.
E.Dividends and Paying Agents
Not applicable.
Not applicable.
G.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.SEC.
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 CommissionSEC 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 CommissionSEC public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549; and on the Securities and Exchange Commission Internet siteSEC website (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’sSEC’s public reference room in Washington, D.C. by calling the Securities and Exchange CommissionSEC at 1-800-SEC-0330. The Exchange Act file number for our Securities and Exchange CommissionSEC filings is 0-16050.
In addition,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 AuthorityISA 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 ISA (www.magna.isa.gov.il)www.magna.isa.gov.il).
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.
H.Subsidiary Information
Not applicable.
Item 11.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 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. During 2013 the NIS appreciated against the U.S. dollar by 7.5%. Such trend was continuedWe are hedging a portion of our exchange rate risk through the end of 2014, during which the NIS appreciated by additional 12% by the end of 2014. During 2015 the exchange rates between the NISforward transactions and the U.S. dollar have not changed materially. We estimate that a devaluationuse of 1% of the U.S. dollar against the NIS would result in a decrease of approximately $220,000 in our operating income. other derivative instruments.
Item 12.Description of Securities Other than Equity Securities
Not Applicable.
Item 13.Defaults, Dividend Arrearages and Delinquencies
None.
Item 14.Material Modifications to the Rights of Security Holders
None.
Item 15.Controls and Procedures
| (a) | Disclosure Controls and Procedures |
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in itsour Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’sSEC’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 Reportannual 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 |
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; |
| · | 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. |
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, 2015.2020. 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 (2013). Based on that assessment, our management concluded that as of December 31, 2015,2020, our internal control over financial reporting is effective.
| (c) | Attestation report of independent registered public accounting firm |
This annual reportreport 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 CommissionSEC that permit us to provide only management’s report in this annual report.
(d) Changes in Internal Control over Financial Reporting | | 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 control over financial reporting.
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.SEC. 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.”
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. Item 16C.Principal AccountantAccountant 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, | | Services Rendered | | 2015 | | 2014 | | Audit (1) | | | $ | 219,000 | | | $ | 193,000 | | Tax (2) | | | | 80,000 | | | | 40,000 | | Total | | | $ | 299,000 | | | $ | 233,000 | |
audit committee.
| | Year Ended December 31, | | Services Rendered | | 2020 | | | 2019 | | Audit (1) | | $ | 192,834 | | | $ | 206,847 | | Tax (2) | | | 26,198 | | | | 20,216 | | Total | | $ | 219,032 | | | $ | 227,063 | |
| (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. |
Pre-Approval Policies and Procedures
Our Audit Committeeaudit 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 Committeeaudit committee to consider whether proposed services are compatible with the independence of the public accountants. Item 16D.Exemptions from the Listing StandardsStandards 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 domesticUnited States companies under the Nasdaq Rules:rules:
Shareholder Approval. Although the Nasdaq Rulesrules 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.
In addition, rather than follow the Nasdaq Rulesrules 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:
| o | The securities issued amount to 20% or more of our outstanding voting rights before the issuance;
|
| o | Some or all of the consideration is other than cash or listed securities or the transaction is not onin accordance with market terms; and
|
| o | 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 RulesNASDAQ 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.
Item 17.Financial 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 | | | | Report of Independent Registered Public Accounting Firm | F-2F-2-F-3 | Consolidated Balance Sheets | F-3-F-4F-4-F-5 | Consolidated Statements of Operations | F-5-F-6F-6-F-7 | Consolidated Statements of Comprehensive Income | F-7F-8 | Consolidated Statements of Changes in Shareholders Equity | F-8F-9 | Consolidated Statements of Cash Flows | F-9F-10-F-11 | Notes to Consolidated Financial Statements | F-11F-12-F-54 |
The following exhibits are filed as a part of this Annual Report:
1.1 | Memorandum of Association of the Registrant (1) |
2.1 | Specimen Certificate for Ordinary Shares (1) |
4.2 | Agreement dated February 10, 2000, by and between the Registrant and TAT Industries Ltd. (English summary translation) (2) |
5.0 | Report of Independent Registered Public Accounting Firm |
142
14.2 | Consent of Independent 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. |
(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. |
(8)(9) | Filed as an exhibit to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2014, and incorporated herein by reference. |
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/ Guy NathanzonEhud Ben-Yair | | | | Guy NathanzonEhud Ben-Yair | | | | Chief Financial Officer (Principal Accounting Officer) | | | | | | Date: March 30, 2021 | | | |
The accompanying notes are an integral part of the consolidated financial statements.
U.S dollars in thousands | | | | | | | | | | | | | | | | | | | (Revised) | | | | | Net income | | $ | 5,849 | | | $ | 1,432 | | | $ | 1,760 | | Other comprehensive income, net | | | | | | | | | | | | | Currency translation adjustments | | | - | | | | 429 | | | | 668 | | Net unrealized losses from derivatives | | | (5 | ) | | | - | | | | - | | Reclassification adjustments for gains included in net income | | | 1 | | | | - | | | | - | | Total other comprehensive income | | | (4 | ) | | | 429 | | | | 668 | | | | | | | | | | | | | | | Total comprehensive income | | $ | 5,845 | | | $ | 1,861 | | | $ | 2,428 | | | | | | | | | | | | | | | Comprehensive loss attributable to non-controlling interest | | | - | | | | - | | | | 842 | | Comprehensive income attributable to shareholders | | $ | 5,845 | | | $ | 1,861 | | | $ | 3,270 | |
The accompanying notes are an integral part of the consolidated financial statements.
| | Year ended December 31,
| | | | | | | | | | | | | | Net income (loss) | | $ | (5,329 | ) | | $ | 806 | | | $ | (4,408 | ) | Other comprehensive income (loss), net | | | | | | | | | | | | | Net unrealized gains (losses) from derivatives | | | 232 | | | | 372 | | | | (672 | ) | Reclassification adjustments for gains from derivatives included in net income | | | (130 | ) | | | (140 | ) | | | | | Total other comprehensive income (loss) | | | | | | | | | | | | | Total comprehensive income (loss) | | | | | | | | | | | | |
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
U.S dollars in thousands, except share data
| | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | Additional paid-in capital | | | other comprehensive income (loss) | | | | | | Retained earnings (revised) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | BALANCE AT DECEMBER 31, 2012 | | | 9,073,043 | | | $ | 2,790 | | | $ | 64,410 | | | $ | (897 | ) | | $ | (2,088 | ) | | $ | 18,111 | | | $ | 2,803 | | | $ | 85,129 | | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2013: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income (loss) | | | - | | | | - | | | | - | | | | 468 | | | | - | | | | 2,802 | | | | (842 | ) | | | 2,428 | | Share based compensation | | | - | | | | - | | | | 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 | ) | | $ | 20,913 | | | $ | 1,961 | | | $ | 87,603 | | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2014: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | - | | | | - | | | | - | | | | 429 | | | | - | | | | 1,432 | | | | - | | | | 1,861 | | Share based compensation | | | - | | | | - | | | | 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 | ) | | $ | 20,345 | | | $ | - | | | $ | 85,541 | | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2015: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income (loss) | | | - | | | | - | | | | - | | | | (4 | ) | | | - | | | | 5,849 | | | | - | | | | 5,845 | | Share based compensation | | | - | | | | - | | | | 38 | | | | - | | | | - | | | | - | | | | - | | | | 38 | | BALANCE AT DECEMBER 31, 2015 | | | 9,082,817 | | | $ | 2,793 | | | $ | 64,529 | | | $ | (4 | ) | | $ | (2,088 | ) | | $ | 26,194 | | | | - | | | $ | 91,424 | |
The accompanying notes are an integral part of the consolidated financial statements.
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN SHAREHOLDERS EQUITY
U.S.U.S dollars in thousands, except share data
| | | | | | | | | | | | | | | | | | | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | Net income attributable to TAT Technologies Ltd. shareholders | | $ | 5,849 | | | $ | 1,432 | | | $ | 2,802 | | Net loss from discontinued operations | | | - | | | | - | | | | 2,429 | | Income from continuing operations | | | 5,849 | | | | 1,432 | | | | 5,231 | | | | | | | | | | | | | | | Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | | | | | | | Depreciation and amortization | | | 2,781 | | | | 2,069 | | | | 1,859 | | Exchange differentials of loans | | | - | | | | (1 | ) | | | 23 | | Write down of inventory | | | - | | | | - | | | | 67 | | Gain (loss) on sale of property, plant and equipment | | | - | | | | 10 | | | | (20 | ) | Gain from change in fair value of derivatives | | | 10 | | | | - | | | | (27 | ) | Interest from short-term bank deposits and restricted deposits | | | (33 | ) | | | (128 | ) | | | (11 | ) | Provision for doubtful accounts | | | 206 | | | | - | | | | 17 | | Share in results and sale of equity investment of affiliated company | | | (1,237 | ) | | | (267 | ) | | | (1,025 | ) | Share based compensation | | | 38 | | | | 38 | | | | 3 | | Gain on bargain purchase | | | (4,833 | ) | | | - | | | | - | | Liability in respect of employee rights upon retirement | | | 28 | | | | (485 | ) | | | 286 | | Deferred income taxes, net | | | (21 | ) | | | 1,229 | | | | 71 | | Changes in operating assets and liabilities: | | | | | | | | | | | | | Amounts due to (from) related parties, net | | | - | | | | 5 | | | | (63 | ) | Decrease (increase) in trade accounts receivable | | | (2,375 | ) | | | 2,730 | | | | (1,001 | ) | Decrease (increase) in other current assets and prepaid expenses | | | (85 | ) | | | (833 | ) | | | 1,195 | | Decrease (increase) in inventory | | | (571 | ) | | | (6,009 | ) | | | 679 | | Increase (decrease) in trade accounts payable | | | 436 | | | | (509 | ) | | | 278 | | Increase (decrease) in accrued expenses | | | 525 | | | | (715 | ) | | | (417 | ) | Increase (decrease) in other long-term liabilities | | | 15 | | | | (24 | ) | | | 58 | | Net cash provided by (used in) operating activities | | | 733 | | | | (1,458 | ) | | | 7,203 | | | | | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | Proceeds from sale of subsidiary (A) | | | - | | | | 2,176 | | | | - | | Acquisitions of subsidiary, net of cash acquired in the amount of $1,164 (see note 3a) | | | (1,796 | ) | | | - | | | | - | | Proceeds from sale of equity investment of affiliated company | | | 3,624 | | | | - | | | | - | | Funds in respect of employee rights upon retirement | | | 8 | | | | 352 | | | | (48 | ) | Proceeds from sale of property and equipment | | | 9 | | | | 19 | | | | 51 | | Purchase of property and equipment | | | (3,315 | ) | | | (3,021 | ) | | | (2,240 | ) | Investment in short-term deposit | | | (8,109 | ) | | | - | | | | - | | Maturities of short-term deposits | | | 5,109 | | | | 5,098 | | | | - | | Proceeds released from restricted deposits | | | - | | | | - | | | | 2,307 | | Net cash provided by (used in) investing activities | | $ | (4,470 | ) | | $ | 4,624 | | | $ | 70 | |
| | | | | | | | Accumulated other comprehensive income (loss) | | | | | | | | | | | | | | | | | | | Additional paid-in capital | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | BALANCE AT DECEMBER 31, 2017 | | | 9,102,917 | | | $ | 2,802 | | | $ | 65,073 | | | $ | 135 | | | $ | (2,088 | ) | | $ | 22,652 | | | $ | 88,574 | | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2017: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income (loss) | | | - | | | | - | | | | - | | | | (341 | ) | | | - | | | | (4,408 | ) | | | (4,749 | ) | Share based compensation | | | - | | | | - | | | | 272 | | | | - | | | | - | | | | - | | | | 272 | | Exercise of options | | | 19,584 | | | | 7 | | | | 190 | | | | - | | | | - | | | | - | | | | 197 | | BALANCE AT DECEMBER 31, 2018 | | | 9,122,501 | | | $ | 2,809 | | | $ | 65,535 | | | $ | (206 | ) | | $ | (2,088 | ) | | $ | 18,244 | | | $ | 84,294 | | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | - | | | | - | | | | - | | | | 232 | | | | - | | | | 806 | | | | 1,038 | | Share based compensation | | | - | | �� | | - | | | | 38 | | | | - | | | | - | | | | - | | | | 38 | | BALANCE AT DECEMBER 31, 2019 | | | 9,149,169 | | | $ | 2,809 | | | $ | 65,573 | | | $ | 26 | | | $ | (2,088 | ) | | $ | 19,050 | | | $ | 85,370 | | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income (loss) | | | - | | | | - | | | | - | | | | 102 | | | | - | | | | (5,329 | ) | | | (5,227 | ) | Share based compensation | | | - | | | | - | | | | 138 | | | | - | | | | - | | | | - | | | | 138 | | BALANCE AT DECEMBER 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
| | | | | | | | | | |
| | | |
| | | | | | | | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | Net income (loss) | | $ | (5,329 | ) | | $ | 806 | | | $ | (4,408 | ) | Net income (loss) from continued operations | | | (3,484 | ) | | | 1,461 | | | | (3,928 | ) | | | | | | | | | | | | | | Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | | | | | | | Depreciation and amortization | | | 4,065 | | | | 4,292 | | | | 4,065 | | Loss on sale of property, plant and equipment | | | - | | | | - | | | | - | | Loss (gain) from change in fair value of derivatives | | | (34 | ) | | | (311 | ) | | | 382 | | Non cash finance expense | | | 566 | | | | 354 | | | | - | | Change in provision for doubtful accounts | | | (8 | ) | | | 38 | | | | (347 | ) | Share in results of affiliated companies | | | 185 | | | | 132 | | | | 140 | | Share based compensation | | | 138 | | | | 38 | | | | 272 | | Liability in respect of employee rights upon retirement | | | (341 | ) | | | (897 | ) | | | (587 | ) | Impairment of intangible assets | | | 298 | | | | - | | | | - | | Deferred income taxes, net | | | (1,438 | ) | | | (450 | ) | | | (102 | ) | Changes in operating assets and liabilities: | | | | | | | | | | | | | Decrease (increase) in trade accounts receivable | | | 9,472 | | | | (2,037 | ) | | | 6,477 | | Decrease (increase) in other current assets and prepaid expenses | | | 310 | | | | 2,500 | | | | (1,575 | ) | Decrease (increase) in inventory | | | 1,868 | | | | (5,740 | ) | | | 381 | | Increase (decrease) in trade accounts payable | | | (5,336 | ) | | | 3,349 | | | | (1,137 | ) | Increase (decrease) in accrued expenses | | | (252 | ) | | | 982 | | | | (1,920 | ) | Increase (decrease) in other long-term liabilities | | | (62 | ) | | | (118 | ) | | | 34 | | Net cash provided by operating activities from continued operation | | $ | 5,947 | | | $ | 3,593 | | | $ | 2,155 | | | | | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | Investment in affiliated company | | | - | | | | (10 | ) | | | (26 | ) | Funds in respect of employee rights upon retirement | | | - | | | | - | | | | (22 | ) | Proceeds from sale of property and equipment | | | - | | | | - | | | | 7 | | Purchase of property and equipment | | | (3,894 | ) | | | (3,269 | ) | | | (4,270 | ) | Purchase of intangible assets | | | (1,513 | ) | | | - | | | | - | | Maturities of deposits | | | - | | | | - | | | | 470 | | Net cash used in continued investing activities | | $ | (5,407 | ) | | $ | (3,279 | ) | | $ | (3,841 | ) |
*Reclassified due to discontinued operation
The accompanying notes are an integral part of the consolidated financial statements.
| | Year ended December 31, | | | | 2015 | | | 2014 | | | 2013 | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | Repayments of long-term loans | | | - | | | $ | (883 | ) | | $ | (2,286 | ) | Dividend paid | | | - | | | | (2,000 | ) | | | - | | Repayments of short-term loans | | | (469 | ) | | | (26 | ) | | | (719 | ) | Short-term credit received from a bank | | | - | | | | - | | | | 26 | | Exercise of options | | | - | | | | - | | | | 43 | | Net cash used in financing activities | | | (469 | ) | | | (2,909 | ) | | | (2,936 | ) | | | | | | | | | | | | | | CASH FLOWS FROM DISCONTINUED OPERATIONS: | | | | | | | | | | | | | Cash provided by operating activities of discontinued operations | | | - | | | | - | | | | 685 | | Cash provided by investing activities of discontinued operations | | | - | | | | - | | | | (31 | ) | Cash used in financing activities of discontinued operations | | | - | | | | - | | | | (304 | ) | Effect of exchange rate changes on cash and cash equivalents of discontinued operations | | | - | | | | - | | | | 164 | | Net cash provided by discontinued operations | | | - | | | | - | | | | 514 | | | | | | | | | | | | | | | NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | (4,206 | ) | | | 257 | | | | 4,851 | | CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | | | 22,894 | | | | 22,637 | | | | 17,786 | | | | | | | | | | | | | | | CASH AND CASH EQUIVALENTS AT END OF YEAR | | | 18,688 | | | | 22,894 | | | | 22,637 | | LESS – CASH AND CASH EQUIVALENT OF DISCONTINUED OPERATIONS AT END OF YEAR | | | - | | | | - | | | | 2,823 | | CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS AT END OF YEAR | | $ | 18,688 | | | $ | 22,894 | | | $ | 19,814 | | | | | | | | | | | | | | | SUPPLEMENTARY INFORMATION ON INVESTING ACTIVITIES NOT INVOLVING CASH FLOW: | | | | | | | | | | | | | Purchase of property, plant and equipment on credit | | $ | 76 | | | $ | 44 | | | $ | 590 | | | | | | | | | | | | | | | Supplemental disclosure of cash flow information: | | | | | | | | | | | | | Interest paid | | $ | (4 | ) | | $ | (15 | ) | | $ | (89 | ) | Income taxes paid | | $ | (1,321 | ) | | $ | (571 | ) | | $ | (961 | ) | Income taxes refunds | | $ | 613 | | | $ | 613 | | | $ | 1,383 | | | | | | | | | | | | | | | (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 | | | $ | - | |
F - 10
| | Year ended December 31, | | | | 2020 | | | | 2019(*) |
| | | 2018(*) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | Short-term credit received from banks | | | 3,960 | | | | - | | | | - | | Proceeds from long-term loans received | | | 3,692 | | | | | | | | | | Exercise of options | | | - | | | | - | | | | 197 | | Net cash provided by continued financing activities | | | 7,652 | | | | - | | | | 197 | | | | | | | | | | | | | | | CASH FLOWS FROM DISCONTINUED ACTIVITIES: | | | | | | | | | | | | | Net loss from discontinued operation | | | (1,845 | ) | | $ | (655 | ) | | $ | (480 | ) | Net cash provided by operating activities | | | 1,998 | | | | 484 | | | | 405 | | Net cash used in investing activities | | | | | | | | | | | | | Net cash provided by (used in) discontinued activities | | | | | | | | | | | | | | | | | | | | | | | | | | NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | | | 8,345 | | | | 9 | | | | (1,564 | ) | CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR | | | | | | | | | | | | | CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR | | | | | | | | | | | | | | | | | | | | | | | | | | SUPPLEMENTARY INFORMATION ON INVESTING ACTIVITIES NOT INVOLVING CASH FLOW: | | | | | | | | | | | | | Purchase of property, plant and equipment on credit | | | | | | | | | | | | | Additions of operating lease right-of-use assets and operating lease liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | Supplemental disclosure of cash flow information: | | | | | | | | | | | | | Interest paid | | $ | (3 | ) | | $ | (28 | ) | | $ | (10 | ) | Income taxes received (paid), net | | $ | (3 | ) | | $ | 673 | | | $ | (1,087 | ) |
*Reclassified due to discontinued operation.
The accompanying notes are an integral part of the consolidated financial statements.
U.S. dollars in thousands
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. TAT’s shares are listed on both the NASDAQ (TATT) and Tel-Aviv Stock Exchange.
| a. | TAT Technologies Ltd., (“TAT” or the “Company”) an Israeli corporation, incorporated in 1985, is a leading provider of solutions and services to the aerospace and defense industries, focused mainly on the following four segments: (i) original equipment manufacturing (“OEM”) of heat transfer solutions and aviation accessories through our Gedera facility; (ii) MRO services for heat transfer components and OEM of heat transfer solutions through our Limco subsidiary; (iii) MRO services for aviation components through our Piedmont subsidiary; and (iv) overhaul and coating of jet engine components through our Turbochrome subsidiary. TAT targets the commercial aerospace (serving a wide range of types and sizes of commercial and business jets), military aerospace and ground defense sectors. TAT’s shares are listed on both the NASDAQ (TATT) and Tel-Aviv Stock Exchange. |
| b. | The ongoing COVID-19 pandemic adversely effected and continues to have an adverse effect on TAT’s industry and the markets in which TAT operates. The COVID-19 outbreak has significantly impacted the aviation market in which TAT’s customers operate and has resulted in a reduction of TAT’s business with some of these customers. In order to mitigate the impact of the decline in business as a result of the pandemic, TAT implemented measures to reduce its expenses, including a reduction in its headcount as well as other cost savings measures. Given the current macro-economic environment and the uncertainties regarding the potential impact of COVID-19 on TAT’s business, there can be no assurance that TAT’s estimates and assumptions used in the measurement of various assets and liabilities in the financial statements will prove to be accurate predictions of the future. |
| c. | TAT has the following wholly-ownedwholly owned subsidiaries: Limco-Piedmont Inc. (“Limco-Piedmont”), and Turbochrome Ltd. (“Turbochrome”) and TAT Gal Inc. (“TAT Gal”). Additionally, the Company holds 51% of TAT-Engineering LLC (“TAT-Engineering”), hereinafter collectively referred to as the “Group”. TAT 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; |
| · | overhaul and coating of jet engine components, including turbine vanes and blades, fan blades, variable inlet guide vanes, afterburner flaps and other components; |
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.
| b. | 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 First Aviation Services Inc. ("FAvS") representing 23.18% of FAvS' share capital and its entire holdings (16,253) of FAvS' Series A Preferred stock (see note 3). After the transaction the company owns 4.9% of FAvS’ shares. |
| c. | On October 19, 2015, the company acquired 100% of Chromalloy Israel Ltd.. Following the completion of the transaction, Chromalloy Israel changed its name to Turbochrome Ltd. (“Turbochrome Ltd.”) see also note 3. |
| d. | On November 25, 2015, the companyCompany signed an agreement with Russian-based Engineering Holding of Moscow Russia (“Engineering”), to establish a new maintenance facility for the provision of services for heat exchangers.transfer products. The new company, TAT-Engineering LLC, will beis based in Novosibirsk’s Tolmachevo airport. TAT - Engineering,TAT-Engineering, LLC shall provide services of minor repair, overhaul and recore of aviationfor heat transfer components. According to the agreementproducts. 51% of theTAT-Engineering LLC's shares will beare held by the companyTAT and the remaining 49% will beare held by Engineering. The accounting treatment will beof the joint venture is based on the equity method due to the participationvariable participating rights givengranted to Engineering. The new entity was established in January 2016, and there is no activity related to TAT-Engineering LLC in 2015.2016. |
U.S. dollars in thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The Group's financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP").
| b. | 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: recoverability of inventory, provision for doubtful accounts, purchase price allocation on acquisition,current expected credit loss and income taxes, impairment of long-lived assets, revenue recognition generated from long-term contracts and contingent consideration.taxes.
NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES (CONT) |
The majority of the revenues of each subsidiary in the Group revenues are generated in U.S. dollars ("dollars") and a substantial portion of the costs of each subsidiary in the Group costs are incurred in dollars. In addition, a significant portion of the TAT and Turbochrome financing has been obtained in dollars. Accordingly, the dollar is the currency of the primary economic environment in which the Group operates and accordingly its functional and reporting currency is the dollar.
Transactions and balances originally denominated in dollars are presented at their original amounts. Balances in currencies other than the U.S. dollar are translated into dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. For non-dollar transactions and other items in the statements of income (indicated below), the following exchange rates are used: (i) for transactions – exchange rates at transaction dates or average rates; and (ii) for other items (derived from non-monetary balance sheet items such as depreciation and amortization, etc.) – historical exchange rates. Currency transaction gains and losses are carried to financial income or expenses, as appropriate.
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES (CONT) |
| d. | Principles of consolidation |
The consolidated financial statements include the accounts of TAT and its subsidiaries.
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.
| e. | e. Cash and Cash equivalents |
All highly liquid investments, which include short-term bank deposits, and money market accounts, that are not restricted as to withdrawal or use, and short-term debentures, the period to maturity of which do not exceed three months at the time of investment, are considered to be cash equivalents.
| f. | Short-term bank deposits |
F - 14
Bank deposits with maturities of more than three months but less than one year are included in short-term deposits. Such short-term deposits bear interest at an average annual rate of approximately 0.6% in both 2015 and 2014.
NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES (CONT) |
| g.f. | Accounts receivable, 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 a provision for doubtful accounts. Accounts outstanding longer than their original contractual payment terms are considered past due.
The Group determines itsCompany’s accounts receivables accounting policy until December 31, 2019, prior to the adoption of the new CECL standard
Accounts receivables are stated at their net realizable value. The allowance against gross accounts receivables reflects the best estimate of losses inherent in the receivable’s portfolio determined based on historical experience, specific allowances for known troubled accounts and other currently available information. An allowance for doubtful debts is reflected in net accounts receivables. Account’s receivables are written off after all reasonable means to collect the full amount have been exhausted.
The Company’s accounts receivables accounting policy from January 1, 2020, following the adoption of the new CECL standard Accounts receivable have been reduced by considering a numberan allowance for doubtful accounts. The Company maintains the allowance for estimated losses resulting from the inability of factors, including the lengthCompany’s customers to make required payments. The allowance represents the current estimate of timelifetime expected credit losses over the remaining duration of existing accounts receivable are past due, the Group’s previous loss history from such customers, the customer’sconsidering current ability to pay its obligation to TATmarket conditions and the conditionsupportable forecasts when appropriate. The estimate is a result of the general economyCompany’s ongoing evaluation of collectability, customer creditworthiness, historical levels of credit losses, and future expectations.
Write-off activity and recoveries for 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 provision for doubtful accounts is determined with respect to specific debts that are doubtful of collection.periods presented were not material.
U.S. dollars in thousands
NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES (CONT) |
Inventory is measured at the lower of cost or market.and net realizable value.
Inventories include raw materials, parts, work in progress and finished products.
Cost of raw material and parts is determined using the “moving average” basis. Cost of work in progress and finished products is calculatingcalculated based on actual costscosts. Capitalized production costs components, mainly labor and overhead, is determineare determined on average basis over the production period.
If actual market prices are less favorable than those projected by management, inventory write-downs may be required. OnceWhen inventory written-down, a new lower cost basis for that inventory is established.
Since the Group sells products and services related to airplane accessories 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.
NOTE 2 - | i.SIGNIFICANT ACCOUNTING POLICIES (CONT) |
| 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 | Years | | | | | Buildings and leasehold improvements | | 7 - 39 | | Machinery and equipment | | 3 - 17 | | Motor vehicles | | 6 - 7 | | Office furniture and equipment | | 3 - 17 | | Software | | 5 | 3-5 |
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")Innovation Authority (IIA): |
Grants received from the OCSIIA 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 a "Traditional Industry Company", under the OCSIIA regulations, thesethe majority of grants are non-royalty bearing.
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 for using the Equity Methodaffiliates and share in results of equity investment of affiliated companies |
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. See Note 5.
The Group reviews this investmentthose investments for impairment whenever events indicate the carrying amount may not be recoverable. See note 3(b)Note 1(c).
Transactions between the Group and the affiliate are eliminated on consolidation. Profits or losses are eliminated only on assets still remaining on the books of the Group or the affiliate.
NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES (CONT) |
The Company adopted ASU No. 2016-02, Leases (Topic 842), on January 1, 2019 using the modified retrospective transition approach by applying the standard to all leases existing at the date of initial application. The Company determines if an arrangement is a lease at inception. Balances related to operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets are recognized as the lease liability, adjusted for lease incentives received and prepayments made. Lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The discount rate for the lease is the rate implicit in the lease unless that rate cannot be readily determined. As the Company’s leases do not provide an implicit rate, the Company’s uses its estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term (see also note 2aa).
As of implementation date the standard resulted in an increase of $7.3M in operating lease ROU assets and corresponding liabilities on the Company’s consolidated balance sheet and did not have a material impact on the Company’s consolidated financial statements and did not have an impact on the comparative figures.
| l. | Identified intangible assets |
Identifiable intangible assets are comprised of definite lived intangible. Definite lived intangible assets consist mainly of- customer relationships. Definite lived intangible assetsrelationships and commercial license which are amortized over 7 and 10 years respectively, using the straight-line method over their estimated period of useful life which isas determined by identifying the period in which
Substantially substantially all of the cash flows are expected to be generated. Amortization of customer relationships is recorded under selling and marketing expenses (this intangible asset was fully impaired during the year ended December 31, 2020, see note 8) and selling expenses.the amortization of the commercial license is recorded in the cost of sales.
| m. | Impairment of long-lived assets |
Long-lived assets, including property, plant and equipment, operating lease right of use assets and definite life intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets (or asset group) may not be recoverable. 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 6 and 9)7).
Company shares held by the Company are presented as a reduction of equity at their cost to the Company. The treasury shares have no rights.
U.S. dollars in thousands
NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES (CONT) |
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 long - term service contracts) and parts services.
A contract with a customer exists only when: the parties to the contract have approved it and are committed to perform their respective obligations, the Company can identify each party’s rights regarding the distinct goods or services to be transferred (“performance obligations”), the Company can determine the transaction price for the goods or services to be transferred, the contract has commercial substance and it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.
Revenues are recorded in the amount of consideration to which the Company expects to be entitled in exchange for performance obligations upon transfer of control to the customer, excluding amounts collected on behalf of other third parties and sales taxes.
To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the performance obligation is satisfied. Other major provisions include capitalization of certain contract costs, consideration of the time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)
| p. | Revenue recognition (cont) |
The Company has adopted the following exemptions and accounting policies: a. The Company has chosen to account for shipping as a fulfillment costs, in cases in which the shipping occurs after the customer has obtained control of a good. b. The Company has chosen not to adjust the promised amount of consideration for the effects of a significant financing component, in cases in which the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less. c. The Company has chosen to present all sales taxes collected from customers on a net basis. The group recognizes revenues from the sale of OEM products are recognized when persuasive evidence of an arrangement exists, delivery ofit satisfies a performance obligation, i.e. when or as the customer obtains control upon product has occurred, provided the collection of the resulting receivable is reasonably assured, the price is fixed or determinable and no significant obligation exists.shipment. 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, 2015, 2014 and 2013, no losses have been recognized for such fixed price contracts.
RevenuesThe Group recognizes revenues from MRO services are generally recognized when services are completed and the item is shipped backover time as it satisfies its performance obligations. The Group satisfies its performance, according to the customer. In cases in which contracts require exchanging a defective landing gear for a restored gear, the non-refundable minimum amounts from these contracts are recognized on the exchange date (delivery of the product has occurred), and any additional amounts billed to the customer for excess hours of repair, are recognized when the customer approve the price for these additional services.required milestones.
Revenues from maintenance contracts are recognized over the contract period in proportion to the costs expected to be incurred in performing services under the contract. The Group estimates the costs that are expected to be incurred based on its historical experience. 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 contracts are reviewed on a timely basisContract assets and adjusted (if required) based on total expected cost.liabilities
Revenues from royalties from salesContract liabilities are mainly comprised of products developed with the Group's intellectual property, technology and technical assistance are recognized when the related sales are made.
| p. | Shipping and handling costs |
Shipping and handling costs billed to customersdeferred revenues which are included in revenue. The cost of shipping and handling products is included in costs of revenues.under other payables.
U.S. dollars in thousands NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES (CONT) |
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)
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. According to company's experience, most of the warranty costs incur during the first year of the contract.
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 revenue is recognized.recognized under accrued expenses on the company’s balance sheet. The Group periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
| r. | Research and development |
Research and development costs, net of grants, are charged to expenses as incurred.
The Group measures fair value and discloses fair value measurements for financial and non-financial assets and liabilities. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for 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.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)
| s. | Fair value measurement (cont) |
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.
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES (CONT) |
| t. | Concentrations of credit risk |
Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, derivatives 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 the 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. TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES (CONT) |
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 reduceit is more likely than not that a portion of the deferred income tax assets to their estimated realizable value,will not be realized, see note 15(h)17(h).
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.
With regard to dividends distributable from the income of foreign subsidiaries: as the Group intends to permanently reinvest retained earnings and has no intention to declare dividends out of such earningsTaxes which would apply in the foreseeable future it does not recordevent of distribution of earnings from foreign subsidiaries of the Company, have been taken into account in computing the deferred taxes, when there is a possibility of future distribution of earnings from such foreign subsidiaries.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)
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 15(a)13(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 TAT’s Israeli subsidiaries are measured and reflected in NIS and for TAT’s U.S. subsidiaries are measured and reflected in U.S. dollars. NIS.
As explained in (b)(c) above, the consolidated financial statements are measured and presented in U.S. dollars. In accordance with ASC 740, TAT has not provided deferred income taxes on the differences resulting from changes in exchange rate and indexation.
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES (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 (expense). Such liabilities are classified as long-term, unless the liability is expected to be resolved within twelve months from the balance sheet date.
| w. | Discontinued operations |
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.
Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of shares of the Company's Ordinary Shares, par value NIS 0.9 per share outstanding for each period.
Diluted earnings (loss) per share are calculated by dividing the net income by the fully-diluted weighted-average number of ordinary shares outstanding during each period. Potentially dilutive shares include outstanding options granted to employees.
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)employees and directors, using the treasury stock method.
| y.w. | Share-based compensation |
The Group applies ASC 718 "Stock Based Compensation" with respect to employees and directors’ 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 GroupCompany estimates forfeitures based on historical experience and anticipated future conditions.
NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES (CONT) |
| w. | Share-based compensation (cont) |
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.
| z.x. | Comprehensive income (loss) |
Comprehensive income in 20152020, 2019 and 2018 includes, in addition to net income or loss, gains and losses of derivatives (net of related taxes where applicable). In 2014 and 2013, comprehensive income includes, currency translation adjustments that were related to the subsidiary that was sold in 2014. See also note 5. Reclassification adjustments for gain or loss of derivatives are included in the relevant line item in operating expenses based on the employees function in the statement of income. See also note 2 (cc)(z).
When the Company acquires a business, the purchase price is allocated based on the fair value of tangible assets and identifiable intangible assets acquired, and liabilities assumed. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Goodwill as of the acquisition date is measured as the residual of the excess of the consideration transferred, plus the fair value of any noncontrolling interest in the acquiree at the acquisition date, over the fair value of the identifiable net assets acquired. If the fair value of the net assets acquired exceeds the purchase price, the resulting bargain purchase is recognized as a gain in the consolidated statement of operations. The Company generally engages independent, third-party appraisal firms to assist in determining the fair value of assets acquired and liabilities assumed. Such a valuation requires management to make significant estimates, especially with respect to intangible assets. These estimates are based on historical experience and information obtained from the management of the acquired companies. These estimates are inherently uncertain. For all acquisitions, operating results are included in the consolidated statement of operations from the date of acquisition.
U.S. dollars in thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Group but which will only be resolved when one or more future events occur or fail to occur. The Group’s management assesses such contingent liabilities and estimated legal fees, if any, and accrues for these costs. Such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Group or unasserted claims that may result in such proceedings, the Group’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
Management applies the guidance in ASC 450-20-25 when assessing losses resulting from contingencies. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability is recorded as accrued expenses in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material are disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
| cc.z. | Derivatives and hedging |
The Company carries out transactions involving foreign currency exchange derivative financial instruments. The transactions are designed to hedge the Company’s exposure in currencies other than the U.S. dollar. The Company recognizes derivative instruments as either assets or liabilities and measures those instruments at fair value.
For derivative instruments that are designated and qualify as a cash-flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the anticipated transaction in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of a derivative designated as a cash flow hedge is recognized in "financial expense (income), net".
If a derivative does not meet the definition of a cash flow hedge, the changes in the fair value are included in "financial expense (income), net".
Prior to the adoption of ASU 2017-12 the ineffective portion of a derivative designated as a cash flow hedge was recognized in "financial expense (income), net.
After the adoption of ASU 2017-12, the main effect is that the overall influence of the hedging appears under the same line of the hedged item and not under "financial expense (income), net".
For derivative instruments that qualify for hedge accounting, the cash flows associated with these derivatives are reported in the consolidated statements of cash flows consistently with the classification of the cash flows from the underlying hedged items that these derivatives are hedging. After the adoption of ASU 2017-12, the main effect is that the overall influence of the hedging appears under the same line of the hedged item and not under "financial expense (income), net". U.S. dollars in thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)
| dd.aa. | Recently Issued Accounting Principles: |
Recently adopted accounting pronouncements:
| (1) | During November 2015,In June 2016, the FASB issued ASU 2015-17, Balance Sheet ClassificationNo. 2016-13, Financial Instruments—Credit Losses ("Topic 326"): Measurement of Deferred Taxes, which simplifiesCredit Losses on Financial Instruments. The guidance replaces the presentationcurrent incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of deferred income taxes. ASU 2015-17 provides presentation requirementsa broader range of reasonable and supportable information to classify deferred tax assets and liabilities as noncurrent in a classified statement of financial position.inform credit loss estimates. The standard isguidance will be effective for the fiscal yearsyear beginning after December 15, 2016,on January 1, 2020, including interim periods within that reporting period. Early adoption is permitted for any interim and annual financial statements thatyear. The new standard does not have not yet been issued. We early adopted ASU 2015-17 effective October 31, 2015, retrospectively. Adoption resulted in a $1.1 million decrease in other accounts receivable and prepaid expenses, a $0.9 million increase in Long-term deferred tax assets, net, and a $0.2 million decrease in long-term deferred tax liability, net in our consolidated balance sheets at December 31, 2014. Adoption had no impact on our results of operations and cash flow. |
| (2) | In September 2015, the FASB issued ASU 2015-16, Business Combinations - Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement to restate prior period financial statements for measurement period adjustments. The guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. We early adopted this guidance in our fourth quarter of fiscal 2015. See “Note 3 — Acquisitions”. Adoption had no impactmaterial effect on the Company's financial statements as of December 31, 2015.upon adoption. |
Accounting pronouncements issued but not yet adopted:
| (3)(1) | In February 2015,December 2019, the FASB issued amended guidance on currentASU 2019-12, “Simplifying the Accounting for Income Taxes. (Topic 740)” ("the Update"). The amendments in this Update simplify the accounting for consolidation of certain entities. Pursuantincome taxes by removing the following exceptions in ASC 740: 1. Exception to this guidance, reporting enterprises should evaluate whether (a) they should consolidate limited partnershipsthe incremental approach for intra-period tax allocation when there is a loss from continuing operations and similar entities, (b) fees paidincome or a gain from other items; 2. Exception to the requirement to recognize a decision maker or service provider are variable interestsdeferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; 3. Exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary;4. Exception to the general methodology for calculating income taxes in an interim period when a variable interest entity ("VIE"), and (c) variable interests in a VIE held by related parties ofyear-to-date loss exceeds the reporting enterprise require the reporting enterprise to consolidate the VIE. The guidance is effectiveanticipated loss for the interim and annual periods beginning on or after December 15, 2015. The Company does not expect this guidance to have a material effect on its consolidated financial statements at the time of adoption of this standard.year.
|
In addition, this Update also simplify the accounting for income taxes in certain topics as follows: 1. Requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax; 2. Requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction;3. Specifying that an entity can elect (rather than required to) allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements;4. Requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.
The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The new standard will not have a material effect on the Company's financial statements upon adoption.
NOTE 53 - 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, 2020 | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets: | | | | | | | | | | | | | Derivative financial instruments | | | | | | | | | | | | | | | | |
| | December 31, 2015 | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Liabilities: | | | | | | | | | | | | | Contingent liability (see also note 12 (g)) | | $ | - | | | $ | - | | | $ | 640 | | | $ | 640 | | Derivative financial instruments | | $ | - | | | $ | 14 | | | $ | - | | | $ | 14 | |
| | December 31, 2019 | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets: | | | | | | | | | | | | | Derivative financial instruments | | | | | | | | | | | | | | | | |
| a. | Derivative financial instruments: |
The company hedges the foreign currency risk arising from probable forecasted Israeli Shekel ("ILS") expenses as part of its risk management policy. The risk management objective is to hedge the foreign currency exchange rate fluctuations associated with ILS denominated forecasted probable expenses according to the company's hedging policy. The majority of the ILS exposure arises from expected related salary expenses. The Company enters into contracts for derivative financial instruments forward contracts in order to execute its policy. Such derivatives are recognized at fair value. The fair value of forward contracts is calculated as the difference between the forward rate on valuation date and the forward rate on the original forward contract, multiplied by the transaction's notional amount. At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The hedge effectiveness is assessed at the end of each reporting period.
| | December 31, 2014 | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets: | | | | | | | | | | | | | Money Market | | $ | 1,136 | | | $ | - | | | $ | - | | | $ | 1,136 | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | Derivative financial instruments | | $ | - | | | $ | 463 | | | $ | - | | | $ | 463 | |
The effective portion and the ineffective portion of the gain or loss on the hedging instrument is recognized as other comprehensive income (loss).
The effective portion is determined by looking into changes in spot exchange rate.
The change in fair value attributable to changes other than those due to fluctuations in the spot exchange rate are excluded from the assessment of hedge effectiveness and are recognized in the statement of income under financial expenses-net.
U.S. dollars in thousands
NOTE 53 - FAIR VALUE MEASUREMENT (CONT)
Recurring Fair Value Measurements (cont)
The contingent consideration liability inFor derivative instruments that are designated and qualify as a cash-flow hedge, the acquisitiongain or loss on the derivative instrument is reported as a component of Turbochrome shares was computed on expected revenue to be generated by the company using a binomial tree modelother comprehensive income approach. The Company will reassess the fair value of the contingent consideration on a quarterly basis and record any applicable adjustments toreclassified into earnings in the same line item associated with the anticipated transaction in the same period theyor periods during which the hedged transaction affects earnings.
For derivative instruments that qualify for hedge accounting, the cash flows associated with these derivatives are determined. The fair valuereported in the consolidated statements of cash flows consistently with the classification of the contingent liability as of December 31, 2015 was estimated usingcash flows from the following assumptions:underlying hedged items that these derivatives are hedging.
| | 2015 | | | | | | Volatility | | | 16.6 | % | Expected life (in years) | | | 1.25 | | Risk free interest rate | | | 0.08 | % |
| b. | Derivative financial instruments: |
The fair value calculation of the derivative financial instruments is equal to the difference between the U.S. dollar values of the derivative at the inception of the hedge and at the end of the testing period, based on translating the Israeli Shekel amount of the derivative at current forward rate for the remaining hedging period.
As of December 31, 2015,2020, and 2019, the companyCompany has open forward contracts with a notional total amount of $3,638. $3,345 and $13,927, respectively. As of December 31, 2014,2020, the company has contractsopen call options and open put options with a notional total amount of $4,800.$10,196 and $2,056, respectively.
The carrying amounts of financial instruments include cash and cash equivalents, short-term bank deposits, accounts receivable, accounts payable and accrued liabilities approximate fair value because of their short maturities.
Inventory is composed of the following:
| | December 31, | | | | 2020 | | | 2019 | | | | | | | | | Raw materials and components | | $ | 11,281 | | | $ | 13,064 | | Work in progress | | | 15,432 | | | | 11,387 | | Spare parts | | | 13,147 | | | | 18,272 | | Finished goods | | | 1,363 | | | | 604 | | | | | | | | | | | Total inventory (**) | | $ | 41,223 | | | $ | 43,327 | |
(**) The total amount of Rotables included in the company spare parts inventory for the years ended December 31, 2020 and 2019 were $9,183 and $8,886, respectively. Inventory related to discontinued operation for the year ended December 31, 2019 was $580.
Inventories write off expenses due to slow inventory amounted to $769, $490 and $691 for the years ended December 31, 2020, 2019 and 2018, respectively.
In February 2021 the company signed an agreement to sell inventory parts to a third party following the company’s decision to exit the CRJ landing gear MRO activity (part of the MRO aviation components segment). The contract value is lower by $450 compared to the book value of these assets. Therefore, an impairment in inventory value of $450 was recorded in the cost of revenues from services.
The company maintains a wide range of exchangeable units and other spare parts related to its products and services in various locations. Due to the long lead time of its suppliers and manufacturing cycles, the company needs to forecast demand and commit significant resources towards these inventories. As such, the Company is subject to significant risks including excess inventory no longer relevant.
U.S. dollars in thousands NOTE 5 - INVESTMENT IN AFFILIATES
InventoryOn November 25, 2015, the Company signed an agreement with Russian-based Engineering Holding of Moscow (“Engineering”), to establish a new facility for the provision of services for heat transfer products. The new company, TAT-Engineering LLC, is composedbased in Novosibirsk’s Tolmachevo airport. TAT-Engineering, LLC shall provide services for heat transfer products. 51% of TAT-Engineering LLC's shares are held by TAT and the remaining 49% are held by Engineering. The accounting treatment of the following:
| | December 31, | | | | 2015 | | | 2014 | | | | | | | | | Raw materials and components | | $ | 9,823 | | | $ | 11,333 | | Work in progress | | | 19,798 | | | | 14,673 | | Spare parts | | | 6,340 | | | | 8,956 | | Finished goods | | | 703 | | | | 515 | | | | | | | | | | | | | $ | 36,664 | | | $ | 35,477 | |
joint venture is based on the equity method due to variable participating rights granted to Engineering. The new entity was established in January 2016.
Summarized financial information of TAT-Engineering LLC:
| | | | | | | | | | | Balance sheets: | | | | | | | Current assets | | | | | | | | | Non-current assets | | | | | | | 1,383 | | Current liabilities | | | | | | | | |
| | Year ended December 31, | | | | 2020 | | | 2019 | | | 2018 | | Statements of operation: | | | | | | | | | | Revenues | | | | | | | | | | | | | Gross loss | | | | | | | | | | | | | Loss from continuing operations | | | | | | | | | | | | | Net losses attributable to the Company | | | | | | | | | | | | |
NOTE 76 - PROPERTY, PLANT AND EQUIPMENT, NET
Composition of assets, grouped by major classifications, is as follows:
| | December 31, | | | | 2020 | | | 2019 | | Cost: | | | | | | | Land and buildings | | $ | 15,762 | | | $ | 14,863 | | Machinery and equipment | | | 57,922 | | | | 49,667 | | Motor vehicles | | | 313 | | | | 410 | | Office furniture and equipment | | | 1,895 | | | | 1,811 | | Software | | | 1,371 | | | | 1,420 | | | | | 77,263 | | | | 68,171 | | | | | | | | | | | Less: Accumulated depreciation | | | 51,526 | | | | 47,566 | | Depreciated cost | | $ | 25,737 | | | $ | 20,605 | |
| | December 31, | | | | 2015 | | | 2014 | | Cost: | | | | | | | Land and buildings | | $ | 11,112 | | | $ | 6,232 | | Machinery and equipment | | | 41,378 | | | | 36,299 | | Motor vehicles | | | 334 | | | | 334 | | Office furniture and equipment | | | 1,789 | | | | 1,646 | | Software | | | 1,259 | | | | 1,197 | | | | | 55,872 | | | | 45,708 | | | | | | | | | | | Less: Accumulated depreciation | | | 36,938 | | | | 34,184 | | Depreciated cost | | $ | 18,934 | | | $ | 11,524 | |
Depreciation expenses amounted to $2,753, $2,069$3,960 $4,238 and $1,859$4,051 for the years ended December 31, 2015, 20142020, 2019 and 2013,2018, respectively. U.S. dollars in thousands
NOTE 7 - LEASES
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 2029. Certain leases contain renewal options as defined in the agreements.
During 2019, Limco leased a new building (building #5) for its operation. The lease on building #5 expires on March 31, 2030. Building #5 has an early termination option effective after March 31, 2019 with six months advance written notice. The rent is $4,100 per month for building #5 plus the annual percentage increase in the CPI-W.
Lease expense totaled $633, $510 and $494 for the years ended December 31, 2020, 2019, and 2018 respectively.
TAT leases its factory from TAT Industries until the end of 2024. In December 2019 the rental fee was reviewed by real estate appraiser who determined that the rental fee should increase by $400 starting from January 2020. Lease expense totaled $1,188, $787 and $767 for the years ended December 31, 2020, 2019, and 2018 respectively.
The lease cost was as follows:
| | Year ended December 31, 2020 | | | Year ended December 31, 2019 | | Operating lease expenses | | | | | | | | |
Supplemental cash flow information related to leases was as follows:
| | Year ended December 31, 2020 | | | Year ended December 31, 2019 | | Operating cash flows from operating leases (non-cash finance expense) | | | | | | | 354
| | Right-of-use assets obtained in exchange for lease obligations (non-cash) | | | | | | | 648
| |
NOTE 7 – LEASES (CONT)
Supplemental balance sheet information related to operating leases is as follows:
| | | | | | | Operating Leases | | | | | | | Operating lease right-of-use assets | | | | | | | | | | | | | | | | | | Current operating lease liabilities | | | 1,614 | | | | 1,330 | | Non-current operating lease liabilities | | | | | | | | | Total operating lease liabilities | | | | | | | | | | | | | | | | | | Weighted Average Remaining Lease Term | | | | | | | | | Operating leases - Israel | | | | | | | Operating leases – United States | | | | | | | | | | | | | | | | Weighted Average discount rate | | | | | | | | | Operating leases - Israel | | | | | | | | | Operating leases – United States | | | | | | | | |
As of December 31, 2020, the maturities of lease liabilities were as follows:
| | | | 2021 | | $ | 1,852 | | 2022 | | | 1,784 | | 2023 | | | 1,737 | | 2024 | | | 1,623 | | 2025 and after | | | | | Total lease payments | | | 7,649 | | Less imputed interest | | | | | Total | | | | |
NOTE 8 - INTANGIBLE ASSETS
Intangible assets:
| | | | | | | | | | | | | | | | | | | | Customer relationships | | | | | | | | | | | | | Cost | | $ | 1,342 | | | $ | - | | | $ | 671 | | | $ | 671 | | Impairment | | | (298 | ) | | | | Accumulated amortization | | | (28 | ) | | | - | | | | | | | | | | Amortized cost | | $ | 1,314 | | | $ | - | | | | | | | | | |
NOTE 9 - OTHER BALANCE SHEETS SUPPLEMENTAL INFORMATION
Accrued expenses:The COVID-19 pandemic and the significant reduction in the reconditioning and coating segment (“Turbochrome”) business during 2020 were a trigger event for impairment of the customer relationships asset. The Company believes there will be no future economic benefits that will be derived from the customers attributed to this intangible asset. Therefore, the Company wrote off the amortized cost related to the customer relationships. The write off expenses recorded in the P&L under Other Expenses.
| | | | | | | | | | | Commercial license | | | | | | | Cost | | $ | 1,513 | | | $ | - | | Accumulated amortization | | | | | | | | | Amortized cost | | | | | | | | |
| | December 31, | | | | 2015 | | | 2014 | | | | | | | | | Employees and payroll accruals | | $ | 2,657 | | | $ | 2,149 | | Accrued expenses | | | 1,081 | | | | 543 | | Authorities | | | 952 | | | | 428 | | Advances from customers | | | 1,295 | | | | 741 | | Deferred income | | | 240 | | | | 117 | | Warranty provision | | | 324 | | | | 251 | | Contingent consideration | | | 500 | | | | - | | Accrued royalties | | | 752 | | | | 368 | | Hedge instruments | | | 14 | | | | 463 | | | | | | | | | | | | | $ | 7,815 | | | $ | 5,060 | |
On September 2020 Piedmont signed a 10 years agreement for the commercial segment. Under this contract Honeywell intends to transfer all of its APU 331-20X MRO activity to TAT Piedmont. Estimated amortization expenses for the five succeeding years is $150 per year.
U.S. dollars in thousands
NOTE 9 - LONG TERM LOANS
During 2020, TAT received loans in the amount of $3.4 million from commercial banks, amount of $596 was classified as a short-term loan as of December 31, 2020. These loans are guaranteed by the Israeli government. The loans bear annual interest of 3.1% (Prime Rate+1.5%) which will be paid in equal monthly instalments from June 2021 through May 2025. In addition, during 2020 TAT received a loan of approximately $3.1 million under the U.S. Small Business Administration Payroll Protection Program (“PPP”) which was created under the Coronavirus Aid, Relief and Economic Security Act. Under the PPP, repayment of the loan, including interest, may be forgiven based on payroll expenses, rent, utilities and other qualifying expenses incurred during a certain period following receipt of the loan, provided that TAT will adhere to specific requirements outlined in the PPP. Based on SBA's forgiveness approval notice and the legal advice received in connection therewith, out of the $3.1M PPP loan, an amount of $1.7M has been recognized as a grant. The grant was recognized as a deduction from the related cost of revenues and operating expenses. As of December 31, 2020, the balance of the PPP loans is $1.4M, which is currently audited by the SBA. An amount of $960 was classified as a short-term loan. In November 2020 TAT received a short-term credit line of $3M from banking institution in the US. The loan bears an annual interest rate of 3.6% and can be renewed by the end of the year for an additional year. The loan has financial covenants such as a) tangible net worth to funded debt ratio of not less than 3 to 1, b) positive EBITDA, and c) minimum eligible accounts receivable of $3M.
Maturities on long term loans are as follows:
| | | | 2021 | | $ | | | 2022 | | | 1,428 | | 2023 | | | 864 | | 2024 | | | 864 | | 2025 and after | | | | | | | $ | | |
NOTE 10 - TRANSACTIONS WITH RELATED PARTIES | a. | Transactions with related parties: | ACCRUED EXPENSES
| | Year ended December 31, | | | | 2015 | | | 2014 | | | 2013 | | | | | | | | | | | | Compensation and benefits to senior management, including benefit component of option grants | | | 1,236 | | | | 1,213 | | | | 1,237 | | Number of individuals to which this benefit related | | | 5 | | | | 5 | | | | 5 | | Compensation and benefits to the chairman of the Board | | | 173 | | | | 188 | | | | 112 | | Number of individuals to which this benefit related | | | 1 | | | | 1 | | | | 1 | | Compensation and benefits to directors | | | 161 | | | | 131 | | | | 169 | | Number of individuals to which this benefit related | | | 5 | | | | 5 | | | | 5 | |
| b. | Transactions with TAT Industries LTD. (“TAT Industries”): |
| | December 31, | | | | 2020 | | | 2019 | | | | | | | | | Employees and payroll accruals | | $ | 2,714 | | | $ | 3,332 | | Accrued expenses | | | 716 | | | | 937 | | Authorities | | | 415 | | | | 810 | | Advances from customers | | | 1,263 | | | | 513 | | Warranty provision | | | 250 | | | | 235 | | Accrued royalties and rebate sales commissions | | | 1,200 | | | | 1,517 | | Other | | | 133 | | | | 49 | | | | | | | | | | | | | $ | 6,691 | | | $ | 7,393 | |
| | Year ended December 31, | | | | 2015 | | | 2014 | | | 2013 | | | | | | | | | | | | Management fees (1) | | | - | | | | - | | | | 29 | | Lease expenses (2) | | $ | - | | | $ | - | | | $ | 424 | |
| (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 an outside investor on August 7, 2013. |
| (2) | During 2000, TAT entered into a lease agreement with TAT Industries. As of August 7, 2013, following the sale of TAT’s shares to an outside investor, TAT Industries is no longer considered a related party. |
U.S. dollars in thousands
NOTE 11 - RELATED PARTIES’ TRANSACTIONS AND BALANCES
The amounts in the table below refer to TAT engineering joint venture and affiliates.
Transactions:
| | Year ended December 31, | | | | 2020 | | | 2019 | | | 2018 | | | | | | | | | | | | Income - | | | | | | | | | | Sales to related-party company (*) | | $ | 173 | | | $ | 596 | | | $ | 1,251 | | Cost and expenses - | | | | | | | | | | | | | Supplies from related party (*) | | $ | 362 | | | $ | 552 | | | $ | 59 | |
Balances:
| | December 31, | | | | 2020 | | | 2019 | | | | | | | | | Trade receivables and other receivables (*) | | $ | 740 | | | $ | 706 | | Trade payables and other payables (*) | | $ | 122 | | | $ | 154 | |
(*) includes mainly transactions with affiliated companies.
NOTE 12 - | LONG-TERM EMPLOYEE-RELATED OBLIGATIONS |
NOTE 11 - LONG-TERM EMPLOYEE-RELATED OBLIGATIONS
Severance pay:
TAT’s 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 company records an expense for the net increase in its severance liability.
TATCompany and Turbochrome 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.
The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrender value of these policies and includes profits (or loss) accumulated through the balance sheet date.
The Israeli companiessubsidiary are required to make severance paymentpayments 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'sCompany’s balance sheetssheet under “Employee“Liability in respect of employees rights upon retirement.” The liability is recorded as if it were payable at each balance sheet date on an undiscounted basis.
In case an employee did not agreeAccording to ‘Section 14’Section 14 of the Israeli Severance Pay lows,Law, the Israeli company’s liability for certain employees, 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 retirement benefit obligation. The Company and its Israeli subsidiary are fully relieved from any severance pay liability with respect to each such employee after it makes the payments on behalf of the employee. The liability accrued in respect of these employees and the amounts funded, as of the respective agreement dates, are not reflected in the Company balance sheet, as the amounts funded are not under the control and management of the Company and the pension or severance pay risks have been irrevocably transferred to the applicable insurance companies (the “Contribution Plan”).
NOTE 12 - | LONG-TERM EMPLOYEE-RELATED OBLIGATIONS (CONT) |
With regard to the employees that are not under the “Contribution Plan”, 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 “Funds in respect of employee rights upon retirement”.retirement.” These policies are the Company'sCompany’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.
According to Section 14 of the Israeli Severance Pay Law, the Israeli companies liability for certain employees, 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 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 Company balance sheets, as the amounts funded are not under the control and management of the Israeli company and the pension or severance pay risks have been irrevocably transferred to the applicable insurance companies (the “Contribution Plans”).
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 11 - LONG-TERM EMPLOYEE-RELATED OBLIGATIONS (CONT)
With regard to the employees without a Contribution Plan, 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 “Funds in respect of employee rights upon retirement” These policies are the Company's assets. In the years ended December 31, 20152020, 2019 and 2014,2018 the Company deposited $389$830, $1,096 and $381,$968 respectively, with pension funds and insurance companies in connection with its severance payment obligations.
The amounts of severance payment expenses for the Israeli companies were $554 and $555 for the years ended December 31, 2015 and 2014, respectively, of which $165 and $174 in the years ended December, 2015 and 2014, respectively, were in respect of the Contribution Plan and funded accordingly.
Limco-Piedmont sponsors a 401(K) safe harbor profit sharing plan covering substantially all of its employees. The plan requires the employer to contribute a match which is currently done on a payroll period basis, matching 100% of the first 2% and 50% of all salary deferrals made up to the next three percent.3%. In addition, the plan allows for a discretionary qualified non-elective contribution for the plan year. Contributions to the plan by Limco-Piedmont were $261, $251$156, $367 and $253$368 for the years ended December 31, 2015, 20142020, 2019 and 2013,2018, respectively.
The Group expects to contribute approximately $800 in 20162021 to the pension funds and insurance companies in respect of their severance and pension pay obligations.
The amounts of severance payments, actually paid to retired employees, by TAT were $166, $568$380, $689 and $226$400 for the years ended December 31, 2015, 20142020, 2019 and 2013.2018.
TAT expects to pay $1,772$1,409 in future benefits to their employees during 20162021 through 20252030 upon their normal retirement age. 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 company before their normal retirement age.
| | | | 2016 | | | $ | 278 | 2017 | | | | 45 | 2018 | | | | 143 | 2019 | | | | 367 | 2020 | | | | 53 | Thereafter (through 2025) | | | | 886 | | | | $ | 1,772 |
| | | | 2021 | | $ | 54 | | 2022 | | | 166 | | 2023 | | | 240 | | 2024 | | | 43 | | 2025 | | | - | | Thereafter (through 2030) | | | | | Total | | | | |
U.S. dollars in thousands
NOTE 1213 - COMMITMENTS AND CONTINGENT LIABILITIES
| a. | Commissions arrangements: |
The Group is committed to pay marketing commissions ranging 1% to 10% to sale agents at an average rate of 6% of total sales contracts. Commission expenses were $678, $701$528, $679 and $781$411 for the years ended December 31, 2015, 20142020, 2019 and 2013,2018, respectively. The commissions were recorded as part of the selling and marketing expenses.
| (1) | TAT is committed to pay royalties to third parties, through 2015, ranging from 12% to 17%20% of sales of products developed by the third parties. Royalty expenses were $273, $270and $177$174, $42 and $148 for the years ended December 31, 2015, 20142020, 2019 and 2013,2018, respectively. The royalties were recorded as part of the cost of revenues. |
| (2) | Limco-PiedmontPiedmont is committed to pay royalties to a third party, ranging between 3%5% to 5%13% of sales of products purchased from the third party, after deducting related costs incurred by Limco-Piedmont.party. That third party is the exclusive manufacturer of the products for which Limco-PiedmontPiedmont provides MRO services. In addition, Limco-Piedmont is committed to pay said third party royalties, ranging 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 $1,248, $680 and $400 for the years ended December 31, 2015, 2014 and 2013, respectively. The royalties were recorded as part of the cost of revenues. |
Limco-Piedmont leases someIn addition, Piedmont is committed to pay another third party royalties of its operating10% 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 $1,648, $2,310 and office facilities for various terms under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2025. Certain leases contain renewal options as defined in the agreements. Lease expense (excluding related parties) totaled $419, $271 and $215$1,689 for the years ended December 31, 2015, 2014,2020, 2019 and 20132018, respectively. The royalties were recorded as part of the cost of revenues.
TAT leases its factory from TAT Industries until 2020. Lease expense totaled $667, $427 and $424 for the years ended December 31, 2015, 2014, and 2013 respectively.
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
c. Guarantees:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES (CONT)
| c. | Lease commitments (cont): |
As of December 31, 2015, future minimum rental payments under non-cancelable operating leases are as follows:
| | | 2016 | | $ | 1,170 | 2017 | | | 1,085 | 2018 | | | 1,022 | 2019 | | | 1,036 | | | | 1,069 | Total | | $ | 5,382 |
| d. | Legal claims contingencies: |
| (1) | On November 29, 2011, a factoring company ("the plaintiff"), filed a claim with the magistrates court in Tel-Aviv against the Company and eleven others ("the respondents"), jointly and severally, for the amount of 6,151 NIS thousand (approximately $1,620). The plaintiff's case against the Company is based on invoices that were presented to the plaintiff by supplier of the Company (“the supplier”), by virtue of assignment of rights, which were originally issued to the Company by the supplier for certain alleged services. On February 5, 2012, the Company filed for its statement of defense, in which it denied the plaintiff's claims and clarified that it acted according to the deed of assignment of rights, and that the invoices neither represent nor reflect real transactions and/or real services which were rendered. The plaintiff and the Company have reached a settlement agreement pursuant to which the court proceedings against the Company would be terminated. The court confirmed such settlement agreement on March 9, 2015. |
| (1) | In order to secure TAT's liability to the Israeli customs, the Company provided a bank guaranteeguarantees in the amountamounts of $214.$39, $62 and $31. The guarantee isguarantees are linked to the consumer price index and is valid until December 2016.March 2021, January 2022 and January 2023, respectively. |
| (2) | In order to secure the TAT's liability to the lessor of its premises, the Company provided a bank guarantee in the amount of $658.$849. The guarantee is linked to the consumer price index in Israel and is valid until July 2016.January 2022. |
| (3) | In order to secure Turbochrome liability to the Israeli customs, the Company provided a bank guarantee in the amount of $256. The guarantee is linked to the consumer price index in Israel and is valid until December 2016. |
U.S. dollars in thousands
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES (CONT)
The Company entered into several three-year leases for vehicles. The current monthly lease fees aggregate approximately $35. The expected lease payments for the years ending December 31, 2016, 2017 and 2018 are approximately $323, $206 and $55, respectively.
| g. | Contingent consideration |
On October 19, 2015, the company acquired 100% of Turbochrome Ltd. shares for approximately US$ 3.5 million (subject to certain price adjustments). The acquisition was funded through cash on hand and an earn-out payment (up to $2 million). The earn-out Payment is based on the actual revenues of Turbochrome during the calendar years 2015 and 2016. The contingent consideration liability was computed on expected revenue to be generated by the acquired company using a binomial tree model income approach. The Company will reassess the fair value of the contingent consideration on a quarterly basis and record any applicable adjustments to earnings in the period they are determined. The adjustments will be classified as other income. As of December 31, 2015, the fair value of the contingent considerations was $640 ($500 in accrued expenses and $140 in other long-term liabilities). According to the results of Turbochrome for the year 2015, Turbochrome met the revenue target for 2015 and, subject to the terms of the share purchase agreement, TAT will be obligated to pay to Chromalloy American LLC (the previous shareholder of Turbochrome), $500 as an earn out payment with respect to fiscal year 2015 revenues.
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 1314 - SHAREHOLDERS' EQUITY
| a. | 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. |
TAT's Treasure shares have no rights.
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 as determined in the stock option plan. The option pool was increased twice by 300,000 to an aggregate option pool of 980,000 options following the approvals of the Company's Audit Committee, Board of Directors and shareholders. In general, the Options vest over a period of 4 years as follows: 25% of the Options vest upon the lapse of 12 months following the date of grant and the remaining 75% vest on a quarterly basis over the remaining 3-year period. In addition, certain Options that were previously granted vest over a three-year period (one-third each year) and the vesting of 50% of such Options is subject, in addition, to certain minimum shareholders' equity during a period of 4 years from the grant date. The grant of options to Israeli employees under the Plan is subject to the terms stipulated by Sections 102 and 102A of the Israeli Income Tax Ordinance. Each option grant is subject to the track chosen by the Company, either Section 102 or Section 102A of the Israeli Income Tax Ordinance, and pursuant to the terms thereof, the Company is not allowed to claim as an expense for tax purposes the amounts credited to employees as benefits, including amounts recorded as salary benefits in the Company’s accounts, in respect of options granted to employees under the Plan, with the exception of the work income benefit component, if any, determined on grant date. For nonemployees and for non-Israeli employees, the share option plan is subject to Section 3(i) of the Israeli Income Tax Ordinance.
On August 30, 2018 the Company's compensation committee, followed by the Board of Directors, approved the amended and restated company's 2012 Plan. On October 4, 2018 the company's amended and restated 2012 stock plan was approved at the annual general meeting of shareholders.
As part of the company's 2012 Plan’s amendments it was determined that if the Company declares a cash dividend to its shareholders, and the distribution date of such dividend will precede the exercise date of an Option, including for the avoidance of doubt, Options that have yet to become vested and Options which have been granted prior to the adoption of such amendment to the plan, the exercise price of the Option shall be reduced in the amount equal to the cash dividend per share distributed by the Company. The result of the modification was an incremental cost of $74 in the financial statement for 2018.
NOTE 14 - SHAREHOLDERS' EQUITY (CONT)
| b. | Stock option plans (cont.): |
During 2018 the option pool was increased by 300,000 to an aggregate option pool of 980,000 options following the approvals of the Company's Audit Committee, Board of Directors and shareholders of the company.
| (1) | 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 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 employee is no longer employed by the Company, in which case the options will be considered forfeited within 30 days. The grant of options to Israeli employees under the Plan is subject to the terms stipulated by Sections 102 and 102A of the Israeli Income Tax Ordinance. Each option grant is subject to the track chosen by the Company, either Section 102 or Section 102A of the Israeli Income Tax Ordinance, and pursuant to the terms thereof, the Company is not allowed to claim as an expense for tax purposes the amounts credited to employees as benefits, including amounts recorded as salary benefits in the Company’s accounts, in respect of options granted to employees under the Plan, with the exception of the work income benefit component, if any, determined on grant date. For nonemployees and for non-Israeli employees, the share option plan is subject to Section 3(i) of the Israeli Income Tax Ordinance. |
| (1) | On March 19, 2014,February 6, 2018, pursuant to the 2012 Plan, TAT’s Board of Directors approved the grant of 195,0003,893 Options, at an exercise price of $8.79$11.11 per share, to senior executives which were granted on June 23, 2014 (which is also considered the grant date). |
| (2) | On November 30, 2014,February 28, 2018, pursuant to the 2012 Plan, TAT’s Board of Directors approved the grant of 20,00050,000 Options, at an exercise price of $7.34$10.74 per share, to senior executives.executive. |
| (3) | On July 1, 2015,May 13, 2018, pursuant to the 2012 Plan, TAT’s Board of Directors approved the grant of 80,00070,000 Options, at an exercise price of $7.15$9.12 per share, to senior executives.executive. |
| (4) | On October 1, 2015,November 22, 2018, pursuant to the 2012 Plan, TAT’s Board of Directors approved the grant of 40,00050,000 Options, at an exercise price of $7.15$7.35 per share, to senior executives. |
| (5) | On August 29, 2019, pursuant to the 2012 Plan, TAT’s Board of Directors approved the grant of 50,000 Options, at an exercise price of $5.65 per share, to senior executives. |
| (6) | On September 22, 2019, pursuant to the 2012 Plan, TAT’s Board of Directors approved the grant of 50,000 Options, at an exercise price of $5.32 per share, to senior executive. |
| (7) | On September 26, 2019, pursuant to the 2012 Plan, TAT’s Board of Directors approved the grant of 50,000 Options, at an exercise price of $5.26 per share, to senior executive. |
NOTE 13 - �� SHAREHOLDERS' EQUITY (CONT)
| b.(8) | Stock option plans (cont.):On October 15, 2020, pursuant to the 2012 Plan, TAT’s Board of Directors approved the grant of 50,000 Options, at an exercise price of $4.58 per share, to senior executive. |
The fair value of the Company’s stock options granted under the 2012 plan for the years ended December 31, 20152020, 2019 and 20142018 was estimated using the following assumptions:
| | 2015 | | | 2014 | | | 2020 | | 2019 | | 2018 | | | | | | | | | | | | | | Expected stock price volatility | | | 35.07% - 38.97 | % | | | 37.23% - 39.14 | % | | 44.7% – 43.5% | | 34.2% – 36.8% | | 32.6% – 40.8% | Expected option life (in years) | | | 3 - 4 | | | | 2.87 - 4 | | | 3.5-5 | | 3.5-5 | | 3.5-5.5 | Risk free interest rate | | | 0.92% - 1.39 | % | | | 0.48% - 1.34 | % | | 0.12% – 0.25% | | 1.44% – 1.63% | | 1.71% – 2.87% | Dividend yield | | | 5 | % | | | 5% - 4.6 | % | | 0% | | 0% | | 0% - 5% |
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. Following the company's amended and restated 2012 stock plan related to the adjustment of the exercise price in respect of dividend distribution, the dividend yield was amended to 0%.
U.S. dollars in thousands
NOTE 1314 - SHAREHOLDERS' EQUITY (CONT)
| b. | Stock option plans (cont)(cont.): |
The following table is a summary of the activity of TAT's Stock Option plan:
| (5) | The following table is a summary of the activity of TAT's Stock Option plan: |
| | Year ended December 31, | | | Year ended December 31, | | | Year ended December 31, | | | Year ended December 31, | | | Year ended December 31, | | | Year ended December 31, | | | | | | | 2014 | | | 2013 | | | | | | 2019 | | | 2018 | | | | Number of | | | Weighted average exercise price | | | Number of options | | | Weighted average exercise price | | | Number of options | | | Weighted average exercise price | | | Number of | | | Weighted average exercise price | | | Number of options | | | Weighted average exercise price | | | Number of options | | | Weighted average exercise price | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at the beginning of the year | | | 235,000 | | | | 8.28 | | | | 145,000 | | | $ | 6.5 | | | | 285,000 | | | $ | 6.50 | | | 571,460 | | | $ | 7.53 | | | 528,268 | | | $ | 9.03 | | | 365,000 | | | $ | 8.53 | | Granted | | | 120,000 | | | | 7.15 | | | | 215,000 | | | | 8.66 | | | | - | | | | - | | | 50,000 | | | 4.58 | | | 170,000 | | | 5.44 | | | 273,893 | | | 9.70 | | Forfeited | | | (77,500 | ) | | | 8.67 | | | | (40,000 | ) | | | 8.79 | | | | (133,334 | ) | | | 6.50 | | | - | | | - | | | (126,808 | ) | | 11.19 | | | (83,957 | ) | | 9.85 | | Exercised | | | - | | | | - | | | | (85,000 | ) | | | 6.5 | | | | (6,666 | ) | | | 6.50 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at the end of the year | | | 277,500 | | | | 7.6 | | | | 235,000 | | | | 8.28 | | | | 145,000 | | | $ | 6.50 | | | | 621,460 | | | | | | | | 571,460 | | | | | | | | 528,268 | | | $ | 9.03 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercisable options | | | 30,000 | | | | 6.5 | | | | 20,000 | | | $ | 6.5 | | | | 24,167 | | | $ | 6.50 | | | Exercisable at the end of the year | | | | 381,629 | | | | | | | | 264,389 | | | | | | | | 163,438 | | | | | |
The weighted-average grant-date fair value of options granted was $1.41 in 2015 was $1.252020, $1.35 in 2019 and $1.13$1.83 in 2014.2018. The aggregate intrinsic value for the options outstanding as of December 31, 2015, 20142020, 2019 and 20132018 was $27,$0, $0 and $212,$737, respectively.
As of December 31, 20152020, total unrecognized compensation cost was $67$176 and is expected to be recognized over a weighted-average period of 1.412.18 years.
On March 19, 2014, TAT’s Board declared a cash dividend in the total amount of $2 million (approximately NIS 6.9 million), or $0.22 per share (approximately NIS 0.76 per share), for all of the shareholders of TAT. The dividend was paid on May 7, 2014 to shareholders of record on April 21, 2014.F - 39
U.S. dollars in thousands
NOTE 1415 - 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | Numerator for EPS: | | | | | | | | | | | | | | | | | | | Net income from continuing operations | | $ | 5,849 | | | $ | 1,432 | | | $ | 5,231 | | | Net loss from discontinued operations, net of tax | | | - | | | | - | | | | (2,429 | ) | | Net income (loss) | | | | | | | | | | | | | | Denominator for EPS: | | | | | | | | | | | | | | | | | | | | | | Weighted average shares outstanding – basic | | | 8,808,344 | | | | 8,805,495 | | | | 8,799,237 | | | 8,874,696 | | | 8,874,696 | | | 8,864,885 | | Dilutive shares | | | 2,345 | | | | 21,047 | | | | 9,683 | | | | | | | | | | | | | | Weighted average shares outstanding – diluted | | | 8,810,689 | | | | 8,826,542 | | | | 8,808,920 | | | | | | | | | | | | | | EPS attributable to controlling interest: | | | | | | | | | | | | | | EPS: | | | | | | | | | | | Basic and diluted | | | | | | | | | | | | | | $ | (0.6 | ) | | $ | 0.1 | | | $ | (0.5 | ) | Net income from continuing operations | | $ | 0.66 | | | $ | 0.16 | | | $ | 0.60 | | | Loss from discontinued operations | | $ | - | | | $ | - | | | $ | (0.28 | ) | |
Diluted income per share does not include 295,000, 175,000612,061, 482,282 and 0306,151 options, for the years ended December 31, 2015, 20142020, 2019 and 20132018 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.
NOTE 16 - DISCONTINUED OPERATION
In June 2020, the company's management decided to discontinue the JT8D engine blades reconditioning activity as part of a strategic change in its business to focus on new capabilities to provide services to newer types of engines. The discontinued operation is related to the JT8D engine blades reconditioning activity in Turbochrome, which constitute a material portion of Turbochrome’s revenues.
| |
| | | | | | | | | Assets: | | | | | | | | | | | Account receivables | | | | $ | - | | | $ | 821 | | Inventory | | | | | - | | | | 580 | | Fixed assets, net | | | | | - | | | | 438 | | Costumers’ relationship | | | | | - | | | | 388 | | Total Assets | | | | | | | | | | | Liability: | | | | | | | | | | | Account payables | | | | $ | 179 | | | $ | 158 | | | | | | | | | | | | | Total Liabilities | | | | $ | 179 | | | $ | 158 | |
U.S. dollars in thousands
NOTE 1516 - TAXES ON INCOMEDISCONTINUED OPERATION (CONT) | | | | | | | | | | | | | | | | | | | | | | | | Revenue: | | | | | | | | | | Services | | $ | 955 | | | $ | 4,553 | | | $ | 5,457 | | | | | | | | | | | | | | | Cost of revenue: | | | | | | | | | | | | | Services | | | | | | | | | | | | | | | | | | | | | | | | | | Gross profit (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | | Research and development, net | | | 42 | | | | (39 | ) | | | 95 | | Selling and marketing | | | 90 | | | | 330 | | | | 159 | | General and administrative | | | 191 | | | | 598 | | | | 658 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | | (430 | ) | | | (627 | ) | | | (466 | ) | | | | | | | | | | | | | | Financial expenses (income) | | | - | | | | 28 | | | | 14 | | Loss on disposal of discontinued operation (1) | | | 1,415 | | | | - | | | | - | | | | | | | | | | | | | | | Net Income (loss) | | $ | (1,845 | ) | | $ | (655 | ) | | $ | (480 | ) |
| (1) | During 2020, the Company writes off the following assets belonging to the discontinued operation: Inventory of $464, Accounts receivable of $233, Fixed assets of $363 and Customers' relationships of $355. |
| a. | Tax benefits under the Law for the Encouragement of Capital Investments, 1959 ("the Law"): |
Until December 31,2010,31, 2010, TAT and Turbochrome has elected to participate in the alternative package of tax benefits for its approved and benefited enterprise under the law.
Pursuant to such Law, the income derived from those enterprises will be exempt from Israeli corporate tax for a specified benefit period (except to the extent that dividends are distributed during the tax-exemption period other than upon liquidation) and subject to reduced corporate tax rates for an additional period.
In the event of distribution of a dividend from income which was tax exempt as above, the company would have to pay a regular corporate taxes at thetax rate of 25% tax in respect of the amount distributed. As of December 31, 2015, the company had accumulated a total amount of approximately $1,723 of exempt income which will be charged for $431 of the corporate tax if will be distributed as dividend.
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%6% in areas in Israel that are designated as Development Zone A and 15%12% elsewhere in Israel during 2011-2012, 7% and 12.5%, respectively, in 2013-2014, and 6% and 12%, respectively, thereafter. As with dividendsIsrael. Dividends distributed from taxable income derived from an Approved or Benefited Enterprises during the applicable benefits period, dividends distributed from Preferred IncomeEnterprise 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. Whilecompany .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.Amendment
Under the transitional provisions of the 2011 Amendment, the Company 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 Benefited Enterprises while waiving benefits provided under the legislation prior to the 2011 Amendment.
U.S. dollars in thousands NOTE 15- TAXES ON INCOME (CONT)
NOTE 17- | TAXES ON INCOME (CONT) |
| a. | Tax benefits under the Law for the Encouragement of Capital Investments, 1959 ("the Law") (cont.): |
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.
The uniform tax rate for Development Zone A, as of the 6% and 12%, respectively)January 1, 2017, is 7.5% (as part of changes enacted in Amendment 73).
TAT is located in an 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..
Turbochrome is located in an area in Israel that is designated as Zone A and as such entitled to reduce tax rates of 10% during 2011-2012, 7% in 2013, and 9% in 2014 and thereafter.7.5%.
| b. | Corporate tax rate in Israel |
The taxable income of the Israeli companiesTAT, not subject to benefits as detailed above, is taxed in Israel at the regular corporate tax rates which were 25% in 2013 and 26.5% for 2014 and 2015.
In January 2016, the Law for the Amendment of the Income Tax Ordinance (No.216) was published, enacting a reduction ofstandard Israeli corporate tax rate, beginningwhich was 23% for all years included in 2016 and thereafter, from 26.5% to 25%. There is no impact on thethese financial statements of the Company as a result of the changes in the Israeli corporate tax rate.statements.
Capital gain is subject to capital gain tax according to corporate tax rate in the year which the assets are sold.sold
U.S. subsidiaries are taxed based on federal and state tax laws. The Federal statutory tax rate for 2015, 2014,2020, 2019 and 20132018 was 38%.21% plus 3%-6% for state taxes.
NOTE 17- | TAXES ON INCOME (CONT) |
TAT’s income tax assessments are considered final through 2011. Turbochrome income tax assessments are considered final through 2013.
Limco-Piedmont income tax assessments are considered final through 2011.
TAT-GAL which was incorporated in 2008 has not received final tax assessment yet.
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 15 - TAXES ON INCOME (CONT) 2015.
|
| Turbochrome income tax assessments are considered final through 2015.
|
|
| Limco-Piedmont income tax assessments are considered final through 2016. |
| e. | 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:
| | | | | | | | | | | | | | Income (loss) before taxes on income (tax benefit) from continued operationas reported in the statements of income | | $ | (4,816 | ) | | $ | 2,182 | | | $ | (5,252 | ) | | | | | | | | | | | | | | Statutory tax rate in Israel | | | | | | | | | | | | | | | | | | | | | | | | | | Theoretical taxes on income (tax benefit) | | $ | (1,108 | ) | | $ | 501 | | | $ | (1,207 | ) | | | | | | | | | | | | | | Increase (decrease) in taxes on income resulting from: | | | | | | | | | | | | | Tax adjustment for foreign subsidiaries subject to a different tax rate | | | 50 | | | | (26 | ) | | | (9 | ) | Reduced tax rate on income derived from "Preferred Enterprises" plans | | | 580 | | | | 204 | | | | 346 | | Earnings from foreign subsidiaries (1) | | | (2,338 | ) | | | 91 | | | | (338 | ) | Valuation allowance for exchange rates differences on deferred taxes not recorded on capital losses | | | - | | | | (125 | ) | | | (42 | ) | Deferred tax assets from discontinued operation loss | | | (138 | ) | | | (49 | ) | | | (36 | ) | Reduced deferred tax asset from expecting utilization of carryforward losses | | | 1,984 | | | | - | | | | - | | Tax in respect of prior years | | | (345 | ) | | | - | | | | (481 | ) | Temporary differences for which no deferred taxes were recorded | | | (377 | ) | | | (55 | ) | | | 8 | | Permanent differences | | | 24 | | | | 55 | | | | 245 | | Other adjustments | | | | | | | | | | | | | Taxes on income (tax benefit) as reported in the statements of income | | | | | | | | | | | | |
| | | | | | | | | | | | | | Income before taxes on income as reported in the statements of income | | $ | 5,256 | | | $ | 2,525 | | | $ | 5,247 | | | | | | | | | | | | | | | Statutory tax rate in Israel | | | 26.5 | % | | | 26.5 | % | | | 25 | % | | | | | | | | | | | | | | Theoretical taxes on income | | $ | 1,393 | | | $ | 669 | | | $ | 1,312 | | | | | | | | | | | | | | | Increase (decrease) in taxes on income resulting from: | | | | | | | | | | | | | Tax adjustment for foreign subsidiaries subject to a different tax rate | | | 224 | | | | 457 | | | | 453 | | Reduced tax rate on income derived from "Preferred Enterprises" plans | | | 146 | | | | 156 | | | | (255 | ) | Change in enacted tax rates | | | - | | | | - | | | | 34 | | Exempt income (Bargain purchase) | | | (1,281 | ) | | | - | | | | - | | Valuation allowance | | | (75 | ) | | | (100 | ) | | | 294 | | Tax in respect of prior years | | | (12 | ) | | | (44 | ) | | | (342 | ) | Permanent differences | | | 249 | | | | 222 | | | | (455 | ) | Taxes on income as reported in the statements of income | | $ | 644 | | | $ | 1,360 | | | $ | 1,041 | |
(1) The Company record an accrual that related to a deferred tax liability due to the possibility of future distribution of earnings from foreign subsidiaries of the Company.
During 2020, the Company received loans from commercial banks in the US and Israel. As part of the loan terms, the company cannot distribute dividends to its shareholders during the next five years. Therefore, the company wrote off the differed tax liability.
NOTE 17 - | TAXES ON INCOME (CONT) |
| f. | Income (loss) before taxes on income (tax benefit) is comprised as follows: |
| | Year ended December 31, | | | Year ended December 31, | | | | 2015 | | | 2014 | | | 2013 | | | 2020 | | | 2019 | | | 2018 | | | | | | | | | | | | | | | | | | | | | Domestic (Israel) | | $ | 3,840 | | | $ | (1,659 | ) | | $ | 1,942 | | | $ | (4,499 | ) | | $ | (1,931 | ) | | $ | (4,781 | ) | Foreign (United States) | | | 1,416 | | | | 4,184 | | | | 3,305 | | | | (317 | ) | | | 4,113 | | | | (471 | ) | | | | | | | | | | | | | | | | | | | | | | | | | $ | 5,256 | | | $ | 2,525 | | | $ | 5,247 | | | $ | (4,816 | ) | | $ | 2,182 | | | $ | (5,252 | ) |
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 15 - TAXES ON INCOME (CONT)
| g. | Taxes on income (tax benefit) included in the statements of income: |
| | Year ended December 31, | | | | 2020 | | | 2019 | | | 2018 | | Current: | | | | | | | | | | Domestic (Israel) | | $ | - | | | $ | - | | | $ | - | | Foreign (United States) | | | - | | | | 181 | | | | (881 | ) | | | | | | | | | | | | | | | | | - | | | | 181 | | | | (881 | ) | Deferred: | | | | | | | | | | | | | Domestic (Israel) | | | (683 | ) | | | (397 | ) | | | (813 | ) | Foreign (United States) | | | (489 | ) | | | 805 | | | | 711 | | | | | | | | | | | | | | | | | | (1,172 | ) | | | 408 | | | | (102 | ) | Previous years: | | | | | | | | | | | | | Domestic (Israel) | | | (134 | ) | | | | | | | | | Foreign (United States) | | | (211 | ) | | | - | | | | (481 | ) | | | | | | | | | | | | | | | | | (345 | ) | | | - | | | | (481 | ) | | | | | | | | | | | | | | | | $ | (1,517 | ) | | $ | 589 | | | $ | (1,464 | ) |
| | Year ended December 31, | | | | 2015 | | | 2014 | | | 2013 | | Current: | | | | | | | | | | Domestic (Israel) | | $ | 225 | | | $ | (94 | ) | | $ | 160 | | Foreign (United States) | | | 452 | | | | 237 | | | | 334 | | | | | | | | | | | | | | | | | | 677 | | | | 143 | | | | 494 | | Deferred: | | | | | | | | | | | | | Domestic (Israel) | | | (170 | ) | | | (36 | ) | | | 15 | | Foreign (United States) | | | 149 | | | | 1,297 | | | | 874 | | | | | | | | | | | | | | | | | | (21 | ) | | | 1,261 | | | | 889 | | Previous years: | | | | | | | | | | | | | Domestic (Israel) | | | - | | | | - | | | | (209 | ) | Foreign (United States) | | | (12 | ) | | | (44 | ) | | | (133 | ) | | | | | | | | | | | | | | | | | (12 | ) | | | (44 | ) | | | (342 | ) | | | | | | | | | | | | | | | | $ | 644 | | | $ | 1,360 | | | $ | 1,041 | |
U.S. dollars in thousands
NOTE 1517 - TAXES ON INCOME (CONT)
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:
| | | | | | | | | | | Deferred tax assets: | | | | | | | Provision for current expected credit losses | | $ | 41 | | | $ | 67 | | Provisions for employee benefits | | | 272 | | | | 470 | | Inventory | | | 987 | | | | 964 | | Intangible assets | | | - | | | | 42 | | Capital tax losses carryforward | | | 3,500 | | | | 3,500 | | Net operating losses carryforward | | | 3,017 | | | | 1,669 | | Other | | | | | | | | | Deferred tax assets, before valuation allowance | | $ | 8,041 | | | $ | 6,808 | | Valuation allowance | | | | | | | | | Deferred tax assets, net | | $ | 2,557 | | | $ | 3,308 | | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | Property, plant and equipment | | | (1,647 | ) | | | (2,159 | ) | Intangible assets | | | (318 | ) | | | - | | Earnings from foreign subsidiaries (1) | | | - | | | | (1,953 | ) | Other temporary differences deferred tax liabilities | | | | | | | | | Deferred tax liabilities | | $ | (1,991 | ) | | $ | (4,180 | ) | | | | | | | | | | Net | | $ | 566 | | | $ | (872 | ) |
| | | | | | | | | | | Deferred tax assets (liabilities): | | | | | | | Provision for doubtful accounts | | $ | 100 | | | $ | 47 | | Unrealized gains | | | 140 | | | | 174 | | Provisions for employee benefits | | | 300 | | | | 259 | | Inventory | | | 1,114 | | | | 957 | | Goodwill and intangible assets | | | 462 | | | | 533 | | Property, plant and equipment | | | | | | | 21 | | Provisions for employee benefits and other temporary differences | | | 36 | | | | 26 | | Tax credits carryforward | | | 693 | | | | 558 | | Capital and state tax losses carryforward | | | 3,449 | | | | 3,574 | | Net operating losses carryforward | | | 553 | | | | 373 | | Other | | | 204 | | | | 296 | | Deferred tax assets, before valuation allowance | | $ | 7,051 | | | | 6,818 | | Valuation allowance | | | (3,449 | ) | | | (3,574 | ) | Deferred tax assets, net | | $ | 3,602 | | | $ | 3,244 | | | | | | | | | | | Property, plant and equipment and intangible assets | | | (2,473 | ) | | | (1,735 | ) | Other temporary differences deferred tax liabilities | | | (501 | ) | | | (630 | ) | Deferred tax liabilities | | $ | (2,974 | ) | | $ | (2,365 | ) | | | | | | | | | | Net | | | 628 | | | | 879 | |
| (1) | The Company record an accrual that related to a deferred tax liability due to the possibility of future distribution of earnings from foreign subsidiaries of the Company.
During 2020, the Company received loans from commercial banks in the US and Israel. As part of the loan terms, the company cannot distribute dividends to its shareholders during the next five years.
Therefore, the company wrote off the differed tax liability. |
U.S. dollars in thousands NOTE 15 - TAXES ON INCOME (CONT)
NOTE 17 - | TAXES ON INCOME (CONT) |
| h. | Deferred income taxes (cont.): |
The following table summarizes the changes in the valuation allowance for deferred tax assets:
Balance, December 31, 2017 | | | 3,417 | | Additions during the year | | | | | Balance, December 31,2018 | | $ | 3,375 | | Deductions during the year | | | | | Balance, December 31,2019 | | $ | 3,500 | | Additions during the year | | | | | Balance, December 31,2020 | | $ | 5,484 | |
Balance, December 31, 2012 | | | 1,823 | | Addition charged to expenses | | | 1,483 | | | | | | | Balance, December 31,2013 | | | 3,306 | | Addition charged to expenses | | | 268 | | | | | | | Balance, December 31,2014 | | | 3,574 | | Deductions charged to expenses | | | (125 | ) | | | | | | Balance, December 31,2015 | | $ | 3,449 | |
TAT does not intendValuation allowance are mainly related to distribute earnings(i) U.S. subsidiary for which valuation allowance was provided in respect of a foreign subsidiary aggregating up to approximately $17,601 (tax earnings and profits) as of December 31, 2015, and accordingly, no deferred tax liability has been established relativeassets resulting from carryforward of State tax losses in the amount of $ 1,519. That amount is expected to these earnings. If such profitsexpire gradually starting from 2024 and earnings are distributed by cash dividend, it would be taxed at tax rate applicable(ii) Capital losses attributed to such distribution (12.5%) and anthe Company in the amount of $ 1,502. (iii) corporate income tax liabilitylosses carryforward incurred in TAT Gedera in amount of up to approximately $2,200 would be incurred as of December 31, 2015.$1,984.
TAT does not intend to distribute tax-exempt earnings deriving from its Approved Enterprise aggregating approximately $1,723$2,087 as of December 31, 2015,2020, and accordingly, no deferred tax liability has been established related to these earnings. If such tax-exempt income is distributed, it would be taxed at the reducedregular corporate tax rate applicable to such profits (25%(23%) and an income tax liability of up to approximately $431$480 would be incurred as of December 31, 2015.2020.
U.S. dollars in thousands
NOTE 16 - SEGMENT INFORMATION
NOTE 18 - | SEGMENT INFORMATION |
| a. | Segment Activities Disclosure: |
TAT operates under four segments: (i) Original Equipment Manufacturing or “OEM”equipment manufacturing (“OEM”) of Heat Transfer Solutionsheat transfer solutions and Aviation Componentsaviation accessories through its Gedera facility; (ii) Heat Transfer Services and Products and (iii) Maintenance, Repair and Overhaul or “MRO”MRO services for Aviation Components in the areaheat transfer components and OEM of landing gearsheat transfer solutions through its Limco subsidiary; (iii) MRO services for aviation components through its Piedmont subsidiary; and APUs (iv) overhaulOverhaul and coating of jet engine components.components through its Turbochrome subsidiary.
| - | OEM of Heat Transfer Solutionsheat transfer solutions and Aviation Componentsaviation accessories primarily includesinclude the design, development manufacture and salemanufacture of (i) a broad range of heat transfer products (suchsolutions, such as pre-coolers heat exchangers pre-coolers and oil/fuel hydraulic coolers)heat exchangers, used in mechanical and electronic systems on-boardon board commercial, military and business aircraft; (ii) environmental control and power electronics cooling systems installed on board aircraft in and for ground applications; and (iii) a variety of other electronic and mechanical aircraft accessories and systems such as pumps, valves, and turbine power systems and turbines.units. |
| - | Heat TransferMRO Services for heat transfer components and ProductsOEM of heat transfer solutions primarily include the maintenance, repair and overhaulMRO of heat transfer equipmentcomponents and into a lesser extent, the manufacturing of certain heat transfer products.solutions. TAT’s Limco subsidiary operates an FAA certifiedFAA-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 primarilyaviation components include the maintenance, repair and overhaulMRO of APUs, landing geargears and other aircraft components. TAT’s Piedmont subsidiary operates an FAA certifiedFAA-certified repair station, which provides aircraft component MRO services for airlines, air cargo carriers, maintenance service centers and the military. |
| - | TAT’s activities in the area of overhaul and coating of jet engine overhaulcomponents includes the overhaul and coating of jet engine components, including turbine vanes and blades, fan blades, variable inlet guide vanes and afterburner flapsflaps. The discontinued operation regarding to the JT8D activity is part of the coating jet engines component segment thus the numbers for this segment were related for the years 2018 and other components (see note 3) . This operating segment started operating in 2015 with the Turbochrom acquisition. See note 3.2019. |
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. CODM reviews revenue, gross profit, operating income and the following assets: cash and cash equivalents, accounts receivable and inventory.
U.S. dollars in thousands NOTE 16 - SEGMENT INFORMATION (CONT)
NOTE 18 - | SEGMENT INFORMATION (CONT) |
| b. | Segments statement operations disclosure: |
The following financial information is the information that managementCODM uses for analyzing the segment results. The figures are presented in consolidated method as presented to management.CODM.
The following financial information is a summary of the operating income of each operational segment:
| | Year ended December 31, 2020 | | | | OEM of Heat Transfer Solutions and Aviation Accessories | | | MRO Services for heat transfer components and OEM of heat transfer solutions | | | MRO services for Aviation Components | | | Overhaul and coating of jet engine components | | | Elimination of inter-company sales | | | | | Revenues | | | | | | | | | | | | | | | | | | | Sale of products and services | | $ | 20,179 | | | $ | 20,445 | | | $ | 31,189 | | | $ | 3,546 | | | $ | - | | | $ | 75,359 | | Intersegment revenues | | | | | | | | | | | | | | | | | | | | | | | | | Total revenues | | | 23,125 | | | | 20,640 | | | | 31,189 | | | | 3,546 | | | | (3,141 | ) | | | 75,359 | | | | | | | | | | | | | | | | | | | | | | | | | | | Cost of revenues | | | | | | | | | | | | | | | | | | | | | | | | | Gross profit | | | | | | | | | | | | | | | | | | | (204 | ) | | | 8,435 | | | | | | | | | | | | | | | | | | | | | | | | | | | Research and development | | | (3 | ) | | | (2 | ) | | | 7 | | | | 183 | | | | - | | | | 185 | | Selling and marketing | | | 1,429 | | | | 1,152 | | | | 1,527 | | | | 261 | | | | - | | | | 4,369 | | General and administrative | | | 2,183 | | | | 2,054 | | | | 2,732 | | | | 643 | | | | - | | | | 7,612 | | Other expenses (income) | | | - | | | | 21 | | | | - | | | | 294 | | | | - | | | | 315 | | Operating income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | Financial expenses, net | | | | | | | | | | | | | | | | | | | | | | | 770 | | Loss before tax benefits | | | | | | | | | | | | | | | | | | | | | | | (4,816 | ) |
| | Year ended December 31, 2015 | | | | OEM of Heat Transfer Solutions and Aviation Components | | | Heat Transfer Services and Products | | | MRO services for Aviation Components | | | Overhaul and coating of jet engine components | | | | | | Elimination of inter-company sales | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | | | | | | | | | Sale of products and services | | $ | 23,511 | | | $ | 30,526 | | | $ | 29,665 | | | $ | 1,905 | | | | | | | $ | - | | | $ | 85,607 | | Intersegment revenues | | | 3,840 | | | | 475 | | | | - | | | | - | | | | | | | | (4,315 | ) | | | - | | Total revenues | | | 27,351 | | | | 31,001 | | | | 29,665 | | | | 1,905 | | | | | | | | (4,315 | ) | | | 85,607 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cost of revenues | | | 23,887 | | | | 22,541 | | | | 28,474 | | | | 1,485 | | | | | | | | (4,445 | ) | | | 71,942 | | Gross profit | | | 3,464 | | | | 8,460 | | | | 1,191 | | | | 420 | | | | | | | | 130 | | | | 13,665 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Research and development | | | 619 | | | | 264 | | | | | | | | 7 | | | | | | | | | | | | 890 | | Selling and marketing | | | 1,270 | | | | 961 | | | | 608 | | | | 64 | | | | | | | | | | | | 2,903 | | General and administrative | | | 1,880 | | | | 3,000 | | | | 3,303 | | | | 286 | | | | | | | | | | | | 8,469 | | Other expenses | | | | | | | | | | | | | | | | | | | 631 | | | | | | | | 631 | | Gain on bargain purchase | | | | | | | | | | | | | | | | | | | (4,833 | ) | | | | | | | (4,833 | ) | Operating income (loss) | | | (305 | ) | | | 4,235 | | | | (2,720 | ) | | | 63 | | | | (4,202 | ) | | | 130 | | | | 5,605 | |
U.S. dollars in thousands
NOTE 1618 - SEGMENT INFORMATION (CONT)
| b. | Segments statement operations disclosure (cont)(cont.) |
| | Year ended December 31, 2019 | | | | OEM of Heat Transfer Solutions and Aviation Accessories | | | MRO Services for heat transfer components and OEM of heat transfer solutions | | | MRO services for Aviation Components | | | Overhaul and coating of jet engine components | | | Elimination of inter-company sales | | | | | Revenues | | | | | | | | | | | | | | | | | | | Sale of products and services | | $ | 20,552 | | | $ | 34,183 | | | $ | 38,687 | | | $ | 4,057 | | | $ | - | | | $ | 97,479 | | Intersegment revenues | | | | | | | | | | | | | | | | | | | | | | | | | Total revenues | | | 26,589 | | | | 34,433 | | | | 38,687 | | | | 4,057 | | | | (6,287 | ) | | | 97,479 | | | | | | | | | | | | | | | | | | | | | | | | | | | Cost of revenues | | | | | | | | | | | | | | | | | | | | | | | | | Gross profit (loss) | | | | | | | | | | | | | | | | | | | 181 | | | | 15,300 | | | | | | | | | | | | | | | | | | | | | | | | | | | Research and development | | | 58 | | | | 83 | | | | 7 | | | | (35 | ) | | | - | | | | 113 | | Selling and marketing | | | 1,530 | | | | 1,638 | | | | 1,334 | | | | 427 | | | | - | | | | 4,929 | | General and administrative | | | 1,978 | | | | 2,734 | | | | 2,408 | | | | 534 | | | | - | | | | 7,654 | | Operating income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | Financial expenses, net | | | | | | | | | | | | | | | | | | | | | | | 422 | | Loss before taxes on income | | | | | | | | | | | | | | | | | | | | | | | 2,182 | |
| | Year ended December 31, 2014 | | | | OEM of Heat Transfer Solutions and Aviation Components | | | Heat Transfer Services and Products | | | MRO services for Aviation Components | | | Elimination of inter-company sales | | | | | | | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | | | Sale of products and services | | $ | 22,871 | | | $ | 30,121 | | | $ | 27,734 | | | $ | - | | | $ | 80,726 | | Intersegment revenues | | | 5,314 | | | | 229 | | | | - | | | | (5,543 | ) | | | - | | Total revenues | | | 28,185 | | | | 30,350 | | | | 27,734 | | | | (5,543 | ) | | | 80,726 | | | | | | | | | | | | | | | | | | | | | | | Cost of revenues | | | 23,249 | | | | 23,101 | | | | 23,502 | | | | (5,330 | ) | | | 64,522 | | Gross profit | | | 4,936 | | | | 7,249 | | | | 4,232 | | | | (213 | ) | | | 16,204 | | | | | | | | | | | | | | | | | | | | | | | Research and development | | | 841 | | | | 229 | | | | - | | | | - | | | | 1,070 | | Selling and marketing | | | 1,538 | | | | 1,058 | | | | 607 | | | | - | | | | 3,203 | | General and administrative | | | 2,717 | | | | 2,417 | | | | 2,989 | | | | - | | | | 8,123 | | Other income | | | (11 | ) | | | - | | | | - | | | | - | | | | (11 | ) | Operating income (loss) | | | (149 | ) | | | 3,545 | | | | 636 | | | | (213 | ) | | | 3,819 | |
U.S. dollars in thousands NOTE 16 - SEGMENT INFORMATION (CONT)
NOTE 18 - | SEGMENT INFORMATION (CONT) |
| b. | Segments statement operations disclosure (cont)(cont.) |
| | Year ended December 31, 2018 | | | | OEM of Heat Transfer Solutions and Aviation Accessories | | | MRO Services for heat transfer components and OEM of heat transfer solutions | | | MRO services for Aviation Components | | | Overhaul and coating of jet engine components | | | Elimination of inter-company sales | | | | | Revenues | | | | | | | | | | | | | | | | | | | Sale of products and services | | $ | 20,065 | | | $ | 30,929 | | | $ | 32,487 | | | $ | 4,240 | | | $ | - | | | $ | 87,721 | | Intersegment revenues | | | | | | | | | | | | | | | | | | | | | | | | | Total revenues | | | 24,707 | | | | 31,344 | | | | 32,487 | | | | 4,240 | | | | (5,057 | ) | | | 87,721 | | | | | | | | | | | | | | | | | | | | | | | | | | | Cost of revenues | | | | | | | | | | | | | | | | | | | | | | | | | Gross profit | | | | | | | | | | | | | | | | | | | 286 | | | | 7,945 | | | | | | | | | | | | | | | | | | | | | | | | | | | Research and development | | | 287 | | | | 98 | | | | - | | | | 73 | | | | - | | | | 458 | | Selling and marketing | | | 1,512 | | | | 1,660 | | | | 1,324 | | | | 258 | | | | - | | | | 4,754 | | General and administrative | | | 2,384 | | | | 2,375 | | | | 2,631 | | | | 511 | | | | - | | | | 7,901 | | Other expenses | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | Financial expenses, net | | | | | | | | | | | | | | | | | | | | | | | 88 | | Income before taxes on income | | | | | | | | | | | | | | | | | | | | | | | (5,252 | ) |
| | Year ended December 31, 2013 | | | | OEM of Heat Transfer Solutions and Aviation Componentse | | | Heat Transfer Services and Products | | | MRO services for Aviation Components | | | Elimination of inter-company sales | | | | | | | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | | | Sale of products and services | | $ | 27,326 | | | $ | 29,796 | | | $ | 22,429 | | | $ | - | | | $ | 79,551 | | Intersegment revenues | | | 3,812 | | | | 111 | | | | - | | | | (3,923 | ) | | | - | | Total revenues | | | 31,138 | | | | 29,907 | | | | 22,429 | | | | (3,923 | ) | | | 79,551 | | | | | | | | | | | | | | | | | | | | | | | Cost of revenues | | | 24,141 | | | | 22,464 | | | | 19,224 | | | | (4,086 | ) | | | 61,743 | | Gross profit | | | 6,997 | | | | 7,443 | | | | 3,205 | | | | 163 | | | | 17,808 | | | | | | | | | | | | | | | | | | | | | | | Research and development | | | 415 | | | | 298 | | | | - | | | | - | | | | 713 | | Selling and marketing | | | 1,520 | | | | 1,145 | | | | 485 | | | | - | | | | 3,150 | | General and administrative | | | 3,158 | | | | 2,249 | | | | 3,261 | | | | - | | | | 8,668 | | Other income | | | (20 | ) | | | - | | | | - | | | | - | | | | (20 | ) | Operating income (loss) | | | 1,924 | | | | 3,751 | | | | (541 | ) | | | 163 | | | | 5,297 | |
U.S. dollars in thousands NOTE 16 - SEGMENT INFORMATION (CONT)
NOTE 18 - | SEGMENT INFORMATION (CONT) |
| c. | The following financial information identifies the assets, depreciation and amortization, and capital expenditures to segments: |
| | Year ended December 31, 2015 | | | | OEM of Heat Transfer Solutions and Aviation Components | | | Heat Transfer Services and Products | | | MRO services for Aviation Components | | | Overhaul and coating of jet engine components | | | Amounts not allocated to segments | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | | 29,440 | | | | 28,400 | | | | 24,170 | | | | 11,635 | | | | 15,938 | | | | 109,583 | | Depreciation and amortization | | | 1,127 | | | | 789 | | | | 669 | | | | 196 | | | | | | | | 2,781 | | Expenditure for segment assets | | | 1,075 | | | | 1,400 | | | | 821 | | | | 51 | | | | | | | | 3,347 | |
| | Year ended December 31, 2014 | | | | OEM of Heat Transfer Solutions and Aviation Components | | | Heat Transfer Services and Products | | | MRO services for Aviation Components | | | Amounts not allocated to segments | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 32,808 | | | $ | 26,889 | | | $ | 23,044 | | | $ | 16,435 | | | $ | 99,176 | | Depreciation and amortization | | | 1,027 | | | | 675 | | | | 367 | | | | - | | | | 2,069 | | Expenditure for segment assets | | | 1,126 | | | | 810 | | | | 539 | | | | - | | | | 2,475 | |
NOTE 17 - ENTITY-WIDE DISCLOSURE
NOTE 19 - | ENTITY-WIDE DISCLOSURE |
| a. | Total revenues - by geographical location were attributed according to customer residential country as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | Sale of products | | | | | | | | | | Israel | | $ | 4,102 | | | $ | 4,807 | | | $ | 6,248 | | United states | | | 20,013 | | | | 18,886 | | | | 18,016 | | France | | | 3,720 | | | | 3,642 | | | | 5,482 | | Rest of Europe | | | 1,776 | | | | 2,257 | | | | 2,292 | | Other | | | 1,728 | | | | 1,771 | | | | 2,326 | | | | $ | 31,339 | | | $ | 31,363 | | | $ | 34,364 | |
| | | | | | | | | | | | | | | | | | | | | | | | Sale of Services | | | | | | | | | | Israel | | $ | 814 | | | $ | 834 | | | $ | 612 | | United states | | | 32,738 | | | | 31,267 | | | | 27,639 | | Netherland | | | 1,271 | | | | 1,734 | | | | 1,553 | | Rest of Europe | | | 11,569 | | | | 8,786 | | | | 7,658 | | Other | | | 7,876 | | | | 6,742 | | | | 7,725 | | | | $ | 54,268 | | | $ | 49,363 | | | $ | 45,187 | |
(*) Excluding discontinued operations for the year ended on December 31, 2013.
| | | | | | | | | | | | | | | | | | | | | | | | Sale of products | | | | | | | | | | Israel | | $ | 3,355 | | | $ | 3,464 | | | $ | 2,893 | | United States | | | 12,284 | | | | 14,181 | | | | 13,013 | | Other | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Sale of Services | | | | | | | | | | Israel | | $ | 3,543 | | | $ | 3,624 | | | $ | 4,031 | | United States | | | 34,765 | | | | 43,196 | | | | 35,562 | | Other | | | | | | | | | | | | | | | | | | | | | | | | | |
| b. | Total long-lived assets - by geographical location were as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | Israel | | $ | 15,071 | | | $ | 16,692 | | | $ | 12,894 | | United States | | | 18,908 | | | | 11,354 | | | | 8,530 | | Total | | $ | 33,979 | | | $ | 28,046 | | | | 21,424 | |
| | | | | | | | | | | | | | | | | | Israel | | $ | 12,481 | | | $ | 5,830 | | United states | | | 6,453 | | | | 5,694 | | Total | | $ | 18,934 | | | $ | 11,524 | |
No single customer accounted for 10% or more of Group's total net revenue in any year presented.
U.S. dollars in thousands
NOTE 1820 -SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS INFORMATION
| | Warranty provision | | | Provision for doubtful Accounts | | | Warranty provision | | | Provision for current expected credit losses | | | | | | | | | | | | | | | Balance, as of December 31, 2012 | | | 276 | | | | 376 | | | Balance, as of December 31, 2017 | | | 306 | | | 623 | | Additions | | | 186 | | | | 17 | | | 214 | | | 135 | | Deductions | | | (190 | ) | | | (270 | ) | | | (235 | ) | | | (482 | ) | | | | | | | | | | | | | | | | Less: Held for sale | | | (43 | ) | | | - | | | | | | | | | | | | | Balance, as of December 31, 2013 | | | 229 | | | | 123 | | | Balance, as of December 31, 2018 | | | $ | 285 | | | $ | 276 | | Additions | | | 286 | | | | 107 | | | 115 | | | 84 | | Deductions | | | (264 | ) | | | (105 | ) | | | (165 | ) | | | (46 | ) | | | | | | | | | | | | | | | | Balance, as of December 31, 2014 | | $ | 251 | | | | 125 | | | | | | | | | | | | | Balance, as of December 31, 2019 | | | $ | 235 | | | $ | 314 | | Additions | | | 294 | | | | 206 | | | 80 | | | 194 | | Deductions | | | (221 | ) | | | - | | | | (65 | ) | | | (202 | ) | | | | | | | | | | | | | | | | Balance, as of December 31, 2015 | | $ | 324 | | | $ | 331 | | | Balance, as of December 31, 2020 | | | $ | 250 | | | $ | 306 | |
NOTE 19 - REVISION
During 2015, the Company identified an error related to the classification of US employees' social benefits expenses and the balance classification of deferred tax asset and liabilities. Previously, the Company classified these expenses in ‘general and administrative expenses’ instead of classifying a part of them in ‘Cost of goods’ (product and services) for employees allocated to this line item. This change in classification also impacted the capitalization of inventory balances. The change in deferred taxes was to properly adjust deferred tax assets and liabilities on a jurisdictional basis. There was no material impact on the statement of cash flows.
The revision impacts two segments, Heat Transfer Services and Products and OEM of Heat Transfer Solutions and Aviation Components.
The Company assessed the materiality of this error in accordance with the SEC’s Staff Accounting Bulletin 99 and Accounting Standards Codification Topic 250, Accounting Changes and Error Corrections, and concluded that the previously issued financial statements were not materially misstated. In accordance with the SEC’s Staff Accounting Bulletin, the Company corrected these errors by revising the affected financial statements in the current 2015 financial statements.
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 19 - REVISION (CONT)
Following is the effect of the revision on the Company’s previously reported results:
Statements of income:
| | Year ended December 31, 2014 | | | | As reported previously | | | Adjustment | | | As revised | | Cost of goods: | | | | | | | | | | Products | | | 23,340 | | | | 276 | | | | 23,616 | | Services | | | 40,286 | | | | 620 | | | | 40,906 | | Gross profit | | | 17,100 | | | | (896 | ) | | | 16,204 | | General and administrative | | | 9,019 | | | | (896 | ) | | | 8,123 | | Operating income | | | 3,819 | | | | * | | | | 3,819 | | Net income | | | 1,432 | | | | * | | | | 1,432 | | Net income per share | | | 0.16 | | | | * | | | | 0.16 | |
*Represents an amount less than $1.
| | Year ended December 31, 2013 | | | | As reported previously | | | Adjustment | | | As revised | | Cost of goods: | | | | | | | | | | Products | | | 24,892 | | | | 251 | | | | 25,143 | | Services | | | 35,987 | | | | 613 | | | | 36,600 | | Gross profit | | | 18,672 | | | | (864 | ) | | | 17,808 | | General and administrative | | | 9,512 | | | | (844 | ) | | | 8,668 | | Operating income | | | 5,317 | | | | (20 | ) | | | 5,297 | | Net income | | | 2,822 | | | | (20 | ) | | | 2,802 | | Net income per share | | | 0.32 | | | | * | | | | 0.32 | |
*Represents an amount less than $1.
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 19 - REVISION (CONT)
Following is the effect of the revision on the Company’s previously reported results (cont.):
Balance sheets and shareholders' capital
As of December 31, 2014:
| | As reported Previously | | | Adjustment | | | As revised | | | Impact of adoption* | | | As presented | | Inventories, net | | | 35,404 | | | | 73 | | | | 35,477 | | | | - | | | | 35,477 | | Total current assets | | | 83,342 | | | | (518 | ) | | | 82,824 | | | | (1,103 | ) | | | 81,721 | | Total assets | | | 101,468 | | | | (2,068 | ) | | | 99,400 | | | | (224 | ) | | | 99,176 | | Total current liabilities | | | 11,537 | | | | (591 | ) | | | 10,946 | | | | - | | | | 10,946 | | Total long-term liabilities | | | 4,463 | | | | (1,550 | ) | | | 2,913 | | | | (224 | ) | | | 2,689 | | Total liabilities | | | 16,000 | | | | (2,141 | ) | | | 13,859 | | | | (224 | ) | | | 13,635 | | Retained earnings | | | 20,272 | | | | 73 | | | | 20,345 | | | | - | | | | 20,345 | | Total equity | | | 85,468 | | | | 73 | | | | 85,541 | | | | - | | | | 85,541 | |
NOTE 2021 - SUBSEQUENT EVENTS
Due to the adverse impact of COVID-19 on the aerospace industry and consequently on TAT’s business, TAT has resolved to take additional actions in fiscal year 2021 to change its cost structure and reduce costs in order to cope effectively with the impact of COVID-19 on its business. Specifically, we intend to execute a plan during 2021 by which we would transfer our activity from our leased facility in Gedera to a facility in Tulsa, Oklahoma and to a facility in Kiryat Gat, which are owned by, or under long terms leases of, TAT’s wholly-owned subsidiaries. | 1. | On February 25, 2016, Republic Airways Holdings Inc. ("Republic"), Piedmont’s Costumer, announced that it and certain of its subsidiaries have filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. As of December 31, 2015 there were outstanding receivables from Republic of approximately $1,087. As of April 11, 2016 there are outstanding receivables from Republic, related to the balance as of December 31, 2015, of approximately $306. The Company is currently assessing the implications of Republic's voluntary petition for bankruptcy on the maintenance support agreement with Republic.
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| 2. | On March 29, 2016, subsequent to the balance sheet date, TAT’s board of directors approved the grant of 40,000 options, at an exercise price of $7.63 per share, to senior executives. |
F - 5754
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