Record Holders
Based
on a review of the information provided to us by our transfer agent, as of June
23, 2008, there were 48 holders of record of our ordinary shares, of which
40 record holders holding approximately 83% of our ordinary shares had
registered addresses in the United States and 8 record holders holding approximately 17% of our ordinary shares had registered addresses in Israel. 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 51% of our outstanding
ordinary shares as of such date.
|
|
B.
|
Related Party Transactions
|
Management and Services Agreement
In
February 2000, we entered into an agreement with TAT Industries, our
controlling shareholder, to purchase operations of TAT Industries relating to
the manufacture of aviation accessories and the lease of certain real estate
and buildings. Pursuant to the terms of this agreement, all of the employees of
TAT Industries were transferred to us effective January 1, 2000, without any
change in the conditions of their employment. TAT Industries pays us $50,000
per year for administrative and accounting personnel and secretarial staff, who
served as employees of TAT Industries before they were transferred to us and
who continue to provide such services.
In
addition, pursuant to the terms of the agreement, we entered into a lease
agreement, pursuant to which we lease from TAT Industries, effective as of
January 1, 2000, an area of approximately 329,000 square feet, including 90,000
square feet of manufacturing, office and storage space, for a period of 24
years and eleven months. In consideration for the lease agreement, we agreed to
pay TAT Industries annual rental fee of $300,000, with an additional
incremental payment of 2% per year, such rental fee is subject to revaluation
every fifth year. In 2006, the rental fee was revaluated by a real estate
appraiser, and as a result the base fee was increased to $316,200 per year. The
rental fee will be revaluated again in 2010.
Other Transactions
Prior
to December 31, 2007, our Israeli operations employed the services of a
purchasing agent, Gal Tech Inc., or Gal Tech, a company owned by Messrs. Shlomo
Ostersetzer and Dov Zeelim, former directors and officers of our company, and
Israel Ofen, an officer of our company. According to an export agreement, dated
April 14, 1992, Gal Tech was entitled to a handling fee in the amount of 10% of
all purchases by our company in North America per year and a handling fee in
the amount of 3% of all sales by our company to North America per year (not
including sales of heat transfer products). However, pursuant to this
agreement, the total amount to be paid by us to Gal Tech would not exceed the
sum of 5% of our purchases in North America and 5% of our sales to North
America (not including sales of heat transfer products) per year. In the years
ended December 31, 2007, 2006 and 2005, we paid approximately $442,224,
$387,000 and $537,000, respectively, to Gal Tech, in accordance with such
agreement. Ifat Frenkel (the daughter of Dov Zeelim, the former Vice Chairman
of our Board of Directors and our former Chief Executive Officer) was the
President of Gal Tech. from January 1, 2003 to July 2006 and since August 2006,
she has served as an officer of Gal Tech. The export agreement was terminated
by the parties as of December 31, 2007.
Pursuant
to their former employment agreements, the former chairman of our Board of
Directors and our former President, Mr. Shlomo Ostersetzer, and the former vice
chairman of our Board of Directors and our former chief executive officer, Mr.
Dov Zeelim, were each entitled to a bonus of 2.5% of the annual consolidated
operating income, in excess of $500,000. In the years ended December 31, 2007,
2006 and 2005, we paid to Messrs. Ostersetzer and Zeelim in the aggregate
approximately $462,035, $517,730 and $292,298, respectively, which amounts were
divided equally between them.
Ta-Top,
a former major shareholder, provided us with management and consulting services
in consideration for the lesser of: (i) 3% of the consolidated operating income
in excess of $500,000, or (ii) $250,000 per year. In the years ended December
31,2007, 2006 and 2005, we paid Ta-Top $250,000, $250,000 and $175,379,
respectively, for such services. The agreement was terminated by the parties as
of December 31, 2007.
TAT Industries, our parent company,
and we are reporting to the Value Added Tax Authorities on a consolidated basis. The
balance with TAT Industries as of December 31, 2007, at the amount of $ 576,000 mainly
consists of Value Added Tax refund, is linked to the Israeli Consumer Price Index.
56
Other Relationships
Mr.
Israel Ofen, Executive Vice President and our Chief Financial Officer, also
serves as the general manager of TAT Industries.
Mr.
Giora Inbar, the Chairman of our Board of Directors, Mr. Shmuel Fledel, our
Chief Executive Officer, Dr. Avraham Ortal, a member of our board of directors,
and Mr. Israel Ofen, Executive Vice President and our Chief Financial Officer,
also serve on the board of directors of Limco-Piedmont.
|
|
C.
|
Interests of Experts and Counsel
|
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
We
are not presently involved in any material legal proceedings. However during
the ordinary course of business, we are, from time to time, threatened with, or
may become a party to legal actions and other proceedings.
Dividend Distribution Policy
We
paid annual dividends of $0.25, $1.18, $0.18, $0.20 and $0.40 per ordinary
share in 2003, 2004, 2005, 2006 and 2007, respectively. Although we paid
dividends on an annual basis during the last five fiscal years, we do not
currently have a dividend distribution policy and our past practice should not
be relied upon as an indication of our future practice. Future dividend
distributions are subject to the discretion of our board of directors and will
depend on a number of factors, including our operating results, future capital
resources available for distribution, capital requirements, financial
condition, the tax implications of dividend distributions on our income, future
prospects and any other factors our board of directors may deem relevant.
According
to the Israeli Companies Law, a company may distribute dividends out of its
profits (as defined by the Israeli Companies Law) provided that there is no
reasonable concern that such dividend distribution will prevent the company
from paying all its current and foreseeable obligations, as they become due.
Notwithstanding the foregoing, dividends may be paid with the approval of a
court, provided that there is no reasonable concern that such dividend distribution
will prevent the company from satisfying its current and foreseeable
obligations, as they become due. Profits, for purposes of the Israeli Companies
Law, means the greater of retained earnings or earnings accumulated during the
preceding two years, after deducting previous distributions that were not
deducted from the surpluses. In the event cash dividends are declared, such
dividends will be paid in NIS.
We
do not intend to distribute earnings of our foreign subsidiaries in the
foreseeable future. We currently intend to permanently reinvest all future
earnings of such subsidiaries in order to finance their operations and expand
their business.
Since
the date of the annual consolidated financial statements included in this
annual report, no significant change has occurred.
57
|
|
Item 9.
|
The Offer and Listing
|
|
|
A.
|
Offer and Listing Details
|
Annual Stock Information
The
following table sets forth, for each of the years indicated, the range of high
ask and low bid prices of our ordinary shares on the NASDAQ Capital Market and
the TASE:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Capital Market
|
|
Tel Aviv Stock Exchange
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended December 31, 2003
|
|
$
|
8.00
|
|
$
|
2.06
|
|
|
|
|
|
|
|
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
|
|
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 range of high
ask and low bid prices of our ordinary shares on the NASDAQ Capital Market and
the TASE:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Capital Market
|
|
Tel Aviv Stock Exchange
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
7.00
|
|
$
|
5.92
|
|
NIS
|
32.79
|
|
NI
|
30.40
|
|
Second
Quarter
|
|
|
9.71
|
|
|
6.32
|
|
|
44.95
|
|
|
30.25
|
|
Third
Quarter
|
|
|
13.80
|
|
|
7.55
|
|
|
53.16
|
|
|
37.09
|
|
Fourth
Quarter
|
|
|
19.52
|
|
|
11.22
|
|
|
82.10
|
|
|
48.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
28.18
|
|
|
16.60
|
|
|
116.70
|
|
|
70.94
|
|
Second
Quarter
|
|
|
21.93
|
|
|
15.60
|
|
|
91.11
|
|
|
62.74
|
|
Third
Quarter
|
|
|
21.95
|
|
|
11.37
|
|
|
94.82
|
|
|
47.68
|
|
Fourth
Quarter
|
|
|
16.10
|
|
|
13.13
|
|
|
64.24
|
|
|
50.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
13.51
|
|
|
7.30
|
|
|
53.00
|
|
|
26.01
|
|
Monthly Stock Information
The following
table sets forth, for the most recent six months, the range of high ask and low
bid prices of our ordinary shares on the NASDAQ Capital Market and the TASE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Capital Market
|
|
Tel Aviv Stock Exchange
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
2007
|
|
$
|
15.50
|
|
$
|
13.13
|
|
NIS
|
60.80
|
|
NIS
|
50.01
|
|
January 2008
|
|
|
13.51
|
|
|
8.86
|
|
|
53.00
|
|
|
33.96
|
|
February
2008
|
|
|
9.64
|
|
|
8.63
|
|
|
36.50
|
|
|
31.14
|
|
March 2008
|
|
|
9.85
|
|
|
7.30
|
|
|
33.19
|
|
|
26.01
|
|
April 2008
|
|
|
9.49
|
|
|
8.13
|
|
|
34.94
|
|
|
29.16
|
|
May 2008
|
|
|
8.85
|
|
|
7.70
|
|
|
31.66
|
|
|
25.32
|
|
58
Not
applicable.
Our
ordinary shares traded on the NASDAQ Global Market (then known as the NASDAQ
National Market) under the symbol TATTF from March 1987 until July 1998, when
the listing of such shares was transferred to the NASDAQ Capital Market. On
August 16, 2005, we listed our shares for trade on the TASE as a dual listed
company.
Not
applicable.
Not
applicable.
Not
applicable.
|
|
Item 10.
|
Additional Information
|
Not
applicable.
|
|
B.
|
Memorandum and Articles of Association
|
Set
out below is a description of certain provisions of our Memorandum of
Association, Articles of Association 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, 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 and our Articles of Association, a
director cannot participate in a meeting nor vote on a proposal, arrangement or
contract in which he or she is materially interested. In addition, our
directors cannot vote compensation to themselves or any members of their body
without the approval of our audit committee and our shareholders at a general
meeting. See Item 6.C. Directors, Senior Management and Employees Board
Practices Approval of Related Party Transactions Under Israeli Law.
59
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 10,000,000 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 rights.
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 interim
dividends and propose the final dividend with respect to any fiscal year only
out of the retained earnings, in accordance with the provisions of the Israeli
Companies Law. 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 for the
declaration of dividends, amending our memorandum of association or articles of
association, approving any change in capitalization, 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.
Pursuant
to our articles of association, our directors (other than outside directors)
are elected at our annual general meeting of shareholders by a vote of the
holders of a majority of the voting power represented and voting at such
meeting 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 outside directors) may be reelected upon completion of
their term of office. For information regarding the election of outside
directors, see Item 6C. Directors, Senior Management and Employees Board
Practices Election of Directors.
Rights to share in our companys profits.
Our shareholders have the right to share
in our profits distributed as a dividend and any other permitted distribution.
See 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.
60
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.C. 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. 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, in 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 the demand of two of the
directors, 25% of the nominated directors, 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 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.C.
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 Capital Market. We are required pursuant to the
Israeli Securities Law and the regulations promulgated thereunder to submit to
the Israeli Companies Registrar, the Israeli Securities Authority and the TASE,
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.
61
Changes in Our Capital
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 the Ordinary Shares.
On
June 15, 2004, we entered into a management agreement under which we engaged
FIMI, our former major shareholder, to provide us with certain management
services to us in exchange for annual payments equal to 3% of our operating
profit exceeding $500,000; provided, however, that in no event will the total
management fees in any given year exceed $250,000. The management agreement was
approved by our shareholders on August 10, 2004. The management agreement was
terminated by the parties in December 2007.
On
July 7, 2005, our subsidiary Limo-Piedmont acquired Piedmont, a company engaged
in the repair and overhaul of various aircraft accessories. Under the terms of
the acquisition, Limo-Piedmont paid $20.2 million for Piedmont, which included
the assumption of its outstanding indebtedness and other liabilities.
On
March 27, 2008, we entered into an agreement with Bental Investments to
purchase from it 27% of the outstanding shares of Bental Industries, an Israeli
company that specializes in innovative motion technologies for military and
aviation and a leading supplier in its field to Israels defense industries. In
consideration for such ownership interest, we agreed to pay $3,375,000 upon
consummation of the transaction. In addition, Bental Investments agreed to
grant us a call option to purchase an additional 18% of the outstanding shares
of Bental Industries held by it, in up to four installments, in consideration
of $2,250,000. The consideration for the option shares will bear interest of 2%
per annum. The call option will be valid for a period of four years commencing
as of January 1, 2009. We agreed to grant to Bental Investments a put option in
the amount of $2,137,500, valid for a period of two years as of January 1,
2011. We agreed that for the foregoing amounts, the exchange rate of the U.S.
dollar to the NIS will range between $1=NIS 3.70-3.95. If the exchange rate is
less than NIS 3.70, then the foregoing amounts will be increased
proportionately, if the rate is more than NIS 3.95 then the amounts will be
decreased proportionately and if the exchange rate is within the above range,
the amounts will remain in tact. In the event that during the three year period
following the closing of the transaction we consummate an exit, as such term
is defined in the agreement, Bental Investments will be entitled to additional
consideration for the shares and call option shares (if purchased) equal to a
certain percentage of the difference between the price per share that we paid
for such shares and the price per share paid in the exit transaction (30% if
the exit is within one year of the closing, 20% if the exit is within two years
of the closing and 10% if the exit is within three years of the closing).
On
April 15, 2008, we entered into an agreement to purchase an additional 10% of
the outstanding shares of Bental from Mivtach in consideration for $1,225,000.
We agreed that the exchange rate of the dollar to the NIS will range between
$1=NIS 3.70-3.95, as described above. The foregoing transactions with Bental
Investments and Mivtach were consummated on May 21, 2008.
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.
62
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.
I
SRAELI
T
AX
C
ONSIDERATIONS
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 Israeli foreign
exchange regulations. 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 were generally subject to corporate tax at the rate of 29% in 2007,
which was reduced to 27% in 2008, and will be further reduced to 26% in 2009
and 25% in 2010 and thereafter. However, the rate is effectively reduced for
income derived from an approved enterprise and beneficiary enterprise, as
discussed below.
Tax Benefits under the Law for the
Encouragement of Capital Investments, 1959
We
have one capital investment program that has been granted approved enterprise
status under the Law for the Encouragement of Capital Investments, 1959,
commonly referred to as the Investment Law, and one program that qualifies as a
beneficiary enterprise pursuant to an amendment to the Investment Law that
came into effect on April 1, 2005.
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 enterprise upon prior approval from the Investment
Center of the Israel Ministry of Industry, Trade and Labor, or the Investment
Center. Each certificate of approval for an approved enterprise relates to a
specific investment program, delineated both by the financial scope of the
investment and by the physical characteristics of the facility or the asset.
On
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 the amendment will qualify for benefits as a
beneficiary enterprise (rather than the previous terminology of approved
enterprise). Among other things, the April 2005 amendment provides tax benefits
to both local and foreign investors. Companies that meet the specified criteria
will receive the tax benefits without need for prior approval and instead, a
company may claim the tax benefits offered by the Investment Law directly in
its tax returns.
The
period of tax benefits for a 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.
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A
company that owns an approved enterprise and/or beneficiary enterprise is
eligible for governmental grants, but may elect to receive an alternative
package comprised of tax benefits, referred to as the alternative track.
Under the alternative track, a companys undistributed income derived from an
approved enterprise and beneficiary enterprise is exempt from corporate tax for
an initial period (two to ten years, depending on the geographic location of
the approved enterprise and beneficiary enterprise within Israel). The
exemption begins in the first year that the company realizes taxable income
from the approved enterprise.
After
expiration of the initial tax exemption period, the company is eligible for a
reduced corporate tax rate of 10% to 25% for the following five to eight years,
depending on the extent of foreign investment in the company (as shown in the
table below). The benefits period is 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.
The
tax benefits relate only to taxable income attributable to the specific
approved enterprise and/or beneficiary enterprise. To the extent we have more than one approved
enterprise and/or beneficiary enterprise or only a portion of our capital
investments are derived from approved or beneficiary enterprises, our effective
tax rate will be the result of a weighted combination of the applicable rates.
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Percent of
Foreign Ownership
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Rate of
Reduced
Tax
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Reduced Tax
Period
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Tax Exemption
Period
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0-25%
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25%
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5 years
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2 years
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25-49%
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25%
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8 years
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2 years
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49-74%
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20%
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8 years
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2 years
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74-90%
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15%
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8 years
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2 years
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90-100%
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10%
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8 years
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2 years
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If
a company distributes dividends from tax-exempt approved enterprise and/or
beneficiary 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
enterprise and beneficiary 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 enterprise income are generally taxed at a rate of 15%, which
is withheld and paid by the company paying the dividend, if the dividend is
distributed during the benefits period or within the following 12 years (but
the 12-year limitation does not apply to a Foreign Investors Company).
The
benefits available to an approved enterprise and beneficiary enterprise are
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, 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 index
plus interest. We believe that our approved enterprise and beneficiary
enterprise programs currently operate in compliance with all applicable
conditions and criteria, but we cannot assure you that they will continue to do
so.
We
have derived, and expect to continue to derive, a substantial portion of our
operating income from our approved enterprise and beneficiary enterprise
facilities. We are therefore eligible for a tax exemption for a limited period
on undistributed approved enterprise and beneficiary enterprise income, and an additional
subsequent period of reduced corporate tax rates ranging between 10% and 25%,
depending on the level of foreign ownership of our shares. The tax benefits
attributable to our current approved enterprise and beneficiary enterprise are
scheduled to expire in phases between 2009 and 2017. We intend to reinvest the
entire amount of our tax-exempt income and not to distribute this income as a
dividend.
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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
Encouragement Law, an Industrial Company is a company resident in Israel, 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), is derived from an industrial enterprise owned by it. An
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:
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amortization
of purchases of acquired technology and patents over an eight-year period for
tax purposes;
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amortization
of specified expenses incurred in connection with a public issuance of
securities over a three-year period for tax purposes;
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right to
elect, under specified conditions, to file a consolidated tax return with
additional related Israeli Industrial Companies; and
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accelerated
depreciation rates on equipment and buildings.
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Eligibility
for benefits under the Industry Encouragement Law is not subject to receipt of
prior approval from any governmental authority.
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.
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 Adjustments 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 shall 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 will no longer be
adjusted to a real (net of inflation) measurement basis. Furthermore, the
depreciation of inflation immune assets and carried forward tax losses will no
longer be linked to the Israeli consumer price index.
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Taxation of Dividends Paid on our Ordinary
Shares
Taxation of Israeli Shareholders
Israeli
resident individuals are generally 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 20%, or 25% for a shareholder
that is considered a material shareholder (within the meaning of the Israeli Income
Tax Ordinance) at any time during the 12-month period preceding such
distribution. Dividends paid on our ordinary shares to Israeli companies are
exempt from such tax, except for dividends distributed from income derived
outside of Israel, which are subject to the 25% tax rate.
Dividends
paid 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%, although we cannot assure you that we will designate the profits that are
being distributed in a way that will reduce shareholders tax liability to this
tax rate.
Taxation of Non-Israeli Shareholders
Non-residents
of Israel are generally subject to Israeli income tax on the receipt of dividends
paid on our ordinary shares, at the rates applicable to Israeli residents,
which tax will be withheld at source, unless a different rate is provided in a
treaty between Israel and the shareholders country of residence.
Under
the U.S.-Israel Treaty, the maximum Israeli withholding tax on dividends paid
by us is 25%. Dividends of an Israeli company distributed from income of an
approved enterprise or beneficiary enterprise are subject to a 15% withholding
tax under Israeli law. The U.S.-Israel Tax Treaty further provides for a 12.5%
Israeli dividend withholding tax on dividends paid by an Israeli company to a
U.S. corporation owning at least 10% or more of such Israeli companys issued
voting power for, in general, the part of the tax year which precedes the date
of payment of the dividend and the entire preceding tax year, provided such
U.S. corporation meets certain limitations concerning the amount of its
dividend and interest income. The lower 12.5% rate applies only to dividends
from income not derived from an approved enterprise or beneficiary enterprise
in the applicable period and does not apply if the company has more than 25% of
its gross income derived from certain types of passive income. Residents of the
United States generally will have withholding tax in Israel deducted at source.
They may be entitled to a credit or deduction for U.S. federal income tax
purposes in the amount of the taxes withheld, subject to detailed rules
contained in U.S. tax legislation.
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. In addition, the U.S.-Israel tax
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.
U
NITED
S
TATES
F
EDERAL
I
NCOME
T
AX
C
ONSEQUENCES
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:
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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;
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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;
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an estate,
the income of which is subject to U.S. federal income taxation regardless of
its source; or
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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.
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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-Israel Tax Treaty, each as in effect as of the date of this
prospectus. These sources may change, possibly with retroactive effect, and are
open to differing interpretations. This description does not discuss all
aspects of U.S. federal income taxation that may be applicable to investors in
light of their particular circumstances or to investors who are subject to
special treatment under U.S. federal income tax law, including:
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insurance
companies;
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dealers in
stocks, securities or currencies;
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financial
institutions and financial services entities;
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real estate
investment trusts;
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regulated
investment companies;
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persons that
receive ordinary shares in connection with the performance of services;
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tax-exempt
organizations;
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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;
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persons who
hold the ordinary shares through partnerships or other pass-through entities;
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individual
retirement and other tax-deferred accounts;
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expatriates
of the United States and certain former long-term residents of the United
States;
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persons
liable for the alternative minimum tax;
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persons
having a functional currency other than the U.S. dollar; and
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direct,
indirect or constructive owners of 10% or more, by voting power or value, of
our company.
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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 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.
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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. Holders 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. 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 thanthe 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 noncorporate
U.S. Holder in tax years beginning on or before December 31, 2010 will be
subject to tax at a reduced maximum tax rate of 15%. Distributions taxable as
dividends paid on the ordinary shares should qualify for the 15% rate provided
that we are not a passive foreign investment company (as described below) for
U.S. tax purposes and that either: (i) we are entitled to benefits under the
income tax treaty between the United States and Israel (the U.S.-Israel Tax
Treaty) or (ii) the ordinary 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 will be treated as foreign source
income for U.S. foreign tax credit limitation purposes. Subject to certain
conditions and limitations, Israeli tax withheld on dividends may be deducted
from taxable income or credited against a U.S. Holders U.S. federal income tax
liability. The limitation on foreign taxes eligible for credit is calculated
separately with respect to specific classes of income. For this purpose, any
dividend that we distribute generally will constitute passive category income,
or, in the case of certain U.S. Holders, general category income. The rules
relating to the determination of foreign source income and the foreign tax
credit are complex, and the availability of a foreign tax credit depends on
numerous factors. Each investor who is a U.S. Holder should consult with its
own tax advisor to determine whether its income with respect to the ordinary
shares would be foreign source income and whether and to what extent that
investor would be entitled to a foreign tax credit.
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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 will recognize capital gain or loss equal to the difference between
the amount realized on the disposition and the holders adjusted tax basis in
the ordinary shares. U.S. Holders should consult their own advisors with
respect to the tax consequences of the receipt of a currency other than U.S.
dollars upon such sale or other disposition.
Gain
or loss upon the disposition of the ordinary 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:
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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
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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.
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Passive Foreign Investment Company
Considerations
Special
U.S. federal income tax rules apply to U.S. Holders owning shares of a passive
foreign investment company. A non-U.S. corporation will be considered a passive
foreign investment company for any taxable year in which, after applying
certain look-through rules, 75% or more of its gross income consists of
specified types of passive income, or 50% or more of the average value of its
assets consists of assets that produce, or are held for the production of,
passive income. For this purpose, passive income includes generally 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. Holders 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 stock in a passive foreign investment company may not
receive a step-up in basis on shares acquired from a decedent. If we are a
passive foreign investment company in any year, a U.S. Holder would be required
to file an annual return on IRS Form 8621 regarding distributions received with
respect to ordinary 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.
69
The
passive foreign investment company tax consequences described above will not
apply to a U.S. Holder if the U.S. Holder makes an election to treat us as a
qualified electing fund, or QEF. If a U.S. Holder makes a timely QEF election,
the U.S. Holder would be required to include in income for each taxable year
its pro rata share of our ordinary earnings as ordinary income and its 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. Holders
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 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 Commission or the national market
system established pursuant to Section 11A of the Securities Exchange Act of
1934. A class of stock that is traded on one or more qualified exchanges or
other markets is regularly traded on an exchange or market for any calendar
year during which that class of stock is traded, other than in de minimis
quantities, on at least 15 days during each calendar quarter. We believe that
The NASDAQ Capital Market will constitute a qualified exchange or other market
for this purpose. However, we can not be certain that our ordinary shares will
continue to trade on The NASDAQ Capital 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.
Information Reporting and Backup Withholding
Payments
in respect of ordinary shares may be subject to information reporting to the
U.S. Internal Revenue Service and to U.S. backup withholding tax at a rate
equal to the fourth lowest income tax rate applicable to individuals (which,
under current law, is 28%). Backup withholding will not apply, however, if you
(i) are a corporation or come within certain exempt categories, and demonstrate
the fact when so required, or (ii) furnish a correct taxpayer identification
number and make any other required certification. U.S. Holders who are required
to establish their exempt status generally must provide such certification on
IRS Form W-9.
Backup
withholding is not an additional tax. Amounts withheld under the backup
withholding rules may be credited against a U.S. Holders 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.
70
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.
|
|
F.
|
Dividends and Paying Agents
|
Not
applicable.
Not
applicable.
We
are subject to the reporting requirements of the United States Securities
Exchange Act of 1934, as amended, as applicable to foreign private issuers as
defined in Rule 3b-4 under the Exchange Act, and in accordance therewith, we
file annual and interim reports and other information with the Securities and
Exchange Commission.
As
a foreign private issuer, we are exempt from certain provisions of the Exchange
Act. Accordingly, our proxy solicitations are not subject to the disclosure and
procedural requirements of Regulation 14A under the Exchange Act and
transactions in our equity securities by our officers and directors are exempt
from reporting and the short-swing profit recovery provisions contained in
Section 16 of the Exchange Act. In addition, we are not required under the
Exchange Act to file periodic reports and financial statements as frequently or
as promptly as United States companies whose securities are registered under
the Exchange Act. However, we make available on our website www.tat.co.il, our
annual audited financial statements, which have been examined and reported on,
with an opinion expressed by, an independent public accounting firm, and we
intend to file reports with the Securities and Exchange Commission on Form 6-K
containing unaudited financial information for the first three quarters of each
fiscal year.
This
annual report on Form 20-F and the exhibits thereto and any other document we
file pursuant to the Exchange Act may be inspected without charge and copied at
prescribed rates at the following Securities and Exchange Commission public
reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549; and on
the Securities and Exchange Commission Internet site (http://www.sec.gov) and
on our website
www.tat.co.il.
You may obtain information on the
operation of the Securities and Exchange Commissions public reference room in
Washington, D.C. by calling the Securities and Exchange Commission at
1-800-SEC-0330. The Exchange Act file number for our Securities and Exchange
Commission filings is 0-16050.
In
addition, since August 16, 2005 we are also listed on the TASE. From such date
we submit copies of all our filings with the SEC to the Israeli Securities
Authority and TASE. Such copies can be retrieved electronically through the
TASE internet messaging system (www.maya.tase.co.il) and, in addition, through
the MAGNA distribution site of the Israeli Securities Authority
(www.magna.isa.gov.il).
The
documents concerning our company which are referred to in this annual report
may also be inspected at our offices located at Reem Industrial Park Neta,
Boulevard Bnei Ayish, Gedera, Israel.
|
|
I.
|
Subsidiary Information
|
Not
applicable.
71
|
|
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 Changes in Interest Rates
We
pay interest on our long-term loans facilities at a rate per annum equal to
1%-1.14% in excess of the Libor Rate. As a result, changes in the general level
of interest rates directly affect the amount of interest payable by us under
these facilities.
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. 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. The NIS value of
our U.S. dollar revenues are adversely affected by the appreciation of the NIS
against the U.S. dollar. In 2006 and 2007, the NIS appreciated against the U.S.
dollar by 8.2% and 9.0%, respectively. We estimate that a devaluation of 1% of
the U.S. dollar against the NIS would result in a decrease of approximately
$150,000 in our operating income.
|
|
Item 12.
|
Description of Securities Other than Equity Securities
|
Not
Applicable.
PART II
|
|
Item 13.
|
Defaults, Dividend Arrearages and Delinquencies
|
None.
|
|
Item 14.
|
Material Modifications to the Rights of Security Holders
|
None.
|
|
Item 15.
|
Controls and Procedures
|
Not
applicable.
|
|
Item 15T.
|
Controls and Procedures
|
Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in its Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms, and that such information is accumulated
and communicated to our chief executive officer and chief financial officer to
allow timely decisions regarding required disclosure. Our management, including
our chief executive officer and chief financial officer, conducted an
evaluation of our disclosure controls and procedures, as defined under Exchange
Act Rule 13a-15(e), as of the end of the period covered by this Annual Report
on Form 20-F. Based upon that evaluation, our chief executive officer and chief
financial officer have concluded that, as of such date, our disclosure controls
and procedures were effective.
72
Managements 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
companys principal executive and principal financial officers and effected by
the companys 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 transaction 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 companys 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, 2007. 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. Based on that assessment, our management concluded that as of December 31, 2007, our internal control
over financial reporting is effective. A subsidiary of ours is currently conducting an investigation of possible fraud
occurring during the first half of 2007 by one of its former executive officers. If such
fraud did occur, we believe that it was not in amounts material to this subsidiary or us.
This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
report. Managements report was not subject to attestation by our independent
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only managements report in
this annual report.
Changes in Internal Control over Financial
Reporting
There
was no change in our internal control over financial reporting that occurred
during the period covered by this annual report that has materially affected,
or is reasonably likely to materially affect, our internal controls over
financial reporting.
|
|
Item 1
6.
|
[Reserved]
|
|
|
Item 16A.
|
Audit Committee Financial Expert
|
Our
board of directors has determined that each of Rami Daniel and Michael Shevi, our outside
directors under Israeli law, both of whom also qualify as independent
directors, meets the definition of an audit committee financial expert, as
defined by rules of the Securities and Exchange Commission. For a brief listing
of the relevant experience of Rami Daniel
and Michael Shevi, see Item 6.A. Directors, Senior Management and
Employees Directors and Senior Management.
73
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.co.il
.
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 Accountants Fees and Services
|
Fees Paid to Independent Public Accountants
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
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit (1)
|
|
$
|
365,489
|
|
$
|
270,000
|
|
Audit-related
(2)
|
|
|
27,500
|
|
|
3,000
|
|
Tax (3)
|
|
|
6,015
|
|
|
22,000
|
|
Other (4)
|
|
|
|
|
|
12,000
|
|
|
|
|
|
|
|
Total
|
|
$
|
399,004
|
|
$
|
307,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Audit fees
are for audit services for each of the years shown in the table, including
fees associated with the annual audit and reviews of our quarterly financial
results, consultations on various accounting issues and audit services
provided in connection with other statutory or regulatory filings. In 2007
and 2006, $173,124 and $12,800, respectively, of the audit fees relate to
services provided in connection with the initial public offering of
Limco-Piedmont in July 2007.
|
|
(2)
|
Audit
related fees in 2006 relate to due diligence and attestation services.
|
|
(3)
|
Tax fees
relate to professional services rendered for tax compliance and tax advice.
These services include assistance regarding international and Israeli
taxation.
|
|
(4)
|
Other fees
in 2006 relate to services provided in connection with the Piedmont
acquisition in July 2005.
|
Pre-Approval Policies and Procedures
Our
Audit Committee has adopted a policy and procedures for the pre-approval of
audit and non-audit services rendered by our independent public accounting firm
Virchaw Krause & Company, LLP and Oren Horowitz & Co, independent
members of Baker Tilly International. Pre-approval of an audit or non-audit
service may be given as a general pre-approval, as part of the audit
committees 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 requires specific pre-approval by our audit committee. The policy
prohibits retention of the independent public accountants to perform the
prohibited non-audit functions defined in Section 201 of the Sarbanes-Oxley Act
or the rules of the SEC, and also requires the Audit Committee to consider
whether proposed services are compatible with the independence of the public
accountants.
|
|
Item 16D.
|
Exemptions from the Listing Standards for Audit Committee
|
Not
Applicable.
74
|
|
Item 16E.
|
Purchase of Equity Securities By The Issuer and Affiliated Purchasers
|
Neither
we, nor any affiliated purchaser of our company, purchased any of our
securities during 2007.
PART III
|
|
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
|
|
Index to
Financial Statements
|
F-1
|
|
|
Reports of
Independent Registered Public Accounting Firms
|
F-2 - F-3
|
|
|
Consolidated
Balance Sheets
|
F-4 - F-5
|
|
|
Consolidated
Statements of Income
|
F-6
|
|
|
Consolidated
Statements of Changes in Shareholders Equity
|
F-7
|
|
|
Consolidated
Statements of Cash Flows
|
F-8 - F-9
|
|
|
Notes to
Consolidated Financial Statements
|
F-10 - F-47
|
The following exhibits are filed as a part of this
Annual Report:
|
|
1.1
|
Memorandum
of Association of the Registrant (1)
|
|
|
1.2
|
Articles of
Association of the Registrant (1)
|
|
|
2.1
|
Specimen
Certificate for Ordinary Shares (1)
|
|
|
4.1
|
Registrants
1999 Stock Purchase Plan (2)
|
|
|
4.2
|
Agreement
dated February 10, 2000, by and between the Registrant and TAT Industries
Ltd. (English summary translation) (2)
|
|
|
4.3
|
Form of Loan
Agreements by and between the Registrant and Bank Leumi LIsrael (3)
|
|
|
4.4
|
Loan
Agreement dated as of July 6, 2005, by and between Limco-Airepair Inc. and
Bank Leumi USA (3)
|
|
|
4.5
|
Amendment to
the Loan Agreement dated as of October 1, 2005, by and between Limco-Airepair
Inc. and Bank Leumi USA (3)
|
|
|
4.6
|
Membership
Interest Purchase Agreement dated May 24, 2005, by and among Limco-Airepair
Inc. and Claude L. Butler, Thomas W. Ferrell, Paul R. Hilliard and Jim Taylor
(3)
|
|
|
4.7
|
Amendment to
Membership Interest Purchase Agreement dated May 24, 2005, by and among
Limco-Airepair Inc. and Claude L. Butler, Thomas W. Ferrell, Paul R. Hilliard
and Jim Taylor (3)
|
|
|
4.8
|
English
translation of Share Sales Agreement, dated March 27, 2008, by and between
the Registrant and Bental Investments Cooperative Agricultures Society Ltd.
|
75
|
|
4.9
|
English
translation of Shareholders Agreement, dated May 21, 2008, by and between
the Registrant, Tat Industries Ltd. and Bental Investments Cooperative
Agricultures Society Ltd.
|
|
|
4.10
|
English
translation of Amendment to the Share Sales and Options Agreement and the
Shareholders Agreement, dated May 21, 2008, by and between the Registrant,
Tat Industries Ltd. and Bental Investments Cooperative Agricultures Society
Ltd.
|
|
|
4.11
|
English
translation of Share Sales Agreement dated April 15, 2008, by and between the
Registrant and Mivtach Shamir Investments (1993) Ltd.
|
|
|
8
|
List of
Subsidiaries of the Registrant
|
|
|
12.1
|
Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act, as amended
|
|
|
12.2
|
Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act, as amended
|
|
|
13.1
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
13.2
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
(1)
|
Filed as an
exhibit to the Registrants Annual Report on Form 20-F for the year ended
December 31, 1992, and
incorporated herein by reference.
|
|
|
(2)
|
Incorporated
by reference to the Registrants Annual Report on Form 20-F for the year
ended December 31, 1999, and incorporated herein by reference.
|
|
|
(3)
|
Incorporated
by reference to the Registrants Annual Report on Form 20-F for the year
ended December 31, 2006, and incorporated herein by reference.
|
76
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2007
IN
U.S. DOLLARS
INDEX
F 1
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Shareholders of:
TAT Technologies Ltd. and Subsidiaries
We have audited the accompanying consolidated balance sheets of TAT
Technologies Ltd. and Subsidiaries (the Company) as of December 31, 2007 and
2006, and the related consolidated statements of income, changes in
shareholders equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above, present fairly, in all material respects, the consolidated financial
position of TAT Technologies Ltd. and Subsidiaries as of December 31, 2007 and
2006 and the consolidated results of their operations and their cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
|
/s/ Virchow, Krause & Company, LLP
Virchow, Krause & Company, LLP
An independent member
of Baker Tilly International
|
Minneapolis, Minnesota
June 30, 2008
F 2
|
|
|
|
|
|
|
|
|
§
|
Kost Forer Gabbay & Kasierer
3 Aminadav St.
Tel-Aviv 67067, Israel
|
|
§
|
Phone: 972-3-6232525
Fax: 972-3-5622555
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of
TAT
TECHNOLOGIES LTD.
We
have audited the accompanying consolidated balance sheets of TAT Technologies
Ltd. (the Company) and its subsidiaries as of December 31, 2005 and 2004, and
the related consolidated statements of income, changes in shareholders equity
and cash flows for each of the three years in the period ended
December 31, 2005. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Limco-Airepair Inc., a wholly-owned subsidiary and its subsidiary,
which statements reflect total assets constituting 33% in 2004 and total
revenues constituting 42% in 2004 and 40% in 2003 of the related consolidated
totals. Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to amounts included for
Limco-Airepair Inc., is based solely on the reports of the other auditors.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropiate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the reports of the other auditors provide a reasonable basis for our
opinion.
In
our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 2005 and 2004 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2005, in conformity with generally accepted accounting
principles in the United States.
|
|
|
/s/Kost Forer Gabbay & Kasierer
|
Tel-Aviv, Israel
|
KOST FORER GABBAY & KASIERER
|
June 25, 2006
|
A Member of Ernst & Young
Global
|
F 3
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,114
|
|
$
|
5,762
|
|
Short-term deposit
|
|
|
-
|
|
|
1,533
|
|
Short-term investments (Note 2e)
|
|
|
28,806
|
|
|
-
|
|
Accounts receivable (net of
allowance for doubtful accounts of $155 and $280 at December 31, 2007 and
2006, respectively)
|
|
|
14,679
|
|
|
13,569
|
|
Other accounts receivable and
prepaid expenses
|
|
|
3,471
|
|
|
2,185
|
|
TAT Industries Ltd. current
account (Note 7)
|
|
|
576
|
|
|
-
|
|
Inventories (Note 3)
|
|
|
28,189
|
|
|
24,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
90,835
|
|
|
47,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds in respect of employee
right upon retirement
|
|
|
4,156
|
|
|
3,625
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment,
net (Note 4)
|
|
|
11,927
|
|
|
7,235
|
|
|
|
|
|
|
|
|
|
Intangible assets, net (Note 5)
|
|
|
1,709
|
|
|
2,183
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
4,780
|
|
|
4,923
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
-
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
113,407
|
|
$
|
66,237
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part
of the consolidated financial statements.
F 4
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
|
U.S. dollars in thousands (except share and
per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
Current maturities of long-term
loans (Note 8)
|
|
$
|
-
|
|
$
|
4,000
|
|
Accounts payable
|
|
|
7,067
|
|
|
8,030
|
|
TAT Industries Ltd. current
account (Note 7)
|
|
|
-
|
|
|
220
|
|
Other accounts payable and
accrued expenses (Note 6)
|
|
|
4,310
|
|
|
5,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
11,377
|
|
|
18,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
Long-term loans, net of current
maturities (Note 8)
|
|
|
-
|
|
|
4,000
|
|
Liability in respect of employee
rights upon retirement
|
|
|
4,175
|
|
|
3,676
|
|
Long-term deferred tax liability
|
|
|
581
|
|
|
607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
4,756
|
|
|
8,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
24,481
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENT
LIABILITIES (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY:
|
|
|
|
|
|
|
|
Share capital (Note 10) -
|
|
|
|
|
|
|
|
Ordinary shares of NIS 0.9 par
value Authorized: 10,000,000 shares at December 31, 2007 and 2006; Issued
and outstanding: 6,542,671 shares and 6,042,671 shares at December 31, 2007
and 2006, respectively
|
|
|
2,201
|
|
|
2,094
|
|
Additional paid-in capital
|
|
|
39,308
|
|
|
35,704
|
|
Retained earnings
|
|
|
31,284
|
|
|
1,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
72,793
|
|
|
39,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
113,407
|
|
$
|
66,237
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part
of the consolidated financial statements.
|
|
|
|
|
|
|
June 30, 2008
|
|
/s/ Giora Inbar
|
|
/s/ Shmuel Fledel
|
|
/s/ Israel Ofen
|
|
|
|
|
|
|
|
Date of approval of the
financial statements
|
|
Giora Inbar
Chairman of the
Board of Directors
|
|
Shmuel Fledel
President
and Chief Executive
Officer
|
|
Israel Ofen
Executive Vice President
and Chief Financial
Officer
|
F 5
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
C
ONSOLIDATED STATEMENTS OF
INCOME
|
|
U.S dollars in thousands (except share and
per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (Note 13):
|
|
|
|
|
|
|
|
|
|
|
Sale of products
|
|
$
|
39,312
|
|
$
|
33,709
|
|
$
|
21,460
|
|
Services and other
|
|
|
49,392
|
|
|
43,824
|
|
|
27,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,704
|
|
|
77,533
|
|
|
49,193
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
Sale of products
|
|
|
30,002
|
|
|
25,425
|
|
|
14,078
|
|
Services and other
|
|
|
35,205
|
|
|
32,214
|
|
|
21,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,207
|
|
|
57,639
|
|
|
35,592
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
23,497
|
|
|
19,894
|
|
|
13,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Research and development costs
|
|
|
-
|
|
|
-
|
|
|
72
|
|
Selling and marketing expenses
|
|
|
3,719
|
|
|
3,466
|
|
|
2,495
|
|
General and administrative
expenses
|
|
|
10,995
|
|
|
6,710
|
|
|
5,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,714
|
|
|
10,176
|
|
|
7,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
8,783
|
|
|
9,718
|
|
|
5,896
|
|
Financial income (expenses) (Note
14a)
|
|
|
701
|
|
|
(464
|
)
|
|
(441
|
)
|
Other income, net (Note 14b)
|
|
|
26,478
|
|
|
59
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
35,962
|
|
|
9,313
|
|
|
5,665
|
|
Income taxes (Note 12)
|
|
|
3,212
|
|
|
3,247
|
|
|
2,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income after income taxes
|
|
|
32,750
|
|
|
6,066
|
|
|
3,529
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest income
|
|
|
771
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
31,979
|
|
$
|
6,066
|
|
$
|
3,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share (Note
11)
|
|
$
|
5.041
|
|
$
|
1.004
|
|
$
|
0.584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
(Note 11)
|
|
$
|
4.990
|
|
$
|
0.984
|
|
$
|
0.580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
- basic
|
|
|
6,344,041
|
|
|
6,042,671
|
|
|
6,042,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
- diluted
|
|
|
6,407,504
|
|
|
6,163,025
|
|
|
6,086,716
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F 6
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
C
ONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS EQUITY
|
|
U.S. dollars in thousands (except share and
per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other
comprehensive
income (loss)
|
|
Retained
earnings
(Accumulated
deficit)
|
|
|
|
|
|
|
|
Share capital
|
|
Additional
paid-in
capital
|
|
|
|
Total
comprehensive
income
|
|
Total
shareholders
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2005
|
|
6,042,671
|
|
$
|
2,094
|
|
|
$
|
35,704
|
|
|
|
$
|
106
|
|
|
|
$
|
(5,378
|
)
|
|
|
|
|
|
|
|
$
|
32,526
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
3,529
|
|
|
|
$
|
3,529
|
|
|
|
|
3,529
|
|
|
Unrealized gain on available-for-sale securities
net of reclassification adjustments for gain realized
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
(107
|
)
|
|
|
|
-
|
|
|
|
|
(107
|
)
|
|
|
|
(107
|
)
|
|
Cash dividends
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(1,087
|
)
|
|
|
|
-
|
|
|
|
|
(1,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2005
|
|
6,042,671
|
|
|
2,094
|
|
|
|
35,704
|
|
|
|
|
(1
|
)
|
|
|
|
(2,936
|
)
|
|
|
|
|
|
|
|
|
34,861
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
6,066
|
|
|
|
$
|
6,066
|
|
|
|
|
6,066
|
|
|
Unrealized gain on available-for-sale securities
net of reclassification adjustments for gain realized
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
1
|
|
|
|
|
-
|
|
|
|
|
1
|
|
|
|
|
1
|
|
|
Cash dividends
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(1,208
|
)
|
|
|
|
-
|
|
|
|
|
(1,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
6,042,671
|
|
|
2,094
|
|
|
|
35,704
|
|
|
|
|
-
|
|
|
|
|
1,922
|
|
|
|
|
|
|
|
|
|
39,720
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares
|
|
500,000
|
|
|
107
|
|
|
|
3,363
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
3,470
|
|
|
Share based compensation expense
|
|
-
|
|
|
-
|
|
|
|
241
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
241
|
|
|
Net income
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
31,979
|
|
|
|
$
|
31,979
|
|
|
|
|
31,979
|
|
|
Cash dividends
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(2,617
|
)
|
|
|
|
-
|
|
|
|
|
(2,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
6,542,671
|
|
$
|
2,201
|
|
|
$
|
39,308
|
|
|
|
$
|
-
|
|
|
|
$
|
31,284
|
|
|
|
|
|
|
|
|
$
|
72,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
F 7
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
31,979
|
|
$
|
6,066
|
|
$
|
3,529
|
|
Adjustments to reconcile net income to net
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,031
|
|
|
1,815
|
|
|
1,427
|
|
Gain on sale of property and equipment
|
|
|
(43
|
)
|
|
(21
|
)
|
|
(22
|
)
|
Impairment of goodwill
|
|
|
143
|
|
|
-
|
|
|
-
|
|
Provision for doubtful debts
|
|
|
(125
|
)
|
|
(116
|
)
|
|
159
|
|
Minority share in subsidiary, net income
|
|
|
771
|
|
|
-
|
|
|
-
|
|
Profit from partial realization of
investment in subsidiary company
|
|
|
(26,375
|
)
|
|
-
|
|
|
-
|
|
Share based compensation expense
|
|
|
241
|
|
|
-
|
|
|
-
|
|
Share based compensation expense (minority
interest)
|
|
|
149
|
|
|
-
|
|
|
-
|
|
Termination of long-term deferred financing
cost
|
|
|
-
|
|
|
149
|
|
|
-
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes, net
|
|
|
(321
|
)
|
|
88
|
|
|
(233
|
)
|
(Increase) decrease in accounts
receivable
|
|
|
(985
|
)
|
|
(2,598
|
)
|
|
903
|
|
(Increase) decrease in other accounts
receivable and prepaid expenses
|
|
|
(807
|
)
|
|
(756
|
)
|
|
469
|
|
Increase in inventories
|
|
|
(3,261
|
)
|
|
(2,460
|
)
|
|
(1,358
|
)
|
(Decrease) increase in accounts payable
|
|
|
(963
|
)
|
|
2,579
|
|
|
(984
|
)
|
(Decrease) increase in other accounts
payable and accrued expenses
|
|
|
(1,564
|
)
|
|
510
|
|
|
445
|
|
Accrued severance pay, net
|
|
|
(32
|
)
|
|
(65
|
)
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
804
|
|
|
5,153
|
|
|
4,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from partial realization of
investment in subsidiary company
|
|
|
8,726
|
|
|
-
|
|
|
-
|
|
Proceeds from sale of short-term
investments
|
|
|
8,028
|
|
|
1,610
|
|
|
2,146
|
|
Purchase of short-term investments
|
|
|
(36,800
|
)
|
|
(1,249
|
)
|
|
(889
|
)
|
Proceeds from sale of property and
equipment
|
|
|
97
|
|
|
68
|
|
|
56
|
|
Change in short-term deposits, net
|
|
|
1,533
|
|
|
(1,018
|
)
|
|
(515
|
)
|
Purchase of property and equipment
|
|
|
(6,303
|
)
|
|
(1,694
|
)
|
|
(1,072
|
)
|
Cash and cash equivalents used in the
acquisition of a subsidiary (2)
|
|
|
-
|
|
|
-
|
|
|
(5,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(24,719
|
)
|
|
(2,283
|
)
|
|
(5,511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the consolidated financial statements.
F 8
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Cash flows
provided by financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term loans
|
|
|
(8,000
|
)
|
|
(3,000
|
)
|
|
(9,667
|
)
|
Proceeds from long-term loans
|
|
|
-
|
|
|
-
|
|
|
12,000
|
|
Payment of cash dividend
|
|
|
(2,617
|
)
|
|
(1,208
|
)
|
|
(1,087
|
)
|
Parent company - current account
|
|
|
(796
|
)
|
|
117
|
|
|
30
|
|
Proceeds from exercise of warrants
|
|
|
3,470
|
|
|
|
|
|
|
|
Sale of shares by subsidiary company
|
|
|
41,210
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities
|
|
|
33,267
|
|
|
(4,091
|
)
|
|
1,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents
|
|
|
9,352
|
|
|
(1,221
|
)
|
|
(95
|
)
|
Cash and cash equivalents at the beginning
of the year
|
|
|
5,762
|
|
|
6,983
|
|
|
7,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the
year
|
|
$
|
15,114
|
|
$
|
5,762
|
|
$
|
6,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Supplemental disclosure of cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
854
|
|
$
|
752
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
4,059
|
|
$
|
4,285
|
|
$
|
1,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
Cash and cash equivalents from the
acquisition of a subsidiary (see also Note 1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fair value of the assets acquired and
liabilities assumed at acquisition date was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital, net (excluding cash and
cash equivalents)
|
|
$
|
-
|
|
$
|
(443
|
)
|
$
|
3,600
|
|
|
|
Property and equipment
|
|
|
-
|
|
|
-
|
|
|
(1,173
|
)
|
|
|
Existing customer relationship
|
|
|
-
|
|
|
-
|
|
|
(1,937
|
)
|
|
|
Trade name
|
|
|
-
|
|
|
-
|
|
|
(128
|
)
|
|
|
Certificates
|
|
|
-
|
|
|
-
|
|
|
(76
|
)
|
|
|
Lease at below-market prices
|
|
|
-
|
|
|
-
|
|
|
(97
|
)
|
|
|
Non-compete agreements
|
|
|
-
|
|
|
-
|
|
|
(653
|
)
|
|
|
Consulting services agreements
|
|
|
-
|
|
|
-
|
|
|
(6
|
)
|
|
|
Workforce in place
|
|
|
-
|
|
|
-
|
|
|
(803
|
)
|
|
|
Goodwill
|
|
|
-
|
|
|
443
|
|
|
(3,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(5,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
F 9
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
|
NOTE 1
|
GENERAL
|
|
|
|
|
a.
|
TAT
Technologies Ltd., an Israeli corporation, together with its U.S.
subsidiaries (the Company), is principally engaged in the following
activities:
|
|
|
|
|
|
|
|
manufacture and sale of a broad range of heat transfer equipment
|
|
|
|
|
|
|
|
remanufacture, overhaul and repair of heat transfer equipment
|
|
|
|
|
|
|
|
maintenance, repair and overhaul of auxiliary power units,
propellers, landing gears and related components
|
|
|
|
|
|
|
|
design, development and manufacture of aviation accessories
including fuel components, secondary power systems, and various
instrumentation and electronic assemblies.
|
|
|
|
|
|
|
|
long-term service contracts for the maintenance and overhaul of
certain airplane parts and equipment.
|
|
|
|
|
|
|
The products
developed, repaired, and maintained by the Company are primarily used on
commercial and military aircrafts. The principal markets of the Company are
Israel, Europe and the United States.
|
|
|
|
|
|
|
The Company
parent company is TAT Industries Ltd., an Israeli corporation whose shares
are listed on the Tel-Aviv Stock Exchange (TAT or the parent company).
TAT holds 47.75% out of the Companys shares, as of December 31, 2007.
|
|
|
|
|
|
b.
|
The Companys
shares are listed on the NASDAQ and Tel-Aviv stock exchanges.
|
|
|
|
|
|
c.
|
The Company
owns 61.68% of a U.S. subsidiary: Limco-Piedmont Inc., who completed an
initial public offering (IPO) of its shares on July 18, 2007, and
registered its shares for trade in the NASDAQ Global Market. Pursuant to the
completion of the IPO, the Company recognized a gain of $26,375, before taxes
of $1,206, resulted from sale of 855,000 shares previously held by it for
net proceeds of approximately $8.7 million and the sale of 4,205,000 newly
issued shares by Limco-Piedmont Inc. Prior to the IPO, the Company owned 100%
of Limco-Piedmont, Inc.
|
|
|
|
|
|
|
Limco-Piedmont
Inc. conducts its operations through two wholly-owned subsidiary companies:
Limco-Airepair Inc. (Limco), and Piedmont Aviation Component Services LLC
(Piedmont). On February 28, 2007, the Company established a new Delaware
corporation: Limco-Piedmont Inc. and Limco established a new Delaware
corporation: Limco Airepair Inc. (Limco Delaware). On March 2, 2007, all
assets, except Limcos membership interest in Piedmont Aviation Component
Services, LLC, and all liabilities were assumed by Limco Delaware. On March
5, 2007 Limco merged with Limco-Piedmont Inc. As part of the merger, the
Company received 9,000,000 shares of Limco-Piedmont Inc. for its 37,500 shares
of Limco.
|
F 10
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
NOTE 1
|
GENERAL (Cont.)
|
|
d.
|
Acquisition
of Piedmont Aviation Component, LLC.
|
|
|
|
|
|
On July 6,
2005, the Company entered into a membership interest purchase agreement
pursuant to the terms of which the Company, through its subsidiary Limco,
acquired 100% of the membership interest in Piedmont for cash and assumption
of debt for an aggregate purchase price of $20,227.
|
|
|
|
|
|
Piedmont
Aviation Component Services, LLC was established in August 2002, as a limited
liability company under the law of the State of North Carolina. Piedmont is
primarily engaged in the business of maintenance, repair and overhaul of
auxiliary power units(APU), propellers and landing gear for aviation
customers located throughout the world. Piedmont also distributes aviation
parts to its customers.
|
|
|
|
|
|
The purchase
price of the acquired company, as of the acquisition date, consisted of cash
payment, the fair value related to non compete agreements with the former
owners, the assumed liabilities and acquisition related costs as provided in
the table below:
|
|
|
|
|
|
|
|
|
|
Cash payment
to the seller
|
|
$
|
5,290
|
|
|
|
Liability
with respect of non-compete agreements
|
|
|
653
|
|
|
|
Transaction
cost
|
|
|
54
|
|
|
|
Debt assumed
|
|
|
8,667
|
|
|
|
Other
current liabilities assumed
|
|
|
5,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
consideration
|
|
$
|
20,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The non-compete
agreements with the former owners are payable monthly in the amount of $19,
over 36 months from the date of acquisition.
|
|
|
|
|
|
The
acquisition has been accounted for using the purchase method of accounting as
determined in Statement of Financial Accounting Standards (SFAS) No. 141 -
Business Combinations, and accordingly, the purchase price has been allocated
to the assets acquired and the liabilities assumed based on the estimated
fair value at the date of acquisition.
|
F 11
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 1
|
GENERAL (Cont.)
|
|
|
|
|
|
The Company
has allocated the total cost of the acquisition, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
July 6, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
11,291
|
|
|
|
Property and
equipment
|
|
|
1,173
|
|
|
|
Other
non-current assets
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
4,767
|
|
|
|
Customer
relationships
|
|
|
1,937
|
|
|
|
Non-compete
agreements
|
|
|
653
|
|
|
|
Trade name
|
|
|
128
|
|
|
|
Certificates
|
|
|
76
|
|
|
|
Lease at
below market rates
|
|
|
97
|
|
|
|
Consulting
service agreements
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
acquired
|
|
|
20,227
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
(14,230
|
)
|
|
|
|
|
|
|
|
|
|
|
Net assets
acquired
|
|
$
|
5,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Piedmonts
customer relationships, non-compete agreement, trade name, certificates,
lease at below market rates and consulting service agreement have been valued
using the Income Approach on the basis of the present value of cash flows
attributable to the asset over the expected future life of 10 years, 3 years,
10 years, 7 years, 2.5 years and 0.3 years, respectively.
|
|
|
|
|
|
The amounts
allocated to intangible assets other than goodwill, are amortized on a
straight-line basis over a weighted average amortization period of 8.07
years, ranging between 0.3 to 10 years (see also Note 2i and Note 5). The
intangible assets and goodwill were assigned to the MRO services segment.
|
F 12
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 1
|
GENERAL (Cont.)
|
|
|
|
|
|
The excess
of $4,767 of the cost over the net amounts assigned to assets acquired and
liabilities assumed is recognized as goodwill. Acquired workforce, that does
not meet the separability criteria, has been included in the amount
recognized as goodwill. During 2006, the Company finalized the valuation of
the working capital received in the transaction. The finalization resulted in
an increase of $443 of the inventory acquired, with an offsetting reduction
to goodwill for the same amount. The goodwill that was acquired is tax
deductible over 15 years.
|
|
|
|
|
|
The
operations of Piedmont are included in the consolidated statements since July
1, 2005.
|
|
|
|
|
|
The
unaudited pro forma information below assumes that the acquisition had been
consummated on January 1, 2005, and includes the effect of amortization of
intangible assets from that date. This date is presented for information
purposes only and is not necessarily indicative of the results of future
operations or the results that would have been achieved had the acquisition
taken place on those dates. The pro forma information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
2005
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
65,159
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,986
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share
|
|
$
|
0.578
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share
|
|
$
|
0.537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
unaudited pro forma condensed consolidated results are not necessarily
indicative of results that would have occurred had the acquisition occurred
as of January 1, 2005, nor do they necessary indicative of the results that
may occur in the future.
|
|
|
|
|
e.
|
The Company
depends on a limited number of suppliers for some standard and custom
designed components for its systems. If such supplier fails to deliver the
necessary components, the Company may be required to seek alternative sources
of supply. A change in suppliers could result in manufacturing delays, which
could cause a possible loss of sales and, consequently, could adversely
affect the Companys results of operations and cash position.
|
F 13
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 2
|
SIGNIFICANT ACCOUNTING POLICIES
|
|
|
|
|
The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States (U.S. GAAP).
|
|
|
|
|
a.
|
Use of
estimates:
|
|
|
|
|
|
The
preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that effect 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 periods.
Actual results could differ from those estimates.
|
|
|
|
|
b.
|
Financial
statements in U.S. dollars:
|
|
|
|
|
|
The majority
of the Companys revenues are generated in U.S. dollars (dollar) and a
substantial portion of the Companys costs is incurred in dollars. In
addition, the Companys financings have been obtained in dollars.
Accordingly, the dollar is the currency of the primary economic environment
in which the Company operates and the functional and reporting currency of
the Company is the dollar.
|
|
|
|
|
|
Accordingly,
monetary accounts maintained in currencies other than the dollar are
remeasured into dollars in accordance with Statement of Financial Accounting
Standards (SFAS) No. 52 Foreign Currency Translation (SFAS No. 52). All
transaction gains and losses from the remeasurement of monetary balance sheet
items are reflected in the statement
of operations as appropriate.
|
|
|
|
|
c.
|
Principles
of consolidation:
|
|
|
|
|
|
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. Intercompany balances and transactions, including
profits from intercompany sales not yet realized outside the Company, have
been eliminated upon consolidation.
|
|
|
|
|
d.
|
Cash
equivalents:
|
|
|
|
|
|
Cash
equivalents are short-term highly liquid investments that are readily convertible
to cash with original maturities of three months or less.
|
F 14
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 2
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
|
|
e.
|
Short-term
investments:
|
|
|
|
|
|
Short-term
investments are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investment in
Debt and Equity Securities. Management determines the classification of its
investments in marketable debt and equity securities at the time of purchase
and reevaluates such determinations as of each balance sheet date. As of
December 31, 2007, all marketable securities covered by SFAS No. 115, were
designated as available-for-sale. Securities available-for-sale are carried
at fair value, with the unrealized gains and losses, net of income taxes,
reported as a separate component of shareholders equity. At December 31,
2007 there were no material differences as book value approximated fair
value. Realized gains and losses and declines in market value judged to be
other than temporary, of which there were none for the year ended December
31, 2007, are included in other income. Interest and dividends are also
included in other income. The Companys short-term investments consist of
auction rate tax-exempt securities and corporate and government bonds with
maturities with one to four years. The Companys investments in corporate and
government bonds, have maturities past one year, however, the Company
classifies these investments as available-for-sale and therefore has
classified them as short-term securities. Should management determine that
these securities were to be held longer than one year then they would be
classified as long-term securities.
|
|
|
|
|
|
Auction rate
securities are variable rate debt securities. While the underlying security
has a long-term nominal maturity, the interest rate is reset through auctions
that are typically held every 7, 28, or 35 days. The securities trade at par
and are callable at par on any interest payment date at the option of the
issuer. Interest is paid at the end of each auction period. The Company
classified these securities as short-term because it intends to liquidate
them as the need for working capital arises in the ordinary course of
business and is able to liquidate them or roll them over to the next reset
period. During the first three months of 2008 the Company determined to
liquidate its holdings of variable rate debt securities and in January and
February 2008 it sold approximately 90% of its auction rate tax-exempt
securities portfolio and reinvested the proceeds in high-grade corporate
debt, governmental debt instruments and money market funds. The remaining 10%
will be liquidated as the market allows. Subsequent to the first quarter of
2008 end approximately $475 of auction rate securities were liquidated and
$3,000 remains invested in these securities. The remaining balance is secured by a fixed income investment in Oklahoma state governmental bonds.
|
F 15
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 2
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
|
|
f.
|
Accounts
receivable:
|
|
|
|
|
|
The
Companys accounts receivable balances are due from companies primarily in
the airline and defense industries. Credit is extended based on evaluation of
a customers financial condition and, generally, collateral is not required.
Accounts receivable from sales of services are typically due from customers
within 30 days and accounts receivable from sales of licenses are due over
terms ranging from 30 days to twelve months. Accounts receivable balances are
stated at amounts due from customer net of an allowance for doubtful
accounts. Accounts outstanding longer than the contractual payments terms are
considered past due. The Company determines its allowance by considering a
number of factors, including the length of time accounts receivable are past
due, the Companys previous loss history, the customers current ability to
pay its obligation to the Company, and the condition of the general economy
and the industry as a whole. The Company writes-off accounts receivable when
they become uncollectible and payments subsequently received on such
receivables are credited to the allowance for doubtful accounts.
|
|
|
|
|
g.
|
Inventories:
|
|
|
|
|
|
Inventories
are stated at the lower of cost or market value.
|
|
|
|
|
|
Inventories
write-offs are provided to cover risks arising from dead and slow-moving
items, discontinued products and excess inventories according to revenue forecasts.
|
|
|
|
|
|
Cost is
determined as follows:
|
|
|
|
|
|
Raw
materials and components - using the average cost method.
|
|
|
|
|
|
Work in
progress - represents the cost of raw materials, components and,
manufacturing costs which include direct and indirect allocable costs. Cost
of raw materials and components is determined as described above.
Manufacturing costs are determined on average basis.
|
|
|
|
|
|
Because the
Company sells products and services related to airplane accessories (heat
transfer equipment, APUs, propellers, and landing gear) for airplanes that
can be in service for 20 to 50 years, it must keep a supply of such products
and parts on hand while the airframes are in use. The Company 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 about future demand and market conditions. If actual market
conditions are less favorable than those anticipated, inventory adjustments
may be required. The Company believes that these estimates are reasonable and
historically have not resulted in material adjustments in subsequent periods
when the estimates are adjusted to actual amounts.
|
F 16
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 2
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
|
h.
|
Property, plant and equipment:
|
|
|
|
|
|
Property, plant and equipment are stated at cost, net of accumulated
depreciation. Depreciation is calculated using the straight-line method over
the estimated useful lives of the assets. The annual rates of depreciation
are as follows:
|
|
|
|
|
|
|
|
years
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
25
|
|
Machinery and equipment
|
|
|
4 - 15
|
|
Motor vehicles
|
|
|
5 - 6
|
|
Office furniture and equipment
|
|
|
3 - 20
|
|
|
|
|
|
|
Leasehold improvements are amortized using the straight line method
over the period of the lease contract, provided that this period does not
exceed the useful life of the asset.
|
|
|
|
|
|
Fixed assets not in use, held for resale, are stated at the lower of
net cost or estimated realizable value.
|
|
|
|
|
|
Expenditures for maintenance and repairs are charged to expense as
incurred, while renewals and betterments of a permanent nature are
capitalized.
|
|
|
|
|
i.
|
Intangible assets:
|
|
|
|
|
|
In accordance with SFAS No. 142 Goodwill and Other Intangible
Assets, intangible assets subject to amortization are amortized over their
useful life, using the straight line method of amortization.
|
|
|
|
|
|
The following is the expected useful life of the Companys intangible
assets:
|
|
|
|
|
|
|
|
Years
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
6
|
|
Non-Compete agreements
|
|
|
3
|
|
Lease at below market prices
|
|
|
2.5
|
|
Existing costumer relationship
|
|
|
10
|
|
Consulting services agreement
|
|
|
0.3
|
|
Trade name
|
|
|
10
|
|
Certificates
|
|
|
7
|
|
Deferred finance cost
|
|
|
term of the loan
|
|
|
|
|
Amortization expenses amounted to $474, $477 and $237 for the years
ended December 31, 2007, 2006 and 2005, respectively.
|
F 17
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 2
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
|
j.
|
Impairment of long-lived assets:
|
|
|
|
|
|
The Companys long-lived assets (except goodwill - see k below) are
reviewed for impairment in accordance with the provisions set fourth in SFAS
No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144) whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to the future undiscounted cash flows
expected to be generated by the assets. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. As of
December 31, 2007 and 2006 no impairment losses have been identified.
|
|
|
|
|
k.
|
Goodwill and other intangible assets:
|
|
|
|
|
|
Goodwill represents the excess of purchase price over the fair value
of identifiable net assets of acquired companies and accounted for by the
purchase method of accounting. SFAS No. 142 requires that goodwill and
certain other tangible assets having indefinite lives no longer be amortized,
but instead be tested annually for impairment or more frequently if events
suggest the remaining value may not be recoverable.
|
|
|
|
|
|
SFAS No. 142 requires goodwill and indefinite lived intangible assets
to be tested for impairment at least annually or between annual tests if
certain events or indicators of impairments occur. The impairment tests
consist of a comparison of the fair value of intangible assets with its carrying
amount. If the carrying amount of the intangible assets exceeds its fair
value, an impairment loss is recognized in an amount equal to that excess.
Goodwill is tested for impairment at the reporting unit level by a comparison
of the fair value of the reporting unit with its carrying amount.
|
|
|
|
|
|
The Company
performed its annual impairment test as of December 31, 2007. The Company determined that
its operating segments represent its three reporting units (see also Note
13a). Based on management projections, expected future discounted operating cash flows and
market multiples, $143 has been recognized in cost of goods sold, related to impairment of
goodwill arising from acquisition of certain air-conditioning operations during 1999.
|
F 18
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 2
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
|
|
l.
|
Revenue recognition:
|
|
|
|
|
|
The Company generates its revenues from the sale of products and from
providing services remanufacture, repair and overhaul services and
long-term service contracts. Revenues from the sale of products and services
are recognized in accordance with Staff Accounting Bulletin No. 104, Revenue
Recognition in Financial Statements (SAB No. 104) when persuasive evidence
of an arrangement exists, delivery of the product has occurred, provided the
collection of the resulting receivable is probable, the price is fixed or
determinable and no significant obligation exists. The Company does not grant
a right of return.
|
|
|
|
|
|
Revenues from remanufacture, repair and overhaul services are
recognized as services are performed, at the time when the customer-owned
material is shipped back to the customer.
|
|
|
|
|
|
Revenues from product sales are recognized when product is shipped
(and title passes to the customer) to the customer.
|
|
|
|
|
|
Revenues from maintenance contracts are accounted according to FASB
Technical Bulletin No. 90-1 (Amended), Accounting for Separately Priced
Extended Warranty and Product Maintenance Contracts. Accordingly, revenues
from maintenance contracts are recognized over the contract period in
proportion to the costs expected to be incurred in performing services under
the contract. The Company estimates the costs that are expected to be
incurred based on its experience with the aggregate costs incurred and to be
incurred on contracts of this nature. The cost incurred related to the
maintenance contracts are not incurred on a straight-line basis, as the
timing to provide the maintenance services is dependent on when parts under
these contracts require maintenance.
|
|
|
|
|
|
Revenues from royalties from sales of products developed with the
intellectual property, technology and technical assistance are recognized
when the related sales are made.
|
|
|
|
|
m.
|
Shipping and handling costs:
|
|
|
|
|
|
Shipping and handling costs billed to customers are included in
revenue. The cost of shipping and handling products is included in the costs
of revenue.
|
F 19
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 2
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
|
n.
|
Warranty costs:
|
|
|
|
|
|
The Company provides warranties for its products and services ranging
from one to five years, which vary with respect to each contract and in
accordance with the nature of each specific product.
|
|
|
|
|
|
The Company estimates the costs that may be incurred under its
warranty and records a liability in the amount of such costs at the time the
product is shipped. The Company periodically assesses the adequacy of its
recorded warranty liabilities and adjusts the amounts as necessary.
|
|
|
|
|
o.
|
Research and development:
|
|
|
|
|
|
Research and development costs net of grants and participations received
are charged to expenses as incurred.
|
|
|
|
|
p.
|
Income taxes:
|
|
|
|
|
|
Income taxes are accounted for in accordance with SFAS No. 109,
Accounting for Income Taxes (SFAS No. 109). This statement prescribes the
use of the liability method, whereby deferred tax assets and liability
account balances are determined based on temporary differences between
financial reporting and tax bases of assets and liabilities and for tax loss
carryforwards. Deferred taxes are measured using the enacted laws and tax rates
that will be in effect when the differences are expected to reverse. The
Company provides a valuation allowance, if necessary, to reduce deferred tax
assets to their estimated realizable value, see Note 12j.
|
|
|
|
|
|
Results for tax purposes are measured and reflected in real terms in
accordance with the changes in the Israeli Consumer Price Index (CPI). As
explained in b above, the consolidated financial statements are presented in
U.S. dollars. In accordance with paragraph 9(f) of SFAS No. 109, the Company
has not provided deferred income taxes on the differences resulting from
changes in exchange rate and indexing for tax purposes. As for the effect of
the adoption of FIN 48, during the first quarter of 2007, see Note 2v5.
|
F 20
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 2
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
|
q.
|
Concentrations of credit risk:
|
|
|
|
|
|
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, short-term bank deposits, marketable securities and accounts
receivable.
|
|
|
|
Cash and cash equivalents and short-term bank deposits, are deposited
with major banks in Israel and the United States. Such deposits in the United
States may be in excess of insured limits and are not insured in other
jurisdictions. Management believes that the financial institutions that hold
the Companys cash and cash equivalents and short-term bank deposits, are
financially sound, and, accordingly, minimal credit risk exists with respect
to these financial instruments.
|
|
|
|
|
|
The Companys marketable securities include investment in debentures
and in shares. Management believes that the companies that issued the
debentures and the shares are financially sound, the portfolio is well
diversified, and accordingly, minimal credit risk exists with respect to the
marketable securities.
|
|
|
|
|
|
The Companys accounts receivable are derived mainly from sales to
customers in the United States, Israel and Europe. The Company generally does
not require collateral, however, in certain circumstances; the Company may
require letters of credit. Management believes that credit risks relating to
accounts receivable are minimal since the Companys customers are financially
sound. The Company performs ongoing credit evaluation of their customers
financial condition. The allowance for doubtful accounts is determined with
respect to specific debts that are doubtful of collection.
|
|
|
|
|
|
The allowance for doubtful accounts (income) expenses for the years
ended December 31, 2007, 2006 and 2005, was ($125), ($116) and $44,
respectively.
|
|
|
|
|
|
The Company has no off-balance-sheet concentration of credit risk
such as foreign exchange contracts, option contracts or other foreign hedging
arrangements.
|
F 21
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
NOTE 2
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
|
|
r.
|
Severance
pay:
|
|
|
|
|
|
The Companys
severance pay for its 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 Company records an expense for
the net increase in its severance liability. The Companys liability for all
of its Israeli employees is fully covered for by monthly deposits with
severance pay funds, insurance policies, Mivtahim Social Insurance
Institution Ltd. (Mivtahim) and by an accrual.
|
|
|
|
|
|
The
liability covered by deposits with Mivtahim is irrevocably transferred to
Mivtahim. Accordingly, neither the amounts accumulated with Mivtahim, nor the
corresponding liabilities for severance pay are reflected in the balance
sheet.
|
|
|
|
|
|
The value of
the policies and the related liability, other than the value of Mivtahim
policies, is included in the Companys 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 surrendered value of these policies.
|
|
|
|
|
|
Severance
expense was $408, $293 and $312 for the years ended December 31, 2007, 2006
and 2005, respectively.
|
|
|
|
|
|
Limco-Piedmont
Inc. sponsors a 401(K) profit sharing plan covering substantially all of its
employees. The plan permits the employer to contribute a discretionary amount
for a plan year, which the employer designates as qualified non-elective
contribution. Contributions to plan by the Company were $155, $176 and $63
for the years ended December 31, 2007, 2006 and 2005, respectively.
|
|
|
|
|
s.
|
Fair value
of financial instruments:
|
|
|
|
|
|
SFAS No. 107
Disclosures about Fair Value of Financial Instruments requires disclosure
of the estimated fair value of an entitys financial instruments. Such
disclosures, which pertain to the Companys financial instruments, do not
purport to represent the aggregate net fair value of the Company. The
carrying value of cash and cash equivalents, accounts receivable and accounts
payable approximated fair value because of the short maturity of those
instruments.
|
F 22
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
NOTE 2
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
|
|
|
The
estimated fair value of financial instruments has been determined by the
Company using available market information and valuation methodologies.
Considerable judgment is required in estimating fair values. Accordingly, the
estimates may not be indicative of the amounts the Company could realize in a
current market exchange.
|
|
|
|
|
|
The fair
value for marketable securities classified as available-for-sale is based on
quoted market prices.
|
|
|
|
|
|
The fair
values of long-term liabilities were estimated by discounting the future cash
flows, using the rate currently available for liabilities of similar terms
and maturity. The carrying amount of the Companys long-term liabilities
approximates their fair value.
|
|
|
|
|
t.
|
Basic and diluted
net income per share:
|
|
|
|
|
|
Basic net
income per share is computed based on the weighted average number of ordinary
shares outstanding during each year. Diluted net income per share includes
the effect of stock option warrants outstanding during the year all, in
accordance with SFAS No. 128, Earnings Per Share (SFAS No. 128), using
the treasury stock method.
|
|
|
|
|
|
The weighted
average number of outstanding options excluded from the calculations of
diluted net earnings per share, due to their anti dilutive effect, was 0 for
the years ended December 31, 2007 and 2006 and 500,000 for the year ended
December 31, 2005.
|
|
|
|
F 23
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
NOTE 2
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
|
|
|
u.
|
Registration
Right Agreement
|
|
|
|
|
|
Limco-Piedmont Inc. granted the
Company the right to require registration for resale of the shares of common stock the
Company holds in Limco-Piedmont Inc. under the Securities Act of 1933, as amended. The
Company may sell all or some of the shares of the subsidiarys common stock that it
owns or distribute those shares to its shareholders. Pursuant to FSP EITF 00-19-2,
Accounting for Registration Payment Arrangements (FSP), which
addresses an issuers accounting for registration payment arrangements,
Limco-Piedmont Inc. concluded that no obligation should be recorded related to the
registration rights.
|
|
|
|
|
|
v.
|
Impact of
recently issued Accounting Standards:
|
|
|
|
|
|
|
1.
|
In September
2006, the FASB, issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments-an Amendment of FASB Statements No. 133 and 140, (SFAS 155), to
simplify and make more consistent the accounting for certain financial
instruments. SFAS 155 amends SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, to permit fair value remeasurement for
any hybrid financial instrument with an embedded derivative that otherwise
would require bifurcation, provided that the whole instrument is accounted
for on a fair value basis. SFAS 155 amends SFAS No. 140, Accounting for the
Impairment or Disposal of Long-Lived Assets, to allow for a qualifying
special-purpose entity to hold a derivative financial instrument that relates
to a beneficial interest other than another derivative financial instrument.
|
|
|
|
|
|
|
|
SFAS 155
applies to all financial instruments acquired or issued after the beginning
of an entitys first fiscal year that begins after September 15, 2006, with
earlier application permitted. Accordingly, the Company adopted SFAS 155 on
January 1, 2007. The adoption of SFAS 155 did not have any effect on the
Companys financial position and results of operations.
|
|
|
|
|
|
|
2.
|
In September
2006, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS 157. Among
other requirements, SFAS 157 defines fair value and establishes a framework
for measuring fair value and also expands disclosure about the use of fair
value to measure assets and liabilities. SFAS 157 is effective beginning the
first fiscal year that begins after November 15, 2007. The Company adopted
SFAS 157 subsequent to December 31, 2007 but it did not have any effect of
the Companys financial position and results of operations.
|
F 24
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
NOTE 2
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
|
|
3.
|
In September
2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans an amendment of FASB Statements No.
87, 88, 106, and 132(R). SFAS No. 158 requires an employer to recognize the
over-funded or under-funded status of a defined benefit postretirement plan
(other than a multiemployer plan) as an asset or liability in its statement
of financial position, to recognize changes in that funded status in the year
in which the changes occur through comprehensive income as well as
prescribing additional disclosure requirements. The provisions of this
statement are effective for all other companies in fiscal years ending after
June 15, 2007. In addition, a company must now measure the fair value of its
plan assets and benefit obligations as of the date of its year-end balance
sheet. A company is no longer permitted to measure the funded status of its
plan by being able to choose a measurement date up to three months prior to
year end. This provision within the Standards is effective for all companies
in fiscal years ending after December 15, 2008. The Company does not
anticipate the adoption of this new accounting principle will have a material
effect on its financial statements.
|
|
|
|
|
4.
|
In February
2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS 159). This Statement provides
companies with an option to report selected financial assets and liabilities
at fair value. Generally accepted accounting principles have required
different measurement attributes for different assets and liabilities that
can create artificial volatility in earnings. The Statements objective is to
reduce both complexity in accounting for financial instruments and the
volatility in earnings caused by measuring related assets and liabilities
differently. This Statement is effective as of the beginning of an entitys
first fiscal year beginning after November 15, 2007. The Company adopted SFAS
159 subsequent to December 31, 2007 but it did not have any effect of the
Companys financial position and results of operations.
|
|
|
|
|
5.
|
In June 2006, the FASB issued
Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an
interpretation of SFAS 109, Accounting for Income Taxes. FIN 48 clarifies the
accounting for uncertain tax positions. FIN 48 prescribes a comprehensive model for how
companies should recognize, measure, present and disclose in their financial statements
uncertain tax positions taken or expected to be taken on a tax return. Under FIN 48, tax
positions shall initially be recognized in the financial statements when it is more likely
than not the position will be sustained upon examination by the tax authorities. Such tax
positions shall initially and subsequently be measured as the largest amount of tax
benefit that is greater than 50% likely of being realized upon ultimate settlement with
the tax authority, assuming full knowledge of the position and all relevant facts. FIN 48
also revises disclosure requirements to include an annual tabular rollforward of
unrecognized tax benefits. The provisions of this interpretation were adopted on January
1, 2007. The Company was required to apply the provisions of FIN 48 to all tax positions
upon initial adoption with any cumulative effect adjustment to be recognized as an
adjustment to retained earnings.
|
|
|
|
F 25
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
NOTE 2
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
|
|
|
As a result of adoption of FIN 48,
the Company reclassified $147 from income tax payables to unrecognized benefits with no
impact to previously recorded retained earnings.
|
|
|
|
|
6.
|
In December
2007, the FASB issued SFAS No. 141 (Revised 2007) Business Combinations, a
revision of the original SFAS No. 141. This statement requires an acquirer
to recognize the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquirer at the acquisition date, measured at
their fair values as of that date, with limited exceptions specified in the
Statement. That replaces the original Statement 141s cost-allocation
process, which required the cost of an acquisition to be allocated to the
individual assets acquired and liabilities assumed based on their estimated
fair values. The Company is required to adopt the revised SFAS No. 141 on
January 1, 2009. The Company is currently evaluating the potential impact of
the revised SFAS No. 141 on the Companys consolidated financial statements.
|
|
|
|
|
7.
|
In December
2007, the FASB issued SFAS No. 160 Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB No. 51. This statement establishes
accounting and reporting standards for noncontrolling interests in
subsidiaries and for the deconsolidation of subsidiaries and clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. SFAS No. 160 also required expanded disclosures that
clearly identify and distinguish between the interests of the parent owners
and the interests of the noncontrolling owners of a subsidiary. The Company
is required to adopt SFAS No. 160 on January 1, 2009. The Company is
currently evaluating the potential impact of this Statement on the Companys
consolidated financial statements.
|
|
|
|
|
8.
|
In March
2008, the FASB issued SFAS No. 161, Disclosure about Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No. 133, (SFAS No. 161).
This statement requires that objectives for using derivative instruments be
disclosed in terms of underlying risk and accounting designation. The Company
is required to adopt SFAS No. 161 on January 1, 2009. The Company is
currently evaluating the potential impact of SFAS No. 161 on the Companys
consolidated financial statements.
|
F 26
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
NOTE 3
|
INVENTORIES
|
|
|
|
Inventories
are composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials and components
|
|
$
|
5,940
|
|
$
|
11,748
|
|
|
Work in
progress
|
|
|
15,340
|
|
|
12,311
|
|
|
Spare parts
|
|
|
6,862
|
|
|
795
|
|
|
Finished
goods
|
|
|
47
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,189
|
|
$
|
24,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials and components, net of reserve for slow moving and obsolete
inventories at the amount of $1,768 and $1,644 for the years ended December
31, 2007 and 2006, respectively.
|
|
|
NOTE 4
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
|
Composition
of assets, grouped by major classifications, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
Land and buildings (1)
|
|
$
|
2,812
|
|
$
|
2,726
|
|
|
Machinery and equipment
|
|
|
26,038
|
|
|
21,465
|
|
|
Motor vehicles
|
|
|
1,655
|
|
|
1,461
|
|
|
Office furniture and equipment
|
|
|
2,102
|
|
|
836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,607
|
|
|
26,488
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated depreciation
|
|
|
20,680
|
|
|
19,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciated
cost
|
|
$
|
11,927
|
|
$
|
7,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expenses amounted to $1,557, $1,332 and $1,143 for the years ended December
31, 2007, 2006 and 2005, respectively.
|
|
|
|
|
(1)
|
Includes
lease rights to land in the amount of $1 under a sub-lease agreement with
TAT. The lease period ends in 2020 and includes a renewal option if TAT
exercises the option granted by the Israel Land Administration. See also Note
7a.
|
|
|
|
|
|
Registration
with the Land Registrant of the transfer of sub-lease rights from TAT to the
Company has not yet been finalized due to technical reasons.
|
F 27
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 5
|
INTANGIBLE ASSETS, NET
|
|
|
|
|
a.
|
Intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
1,937
|
|
$
|
1,937
|
|
Lease at below market rates
|
|
|
97
|
|
|
97
|
|
Consulting service agreements
|
|
|
6
|
|
|
6
|
|
Non-compete agreement
|
|
|
653
|
|
|
653
|
|
Trade name
|
|
|
128
|
|
|
128
|
|
Certificates
|
|
|
76
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,897
|
|
|
2,897
|
|
|
|
|
|
|
|
|
|
Accumulated
amortization:
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
485
|
|
|
291
|
|
Lease at below market rates
|
|
|
97
|
|
|
58
|
|
Consulting service agreements
|
|
|
6
|
|
|
6
|
|
Non-compete agreement
|
|
|
543
|
|
|
326
|
|
Trade name
|
|
|
30
|
|
|
17
|
|
Certificates
|
|
|
27
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,188
|
|
|
714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
$
|
1,709
|
|
$
|
2,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b.
|
Based on the
intangible assets in service as of December 31, 2007, estimated amortization
expense for each of the next five years and thereafter is as follows:
|
|
|
|
|
|
Year ended
December 31,
|
|
Amortization
expenses
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
326
|
|
2009
|
|
|
217
|
|
2010
|
|
|
217
|
|
2011
|
|
|
218
|
|
2012
|
|
|
212
|
|
Thereafter
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,709
|
|
|
|
|
|
|
F 28
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
NOTE 6
|
OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees and payroll accruals
|
|
$
|
2,457
|
|
$
|
2,876
|
|
|
|
Government authorities
|
|
|
177
|
|
|
19
|
|
|
|
Related parties
|
|
|
55
|
|
|
266
|
|
|
|
Deferred revenue
|
|
|
-
|
|
|
223
|
|
|
|
Liability with respect to non-compete agreement
|
|
|
145
|
|
|
360
|
|
|
|
Warranty provision
|
|
|
784
|
|
|
776
|
|
|
|
Sales rebates
|
|
|
142
|
|
|
184
|
|
|
|
Accrued royalties
|
|
|
179
|
|
|
378
|
|
|
|
Other accrued expenses
|
|
|
371
|
|
|
902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,310
|
|
$
|
5,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7
|
TRANSACTIONS WITH RELATED PARTIES
|
|
|
|
|
a.
|
Transactions with TAT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Management fees
|
|
$
|
50
|
|
$
|
50
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
Other manufacturing costs
|
|
$
|
5
|
|
$
|
36
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease expenses (1)
|
|
$
|
323
|
|
$
|
316
|
|
$
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
During 2000, the Company entered into a lease agreement with TAT for
a period of 25 years. According to the agreement, the Company leases from TAT
the factory premises for an annual amount of approximately $300, increased by
2% annually, subject to a revaluation based on market value every five years.
The Company is entitled to a one-time right of termination of the agreement
after 10 years.
|
|
|
|
|
|
During 2005, a revaluation of the lease agreement was prepared by a
valuation consultant, determining the annual lease fee as $310.
|
|
|
|
|
b.
|
Balances with related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
TAT - current account (1)
|
|
$
|
576
|
|
$
|
(220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The 2007 balance mainly consists of
Value Added Tax refund to be collected by TAT on behalf of the Company, since TAT and the
Company are reporting to the Value Added Tax Authorities on a consolidated basis. The
amount is linked to the Israeli Consumer Price Index.
|
F 29
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
NOTE 7
|
TRANSACTIONS WITH RELATED PARTIES (Cont.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
c.
|
Commissions to a company owned by
certain shareholders (see Note 9a)
|
|
$
|
442
|
|
$
|
387
|
|
$
|
537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fee (see e below)
|
|
$
|
250
|
|
$
|
250
|
|
$
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries of principal owners
|
|
$
|
533
|
|
$
|
489
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
d.
|
The former Chairman of the Board of Directors and the former Vice
Chairman of the Board of Directors are entitled each to a bonus of 2.5% of
the annual consolidated operating income, in excess of $500. Bonus expenses
were $462, $518 and $292 in 2007, 2006 and 2005, respectively, and were
recorded as part of the general and administrative expenses.
|
|
|
|
|
e.
|
A shareholder of the Company (see Note 10b) provided the Company with
management and consulting services in consideration of the lower of: (i) 3%
of the consolidated operating income in excess of $500, or (ii) $250.
Consulting expenses were $250, $250 and $176 in 2007, 2006 and 2005,
respectively, and were recorded a part of the general and administrative
expenses. The management and consulting services agreement expired on
December 31, 2007, pursuant to the sale by the shareholder of the majority of
its holding in the Company, during December 2007.
|
|
|
|
|
f.
|
On December 20, 2007, the Companys Chairman of the Board of
Directors, announced on his resignation from his position, effective January
1, 2008, but he continued his employment, as a consultant to the Company, in
accordance with his employment agreement with the Company. On June 12, 2008,
subsequent to the balance sheet date, the Company and the former Chairman of
the Board of Directors signed an appendix to the employment agreement,
according to which the employment relations will be terminated retroactively,
as of January 1, 2008, and the Company shall pay the former Chairman of the
Board of Directors, a fixed amount of $245 for all the benefits related to
his employment.
|
|
|
|
|
|
On May 19, 2008, subsequent to the balance sheet date, the Companys
Chief Executive Officer and Vice Chairman of the Board of Directors,
announced on his resignation from his position effective to that date.
|
F 30
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 8
|
LONG-TERM LOANS
|
|
|
|
|
a.
|
Terms of the
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
|
|
Weighted
average interest
2006
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
loan (1)
|
|
|
U.S. dollar
|
|
|
Libor + 1.3%
|
|
$
|
4,000
|
|
Long-term
loan (2)
|
|
|
U.S. dollar
|
|
|
Libor + 1%
|
|
|
1,000
|
|
Long-term
loan (2)
|
|
|
U.S. dollar
|
|
|
5.25%
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
Less -
current maturities
|
|
|
|
|
|
|
|
|
(4,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In July
2005, Piedmont signed a loan agreement in the amount of $6,000 with Bank
Leumi USA. The loan had an annual interest of Libor + 1.3%.
|
|
|
|
|
|
|
|
In each of the
years 2006 and 2005, Piedmont repaid $1,000 of the loan amount. The term loan
was renewed on July 1, 2007 for 45 days and was repaid from the proceeds of
the IPO (see Note 1c), which was completed on July 23, 2007.
|
|
|
|
|
|
|
(2)
|
In July 2005, as part of
Piedmonts acquisition, the Company entered into two loan agreements in an aggregate
amount of $6,000 to be repaid in three annual installments beginning July 1, 2008. The
first loan bears interest of Libor + 1% compounded annually and the second loan bears an
annual interest of 5.25%, both to be paid quarterly. In August 2007, the Company paid the
final $4,000 outstanding with the proceeds of the IPO (see Note 1c).
|
|
|
|
NOTE 9
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
|
|
|
|
a.
|
The Company
is committed to pay commissions to a company owned by certain of its
shareholders for representing the heat exchangers division in North America
(see Note 7c).
|
|
|
According to
the agreement, the commissions are to be paid at a rate of 10% of the amount
of inventories purchased in North America and 3% of the sales made in North
America. The commissions were recorded as part of the cost of revenues and
selling and marketing expenses, respectively.
|
|
|
Subsequent to the balance sheet date,
the Company incorporated a new subsidiary company, to represent its heat exchangers
division in North America, therefore the commission agreement with the affiliated company
was terminated.
|
|
|
|
|
b.
|
The Company
is committed to pay royalties to a third party of between 5% to 12% of sales
of products developed by a third party or developed through the intellectual
property and goodwill which were purchased from that third party. Royalty
expenses were $395, $550 and $425 for the years ended December 31, 2007, 2006
and 2005, respectively. The royalties were recorded as part of the cost of
revenues.
|
F 31
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 9
|
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|
|
|
|
|
c.
|
The Company
is committed to pay marketing commissions to salesmen at a range of 1% to 12%
of total sales contracts which were received through promotion and
distribution carried out by them. Commission expenses were $490, $656 and
$529 for the years ended December 31, 2007, 2006 and 2005, respectively. The
commissions were recorded as part of the selling and marketing expenses.
|
|
|
|
|
d.
|
Lease
commitments:
|
|
|
|
|
|
The Company
leases many of its operating and office facilities for various terms under
long-term, non-cancelable operating lease agreements. The leases expire at
various dates through 2011. In the normal course of business, it is expected
that these leases will be renewed or replaced by leases on other properties.
Lease expense totaled $330, $217, and $217 for the years then ended December
31, 2007, 2006, and 2005 respectively.
|
|
|
|
|
|
As of
December 31, 2007, future minimum rental payments under non-cancelable
operating leases are as follows:
|
|
|
|
|
|
2008
|
|
$
|
214
|
|
2009
|
|
|
214
|
|
2010
|
|
|
158
|
|
2011
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
717
|
|
|
|
|
|
|
|
|
|
|
|
As for the
lease of the factory premises by the Company, see Note 7a.
|
|
|
|
|
e.
|
During 2004,
two former employees filed a claim against the Company and against an
employment agency, alleging breach of contract and seeking compensation for
salary delays and salary differences in the amount of $254. On June 11, 2008,
the labor court ruled in this claim, and accordingly the Company and the
employment agency are required, jointly and severally, to compensate the
former employees in a total amount of $170. according to its agreement with
the employment agency, from April 1998, the Company shall not be deemed
responsible for the employment of the employment agencys employees, and the
employment agency committed to fully compensate the Company in case that the
Company shall have to pay any payment with regard to such employees.
|
|
|
|
|
|
On March 18,
2008, subsequent to the balance sheet date, a claim was filed at the regional
labor court in Tel Aviv by a former employee of the Company, against the
Company. In the claim statement, the former employee claims unlawful
dismissal, loss of earnings and other differences related to salary, totaled
to approximately $156, in addition to compensation for delayed wages and interest.
|
F 32
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 9
|
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|
|
|
|
|
|
In June
2008, subsequent to the balance sheet date, six employees of an employment
agency, filled a claim against the Company to the labor court, in the amount
of $715, related to their services to the Company through an employment
agency. According to an agreement between the Company and the employment
agency from March 2007, the Company shall not be deemed responsible for the
employment of such employees, and the employment agency committed to fully
compensate the Company in case that the Company shall have to pay any payment
with regard to such employees.
|
|
|
|
|
|
The Company,
with the advice of its legal counsel, is unable to predict the ultimate
outcome of these claims, yet believes that such claims are without merit. As
such, no provision has been provided.
|
|
|
|
|
f.
|
The Company
provides guarantees to third parties, in the ordinary course of business. The
maximum credit risk for these guarantees totaled approximately $34 as of
December 31, 2007.
|
|
|
|
NOTE 10
|
SHAREHOLDERS EQUITY
|
|
|
|
|
a.
|
The
Companys 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 the Company.
|
|
|
|
|
b.
|
On August
10, 2004, the Company entered into an investment agreement, according to
which the investor purchased 857,143 Ordinary shares of NIS 0.9 par value of
the Company, and was granted a warrant to purchase 500,000 Ordinary shares of
NIS 0.90 par value at an exercise price of $8.50 per share. The warrant is
exercisable for 66 months from the date of grant. The total cash received was
$6,000.
|
|
|
|
|
|
In addition,
the investor and the Company entered into a credit line agreement, under
which the investor made a line of credit available to the Company in the
amount of up to $2,000. The amount of the credit withdrawn from the investor
shall not be less than $1,000. The withdrawn credit bears interest at an
annual rate of 5%, in addition to an annual handling fee of 0.5% of the
credit line amount. The withdrawn credit will be settled in four equal
payments, no later than 66 months from the date of the agreement.
|
|
|
|
|
|
The Company
recorded the fair value of the credit line, which amounted to $265, as
deferred charges, which were amortized throughout the term of the credit line
agreement. As such, the total proceeds received for the issuance of shares
and warrants, consisting of cash and a provision of a credit line, amounted
to $6,265 from which issuance expenses in the amount of $273 were deducted.
In addition, a consulting agreement entered with the investors, see Note 7e.
|
|
|
|
|
|
On September
5, 2006, the Company notified the investor on the cancellation of the credit
line, which was not utilized by it since the date of grant. As a result, the
Company recorded the unamortized portion of the deferred charge, amounted to
$149 to financial expenses.
|
F 33
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
NOTE 10 SHAREHOLDERS EQUITY (Cont.)
|
|
|
|
|
|
On February
21, 2007, the investor exercised its warrant to purchase 500,000 Ordinary shares
of NIS 0.9 par value each, according to the investment agreement, for an
exercise price of $6.94 per share, which reflects the base exercise price of
$8.5 reduced by the effect of dividends during the period.
|
|
|
|
|
|
c.
|
Stock option
plans:
|
|
|
|
|
|
1.
|
In March
1995, the Company adopted a stock option plan for its employees, employees of
the parent company, directors and service providers, whereby up to 400,000
options to purchase Ordinary shares were to be granted, at an exercise price
of $4.5 per share (the market price at the date of grant). Out of this plan
372,500 options (out of which 315,000 stock options were granted to
executives) were granted. Under the terms of the plan, the options vested
after a period of five years commencing with the date of grant. In March
2005, options to purchase 267,500 shares expired and no options are
outstanding as of December 31, 2007.
|
|
|
|
|
|
|
2.
|
In January
1999, the Company adopted a stock option plan for its employees, directors
and officers of the Company, whereby up to 500,000 options to purchase
Ordinary shares (out of which 402,500 stock options were granted to
executives) were to be granted, at an exercise price of $1.625 per share
(which equaled the market price on the date of grant). All of the options
have been granted under the above plan. Under the terms of the plan, the
options were fully vested as of the grant date. These options expire in
January 2009. As of December 31, 2007, 17,500 options are still outstanding.
|
|
|
|
|
|
|
|
The
following table is a summary of the activity of the Companys stock Option
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of options
|
|
Weighted
average
exercise
price
|
|
Number
of options
|
|
Weighted
average
exercise
price
|
|
Number
of
options
|
|
Weighted
average
exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the beginning of the year
|
|
|
17,500
|
|
$
|
1.625
|
|
|
17,500
|
|
$
|
1.625
|
|
|
285,000
|
|
$
|
4.323
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(267,500
|
)
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year
|
|
|
17,500
|
|
$
|
1.625
|
|
$
|
1.625
|
|
$
|
1.625
|
|
|
17,500
|
|
$
|
1.625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable options
|
|
|
17,500
|
|
$
|
1.625
|
|
$
|
1.625
|
|
$
|
1.625
|
|
|
17,500
|
|
$
|
1.625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2007, there are 17,500 options outstanding and exercisable, with
a weighted average remaining contractual life of 1.08 years. The aggregate
intrinsic value of the stock options outstanding at December 31, 2007 was
$201.
|
F 34
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
NOTE 10 SHAREHOLDERS EQUITY (Cont.)
|
|
|
|
3.
|
Limco-Piedmont
Inc. entered into a share based compensation agreement with its Chief
Executive Officer (CEO) during August, 2005. The compensation agreement is
made up of 45,000 Phantom Stock options and stock options to be issued upon
the completion of an IPO by Limco-Piedmont Inc. The Phantom Stock options had
a base exercise price of $6.37. At the date of exercise, the CEO received a
cash payment for the difference between the exercise price and the average
price of the Companys stock price for the 60 days preceding the exercise
date. There was no expense related to the Phantom Stock options for the year
ended December 31, 2005 as the Companys stock price was less than the
exercise price. During the years ended December 31, 2007 and 2006,
Limco-Piedmont Inc. recorded expenses of $325 and $348, respectively. At
December 31, 2007, all of the Phantom Stock options had been exercise.
|
|
|
|
|
4.
|
Effective as
of July 19, 2007, Limco-Piedmont Inc. established an Incentive Compensation
Plan, or the 2007 Plan, under which Limco-Piedmont Inc. may issue options to
purchase 600,000 shares of common stock. Concurrently with the closing of the
IPO (see Note 1c), Limco-Piedmont Inc.s Board of Directors has authorized
the issuance of options to its directors, named executive officers and
certain other key employees to purchase 404,500 shares of common stock with
an exercise price of $11 per share, equal to the IPO price. The options vest
in three equal annual installments, except for 66,000 options that vest in
four equal semi-annual installments.
|
|
|
|
|
|
Subsequent
to year-end all options have been cancelled concurrently with the Company
failing to achieve predefined market requirements.
|
|
|
|
|
|
Compensation
expense attributable to outstanding stock options was $390 (approximately
$290 after tax), or $0.02 per share on both a basic and diluted basis, for
the year ended December 31, 2007. As of December 31, 2007, the total
unrecognized compensation cost related to non-vested stock awards was $1.8
million and the weighted average period over which the cost is expected to be
recognized is approximately 3.1 years.
|
F 35
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars
in thousands
|
|
|
NOTE 10
|
SHAREHOLDERS EQUITY (Cont.)
|
|
|
|
|
|
A summary of
the 2007 plan as of December 31, 2007 and changes during the year ended,
December 31, 2007, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of options
|
|
Exercise price
|
|
(1)
|
|
Remaining
in years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Outstanding at the beginning of the year
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
404
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year
|
|
|
404
|
|
$
|
11
|
|
$
|
570
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excisable at December 31, 2007
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expected to vest at December 31, 2007
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The intrinsic
value of a stock option is the amount by which the market value of the
underlying stock on December 31, 2007, exceeds the strike price of the
option.
|
|
|
|
|
|
|
The weighted
average grant date fair value of the stock options granted during the year ended
December 31, 2007 was $5.38, excluding 66,000 options whose fair value was
$4.94 as a result of a shorter vesting period.
|
|
|
|
|
|
The fair
value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
Year December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantity
|
|
|
338,250
|
|
|
66,000
|
|
Weighted
average expected stock price volatility
|
|
|
62
|
%
|
|
62
|
%
|
Weighted
average expected option life (in years)
|
|
|
3.5
|
|
|
2.92
|
|
Average risk
free interest rate
|
|
|
4.96
|
%
|
|
4.96
|
%
|
Discount for
post-vesting restriction
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
The expected
term for stock options and awards is calculated based on the simplified
method as defined by SAB No. 107.
|
|
|
|
|
|
d.
|
Dividends:
|
|
|
|
|
|
|
On August 31, 2005, the Company
declared a dividend in the amount of $1,087, or $0.40 per share, for all of the
shareholders of the Company at the effective date October 20, 2005. The dividend
was fully paid on November 15, 2005.
|
|
|
|
|
|
|
On April 4, 2006, the Company
declared a dividend in the amount of $1,208, or $ 0.20 per share, for all of the
shareholders of the Company at the effective date May 16, 2006. The dividend was
fully paid on May 30, 2006.
On September 2, 2007, the Company
declared a dividend in the amount of $2,617, or $0.18 per share, for all of the
shareholders of the Company at the effective date October 16, 2007. The dividend
was fully paid on November 6, 2007.
|
F 36
|
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 11
|
NET INCOME PER SHARE
|
|
|
|
The following table sets forth the
computation of basic and diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
31,979
|
|
$
|
6,066
|
|
$
|
3,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
basic shares outstanding during the year
|
|
|
6,344,041
|
|
|
6,042,671
|
|
|
6,042,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Stock options and warrants
|
|
|
63,463
|
|
|
120,354
|
|
|
44,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per share
|
|
|
6,407,504
|
|
|
6,163,025
|
|
|
6,086,716
|
|
|
|
|
|
|
|
|
|
|
|
F 37
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
NOTE 12
|
INCOME TAXES (Cont.)
|
|
|
|
|
a.
|
Measurement of taxable income under the Income Tax (Inflationary
Adjustments) Law, 1985:
|
|
|
|
|
|
In accordance with the above law results for tax purposes are
measured and reflected in real terms in accordance with the changes in the
Israeli Consumer Price Index (CPI). Under the Inflationary
adjustments law (Amendment No. 20, 2008, hereafter the amendment), that
was enacted in the Knesset on February 26, 2008, the provisions of the
Inflationary adjustments law will no longer apply to the Company in 2008 and
thereafter. The amendment specifies transitional provisions regarding the
discontinuance of the provisions of the Inflationary adjustments law that
have applied to the Company through the end of 2007.
|
|
|
|
|
b.
|
Tax benefits under Israels Law for the Encouragement of Industry
(Taxation), 1969:
|
|
|
|
|
|
The Company is an industrial company, as defined by the law for the
Encouragement of Industry (Taxes), 1969, and as such, is entitled to certain
tax benefits, which mainly consist of amortization of costs relating to
know-how and patents over eight years, the right to claim public issuance expenses,
and accelerated depreciation.
|
|
|
|
|
c.
|
Tax benefits under the Law for the Encouragement of Capital
Investments, 1959 (the Law):
|
|
|
|
|
|
A certain expansion plan of the Company has been granted an Approved
Enterprise status, under the Law. The Company has elected to receive its
benefits through the alternative benefits track, waiving grants in return
for tax exemptions. Pursuant thereto, the increase in income from the date of
commencement of the program which is the income of the Company derived from
the following Approved Enterprise expansion programs is tax-exempt for the
periods stated below and will be eligible for reduced tax rates thereafter
(such reduced tax rates are dependent on the level of foreign investments in
the Company), as described below.
|
|
|
|
|
|
Income derived from the program, which commenced in 2003, will
entitle the Company to a tax exemption for the two-year period ending
December 31, 2004, and to a reduced tax rate of 10%-25% for an
additional five to eight years ending December 31, 2009 to 2012
(depending on the level of foreign investments in the Company).
|
|
|
|
|
|
The entitlement to the above benefits is conditional upon the Company
fulfilling the conditions stipulated by the abovementioned law, regulations
published thereunder and the letters of approval for the specific investments
in approved enterprises. In the event of failure to comply with these
conditions, the benefits may be canceled and the Company may be required to
refund the amount of the benefits, in whole or in part, including interest.
As of December 31, 2007, management believes that
the Company is meeting all of the aforementioned conditions.
|
F 38
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
NOTE 12
|
INCOME TAXES (Cont.)
|
|
|
|
|
|
The tax-exempt income attributable to the Approved Enterprise can
not be distributed to shareholders without imposing tax liability on the
Company other than in complete liquidation. As of December 31, 2007, there is
approximately $1,590 tax-exempt income earned by the Companys Approved
Enterprise.
|
|
|
|
|
|
If the retained tax-exempt income is distributed to shareholders, it
would be taxed at the corporate tax rate applicable to such profits as if the
Company had not elected the alternative tax benefits track (currently - 25%).
|
|
|
|
|
|
Income in the Company from sources other than the Approved
Enterprise during the benefit period will be subject to tax at the effective
standard corporate tax rate in Israel, see Note 12d below.
|
|
|
|
|
|
On April 1, 2005, an amendment to the Investment Law came into effect
(the Amendment) and has significantly changed the provisions of the
Investment Law. The Amendment limits the scope of enterprises which may be
approved by the Investment Center by setting criteria for the approval of a
facility as an Approved Enterprise, such as provisions generally requiring
that at least 25% of the Approved Enterprises income will be derived from
export. Additionally, the Amendment enacted major changes in the manner in
which tax benefits are awarded under the Investment Law so that companies no
longer require Investment Center approval in order to qualify for tax
benefits.
|
|
|
|
|
|
However, the Investment Law provides that terms and benefits included
in any certificate of approval already granted will remain subject to the
provisions of the law as they were on the date of such approval. Therefore,
the Companys existing Approved Enterprise will generally not be subject to the
provisions of the Amendment. As a result of the amendment, tax-exempt income
generated under the provisions of the new law, will subject the Company to
taxes upon distribution or liquidation and the Company may be required to
record deferred tax liability with respect to such tax-exempt income. As of
December 31, 2007, management believes that
the Company is meeting all of the aforementioned conditions under the new
law.
|
|
|
|
|
d.
|
Reduction of Israeli corporate tax rate:
|
|
|
|
|
|
Until December 31, 2003, the regular tax rate applicable to income of
companies (which are not entitled to benefits due to Approved Enterprise,
as described above) was 36%. In June 2004 and in July 2005, the Knesset
(Israeli parliament) passed amendments to the Income Tax Ordinance (No. 140
and Temporary Provision), 2004 and (No. 147), 2005 respectively, which
determine, among other things, that the corporate tax rate is to be gradually
reduced to the following tax rates: 2004 - 35%, 2005 - 34%, 2006 - 31%, 2007
- 29%, 2008 - 27%, 2009 - 26% and 2010 and thereafter - 25%.
|
|
|
|
|
e.
|
U.S. subsidiaries:
|
|
|
|
|
|
U.S. subsidiaries are taxed based on federal and state tax laws. The
effective tax rate for 2007, 2006, and 2005 was 35.6%, 36.8%, and 35.7%,
respectively.
|
F 39
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 12
|
INCOME TAXES (Cont.)
|
|
|
|
|
f.
|
Tax
assessments:
|
|
|
|
|
|
The Companys
income tax assessments were considered final through 2001 for Israel. U.S.
subsidiaries income tax assessments were considered final through 2004.
|
|
|
|
|
g.
|
Income tax
reconciliation:
|
|
|
|
|
|
A
reconciliation of the theoretical tax expense assuming all income is taxed at
the statutory rate and the actual tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Income before income taxes as reported in
the statements of income
|
|
$
|
35,962
|
|
$
|
9,313
|
|
$
|
5,665
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory tax rate in Israel
|
|
|
29
|
%
|
|
31
|
%
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theoretical tax expenses
|
|
|
10,429
|
|
|
2,887
|
|
|
1,926
|
|
Increase (decrease) in income taxes
resulting from:
|
|
|
|
|
|
|
|
|
|
|
Tax adjustment in respect of foreign
subsidiaries subject to a different tax rate
|
|
|
532
|
|
|
399
|
|
|
181
|
|
Reduced tax rate on capital gain from sale
of shares of subsidiary company
|
|
|
(6,400
|
)
|
|
-
|
|
|
--
|
|
Difference in basis of measurement for
financial reporting and income tax purposes
|
|
|
(870
|
)
|
|
(149
|
)
|
|
(150
|
)
|
Tax in respect of prior years
|
|
|
(535
|
)
|
|
(28
|
)
|
|
78
|
|
Non-deductible expenses
|
|
|
56
|
|
|
138
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes as reported in the statements
of income
|
|
$
|
3,212
|
|
$
|
3,247
|
|
$
|
2,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
h.
|
Income
before income taxes is comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
(Israel)
|
|
$
|
27,897
|
|
$
|
2,460
|
|
$
|
2,648
|
|
Foreign
(United States)
|
|
|
8,065
|
|
|
6,853
|
|
|
3,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,962
|
|
$
|
9,313
|
|
$
|
5,665
|
|
|
|
|
|
|
|
|
|
|
|
|
F 40
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
|
NOTE 12
|
INCOME TAXES (Cont.)
|
|
|
|
|
i.
|
Income taxes
included in the statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Domestic (Israel)
|
|
$
|
671
|
|
$
|
652
|
|
$
|
1,048
|
|
Foreign (United States)
|
|
|
2,862
|
|
|
2,507
|
|
|
1,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,533
|
|
|
3,159
|
|
|
2,369
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Domestic (Israel)
|
|
|
(330
|
)
|
|
72
|
|
|
14
|
|
Foreign (United States)
|
|
|
9
|
|
|
16
|
|
|
(247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(321
|
)
|
|
88
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,212
|
|
$
|
3,247
|
|
$
|
2,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
j.
|
Deferred
income taxes:
|
|
|
|
|
|
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Companys deferred tax liabilities and assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Deferred tax
assets (liabilities):
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
54
|
|
$
|
107
|
|
Unrealized gains
|
|
|
135
|
|
|
124
|
|
Provisions for employee benefits and other
temporary differences
|
|
|
606
|
|
|
564
|
|
Tax loss carryforwards
|
|
|
295
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax
assets short-term
|
|
$
|
1,090
|
|
$
|
795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax
liabilities mainly derived from property and equipment - long-term
|
|
$
|
(581
|
)
|
$
|
(607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2007, the Company did not provide a valuation allowance in
respect of deferred tax assets, since management currently believes that it
is more likely than not that the deferred tax asset will be realized in the
future.
|
|
|
|
|
|
The Company
does not intend to distribute earnings of a foreign subsidiary aggregating
$14,749 as of December 31, 2007, and accordingly, no deferred tax liability
has been established relative to these earnings. If these amounts were not
considered permanently reinvested, a deferred tax liability would have been
required.
|
F 41
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
NOTE 12
|
INCOME TAXES (Cont.)
|
|
|
|
A
reconciliation of the beginning and ending amount of recognized provision, as
a result of the implementation of FIN 48, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
147
|
|
|
|
Additions for tax positions of prior years
|
|
|
101
|
|
|
|
Benefits from tax positions of prior years
|
|
|
(535
|
)
|
|
|
Settlements with tax authorities
|
|
|
535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
248
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 13
|
SEGMENT AND MAJOR CUSTOMER INFORMATION
|
|
|
|
|
|
a.
|
Segment Activities Disclosure:
|
|
|
|
|
|
|
In 2005, following the acquisition of Piedmont, there was a change in
the reported segments of the Company. Accordingly, commencing 2005, the
Company began reporting on two segments: (1) Repair and OEM (2) Parts,
comparing to one reportable segment in 2004. During 2006, due to
reorganization in the group and the decision for Initial Public Offering of
Limco-Piedmont Inc., the Company manages its segments on a basis of three
reportable segments: (1) OEM (2) MRO and (3) Parts.
|
|
|
|
|
|
|
The segmental disclosure of 2005 was restated to reflect
retroactively the effect of reporting based on three segments, to be in
conformity to 2006 disclosure. (See Note 1a for a brief description of the
Companys business.)
|
|
|
|
|
|
|
The Companys reportable segments are as follows:
|
|
|
|
|
|
|
-
|
OEM (manufacturing) segment focuses on manufacture of heat transfer
equipment, such as heat exchangers, precoolers and oil/fuel hydraulic coolers
used in aircraft, defense systems, electronic equipment and other
applications. In addition the Company manufactures aircraft accessories and
systems such as pumps, valves, power systems, turbines, etc.
|
|
|
|
|
|
|
-
|
MRO (maintenance, repair and overhaul) segment focuses on
remanufacture, overhaul and repair of heat transfer equipment and other
aircraft components and of repair of APUs, propellers and landing gears.
|
|
|
|
|
|
|
-
|
Parts Segment (part of Piedmonts business) focuses on sales of parts
of APUs, propellers and landing gears.
|
F 42
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
NOTE
13
|
SEGMENT AND MAJOR CUSTOMER INFORMATION
(Cont.)
|
|
|
|
|
b.
|
Segments statement operations disclosure:
|
|
|
|
|
|
The following financial information is the information that
management uses for analyzing the results. The figures are presented in
consolidated method as presented to management.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
OEM
|
|
MRO
|
|
Parts
|
|
Corporate
|
|
eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
23,489
|
|
$
|
49,392
|
|
$
|
20,384
|
|
|
-
|
|
$
|
(4,561
|
)
|
$
|
88,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
16,364
|
|
|
35,205
|
|
|
16,603
|
|
|
-
|
|
|
(2,965
|
)
|
|
65,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
7,125
|
|
|
14,187
|
|
|
3,781
|
|
|
-
|
|
|
(1,596
|
)
|
|
23,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing expenses
|
|
|
1,106
|
|
|
2,088
|
|
|
525
|
|
|
-
|
|
|
-
|
|
|
3,719
|
|
General
and administrative expenses
|
|
|
3,540
|
|
|
1,988
|
|
|
455
|
|
|
5,012
|
|
|
-
|
|
|
10,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$
|
2,479
|
|
$
|
10,111
|
|
$
|
2,801
|
|
$
|
(5,012
|
)
|
$
|
(1,596
|
)
|
$
|
8,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006
(unaudited)
|
|
|
|
|
|
|
|
OEM
|
|
MRO
|
|
Parts
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
22,110
|
|
$
|
43,824
|
|
$
|
15,197
|
|
|
-
|
|
$
|
(3,598
|
)
|
$
|
77,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
14,929
|
|
|
32,214
|
|
|
12,835
|
|
|
-
|
|
|
(2,339
|
)
|
|
57,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
7,181
|
|
|
11,610
|
|
|
2,362
|
|
|
-
|
|
|
(1,259
|
)
|
|
19,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing expenses
|
|
|
1,190
|
|
|
1,662
|
|
|
614
|
|
|
-
|
|
|
-
|
|
|
3,466
|
|
General
and administrative expenses
|
|
|
2,336
|
|
|
1,199
|
|
|
404
|
|
|
2,771
|
|
|
-
|
|
|
6,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
3,655
|
|
$
|
8,749
|
|
$
|
1,344
|
|
$
|
(2,771
|
)
|
$
|
(1,259
|
)
|
$
|
9,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F 43
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
NOTE 13
|
SEGMENT AND MAJOR CUSTOMER INFORMATION
(Cont.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005
(unaudited)
|
|
|
|
|
|
|
|
OEM
|
|
MRO
|
|
Parts
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
20,740
|
|
$
|
27,733
|
|
$
|
4,055
|
|
|
-
|
|
$
|
(3,335
|
)
|
$
|
49,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
13,434
|
|
|
21,514
|
|
|
2,812
|
|
|
-
|
|
|
(2,168
|
)
|
|
35,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
7,306
|
|
|
6,219
|
|
|
1,243
|
|
|
-
|
|
|
(1,167
|
)
|
|
13,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development costs
|
|
|
72
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
72
|
|
Selling
and marketing expenses
|
|
|
1,137
|
|
|
1,277
|
|
|
81
|
|
|
-
|
|
|
-
|
|
|
2,495
|
|
General
and administrative expenses
|
|
|
2,334
|
|
|
828
|
|
|
393
|
|
|
1,583
|
|
|
-
|
|
|
5,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$
|
3,763
|
|
$
|
4,114
|
|
$
|
769
|
|
$
|
(1,583
|
)
|
$
|
(1,167
|
)
|
$
|
5,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
c.
|
The following financial information identifies the assets to segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
OEM
|
|
MRO
|
|
Parts
|
|
Corporate
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
40,704
|
|
$
|
33,299
|
|
$
|
3,522
|
|
$
|
35,882
|
|
$
|
113,407
|
|
Depreciation
and amortization
|
|
|
906
|
|
|
1,123
|
|
|
2
|
|
|
-
|
|
|
2,031
|
|
Capital
investments
|
|
|
3,404
|
|
|
2,884
|
|
|
15
|
|
|
-
|
|
|
6,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006
(unaudited)
|
|
|
|
|
|
|
|
OEM
|
|
MRO
|
|
Parts
|
|
Corporate
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
24,890
|
|
$
|
29,131
|
|
$
|
3,542
|
|
$
|
8,674
|
|
$
|
66,237
|
|
Depreciation
and amortization
|
|
|
797
|
|
|
1,016
|
|
|
2
|
|
|
-
|
|
|
1,815
|
|
Capital
investments
|
|
|
1,336
|
|
|
358
|
|
|
-
|
|
|
-
|
|
|
1,694
|
|
F 44
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
NOTE 13
|
SEGMENT AND MAJOR CUSTOMER INFORMATION (Cont.)
|
|
|
|
|
d.
|
The
following presents total revenues, based on the location of the end
customers, for the years ended December 31, 2007, 2006 and 2005 and
long-lived assets as of those dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
Long-lived
assets
|
|
Total
revenues
|
|
Long-lived
assets
|
|
Total
revenues
|
|
Long-lived
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israel
|
|
$
|
7,383
|
|
$
|
10,914
|
|
$
|
7,042
|
|
$
|
8,078
|
|
$
|
4,122
|
|
$
|
4,103
|
|
Asia
|
|
|
2,555
|
|
|
-
|
|
|
1,953
|
|
|
-
|
|
|
1,983
|
|
|
-
|
|
United States
|
|
|
56,554
|
|
|
11,658
|
|
|
51,292
|
|
|
10,182
|
|
|
30,495
|
|
|
10,998
|
|
Europe
|
|
|
18,484
|
|
|
-
|
|
|
15,210
|
|
|
-
|
|
|
11,256
|
|
|
-
|
|
Other
|
|
|
3,728
|
|
|
-
|
|
|
2,036
|
|
|
-
|
|
|
1,337
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,704
|
|
$
|
22,572
|
|
$
|
77,533
|
|
$
|
18,260
|
|
$
|
49,193
|
|
$
|
15,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
e.
|
Major
customer data as a percentage of total revenues:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
4.4
|
|
4.0
|
|
11.1
|
|
Customer B
|
|
2.5
|
|
4.5
|
|
5.8
|
|
Customer C
|
|
3.5
|
|
3.5
|
|
2.9
|
|
Customer D
|
|
1.8
|
|
3.0
|
|
6.5
|
|
Customer E
|
|
4.8
|
|
7.0
|
|
5.1
|
|
|
|
NOTE 14
|
SELECTED STATEMENTS OF INCOME DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Financial income (expenses), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$
|
305
|
|
$
|
372
|
|
$
|
29
|
|
|
|
Interest on cash equivalents, short-term
bank deposits and others
|
|
|
1,402
|
|
|
349
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,707
|
|
|
721
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank charges
|
|
|
(142
|
)
|
|
(123
|
)
|
|
(82
|
)
|
|
|
Interest on long-term loans
|
|
|
(640
|
)
|
|
(683
|
)
|
|
(357
|
)
|
|
|
Foreign currency translation adjustments
|
|
|
(220
|
)
|
|
(161
|
)
|
|
(153
|
)
|
|
|
Others
|
|
|
(4
|
)
|
|
(218
|
)
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,006
|
)
|
|
(1,185
|
)
|
|
(692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
701
|
|
$
|
(464
|
)
|
$
|
(441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F 45
TAT TECHNOLOGIES
LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands
|
|
|
NOTE 14
|
SELECTED STATEMENTS OF INCOME DATA (Cont.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
b.
|
|
Other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from sale of shares and decrease in holding of subsidiary
company (1)
|
|
$
|
26,375
|
|
$
|
-
|
|
$
|
-
|
|
|
|
Gain on sale of marketable securities classified as
available-for-sale
|
|
|
34
|
|
|
38
|
|
|
120
|
|
|
|
Other income
|
|
|
69
|
|
|
21
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,478
|
|
$
|
59
|
|
$
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) See Note 1 c.
|
|
NOTE 15
|
SUPPLEMENTAL BALANCE SHEET INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty
provision
|
|
Inventory
Reserve
|
|
Account
Receivable
|
|
|
|
|
|
|
|
|
|
Reserves and
Allowances
|
|
|
|
|
|
|
|
|
|
|
Balance, as of December 31, 2005
|
|
$
|
498
|
|
$
|
2,480
|
|
$
|
396
|
|
Additions
|
|
|
278
|
|
|
-
|
|
|
43
|
|
Write-offs, net of recoveries
|
|
|
-
|
|
|
(836
|
)
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as of December 31, 2006
|
|
|
776
|
|
|
1,644
|
|
|
280
|
|
Additions
|
|
|
8
|
|
|
124
|
|
|
10
|
|
Write-offs, net of recoveries
|
|
|
-
|
|
|
-
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as of December 31, 2007
|
|
$
|
784
|
|
$
|
1,768
|
|
$
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 16
|
SUBSEQUENT EVENTS
|
|
|
|
|
|
On March 27,
2008, the Company entered into an agreement with Bental Investments
Cooperative Agricultural Society Ltd., (Bental Investments), to purchase
from it 27% of the outstanding shares of Bental Industries Ltd.,(Bental
Industries), an Israeli company that specializes in innovative motion
technologies for military and aviation and a leading supplier in its field to
Israels defense industries. In consideration for such ownership interest,
the Company agreed to pay $3,375 upon consummation of the transaction. In
addition, Bental Investments agreed to grant the Company a call option to
purchase an additional 18% of the outstanding shares of Bental Industries
held by it, in up to four installments, in consideration of $2,250. The
consideration for the option shares will bear interest of 2% per annum. The
call option will be valid for a period of four years commencing as of January
1, 2009. The Company agreed to grant to Bental Investments a put option in
the amount of $2,137.5, valid for a period of two years as of January 1, 2011.
According to the agreement, the exchange rate of the U.S. dollar to the NIS
will range between $1=NIS 3.70-3.95, for the foregoing amounts.
|
F 46
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
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U.S. dollars in thousands
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NOTE 16
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SUBSEQUENT EVENTS (Cont.)
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If the exchange rate is less than NIS 3.70, then the
foregoing amounts will be increased proportionately, if the rate is more than
NIS 3.95 then the amounts will be decreased proportionately and if the
exchange rate is within the above range, the amounts will remain in tact. In
the event that during the three year period following the closing of the
transaction the Company will consummate an exit, as such term is defined in
the agreement, Bental Investments will be entitled to additional
consideration for the shares and call option shares (if purchased) equal to a
certain percentage of the difference between the price per share that we paid
for such shares and the price per share paid in the exit transaction (30% if
the exit is within one year of the closing, 20% if the exit is within two
years of the closing and 10% if the exit is within three years of the
closing).
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On April 15, 2008, the Company entered into an
agreement to purchase an additional 10% of the outstanding shares of Bental
Industries from Mivtach Shamir Investments (1993) Ltd., (Mivtach), in
consideration for $1,225. The Company agreed that the exchange rate of the
dollar to the NIS will range between $1=NIS 3.70-3.95, as described above.
We received a $5 million loan from
Bank Mizrahi to finance these transactions.
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The foregoing transactions with Bental Investments
and Mivtach were consummated on May 21, 2008, as a result of which the
Company is holding 37% of the outstanding shares of Bental Industries and a
call option to purchase an additional 18% of the outstanding shares of Bental
Industries. In addition, TAT, the parent company, currently holds 15% of the
outstanding shares of Bental Industries.
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F 47
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.
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TAT TECHNOLOGIES LTD.
By: /s/ Israel Ofen
Israel Ofen
Executive Vice President and
Chief Financial Officer
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Date: June 30, 2008
77
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