UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
20-F
(Mark
One)
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REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended
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OR
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ______ to ______
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OR
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SHELL
COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date
of event requiring this shell company report.
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Commission
File Number
001-35464
(Exact name of Registrant as specified in its charter)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Chief Executive Officer
Caesarstone Ltd.
Telephone: +
Facsimile: +972 (4) 636-4400
(Name, telephone, email and/or facsimile number and address of company contact person)
Securities
registered or to be registered pursuant to Section 12(b) of the Securities Act of 1933:
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Title
of each class
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Trading
Symbol
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Name
of each exchange on which registered
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The
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Securities
registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate
the number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2024:
34,549,050
ordinary shares
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:
Yes
☐
No
☒
If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934:
Yes
☐
No
☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files):
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth
company. See definition of “large accelerated filer,” “accelerated filer” and “emerging growth company”
in Rule 12b-2 of the Exchange Act (Check one):
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Large
accelerated filer ☐
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Non-accelerated
filer ☐
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Emerging
growth company
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If
an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided
pursuant to Section 13(a) of the Exchange Act. ☐
†
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards
Board to its Accounting Standards Codification after April 5, 2012.
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report.
☒
If securities are registered
pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements.
☐
Indicate by check mark
whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by
any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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International
Financial Reporting Standards as issued by
the
International Accounting Standards Board ☐
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Other
☐
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If
“Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant
has elected to follow:
Item
17 ☐ Item 18 ☐
If
this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes
☐ No
☒
PRELIMINARY NOTES
Introduction
As used herein, and unless the context suggests otherwise,
the terms “Caesarstone,” “Company,” “we,” “us” or “ours” refer to Caesarstone
Ltd. and its consolidated subsidiaries. In this document, references to “NIS” or “shekels” are to New Israeli
Shekels, and references to “dollars,” “USD” or “$” refer to U.S. dollars.
Our reporting currency is the United States (
“U.S.”
)
dollar. The functional currency of each of our non-U.S. subsidiaries is the local currency in which it operates. These subsidiaries’
financial statements are translated into the U.S. dollar, the parent company’s functional currency, using the current rate method.
Other financial data appearing in this annual report
that is not included in our consolidated financial statements and that relate to transactions that occurred prior to December 31, 2024
are reflected using the exchange rate on the relevant transaction date. With respect to all future transactions, U.S. dollar translations
of NIS amounts presented in this annual report are translated at the rate of $1.00 = NIS 3.647, the representative exchange rate published
by the Bank of Israel as of December 31, 2024.
Market and Industry Data and Forecasts
This annual report includes data, forecasts and information
obtained from industry publications and surveys and other information available to us. Some data is also based on our good faith estimates,
which are derived from management’s knowledge of the industry and independent sources. Forecasts and other metrics included in this
annual report to describe the countertop industry are inherently uncertain and speculative in nature and actual results for any period
may materially differ. We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying
assumptions relied upon therein. While we are not aware of any misstatements regarding the industry data presented herein, estimates and
forecasts involve uncertainties and risks and are subject to change based on various factors, including those discussed under the headings
“—Forward-Looking Statements” and “ITEM 3: Key Information—Risk Factors” in this annual report.
Unless otherwise noted in this annual report, Freedonia
Custom Research, a division of MarketResearch.com, Inc. (
“Freedonia”
) is the source
for third-party industry data and forecasts. The Freedonia report, dated March 1, 2025 (
“Freedonia
Report”
), represents data, research opinion or viewpoints developed independently by Freedonia and does not constitute a
specific guide to action. In preparing the report, Freedonia used various sources, including publicly available third-party financial
statements; government statistical reports; press releases; industry magazines; and interviews with manufacturers of related products
(including us), manufacturers of competitive products, distributors of related products, and government and trade associations. Growth
rates in the Freedonia Report are based on many variables, such as currency exchange rates, raw material costs and pricing of competitive
products, and such variables are subject to wide fluctuations over time. The Freedonia Report speaks as of its final publication date
(and not as of the date of this filing), and the opinions and forecasts expressed in the Freedonia Report are subject to change by Freedonia
without notice. Management believes this third-party report to be reputable, but has not independently verified the underlying data sources,
methodologies, or assumptions. The report and other publications referenced are generally available to the public and were not commissioned
by the Company.
Special Note Regarding Forward-Looking
Statements and Risk Factor Summary
This annual report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (
“Securities Act”
),
Section 21E of the Securities Exchange Act of 1934, as amended (
“Exchange Act”
), and
the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, that are based on our management’s beliefs
and assumptions and on information currently available to our management. Forward-looking statements include information concerning our
possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential
growth opportunities, potential market opportunities and the effects of competition. Forward-looking statements include all statements
that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,”
“seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,”
“predicts,” “projects,” “should,” “will,” “would” or similar expressions that
convey uncertainty of future events or outcomes and the negatives of those terms. These statements may be found in several sections of
this annual report, including, but not limited to “ITEM 3: Key Information—Risk Factors,” “ITEM 4: Information
on the Company,” “ITEM 5: Operating and Financial Review and Prospects,” “ITEM 10: Additional Information—Taxation—United
States Federal Income Taxation—Passive foreign investment company considerations.” Forward-looking statements reflect our
current views with respect to future events and are based on assumptions and are subject to risks and uncertainties, including those described
in “ITEM 3.D. Key Information—Risk Factors.”
You should not put undue reliance on any forward-looking
statements. Actual results could differ materially from those anticipated in these forward-looking statements because of various factors
described in this annual report, including factors beyond our ability to control or predict. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and
events and circumstances reflected in the forward-looking statements will be achieved or will occur. Any forward-looking statement made
in this annual report speaks only as of the date hereof. Except as required by law, we undertake no obligation to update publicly any
forward-looking statements for any reason after the date of this annual report, to confirm these statements to actual results or to changes
in our expectations.
TABLE OF CONTENTS
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PART I
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1
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1
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1
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1
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||
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A.
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[Reserved]
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1
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B.
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Capitalization and Indebtedness
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1
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C.
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Reasons for the Offer and Use of Proceeds
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1
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D.
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Risk Factors
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1
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38
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A.
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History and Development of the Company
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38
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B.
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Business Overview
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39
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C.
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Organizational Structure
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52
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D.
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Property, Plants and Equipment
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52
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54
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54
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A.
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Operating Results
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54
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B.
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Liquidity and Capital Resources
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64
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C.
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Research and Development, Patents and Licenses
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67
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D.
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Trend Information
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67
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E.
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Critical Accounting Estimates
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68
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72
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A.
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Directors and Senior Management
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72
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B.
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Compensation
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77
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C.
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Board Practices
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81
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D.
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Employees |
96
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E.
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Share Ownership |
97
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98
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A.
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Major Shareholders
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98
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B.
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Related Party Transactions
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101
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C.
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Interests of Experts and Counsel
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106
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106
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A.
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Consolidated Financial Statements and Other Financial Information
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106
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B.
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Significant Changes
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109
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109
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A.
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Offer and Listing Details
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109
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B.
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Plan of Distribution
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109
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C.
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Markets
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109
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D.
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Selling Shareholders
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109
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E.
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Dilution
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109
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F.
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Expenses of the Issue
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109
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109
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A.
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Share Capital
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109
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B.
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Memorandum and Articles of Association
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109
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C.
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Material Contracts
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110
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D.
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Exchange Controls
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110
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E.
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Taxation
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110
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F.
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Dividends and Paying Agents
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121
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G.
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Statements by Experts
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121
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H.
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Documents on Display
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121
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I.
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Subsidiary Information
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121
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J.
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Annual Report to Security Holders
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121
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(i)
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121
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123
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PART II
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123
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123
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123
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124
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125
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125
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125
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125
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126
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126
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126
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126
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126
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126
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127
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127
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PART III
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128
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128
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128
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129
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(ii)
PART I
ITEM 1
:
Identity of Directors, Senior Management and Advisers
Not applicable.
ITEM 2
:
Offer Statistics and Expected Timetable
Not applicable.
ITEM 3
:
Key Information
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A.
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[Reserved]
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B.
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Capitalization and Indebtedness
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Not applicable.
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C.
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Reasons for the Offer and Use of Proceeds
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Not applicable.
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D.
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Risk Factors
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Our business faces significant risks and uncertainties.
You should carefully consider all the information set forth in this annual report and in our other filings with the United States Securities
and Exchange Commission (the “
SEC
”). Our business, financial condition and results
of operations could be materially and adversely affected by any of these risks. In that event, the trading price of our ordinary shares
would likely decline, and you might lose all or part of your investment. This report also contains forward-looking statements that involve
risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements, as a result of
certain factors including the risks described below and elsewhere in this report and our other SEC filings. See also “Special Note
Regarding Forward-Looking Statements and Risk Factor Summary”.
Risk Factors Summary
The following is a summary of the
principal risks that could materially adversely affect our business, results of operations, and financial condition, all of which are
more fully described below. This summary should be read in conjunction with the other information discussed in this Item 3.D and
should not be relied upon as an exhaustive summary of the material risks facing our business. Please carefully consider all of the information
discussed in this Item 3.D. “Risk Factors” and elsewhere in this annual report for a more thorough description of these
and other risks. Such risks include, but are not limited to:
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• |
Adverse outcomes and potential losses from bodily injury claims may have a material adverse effect on
our business, operating results, financial condition and cash flows.
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We are currently unable to obtain insurance coverage for future claims relating to silicosis in certain
relevant jurisdictions, and the insurance that we currently maintain may be insufficient if our position is not accepted by courts and
juries, in addition our entitlement may be disputed.
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• |
Changes in laws and regulations relating to hazards associated with engineered stone surfaces or with
the crystalline silica in stone surfaces may adversely and materially affect our business.
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• |
Downturns in the home renovation and remodeling and new residential
construction sectors or the economy generally and a lack of availability of consumer credit materially and adversely impact end-consumers
and lower demand for our products, which causes our revenues and net income to decrease.
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• |
Adverse global conditions, including macroeconomic slowdowns and recessions, and geopolitical instability,
have in the past and may continue to negatively impact our financial results.
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• |
We face intense competitive pressures which could materially and adversely affect our results of operations
and financial condition.
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1
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• |
Our results of operations may be materially and adversely affected by fluctuations in currency exchange
rates, and we may not have adequately hedged against them.
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• |
Global trade is affected by governmental involvement including through antidumping and countervailing
duties and these may cause unforeseeable market changes that could adversely impact our financial results.
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• |
If we are unable to pass on rising costs to our customers, it could have a material adverse effect on
our business.
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• |
We may need to raise funds to finance our current and future capital needs, which may dilute the value
of our outstanding ordinary shares, increase our financial expenses or limit our business activities.
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• |
Problems inherent in the use of third-party Production Business Partners (PBP), such as a failure to
effectively collaborate or diversify our relationships with various PBPs, could materially adversely affect our competitive position or
profitability.
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• |
If we fail to effectively manage the required changes in our production and supply chain, we may be unable
to serve the market or suffer additional inefficiencies.
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• |
Changes in the prices of raw materials may increase our costs and decrease our margins and net income
(loss).
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• |
We rely on our suppliers to deliver parts, components, manufacturing equipment, and raw materials to
our facilities, and our ability to manufacture efficiently and without disruption depends on the availability, transportability and prices
of such goods.
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• |
While we intend to introduce new products and materials, we cannot guarantee their market success.
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• |
Our manufacturing process, as well as that of our PBPs, is highly dependent on the consistency and quality
of the raw materials received. Any changes or defects in the raw materials supplied to our facilities or our PBP could adversely impact
on our operations, reputation, results and financial condition.
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2
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• |
A sizable proportion of our sales in North America is attributable to a limited number of large retailers;
any deterioration of our relationships with such retailers or deterioration in their business performance (in fields relevant to the sale
of our products) could adversely impact our results of operations.
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• |
Our ability to fully integrate acquisitions, joint ventures and/or investments, could be more difficult,
costly and time-consuming than we expect and therefore disrupt our business and adversely affect our financial results.
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• |
We rely on select suppliers in specific regions for the raw materials used in the production of our products,
and we may encounter significant manufacturing delays if we experience disruptions in these supply arrangements and/or are required to
change suppliers.
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• |
Our revenues are subject to significant geographic concentration and any disruption to sales within one
of our key existing markets, or to sales to a major customer therein, could materially and adversely impact our results of operations
and prospects.
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• |
A key element of our strategy is to expand our sales in certain markets, such as the United States and
segments, such as services. Failure to expand such sales would have a material adverse effect on our future growth and prospects.
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• |
Our distributors’ actions may have a materially adverse effect on our business and the results
of operations. Our results of operations may be further impacted by the actions of our re-sellers.
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• |
Our business is subject to disruptions and quarterly fluctuations in revenues and net income (loss) as
a result of seasonal factors, weather-related conditions, natural disasters, building construction cycles and actions by third parties
over which we have no control, which are hard to predict with certainty.
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• |
Disruptions to or our failure to upgrade and adjust our information technology systems globally may materially
impair our operations, hinder our growth, and materially and adversely affect our business and results of operations.
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• |
Compliance with continuously evolving privacy laws and regulations, including laws and regulations governing
processing of personal information, including payment card data, and our actual or perceived failure to comply with such laws and regulations
may result in significant liability, negative publicity, and/or erosion of trust and could have an adverse effect on our revenues, our
results of operations and financial condition.
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3
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• |
The steps that we have taken to protect our brand, technology and other intellectual property may not
be adequate, and we may not succeed in preventing others from appropriating our intellectual property.
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• |
We may have exposure to greater-than-anticipated tax liabilities.
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• |
Environmental, health and safety regulations, industry standards and other similar matters may be costly,
difficult or impossible to comply with under our existing operations and could negatively impact our financial condition and results of
operations.
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• |
From time to time, we are subject to litigation, disputes, or other proceedings, which could result in
unexpected expenses and time and resources that could have a materially adverse impact on our results of operation, profit margins, financial
condition, and liquidity.
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• |
Failure to meet ESG expectations or standards or a failure to effectively pursue our ESG goals could
adversely affect our business, results of operations, financial condition, or stock price.
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• |
Our operating results may suffer due to our failure to manage our international operations effectively
or due to regulatory changes in the foreign jurisdictions where we operate.
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• |
Certain U.S. holders of our ordinary shares may suffer adverse tax consequences if we or any of our non-U.S.
subsidiaries are characterized as a “controlled foreign corporation”, or a CFC, under Section 957(a) of the Internal Revenue
Code of 1986, as amended.
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• |
Our directors and employees who are members of Kibbutz Sdot-Yam and Tene may have conflicts of interest
with respect to matters involving the Company.
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• |
Regulators and other third parties may question whether our agreements with Kibbutz Sdot-Yam are no less
favorable to us than if they had been negotiated with unaffiliated third parties.
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• |
Under Israeli law, our board, audit committee and sometimes also the shareholders may be required to
reapprove certain of our agreements with Kibbutz Sdot-Yam every three years, and absence, or improper approval, may expose us to liability
and cause significant disruption to our business.
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• |
Pursuant to certain agreements between us and Kibbutz Sdot-Yam, we depend on Kibbutz Sdot-Yam with respect
to leasing the buildings and areas of our manufacturing facility in Israel.
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4
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• |
The price of our ordinary shares may be volatile.
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• |
Our goodwill or other intangible assets or long-lived assets may become subject to impairment.
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• |
Our share price is impacted by reports from research analysts, publicly announced financial guidance,
investor perceptions and our ability to meet other expectations about our business.
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• |
The substantial share ownership position of Kibbutz Sdot-Yam and Tene will limit your ability to influence
corporate matters.
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• |
The market price of the Company’s ordinary shares could be negatively affected by future sales
of our ordinary shares.
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• |
Our articles of association designate the federal district courts of the United States as the sole and
exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders.
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• |
As a foreign private issuer whose shares are listed on the Nasdaq Global Select Market, we may follow
certain home country corporate governance practices instead of certain Nasdaq requirements.
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• |
As a foreign private issuer, we are not subject to the provisions of Regulation FD or U.S. proxy rules
and are exempt from filing certain Exchange Act reports.
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• |
Conditions in Israel, including Israel’s conflicts with Hamas and other hostile parties in the
region, as well as political and economic instability, may adversely affect our operations and limit our ability to market our products,
which would lead to a decrease in revenues.
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• |
Our operations may be affected by negative economic conditions or labor unrest in Israel.
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• |
The tax benefits that are available to us require us to continue to meet various conditions and may be
terminated or reduced in the future, which could increase our costs and taxes
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• |
It may be difficult to enforce a U.S. judgment against us, our officers and directors in Israel or the
United States, or to assert U.S. securities laws claims in Israel or serve process on our officers and directors.
|
5
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• |
Our articles of association provide that unless we consent otherwise, the competent courts of Tel Aviv,
Israel shall be the sole and exclusive forum for substantially all disputes between us and our shareholders under the Companies Law and
the Israeli Securities Law, which could limit our shareholders’ ability to bring claims and proceedings against, as well as obtain
a favorable judicial forum for disputes with, us and our directors, officers and other employees
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• |
Your rights and responsibilities as our shareholder will be governed by Israeli law which may differ
in some respects from the rights and responsibilities of shareholders of United States corporations.
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• |
Provisions of Israeli law and our articles of association may delay, prevent or make undesirable a merger
transaction, or an acquisition of all or a significant portion of our ordinary shares.
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• |
If we are considered to have sizable market power under Israeli law, we could be subject to certain restrictions
that may limit our ability to freely conduct our business to which our competitors may not be subject.
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• |
If we fail to comply with Israeli law restrictions concerning employment of employees on rest days and
religious holidays, we and our office holders may be exposed to administrative and criminal liabilities and our operational and financial
results may be materially and adversely impacted.
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• |
If we do not manage our inventory effectively, our results of operations could be materially adversely
affected.
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• |
We depend on our senior management team and other skilled and experienced personnel to operate our business
effectively, and the loss of any of these individuals could materially and adversely affect our business and our future financial condition
or results of operations.
|
Risks Related to our Business
Risks
Related to Legal Proceedings and Regulation of our Products
Adverse outcomes
and potential losses from bodily injury claims may have a material adverse effect on our business, operating results, financial condition
and cash flows.
Since 2008, we have been named, either directly or as
a third-party defendant, in numerous lawsuits alleging damages caused by exposure to respirable crystalline silica, or RCS, related to
our products. These lawsuits have been filed primarily by individuals (including fabricators and their employees), their successors, dependents
and employers, as well as in subrogation claims by workers compensation or insurance bodies, such as the Israeli National Insurance Institute
(the “NII”) and Australian’s state workover bodies.
6
Inhalation of dust containing respirable particles may
occur during fabrication of slabs if proper health and safety measures are not implemented. Exposure to RCS may in turn lead to major
health issues, such as silicosis, a potentially fatal progressive occupational lung disease characterized by scarring of the lungs and
damage to the breathing function.
As of December 31, 2024, we were subject to lawsuits with respect
to 296 injured persons globally of which 52 were in Israel, 122 in Australia and 122 in the United States. Claims asserted against us
do not typically specify the total damages sought, and the plaintiffs’ damages, if any, are determined at trial or in settlement
discussions. Accordingly, we cannot estimate the aggregate exposure of potential claims that may be filed against us, the number of potential
claimants that may file claims against us in the future, the jurisdiction in which such claims may be filed, whether such claims will
be determined in jury trials, the identity of the claimants or the nature of the claims. Consistent with the experience of other companies,
we may experience an increase in the number of asserted claims against us in the future.
With respect to the United States, on August 7, 2024, we received
an adverse verdict in Los Angeles County, California. The jury found all defendants liable and awarded the plaintiffs $52.4 million in
damages of which Caesarstone USA was held liable for an amount equal to $13.0 million. We believe the verdict fails to acknowledge the
multiple proactive measures we adopted over the years to warn and educate our employees and service providers about safe fabrication practices,
and we are currently appealing the verdict on these grounds. In addition, in February 2025 we settled another claim in the U.S. We estimate
the loss for the remaining 120 claims in the U.S. as only reasonably possible (18 claims) with a range of possible loss between $0.5 to
$13 million per claim or at an early stage (102 claims) in which the amount of the possible loss cannot be reasonably estimated
at this time given the preliminary stages, complexity of the claims and the uncertainty around our liability and the insurance coverage.
We apply US GAAP standard ASC450, when evaluating the
need to make a provision. If we determine that it is both probable that a loss has occurred and the amount of loss can be reasonably estimated,
a liability is recorded consistently with applicable accounting principles and as described in Note 11 to our financial statements. To
the extent that such determination is made, and a liability is accrued with respect to the U.S. silicosis claims, the amount of such liability
accrual may be substantial. To the extent not offset by insurance recoveries determined to be similarly probable and estimable, the liability
would reduce the balance sheet equity, which could adversely impact our ability to meet financial obligations.
The outcome of any pending or future litigation is subject
to significant uncertainty and is hard to predict. Our potential net exposure with respect to such pending claims is subject to change
for a variety of reasons, including unfavorable judgements. If we further settle or decide that we wish to settle certain claims,
we may need to make a provision with respect to other claims that have similar characteristics. We expect additional verdicts in
the coming months. While each case is separate, an adverse decision could materially and adversely impact our business. In addition, punitive
damages may be awarded in certain jurisdictions. We may be also subject to class action lawsuits, and we cannot be certain whether such
claims will succeed in being certified or on their merits. An actual outcome of the pending litigations either individually or in aggregate
could have a material adverse effect on our business, financial position, results of operations and cash flows.
7
Uninsured damages, the cost of defending claims, compliance
costs, and the loss of business from fabricators who no longer find it practical to fabricate our products, may each have a material adverse
impact on our revenues, cash flow and profits.
Media coverage regarding these claims, governmental
actions and the hazards associated with exposure to RCS in the engineered stone (primarily quartz surfaces), may adversely affect consumer
perception of our products, damage our brand and reputation, and in turn lead to loss of sales and a material adverse effect to our revenues
and financial results.
Any of the risks described above relating to claims regarding
silicosis and other bodily injury claims may have a material adverse effect on our business, operating results and financial condition.
Uncertainties relating to and market perception of these matters also could continue or increase volatility in the market for our shares
and materially affect the price of our shares. In addition, these risks could cause us to become insolvent or to engage in a restructuring.
For more information, see “ITEM 8.A: Financial Information—Legal Proceedings— Claims related to alleged occupational
illnesses.” See also Note 11 to the financial statements included elsewhere in this report.
We are
currently
unable to obtain insurance coverage for future claims relating to silicosis in certain relevant jurisdictions, and the insurance that
we currently maintain may be insufficient if our position is not accepted by courts and juries, in addition our entitlement to insurance
coverage may be disputed.
We have been unable to obtain insurance coverage for
silicosis related product liability in most jurisdiction were we operate, and we may be unable to obtain insurance in other jurisdictions
generally or on as favorable terms as previously obtained.
As of December 31, 2024, our insurance receivables for
silicosis-related claims were $32.2 million. Although we believe that it is probable that such receivables will be paid to us when
such payments are due, if our insurers deny such claims or future claims that we may make or otherwise contest their obligation to pay
us in full or on a timely basis, such failure could have a material adverse effect on our financial results and cash flow. For example,
in the United States, we are subject to a reservation of rights letters from our insurers and face a range of possible limitations on
our insurance coverage therefore we cannot be certain as to payment of such coverage.
Changes in laws
and regulations relating to hazards associated with engineered stone surfaces or with the crystalline silica in stone surfaces may adversely
and materially affect our business.
Our global markets are subject to evolving legislation
and regulation aimed at protecting workers from exposure to RCS. While we certainly support initiatives aimed at improving health and
safety, some of these may have an adverse effect on our business and financial performance.
For example, in Australia, the federal government’s
group of work safe ministers resolved to ban the use, supply and manufacture of engineered stone slabs containing crystalline silica (including
quartz-based products, that constituted a major part of our Australian offering). The ban came into effect on July 1, 2024, in most of
Australia’s states and territories. Our efforts to comply with these new Australian laws and regulations, and to address the resulting
response in the Australian market, may not be optimal or even successful and that may have a materially adverse impact on our financial
results. During 2024, for example, our revenues declined by 28.8%, which we believe is also related to the new Australian laws and regulations.
With this precedent in place, other jurisdictions may follow the path of imposing new laws and regulations that may limit our ability
to effectively compete in markets in which we currently operate, thereby resulting in a material adverse effect on our performance and
financial results.
Likewise, on December 19, 2024, California’s occupational
safety and health standards board approved an emergency temporary standard aimed at protecting workers in the stone fabrication industry
from exposure to RCS as a permanent standard. Prior to that, during in February 2020, the U.S. Occupational Safety and Health Administration
(OSHA) published its National Emphasis Program addressing the hazards of silica, supplemented recently in September 2023 where OSHA announced
a new initiative to conduct enhanced enforcement and compliance efforts (RCS focused inspection initiative in the engineered stone fabrication
and installation industries). Additional regulatory changes regarding the ability to use, process or sell stone countertops, particularly
engineered stone, the safety measures required in such activities, may materially adversely affect our business if they disrupt our relevant
markets.
8
We may be required to incur additional expenses associated
with exposure to RCS in the silica containing surfaces industry to enhance our compliance with current and future laws, regulations, or
standards. Failure to comply with such regulatory requirements may expose us to regulatory actions (as detailed below in “—The
extent of our liability for environmental, health and safety, product liability and other matters may be difficult or impossible to estimate
and could negatively impact our financial condition and results of operations”) as well as lawsuits. Greater regulatory scrutiny
and action may also lead to greater propensity for litigation against us or ultimately result in a government ban on our products.
Economic
and External Risks
Economic downturns
particularly in home renovation and construction may materially and adversely impact end-consumers and lower demand for our products,
which may cause our revenues and net income to decrease.
Our products are primarily used as countertops in residential
kitchens. As a result, our sales depend significantly on home renovation and remodeling spending, as well as new residential construction
spending, primarily in the United States, Australia (unless stated otherwise, reference to Australia in this report includes Australia
and New Zealand), Canada and Israel. We estimate (based on part of Freedonia Report) that approximately 60%-70% of our revenue in our
principal markets (U.S., Australia, Canada) is related to residential renovations and remodeling activities, while 30%-40% is related
to new construction.
Recent economic downturns, high inflation and increased
interest rates have had a major effect on the housing markets that, during 2024, experienced reduced levels of consumer demand for new
homes as well as reduced levels of construction, and renovation. This may continue for longer than expected. During such periods, consumer
confidence historically erodes, and individuals and businesses may choose to reduce their discretionary spending and, as a result, delay
or cancel their home renovation or remodeling projects. If this trend continues we may face further decreases in demand for our products,
which may adversely impact our business and financial results.
As many of our customers are homebuyers or homeowners that
depend on financing for their purchases (construction and renovation), lack of availability of consumer credit or increased interest rates
may hinder their ability to continue such purchasing. Interest rate increases in the U.S. and around the world have and may further increase
the cost of financing for consumers who in turn limit their renovation and remodeling expenditures or home purchases. The current slowdown
in the housing market has impacted the demand for our products. If these trends persist, they may materially and adversely affect our
ability to grow or sustain our business, our revenues and net income.”
Adverse global
conditions, including macroeconomic slowdowns and recessions, and geopolitical instability, have in the past and may continue to negatively
impact our financial results.
Global conditions in the financial markets, inflation
and increasing interest rates have in the past and may continue in the future to adversely impact our business. The global macroeconomic
environment has been and may continue to be negatively affected by, among other things, instability in global economic markets, increased
trade tariffs and trade disputes, instability in the global credit markets, interest rates or even availability of credit, supply chain
weaknesses, instability in the geopolitical environment as a result of the Russian Ukraine conflict, the withdrawal of the United Kingdom
from the European Union, and other political tensions, and foreign governmental debt concerns. The Houthi’s disruption to the movement
of goods in the Red Sea has created global security concerns, resulted in higher sea freight expenses during 2024 and had an adverse impact
on regional and global economies. Such challenges have caused, and may continue to cause, uncertainty and instability in local economies
and in global financial markets, which may adversely affect our business. For example, higher interest rates and inflation during 2024,
negatively impacted consumer spending by avoiding or down-grading purchases, and we believe adversely affected our business.
9
We
face intense competitive pressures which could materially and adversely affect our results of operations and financial condition
.
We have invested considerable resources to position
our surfaces as premium branded products. Our surface competes with other surface materials and brands on a range of factors. These factors
include, among other things, pricing, brand awareness and brand position, product quality, product differentiation, design and breadth
of product offerings, surface dimensions, new product development and time to market, availability and supply time, technological innovation,
popular home interior design trends, availability of inventory on demand, distribution coverage, customer service and versatility in products
portfolio.
Due to our products’ relatively high quality and
positioning, we generally set our prices - especially for our more differentiated products - at a higher level than alternate surfaces.
It is possible that competitors may be able to produce or source similar surface products at a lower cost. Further penetration of these
products into our active markets is reducing and may further reduce, our market share, limit our ability to increase prices and have a
material adverse effect on our financial condition and results of operations.
Since certain competitors can produce products more
efficiently, due to various factors, such as raw material location and availability, and offer products at lower prices, while adapting
more quickly to changes in consumer preferences and demands, we may further lose market share, and our financial results may further suffer.
Our results of
operations may be materially and adversely affected by fluctuations in currency exchange rates, and we may not have adequately hedged
against them.
We conduct business in multiple countries, which exposes
us to risks associated with fluctuations in currency exchange rates between the U.S. dollar (our functional currency) and other currencies
in which we conduct business. In 2024, 51.3% of our revenues were denominated in U.S. dollars, -17.0% in Australian dollars, 13.9% in
Canadian dollars, 6.0% in Euros and 3.9% in NIS and a smaller portion in other currencies. In 2024, most of our expenses were denominated
in U.S. dollars, NIS and Euros, and a smaller proportion in Canadian and Australian dollars and other currencies. As a result, devaluations
of the Australian dollars, and to a lesser extent, the Canadian dollar relative to the U.S. dollar may unfavorably impact our profitability.
As a result, appreciation of the NIS, and to a lesser extent, the Euro relative to the U.S. dollar may unfavorably affect our profitability.
We attempt to limit our exposure to foreign currency fluctuations through forward contracts, which, except for U.S. dollar/NIS forward
contracts, are not designated as hedging accounting instruments under ASC 815, Derivatives and Hedging. We currently engage in derivatives
transactions, such as forward contracts, to hedge against the risks associated with our foreign currency exposure. Our strategy to hedge
our cash flow exposures involves consistent hedging of exchange rate risk in variable ratios up to 100% of the exposure over 12 months.
As of December 31, 2024, our average hedging ratio was approximately 5% out of our expected currencies exposure for 2024. As of December
31, 2024, we had total outstanding forward contracts with a notional amount of $2.5 million. These forward contracts were for a period
of up to 12 months. The fair value of these foreign currency derivative contracts was positive $0.1 million, which is included in our
current assets, as of December 31, 2024. Hedging results are charged to finance expenses, net, and therefore, do not offset the impact
of currency fluctuations on our operating income. Our U.S. dollar/NIS forward contracts are charged to operating expenses as designated
hedge instruments, partially offsetting the impact of the U.S. dollar/NIS currency fluctuations on our operating income (loss). While
we may decide to enter into additional hedging transactions in the future, the availability and effectiveness of these transactions may
be limited and we may not be able to successfully hedge our exposure, which could adversely affect our financial condition and results
of operations. For further discussion of our foreign currency derivative contracts, see “ITEM 11: Quantitative and Qualitative Disclosures
About Market Risk.”
10
Global trade
is affected by governmental involvement, including through antidumping and countervailing duties and these may cause unforeseeable market
changes that could adversely impact our financial results.
Antidumping and countervailing duty orders are designed
to provide relief from imports sold at unfairly low or subsidized prices by imposing special duties on such imports. Such orders normally
benefit domestic suppliers in the country in which the duty orders are in place and foreign suppliers not covered by the orders. During
2018 and 2019, antidumping and countervailing duty (“
AD/CVD
”) petitions were filed
with the U.S. Department of Commerce (“
DOC
”) and the International Trade Commission
(“
ITC
”). The petitions, which were filed by a U.S. quartz manufacturer, alleged that
Chinese, and subsequently Indian and Turkish, manufacturers injured the U.S. domestic quartz industry and therefore duties were required
to offset such unfair trade practices. Ultimately, the DOC and ITC imposed AD/CVD duties ranging approximately between 265% and 340% for
Chinese produced quartz engineered stone, and between 3.81% and 80.79% for Indian and Turkish quartz engineered stone.
The imposition of these duties has prompted some affected
manufacturers to redirect their products into other markets where we operate, including Australia, where we hold a higher market share
than in the U.S. This shift has created increased competitive pressures on our operations and financial results.
Recent developments in U.S. trade policy have introduced
additional complexities. As of October 2024, a preliminary duty rate of 3.08% was applied to our porcelain products imported from India
due to an ongoing antisubsidy investigation. Although the DOC recently announced a preliminary negative determination regarding antidumping
duties for certain companies exporting tile from India, this investigation is not yet concluded. Final determinations regarding both antidumping
and antisubsidy investigations are expected in April 2025. Moreover, we cannot predict future changes to trade policy by the Trump Administration,
U.S. Congress or other governments, including tariffs or new trade agreements, or their impact on our business. Such changes in trade
policy or in laws and policies governing foreign trade, and any resulting negative sentiments towards the United States as a result of
such changes could materially and adversely affect our business, financial condition, results of operations and liquidity.
In addition to U.S. market dynamics, we are also impacted
by developments in Europe. On October 29, 2021, the European Ceramic Tile Manufacturers’ Federation, filed a complaint with the
European Commission (“
Commission
”) regarding imports of ceramic tiles from India and
Turkey, leading to a tariff of 7.9% applicable to these imports. Such tariffs can further complicate our competitive landscape in European
markets.
The shifting landscape of trade policies, including
potential changes in AD/CVD tariffs imposed by the U.S., Europe, or other regulators, may increase operational uncertainty and materially
impact our financial results moving forward. Furthermore, should Chinese, Indian, or Turkish exporters adapt by focusing on competing
materials or markets to circumvent these duties, we could face heightened competitive pressures across all markets where we operate.
If we are unable
to pass on rising costs to our customers, it could have a material adverse effect on our business.
The prices of our raw materials, shipping and energy-related
costs have in the past and may in the future experience volatility that could materially impact our business and financial results. We
also rely on shipping raw materials and finished goods. While we usually attempt to pass on such increased costs to our customers, our
ability to do so depends on many factors including competition in our markets, availability of credit and the housing market. If we are
unable to mitigate the increase of such costs, particularly raw materials and shipping, our financial condition and results of operations
could be materially and adversely affected. A slowdown in our markets may result in decreased demand for our products and limit our ability
to raise prices.
11
We may need to
raise funds to finance our current and future capital needs, which may dilute the value of our outstanding ordinary shares, increase our
financial expenses or limit our business activities.
We may need to raise funds to finance our existing and
future capital needs, including funding ongoing working capital requirements or funding bodily injury claims or settlements. If we raise
funds through the sale of equity securities, these transactions may dilute the value of our outstanding ordinary shares. Any debt financing
would increase our level of indebtedness and could negatively affect our liquidity and restrict our operations and may also prove expensive
in light of the increasing interest rates. We may be unable to raise additional funds on terms favorable to us or at all. If financing
is not available or is not available on acceptable terms, we may be unable to fund our future needs. This may prevent us from increasing
our market share, capitalizing on new business opportunities or remaining competitive in our industry, which could materially and adversely
affect our business, prospects, financial condition and results of operations.
Operational
Risks
Problems inherent
in the use of third-party Production Business Partners (PBP), such as a failure to effectively collaborate or diversify our relationships
with various PBPs, could materially adversely affect our competitive position or profitability.
The closure of our production facilities in Sdot-Yam,
Israel and Richmond-Hill, Georgia, have significantly increased the portion of our products produced by our third-party PBP located in
Asia and Europe. Since 2021, we have accelerated our strategy to source certain product models from third-party PBP. This trend
continued as we transitioned more elaborate models to our PBP resulting in a higher portion of our goods sold produced by them.
We expect this trend to continue during 2025 and further increase our reliance on third party manufacturers. Our ability to serve our
markets with the right product offering at competitive prices depends on our ability to successfully manage these sourcing partnerships.
Failure to meet challenges such as IP retention, quality control in raw-materials and finished goods, coordinating logistics, inventory
and supply chain challenges and maintaining compliance not only with applicable laws but with market expectations in fields such as ESG,
may have an adverse effect on our business and results of operations.
Moreover, our failure to effectively manage our PBP
supplier-partnerships could not only require us to locate alternative manufacturers or invest further in our facilities, but could cause
delays in manufacturing, increase our costs, negatively impact our brand, reputation, and the quality of our products. Even if we do effectively
manage such relationships, they may not help us to successfully optimize our operations and reduce costs.
If we fail to
effectively manage the required changes in our production and supply chain, we may be unable to serve the market or suffer additional
inefficiencies.
Our production and supply chain processes are complex,
and they rely on our estimates and forecasts in terms of volume, product mix, and delivery times. These processes involve independent
and interdependent suppliers, owned and leased locations, external manufacturing partners, distribution networks, delivery centers and
information systems, each of which supports our ability to provide our products to our customers. A failure to accurately forecast consumer
preference and market trends or manage necessary inventories, disruptions to our production and supply chain processes, including managing
our PBP product production and deliveries, all may hinder the availability of our products in the market, result in loss of sales, increase
shipping costs and harm our relationships with our suppliers and customers, damage our brand and reputation and have a material adverse
effect on our results of operations.
Changes
in the prices of raw materials may increase our costs and decrease our margins and net income (loss).
The principal raw materials used for our products are polyester
and various combinations of minerals (such as quartz and pigments). In 2024, due to the closure of our production facilities in Sdot Yam
and Richmond Hill and the increasing portion of products purchased from our PBP, raw materials used in our in-house manufacturing processes
accounted for approximately 17.6% of our cost of goods sold (in comparison with approximately 30%, during 2023). The cost of raw materials
consists of the purchase prices of such materials and costs related to the logistics of delivering the materials to our manufacturing
facilities. The raw materials used in our products are subject to price volatility caused by weather, supply conditions, government regulations,
economic and political climate, labor costs, and other unpredictable factors. During 2024, our raw materials costs were also impacted
by changes in foreign currency exchange rates, mainly the Euro as it relates to polyester and other raw materials purchased from Europe.
Any increase in raw material prices increases our cost of sales and can decrease our margins and net income (loss). Furthermore, we may
face market conditions that will make it impossible to pass all or some of the increased costs on to our customers. If we are unable to
recover these costs it may have a material adverse effect on our financial results. For cost of our raw materials in 2024 and prior years,
see “ITEM 5.A: Operating Results and Financial Review and Prospects—Operating Results—Cost of revenues and gross profit
margin.”
12
Dry minerals used in the production of our products,
such as quartz, quartzite and other minerals are the main raw material components used in our engineered stone products. These minerals
accounted for approximately 38.2% of our raw materials cost used in our internal engineered stone production in 2024. Our cost of sales
and overall results of operations may be impacted significantly by fluctuations in prices. For example, if the cost of our raw materials
rose by 10% in 2024, we would have experienced a decrease of approximately 0.5% in our gross profit margin in such a year. In 2024, our
average cost of such minerals increased by 6.1%, following a decrease of 7.7% during 2023. The increase in 2024 is mainly due to the mix
of minerals purchased. Any future increases in quartz or other mineral prices could also materially and adversely impact our margins and
net income.
Polyester, which acts as a binding agent in our products,
accounted for approximately 31.5% of our raw materials costs in 2024. Accordingly, our cost of sales and overall results of operations
may be impacted significantly by fluctuations in polyester prices. For example, if the cost of polyester rose 10% in 2024, we would have
experienced a decrease of approximately 0.38% in our gross profit margin for such a year. The cost of polyester we incur is a function
of, among other things, manufacturing capacity, demand and the price of crude oil and more specifically benzene. Our cost of polyester
fluctuated significantly over the years. In 2024, our average polyester cost increased by approximately 0.3% following an decrease of
approximately 31% during 2023. We acquire polyester on an annual framework basis, or a purchase order basis based on our projected needs
for the subsequent one to three months. Going forward, we may face price pressures from our polyester suppliers as our overall quantities
produced decrease with the closure of our Sdot-Yam and Richmond-Hill facilities.
Any global increase in the prices of these raw materials
may impact the price of products we purchase from our PBPs.
As a result of recent global economic conditions (as
discussed in the risk factor titled “Adverse global conditions, including macroeconomic and geopolitical uncertainty, may negatively
impact our financial results”), the prices of raw materials used for our products has been particularly volatile. If we are
unable to increase the price of our products to cover increased costs, to offset operating costs increases, then commodity and raw material
price volatility or increases could materially and adversely affect our profitability, financial condition and results of operations.
If we are unable to source raw materials, it could limit our ability to utilize our manufacturing facilities. In addition, increases in
the prices of these raw materials may have a material adverse effect on our financial results.
For cost of our raw materials in 2024 and prior years,
see “ITEM 5.A: Operating Results and Financial Review and Prospects—Operating Results—Cost of revenues and gross profit
margin.”
We rely on our
suppliers to deliver parts, components, manufacturing equipment, and raw materials to our facilities, and our ability to manufacture efficiently
and without disruption depends on the availability, transportability and prices of such goods.
We currently manufacture our products at our facilities
in Israel and India. In addition, we source a growing portion of our products from PBPs which are also subject to similar risks. We actively
manage our global supply chain and production facilities in Israel and India.
Although our reliance on producers of our production
lines, such as Breton, has diminished following the closure of our Sdot Yam plant, our Richmond hill plant and the growing portion of
our products being sourced from PBP, we still rely on such producers for the availability of certain spare parts and for their support
and know-how required to resolve specific technical issues with their manufacturing equipment. Our ability to obtain critical spare parts,
manufacturing equipment, and technical support from these suppliers could be affected if they experience insolvency, business cessation,
or delays in providing necessary components. Any disruption in the supply of such parts, expertise, or technical support could have some
impact on our production lines, potentially leading to delays or disruptions in our manufacturing process.
13
Other supply chain risks include but are not limited
to disruptions in shipping logistics; shutdowns or reduced operations at our suppliers’ facilities; changes in the market prices
for minerals, clay, and styrene and other parts and materials used in our production processes, including those performed by our PBP.
Shortages of raw materials or parts, or the increase in their cost or the cost of their transportation would have a material adverse effect
on our business and consolidated results of operations.
For example, from 2021 through 2024 we have experienced
disruptions and volatility in our supply chain that we expect to continue through 2025. Supply chain issues have occurred on a global
scale, which have been triggered by various factors, including among other reasons, the COVID-19 pandemic, weather conditions and other
geopolitical events, such as Russia-Ukraine war (effecting the availability of Ukrainian clay and energy prices), the war in Israel and
the Houthi’s disruption to the movement of goods in the Red Sea, that effected many factors such as sea freight prices and have
caused delays in the arrival of or otherwise constrained our supply of raw materials, particularly minerals and porcelain, which are essential
and non-fungible components in the manufacture of our countertops and surface products.
There can be no assurance that we will be able to effectively
manage our global supply chain and manufacturing operations in the future. Price increases imposed by our suppliers for raw materials
and goods and transportation price increases may all have a material adverse effect on our business and consolidated results of operations.
While we intend
to introduce new products and materials, we cannot guarantee their market success.
Our competitive advantage is due, in part, to our ability
to design, develop, outpace competitors, introduce and sell innovative new and/or improved products and strengthen our brand. To
maintain such an advantage, we invest considerable resources in research and development. Such new products may include entirely new types
of products, new designs, new colors, sizes and thicknesses, new and alternative materials (including as recently done, replacing
the composition of some traditional quartz-based products) and complementary products. Introducing new products involves uncertainties,
such as predicting changing consumer preferences, development challenges, manufacturing challenges, marketing and selling new technologies,
products and materials, entering new market segments, timing the launch of new products to the markets, their success, and the need to
outpace competitors. Despite our efforts to expand our offering with new products, we may not be successful due to such uncertainties
and challenges, which may result, among other things, in higher-than-expected expenses, lower than expected sales, loss of market share
and a material adverse effect on our margins and results of operation.
For example, as a result of the Lioli Acquisition in
2020, we commenced manufacturing and sales of porcelain slabs for different applications, including countertops as well as facades, flooring
and cladding. As a result of the Omicron Acquisition (as defined below), we added natural stone and ancillary products for kitchen installation
and fabrication to our list of products. In addition, during the second quarter of 2023, we incurred significant costs associated with
the necessary RD activities for the introduction of a new offering based on alternative materials. Although we believe that the expansion
into new products, materials and, in some cases, other business models such as the Omicron business may pose an opportunity to leverage
our existing business, no guarantee can be given as to customer demand for the new products. Moreover, in the future we may decide to
introduce additional new products and enter new markets, whether through cooperation with third-party manufacturers or manufacturing at
our own facilities.
Addressing these markets entails additional risks and
liabilities that should they materialize may have a material adverse effect on our financial results.
Our manufacturing
process, as well as that of our PBPs, is highly dependent on the consistency and quality of the raw materials received. Any changes or
defects in the raw materials supplied to our facilities or our PBP could adversely impact on our operations, reputation, results and financial
condition.
Our manufacturing process, as well as that of our PBPs,
is highly dependent on the consistency and quality of the raw materials received. If the quality of the raw materials supplied to our
facilities or to our PBPs, selected from certified raw material suppliers, is compromised, defective, or altered, it could result in defects
in our products, which may not meet our quality standards or the expectations of our customers. We routinely conduct tests on incoming
raw materials to ensure they align with the relevant specifications and our quality standards. In particular, with respect to our transition
of a significant portion of our quartz product portfolio to alternative products, with lower levels of respirable crystalline silica (RCS),
we perform random and rigorous quality control testing on every batch of incoming raw materials to measure their RCS levels. These tests
are conducted by a limited number of specialized laboratories.
14
If certain contaminants are found to be in purchased
raw materials and this is not detected in time, it could lead to delays in production, loss of production time, manufactured products
that do not meet our quality standards and specifications. We could also face the costs associated with product recalls and related warranty
claims. Such product issues and operational disruptions could have a material adverse impact on our financial results and financial condition.
A sizable proportion
of our sales in North America is attributable to a limited number of large retailers; any deterioration of our relationships with such
retailers or deterioration in their business performance (in fields relevant to the sale of our products) could adversely impact our results
of operations.
We supply our products to retailers or directly to their customers
in a manner that may include fabrication and installation services of the countertops. Such services are performed by selected third party
contractors (engaged by either us or by the retailer). While we expect that these retailers will continue to offer our products, there
is no assurance that such current agreements will continue, be renewed at all or on similar terms. In case these collaborations are terminated
or not renewed, our revenue could significantly decrease. These collaborations also depend on our ability to meet the quality and service
expectations of the retailers and their customers. Such collaborations also rely on our ability to effectively manage our PBP and their
ability to meet customer expectations. If our PBP fail to meet these expectations in any respect, it could affect our customers' decisions
regarding these collaborations. See also “—Problems inherent in the use of third-party PBP, such as a failure to effectively
collaborate or diversify our relationships with various PBPs, could materially adversely affect our competitive position or profitability”.
Our sales via retailers may be affected, among other things,
by their focus, material preferences, reaction to the occupational safety issues, sales and promotional events: their timing, scope and
other terms that are determined exclusively by such retailers, all of which may impact our sales volume. Accordingly, we may not be able
to maintain or increase such sales or its current profitability level..
In addition, we have entered into arrangements with
third parties that fabricate and install finished countertops. Their performance may impact our relationships with retailers or other
business partners, our quality and service level, ESG performance, and ability to manage the installation and fabrication of countertops
to meet the end consumers’ demands at reasonable prices. These collaborations also depend on our ability to meet the quality and
service expectations of these third-party fabricators and installers. If we are unable to successfully manage the installation and fabrication
services performed for us by these third-party fabricators and installers, we may experience relatively high waste of our products used
by fabricators for such works, and complaints from end-consumers with respect to supply time, quality and service level of the fabrication
and installation, including defects and damages. Such risks could expose us to warranty-related damages, which, if not covered back-to-back
by the fabricators engaged by us, could have a materially adverse effect on our financial results, reputation and brand position, and
could lead to the termination of our agreements with retailers and end customers.
Our ability to
fully integrate acquisitions, joint ventures and/or investments, could be more difficult, costly and time-consuming than we expect and
therefore disrupt our business and adversely affect our financial results
Our success will depend, in part, on our ability to
expand our product offerings and grow our business in response to customer demands, competitive pressures and industry trends in the home
renovation and construction sectors. We pursue our growth strategy by acquiring complementary businesses across the globe. For example,
our latest acquisitions of Lioli, an India-based porcelain countertop slab producer, in October 2020, Omicron, a stone supplier based
in Pompano Beach, Florida, in December 2020 and Caesarstone Scandinavia (formerly named Magrab), a leading distributor in Sweden in July
2022.
15
The combination of independent businesses is a complex,
costly and time-consuming process. While we continue to make progress in integrating acquired businesses with ours, such efforts are often
ongoing and may take several years to complete. During this time, we and our management have encountered, and are likely to continue encountering,
challenges with respect to achieving anticipated synergies. These challenges may include high turnover rates of key employees, difficulties
in assimilating employees into our workplace culture, and maintaining consistent operational standards and processes. While we seek to
manage these transitions carefully, any continued retention issues at our acquired companies or integration difficulties could result
in a loss of institutional knowledge, disrupt business operations, and negatively impact our financial results.
In addition, we may be exposed to unforeseen or undisclosed
claims and liabilities arising from the operations of acquired businesses, including those incurred prior to the dates we acquired them.
For example, discrepancies in local and regional authorities records regarding property ownership or title could lead to challenges in
our ownership of acquired facilities or assets. Our ability to seek indemnification from the former owners for these and other claims
or liabilities could be significant and limited by various factors, including the specific limitations in the respective acquisition agreements
and the financial ability of the former owners. If we are unable to enforce any indemnification rights, or if we do not have such rights,
we could be held liable for the costs or obligations associated with these claims, which could adversely affect our operating performance.
Furthermore, acquisitions may result in carrying significant
amount of intangible assets (including goodwill) on our balance sheet. We have taken impairment changes in the past and may do so again
in the future if integration challenges or unforeseen liabilities arise, potentially leading to significant write-downs that could adversely
affect our financial condition.
For example, we recognized an impairment charge totaling $3.2
million in 2024 as a result of a slowdown in demand due to global market conditions and the impact on the integration of the acquired
businesses.
We rely on select
suppliers in specific regions for the raw materials used in the production of our products, and we may encounter significant manufacturing
delays if we experience disruptions in these supply arrangements and/or are required to change suppliers.
Our principal raw materials for engineered stone products
are minerals (such as quartz), polyester and pigments. We typically transact business with our raw-material suppliers on a periodical
framework basis, under which we execute purchase orders from time to time.
We acquire polyester from several suppliers, mainly
from Europe, on a periodic basis, or on a purchase order basis based on our projected needs. The supply of pigments required for the production
of our engineered stone products is also limited and we currently rely on a mainly single supplier for the processing of such pigments.
We cannot be certain that any of our current suppliers will continue to provide us with the quantities of raw materials that we require
or will be able to satisfy our anticipated specifications and quality requirements. We may also experience a shortage of such materials
if, for example, demand for our products increases.
In addition, we may lose our supply contracts or arrangements,
or the ability to effectively enforce our rights thereunder, if our supplier relationships are disrupted as a result of factors beyond
our control, including, for example, effects of political and geo-political factors in the regions where our supplies are located. For
instance, the current political tensions between Turkey and Israel due to the war in Gaza have disrupted our commercial arrangements with
Turkish suppliers, requiring us to find alternative solutions for our supply chain.
If our supply of raw materials is adversely impacted
to a material extent or if, for any reason, any of our suppliers does not perform in accordance with our expectations, for any reason,
we would need to locate alternative suppliers or outsource more production to PBPs. Securing replacement of such suppliers could result
in substantial delays in manufacturing, increase our costs, negatively impact the quality of our products, or require us to adjust our
products and our manufacturing processes. Any such delays in or disruptions to the manufacturing process could materially and adversely
impact our reputation, revenues and results of operations as well as other business aspects, such as our ability to serve our customers
and meet their order requests.
16
For more information with regards to suppliers of raw materials
used in our products, see “ITEM 4.B: Information on the Company—Business Overview—Raw materials and Production Business
Partners Relationships.”
Our revenues
are subject to significant geographic concentration and any disruption to sales within one of our key existing markets, or to sales to
a major customer therein, could materially and adversely impact our results of operations and prospects.
Our sales are subject to significant geographic concentration,
with the four largest markets accounting for 84.4% of revenues. In 2024, sales in the United States, Australia (including New Zealand),
Canada and Israel accounted for 49.5%, 17.0%, 13.9% and 3.9% of our revenues, respectively. Our results of operations could be materially
and adversely impacted by a range of factors, including spending on home renovation and remodeling and new residential construction in
the region (as discussed above), local competitive changes, changes in consumers’ preference regarding engineered stone surfaces,
particularly quartz-based and its low silica variations surfaces or countertop preferences in general, and regulatory changes that specifically
impact these markets. For example, as recently published Australian regulators have resolved to ban crystalline silica containing engineered
stones during 2024, and while we offer alternative products, the introduction of such alternative products in our active markets remains
subject to uncertainties and challenges. Since the Australian market is our second largest, loss of any such market share and corresponding
revenues would materially and adversely affect our results of operations. In addition, other states and jurisdictions may follow suit
and adopt similar legislation adversely impacting our business, and if such occurs in one of our principal markets, the impact may be
major. Likewise, our principal markets may also be impacted by other general economic conditions, including in a global or local recession,
depression, high inflation or other sustained adverse market events and increases in imports of cheaper engineered stone surfaces from
low-cost countries manufacturers into such markets, especially the United States, Australia and Canada. Stronger local currencies could
make lower-priced imported goods more competitive than our products. Although we face different challenges and risks in each of the markets
in which we operate, due to the existence of a high level of geographic concentration, should an adverse event occur in any of these jurisdictions,
our results of operations and prospects could be impacted disproportionately.
A key element
of our strategy is to expand our sales in certain markets, such as the United States and segments, such as services. Failure to expand
such sales would have a material adverse effect on our future growth and prospects
A key element of our strategy is to expand sales of
our products in certain of our key existing markets, as well as additional new markets and offerings that we believe have high growth
potential. In line with our strategic restructuring plan, we are making efforts to optimize our distribution network in the United States,
including through the expansion of our brand into the South, Southeast and Ohio Valley markets via the Omicron Acquisition. In addition,
a growing portion of our revenues is attributable to installation and fabrication services.
We estimate we can continue to expand our brand and
the sales of our products in the United States where, according to Freedonia, engineered surfaces represented 24% of the total countertops
by volume installed in 2024.
We face several challenges in generating demand for our products
in the United States or other markets for various reasons. If the market for our products in these regions does not develop as we expect,
our future growth, business, prospects, financial condition, and operating results will be adversely affected. In addition, changes to
trade environments, including imposition of import tariffs or withdrawal from or revisions to international trade policies or agreements,
may affect our growth potential globally, and further impact other markets in which we operate. See “—We face intense competitive
pressures which could materially and adversely affect our results of operations and financial condition”.
17
Even if we are able to increase our brand awareness
and the demand for our products in these and other regions, which we consider to be viable markets, we may face certain challenges in
supplying materials to large retailers in these regions. For more information, see “—A sizable proportion of our sales in
North America is attributable to a limited number of large retailers; any deterioration of our relationships with such retailers or deterioration
in their business performance (in fields relevant to the sale of our products) could adversely impact our results of operations”
Additionally, our reliance on third-party suppliers to provide installation and fabrication services to large retailers could impair our
relationship with our customers, which could also materially harm our business and results of operations. Our success will depend, in
large part, upon consumer acceptance and adoption of our products and brand in these markets, on the level of our execution, our go-to
market strategy and its implementation and the timely availability of our products across regions, and if we do not effectively expand
into these markets, there could be an adverse impact on our sales and financial condition.
Our distributors’
actions may have a materially adverse effect on our business and the results of operations. Our results of operations may be further impacted
by the actions of our re-sellers.
Sales to third-party distributors accounted for approximately
10% of our revenues in 2024. In our indirect markets, we depend on the success of the selling and marketing efforts of our third-party
distributors, and any disruption in our distribution network could materially impair our ability to sell our products or market our brand,
which could materially and adversely affect our business and results of operations. As we have limited control over these distributors,
their actions could also materially harm our brand and company reputation in the marketplace.
In the majority of our distribution arrangements, we
operate based on an initial agreement or general terms of sale or, in certain cases, without any agreement, in writing or at all. The
lack of a written agreement with many of our distributors may lead to ambiguities, costs and challenges in enforcing the terms of such
arrangements, including where we wish to terminate early due to the distributor’s failure to meet annual sales targets. We have
experienced difficulties, including litigation, in connection with the termination of certain of our distributors due to disputes regarding
their terms of engagement. See “ITEM 8.A: Financial Information—Consolidated Financial Statements and Other Financial Information—Legal
proceedings.” Additionally, we may be unable to distribute our products through another distributor within the territory during
the period in which we must give prior termination notice, or to identify and retain new distributors upon termination, which may materially
and adversely impact our market share, results of operations, relationships with our customers and end-consumers and brand reputation.
Because some of our distributors operate on nonexclusive terms, distributors may also distribute competitors’ countertop surfaces
or other surface materials, which may cause us to lose market share. If we opt to distribute our products directly upon termination of
existing arrangements with our distributors, ramping up our logistics and shipping capabilities could require significant time and financial
commitments, which could materially and adversely impact our market share and results of operations. We cannot assure you that we will
be able to successfully transition to direct distribution in a timely or profitable manner.
In several regions including United States, we supply
our products in part to sellers who in turn re-sell them to fabricators, contractors, developers and builders. Certain actions by such
third parties may also materially harm our brand and reputation. The failure of one or more of our re-sellers or retailers to effectively
promote our products, or changes in the financial or business condition of these re-sellers or retailers could adversely affect results
of our operations.
The termination of arrangements with distributors and
re-sellers may lead to litigation, resulting in significant legal fees for us and detracting from our management’s effort, time
and resources. In addition, our distributors and re-sellers generally disclose to us sales volumes and other information on a monthly
or quarterly basis. Inaccurate sales forecasts, on which we have already relied on in our production planning or our failure to understand
correctly the information in a sales report could cause significant, unexpected volatility in our sales and may impact our ability to
make plans regarding our supply chain. Any of these events could materially and adversely affect or cause unexpected fluctuations in the
results of operations.
18
Our business
is subject to disruptions and quarterly fluctuations in revenues and net income (loss) as a result of seasonal factors, weather-related
conditions, natural disasters, building construction cycles and actions by third parties over which we have no control, which are hard
to predict with certainty.
Our results of operations have in the past and may in
the future be impacted by seasonal factors, weather-related conditions, and construction and renovation cycles. The levels of manufacturing,
fabrication, distribution, and installation of our products generally follow activity in the construction and renovation industries. Severe
weather conditions, such as unusually prolonged cold conditions, hurricanes, severe storms, earthquakes, floods, fires, droughts, other
natural disasters or similar events could reduce, delay or halt the construction and renovation industries in the markets in which we
operate, and our businesses may be adversely affected. Markets in which we operate that are impacted by winter weather, such as snowstorms
and extended periods of rain, may experience a slowdown in construction activity during the beginning and the end of each calendar year,
and this winter slowdown contributes to lower sales in our first and fourth quarters. Natural disasters including tornadoes, hurricanes,
floods and earthquakes may damage our facilities, the launch facilities we use or those of our suppliers, which could have a material
adverse effect on our business, financial condition and results of operations. For more information, see “ITEM 5.A: Operating and
Financial Review and Prospects—Operating Results—Factors impacting our results of operations”. Adverse weather in a
particular quarter or a prolonged winter period can also impact our quarterly results. Our future results of operations may experience
substantial fluctuations from period to period as a consequence of such adverse weather. Increased or unexpected quarterly fluctuations
in our results of operations may increase the volatility of our share price and cause declines in our share price even if they do not
reflect a change in the overall performance of our business.
Furthermore, our ability, and that of our suppliers,
PBP suppliers, distributors, customers and other third parties, to develop, manufacture, transport, distribute, sell, install, and use
our products is critical to our success. Damage or disruption to our or their operations could occur due to various factors, some of which
cannot be foreseen, including, among others, telecommunications failures; power, fuel, or water shortages; strikes, labor disputes or
lack of availability of qualified personnel; or other reasons beyond our control or the control of such third parties. Failure to take
adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could
continue to result in adverse effects on our business, financial condition or results of operations.
Regulatory,
Safety and Security Risks
Disruptions to
or our failure to upgrade and adjust our information technology systems globally may materially impair our operations, hinder our growth,
and materially and adversely affect our business and results of operations.
We believe that an appropriate information technology
(“
IT
”) infrastructure is important to support our daily operations and the growth of
our business. To this end, we are implementing a digital transformation within the Company to better streamline processes and support
our business strategy. Our technological and digital investments are geared towards operational enhancements in supply chain management
and production, along with improvement of our go-to-market tools.
If we experience difficulties in implementing new or
upgraded information systems or experience significant system failures, or if we are unable to successfully modify our management information
systems or respond to changes in our business needs, we may not be able to effectively manage and grow our business, and we may fail to
meet our reporting obligations. Additionally, if our current back-up storage arrangements and our disaster recovery plan are not operated
as planned, we may not be able to effectively recover our information system in the event of a crisis, which may materially and adversely
affect our business and results of operations.
In the current environment, there are numerous and evolving
risks to cybersecurity and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee
malfeasance and human or technological error. High-profile security breaches at other companies and in government agencies have increased
in frequency and sophistication in recent years. Although we take steps designed to secure our IT infrastructure and sensitive data and
enhance our business continuity and disaster recovery capabilities, we can provide no assurance that our current IT system or any updates
or upgrades thereto, the current or future IT systems of our distributors or re-sellers or the IT systems of online paying agents that
we use or may use in the future, are fully protected against third-party intrusions, viruses, hacker attacks, information or data theft
or other similar risks. We carry data protection liability insurance against cyber-attacks, however the potential magnitude of cyber events
and the exception to these policies means that we may not be able to recover our damages from such an event.
19
We have experienced and expect to continue to experience
actual and attempted cyber-attacks of our IT networks, such as through phishing scams and ransomware. Although none of these actual or
attempted cyber-attacks has had a material adverse impact on our operations or financial condition, we cannot guarantee that any such
incidents will not have such an impact in the future. Furthermore, a cyber-attack that bypasses our IT security systems or those of our
distributors, re-sellers, online paying agents or other third party contractors, causing an IT security breach, could lead to a material
disruption of our information systems, the loss of business information and loss of service to our customers, which could, among
other things, disrupt our business, force us to incur costs or cause reputational damage. There is no assurance that we will be insulated
from claims relating to cyber-attacks or withstand legal challenges in relation to our agreements with third parties. Additionally, we
have access to sensitive information relating to our employees as well as business partners and customers in the ordinary course of business.
Any failure or perceived failure by us, or our third-party contractors on our behalf, to comply with local and foreign laws regarding
privacy and data security, as well as contractual commitments in this respect, may result in governmental enforcement actions, fines,
or litigation, which could have an adverse effect on our reputation and business. If a significant data breach occurred, our reputation
could be materially and adversely affected, confidence among our customers may be diminished, or we may be subject to legal claims, any
of which may contribute to the loss of customers and have a material adverse effect on us. To the extent that such disruptions or uncertainties
result in delays or cancellations of customer orders or the manufacture or shipment of our products, or in theft, destruction, loss, misappropriation
or release of our confidential data or our intellectual property, our business and results of operations could be materially and adversely
affected.
In addition, the devotion of additional resources to
the security of our information technology systems in the future could significantly increase the cost of doing business or otherwise
adversely impact our financial results.
Since the COVID-19 pandemic, a greater number of our
employees are working remotely and accessing our IT systems and networks remotely, which may further increase our vulnerability to cybercrimes
and cyberattacks and increase the stress on our technology infrastructure and systems. Although we maintain data protection liability
insurance, exclusions from coverage are added into these policies and coverage may not be sufficient to cover all our losses from any
future breaches or failures of our IT systems, networks and services.
Compliance with
continuously evolving privacy laws and regulations, including laws and regulations governing processing of personal information, and our
actual or perceived failure to comply with such laws and regulations may result in significant liability, negative publicity, and/or erosion
of trust and could have an adverse effect on our revenues, our results of operations and financial condition.
We are subject to privacy and data protection laws globally,
including regulations on the collection, use, and processing of personal data. These laws, especially those governing data in AI and machine
learning, are rapidly evolving, creating uncertainty around compliance standards. Non-compliance, whether actual or perceived, could result
in significant fines, legal actions, reputational damage, or loss of customer trust, impacting on our financial condition.
In the U.S., state laws like the California Consumer
Privacy Act (CCPA) impose strict privacy obligations and penalties. Non-compliance could lead to fines and lawsuits. Similarly, in the
European Economic Area (EEA) and the UK, the General Data Protection Regulation (GDPR) and the UK GDPR impose stringent rules, with severe
penalties for breaches. We may face additional costs and risks due to uncertainty around transferring personal data between jurisdictions,
particularly with the evolving laws governing cross-border data flows.
In Israel, we must comply with the Privacy Protection
Law (PPL), which imposes requirements on data processing, security, and transfer. New amendments to the PPL, effective in 2025, could
increase regulatory scrutiny and penalties. The introduction of new regulations, such as the EU Regulations on data transferred to Israel,
could require adjustments to our data practices, incurring additional costs.
20
As our products are available worldwide, we may face
jurisdictional challenges requiring compliance with local laws in countries where we don’t have a physical presence. Future privacy
regulations could also impose additional burdens or require us to adjust our operations and incur significant compliance costs.
The steps that
we have taken to protect our brand, technology and other intellectual property may not be adequate, and we may not succeed in preventing
others from appropriating our intellectual property.
We believe that our trademarks (registered and unregistered)
are important to our brand, success, and competitive position. We anticipate that, as the countertop market becomes increasingly competitive,
maintaining and enhancing our brand, proprietary technology and other intellectual property may become more important, difficult, and
expensive. In the past, some of our trademark applications for certain classes of applications, our products, have been rejected or opposed
in certain markets. We have in the past, are currently, and may in the future be, subject to opposition proceedings with respect to applications
for registration of our intellectual property, such as our trademarks. As with all intellectual property rights, such application may
be rejected entirely or awarded subject to certain limitations such as territories, any current or future markets or applications. These
limitations to registering our brand names and trademarks in various countries and applications may restrict our ability to promote and
maintain a cohesive brand throughout our key markets, which could materially harm our competitive position and materially and adversely
impact our results of operations. Additionally, if we are unsuccessful in challenging a third party’s products based on trademark
infringement, continued sales of such products could materially and adversely affect our sales and our brand and result in the shift of
consumer preference away from our products.
There can be no assurance that new or pending patent
applications for our technologies and products will be approved in a timely manner or at all, or that, if granted, such patents will effectively
protect our intellectual property. There can be no assurance that we will develop patentable intellectual property in the future, and
we have chosen and may further choose not to pursue patents for innovations that are material to our business.
While we continue to make significant investments in
innovating the design of our products and register design patents on selected models, it may not be adequate to prevent our competitors
from imitating our designs and copying our innovative ideas.
We also retain significant trade secrets know
how, that for various reasons we are not pursuing their formal registration but rely on retaining their confidentiality through confidentiality
agreements with our consultants, suppliers, customers, employees and managers, our know-how and trade secrets could be disclosed to third
parties, which could cause us to lose any competitive advantage resulting from such know-how or trade secrets, as well as related intellectual
property protections in certain cases. The potential for know-how leakage has increased during the last years, with our increased sourcing
of more advanced products from our PBPs.
The actions we take to establish and protect our intellectual
property may not be adequate to prevent unlawful copy and use of our technology by third parties or the imitation of our products and
the offering of them under our trademarks by others. These actions may also not be adequate to prevent others, including our competitors,
from obtaining intellectual property rights overcoming ours, and limiting or blocking the production and sales of our existing or future
products and applying certain technologies. Our competitors may seek to limit our marketing and offering of products relying on their
alleged intellectual property rights.
We may face significant expenses and liability in connection
with the protection of our intellectual property rights in and outside the United States. The laws of certain foreign countries may not
protect intellectual property rights to the same extent as the laws of the United States.
Third parties have claimed, and may from time-to-time
claim, that our current or future products infringe their patent or other intellectual property rights. Under such circumstances, we may
be required to expend significant resources to contest such claims and, in the event that we do not prevail, we may be required to seek
a license for certain technologies, develop non-infringing technologies or discontinue some of our products. In addition, any future intellectual
property litigation, regardless of its outcome, may be expensive, divert the efforts of our personnel and disrupt or damage relationships
with our customers.
21
For more information, see “ITEM 4.B: Information
on the Company—Business Overview—Intellectual Property.”
We may have exposure
to greater-than-anticipated tax liabilities.
The determination of our worldwide provision for income
taxes and other tax liabilities requires significant judgment, and there are many transactions and calculations where the ultimate tax
determination is uncertain. We have applied the guidance in ASC 740, “Income Taxes” in determining our accrued liability for
unrecognized tax benefits, which totaled approximately $1.7 million in 2024 and $2.9 million in 2022 and 2023. See also note 12 to our
financial statements included elsewhere in this report. Although we believe our estimates are reasonable, the ultimate outcome may differ
from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which
such determination is made.
We have entered into transfer pricing arrangements that
establish transfer prices for our inter-company operations. However, our transfer pricing procedures are not binding on the applicable
taxing authorities. The amount of income tax that we pay could be materially and adversely affected by earnings being lower than anticipated
in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates.
From 2015 to 2023, our U.S. manufacturing operations also carry inter-company transactions at transfer prices and arrangements set by
us (following the closure of our U.S. manufacturing operations during 2023). We cannot be certain that tax authorities will not disfavor
our inter-company arrangements and transfer prices in the relevant jurisdictions. Taxing authorities outside of Israel could challenge
our allocation of income between us and our subsidiaries and contend that a larger portion of our income is subject to tax in their jurisdictions,
which may have higher tax rates than the rates applicable to such income in Israel. Any adjustment in one country while not followed by
counter-adjustment in the other country, may lead naturally to double taxation for the group. Any change to the allocation of our income
as a result of review by such taxing authorities could have a negative effect on our operating results and financial condition.
Our facility in Israel receives different tax benefits
as “Preferred Enterprises” under the Israeli Law for the Encouragement of Capital Investments, 1959 (“
Investment
Law
”), with our production lines qualifying to receive different grants and/or reduced company tax rates (7.5% for Bar Lev
activity, 16% for Sdot Yam activity which was closed during 2023, while 23% is the statutory tax rate in Israel). Therefore, some of our
production lines also receive tax benefits based on our revenues and the allocation of those revenues between our facilities in Israel.
In addition, the portion of our products manufactured by our PBPs is growing, and as a result of these factors, the Israeli taxing authorities
could challenge our allocation of income and contend that a larger portion of our income is subject to higher tax rates. In Israel, there
are no tax benefits to production outside of the country. As such, our portion of taxable income in Israel that relates to the growing
portion produced by our PBPs might not have tax benefits, based on certain interpretations. The Israel Tax Authority (“
ITA
”)
could challenge the allocation of income related to production in Israel and income related to production outside of Israel, which may
result in significantly higher taxes. There are currently no legal regulations governing this allocation and certain of the ITA’s
internal guidelines have ambiguities. Moreover, we may lose all our tax benefits in Israel in the event that our manufacturing operations
outside of Israel exceed certain production levels (currently set at 50% of the overall production and subject to future changes by the
ITA).
In the United States, H.R. 1, originally known as the
2017 Tax Cuts and Jobs Act (the “
TCJA
”) made significant changes to the U.S. Internal
Revenue Code, including a reduction in the federal income corporate tax rate from a top marginal rate of 35% to a flat rate of 21% and
limitations on certain corporate deductions and credits. In addition, the TCJA requires complex computations to be performed that were
not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the TCJA and significant
estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury
Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the TCJA will be applied
or otherwise administered that is different from our interpretation. Finally, foreign governments may enact tax laws in response to the
TCJA that could result in further changes to global taxation and materially affect our financial position and results of operations. While
we have provided the effect of the TCJA in our Consolidated Financial Statements as included in Note 12 to our financial statements included
elsewhere in this report, the application of accounting guidance for various items and the ultimate impact of the TCJA on our business
are currently uncertain.
22
Starting in the 2014 tax year, we were entitled to a
property tax abatement with respect to our U.S manufacturing facility and the capital investment made in such facility for ten years at
100% and an additional five years at 50% subject to satisfying certain qualifying terms with respect to headcount, average salaries paid
to our employees and total capital investment amount in the facility. The tax abatement is granted pursuant to bond purchase loan agreements
we entered with the Development Authority of Bryan County (“
DABC
”). In January 2024
we ceased the operations of our U.S manufacturing facility. Lately, Bryan County has demanded approximately $6.7 million in previously
abated taxes, alleging a breach of economic development agreements related to job and investment performance obligations. We disputed
the claim, asserting that no taxes are owed for prior years and that the County lacks authority to collect the disputed amounts. Discussions
between the parties are ongoing, and we believe that there will be no material unfavorable impact on the Company. If we are ultimately
required to bear such claimed tax, it will be recognized in our operating costs and would materially and adversely impact our projected
margins and results of operations. See “ITEM 4.D: Information on the Company—Property, Plants and Equipment.”
Environmental,
health and safety regulations, industry standards and other similar matters may be costly, difficult or impossible to comply with under
our existing operations and could negatively impact our financial condition and results of operations.
Our manufacturing facilities are subject to numerous
Israeli and Indian federal and Gujarati laws and regulations which may cause us to incur significant costs and liabilities. We are also
subject to industry standards and policies imposed by our customers (such as large retailers), relating to environmental, health and safety,
as well as other matters such as dust exposure, acetone and styrene control, as further detailed in “ITEM 4.B: Information on the
Company—Business Overview—Environmental and Other Regulatory Matters.” Other aspects of our activities are subject to
local laws wherever we operate. These laws, ordinances and regulations can be subject to change and such changes could result in increased
compliance costs or otherwise adversely affect us. For example, during February 2022, Israel adopted a long-term goal for the reduction
of environmental styrene emissions. Although such goal is not expected to impact our current operations in the short term, the adoption
of new regulations could create an additional burden for any future investment in our Israeli Bar-Lev facility. Violations of environmental,
health and safety laws and regulations may lead to civil and criminal sanctions against us, our directors, officers or employees. Liability
under these laws and regulations and compliance with various industry standards and policies involves inherent uncertainties and, in some
cases, may compel the installation of additional equipment and subject us to substantial penalties, injunctive orders and facility shutdowns,
as well as damages to our reputation and brand and may therefore lead to loss in revenue. If our operations are enjoined because of failure
to comply with such regulations, or if we are required to install expensive equipment to meet regulatory requirements, it could materially
adversely affect the results of operations. Any contemplated expansion of our facilities will also need to meet standards imposed by laws,
regulations, and other industry standards. Violations of environmental laws could also result in obligations to investigate or remediate
potential contamination, third-party property damage or personal injury claims resulting from potential migration of contaminants off-site.
Violations of such laws and regulations may also constitute a breach of current or future commercial contracts we have with third parties
and impact our cooperation with customers and suppliers. We have identified in the past and may identify in the future compliance risks
related to environmental and health and safety regulation standards. Preparation and implementation of mitigation plans for such risks
may take time during which we may not be in full compliance with applicable laws and standards.
In addition, the operation of our manufacturing facilities
in Israel and India (Gujarat) are subject to applicable permits, standards, licenses and approvals. Any expansions or improvements to
our facilities will be subject to obtaining appropriate permits, and we cannot be certain that such permits will be obtained in a timely
matter, or at all. For detailed information, see “ITEM 4.B: Information on the Company—Business Overview—Environmental
and Other Regulatory Matters”. We expect our business licenses to be extended by the relevant authorities for a specified term and
we intend to seek subsequent extensions on an ongoing basis. Generally, failure to obtain a permit or license required for the operation
of our facilities, or failure to comply with the requirements thereunder, may result in civil and criminal penalties, fines, court injunctions,
imprisonment, and operations stoppages. If we are unable to obtain, extend or maintain the business license for any of our facilities,
we would be required to cease operations there, which would materially adversely affect the results of operations. Our ability to obtain
necessary permits and approvals for our manufacturing facilities may be subject to additional costs and possible delays beyond our initial
projections. In addition, in order to demonstrate compliance with underlying permits, licenses or approvals, we are required to perform
a considerable amount of monitoring, record-keeping and reporting and may incur material costs or liabilities in connection with any violations,
or in connection with remediation at our sites or certain third-party manufacturing sites if we are found liable in relation thereto.
23
From time to time, we face compliance issues related
to our manufacturing facilities. See “ITEM 4.B: Information on the Company—Business Overview—Environmental and Other
Regulatory Matters” for additional information on compliance with environmental, health and safety and other relevant regulations
relating to our facilities, including with respect to our compliance with styrene ambient air standards and dust emission occupational
health standards.
New environmental laws and regulations, new interpretations
of existing laws and regulations, increased governmental enforcement or other developments in Israel, and India (Gujarat) could require
us to make additional unforeseen expenditures. These expenditures and other costs for environmental compliance could have a material adverse
effect on our business’ results of operations, financial condition and profitability. The range of reasonably possible losses from
our exposure to environmental liabilities in excess of the amounts accrued to date cannot be reasonably estimated at this time. For example,
recently the Israeli Ministry of Environmental Protection added to the requirements involved in extending our ability to hold certain
materials conditioned on cyber security investments.
In addition, our manufacturing, distribution, and other
facilities are subject to health and safety regulations. Although we introduced safety rules and procedures at all our facilities and
provided safety training to our employees and contractors on a regular basis, breaches of such safety measures have occurred in the past
and may occur in the future. If our employees or contractors do not follow and we do not successfully enforce the safety procedures established
in our facilities or otherwise do not meet the relevant laws and standards, our employees or contractors may be subject to work-related
injuries. As a result, we and our officers and directors could be subject to claims, fines, orders and injunctions due to workplace accidents
involving our employees or contractors. Although we maintain workers’ compensation and liability insurance, it may not provide adequate
coverage against potential liabilities and can expose us, our directors and officers, to administrative and criminal proceedings.
Other than as described above, we cannot predict whether
we may become liable under environmental, product liability and health and safety statutes, rules, regulations and case law of the countries
in which we operate. The amount of any such liability in the future or its impact on our business operation otherwise could be significant
and may adversely impact our financial condition and results of operations.
From time to
time, we are subject to litigation, disputes, or other proceedings, which could result in unexpected expenses and time and resources that
could have a materially adverse impact on our results of operation, profit margins, financial condition, and liquidity.
We are currently involved in several legal disputes,
including against certain fabricators (our customers) and their employees in Israel, Australia, and the United States, as well as against
our former workers, as further detailed in “ITEM 8.A: Financial Information—Consolidated Financial Statements and Other Financial
Information—Legal Proceedings.” In addition to the bodily injury claims (which are detailed under ITEM 3.D. Key Information—Risk
Factors – “Results of bodily injury claims may have a material adverse effect on our business, operating results, and financial
condition”), from time to time, we are involved in other legal proceedings and claims in the ordinary course of business related
to a range of matters, including contract law, intellectual property rights, employment, product liability and warranty claims (including
class actions), and claims related to modification and adjustment, or replacement of product surfaces sold.
The outcome of litigation and other legal matters is
always uncertain, and the actual outcome of any such proceedings may materially differ from estimates. An adverse ruling in these proceedings
could have a materially adverse effect on us. If we are unsuccessful in defending such claims or elect to settle any of these claims,
we could incur material costs and could be required to pay varying amounts of monetary damages, some of which may be significant, and/or
incur other penalties or sanctions, some, or all of which may not be covered by insurance. Although we maintain product liability insurance,
we cannot be certain that our coverage, if applicable, will be adequate for liabilities actually incurred or that insurance will continue
to be available to us on economically reasonable terms, or at all. These material costs could have a materially adverse effect on our
business, results of operations and financial condition.
24
Failure to meet
ESG expectations or standards or a failure to effectively pursue our ESG goals could adversely affect our business, results of operations,
financial condition, or stock price.
Environmental Social and Governance (or “ESG”)
matters, including greenhouse gas emissions, diversity and inclusion, responsible sourcing, human rights, and corporate governance, have
gained increased attention from regulators, customers and other stakeholders. In line with our commitment to ESG, as demonstrated by our
latest ESG report published during 2024, we have established certain ESG goals; however, achieving these goals is not guaranteed and may
be hindered by operational, regulatory, reputational, financial, legal, and other factors. Additionally, accounting standards and regulations
surrounding ESG are subject to change and may result in additional costs for compliance. As the pathway towards achieving such evolving
goals is uncertain, we may exert extensive efforts that would not yield our desired results or become a high financial burden. If we fail
to meet ESG expectations, it could harm our reputation, negatively impact customer and talent retention, and lead to increased scrutiny
from investors and authorities. Damage to our reputation could also reduce demand for our products and services and negatively impact
our financial results.
In addition, a lack of harmonization globally in relation
to ESG laws and regulations leads to a risk of fragmentation across global jurisdictions. This may create conflicts across our
global business, which could impact our competitiveness in the market and damage our reputation resulting in a material adverse effect
on our business. The lack of economic and regulatory certainty surrounding ESG may have an adverse impact on our business and
results of operations.
Our operating
results may suffer due to our failure to manage our international operations effectively or due to regulatory changes in the foreign jurisdictions
where we operate
Our products are sold in over 60 countries throughout
the world. Our raw materials, equipment, and machinery are acquired in different countries, our products are manufactured by us in Israel
and India, and by our PBP across the world, while our global management operates from Israel. We are therefore subject to risks associated
with having global operations, including risks related to complying with the law and regulations of various foreign governments and regulatory
authorities. These laws and regulations may apply to us, our subsidiaries, individual directors, officers, employees, and agents, and
may restrict our operations, trade practices, investment or acquisition decisions or partnership opportunities. Accordingly, our sales,
purchases and operations are subject to risks and uncertainties, including, but not limited to:
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fluctuations in exchange rates and currency exchange regulation;
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fluctuations in land and sea transportation costs, as well as delays or other changes
in transportation and other time-to-market delays, including as a result of strikes;
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compliance with unexpected changes in regulatory requirements;
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compliance with a variety of regulations and laws in each relevant jurisdiction;
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difficulties in collecting accounts receivable and longer collection periods;
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changes in tax laws and interpretation of those laws;
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taxes, tariffs, quotas, custom duties, trade barriers and other similar restrictions
on our sales, purchases and exports which could be imposed by certain jurisdictions;
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negative or unforeseen consequences resulting from the introduction, termination,
modification, renegotiation of international trade agreements or treaties or the imposition of countervailing measures or antidumping
duties or similar tariffs;
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difficulties enforcing intellectual property and contractual rights in certain jurisdictions;
and
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economic changes, geopolitical regional conflicts, including military conflict in
the Middle East and the invasion of Ukraine by Russia, terrorist activity, political unrest, civil strife, acts of war, strikes and other
economic or political uncertainties.
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Significant political developments could also have a
materially adverse effect on us.
In the United States, due to our substantial sales,
distribution, import and manufacturing operations, potential or actual changes in fiscal, tax and labor policies could have uncertain
and unexpected consequences that materially impact our business, results of operations and financial condition.
In Australia, federal governments’ group of work
safe ministers resolved to ban the use, supply and manufacture of engineered stone slabs containing crystalline silica (including quartz-based
products, that constituted a major part of our Australian offering). The ban came into effect on July 1, 2024, in most of Australia’s
states and territories [see ITEM 3.D. Key Information—Risk Factors - “Changes in laws and regulations relating to hazards
associated with engineered stone surfaces or with the crystalline silica in stone surfaces may adversely and materially affect our business”].
Tariffs, taxes, or other trade barriers could require
us to change manufacturing sources, reduce prices, increase spending on marketing or product development, withdraw from or not enter certain
markets or otherwise take actions that could be adverse to us. The U.S. federal government may propose additional changes to international
trade agreements, tariffs, taxes, and other government rules and regulations. For example, the Trump Administration has discussed the
possibility of enacting additional tariffs on China and other countries. We cannot predict what changes to trade policy will be made,
nor can we predict the effects that any such changes would have on our business. Another example is the expansive sanctions being imposed
by the U.S., EU and other countries against Russia, and any proposed changes to the prior imposition of tariffs on imports from China,
Mexico, India and others. Given the unpredictable nature of the U.S.-China relationship and its sizable impact on global economic stability,
our business and operating success may be materially adversely affected if recent normalization attempts by these two countries do not
endure and additional tariffs or other restrictions on free trade are imposed by either country. Any such changes may impact the level
of free trade or tariff prices on goods imported into the United States. Moreover, changes in U.S. political, regulatory, and economic
conditions or in its policies governing international trade and foreign manufacturing and investment in the U.S. could adversely affect
our sales in the U.S.
The regulatory framework for privacy and data security
issues worldwide is currently in flux and is likely to remain so for the foreseeable future. A failure by us or a third-party contractor
providing services to us to comply with applicable privacy and data security laws and regulations may result in sanctions, statutory or
contractual damages or litigation.
All these risks could also result in increased costs
or decreased revenues, either of which could have a materially adverse effect on our profitability. As we continue to expand our business
globally, we may have difficulty anticipating and effectively managing these and other risks that our global operations may face, which
may materially and adversely affect our business outside of Israel and our financial condition and results of operations.
26
Certain U.S.
holders of our ordinary shares may suffer adverse tax consequences if we or any of our non-U.S. subsidiaries are characterized as a “controlled
foreign corporation”, or a CFC, under Section 957(a) of the Internal Revenue Code of 1986, as amended.
A non-U.S. corporation is considered a CFC if more than
50% of (1) the total combined voting power of all classes of stock of such corporation entitled to vote, or (2) the total value of the
stock of such corporation, is owned, or is considered as owned by applying certain constructive ownership rules, by United States shareholders
who each own stock representing 10% or more of the vote or 10% or more of the value on any day during the taxable year of such non-U.S.
corporation (“
10% U.S. Shareholder
”). Because our group includes one or more U.S. subsidiaries,
certain of our non-U.S. subsidiaries could be treated as CFCs (regardless of whether we are treated as a CFC). Generally, 10% U.S. Shareholders
of a CFC are required to report annually and include currently in its U.S. taxable income such 10% U.S. Shareholder’s pro rata share
of the CFC’s “Subpart F income”, “global intangible low-taxed income”, and investments in U.S. property
by CFCs, regardless of whether we make an actual distribution to such shareholders. “Subpart F income” includes, among other
things, certain passive income (such as income from dividends, interests, royalties, rents and annuities or gain from the sale of property
that produces such types of income) and certain sales and services income arising in connection with transactions between the CFC and
a person related to the CFC. An individual that is a 10% U.S. Shareholder with respect to a CFC generally would not be allowed certain
tax deductions or foreign tax credits that would be allowed to a 10% U.S. Shareholder that is a U.S. corporation. Failure to comply with
these reporting obligations may subject a 10% U.S. Shareholder to significant monetary penalties and may prevent the statute of limitations
with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due from starting. We cannot
provide any assurances that we will assist investors in determining whether any of our non-U.S. subsidiaries is treated as a CFC or whether
any investor is treated as a 10% U.S. Shareholder with respect to any such CFC or furnish to any 10% U.S. Shareholders information that
may be necessary to comply with the aforementioned reporting and tax payment obligations. A United States investor should consult its
tax advisors regarding the potential application of these rules to an investment in our ordinary shares.
Risks
Related to our Relationship with Kibbutz Sdot-Yam
Our directors
and employees who are members of Kibbutz Sdot-Yam and Tene may have conflicts of interest with respect to matters involving the Company.
As of February 28, 2025, the Kibbutz, together with
Tene, being parties to a Shareholders Agreement, beneficially owned 14,029,494 constituting approximately 40.6% of our shares. Both the
Kibbutz and Tene are deemed our controlling shareholders under the Israeli Companies Law, 5759-1999 (the “
Companies
Law
”). For more information, see “ITEM 7.A. Major Shareholders and Related Party Transactions—Major Shareholders.”
Three members of our board of directors and a number of our employees are members of the Kibbutz, and we continue to have an operational
and business relationship with the Kibbutz. Certain of these individuals also serve in different positions in the Kibbutz, including Chairman
of the Kibbutz’s Economic Council and its Chief Financial Officer. Such individuals have fiduciary duties to both us and Kibbutz
Sdot-Yam. As a result, our directors who are members of the Kibbutz may have real or apparent conflicts of interest on matters affecting
both us and the Kibbutz and, in some circumstances, such individuals may have interests adverse to us. For example, in the past, the Kibbutz
opposed the independent nominees our board of directors proposed to nominate to the board and suggested two alternative nominees identified
by the Kibbutz as independent. In addition, our chairman of the board of directors, also serve as partner in Tene. Since such individuals
have fiduciary duties to both us and Tene, there may be real or apparent conflicts of interest in this respect as well. See “ITEM
6.A: Directors, Senior Management and Employees—Directors and Senior Management.”
Regulators and
other third parties may question whether our agreements with Kibbutz Sdot-Yam are no less favorable to us than if they had been negotiated
with unaffiliated third parties.
Our headquarters, research and development facilities
and our manufacturing facility in Israel is located on lands owned or leased by the Kibbutz. We have entered into certain land use and
other agreements with the Kibbutz pursuant to which the Kibbutz provides us with, among other things, certain services. We are constantly
monitoring these services and believe that such services are rendered to us in the normal course of business, and they represent at arm’s
length terms. Nevertheless, a determination with respect to such matters requires subjective judgments regarding valuations. Regulators
and other third parties may question whether our agreements with the Kibbutz are in the ordinary course of our business and are no less
favorable to us than if they had been negotiated with unaffiliated third parties. The tax treatment for these transactions may also be
called into question, which could have a materially adverse impact on our operating results and financial condition. See “ITEM 7.B:
Major Shareholders and Related Party Transactions—Related Party Transactions.”
27
Under Israeli
law, our board, audit committee and sometimes also the shareholders may be required to reapprove certain of our agreements with Kibbutz
Sdot-Yam every three years, and absence, or improper approval, may expose us to liability and cause significant disruption to our business.
The Companies Law requires that the authorized corporate
organs of a public company approve every three years any extraordinary transaction in which a controlling shareholder has a personal interest
and that has a term of more than three years, unless a company’s audit committee determines, solely with respect to agreements that
do not involve compensation to a controlling shareholder or his or her relatives, in connection with services rendered by any of them
to the company or their employment with the company, that a longer term is reasonable under the circumstances. Our implementation of this
requirement with respect to the agreements entered between us and the Kibbutz may be challenged by regulators and other third parties.
Our audit committee has determined that the terms of
all such agreements entered between us and the Kibbutz are reasonable under the relevant circumstances. See “ITEM 7.B: Major Shareholders
and Related Party Transactions—Related Party Transactions.”
If the relevant corporate organs do not re-approve the
agreements in accordance with the Companies Law, we will be required to terminate such agreements, which may expose us to damage claims
and legal fees, and cause disruption to our business. In addition, we would be required to find suitable replacements for the services
provided to us by the Kibbutz under the services agreement, which may take time, and we can provide no assurance that we can obtain the
same or better terms with a third party than those we have agreed to with the Kibbutz.
Pursuant to certain
agreements between us and Kibbutz Sdot-Yam, we depend on Kibbutz Sdot-Yam with respect to leasing the buildings and areas of our manufacturing
facility in Israel.
Our Bar-Lev facility is leased from the Kibbutz pursuant
to a land purchase and leaseback agreement effective as of September 1, 2012. The land purchase and leaseback agreements were simultaneously
executed with a land use agreement pursuant to which the Kibbutz permits us to use the site for a period of ten years with an automatic
renewal for an additional ten years unless we provide the Kibbutz two years’ advance notice that we do not wish to renew the lease.
In 2021, the agreement was automatically extended for an additional ten-year period.
Our headquarters and RD facilities remain in the
Kibbutz, and are leased from the Kibbutz, pursuant to a land use agreement effective as of March 2012 for a period of 20 years. Pursuant
to this agreement our headquarters must remain in the Kibbutz. As a result of these restrictions, our ability to move our Israeli headquarters
elsewhere is limited. Our Sdot-Yam production facility ceased operations during 2023 as part of our operational restructuring plan announced
in May 2023. Pursuant to our land use agreements, any grant of land-use rights to third parties requires the Kibbutz’s consent.
Since 2023, we have been restoring the property, and the Kibbutz allowed us to grant major part of the land use rights to approved third
parties.
In addition, we entered into agreements with the Kibbutz
with respect to our Bar-Lev and Sdot-Yam facilities, stating that in the event of a material change in the payments made by the Kibbutz
to the Israeli lands administration (the “ILA”) or the Caesarea Development Corporation or changes in the market conditions,
every three years the Kibbutz may appoint an independent appraiser to reassess the fees we agreed to pay to the Kibbutz in light of such
changes. If an independent appraiser concludes that the fees payable by us to the Kibbutz for the Bar-Lev and Sdot-Yam facilities are
below market, the Kibbutz can, in its sole discretion, adjust such fees to the market value with a binding effect on us. Such appraisal
took place during 2021 and resulted in an increase of the lease fees. See “—Other factors impacting our results of operations—
Agreements with Kibbutz Sdot-Yam.”
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For more information with respect to our agreements
with the Kibbutz, see “ITEM 7.B: Major Shareholders and Related Party Transactions—Related Party Transactions.”
Risks
Related to our Ordinary Shares
The price of
our ordinary shares may be volatile.
The market price of our ordinary shares could be highly
volatile and may fluctuate substantially (as indeed occurred in recent years during which our share price declined significantly) as a
result of many factors, including but not limited to (i) actual or anticipated fluctuations in our results of operations; (ii) our financial
performance and the expectations of market analysts; (iii) announcements by us or our competitors of significant business developments,
changes in distributor relationships, acquisitions or expansion plans; (iv) changes in the prices of our raw materials or the products
we sell; (v) impact of regulatory changes on our industry (vi) our increased involvement in litigation, specifically, adverse precedent
set in U.S. and Australia in connection with silica related claims; (vii) our sale of ordinary shares or other securities in the future;
(viii) market conditions in our industry; (ix) changes in key personnel; (x) the trading volume of our ordinary shares; (xi) changes in
the estimation of the future size and growth rate of our markets; (xii) changes in our board of directors, including director resignations;
(xiii) actions of investors and shareholders, including short seller reports and proxy contests; (xiv) general economic and market conditions
unrelated to our business or performance, such as increased shipping and handling markets, (xv) amount or timing of any dividend
payments and may decide to pay dividends in the future or lack thereof nor their applicable tax rate.
Our
goodwill or other intangible assets or long-lived assets may become subject to impairment
As per the U.S. GAAP (ASC 350), we are required to test
our goodwill for impairment on an annual basis or whenever indicators for potential impairment exist. We are operating as one reporting
unit for goodwill testing purposes. Due to our market capitalization, higher interest rates and global slowdown in our markets, we conducted
a goodwill impairment testing and recorded an aggregate $44.8 million non-cash impairment charge related to goodwill in the fiscal year
2022, fully impairing the goodwill balance.
In addition, we tested our long-lived assets due to
the same reasons mentioned above and the closure of our Sdot-Yam and Richmond Hill facilities in accordance with U.S. GAAP rules (ASC
360).
During 2023, we recorded an impairment of $28.5 million
mainly related to the Richmond Hill facility and impairment of $16.6 million related to right of use asset at the Sdot Yam facility.
During 2024, we recorded an impairment of $3.8 million
related to the Richmond Hill facility, which we presenting as held for sale asset in 2024, and impairment of $3.2 million related
to intangible assets related to Omicron and Magrab.
For additional information, see Note 2 and 6 to the
financial statements included in this annual report.
During 2024, we sub leased most of the Sdot-Yam facilities,
and realized partially the lands related to our Richmond-Hill facility and part of the production equipment. We continue to take steps
to realize the sale of the main Richmond-Hill facility, including Real-estate and the rest of the production equipment, however our efforts
may still not be as successful as we plan.
This testing involves estimates and significant judgments
by management. We believe our assumptions and estimates are reasonable and appropriate; however additional adverse changes in key assumptions,
including a failure to meet expected earnings or other financial plans, unanticipated events and circumstances such as changes in assumptions
about the duration and magnitude of increased supply chain and commodities costs and our planned efforts to mitigate such impacts, further
disruptions in the supply chain, increases in tax rates (including potential tax reform) or a significant change in industry or economic
trends could affect the accuracy or validity of such estimates and may result in an additional impairment. Any charge or charges could
adversely affect our results of operations. See “Critical Accounting Estimates” in Item 5 herein for more information regarding
goodwill and other long lived assets impairment testing. Therefore, although we have recorded said impairment charges this year, we cannot
guarantee that we will not experience goodwill, other intangible assets or long-lived assets impairments in the future.
29
Our share price
is impacted by reports from research analysts, publicly announced financial guidance, investor perceptions and our ability to meet other
expectations about our business.
The trading market for our ordinary shares relies in
part on the research and reports that equity research analysts publish about us and our business. As of December 31, 2024, only one analyst
research cover of our business. If additional analysts do not establish research coverage, or if the current research analyst ceases coverage
of our company or fails to publish reports on our Company regularly, we could lose visibility in the market and demand for our shares
may decline, which might cause our share price and trading volume to decline.
The price of our ordinary shares could also decline
if one or more securities analysts downgrade our ordinary shares or if one or more of those analysts issue other unfavorable commentaries.
The market price for our ordinary shares has been in the past, and may be in the future, materially and adversely affected by statements
made in reports issued by short sellers regarding our business model, our management and our financial accounting. In the past, we have
also faced difficulty accurately projecting our earnings and have missed certain of our publicly announced guidance. If our financial
results for that period do not meet our guidance or if we reduce our guidance for future periods, the market price of our ordinary shares
may decline. We have experienced in the past, and may experience in the future, a decline in the value of our shares as a result of the
foregoing factors and the other various factors reflected in the Item. For example, during the second quarter of 2023, our share price
dropped to an all-time low of US$ 3.53 per share.
ESG and sustainability reporting is becoming more broadly
expected by investors, shareholders and other third parties. We may face reputational damage in the event our corporate responsibility
initiatives or objectives do not meet the standards set by our investors, shareholders, lawmakers, listing exchanges or other constituencies,
or if we are unable to achieve an acceptable ESG score. A low ESG or sustainability rating by a third-party rating service could also
result in the exclusion of our ordinary shares from consideration by certain investors. The ongoing focus on corporate responsibility
matters by investors and other parties as described above may impose additional costs or expose us to new risks. See also “—Failure
to meet ESG expectations or standards or achieve our ESG goals could adversely affect our business, results of operations, financial condition,
or stock price.”
The substantial
share ownership position of Kibbutz Sdot-Yam and Tene will limit your ability to influence corporate matters.
As of February 28, 2025, the Kibbutz and Tene beneficially
owned 14,029,494 ordinary shares constituting 40.6% of our outstanding ordinary shares. As a result of this concentration of share ownership
and their voting agreement described above, the Kibbutz and Tene are considered controlling shareholders under the Israeli Companies Law,
and, acting on their own or together, will continue to have significant voting power on all matters submitted to our shareholders for
approval. These matters include:
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the composition of our board of directors (other than external directors);
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approving or rejecting a merger, consolidation, or other business combination; and
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amending our articles of association, which govern the rights attached to our ordinary
shares.
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This concentration of ownership of our ordinary shares
could delay or prevent proxy contests initiated by other shareholders, mergers, tender offers, open-market purchase programs or other
purchases of our ordinary shares that might otherwise give you the opportunity to realize a premium over then-prevailing market price
of our ordinary shares. The interests of the Kibbutz or Tene may not always coincide with the interests of our other shareholders. This
concentration of ownership may also materially and adversely affect our share price.
30
In recent years, Israeli issuers listed on securities
exchanges in the United States have also been faced with governance-related demands from activist shareholders, unsolicited tender offers
and proxy contests. Responding to these types of actions by activist shareholders could be costly and time-consuming for management and
our employees and could disrupt our operations or business model in a way that would interfere with our ability to execute our strategic
plan.
The market price
of the Company’s ordinary shares could be negatively affected by future sales of our ordinary shares.
As of February 28, 2025, we had 34,555,827 shares outstanding.
This included approximately 14,029,494 ordinary shares, or 40.6% of our outstanding ordinary shares, beneficially owned by the Kibbutz
and Tene, which can be resold into the public markets in accordance with the restrictions of Rule 144 under the Securities Act, including
volume limitations, applicable to resales by affiliates or holders of restricted securities.
Sales by our major shareholders, the Kibbutz, Tene or
other large shareholders of a substantial number of our ordinary shares in the public market, or the perception that these sales might
occur, could cause the market price of our ordinary shares to decline or could materially impair our ability to raise capital through
a future sale of, or pay for acquisitions using, our equity securities.
As of February 28, 2025, 5,775,000 ordinary shares were
reserved for issuance under our 2011 option plan and our 2020 Share Incentive Plan of which options to purchase 2,454,600 ordinary shares
were outstanding, with a weighted average exercise price of $5.57 per share, and 65,185 restricted stock units (“
RSUs
”)
were outstanding. To the extent they are covered by our registration statements on Form S-8, these shares may be freely sold in the public
market upon issuance, except for shares held by affiliates who have certain restrictions on their ability to sell.
Our articles
of association designate the federal district courts of the United States as the sole and exclusive forum for certain types of actions
and proceedings that may be initiated by our shareholders.
Our articles of association provide that, unless we
consent in writing to the selection of an alternative forum, the U.S. federal district courts shall be the sole and exclusive forum for
any claim asserting a cause of action arising under the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction
for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain
such claims. We note that investors cannot waive compliance with U.S. federal securities laws and the rules and regulations thereunder.
This choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for
disputes with us or our directors, officers or other employees and may increase the costs associated with such lawsuits, which may discourage
such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our articles
of association inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur
additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial
condition. Any person or entity purchasing or otherwise acquiring any interest in our share capital shall be deemed to have notice of
and to have consented to the choice of forum provisions of our articles of association described above. This provision would not apply
to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have
exclusive jurisdiction.
As a foreign private issuer whose shares are listed on the Nasdaq
Global Select Market, we may follow certain home country corporate governance practices instead of certain Nasdaq requirements.
As a foreign private issuer whose shares are listed on the Nasdaq Global Select Market, we are permitted
to follow certain home country corporate governance practices instead of certain requirements of the rules of Nasdaq. We rely on this
“home country practice exemption” with respect to the quorum requirement for shareholder meetings. Whereas under the listing
rules of the Nasdaq Stock Market, a quorum requires the presence, in person or by proxy, of holders of at least 33 1/3% of the total issued
outstanding voting power of our shares at each general meeting of shareholders, pursuant to our articles of association, and as permitted
under the Companies Law, the quorum required for a general meeting of shareholders consists of at least two shareholders present in person
or by proxy in accordance with the Companies Law, who hold or represent at least 33 1/3% of the total outstanding voting power of our
shares, except if (i) any such general meeting of shareholders was initiated by and convened pursuant to a resolution adopted by the board
of directors and (ii) at the time of such general meeting, we qualify to use the forms and rules of a “foreign private issuer,”
the requisite quorum will consist of two or more shareholders present in person or by proxy who hold or represent at least 25% of the
total outstanding voting power of our shares (and if the meeting is adjourned for a lack of quorum, the quorum for such adjourned meeting
will be, subject to certain exceptions, any number of shareholders).
31
In the future, we may also choose to follow Israeli
corporate governance practices instead of Nasdaq requirements with regard to, among other things, the composition of our board of directors,
compensation of officers and director nomination procedures. In addition, we may choose to follow Israeli corporate governance practice
instead of Nasdaq requirements with respect to shareholder approval for certain dilutive events (such as for issuances that will result
in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest
in the company and certain acquisitions of the stock or assets of another company) and for the adoption of, and material changes to, equity
incentive plans. Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaq corporate governance rules.
Following our home country governance practices, as opposed to the requirements that would otherwise apply to a U.S. company listed on
the Nasdaq Global Select Market, may provide less protection than is accorded to investors of domestic issuers. See “ITEM 16G: Corporate
Governance.”
As a foreign
private issuer, we are not subject to the provisions of Regulation FD or U.S. proxy rules and are exempt from filing certain Exchange
Act reports.
As a foreign private issuer, we are exempt from the
rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and
principal shareholders are exempt from the reporting and 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 annual and current reports and financial statements with the SEC
as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act, we are permitted to disclose
limited compensation information for our executive officers on an individual basis and we are generally exempt from filing quarterly reports
with the SEC under the Exchange Act. Moreover, we are not required to comply with Regulation FD, which restricts the selective disclosure
of material nonpublic information to, among others, broker-dealers and holders of a company’s securities under circumstances in
which it is reasonably foreseeable that the holder will trade in the company’s securities on the basis of the information. These
exemptions and leniencies reduce the frequency and scope of information and protections to which you may otherwise have been eligible
in relation to a U.S. domestic issuer.
We would lose our foreign private issuer status if (a)
a majority of our outstanding voting securities were either directly or indirectly owned of record by residents of the United States and
(b)(i) a majority of our executive officers or directors were United States citizens or residents, (ii) more than 50% of our assets were
located in the United States or (iii) our business were administered principally in the United States. Our loss of foreign private issuer
status would make U.S. regulatory provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S.
domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and
registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to
a foreign private issuer. We would also be required to follow U.S. proxy disclosure requirements, including the requirement to disclose,
under U.S. law, more detailed information about the compensation of our senior executive officers on an individual basis. We may also
be required to modify certain of our policies to comply with accepted governance practices associated with U.S. domestic issuers. Such
conversion and modifications will involve additional costs. In addition, we would lose our ability to rely upon Nasdaq exemptions from
certain corporate governance requirements that are available to foreign private issuers.
32
Risks
Relating to our Incorporation and Location in Israel
Conditions
in Israel, including Israel’s conflicts with Hamas and other parties in the region, as well as political and economic instability,
may adversely affect our operations and limit our ability to market our products, which would lead to a decrease in revenues
.
We are incorporated under Israeli law, and many of our
employees, including our Chief Executive Officer, our Chief Financial Officer, and other senior members of our management team, operate
from our headquarters located in Israel. In addition, most of our officers and directors are residents of Israel. Accordingly, our business
and operations are directly affected by economic, political, geopolitical, and military conditions in Israel.
Since the establishment of the State of Israel in 1948
and in recent years, armed conflicts between Israel and its neighboring countries and terrorist organizations active in the region have
involved missile strikes, hostile infiltrations, terrorism against civilian targets in various parts of Israel, and recently abduction
of soldiers and citizens.
Following the October 7th attacks by Hamas terrorists along
Israel’s southern border, Israel declared war against Hamas and since then, Israel has been involved in military conflicts with
Hamas, Hezbollah, a terrorist organization based in Lebanon, and Iran, both directly and through proxies like the Houthi movement in Yemen
and armed groups in Iraq and other terrorist organizations. Additionally, following the fall of the Assad regime in Syria, Israel has
conducted limited military operations targeting the Syrian army, Iranian military assets and infrastructure linked to Hezbollah and other
Iran-supported groups. Although certain ceasefire agreements have been reached with Hamas and Lebanon (with respect to Hezbollah), and
some Iranian proxies have declared a halt to their attacks, there is no assurance that these agreements will be upheld, military activity
and hostilities continue to exist at varying levels of intensity, and the situation remains volatile, with the potential for escalation
into a broader regional conflict involving additional terrorist organizations and possibly other countries. Also, the fall of the Assad
regime in Syria may create geopolitical instability in the region.
While our facilities have not been damaged during the
current war, the hostilities with Hamas, Hezbollah, Iran and its proxies and others have caused and may continue to cause damage to private
and public facilities, infrastructure, utilities, and telecommunication networks, and potentially disrupting our operations and supply
chains. In addition, Israeli organizations, government agencies and companies have been subject to extensive cyber-attacks. This could
lead to increased costs, risks to employee safety, and challenges to business continuity, with potential financial losses.
The continuation of the war has also led to a deterioration
of certain indicators of Israel’s economic standing, for instance, a downgrade in Israel’s credit rating by rating agencies
(such as by Moody’s, SP Global, and Fitch).
Our commercial insurance does not cover losses that
may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement
value of certain direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that such government coverage
will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material
adverse effect on our business.
The global perception of Israel and Israeli companies,
influenced by actions by international judicial bodies, may lead to increased sanctions and other negative measures against Israel, as
well as Israeli companies and academic institutions. There is also a growing movement among countries, activists, and organizations to
boycott Israeli goods, services and academic research or restrict business with Israel, which could affect business operations. For instance,
the current political tensions between Turkey and Israel have disrupted our commercial arrangements with Turkish suppliers, requiring
us to find alternative solutions for our supply chain. If these efforts become widespread, along with any future rulings from international
tribunals against Israel, they could significantly and negatively impact business operations.
Prior to the October 2023 war, the Israeli government
pursued changes to Israel’s judicial system and has recently renewed its efforts to effect such changes. In response to the foregoing
developments, which sparked extensive political debate and unrest, certain individuals, organizations, and institutions, both within and
outside of Israel, voiced concerns that such proposed changes, if adopted, may negatively impact the business environment in Israel. Such
proposed changes may also lead to political instability or civil unrest. If such changes to Israel’s judicial system are pursued
by the government and approved by the parliament, this may have an adverse effect on our business, results of operations, and ability
to raise additional funds, if deemed necessary by our management and board of directors.
33
Our operations
may be affected by negative economic conditions or labor unrest in Israel.
General strikes or work stoppages, including at Israeli
seaports, have occurred periodically or have been threatened in the past by Israeli trade unions due to labor disputes. These general
strikes or work stoppages may have a materially adverse effect on the Israeli economy and on our business, including our ability to deliver
products to our customers and to receive raw materials from our suppliers in a timely manner. These general strikes or work stoppages,
in Israel or in other countries where we, our subsidiaries, suppliers and distributors operate, may prevent us from shipping raw materials
and equipment required for our production and shipping our products by sea or otherwise to our customers, which could have a materially
adverse effect on our results of operations. Specifically, our Israeli operations are highly dependent on the free exchanges of goods
(whether raw material into Israel or finished product export), a trade that is made possible through a limited number of seaports in Israel.
Current pressures experienced by Israeli ports, planned governmental reforms and dock workers unions responses could lead to strikes or
other disruptions in the ports operations could affect our ability to operate out Israeli facilities or our export our product, which
could have a materially adverse effect on our results of operations.
Since none of our employees work under any collective
bargaining agreements, extension orders issued by the Israeli Ministry of Economy and Industry (the “IMEI”) apply to us and
affect matters such as cost of living adjustments to salaries, length of working hours and work week, recuperation pay, travel expenses,
and pension rights. Any labor disputes over such matters could result in a work stoppage or strikes by employees that could delay or interrupt
our output of products. Any strike, work stoppages or interruption in manufacturing could result in a failure to meet contractual obligations
or in delays, including in our ability to manufacture and deliver products to our customers in a timely manner, and could have a materially
adverse effect on our relationships with our distributors and on our financial results.
If a union of our employees is formed in the future,
we may enter into a collective bargaining agreement with our employees, which may increase our costs and limit our managerial freedom,
and if we are unable to reach a collective bargaining agreement, we may become subject to strikes and work stoppages, all of which may
materially and adversely affect our business.
The tax benefits
that are available to us require us to continue to meet various conditions and may be terminated or reduced in the future, which could
increase our costs and taxes.
Our Israeli facilities have been granted “Preferred
Enterprise” status by the Israeli Authority for Investment and Development of the Industry and Economy (“
Investment
Center
”), which provides us with investment grants (in respect of certain Approved Enterprise programs) and makes us eligible
for tax benefits under the Investment Law
In order to remain eligible for the tax benefits of
a “Preferred Enterprise” we must continue to meet certain conditions stipulated in the Investment Law and its regulations,
as amended, and in certificates of approval issued by the Investment Center (in respect of Approved Enterprise programs), which may include,
among other things, selling more than 25% of our products to markets of over 14 million residents in 2012 (such export criteria will further
be increased in the future by 1.4% per annum) in a specific tax year, making specified investments in fixed assets and equipment, financing
a percentage of those investments with our capital contributions, filing certain reports with the Investment Center, complying with provisions
regarding intellectual property and the criteria set forth in the specific certificate of approval issued by the Investment Center or
the ITA. If we do not meet these requirements, the tax benefits could be canceled and we could be required to refund any tax benefits
and investment grants that we received in the past adjusted to the Israeli consumer price index and interest, or other monetary penalties.
Further, in the future, these tax benefits may be reduced or discontinued. If these tax benefits are cancelled, our Israeli taxable income
would be subject to regular Israeli corporate tax rates. The standard corporate tax rate for Israeli companies has been 23% since 2018.
34
Effective as of January 1, 2011, the Investment Law
was amended (“
Amendment No. 68
” or the “
2011
Amendment
”). Under Amendment No. 68, the criteria for receiving tax benefits were revised. In the future, we may not be eligible
to receive additional tax benefits under this law. The termination or reduction of these tax benefits would increase our tax liability,
which would reduce our profits. Additionally, if we increase our activities outside of Israel through acquisitions, for example, our expanded
activities might not be eligible to be included in future Israeli tax benefit programs. We may lose all our tax benefits in Israel in
the event that our manufacturing operations outside of Israel exceed certain production levels (currently set at 50% of the overall production
and subject to future changes by the ITA). We do not foresee such circumstances as probable in the coming years. From 2017 onward, Preferred,
the tax rate for the portion of our income related to the Bar-Lev manufacturing facility was reduced to 7.5% and Sdot-Yam tax rate 16%.
During 2023 the company launched a restructuring plan, closing Sdot-Yam manufacturing facility, resulting in future tax benefits to be
received only from income relates to the Bar-Lev manufacturing facility.
Historically, some portions of income were tax exempt,
but that is no longer the case. In the event of a distribution of a dividend from the tax-exempt income described above, we will be subject
to tax at the corporate tax rate applicable to our Approved Enterprise’s and Beneficiary Enterprise’s income on the amount
distributed (grossed-up to reflect the pre-tax income that it would have had to earn in order to distribute the dividend) in accordance
with the effective corporate tax rate that would have been applied had we not relied on the exemption. In addition to the reduced tax
rate, a distribution of income attributed to an “Approved Enterprise” and a “Beneficiary Enterprise” will be subject
to 15% withholding tax (or a reduced rate under an applicable double tax treaty, subject to the receipt in advance of a valid certificate
from the ITA allowing for a reduced tax rate). As for a “Preferred Enterprise,” dividends are generally subject to 20% withholding
tax from 2014 (or a reduced rate under an applicable double tax treaty, subject to the receipt in advance of a valid certificate from
the ITA allowing for a reduced tax rate). However, because we announced our election to apply the provisions of Amendment No. 68 prior
to June 30, 2015, we will be entitled to distribute exempt income generated by any Approved/Beneficiary Enterprise to our Israeli corporate
shareholders tax free (See “ITEM 10.E: Additional Information—Taxation—Israeli tax considerations and government programs—Law
for the Encouragement of Capital Investments, 1959”).
The amendment to the Investment Law stipulated those
investments in subsidiaries, including in the form of acquisitions of subsidiaries from an unrelated party, may also be considered as
a deemed dividend distribution event, increasing the risk of triggering a deemed dividend distribution event and potential tax exposure.
The ITA’s interpretation is that this provision applies retroactively to investments and acquisitions made prior to the amendment.
It may be difficult
to enforce a U.S. judgment against us, our officers and directors in Israel or the United States, or to assert U.S. securities laws claims
in Israel or serve process on our officers and directors.
We are incorporated in Israel. Other than one director,
none of our directors, or our independent registered public accounting firm, is a resident of the United States. The majority of our assets
and the assets of these persons are located outside the United States. Therefore, it may be difficult for an investor, or any other person
or entity, to enforce a U.S. court judgment based upon the civil liability provisions of the U.S. federal securities laws against us or
any of these persons in a U.S. or Israeli court, or to effect service of process upon these persons in the United States. Additionally,
it may be difficult for an investor, or any other person or entity, to assert U.S. securities law claims in original actions instituted
in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws on the grounds that Israel is not the
most appropriate forum in which to bring such a claim. Even if an Israeli court agrees to hear a claim, it may determine that Israeli
law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved
as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There
is little binding case law in Israel addressing the matters described above.
35
Our articles
of association provide that unless we consent otherwise, the competent courts of Tel Aviv, Israel shall be the sole and exclusive forum
for substantially all disputes between us and our shareholders under the Companies Law and the Israeli Securities Law, which could limit
our shareholders’ ability to bring claims and proceedings against, as well as obtain a favorable judicial forum for disputes with,
us and our directors, officers and other employees
Unless we consent in writing to the selection of an
alternative forum, the competent courts of Tel Aviv, Israel shall be the exclusive forum for (i) any derivative action or proceeding brought
on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees
to us or our shareholders, or (iii) any action asserting a claim arising pursuant to any provision of the Companies Law or the Israeli
Securities Law. This exclusive forum provision is intended to apply to claims arising under Israeli Law and would not apply to claims
brought pursuant to the Securities Act or the Exchange Act or any other claim for which U.S. federal courts would have exclusive jurisdiction.
Such exclusive forum provision in our articles of association will not relieve us of our duties to comply with U.S. federal securities
laws and the rules and regulations thereunder, and shareholders will not be deemed to have waived our compliance with these laws, rules,
and regulations. This exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum of its choice
for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers
and other employees.
Your rights and
responsibilities as our shareholder will be governed by Israeli law which may differ in some respects from the rights and responsibilities
of shareholders of United States corporations.
Since we are incorporated under Israeli law, the rights
and responsibilities of our shareholders are governed by our articles of association and Israeli law. These rights and responsibilities
differ in some respects from the rights and responsibilities of shareholders in U.S.-based corporations. In particular, a shareholder
of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations
towards the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting
at the general meeting of shareholders on certain matters, such as an amendment to the company’s articles of association, an increase
of the company’s authorized share capital, a merger of the company and approval of related party transactions that require shareholder
approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling
shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholders’ vote or to appoint
or prevent the appointment of an office holder in the company or has another power with respect to the company, has a duty to act in fairness
towards the company. However, Israeli law does not define the substance of this duty of fairness. See “ITEM 6.C: Directors, Senior
Management and Employees—Board Practices—Board Practices—Fiduciary duties and approval of specified related party transactions
under Israeli law—Duties of shareholders.” Additionally, the parameters and implications of the provisions that govern shareholder
behavior have not been clearly determined by the Israeli courts. These provisions may be interpreted to impose additional obligations
and liabilities on our shareholders that are not typically imposed on shareholders of United States corporations.
Provisions of
Israeli law and our articles of association may delay, prevent or make undesirable a merger transaction, or an acquisition of all or a
significant portion of our shares.
Provisions of Israeli law, including the Companies Law
and our articles of association
could have the effect of delaying or preventing a change in
control and may make it more difficult for a third-party to acquire us or our shareholders to elect different individuals to our board
of directors, even if doing so would be considered to be beneficial by some of our shareholders, and may limit the price that investors
may be willing to pay in the future for our ordinary shares. Among other things:
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• |
the Companies Law regulates mergers and requires that a tender offer be affected when
more than a specified percentage of shares in a company are purchased;
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|
• |
the Companies Law requires special approvals for certain transactions involving directors,
officers or certain significant shareholders and regulates other matters that may be relevant to these types of transactions;
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• |
the Companies Law does not provide for shareholder action by written consent for public
companies, thereby requiring all shareholder actions to be taken at a general meeting of shareholders;
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• |
an amendment to our articles of association
will
generally require, in addition to the approval of our board of directors, a vote of the holders of a majority of our outstanding ordinary
shares entitled to vote and present and voting on the matter at a general meeting of shareholders (referred to as simple majority), and
the amendment of a limited number of provisions, such as increases to the size of the board of directors and the ability for the board
of directors to effect vacancy appointments, requires a vote of the holders of at least 65% of the total voting power of our shareholders;
and
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• |
our articles of association
provide that
director vacancies may be filled by our board of directors.
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36
Israeli tax considerations may also make potential transactions
undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel granting tax relief
to such shareholders from Israeli tax. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes
the deferral contingent on the fulfilment of numerous conditions, including a holding period of up to two years from the date of the transaction
during which certain sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain
share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition
of the shares has occurred. See “ITEM 10.B: Additional Information—Memorandum and Articles of Association—Acquisitions
under Israeli law.”
Under Israeli law, our two external directors have terms
of office of three years and may serve up to three terms. Our current external directors have been elected by our shareholders to serve
for a second term of a three-year term commencing December 1, 2023.
These provisions of Israeli law could have the effect
of delaying or preventing a change in control and may make it more difficult for a third party to acquire us or our shareholders to elect
different individuals to our board of directors, even if doing so would be beneficial to our shareholders, and may limit the price that
investors may be willing to pay in the future for our ordinary shares.
If we are considered
to have sizable market power under Israeli law, we could be subject to certain restrictions that may limit our ability to freely conduct
our business to which our competitors may not be subject.
Under the Israeli Economic Competition law (formerly,
the Restrictive Trade Practices Law, 1988) (the “
Israeli Competition Law
”), a company
that holds significant market power in a relevant market, is subject to certain business practices, designed against its abuse of its
market powers. If we are indeed deemed to have major market share, a sizable market power and the relevant regulator believes we
have abused our position in the market by, it could serve as
prima facie
evidence in private actions
or class actions against us alleging that we have engaged in anti-competitive behavior. Furthermore, the Commissioner may order us to
take or refrain from taking certain actions, which could limit our ability to freely conduct our business.
Sales in Israel accounted for approximately 3.9% of
our revenues in 2024. We have a significant market position in certain jurisdictions outside of Israel and cannot assure you that we are
not, or will not become, subject to the laws relating to the use of dominant product positions in particular countries, which laws could
limit our business practices and our ability to consummate acquisitions.
If we fail to
comply with Israeli law restrictions concerning employment of employees on rest days and religious holidays, we and our office holders
may be exposed to administrative and criminal liabilities and our operational and financial results may be materially and adversely impacted.
We are subject to the Israeli Hours of Work and Rest
Law, 1951 (“
Rest Law
”), which imposes certain restriction on the employment terms and
conditions of our employees. Among others, the Rest Law prohibits the employment of employees on rest days and religious holidays, unless
a permit is obtained from the IMEI. Employing employees on such days without a permit constitutes a violation of the Rest Law. We received
a permit from the IMEI, to employ employees on Saturdays and Jewish holidays relevant to our Bar-Lev production facility. We recently
filed an application to IMEI for its renewal. Obtaining such a permit would provide us with operational flexibility; however, there is
no guarantee that we will be granted such a permit. If such a permit is not granted, we may experience production disruptions, additional
costs or administrative and criminal liabilities which could adversely impact our ability to utilize the Bar Lev facility, as well as
our overall operational and financial results.
37
General
Risk Factors
If we do not
manage our inventory effectively, our results of operations could be materially adversely affected.
We must manage our inventory effectively in order to
meet the demand for our products. If our forecasts for any Specific Stock Keeping Unit (
“SKU”
)
exceed actual demand, we could experience excess inventory, resulting in increased logistic costs. If we ultimately determine that we
have excess inventory, we may have to reduce our prices and write-down inventory which could have an adverse effect on our business, financial
condition and results of operations. If we have insufficient inventory levels, we may not be able to respond to the market demand for
our products, resulting in reduced sales and market share.
We depend on
our senior management team and other skilled and experienced personnel to operate our business effectively, and the loss of any of these
individuals could materially and adversely affect our business and our future financial condition or results of operations.
We are dependent on the skills and experience of our
senior management team and other skilled and experienced personnel. These individuals possess strategic, managerial, sales, marketing,
operational, manufacturing, logistical, financial and administrative skills that are important to the operation of our business. There
have been, and from time to time, there may continue to be, changes in our management team resulting from the hiring or departure of executives
and key employees, or the transition of executives within our business. For example, Mr. Shiran replaced Yuval Dagim as our
Chief Executive Officer on March 16, 2023, and four of our current 12 members of the management team have joined since such date. Such
changes and transitions in our executive management team may divert resources and focus away from the operation of our business. Furthermore,
in recent years we have experienced a trend of relatively high turnover in some sites and roles.
Retention of institutional knowledge and the ability
to attract, motivate and retain personnel, as well as the ability to successfully onboard our senior management as a team comprised of
several new members, are crucial for implementing our business strategy, without which our business and our future financial condition
or results of operations could suffer materially and adversely. We do not carry key man insurance with respect to any of our executive
officers or other employees. We cannot assure you that we will be able to retain all our existing senior management personnel and key
personnel or to attract additional qualified personnel when needed.
The market for qualified personnel is competitive in
the geographies in which we operate. Moreover, the COVID-19 pandemic has also caused a shift to virtual or hybrid recruitment and employment,
which has increased the difficulty in timely attracting new employees, integrating, and introducing them into our corporate culture and
retaining them for the longer term. Companies with whom we compete have expended and will likely continue to expend more resources than
we do on employee recruitment and are often better able to offer more favorable compensation and incentive packages than we can. We seek
to retain and motivate existing personnel through our compensation practices, company culture, and career development opportunities.
If we are unable to attract and retain qualified personnel when and where they are needed, our ability to operate and grow our business
could be impaired. Moreover, if we are not able to properly balance investment in personnel with sales, our profitability may be adversely
affected.
In addition, factors beyond our control may damage or
disrupt the ability of our senior management or key employees to perform their critical roles in the Company.
ITEM 4
:
Information on the Company
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A.
|
History and Development of the Company
|
Our History
Caesarstone Ltd. was founded in 1987 and incorporated
in 1989 in the State of Israel. We began as a leading manufacturer of high-end quartz based engineered surfaces used primarily as countertops
in residential and commercial buildings, and we are now a global multi material, multi-application designer, producer, and reseller of
surfaces. We design, develop produce and source engineered stone, natural stone and porcelain products that offer aesthetic appeal and
functionality through a distinct variety of colors, styles, textures, and finishes used primarily as countertops surfaces, vanities, and
other interior and exterior spaces.
38
Our products are currently sold in over 60 countries
through a combination of direct sales in certain markets performed by our subsidiaries and indirectly through a network of independent
distributors in other markets. We acquired the businesses of our former Australian, Canadian, U.S., Singaporean and Sweden distributors,
and established such businesses within our own subsidiaries in such countries. In March 2012, we listed our shares on the Nasdaq Global
Select Market. In 2017, we started selling our products in the U.K. directly through our U.K. subsidiary, Caesarstone (UK) Ltd. In October
2020, we acquired a majority stake in Lioli, an India-based producer of porcelain slabs, which also sells its porcelain products in India
and other markets. In December 2020, we acquired Omicron, a premier stone supplier which operated several locations across Florida, Ohio,
Michigan, and Louisiana. We now generate a substantial portion of our revenues in the United States, Australia, and Canada from direct
distribution of our products. In July 2022, we also acquired our distributor in Sweden and established Caesarstone Scandinavia.
Since 2023, our manufacturing network has been undergoing
restructuring, with the focus of optimizing our global production footprint. As part of this strategic plan, we shifted our focus from
production activities and discontinued production operations in our Sdot Yam, Israel, and Richmond Hill, GA, USA, production facilities.
We are a company limited by shares organized under the
laws of the State of Israel. We are registered with the Israeli Registrar of Companies in Jerusalem. Our registration number is 51-143950-7.
Our principal executive offices are located at Kibbutz Sdot-Yam, MP Menashe, 3780400, Israel, and our telephone number is +972 (4) 610-9368.
We have irrevocably appointed Caesarstone USA as our agent for service of process in any action against us in any United States federal
or state court. The address of Caesarstone USA is 1401 W. Morehead Street, Suite 100, Charlotte, NC, 28208. The SEC maintains an internet
site at http:/www.sec.gov that contains reports and other information regarding issues that file electronically with the SEC. Our securities
filings, including this annual report and the exhibits thereto, are available on the SEC’s website. For more information about us,
our website is
www.caesarstone.com
. The information contained in, or connected with, our
SEC filings on the SEC internet site and our website shall not be deemed to be incorporated by reference in this annual report.
Principal Capital Expenditures
Our capital expenditures for fiscal years 2024, 2023
and 2022 amounted to $10.4 million, $11.2 million, and $17.8 million, respectively. The majority of our investment activities have historically
been related to the purchase of manufacturing equipment and components for our production lines. For additional information on our capital
expenditures, see “ITEM 5.B: Liquidity and Capital Resources–Capital expenditures.”
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B.
|
Business Overview
|
We are a multi material designer, producer and reseller of countertops used in residential and commercial buildings globally. Based on the Freedonia Report The global countertop industry generated approximately $151.6 billion in sales to end consumers in 2024 based on average installed price, which includes fabrication, installation and other service-related costs, as per the following charts:
39
The majority of our sales are at the wholesale level
of fabricators and distributors and exclude fabrication, installation and other service-related costs.
The engineered stone countertops are a growing category
in the countertop market and continue to take market share from other materials, such as granite, manufactured solid surfaces and laminate.
Between 1999 and 2024, global engineered quartz sales to end-consumers grew at a compound annual growth rate of 14.3% compared to a 5.2%
compound annual growth rate in total global countertop sales to end-consumers during the same period. In 2022, we successfully launched
the marketing and sales of porcelain countertops under the Caesarstone brand following the Lioli Acquisition. Porcelain represents one
of the fastest growing categories in the global countertop market and between 2016 and 2024, the porcelain sales to end-consumers grew
at a compound annual growth rate of 30.5%.
In recent years, quartz penetration rate, by volume,
other than in Israel, increased in our key markets, as detailed in the following chart:
Engineered Stone (Quartz) penetration
in our key markets
|
For the year ended December 31,
|
||||||||||||||||||||
|
|
2024 |
2022
|
2020
|
2016
|
2014
|
|||||||||||||||
|
Region
|
||||||||||||||||||||
|
United States
|
20
|
%
|
21
|
%
|
20
|
%
|
14
|
%
|
8
|
%
|
||||||||||
|
Australia (not including New Zealand)
|
48
|
%
|
48
|
%
|
47
|
%
|
45
|
%
|
39
|
%
|
||||||||||
|
Canada
|
27
|
%
|
27
|
%
|
28
|
%
|
24
|
%
|
18
|
%
|
||||||||||
|
Israel (*)
|
47
|
%
|
53
|
%
|
67
|
%
|
87
|
%
|
86
|
%
|
||||||||||
(*) In Israel, quartz lost market share mainly to porcelain,
which increased its market share from a de-minimis rate in 2016 to over 41% in 2024.
Our products consist primarily of engineered stone fabrication
and installation related services, natural stone and porcelain slabs that are currently sold in over 60 countries through a combination
of direct sales in certain markets and indirectly through a network of independent distributors in other markets. Our products are primarily
used as indoor outdoor kitchen countertops in the renovation and remodeling and residential construction end markets. Other applications
for our products include vanity tops, back splashes, furniture, and other interior and exterior surfaces that are used in a variety of
residential and non-residential applications High quality engineered stone offers durability, non-porous characteristics, superior scratch,
stains and heat resistance levels, making it durable and ideal for kitchen and other applications relative to competing products such
as granite, manufactured solid surfaces and laminate. Porcelain is characterized by its hardness and its stain resistance, as well as
extreme heat and UV resistance. Through our design and manufacturing processes we can offer a wide variety of compositions, colors, styles,
designs, and textures.
From 2010 to 2024, our revenue grew at a compound annual
growth rate of 5.9%. From 2023 to 2024, our revenue decreased at an annual rate of 21.6%. In 2024, we generated revenue of $443.2 million,
net loss of $42.8 million attributable to controlling interest, an adjusted EBITDA loss of $11.5 million and adjusted net loss attributable
to controlling interest of $29.8 million. Adjusted EBITDA and adjusted net income attributable to controlling interest are non-GAAP financial
measures. See “ITEM 4.B: Information on the Company—Business Overview—Non-GAAP Financial Measures” below for a
description of how we define adjusted EBITDA and adjusted net income attributable to controlling interest and reconciliations of net income
to adjusted EBITDA and net income attributable to controlling interest to adjusted net income attributable to controlling interest.
40
Our Products
Our products are generally marketed under the Caesarstone
brand and other brands we own.
Most of our surfaces are installed as countertops in
residential kitchens. Other applications of our products include vanity tops, back splashes, exterior surfaces for outdoor kitchens, flooring,
cladding and facades.
Our engineered stone products are comprised of an average
of 85% minerals blended with polyester and pigments. Our porcelain products are comprised of clay minerals, natural minerals, and additives,
and offer non-porous characteristics as well as scratch and heat resistance.
In addition, we sell natural stone, sinks and various
ancillary fabrication tools and materials. Our standard engineered stone slabs measure 120 inches long by 56 1/2 inches wide, with a thickness
option of 1/2, 3/4, or 1 1/4 inches. Our jumbo slabs, constituting the majority of our products, measure 131 1/2 inches long by 64 1/2
inches wide, with a thickness of 3/4 or 1 1/4 inches. Our engineered stone products’ manufacturing processes and composition give
them superior strength and resistance levels to heat impact, scratches, cracks and stains. Pigments act as a dyeing agent to vary our
products’ colors and patterns. Our standard size porcelain countertop slabs measure 126 inches long by 63 inches wide, 94.5 inches
long by 47 inches wide and 47 inches by 47 inches mm, with a thickness of 1/2 inches, 1/3 inches and 1/4 inches, in a range of matt
finishes. Porcelain surfaces are typically comprised of clay minerals, natural minerals, and additives, and offer non-porous characteristics
as well as scratch and heat resistance.
We design our products with a wide range of colors,
finishes, textures, thicknesses, and physical properties, which help us meet the different functional and aesthetic demands of professionals
and end-consumers. Our designs range from fine-grained patterns to coarse-grained color blends with a variegated visual texture. Through
offering new designs, we capitalize on Caesarstone’s brand name and foster our position as a leading innovator in the counter-top
space.
Our product offerings consist of a few collections (Classico,
Supernatural, Metropolitan, Outdoor and recently, Porcelain), each of which is designed to have a distinct aesthetic appeal. We use a
multi-tiered pricing model across our products and within each product collection ranging from lower price points to higher price points.
Each product collection is designed, branded, and marketed with the goal of reinforcing our products’ premium quality.
We introduced our original product collection, Classico,
in 1987. Launched in 2012, our Supernatural collection, which is marketed as specialty high-end, offers designs inspired by natural stone
and which are manufactured using proprietary technology. In 2018, we launched our new Metropolitan collection, inspired by the rough and
unpolished textures found in industrial architecture. In 2020, we introduced our Outdoor collection, an innovative product category, which
comprises stain resistant surfaces, made of a highly durable material, proven to withstand UV-rays and the most extreme environmental
conditions over a long term, intended for use in outdoor kitchens spaces. Following the Lioli Acquisition we began offering porcelain
products as well for countertops as well as flooring and cladding applications. In 2024, Caesarstone began transitioning its current
portfolio to an alternative blend of materials, introducing crystalline silica-free surfaces made from approximately 80% recycled materials,
blended with polyester, and pigments. These advanced fusion surfaces will be launched globally under the sub-brand Caesarstone ICON™,
addressing the increasing demand for responsible innovation in design.
We regularly introduce new colors and designs to our
product collections based on consumer trends. We offer over 70 different colors of engineered stone products, with five textures and three
thicknesses generally available for each collection.
In addition, following the Omicron Acquisition, we now
offer to our customers in the United States resale of natural stone, as well as various ancillaries and fabrication and installation accessories.
A key focus of our product development is a commitment
to substantiating our claim of our products’ superior quality, strength, and durability. Our products undergo ongoing tests for
durability and flexural strength internally by our internal laboratory operations group and by external accreditation laboratories and
organizations. Products in our portfolio are accredited by organizations overseeing safety, Food contact and environment performance,
such as the NSF International and GREENGUARD Indoor Air Quality.
41
Distribution
Our four largest markets based on sales are currently
the United States, Australia (including New Zealand), Canada and Israel. In 2024, sales of our products in these markets accounted for
49.5%, 17.0%, 13.9% and 3.9% of our revenues, respectively. Total sales in these markets accounted for 84.4% of our revenues in 2024.
For a breakdown of revenues by geographic market for the last three fiscal years, see “ITEM 5.A: Operating Results and Financial
Review and Prospects—Operating Results.”
Direct Markets
We currently have direct sales channels in the United
States, Australia, Canada, Israel, the United Kingdom (
“U.K.”
), Sweden (Scandinavia),
India, and Singapore. Our direct sales channels allow us to maintain greater control over the entire sales channel within a market. As
a result, we gain greater insight into market trends, receive feedback more readily from end-consumers, fabricators, architects and designers
regarding new developments in tastes and preferences, and have greater control over inventory management. Our subsidiaries’ warehouses
in each of these countries maintain inventories of our products and are connected to each subsidiary’s sales department. We supply
our products primarily to wholesalers, resellers and fabricators, who in turn resell them to contractors, developers, builders and consumers,
who are generally advised by architects and designers. In certain market channels in the U.S., Canada Israel and Australia, we also provide,
together with our products, fabrication and installation services, which we source from third party fabricators. We believe that our supply
of a fabricated and installed Caesarstone countertop is a competitive advantage in such channels, which enables us to better control our
products’ prices as well as to promote a full solution to our customers, while in some of these cases our products are sold under
different brands.
During the second half of 2022, we made changes to our
distribution strategic in the Israeli market, and began selling directly to major fabricators, in addition to selling through a handful
of local distributers Although we still sell our products to distributors in this market, we consider this a direct market due to the
warranty we provide to end-consumers, as well as our fabricator technical and health and safety instruction programs and our local sales
and marketing activities. In the United States, Australia, Canada, the United Kingdom, Sweden (Scandinavia) and Singapore we have established
direct distribution channels with distribution locations in major urban centers complemented by arrangements with various third parties,
sub-distributors or stone suppliers in certain areas of the United States.
Indirect Markets
We distribute our products in other territories in which
we do not have a direct sales channel through third-party distributors, who generally distribute our products to fabricators on an exclusive
or non-exclusive basis in a specific country or region. Fabricators sell our products to contractors, developers, builders and consumers.
In some cases, our distributors operate their own fabrication facilities. Additionally, our distributors may sell to sub-distributors
located within the territory who in turn sell to fabricators.
In most cases, we engage one or more distributors to
serve a country or territory. Today, we sell our products in over 40 countries through third-party distributors, and to over 60 countries
in total. Sales to third-party distributors in such indirect markets accounted for approximately 10% of our revenues in 2024. This strategy
often allows us to accelerate our penetration into multiple new markets. Our distributors typically have prior stone surface experience
and close relationships with fabricators, builders and contractors within their respective territory.
We work closely with our distributors to assist them
in preparing and executing a marketing strategy and comprehensive business plan. Ultimately, however, our distributors are responsible
for the sales and marketing of our products and providing technical support to their customers within their respective territories. To
assist some of our distributors in the promotion of our brand in these markets, we provide marketing materials and in certain cases, monetary
participation in marketing activities. Our distributors devote significant effort and resources to generating and maintaining demand for
our products along all levels of the product supply chain in their territory. To this end, distributors use our marketing products and
strategies to develop relationships with local builders, contractors, developers, kitchen and bath retailers, architects and designers.
Certain distributors, as well as sub-distributors, do not engage in brand promotion activities and their activities are limited to sales
promotion, warehousing and distributing to fabricators or other customers.
42
We do not control the pricing terms of our distributors
or sub-distributors’ sales to customers, nor do we control their purchasing and inventory policy. As a result, prices for our products
may vary and their inventory policies may affect their purchases.
Sales and Marketing
Sales
We manufacture or source our products based upon our
rolling projections of the demand for our products.
From 2019 and through 2024, we operated under a regional
structure which consists of U.S., Canada, APAC, EMEA and Israel. each of our subsidiaries is responsible for its direct revenues, with
the responsibility of the majority of third-party distribution partners handled by our Rest of World team.
We believe our products still have significant growth
opportunities in the United States, Canada and Europe. For information on sales trends in the markets in which we operate, see “ITEM
5: Operating and Financial Review and Prospects—Components of statement of income”. In 2016, we established a direct sales
channel in the United Kingdom and starting in January 2017 we have been selling and distributing our products in the U.K. directly through
our U.K. subsidiary. In December 2020, we acquired Omicron, a premier stone supplier servicing the Florida, Ohio, Michigan, and Louisiana
markets in the U.S. In July 2022, we acquired a leading distributor in Sweden, establishing first direct Go-To-Market presence in E.U.
under Caesarstone Scandinavia AB. We intend to continue to invest resources to further strengthen and increase our penetration in our
existing markets. We are also exploring alternative sales channels and methodologies to further enhance our presence in each market.
Marketing
We position our engineered stone, porcelain and natural
stone surfaces as premium branded products in terms of their designs, quality and pricing. Through our marketing, we seek to convey our
products’ ability to elevate the overall design and quality of an entire kitchen and space. Our marketing strategy is to deliver
this message every time our end-consumers, customers, fabricators, architects and designers meet our brand, and position Caesarstone as
the go-to surface brand for the entire space, based on innovation, expertise and sustainability.
We also aim to communicate our position as a design-oriented
global leader in engineered surfaces innovation and technology.
The goal of our marketing activities is to drive marketing
and sales efforts across the regions, generate substantial consumer and partners awareness and demand, fostering strong relationships
across all channels: kitchen and bath retailers, fabricators, contractors, architects and designers, with a “push-and-pull demand
strategy.” We combine both pushing our brand and products through all levels of the product supply chain while generating demand
from end-consumers as a complementary strategy.
We implement a multi-channel marketing strategy in each
of our territories and market not only to our direct customers, but to the entire product supply chain, including fabricators, developers,
contractors, kitchen retailers, builders, architects and designers. Such marketing channels include, among others: advertisements in home
interior magazines and websites, the placement of our display stands and sample books in kitchen retails stores and our company’s
website and social media presence. We share professional knowledge with fabricators about our products and their capabilities, installation
methods and safety requirements through manuals, seminars and webinars. In addition, our “Master of Stone” program operates
as an online training platform, with content aimed at educating fabricators on the topics of Health Safety, professional know-how
and added value content for fabrication plant managers and making safety and professional working guidelines accessible to our fabricators
worldwide.
Our marketing materials are developed by our global
marketing department in Israel and are used globally, in addition to local marketing initiatives in the regions. In 2024, we spent $14.5
million on direct marketing and promotional activities.
Our digital platforms’ websites are a key part
of our marketing strategy enabling us to create data-driven personal relationships, on and off site, in order to increase engagement and
conversion to sale. Our websites enable our business partners, customers and end-consumers to view currently available designs, photo
galleries of installations of our products in a wide range of settings, instructions with respect to the correct usage of our products
and offer an innovative cutting-edge experience with rich content and interactive tools to empower and guide consumers at any stage of
their renovation journey. On November 12, 2024, Caesarstone has been recognized by Forbes Advisor as one of the Top WordPress Website.
We also conduct marketing activity in the social media arena mainly to increase our brand awareness among end-consumers, architects and
designers.
43
We also seek to increase awareness of our brand and
products through a range of other methods, such as trade shows, home design shows, design competitions, media campaigns and through our
products’ use in high profile projects and iconic buildings. In recent years, we have collaborated with renowned designers, who
created exhibitions and particles from our products. Our design initiatives attracted press coverage around the world.
Research and Development
Our research and development (“
RD
”)
department is primarily located in Israel. As of December 31, 2024, our corporate RD department was comprised of 23 employees, all
of whom have extensive experience in engineered stone and porcelain surface manufacturing, polymer science, engineering, product design
and engineered surfaces applications. In 2024, RD costs accounted for approximately 1.1% of our revenues.
The strategic mission of our RD team is to develop
and maintain innovative and leading technologies and top-quality designs, develop new and innovative products according to our marketing
department’s roadmap, increase the cost-effectiveness of our manufacturing processes and raw materials, and generate and protect
company intellectual property in order to enhance our position in the engineered stone surface industry. We also study and evaluate consumer
trends by attending industry exhibitions and hosting international design workshops with market and design specialists from various regions
Customer Service
We believe that our ability to provide outstanding customer
service is a strong competitive differentiator. Our relationships with our customers are established and maintained through the coordinated
efforts of our sales, marketing, production and customer service personnel. In our direct markets, the warranty period varies. We provide
end-consumers with various warranties depending on the relevant markets ranging from a ten-year limited warranty to limited lifetime warranties
in selected markets such as the United States, Canada and Israel. In our indirect markets, end-consumers, and warranty issues on our products
are addressed by our local distributor. We provide all our distributors with a limited direct manufacturing defect warranty and our distributors
are responsible for providing warranty coverage to end-customers. The warranties provided by our distributors vary in term. In our direct
markets, following an end-consumer call, our technicians are sent to the product site within a short time. We provide readily accessible
resources and tools regarding the fabrication, installation, care and maintenance of our products. We believe our comprehensive global
customer service capabilities and the sharing of our service-related know-how differentiate our company from our competitors.
Raw Materials and Production Business
Partners Relationships
Minerals, clay, polyester and pigment are the primary
raw materials used in the production of our surfaces. We acquire raw materials from third-party suppliers. Suppliers ship raw materials
for our engineered stone products and porcelain to our manufacturing facilities in Israel and India primarily by sea. Our raw materials
are generally inspected at the suppliers’ facilities and upon arrival at our manufacturing facilities in Israel and the U.S. The
cost of our raw materials consists of the purchase prices of such materials and costs related to the logistics of delivering the materials
to our manufacturing facilities. Our raw materials costs are also impacted by changes in foreign currency exchange rates.
Following the closure of our production facilities in
Sdot-Yam, Israel, and Richmond Hill, Georgia, we begun purchasing an increasing portion of our product using PBPs located in the far east,
India and Europe. The share of our products manufactured by PBPs has grown to approximately 45.7% of our total products sold during 2024.
We generally transact with PBPs in long-term agreements. We expect this trend to continue during 2025
44
Manufacturing and Facilities
Following the closure of our Sdot-Yam and Richmond-Hill
facilities during 2023, our products are now manufactured at our two manufacturing facilities located in Bar-Lev Industrial Park in northern
Israel, and in Morbi, Gujarat in India and by our third party PBP partners. We completed establishing our Bar-Lev manufacturing facility
in 2005. As part of the Lioli Acquisition, in 2020 we acquired a porcelain slab manufacturing facility, which produces porcelain surfaces.
Finished slabs are shipped from our facilities in Israel
and India, or from our PBP, to distribution centers worldwide, to third-party distributors or directly to customers worldwide. For further
discussion of our facilities, see “ITEM 4.D: Information on the Company—Property, plants, and equipment.”
The manufacturing process for our engineered products
typically involves the blending of minerals (84% on average) with polyester and pigments. Using machinery acquired primarily from Breton,
the leading supplier of engineered stone manufacturing equipment, together with our proprietary manufacturing enhancements, this mixture
is compacted into slabs by a vacuum and vibration process. The slabs are then moved to a curing kiln where the cross-linking of the polyester
is completed. Lastly, the slabs are gauged, calibrated and polished to enhance the shine.
The manufacturing process for our porcelain products
typically involves blending clay, natural minerals (such as feldspar) and chemical additives required for the shaping process. The multi-ingredient
mixture is fed to a ball mill, together with water, to achieve fine grinding. The excess water is then removed, and the resulting powder
is shaped into slabs. Slabs are first moved to dryers and then passed through a glaze line, where they are decorated with different applicators.
Decorated slabs are passed through digital printing machines and then go into a curing kiln for the final firing process. Lastly, the
slabs are gauged, calibrated and polished to enhance the shine.
We maintain strict quality control and safety standards
for our products and manufacturing processes both in our facilities as well as with our PBP. Our manufacturing facility in Israel holds
ISO45001 safety certifications from The Standards Institution of Israel, while our facility in India, is in the process of obtaining the
same certification from TUV).
In addition, since 2018 we have increased our outsourcing
capabilities and currently purchase a large portion of our product from our PBPs including natural stone, engineered stone, porcelain
and ancillaries. We conduct quality control and quality assurance processes with respect to such products. In 2024, products produced
by third parties accounted for approximately 45.7% of revenues, and we are aiming to increase purchases from PBPs in 2025. For more information,
see ITEM 3.D: Key Information - Operational Risks.
Seasonality
For a discussion of seasonality, please refer to “ITEM
5.A: Operating and Financial Review and Prospects—Operating Results—Factors impacting our results of operations” and
“ITEM 5.A: Operating and Financial Review and Prospects—Operating Results—Seasonality.”
Competition
We believe that we compete principally based upon product
quality, breadth of colors and designs offering and innovation, brand awareness and position, pricing and customer service. We believe
that we differentiate ourselves from competitors on the basis of our premium brand, our signature product designs, our products and designs
innovation, our ability to directly offer our products in major markets globally, our focus on the quality of our product offerings, our
customer service-oriented culture, our high involvement in the product supply chain and our leading distribution partners.
The dominant surface materials used by end-consumers
in each market vary. Our products compete with a number of other surface materials as well as similar materials offered by other producers
and re-sellers. The manufacturers of these products consist of a number of regional as well as global competitors. Some of our competitors
may have greater resources than we have and may adapt to changes in consumer preferences and demand more quickly, expand their materials
offering, devote greater resources to design innovation and establishing brand recognition, manufacture more versatile slab sizes and
implement processes to lower costs.
45
The engineered stone and porcelain surface market is highly
fragmented and is also served by a number of regional and global competitors. We also face growing competition from low-cost manufacturers
from Asia and Europe. Large multinational companies have also invested in their engineered stone and porcelain surface production capabilities.
For more information, see “ITEM 3.D. Key Information—Risk Factors—We face intense competitive pressures which could
materially and adversely affect our results of operations and financial condition”
Information Technology Systems
We believe that an appropriate information technology
infrastructure is important in order to support our daily operations and the growth of our business.
We implemented various IT systems to support our business
and operations. Our Enterprise Resource Planning (“
ERP
”) software enables us to manage
our day-to-day business activities and provides us with accessible quality data that support our forecasting, planning and reporting.
Accurate planning is important in order to support sales and optimize working capital and cost as our products can be built in a number
of combinations of sizes, colors, textures and finishes. Given our global expansion, we implemented a global ERP based on an Oracle platform.
Our MES systems manage work processes on the production floor in our facilities and Salesforce enhances our Customer Relationship Management
(“
CRM
”) infrastructure.
We are implementing digitalization across our organization
to better streamline processes and support our business strategy. We are investing in digital transformation projects to enhance consumer
engagement and customer experience. Our technological and digital investments will be geared towards operational enhancements in inventory
management and production, along with transforming our go-to-market tools. We seek to update our IT infrastructure to enhance our ability
to prevent and respond to cyber threats and conduct training for our employees in this respect. For further details, see “ITEM 3.D.
Key Information—Risk Factors—Disruptions to or our failure to upgrade and adjust our information technology systems globally,
may materially impair our operations, hinder our growth and materially and adversely affect our business and results of operations.
Intellectual Property
Our Caesarstone brand is central to our business strategy,
and we believe that maintaining and enhancing the Caesarstone brand is critical to expanding our business.
We have obtained trademark registrations in certain
jurisdictions that we consider material for the marketing of our products, including CAESARSTONE® and our Caesarstone logo. We have
obtained trademark registrations for additional marks that we use to identify certain product collections, as well as other marks used
for certain of our products. While we expect our current and future applications to mature into registrations, we cannot be certain that
we will obtain such registrations. In many of our markets we also have trademarks, including registered and unregistered marks, on the
colors and models of our products. We believe that our trademarks are important to our brand, success and competitive position. In order
to mitigate the risk of infringement, we conduct an ongoing review process before applying for registration. However, we cannot be certain
that third parties will not oppose our application or that the application will not be rejected in whole or in part. In the past, some
of our trademark applications for certain classes of our products’ applications have been rejected or opposed in certain markets
and may be rejected for certain classes in the future, in all or parts of our markets, including, without limitation, for flooring and
wall cladding. We are currently subject to various proceedings regarding our Caesarstone trademark applications in various jurisdictions.
To protect our know-how and trade secrets, we customarily
require our employees and managers to execute confidentiality agreements or otherwise agree to keep our proprietary information confidential.
Typically, our employment contracts also include clauses requiring these employees to assign to us all inventions and intellectual property
rights they develop in the course of their employment and agree not to disclose our confidential information. We limit access to our trade
secrets and implement certain protections to allow our know-how and trade secret to remain confidential.
46
In addition to confidentiality agreements, we seek patent
protection for some of our latest technologies. We have obtained patents for certain of our technologies and have pending patent applications
that were filed in various jurisdictions, including the United States, Europe, Australia, Canada, China and Israel, which relate to our
manufacturing technology and certain products. No patent application of ours is material to the overall conduct of our business. There
can be no assurance that pending applications will be approved in a timely manner or at all, or that such patents will effectively protect
our intellectual property. There can be no assurance that we will develop patentable intellectual property in the future, and we have
chosen and may further choose not to pursue patents for innovations that are material to our business.
Environmental and Other Regulatory
Matters
Environmental
and Health and Safety Regulations
Our manufacturing facility and operations in Israel,
and our manufacturing facility in Gujarat, India are subject to numerous Israeli and Indian environmental and workers’ health and
safety laws and regulations, respectively, and our supply chain operations are subject to applicable local laws and regulations. Laws
and regulations govern, among other things, exposure to pollutants, protection of the environment; setting standards for emissions; generation,
treatment, import, purchase, use, storage, handling, disposal and transport of hazardous wastes, chemicals and materials, including sludge;
discharges or releases of hazardous materials into the environment, soil or water; permissible exposure levels to hazardous materials;
product specifications; nuisance prevention; soil, water or other contamination from hazardous materials and remediation requirements
arising therefrom; and protection of workers’ health and safety.
In addition to being subject to regulatory and legal
requirements, our manufacturing facilities in Israel and India operate under applicable permits, licenses and approvals with terms and
conditions containing a significant number of prescriptive limits and performance standards. Business licenses for our facility in Israel
contain conditions related to a number of requirements, including with respect to dust emissions, air quality, the disposal of effluents
and process sludge, and the handling of waste, chemicals and hazardous materials. The business license for our Bar-Lev plant is in effect
until June 30, 2025, and the Company is in the process of seeking an extension and a permanent license. Our site in India has a Factory
License which is a basic license issued by the Inspectorate of Factories, which is in effect until December 31, 2028. The site in India
has also obtained a Consent to Operate (the “
CTO
”) from the State Pollution Control
Board, which is a permit issued to any factory in India with all the compliance requirements related to environmental aspects, such as
air emission, water and wastewater management, waste management. The CTO is valid until April 10, 2029, and following a renewal process
we believe we are to receive an extended CTO in the coming weeks. We operate in Israel under poison permits that regulate our use of poisons
and hazardous materials. Our current poison permits are valid until January 1, 2027, for Bar-Lev facility. Our site in India is required
to comply with all applicable conditions, including with respect to water consumption, wastewater discharge, air emission monitoring and
pollution control devices, hazardous wastes storage and disposal, specified in the CTO. In all our manufacturing facilities, we are implementing
measures on an ongoing basis in order to achieve and maintain compliance with dust and styrene environmental and occupational emissions
standards and to reduce such emissions to minimum thresholds.
Each of these permits, licenses and standards require
a significant amount of monitoring, record-keeping and reporting in order for us to demonstrate compliance therewith.
Official representatives of the health and safety and
environment authorities in Israel, and Gujarat visit our facilities from time to time, to inspect issues such as workplace safety, industrial
hygiene, monitoring lockout tag out programs, exposure and emissions, water treatment, noise and others. Such inspections may result in
citations, penalties, revocation of our business license or limitations or shut down of our facilities’ operations. It may also
require us to make further investments in our facilities.
47
From time to time, we face environmental, health and
safety compliance issues related to our manufacturing facilities:
|
|
• |
Emissions
- Israel
. On September 2020 the Israeli Ministry of Environmental Protection (IMEP)
issued new business license terms for the Bar Lev site. The terms include a list of emissions-related projects that are essential to be
in line with the requirements. The requirements include, among others, installation of an additional RTO, transition to natural gas, and
sealing of production rooms etc. We have created a working plan and are following it to meet all the requirements.
|
|
|
• |
Business
License – Sdot Yam
. Our business license of Sdot Yam facility is valid until December
31st, 2025. Following the closure of Sdot Yam production facility, we require to update the business license according with the current
activities on the site. We have started the process and have already got all the necessary approvals from the required authorities, aside
from the Fire Department, which has not yet been received.
|
|
|
• |
Workers’
safety and health
. The Israeli Ministry of Economics, Labor Division (“IMOE”)
in Israel and the Indian Ministry of Labor and Employment, conduct audits of our plants, in which, among other things, they examine if
there were any deviations from permitted ambient levels of RCS, styrene and acetone in the plants. We seek on an ongoing basis to continue
reducing the level of exposure of our employees to RCS, styrene and acetone, while enforcing our employees’ use of personal protection
equipment. A fatal accident occurred at the Company’s facility in Richmond Hill in February 2023. The accident was investigated
by local law enforcement and OSHA and the matter is now closed.
|
|
|
• |
Australian
Market
. On December 13, 2023, Australian federal, state and territory governments announced
a joint decision to ban the use, supply and manufacture of engineered stone slabs containing crystalline silica (including our quartz-based
products) in Australia. The ban entered into effect on July 1, 2024, in most Australian states and territories. While we disagree with
this decision, we believe that the focus should be aimed at improving occupational health and safety. we are taking the necessary steps
to ensure supply of alternative materials to its Australian customers in line with its high standards. This process has negatively impacted
our sales in the Australian market, with a decline of 28.8% in our revenues during 2024, which we believe is primarily related to this
ban.
|
Other
Regulations
We are subject to the Israeli Rest Law, which, among
other things, prohibits the employment employees on rest days and religious holidays, unless a permit is obtained from the IMEI.
If we are found to be in violation of the Rest Law, we may
be required to halt operations of our manufacturing facilities on Saturdays and religious holidays, we and our officers may be exposed
to administrative and criminal liabilities, including fines, and our operational and financial results could be materially and adversely
impacted. For more information, see “Item 3.D. Key Information—Risk Factors—Risks relating to our incorporation and
location in Israel—If we fail to comply with Israeli law restrictions concerning employment of employees on rest days and religious
holidays, we and our office holders may be exposed to administrative and criminal liabilities and our operational and financial results
may be materially and adversely impacted.”
For information on other regulations applicable, or
potentially applicable, to us, see the following risks factors in “ITEM 3.D. Key Information—Risk Factors”:
|
|
• |
“Risks related to our business and industry—We may have exposure to greater-than-anticipated
tax liabilities.”
|
|
|
• |
“Risks related to our incorporation and location in Israel—
Conditions in Israel , including Israel’s conflicts with Hamas and other parties in the region, as well as political and economic
instability, may adversely affect our operations and limit our ability to market our products, which would lead to a decrease in revenues.”
|
|
|
• |
“Risks related to our incorporation and location in Israel—The tax benefits
that are available to us require us to continue to meet various conditions and may be terminated or reduced in the future, which could
increase our costs and taxes.”
|
|
|
• |
“Risks related to our incorporation and location in Israel—If
we are considered to have sizable market power under Israeli law, we could be subject to certain restrictions that may limit our ability
to freely conduct our business to which our competitors may not be subject”.
|
48
Legal Proceedings
See “ITEM 8.A: Financial Information—Consolidated
Financial Statements and Other Financial Information—Legal Proceedings.”
Non-GAAP Financial Measures
We use certain non-GAAP financial measures to evaluate
our performance in conjunction with other performance metrics. The following are examples of how we use such non-GAAP measures:
|
|
• |
Our annual budget is based in part on these non-GAAP measures.
|
|
|
• |
Our management and board of directors use these non-GAAP measures to evaluate our operational performance
and to compare it against our work plan and budget.
|
Our non-GAAP financial measures, adjusted gross profit,
adjusted EBITDA and adjusted net income (loss) attributable to controlling interest, have no standardized meaning and accordingly have
limitations in their usefulness to investors. We provide such non-GAAP data because management believes that such data provides useful
information to investors. However, investors are cautioned that, unlike financial measures prepared in accordance with U.S. GAAP, non-GAAP
measures may not be comparable with similar measures used by other companies. These non-GAAP financial measures are presented solely to
permit investors to more fully understand how management and our board assess our performance. The limitations of these non-GAAP financial
measures as performance measures are that they provide a view of our results of operations without reflecting all events during a period
and may not provide a comparable view of our performance to other companies in our industry.
Investors should consider non-GAAP financial measures
in addition to, and not as replacements for, or superior to, measures of financial performance prepared in accordance with GAAP.
In arriving at our presentation of non-GAAP financial
measures, we exclude items that either have a non-recurring impact on our income statement or which, in the judgment of our management,
are items that, either as a result of their nature or size, could, were they not singled out, potentially cause investors to extrapolate
future performance from an improper base. In addition, we also exclude share-based compensation expenses to facilitate a better understanding
of our operating performance, since these expenses are non-cash and accordingly, we believe do not affect our business operations. While
not all inclusive, examples of these items include:
|
|
• |
amortization of purchased intangible assets;
|
|
|
• |
legal settlements (both gain or loss) and loss contingencies, due to the difficulty
in predicting future events, their timing and size;
|
|
|
• |
Impairment expenses
|
|
|
• |
material items related to business combination activities important to understanding
our ongoing performance;
|
|
|
• |
excess cost of acquired inventory;
|
|
|
• |
expenses related to our share-based compensation;
|
49
|
|
• |
significant one-time offering costs;
|
|
|
• |
significant one-time non-recurring items (both gain or loss);
|
|
|
• |
material extraordinary tax and other awards or settlements, both amounts paid and
received; and
|
|
|
• |
tax effects of the foregoing items.
|
|
|
2024
|
2023
|
2022
|
2021
|
2020
|
|||||||||||||||
|
Reconciliation of Gross profit to Adjusted Gross profit:
|
||||||||||||||||||||
|
Gross profit
|
$
|
96,675
|
$
|
91,939
|
$
|
163,245
|
$
|
171,498
|
$
|
133,942
|
||||||||||
|
Share-based compensation expense (a)
|
90
|
95
|
315
|
321
|
416
|
|||||||||||||||
|
Non-recurring import related income
|
—
|
—
|
—
|
—
|
||||||||||||||||
|
Amortization of assets related to acquisitions
|
282
|
285
|
306
|
852
|
529
|
|||||||||||||||
|
Non recurring items related to restructuring
(b)
|
672
|
3,924
|
237
|
-
|
||||||||||||||||
|
Other non-recurring items
|
181
|
(304
|
)
|
—
|
—
|
—
|
||||||||||||||
|
Adjusted Gross profit
|
$
|
97,900
|
$
|
95,939
|
$
|
164,103
|
$
|
172,671
|
$
|
134,887
|
||||||||||
|
(a)
|
Share-based compensation includes expenses related to stock options and restricted
stock units granted to employees and directors of the company.
|
|
(b)
|
In 2024 and 2023, reflects residual operating expenses related to closed plants; In
2022, reflects workforce reduction.
|
|
|
2024
|
2023
|
2022
|
2021
|
2020
|
|||||||||||||||
|
Reconciliation of Net Income (loss) to Adjusted EBITDA:
|
||||||||||||||||||||
|
Net income (loss)
|
$
|
(42,976
|
)
|
$
|
(108,240
|
)
|
$
|
(56,366
|
)
|
$
|
17,889
|
$
|
7,622
|
|||||||
|
Finance expenses (income), net
|
9
|
(1,069
|
)
|
(3,079
|
)
|
7,590
|
10,199
|
|||||||||||||
|
Taxes on income
|
1,081
|
21,281
|
758
|
1,950
|
4,700
|
|||||||||||||||
|
Depreciation and amortization
|
17,742
|
30,007
|
36,344
|
35,407
|
29,460
|
|||||||||||||||
|
Legal settlements and loss contingencies, net (a)
|
7,242
|
(4,770
|
)
|
568
|
3,283
|
6,319
|
||||||||||||||
|
Contingent consideration adjustment related to acquisition
|
(53
|
)
|
264
|
120
|
284
|
—
|
||||||||||||||
|
Share-based compensation expense (b)
|
2,044
|
1,025
|
1,502
|
1,845
|
2,858
|
|||||||||||||||
|
Restructuring expenses (income) and Impairment
related to long lived assets (c)
|
1,007
|
47,939
|
71,258
|
—
|
—
|
|||||||||||||||
|
Acquisition-related expenses
|
-
|
-
|
80
|
—
|
921
|
|||||||||||||||
|
Non recurring items related to restructuring
|
2,054
|
4,438
|
684
|
-
|
-
|
|||||||||||||||
|
Other non-recurring items
|
325
|
(304
|
)
|
-
|
—
|
—
|
||||||||||||||
|
Adjusted EBITDA
|
$
|
(11,525
|
)
|
$
|
(9,429
|
)
|
$
|
51,869
|
$
|
68,248
|
$
|
62,079
|
||||||||
|
(a)
|
Consists of legal settlements expenses and loss contingencies, net related to product
liability claims and other adjustments to ongoing legal claims.
|
|
(b)
|
Share-based compensation includes expenses related to stock options and restricted
stock units granted to employees and directors of the company.
|
|
(c)
|
Including long-lived assets impairment and
restructuring expenses related to plants closure.
|
50
|
|
2024
|
2023
|
2022
|
2021
|
2020
|
|||||||||||||||
|
Reconciliation of Net Income (loss) Attributable to Controlling
Interest to Adjusted Net Income Attributable to Controlling Interest:
|
||||||||||||||||||||
|
Net income (loss) attributable to controlling interest
|
$
|
(42,832
|
)
|
$
|
(107,656
|
)
|
$
|
(57,054
|
)
|
$
|
18,966
|
$
|
7,218
|
|||||||
|
Legal settlements and loss contingencies, net (a)
|
7,242
|
(4,770(
|
568
|
3,283
|
6,319
|
|||||||||||||||
|
Contingent consideration adjustment related to acquisition
|
(53
|
)
|
264
|
120
|
284
|
—
|
||||||||||||||
|
Amortization of assets related to acquisitions, net of tax
|
2,135
|
2,142
|
2,084
|
2,391
|
446
|
|||||||||||||||
|
Share-based compensation expense (b)
|
2,044
|
1,025
|
1,502
|
1,845
|
2,858
|
|||||||||||||||
|
Non-cash revaluation of lease liabilities (c)
|
(2,039
|
)
|
(1,556
|
)
|
(9,527
|
)
|
2,918
|
3,189
|
||||||||||||
|
Non-recurring import related expense (income)
|
-
|
—
|
—
|
—
|
—
|
)
|
||||||||||||||
|
Impairment expenses related to goodwill and long-lived assets (d)
|
1,007
|
47,939
|
71,258
|
—
|
—
|
|||||||||||||||
|
Acquisition-related expenses
|
-
|
-
|
80
|
—
|
921
|
|||||||||||||||
|
Non recurring items related to restructuring
|
2,054
|
4,438
|
684
|
—
|
—
|
|||||||||||||||
|
Other non-recurring items
|
325
|
(304
|
)
|
—
|
—
|
—
|
||||||||||||||
|
Total adjustments before tax
|
12,715
|
49,178
|
66,769
|
10,721
|
13,733
|
|||||||||||||||
|
Less tax on above adjustments (e)
|
(328
|
)
|
(12,035
|
)
|
(910
|
)
|
1,054
|
4,488
|
||||||||||||
|
Total adjustments after tax
|
$
|
13,043
|
$
|
61,213
|
$
|
67,679
|
$
|
9,667
|
$
|
9,245
|
||||||||||
|
Adjusted net income (loss) attributable to controlling interest
|
$
|
(29,789
|
)
|
$
|
(46,443
|
)
|
$
|
10,625
|
$
|
28,633
|
$
|
16,463
|
||||||||
|
(a)
|
Consists of legal settlements expenses and loss contingencies, net related to product
liability claims and other adjustments to ongoing legal claims, including related legal fees.
|
|
(b)
|
Share-based compensation includes expenses related to stock options and restricted
stock units granted to employees and directors of the company.
|
|
(c)
|
Exchange rate differences deriving from revaluation of lease contracts in accordance
with FASB ASC 842.
|
|
(d)
|
Including long-lived assets impairment and
restructuring expenses related to plants closure.
|
|
(e)
|
Based on the effective tax rates of the relevant periods.
|
51
|
C.
|
Organizational Structure
|
The legal name of our company is Caesarstone Ltd.
Caesarstone was organized under the laws of the State
of Israel. We have 8 direct wholly-owned subsidiaries: Caesarstone Australia PTY Limited, which is incorporated in Australia, Caesarstone
South East Asia PTE LTD, which is incorporated in Singapore, Caesarstone (UK) Ltd., which is incorporated in the United Kingdom, Caesarstone
Canada Inc., which is incorporated in Canada, Caesarstone Scandinavia AB, which incorporated in Sweden, Caesarstone USA, Inc., which,
together with its two wholly-owned subsidiaries, Caesarstone Technologies USA, Inc. and Omicron LLC, are incorporated in the United States,
and a fully owned subsidiary in Germany established during 2024. In addition, following the Lioli Acquisition, Caesarstone Ltd. holds
a majority interest of Lioli, incorporated in India, and therefore consolidates its results of operations into our Consolidated Financial
Statements.
We operate based on regional structure with teams in
each of our mentioned subsidiaries.
|
D.
|
Property, Plants and Equipment
|
Our manufacturing facilities are located in Israel and
India. The following table sets forth our most significant facilities as of December 31, 2024:
|
Properties
|
Issuer’s Rights
|
Location
|
Purpose
|
Size
|
|
Kibbutz Sdot-Yam(1)
|
Land Use Agreement
|
Caesarea, Central Israel
|
Headquarters, research and development center
|
Approximately 30,000 square meters of facility and approximately 48,000 square meters of un-covered yard*
|
|
Bar-Lev Industrial Park manufacturing facility(2)
|
Land Use Agreement Ownership
|
Carmiel, Northern Israel
|
Manufacturing facility
|
Approximately 23,000 square meters of facility and approximately 50,000 square meters of un-covered yard**
|
|
Belfast Industrial Center (3)(4)
|
Ownership
|
Richmond Hill, Georgia, United States
|
Manufacturing facility
|
Approximately 26,000 square meters of facility and approximately 157,000 square meters of un-covered yard
|
|
Bharat Nagar (5)
|
Ownership
|
Morbi, Gujarat, India
|
Manufacturing facility
|
Approximately 60,000 square meters of facility and approximately 55,000 square meters of open land, gas
yard, effluent treatment plant, labor colony and roads
|
* Square-meter figures with respect to properties in
Israel are based on data measured by the relevant municipalities used for local tax purposes.
** Square-meter figures based on data used by Israeli
municipalities for local tax purpose is adjusted to reflect the property leased from Kibbutz Sdot-Yam as agreed between us and the Kibbutz
during 2014. This does not include an additional 5,000 square meters adjacent to the manufacturing facility, which we acquired in December
2019.
52
|
(1)
|
Leased pursuant to a land use agreement with Kibbutz Sdot-Yam entered in March 2012
with a term of 20 years, which replaced the former land use agreement. Starting from September 2014 we use an additional 9,000 square
meters pursuant to Kibbutz Sdot-Yam’s consent under terms materially similar to the land use agreement. However, we have the right
to return such additional office space and premises to Kibbutz Sdot-Yam at any time upon 90 days’ prior written notice. In September
2016, we exercised our right to return to the Kibbutz an additional office space of approximately 400 square meters which we used since
January 2014 under terms materially similar to the land use agreement. Following our Sdot-Yam production facility ceased operations during
2023 as part of our operational restructuring plan, the Kibbutz allowed us to grant major part of the land use rights to approved third
parties. The lands on which these facilities are located are held by the ILA and leased or subleased by Kibbutz Sdot-Yam pursuant to agreements
described in “ITEM 7.B: Major Shareholders and Related Party Transactions—Related Party Transactions—Relationship and
agreements with Kibbutz Sdot-Yam—Land use agreement.”
|
|
(2)
|
We own 2,673 square meters of facility and 2,550 square meters of uncovered yard,
and the remainder is leased pursuant to a land use agreement with Kibbutz Sdot-Yam entered into in March 2011, with a term of 10 years
commencing in September 2012, which will be automatically renewed, unless we give two years’ prior notice, for an additional 10-year
term. In 2021, the agreement was extended for an additional ten-year period. This agreement was executed simultaneously with the land
purchase and leaseback agreement we entered into with Kibbutz Sdot-Yam, according to which Kibbutz Sdot-Yam acquired from us our rights
in the lands and facilities of the Bar-Lev industrial center, under a long term lease agreement we entered into with the ILA on June 6,
2007 to use the premises for an initial period of 49 years as of February 6, 2005, with an option to renew for an additional term of 49
years as of the end of the initial period. For more information, see “ITEM 7.B: Major Shareholders and Related Party Transactions—Related
Party Transactions—Relationship and agreements with Kibbutz Sdot-Yam—Land purchase agreement and leaseback.”
|
|
(3)
|
On September 17, 2013, Caesarstone Technologies USA Inc. entered into a purchase agreement
for the purchase of land in Richmond Hill, Georgia, United States for a new U.S. manufacturing facility, the construction of which was
completed in 2015. On June 22, 2015, and on November 25, 2015, Caesarstone Technologies USA Inc. acquired additional land adjacent to
the plant. The Richmond Hill manufacturing facility ceased operations during January 2024, and Caesarstone Technologies USA Inc.
has been in the process of selling such properties.
|
|
(4)
|
In December 2014, we entered into a bond
purchase loan agreement, were issued a taxable revenue bond on December 1, 2014, and executed a corresponding lease agreement. Pursuant
to these agreements, the Development Authority of Bryan County, an instrumentality of the State of Georgia and a public corporation (“
DABC
”),
has acquired legal title of our facility in Richmond Hill, in the State of Georgia, U.S., and in consideration leased such facilities
back to us. In addition, the facility was pledged by DABC in favor of us and DABC has committed to re-convey title to the facility to
us upon the maturity of the bond or at any time at our request, upon our payment of $100 to DABC. Therefore, we consider such facilities
to be owned by us. This arrangement was structured to grant us property tax abatement for ten years at 100% and additional five years
at 50%, subject to our satisfying certain qualifying conditions with respect to headcount, average salaries paid to our employees and
the total capital investment amount in our U.S. plant. In December 2015, we entered into an additional bond purchase loan agreement with
the Development Authority of Bryan County and were issued a second taxable revenue bond on December 22, 2015, to cover additional funds
and assets which were utilized in the framework of constructing, acquiring and equipping our U.S. facility. If we were to expand our current
U.S. facility, we would have been entitled to an additional taxable revenue bond and a corresponding property tax abatement. In 2017,
we notified DABC that we will not be utilizing such additional bond at this time and, accordingly, it has expired. Lately, Bryan
County has demanded approximately $6.7 million in previously abated taxes, alleging a breach of economic development agreements related
to job and investment performance obligations. Caesarstone disputes the claim, asserting that no taxes are owed for prior years and that
the County lacks authority to collect the disputed amounts. Discussions between the parties are ongoing.
|
|
(5)
|
In October 2020, we acquired a majority stake, in Lioli, which owns the Bharat Nagar
facility in Morbi, Gujarat, India..”
|
For further discussion and details, see “ITEM
4.B: Information on the Company—Business Overview—Manufacturing and Facilities.” Various environmental issues may affect
our utilization of the above-mentioned facilities. For further discussion, see “Item 4.B. Information on the Company—Business
Overview—Environmental and Other Regulatory Matters—Environmental and Health and Safety Regulations” above.
53
ITEM 4A
:
Unresolved Staff Comments
Not applicable.
ITEM 5
:
Operating and Financial Review and Prospects
|
A.
|
Operating Results
|
The following discussion
and analysis of our financial condition and results of operations should be read in conjunction with our financial information presented
in “ITEM 3: Key Information,” our audited consolidated balance sheets as of December 31, 2024 and 2023, the related consolidated
income statements and cash flow statements for each of the three years ended December 31, 2024, 2023 and 2022, and related notes and the
information contained elsewhere in this annual report. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial information presented in “ITEM 3: Key Information,” our audited
consolidated balance sheets as of December 31, 2024 and 2023, the related consolidated income statements and cash flow statements
for each of the three years ended December 31, 2024, 2023 and 2022, and related notes and the information contained elsewhere in this
annual report. Our financial statements have been prepared in accordance with U.S. GAAP. See “ITEM 3.D: Key Information
—
Risk
Factors” and “Special Note Regarding Forward-Looking Statements.”
Company overview
We are a leading brand of high-end engineered surfaces
used primarily as countertops in residential and commercial buildings. We design, develop and produce engineered stone and porcelain products
that offer aesthetic appeal and functionality through a distinct variety of colors, styles, textures, and finishes used in countertops,
vanities, and other interior and exterior surfaces. Our high-quality engineered stone surfaces are marketed and sold under our premium
Caesarstone brands. We believe our products accounted for approximately 3.3% of global engineered stone by volume in 2024. Our sales in
the United States, Australia (including New Zealand), Canada and Israel, our four largest markets, accounted for 49.5%, 17.0%, 13.9% and
3.9% of our revenues in 2024. We believe that our revenues will continue to be highly concentrated among a relatively small number of
geographic regions for the foreseeable future. For further information with respect to our geographic concentration, see “ITEM 3.D:
Key Information—Risk Factors—Our revenues are subject to significant geographic concentration and any disruption to sales
within one of our key existing markets could materially and adversely impact our results of operations and prospects.”
Between 2010 to 2024, our revenue grew at a compound
annual growth rate of 5.9% driven mainly by the continued quartz penetration and the Lioli and Omicron acquisitions, increased remodeling
spending in all our top three markets and growth in the residential segment in the United States, our largest market. In addition, the
portion of innovative designs within our offering increased over time. Our revenue trend reversed, and revenues decreased by 21.6% during
2024. See “—Comparison of period-to-period results of operations—Year ended December 31, 2024, compared to year ended
December 31, 2023—Revenues” for additional information
During 2024, our gross margin increased from 16.3% to
21.8% (our adjusted gross margin increased from 17.0% to 22.1%), and our margin of net loss attributable to controlling interest in 2024
was 9.7% compared to loss of 19.0% in 2023. the adjusted margin of net loss is attributable to controlling interest increase from an adjusted
net loss of 8.2% in 2023 to an adjusted net loss of 6.7% in 2024).
Adjusted EBITDA margin decreased from a negative 1.7% to a
negative Adjusted EBITDA of 2.6%. We define each of such margins by dividing adjusted gross profit, adjusted EBITDA, and adjusted
net income (loss) attributable to controlling interest, respectively, by revenues. Adjusted EBITDA, adjusted gross profit, and adjusted
net income (loss) attributable to controlling interest are non-GAAP financial measures, see “ITEM 4.B: Information on the Company—Business
Overview—Non-GAAP Financial Measures” for a description of how we define adjusted EBITDA and adjusted net income attributable
to controlling interest and reconciliations of net income to adjusted EBITDA and net income attributable to controlling interest to adjusted
net income attributable to controlling interest. We attribute the decrease in the adjusted EBITDA margin mainly due to lower sales
including also lower average selling prices, increased manufacturing costs per unit due to lower capacity utilization which resulted in
lower fixed-costs absorption, increased logistics costs partially offset by savings from the closure of our two production sites, increased
portion of product sales that are OEM produced and lower RM costs,
54
Our mission is to be the leading choice for surfaces
all around the world. We believe that a significant portion of our future growth will come from our U.S. market where we see the greatest
growth opportunity. We believe that transitioning to direct sales will contribute to our future growth in the long term. We believe that
in order to remain competitive in the long term, we will need to grow our business both organically and through acquisitions.
We are subject to multiple lawsuits in Israel, Australia
and the United States alleging injuries associated with exposure of fabricators and their employees to respirable crystalline silica dust.
As of December 31, 2024, and in accordance with U.S. GAAP we had recorded a provision of $50.0 million representing our assessment of
exposure that is probable and estimable with respect to pending claims in Israel, Australia and the United States. If there is an
unfavorable outcome with respect to one or more of these claims, subject to the availability of insurance, we may have to fund the payment
of damaged and such amount could be significant and materially and adversely impact our cash flows.
As part of the Company’s business growth strategy, strategic
acquisitions are considered opportunities to enhance our value proposition through differentiation and competitiveness. In recent years
and as further described below, we have successfully executed on this strategy, including our 2020 acquisitions of Lioli, an India-based
developer and producer of porcelain countertop slabs with manufacturing facilities in Asia; Omicron, a premier stone supplier operating
in several locations across the United States in Florida, Ohio, Michigan and Louisiana, which now operate as part of our United States
operations; and Caesarstone Scandinavia a Swedish distributor acquired during 2022.
Factors impacting our results of
operations
We consider the following factors to be important in
analyzing our results of operations:
|
|
• |
Our sales are impacted by home renovation and remodeling and new residential construction,
and to a lesser extent, commercial construction. We estimate (supported also by the Freedonia Report) that approximately 60%-70% of our
revenue in our main markets (U.S., Australia, Canada) is related to residential renovations and remodeling activities, while 30%-40% is
related to new residential construction.
|
|
|
• |
Our revenues and results of operations traditionally exhibit some quarterly fluctuations
as a result of seasonal influences which impact construction and renovation cycles. Due to the fact that certain of our operating costs
are fixed, the impact of such fluctuations on our profitability could be material. We believe that the second and third quarters tend
to exhibit higher sales volumes than the other quarters because demand for our surfaces and other products is generally higher during
the summer months in the northern hemisphere with the effort to complete new construction and renovation projects before the new school
year. Conversely, the first quarter is typically impacted by the winter slowdown in the northern hemisphere in the construction industry
and might impact sales in Israel depending on the timing of the spring holiday a particular year. Similarly, sales in Australia during
the first quarter are negatively impacted by fewer construction and renovation projects. The fourth quarter is susceptible to being impacted
by the onset of winter in the northern hemisphere. These trends were not visible during 2023,2024 which was affected by challenging macro-economic
conditions impacting our revenues.
|
55
|
|
• |
We conduct business in multiple countries in North America, South America, Europe,
Asia-Pacific, Australia, and the Middle East and as a result, we are exposed to risks associated with fluctuations in currency exchange
rates between the U.S. dollar and certain other currencies in which we conduct business. A significant portion of our revenues is generated
in U.S dollar, and to a lesser extent the Australian dollar, Canadian dollar, Euro and NIS. In 2024, 51.3% of our revenues were denominated
in U.S. dollars, 17.0% in Australian dollars, 13.9% in Canadian dollars, 6.0% in Euros and 3.9% in NIS. As a result, devaluations of the
Australian dollars, and to a lesser extent, the Canadian dollar relative to the U.S. dollar may unfavorably impact our profitability.
Our expenses are largely denominated in U.S. dollars, NIS and Euro, with a smaller portion in Australian dollars and Canadian dollars.
As a result, appreciation of the NIS, and to a lesser extent, the Euro relative to the U.S. dollar may unfavorably affect our profitability.
We attempt to limit our exposure to foreign currency fluctuations through forward contracts, which, except for U.S. dollar/NIS forward
contracts, are not designated as hedging accounting instruments under ASC 815, Derivatives and Hedging. We currently engage in derivatives
transactions, such as forward contracts, to hedge against the risks associated with our foreign currency exposure. Our strategy to hedge
our cash flow exposures involves consistent hedging of exchange rate risk in variable ratios up to 100% of the exposure over rolling 12
months. As of December 31, 2024, our average hedging ratio was approximately 5% out of our expected currencies exposure for 2024. As of
December 31, 2024, we had total outstanding forward contracts with a notional amount of $2.5 million. These forward contracts were for
a period of up to 12 months. The fair value of these foreign currency derivative contracts was positive $0.1 million, which is included
in our current assets and current liabilities, as of December 31, 2024. Hedging results are charged to finance expenses, net, and therefore,
do not offset the impact of currency fluctuations on our operating income. Our U.S. dollar/NIS forward contracts are charged to operating
expenses as designated hedge instruments, partially offsetting the impact of the U.S. dollar/NIS currency fluctuations on our operating
income (loss). While we may decide to enter into additional hedging transactions in the future, the availability and effectiveness of
these transactions may be limited and we may not be able to successfully hedge our exposure, which could adversely affect our financial
condition and results of operations. For further discussion of our foreign currency derivative contracts, see “ITEM 11: Quantitative
and Qualitative Disclosures About Market Risk.”.
|
Components of statements of income
Revenues
We derive our revenues from sales of engineered stone
surfaces, their fabrication and installation services, and, to a lesser extent, other surfaces and ancillaries, mostly to fabricators
and resellers in our direct markets and to third-party distributors in our indirect markets. The purchasers of our products in our non-direct
markets are our third-party distributors who, in turn, fabricate or sell to local fabricators and re-sellers. Our direct sales accounted
for 90% of our revenues, for the years ended December 31, 2024.
56
Revenue is recognized when a customer obtains control
of promised goods or when services have been rendered in an amount that reflects the consideration the entity expects to receive in exchange
for those goods or services.
The warranties that we provide vary by market. In our
indirect markets, we provide all our distributors with a limited direct manufacturing defect warranty. In all our indirect markets, distributors
are responsible for providing warranty coverage to end-customers. In our direct markets we provide end-consumers with a limited warranty
on our products for varying applications and duration. Based on historical experience, warranty issues are generally identified within
one and a half years after the shipment of the product and a significant portion of defects are identified before installation. We record
a reserve on account of possible warranty claims, included in our cost of revenues. Historically, warranty claims expenses have been low,
accounting for approximately 0.2% of our total cost of goods sold in 2024.
The following table sets forth the geographic breakdown
of our revenues during the periods indicated:
|
|
Year ended December 31,
|
|||||||||||||||||||||||
|
|
2024 | 2023 | 2022 | |||||||||||||||||||||
| Geographical Region | % of total revenues |
Revenues in
thousands of USD
|
% of total revenues |
Revenues in
thousands of USD
|
% of total revenues |
Revenues in
thousands of USD
|
||||||||||||||||||
|
United States
|
49.5
|
%
|
$
|
219,559
|
48.1
|
%
|
$
|
271,647
|
49.5
|
%
|
$
|
342,293
|
||||||||||||
|
Canada
|
13.9
|
%
|
61,749
|
13.4
|
%
|
75,462
|
13.5
|
%
|
93,377
|
|||||||||||||||
|
Latin America
|
0.3
|
%
|
1,392
|
0.6
|
%
|
3,285
|
0.6
|
%
|
4,481
|
|||||||||||||||
|
Australia (incl. New Zealand)
|
17.0
|
%
|
75,388
|
18.8
|
%
|
106,223
|
16.8
|
%
|
116,284
|
|||||||||||||||
|
Asia
|
4.6
|
%
|
20,577
|
4.6
|
%
|
25,959
|
5.0
|
%
|
63,320
|
|||||||||||||||
|
EMEA
|
10.6
|
%
|
47,121
|
10.6
|
%
|
59,908
|
9.2
|
%
|
34,607
|
|||||||||||||||
|
Israel
|
3.9
|
%
|
17,435
|
4.0
|
%
|
22,747
|
5.3
|
%
|
36,444
|
|||||||||||||||
|
Total
|
100.0
|
%
|
$
|
443,221
|
100.0
|
%
|
$
|
565,231
|
100.0
|
%
|
$
|
690,806
|
||||||||||||
Revenue in 2024 was $443.2 million compared to $565.2
million in the prior year. On a constant currency basis, 2024 revenue was lower by 21.5% year-over-year, mainly due to lower volume resulting
from macroeconomic headwinds which includes higher interest rates and higher inflation and competitive pressures and lower ASP mainly
due to Australia ban. The decrease in 2023 revenues compared to 2022 on a constant currency basis was 17% and was mainly due to lower
volume resulting from macroeconomic headwinds.
Revenues in the U.S. decreased by 19.2% in 2024 compared
to an decreased of 20.6% in 2023. The decrease in 2024 is mainly due to lower volume ,lower ASP and lower sales of natural stone and ancillaries.
The decrease in 2023 was mainly due to lower volume.
Revenues in Canada decreased by 18.2% in 2024 mainly
due to lower volume compared to an decrease of 19.2% in 2023, representing 17.0% decrease and 16.1% decrease on a constant-currency basis,
respectively.
Revenues in Latin America decreased by 57.7% in 2024
compared to a decrease of 26.7% in 2023.
Revenues in Australia decreased by 29.0% in 2024 compared
to a decrease of 8.7% in 2023 .the decrease in 2024 mainly due to lower volume and lower ASP due to the Australia ban . On a constant
currency basis, revenues in Australia decreased by 28.8% in 2024 and decrease by 4.7% in 2023.
Revenues in Asia decreased by 20.7% in 2024 compared
to a decrease of 25.0% in 2023 mainly due to lower volume resulting from macroeconomic headwinds and competitive pressures. On a constant
currency basis, revenues in Asia decreased by 21.1% in 2024 and decreased by 26% in 2023.
57
Revenues in EMEA decreased by 21.3% in 2024 and decrease
by 5.4% in 2023 mainly due to lower volume resulting from macroeconomic headwinds and competitive pressures. On a constant-currency basis,
revenue decreased in EMEA by 22.1% in 2024 and decrease by 7.6% in 2023.
Revenues in Israel decreased by 23.4% in 2024 compared
to a decreased of 37.6% in 2023. On a constant currency basis, revenues decreased by 23% in 2024 and by 31.4% in 2023. This decrease is
attributable to the macroeconomic, competitive environments as well as the war in Israel.
For additional information, see “—Comparison
of period-to-period results of operations—Year ended December 31, 2024, compared to year ended December 31, 2023—Revenues.”
And “Conditions in Israel, including the attack by Hamas and other terrorist organizations from the Gaza Strip and elsewhere in
the region, and Israel’s war against them, may adversely affect our operations and limit our ability to market our products, which
would lead to a decrease in revenues”
Cost of revenues
and gross profit margin
Our cost of revenues includes the cost of manufactured
products sold as well as the cost of purchased products from third parties such as engineered stone, Porcelain, natural stone and other
ancillary products. The price of our main raw materials for engineered stone products, minerals and polyester, increased during 2024.
Approximately 17.6% of our cost of revenues (related to our manufactured products) consists of raw material costs. The cost of our raw
materials consists of the purchase prices of such materials and costs related to the logistics of delivering the materials to our facilities
but does not include the cost of raw materials used in the production of products produced by our PBPs. In addition, approximately 26.5%
of our cost of revenues relates to products purchased from PBP. Our raw materials costs are also impacted by changes in foreign exchange
rates. Our principal raw materials, minerals and polyester jointly accounted for approximately 70% of our total raw material cost in 2024.
The balance of our cost of revenues consists primarily of manufacturing costs, related overhead and the cost of other products not manufactured
by us. Cost of revenues in our direct distribution channels also includes the cost of delivery from our manufacturing facilities to our
warehouses, warehouse operational costs, as well as additional delivery costs associated with the shipment of our products to customer
sites in certain markets. In the U.S. and Canada, we also incur fabrication and installation costs related to retail sales and other commercial
building projects. In the case of our indirect distribution channels, we bear the cost of delivery to the seaport closest to our production
plants and our distributors bear the cost of delivery from the seaport to their warehouses.
Minerals (primarily quartz) accounted for approximately
38.2% of raw materials cost in 2024. Accordingly, our cost of sales and overall results of operations are impacted significantly by fluctuations
in quartz prices. In 2024 and 2023, the average cost of quartz increased by 6.1% and decreased by 7.7%, respectively. The increase
in 2024 was primarily due to a more expansive mineral mix. Any future increases in the cost of minerals may adversely impact our margins
and net income.
Given the significance of polyester costs relative to
our total raw material expenditures, our cost of sales and overall results of operations are impacted significantly by fluctuations in
polyester prices, which generally correlate with benzine prices. In 2024, our average polyester costs increased by approximately 0.3%
Any future increases in polyester costs may adversely impact on our margins and net income.
The gross profit margins on sales in our direct markets
are generally higher than in our indirect markets in which we use third-party distributors, due to the elimination of the third-party
distributor’s margin. In many markets, our expansion strategy is to work with third-party distributors who we believe will be able
to increase sales more rapidly in their market and be more cost effective than if we distributed our products directly. However, in several
markets we distribute directly, including the United States, Australia, Canada and in the United Kingdom, Scandinavia, Singapore and India.
In the future, we intend to evaluate other potential markets to distribute directly.
58
Research and development
Our research and development expenses consist primarily
of salaries and related personnel costs, as well as costs for subcontractor services and costs of materials consumed in connection with
the design and development of our products. We expense all our research and development costs as incurred.
Selling and marketing
Selling and marketing expenses are mainly comprised
of compensation and related costs for personnel involved in sales, marketing, distribution, as well as advertising and promotional costs.
In 2024, our advertising and promotional expenses, along with marketing support costs, increased to support continued marketing efforts
for low silica and porcelain products and to sustain the Caesarstone brand.
General and administrative
General and administrative expenses consist primarily
of compensation and associated costs for personnel engaged in finance, human resources, information technology, legal and other administrative
activities, as well as fees for legal and accounting services. See “—Other factors impacting our results of operations—Agreements
with Kibbutz Sdot-Yam” and “ITEM 7: Major Shareholders and Related Party Transactions—Related Party Transactions.”
Goodwill and
long-lived assets impairment charges
Impairment of long-lived assets: in 2024 and 2023 year-ends,
the Company identified indicators for impairment, among others, reduced demand due to global market conditions, lower utilization in certain
plants, increased inflation and higher interest rates. Following these indicators and following the announcements on closures of Sdot
Yam and Richmond Hill plants, and in accordance with ASC360, we recorded the following impairment expenses:
|
|
• |
During 2023 - property plant and equipment expenses of $27.5 million related to Richmond
Hill facility and $1.0 million related to Sdot Yam facility, and right of use assets impairment of $16.6 million related to Sdot Yam facility
land use agreement.
|
|
|
• |
During 2024 - intangible
assets of approximately $3.2M, mainly related to slowdown in demand due to global market conditions and the integration challenges of
acquired businesses.
|
Goodwill: As of December 31, 2024 and 2023 our goodwill
was fully impaired. During the year ended December 31, 2022 the Company recorded goodwill impairment of $44.8 million.
See also Note 6 and Note 7 to our financial statements
included elsewhere in this report.
Legal settlements
and loss contingencies, net
Legal settlements and loss contingencies, net consists of expenses related to settlements expenses and
estimated exposure not covered by our insurance applicable mainly to individual silicosis claims. We recorded $7.2 million expenses in
2024, compared to a credit of $4.8 million in 2023, and $0.6 million expenses in 2022. The change from 2023 to 2024 is mainly attributed
to an updated estimates made by our legal counsel in light of certain court rulings and large legal expenses related to these legal proceedings
mainly in the U.S. See “—Financial Information—Consolidated Financial Statements and Other Financial Information—Legal
Proceedings—Claim by former South African distributor”.
Finance (income)
expenses, net
Finance (income) expenses, net, consist primarily of
bank and credit card fees, borrowing costs and exchange rate differences arising from changes in the value of monetary assets and monetary
liabilities stated in currencies other than the functional currency of each entity. These expenses are partially offset by interest income
on our cash balances and gains on derivative instruments. The finance expenses during 2024 related mainly to exchange rate differences
arising from changes in the value of monetary assets and monetary liabilities in Israel and our subsidiaries due to the strengthening
of the USD against the local currencies.
59
Corporate taxes
As we operate in multiple countries, our income is subject
to taxation in different jurisdictions with a range of tax rates. Our effective tax rate was 2.6% in 2024, 24.5% in 2023 and 1.4% in 2022.
In 2024 our effective tax rate is attributable mostly to a taxable loss. In 2023 our effective tax rate is attributable mostly to taxable
loss position in Israel and the United States for three consecutive years and as a result establishing full valuation allowance on the
deferred tax assets, net. In 2022 the lower effective tax rate is attributable mainly to taxable losses in certain entities and to deferred
tax assets recorded to capture carry forward NOLs. See also note 12 to our financial statements included elsewhere in this report.
The standard corporate tax rate for Israeli companies
was 23% in each of 2024, 2023, and 2022. Our non-Israeli subsidiaries are taxed according to the tax laws in their respective countries
of origination.
Effective January 1, 2011, with the enactment of Amendment
No. 68 to the Israeli Tax Law, both of our Israeli facilities operate under a consolidated “Preferred Enterprise” status.
The “Preferred Enterprise” status provides the portion related to the Bar-Lev manufacturing facility with the potential to
be eligible for grants of up to 20% of the investment value in approved assets and a reduced flat corporate tax rate, which applies to
the industrial enterprise’s entire preferred income, 7.5% in 2017 onward. For the portion related to the Sdot-Yam facility, this
status provides us with a reduced flat corporate tax rate, which applies to the industrial enterprise’s entire preferred income,
which was 16% during the same period. During 2023, and as part of the company’s restructuring plan, the company closed the Sdot-Yam
manufacturing facility, ending future portion related to Sdot-Yam facility and reduced corporate tax rate applied to this income.
In December 2017, the U.S. enacted significant tax reform
commencing with the year ended December 31, 2017, including, but not limited to (1) reducing the U.S. federal corporate income tax rate
to 21% effective 2018; and (2) imposing a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries of U.S. companies
that had not been previously taxed in the U.S.
The TCJA also established new tax provisions affecting
2018, including, but not limited to (1) creating a new provision designed to tax global intangible low-tax income; (2) generally eliminating
U.S. federal taxes on dividends from foreign subsidiaries; (3) eliminating the corporate alternative minimum tax; (4) creating the base
erosion anti-abuse tax; (5) establishing a deduction for foreign derived intangible income; (6) repealing the domestic production activity
deduction; and (7) establishing new limitations on deductible interest expense and certain executive compensation.
The reduction of the U.S. federal corporate income tax
rate required us to remeasure our deferred tax assets and liabilities as of the date of enactment. For the year ended December 31, 2017,
we decreased the net deferred tax liability as a result of such remeasurement, resulting in tax income benefit for the year ended December
31, 2017.
As of December 31, 2019, certain provisions of the TCJA
remain subject to Internal Revenue Service as well as state tax authorities’ guidance and interpretation which could have a material
adverse effect on our cash tax liabilities, results of operations, and financial condition. In addition, the TCJA could be subject to
potential amendments and technical corrections, any of which could materially lessen or increase certain adverse impacts of the legislation
on us and our business. We will continue to evaluate the effects of the TCJA on us as federal and state tax authorities issue additional
regulations and guidance.
On March 27, 2020, the CARES Act was enacted in response
to the COVID-19 pandemic. The CARES Act has a number of beneficial tax provisions. Among the provision of the CARES Act, the business
interest deduction limit under Code Sec. 163(j) is increased to 50 percent of our adjusted taxable income in the U.S. for tax year 2020.
In addition, Net operating losses (NOLs) arising in tax years beginning in 2019, 2020, and 2021 now have a five-year carryback period
and an unlimited carryforward period. Under the CARES Act we carryback our U.S. NOL for the year ended December 31, 2021 to prior taxable
years.
For more information about the tax benefits available
to us as an Approved Enterprise or as a Beneficiary Enterprise or as Preferred Enterprise, see “ITEM 10.E: Additional Information—Taxation—Israeli
tax considerations and government programs.”
60
Net income (loss)
attributable to non-controlling interest
In October 2020, we acquired a majority stake in Lioli.
During August 2024, we purchased an additional part of shares from the minority, increasing holdings from 60.4% to 80.7%. For the year
ended on December 31, 2024, Net loss attributable to non-controlling interest was approximately $0.1 million.
Other factors impacting our results
of operations
Share-based compensation
We recorded share-based compensation expenses of $2.0
million, $1.0 million and $1.5 million in 2024, 2023 and 2022, respectively, and expect to record $1.9 million over a weighted average
period of 3 years from December 31, 2023. For more information, see also Note 13 to our financial statements included elsewhere in this
report.
Agreements with
Kibbutz Sdot-Yam
We are party to a series of agreements with our largest
shareholder, the Kibbutz, which govern different aspects of our relationship. Pursuant to these agreements, in consideration for using
facilities leased to us or for services provided by the Kibbutz, we paid to the Kibbutz an aggregate of $10.2 million in 2024, $10.2 million
in 2023 and $11.3 million in 2022 (excluding VAT).
For more information on these agreements, see “ITEM
7.B: Major Shareholders and Related Party Transactions—Related Party Transactions.”
Management Services
Agreement with Tene
In September 2024, we amended our management services
agreement with Tene Growth Capital 3 Funds Management Company Ltd., the management company of the general partner of Tene Investment in
Projects 2016, L.P., pursuant to which Tene Investment in Projects 2016, L.P. provides us with the services of an Executive Chairman of
the Board (by Dr. Ariel Halperin), and regular business development advice services, for an aggregate annual management fee of NIS 750,000
plus VAT and expenses.
For more information on these agreements, see “ITEM
7.B: Major Shareholders and Related Party Transactions—Related Party Transactions.”
Acquisitions
During 2022:
Magrab Acquisition
on July 6, 2022, the Company completed the acquisition of 100% of the shares of Magrab Naturtsen AB ("Magrab"), a leading distributor
in Sweden, establishing first direct go-to-market presence in E.U., for a total net consideration of approximately $2.2 million, with
an additional considerations of up to approximately $1.5 million. The agreed considerations were paid during 2023 and 2024.
61
Comparison of period-to-period results
of operations
The following table sets forth our results of operations
as a percentage of revenues for the periods indicated:
|
|
Year ended December 31,
|
|||||||||||||||||||||||
|
|
2024
|
2023
|
2022
|
|||||||||||||||||||||
|
|
Amount
|
% of Revenue
|
Amount
|
% of Revenue
|
Amount
|
% of Revenue
|
||||||||||||||||||
|
|
(in thousands of U.S. dollars)
|
|||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Consolidated Income Statement Data:
|
||||||||||||||||||||||||
|
Revenues:
|
$
|
443,221
|
100
|
%
|
$
|
565,231
|
100
|
%
|
$
|
690,806
|
100
|
%
|
||||||||||||
|
Cost of revenues
|
346,546
|
78.2
|
473,292
|
83.7
|
527,561
|
76.4
|
||||||||||||||||||
|
Gross profit
|
96,675
|
21.8
|
91,939
|
16.3
|
163,245
|
23.6
|
||||||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||||||
|
Research and development
|
4,950
|
1.1
|
5,086
|
0.9
|
4,098
|
0.6
|
||||||||||||||||||
|
Selling and marketing
|
86,239
|
19.5
|
82,222
|
14.5
|
94,412
|
13.7
|
||||||||||||||||||
|
General and administrative
|
39,123
|
8.8
|
49,490
|
8.8
|
51,596
|
7.5
|
||||||||||||||||||
|
Impairment of goodwill and long lived assets,
restructuring and other related costs, net of other income
|
1,007
|
0.2
|
47,939
|
8.5
|
71,258
|
10.3
|
||||||||||||||||||
|
Legal settlements and loss contingencies, net
|
7,242
|
1.6
|
(4,770
|
)
|
(0.8
|
)
|
568
|
0.1
|
||||||||||||||||
|
Total operating expenses
|
138,561
|
31.3
|
179,967
|
31.8
|
221,932
|
32.3
|
||||||||||||||||||
|
Operating loss
|
(41,886
|
)
|
(9.5
|
)
|
(88,028
|
)
|
(15.6
|
)
|
(58,687
|
)
|
(8.5
|
)
|
||||||||||||
|
Finance expenses (income), net
|
9
|
0.0
|
(1,069
|
)
|
(0.2
|
)
|
(3,079
|
)
|
(0.4
|
)
|
||||||||||||||
|
Income before taxes on loss
|
(41,895
|
)
|
(9.5
|
)
|
(86,959
|
)
|
(15.4
|
)
|
(55,608
|
)
|
(8.1
|
)
|
||||||||||||
|
Taxes on income
|
1,081
|
0.2
|
21,281
|
3.8
|
758
|
0.1
|
||||||||||||||||||
|
Net loss
|
$
|
(42,976
|
)
|
(9.7
|
)
|
$
|
(108,240
|
)
|
(19.1
|
)
|
$
|
(56,366
|
)
|
(8.2
|
)
|
|||||||||
|
Net income (loss) attributable to non-controlling interest
|
(144
|
)
|
0.0
|
(584
|
)
|
0.1
|
688
|
0.1
|
||||||||||||||||
|
Net loss attributable to controlling interest
|
$
|
(42,832
|
)
|
(9.7
|
)%
|
$
|
(107,656
|
)
|
(19.0
|
)%
|
$
|
(57,054
|
)
|
(8.3
|
)%
|
|||||||||
Year ended December
31, 2024, compared to year ended December 31, 2023
Revenues
Revenues decreased by $122 million, or 21.6%, to $443.2
million in 2024 from $565.2 million in 2023. The decrease in 2024 is mainly due to lower volume and ASP related to macroeconomic conditions,
including relatively high inflation and interest rate hikes across our main markets, which resulted in lower demand for our products;
the Australian ban; and the war in Israel
Cost of revenues and gross profit
margins
Cost of revenues in 2024 amounted to $346.5 million compared to $473.3 million in 2023, as a result of
lower revenues as mentioned above and also to our strategic footprint, which includes the closure of our production facilities in Richmond
hill and Sdot Yam, plant and growing portion of product sourced from our third-party Production Business Partners. Gross margins during
2024 increased to 21.8% compared to 16.3% in 2023 and Gross profit during 2024 increased to $96.7 million compared to $91.9 million
in 2023, mainly due to increase production source from PBP as part of our strategy manufacturing footprint and decrease in shipping prices
partially offset by increase in manufacturing costs, due to lower capacity utilization which resulted in lower fixed-costs absorption,
increase in logistics costs per unit and lower revenue and selling prices.
62
Operating expenses
Research and development
expenses remained relatively consistent, totaling $5.0 million in 2024, compared to $5.1 million in 2023
Selling and marketing.
Selling and marketing expenses rose by $4.0 million, or 4.9%, reaching $86.2 million
in 2024, compared to $82.2 million in 2023. This increase was primarily driven by the launch of new products, including porcelain products.
Marketing expenses as a percentage of revenue grew from 14.5% in 2023 to 19.5% in 2024. The increase in the percentage in 2024 was mainly
due to lower revenues
General and administrative.
General and administrative expenses (without impairment) decreased by $ 10.4 million,
or 20.9%, to $39.1 million in 2024 from $49.5 million in 2023 mainly due to lower doubtful debt provision in U.S. and Lioli.
Legal settlements and loss contingencies, net.
Legal settlements
and loss contingencies, net, increased by $12.0 million, from credit of $4.8 million in 2023 to $7.2 million expenses in 2024. The change
from 2023 to 2024 is mainly attributed to legal expenses related to the silicosis claims in the U.S., and the timing and magnitude of
new claims and their claims settlements in Israel and Australia.
Impairment of Goodwill and Long-lived assets
. The Company performs
impairment tests of its goodwill and indefinite-lived intangible assets and its long-lived assets each year end. The Company performs
these tests after determining a triggering event had occurred, taking into consideration the impact of market capitalization, higher weighted
average cost of capital (“WACC”), and deteriorating macroeconomic conditions, difficulties of acquired business integrations,
and closure of its Sdot Yam and Richmond Hill plants.
During 2023, we recorded an impairment of $45.1 million.
In connection with the closure of our plants in Israel and in the U.S. the Company also recorded $2.9 million restructuring expenses.
During 2024, we recorded an impairment of $3.8 million
related to Richmond Hill facility which is held for sale starting 2024, and intangible assets impairment of $3.2 million related to the
acquisition of Omicron and Magrab in previous years. In connection with the closure of our plants in Israel and in the U.S. the Company
also recorded $6.0 million credit to the restructuring expenses.
Finance (income) expenses, net
In 2024 the Company had finance expenses of $0.01 million,
compared to finance income of $1.1 million in 2023. The difference was primarily a result of exchange rate differences arising from changes
in the value of monetary assets and monetary liabilities in Israel as well as in our subsidiaries due to the strengthening of the USD
against the local currencies.
Taxes on income
Taxes on income decreased by $20.2 million to $1.1 million
in 2024, from $21.3 million in 2023. Our effective tax rate was 2.6% in 2024 compared with 24.5% in 2023. In 2024 decrease was mostly
due to taxable loss position in Israel. In 2023 the increase was mostly due to taxable loss position in Israel and the United States for
three consecutive years and as a result deleting the related deferred tax assets.
Net loss attributable to non-controlling
interest
In 2024, net loss attributable to non-controlling interest
amounted to $0.1 million. In 2023, net loss attributable to non-controlling interest amounted to $0.6 million.
63
Year ended December
31, 2023, compared to year ended December 31, 2022
For a comparison of the years ended December 31, 2023,
and 2023, see “ITEM 5.A. Operating and Financial Review and Prospects—Operating Results—Year ended December 31, 2023
compared to year ended December 31, 2022” included in our annual report on Form 20-F for the year ended December 31, 2023, filed
with the SEC on March 6, 2024, which comparative information is herein incorporated by reference.
Seasonality
Our results of operations are impacted by seasonal factors,
including construction and renovation cycles. We believe that traditionally the second and third quarters of the year exhibit higher sales
volumes than other quarters because demand for mineral surface products is generally higher during the summer months in the northern hemisphere,
when the weather is more favorable for renovation projects and new construction, as well as the impact of efforts to complete such projects
before the beginning of the new school year. Conversely, the first quarter is impacted by a slowdown in new construction and renovation
projects during the winter months in the northern hemisphere. Similarly, sales in Australia during the third quarter are negatively impacted
due to fewer construction and renovation projects.
During periods of economic slowdown and the impact of
the Australian ban, seasonality trends may not follow typical patterns, as seen in the 2023-2024 results
|
B.
|
Liquidity and Capital Resources
|
Our primary capital requirements have been to fund production
capacity expansions, as well as investments in and acquisitions of third-party distributors, such as the purchase of Caesarstone Canada
Inc., our acquisition of the business of our former Australian distributor and establishing our U.K. operations, our investment in and
acquisitions of Caesarstone USA (formerly known as U.S. Quartz Products, Inc.) Lioli, Omicron and Caesarstone Scandinavia, and the establishment
of our German operations. Our other capital requirements have been to fund our working capital needs, legal proceedings, operating costs,
meet required debt payments, finance a repurchase of our shares and to pay dividends on our share capital. Our Capital needs could
increase materially, and our liquidity and cash flows could be materially affected by the uncertainty related to the bodily injury claims. We
are subject to multiple lawsuits in Israel, Australia and the United States alleging injuries associated with exposure of fabricators
and their employees to respirable crystalline silica dust. As of December 31, 2024, we had recorded a provision of $50.0 million
representing our assessment of exposure that is probable and estimable with respect to pending claims in Israel, Australia and the United
States. If there is an unfavorable outcome with respect to one or more of these claims, subject to the availability of insurance,
we may have to fund the payment of damaged and such amount could be significant and materially and adversely impact our cash flows. See
also “Legal proceedings and contingencies” in Note 11 of the Notes to the Consolidated Financial Statements and
Item 1A. Risk Factors.
Capital resources have primarily consisted of cash flows
from operations . Our working capital requirements are affected by several factors, including demand for our products, raw material costs
and shipping costs.
Our inventory strategy is to maintain sufficient inventory
levels to meet anticipated customer demand for our products. Our inventory is significantly impacted by sales in the United States, Australia
and Canada, our largest markets, due to the 40-100 days required to ship our products to these locations from Israel or other PBP sources
and locations. We continue to focus on meeting market demand for our products while improving our inventory efficiency over the long term
by implementing procedures to improve our production planning process.
We minimize working capital requirements through our
distribution network that allows sales and marketing activities to be provided by third-party distributors. We believe that, based on
our current business plan, our cash, cash equivalents and short-term bank deposits on hand, cash from operations , we will be able to
meet our capital expenditure and working capital requirements, and liquidity needs for at least the next twelve months. We may require
additional capital to meet our liquidity needs and future growth requirements. Continued instability in the global market may increase
our capital needs, and conditions in the capital markets could adversely affect our ability to obtain additional capital to grow or sustain
our business and would affect the cost and terms of such capital.
64
The Company’s material cash requirements include
the following contractual and other obligations:
Leases
The Company has lease arrangements for certain equipment
and facilities, including for manufacturing, logistics and offices. As of December 31, 2024, the Company had lease payment obligations
of $131.6 million, with $26.7 million payable within 12 months.
Purchase Obligations
As of December 31, 2024, the Company had manufacturing
equipment and raw material purchase obligations of $22.4 million all payable within 12 months. The Company’s purchase obligations
are primarily non-cancelable.
Debt
As of December 31, 2024, the Company had outstanding
bank credits and debts of an aggregate principal amount of $4.5 million all payable within 12 months. Future interest payments associated
with the these amounts total $0.4 million, all payable within 12 months.
See also Note 8 and Note 15 to the financial statements
included elsewhere in this report.
Cash flows
The following table presents the major components of
net cash flows used in and provided by operating, investing and financing activities for the periods presented:
|
|
Year ended December 31,
|
|||||||||||
|
|
2024
|
2023
|
2022
|
|||||||||
|
|
(in thousands of U.S. dollars)
|
|||||||||||
|
Net cash provided (used) by operating activities
|
$
|
31,874
|
$
|
66,529
|
$
|
(23,311
|
)
|
|||||
|
Net cash used in investing activities
|
(24,359
|
)
|
(40,526
|
)
|
(7,285
|
)
|
||||||
|
Net cash provided (used) by financing activities
|
(3,045
|
)
|
(23,779
|
)
|
9,156
|
|||||||
Cash provided
by operating activities
Operating activities consist primarily of net income
adjusted for certain non-cash items. Adjustments to net income for non-cash items include depreciation and amortization, share-based compensation
and deferred taxes. In addition, operating cash flows are impacted by changes in operating assets and liabilities, principally inventories,
accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses.
Cash provided by operating activities during 2024 decreased
by $34.6 million from $66.5 million to $31.9 million, mainly due to higher improvement in working capital during 2023.inventory levels.
Cash provided by operating activities increased during
2023 by $89.8 million from ($23.3) million to $66.5 million, mainly due to lower Inventory levels, lower raw material and shipping costs
and an impact of the Sdot Yam plant closure during 2023.
Cash used in operating activities decreased in 2022
by $44 million from $20.7 million to cash used $23.3 million mainly due to decrease in trade payables by $49.3 million during 2022 compared
to an increase by $46.1 million during 2021, and impairment of long-term assets by $71.3 million during 2022. During 2022 our working
capital increased as a result of higher inventory levels resulting from higher raw materials and shipping costs slightly offset by improved
collection from customers.
65
Cash used in
investing activities
Net cash used in investing activities for the years ended December
31, 2024, 2023 and 2022 were $24.4 million, $40.5 million, and $7.3 million, respectively. In 2024, investing activities included $10.4
million of capital expenditure, $12.5 million of investing in short-term bank deposits and $1.5 million of cash consideration paid for
the Magrab and Lioli acquisition. In 2023, investing activities included $36.5 million of investing in short-term bank deposits, $11.2
million of capital expenditure offset by $7.1 million proceeds from sales and maturity of marketable securities. In 2022, investing activities
included $17.8 million of capital expenditure and $ 2.2 million of cash consideration paid for the Magrab Acquisition, offset by $12.4
million proceeds from securities.
Cash used in
financing activities
Net cash used in financing activities for 2024 was $3.0 million,
including $2.5 million used for bank credit repayment and $0.5 million of cash consideration paid for the Magrab acquisition. Net cash
used in financing activities for 2023 was $23.8 million, which included repayment of a bank credit in the same amount. Net cash provided
from financing activities for 2022 was $9.2 million, which included $18.6 million short term loans receipts from banks offset by an $8.6
million dividend payment to stockholders.
Credit facilities
As of December 31, 2024, we had a bank debt from commercial
banks in India, in the amount of $4.5 million, presented in long-term and short-term liabilities, including a utilized credit line of
$2.9 million bearing interest at the rate in a range of 9.1% to 9.4% (linked to MCLR/T-Bill) per annum. As of December 31, 2023, we had
a long-term bank debt from commercial banks in India, as a result of the Lioli Acquisition, in the amount of $7.2 million, presented in
short-term liabilities, together with a credit line of $28 million bearing interest at the rate equal to 9.45% per annum equal to MCLR+0.20%.
The bank debt is to be repaid on a monthly basis through 2025. While the loan is outstanding, Lioli is subject to certain covenants including,
among others, limiting its ability to divest assets, pay dividends, borrow additional funds and place other encumbrances on its assets.
The loan agreement with the bank in Lioli contains customary covenants. Lioli is in compliance with the requirement of the financial
covenants under the agreement of own capital contribution. The Loan Agreement also contains certain customary negative covenants that
require Lioli to refrain from certain actions unless the bank’s consent is obtained. Lioli debt is secured by an SBLC from Caesarstone
and floating charge on all of Lioli’s assets.
In addition, Lioli was provided with a shareholder’s
loan by all its shareholders (including its minority shareholders). Such loan is denominated in INR and amounts to $3.9 million, including
the approximately $3.4 million that the Company extended during 2021 in part in accordance with the terms of the Lioli Acquisition, and
which was used to repay certain selling shareholders. The loan bears an interest rate per annum equal to Libor rate plus 4.5% and is to
be repaid during the third quarter of 2025.
During 2022, we secured a $30 million credit line in
from and Israeli bank, which we have not utilized during 2023, and the credit line agreement expired during July 2023.
In addition, we had long-term and short-term debt related
to the Bar-Lev sale and lease-back transaction with the Kibbutz, fully repaid during 2022.
As of December 31, 2023, we had short term line of $12
million from banks in India, of which 7.2 million were utilized as of December 31, 2023.
See also Note 8 and Note 15 to the financial statements
included elsewhere in this report.
Capital expenditures
Our capital expenditures mainly included the expansion,
improvement and maintenance of our manufacturing capacity and capabilities, expansion on our north America distribution network and investment
and improvements in our information technology systems. In 2024, 2023 and 2022 our capital expenditures were $ 10.4 million, $11.2 million,
and $17.8 million, respectively. For more information, see “Item 4.A. Information on the Company –Principal Capital Expenditures”.
66
Land purchase
agreement and leaseback
Pursuant to a land purchase agreement entered on March
31, 2011, which became effective upon our IPO, Kibbutz Sdot-Yam acquired from us our rights in the lands and facilities of the Bar-Lev
Industrial Park in consideration for NIS 43.7 million (approximately $10.9 million). The carrying value of the Bar-Lev land at the time
of closing this transaction was NIS 39.0 million (approximately $10.4 million). The land purchase agreement was executed simultaneously
with the execution of a land use agreement.
Pursuant to the land use agreement, Kibbutz Sdot-Yam
permits us to use the Bar-Lev land for a period of ten years commencing on September 2012, that will be automatically renewed, unless
we give two years’ prior notice, for a ten-year term in consideration for an annual fee of NIS 4.1 million (approximately $1.1 million)
to be linked to increases in the Israeli consumer price index. The fee is subject to adjustment following January 1, 2021, and every three
years thereafter at the option of Kibbutz Sdot-Yam if Kibbutz Sdot-Yam chooses to obtain an appraisal that supports such an increase.
During 2021, the Kibbutz utilized its option under the agreement and the annual fees for Bar-Lev land were updated to NIS 8.1 million
(approximately $2.6 million).
The transaction was not qualified as “sale lease-back”
accounting under both ASC 840 and ASC 842 and the Company recorded the entire amount received as consideration as a liability. This liability
was matured at August 31, 2022.
|
C.
|
Research and Development, Patents and Licenses
|
Our RD department is located in Israel. As of December
31, 2024, our corporate RD department was comprised of 23 employees, all of whom have extensive experience in engineered stone surface
manufacturing, polymer science, engineering, product design and engineered stone surface applications. In addition, our RD for porcelain
manufacturing is conducted by a dedicated employee located in Spain, whose activities are supported by the RD department in Israel.
In 2024, research and development costs accounted for approximately 1.1% of our revenues, and in 2023 and 2022, research and development
costs accounted for approximately 0.9% and 0.6% of our revenues, respectively.
We pursue a strategy of identifying certain innovative
proprietary technologies and seeking patent protection when applicable. We have obtained patents for certain of our technologies and have
pending patent applications which relate to our manufacturing technology and certain products. We act to protect other innovative proprietary
technologies developed by us by implementing confidentiality protection measures without pursuing patent registration. No patent application
is material to the overall conduct of our business.
Research and development expenses were $5 million, $5.1
million and $4.1 million in 2024, 2023 and 2022, respectively.
For a description of our research and development policies,
see “ITEM 4.B: Information on the Company—Business Overview—Research and development.”
|
D.
|
Trend Information
|
Other than as described in Item
3.D. “Risk Factors”, in Item 5.A. “Operating Results—Factors impacting our results of operations”, and in
Item 5.B. “Liquidity and Capital Resources” of this annual report, which are incorporated by reference herein, we are not
aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net revenues,
income from operations, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not
necessarily indicative of future operating results or financial condition.
67
|
E.
|
Critical Accounting Estimates
|
Our accounting policies affecting our financial condition
and results of operations are more fully described in our consolidated financial statements for the years ended December 31, 2024, 2023
and 2022, included in this annual report. The preparation of our financial statements requires management to make judgments, estimates
and assumptions that affect the amounts reflected in the consolidated financial statements and accompanying notes, and related disclosure
of contingent assets and liabilities. We base our estimates upon various factors, including past experience, where applicable, external
sources and on other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions and could have a materially adverse effect on our reported results.
In many cases, the accounting treatment of a particular
transaction, event or activity is specifically dictated by accounting principles and does not require management’s judgment in its
application, while in other cases, management’s judgment is required in the selection of the most appropriate alternative among
the available accounting principles, that allow different accounting treatment for similar transactions.
We believe that the accounting policies discussed below
are critical to our financial results and to the understanding of our past and future performance as these policies relate to the more
significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (1) it
requires us to make assumptions because information was not available at the time, or it included matters that were highly uncertain at
the time we were making our estimate; and (2) changes in the estimate or different estimates that we could have selected may have had
a material impact on our financial condition or results of operations.
Revenue recognition
We derive our revenues from sales of quartz-based and
quartz replacement surfaces mostly through a combination of direct sales in certain markets and indirectly through a network of distributors
in other markets.
Under ASC 606, revenue is recognized when a customer
obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for
those goods or services. In addition, ASC 606 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows
arising from contracts with customers.
We apply the following five steps in accordance with
ASC 606:
(1) identify the contract
with a customer: A contract is an agreement between two or more parties that creates enforceable rights and obligations. In evaluating
the contract, we analyze the customer’s intent and ability to pay the amount of promised consideration (credit risk) and consider
the probability of collecting substantially all the consideration. We determine whether collectability is reasonably assured on a customer-by-customer
basis pursuant to various criteria including our historical experience, credit insurance results and other inputs.
(2) identify the
performance obligations in the contract: At a contract’s inception, we assess the goods or services promised in a contract with
a customer and identify the performance obligations. The main performance obligation is the delivery of our products. The Company also
adjusts the amounts of revenue for expected cash discounts, sales allowance, returns based upon historical experience, and projected collectability.
(3) determine
the transaction price: Our products that are sold through agreements with distributors are non-exchangeable, non-refundable, non-returnable
and without any rights of price protection or stock rotation. Accordingly, we consider all the distributors to be end-consumers. For certain
revenue transactions with specific customers, we are responsible also for the fabrication and installation of our products. We recognize
such revenues upon receipt of acceptance evidence from the end consumer which occurs upon completion of the installation. Although, in
general, we do not grant rights of return, there are certain instances where such rights are granted. We maintain a provision for returns
in accordance with ASC 606, which is estimated, based primarily on historical experience as well as management judgment, and is recorded
through a reduction of revenue.
68
(4) allocate the transaction
price to the performance obligations in the contract: The majority of our revenues are sales of goods, therefore there is one main performance
obligation that absorbs the transaction price.
(5) recognize
revenue when a performance obligation is satisfied: Revenue is recognized when or as performance obligations are satisfied by transferring
control of a promised good or service to a customer. Control transfers at a point in time, which affects when revenue is recorded. The
majority of our revenues deriving from sales of products which are recognized when control is transferred based on the agreed International
Commercial terms, or “INCOTERMS”. Payment terms between the Company and its customers vary by the type of payer and country
of sale.
Lease accounting
Following the closure of Sdot Yam plant, we evaluated
our right of use asset resulted from non-cancelable lease agreement effective through 2032. Based on future estimated sublease we recorded
an impairment of $16.6 million during 2023. No additional impairment required in 2024.
See Note 2 and Note 10 to our Consolidated Financial
Statements for the year ended December 31, 2024 for further information regarding leases.
Allowance for
credit loss
Our trade receivables are derived from sales to customers
located mainly in the United States, Australia, Canada, Israel and Europe. We perform ongoing credit evaluations of our customers and
to date have not experienced any substantial losses. In certain circumstances, we may require letters of credit or prepayments. We maintain
an allowance for credit loss for estimated losses from the inability of our customers to make the required payments that we have determined
to be doubtful of collection. We determine the adequacy of this allowance by regularly reviewing our accounts receivable and evaluating
individual customers’ receivables, considering customers’ financial condition, credit history and other current economic conditions.
If a customer’s financial condition were to deteriorate, which might impact its ability to make payment, then additional allowances
may be required. Provisions for credit loss are recorded in general and administrative expenses. Our allowance for credit loss was $9.1
million, $12.2 million and $9.8 million as of December 31, 2024, 2023 and 2022, respectively.
Inventory valuation
The majority of our inventory consists of finished goods
and of raw materials. Inventories are valued at the lower of cost or net realizable value, with cost of finished goods determined on the
basis of direct manufacturing costs plus allocable indirect costs representing allocable operating overhead expenses and manufacturing
costs and cost of raw materials determined using the “standard cost” method which approximates actual cost on a weighted average
basis. We assess the valuation of our inventory on a quarterly basis and periodically write down the value for different finished goods
and raw material categories based on their quality classes and ageing. If we consider specific inventory to be obsolete, we write such
inventory down to zero. Inventory provisions are provided to cover risks arising from slow-moving items, discontinued products, excess
inventories, and net realizable value lower than cost. The process for evaluating these write-offs often requires us to make subjective
judgments and estimates concerning prices at which such inventory will be able to be sold in the normal course of business. Accelerating
the disposal process or incorrect estimates of future sales potential may cause actual results to differ from the estimates at the time
such inventory is disposed of or sold. Inventory provision was $19.9 million, $27.4 million, and $21.7 million as of December 31, 2024,
2023 and 2022, respectively.
69
Goodwill and
other long-lived assets
The purchase price of an acquired business is allocated
between intangible assets and the net tangible assets of the acquired business with the residual of the purchase price recorded as goodwill.
The determination of the value of the intangible assets acquired involves certain judgments and estimates. These judgments can include,
but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of
capital.
As of December 31, 2023, our goodwill and identifiable
intangible assets totaled $0 million and $6.5 million, respectively. As of December 31, 2024, our goodwill and identifiable intangible
assets totaled $0 million and $0.3 million, respectively. The decrease in intangible assets was mainly attributable to the amortization
of intangibles assets related to the Lioli, Omicron and Magrab acquisitions, and an impairment of $3.2 million related to Omicron and
Magrab intangibles due to difficulties in business integrations.
We also evaluate the carrying value of all long-lived
assets, such as property, plant and equipment and right of use assets, for impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. We will record an impairment loss when the carrying value of the underlying
asset group exceeds its estimated fair value. In determining whether long-lived assets are recoverable, our estimate of undiscounted future
cash flows over the estimated life of an asset is based upon our experience, historical operations of the asset, an estimate of future
asset profitability and economic conditions. The future estimates of asset profitability and economic conditions require estimating such
factors as sales growth, inflation and the overall economics of the countertop industry. Our estimates are subject to variability as future
results can be difficult to predict. If a long-lived asset is found to be non-recoverable, we record an impairment charge equal to the
difference between the asset’s carrying value and fair value.
As of December 31, 2024 and December 31, 2023, the Company
identified indicators for impairment, among others, slowdown in demand due to global market conditions, lower production utilization in
certain plants, increased inflation and higher interest rates. Following these indicators and in accordance with ASC360, we recorded the
following impairment expenses:
|
|
• |
During 2023, a property plant and equipment expenses of $27.5 million related to Richmond
Hill facility and $1.0 million related to Sdot Yam facility, and right of use assets of $16.6 million related to Sdot Yam facility.
|
|
|
• |
During
2024 - intangible assets of approximately $3.2M, mainly related to slowdown in demand due to global market conditions and the difficulties
of the integration of acquired businesses.
|
See also Note 6 and Note 7 to our financial statements
included elsewhere in this report.
70
Fair value measurements
The performance of fair value measurements is an integral part
of the preparation of financial statements in accordance with generally accepted accounting principles. Fair value is defined as the price
that would be received to sell the asset or paid to transfer liability in an orderly transaction between market participants to sell or
transfer such an asset or liability. Selection of the appropriate valuation techniques, as well as determination of assumptions, risks
and estimates used by market participants in pricing the asset or liability requires significant judgment. Although we believe that the
inputs used in our evaluation techniques are reasonable, a change in one or more of the inputs could result in an increase or decrease
in the fair value, for example, of certain assets and certain liabilities and could have an impact on both our consolidated balance sheets
and consolidated statements of operations.
Business Combination
We allocate the fair value of purchase consideration
to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair value. The excess of
the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such
valuations require our management to make significant estimates and assumptions, especially with respect to intangible assets. Significant
estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired operations and
other intangible assets, their useful lives and discount rates. Our management’s estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and unpredictable, and, as a result, actual results may differ from estimates.
During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired
and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments
are recorded to earnings.
Accounting for
contingencies
We are involved in various product liability, commercial,
environmental claims and other legal proceedings that arise from time to time in the course of business. We record accruals for these
types of contingencies to the extent that we conclude their occurrence is probable and that the related liabilities are estimable. When
accruing these costs, we will recognize an accrual in the amount within the range of loss that is the best estimate within the range.
When no amount within the range is a better estimate than any other amount, we accrue the minimum amount within the range. We record anticipated
recoveries under the applicable insurance policies, in the amounts that are covered, and we believe their collectability is probable.
Legal costs are expensed as incurred.
For unasserted claims or assessments, we followed the
accounting guidance in ASC 450-20-50-6, 450-20-25-2 and 450-20-55-2 in which we must first determine that the probability that an assertion
will be made is likely, then, a determination as to the likelihood of an unfavorable outcome and the ability to reasonably estimate the
potential loss is made.
We review the adequacy of the accruals on a periodic
basis and may determine to alter our reserves at any time in the future if we believe it would be appropriate to do so. As such, accruals
are based on management’s judgment as to the probability of losses and, where applicable, accruals may materially differ from settlements
or other agreements made with regards to such contingencies.
See Note 11 to our financial statements included elsewhere
in this annual report and “ITEM 8.A: Financial Information—Consolidated Financial Statements and Other Financial Information—Legal
Proceedings” for further information regarding legal matters.
Income taxes
We account for income taxes in accordance with ASC 740,
“Income Taxes”, which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect
of temporary differences between the financial reporting and tax basis of recorded assets and liabilities. ASC 740 also requires that
deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all the deferred tax asset
will not be realized. We have recorded a valuation allowance to reduce our subsidiaries’ deferred tax assets to the amount that
we believe is more likely than not to be realized. Our assumptions regarding future realization may change due to future operating performance
and other factors.
71
ASC 740 requires that companies recognize in their consolidated
financial statements the impact of a tax position if that position is not more likely than not of being sustained on audit based on the
technical merits of the position. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting
in interim periods and disclosure. We accrue interest and penalties related to unrecognized tax benefits in our tax expenses.
We establish reserves for tax-related uncertainties
based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that
certain positions might be challenged despite our belief that our tax return positions are in accordance with applicable tax laws. As
part of the determination of our tax liability, management exercises considerable judgment in evaluating tax positions taken by us in
determining the income tax provision and establishes reserves for tax contingencies in accordance with ASC 740 guidelines. We adjust these
reserves in light of changing facts and circumstances, such as the closing of a tax audit, new tax legislation, or the change of an estimate
based on new information. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences
will affect the provision for income taxes in the period in which such determination is made. The provision for income taxes includes
the effect of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest and penalties.
We file income tax returns in Australia, Canada, Israel,
Singapore, England, India, Sweden and the United States. The Israeli tax authorities audited our income tax returns for the fiscal years
leading up to and including 2022 and we were examined by the IRS in the United States for our income tax return for the fiscal years leading
up to and including 2019. We may be further subject to examination in the other countries in which we file tax returns and for any subsequent
years. Management’s judgment is required in determining our provision for income taxes in each of the jurisdictions in which we
operate. The provision for income tax is calculated based on our assumptions as to our entitlement to various benefits under the applicable
tax laws in the jurisdictions in which we operate. The entitlement to such benefits depends upon our compliance with the terms and conditions
set out in these laws. Although we believe that our estimates are reasonable and that we have considered future taxable income and ongoing
prudent and feasible tax strategies in estimating our tax outcome, there is no assurance that the final tax outcome will not be different
than those which are reflected in our historical income tax provisions and accruals. Such differences could have a material effect on
our income tax provision, net income and cash balances in the period in which such a determination is made. See also note 12 to our financial
statements included elsewhere in this report.
ITEM 6
:
Directors, Senior Management and Employees
|
A.
|
Directors and Senior Management
|
Our directors and executive officers, their dates of
birth and positions as of February 28, 2025, are as follows:
|
Name
|
|
Date of Birth
|
|
Position
|
|
Officers
|
|
|
|
|
|
Yosef (Yos) Shiran
|
|
March 26, 1962
|
|
Chief Executive Officer
|
|
Nahum Trost
|
|
September 24, 1978
|
|
Chief Financial Officer
|
|
David Cullen
|
|
April 10, 1959
|
|
Managing Director, APAC
|
|
Erik Christensen
|
December 7, 1965
|
President Caesarstone US
|
||
|
Ken Williams
|
|
April 4, 1961
|
|
President Caesarstone Canada,
|
|
Edward Smith
|
|
May 14, 1973
|
|
Managing Director, UK
|
|
Amihai Seider
|
|
November 29, 1967
|
|
Vice President, Global Operations
|
|
Erez Margalit
|
July 14, 1967
|
|
Vice President, Global Research and Development
|
|
|
Ron Mosberg
|
|
December 15, 1979
|
|
General Counsel and Corporate Secretary
|
|
Lilach Gilboa
|
|
April 8, 1972
|
|
Vice President, Global Human Resources
|
|
José Luis Ramón
|
|
February 2, 1975
|
|
VP of Global Porcelain
|
|
Chen Livne
|
July 21, 1974
|
Chief Information Officer
|
||
|
|
|
|
|
|
|
Directors
|
|
|
|
|
|
Dr. Ariel Halperin (4)
|
|
March 18,1955
|
|
Chairman
|
|
Nurit Benjamini (1)(2)(3)(5)(6)
|
|
October 27, 1966
|
|
Director
|
|
Lily Ayalon (1)(2)(3)(5)(6)
|
|
June 17, 1965
|
|
Director
|
|
Yuval Beeri (5)
|
May 28, 1964
|
|||
|
Maxim Ohana
|
|
December 26, 1950
|
|
Director
|
|
Ronald Kaplan (3) (5)
|
|
August 15, 1951
|
|
Director
|
|
Ornit Raz (1)(2)(3)(5)
|
|
August 29, 1971
|
|
Director
|
|
Giora Wegman
|
|
December 14, 1951
|
|
Director
|
|
Tom Pardo Izhaki
|
|
June 3, 1983
|
|
Director
|
|
(1)
|
Member of our audit committee.
|
|
(2)
|
Member of our compensation committee.
|
|
(3)
|
Member of our nominating committee.
|
|
(4)
|
Chairman of the board.
|
|
(5)
|
Independent under the Nasdaq rules.
|
|
(6)
|
External director under the Israeli Companies Law.
|
72
Executive Officers
Yos
Shiran
has been serving as our Chief Executive Officer since March 2022. Mr. Shiran’s
previously held this position from January 2009 until August 2016. Mr. Shiran’s serves as co-founder and chief executive officer
of SENSEQ Ltd. from September 2016, founder and Chairman of Elight Ltd. and co-founder and chairman of the board of Inflow Ltd. from January
2021. Before his initial term as Chief Executive Officer of the Company, Mr. Shiran was the chief executive officer and director of Tefron
Ltd. (NYSE: TFR) from January 2001 until August 2008, and prior thereto served as chief executive officer of Technoplast Industries Ltd.
from February 1995 until December 2000. Mr. Shiran has a B.Sc. in industrial engineering from Ben-Gurion University, Israel, and an MBA
from Bar-Ilan University, Israel.
Nahum
Trost
has been serving as our Chief Financial Officer since September 2021. Mr. Trost
served as our Director of Finance, leading corporate finance, since 2014. Mr. Trost possesses over 20 years of experience in various financial
roles, including extensive experience in financing, capital and accounting, primarily at companies with an international focus. Prior
to joining us in April 2014, Mr. Trost served in various positions at Lumenis Ltd. and his last role was Vice President of Corporate finance.
Mr. Trost also served as a CPA with Ernst Young. He holds a bachelor’s degree in economics and accounting from the Haifa University,
Israel, and a master’s degree in business economics from the Israeli Technological Institute Technion.
David
Cullen
has been serving as our Managing Director, APAC, since May 2019. Previously,
from April 2010 to May 2019, Mr. Cullen served as Chief Executive Officer for Caesarstone Australia. Prior to joining us, from January
2009 to March 2010, Mr. Cullen served as General Manager in Australia of Komatsu Ltd., a Japanese manufacturer of industrial and mining
equipment. From January 2006 to November 2008, he served as Chief Executive Officer of Global Food Equipment Pty Ltd., an Australian importer
and distributor of commercial food equipment. From 2004 to 2006, he served as Chief Executive Officer of White International Pty Ltd.,
an Australian supplier of industrial and residential pump products. From 2003 to 2004, Mr. Cullen served as Chief Executive Officer of
Daisytek Australia Pty Ltd, a subsidiary of Daisytek International Corporation. From 1996 to 2002, he served as Chief Executive Officer
of Tech Pacific Australia Pty Ltd., the largest distributor of IT equipment in the Asia-Pacific region. Mr. Cullen has held various other
management positions in other companies since 1985. Mr. Cullen holds a Bachelor of Commerce degree from the University of New South Wales.
73
Erik
Christensen
has been serving as President for Caesarstone US since April 2024. Previously,
from Oct 2017 to March 2024, Mr. Christensen served as President/CEO US for Swiss Krono, a global wood products company with US headquarters
in Barnwell, SC. From April 2014 to October 2017 he served as President US for Hansgrohe, a global manufacturer of decorative plumbing
with US Headquarters based in Alpharetta, GA. Prior to that Mr. Christensen held various senior executive leadership positions at Armstrong
World Industries, Shaw Industries, and Closetmaid (an Emerson Company). Mr. Christensen holds a bachelor’s degree in international
business from Grove City College, PA, USA.
Ken
Williams
currently serves as our Americas – President and CEO. Previously, he
has served as our President of North America from January 2019 to December 2021 and from March 2016 to January 2019, served as our President
of Caesarstone Canada. Prior to joining us, from February 1999 to March 2016, Mr. Williams held various senior executive level leadership
positions, including Executive Vice President of Sales and Marketing, in a number of Masco Corporation divisions, a global company involved
in the design, manufacture and distribution of branded home improvement and building products. Previously, Mr. Williams held general management
positions and leadership roles at Fortune Brands, the Rehill Company Ltd. and Thorne Stevenson Kellogg Management Consultants. Mr. Williams
holds a Bachelor of Business Administration Degree from Trent University in Ontario, Canada.
Edward
Smith
has been serving as Managing Director, UK since September 2023 previously, from
1994 to 2023 he held various positions within Saint-Gobain, including: Programme Director Jewson (from January 2019 to March 2023); MD
George Boyd (from January 2017 to December 2022); Business Development Director Jewson (from January 2015 to Dec 2018); Area Director
(from January 2013 to December 2015). Mr. Smith holds a BSC Hons degree in Environmental Biology from Sunderland University.
Amihai
Seider
has been serving as our Vice President, Global Production since March 2019. Prior
to joining us, from August 2003, Mr. Seider held various managerial positions at Haifa Chemicals, Israel-based specialty fertilizer manufacturer
including VP Operations from May 2012 and Plant Manager from September 2006 to May 2012. Previously, from 1994 to 2003, Mr. Seider held
managerial roles at Electrochemical Industries (1952) Ltd., a manufacturer and distributer of chemical products including as Plant Manager
from 2000 to 2003. Mr. Seider holds a B.Sc. in Chemical Engineering from Technion University, and an M.B.A. from Haifa University, Israel.
Erez
Margalit
has been serving as our Vice President Research and Development since August
2013 and joined us in December 2010 as our RD Engineering Manager. Prior to joining us, from 2008 to October 2010, Mr. Margalit served
as Director of Equipment, Reliability and Services of Fab1 and Fab2 of Tower Semiconductor Ltd., a manufacturer of microelectronic devices.
From 2001 to 2008, Mr. Margalit served as Technical Manager for several departments in Tower Semiconductor Ltd. Mr. Margalit has specialized
in designing, developing and implementing unique industry machinery for unique applications. Mr. Margalit holds a degree in Electronics
(Practical Engineer) from Yezreel Valley College.
Ron
Mosberg
has served as our General Counsel Corporate Secretary since September
2018. Prior to joining us, from 2015, Mr. Mosberg served as the General Counsel and Corporate Secretary at Enzymotec Ltd., an Israeli
based global nutraceutical company. Previously, from 2007 to 2015, Mr. Mosberg worked as a lawyer at leading Israeli law firms. Mr. Mosberg
holds an LL.B. in Law and Psychology from Tel Aviv University, Israel.
Lilach
Gilboa
has been serving as our Vice President, Human Resources since July 2023.
This is her second tenure as our Vice President of Human Resources, as she previously held this position from January 2007 until December
2018. Prior to Ms. Gilboa’s current appointment, starting in 2020, she held the role of Global VP of Human Resources at Watergen
Ltd., a global technology company in the field of water-from-air solutions. Previously, from 2019, she served as the Global Head of HR
at Hazera Seeds Ltd., a biotechnology company. Before her initial term as our VP HR, Ms. Gilboa also served as our Human Resources Manager
from 2003 to 2006. Before joining us in 2003, she served as the Human Resources Manager at Comverse Technology, Inc. (from 2002) and ECI
Telecom (from 1997). She holds a master’s degree in organizational Sociology from Tel Aviv University, Israel, and a bachelor’s
degree in organizational Behavior Studies from The College of Management Academic Studies, Israel
José
Luis Ramón
has been serving as our Vice President Business Development since January
2024. Prior to joining us, from March 2020 to June 2023, he served as Chief Executive Officer at Neolith Group, a global company driving
the sintered stone surfaces market with presence in more than 100 countries. From January 2016 to March 2020, he served as Vice President
and General Manager for Industrial Printing Division at Electronics for Imaging, Inc. (Nasdaq: EFII), a global leader in digital printing
technologies operating worldwide in multiple industries and headquartered at Silicon Valley, California US. Mr. Ramón, served previously
at Cosentino Group as Corporate Chief Operating Officer from January 2005 to March 2015 (previously on different roles from June 2002);
Cosentino is a family-owned corporation that produces and distributes high-value surfaces for the world of architecture and design, with
multiple brands and omnichannel approach. Mr. Ramón held other executive, strategic adviser, and board director positions in other
companies as well as diverse materials industry associations since 1999. Mr. Ramón holds a B.Sc. in Industrial Engineering, Mechanics
Materials by Polytechnic University of Valencia in Spain and an Executive master’s degree by IE Business School, Spain.
74
Chen
Livne
has been serving as our Chief Information Officer since March 2024, bringing a
proven track record of driving business growth and innovation through technology. Prior to joining us, Mr. Livne held senior executive
leadership roles. Most recently from May 2021 to March 2024, he served as Vice President of IT at the startup ProteanTecs, leading transformative
IT initiatives and fostering organizational growth. Before that, between May 2017 to May 2021, he was Vice President of IT at Ham-Let,
where he drove technology strategies, system integrations, and played a key role in facilitating company mergers, including Ham-Let’s
acquisition by UCT. Mr. Livne holds a bachelor’s degree in environmental science and professional certifications in Security, Networking,
and Information System Engineering.
Directors
Dr.
Ariel Halperin
has been serving as our chairman of the board of directors since December
2016, after previously serving as our director between December 2006 to May 2013. Dr. Halperin is the senior managing partner of Tene
Investment Funds, an Israeli private equity fund focusing on established growth companies with leading global market positions, since
2004 and is the founding partner in Tenram Investments Ltd. a private investment company engaged in domestic and foreign real estate investments
since 2000. From 1992 to 2000, Dr. Halperin led negotiations related to the Kibbutzim Creditors Agreement, serving as trustee for the
Israeli government, Israeli banks and the Kibbutzim. Dr. Halperin currently serves as a director of several Tene Investment Funds' portfolio
companies, including Qnergy Inc., Gadot Chemical Terminals (1985) Ltd., Gadot Agro Ltd., Sharon-Laboratories Ltd., Questar Ltd. (formerly:
Traffilog Ltd.) and Designated Holdings Ltd. (Haifa Group Ltd). Dr. Halperin holds a B.A. in Mathematics and Economics and a Ph.D.
in Economics from The Hebrew University of Jerusalem in Israel and a Post-Doctorate in Economics from the Massachusetts Institute of Technology
in Cambridge, Massachusetts.
Nurit
Benjamini
has been serving as our external director under the Companies Law since December
2020. Mrs. Benjamini is Chief Financial Officer of F2 Venture Capital, From December 2013 to November 2022, Ms. Benjamini served as the
Chief Financial Officer of Crazy Labs Ltd., a top 5 mobile games developer and publisher. From 2011 to 2013, Ms. Benjamini served as the
Chief Financial Officer of Wix.com (NASDAQ: WIX); from 2007 to 2011, she served as the Chief Financial Officer of CopperGate Communications
Ltd., and from 2000 to 2007, she served as the Chief Financial Officer of Compugen Ltd. (NASDAQ: CGEN). Ms. Benjamini earned both a B.A.
degree in economics and business and an M.B.A. in finance from Bar Ilan University, Israel.
Lily
Ayalon
has
been serving as our external director under the Companies Law since December 2020. Ms. Ayalon currently is a business consultant and serves
on the board of directors for several companies (Westdale America Limited, Meitav ltd, Haifaport ltd, rekah pharmaceutical industries
ltd). From 2010 to 2015, Ms. Ayalon served as the Senior Deputy Director General of the Government Companies Authority; from 2006 to 2009,
she served as the Deputy Chief Executive Officer, CFO, and CEO of a subsidiary of the New Hamashbir Group Ltd.; from 2004 to 2006, she
served as the Chief Financial Officer of Amot Investments. Ms. Ayalon is a certified public accountant and earned both a B.A. degree in
accounting and economics and an M.B.A in finance from the Hebrew University of Jerusalem, Israel.
Yuval
Beeri
has been serving as our independent director since August 2024. Since December
2016 Mr. Beeri has been serving as Ricor Cryogenic Systems CEO. As such, he is the Chairman of the board of its two subsidiaries: Netzer
and Aero-Magnesium. Prior to Ricor, he served at Maytronics from 2003 to 2016: five years as VP marketing and seven years as the CEO.
Prior to Maytronics, Mr. Beeri served at Kulick and Soffa, a semiconductor assembles equipment leader from 1993 until 2003: First five
years at Micro-Swiss Israel as the Capillary marketing manager and last five years as Semitec CEO in Santa-Clara, CA. Parallel to his
CEO position at Ricor, he also served as ARI (Kfar Haruv) Chairman and ARAN (Nachshon) director. Mr. Beeri holds an BA degree in Agricultural
Economy from The Hebrew University, Israel, and MBA from Derby university UK.
75
Maxim
Ohana
has been serving as our director since October 2023. He has previously served
as the Chairman of the Board from 2010 to 2013. Prior to that, Mr. Ohana served as chairman of the board of directors of the Economic
Council, Kibbutz Sdot Yam from 2008 to 2012. From 2000 to 2008, Mr. Ohana served as Chief Executive Officer of Sdot-Yam Marble Floors
Company (1995) Ltd. and from 1997 to 2000, he served as Chief Executive Officer of Hagor Industries Ltd. From 1993 to 1997, Mr. Ohana
served as Chief Executive Officer of Cement Products Caesarea Ltd. and from 1990 to 1993, he served as Chief Executive Officer of Kibbutz
Sdot Yam’s businesses and operations. Mr. Ohana holds a diploma in general studies from the Kibbutzim College of Education, Technology
and the Arts (Seminar Ha’Kibbutzim), Israel
Ronald
Kaplan
has been serving as our director since December 2015. Mr. Kaplan has served as
chairman of the board of directors of Trex Company, Inc. (NYSE: TREX), a major manufacturer of wood-alternative decking, railings and
other outdoor items made from recycled materials, since August 2015. From May 2010 to August 2015, Mr. Kaplan served as Chairman, President
and Chief Executive Officer of Trex Company, Inc. From January 2008 to May 2010, Mr. Kaplan served as a director and President and Chief
Executive Officer of Trex Company, Inc. From February 2006 through December 2007, Mr. Kaplan served as Chief Executive Officer of Continental
Global Group, Inc., a manufacturer of bulk material handling systems. For 26 years prior to this, Mr. Kaplan was employed by Harsco Corporation
(NYSE: HSC), an international industrial services and products company, at which he served in a number of capacities, including as senior
vice president, operations, and, from 1994 through 2005, as President of Harsco Corporation’s Gas Technologies Group, which manufactures
containment and control equipment for the global gas industry. Mr. Kaplan received a B.A. in economics from Alfred University and a M.B.A.
from the Wharton School of Business, University of Pennsylvania.
Dr.
Ornit Raz
has been serving as our director since October 2023. Prior to that, Dr. Raz
served as the Chief Executive Officer of ELA Beverage Containers Collection Corporation Ltd., the Israeli national recycling corporation
from 2020 to 2023. From 2016 to 2020, Dr. Raz served as the Chief Executive Officer of the Israel Institute for Occupational Safety and
Hygiene (a national statutory corporation); from 2016 to 2018 she served as Chairman of the Board of Directors of the Israeli Consumer
Council (Government Companies Authority) from 2013 to 2015, she served as the Chief Executive Officer of Food Industries Association-
Manufactures Association of Israel, and from 2007 to 2013, she served as the Chief Executive Officer of Israel Bio-Organic Agriculture
Association. Dr. Raz holds an MSc and PhD from the Technion, Israel Institute of Technology, Faculty of Industrial Engineering Management,
specializing in Behavioral and Management Sciences, and a Post Doctorate from the Massachusetts Institute of Technology, Sloan School
of Management in Cambridge, Massachusetts, USA.
Giora
Wegman
has been serving as our director since October 2023. Mr. Wegman has served as
the Chairman of Kibbutz Sdot Yam’s Economic Council since 2020; since 2010, Mr. Wegman has served as a director at Hatnuaa Emek
Hefer Ltd. From 2010 to 2020, Mr. Wegman served as our Deputy Chief Executive Officer; from 2008 to 2010, he served as the Financial Manager
of Kibbutz Sdot Yam and a member of the Board; from 1988 to 2006, Mr. Wegman held various positions with the Company, including Joint
CEO, VP production and Production Manager, and before that he held various positions at Kibbutz Sdot Yam. Mr. Wegman holds a practical
mechanical engineer degree from Ruppin College, Israel and a business administration degree from Tel Aviv University, Israel.
Tom
Pardo Izhaki
has been serving as the Chief Financial Officer of Kibbutz Sdot-Yam since
2017. From 2013 to 2017, Ms. Pardo Izhaki served as the Chief Financial Officer of the A.T. Group. From 2008 to 2013, she served as a
supervisor of the department of assurance services at PWC Israel and, from 2002 to 2008, in a senior bookkeeping role at Sdot-Yam Marble
Tiles Ltd. Ms. Pardo Izhaki holds a B.A. in Economics and Accounting from Haifa University, and an M.A. in Accounting from Bar-Ilan
University, Israel. Ms. Pardo Izhaki is qualified as a Certified Public Accountant in Israel.
76
|
B.
|
Compensation for Officers and Directors
|
The aggregate compensation paid by us and our subsidiaries
to our current executive officers, including stock-based compensation, for the year ended December 31, 2024, was $8.4 million. This amount
includes $0.4 million set aside or accrued to provide pension, severance, retirement or similar benefits or expenses.
CEO Compensation
Pursuant to the employment agreement we entered into
with our Chief Executive Officer, Yos Shiran, dated March 9, 2023, and which was approved by our shareholders on October 30, 2023, Mr.
Shiran’s terms of employment will be entitled to, among other things: (i) A monthly gross salary of NIS 214,000 (approximately
$59,000) as well as customary social benefits and reimbursement of expenses; (ii) a signing bonus of up to NIS 1 million (approximately
$260,000), of which NIS 500,000 was paid during 2023, and NIS 500,000 of which paid during 2024, on the first anniversary of his employment,
at the discretion of the Board following an assessment of Mr. Shiran’s performance; (iii) Up to $1,200,000 in an annual cash bonus
for each fiscal year commencing 2024 based on quantitative performance goals. Mr. Shiran received an annual cash bonus of $0 and $600,000
for 2024 and 2023, respectively, based on similar performance criteria.
Mr. Shiran was granted grant of options to purchase
1,000,000 ordinary shares of the Company, with an exercise price equal to $4.68, which was the closing price of our ordinary shares as
traded on Nasdaq on the date of approval of the grant by our board of directors (the “Initial Grant”); upon the first
anniversary of Mr. Shiran’s employment date, he was granted with additional 200,000 options to purchase ordinary shares, with an
exercise price equal to the closing price of the ordinary shares of the Company on such date (the “Anniversary Grant”). Options
granted under the Initial Grant and the Anniversary Grant (together, the “CEO Grants”) shall be subject to the Company’s
2020 Plan (as defined below) and in accordance with the following additional terms: the CEO Grants will vest over a period of four years,
whereby 25% of the options will vest upon the first year of the grant, and subsequently 6.25% of the options will vest on a quarterly
basis during the three years thereafter.
Accelerated Vesting: in the event that prior to the
vesting of all options granted as part of the CEO Grant, an acquisition of the Company or an asset transfer of all or substantially all
of the assets of the Company (collectively, “MA Event”) will occur, while Mr. Shiran is employed by the Company and holds
the position of the Company’s Chief Executive Officer, then immediately prior to, and contingent upon, the closing of such MA
Event, all of Mr. Shiran’s unvested options will become fully vested and exercisable.
We and Mr. Shiran may each terminate the agreement (other
than for cause) with ninety (90) days prior written notice (the “Notice Period”). Upon termination by us (not for cause),
during the first 12 months of Mr. Shiran’s employment, then the adjustment period shall be six months; if such termination or resignation
occurs following the first twelve months then the adjustment period shall be nine months (the “Adjustment Period”).
During both the Notice Period and Adjustment Period,
Mr. Shiran’s relationship with the Company will remain that of an employee-employer, and Mr. Shiran will remain entitled to all
terms and benefits set forth above, including bonuses and equity grants.
Mr. Shiran’s employment agreement includes additional
customary provisions, such as non-competition, non-solicitation, confidentiality, intellectual property assignment, participation in Company
insurance plans (including its education fund, or Keren Hishtalmut) and reimbursement of expenses, and 25 days of annual vacation days.
Directors Compensation
Each of our directors (other than the Chairman of the
board of directors and Mr. Ronald Kaplan) is entitled to the payment of annual fee of NIS 120,000 (approximately $33,000) and payment
of NIS 3,350 (approximately $920) per meeting for participating in meetings of the board and committees of the board. The annual fee shall
not exceed the maximum annual fee of an expert external director set forth in the Companies Regulations (Rules regarding Compensation
and Expenses of External Directors) 5760-2000 as adjusted by the Companies Regulations (Relief for Public Companies with Shares Listed
for Trading on a Stock Market Outside of Israel), 5760-2000. The compensation awarded for participating in resolutions adopted without
an actual convening (meaning, unanimous written resolutions) and for participating through media communication will be reduced as follows:
(1) for resolutions that will be adopted without an actual convening, the participation compensation will be reduced to 50%; and (2) for
participation through media communication, the participation compensation will be reduced to 60%.
77
Mr. Ronald Kaplan is entitled to an annual fee of $75,000
and a per-meeting fee of $2,500 for participation in board meetings and committees of the board. The participation fees of Mr. Kaplan
for meetings held through media communication shall be reduced by 50% and for meetings by written consent shall be reduced to 25%.
According to a management services agreement with Tene
Growth Capital 3 Funds Management Company Ltd., (the management company of the general partner of Tene Investment in Projects 2016, L.P.)
entered into on October 2021, as amended on September 2024, Tene Investment in Projects 2016, L.P. provides us with the services of an
Executive Chairman of the Board, by Dr. Ariel Halperin, and regular business development advice services for an aggregate annual management
fee of NIS 750,000 plus VAT. The payment due pursuant to the Management Services Agreement replaced all other arrangements for payment
to Dr. Ariel Halperin as Chairman of the board of directors during the term of the Management Services Agreement. For more information
on these agreements, see “ITEM 7.B: Major Shareholders and Related Party Transactions—Related Party Transactions.”
The participation compensation and the annual fee is
inclusive of all expenses incurred by our directors in connection with their participation in a meeting held at our offices or at the
director’s residence area, or with regard to resolutions resolved by written consent or teleconference, provided that with respect
to independent directors residing outside of Israel (other than chairman of the board and external directors), their travel and lodging
expenses related to their participation and physical attendance at any board or board committee meeting will be borne by us. In addition,
our directors are entitled to reimbursement for travelling expenses when traveling abroad on our behalf and other expenses incurred in
the performance of their duties and services to us.
Directors’ Equity Compensation
Following the approval of our general meeting held on
October 30, 2023, each of our directors was awarded 3,750 options to purchase ordinary shares of the Company, with an exercise price of
$4.02 per share (the closing price of our ordinary shares on Nasdaq as of the date of grant). Such options were granted under the 2020
Share Incentive Plan and will vest in three equal annual installments, subject to continuous service on our board of directors on the
relevant vesting date.
Individual Covered
Executive Compensation
The table below reflects the compensation granted to
our five most highly compensated office holders (as defined in the Companies Law) during or with respect to the year ended December 31,
2024. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.” For purposes of
the table below, “compensation” includes amounts accrued or paid in connection with salary cost, consultancy fees, bonuses,
equity-based compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and
any undertaking to provide such compensation. All amounts reported in the table are in terms of cost to the Company, as recognized in
our financial statements for the year ended December 31, 2024. Each of the Covered Executives was covered by our DO liability insurance
policy and was entitled to indemnification and exculpation in accordance with applicable law and our articles of association.
78
|
Name and
Principal
Position (1)
|
Salary (2)
|
Bonus (3)
|
Equity-Based
Compensation (4)
|
All other
compensation (5)
|
Total
|
|||||||||||||||
|
|
(in U.S. dollars)
|
|||||||||||||||||||
|
Yos Shiran
|
950,331
|
-
|
1,236,260
|
3,139
|
2,189,730
|
|||||||||||||||
|
Erik Christensen
|
302,767
|
53,825
|
93,651
|
142,979
|
593,223
|
|||||||||||||||
|
David Cullen
|
365,978
|
112,053
|
61,648
|
11,635
|
551,314
|
|||||||||||||||
|
Ken Williams
|
412,008
|
48,417
|
46,180
|
14,610
|
521,215
|
|||||||||||||||
|
Ron Mosberg
|
422,348
|
17,977
|
29,960
|
26,995
|
497,280
|
|||||||||||||||
|
(1)
|
All Covered Executives are employed by us on a full-time (100%) basis.
|
|
(2)
|
Salary includes the Covered Executive’s gross salary plus payment of social
benefits made by us on behalf of such Covered Executive. Such benefits may include, to the extent applicable to the Covered Executive,
payments, contributions and/or allocations for savings funds (such as managers’ life insurance policy), education funds (referred
to in Hebrew as “keren hishtalmut”), pension, severance, risk insurances (such as life, or work disability insurance), payments
for social security and tax gross-up payments, vacation, medical insurance and benefits, convalescence or recreation pay and other benefits
and perquisites consistent with our policies.
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(3)
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Represents annual bonuses granted to the Covered Executive based on formulas set forth
in the bonus plans and approvals set forth in the respective resolutions of our compensation committee and the board of directors.
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(4)
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Represents the equity-based compensation expenses recorded in our consolidated financial
statements for the year ended December 31, 2024, based on the option’s and RSU’s award’s fair value, calculated in accordance
with accounting guidance for equity-based compensation. For a discussion of the assumptions used in reaching this valuation, see Note
2w to our consolidated financial statements.
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(5)
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Includes mainly leased car, mobile phone and other fringe benefit expenses.
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Employment and consulting agreements
with executive officers
We have entered into written employment or service agreements
concerning each of our executive officers.
Employment agreements
We have entered into written employment or services
agreements with each of our office holders who is not a director. These agreements each contain customary provisions regarding non-competition,
confidentiality of information and assignment of inventions. The non-competition provision generally applies for a period of six months
following termination of employment. The enforceability of covenants not to compete in Israel and the United States is subject to limitations.
In addition, we are required to provide notice of between two and six months prior to terminating the employment or engagement of certain
of our senior executive officers other than in the case of a termination for cause. The terms of engagement of our chief executive officer
are described above.
Indemnification
agreements
Our articles of association permit us to exculpate,
indemnify and ensure our directors and office holders to the fullest extent permitted by law, subject to limited exceptions. We have entered
into agreements with each of our current directors and office holders exculpating them from a breach of their duty of care to us to the
fullest extent permitted by law, subject to limited exceptions, and undertaking to indemnify them to the fullest extent permitted by law.
See “ITEM 6.C: Directors, Senior Management and Employees—Board Practices—Exculpation, insurance and indemnification
of office holders.”
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Directors’
service contracts
There are no arrangements or understandings between
us and any of our subsidiaries, on the one hand, and any of our directors, on the other hand, provide benefits upon termination of their
employment or service as directors of our Company or any of our subsidiaries.
Equity incentive plan
In November 2020, we adopted the 2020 Caesarstone Share
Incentive Plan (the “
2020 Plan
”) that replaced our 2011 Incentive Compensation Plan
(the “
2011 Plan
”). Awards previously issued under the 2011 Plan will continue to be
governed by the terms of the 2011 Plan.
The maximum aggregate number of our shares available
for issuance as awards under the 2020 Plan is (i) 2,500,000 authorized but unissued shares, plus (ii) up to 1,000,000 shares
carried over from the 2011 Plan, and shares underlying outstanding awards granted pursuant to the 2011 Plan if expired, cancelled, terminated,
forfeited or settled in cash in lieu of issuance of shares, which will be available for grant of awards pursuant to the 2020 Plan. However,
except subject to certain adjustments, in no event will more than 3,500,000 shares be available for issuance pursuant to the exercise
of incentive stock options. As of February 28, 2025, the number of ordinary shares allocated under the 2020 Plan was 2,404,778 ordinary
shares. Considering the number of options and RSUs already granted, as of February 28, 2025, 1,046,659 ordinary shares remained available
for future option or RSU grants under the 2020 Plan. As of February 28, 2025, the number of ordinary shares underlying outstanding equity
awards allocated under the 2011 and 2020 equity incentive plans was 2,519,785ordinary shares.
Under the 2020 Plan, we provide stock-based compensation
to our directors, executive officers, employees and consultants, and those of our affiliates. The 2020 Plan is intended to further our
success by increasing the ownership interest of certain of our and our subsidiaries employees, directors and consultants and to enhance
our and our subsidiary’s ability to attract and retain employees, directors and consultants. See also Note 13 to our financial statements
included elsewhere in this report for additional information about grants of options and RSUs in recent years.
The 2020 Plan provides for granting awards under various
tax regimes, including, without limitation, in compliance with Section 102 of the Israeli Income Tax Ordinance (New Version), 5721-1961
(the “
Ordinance
”), and Section 3(i) of the Ordinance and for awards granted to our
United States employees or service providers, including those who are deemed to be residents of the United States for tax purposes, Section
422 of the Code and Section 409A of the Code.
Section 102 of the Ordinance allows employees, directors
and officers who are not controlling shareholders and are considered Israeli residents to receive favorable tax treatment for compensation
in the form of shares or options. Our non-employee service providers and controlling shareholders may only be granted options under section
3(i) of the Ordinance, which does not provide for similar tax benefits.
The 2020 Plan provides for the grant of stock options
(including incentive stock options and nonqualified stock options), ordinary shares, restricted shares, restricted share units and other
share-based awards.
Options granted under the 2020 Plan to our employees
who are U.S. residents may qualify as “incentive stock options” within the meaning of Section 422 of the Code or may be non-qualified
stock options.
In the event of termination of a grantee’s employment
or service with the company or any of its affiliates, all vested and exercisable awards held by such grantee as of the date of termination
may be exercised within one hundred and twenty (120) days after such date of termination, unless otherwise determined by the administrator,
but in any event no later than the date of expiration of the award’s term. After the one hundred and twenty (120) day period, all
unexercised awards will terminate, and the shares covered by such awards shall again be available for issuance under the 2020 Plan.
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In the event of termination of a grantee’s employment
or service with the company or any of its affiliates due to such grantee’s death, permanent disability or retirement, all vested
and exercisable awards held by such grantee as of the date of termination may be exercised by the grantee or the grantee’s legal
guardian, estate, or by a person who acquired the right to exercise the award by bequest or inheritance, as applicable, within twelve
months after such date of termination, unless otherwise provided by the administrator, but in any event no later than the date of expiration
of the award’s term. Any awards which are unvested as of the date of such termination or which are vested but not then exercised
within the twelve-month period following such date, will terminate and the shares covered by such awards shall again be available for
issuance under the 2020 Plan.
In the event of termination of a grantee’s employment
or service on due to such grantee’s retirement, all exercisable awards held by such grantee as of the date of retirement may be
exercised at any time within the three (3) month period after the date of such retirement, unless otherwise determined by the administrator.
Notwithstanding any of the foregoing, if a grantee’s
employment or services with the company or any of its affiliates is terminated for “cause” (as defined in the 2020 Plan),
all outstanding awards held by such grantee (whether vested or unvested) will terminate on the date of such termination and the shares
covered by such awards shall again be available for issuance under the 2020 Plan, unless otherwise determined by the administrator.
Grant of stock
options to Chief Executive Officer
See “ITEM 6.B: Directors, Senior Management and
Employees—Compensation—CEO Compensation.”
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C.
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Board Practices
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Corporate governance practices
We are a “foreign private issuer”, as such
term is defined in Rule 405 under the Securities Act. As a foreign private issuer we will be permitted to comply with Israeli corporate
governance practices instead of the certain listing rules of Nasdaq, provided that we disclose which requirements we are not following
and the equivalent Israeli requirements.
We rely on this “foreign private issuer exemption”
with respect to the quorum requirement for shareholder meetings and with respect to Nasdaq shareholder approval rules. Whereas under the
corporate governance rules of Nasdaq, a quorum requires the presence, in person or by proxy, of holders of at least 33 1/3% of the total
issued and outstanding voting power of our shares at each general meeting of shareholders, pursuant to our articles of association, and
as permitted under the Companies Law, the quorum required for a general meeting of shareholders will consist of at least two shareholders
present in person or by proxy in accordance with the Companies Law who hold or represent at least 33 1/3% of the total outstanding voting
power of our shares, except if (i) any such general meeting of shareholders was initiated by and convened pursuant to a resolution adopted
by the board of directors and (ii) at the time of such general meeting, we qualify as a “foreign private issuer,” then in
such case, the requisite quorum will consist of two or more shareholders present in person or by proxy who hold or represent at least
25% of the total outstanding voting power of our shares (and if the meeting is adjourned for a lack of quorum, the quorum for such adjourned
meeting will be, subject to certain exceptions, any number of shareholders).
We otherwise comply with Nasdaq corporate governance
rules generally applicable to U.S. domestic companies listed on Nasdaq. We may in the future decide to use the foreign private issuer
exemption with respect to some or all the other Nasdaq Global Select Market corporate governance rules. We also comply with Israeli corporate
governance requirements under the Companies Law applicable to public companies.
Board of directors and officers
As of the date of this report, our board of directors
consists of nine directors, five of whom are independent under the Nasdaq rules, including Ms. Nurit Benjamini and Ms. Lily Ayalon, who
serve as our external directors and whose appointment fulfills the requirements of the Companies Law for the company to have two external
directors (see “—External directors”). Specifically, our board of directors has determined that each of Nurit Benjamini,
Lily Ayalon, Ronald Kaplan, Ornit Raz and Yuval Beeri meets the independence standards under the rules of Nasdaq. In reaching this conclusion,
the board of directors determined, following the recommendation of our nominating committee, that none of these directors has a relationship
that would preclude a finding of independence and any relationship that these directors have with us do not impair their independence.
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Under our articles of association, the number of directors
on our board of directors must be no less than seven and no more than 11 and must include at least two external directors. The minimum
and maximum number of directors may be changed, at any time and from time to time, with the approval of at least 65% of the total voting
power of our shareholders.
Each director holds office until the annual general
meeting of our shareholders in the subsequent year unless the tenure of such director expires earlier pursuant to the Companies Law or
unless he or she is removed from office as described below, except our external directors, who have a term of office of three years under
Israeli law (see “—External directors—Election and dismissal of external directors”).
The directors who are serving in office shall be entitled
to act even if a vacancy occurs on the board of directors. However, should the number of directors, at the time in question, become less
than the minimum set forth in our articles of association, the remaining director(s) would be entitled to act for the purpose of filling
the vacancies or to convene a general meeting, but not for any other purpose.
Any director who retires from his or her office would
be qualified to be re-elected subject to any limitation affecting such a director’s appointment as a director under the Companies
Law. See “—External directors” for a description of the provisions relating to the reelection of external directors.
A general meeting of our shareholders may remove a director
from office prior to the expiry of his or her term in office (“
Removed Director
”) by
a simple majority vote (except for external directors, who may be dismissed only as set forth under the Companies Law), provided that
the Removed Director is given a reasonable opportunity to state his or her case before the general meeting. If a director is removed from
office as set forth above, the general meeting shall be entitled, in the same session, to elect another director in his or her stead in
accordance with the maximum number of directors permitted by our articles of association as stated above. Should it fail to do so, the
board of directors shall be entitled to do so. Any director who is appointed in this manner shall serve in office for the period remaining
of the term in office of the director who was removed and shall be qualified to be re-elected.
Any amendment of our articles of association regarding
the election of directors, as described above, requires a simple majority vote. See “—External directors” for a description
of the procedure for the election of external directors.
In addition, under the Companies Law, our board of directors
must determine the minimum number of directors who are required to have financial and accounting expertise. Under applicable regulations,
a “director with financial and accounting expertise” is a director who, by reason of his or her education, professional experience
and skill, has a high level of proficiency in and understanding of business accounting matters and financial statements so that he or
she is able to fully understand our financial statements and initiate debate regarding the manner in which the financial information is
presented. The determination of whether a director possesses financial and accounting expertise is made by the board of directors. In
determining the number of directors required to have such expertise, the board of directors must consider, among other things, the type
and size of the company and the scope and complexity of its operations. Our board of directors has determined that we require at least
one director with the requisite financial and accounting expertise and that each of Ms. Nurit Benjamini and Ms. Lily Ayalon has such expertise.
There are no family relationships among any of our office
holders (including directors).
Alternate directors
Our articles of association provide, subject to the
limitations under the Companies Law, that any director may, by written notice to us, appoint another person who is qualified to serve
as a director to serve as an alternate director. The appointment of an alternate director shall be subject to the consent of the board
of directors. The alternate director will be regarded as a director. Under the Companies Law, a person who is not qualified to be appointed
as a director, a person who is already serving as a director or a person who is already serving as an alternate director for another director,
may not be appointed as an alternate director. Nevertheless, a director who is already serving as a director may be appointed as an alternate
director for a member of a committee of the board of directors so long as he or she is not already serving as a member of such committee,
and if the alternate director is to replace an external director, he or she is required to be an external director and to have either
“financial and accounting expertise” or “professional expertise,” depending on the qualifications of the external
director he or she is replacing. A person who does not have the requisite “financial and accounting experience” or the “professional
expertise,” depending on the qualifications of the external director he or she is replacing, may not be appointed as an alternate
director for an external director. A person who is not qualified to be appointed as an independent director, pursuant to the Companies
Law, may not be appointed as an alternate director of an independent director.
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External directors
Qualifications
of external directors
Under the Companies Law, companies incorporated under
the laws of the State of Israel that are “public companies,” including companies with shares listed on the Nasdaq Global Select
Market, are required to appoint at least two external directors who meet the qualification requirements under the Companies Law. Such
external directors are not required to be Israeli residents in case the company is listed on a foreign stock exchange (such as us). The
appointment of external directors is made by a special majority resolution of the general meeting of our shareholders. At a shareholders’
meeting held on October 30, 2023, each of Ms. Nurit Benjamini and Ms. Lily Ayalon were elected to serve as external directors of the Company
for another three-year term, commencing on December 1, 2023, and expiring on November 30, 2026.
A person may not be appointed as an external director
if the person is a relative of a controlling shareholder or if on the date of the person’s appointment or within the preceding two
years the person or his or her relatives, partners, employers or anyone to whom that person is subordinate, whether directly or indirectly,
or entities under the person’s control have or had any affiliation with any of (each an “
Affiliated
Party
”): (1) us; (2) any person or entity controlling us on the date of such appointment; (3) any relative of a controlling
shareholder; or (4) any entity controlled, on the date of such appointment or within the preceding two years, by us or by our controlling
shareholder. If there is no controlling shareholder or any shareholder holding 25% or more of voting rights in the company, a person may
not serve as an external director if the person has any affiliation to the chairperson of the board of directors, the general manager
(chief executive officer), any shareholder holding 5% or more of the company’s shares or voting rights or the senior financial officer
as of the date of the person’s appointment.
The term “controlling shareholder” means
a shareholder with the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder
is presumed to have “control” of the company and thus to be a controlling shareholder of the company if the shareholder holds
50% or more of the “means of control” of the company. “Means of control” is defined as (1) the right to vote at
a general meeting of a company or a corresponding body of another corporation; or (2) the right to appoint directors of the corporation
or its general manager.
The term “affiliation” includes:
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an employment relationship;
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a business or professional relationship maintained on a regular basis;
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control; and
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service as an office holder, excluding service as a director in a private company
prior to the first offering of its shares to the public if such director was appointed as a director of the private company in order to
serve as an external director following the initial public offering.
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The term “relative” is defined as a spouse,
sibling, parent, grandparent, descendant, spouse’s descendant, sibling and parent and the spouse of each of the foregoing.
The term “office holder” is defined as a
general manager, chief business manager, deputy general manager, vice general manager, or any other person assuming the responsibilities
of any of the foregoing positions, without regard to such person’s title, and a director or manager directly subordinate to the
general manager.
A person may not serve as an external director if that
person or that person’s relative, partner, employer, a person to whom such person is subordinate (directly or indirectly) or any
entity under such person’s control has a business or professional relationship with any entity that has an affiliation with any
Affiliated Party, even if such relationship is intermittent (excluding insignificant relationships). Additionally, any person who has
received compensation intermittently (excluding insignificant relationships) other than compensation permitted under the Companies Law
may not continue to serve as an external director.
No person can serve as an external director if the person’s
position or other affairs create, or may create a conflict of interest with the person’s responsibilities as a director or may otherwise
interfere with the person’s ability to serve as a director or if such a person is an employee of the Israel Securities Authority
or of an Israeli stock exchange. If at the time an external director is appointed all current members of the board of directors, who are
not controlling shareholders or relatives of controlling shareholders, are of the same gender, then the external director to be appointed
must be of the other gender. In addition, a person who is a director of a company may not be elected as an external director of another
company if, at that time, a director of the other company is acting as an external director of the first company.
The Companies Law provides that an external director
must either meet certain professional qualifications or have financial and accounting expertise, and that at least one external director
must have financial and accounting expertise. However, if at least one of our other directors (1) meets the independence requirements
of the Exchange Act, (2) meets the Nasdaq requirements for membership on the audit committee and (3) has financial and accounting expertise
as defined in the Companies Law and applicable regulations, then neither of our external directors is required to possess financial and
accounting expertise as long as both possess other requisite professional qualifications as required under the Companies Law and regulations
promulgated thereunder.
The regulations promulgated under the Companies Law
define an external director with requisite professional qualifications as a director who satisfies one of the following requirements:
(1) the director holds an academic degree in either economics, business administration, accounting, law or public administration, (2)
the director either holds an academic degree in any other field or has completed another form of higher education in the company’s
primary field of business or in an area which is relevant to his or her office as an external director in the company, or (3) the director
has at least five years of experience serving in any one of the following, or at least five years of cumulative experience serving in
two or more of the following capacities: (a) a senior business management position in a company with a substantial scope of business,
(b) a senior position in the company’s primary field of business or (c) a senior position in public administration.
Our board of directors has determined that each of our
external directors, Ms. Nurit Benjamini and Ms. Lily Ayalon, qualifies as an “audit committee financial expert,” as defined
by the rules of the SEC, and has the requisite financial experience required by the Nasdaq rules and the Companies Law.
Under the Companies Law, until the lapse of a two-year
period from the date that an external director has ceased to act as an external director (and until the lapse of a one-year period, with
respect to such external director spouse or children) certain prohibitions apply to the ability of the company and its controlling shareholders,
including any corporations controlled by a controlling shareholder to grant such former external director or his or her spouse or children
any benefits (directly or indirectly).
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Election and
dismissal of external directors
Under Israeli law, external directors are elected by
a majority vote at a shareholders’ meeting, provided that either:
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the majority of the shares that are voted at the meeting in favor of the election
of the external director, excluding abstentions, include at least a majority of the votes of shareholders who are not controlling shareholders
or have a personal interest in the appointment (excluding a personal interest that did not result from the shareholder’s relationship
with the controlling shareholder); or
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the total number of shares held by the shareholders mentioned in the paragraph above
that are voted against the election of the external director does not exceed two percent of the aggregate voting rights in the company.
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Under Israeli law, the term of office for external directors
for Israeli companies traded on certain foreign stock exchanges, including the Nasdaq Global Select Market, such as the Company, may be
extended, indefinitely, in increments of additional three-year terms, in each case provided that: (i) both the audit committee and the
board of directors confirm that, in light of the expertise and contribution of the external director, the extension of such external director’s
term would be in the interest of the company; (ii) the appointment to the additional term is subject to the reelection provision described
above; and (iii) the term during which the nominee served as an external director and the board of directors’ and audit committee’s
reasoning for the extension of such term were presented before the general meeting of shareholders prior to the approval of the extension.
An external director may be removed by the same special
majority of the shareholders required for his or her election, if he or she ceases to meet the statutory qualifications for appointment
or if he or she violates his or her fiduciary duty to the company. An external director may also be removed by order of an Israeli court
if the court finds that the external director is permanently unable to exercise his or her office, has ceased to meet the statutory qualifications
for his or her appointment, has violated his or her fiduciary duty to the company, or has been convicted by a court outside Israel of
certain offenses detailed in the Companies Law.
If the vacancy of an external directorship causes a
company to have fewer than two external directors, the company’s board of directors is required under the Companies Law to call
a special general meeting of the company’s shareholders as soon as possible to appoint such number of new external directors so
that the company thereafter has two external directors.
Under the regulations pursuant to the Companies Law,
a public company with securities listed on certain foreign exchanges, including the Nasdaq Global Select Market, that satisfies the applicable
domestic country laws and regulations that apply to companies organized in that country relating to the appointment of independent directors
and composition of audit and compensation committees and have no controlling shareholder may adopt an exemption from the requirement to
appoint external directors or comply with the audit committee and compensation committee composition requirements under the Companies
Law. We may adopt this exemption in the future if we no longer have a controlling shareholder.
Additional provisions
Under the Companies Law, each committee authorized to
exercise any of the powers of the board of directors must include only directors and is required to include at least one external director
and each of the audit and compensation committees are required to include all of the external directors.
An external director is entitled to compensation and
reimbursement of expenses in accordance with regulations promulgated under the Companies Law and is prohibited from receiving any other
compensation, directly or indirectly, in connection with serving as an external director except for certain exculpation, indemnification
and insurance provided by the company, as specifically allowed by the Companies Law.
Audit committee
Our audit committee consists of Ms. Nurit Benjamini,
Ms. Lily Ayalon and Ms. Ornit Raz. Ms. Nurit Benjamini serves as the chairperson of the audit committee.
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Companies Law
requirements
Under the Companies Law, the board of directors of any
public company must appoint an audit committee comprised of at least three directors, including all the external directors. The audit
committee may not include:
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the chairperson of the board of directors;
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a controlling shareholder or a relative of a controlling shareholder; and
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any director employed by, or providing services on an ongoing basis to, the company,
a controlling shareholder of the company or an entity controlled by a controlling shareholder of the company or any director who derives
most of his or her income from the controlling shareholder.
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According to the Companies Law, the majority of the
members of the audit committee, as well as the majority of members present at audit committee meetings, are required to be “independent”
(as defined below) and the chairperson of the audit committee is required to be an external director. Any persons disqualified from serving
as a member of the audit committee may not be present at the audit committee meetings, unless the chairperson of the audit committee has
determined that such person is required to be present at the meeting or if such person qualifies under one of the exemptions of the Companies
Law. Without derogating from the aforementioned, under the Companies Law, a company’s general counsel and a company’s secretary,
which are not a controlling shareholder or relative thereof, may be present at an audit committee meeting if the committee has requested
their presence.
The term “independent director” is defined
under the Companies Law as an external director or a director who meets the following conditions and who is appointed or classified as
such according to the Companies Law: (1) the conditions for his or her appointment as an external director (as described above) are satisfied
and the audit committee approves the director having met such conditions and (2) he or she has not served as a director of the company
for over nine consecutive years with any interruption of up to two years of his or her service not being deemed a disruption to the continuity
of his or her service.
Under the regulations promulgated under the Companies
Law, an audit committee of companies such as ours may deem a director which qualifies as an independent director, among others, under
the Nasdaq listing rules, to be an independent director within the meaning of the Companies Law, provided that such director complies
with the Companies Law requirements for external directors with respect to a lack of affiliation with a controlling shareholder, its relatives
and entities under its control or his or her relative’s control, excluding the company itself or any of its subsidiaries. In addition,
companies such as ours may extend the term of office of an independent director who has served for more than nine years for additional
periods of three years each if such director continues to comply with the Companies Law requirements for external director’s lack
of affiliation as described above.
Nasdaq requirements
Under the Nasdaq rules, we are required to maintain
an audit committee consisting of at least three independent directors, all of whom are financially literate and one of whom has accounting
or related financial management expertise.
All members of our audit committee meet the requirements
for financial literacy under the applicable rules of the SEC and the Nasdaq rules. Our board of directors has determined that each of
Ms. Nurit Benjamini and Ms. Lily Ayalon qualifies as an “audit committee financial expert,” as defined by applicable rules
of the SEC and has the requisite financial experience as defined by Nasdaq rules.
Each of the members of the audit committee is “independent”
under relevant Nasdaq rules and as defined in Rule 10A-3(b)(1) under the Exchange Act, which is different from the general test for independence
of members of the board.
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Approval of transactions
with related parties
The approval of the audit committee is required to affect
specified actions and transactions with office holders and controlling shareholders and their relatives, or in which they have a personal
interest. See “—Fiduciary duties and approval of specified related party transactions under Israeli law.” For the purpose
of approving transactions with controlling shareholders, the term “controlling shareholder” also includes any shareholder
that holds 25% or more of the voting rights of the company if the company has no shareholder that owns more than 50% of its voting rights.
For purposes of determining the holding percentage stated above, two or more shareholders who have a personal interest in a transaction
that is brought for the company’s approval are deemed as joint holders. The audit committee may not approve an action or a transaction
with a controlling shareholder or with an office holder unless at the time of approval the audit committee meets the composition requirements
under the Companies Law and provided such transaction is in the interest of the Company.
Audit committee
role
Our board of directors has adopted an audit committee
charter setting forth the responsibilities of the audit committee consistent with the rules of the SEC and Nasdaq rules, which include,
among other responsibilities:
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retaining and terminating our independent auditors, subject to board of directors
and shareholder ratification;
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pre-approval of audit and non-audit services to be provided by the independent auditors;
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reviewing with management and our independent directors our quarterly and annual financial
reports prior to their submission to the SEC; and
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approval of certain transactions with office holders and controlling shareholders
and other related-party transactions.
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Additionally, under the Companies Law, the role of the
audit committee includes the identification of irregularities in our business management, among other things, by consulting with the internal
auditor or our independent auditors and suggesting an appropriate course of action to the board of directors. In addition, the audit committee
or the board of directors, as set forth in the articles of association of the company, is required to approve the yearly or periodic work
plan proposed by the internal auditor. The audit committee is required to assess the company’s internal audit system and the performance
of its internal auditor. The Companies Law also requires that the audit committee assess the scope of the work and compensation of
the company’s external auditor. In addition, the audit committee is required to determine whether certain related party actions
and transactions are “material” or “extraordinary” for the purpose of the requisite approval procedures under
the Companies Law, whether certain transactions with a controlling shareholder will be subject to a competitive procedure (regardless
of whether or not such transactions are deemed extraordinary transactions) and to set forth the approval process for transactions that
are “non-negligible” (meaning, transactions with a controlling shareholder that are classified by the audit committee as non-negligible,
even though they are not deemed extraordinary transactions), as well as determining which types of transactions would require the approval
of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee. The audit
committee charter states that in fulfilling its role the committee is entitled to demand from us any document, file, report or any other
information that is required for the fulfillment of its roles and duties and to interview any of our employees or any employees of our
subsidiaries in order to receive more details about his or her line of work or other issues that are connected to the roles and duties
of the audit committee.
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Nominating Committee
We have a nominating committee comprised of four of
our directors, Ms. Nurit Benjamini, Ms. Lily Ayalon, Ms. Ornit Raz and Mr. Ronald Kaplan, each of whom has been determined by our board
of directors to be independent under the applicable Nasdaq rules. Ms. Lily Ayalon serves as the Chairperson of the Nominating Committee.
Our board of directors has adopted a nominating committee charter setting forth the responsibilities of the committee which include, among
other responsibilities:
|
|
• |
conduct of the appropriate and necessary inquiries into the backgrounds and qualifications
of possible candidates to serve as directors;
|
|
|
• |
review and recommend to the board any nominees for election as directors, including
nominees recommended by shareholders, and consideration of the performance of incumbent directors whose terms are expiring in determining
whether to nominate them to stand for re-election;
|
|
|
• |
review and recommend to the board regarding board member qualifications, board composition
and structure, and recommend if necessary, measures to be taken so that the board reflects the appropriate balance of knowledge, experience,
skills, expertise and diversity required for the board; and
|
|
|
• |
perform such other activities and functions as required by applicable law, stock exchange
rules or provisions in our articles of association, or as are otherwise necessary and advisable, in its or the board’s discretion,
for the efficient discharge of its duties.
|
Compensation Committee
We have a compensation committee consisting of three
of our directors, Ms. Nurit Benjamini, Ms. Lily Ayalon and Ms. Ornit Raz, each of whom has been determined by our board of directors to
be independent under the applicable Nasdaq rules. Ms. Lily Ayalon serves as the Chairperson of the compensation committee. Our board has
adopted a compensation committee charter setting forth the responsibilities of the committee which include, among other responsibilities:
|
|
• |
reviewing and recommending overall compensation policies with respect to our Chief
Executive Officer and other office holders;
|
|
|
• |
reviewing and approving corporate goals and objectives relevant to the compensation
of our Chief Executive Officer and other office holders including evaluating their performance in light of such goals and objectives and
determining their compensation based on such evaluation;
|
|
|
• |
reviewing and approving the granting of options and other incentive awards; and
|
|
|
• |
reviewing, evaluating and making recommendations regarding the compensation and benefits
for our non-employee directors.
|
The compensation committee is also authorized to retain
and terminate compensation consultants, legal counsel or other advisors to the committee and to approve the engagement of any such consultant,
counsel or advisor, to the extent it deems necessary or appropriate.
Pursuant to the Companies Law, Israeli public companies
are required to appoint a compensation committee comprised of at least three directors, including all the external directors, who must
also constitute a majority of its members. All other members of the compensation committee, who are not external directors, must be directors
who receive compensation that is in compliance with regulations promulgated under the Companies Law. In addition, the chairperson of the
compensation committee must be an external director. The Companies Law further stipulates that directors who are not qualified to serve
on the audit committee, as described above, may not serve on the compensation committee either and that, similar to the audit committee,
generally, any person who is not entitled to be a member of the compensation committee may not attend the compensation committee’s
meetings.
88
The responsibilities of the compensation committee under
the Companies Law include: (i) making recommendations to the board of directors with respect to the approval of the compensation policy
and any extensions thereto; (ii) periodically reviewing the implementation of the compensation policy and providing the board of directors
with recommendations with respect to any amendments or updates thereto; (iii) reviewing and resolving whether or not to approve arrangements
with respect to the terms of office and employment of office holders; and (iv) resolving whether or not to exempt a transaction with a
candidate for chief executive officer from shareholder approval.
Compensation Policy under the Companies
Law
In accordance with the Companies Law, we have adopted
a compensation policy for our executive officers and directors. The purpose of the policy is to describe our overall compensation strategy
for our executive officers and directors and to provide guidelines for setting their compensation, as prescribed by the Companies Law.
The compensation policy must be determined and later
reevaluated according to certain factors, including: the advancement of the company’s objectives, business plan and long-term strategy;
the creation of appropriate incentives for office holders, while considering, among other things, the company’s risk management
policy; the size and the nature of the company’s operations; and with respect to variable compensation, the contribution of the
office holder towards the achievement of the company’s long-term goals and the maximization of its profits, all with a long-term
objective and according to the position of the office holder.
According to the Israeli Companies Law, the policy must
be reviewed and readopted at least once every three years. The adoption of the compensation policy requires the approval of the compensation
committee, the board of directors and our shareholders, in that order. The shareholders’ approval must include the majority of shares
voted at the meeting. In addition to the majority vote, the shareholder approval must satisfy either of two additional tests:
|
|
• |
the majority includes at least a majority of the shares voted by shareholders other
than our controlling shareholders or shareholders who have a personal interest in the adoption of the compensation policies; or
|
|
|
• |
the total number of shares held by non-controlling shareholders and disinterested
shareholders that voted against the adoption of the compensation policies, does not exceed 2% of the aggregate voting rights of our company.
|
In accordance with the Companies Law, our policy was
last re-adopted in October 2023 by the compensation committee, the board of directors and our shareholders, and is filed as an exhibit
to this annual report.
Compensation
of Directors and Executive Officers
Directors
.
Under the Companies Law, the compensation of our directors requires the approval of our compensation committee, the subsequent approval
of the board of directors and, unless exempted under the regulations promulgated under the Companies Law, the approval of the shareholders
at a general meeting. If the compensation of our directors is inconsistent with our Compensation Policy, then shareholder approval will
also be required, as follows:
|
|
• |
at least a majority of the shares held by all shareholders who are not controlling
shareholders and do not have a personal interest in such matter, present and voting at such meeting, are voted in favor of the compensation
package, excluding abstentions; or
|
|
|
• |
the total number of shares of non-controlling shareholders and shareholders who do
not have a personal interest in such matter voting against the compensation package does not exceed 2% of the aggregate voting rights
in the company.
|
89
Executive Officers
other than the Chief Executive Officer
. The Companies Law requires the compensation
of a public company’s executive officers (other than the chief executive officer) to be approved by, first, the compensation committee;
second by the company’s board of directors and third, if such compensation arrangement is inconsistent with the company’s
stated compensation policy, the company’s shareholders (by a special majority vote as discussed above with respect to the approval
of director compensation). However, if the shareholders of the company do not approve a compensation arrangement with an executive officer
(other than the chief executive officer) that is inconsistent with the company’s stated compensation policy, the compensation committee
and board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors
provide detailed reasons for their decision after reconsidering the compensation arrangement, while taking into consideration that the
shareholders of the company did not approve the compensation arrangement.
Chief Executive Officer
.
The compensation of a public company’s chief executive officer requires the approval of first, the company’s compensation
committee; second, the company’s board of directors; and third, the company’s shareholders (by a special majority vote as
discussed above with respect to the approval of director compensation). However, if the shareholders of the company do not approve the
compensation arrangement with the chief executive officer, the compensation committee and board of directors may override the shareholders’
decision if each of the compensation committee and the board of directors provide a detailed report for their decision after reconsidering
the compensation arrangement, while taking into consideration that the shareholders of the company did not approve the compensation arrangement.
The compensation committee and board of directors approval
should be in accordance with the company’s stated compensation policy; however, in special circumstances, they may approve compensation
terms of a chief executive officer that are inconsistent with such policy provided that they have considered those provisions that must
be included in the compensation policy according to the Companies Law and that shareholder approval was obtained (by a special majority
vote as discussed above with respect to the approval of director compensation). The compensation committee may waive the shareholder approval
requirement with regards to the approval of the engagement terms of a candidate for the chief executive officer position, if they determine
that the compensation arrangement is consistent with the company’s stated compensation policy, the chief executive officer did not
have a business relationship with the company or a controlling shareholder of the company and that having the engagement transaction subject
to a shareholder vote would impede the company’s ability to employ the chief executive officer candidate.
Notwithstanding the above, the amendment of existing
compensation terms of executive officers (including the chief executive officer and excluding officers who are also directors), requires
only the approval of the compensation committee, provided that the committee determines that the amendment is not material in relation
to the existing terms.
Internal auditor
Under the Companies Law, the board of directors of a
public company must appoint an internal auditor based on the recommendation of the audit committee. The role of the internal auditor is,
among other things, to examine whether a company’s actions comply with applicable law and orderly business procedure. Under the
Companies Law, the internal auditor may not be an interested party or an office holder or a relative of an interested party or of an office
holder, nor may the internal auditor be the company’s independent auditor or the representative of the same.
An “interested party” is defined in the
Companies Law as (i) a holder of 5% or more of the issued share capital or voting power in a company, (ii) any person or entity who has
the right to designate one or more directors or to designate the chief executive officer of the company, or (iii) any person who serves
as a director or as a chief executive officer of the company. Our internal auditor is Mr. Ofer Orlitzky of Leon, Orlitzky and Co.
90
Fiduciary duties and approval of
specified related party transactions under Israeli law
Fiduciary duties
of office holders
The Companies Law imposes a duty of care and a duty
of loyalty on all office holders of a company.
The duty of care requires an office holder to act with
the degree of proficiency with which a reasonable office holder in the same position would have acted under the same circumstances. The
duty of care includes, among other things, a duty to use reasonable means, in light of the circumstances, to obtain:
|
|
• |
information on the business advisability of a given action brought for his or her
approval or performed by virtue of his or her position; and
|
|
|
• |
all other important information pertaining to such action.
|
The duty of loyalty incumbent on an office holder requires
him or her to act in good faith and for the benefit of the company, and includes, among other things, the duty to:
|
|
• |
refrain from any act involving a conflict of interest between the performance of his
or her duties in the company and his or her other duties or personal affairs;
|
|
|
• |
refrain from any activity that is competitive with the business of the company;
|
|
|
• |
refrain from exploiting any business opportunity of the company for the purpose of
gaining a personal advantage for himself or herself or others; and
|
|
|
• |
disclose to the company any information or documents relating to the company’s
affairs which the office holder received as a result of his or her position as an office holder.
|
We may approve an act specified above which would otherwise
constitute a breach of the office holder’s duty of loyalty, provided that the office holder acted in good faith, the act or its
approval does not harm the company, and the office holder discloses his or her personal interest, including any related material information
or document, a sufficient time before the approval of such act. Any such approval is subject to the terms of the Companies Law, setting
forth, among other things, the organs of the company entitled to provide such approval, and the methods of obtaining such approval.
Disclosure of
personal interest of an office holder and approval of related party transactions
Companies Law requires that an office holder promptly
disclose to the company any personal interest that he or she may have and all related material information or documents relating to any
existing or proposed transaction by the company. An interested office holder’s disclosure must be made promptly and, in any event,
no later than the first meeting of the board of directors at which the transaction is considered. An office holder is not obliged to disclose
such information if the personal interest of the office holder derives solely from the personal interest of his or her relative in a transaction
that is not considered as an extraordinary transaction.
Under the Companies Law, once an office holder has complied
with the above disclosure requirement, a company may approve a transaction between the company and the office holder or a third party
in which the office holder has a personal interest, pursuant to the certain procedures as set forth in the Companies Law. However, a company
may not approve a transaction or action that is not to the company’s benefit.
91
Under the Companies Law, unless the articles of association
of a company provide otherwise, a transaction with an office holder or with a third party in which the office holder has a personal interest,
which is not an extraordinary transaction, requires the approval by the board of directors. Our articles of association provide that such
a transaction, which is not an extraordinary transaction, shall be approved by the board of directors or a committee of the board of directors
or any other entity (which has no personal interest in the transaction) authorized by the board of directors. If the transaction considered
is an extraordinary transaction with an office holder or a third party in which the office holder has a personal interest, then audit
committee approval is required prior to approval by the board of directors. For the approval of compensation arrangements with directors
and executive officers, see “— Compensation of Directors and Executive Officers.”
Any person who has a personal interest in the approval
of a transaction that is brought before a meeting of the board of directors, or the audit committee may not be present at the meeting
or vote on the matter. However, if the chairman of the board of directors or the chairman of the audit committee, as applicable, has determined
that the presence of an office holder with a personal interest is required, such office holder may be present at the meeting for the purpose
of presenting the matter. Notwithstanding the foregoing, a director who has a personal interest may be present at the meeting of the audit
committee or the board of directors and vote on the matter if a majority of the directors or members of the audit committee, as applicable,
have a personal interest in the approval of such transaction. If a majority of the directors at a board of directors meeting have a personal
interest in the transaction, such transaction also requires approval of the shareholders of the company.
A “personal interest” is defined under the
Companies Law as the personal interest of a person in an action or in a transaction of the company, including the personal interest of
such person’s relative or the interest of any other corporate body in which the person and/or such person’s relative is a
director or general manager, a holder of 5% or more of the issued and outstanding share capital of the company or its voting rights, or
has the right to appoint at least one director or the general manager, but excluding a personal interest stemming solely from the fact
of holding shares in the company. A personal interest also includes (1) a personal interest of a person who votes according to a proxy
of another person, including in the event that the other person has no personal interest, and (2) a personal interest of a person who
gave a proxy to another person to vote on his or her behalf regardless of whether the discretion of how to vote lies with the person voting
or not.
An “extraordinary transaction” is defined
under the Companies Law as any of the following:
|
|
• |
a transaction other than in the ordinary course of business;
|
|
|
• |
a transaction that is not on market terms; or
|
|
|
• |
a transaction that may have a material impact on the company’s profitability,
assets or liabilities.
|
92
Disclosure of
personal interests of a controlling shareholder and approval of transactions
Companies Law also requires that a controlling shareholder
promptly disclose to the company any personal interest that he or she may have and all related material information or documents relating
to any existing or proposed transaction by the company. A controlling shareholder’s disclosure must be made promptly and, in any
event, no later than the first meeting of the board of directors at which the transaction is considered. See “—Audit committee—Approval
of transactions with related parties” for the definition of a controlling shareholder. Extraordinary transactions with a controlling
shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a controlling shareholder
has a personal interest, and the terms of engagement of the company, directly or indirectly, with a controlling shareholder or a controlling
shareholder’s relative (including through a corporation controlled by a controlling shareholder), regarding the company’s
receipt of services from the controlling shareholder, and if such controlling shareholder is also an office holder or an employee of the
company, regarding his or her terms of service or employment, require the approval of each of (i) the audit committee or the compensation
committee with respect to the terms of the engagement of the company, (ii) the board of directors and (iii) the shareholders, in that
order. In addition, the shareholder approval must fulfill one of the following requirements:
|
|
• |
a majority of the shares held by shareholders who have no personal interest in the
transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding abstentions; or
|
|
|
• |
the shares voted by shareholders who have no personal interest in the transaction
who vote against the transaction represent no more than 2% of the voting rights in the company.
|
In addition, any extraordinary transaction with a controlling
shareholder or in which a controlling shareholder has a personal interest with a term of more than three years requires the approval described
above, every three years; however, transactions not involving the receipt of services or compensation can be approved for a longer term,
provided that the audit committee determines that such longer term is reasonable under the circumstances.
The Companies Law requires that every shareholder that
participates, in person, by proxy or by voting instrument in a vote regarding a transaction with a controlling shareholder, must indicate
in advance or in the ballot whether or not that shareholder has a personal interest in the vote in question. Failure to so indicate will
result in the invalidation of that shareholder’s vote.
Duties of shareholders
Under the Companies Law, a shareholder has a duty to
refrain from abusing its power in the company and to act in good faith and in an acceptable manner in exercising its rights and performing
its obligations to the company and to other shareholders, including, among other things, when voting at meetings of shareholders on the
following matters:
|
|
• |
an amendment to the articles of association;
|
|
|
• |
an increase in the company’s authorized share capital;
|
|
|
• |
a merger; and
|
|
|
• |
the approval of related party transactions and acts of office holders that require
shareholder approval.
|
A shareholder also has a general duty to refrain from
discriminating against other shareholders.
The remedies generally available upon a breach of contract
will also apply to a breach of the shareholder duties mentioned above, and in the event of discrimination against other shareholders,
additional remedies are available to the injured shareholder.
In addition, any controlling shareholder, any shareholder
that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under a company’s articles of
association, has the power to appoint or prevent the appointment of an office holder, or any other power with respect to a company, is
under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty except to state
that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness,
taking the shareholder’s position in the company into account.
Code of Conduct
and Business Ethics
Our board of directors adopted a written Code of Business
Conduct and Ethics setting forth our expectations regarding personal and corporate conduct for all of our directors, officers, employees
and representatives. For more information, see “Item 16B. Code of Ethics.”
93
Exculpation, insurance and indemnification
of office holders
Under the Companies Law, a company may not exculpate
an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate an office holder in advance from
liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if a
provision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision.
The company may not exculpate in advance a director from liability arising out of a prohibited dividend or distribution to shareholders.
Under the Companies Law and the Securities Law, 5728—1968
(“
Securities Law
”), a company may indemnify an office holder in respect of the following
liabilities, payments and expenses incurred for acts performed by him as an office holder, either in advance of an event or following
an event, provided its articles of association include a provision authorizing such indemnification:
|
|
• |
a monetary liability incurred by or imposed on him or her in favor of another person
pursuant to a judgment, including a settlement or arbitrator’s award approved by a court. However, if an undertaking to indemnify
an office holder with respect to such liability is provided in advance, then such undertaking must be limited to certain events, which,
in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking to indemnify is
given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such
undertaking shall detail the foreseen events described above and amount or criteria;
|
|
|
• |
reasonable litigation expenses, including reasonable attorneys’ fees, incurred
by the office holder as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct
such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation
or proceeding; and (ii) no financial liability, was imposed upon him or her as a substitute for the criminal proceeding as a result of
such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not
require proof of criminal intent or in connection with a monetary sanction;
|
|
|
• |
a monetary liability imposed on him or her in favor of an injured party at an Administrative
Procedure (as defined below) pursuant to Section 52(54)(a)(1)(a) of the Securities Law;
|
|
|
• |
expenses incurred by an office holder or certain compensation payments made to an
injured party that were instituted against an office holder in connection with an Administrative Procedure under the Securities Law, including
reasonable litigation expenses and reasonable attorneys’ fees; and
|
|
|
• |
reasonable litigation expenses, including attorneys’ fees, incurred by the office
holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf, or by a third party, or in connection
with criminal proceedings in which the office holder was acquitted, or as a result of a conviction for an offense that does not require
proof of criminal intent.
|
An “Administrative Procedure” is defined
as a procedure pursuant to chapters H3 (Monetary Sanction by the Israeli Securities Authority), H4 (Administrative Enforcement Procedures
of the Administrative Enforcement Committee) or I1 (Arrangement to prevent Procedures or Interruption of procedures subject to conditions)
to the Securities Law.
94
Under the Companies Law and the Securities Law, a company
may insure an office holder against the following liabilities incurred for acts performed by him or her as an office holder if and to
the extent provided in the company’s articles of association:
|
|
• |
a breach of duty of loyalty to the company, provided that the office holder acted
in good faith and had a reasonable basis to believe that the act would not harm the company;
|
|
|
• |
a breach of duty of care to the company or to a third party, to the extent such a
breach arises out of the negligent conduct of the office holder;
|
|
|
• |
a monetary liability imposed on the office holder in favor of a third party;
|
|
|
• |
a monetary liability imposed on the office holder in favor of an injured party at
an Administrative Procedure pursuant to Section 52(54)(a)(1)(a) of the Securities Law; and
|
|
|
• |
expenses incurred by an office holder in connection with an Administrative Procedure
instituted against him or her, including reasonable litigation expenses and reasonable attorneys’ fees.
|
Under the Companies Law, a company may not indemnify,
exculpate or insure an office holder against any of the following:
|
|
• |
a breach of a duty of loyalty, except for indemnification and insurance for a breach
of the duty of loyalty to the company to the extent that the office holder acted in good faith and had a reasonable basis to believe that
the act would not prejudice the company;
|
|
|
• |
a breach of duty of care committed intentionally or recklessly, excluding a breach
arising out of the negligent conduct of the office holder;
|
|
|
• |
an act or omission committed with intent to derive illegal personal benefit; or
|
|
|
• |
a fine, monetary sanction or forfeit levied against the office holder.
|
Under the Companies Law, exculpation, indemnification
and insurance of office holders must be approved by the compensation committee and the board of directors and, with respect to directors
or controlling shareholders, their relatives and third parties in which such controlling shareholders have a personal interest, also by
the shareholders.
Our articles of association permit us to exculpate, indemnify
and ensure our office holders to the fullest extent permitted or to be permitted by law. Our office holders are currently covered by a
directors and officers’ liability insurance policy. We have agreements with each of our current office holders exculpating them
from a breach of their duty of care to us to the fullest extent permitted by law, subject to limited exceptions, and undertaking to indemnify
them to the fullest extent permitted by law, subject to limited exceptions. This indemnification is limited to events determined as foreseeable
by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors as reasonable
under the circumstances. The maximum aggregate amount of indemnification that we may pay to our office holders based on such indemnification
agreement is an amount equal to 25% of our shareholders’ equity on a consolidated basis, less a provision that was made for indemnification
as stated, based on our most recent financial statements made publicly available before the date on which the indemnification payment
was made. Such indemnification amounts are in addition to any insurance amounts. Each office holder who previously received an indemnification
letter from us and agreed to receive this new letter of indemnification, gave his approval to the termination of all previous letters
of indemnification that we have provided to him or her in the past, if any; however, in the opinion of the SEC, indemnification of office
holders for liabilities arising under the Securities Act is against public policy and therefore unenforceable.
95
We previously entered into letters of indemnification
with some former office holders that currently remain in effect, and pursuant to which we undertook to indemnify them with respect to
certain liabilities and expenses then permitted under the Companies Law, which are similar to those described above. Furthemore, at our
annual general meeting in 2024, our shareholders renewed our form of indemnification agreement with our current and future directors that
are Controlling Shareholders or are affiliated with a Controlling Shareholders. These letters of indemnification are limited to foreseeable
events that were determined by the board of directors.
| D. |
Employees
|
As of December 31, 2024, we had 1,532 employees, of whom 371
were based in Israel, including 16 individuals who provide services to us through our manpower agreement (“
Manpower
Agreement
”) with Kibbutz Sdot-Yam, and with whom we do not have employment relationships, 400 employees in the United States,
128 employees in Australia, 120 in Canada, 430 in India, 56 in the United Kingdom, 22 in Asia and 5 in Sweden. The following table shows
the breakdown of our global workforce by category of activity as of December 31 for the past three fiscal years:
|
|
As of December 31,
|
|||||||||||
|
Department
|
2024
|
2023
|
2022
|
|||||||||
|
Manufacturing and operations
|
843
|
1080
|
1339
|
|||||||||
|
Research and development
|
22
|
19
|
17
|
|||||||||
|
Sales, marketing, service and support
|
492
|
533
|
557
|
|||||||||
|
Management and administration
|
175
|
181
|
198
|
|||||||||
|
Total
|
1,532
|
1813
|
2111
|
|||||||||
The size of our global workforce decreased by 281 employees
in 2024. Such a decrease is due to company restructuring plan which includes the closure of Sdot-Yam and Richmond hill facility and in
addition reduction in global sales and marketing departments.
Israeli labor laws (applicable to our Israeli employees)
govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance
pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination laws and other conditions
of employment. Subject to certain exceptions, Israeli law generally requires severance pay upon the retirement, death or dismissal of
an employee, and requires us and our employees to make payments to the NII, which is similar to the U.S. Social Security Administration.
Our employees have pension plans in accordance with the applicable Israeli legal requirements.
None of our employees work under any collective bargaining
agreements. Extension orders issued by the IMEI apply to us and affect matters such as cost of living adjustments to salaries, length
of working hours and week, recuperation pay, travel expenses, and pension rights. We have never experienced labor-related work stoppages
or strikes and, while there can be no assurance that we will not experience any, we believe that our relations with our employees are
satisfactory.
96
| E. |
Share Ownership
|
Beneficial Ownership of Executive
Officers and Directors
The following table sets forth certain information regarding
the beneficial ownership of our ordinary shares as of February 28, 2025, of each of our directors and executive officers.
|
Name of Beneficial Owner
|
Number of Shares Beneficially Held(1)
|
Percent of Class
|
||||||
|
Executive Officers
|
||||||||
|
Yos Shiran
|
570,112
|
1.6
|
||||||
|
Nahum Trost
|
*
|
*
|
||||||
|
David Cullen
|
*
|
*
|
||||||
|
Ken Williams
|
*
|
*
|
||||||
|
Edward Smith
|
*
|
*
|
||||||
|
Chen Livne
|
*
|
*
|
||||||
|
Amihai Seider
|
*
|
*
|
||||||
|
Erez Margalit
|
*
|
*
|
||||||
|
Ron Mosberg
|
*
|
*
|
||||||
|
Lilach Gilboa
|
*
|
*
|
||||||
|
José Luis Ramón
|
*
|
*
|
||||||
|
Erik Christensen
|
*
|
*
|
||||||
|
Directors
|
||||||||
|
Dr. Ariel Halperin(2)
|
14,096,432
|
40.8
|
||||||
|
Nurit Benjamini
|
*
|
*
|
||||||
|
Lily Ayalon
|
*
|
*
|
||||||
|
Yuval Beeri
|
*
|
*
|
||||||
|
Maxim Ohana
|
*
|
*
|
||||||
|
Ronald Kaplan
|
*
|
*
|
||||||
|
Ornit Raz
|
*
|
*
|
||||||
|
Giora Wegman
|
*
|
*
|
||||||
|
Tom Pardo Izhaki
|
*
|
*
|
||||||
|
All current directors and executive officers as a group (21 persons)(2)
|
||||||||
|
*
|
Less than one percent of the outstanding ordinary shares.
|
|
(1)
|
As
used in this table, “beneficial ownership” means the sole or shared power to vote or direct the voting or to dispose or direct
the disposition of any security. For purposes of this table, a person is deemed to be the beneficial owner of securities that can be acquired
within 60 days from February 28, 2025, through the exercise of any option or warrant. Ordinary shares subject to options that are currently
exercisable or exercisable within 60 days, or other awards that are convertible into our ordinary shares within 60 days, are deemed outstanding
for computing the ownership percentage of the person holding such options or other agreements, but are not deemed outstanding for computing
the ownership percentage of any other person. The percentages are based upon 34,555,827 ordinary shares outstanding as February 28, 2025.
All our shareholders, including the shareholders listed
above, have the same voting rights attached to their ordinary shares. See “ITEM 10.B: Additional Information—Memorandum and
Articles of Association—Voting.”
Our directors and executive officers hold, in the aggregate, (i) 840,459 options immediately
exercisable or exercisable within 60 days from February 28, 2025, with a weighted average exercise price of $11.5 per share and have expiration
dates generally seven years after the grant date, (ii) 50,749 RSUs that vest within 60 days from February 28, 2025, and (iii) 49,712 ordinary
shares.
|
|
(2)
|
Consists of (i) 66,938 options to acquire our ordinary shares held directly by Dr.
Halperin and (ii) 14,029,494 ordinary shares beneficially owned by Tene Investment in Projects 2016, L.P. (“
Tene
”).
As further described in footnote (2) under “ITEM 7.A: Major Shareholders and Related Party Transactions—Major Shareholders,”
Each of Dr. Halperin, Tene Growth Capital III (G.P.) Company Ltd. (“
Tene III
”), and
Tene Growth Capital 3 (Fund 3 G.P.) Projects, L.P (“
Tene III Projects
”) may be deemed
to share voting power over the 14,029,494 ordinary shares and dispositive power over the 5,589,494 ordinary shares, in each case, beneficially
owned by Tene. See “ITEM 7.A: Major Shareholders and Related Party Transactions—Major Shareholders.”
|
97
ITEM 7
:
Major Shareholders and Related Party Transactions
|
A.
|
Major Shareholders
|
The following table sets forth certain information regarding
the beneficial ownership of our outstanding ordinary shares as of the date indicated below, by each person who we know beneficially owns
5.0% or more of the outstanding ordinary shares. For information on the beneficial ownership of each of our directors and executive officers
individually and as a group, see “ITEM 6.E: Directors, Senior Management and Employees—Share Ownership.”
Beneficial ownership of ordinary shares is determined
in accordance with the rules of the SEC and generally includes any ordinary shares over which a person exercises sole or shared voting
or investment power, or the right to receive the economic benefit of ownership. For purposes of the table below, we deem shares subject
to options or other agreements that are currently exercisable or exercisable within 60 days of February 28, 2025, to be outstanding and
to be beneficially owned by the person holding the options for the purposes of computing the percentage ownership of that person but we
do not treat them as outstanding for the purpose of computing the percentage ownership of any other person. The amounts and percentages
are based upon 34,555,827 ordinary shares outstanding as of February 28, 2025.
All our shareholders, including the shareholders listed
below, have the same voting rights attached to their ordinary shares. See “ITEM 10.B: Additional Information—Memorandum and
Articles of Association—Voting.”
A description of any material relationship that our
principal shareholders have had with us or any of our predecessors or affiliates within the past three years is included below under “—Related
Party Transactions.”
|
Name of Beneficial Owner
|
Number of Shares Beneficially Owned
|
Percentage of Shares Beneficially Held
|
||||||
|
Mifalei Sdot-Yam Agricultural Cooperative Society Ltd. (1)(3)
|
14,029,494
|
40.6
|
%
|
|||||
|
Tene Investment in Projects 2016, L.P.(2)(3)
|
14,029,494
|
40.6
|
%
|
|||||
|
The Phoenix Holdings Ltd. (4)
|
3,748,541
|
10.85
|
%
|
|||||
|
Global Alpha Capital Management Ltd. (5)
|
2,981,057
|
8.6
|
%
|
|||||
(1) Based on a Schedule 13D/A filed on September 19,
2023 by Mifalei Sdot-Yam Agricultural Cooperative Society Ltd. (“
Mifalei Sdot-Yam
”).
Mifalei Sdot-Yam is controlled by Sdot-Yam Business, Holding and Management – Agricultural Cooperative Society Ltd., which is in
turn controlled by Kibbutz Sdot-Yam. Mifalei Sdot-Yam holds shared voting power, over 14,029,494 ordinary shares and sole dispositive
power over 10,440,000 ordinary shares. No individual member of Mifalei Sdot-Yam has dispositive power or casting vote over the ordinary
shares. The Economic Council elected by the members of Kibbutz Sdot-Yam manages the economic activities and strategy of Kibbutz Sdot-Yam.
The Economic Council takes its decisions by majority vote and currently has eleven members, including Shai Bober and Tom Pardo, which
are directors on our board
.
The address of Kibbutz Sdot-Yam is MP Menashe 3780400, Israel.
Our board of directors operates independently from the Economic Council.
98
Kibbutz Sdot-Yam is a communal society, referred to
in Hebrew as a “kibbutz” (plural “
kibbutzim
”) with approximately 460 members
and an additional 350 residents located in Israel on the Mediterranean coast between Tel Aviv and Haifa. Established in 1940, Kibbutz
Sdot-Yam is a largely self-governed community of members who share certain social ideals and professional interests on a communal basis.
Initially, the social idea behind the formation of the kibbutzim in Israel was to create a communal society in which all members share
equally in all the society’s resources and which provides for the needs of the community. Over the years, the structure of the kibbutzim
has evolved, and today there are a number of different economic and social arrangements adopted by various kibbutzim.
Today, each member of Kibbutz Sdot-Yam continues to
own an equal part of the assets of the Kibbutz. The members of Kibbutz Sdot-Yam are engaged in a number of economic activities, including
agriculture, industrial operations and outdoor venue operations. A number of Kibbutz members are engaged in professions outside the Kibbutz.
The Kibbutz is the owner and operator of several private companies. The Kibbutz community holds in common all land, buildings and production
assets of these companies.
Some of the members of Kibbutz Sdot-Yam work in one
of the production activities of Kibbutz Sdot-Yam, according to the requirements of Kibbutz Sdot-Yam and the career objectives of the individual
concerned. Other members work outside of Kibbutz Sdot-Yam in businesses owned by other entities. Each member receives income based on
the position the member holds and his or her economic contribution to the community, as well as on the size and composition of his or
her family. Each member’s income depends on the income of Kibbutz Sdot-Yam from its economic activities. Each member has a personal
pension fund that is funded by Kibbutz Sdot-Yam, and all accommodation, educational, health and old age care services, as well as social
and municipal services, are provided either by or through Kibbutz Sdot-Yam and are subsidized by Kibbutz Sdot-Yam.
The elected Economic Council is the key economic decision-making
body of Kibbutz Sdot-Yam. Kibbutz Sdot-Yam also has a General Secretary (chairman) and other senior officers, all of whom are elected
by the members of Kibbutz Sdot-Yam at its General Meeting for terms of seven years. A meeting of the members of the Kibbutz may remove
a member of the Economic Council by simple majority vote.
As of December 31, 2024, 16 of our employees, or 1%
of our total workforce, were also members of Kibbutz Sdot-Yam.
(2) Based on a Schedule 13D/A filed on September 19,
2023 and on information provided to the Company by the beneficial owner, Tene Investment in Projects 2016, L.P. (“
Tene”
)
has shared voting power over 14,029,494 ordinary shares and shared dispositive 3,589,494 ordinary shares, which it directly owns. Pursuant
to the Shareholders’ Agreement as amended by the September Amendment (as defined below), Tene also shares voting power over 10,440,000
Ordinary Shares beneficially owned by Mifalei Sdot-Yam. Dr. Ariel Halperin is the sole director of Tene Growth Capital III (G.P.)
Company Ltd. (“
Tene III
”), which is the general partner of Tene Growth Capital 3 (Fund
3 G.P.) Projects, L.P (“
Tene III Projects
”), which is the general partner of Tene.
Dr. Halperin is also a member of our board of directors. Each of Dr. Halperin, Tene III and Tene III Projects may thus be deemed
to share voting power over the 14,029,494 ordinary shares and dispositive power over the 3,589,494 ordinary shares, in each case, beneficially
owned by Tene.
(3) On October 13, 2016, based on approval from the Israeli Antitrust Commission, Mifalei Sdot-Yam and Tene entered into the shareholders’ agreement (“ Shareholders’ Agreement ”), memorialized in a term sheet (the “ Term Sheet ”) signed by Mifalei Sdot-Yam and Tene on September 5, 2016, and further amended on February 20, 2018 and September 18, 2023. The amendment executed on September 18, 2023 (the “ September Amendment ”) replaced the Shareholders Agreement in its entirety. Pursuant to the September Amendment:
|
|
• |
The parties agreed to vote at general meetings of our shareholders in the same manner,
following discussions intended to reach an agreement on any matters proposed to be voted upon, with Mifalei Sdot-Yam determining the manner
in which both parties will vote if no agreement is reached, except with respect to certain carved-out matters, with respect to which Tene,
for so long as it holds more than 3% of the issued and outstanding share capital of the Company, will determine the manner in which both
parties will vote if no agreement is reached. In addition, each of Mifalei Sdot-Yam and Tene shall be entitled to vote separately in any
manner with respect to the appointment, replacement or terms of compensation of the Company’s Chief Executive Officer.
|
99
|
|
• |
In the event Tene holds less than 3% of the issued and outstanding share capital of the Company, then the
director nominated by Tene will be replaced by an alternate director (in accordance with applicable law and the articles of association)
nominated by Mifalei Sdot-Yam from a list of nominees that was agreed by the parties at the time the Amendment was signed for a period
ending on the earlier of (i) 60 days (after which time the director may resign) and (ii) the date of a general meeting for the election
of directors, and thereafter Tene will vote all its shares for the election of four directors nominated by Mifalei Sdot-Yam.
|
|
|
• |
The parties agree that Dr. Ariel Halperin will serve as the chairperson of the Board until June 30, 2024,
and thereafter act to appoint Mr. David Reis as the new chairperson of the board of directors, however Mr. Reis withdraw his candidacy
for reelection due to other commitments.
|
|
|
• |
Tene granted Mifalei Sdot-Yam a right of first refusal and Mifalei Sdot-Yam granted Tene certain tag-along
rights with respect to their disposition of ordinary shares. If Tene sells more than 3% of the issued and outstanding share capital of
the Company without providing Mifalei Sdot-Yam its right of first offer then certain rights contemplated under the September Amendment
will terminate, including Tene’s tag-along right.
|
|
|
• |
The call option granted by Mifalei Sdot-Yam pursuant to the Term Sheet was not extended and expired on
September 9, 2023. The call option contemplated an option to exercise 2,000,000 ordinary shares of the Company.
|
(4) Based on Schedule 13G/A filed with the SEC on November
14, 2024, by The Phoenix Holdings Ltd., as of September 30, 2024, The Phoenix Holdings Ltd. held shared voting and dispositive power over
3,748,541 ordinary shares. These ordinary shares are beneficially owned by various direct or indirect, majority or wholly owned subsidiaries
of The Phoenix Holding Ltd. (the “
Subsidiaries
”). The Subsidiaries manage their own
funds and/or the funds of others, including for holders of exchange-traded notes or various insurance policies, members of pension or
provident funds, unit holders of mutual funds, and portfolio management clients. Each of the Subsidiaries operates under independent management
and makes its own independent voting and investment decisions. The address of The Phoenix Holding Ltd. is Derech Hashalom 53, Givataim,
53454, Israel.
(5) Based on Schedule 13G/A filed with the SEC on February
8, 2024 by Global Alpha Capital Management Ltd., as of December 31, 2023, Global Alpha Capital Management Ltd held sole voting power over
2,154,231 ordinary shares, and sole dispositive power over 2,981,057 ordinary shares. The address of the Global Alpha Capital Management
Ltd. is 1800 McGill College, Suite 1300, Montreal, Quebec, H3A 3J6, Canada.
Changes in Ownership
Prior to our IPO in March 2012, Kibbutz Sdot-Yam owned
18,715,000, or 70.1% of our ordinary shares. Immediately after the IPO, due to our issuance of ordinary shares, the Kibbutz’s ownership
in our ordinary shares decreased to 56.1%. As a result of two subsequent public offerings of ordinary shares completed in 2013 and 2014,
the Kibbutz sold 6,325,000 of the 17,765,000 ordinary shares it owned, decreasing its ownership percentage to 32.8% immediately after
those offerings. Pursuant to the Shareholders’ Agreement, effective October 13, 2016, the Kibbutz sold to Tene 1,000,000 of its
11,440,000 ordinary shares and granted to Tene the Call Option to purchase 2,000,000 ordinary shares, which expired on September 9, 2023
in accordance with the September Amendment. During 2018, Tene purchased an additional 2,589,494 ordinary shares in the open market. The
parties also agreed to vote at general meetings of our shareholders together, such that they share voting power over 14,029,424 ordinary
shares. As a result, as of February 28, 2025, the Kibbutz and Tene beneficially owned 40.6% of our ordinary shares.
Beneficial ownership by holders of more than 5% of our
ordinary shares is shown in the table above.
100
Registered Holders
Based on a review of the information provided to us
by our transfer agent, as of February 28, 2025, there were three registered holders of our ordinary shares, one of which (Cede Co.,
the nominee of the Depositary Trust Company) is a United States registered holder, holding approximately 59.4% of our outstanding ordinary
shares.
|
B.
|
Related Party Transactions
|
Related Party Transactions Policy
Our audit committee adopted and annually reapproves
a policy, which lays out the procedures for approving transactions with our controlling shareholders, currently Kibbutz Sdot-Yam and Tene,
and certain of our office holders and other related persons. Pursuant to this policy, as required by the Companies Law, for each transaction
with our controlling shareholder or transactions in which our controlling shareholder has a personal interest as well as transactions
with our office holders or transactions in which our office holders have a personal interest, our audit committee is required to determine
whether such transaction is an extraordinary transaction and, with respect to controlling shareholder transactions only, whether it is
a negligible transaction. Subject to our audit committee’s determination, negligible transactions and non-extraordinary transactions
are subject to a competitive procedure comprised of obtaining two third-party quotes for such transaction and additional requirements
as required by the Companies Law. An extraordinary transaction, which is not negligible, is subject, generally, to a tender in addition
to the approvals required by the Companies Law. In addition, this policy determines certain transactions with our controlling shareholder
as negligible and non-extraordinary transactions which are ongoing transactions but are required to be approved retroactively on an annual
basis. Pursuant to this policy, we have, and may in the future, engage in transactions with our controlling shareholder and officeholders
including with respect to services consumed by us for our operational needs as well as contribute donations to associations in which our
controlling shareholder or shareholders has or have a personal interest.
Relationship and agreements with
Kibbutz Sdot-Yam
We have entered into certain agreements with Kibbutz
Sdot-Yam pursuant to which Kibbutz Sdot-Yam provides us with, among other things, a portion of our labor force, electricity, maintenance,
and other services.
Pursuant to certain of these agreements, in consideration
for using facilities licensed to us or for services provided by Kibbutz Sdot-Yam, we paid the Kibbutz an aggregate of $10.2 million in
2024, $10.2 million in 2023, $11.3 million in 2022 (excluding VAT), as set forth in more detail below. We believe that these services
are rendered to us in the ordinary course of our business and that they represent terms no less favorable than those that would have been
obtained from an unaffiliated third party. Nevertheless, a determination with respect to such matters requires subjective judgments regarding
valuations, and regulators and other third parties may question whether our agreements with Kibbutz Sdot-Yam are no less favorable to
us than if they had been negotiated with unaffiliated third parties.
101
Under the Companies Law, we are required to approve
every three years any extraordinary transaction in which a controlling shareholder has a personal interest and that has a term of more
than three years, unless the company’s audit committee, constituted in accordance with the Companies Law, determines, solely with
respect to agreements that do not involve compensation to a controlling shareholder or his or her relatives, in connection with services
rendered by any of them to the company or their employment with the company, that a longer term is reasonable under the circumstances,
or another exemption applies under Israeli law. Our audit committee has determined that the term of all the agreements entered into between
us and Kibbutz Sdot-Yam are reasonable under the relevant circumstances, including our Manpower Agreement entered into between Kibbutz
Sdot-Yam and us on January 1, 2011, as amended on July 30, 2015 and November 27, 2018 and extended on August 31, 2021 (except, as it relates
to office holders which portion terminated in November 2021), and the Services Agreement entered into between Kibbutz Sdot-Yam and us
on July 20, 2011, as amended from time to time, and recently on August 2024, for a three-year term.
Land use agreements
Land leased to Kibbutz Sdot-Yam
by the ILA and the Caesarea Development Corporation
Our headquarters and research and development facilities
are located on the grounds at Kibbutz Sdot-Yam and include 30,744 square meters of facility and 60,870 square meters of un-covered yard.
The headquarters and facilities are located on lands title to which is held by the ILA, and which are leased or subleased to Kibbutz Sdot-Yam
pursuant to the following agreements: (i) a 49-year lease from the ILA signed in July 1978 that commenced in 1962 and expired in 2011
and has been extended pursuant to an option in the agreement for an additional 49 years, and (ii) a new agreement entered into in April
2014 between Kibbutz Sdot-Yam and the Caesarea Development Corporation pursuant to which Kibbutz Sdot-Yam leases the relevant premises
(including such premises which are leased by the Kibbutz to us) from the Caesarea Development Corporation until year 2037. The ILA may
terminate its leases with Kibbutz Sdot-Yam in certain circumstances, including if Kibbutz Sdot-Yam breaches its agreements therewith,
commences proceedings to disband or liquidate or in the event that Kibbutz Sdot-Yam ceases to be a “kibbutz” as defined in
the lease (meaning, a registered cooperative society classified as a kibbutz). The ILA may, from time to time, change its regulations
governing the lease agreements, and these changes could affect the terms of the land use agreement, as amended, including the provisions
governing its termination.
Kibbutz Sdot-Yam currently permits us to use the land
and facilities pursuant to a land use agreement that became effective in March 2012 and expires 20 years thereafter (“
First
Land Use Agreement
”). In June 2023, we entered into an additional land use agreement (“
Second
Land Use Agreement
) for a three-year term, with two extension options that, if fully exercised, will extend the expiration
date to March 2032, aligning it with the First Land Use Agreement. Under the land use agreements, Kibbutz Sdot-Yam agreed to permit us
to use approximately 100,000 square meters of land leased to the Kibbutz, consisting both of facilities and unbuilt areas, in consideration
for an annual fee of NIS12.9 million, adjusted every six months based on any increase of the Israeli consumer price index compared to
the base index as set for each agreement. . The annual fee may be adjusted if the Kibbutz is required to pay significantly
higher lease fees to the ILA or Caesarea Development Corporation. In addition, the annual fee of the First Land Use Agreement may be adjusted
every three years, if Kibbutz Sdot-Yam chooses to obtain an appraisal. The appraiser will be mutually agreed upon or, in the absence of
agreement, will be chosen by Kibbutz Sdot-Yam out of the list of appraisers recommended at that time by Bank Leumi Le-Israel B.M. (“
Bank
Leumi
”). Every addition or deletion of space is accounted for based on the original rates mentioned above.
In addition, in the First Land Use Agreement, we have
waived any claims for payment of NIS 18.0 million ($4.6 million) from Kibbutz Sdot-Yam with respect to prior investments in infrastructure
on Kibbutz Sdot-Yam’s lands used by us under the prior land use agreement.
During 2021, following a request by the Kibbutz, in
accordance with its rights under the land lease agreements for Sdot-Yam and Bar-Lev facilities the terms of the land lease agreement,
a market assessment of an appointed independent appraiser was obtained and following such appraisal process, we are required to pay an
amount of NIS 18.6 million (US$ 6.0 million) and NIS 8.1 million (US$ 2.6 million) annually for each of the Sdot-Yam and the Bar-Lev facilities,
respectively.
102
Under the land use agreement, we are not permitted to
reduce or return any portion of the land covered under the agreements to Kibbutz Sdot-Yam. Kibbutz Sdot-Yam has the right to accept or
reject any such written request at its sole discretion. However, if the Kibbutz refuses or does not respond to the request within a three-month
period, we are allowed to propose an accepted third-party, who will be granted subordinate rights of use. In any case, we will continue
to be liable to Kibbutz Sdot-Yam with respect to such lands. Following the closure of our production facility in Sdot-Yam, the Kibbutz
allowed us to grant certain land use rights to approved third parties. Pursuant to this arrangement, we have entered into agreements with
third parties for the use of a total area of approximately 40,000 square meters, for an aggregate amount of approximately $1.1 million
in 2024.
We have been committed to fund the cost of the construction, up to a maximum of NIS 3.3 million ($0.9 million)
plus VAT, required to change the access road leading to Kibbutz Sdot-Yam and our facilities, such that the entrance to our facilities
will be separated from the entrance into Kibbutz Sdot-Yam. From the said amount, the Kibbutz has already set off an amount of NIS 300,000
for expenses incurred by it.
In connection with this agreement, we reached non-monetary
agreements with Kibbutz Sdot-Yam allowing them access to certain infrastructures located in the leased premises such as electrical, water
and sewage.
While Kibbutz Sdot-Yam is responsible under the agreement
for obtaining various licenses, permits, approvals and authorizations necessary for use of the property, we have waived any monetary recourse
against Kibbutz Sdot-Yam for failure to receive such licenses, permits, approvals and authorizations.
Land purchase
and leaseback agreement
On June 6, 2007, we entered into a long-term lease agreement
with the ILA in the lands and facilities of the Bar-Lev Industrial Center for an initial period of 49 years as of February 6, 2005, with
an option to renew for an additional term of 49 years as of the end of the initial period. On March 31, 2011, we entered into a land purchase
and leaseback agreement with Kibbutz Sdot-Yam, pursuant to which, effective as of September 1, 2012, Kibbutz Sdot-Yam acquired from us
our rights in the lands and facilities of the Bar-Lev Industrial Park in consideration for NIS 43.7 million ($10.9 million). Pursuant
to the land purchase and leaseback agreement, we were required to obtain certain third-party consents from, among others, the Israeli
Tax Authorities and from the Israeli Investment Center. All such consents have been obtained. The land purchase and leaseback agreement
were executed simultaneously with the execution of a land use agreement. Pursuant to the land use agreement, Kibbutz Sdot-Yam permits
us to use the Bar-Lev land for a period of 10 years commencing in September 2012 that will be automatically renewed unless we give two
years prior notice, for an additional 10-year term in consideration for an annual fee of NIS 4.1 million ($1.2 million) to be linked to
the increase of the Israeli consumer price index. In accordance with the terms of the agreement, we elected to extend the term of the
agreement for another 10 years until August 31, 2032.
Following a request by the Kibbutz, in accordance with
its rights under the land lease agreements for Sdot-Yam and Bar-Lev facilities the terms of the land lease agreement, a market assessment
of an appointed independent appraiser was obtained, and amounts paid starting at 2021 are based on such appraisal.
Under the land use agreement, we may not decrease or
return to Kibbutz Sdot-Yam any part of the land underlying the land use agreement; however, subject to several limitations, we may be
able to sublease such lands to a person approved in advance by Kibbutz Sdot-Yam. We may assign our rights under the land use agreement
pursuant to a merger with a third party and to any corporation under our control. In such an event, we will continue to be liable to Kibbutz
Sdot-Yam with respect to such lands. In addition, subject to certain exceptions, if we need additional facilities on the land that we
are permitted to use by Kibbutz Sdot-Yam, subject to obtaining the permits required by law, Kibbutz Sdot-Yam may build such facilities
for us by using the proceeds of a loan that we will make to Kibbutz Sdot-Yam, which loan shall be repaid to us by off-setting the monthly
additional payment that we would pay for such new facilities and, if not fully repaid during the lease term, upon termination thereof.
103
Agreement for
Additional Land on the Grounds Near Our Bar-Lev Manufacturing Facility
In August 2013, we entered into the Agreement for Additional
Land, pursuant to which Kibbutz Sdot-Yam acquired additional land of approximately 12,800 square meters on the grounds near our Bar-Lev
manufacturing facility, which we required in connection with the construction of the fifth production line at our Bar-Lev manufacturing
facility and leased it to us for a monthly fee of approximately NIS 70,000 (approximately $20,000). Under the agreement, Kibbutz Sdot-Yam
committed to (i) acquire the long-term leasing rights of the Additional Bar-Lev Land from the ILA, (ii) perform preparation work and construction,
in conjunction with the administrative body of Bar-Lev industrial park and other contractors according to our plans, (iii) build a warehouse
according to our plans, and (iv) obtain all permits and approvals required for performing the preparation work of the Additional Bar-Lev
Land and for the building of the warehouse. The warehouse in Bar-Lev will be situated both on the current and new land. The financing
of the building of the warehouse is to be made through a loan that will be granted by us to Kibbutz Sdot-Yam, in the amount of the total
cost related to the building of the warehouse, and such loan, including principal and interest, shall be repaid by setoff of the lease
due to Kibbutz Sdot-Yam by us for our use of the warehouse. The principal amount of the loan will bear interest at a rate of 5.3% a year.
On November 30, 2015, the land preparation work had been completed and the holding of the Additional Bar-Lev Land was delivered to us.
To date, the warehouse has not been constructed.
Pursuant to the above-mentioned land use agreements
in Sdot-Yam and Bar-Lev, we paid to Kibbutz Sdot-Yam an aggregate of $8.1 million in 2024, $7.9 million in 2023, and $8.2 million in 2022.
Manpower agreement
In March 2001, we entered into a Manpower Agreement
with Kibbutz Sdot-Yam, which was amended in December 2006. Pursuant to the agreement, Kibbutz Sdot-Yam agreed to provide us with labor
services staffed by Kibbutz members, candidates for Kibbutz membership and Kibbutz residents (each a “
Kibbutz
Appointee
”). This agreement was replaced by a new Manpower Agreement, signed on July 20, 2011, with a term of 10 years from
January 1, 2011 that was automatically renewed on December 31, 2020 and will be further automatically renewed, unless one of the parties
gives six months’ prior notice, for additional one-year periods until December 31, 2030. Our audit committee has determined that
the term of the Manpower Agreement with Kibbutz Sdot-Yam is reasonable under the relevant circumstances except as it relates to office
holders. In November 2021, the portion of the agreement that relates to office holders terminated and was not renewed.
Under the Manpower Agreement and addendums thereto,
Kibbutz Sdot-Yam provides us with labor services staffed by Kibbutz Appointees. The consideration to be paid for each Kibbutz Appointee
is based on our total cost of employment for a non-Kibbutz Appointee employee performing a similar role. The number of Kibbutz Appointees
may change in accordance with our needs. Under the Manpower Agreement, we will notify Kibbutz Sdot-Yam of any roles that require staffing,
and if the Kibbutz offers candidates with skills similar to other candidates, we will give preference to the hiring of the relevant Kibbutz
members. Kibbutz Sdot-Yam is entitled under the Manpower Agreement, at its sole discretion, to discontinue the engagement of any Kibbutz
Appointee of manpower services through his or her employment by Kibbutz Sdot-Yam and require such appointee to become employed directly
by us.
Under the Manpower Agreement, we will contribute monetarily
to assist with the implementation of a professional reserve plan to encourage young Kibbutz members to obtain the necessary education
for future employment with us. We will provide up to NIS 250,000 (approximately $77 thousands) per annum for this plan linked to changes
in the Israeli consumer price index plus VAT. We will also implement a policy that prioritizes the hiring of such young Kibbutz members
as our employees upon their graduation. Pursuant to the Manpower Agreement, we paid to Kibbutz Sdot-Yam an aggregate of $1.3 million in
2024, $1.6 million in 2023, and $1.8 million in 2022. As of December 31, 2024, we engaged 16 Kibbutz Appointees on a permanent basis.
Services agreement
On July 20, 2011, we entered into a services agreement
with Kibbutz Sdot-Yam, as amended on February 13, 2012 (“
Original Services Agreement
”).
Pursuant to the Original Services Agreement, the Kibbutz provided us with various services related to our operational needs. The Original
Services Agreement also outlined the distribution mechanism between us and Kibbutz Sdot-Yam for certain expenses and payments due to local
authorities, such as taxes and fees in connection with our business facilities. The agreement expired on March 21, 2015.
104
On July 30, 2015, following the approval of our audit
committee and the board, our shareholders approved an amended services agreement for a period of three years. On November 27, 2018, following
the approval of our audit committee and the board, our shareholders approved a further amended services agreement for an additional period
of three years, which was extended in 2021 for an additional three-year period.
With the closure of the Sdot-Yam facility and the Kibbutz’s
privatization process, most services under the agreement are no longer needed or provided by the Kibbutz, with some exceptions mainly
in connection with pass-through utilities. In August 2024, we amended the services agreement for a three-year term to reflect these changes.
Given the significant reduction in the scope of services and the nature of the remaining services, on August, 2024 our Audit Committee
and Board approved the transaction in a manner that does not require shareholder’s approval. (“
Amended
Services Agreement
”)
Under the Amended Services Agreement, Kibbutz Sdot-Yam
continues to provide us with various services it provides in the ordinary course of our business. The amount that we pay Kibbutz Sdot-Yam
under the Amended Services Agreement depends on our consumption and is mostly based on statutory rates The Amended Services Agreement
also outlines the distribution mechanism between us and the Kibbutz for certain expenses and payments due to local authorities, such as
certain taxes and fees in connection with our business facilities. Each party may terminate such agreement upon a material breach, following
30 days prior notice, or upon liquidation of the other party, following a 45-days’ prior notice. In connection with such agreements,
we paid the Kibbutz Sdot-Yam an aggregate of $0.7 million in 2024, $0.8 million in 2023, and $1.3 million in 2022.
From time to time, we enter into additional arrangements
in the ordinary course of business, at market prices and on market terms, with Kibbutz Sdot-Yam, which are not material in accordance
with related party transaction procedures adopted by our audit committee and our board of directors.
Management Services Agreement with
Tene
In October 2021, we entered into a management services
agreement with Tene Growth Capital 3 Funds Management Company Ltd., the management company of the general partner of Tene Investment in
Projects 2016, L.P., pursuant to which Tene Investment in Projects 2016, L.P. provides us with certain management services, including:
(i) services provided by the active Chairman of the Board, (ii) one director service, and (iii) regular business development advice, for
an aggregate annual management fee of NIS 870,000 plus VAT, paid in equal quarterly installments
On September 19, 2024, our shareholders approved an
amended agreement, for an additional 3 years, with the following terms:
Under the agreement as approved, Tene Management will
provide us with management services for an aggregate annual management fee of NIS 750,000 plus VAT, paid in equal quarterly installments.
The fees for the services now include (i) services
provided by the active Chairman of the Board (who will devote his time in accordance with our needs, as required from time to time, with
the scope of the position estimated to be approximately 28 hours per month); and (ii) regular business development advice, including financial
and strategic advice made available by Tene Management through its employees, officers and directors and/or consultants (the “
Management
Services
”).
During the term of the Management Services Agreement,
either party has the right to terminate the Management Services detailed in section (ii) of the definition of the Management Services
above at any time and for any reason or for no reason upon thirty (30) days prior written notice to the other party and following such
termination the annual management fee shall be reduced to NIS 630,000 plus VAT.
We agreed to reimburse Tene Management for all expenses
reasonably required in the performance of the Management Services under the agreement pursuant to the terms and conditions of our policies,
as may be amended from time to time.
105
The Management Services pursuant to the agreement will
be provided by Dr. Ariel Halperin and/or officeholders of Tene Management, and if necessary, by employees and/or consultants of Tene Management,
depending on our needs.
The term of the Management Services Agreement is for
three (3) years commencing the date the agreement was approved by our shareholders on September 19, 2024. Either party has the right to
cancel the Management Services Agreement at any time for any reason or for no reason upon thirty (30) days written notice to the other
party or effective immediately if Tene Managements’ representatives are no longer serving as our directors.
At the end of the term of the agreement the parties
may decide to extend it, subject to the receipt of approvals required under applicable Israeli laws.
Agreements with directors and officers
Employment agreements
See “ITEM 6.B: Directors, Senior Management and
Employees—Compensation—Employment and consulting agreements with executive officers”.
Indemnification
agreements
See “ITEM 6.C: Directors, Senior Management and
Employees—Board Practices—Exculpation, insurance and indemnification of office holders.”
|
C.
|
Interests of Experts and Counsel
|
Not applicable.
ITEM 8
:
Financial Information
|
A.
|
Consolidated Financial Statements and Other Financial Information
|
Consolidated Financial Statements
For our audited consolidated financial statements for the year
ended December 31, 2023, please see pages F-7 to F-11 of this report.
Legal Proceedings
Claims related
to alleged occupational illnesses
Overview
Since 2008, we have been named, either directly or as
a third-party defendant, in numerous lawsuits alleging damages caused by exposure to respirable crystalline silica, or RCS, related to
our products. These lawsuits have been filed primarily by individuals (including fabricators and their employees), their successors, dependents
and employers, as well as in subrogation claims by workers compensation or insurance bodies, such as the Israeli National Insurance Institute
(the “
NII
”) and Australian’s state workover bodies.
Inhalation of dust containing respirable particles may
occur during fabrication of slabs, if proper health and safety measures are not implemented. Exposure to RCS may in turn lead to major
health issues, such as silicosis, a potentially fatal progressive occupational lung disease characterized by scarring of the lungs and
damage to the breathing function.
106
As of December 31, 2024, we were subject to lawsuits with respect to 296 injured persons globally (of which
52 were in Israel, 122 in Australia and 122 in the United States)
Israeli Claims
With respect to claims filed in Israel, a judgment was
entered by the District Court during 2013, pursuant to which we were found to be proportionately liable for 33% of the plaintiff’s
total damages. The remaining liability was imposed 40% on the plaintiff based on the plaintiff’s contributory negligence and 27%
on the State of Israel. Following an appeal to the Israeli Supreme Court, the parties entered into a settlement agreement and the District
Court’s ruling was cancelled, although it remains a non-binding guideline. During December 2023, a judgment was rendered by an Israeli
District Court, completely dismissing the claims for damages as it was demonstrated that the injured person failed to take the necessary
measures to comply with safety guidelines despite being properly warned over the years.
In November 2015 and in May 2017, we entered into agreements
with the State of Israel and with our principal distributors in Israel, respectively, with the consent of our insurance carriers, under
which we agreed to cooperate with the State and each of our principal distributors, subject to certain terms, with respect to the joint
defense of individual claims filed by injured persons during a certain time period (NII claims are excluded from our agreement with the
State) and on the apportionment among us, the State, and the distributors, of any liability that arises from such claims. The agreement
has been extended through March 31, 2029. As of December 31, 2024, the agreement was in effect with respect only to three distributors. We
have recognized a provision in an amount that reflects our portion of claims that we assess to be probable and estimable.
Australian Claims
With respect to claims filed in Australia, while there
is still no precedent in Australia as to the liability of manufacturers and suppliers in silicosis claims, our insurance carriers acting
within their rights under our insurance policies have elected to negotiate and/or agree to settlements in connection with most Australian
claims. This practice has led us to recognize these claims as probable and include a provision with respect to estimable losses.
United States
With respect to claims filed in the United States, in August
2024, a jury rendered a verdict in one such case brought in the Los Angeles County Court. The jury found all defendants liable and awarded
the plaintiffs $52.4 million in damages. Caesarstone USA was apportioned $13.0 million of this amount. The Company strongly disagrees
with the jury’s verdict which the Company believes is not supported by the facts of the case, including its failure to acknowledge
the proactive measures the Company had taken over the years to warn and educate about safe fabrication practices. The Company is currently
appealing the verdict. The Company does not expect the outcome of this claim to have a material adverse effect on its financial position
due to the amount involved and its insurance coverage. During February we also agreed to settle additional claim. We estimated the loss
for the remaining 120 claims in the U.S. as only reasonably possible (18 claims) with a range of possible loss between $0.5 to $13 million
per claim or at an early stage (102 claims) in which the amount of the possible loss cannot be reasonably estimated at this
time given the preliminary stages, complexity of the claims and the uncertainty around our liability and the insurance coverage.
We are in an early stage of litigation and, as a result,
the Company is unable to estimate the probability of the actual exposure. The Company intends to vigorously defend the claims. See
also “ITEM 3.D. Key Information—Risk Factors— Results of bodily injury claims may have a material adverse effect on
our business, operating results, and financial condition”. An adverse outcome in one or more of these claims may, individually
or in the aggregate, have a material adverse effect on the Company financial position. If we are unsuccessful in defending any claim,
a precedent may be set against the Company, which may also adversely affect our position in other claims.
Our Probable Risks Related to Outstanding
Claims
As of December 31, 2024, pursuant to U.S. GAAP, we have
taken a provision of $50.0 million representing our assessment of exposure that is probable and estimable with respect to pending claims
in Israel, USA and Australia. The actual outcome of such claims may vary significantly from such estimates due to the major variance
in litigation awards.
107
Insurance
Silica cover was excluded from the policies we had in
Israel and in Australia in previous years. In the U.S. we have limited silica cover that will expire on March 31, 2025. We still have
regional product liability insurance policies in other jurisdictions.
As of December 31, 2024, and 2023, pursuant to U.S.
GAAP, the insurance receivable totaled to $32,178 and $8,361, respectively, reported in the other accounts receivable and prepaid expenses
Our employer liability insurance excludes silicosis
damages and, therefore, in case that we are found liable for any of our employees’ illness with silicosis, we will have to bear
compensation for such damages, after the deduction of payments made by the NII to an employee of ours, which might have an adverse effect
on our business and results of operations. However, in number of cases, our carrier agreed to contribute (without admission of any obligation)
towards settlements despite the silicosis exclusions.
General
From time to time, we are involved in other legal proceedings
and claims in the ordinary course of business related to a range of matters, including environmental, contract, employment claims, product
liability and warranty claims, and claims related to modification and adjustment, or replacement of product surfaces sold. While the outcome
of these other claims cannot be predicted with certainty, we do not believe that any such claims will have a materially adverse effect
on us, either individually or in the aggregate. See Note 11 of the notes to the financial statements included elsewhere in this annual
report.
Dividends
In February 2020, we revised our dividend policy to
provide for a quarterly cash dividend of up to 50% of reported net income attributable to controlling interest on a year-to-date basis,
less any amount already paid as dividend for the respective period (the “
Calculated Dividend
”),
subject in each case to approval by the Company’s board of directors. If the Calculated Dividend is less than $0.10 per share, no
dividend shall be paid. In the fourth quarter of 2020, we distributed a cash dividend in the amount of $0.14 per share, in the second
quarter of 2021, we distributed a cash dividend in the amount of $0.21 per share, in the fourth quarter of 2021, we distributed a cash
dividend in the amount of $0.10 per share and in the third quarter of 2022, we distributed a cash dividend in the amount of $0.25 per
share.. Until 2021 each dividend distribution was subject to withholding tax of 20%, in 2022, the dividend distribution was subject to
withholding tax of 20.5%. During 2024 and 2023 we did not distribute dividends
We cannot provide assurances regarding whether we will
be able to issue a dividend in the future in accordance with our dividend policy and may decide not to pay dividends in the future. The
related withholding tax rate can vary in accordance with the local laws and jurisdictions at the time of the dividend payment.
Under Israeli law, we may declare and pay dividends
only if, upon the determination of our board of directors, there is no reasonable concern that the distribution will prevent us from meeting
the terms of our existing and foreseeable obligations as they become due. The distribution of dividends is further limited by Israeli
law to the greater of retained earnings and earnings generated over the two most recent years. In the event that we do not have retained
earnings or earnings generated over the two most recent years legally available for distribution, we may seek the approval of the court
to distribute a dividend. The court may approve our request if it is convinced that there is no reasonable concern that a payment of a
dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.
To the extent we declare a dividend, we do not intend
to distribute dividends from earnings related to our Approved/Beneficiary Enterprise programs. The taxable income exemption provided under
the Approved/Beneficiary Enterprise program is valid exclusively for undistributed earnings, and as a result, a distribution of earnings
related to our Approved/Beneficiary Enterprise programs would subject us to additional tax payments upon a distribution of these earnings
as dividends.
108
The payment of dividends may be subject to Israeli withholding
taxes. See “ITEM 10.E: Additional Information—Taxation—Israeli tax considerations and government programs—Taxation
of our shareholders—Dividends”.
|
B.
|
Significant Changes
|
Since the date of our audited financial statements included
elsewhere in this annual report, there have not been any significant changes in our financial position.
ITEM 9
:
The Offer and Listing
Not applicable, except for Items 9.A.4 and 9.C, which are detailed below.
|
A.
|
Offer and Listing Details
|
Our ordinary shares have been trading on the Nasdaq Global Select Market under the symbol “CSTE”
since March 2012.
|
B.
|
Plan of Distribution
|
Not applicable.
|
C.
|
Markets
|
See “—Offer and Listing Details” above.
|
D.
|
Selling Shareholders
|
Not applicable.
|
E.
|
Dilution
|
Not applicable.
|
F.
|
Expenses of the Issue
|
Not applicable.
ITEM 10
:
Additional Information
|
A.
|
Share Capital
|
Not applicable.
|
B.
|
Memorandum of Association and Articles of Association
|
Our authorized share capital consists of 200,000,000
ordinary shares, par value NIS 0.04 per share, of which 35,658,923 are issued and 34,555,827 are outstanding as of February 28, 2025.
A copy of our amended and restated articles of association
is attached as Exhibit 1.1.
The information called for by this item is set forth
in Exhibit 2.1 to this annual report on Form 20-F and is incorporated herein by reference.
109
Listing
Our ordinary shares are listed on the Nasdaq Global
Select Market under the symbol “CSTE.”
|
C.
|
Material Contracts
|
Summaries of the following material contracts and amendments
to these contracts are included in this annual report in the places indicated:
|
Material Contract
|
Location in This Annual Report
|
|
Agreements with Kibbutz Sdot-Yam
|
“ITEM 7: Major Shareholders and Related Party Transactions—Related Party
Transactions—Relationship and agreements with Kibbutz Sdot-Yam.”
|
|
Management Services Agreement with Tene
|
“ITEM 7: Major Shareholders and Related Party Transactions—Related Party
Transactions—Management Services Agreement with Tene.”
|
|
Form of Indemnification Agreement
|
“ITEM 6: Directors, Senior Management and Employees—Board Practices—Exculpation,
insurance and indemnification of officer holders.”
|
|
D.
|
Exchange Controls
|
In 1998, Israeli currency control regulations were liberalized
significantly, so that Israeli residents generally may freely deal in foreign currency and foreign assets, and non-residents may freely
deal in Israeli currency and Israeli assets. There are currently no Israeli currency control restrictions on remittances of dividends
on the ordinary shares or the proceeds from the sale of the shares provided that all taxes were paid or withheld; however, legislation
remains in effect pursuant to which currency controls can be imposed by administrative action at any time.
Non-residents of Israel may freely hold and trade our
securities. Neither our memorandum of association nor our articles of association nor the laws of the State of Israel restrict in any
way the ownership or voting of ordinary shares by non-residents, except that such restrictions may exist with respect to citizens of countries
which are in a state of war with Israel. Israeli residents are allowed to purchase our ordinary shares.
|
E.
|
Taxation
|
The following description is not intended to constitute
a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our ordinary shares. You should
consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise
under the laws of any state, local, foreign or other taxing jurisdiction.
Israeli tax considerations and government
programs
The following is a brief summary of the material Israeli
tax laws applicable to us, and certain Israeli Government programs benefiting us. This section also contains a discussion of material
Israeli tax consequences concerning the ownership of and disposition of our ordinary shares. 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, such as traders in securities, who are subject to special treatment under Israeli law. Because some parts of this discussion
are based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that
the Israeli governmental and tax authorities or the Israeli courts will accept the views expressed below. The discussion below is subject
to amendment under Israeli law or changes to the applicable judicial or administrative interpretations of Israeli law, which could affect
the tax consequences described below. See also note 12 to our financial statements included elsewhere in this report.
The discussion below does not cover
all possible tax considerations. Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences
of the purchase, ownership and disposition of our ordinary shares, including, the effect of any foreign, state or local taxes.
110
General corporate
tax structure in Israel
Israeli resident companies are generally subject to
corporate tax, which rate has been fluctuating during the last few years. The corporate tax rate is 23% as of 2018 and thereafter. However,
the effective corporate tax rate payable by a company that derives income from a Preferred Enterprise, a Special Preferred Enterprise,
a Preferred Technology Enterprise or Special Preferred Technology Enterprise (as discussed below) may be considerably less.
Capital gains generated by an Israeli resident company
are subject to tax at the prevailing corporate tax rate. Under Israeli tax legislation, a corporation will be considered as an “Israeli
resident company” if (i) it was incorporated in Israel or (ii) the control and management of its business are exercised in Israel.
Foreign Exchange
Regulations:
Commencing in taxable year 2014, we had elected and
were permitted by the ITA to measure our taxable income and file our tax return under the Israeli Income Foreign Exchange Regulations.
Under the Foreign Exchange Regulations, an Israeli company may calculate its tax liability in U.S. dollars according to certain orders.
The tax liability, as calculated in U.S. dollars, is translated into NIS based on the exchange rate as of December 31 of each year.
Law for the Encouragement
of Industry (Taxes), 5729-1969
The Law for the Encouragement of Industry (Taxes), 5729-1969,
generally referred to as the “Encouragement of Industry Law”, provides several tax benefits for “Industrial Companies”.
Pursuant to the Encouragement of Industry Law, a company qualifies as an Industrial Company if it is a resident of Israel which was incorporated
in Israel and at least 90% of its gross income in any tax year (exclusive of income from certain government loans) is generated from an
“Industrial Enterprise” that it owns and located in Israel or in the “Area”, in accordance with the definition
under Section 3A of the Israeli Income Tax Ordinance. An Industrial Enterprise is defined as an enterprise which is held by an Industrial
Company
whose principal activity, in a given tax year,
is industrial manufacturing.
An Industrial Company is entitled to certain tax benefits,
including: (i) an amortization of the cost of a purchased patent, the right to use a patent or know-how that were purchased in good faith
and are used for the development or promotion of the Industrial Enterprise over an eight-year period, beginning from the year in which
such rights were first used, (ii) the right to elect to file consolidated tax returns, under certain conditions, with additional Israeli
Industrial Companies controlled by it, and (iii) the right to deduct expenses related to public offerings in equal amounts over a period
of three years beginning from the year of the offering.
Eligibility for benefits under the Encouragement of
Industry Law is not contingent upon the approval of any governmental authority.
There is no assurance that we qualify or will continue
to qualify as an Industrial Company or that the benefits described above will be available in the future.
Law for the Encouragement
of Capital Investments, 1959
The Investment Law provides certain incentives for capital
investment in a production facility (or other eligible assets). Generally, an investment program that is implemented in accordance with
the provisions of the Investment Law, is entitled to benefits. These benefits may include cash grants from the Israeli government and
tax benefits, based upon, among other things, the geographic location in Israel of the facility in which the investment is made. In order
to qualify for these incentives, a Preferred Enterprise, a Special Preferred Enterprise, a Preferred Technology Enterprise and a Special
Preferred Technology Enterprise is required to comply with the requirements of the Investment Law.
The Investment Law has been amended several times over
the recent years, with the three most significant changes effective as of April 1, 2005, as of January 1, 2011 (the “
2011
Amendment
”) and as of January 1, 2017 (the “
2017 Amendment
”).The 2011
Amendment introduced new benefits instead of the benefits granted in accordance with the provisions of the Investment Law prior to the
2011 Amendment. However, companies entitled to benefits under the Investment Law as in effect up to January 1, 2011 were entitled
to choose to continue to enjoy such benefits, provided that certain conditions are met, or elect instead, irrevocably, to forego such
benefits and elect the benefits of the 2011 Amendment. The 2017 Amendment introduces new benefits for Technological Enterprises, alongside
the existing tax benefits.
111
The following discussion is a summary of the Investment
Law following its most recent amendments:
The Preferred Enterprise Regime—the
2011 Amendment
Eligible companies under the 2011 Amendment can receive
benefits as a “Preferred Enterprise.” In order to receive benefits as a Preferred Enterprise, the 2011 Amendment states, among
other requirements, that a company must meet certain conditions including owning an industrial enterprise that meets the “Competitive
Enterprise” conditions as described by the Investment Law. The benefits granted to a Preferred Enterprise are determined depending
on the location of the Preferred Enterprise within Israel.
Qualified enterprises located in specific locations
within Israel are eligible for grants and/or loans simultaneously with tax benefits. Grants and/or loans are approved by the Investment
Center.
Pursuant to the 2017 Amendment, in 2017 and thereafter,
the corporate tax rate for Preferred Enterprise which is located in a specified development zone was decreased to 7.5%, while the reduced
corporate tax rate for other development zones remains 16%. Income derived by a Preferred Company from a ‘Special Preferred Enterprise’
(as such term is defined in the Investment Law) would be entitled, during a benefits period of 10 years, to further reduced tax rates
of 8%, or to 5% if the Special Preferred Enterprise is located in a certain development zone. As of January 1, 2017, the definition for
‘Special Preferred Enterprise’ includes less stringent conditions.
A company that pays a dividend to Israeli shareholders
out of income generated from the Preferred Enterprise is required to withhold tax on such distribution at a rate of 20% (in the case of
non-Israeli shareholders – subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate,
20% or a reduced rate under an applicable double tax treaty). However, if such dividends are paid to an Israeli company, no tax is required
to be withheld (although, if such dividends are subsequently distributed to individuals or a non-Israeli company, withholding tax at a
rate of 20% or such lower rate as may be provided in an applicable tax treaty, will apply).
Under the 2011 Amendment and from January 1, 2011, our
facilities have “Preferred Enterprise” status, which entitles us to tax benefits at a flat reduced corporate tax rate that
will apply to the industrial enterprise’s entire preferred income. From 2017 onwards, tax rate for the income portion related to
Bar-Lev is reduced to 7.5% and Sdot-Yam tax rate remains unchanged. During 2023, and part of the company’s restructuring plan, the
company closed Sdot-Yam manufacturing facility, ending future portion related to Sdot-Yam facility and reduced corporate tax rate applied
to this income.
There can be no assurance that we will comply with the
conditions required to remain eligible for benefits under the Investment Law in the future or that we will be entitled to any additional
benefits thereunder. The benefits available to Preferred Enterprises are conditioned upon terms stipulated in the Investment Law and regulations.
If we do not fulfill these conditions in whole or in part, the benefits can be reduced or canceled and we may be required to refund the
amount of the benefits, linked to the Israeli consumer price index, with interest or other monetary penalties.
The New Technological
Enterprise Incentives Regime—the 2017 Amendment
The 2017 Amendment provides new tax benefits for two
types of “Technology Enterprises”, as described below, and is in addition to the other existing tax beneficial programs under
the Investment Law.
The new incentives regime will apply to “Preferred
Technology Enterprises” that meet certain conditions, including: (1) the RD expenses in the three years preceding the tax year
were at least 7% on average of one year out of the company’s turnover or exceeded NIS 75 million (approximately $20.6 million) for
a year; and (2) one of the following: (a) at least 20% of the workforce (or at least 200 employees) are employees whose full salary has
been paid and reported in the company’s financial statements as RD; (b) a venture capital investment approximately equivalent
to at least NIS 8 million (approximately $2.2 million) was previously made in the company and the company did not change its line of business;
(c) growth in sales by an average of 25% or more over the three years preceding the tax year, provided that the turnover was at least
NIS 10 million (approximately $2.7 million), in the tax year and in each of the preceding three years; or (d) growth in workforce by an
average of 25% or more over the three years preceding the tax year, provided that the company employed at least 50 employees, in the tax
year and in each of the preceding three years.
112
A “Special Preferred Technology Enterprise”
is an enterprise that meets conditions 1 and 2 above, and in addition has total annual consolidated revenues above NIS 10 billion (approximately
$2.7 billion).
Preferred Technology Enterprises will be subject to
a reduced corporate tax rate of 12% on their income that qualifies as “Preferred Technology Income”, as defined in the Investment
Law. The tax rate is further reduced to 7.5% for a Preferred Technology Enterprise located in development zone A. These corporate tax
rates shall apply only with respect to the portion of intellectual property developed in Israel. In addition, a Preferred Technology Company
will enjoy a reduced corporate tax rate of 12% on capital gain derived from the sale of certain “Benefitted Intangible Assets”
(as defined in the Investment Law) to a related foreign company if the Benefitted Intangible Assets were acquired from a foreign company
on or after January 1, 2017 for at least NIS 200 million (approximately $54.8 million), and the sale receives prior approval from the
Israel Innovation Authority (previously known as the Israeli Office of the Chief Scientist) (“
IIA
”).
Special Preferred Technology Enterprises will be subject to 6% on “Preferred Technology Income” regardless of the company’s
geographic location within Israel. In addition, a Special Preferred Technology Enterprise will enjoy a reduced corporate tax rate of 6%
on capital gain derived from the sale of certain “Benefitted Intangible Assets” to a related foreign company if the Benefitted
Intangible Assets were either developed by the Special Preferred Enterprise or acquired from a foreign company on or after January 1,
2017, and the sale received prior approval from IIA. A Special Preferred Technology Enterprise that acquires Benefitted Intangible Assets
from a foreign company for more than NIS 500 million (approximately $137.1 million), will be eligible for these benefits for at least
ten years, subject to certain approvals as specified in the Investment Law.
Dividends distributed to Israeli shareholders by a Preferred
Technology Enterprise or a Special Preferred Technology Enterprise, paid out of Preferred Technology Income, are generally subject to
withholding tax at source at the rate of 20% (in the case of non-Israeli shareholders – subject to the receipt in advance of a valid
certificate from the ITA allowing for a reduced tax rate, 20% or such lower rate as may be provided in an applicable tax treaty). However,
if such dividends are paid to an Israeli company, no tax is required to be withheld (although, if such dividends are subsequently distributed
to individuals or a non-Israeli company, withholding tax at a rate of 20% or such lower rate as may be provided in an applicable tax treaty,
will apply). If such dividends are distributed to a parent foreign company holding, solely or together with other foreign companies, at
least 90% of the shares of the distributing company and other conditions are met, the withholding tax rate will be 4% (or a lower rate
under a tax treaty, if applicable, subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate).
Currently, we do not meet the above conditions to be eligible for the tax benefits pursuant to the New Technology Enterprise Incentives
Regime—the 2017 Amendment.
The Encouragement
of Industrial Research and Development Law, 5744-1984
IIA’s grants may limit our ability to manufacture
products, or transfer technologies developed using these grants outside of Israel. If we were to seek approval to manufacture products,
to consummate a merger or acquisition transaction with a non-Israeli party or to transfer technologies developed using these grants outside
of Israel, we could be subject to additional royalty requirements or be required to pay certain redemption fees. If we were to violate
these restrictions, we could be required to refund any grants previously received, together with interest and penalties, and may be subject
to criminal charges.
113
Taxation of our
shareholders
Capital gains
Capital gains tax is imposed on the disposal of capital
assets by an Israeli resident and on the disposal of such assets by a non-Israeli resident if those assets are either (i) located in Israel;
(ii) shares or rights to shares in an Israeli resident company, or (iii) represent, directly or indirectly, rights to assets located in
Israel unless a tax treaty between Israel and the seller’s country of residence provides otherwise. The Israeli Income Tax Ordinance
distinguishes between “Real Capital Gain” and “Inflationary Surplus.” The Real Capital Gain on the disposition
of a capital asset is the amount of total capital gain in excess of Inflationary Surplus. Inflationary Surplus is computed, generally,
on the basis of the increase in the Israeli Consumer Price Index or, in certain circumstances, according to the change in the foreign
currency exchange rate, between the date of purchase and the date of disposal of the capital asset.
Real Capital Gain generated by a company is generally
subject to tax at the corporate tax rate (23% in 2024) As of January 1, 2012, the Real Capital Gain accrued by individuals on the sale
of our securities is taxed at the rate of 25%. However, if the individual shareholder is a “Controlling Shareholder” (meaning,
a person who holds, directly or indirectly, alone or together with another person who collaborates with such person on a permanent basis,
10% or more of one of the Israeli resident company’s “means of control” (including, among other rights, the right to
company profits, voting rights, the right to the company’s liquidation proceeds and the right to appoint a company director) at
the time of sale or at any time during the preceding 12 month period, such gain will be taxed at the rate of 30%.
Individual and corporate shareholders dealing in securities
in Israel are taxed at the tax rates applicable to business income – 23% for corporations in 2024 and a marginal tax rate of up
to 47% +3% surtax, for an individual in 2024 unless the benefiting provisions of an applicable treaty applies.
Notwithstanding the foregoing, capital gains generated
from the sale of securities publicly traded on the Tel Aviv Stock Exchange or on a recognized stock exchange outside of Israel, by a non-Israeli
shareholder (individual and corporation) may be exempt under the Israeli Income Tax Ordinance from Israeli taxes provided that all the
following conditions are met: (i) the securities were purchased upon or after the registration of the securities on a recognized stock
exchange (this requirement generally does not apply to shares purchased on or after January 1, 2009), (ii) the seller of the securities
does not have a permanent establishment in Israel to which the generated capital gain is attributed and (iii) with respect to securities
listed on a recognized stock exchange outside of Israel, such shareholders are not subject to the Israeli Income Tax Law (Inflationary
Adjustments) 5745-1985. However, non-Israeli corporation will not be entitled to the foregoing exemptions if Israeli residents (a) have
a controlling interest of more than 25% in such non-Israeli corporation, or (b) are the beneficiaries of or are entitled to 25% or more
of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
In addition, the sale of the securities may be exempt
from Israeli capital gain tax under the provisions of an applicable tax treaty. For example, the Convention between the Government of
the United States of America and the Government of Israel with respect to Taxes on Income (“
Israel-U.S.A.
Double Tax Treaty
”) exempts U.S. residents (for purposes of the Israel-U.S.A. Double Tax Treaty) from Israeli capital gains
tax in connection with such sale, exchange or disposition provided, among others, that (i) the U.S. resident owned, directly or indirectly,
less than 10% of the Israeli resident company’s voting power at any time within the 12-month period preceding such sale; (ii) the
seller, if an individual, has been present in Israel for less than 183 days (in the aggregate) during the taxable year; (iii) the capital
gain from the sale was not generated through a permanent establishment of the U.S. resident which is maintained in Israel; the capital
gain arising from such sale, exchange or disposition is not attributed to real estate located in Israel; (v) the capital gains arising
from such sale, exchange or disposition is not attributed to royalties; and (vi) the shareholder is a U.S. resident (for purposes of the
Israel-U.S.A. Double Tax Treaty) is holding the shares as a capital asset.
The purchaser of the securities, the stockbrokers who
effected the transaction or the financial institution holding the traded securities through which payment to the seller is made are obligated
to withhold Israeli tax at source from such payment. Shareholders may be required to demonstrate that they are exempt from tax on their
capital gains in order to avoid withholding at source at the time of sale. Specifically, in transactions involving a sale of all of the
shares of an Israeli resident company, in the form of a merger or otherwise, the ITA may require from shareholders who are not liable
for Israeli tax to sign declarations in forms specified by this authority or obtain a specific exemption from the ITA to confirm their
status as non-Israeli resident, and in the absence of such declarations or exemptions, may require the purchaser of the shares to withhold
taxes at source.
114
A detailed return, including a computation of the tax
due, must be filed and an advance payment must be paid on January 31 and July 30 of each tax year for sales of securities traded on a
stock exchange made within the previous six months. However, if all tax due was withheld at the source according to applicable provisions
of the Israeli Income Tax Ordinance and the regulations promulgated thereunder, the return does not need to be filed provided that (i) such
income was not generated from business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of income
in Israel with respect to which a tax return is required to be filed and an advance payment does not need to be made, and (iii) the taxpayer
is not obligated to pay excess tax (as further explained below). Capital gains are also reportable on an annual income tax return.
Dividends
Israeli residents who are individuals are generally
subject to Israeli income tax for dividends paid on shares (other than bonus shares or share dividends) at the rate of 25%, or 30% if
the recipient of such dividend is a Controlling Shareholder at the time of distribution or at any time during the preceding 12-month period.
However, dividends distributed from taxable income accrued from Preferred Enterprise or Preferred Technology Enterprise to Israeli individuals
are subject to withholding tax at the rate of 20%. However, if such dividends are distributed to an Israeli company, no withholding tax
is imposed (although, if such dividends are subsequently distributed to individuals or a non-Israeli company, withholding tax at a rate
of 20% or such lower rate as may be provided in an applicable tax treaty, subject to the receipt in advance of a valid certificate from
the ITA allowing for a reduced tax rate, will apply). An average rate will be set in case the dividend is distributed from mixed types
of income (regular and preferred income).
Israeli resident corporations are generally exempt from
Israeli corporate tax for dividends paid on shares of Israeli resident corporations.
Non-Israeli resident (either an individual or a corporation)
is generally subject to an Israeli income tax on the receipt of dividends at the rate of 25% or 30% (if the dividend recipient is a Controlling
Shareholder at the time of distribution or at any time during the preceding 12-month period) or 20% or such lower rate as may be provided
in an applicable tax treaty, subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate, if
the dividend is distributed from income attributed to Preferred Enterprise or Preferred Technology Enterprise. Such dividends are generally
subject to Israeli withholding tax at a rate of 25% so long as the shares are registered with a Nominee Company (whether the recipient
is a Controlling Shareholder or not), and 20% if the dividend is distributed from income attributed to a Preferred Enterprise or Preferred
Technology Enterprise. Under the Israel-U.S.A. Double Tax Treaty the following rate will apply to dividends distributed by an Israeli
resident company to a U.S. resident (for purposes of the Israel-U.S.A. Double Tax Treaty): if (A) the U.S. resident is a corporation which
held during the portion of the taxable year preceding the date of payment of the dividend and during the whole of its prior taxable year
(if any), at least 10% of the outstanding shares of the voting stock of the Israeli resident paying company and (B) not more than 25%
of the gross income of the Israeli resident paying company for such prior taxable year (if any) consists of certain type of interest or
dividends then the maximum tax rate is 12.5% on dividends. The aforementioned rates will not apply if the dividend income was generated
through a permanent establishment of the U.S. resident which is maintained in Israel. If the dividend is attributable partly to income
derived from a Preferred Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the
relative portions of the two types of income.
Our company is obligated to withhold tax, upon the distribution
of a dividend attributed to a Preferred Enterprise’s income from the amount distributed at the following rates: (i) Israeli resident
corporations – 0%, (ii) Israeli resident individuals –20% and (iii) non-Israeli residents – 25% or 30%, and subject
to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate – 20% or a reduced tax rate provided
under the provisions of an applicable double tax treaty. If the dividend is distributed from income not attributed to the Preferred Enterprise,
the following withholding tax rates will apply: (a) for securities registered and held by a Nominee Company: (i) Israeli resident corporations
– 0%, (ii) Israeli resident individuals – 25% and (iii) non-Israeli residents – 25%, unless a reduced tax rate is provided
under the provisions of an applicable double tax treaty (subject to the receipt in advance of a valid certificate from the ITA allowing
for a reduced tax rate); (b) in all other cases: (i) Israeli resident corporations – 0%, (ii) Israeli resident individuals –
25% or 30% (if the dividend recipient is a Controlling Shareholder at the time of the distribution or at any time during the preceding
12 month period), and (iii) non-Israeli residents – 25% or 30% as referred to above with respect to Israeli resident individuals,
unless a reduced tax rate is provided under the provisions of an applicable double tax treaty (subject to the receipt in advance of a
valid certificate from the ITA allowing for a reduced tax rate).A non-Israeli resident who receives dividends from which tax was withheld
is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i) such income
was not generated from business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of income in
Israel with respect to which a tax return is required to be filed, and (iii) the taxpayer is not obligated to pay excess tax (as further
explained below).
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Estate and gift tax
Israeli law presently does not impose estate or gift
taxes.
Excess Tax
Individual holders who are subject to tax in Israel
(whether any such individual is an Israeli resident or non-Israeli resident) and who have taxable income that exceeds a certain threshold
in a tax year (NIS 721,560 for 02024), which amount is generally linked to the annual changes to the Israeli Consumer Price Index
(with the exception that based on Israeli new legislation such amount, and certain other statutory amounts will not be linked to the Israeli
consumer price index for the years 2025-2027)), will be subject to an additional tax at the rate of 3% on his or her taxable income for
such tax year that is in excess of such amount. For this purpose, taxable income includes, but is not limited to, taxable capital gains
from the sale of securities and taxable income from interest and dividends. According to new legislation, in effect as of January 1, 2025,
an
additional
2% excess tax
is imposed on Capital-Sourced Income (defined as income from any source other than employment income, business income or income from “personal
effort”), to the extent that the Individual’s Capital Sourced Income exceeds the specified threshold of NIS 721,560 (and regardless
of the employment/business income amount of such individual). This new excess tax applies, among other things, to income from capital
gains, dividends, interest, rental income, or the sale of real property.
United States federal income taxation
The following is a description of the material United
States federal income tax consequences to a U.S. Holder (as defined below) of the acquisition, ownership and disposition of our ordinary
shares. This description addresses only the United States federal income tax consequences to holders that hold such ordinary shares as
capital assets for United States federal income tax purposes. This description does not address tax considerations applicable to holders
that may be subject to special tax rules, including, without limitation:
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banks, financial institutions or insurance companies;
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real estate investment trusts, regulated investment companies or grantor trusts;
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dealers or traders in securities, commodities or currencies;
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tax-exempt entities;
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certain former citizens or long-term residents of the United States;
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persons that received our shares as compensation for the performance of services;
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persons that will hold our shares as part of a “hedging,” “integrated”
or “conversion” transaction or as a position in a “straddle” for United States federal income tax purposes;
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partnerships (including entities classified as partnerships for United States federal
income tax purposes) or other pass-through entities, or holders that will hold our shares through such an entity;
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S-corporations;
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holders that acquire ordinary shares as a result of holding or owning our preferred
shares;
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U.S. Holders (as defined below) whose “functional currency” is not the
U.S. Dollar;
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persons subject to special tax accounting rules as a result of any item of gross income
with respect to our ordinary shares being taken into account in an applicable financial statement; or
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holders that own directly, indirectly or through attribution 10% or more of the voting
power or value of our shares.
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Moreover, this description does not address the United
States federal estate, gift or alternative minimum tax consequences, or any state, local or foreign tax consequences, of the acquisition,
ownership and disposition of our ordinary shares.
This description is based on the United States Internal
Revenue Code of 1986, as amended (the “
Code
”), existing, proposed and temporary United
States Treasury Regulations and judicial and administrative interpretations thereof, in each case as in effect and available on the date
hereof. All the foregoing is subject to change, which change could apply retroactively and could affect the tax consequences described
below. There can be no assurances that the U.S. Internal Revenue Service will not take a different position concerning the tax consequences
of the acquisition, ownership and disposition of our ordinary shares or that such a position could not be sustained.
For purposes of this description, a “U.S. Holder”
is a beneficial owner of our ordinary shares that, for United States federal income tax purposes, is:
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an individual holder that is a citizen or resident of the United States;
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a corporation (or other entity treated as a corporation for United States federal
income tax purposes) created or organized in or under the laws of the United States or any state thereof, including the District of Columbia;
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an estate the income of which is subject to United States federal income taxation
regardless of its source; or
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a trust if such trust has validly elected to be treated as a United States person
for United States federal income tax purposes or if (1) a court within the United States is able to exercise primary supervision over
its administration and (2) one or more United States persons have the authority to control all of the substantial decisions of such trust.
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If a partnership (or any other entity treated as a partnership
for United States federal income tax purposes) holds our ordinary shares, the tax treatment of a partner in such partnership will generally
depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor
as to its tax consequences.
You should consult your tax advisor
with respect to the United States federal, state, local and foreign tax consequences of acquiring, owning and disposing of our ordinary
shares.
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Distributions
Subject to the discussion below under “Passive
foreign investment company considerations,” if you are a U.S. Holder, the gross amount of any distribution made to you with respect
to our ordinary shares before reduction for any Israeli taxes withheld therefrom, other than pro rata distributions of our ordinary shares
to all our shareholders, generally will be includible in your income as dividend income to the extent such distribution is paid out of
our current or accumulated earnings and profits as determined under United States federal income tax principles. Subject to the discussion
below under “Passive foreign investment company considerations,” non-corporate U.S. Holders may qualify for the lower rates
of taxation with respect to dividends on ordinary shares applicable to long-term capital gains (meaning, gains from the sale of capital
assets held for more than one year) provided that certain conditions are met, including certain holding period requirements and the absence
of certain risk reduction transactions. However, such dividends will not be eligible for the dividends received deduction generally allowed
to corporate U.S. Holders. Subject to the discussion below under “Passive foreign investment company considerations,” to the
extent that the amount of any distribution by us exceeds our current and accumulated earnings and profits as determined under United States
federal income tax principles, it will be treated first as a tax-free return of your adjusted tax basis in our ordinary shares and thereafter
as capital gain. We do not expect to maintain calculations of our earnings and profits under United States federal income tax principles
and, therefore, U.S. Holders should expect that the entire amount of any distribution generally will be reported as dividend income.
Dividends paid to U.S. Holders with respect to our ordinary
shares will be treated as foreign source income, which may be relevant in calculating your foreign tax credit limitation. Subject to certain
conditions and limitations, Israeli tax withheld on dividends may be deducted from your taxable income or credited against your United
States 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, dividends that we distribute generally should constitute “passive category income,” or,
in the case of certain U.S. Holders, “general category income.” A foreign tax credit for foreign taxes imposed on distributions
may be denied if you do not satisfy certain minimum holding period requirements. In addition, for periods in which we are a “United
Stated-owned foreign corporation”, a portion of dividends paid by us may be treated as U.S. source solely for purposes of the foreign
tax credit. We would be treated as a United States-owned foreign corporation if 50% or more of the total value or total voting power of
our stock is owned, directly, indirectly or by attribution, by United States persons. To the extent any portion of our dividends is treated
as U.S. source income pursuant to this rule, the ability of a U.S. Holder to claim a foreign tax credit for any Israeli withholding taxes
payable in respect of our dividends may be limited. A U.S. Holder entitled to benefits under the United States-Israel Tax Treaty may,
however, elect to treat any dividends as foreign source income for foreign tax credit purposes if the dividend income is separated from
other income items for purposes of calculating the U.S. Holder’s foreign tax credit. Furthermore, Treasury Regulations that apply
to taxable years beginning on or after December 28, 2021 may in some circumstances prohibit a U.S. Holder from claiming a foreign tax
credit unless the taxes are creditable under the Israel – U.S.A Double Tax Treaty and the holder is eligible for benefits under
the U.S.-Israel Tax Treaty and elects its application. However, a recent notice from the IRS indicates that the U.S. Department of the
Treasury and the IRS are considering proposing amendments to such Treasury regulations and allows, subject to certain conditions, taxpayers
to defer the application of many aspects of such Treasury regulations for taxable years beginning on or after December 28, 2021 and ending
before the date that a notice or other guidance withdrawing or modifying the temporary relief is issued (or any later date specified in
such notice or other guidance). The rules relating to the determination of the foreign tax credit are complex, and you should consult
your tax advisor to determine whether and to what extent you will be entitled to this credit.
Future distributions with respect to our ordinary shares
may be paid in U.S. dollars or NIS. If a distribution is denominated in NIS, the amount of such distribution will equal the U.S. dollar
value of the NIS received, calculated by reference to the exchange rate in effect on the date that distribution is received, whether or
not the U.S. Holder in fact converts any NIS received into U.S. dollars at that time. If the distribution is converted into U.S. dollars
on the date of receipt, a U.S. Holder generally will not be required to recognize foreign currency gain or loss in respect of the distribution.
A U.S. Holder may have foreign currency gain or loss if the distribution is converted into U.S. dollars after the date of receipt. Any
gains or losses resulting from the conversion of NIS into U.S. dollars will be treated as ordinary income or loss, as the case may be,
of the U.S. Holder and will be U.S.-source.
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Sale, exchange
or other disposition of ordinary shares
Subject to the discussion below under “Passive
foreign investment company considerations,” U.S. Holders generally will recognize gain or loss on the sale, exchange or other disposition
of our ordinary shares equal to the difference between the amount realized on such sale, exchange or other disposition and such holder’s
adjusted tax basis in our ordinary shares, and such gain or loss will be capital gain or loss. The adjusted tax basis in an ordinary share
generally will be equal to the cost of such ordinary share. If you are a non-corporate U.S. Holder, capital gain from the sale, exchange
or other disposition of ordinary shares is generally eligible for a preferential rate of taxation applicable to capital gains, if your
holding period for such ordinary shares exceeds one year (meaning, such gain is long-term capital gain). The deductibility of capital
losses for United States federal income tax purposes is subject to limitations under the Code. Any such gain or loss that a U.S. Holder
recognizes generally will be treated as U.S. source income or loss for foreign tax credit limitation purposes. Accordingly, in the event
any Israeli tax (including withholding tax) is imposed upon such sale or other disposition, a U.S. Holder may not be able to utilize foreign
tax credits unless such holder has foreign source income or gain in the same category from other sources. Moreover, there are special
rules under the income tax treaty between the Israel-U.S.A. Double Tax Treaty, which may impact a U.S. Holder’s ability to claim
a foreign tax credit. Furthermore, Treasury Regulations that apply to taxable years beginning on or after December 28, 2021 may in some
circumstances prohibit a U.S. Holder from claiming a foreign tax credit unless the taxes are creditable under the U.S.-Israel Tax Treaty
and the holder is eligible for benefits under the U.S.-Israel Tax Treaty and elects its application. However, a recent notice from the
IRS indicates that the U.S. Department of the Treasury and the IRS are considering proposing amendments to such Treasury regulations and
allows, subject to certain conditions, taxpayers to defer the application of many aspects of such Treasury regulations for taxable years
beginning on or after December 28, 2021 and ending before the date that a notice or other guidance withdrawing or modifying the temporary
relief is issued (or any later date specified in such notice or other guidance). The rules relating to the determination of the
foreign tax credit are complex, and you should consult your tax advisor to determine whether and to what extent you will be entitled to
this credit.
Passive foreign
investment company considerations
If we were to be classified as a “passive foreign
investment company,” or PFIC, in any taxable year, a U.S. Holder would be subject to special rules generally intended to reduce
or eliminate any benefits from the deferral of United States federal income tax that a U.S. Holder could derive from investing in a non-U.S.
company that does not distribute all of its earnings on a current basis.
A non-U.S. corporation will be classified as a PFIC
for United States federal income tax purposes in any taxable year in which, after applying certain look-through rules, either:
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at least 75% of its gross income is “passive income”; or
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at least 50% of the average value of its gross assets is attributable to assets that
produce “passive income” or are held for the production of passive income.
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Passive income for this purpose generally includes dividends,
interest, royalties, rents, gains from commodities and securities transactions, the excess of gains over losses from the disposition of
assets, which produce passive income, and includes amounts derived by reason of the temporary investment of funds raised in offerings
of our ordinary shares. If a non-U.S. corporation owns at least 25% by value of the stock of another corporation, the non-U.S. corporation
is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation and as directly receiving
its proportionate share of the other corporation’s income. If we are classified as a PFIC in any year with respect to which a U.S.
Holder owns our ordinary shares, we will continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during
which the U.S. Holder owns our ordinary shares, regardless of whether we continue to meet the tests described above.
Based on the composition of our income, the composition
and estimated fair market value of our assets and the nature of our business, we do not believe we were a PFIC for the taxable year ended
December 31, 2024 and do not expect that we will be classified as a PFIC for the taxable year ending December 31, 2025. However, no official
determination as to our PFIC status has been made for the year ended December 31, 2024. Additionally, because PFIC status is based on
our income, assets and activities for the entire taxable year, it is not possible to determine whether we will be characterized as a PFIC
for a particular taxable year until after the close of the taxable year. Moreover, the determination of our PFIC status annually is based
on tests which are factual in nature, and our status in future years will depend on our income, assets and activities in those years.
Furthermore, because the value of our gross assets is likely to be determined in large part by reference to our market capitalization,
a decline in the value of our ordinary shares may result in our becoming a PFIC. There can be no assurance that we will not be considered
a PFIC for any taxable year. If we were a PFIC then unless you make one of the elections described below, a special tax regime will apply
to both (a) any “excess distribution” by us to you (generally, your ratable portion of distributions in any year which are
greater than 125% of the average annual distribution received by you in the shorter of the three preceding years or your holding period
for our ordinary shares) and (b) any gain realized on the sale or other disposition of the ordinary shares.
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Under this regime, any excess distribution and realized
gain will be treated as ordinary income and will be subject to tax as if (a) the excess distribution or gain had been realized ratably
over your holding period, (b) the amount deemed realized in each year had been subject to tax in each year of that holding period at the
highest marginal rate for such year (other than income allocated to the current period or any taxable period before we became a PFIC,
which will be subject to tax at the U.S. Holder’s regular ordinary income rate for the current year and will not be subject to the
interest charge discussed below), and (c) the interest charge generally applicable to underpayments of tax had been imposed on the taxes
deemed to have been payable in those years. In addition, dividend distributions made to you will not qualify for the lower rates of taxation
applicable to long-term capital gains discussed above under “Distributions.” Certain elections may be available that would
result in an alternative treatment (such as mark-to-market treatment) of our ordinary shares. We do not intend to provide the information
necessary for U.S. Holders to make qualified electing fund elections if we are classified as a PFIC. U.S. Holders should consult their
tax advisors to determine whether any of these elections would be available and if so, what the consequences of the alternative treatments
would be in their particular circumstances.
If we are determined to be a PFIC, the general tax treatment
for U.S. Holders described in this paragraph would apply to indirect distributions and gains deemed to be realized by U.S. Holders in
respect of any of our subsidiaries that also may be determined to be PFICs.
If a U.S. Holder owns ordinary shares during any year
in which we are classified as a PFIC and the U.S. Holder recognizes gain on a disposition of our ordinary shares or receives distributions
with respect to our ordinary shares, the U.S. Holder generally will be required to file an IRS Form 8621 with respect to the company,
generally with the U.S. Holder’s federal income tax return for that year. If our company were a PFIC for a given taxable year, then
you should consult your tax advisor concerning your annual filing requirements.
U.S. Holders should consult their tax advisors regarding
whether we are a PFIC and the potential application of the PFIC rules.
Backup withholding
tax and information reporting requirements
United States backup withholding tax and information
reporting requirements may apply to certain payments to certain holders of stock. Information reporting generally will apply to payments
of dividends on, and to proceeds from the sale or redemption of, our ordinary shares made within the United States, or by a U.S. payor
or U.S. middleman, to a holder of our ordinary shares, other than an exempt recipient (including a payee that is not a United States person
that provides an appropriate certification and certain other persons). A payor will be required to withhold backup withholding tax from
any payments of dividends on, or the proceeds from the sale or redemption of, ordinary shares within the United States, or by a U.S. payor
or U.S. middleman, to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number
or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements. Any amounts withheld under
the backup withholding rules will be allowed as a credit against the beneficial owner’s United States federal income tax liability,
if any, and any excess amounts withheld under the backup withholding rules may be refunded, provided that the required information is
timely furnished to the U.S. Internal Revenue Service.
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3.8% Medicare
Tax on “Net Investment Income”
Certain U.S. Holders who are individuals, estates or
trusts are required to pay an additional 3.8% tax on, among other things, dividends and capital gains from the sale or other disposition
of ordinary shares.
Foreign asset
reporting
Certain U.S. Holders, who are individuals, are required
to report information relating to an interest in our ordinary shares, subject to certain exceptions (including an exception for shares
held in accounts maintained by U.S. financial institutions). U.S. Holders are urged to consult their tax advisors regarding their information
reporting obligations, if any, with respect to their ownership and disposition of our ordinary shares.
The above description is not intended
to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our ordinary shares.
You should consult your tax advisor concerning the tax consequences of your particular situation.
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F.
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Dividends and Paying Agents
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Not applicable.
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G.
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Statements by Experts
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Not applicable.
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H.
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Documents on Display
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You may read and copy this annual report on Form 20-F,
including the related exhibits and schedules, and any document we file with the SEC through the SEC’s website at http://www.sec.gov.
As a foreign private issuer, we are exempt from the
rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders
are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. Furthermore, as
a foreign private issuer, we are also not subject to the requirements of Regulation Fair Disclosure (“
FD
”)
promulgated under the Exchange Act. In addition, we are not required under the Exchange Act to file annual or other reports and consolidated
financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
Instead, we must file with the SEC, within 120 days after the end of each fiscal year, or such other applicable time as required by the
SEC, an annual report on Form 20-F containing consolidated financial statements audited by an independent registered public accounting
firm. We also intend to furnish certain other material information to the SEC under cover of Form 6-K.
We maintain a corporate website at
http://www.caesarstone.com.
Information contained on, or that can be accessed through, our website does not constitute a part of this annual report on Form
20-F. We have included our website address in this annual report on Form 20-F solely as an inactive textual reference.
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I.
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Subsidiary Information
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Not applicable.
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J.
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Annual Report to Security Holders
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Not applicable.
ITEM 11
:
Quantitative and Qualitative Disclosures About Market Risk
Since July 1, 2012, our functional currency has been
the U.S. dollar. We conduct business in a large number of countries and, as a result, we are exposed to foreign currency fluctuations.
The majority of our revenues are denominated in U.S. dollars, Australian dollars and Canadian dollars. Sales in Australian dollars accounted
for 17.0%, 18.8% and 16.8% of our revenues in 2024, 2023 and 2022, respectively. Sales in Canadian dollars accounted for 13.9%,
13.4% and 13.5% of our revenues in 2024, 2023 and 2022, respectively. As a result, devaluation of the Australian dollar, and to a lesser
extent, the Canadian dollar, relative to the U.S. dollar could reduce our profitability significantly. Our expenses are largely denominated
in U.S. dollars, NIS and Euros, and a smaller proportion in Canadian dollars, Australian dollars, British pound, Singaporean dollar and
Indian Rupee. As a result, a revaluation of the NIS, or to a lesser extent, the Euro, relative to the U.S. dollar could reduce our profitability
significantly.
121
The following table presents information about the year
over year percentage changes in the average exchange rates of the principal currencies that impact our results of operations:
|
|
Australian dollar against U.S. dollar
|
Canadian dollar against U.S. dollar
|
NIS against U.S. dollar
|
Euro against U.S. dollar
|
||||||||||||
|
|
||||||||||||||||
|
2023
|
(4.5
|
)%
|
(3.7
|
)%
|
(9.0
|
)%
|
2.6
|
%
|
||||||||
|
2024
|
(0.2
|
)%
|
(1.1
|
)%
|
(0.4
|
)%
|
0.4
|
%
|
||||||||
Assuming a 10% decrease in the Australian dollar relative
to the U.S. dollar and assuming no other changes, our operating income would have decreased by $3.9 million in 2024.
Assuming a 10% decrease in the Canadian dollar relative
to the U.S. dollar and assuming no other changes, our operating income would have decreased by $3.2 million in 2024.
Devaluation of NIS relative to the U.S. dollar would
decrease our revenues generated in Israel. However, our NIS operating costs when reported in U.S. dollars would decrease to a greater
extent, resulting in higher operating income. As a result, assuming a 10% decrease in NIS relative to the U.S. dollar and assuming no
other changes, our operating income, as reported in U.S. dollars, would have decreased by $5.2 million in 2024.
An appreciation of the Euro relative to the U.S. dollar
would increase our revenues generated in Europe and certain other countries. However, our Euro operating costs when reported in U.S. dollars
would increase to a greater extent, resulting in lower operating income. Assuming a 10% decrease in the Euro relative to the U.S. dollar
and assuming no other changes, our operating income would have decreased by $1.5 million in 2024.
Our exposure related to exchange rate changes on our
net asset position denominated in currencies other than the U.S. dollar varies with changes in our net asset position. Net asset position
refers to financial assets, such as trade receivables and cash, less financial liabilities, such as loans and accounts payable. The impact
of any such transaction gains or losses is reflected in finance expenses, net. Our most significant exposure as of December 31, 2024,
relates to a potential change in the exchange rate of the EUR, British pound and Singaporean Dollar and to a lesser extent to the Canadian
Dollar and the Indian Rupee relative to the U.S. dollar. Assuming a 10% decrease in the Indian Rupee relative to the U.S. dollar, and
assuming no other changes, finance expenses, net would have decreased by $0.1 million. Assuming a 10% decrease in the GBP, Singaporean
Dollar, EUR, Canadian Dollar, NIS and Australian Dollar relative to the U.S. dollar, and assuming no other changes, finance expenses,
net would have increased by $0.9 million, $0.8 million, $0.7 million, $0.2 million, $0.1 million and $0.1 million in 2024, respectively.
We use forward contracts to manage currency risk with
respect to those currencies in which we generate revenues or incur expenses. Our functional currency is the U.S. dollar, and we use Australian/U.S.
dollar, Euro/U.S. dollar and U.S. dollar/Canadian dollar and GBP/ U.S. dollar forward contracts. The derivatives instruments partially
offset the impact of foreign currency fluctuations. We may in the future use derivative instruments to a greater extent or engage in other
transactions or invest in market risk sensitive instruments if we determine that it is necessary to offset these risks. Currency instruments
other than our U.S. dollar/NIS forward contracts are not designated as hedging accounting instruments under ASC 815, Derivatives and Hedging.
Therefore, we have been incurring financial loss or income as a result of these derivatives.
122
As of December 31, 2024, we had the following foreign
currency hedge portfolio (U.S. dollar in thousands):
|
|
USD/NIS
|
EUR/USD
|
GBP/USD
|
USD/CAD
|
AUD/USD
|
TOTAL
|
|||||||||||||||||||
|
|
|
||||||||||||||||||||||||
|
Sell forward contracts
|
Notional
|
2,525
|
---
|
---
|
---
|
---
|
2,525
|
||||||||||||||||||
|
|
Fair Value
|
110
|
---
|
---
|
---
|
---
|
110
|
||||||||||||||||||
|
|
Average rate
|
3.801
|
---
|
---
|
---
|
---
|
---
|
||||||||||||||||||
|
Total notional value
|
|
2,525
|
---
|
---
|
---
|
---
|
2,525
|
||||||||||||||||||
|
Total fair value
|
|
$
|
110
|
$
|
---
|
$
|
---
|
$
|
---
|
$
|
---
|
$
|
110
|
||||||||||||
As of December 31, 2024, net embedded gain on our foreign
currency open derivatives transactions was $0.1 million. As of December 31, 2023, net embedded loss on our foreign currency open derivatives
transactions was $0.5 million. As of December 31, 2022, net embedded gain on our foreign currency open derivatives transactions
was $0.1 million.
For the year ended December 31, 2024, our finance from
derivatives including the impact of the foreign exchange rate derivatives fair value measurement did not result in income or loss. For
the year ended December 31, 2023, our finance income resulted from derivatives including the impact of the foreign exchange rate derivatives
fair value measurement were $1.4 million. For the year ended December 31, 2022, our finance income resulted from derivatives including
the impact of the foreign exchange rate derivatives fair value measurement were $1.5 million.
Interest rates
We had cash and short-term bank deposits totaling $106.3
million on December 31, 2024. Our cash, cash equivalents and short-term bank deposits are held for working capital and other purposes.
We do not enter into investments for trading or speculative purposes. Due to the short-term nature of the investments in cash equivalents
and our relatively low debt balances, we do not believe that changes in interest rates will have a material impact on our financial position
and results of operations and, therefore, we believe that a sensitivity analysis would not be material to investors. However, declines
in interest rates will reduce future investment income.
Inflation
Inflationary factors such as increases in the cost of
our labor may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial
position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain
current levels of gross profit margins and operating expenses as a percentage of revenues if the selling prices of our products do not
increase in line with increases in costs.
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 and Use of Proceeds
None.
123
ITEM 15
:
Controls and Procedures
(a)
Disclosure
Controls and Procedures
. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) as of December 31, 2024. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded
that, as of December 31, 2024, our disclosure controls and procedures were effective such that the information required to be disclosed
by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b)
Management’s
Annual Report on Internal Control Over Financial Reporting
. Our management, under the supervision of our Chief Executive Officer
and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally
accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
|
|
• |
pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets;
|
|
|
• |
provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and directors; and
|
|
|
• |
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the financial statements.
|
Our management, including our Chief Executive Officer
and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making
this assessment, our management used the criteria established in
Internal Control—Integrated Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management has concluded, based on its
assessment, that our internal control over financial reporting was effective as of December 31, 2024 to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance
with generally accepted accounting principles.
(c)
Attestation
Report of the Registered Public Accounting Firm
. Our independent registered public accounting firm has audited the consolidated
financial statements included in this annual report on Form 20-F, and as part of its audit, has issued an unqualified audit report on
the effectiveness of our internal control over financial reporting as of December 31, 2024. This report is included on pages F-2 and F-3
of this annual report on Form 20-F and is incorporated herein by reference.
(d)
Changes
in Internal Control Over Financial Reporting
. During the period covered by this report, no changes in our internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) have occurred that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
124
ITEM 16
:
Reserved
ITEM 16A:
Audit Committee Financial Expert
Our board of directors has determined that each of Ms.
Nurit Benjamini and Ms. Lily Ayalon qualifies as an “audit committee financial expert,” as defined by the rules of the SEC,
and has the requisite financial experience required by the Nasdaq rules. In addition, Ms. Nurit Benjamini and Ms. Lily Ayalon are each
independent directors as such term is defined in Rule 10A-3(b)(1) under the Exchange Act and under Nasdaq rules.
ITEM 16B:
Code of Ethics
The Company has adopted a code of ethics (“
Code
of Ethics
”) that applies to all the employees, directors and officers. We have posted these codes on our corporate website
at
https://ir.caesarstone.com/governance/governance-documents/default.aspx
. Information
contained on, or that can be accessed through, our website does not constitute a part of this annual report and is not incorporated by
reference herein.
Waivers of our Code of Ethics may only be granted by
the board of directors. Any amendments to this Code of Ethics or any waiver that is granted, and the basis for granting the waiver, will
be publicly communicated as appropriate. Under Item 16B of Form 20-F, if a waiver or amendment of the Code of Ethics applies
to our principal executive officer, principal financial officer, principal accounting officer, controller and other persons performing
similar functions and relates to standards promoting any of the values described in Item 16B(b) of Form 20-F, we will disclose
such waiver or amendment (i) on our website within five business days following the date of amendment or waiver in accordance with the
requirements of Instruction 4 to Item 16B or (ii) through the filing of a Form 6-K. We granted no waivers under our Code of
Ethics in 2024.
ITEM 16C
:
Principal Accountant Fees and Services
Fees Paid to the Auditors
The following table sets forth, for each of the years
indicated, the fees billed by our independent registered public accounting firm.
|
2024
|
2023
|
|||||||
|
|
(in thousands of U.S. dollars)
|
|||||||
|
Audit fees(1)
|
$
|
860
|
$
|
954
|
||||
|
Audit-related fees(2)
|
1
|
58
|
||||||
|
Tax fees(3)
|
36
|
44
|
||||||
|
All other fees(4)
|
77
|
21
|
||||||
|
Total
|
$
|
974
|
$
|
1,077
|
||||
|
(1)
|
“Audit fees” include fees for services performed by our independent public
accounting firm in connection with the integrated audit of our annual audit consolidated financial statements for 2024 and 2023, and its
internal control over financial reporting as of December 31, 2024 and 2023, certain procedures regarding our quarterly financial results
submitted on Form 6-K, and consultation concerning financial accounting and reporting standards.
|
|
(2)
|
“Audit-related fees” relate to assurance and associated services that
are traditionally performed by the independent auditor.
|
|
(3)
|
“Tax fees” include fees for professional services rendered by our independent
registered public accounting firm for tax compliance and tax advice and tax planning services on actual or contemplated transactions.
|
|
(4)
|
“Other fees” include fees for services rendered by our independent registered
public accounting firm with respect to supply chain consulting, governmental incentives, due diligence investigations and other matters.
|
125
Audit Committee’s Pre-Approval
Policies and Procedures
Our audit committee has adopted a pre-approval policy
for the engagement of our independent accountant to perform certain audit and non-audit services. Pursuant to this policy, which is designed
to assure that such engagements do not impair the independence of our auditors, the audit committee pre-approves annually a catalog of
specific audit and non-audit services in the categories of audit service, audit-related service and tax services that may be performed
by our independent accountants, in addition to its ad-hoc approval of certain additional minor services.
ITEM 16D
:
Exemptions from the Listing Standards for Audit Committees
Not applicable.
ITEM 16E
:
Purchases of Equity Securities by the Company and Affiliated Purchasers
None.
ITEM 16F
:
Change in Registrant’s Certifying Accountant
Starting 2023, Grant Thornton Australia are no longer
the auditors of a significant subsidiary.
ITEM 16G
:
Corporate Governance
As a foreign private issuer, we are permitted under
Nasdaq Rule 5615(a)(3) to follow Israeli corporate governance practices instead of the Nasdaq corporate governance rules, provided we
disclose which requirements we are not following and the equivalent Israeli requirement. We must also provide the Nasdaq Global Select
Market with a letter from outside counsel in our home country, Israel, certifying that our corporate governance practices are not prohibited
by Israeli law.
We rely on this “home country practice exemption”
with respect to the quorum requirement for shareholder meetings. Whereas under the listing rules of the Nasdaq Stock Market, a quorum
requires the presence, in person or by proxy, of holders of at least 33 1/3% of the total issued outstanding voting power of our shares
at each general meeting of shareholders, pursuant to our articles of association, and as permitted under the Companies Law, the quorum
required for a general meeting of shareholders consists of at least two shareholders present in person or by proxy in accordance with
the Companies Law, who hold or represent at least 331/3% of the total outstanding voting power of our shares, except if (i) any such general
meeting of shareholders was initiated by and convened pursuant to a resolution adopted by the board of directors and (ii) at the time
of such general meeting, we qualify to use the forms and rules of a “foreign private issuer,” the requisite quorum will consist
of two or more shareholders present in person or by proxy who hold or represent at least 25% of the total outstanding voting power of
our shares (and if the meeting is adjourned for a lack of quorum, the quorum for such adjourned meeting will be, subject to certain exceptions,
any number of shareholders).
We comply with the Nasdaq corporate governance rules
requiring that listed companies have a majority of independent directors and maintain a compensation and nominating committee composed
entirely of independent directors. We are also subject to Israeli corporate governance requirements applicable to companies incorporated
in Israel whose securities are listed for trading on a stock exchange outside of Israel. Finally, unlike Nasdaq rules, which requires
listed issuers to make annual reports on Form 20-F available to shareholders in one of a number of specific manners, Israeli law does
not require us to distribute such reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute
such reports to shareholders but to make such reports available through a public website. In addition, we will make our annual report
on Form 20-F containing audited financial statements available to our shareholders at our offices (in addition to a public website).
We may in the future provide the Nasdaq Global Select
Market with an additional letter or letters notifying the organization that we are following our home country practices, consistent with
the Companies Law and practices, in lieu of other requirements of Nasdaq Rule 5600.
ITEM 16H
:
Mine Safety Disclosures
Not applicable.
ITEM 16I
:
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
126
ITEM 16J. Insider Trading Policies
Our
board of directors has
adopted
the Company’s Insider Trading Policy
that governs all transactions involving the Company’s securities by directors,
officers, employees, consultants, and contractors and is reasonably designed to promote compliance with any insider trading laws, rules
and regulations, and listing standards applicable to the Company. A copy of the Company’s Insider Trading Policy is filed as Exhibit
11.1 to this Annual Report.
ITEM
16K. Cybersecurity
Cybersecurity
Risk Management and Strategy
Our
program’s design is based on the NIST (National Institute of Standards and Technology framework). This does not imply that we meet
any particular technical standards, specifications, or requirements, but only that we use the NIST cyber security framework (CSF) as a
guide to help us identify, assess, and manage cybersecurity risks relevant to our business, and in its design was aided by external advisors
experts in the field.
Our
cybersecurity risk management program shares common methodologies, reporting channels and governance processes that apply across the enterprise
to other legal, compliance, strategic, operational, and financial risk areas.
Our
cybersecurity risk management program includes:
|
•
|
risk
assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader
enterprise IT environment;
|
|
•
|
a
security team principally responsible for managing our cybersecurity risk assessment processes, our security controls, and our response
to cybersecurity incidents;
|
|
•
|
the
use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls;
|
|
•
|
cybersecurity
awareness training of our employees, incident response personnel, and senior management;
|
|
•
|
a
cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and
|
|
•
|
|
127
Cybersecurity
Governance
PART
III
ITEM
17: Financial Statements
Not
applicable.
ITEM
18: Financial Statements
See
Financial Statements included at the end of this report.
128
ITEM
19: Exhibits
INDEX
OF EXHIBITS
|
Number
|
Description
|
|
|
101.INS
|
Inline
XBRL Instance Document
|
|
101.SCH
|
Inline
XBRL Taxonomy Extension Schema Document
|
|
101.PRE
|
Inline
XBRL Taxonomy Presentation Linkbase Document
|
|
101.CAL
|
Inline
XBRL Taxonomy Calculation Linkbase Document
|
|
101.LAB
|
Inline
XBRL Taxonomy Label Linkbase Document
|
|
101.DEF
|
Inline
XBRL Taxonomy Extension Definition Linkbase Document
|
| 104 |
Cover
Page Interactive Data File (embedded within the Inline XBRL document)
|
129
|
(1)
|
Previously filed with the Securities and Exchange Commission on March 6, 2024, pursuant as Exhibit 1.1 to
the Company’s annual report on Form 20-F for the year ended December 31, 2023 and incorporated by reference herein.
|
|
|
|
(2)
|
Previously filed with the Securities and Exchange Commission
on March 6, 2012, as Exhibit 3.1 to the Company’s registration statement on Form F-1/A (File No. 333-179556) and incorporated by
reference herein.
|
|
(3)
|
Previously filed with the Securities and Exchange Commission
on February 16, 2012, pursuant to a registration statement on Form F-1 (File No. 333-179556) and incorporated by reference herein.
|
|
(4)
|
Previously filed with the Securities and Exchange Commission
on March 7, 2016, pursuant as Exhibit 4.5 to the Company’s annual report on Form 20-F for the year ended December 31, 2015,
and incorporated by reference herein.
|
|
(5)
|
Previously filed with the Securities and Exchange Commission
on December 23, 2020, as Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 333-251642) and incorporated
by reference herein.
|
|
(6)
|
Previously filed with the Securities and Exchange Commission on October 13, 2021 as Exhibit
99.1 to the Company’s current report on Form 6-K and incorporated by reference herein.
|
|
(7)
|
Previously filed with the Securities and Exchange Commission on March 6, 2024, pursuant as Exhibit 4.13
to the Company’s annual report on Form 20-F for the year ended December 31, 2023, and incorporated by reference herein.
|
|
(8)
|
Previously filed with the Securities and Exchange Commission on March 6, 2024, pursuant as Exhibit 97.1
to the Company’s annual report on Form 20-F for the year ended December 31, 2023, and incorporated by reference herein.
|
|
*
|
Portions of this exhibit were omitted, and a complete copy of each agreement was provided
separately to the Securities and Exchange Commission pursuant to the Company’s application requesting confidential treatment under
Rule 24b-2 under the Exchange Act, which was subsequently approved by the SEC.
|
|
**
|
Certain confidential information contained in this document, marked by brackets, was
omitted because it is both (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed. “(***)”
indicates where the information has been omitted from this exhibit.
|
|
∞
|
English translation of original Hebrew document.
|
130
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.
|
Caesarstone
Ltd.
|
|
|
|
|
|
|
By:
/s/
Yosef (Yos) Shiran
Yosef (Yos) Shiran)
Chief
Executive Officer
|
|
|
|
|
Date: March 5, 2025
|
|
131
CAESARSTONE
LTD. AND ITS SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2024
INDEX
|
Page
|
|
|
(PCAOB
ID No.
|
F-2
- F-4
|
|
F-5
- F-6
|
|
|
F-7
|
|
|
F-8
|
|
|
F-9
|
|
|
F-10
- F-11
|
|
|
F-12
- F-64
|
|
|
(PCAOB
ID No.
|
F-65
- F-66
|
|
Kost
Forer Gabbay Kasierer
144
Menachem Begin Road, Building A,
Tel-Aviv
6492102, Israel
|
Tel:
+972-3-6232525
Fax:
+972-3-5622555
ey.com
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders and the Board of Directors of Caesarstone Ltd.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Caesarstone Ltd. and subsidiaries (the Company) as of December 31, 2024 and
2023, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”).
In our opinion, based on our audits and the report of Grant Thornton Audit Pty Ltd., the consolidated financial statements present fairly,
in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We
did not audit the financial statements of Caesarstone Australia Pty Ltd., a wholly owned subsidiary, whose financial statements reflects
total revenues constituting 17% in 2022 of the related consolidated totals. Those statements were audited by Grant Thornton Audit Pty
Ltd. whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Caesarstone Australia Pty
Ltd., is based solely on the report of Grant Thornton Audit Pty Ltd.
We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 5, 2025 expressed
an unqualified opinion thereon.
Basis
for Opinion
These
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits
included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits and the report
of Grant Thornton Audit Pty Ltd. provide a reasonable basis for our opinion.
Critical
Audit Matter
The
critical audit matter communicated below is matter arising from the current period audit of the financial statements that was communicated
or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating
the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it
relates.
F
- 2
|
|
Kost
Forer Gabbay Kasierer
144
Menachem Begin Road, Building A,
Tel-Aviv
6492102, Israel
|
Tel:
+972-3-6232525
Fax:
+972-3-5622555
ey.com
|
|
Provision
for bodily injury claims related to exposure to silica dust and the related assessment of the claims
|
||
|
Description
of the matter
|
As
described in note 11 and in note 1e to the consolidated financial statements, the Company is subject to numerous claims mainly by fabricators,
their employees or the National Insurance Institute, alleging that fabricators contracted illnesses, including silicosis, through exposure
to silica particles during cutting, polishing, sawing, grinding, breaking, crushing, drilling, sanding or sculpting Company's products.
The Company recognized a provision in relation to Silicosis claims when an unfavorable outcome was probable, and the amount of the loss
could be reasonably estimated. The Company recorded a provision in the amount of $50 million representing its assessment of exposure that
is probable and estimable with respect to pending claims in Israel, Australia and the United States. Also, the Company estimated the probability
of a loss for 18 claims in the United States as reasonably possible with a range of possible loss, between $0.5 million to $13 million
per claim, and the remaining as an early stage in which the amount of the possible loss cannot be reasonably estimated. There is uncertainty
with respect to the possible loss of those claims, and the availability of insurance coverage. If there is a change in the assessment
for the outcome of the claims or the insurance coverage through the course of the trial processes, the Company may be adversely impacted,
which could lead to a material impact on the Company’s business, financial position, results of operations or cash flows. If such
an adverse impact occurs, depending on its magnitude, the Company believes it can implement cost reduction measures, and can pursue other
steps to mitigate the adverse impact.
In order to estimate the probability of the loss and to determine the provision amount, the Company consults with external legal counsels.
Auditing
the Company’s provision of the Silicosis claims was complex due to the significant estimation required in determining the Company’s
provision of the Silicosis claims. The estimate of the provision involved significant estimation uncertainty primarily due to the different
stages of legal claims and the probability of loss, which in turn led to a high degree of auditor judgment and effort in performing procedures
and evaluating management's conclusions related to these legal claims.
|
|
|
How
we addressed the matter in our audit
|
We
obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the provision of the
Silicosis claims, including management's assessment of the assumptions and data underlying the provision valuation.
To
evaluate the Company's assessment of the probability of incurrence of a loss and whether the loss was reasonably estimated, among other
procedures, we read the minutes of the meeting of the committees of the board of directors and gained an understanding of the claims by
inquiring of the external and internal legal counsels regarding the allegations. We also obtained external and internal legal counsels
confirmation letters.
Our
substantive procedures also included testing the completeness and reasonableness of the underlying data used in management's provision
assessment and attending meetings between management and legal counsels to determine a range of reasonably possible loss. We tested management’s
assumptions by comparing prior period's estimates versus current period's estimates and evaluating events occurring up to date of the
auditor's report. We also evaluated the Company’s legal contingency disclosures, and the uncertainty included in Note 11 and Note
1e to the consolidated financial statements.
|
|
/s/KOST
FORER GABBAY KASIERER
|
|
A
Member of EY Global
|
|
We
have served as the Company's auditor since 2004
|
|
Tel-Aviv,
Israel
|
|
March
5, 2025
|
F
- 3
|
|
Kost
Forer Gabbay Kasierer
144
Menachem Begin Road, Building A,
Tel-Aviv
6492102, Israel
|
Tel:
+972-3-6232525
Fax:
+972-3-5622555
ey.com
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders and the Board of Directors of Caesarstone Ltd.
Opinion
on Internal Control over Financial Reporting
We
have audited Caesarstone Ltd. and subsidiaries’ internal control over financial reporting as of December 31, 2024, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) (the COSO criteria). In our opinion, Caesarstone Ltd. and subsidiaries (the Company) maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria.
We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income,
shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and
our report dated March 5, 2025 expressed an unqualified opinion thereon, based on our audit and the report of the other auditors.
Basis
for Opinion
The
Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition
and Limitations of Internal Control Over Financial Reporting
A
company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) 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 (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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.
|
/s/
|
|
A
Member of EY Global
|
|
|
|
March
5, 2025
|
F
- 4
CAESARSTONE
LTD. AND ITS SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
U.S.
dollars in thousands
|
December
31,
|
|||||||||||
|
Note
|
2024
|
2023
|
|||||||||
|
ASSETS
|
|||||||||||
|
CURRENT
ASSETS:
|
|||||||||||
|
Cash
and cash equivalents
|
$
|
|
$
|
|
|||||||
|
Short-term
bank deposits
|
|
|
|||||||||
|
Trade
receivables (net of allowance for credit loss of $
|
|
|
|||||||||
|
Other
accounts receivable and prepaid expenses
|
4
|
|
|
||||||||
|
Held for sale asset |
2,6 |
|
|
||||||||
|
Inventories
|
5
|
|
|
||||||||
|
Total
current assets
|
|
|
|||||||||
|
LONG-TERM
ASSETS:
|
|||||||||||
|
Severance
pay fund
|
|
|
|||||||||
|
Deferred
tax assets, net
|
12
|
|
|
||||||||
|
Long-term
deposits and other
|
14
|
|
|
||||||||
|
Property,
plant and equipment, net
|
6
|
|
|
||||||||
|
Operating
lease right-of-use assets
|
10
|
|
|
||||||||
|
Intangible
assets, net
|
7
|
|
|
||||||||
|
Total
long-term assets
|
|
|
|||||||||
|
Total
assets
|
$
|
|
$
|
|
|||||||
The
accompanying notes are an integral part of the consolidated financial statements
F - 5
CAESARSTONE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
U.S.
dollars in thousands (except share data)
|
December
31,
|
|||||||||||
|
Note
|
2024
|
2023
|
|||||||||
|
LIABILITIES
AND EQUITY
|
|||||||||||
|
CURRENT
LIABILITIES:
|
|||||||||||
|
Short-term
bank credit and current maturities of long- term bank loan
|
8
|
$
|
|
$
|
|
||||||
|
Trade
payables
|
|
|
|||||||||
|
Related
party
|
14
|
|
|
||||||||
|
Short
term legal settlements and loss contingencies
|
11
|
|
|
||||||||
|
Accrued
expenses and other liabilities
|
9
|
|
|
||||||||
|
Total
current liabilities
|
|
|
|||||||||
|
LONG-TERM
LIABILITIES:
|
|||||||||||
|
Long-term
loan from related parties
|
14
|
|
|
||||||||
|
Long-term
bank loan
|
15
|
|
|
||||||||
|
Accrued
severance pay
|
|
|
|||||||||
|
Deferred
tax liabilities, net
|
12
|
|
|
||||||||
|
Long-term
warranty provision
|
|
|
|||||||||
|
Long
term legal settlements and loss contingencies
|
11
|
|
|
||||||||
|
Long-term
operating lease liabilities
|
10
|
|
|
||||||||
|
Total
long-term liabilities
|
|
|
|||||||||
|
COMMITMENTS
AND CONTINGENT LIABILITIES
|
11
|
|
|
||||||||
|
REDEEMABLE
NON-CONTROLLING INTEREST
|
1,2
|
|
|
||||||||
|
EQUITY:
|
13
|
||||||||||
|
Share
capital-
|
|||||||||||
|
Ordinary
shares of NIS
|
|
|
|||||||||
|
Additional
paid-in capital
|
|
|
|||||||||
|
Capital
fund related to non-controlling interest
|
(
|
)
|
(
|
)
|
|||||||
|
Accumulated
other comprehensive loss, net
|
2
|
(
|
)
|
(
|
)
|
||||||
|
Retained
earnings
|
|
|
|||||||||
|
Treasury
shares at cost –
|
(
|
)
|
(
|
)
|
|||||||
|
Total
equity
|
|
|
|||||||||
|
Total
liabilities and equity
|
$ |
|
$ |
|
|||||||
The
accompanying notes are an integral part of the consolidated financial statements
F - 6
CAESARSTONE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
U.S.
dollars in thousands (except per share data)
|
Year
ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Revenues
|
$
|
|
$
|
|
$
|
|
||||||
|
Cost
of revenues
|
|
|
|
|||||||||
|
Gross
profit
|
|
|
|
|||||||||
|
Operating
expenses:
|
||||||||||||
|
Research
and development
|
|
|
|
|||||||||
|
Selling
and marketing
|
|
|
|
|||||||||
|
General
and administrative
|
|
|
|
|||||||||
|
Impairment
of goodwill and long lived assets, restructuring and other related costs, net of other income
|
|
|
|
|||||||||
|
Legal
settlements and loss contingencies, net
|
|
(
|
)
|
|
||||||||
|
Total
operating expenses
|
|
|
|
|||||||||
|
Operating
loss
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Finance
expenses (income), net
|
|
(
|
)
|
(
|
)
|
|||||||
|
Loss
before taxes on income
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Taxes
on income
|
|
|
|
|||||||||
|
Net
loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Net
income (loss) attributable to non-controlling interest
|
(
|
)
|
(
|
)
|
|
|||||||
|
Net
loss attributable to controlling interest
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Basic
and diluted net loss per share of Ordinary shares
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Weighted
average number of Ordinary shares used in computing basic loss per share (in thousands)
|
|
|
|
|||||||||
|
Weighted
average number of Ordinary shares used in computing diluted loss per share (in thousands)
|
|
|
|
|||||||||
The
accompanying notes are an integral part of the consolidated financial statements
F - 7
CAESARSTONE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
U.S.
dollars in thousands
|
Year
ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Net
loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Other
comprehensive income (loss) before tax:
|
||||||||||||
|
Foreign
currency translation adjustments
|
(
|
)
|
|
(
|
)
|
|||||||
|
Unrealized
income (loss) on foreign currency cash flow hedge
|
(
|
)
|
|
(
|
)
|
|||||||
|
Unrealized
income (loss) on available for sale marketable securities
|
|
|
(
|
)
|
||||||||
|
Income
tax
(expense) benefit related to components of other comprehensive income (loss)
|
(
|
)
|
|
(
|
)
|
|||||||
|
Total
other comprehensive income (loss), net of tax
|
(
|
)
|
|
(
|
)
|
|||||||
|
Comprehensive
loss
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Less
- comprehensive loss attributable to non-controlling interest
|
|
|
|
|||||||||
|
Comprehensive
loss attributable to controlling interest
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
The
accompanying notes are an integral part of the consolidated financial statements
F - 8
CAESARSTONE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
U.S.
dollars in thousands (except share data)
|
Common
stock
|
Additional
paid-in
|
Retained
|
Accumulated
other comprehensive income (loss),
|
Capital
fund related to non-controlling
|
Treasury
|
Total
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
capital
|
earnings
|
net
(1)
|
interest
|
shares
|
equity
|
|||||||||||||||||||||||||
|
Balance as of January 1,
2022
|
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|||||||||||||||||||||
|
-
|
||||||||||||||||||||||||||||||||
|
Other comprehensive loss
(1)
|
-
|
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||||||||
|
Net income attributable
to controlling interest
|
-
|
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||||||||
|
Equity-based compensation
expense (2)
|
-
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Adjustment to redemption
value of the non-controlling interest
|
-
|
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||||||||
|
Dividend paid
|
-
|
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||||||||
|
Cashless exercise of
options and RSUs
|
|
(
|
)
|
(
|
)
|
|
|
|
|
|
||||||||||||||||||||||
|
Balance as of December 31,
2022
|
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|||||||||||||||||||||
|
-
|
||||||||||||||||||||||||||||||||
|
Other comprehensive loss
(1)
|
-
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Net loss attributable
to controlling interest
|
-
|
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||||||||
|
Equity-based compensation
expense (2)
|
-
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Adjustment to redemption
value of the non-controlling interest
|
-
|
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||||||||
|
Cashless exercise of
options and RSUs
|
|
(
|
)
|
(
|
)
|
|
|
|
|
|
||||||||||||||||||||||
|
Balance as of December 31,
2023
|
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|||||||||||||||||||||
|
-
|
||||||||||||||||||||||||||||||||
|
Other comprehensive income
(1)
|
-
|
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||||||||
|
Net loss attributable
to controlling interest
|
-
|
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||||||||
|
Equity-based compensation
expense (2)
|
-
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Adjustment to redemption
value of the non-controlling interest
|
-
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Cashless exercise of
options and RSUs
|
|
(
|
)
|
(
|
)
|
|
|
|
|
|
||||||||||||||||||||||
|
Balance as of December 31,
2024
|
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|||||||||||||||||||||
|
(1)
|
Accumulated
other comprehensive income (loss), net, comprised of foreign currency translation, hedging transactions and marketable securities, see
also notes 2 and 3.
|
|
(2)
|
See
also Note 13.
|
|
(*)
|
Less
than $1.
|
The
accompanying notes are an integral part of the consolidated financial statements.
F - 9
CAESARSTONE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
U.S.
dollars in thousands
|
Year
ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Adjustments
required to reconcile net income to net cash provided by operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
|
|
|
|||||||||
|
Share-based
compensation expense
|
|
|
|
|||||||||
|
Accrued
severance pay, net
|
|
(
|
)
|
(
|
)
|
|||||||
|
Changes
in deferred tax, net
|
(
|
)
|
|
(
|
)
|
|||||||
|
Capital
loss from sale of property, plant and equipment
|
|
|
|
|||||||||
|
Decrease
in trade receivables
|
|
|
|
|||||||||
|
Decrease
in other accounts receivable and prepaid expenses
|
|
|
|
|||||||||
|
Decrease
(increase) in inventories
|
|
|
(
|
)
|
||||||||
|
Increase
(decrease) in trade payables
|
|
(
|
)
|
(
|
)
|
|||||||
|
Increase
in warranty provision
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Legal
settlements and loss contingencies, net
|
|
(
|
)
|
|
||||||||
|
Decrease
in right of use assets
|
|
|
|
|||||||||
|
Decrease
in lease liabilities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Contingent
consideration related to acquisition
|
(
|
)
|
|
|
||||||||
|
Amortization
of premium and accretion of discount on marketable securities, net
|
|
|
|
|||||||||
|
Changes
in accrued interest related to marketable securities
|
|
|
|
|||||||||
|
Impairment
of goodwill and long lived assets, restructuring and other related costs, net of other income
|
|
|
|
|||||||||
|
Decrease
in accrued expenses and other liabilities including related party
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net
cash (used in) provided by operating activities
|
|
|
(
|
)
|
||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Net
cash paid for acquisitions
|
(
|
)
|
|
(
|
)
|
|||||||
|
Investment
in short-term deposits
|
(
|
)
|
(
|
)
|
|
|||||||
|
Purchase
of property, plant and equipment
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceeds
from sale of property, plant and equipment
|
|
|
|
|||||||||
|
Sale
and maturity of marketable securities
|
|
|
|
|||||||||
|
Proceeds
from (investment in) long-term deposits
|
|
(
|
)
|
|
||||||||
|
Net
cash used in investing activities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
The
accompanying notes are an integral part of the consolidated financial statements
F - 10
CAESARSTONE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
U.S.
dollars in thousands
|
Year
ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Dividend
paid
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Proceeds
(repayment) of short-term bank credit and loans, net
|
(
|
)
|
(
|
)
|
|
|||||||
|
Contingent
and deferred considerations related to acquisition
|
(
|
) |
(
|
)
|
|
|||||||
|
Repayment
of a financing liability of land
|
|
|
(
|
)
|
||||||||
|
Net
(cash used) provided by financing activities
|
(
|
)
|
(
|
)
|
|
|||||||
|
Effect
of exchange rate differences on cash and cash equivalents
|
(
|
)
|
|
(
|
)
|
|||||||
|
Increase
(decrease) in cash and cash equivalents
|
|
|
(
|
)
|
||||||||
|
Cash
and cash equivalents at beginning of year
|
|
|
|
|||||||||
|
Cash
and cash equivalents at end of year
|
$
|
|
$
|
|
$
|
|
||||||
|
Cash
received (paid) during the year for:
|
||||||||||||
|
Interest
paid
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Interest
received
|
$
|
|
$
|
|
$
|
|
||||||
|
Tax
paid
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Non
cash activity during the year for:
|
||||||||||||
|
Changes
in trade payables balances related to purchase of property, plant and equipment
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Operating
lease liabilities and right-of-use assets
|
$
|
|
$
|
|
$
|
|
||||||
The
accompanying notes are an integral part of the consolidated financial statements
F - 11
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (except share data)
| NOTE 1:- |
GENERAL
|
| a. |
General:
|
Caesarstone
Ltd. incorporated under the laws of the State of Israel, was founded in 1987.
Caesarstone
Ltd. and its subsidiaries (collectively, the "Company" or "Caesarstone") develop, manufacture and market, high quality engineered stone
and other materials sold under the Company's premium Caesarstone brand. The Company's products are sold in over
60
countries through a combination of direct sales in certain markets and indirectly through a network of independent distributors in other
markets. The Company's products are primarily used as kitchen countertops in the renovation and remodeling markets and in the new buildings’
construction market. Other applications include vanity tops, wall panels, back splashes, floor tiles, stairs and other interior surfaces
that are used in a variety of residential and non-residential applications.
The
Company has subsidiaries in Australia, Singapore, Canada, United Kingdom, Sweden, India and the United States which are engaged in the
manufacturing, marketing and selling of the Company's products in different geographic areas. The Company also established during 2024
a new wholly owned subsidiary in Germany, without any operations in 2024.
The
Company currently manufactures its engineered surfaces in two manufacturing facilities located in Bar-Lev Industrial Park in northern
Israel and in Morbi, India, through its subsidiary (see also b below).
| b. |
Acquisition of Lioli Ceramica
Pvt Ltd:
|
On
October 5, 2020, the Company completed the acquisition of
55
%
of the shares of Lioli Ceramica Pvt Ltd ("Lioli"), a producer of porcelain countertop slabs in the total net consideration of $
13,574
.
The
consideration included a contingent consideration arrangement that requires the Company to pay up to approximately $
10,000
of additional consideration to Lioli’s minority shareholders subject to reaching certain EBITDA achievement. The fair value of the
contingent consideration arrangement at the acquisition date was $
1,492
.
During 2021 the criteria was partially met, and an additional related consideration amount of approximately $
1,780
paid during 2021.
As
part of the agreement, the Company granted Lioli’s minority shareholders a put option and Lioli’s minority shareholders granted
the Company a call option for its interest, each exercisable any time after April 1, 2024 and before the 20th anniversary of the acquisition
date based on a mechanism as set forth in the agreement between the parties.
F - 12
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 1:- |
GENERAL
(Cont.)
|
During
March 2022, the Company participated in rights offering in Lioli, and purchased additional
9,870,000
shares in amount of approximately $
2.5
million. Following this offering, the Company holds
60.4
%
of Lioli's shares.
During
July 2024, the Company exercised part of its call option purchasing additional $
10.7
million shares in Lioli from the minority, in amount of approximately $
1.6
million. Following this purchase, the Company holds
80.7
%
of Lioli's shares. The Company also provided a notice of call option exercise during December to acquire the remaining minority shares
in Lioli.
As
of December 31, 2024 and 2023, the Company revaluated its minority’s Put Option, in accordance with ASC 820 "Fair Value Measurements
and Disclosures", at level 3, and based on it the non-controlling interest fair value in Lioli amounted to $
2,200
and $
7,789
,
respectively.
| c. |
Acquisition of Omicron
Supplies, LLC:
|
On
December 31, 2020, the Company, through its fully owned U.S. subsidiary, completed the acquisition of
100
%
of the shares of Omicron Supplies, LLC ("Omicron"), a stone supplier in the U.S., for a total net cash consideration of $
18,830
.
| d. |
Acquisition of Magrab
Naturtsen AB:
|
On
July 6, 2022, the Company completed the acquisition of
100
%
of the shares of Magrab Naturtsen AB ("Magrab"), a stone supplier in Sweden, for a total net consideration of approximately $
3,109
.
The
consideration included a deferred consideration arrangement that requires the Company to pay up to approximately SEK
10,500
(approximately $
1,000
)
of additional consideration to Magrab’s former shareholder to be paid during two years following the acquisition date. The fair
value of the deferred consideration arrangement at the acquisition date was $
875
.
The acquisition agreement included additional consideration in a form of an earn-out arrangement with Magrab’s former shareholder,
that requires the Company to pay up to approximately SEK
4,000
(approximately $
380
)
of additional amounts subject to reaching certain revenues and EBITDA achievements during two years following the acquisition date. In
order to receive the earn-out payments Magrab's former shareholder have to remain as a full-time employee of the Company at the expiry
of the earn-out periods, and therefore this earn-out arrangement does not meet the cotingent consideration under ASC805 "Business Combinations”.
The
Magrab acquisition was accounted for as a business combination in accordance with ASC 805 "Business Combinations”.
During
2023, the Company paid the first payment for the above mentioned considerations in the amount of approximately SEK
7,250
(approximately $
700
).
During 2024, the Company paid the second and last payment for the above mentioned considerations in the amount of approximately SEK
5,250
(approximately $
500
).
| e. |
Bodily injury claims:
|
As
of December 31, 2024, the Company was subject to 368 lawsuits alleging injuries associated with exposure of fabricators and their employees
to respirable crystalline silica dust. Of these lawsuits, 124 were in Israel, 122 in Australia and 122 in the United States. The Company
was subject to an adverse jury decision in August 2024 in the United States, that apportioned the Company with damages of $
F - 13
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES
|
The
consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").
| a. |
Use of estimates:
|
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The
Company's management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the
time they were made.
| b. |
Financial statements in U.S. dollars:
|
The
Company's revenues are generated in various currencies mainly in U.S. dollars (USD), Australian dollars (AUD) and Canadian dollars (CAD).
In addition, most of the Company's costs are incurred in USD, NIS and EUR.
The
Company’s management believes that the USD is the primary currency of the economic environment in which the Company operates. Thus,
the functional and reporting currency of the Company is the USD.
The
functional currency of the Company's foreign subsidiaries is the local currency in which the relevant subsidiary operates.
Accordingly,
monetary accounts maintained in currencies other than the USD are re-measured into dollars in accordance with Accounting Standards Codification,
"Foreign Currency Matters" (“ASC 830”). All transaction gains and losses resulting from the re-measurement of monetary balance
sheet items denominated in non-USD currencies are reflected in the statements of operations as financial income or expenses as appropriate.
The
financial statements of the Company’s subsidiaries of which the functional currency is not the USD have been translated into the
USD. All amounts on the balance sheets have been translated into the USD using the exchange rates in effect on the relevant balance sheet
dates. All amounts in the statements of income have been translated into the USD using the monthly average exchange rate in accordance
with ASC 830. The resulting translation adjustments are reported as a component of accumulated other comprehensive income (loss), net
in shareholders' equity.
| c. |
Principles of consolidation:
|
The
consolidated financial statements include the accounts of the Company and its wholly and majority-owned subsidiaries (see also Note 1).
Inter-company transactions and balances, including profit from inter-company sales not yet realized outside of the Company, have been
eliminated upon consolidation.
F - 14
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| 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 at the date acquired.
| e. |
Short-term bank deposits:
|
Short-term
bank deposits are deposits with original maturities of more than three months but less than one year. Short-term bank deposits are presented
at their cost, which approximates their fair value.
| f. |
Derivatives:
|
ASC
815, “Derivative and Hedging” ("ASC 815"), requires companies to recognize all of their derivative instruments as either assets
or liabilities in the statement of financial position at fair value.
For
those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument,
based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation.
Derivative
instruments designated as hedging instruments:
For
derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future
cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported
as a component of other comprehensive income (loss) and reclassified into earnings in the same period during which the hedged transaction
affects earnings.
The
remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the
hedged item, if any, is recognized in current earnings during the period of change. For derivative instruments not designated as hedging
instruments, the gain or loss is recognized in current earnings during the period of change.
To
hedge against the risk of overall changes in cash flows resulting from foreign currency salary and other recurring payments during the
periods, the Company has instituted a foreign currency cash flow hedging program.
These
forward contracts are designated as cash flow hedges, as defined by ASC 815, and are all effective, as their critical terms match the
underlying transactions being hedged.
As
of December 31, 2024 and 2023, the notional amount of these forward contracts into which the Company entered was $
2,525
and $
21,162
,
respectively, and the unrealized income recorded in accumulated other comprehensive income, net, from the Company's currency forward NIS
transactions was $
110
and $
539
,
respectively.
F - 15
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
The
following tables present fair value amounts of, and gains and losses recorded in relation to, the Company's derivative instruments and
related hedged items:
|
Balance
sheet
|
Fair
value of
derivative
instruments
|
||||||||||||||||
|
Year
ended
December
31,
|
|||||||||||||||||
|
2024
|
2023
|
||||||||||||||||
|
Derivative
assets:
|
|||||||||||||||||
|
Derivatives
designated as hedging instruments:
|
|||||||||||||||||
|
Foreign
exchange option and forward contracts
|
Other accounts
receivable and prepaid expenses
|
|
|
||||||||||||||
|
Total
|
|
|
|
||||||||||||||
|
Gain
(loss) recognized in other comprehensive income, net
|
Gain
(loss) recognized in
statements
of income
|
||||||||||||||||
|
Year
ended
December
31,
|
Statements
of income
|
Year
ended
December
31,
|
|||||||||||||||
|
2024
|
2023
|
Item
|
2024
|
2023
|
|||||||||||||
|
Derivatives
designated as hedging instruments:
|
|||||||||||||||||
|
Foreign
exchange forward contract
|
(
|
)
|
|
Cost
of revenues and Operating expenses
|
|
(
|
)
|
||||||||||
|
|
|
||||||||||||||||
|
Derivatives
not designated as hedging instruments:
|
|
||||||||||||||||
|
Foreign
exchange forward and options contracts
|
|
|
Financial
expenses, net
|
|
|
||||||||||||
|
Styrene
forward contracts
|
|
|
Financial
expenses, net
|
|
|
||||||||||||
|
|
|
||||||||||||||||
|
Total
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||
F - 16
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| h. |
Inventories:
|
Inventories
are stated at the lower of cost and net realizable value. The Company periodically evaluates the quantities on hand relative to historical
and projected sales volumes, aging, current and historical selling prices and contractual obligations to maintain certain levels of raw
material quantities. Based on these evaluations, inventory provision is provided to cover risks arising from slow-moving items, discontinued
products, excess inventories, net realizable value lower than cost and adjusted revenue forecasts.
Cost
is determined as follows:
Raw
Materials - cost is determined on a standard cost basis which approximates actual costs on a weighted average basis.
Work-in
progress and finished products - are based on standard cost (which approximates actual cost on a weighted average basis) which includes
raw materials cost, labor and manufacturing overhead.
Finished
goods are stated at the lower of cost and net realizable value.
The
following table provides the details of the change in the Company's provision for inventory write-downs:
|
December
31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Inventory
provision, beginning of year
|
$
|
|
$
|
|
||||
|
Increase
(decrease) in inventory provision
|
(
|
)
|
|
|||||
|
Write
off
|
(
|
)
|
(
|
)
|
||||
|
Inventory
provision, end of year
|
$
|
|
$
|
|
||||
F - 17
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| i. |
Property, plant and equipment, net:
|
| 1. |
Property, plant and equipment are
stated at cost, net of accumulated depreciation and investment grants.
|
| 2. |
Costs recorded prior to a production
line completion are reflected as construction in progress, which are recorded building and machinery assets at the date of purchase. Construction
in progress includes direct expenditures for the construction of the production line and is stated at cost. Capitalized costs include
costs incurred under the construction contract: advisory, consulting and direct internal costs (including labor) and operating costs incurred
during the construction and installation phase.
|
| 3. |
Depreciation is calculated using the
straight-line method over the estimated useful life of the assets at the following annual rates:
|
|
%
|
|
|
Machinery
and manufacturing equipment
|
|
|
Office
equipment and furniture
|
|
|
Motor
vehicles
|
|
|
Buildings
|
|
|
Leasehold
improvements
|
|
F - 18
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| j. |
Leases:
|
The
Company determines if an arrangement is a lease at inception and recognize in accordance with ASC 842 “Leases”. Operating
leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities
in the Company’s consolidated balance sheets.
ROU
assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation
to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on
the present value of lease payments over the lease term.
The
Company uses incremental borrowing rates based on the Company's implied credit rating which was based on Moody's Investors Service Rating
Methodology for the Building Materials Industry (such credit rating was notched up due to collateralization) at commencement date. The
operating lease ROU asset also includes any lease payments made and excludes lease incentives, if any. Lease terms may include options
to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expenses for lease payments
are recognized on a straight-line basis over the lease term. See also Note 10.
F - 19
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| k. |
Impairment of long-lived assets:
|
The
Company's long-lived assets (assets group) to be held or used, including right of use assets, tangible and finite-lived intangible assets
(other than goodwill), are reviewed for impairment in accordance with ASC 360 "Property, Plant and Equipment" ("ASC 360") whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The
Company's evaluation of recoverability is performed at the lowest level of assets group to which identifiable cash flows are largely independent
of the cash flows of other asset group. Recoverability of the asset group is measured by a comparison of the aggregate undiscounted future
cash flows the asset group is expected to generate to the carrying amounts of the asset group. If such evaluation indicates that the carrying
amount of the asset group is not recoverable, an impairment loss is calculated based on the excess of the carrying amount of the asset
group over its fair value.
The
Company identifies indicators for impairment, among others, slow down in demand due to global market conditions, lower production utilization
in certain plants, increased inflation and higher interest rates, integration challenges of acquired businesses, and the manufacturing
facilities closure in Sdot Yam and in Richmond hill. In 2022, the Company recorded an impairment loss for the excess of the book value
over its fair value related to Sdot Yam manufacturing facility, in the amount of $
26,429
.
During
2023, the Company recorded an impairment loss for the excess of the book value over its fair value related to US manufacturing facility,
in the amount of $
27,486
and additional impairment loss related to Sdot Yam manufacturing facility in the amount of $
986
.
Following the closure of Sdot Yam manufacturing facility, the Company evaluated it's right of use asset resulted from non-cancelable lease
agreement effective through 2032. The Company recorded an impairment of $
16,575
for its sublease facility
.
During
2024, the Company decided to sale its Richmond hill plant and reclassified the fair value of the asset in its consolidated balance
sheet to Held-for sale-assets. Held-for-sale assets are measured at the lower of carrying amount or fair value, under ASC 360-10-45.
As
of December 31, 2024, the Company recorded an impairment loss for the excess of the book value over its fair value related to held for
sale asset, in the amount of $
3,800
.
The Company also recorded during 2024 an impairment loss related to it's intangibles assets in the amount of $
3,236
as part of the assets group assessment.
In
addition to the recoverability assessment, the Company routinely reviews the remaining estimated useful lives of property and equipment
and finite-lived intangible assets. If the Company reduces the estimated useful life assumption for any asset, the remaining unamortized
balance would be amortized or depreciated over the revised estimated useful life.
F - 20
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| l. |
Goodwill:
|
Goodwill
represents the excess of the cost of businesses acquired over the fair value of the net assets acquired in the acquisition. Under ASC
350, "Intangibles-Goodwill and Other" ("ASC 350") goodwill is not amortized but instead is tested for impairment at least annually (or
more frequently if impairment indicators arise).
The
goodwill impairment test is performed according to the following principles:
| (1) |
An initial qualitative assessment
may be performed to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.
|
| (2) |
If the Company concludes it is more
likely than not that the fair value of the reporting unit is less than its carrying amount, a quantitative fair value test is performed.
An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value is recognized.
|
The
Company performed an annual goodwill impairment test during the fourth quarter of each fiscal year, or more frequently, if an event occurs
or circumstances change that would indicate the carrying amount may be impaired. The Company operates as one reporting unit, and concluded
that all of the Company's reporting units should be aggregated and deemed as a single reporting unit for the purpose of performing the
goodwill impairment test in accordance with ASC 350-20-35-35, since they have similar economic characteristics.
The
fair value of the reporting unit was estimated in accordance with ASC 820, "Fair Value Measurements". The Company applied assumptions
that marketplace participants would consider in determining the fair value of its reporting unit.
The
process of evaluating the potential impairment of goodwill is subjective and requires significant judgment. Significant estimates used
in the fair value methodologies include estimates of future cash flows, future short-term and long-term growth rates and weighted average
cost of capital.
As
of December 31, 2022, the company performed an impairment test of the goodwill in accordance with ASC350, and recognized a full impairment
charge for its goodwill balances in the amount of $
44,829
.
(see also Note 7).
As of
December 31, 2024, the Company did not have any goodwill balance.
F - 21
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| m. |
Warranty:
|
The
Company generally provides a standard (i.e. assurance type) warranty for its products, for various periods, depending on the type of product
and the country in which the Company does business. The Company records a provision for the estimated cost to repair or replace products
under warranty at the time of sale. Factors that affect the Company's warranty reserve include the number of units sold, historical and
anticipated rates of warranty repairs and the cost per repair.
The
following table provides the details of the change in the Company's warranty accrual:
|
2024
|
2023
|
|||||||
|
January
1,
|
$
|
|
$
|
|
||||
|
Charged
to costs and expenses relating to new sales
|
|
|
||||||
|
Costs
of product warranty claims
|
(
|
)
|
(
|
)
|
||||
|
Foreign
currency translation adjustments
|
(
|
)
|
|
|||||
|
December
31,
|
|
|
||||||
| n. |
Revenue recognition:
|
Revenues
are recognized in accordance with ASC 606, revenue from contracts with customers when control of the promised goods or services is transferred
to the customers, in an amount that the Company expects in exchange for those goods or services.
The
Company applies the following five steps in accordance to ASC 606: (1) identify the contract with a customer, (2) identify the performance
obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in
the contract, and (5) recognize revenue when a performance obligation is satisfied.
1.
Identify the contract with a customer:
A
contract is an agreement between two or more parties that creates enforceable rights and obligations. In evaluating the contract, the
Company analyzes the customer’s intent and ability to pay the amount of promised consideration (credit risk) and considers the probability
of collecting substantially all of the consideration. The Company determines whether collectability is probable on a customer-by-customer
basis pursuant to various criteria including Company’s historical experience, credit insurance and other inputs.
F - 22
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (CONT.)
|
| n. |
Revenue recognition (cont.):
|
2. Identify
the performance obligations in the contract:
At
a contract’s inception, the Company assesses the goods or services promised in a contract with a customer and identifies the performance
obligations.
The main performance obligation is a delivery of the Company’s products.
The Company also adjusts
the amounts of revenue for expected cash discounts, sales allowances, returns based upon historical experience, and projected collectability.
3. Determine
the transaction price:
The
Company’s products that are sold through agreements with distributors are non-exchangeable, non-refundable, non-returnable and without
any rights of price protection or stock rotation. Accordingly, the Company considers all the distributors to be end-consumers.
For
certain revenue transactions with specific customers, the Company is responsible also for the fabrication and installation of its products.
The Company recognizes such revenues upon receipt of acceptance evidence from the end consumer which occurs upon completion of the installation.
Although,
in general, the Company does not grant rights of return, there are certain instances where such rights are granted. The Company maintains
a provision for returns in accordance with ASC 606, which is estimated, based primarily on historical experience as well as management
judgment, and is recorded through a reduction of revenue. The Company also adjusts the amounts of revenue for expected cash discounts,
sales allowances, and projected collectability.
Sales and other taxes collected from customers on behalf of governmental authorities are accounted for on a net basis and are not included in revenues or operating expenses.
The
Company has elected to apply the practical expedient such that it does not evaluate payment terms of one year or less for the existence
of a significant financing component.
4. Allocate
the transaction price to the performance obligations in the contract:
The
majority of the Company’s revenues are sales of goods, therefore there is one main performance obligation that absorbs the transaction
price.
For
certain revenue transactions with specific customers, the Company is responsible also for the fabrication and installation of its products.
The Company recognizes such revenues upon receipt of acceptance evidence from the end consumer which occurs upon completion of the installation.
5. Recognize
revenue when a performance obligation is satisfied:
Revenue
is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer. Control
transfers at a point in time, which affects when revenue is recorded.
The majority of Company’s revenues deriving
from sales of products which are recognized when control is transferred. which includes but is not limited to, the agreed International
Commercial terms, or “INCOTERMS”.Payment terms between the Company and its customers are vary by the type of payer and country
of sale.
| o. |
Research and development costs:
|
Research
and development costs are charged to the statement of operations as incurred.
| p. |
Income taxes:
|
The
Company and its subsidiaries account for income taxes in accordance with ASC 740, "Income Taxes" (“ASC 740”). This statement
prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences
between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
F - 23
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| p. |
Income taxes
(cont.):
|
The
Company accounts for its uncertain tax positions in accordance with ASC 740-10. ASC 740-10 contains a two-step approach to recognizing
and measuring uncertain tax positions accounted for in accordance with ASC 740. The first step is to evaluate the tax position taken or
expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that,
on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or
litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized
upon ultimate settlement. The Company classifies interest and penalties on income taxes as taxes on income, if relevant.
| q. |
Advertising expenses:
|
Advertising
costs are expensed as incurred. Advertising expenses for the years ended December 31, 2024, 2023 and 2022 were $
14,516
,
$
15,726
and $
14,777
,
respectively.
| r. |
Concentrations of credit risk
|
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, marketable
securities and trade receivables. The Company's cash and cash equivalents are invested primarily in USD, mainly with major banks in Israel.
The
Company's debt marketable securities include investments in highly-rated corporate debentures (located mainly in U.S.) and governmental
bonds. The financial institution that holds the Company's debt marketable securities is a major financial institution located in the United
States. The Company believes that its marketable securities portfolio is a diverse portfolio of highly-rated securities and the Company's
investment policy limits the amount the Company may invest in an issuer (see Note 3).
The
Company's trade receivables are derived from sales to customers located mainly in the United States, Australia, Canada, Israel and Europe.
The Company performs ongoing credit evaluations of its customers and to date has not experienced any substantial losses. In certain circumstances,
the Company requires letters of credit or prepayments. An allowance for credit losses is provided with respect to specific receivables
that the Company has determined to be doubtful of collection. For those receivables not specifically reviewed, provisions are recorded,
based upon the age of the receivable, the collection history, current economic trends and management estimates of future economic conditions.
No
customer represented 10% or more of the Company’s total accounts receivables, net as of December 31, 2024 and 2023.
F - 24
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| r. |
Concentrations of credit risk
(cont.):
|
The
following table provides the detail of the change in the Company's allowance for credit loss:
|
2024
|
2023
|
|||||||
|
January
1,
|
$
|
|
$
|
|
||||
|
Charges
to expenses
|
(
|
)
|
|
|||||
|
Write
offs
|
(
|
)
|
(
|
)
|
||||
|
Foreign
currency translation adjustments
|
(
|
)
|
(
|
)
|
||||
|
December
31,
|
$
|
|
$
|
|
||||
| s. |
Severance pay:
|
The
Company's liability for severance pay, with respect to its Israeli employees, is calculated pursuant to Israeli severance pay law and
employee agreements based on the most recent salary of the employees. The Company's liability for all of its Israeli employees is provided
for by monthly deposits with insurance policies and by an accrual. The value of these policies is recorded as an asset on the Company's
balance sheet.
The
deposited funds include profits or losses accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the
fulfillment of the obligations pursuant to Israeli severance pay law or labor agreements.
Majority
of the agreements with employees specifically state, in accordance with section 14 of the Severance Pay Law, 1963 ("Section 14"), that
the Company's contributions for severance pay shall be instead of severance compensation and that upon release of the policy to the employee,
no additional calculations shall be conducted between the parties regarding the matter of severance pay and no additional payments shall
be made by the Company to the employee.
Further,
since the Company has signed agreements with its employees under Section 14, the related obligation and amounts deposited on behalf of
such obligation are not stated on the balance sheet, as they are legally released from obligation to employees once the deposit amounts
have been paid.
Severance
pay expenses for the years ended December 31, 2024, 2023 and 2022 amounted to approximately $
1,647
,
$
2,102
and $
2,614
,
respectively.
F - 25
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| t. |
Fair value of financial instruments:
|
In
accordance with ASC 820, the Company measures the below assets and liabilities at fair value using the various valuation techniques. The
assets and liabilities are classified within Level 1 for using quoted market prices, Level 2 for alternative pricing sources and models
utilizing market observable inputs, and Level 3 unobservable inputs which are supported by little or no market activity, also using third
party appraisers.
The
following table sets forth the Company’s assets and liabilities that were measured at fair value as of December 31, 2024 and 2023
by level within the fair value hierarchy:
| Fair Value |
Fair
value measurements
as
of December 31,
|
|||||||||
|
Description
|
Hierarchy
|
2024
|
2023
|
|||||||
|
|
||||||||||
|
Measured
at fair value on a recurring basis:
|
||||||||||
|
|
||||||||||
|
Assets:
|
||||||||||
|
Derivative
assets
|
Level
2
|
$
|
|
$
|
|
|||||
|
Redeemable
Non-Controlling Interest (*):
|
Level
3
|
$
|
|
$
|
|
|||||
(*)
During 2024 the Company acquired additional redeemable non-controlling interest in Lioli (see also note 1). As of December 31, 2024 the
Company estimated the value of the redeemable non-controlling interest based on the settlement price which represents its redeemable value.The
Company estimated the fair value of redeemable non-controlling interest using Monte Carlo simulation in previous years. The valuation
requires management to make certain assumptions about the model inputs, including forecast cash flows, the discount rate and the volatility.
The fair value measurement is based on inputs not observable in the market and thus represent Level 3 measurements as defined in ASC 820.
F - 26
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| t. |
Fair value of financial instruments
(cont.):
|
|
Measured
at fair value on a nonrecurring basis:
| (a) |
As of December
31, 2024, in accordance with Subtopic 360-10, long-lived assets held and used were written down to their fair value, resulting in an impairment
charge of $
|
As
of December 31, 2023, in accordance with Subtopic 360-10, long-lived assets held and used were written down to their fair value, resulting
in an impairment charge of $
28,472
related to Property Plant and Equipment included in US and Sdot Yam manufacturing facility, and $
16,575
related to ROU asset related to Sdot Yam.
| (b) |
As of December
31, 2024 and 2023, the goodwill balance was $
|
The
carrying amounts of financial instruments not measured at fair value, including cash and cash equivalents, trade receivables, other accounts
receivables, trade payables, accrued expenses and other liabilities, short term loans and short term bank credit, approximate their fair
value due to the short-term maturities of such instruments.
| u. |
Basic and diluted net income (loss)
per share:
|
Basic
net income (loss) per share ("Basic EPS") is computed by dividing net income (loss) attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the period.
Diluted
net income (loss) per share ("Diluted EPS") gives effect to all dilutive potential ordinary shares outstanding during the period. The
computation of Diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive
effect on earnings. The dilutive effect of outstanding stock options is computed using the treasury stock method. For the years ended
December 31, 2024, 2023 and 2022 there were approximately
2,495,479
,
2,310,543
,
and
1,534,500
outstanding stock options, respectively, that were excluded from the computation of Diluted EPS, that would have had an anti dilutive
effect if included.
F - 27
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| v. |
Comprehensive income and accumulated
other comprehensive income (loss):
|
Comprehensive
income consists of two components, net income and other comprehensive income ("OCI"). OCI refers to revenue, expenses, and gains and losses
that under U.S. GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Company’s OCI consists
of foreign currency translation adjustments from those subsidiaries not using the USD as their functional currency and net deferred gains
and losses on certain derivative instruments accounted for as cash flow hedges and marketable securities.
The
total accumulated other comprehensive income ("AOCI"), net of tax was comprised as follows:
|
December
31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Accumulated
income on derivative instruments
|
|
|
||||||
|
Accumulated
foreign currency translation differences and other
|
(
|
)
|
(
|
)
|
||||
|
Total
accumulated other comprehensive loss, net
|
$
|
(
|
)
|
$
|
(
|
)
|
||
F - 28
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
The
following table summarizes the changes in AOCI, net of taxes for the year ended:
|
Unrealized
gains (losses) on derivative instruments
|
Unrealized
gains (losses) on marketable securities
|
Accumulated
foreign currency translation differences and other
|
Total
|
|||||||||||||
|
Balance
at January 1, 2023
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Other
comprehensive income (loss) before reclassifications
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Amounts
reclassified from AOCI
|
|
|
|
|
||||||||||||
|
Net
current period OCI
|
|
|
|
|
||||||||||||
|
Balance
at December 31, 2023
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Other
comprehensive income (loss) before reclassifications
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Amounts
reclassified from AOCI
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Net
current period OCI
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||
|
Balance
at December 31, 2024
|
|
|
(
|
)
|
(
|
)
|
||||||||||
The
following table shows the amounts reclassified from AOCI into the Consolidated Statements of Income, and the associated financial statement
line item, for 2024 and 2023:
|
December
31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Affected
line item in the consolidated statements of income
|
||||||||
|
Cost
of revenues
|
$
|
|
$
|
|
||||
|
Research
and development
|
|
|
||||||
|
Marketing
and selling
|
|
|
||||||
|
General
and administrative
|
|
|
||||||
|
Total
loss
|
$
|
|
$
|
|
||||
F - 29
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| w. |
Accounting for stock-based compensation:
|
Equity
share based payment:
The
Company accounts for stock-based compensation in accordance with ASC 718, "Compensation-Stock Compensation" ("ASC 718"). ASC 718 requires
companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model.
The
Company accounts for employees and directors’ share-based payment awards classified as equity awards using the grant-date fair value
method. The fair value of share-based payment transactions is recognized as an expense over the requisite service period. The Company’s
accounting policy is to account for forfeitures as they occur.
The
exercise price of each option is generally Company's stock price on the date of the grant. Options generally become exercisable over approximately
to
period, subject to the continued employment. All options expire after 7 years from the date of grant. In addition, commencing in 2015
the Company granted certain of its employees and officers with restricted stock units ("RSUs"), vesting over approximately a
period from the grant date. RSUs fair value is measured at the grant date based on the market value of Company's common
stock. RSUs that are cancelled or forfeited become available for future grants.
In
2024 and 2023, the Company estimated the fair value of stock options granted using the Black-Scholes option pricing model with the following
weighted average assumptions:
|
December
31,
|
||||
|
2024
|
2023
|
|||
|
Dividend
yield
|
|
|
|
|
|
Expected
volatility
|
|
|
||
|
Risk-free
interest rate
|
|
|
||
|
Expected
life (in years)
|
|
|
||
The
Company used volatility data in accordance with ASC 718 and based on Company's historical data.
The
computation of risk free interest rate is based on the rate available on the date of grant of a zero-coupon U.S. government bond with
a remaining term equal to the expected term of the option.
F - 30
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
The
expected term of options granted is calculated using the simplified method (being the average between the vesting periods and the contractual
life of the options). In case of grant to Company's CEO or directors, the expected term equals to the contractual life.
For
the vast majority of the options granted in 2024 and 2023, the dividend yield is zero, due to adjustment mechanism with respect to the
exercise price upon payment of a dividend. For those options granted without adjustment mechanism, the dividend yield applied is
3
%.
| x. |
Redeemable non-controlling interest:
|
Following
the acquisition of Lioli during 2020, the Company is party to a put and call arrangement with respect to the remaining 45% non-controlling
interest in Lioli. Due to the existing put and call arrangements, the non-controlling interest is considered to be redeemable and is recorded
on the balance sheet as a redeemable non-controlling interest outside of permanent equity.
During
March 2022, the Company participated in rights offering in Lioli, and purchased additional
9,870,000
shares in amount of approximately $
2.5
million. Following this oferring, the Company holds
60.4
%
of Lioli's shares on a fully diluted basis.
During
July 2024, the Company partially utilized the call option to purchase minority shares in Lioli, and purchased
10,699,162
shares from certain minority holders in amount of approximately $
1.6
million. Following this offering, the Company holds
80.7
%
of Lioli's shares on a fully diluted basis.
The
redeemable non-controlling interest is recognized at the higher of: i) the accumulated earnings associated with the non-controlling interest,
or ii) the redemption value as of the balance sheet date (see also Note 1b).
The
following table provides a reconciliation of the redeemable non-controlling interest:
|
Year
ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Beginning
of the year
|
$
|
|
$
|
|
$
|
|
||||||
|
Net
income (loss) attributable to non-controlling interest
|
(
|
)
|
(
|
)
|
|
|||||||
|
Adjustment
to Put option value (*)
|
(
|
)
|
|
|
||||||||
|
Payment
for Put option (*)
|
(
|
)
|
|
|
||||||||
|
Foreign
currency translation adjustments
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Redeemable
non-controlling interest - end of the year
|
$
|
|
$
|
|
$
|
|
||||||
| (*) |
See also Note 1b.
|
F - 31
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| y. |
Contingencies:
|
The
Company is involved in various product liability, commercial, government investigations, environmental claims and other legal proceedings
that arise from time to time in the course of business. The Company records accruals for these types of contingencies to the extent that
the Company concludes their occurrence is probable and that the related liabilities are estimable. When accruing these costs, the Company
will recognize an accrual in the amount within a range of loss that is the best estimate within the range. When no amount within the range
is a better estimate than any other amount, the Company accrues for the minimum amount within the range. The Company records anticipated
recoveries under existing insurance contracts that are probable of occurring at the amount that is expected to be collected. Legal costs
are expensed as incurred. For unasserted claims or assessments, the Company followed the accounting guidance in ASC 450 Contingencies,
in which the Company must first determine that the probability that an assertion will be made is likely, then, a determination as to the
likelihood of an unfavorable outcome and the ability to reasonably estimate the potential loss is made.
| z. |
Business combination:
|
The
Company accounts for business combinations by applying the provisions of ASC 805, Business Combination, and allocates the fair value of
purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair
values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded
as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions,
especially with respect to intangible assets.
Significant
estimates in valuing certain intangible assets include, but are not limited to future expected cash flows from acquired customer relationship
and acquired trademarks from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value
are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results
may differ from estimates. During the measurement period, which does not exceed one year from the acquisition date, the Company
may record adjustments to the assets acquired and liabilities assumed, with the corresponding adjustment to goodwill. Upon the finalization
of the measurement period, any subsequent adjustments are recorded to earnings.
Acquisition-related
costs are recognized separately from the acquisition and are expensed as incurred. See also Note 1.
F - 32
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| aa. |
Exit or disposal activities:
|
The
company accounts for exit and disposal cost obligations, including restructuring activities, under ASC 420-10 "Exit or Disposal Cost Obligations",
which requires that the company record liabilities for such activities only when such liability has been incurred. During 2024 the company
closed it's facility in Richmond hill, Georgia, USA, and sold part of it's lands and production equipment, and during 2023 the company
closed it's facility in Sdot-Yam, Israel.
Total
restructuring expenses for the year ended December 31, 2024 and 2023 related to the manufacturing facilities closures and partial sales
of assets in those locations, totaled approximately to a credit of $
6.0
million and expenses of $
2.9
million, included within the operating expenses on the consolidated statements of comprehensive income (loss).
In
2024, out of the credit of $
6.0
million, capital gain related to the partial sale of undeveloped land facility was approximately $
7.4
million, offset by decommissioning and restoration costs of approximately $
1.4
million.
In
2023, out of the $
2.9
million expenses, employee termination costs were approximately $
1.0
million and decommissioning and restoration costs were approximately $
1.9
million.
As
of December 31, 2024 approximately $
1.5
million is recorded under accrued expenses and other liabilities.
F - 33
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
| ab. |
Impact of recently issued accounting
standards:
|
Recently
issued accounting standards and adopted by the Company:
In
October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets
and contract liabilities in a business combination in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from
Contracts with Customers (Topic 606). This guidance is effective for fiscal years beginning after December 15, 2022, and interim periods
within those fiscal years. Early adoption is permitted. The adoption of the standards did not have a material impact on the Company’s
consolidated financial statements.
In
November 2023, the FASB issued ASU 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable
Segment Disclosures
, requiring public entities to disclose information about their reportable segments’ significant expenses
and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure
requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and
annual basis. The Company adopted ASU 2023-07 during the year ended December 31, 2024. The adoption of the standards did not have a material
impact on the Company’s consolidated financial statements. See Note 16 for further detail.
Recently
issued accounting standards and not yet adopted by the Company:
In
December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities,
on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid
disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.
The Company is currently evaluating the impact of adopting ASU 2023-09.
F - 34
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 3:- |
MARKETABLE
SECURITIES
|
As
of December 31, 2024 and 2023, there is no outstanding marketable securities held by the company.
The
following is a summary of available-for-sale marketable securities at December 31, 2022:
|
Amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Accrued
Interest
|
Fair
value
|
||||||||||||||||
|
|
||||||||||||||||||||
|
Available-for-sale
– matures within one year:
|
||||||||||||||||||||
|
Corporate
bonds
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
As
of December 31, 2024 and 2023 the Company didn’t record an allowance for credit losses for its AFS marketable debt securities.
| NOTE 4:- |
OTHER
ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
|
|
December
31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Prepaid
expenses
|
$
|
|
$
|
|
||||
|
Government
authorities
|
|
|
||||||
|
Advances
to suppliers
|
|
|
||||||
|
Derivatives
|
|
|
||||||
|
Insurance
receivables (*)
|
|
|
||||||
|
Other
receivables
|
|
|
||||||
|
$
|
|
$
|
|
|||||
(*)
Related to bodily injury claims, see also note 11.
| NOTE 5:- |
INVENTORIES
|
|
December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Raw materials
|
$
|
|
$
|
|
||||
|
Work-in-progress
|
|
|
||||||
|
Finished goods
|
|
|
||||||
|
$
|
|
$
|
|
|||||
F - 35
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 6:- |
PROPERTY, PLANT AND EQUIPMENT,
NET
|
|
December
31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Cost:
|
||||||||
|
Machinery
and manufacturing equipment, net (1)
|
$
|
|
$
|
|
||||
|
Office
equipment and furniture
|
|
|
||||||
|
Motor
vehicles
|
|
|
||||||
|
Buildings
and leasehold improvements
|
|
|
||||||
|
Prepaid
expenses related to operating lease (2)
|
|
|
||||||
|
|
|
|||||||
|
Accumulated
depreciation and impairment:
|
||||||||
|
Machinery
and manufacturing equipment, net
|
|
|
||||||
|
Office
equipment and furniture
|
|
|
||||||
|
Motor
vehicles
|
|
|
||||||
|
Buildings
and leasehold improvements
|
|
|
||||||
|
Prepaid
expenses related to operating lease
|
|
|
||||||
|
Impairment
of fixed assets (3)
|
|
|
||||||
|
|
|
|||||||
|
Depreciated
cost
|
$
|
|
$
|
|
||||
| (1) |
Presented net of investment grants received in
the total amount of $
|
| (2) |
Until 2012, the Company leased land from the Israel
Lands Administration ("ILA") for its Bar-Lev manufacturing facility. The lease term started on February 6, 2005. The lease is for an initial
non-cancellable term of 49 years, with a renewal option of an additional 49 years.
|
| (3) |
Non cash pre-tax impairment charges recognized
in 2024, 2023, and 2022 were $
|
Depreciation
expenses were $
14,844
,
$
27,387
and $
33,813
for the years ended December 31, 2024, 2023 and 2022, respectively.
F - 36
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 7:- |
GOODWILL AND INTANGIBLES
|
a.
Goodwill:
The
changes in the carrying amount of goodwill for the years ended December 31, 2022, is as follows:
|
Balance
as of January 1, 2022
|
$
|
|
||
|
Acquired
through business combination (*)
|
|
|||
|
Goodwill
Impairment (**)
|
(
|
)
|
||
|
Foreign
currency translation adjustments
|
(
|
)
|
||
|
Balance
as of December 31, 2022
|
$
|
|
(*)
Resulting from Magrab acquisition, see also Notes 1(d).
(**)The
Company performs its annual testing of goodwill in the fourth quarter of each year in accordance with ASC 350 (see also Note 2l). During
the fourth quarter of 2022, the Company conducted an impairment test of its reporting unit. Due to factors such as a decrease in the Company's
market value, lower-than-expected projected future cash flows, and higher interest rates, a pre-tax, non-cash goodwill impairment charge
of $
44,829
was recorded.
b.
Intangible assets:
|
December
31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Original
amounts:
|
||||||||
|
Customer
relationships
|
$
|
|
$
|
|
||||
|
Accumulated
amortization:
|
||||||||
|
Customer
relationships
|
(
|
)
|
(
|
)
|
||||
|
Impairment
charges (3)
|
(
|
)
|
|
|||||
|
Foreign
currency translation adjustment
|
(
|
)
|
(
|
)
|
||||
|
Total
intangibles assets
|
$
|
|
$
|
|
||||
| (1) |
Amortization expense amounted to $
|
| (2) |
Estimated amortization expenses for 2025 are $
|
| (3) |
See also Note 2k.
|
F - 37
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 8:- |
SHORT-TERM BANK CREDIT
AND CURRENT MATURITIES OF LONG-TERM LOAN
|
Short-term
bank credit and loans are classified as follows:
|
Weighted
average interest
|
|||||||||||||||||
|
|
Currency |
December
31,
|
December
31,
|
||||||||||||||
|
2024
|
2023
|
2024
|
2023
|
||||||||||||||
|
%
|
|||||||||||||||||
|
Short-term
bank credit (*)
|
INR
|
|
|
$
|
|
$
|
|
||||||||||
|
Current
maturities of Long- term bank loan and other (*)
|
INR
|
|
|
$
|
|
$
|
|
||||||||||
|
Total
|
$
|
|
$
|
|
|||||||||||||
|
(*) Credit line and bank loan in Lioli - During
2022, Lioli engaged with a new bank and signed a new loan agreement. The loan agreement with the bank in Lioli contains customary covenants. Lioli
is in compliance with the requirement of the financial covenants under the agreement of own capital contribution. The Loan Agreement also
contains certain customary negative covenants that require Lioli to refrain from certain actions unless bank’s consent obtained.
Lioli debt is secured by a SBLC (Stand By Letter of Credit) from Caesarstone and floating charge on all of Lioli’s assets. (see
also Note 15).
|
| NOTE 9:- |
ACCRUED EXPENSES AND OTHER LIABILITIES
|
|
December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Employees and payroll accruals
|
$
|
|
$
|
|
||||
|
Accrued expenses
|
|
|
||||||
|
Advances from customers
|
|
|
||||||
|
Taxes payable
|
|
|
||||||
|
Warranty provision
|
|
|
||||||
|
Sales return provision
|
|
|
||||||
|
Operating lease liability short-term
|
|
|
||||||
|
Contingent consideration liability and other
|
|
|
||||||
|
$
|
|
$
|
|
|||||
F - 38
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 10:- |
LEASES
|
As
of December 31, 2024, the Company had operating lease agreements for facilities and vehicles in the United States, Canada, Australia,
United Kingdom, European Union, Israel, India, Sweden and Singapore. The Company’s leases have remaining lease terms of up to 14
years, some of which include options to extend the leases for up to five years. Such options are included in the lease term when it is
reasonably certain that the option will be exercised. Leases with an initial term of 12 months or less are not recorded on the balance
sheet, the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company does not separate
non-lease components from the lease components to which they relate, and instead accounts for each separate lease and non-lease component
associated with that lease component as a single lease component for all underlying asset classes. The Company uses its estimated incremental
borrowing rate based on the information available at commencement date in determining the present value of lease payments.
| a. |
The following table summarizes the Company’s
lease-related assets and liabilities recorded on the consolidated balance sheet:
|
|
|
Classification |
December 31,
2024
|
December 31,
2023
|
||||||
|
Assets:
|
|||||||||
|
Operating
lease assets (*)
|
Operating
lease right-of-use assets
|
$
|
|
$
|
|
||||
|
Total
lease assets
|
$
|
|
$
|
|
|||||
|
Liabilities:
|
|||||||||
|
Current
lease liabilities
|
Accrued
expenses and other liabilities
|
|
|
||||||
|
Long-term
lease liabilities
|
Long-term
operating lease liabilities
|
|
|
||||||
|
Total
lease liabilities
|
$
|
|
$
|
|
|||||
(*)
Following the closure of Sdot Yam plant, the Company evaluated it's right of use asset resulted from non-cancelable lease agreement effective
through 2032. Based on future estimated sublease the Company recorded an impairment of $
16,575
during 2023. No additional impairment was identified during 2024.
|
Lease
term and discount rate:
|
December
31, 2024
|
December
31, 2023
|
|
|
Weighted-average
remaining lease term — operating leases
|
|
|
|
|
Weighted-average
discount rate — operating leases
|
|
|
F - 39
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 10:- |
LEASES (Cont.)
|
| b. |
The components of operating lease cost for the
year ended December 31, 2024 and 2023 were as follows:
|
|
December 31,
2024
|
December 31,
2023
|
|||||||
|
Operating
lease cost:
|
||||||||
|
Operating
lease expense
|
$
|
|
$
|
|
||||
|
Variable
lease expense (*)
|
|
|
||||||
|
Sublease
income
|
(
|
)
|
(
|
)
|
||||
|
Total
operating lease cost
|
$
|
|
$
|
|
||||
(*)
Includes short-term leases, index and other variable lease costs.
| c. |
The maturity of the Company’s operating
lease liabilities for contracts with lease term greater than one year as of December 31, 2024 are as follows:
|
|
December 31,
|
||||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029
|
|
|||
|
2030
and thereafter
|
|
|||
|
Total
future lease payments (1,2)
|
|
|||
|
Less
imputed interest
|
(
|
)
|
||
|
Total
|
$
|
|
||
| (1) |
Total lease payments have not been reduced by
sublease rental expected payments of approximately $
|
| (2) |
As of December 31, 2024, we have additional
operating lease payments, that have not yet commenced of approximately $
|
| d. |
For additional information regarding lease transactions
between related parties, refer to Note 14.
|
|
F - 40
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 10:- |
LEASES (Cont.)
|
| e. |
The following table presents supplemental cash
flow information related to the lease costs for operating leases:
|
|
December 31,
2024
|
December 31,
2023
|
|||||||
|
Cash
paid for amounts included in measurement of lease liabilities:
|
||||||||
|
Operating
cash flows for operating leases
|
$
|
|
$
|
|
||||
| NOTE 11:- |
COMMITMENTS AND CONTINGENT
LIABILITIES
|
| a. |
Legal proceedings and contingencies:
|
Bodily
injury claims related to exposure to silica dust:
Overview:
The
Company is subject to numerous claims mainly by fabricators, their employees or National Insurance Institute (the Israeli insurance institute
-"NII" or Australian states workers compensation regulators), alleging that fabricators contracted illnesses, including silicosis, through
exposure to silica particles during cutting, polishing, sawing, grinding, breaking, crushing, drilling, sanding or sculpting Company's
products.
Individual
claims in Israel
As
of December 31, 2024, the Company is subject to
124
pending bodily injury claims (individual claims and NII subrogation or related future probable claims, representing 52 injured persons)
that have been submitted in Israel since 2008 against the Company directly, or that have named the Company as third-party defendant by
fabricators or their employees in Israel, by the injurer's successors, by the NII or by others. Based on its legal advisors’, contingent
losses related to such claims are probable, and pursuant to ASC 450, an accrual has been recorded for the loss contingencies related to
such claims.
As
of December 31, 2024, the Company has
11
pending pre-litigation demand letters on behalf of certain fabricators in Israel.
Most
of the claims in Israel do not specify a total amount of damages sought, as the plaintiff’s future damages are intended to be determined
at trial.
In
November 2015 and in May 2017, the Company entered into agreements with the State of Israel and with its main distributors in Israel,
respectively, with the consent of its insurance carriers, under which the Company agreed with the State and each of its main distributors
to cooperate, subject to certain terms, with respect to the management of the individual claims that have been filed and claims that may
be submitted during a certain time period (NII claims are excluded from the Company’s agreement with the State) and on the apportionments
of the total liability between the Company , the State, and the distributors, if found, in such claims. The agreement has been extended
through March 31, 2029.
Individual
claims in Australia:
As
of December 31, 2024, Company’s subsidiary in Australia is subject to
122
pending bodily injury claims that have been submitted in Australia since 2018 against it directly, or that have named the Company as third-party
defendant by fabricators in Australia.
Commencing
2021, the Company reassessed the expected outcome of the individual product liability claims in Australia following Company's and its
insurance carrier consent for several settlements. Based on this development and also based on its legal advisors’, contingent losses
related to the product liability individual claims are probable, and pursuant to ASC 450, an accrual has been recorded for the loss contingencies
related to such claims.
F - 41
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 11:- |
COMMITMENTS AND CONTINGENT
LIABILITIES (Cont.)
|
Individual
claims in the U.S.:
As
of December 31, 2024, Company’s subsidiary in U.S. (Caesarstone U.S.) is subject to
122
pending individual bodily injury claims that have been submitted in U.S. against it directly, or that have named the Company as third-party
defendant by fabricators in U.S.
In
August 2024, a jury rendered a verdict in one such case brought in the Los Angeles County Court. The jury found all defendants liable
and awarded the plaintiffs approximately $
52.4
million in damages. Caesarstone U.S. was apportioned approximately $
13.0
million of this amount. The Company strongly disagrees with the jury’s verdict and believes is not supported by the facts of the
case, including its failure to acknowledge the proactive measures the Company took over the years to warn and educate about safe fabrication
practices. The Company’s motion for new trial and motion for Judgement Notwithstanding the Verdict were rejected on January 27,
2025 and the Company currently appealing the verdict. In February 2025, the Company settled additional claim.
Based
on its legal advisors’, the Company recorded an adequate accrual related to the two cases mentioned above. Contingent losses related
to the other 120 product liability individual claims in the U.S. were defined in accordance with ASC450 as either only reasonably possible
(18 claims) with a range of possible loss between $0.5 to $13 million per claim or are at an early stage (102 claims) in which the amount
of the possible loss cannot be reasonably estimated, and therefore an accrual has not been recorded for such claims as of December 31,
2024. The Company believes it has substantial defenses and will continue to vigorously defend against these claims.
Summary
of the provisions for claims mentioned:
In
order to reasonably estimate the losses for bodily injury claims in Israel, Australia and the U.S. reflected in the table below, the Company
performed a case-by-case analysis with its legal advisors of the relevant facts that were reasonably available to it, related to the claims
filed, including, among other things, the specific known or estimated health condition of the claimants, their ages, salaries, related
probable future subrogation claims from the NII, and other factors that might have an impact on the final outcome of such claims. The
Company will continue to regularly monitor changes in facts for each claim and will update its best estimate if required.
Accordingly,
the reserve for bodily injury claims in Israel, Australia and the U.S. as of December 31, 2024 and 2023 totaled to $
50,032
and $
25,717
respectively, of which $
40,540
and $
14,509
is reported in short term legal settlements and loss contingencies and $
9,492
and $
11,208
is reported in long-term liabilities. The Company currently cannot estimate the number of claimants that may file claims in the future
or the nature of their claims in order to conclude probability or the range of loss.
The
Company updated its provision in 2024, 2023 and 2022 to reflect the outstanding claims in the below table, and provided a provision also
for related NII unasserted claims, based on its legal advisors’ and according to ASC 450, taking into consideration new claims filed,
settlements reached and other new information available.
F - 42
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 11:- |
COMMITMENTS AND CONTINGENT
LIABILITIES (Cont.)
|
A
summary of bodily injury claims for which the Company provided provision is as follows:
|
Year
ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Outstanding
claims, January 1,
|
|
|
|
|||||||||
|
New
claims
|
|
|
|
|||||||||
|
Settled
and dismissed claims
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Outstanding
claims, December 31
|
|
|
|
|||||||||
Insurance
The
Company maintains insurance for product liability claims, including for bodily injury claims related to exposure to silica dust, where
such insurance cover can be obtained. The Company has purchased insurance policies for the period from 2008 and to date from several insurance
carriers that provide coverage for product liability losses, subject to certain terms and conditions, and the related defense costs up
to a certain limit per case and per policy year.
As
of December 31, 2024, for the U.S., Australia and Israel the Company did not obtain new product liability covers related to silica dust.
For Canada, the Company has product liability insurance policy covers up to CAD
20
million, with relatively low deductibles.
The
collectability of the Company's insurance receivables is regularly evaluated, and the amounts recorded are probable of collection. This
conclusion is based on the followings - analysis of the terms of the underlying insurance policies; experience in successfully recovering
individual product liability claims from Company's insurers in Israel and Australia; the agreement the Company has with the insurance
carriers and the State of Israel; the financial ability of the insurance carriers to pay the claims and the relevant facts and applicable
law. There is no assurance that part or all of the other 120 individual silica claims pending in the U.S. will be covered by insurance
in whole or in part.
As
of December 31, 2024, and 2023, the insurance receivable totaled to $
32,178
and $
8,361
,
respectively, reported in the other accounts receivable and prepaid expenses.
During
the years ended December 31, 2024 and 2023, legal settlements and loss contingencies expenses related to the bodily injury claims totaled
to $
7,242
and
credit of $
4,847
,
respectively, which reflects the deductible amounts for claims covered by insurance policies, claims not covered and the impact of settlements
including the related legal costs.
F - 43
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 11:- |
COMMITMENTS AND CONTINGENT
LIABILITIES (Cont.)
|
General:
From
time to time, the Company is involved in other legal proceedings and claims in the ordinary course of business related to a range of matters.
While the outcome of these other claims cannot be predicted with certainty, the Company monitors and estimates the possible loss deriving
from these claims based on new information available and based on its legal advisors, and believes that it recorded an adequate reserve
for these claims in accordance with ASC 450.
| b. |
Purchase obligation:
|
The
Company's significant contractual obligations and commitments as of December 31, 2024, are for purchase obligations to certain suppliers
and amounted to $
22,442
for the fiscal year 2025.
| c. |
Pledges and guarantees:
|
| 1. |
As of December 31, 2024, the Company had outstanding
guarantees and letters of credit with various expiration dates in a principal amount of approximately $
|
| 2. |
See also note 15.
|
F - 44
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 12:- |
TAXES ON INCOME
|
| a. |
Israeli taxation:
|
| 1. |
Corporate tax rate:
|
The
corporate tax rate in Israel was
23
%
in 2024 and 2023, and 2022.
| 2. |
Foreign Exchange Regulations:
|
Under
the Foreign Exchange Regulations, Caesarstone Ltd. calculates its tax liability in U.S. Dollars according to certain orders. The tax liability,
as calculated in U.S. Dollars is translated into New Israeli Shekels according to the exchange rate as of December 31st of each year.
| 3. |
Tax benefits under Israel's Law for the
Encouragement of Industry (Taxes), 1969:
|
The
Company is an "Industrial Company," as defined by the Law for the Encouragement of Industry (Taxes), 1969, and as such, the Company is
entitled to certain tax benefits, primarily amortization of costs relating to know-how and patents over eight years, accelerated depreciation
and the right to deduct public issuance expenses for tax purposes.
| 4. |
Tax benefits under the Law for the Encouragement
of Capital Investments, 1959:
|
According
to the Law for the Encouragement of Capital Investments, 1959 (the "Encouragement Law"), the Company is entitled to various tax benefits
by virtue of the "Preferred Enterprise" status granted to its enterprises, in accordance with the Encouragement Law.
The
Company chose to be taxed according to the "Preferred Enterprise" track under Amendment No. 68 to the Encouragement Law (the "Amendment
No. 68"). In order to implement Amendment No. 68 and to be taxed under the "Preferred Enterprise" track, the Company waived the tax benefits
of the previous tracks -"Approved Enterprise" and "Beneficiary Enterprise" - under the Encouragement Law, starting from the 2011 tax year.
The
principal benefits by virtue of the Encouragement Law are the following:
Tax
benefits and reduced tax rates under the Preferred Enterprise track:
The
tax rate on preferred income from a Preferred Enterprise commencing 2017 is 16% and in development area A – 7.5% (relates to Company's
manufacturing plant in Bar-Lev industrial zone). During 2023 the company closed it’s Sdot-Yam manufacturing facility, resulting
future tax benefits only from it’s manufacturing facility in Bar-Lev industrial zone.
In
order to receive benefits as a "Preferred Enterprise," Amendment No. 68 states certain conditions must be met. The basic condition for
receiving the benefits under Amendment No. 68 is that the enterprise contributes to the country's economic growth and is a competitive
factor for the gross domestic product (a "competitive enterprise"). In order to comply with this condition, the Encouragement Law prescribes
various requirements.
F - 45
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 12:- |
TAXES ON INCOME
(Cont.)
|
As
for industrial enterprises, in each tax year, one of the following conditions must be met:
| 1. |
Its main field of activity is biotechnology
or nanotechnology as approved by the Head of the Administration of Industrial Research and Development.
|
| 2. |
The industrial enterprise's sales revenues
in a specific market during the tax year do not exceed 75% of its total sales for that tax year. A "market" is defined as a separate country
or customs territory.
|
| 3. |
At least
|
Amendment
No. 68 also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise's earnings as
discussed above will be subject to tax at a rate of
20
%
from 2014 and onwards (or a reduced rate under an applicable double tax treaty).
Since
the Company chose to apply the provisions of Amendment No. 68, by submitting the waiver form before June 30, 2015, the Company is eligible
to distribute taxed earnings derived from a Beneficiary Enterprise and/or Approved Enterprise to an Israeli company without being subject
to withholding tax.
In
development area A, in addition to the tax benefits, as mentioned above, some of the Company's facilities are eligible for grants at rate
of
20
%
and/or loans, subject to an approval of the Israeli Investment Center.
Accelerated
depreciation:
The
Company is eligible for a deduction of accelerated depreciation on machinery and equipment used by the Approved Enterprise or the Beneficiary
Enterprise or the Preferred Enterprise at a rate of
200
%
(or
400
%
for buildings) from the first year of the asset's operation.
F - 46
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 12:- |
TAXES ON INCOME
(Cont.)
|
Conditions
for entitlement to benefits:
The
above mentioned benefits are contingent upon the fulfillment of the conditions stipulated by the Encouragement Law, regulations published
thereunder and the letters of approval for the investments in the Preferred Enterprises, as discussed above. Non-compliance with the conditions
may cancel all or part of the benefits and require a refund of the amount of the benefits, including interest. The Company's management
believes that the Company meets the aforementioned conditions.
The
tax-exempt income attributable to the Approved Enterprise cannot be distributed to shareholders without subjecting the Company to taxes.
If dividends are distributed out of tax-exempt profits, the Company will then become liable for tax at the rate applicable to its profits
from the Approved Enterprise in the year in which the income was earned, as if it was not under the "Alternative benefits track" (taxed
at the rate of no more than 25% as of December 31, 2024). Under the Encouragement Law, tax-exempt income generated under the Approved
Enterprise status will be taxed, among other things, upon a dividend distribution or complete liquidation in accordance with the Encouragement
Law.
In
November 2021, amendment No. 74 to the Investment Law (the “Trapped Earnings Law”) came into effect. Amendment 74 to the Encouragement
Law:
On
November 15, 2021, the Economic Efficiency Law (Legislative Amendments for Achieving Budget Targets for the 2021 and 2022 Budget Years),
2021 ("the Economic Efficiency Law"), was enacted. This Law establishes a temporary order allowing Israeli companies to release tax-exempt
earnings ("trapped earnings" or "accumulated earnings") accumulated until December 31, 2020, through a mechanism established for a reduced
corporate income tax rate applicable to those earnings ("the Temporary Order"). In addition to the reduced corporate income tax (CIT)
rate, Article 74 to the Encouragement Law was amended whereby effective from August 15, 2021, for any dividend distribution (including
a dividend as per Article 51B to the Encouragement Law) by a company which has trapped earnings, there will be a requirement to allocate
a portion of that distribution to the trapped earnings.
The
Company distributed dividends during November 2021 and September 2022, both were partially attributed to the above amendment.
Of
the Company's retained earnings as of December 31, 2024, approximately $
20,058
is tax-exempt earnings attributable to its Approved Enterprise.
As
of December 31, 2024, if the income attributed to the Approved Enterprise would have been distributed as a dividend, the Company would
have incurred a tax liability of approximately $
5,015
.
F - 47
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 12:- |
TAXES ON INCOME
(Cont.)
|
| b. |
Non-Israeli subsidiaries taxation:
|
Non-Israeli
subsidiaries are taxed based on tax laws in their countries of residence.
Statutory
tax rates for Non-Israeli subsidiaries are as follows:
Company
incorporated in United States –
25.3
%
tax rate (federal and state).
Company
incorporated in Australia -
30
%
tax rate.
Company
incorporated in Singapore -
17
%
tax rate.
Company
incorporated in Canada –
26.1
%
tax rate (federal and state).
Company
incorporated in England –
25
%
tax rate.
Company
incorporated in India –
30
%
tax rate.
Company
incorporated in Sweden –
20.6
%
tax rate.
Israeli
income taxes and foreign withholding taxes were not provided for undistributed earnings of the Company's foreign subsidiaries. The Company
intends to reinvest these earnings indefinitely in the foreign subsidiaries. Accordingly, no deferred income taxes have been provided.
If these earnings were distributed to Israel in the form of dividends or otherwise, the Company would be subject to additional Israeli
income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes.
F - 48
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 12:- |
TAXES ON INCOME
(Cont.)
|
| c. |
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 Company's deferred tax assets and liabilities
are as follows:
|
December
31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Goodwill
and Intangible assets
|
$
|
|
$
|
|
||||
|
Operating
lease liabilities and others
|
|
|
||||||
|
Temporary
differences related to inventory
|
|
|
||||||
|
Property
and equipment
|
|
|
||||||
|
Net
operating loss carry-forward, deductions and credits
|
|
|
||||||
|
Less-valuation
allowance
|
(
|
)
|
(
|
)
|
||||
|
Total
deferred tax assets
|
|
|
||||||
|
Deferred
tax liabilities:
|
||||||||
|
Property
and equipment
|
(
|
)
|
(
|
)
|
||||
|
Intangible
Assets
|
(
|
)
|
(
|
)
|
||||
|
Operating
lease right-of-use assets and others lease
|
(
|
)
|
(
|
)
|
||||
|
Total
deferred tax liabilities
|
(
|
)
|
(
|
)
|
||||
|
Deferred
tax
assets, net
|
$
|
|
$
|
|
||||
Net
operating loss carry-forwards
Parent
Company and certain subsidiaries have tax loss carry-forwards totaling approximately $192,428 which can be carried forward indefinitely.
In addition to the above, the Company carried back its 2020 U.S. subsidiaries losses in accordance with the CARES act.
Based
on available evidence, management believes it is not more-likely-than-not that $28,497 Israel and U.S deferred tax assets will be fully
realizable. Accordingly, in those jurisdictions, the Company has recorded a valuation allowance against these assets. The Company regularly
reviews the deferred tax assets for recoverability based on all of the available positive and negative evidence, with a focus on historical
taxable income, projected future taxable income, the expected timing of the reversals of existing taxable temporary differences and tax
planning strategies by jurisdiction.
F - 49
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 12:- |
TAXES ON INCOME
(Cont.)
|
In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible. Management considers the schedule of reversal
of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. During 2023, the Company
recorded a full valuation allowance on deferred tax assets in the U.S and Israel in accordance with ASC 740, due to accumulated 3-year
loss position and its estimation that future taxable income is not probable. Same treatment was applied during 2024.
| d. |
A reconciliation of the Company's effective
tax rate to the statutory tax rate in Israel is as follows:
|
|
Year
ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Loss
before taxes on income
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Statutory
tax rate in Israel
|
|
%
|
|
%
|
|
%
|
||||||
|
Tax
benefit at statutory rate
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Increase
(decrease) in tax expenses resulting from:
|
||||||||||||
|
Tax
benefit arising from reduced rate as an "Preferred Enterprise"
|
|
|
|
|||||||||
|
Non-deductible
expenses, net
|
|
|
|
|||||||||
|
Increase
(decrease) in taxes from prior years, also related to settlement with tax authorities
|
|
|
(
|
)
|
||||||||
|
Tax
adjustment in respect of foreign subsidiaries' different tax rates
|
|
(
|
)
|
(
|
)
|
|||||||
|
Provision
for withholding tax assets
|
|
|
|
|||||||||
|
Uncertain
tax position
|
(
|
)
|
|
|
||||||||
|
Changes
in valuation allowance
|
(
|
)
|
|
|
||||||||
|
Others
|
(
|
)
|
(
|
)
|
|
|||||||
|
Income
tax expense
|
$
|
|
$
|
|
$
|
|
||||||
|
Effective
tax rate
|
(
|
%)
|
(
|
%)
|
(
|
%)
|
||||||
|
Per
share amounts (basic and diluted) of the tax benefit resulting from a "Preferred Enterprise"
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
F - 50
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 12:- |
TAXES ON INCOME
(Cont.)
|
| e. |
Income (loss) before taxes on income is
comprised as follows:
|
|
Year
ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Domestic
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Foreign
|
|
(
|
)
|
(
|
)
|
|||||||
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
| f. |
Tax expenses on income are comprised as
follows:
|
|
Year
ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Current
taxes
|
$
|
|
$
|
|
$
|
|
||||||
|
Deferred
taxes
|
(
|
)
|
|
(
|
)
|
|||||||
|
$
|
|
$
|
|
$
|
|
|||||||
|
Domestic
|
$
|
|
$
|
|
$
|
|
||||||
|
Foreign
|
(
|
)
|
|
|
||||||||
|
$
|
|
$
|
|
$
|
|
|||||||
| g. |
Tax assessments:
|
The
Company operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited or subject to examination
by both domestic and foreign tax authorities. The associated tax filings remain subject to examination by applicable tax authorities for
a certain length of time following the tax year to which those filings relate. The following describes the open tax years, by major tax
jurisdiction, as of December 31, 2024:
Israel
2023
-
present
Australia
2019
- present
Canada
2020
- present
United
States
2020
- present
F - 51
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 12:- |
TAXES ON INCOME
(Cont.)
|
| h. |
Uncertain tax positions:
|
The
balances at December 31, 2024 and 2023 include a liability for unrecognized tax benefits of $
973
,
for tax positions which are uncertain of being sustained.
A
reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:
|
Gross
tax liabilities at January 1, 2022
|
$
|
|
||
|
Increase
in tax positions for current year
|
(
|
)
|
||
|
Gross
tax liabilities at December 31, 2022
|
|
|||
|
Increase
in tax positions for current year
|
|
|||
|
Gross
tax liabilities at December 31, 2023
|
|
|||
|
Increase
in tax positions for current year
|
|
|||
|
Reductions
in respect of settlements with authorities and statute of limitation
|
(
|
)
|
||
|
Gross
tax liabilities at December 31, 2024
|
$
|
|
The
Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome
of tax audits cannot be predicted with certainty. If any issues addressed in the Company's tax audits are resolved in a manner not consistent
with management's expectations, the Company could be required to adjust the provision for income taxes in the period such resolution occurs.
The Company does not expect uncertain tax positions to change significantly over the next 12 months, except in the case of settlements
with tax authorities, the likelihood and timing of which is difficult to estimate.
F - 52
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 13:- |
SHAREHOLDERS' EQUITY
|
| a. |
The Company's share capital consisted of the following
as of December 31, 2024 and 2023:
|
|
Authorized
|
Outstanding
|
|||||||
|
December
31,
|
December
31,
|
|||||||
|
2024
|
2023
|
2024
|
2023
|
|||||
|
Number
of shares
|
||||||||
|
Ordinary
shares of NIS
|
|
|
|
|
||||
| b. |
Ordinary shares:
|
Ordinary
shares confer on their holders' voting rights and the right to receive dividends.
| c. |
Dividends:
|
In
February 2020 the Company revised its dividend policy so that cash dividend will be distributed up to
50
%
of the year to date reported net income attributable to controlling interest less any amounts already paid as dividend for the respective
period, provided that such calculated dividend is not less than $
0.10
per share. Any dividend payment is subject to approval by the Company’s board of directors.
Pursuant
to the above policy the Company paid a total amount of $
8,625
in 2022 mostly out of its non-tax exempt profit under the beneficiary enterprise (see also note 12).
F - 53
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 13:- |
SHAREHOLDERS' EQUITY
(Cont.)
|
| d. |
Compensation plan:
|
On
January 1, 2011, the Board of Directors adopted the Caesarstone Ltd 2011 Incentive Compensation Plan (the “2011 Plan”) pursuant
to which non-employee directors, officers, employees and consultants may receive stock options and RSUs exercisable for ordinary
shares, if certain conditions are met. Under the plan the Company can grant up to
3,275,000
ordinary shares. On September 17, 2020 the Board of Directors adopted Caesarstone Ltd 2020 Share incentive plan (the “2020 Plan”).
Under the 2020 Plan up to
2,500,000
ordinary shares may be granted. In addition, any shares that remain available for issuance under the 2011 Plan, as of the Effective Date,
which shall not exceed
1,000,000
Shares, may also be granted under the 2020 Plan.
As
of December 31, 2024, there were
2,541,670
options and restricted stock units (RSUs) outstanding under the Plans and
1,031,551
shares available or reserved for future issuance under the plan.
As
of December 31, 2024, there was $
1,920
of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted to employees and directors
under the Plan. That cost is expected to be recognized over a weighted-average period of
2.8
years.
The
following is a summary of activities relating to the Company’s stock options granted to employees under the Company’s plan
during the year ended December 31, 2024:
|
Number
of
options
|
Weighted
average
exercise
price
|
Aggregate
intrinsic value
|
||||||||||
|
Outstanding
- beginning of the year
|
|
|
|
|||||||||
|
Granted
|
|
|
|
|||||||||
|
Forfeited
|
(
|
)
|
|
|
||||||||
|
Outstanding
- end of the year
|
|
|
|
|||||||||
|
Options
exercisable at the end of the year
|
|
|
|
|||||||||
|
Vested
and expected to vest
|
|
|
|
|||||||||
The
weighted average fair value of options granted during 2024, 2023 and 2022 was $
1.7
,
$
1.9
and $
3.8
per option. The weighted average fair value of options vested during 2024, 2023 and 2022 was $
9.56
,
$
12.96
and $
12.30
per option. The intrinsic value of options exercised during 2024, 2023 and 2022 was $
0
.
F - 54
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 13:- |
SHAREHOLDERS' EQUITY
(Cont.)
|
The
intrinsic value of exercisable options (the difference between the Company’s closing share price on the last trading day in fiscal
year 2024 and the average exercise price of in-the-money options, multiplied by the number of in-the-money options) included above represents
the amount that would have been received by the option holders had all option holders exercised their options on December 31, 2024. This
amount changes based on the fair market value of the Company’s ordinary shares.
The
following is a summary of activities relating to the Company’s RSUs granted to employees under the Plan during the year ended December
31, 2024:
|
Number
of
RSUs
|
Weighted
average
fair
value
|
Aggregate
intrinsic value
|
||||||||||
|
Outstanding
- end of the year
|
|
|
|
|||||||||
|
Granted
|
|
|
||||||||||
|
Exercised
|
(
|
)
|
|
|||||||||
|
Forfeited
|
(
|
)
|
|
|||||||||
|
Outstanding
- end of the year
|
|
|
|
|||||||||
|
RSUs
exercisable at the end of the year
|
|
|
|
|||||||||
|
Vested
and expected to vest
|
|
|
|
|||||||||
The
awards outstanding as of December 31, 2024 have been separated into ranges of exercise price, as follows:
|
Awards
outstanding
|
Awards
exercisable
|
|||||||||||||||||||||||||
|
Exercise
price
|
Number
of
options
|
Weighted
average
remaining
contractual
life
(years)
|
Weighted
average
exercise
price
per
share
|
Number
of
options
|
Weighted
average
remaining
contractual
life
(years)
|
Weighted
average exercise price
|
||||||||||||||||||||
|
$
|
|
|
|
$
|
|
|
-
|
$
|
|
|||||||||||||||||
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|||||||||||||||||
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|||||||||||||||||
|
|
|
|||||||||||||||||||||||||
F - 55
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 13:- |
SHAREHOLDERS' EQUITY
(Cont.)
|
Compensation
expenses related to options and RSUs granted were recorded in the consolidated statements of operations, as follows:
|
December
31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Cost
of revenues
|
$
|
|
$
|
|
||||
|
Research
and
development expenses
|
|
|
||||||
|
Marketing
and selling expenses
|
|
|
||||||
|
General
and administrative expenses
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
| NOTE 14:- |
TRANSACTIONS WITH RELATED
PARTIES
|
Company's
controlling shareholder, is Mifalei Sdot-Yam Agricultural Cooperative Society Ltd. (“Mifalei Sdot-Yam”), which is controlled
by Sdot-Yam Business Holding and Management – Agricultural Cooperative Society Ltd., which is in turn controlled by Kibbutz Sdot-Yam
(for convenience purposes, collectively referred as the “Kibbutz"). The Kibbutz has an ownership interest in the Company of approximately
30.2
%,
as of December 31, 2024.
On
September 5, 2016, the Kibbutz and Tene Investment in Projects 2016 Limited Partnership (“Tene”) entered into the shareholders’
agreement (“Shareholders’ Agreement”), memorialized in a term sheet, pursuant to which both the Kibbutz and Tene are
deemed the Company’s controlling shareholders under the Israeli Companies Law. The Shareholders’ Agreement further amended
on February 20, 2018 and September 18, 2023, In which the amendment executed on September 18, 2023 (the “September Amendment”)
replaced the Shareholders Agreement in its entirety. Pursuant to the September Amendment, the parties agreed, among other things, to vote
at general meetings of the Company's shareholders in the same manner, following discussions intended to reach an agreement on any matters
proposed to be voted upon. However, if no agreement is reached, the Kibbutz will determine the manner in which both parties will vote,
except with respect to certain carved-out matters, to which Tene, for so long as it holds more than 3% of the issued and outstanding share
capital of the Company, will determine the manner in which both parties will vote.
In
addition, each of the Kibbutz and Tene shall be entitled to vote separately in any manner with respect to the appointment, replacement
or terms of compensation of the Company’s Chief Executive Officer. Among others, according to the September Amendment Tene granted
the Kibbutz a right of first refusal and the Kibbutz granted Tene certain tag-along rights with respect to their disposition of ordinary
shares. If Tene sells more than 3% of the issued and outstanding share capital of the Company without providing the Kibbutz its right
of first offer then certain rights contemplated under the September Amendment will terminate, including Tene’s tag-along right.
F - 56
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 14:- |
TRANSACTIONS WITH RELATED
PARTIES (Cont.)
|
As
of December 31, 2024 the Kibbutz and Tene beneficially own
14,029,494
ordinary shares (or approximately
40.6
%
of the outstanding).
The
Company is party to a series of agreements with the Kibbutz that govern different aspects of the Company's relationship and are described
below.
| a. |
Manpower agreement with the Kibbutz:
|
On
July 2011, the Company entered into a manpower agreement with The Kibbutz such was automatically renewed during 2023 for additional one
year term, and will be automatically renewed again, unless one of the parties gives six months’ prior notice, for additional one-year
periods.
On
July 30, 2015, and on October 14, 2018, following the approval of Company's audit committee, compensation committee and board of directors,
Company's shareholders approved an addendum to the Manpower Agreement by and between the Kibbutz and the Company, with respect to the
engagement of office holders affiliated with the Kibbutz, for an additional
term as of the date of the shareholders’ approval.
During
2021, following the approval of Company’s audit committee and the board of directors, the manpower agreement is valid through 2030.
Under
the manpower agreement and its addendum, the Kibbutz will provide the Company with labor services staffed by Kibbutz members, candidates
for Kibbutz membership and Kibbutz residents (“Kibbutz Appointees”). The consideration to be paid for each Kibbutz Appointee
will be based on the Company's total cost of employment for a non-Kibbutz Appointee employee performing a similar role. The number of
Kibbutz Appointees may change in accordance with the Company's needs. Under the manpower agreement, the Company will notify the Kibbutz
of any roles that require staffing, and if the Kibbutz offers candidates with skills similar to other candidates, the Company will give
preference to hiring of the relevant Kibbutz members. the Kibbutz is entitled under this agreement, at its sole discretion, to discontinue
the engagement of any Kibbutz Appointee of manpower services through his or her employment by the Kibbutz and require such appointee to
become employed directly by the Company.
The
manpower agreement and addendum also includes the Kibbutz’s obligation to customary liability, insurance, indemnification and confidentiality
and intellectual property provisions. Office holders who are Kibbutz Appointees shall have all benefits applicable to Company's other
office holders, including without limitation, directors’ and officers’ liability insurance, and Company's indemnification
and exemption undertaking.
Manpower
service fees paid were $
1,347
,
1,553
and $
1,768
for the years ended December 31, 2024, 2023 and 2022, respectively.
F - 57
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 14:- |
TRANSACTIONS WITH RELATED
PARTIES (Cont.)
|
| b. |
Services from the Kibbutz:
|
On
July 30, 2015, following the approval of the audit committee and the board, Company’s shareholders approved an amended services
agreement pursuant to which, the Kibbutz will continue to provide various services it provides in the ordinary course of Company's business,
for a period of three years commencing as of the date of approval by the shareholders.
On
October 14, 2021, following the approval of the audit committee and the board, Company’s shareholders approved a further amended
services agreement (“Amended Services Agreement”) for an additional period of three years. With the closure of the Sdot-Yam
facility and the Kibbutz’s privatization process, most services under the agreement are no longer provided by the Kibbutz or needed,
except for certain statutory and pass-through payments. In August 2024, the Company and the Kibbutz amended the services agreement for
a three-year term to reflect these changes.
The
amount that the Company pays to the Kibbutz under the Amended Services Agreement depends on the scope of services the Company will receive
and is based on rates specified in such agreement which were determined based on market terms, taking into account the added value of
consuming services from the Kibbutz, considering its physical proximity to Company’s manufacturing plant in Sdot-Yam and its expertise.
The
amounts the Company pays for the services are subject to certain adjustments for increases in the Israeli consumer price index. In addition,
the Amended Services Agreement grants The Kibbutz right of first proposal in special projects with respect to the metal workshop services.
The amended services agreement also outlines the distribution mechanism between the Company and the Kibbutz for certain expenses and payments
due to local authorities, such as certain taxes and fees in connection with the Company’s business facilities. Each party may terminate
such agreement upon a material breach, following a
30-day
prior notice, or upon liquidation of the other party, following a
45-days
’
prior notice.
The
Company's net service fees paid to the Kibbutz pursuant to the Original and Amended Services Agreements were $
708
,
$
810
and $
1,334
for the years ended December 31, 2024, 2023 and 2022, respectively.
F - 58
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 14:- |
TRANSACTIONS WITH RELATED
PARTIES (Cont.)
|
| c. |
Land Use Agreement with the Kibbutz:
|
Land
leased to the Kibbutz by the ILA and the Caesarea Development Corporation
The
Company signed a land use agreement with the Kibbutz, which has a term of
20
years commencing on April 1, 2012. As per the agreement, the annual fee may be adjusted after January 1, 2021 and every three years thereafter,
at the election of the Kibbutz by obtaining an updated appraisal. During 2021, the Kibbutz elected this option and the parties mutually
agreed upon a land appraiser, and based on its study the fees were adjusted for 2021 onwards for annual amount of approximately NIS
18,600,000
(approximately $
5,980
),
linked to the Israeli consumer price index.
The
Company's principal offices and research and development facilities are located on the grounds of the Kibbutz and include buildings spaces
of approximately
30,744
square meters and unbuilt areas of approximately
60,870
square meters.
Under
the land use agreement, the Company may not terminate the operation of either of its two production lines at its plant in the Kibbutz
as long as the Company continues to operate production lines elsewhere in Israel, and its headquarters must remain at The Kibbutz. Notwithstanding
with the above mentioned, during 2023 the Company announced on closing the Sdot Yam plant with the permission of the Kibbutz. The Company
is still liable pursuant to the land use agreement as is. During 2023 and 2024 the Company subleased majority of the available area to
third parties. Sublease income is recorded as a deduction from the rent fees (see also note 10).
In
addition, the Company has committed to fund the cost of construction, up to a maximum of NIS
3.3
million (approximately $
910
)
plus VAT, required to change the access road leading to The Kibbutz and its facilities, such that the entrance of the Company's facilities
will be separated from the entrance into The Kibbutz. From the said amount, the Kibbutz has already set-off an amount of NIS
300,000
(approximately $
83
)
for expenses incurred by it.
F - 59
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 14:- |
TRANSACTIONS WITH RELATED
PARTIES (Cont.)
|
| d. |
Financing liability of land:
|
Pursuant
to the Land Use Agreement, the Company has entered into an agreement with The Kibbutz dated August 6, 2013, under which the Kibbutz acquired
additional land of approximately
12,800
square meters on the grounds near the Company's Bar-Lev facility, which the Company required in connection with the construction of the
fifth production line at the Company's Bar-Lev manufacturing facility, leased it to the Company for a monthly fee of approximately NIS
70,000
(approximately $
22
).
Under
the agreement, the Kibbutz committed to (i) acquire the long-term leasing rights of the Additional Bar-Lev Land from the ILA, (ii) perform
preparation work and construction, in conjunction with the administrative body of Bar-Lev industrial park and other contractors according
to Company’s plans, (iii) build a warehouse according Company’s plans, and (iv) obtain all permits and approvals required
for performing the preparation work of the Additional Bar-Lev Land and for the building of the warehouse. The warehouse in Bar-Lev will
be situated both on the current and new land. The finance of the building of the warehouse will be made through a loan that will be granted
by the Company to the Kibbutz, in the amount of the total cost related to the building of the warehouse and such loan, including principle
and interest, shall be repaid by setoff of the lease due to Kibbutz Sdot Yam by the Company for its use of the warehouse. The principle
amount of such loan will bear an interest at a rate of
1.4
%
a year. On November 30, 2015 the land preparation work had been completed and the holding of the Additional Bar-Lev Land was delivered
to the Company. As of December 31, 2024, the construction of the warehouse has not started yet.
Pursuant
to a land purchase and leaseback agreement, dated as of March 31, 2011, which became effective upon the Company’s IPO, between the
Company and The Kibbutz, the Company completed the selling of the rights in the lands and facilities of the Bar-Lev Industrial Center
(the "Bar-Lev Grounds") to The Kibbutz in consideration for NIS
43.7
million (approximately $
10,900
).
The land purchase agreement was executed simultaneously with the execution of a land use agreement. Pursuant to the land use agreement,
the Kibbutz permits the Company to use the Bar-Lev Grounds for a period of
10
years commencing on September 2012 that will be automatically renewed, unless the Company gives two years prior notice, for a ten-year
term in consideration for an annual fee of NIS
4.1
million (approximately $
1,200
)
to be linked to increases in the Israeli consumer price index. As per the agreement, the fee is subject to adjustment following January
1, 2022 and every three years thereafter at the option of The Kibbutz if The Kibbutz chooses to obtain an appraisal that supports such
an increase. The appraiser would be mutually agreed upon or, in the absence of agreement, will be chosen by the Kibbutz from a list of
assessors recommended at that time by Bank Leumi. During 2022, the Kibbutz elected this option and the parties mutually agreed upon a
land appraiser, and based on its study the fees were adjusted for 2022 onwards for total annual amount of approximately NIS
8,100,000
(approximately $
2,600
),
linked to the Israeli consumer price index.
The
transaction was not qualified as "sale lease-back" accounting under both ASC 840 and ASC 842 and the Company recorded the entire amount
received as consideration as a liability.
The
financing liability of land from a related party matured in August 31, 2022. Commencing September 2022, lease fees expenses are recorded
based on the land use agreement.
The
Company's payments pursuant to the land use agreements related to Sdot-Yam and Bar-Lev mentioned above totaled to $
8,129
,
$
7,857
and $
8,162
for the years ended December 31, 2024, 2023 and 2022, respectively.
F - 60
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 14:- |
TRANSACTIONS WITH RELATED
PARTIES (Cont.)
|
| e. |
Details on transactions and balances with related
parties and other loan:
|
| 1. |
The Company has, from time to time, entered into
transactions with its shareholders (the Kibbutz). The following table summarizes such transactions:
|
|
Year
ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Cost
of revenues
|
$
|
|
$
|
|
$
|
|
||||||
|
Research
and development
|
$
|
|
$
|
|
$
|
|
||||||
|
Selling
and marketing
|
$
|
|
$
|
|
$
|
|
||||||
|
General
and administrative
|
$
|
|
$
|
|
$
|
|
||||||
|
Finance
expenses, net
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
| 2. |
Balances with related party and other loan:
|
|
December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Related
party balances (1)
|
$
|
|
$
|
|
||||
|
Other
loans (2)
|
$
|
|
$
|
|
||||
| 1. |
Related to the above mentioned agreements with
related party.
|
| 2. |
Related to the shareholders loan in Lioli.
|
F - 61
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 15:- |
LONG-TERM BANK LOAN
|
| a. |
As part of the Lioli’s acquisition in 2020, Lioli assumed also a bank loan from commercial banks in India. The loan agreement
includes certain covenants that Lioli is required to meet. As of December 31, 2024 and 2023 the covenants are met (see also Note 8).
|
| b. |
During 2022, Lioli refinanced its old loan and signed on a new loan agreement with HDFC Bank. The new loan is denominated in Indian
rupee and as of Dec 31, 2024
|
| c. |
The loan is secured by creating charge on Lioli’s land, building and plant and machineries and current assets including stock,
receivables and other current assets. The Company has also provided the stand by letter of credit as a security.
|
| NOTE 16:- |
SEGMENT, MAJOR CUSTOMER
AND GEOGRAPHIC INFORMATION
|
| a. |
The Company manages its business on the basis
of
|
The
Company's chief operating decision maker ("CODM") is its chief executive officer, who reviews financial information presented on a consolidated
basis. The CODM assesses the performance of the Company and decides how to allocate resources based upon consolidated net loss that is
also reported within the Consolidated Statements of Operations. This financial metric is used by the CODM to make key operating decisions,
such as the determination of the rate at which the Company seeks to grow global revenues and the allocation of budget between cost of
revenues, sales and marketing, research and development, and general and administrative expenses.
Significant
segment expenses are presented in the Company’s consolidated statements of operations. See the consolidated financial statements
for other financial information regarding the Company’s operating segment.
| b. |
The following table presents total revenues for the years ended December 31, 2024, 2023 and 2022, respectively. Revenues are attributed to geographic areas based on the location of end customers:
|
|
Year
ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
USA
|
$
|
|
$
|
|
$
|
|
||||||
|
Canada
|
|
|
|
|||||||||
|
Latin
America
|
|
|
|
|||||||||
|
Australia
|
|
|
|
|||||||||
|
Asia
|
|
|
|
|||||||||
|
EMEA
|
|
|
|
|||||||||
|
Israel
|
|
|
|
|||||||||
|
$
|
|
$
|
|
$
|
|
|||||||
F - 62
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 16:- |
SEGMENT, MAJOR CUSTOMER
AND GEOGRAPHIC INFORMATION (Cont.)
|
No
customer represented 10% or more of the Company’s total revenues for the years ended December 31, 2024, 2023 and 2022.
| c. |
The following table presents total long-lived assets as of December 31, 2024 and 2023, respectively (including held for sale assets,
property, plant and equipment, intangible assets and operating lease right-of-use assets) by geographic area:
|
|
December
31,
|
||||||||
|
2024
|
2023
|
|||||||
|
USA
|
$
|
|
$
|
|
||||
|
Canada
|
|
|
||||||
|
Australia
|
|
|
||||||
|
Asia
|
|
|
||||||
|
EMEA
|
|
|
||||||
|
Israel
|
|
|
||||||
|
$
|
|
$
|
|
|||||
| NOTE 17:- |
SELECTED SUPPLEMENTARY
STATEMENTS OF INCOME DATA
|
| a. |
Finance (income) expense, net:
|
|
Year
ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Finance
expenses:
|
||||||||||||
|
Interest
in respect of credit cards and bank fees
|
$
|
|
$
|
|
$
|
|
||||||
|
Interest
in respect of loans
|
|
|
|
|||||||||
|
Amortization/accretion
of premium/discount on marketable securities
|
|
|
|
|||||||||
|
Realized
gain/loss from marketable securities, net
|
|
|
|
|||||||||
|
Changes
in derivatives fair value
|
|
|
|
|||||||||
|
Foreign
exchange transactions losses
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Finance
income:
|
||||||||||||
|
Interest
in respect of cash and cash equivalent and short-term bank deposits
|
|
|
|
|||||||||
|
Changes
in derivatives fair value
|
|
|
|
|||||||||
|
Interest
income from marketable securities
|
|
|
|
|||||||||
|
Foreign
exchange transactions gains
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Finance
expenses (income), net
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
F - 63
CAESARSTONE LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
| NOTE 17:- |
SELECTED SUPPLEMENTARY
STATEMENTS OF INCOME DATA (Cont.)
|
| b. |
Net earnings (loss) per share:
|
The
following table sets forth the computation of basic and diluted net earnings per share:
Numerator
:
|
Year
ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Net
loss attributable to controlling interest, as reported
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Adjustment
to redemption value of non-controlling interest
|
|
(
|
)
|
(
|
)
|
|||||||
|
Numerator
for basic and diluted net loss per share
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
Denominator
(in thousands):
|
Year
ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Denominator
for basic and diluted loss per share
|
|
|
|
|||||||||
Earnings
per share
:
|
Basic
and diluted loss per share
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
F - 64
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of Directors and Shareholders
Caesarstone
Australia Pty Ltd
Opinion
on the financial statements
We
have audited the accompanying balance sheets of Caesarstone Australia Pty Ltd (the “Company”) as of December 31, 2022
and 2021, the related statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period
ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”) (not included herein).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022,
in conformity with accounting principles generally accepted in the United States of America.
We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013
Internal
Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”),
and our report dated March 15, 2023 expressed an unqualified opinion.
Basis
for opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits
included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical
audit matters
The
critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated
or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters
does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Impairment
of Goodwill
In
accordance with ASC 350 Intangibles – Goodwill and Other, goodwill is allocated to the Company’s reporting units. Caesarstone
Australia is considered its own reporting unit with AUD $22.245 million goodwill allocated prior to assessment of impairment. For each
reporting unit to which goodwill has been allocated, the Company is required to assess the impairment of goodwill annually. Management
assessed the fair value of the Australian company as a reporting unit, and determined an impairment loss of AUD $22.245 million. We identified
the impairment of goodwill as a critical audit matter.
The
principal considerations for our determination that impairment of goodwill is a critical audit matter are the level of management judgement
and estimation uncertainty involved in the valuation of the fair value of the reporting unit.
F - 65
Our audit procedures
related to the impairment of goodwill included the following, among others:
| • |
Obtaining an understanding, evaluating the design
and operating effectiveness of the controls around the goodwill impairment process;
|
| • |
Assessing the reasonableness of management’s
determination of the reporting unit and the allocation of goodwill;
|
| • |
Assessing management’s impairment model
for compliance with ASC 350 and ASC 820;
|
| • |
Obtaining an understanding of the significant
inputs and assumptions in management’s model, and assessing for reasonableness including:
|
| o |
Reviewing the key inputs of the model and corroborating
key assumptions against supporting documentation;
|
| o |
Assessing the appropriateness of revenue growth
assumptions in management’s forecast of cash flows in the current operating environment;
|
| o |
Engaging our internal valuation specialists to
assess the appropriateness of the impairment model as a fair value approach consistent with ASC 820;
|
| o |
Engaging our internal valuation specialists to
develop a range of independent estimates of the discount rate and comparing those to the discount rate selected by management;
|
| o |
Performing sensitivity analysis on the significant
inputs and assumptions made by management in preparing the valuation model; and
|
| • |
Assessing the adequacy of disclosures in the financial
report.
|
Bodily
injury claims related to exposure to silica dust
Caesarstone
Australia is facing a growing number of legal claims under workers’ compensation for bodily injury claims related to exposure to
silica dust. Caesarstone Australia also have insurance which is expected to cover some of the costs of settling claims. In accordance
with ASC 450-20 Loss Contingencies, a loss must be recognised when the loss is reasonably estimable. We identified the liability for bodily
injury claims as a critical audit matter.
The
principal considerations for our determination that the liability for bodily injury claims is a critical audit matter are the significant
judgements and estimates involved in determining the loss liability to be recognized, including estimating the settlement amounts, claim
amounts and expected portions payable by Caesarstone Australia.
Our audit procedures
related to the bodily injury claims related to exposure to silica dust included the following, among others:
| • |
Obtaining an understanding, evaluating the design
and operating effectiveness of the controls around the recognition and measurement of the liability;
|
| • |
Inquiring directly with all the Company’s
attorneys utilized throughout the year;
|
| • |
Obtaining an understanding of the significant
inputs and assumptions in management’s estimate of the liability and assessing for reasonableness including:
|
| o |
Inquiring with the Company’s attorneys and
management regarding the status of open legal claims, relevant claim amounts, and other key assumptions and judgements;
|
| o |
Assessing the reasonableness of assumptions by
reference to historical settlement amounts;
|
| o |
Recalculating the estimated claim liability; and
|
| • |
Assessing the adequacy of disclosures in the financial
report.
|
/s/
GRANT THORNTON AUDIT PTY LTD
We
have served as the Company’s auditor since 2008.
March
15, 2023
F
- 66
TABLE OF CONTENTS
Part IItem 1: Identity Of Directors, Senior Management and AdvisersItem 2: Offer Statistics and Expected TimetableItem 3: Key InformationItem 4: Information on The CompanyItem 4A: Unresolved Staff CommentsItem 5: Operating and Financial Review and ProspectsItem 6: Directors, Senior Management and EmployeesItem 7: Major Shareholders and Related Party TransactionsItem 8: Financial InformationItem 9: The Offer and ListingItem 10: Additional InformationItem 11: Quantitative and Qualitative Disclosures About Market RiskItem 12: Description Of Securities Other Than Equity SecuritiesPart IIItem 13: Defaults, Dividend Arrearages and DelinquenciesItem 14: Material Modifications To The Rights Of Security Holders and Use Of ProceedsItem 15: Controls and ProceduresItem 16: ReservedItem 16A: Audit Committee Financial ExpertItem 16B: Code Of EthicsItem 16C: Principal Accountant Fees and ServicesItem 16D: Exemptions From The Listing Standards For Audit CommitteesItem 16E: Purchases Of Equity Securities By The Company and Affiliated PurchasersItem 16F: Change in Registrant S Certifying AccountantItem 16G: Corporate GovernanceItem 16H: Mine Safety DisclosuresItem 16I: Disclosure Regarding Foreign Jurisdictions That Prevent InspectionsItem 16J. Insider Trading PoliciesItem 16K. CybersecurityPart IIIItem 17: Financial StatementsItem 18: Financial StatementsItem 19: ExhibitsNote 1:- GeneralNote 1:- General (cont.)Note 2:- Significant Accounting PoliciesNote 2:- Significant Accounting Policies (cont.)Note 3:- Marketable SecuritiesNote 4:- Other Accounts Receivable and Prepaid ExpensesNote 5:- InventoriesNote 6:- Property, Plant and Equipment, NetNote 7:- Goodwill and IntangiblesNote 8:- Short-term Bank Credit and Current Maturities Of Long-term LoanNote 9:- Accrued Expenses and Other LiabilitiesNote 10:- LeasesNote 10:- Leases (cont.)Note 11:- Commitments and Contingent LiabilitiesNote 11:- Commitments and Contingent Liabilities (cont.)Note 12:- Taxes on IncomeNote 12:- Taxes on Income (cont.)Note 13:- Shareholders' EquityNote 13:- Shareholders' Equity (cont.)Note 14:- Transactions with Related PartiesNote 14:- Transactions with Related Parties (cont.)Note 15:- Long-term Bank LoanNote 16:- Segment, Major Customer and Geographic InformationNote 16:- Segment, Major Customer and Geographic Information (cont.)Note 17:- Selected Supplementary Statements Of Income DataNote 17:- Selected Supplementary Statements Of Income Data (cont.)