UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
20-F
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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
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For the fiscal year ended
December 31
,
2023
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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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
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Date of event requiring this shell company report..........................................
For the transition period from ____________ to ____________
Commission file number.
001-32618
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading symbol(s)
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Name of each exchange on which registered
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Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
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 Securities Exchange Act of 1934 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.
☒
Yes
☐ No
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).
☒
Yes
☐ No
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.
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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.
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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
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No
TABLE OF CONTENTS
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1
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1
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1
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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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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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9
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A.
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HISTORY AND DEVELOPMENT OF THE COMPANY
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9
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B.
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BUSINESS OVERVIEW
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10
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C.
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ORGANIZATIONAL STRUCTURE
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21
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D.
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PROPERTY, PLANTS AND EQUIPMENT
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21
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23
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23
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A.
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OPERATING RESULTS
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23
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B.
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LIQUIDITY AND CAPITAL RESOURCES
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31
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C.
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RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
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34
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D.
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TREND INFORMATION
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34
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E.
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OFF-BALANCE SHEET ARRANGEMENTS
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34
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35
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A.
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DIRECTORS AND SENIOR MANAGEMENT
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35
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B.
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COMPENSATION
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39
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C.
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BOARD PRACTICES
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43
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D.
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EMPLOYEES
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47
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E.
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SHARE OWNERSHIP
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49
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50
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A.
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MAJOR SHAREHOLDERS
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50
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B.
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RELATED PARTY TRANSACTIONS
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52
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C.
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INTERESTS OF EXPERTS AND COUNSEL
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56
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56
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A.
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CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
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56
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B.
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SIGNIFICANT CHANGES
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57
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57
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A.
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OFFER AND LISTING DETAILS
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57
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B.
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PLAN OF DISTRIBUTION
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57
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C.
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MARKETS
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57
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D.
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SELLING SHAREHOLDERS
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57
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E.
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DILUTION
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57
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F.
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EXPENSES OF THE ISSUE
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57
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57
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A.
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SHARE CAPITAL
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57
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B.
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MEMORANDUM AND ARTICLES OF ASSOCIATION
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57
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C.
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MATERIAL CONTRACTS
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65
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D.
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EXCHANGE CONTROLS
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65
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E.
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TAXATION
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65
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F.
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DIVIDENDS AND PAYING AGENTS
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73
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G.
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STATEMENT BY EXPERTS
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73
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H.
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DOCUMENTS ON DISPLAY
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73
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I.
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SUBSIDIARY INFORMATION
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73
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J.
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ANNUAL REPORT TO SECURITY HOLDERS
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73
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74
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74
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74
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74
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77
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77
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77
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77
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ITEM 16I.
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| ITEM 16J. |
79
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| ITEM 16K. |
CYBERSECURITY
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80
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80
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81
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iii
USE OF CERTAIN TERMS
As used herein, and unless the context suggests otherwise, the
terms “we”, “us”, “our” or “Ituran” refer to Ituran Location and Control Ltd. and its
consolidated subsidiaries.
We have prepared our consolidated financial statements in US Dollars.
Our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States (“U.S.
GAAP”). All references herein to “dollars” or “$” or “USD” are to United States dollars, and
all references to “NIS” are to New Israeli Shekels.
CAUTIONARY
NOTE REGARDING FORWARDLOOKING STATEMENTS
This Annual Report on Form 20-F contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. The use of the words “projects,” “believes,” “expects,” “may,” “plans”
or “intends,” or words of similar import, identifies a statement as “forward-looking.” The forward-looking statements
included herein are based on current expectations that involve a number of risks and uncertainties. These forward-looking statements are
based on the assumption that we will not lose a significant customer or customers or experience increased fluctuations of demand or rescheduling
of purchase orders, that our markets will continue to grow, that our products will remain accepted within their respective markets and
will not be replaced by new technology, that competitive conditions within our markets will not change materially or adversely, that we
will retain key technical and management personnel, that our forecasts will accurately anticipate market demand, and that there will be
no material adverse change in our operations or business. Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible
to predict accurately and many of which are beyond our control. In addition, our business and operations are subject to substantial risks
which increase the uncertainty inherent in the forward-looking statements. In light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that
our objectives or plans will be achieved. Factors that could cause actual results to differ from our expectations or projections include
the risks and uncertainties described in this annual report in Item 3D: Risk Factors.
Forward-looking
statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statements or
other information contained in this report, whether as a result of new information, future events or otherwise. You are advised, however,
to review any additional disclosures we make in our reports on Form 6-K filed with the U.S. Securities and Exchange Commission (“SEC”).
iv
PART I
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IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
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Not applicable.
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OFFER STATISTICS AND EXPECTED TIMETABLE
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Not applicable.
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KEY INFORMATION
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A.
(Reserved)
B.
CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C.
REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D.
RISK FACTORS
Our business, operating results and financial condition could be
seriously harmed due to any of the following risks, among others. If we do not successfully address the risks to which we are subject,
we could experience a material adverse effect on our business, results of operations and financial condition and our share price may decline,
which may result in a loss of all or part of your investment. We cannot assure you that we will successfully address any of these risks.
You should carefully consider the following factors as well as the other information contained in this annual report before making any
investment decision with respect to our securities.
RISKS RELATED TO OUR BUSINESS
Failure to maintain our existing relationships or establish new relationships
with insurance companies or car manufacturers could adversely affect our revenues and growth potential.
Revenues from our stolen vehicle recovery services, which we refer to as SVR services
(“SVR”) and automatic vehicle location (“AVL”) products, which we refer to as telematics
products,
are primarily dependent on our relationships with insurance companies and car manufactures in Israel. Insurance companies drive demand
for our SVR services and telematics products by encouraging and, in some cases, requiring customers to subscribe to vehicle location services
and purchase vehicle location products such as ours. For our subsidiaries in Brazil and Argentina, insurance companies typically enter
into written agreements to subscribe to our services and purchase or lease our products directly. Our inability to maintain our existing
relationships or establish new relationships with insurance companies could adversely affect our revenues and growth potential. In some
of the territories in which we operate, we have business relationships with car manufacturers. Our inability to maintain our existing
relationships or establish new relationships with car manufacturers could adversely affect our revenues and growth potential.
1
Changes in insurance company practices in the markets in which we
provide our products and services could adversely affect our revenues and growth potential.
We depend on insurance company practices in the markets in which we provide our SVR
services and sell our telematics products. In Israel, insurance companies either mandate the use of SVR services by use of telematics
products, or their equivalent, as a prerequisite for providing insurance coverage to owners of certain medium- and high-end vehicles or
provide insurance premium discounts to encourage vehicle owners to subscribe to services and purchase products such as ours. For our subsidiaries
in Brazil and Argentina, insurance companies mainly lease our telematics products directly and subsequently require their customers to
subscribe to our SVR services.
Therefore, we rely on insurance companies’ continued practice of:
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accepting vehicle location and recovery technology as a preferred security product;
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requiring or providing a premium discount for using location and recovery services and products; and
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mandating or encouraging use of our SVR services and telematics
products, or similar
services and products, for vehicles with the same or similar threshold values and for the same or similar required duration of use.
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If any of these policies or practices change, revenues from sales of our SVR services
and telematics products could decline, which could adversely affect our revenues and growth potential.
A reduction in vehicle theft rates may adversely impact demand for
our SVR services and telematics products.
Demand for our SVR services and telematics products depends primarily on prevailing
or expected vehicle theft rates. Vehicle theft rates may decline as a result of various reasons, such as the availability of improved
security systems, implementation of improved or more effective law enforcement measures, or improved economic or political conditions
in markets that have high theft rates. If vehicle theft rates in any or all of our existing markets decline, or if insurance companies
or our other customers believe that vehicle theft rates have declined or are expected to decline, demand for our SVR services and telematics
products may decline.
A decline in new car sales in the markets in which we operate
could result in reduced demand for our SVR services and telematics products.
Our SVR services and telematics products are primarily used to protect vehicles and
are often installed before or immediately after their initial sale. Consequently, a reduction in new vehicle sales could reduce our addressable
market for SVR services and telematics products. New car sales may decline for various reasons, including an increase in new car tariffs,
taxes or gas prices. A decline in vehicle production levels or labor disputes affecting the automobile industry in the markets where we
operate may also impact the volume of new vehicle sales. A decline in new car sales in the markets in which we provide our SVR services
or sell our telematics products could result in reduced demand for these services and products.
There is significant competition in the markets in which we offer
our services and products and our results of operations could be adversely affected if we fail to compete successfully.
The markets for our services and products are highly competitive. We compete primarily
on the basis of the technological innovation, quality and price of our services and products. Our most competitive market is the telematics
services market and the related telematics products market, due to the existence of a wide variety of competing services and products
and alternative technologies that offer various levels of protection and tracking capabilities, including global positioning systems,
or GPS, satellite- or network-based cellular systems and direction-finding homing technologies. Some of these competing services and products,
such as certain GPS-based products, are installed in new vehicles by vehicle manufacturers prior to their initial sale, which effectively
precludes us from competing for these subscribers in the SVR market. Furthermore, providers of competing services or products may extend
their offerings to the locations in which we operate, or new competitors may enter the telematics services market. Our telematics products
also compete with less sophisticated theft protection devices such as standard car alarms, immobilizers, steering wheel locks and homing
devices, some of which may be significantly cheaper. Some of these competing products have greater brand recognition than our telematics
products.
The development of new or improved competitive products, systems
or technologies that compete with our telematics products may render our products less competitive or obsolete, which could cause a decline
in our revenues and profitability.
We are engaged in businesses characterized by rapid technological change and frequent
new product developments and enhancements. The number of companies developing and marketing new telematics products has expanded considerably
in recent years. The development of new or improved products, systems or technologies that compete with our telematics products, for both
our SVR and fleet management services, may render our products and services less competitive and we may not be able to enhance our technology
in a timely manner. In addition to the competition resulting from new products, systems or technologies, our future product enhancements
may not adequately meet the requirements of the marketplace and may not achieve the broad market acceptance necessary to generate significant
revenues. Any of the foregoing could cause a decline in our revenues and profitability.
2
The inability of local law enforcement agencies to timely and effectively
recover the stolen vehicles we locate could negatively impact customers’ perception of the usefulness of our SVR services and telematics
products, adversely affecting our revenues.
Our telematics products identify the location of vehicles in which our products are
installed. Following a notification of an unauthorized entry, or if we receive notification of the vehicle’s theft from a subscriber,
we notify the relevant law enforcement agency of the location of the subscriber’s vehicle and generally rely on local law enforcement
or governmental agencies to recover the stolen vehicle. We cannot control nor predict the response time of the relevant local law enforcement
or other governmental agencies responsible for recovering stolen vehicles, nor that the stolen vehicles, once located, will be recovered
at all. In the past, some stolen vehicles in which our telematics products were installed were not recovered on timely manner, from the
time an unauthorized entry is confirmed or reported to the time the vehicle is recovered. To the extent that the relevant agencies do
not effectively and timely respond to our calls and recover stolen vehicles, our recovery rates would likely diminish, which may, in turn,
negatively impact customers’ perception of the usefulness of our SVR services and telematics products, adversely affecting our revenues.
The ability to detect, deactivate, disable or otherwise inhibit the
effectiveness of our telematics products could adversely affect demand for these products and adversely affect our revenues.
The effectiveness of our telematics products is dependent, in part, on the inability
of unauthorized persons to deactivate or otherwise alter the functioning of our telematics products or the vehicle anti-theft devices
that work in conjunction with our telematics products. As sales of our telematics products increase, criminals in the markets in which
we operate may become increasingly aware of our telematics products and may develop methods or technologies to detect, deactivate or disable
our tracking devices or the vehicle anti-theft devices that work in conjunction with our telematics products. We believe that, as is the
case with any product intended to prevent vehicle theft, over time, there may be an increased ability of unauthorized persons to detect,
deactivate, disable or otherwise inhibit the effectiveness of our telematics products, although it is difficult to verify this fact. An
increase in the ability of unauthorized persons to detect, deactivate, disable or otherwise inhibit the effectiveness of our telematics
products could adversely affect demand for our products and adversely affect our revenues.
We rely on some intellectual property that we license from third
parties, the loss of which could preclude us from providing our SVR services or market and sell some of our telematics products, which
would adversely affect our costs, revenues and profitability.
We license from third parties some of the technology that we need in order to provide
our SVR services and market and sell some of our telematics products. In the event that such licenses were to be terminated, or if such
licenses were rendered unenforceable or invalid and we would not be able to license similar technology from other parties, it would require
us, at a minimum, to obtain rights to a different technology and reconfigure our telematics products accordingly. In addition, some of
the licenses we obtained from third parties are non-exclusive, which may enable other entities to obtain identical licenses from such
third parties to operate in the places in which we conduct our business resulting in increased competition and could adversely affect
our revenues. Our ability to sell some of our services and products depends upon the prior receipt and maintenance of various governmental
licenses and approvals and our failure to obtain or maintain such licenses and approvals, or third-party use of the same licenses and
frequencies, could result in a disruption or curtailment of our operations, a significant increase in costs and a decline in revenues
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We are required to obtain specific licenses and approvals from various governmental
authorities in order to conduct our operations. For example, some of our telematics products use radio frequencies that are licensed and
renewed periodically from the Ministry of Communications in Israel and similar agencies worldwide. As we continue to expand into additional
markets, we will be required to obtain new permits and approvals from relevant governmental authorities. Furthermore, once our telematics
infrastructure is deployed and our telematics end-units are sold to subscribers, a change in radio frequencies would require us to recalibrate
all of our antennas and replace or modify all end-units held by subscribers, which would be costly and may result in delays in the provision
of our SVR services. In addition, some of the governmental licenses for radio frequencies that we currently use may be preempted by third
parties. In Israel, our license is designated as a “joint” license, allowing the government to grant third parties a license
to use the same frequencies, and in Brazil our license is designated as a “secondary”, non-exclusive license, which allows
the government to grant a third party a primary license to use such frequencies, which third-party use could adversely affect, disrupt
or curtail our operations. Our inability to maintain necessary governmental licenses and frequency approvals, or third-party use of or
interference with the same licenses or frequencies, could result in a significant increase in costs and decline in revenues and profitability.
3
Our SVR services business model is based on the existence of certain
conditions, the loss or lack of which in existing or potential markets could adversely affect our revenues and our growth potential.
Our SVR services business model and, consequently, our ability to provide our SVR services
and sell our telematics products, relies on our ability to successfully identify markets in which:
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the rate of car theft or consumer concern over vehicle safety is high;
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satisfactory radio frequencies are available to us for our RF technology, that allows us to operate our business in an uninterrupted
manner; and
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insurance companies, car manufacturers or car owners belief in the value of vehicles justifying incurring the expenses associated
with the deployment of SVR services.
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The absence of these conditions, our inability to locate markets in which these conditions
exist or the loss of any one of these conditions in markets we currently serve could adversely affect our revenues generated in existing
markets and our growth potential.
The loss of key personnel could adversely affect our business and
growth prospects.
Our success depends upon the efforts and abilities of key management personnel, including
our President and our Co-Chief Executive Officers. Loss of the services of one or more of such key personnel could adversely affect our
ability to execute our business plan. In addition, we believe that our future success depends in part upon our ability to attract, retain
and motivate qualified personnel necessary for the development of our business. If one or more members of our management team or other
key technical personnel become unable or unwilling to continue in their present positions, and if additional key personnel cannot be hired
and retained as needed, our business and growth prospects could be adversely affected.
We rely on third parties to manufacture our telematics products,
which could affect our ability to provide these products in a timely and cost-effective manner, adversely impacting our revenues and profit
margins.
We outsource the manufacturing of a significant part of our telematics products to third
parties. We use manufacturers for production of our telematics products and we do not maintain significant levels of inventories to support
us in the event of unexpected interruptions in the products manufacturing process. If our principal manufacturer or any of our other manufacturers
is unable to or fails to manufacture our products in a timely manner, we may not be able to secure alternative manufacturing facilities
without experiencing an interruption in the supply of our products or an increase in production costs. Any such interruption or increase
in production costs could affect our ability to provide our telematics products in a timely and cost-effective manner, adversely impacting
our revenues and profit margins.
We rely on two major suppliers to supply us with various products
and software. Each of these suppliers supply us with different types of products and services and acts as single supplier of these products
and services.
We rely on two major suppliers to supply us with various products and software, one
of them is our subsidiary. Each of these suppliers supply us with different types of products and software and acts as the single supplier
of these products and services. Termination of relations with one of our major suppliers would adversely affect our operations and
revenues.
We depend on the use of specialized quality assurance testing equipment
for the production of our telematics products, the loss or unavailability of which could adversely affect our results of operations.
We and our third-party manufacturers use specialized quality assurance testing equipment
in the production of our telematics products. The replacement of any such equipment as a result of its failure or loss could result in
a disruption of our production process or an increase in costs, which could adversely affect our results of operations.
Cancellation of use of Generation 2.0 in Israel
In June 2021, The Israeli Ministry of Telecommunications
decided that from January 2026, Generation 2.0 used by customers of Ituran in Israel will no longer be in operation. In June 2023, The
Israeli Ministry of Telecommunication decided to postpone the implementation of this decision until January 2029, with the option to extend
the service period until January 2030, subject to the preapproval of the Israeli Ministry of Telecommunications.
The adoption of industry standards that do not incorporate the technology
we use may decrease or eliminate the demand for our services or products and could harm our results of operations.
There are no established industry standards in all of the businesses in which we sell
our telematics products. For example, vehicle location devices may operate by employing various technologies, including network triangulation,
GPS, satellite-based or network-based cellular or direction-finding homing systems. The development of industry standards that do not
incorporate the technology we use may decrease or eliminate the demand for our services or products and we may not be able to develop
new services and products that are in compliance with such new industry standards on a cost-effective basis. If industry standards develop
and such standards do not incorporate our telematics products and we are unable to effectively adapt to such new standards, such development
could harm our results of operations.
4
Expansion of our operations to new markets involves risks and our
failure to manage such risks may delay or preclude our ability to generate anticipated revenues and may impede our overall growth strategy.
We anticipate future growth to be attributable to our business activities in new markets,
particularly in developing countries, where we may encounter additional risks and challenges, such as longer payment cycles, potentially
adverse tax consequences, potential difficulties in collecting receivables and potential difficulties in enforcing agreements or other
rights in foreign legal systems. The challenges and risks of entering a new market may delay or preclude our ability to generate anticipated
revenues and may impede our overall growth strategy.
Part of our services rely on GPS/GPRS-based technology owned and
controlled by others, the loss, impairment or increased expense of which could negatively impact our immediate and future revenues from,
or growth of, our services and adversely affect our results of operations.
Part of our business relies on signals from GPS/GPRS satellites built and maintained
by third parties. If GPS/GPRS satellites become unavailable to us, or if the costs associated with using GPS/GPRS technology increase
such that it is no longer feasible or cost-effective for us to use such technology, we will not be able to adequately provide our services.
In addition, if one or more GPS/GPRS satellites malfunction, there could be a substantial delay before such satellites are repaired or
replaced, if at all. The occurrence of any of the foregoing events could negatively impact our immediate and future revenues from, or
growth of, our telematics services and adversely affect our results of operations.
Material cybersecurity failure may harm our operations, which rely
on use of information technology and wireless transmission.
Our telematics and SVR services, relies on the use of information technology which under
a major cyber security breach, could harm our operations. We are using physical services, wireless transmitting stations, GPRS/GPS, and
in lesser account cloud computing to provide our services. There are risks associated with storing and transmitting data, which due to
cyber security breach may be corrupted, and the store data on remote servers may be destroyed, damaged, seized, or otherwise no longer
accessible, which may temporarily decrease our ability to deliver telematics and SVR services.
We implemented cyber security controls – which consists of three pillars: prevention,
detection and response (data recovery in the event of a cyber breach). We perform an ongoing review of our systems and an annual external
review of our cyber security controls and their implementation. However, such cyber security controls may not be able to prevent all unexpected
weaknesses. In the event of a cyber-attack, we could experience the corruption or loss of data, misappropriation of assets or sensitive
information, including customer information, or operational disruption. This could result in response costs and various financial loss
and may subject us to litigation and cause damage to our reputation, for which we may not be covered under our current insurance policies
and may lead to substantial loss of revenues.
Some of our employees in our subsidiaries in Brazil and Argentina
are members of labor unions and a dispute between us and any such labor union could result in a labor strike that could delay or preclude
altogether our ability to generate revenues in the markets where such employees are located.
Some of our employees in our subsidiaries in Brazil and Argentina are members of labor
unions. If a labor dispute were to develop between us and our unionized employees, such employees could go on strike and we could suffer
work stoppage for a significant period of time. A labor dispute can be difficult to resolve and may require us to seek arbitration for
resolution, which arbitration can be time consuming, distracting to management, expensive and difficult to predict. The occurrence of
a labor dispute with our unionized employees could delay or preclude altogether our ability to generate revenues in the markets where
such employees are located.
Inflation and shortage of semiconductor supplies
In periods of shortages impacting the semiconductor industry during year 2022, we have
placed and may continue to place non-cancellable inventory orders in advance of our historical lead times, and pay premiums and/or provide
deposits to secure future supply and capacity. For example, while we previously placed orders with approximately six months’ lead
time, we have begun placing orders at least twelve months in advance. Our inventory and purchase commitments reflect our demand expectations
for our future quarters and long-term supply and capacity needs. However, we may not be able to accurately predict when such periods of
shortage will end, nor do we know whether those inventory orders accurately address our current and future demand needs. These actions
increased some of our product costs .If this shortage will sustain we may suffer same economic extra costs in the future.
During the year 2023, we have encountered growing inflation rates and growing interest
rates in the main territories where we operate. This has caused additional costs to our financing and operations. This environment has
a potential negative impact on our results, as long as it sustains.
5
Regional or Global Health
Pandemic
A regional or a global health pandemic, such
as COVID-19, could severely affect our business, results of operations and financial condition due to impacts on our suppliers and
customers, as well as impacts from remote work arrangements, actions taken to contain the disease or treat its impact and the speed
and extent of the recovery.
We have not applied nor obtained for several of the permits required
for the operation of some of our base sites. To the extent enforcement is sought, the breadth, quality and capacity of our network coverage
could be materially affected.
The provision of our SVR services depends upon adequate network coverage for accurate
tracking information. In Israel, we have installed 98 base sites that provide complete communications coverage in Israel. Similarly, we
have communications coverage in Sao Paulo, Brazil (124 sites) and Buenos Aires, Argentina (37 sites). The installation and operation of
most of our base sites require building permits from local or regional zoning authorities as well as a number of additional permits from
governmental and regulatory authorities.
Currently most of our base sites in Israel and Brazil and some of our base sites in
Argentina operate without local building permits or the equivalent. Although relevant authorities in Israel, Brazil and Argentina have
not historically enforced penalties for non-compliance with certain permit regulations, following ongoing press coverage and actions by
various public interest groups, relevant Israeli authorities have begun seeking enforcement of permit regulations, especially with respect
to antennas constructed for cellular phone operators. Some possible enforcement measures include the closure or demolition of existing
base sites or the imposition of limitation on the building of new base stations. Should these enforcement measures be imposed upon us
in Israel, Brazil or Argentina, the extent, quality and capacity of our network coverage and, as a result, our ability to provide SVR
services, may be adversely affected. In Israel we are in process of achieving compliance with the regulation of our base stations, this
process can take several years .
Currency fluctuations may result in valuation adjustments in our
assets and liabilities and could cause our results of operations to decline.
The valuation of our assets and liabilities, our revenues received, and the related
expenses incurred are not always denominated in the same currency. This lack of correlation between revenues and expenses exposes us to
risks resulting from currency fluctuations. These currency fluctuations could have an adverse effect on our results of operations, such
currency fluctuations take place in several countries in which we operate which affects our operation results in these countries. In addition,
fluctuations in currencies may result in valuation adjustments in our assets and liabilities which could cause our results of operations
to decline.
RISKS RELATED TO OUR OPERATIONS IN ISRAEL
We are headquartered in Israel and therefore our results of operations
may be adversely affected by political, economic and military instability in Israel.
Our headquarters are located in Israel and most our key employees, officers and directors
are residents of Israel. Accordingly, security, political and economic conditions in Israel directly affect our business. Over the past
several decades, a number of armed conflicts have taken place between Israel and its Arab neighbours. During the recent years Israel was
engaged in an armed conflicts with a militant group and political party who controls the Gaza Strip. These conflicts involved missile
strikes against civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located,
and negatively affected business conditions in Israel.
On October 7
th
,
2023, Hamas terrorist organization has launched an horrific hostile military assault against Israel. Hamas has murdered 695 civilians,
373 soldiers and foreigners and kidnapped more than 230 into the Gaza Strip. On that day, where militant groups launched a surprise
attack on southern Israel from the Gaza Strip, marking the start of a most significant military escalation in the region. After clearing
Hamas militants, the Israeli retribution war actions against Hamas which started from October 8
th
with more than 250,000 Israeli soldiers recruited from reserve. ISRAELI military retaliated by conducting an extensive aerial
bombardment campaign on Hamas targets, followed by a large-scale ground military act on Gaza. The aforementioned was also
coupled with military actions taken on the Northern part of Israel against the Hasbullah from Lebanon. We were not significantly affected
by the aforementioned hostile and military actions. Continued or increased hostilities, future armed conflicts, political developments
in other states in the region or continued or increased terrorism could make it more difficult for us to conduct our operations in Israel,
which could increase our costs and adversely affect our financial results.
6
Furthermore, there are number of countries, primarily in the Middle East, that still
restrict business with Israel or Israeli companies and as a result our company is precluded from marketing its products in these countries.
Restrictive laws or policies directed toward Israel or Israeli businesses could have an adverse effect on our ability to grow our business
and our results of operations.
The Israeli government during year 2023 pursued extensive changes to Israel’s
judicial system. This has sparked extensive political debate. In response to the foregoing developments, many individuals, organizations
and institutions, both within and outside of Israel, have voiced concerns that the proposed changes may negatively impact the business
environment in Israel, due to potential reluctance of foreign investors to invest or transact business in Israel, increased currency fluctuations,
downgrades in credit rating, increased interest rates, increased volatility in securities markets, and other changes in macroeconomic
conditions. To the extent that any of these negative developments occur, they may have an adverse effect on our business, our results
of operations, or our ability to raise additional funds.
Under Israeli law, we are considered a “monopoly” and
therefore subject to certain restrictions that may negatively impact our ability to grow our business in Israel.
We have been declared a monopoly under the Israeli Economy competition Law (formerly
known as Restrictive Trade Practices Law, 1988) (the “Israeli Antitrust Law”), in the market for the provision of systems
for the location of vehicles. Under Israeli law, a monopoly is prohibited from taking certain actions, such as predatory pricing and the
provision of loyalty discounts, which prohibitions do not apply to other companies. The Israeli antitrust authority (under its new name
- Competition Authority) may further declare that we have abused our position in the market. Any such declaration in any suit in which
it is claimed that we engage in anti-competitive conduct would serve as
prima facie
evidence
that we are a monopoly or that we have engaged in anti-competitive behaviour. Furthermore, we may be ordered to take or refrain from taking
certain actions, such as set maximum prices, in order to protect against unfair competition. If we breach certain provisions of the Israeli
Antitrust Law, including as a monopoly, the Israeli Competition authority may also impose on us in an administrative procedure, financial
sanctions in an amount of up to the lower of NIS100 million (approximately US$27.6 million, according to the USD-NIS exchange rate, as
of December 31, 2023) or 8% of our annual revenues for the last financial year prior to such breach. Restraints on our operations as a
result of being considered a “monopoly” in Israel could adversely affect our ability to grow our business in Israel.
It may be difficult and costly to enforce a judgment issued in the
United States against us, our executive officers and directors, or to assert United States securities laws claims in Israel or serve process
on our officers and directors.
We are incorporated and headquartered in Israel. As a result, our executive officers
and directors are non-residents of the United States and a substantial portion of our assets and the assets of these persons are located
outside of the United States. Therefore, service of process upon any of these officers or directors may be difficult to effect in the
United States. Furthermore, it may be difficult to enforce a judgment issued against us in the United States or any of such persons in
both United States courts and other courts abroad.
Additionally, there is doubt as to the enforceability of civil liabilities under United
States federal securities laws in actions originally instituted in Israel or in actions for the enforcement of a judgment obtained in
the United States on the basis of civil liabilities in Israel.
Provisions of Israeli corporate and tax law may delay, prevent or
otherwise encumber a merger with, or an acquisition of, our company, which could prevent a change of control, even when the terms of such
transaction are favourable to us and our shareholders.
We may be subject to Israeli corporate law which regulates mergers, requires tender
offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers
or significant shareholders and regulates other matters that may be relevant to these types of transactions. In addition, our articles
of association contain, among other things, provisions that may make it more difficult to acquire our company, such as classified board
provisions and certain restrictions on the members of our board pursuant to regulatory requirements of the Israeli Ministry of Communication.
Furthermore, Israeli tax considerations may make potential transaction structures involving the acquisition of our company unappealing
to us or to some of our shareholders. See Item 10.B. – “Memorandum and Articles of Association” - “Our Corporate
Practices under the Israeli Companies Law” under the caption “Approval of Transactions under Israeli law” and Item 10.E.
– “Taxation” under the caption “Israeli Tax Considerations” for additional discussion of some anti-takeover
effects of Israeli law. These provisions of Israeli law and our articles of association may delay, prevent or otherwise encumber a merger
with, or an acquisition of, our company or any of our assets, which could have the effect of delaying or preventing a change in control
of our company, even when the terms of such a transaction could be favourable to our shareholders.
7
The rights and responsibilities of our shareholders will be governed
by Israeli law and may differ in some respects from the rights and responsibilities of shareholders under United States law.
We are incorporated under Israeli law. The rights and responsibilities of holders of
our ordinary shares are governed by our memorandum of association, articles of association and by Israeli law. These rights and responsibilities
differ in some respects from the rights and responsibilities of shareholders in typical US-based corporations. In particular, a shareholder
of an Israeli company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing his, her or
its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters. Israeli
corporate law has undergone extensive revisions in recent years and, as a result, there is little case law available to assist in understanding
the implications of these provisions that govern shareholders’ actions, which may be interpreted to impose additional obligations
on holders of our ordinary shares that are typically not imposed on shareholders of US-based corporations.
GENERAL RISKS RELATED TO OUR ORDINARY SHARES AND THE ECONOMY
Future sales of our ordinary
shares could reduce the market price of our ordinary shares.
If we or our shareholders sell substantial amounts of our ordinary shares on the Nasdaq
Global Select Market, the market price of our ordinary shares may decline.
The market price of our ordinary shares is subject to fluctuation,
which could result in substantial losses for our investors.
The stock market in general, and the market price of our ordinary shares in particular,
are subject to fluctuation, and changes in our share price may be unrelated to our operating performance. The market price of our ordinary
shares has fluctuated in the past, and we expect it will continue to do so, as a result of a number of factors, including:
| ◾ |
the gain or loss of significant orders or customers;
|
| ◾ |
recruitment or departure of key personnel;
|
| ◾ |
the announcement of new products or service enhancements by us or our competitors;
|
| ◾ |
quarterly variations in our or our competitors’ results of operations;
|
| ◾ |
announcements related to litigation;
|
| ◾ |
changes in earnings estimates, investors’ perceptions, recommendations by securities analysts or our failure to achieve analysts’
earnings estimates;
|
| ◾ |
developments in our industry; and
|
| ◾ |
general market conditions and other factors unrelated to our operating performance or the operating performance of our competitors.
|
These factors and price fluctuations may materially and adversely affect the market
price of our ordinary shares and result in substantial losses to our investors.
Somewhat significant portion of our ordinary shares are held by a
small number of existing shareholders and our articles of association provide for a staggered board, which may hinder change of control.
Moked Ituran Ltd. currently beneficially owns approximately 20.49% of our outstanding
ordinary shares (not including treasury stock held by us). Other than applicable regulatory requirements under applicable law, Moked Ituran
Ltd., is not prohibited from selling an interest in our company to a third party. In addition, our articles of association provide for
a staggered board which may delay, prevent or deter a change in control. For additional information concerning our staggered board, see
Item 6.A – Directors and Senior Management.
8
U.S. investors in our company could suffer adverse tax consequences
if we are characterized as a passive foreign investment company.
If, for any taxable year, our passive income or our assets that produce passive income
exceed levels established by the Internal Revenue Code, we may be characterized as a passive foreign investment company, which we refer
to as PFIC, for US federal income tax purposes. This characterization could result in adverse US tax consequences to our shareholders
who are U.S. Holders. See Item 10.E. – “Taxation” under the caption “United States Tax Considerations” below,
for more information about which shareholders may qualify as U.S. Holders. If we were classified as a PFIC, a U.S. Holder could be subject
to increased tax liability upon the sale or other disposition of our ordinary shares or upon the receipt of amounts treated as “excess
distributions”. Under such rules, the excess distribution and any gain would be allocated rateably over the U.S. Holder’s
holding period for the ordinary shares and the amount allocated to the current taxable year and any taxable year prior to the first taxable
year in which we were a PFIC would be taxed as ordinary income. The amount allocated to each of the other taxable years would be subject
to tax at the highest marginal rate in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed
deferral benefit would be imposed on the resulting tax allocated to such other taxable years. In addition, U.S holders of shares in a
PFIC may not receive a “step-up” in basis on shares acquired from a decedent. U.S. Holders should consult with their own U.S.
tax advisors with respect to the United States tax consequences of investing in our ordinary shares as well as the specific application
of the “excess distribution” and other rules discussed in this paragraph. For a discussion of how we might be characterized
as a PFIC and related tax consequences, please see Item 10.E. – “Taxation” under the caption “United States Tax
Considerations–Passive foreign investment company considerations”.
Securities we issue to fund our operations or in connection with
acquisitions could dilute our shareholders ownership or impact the value of our ordinary shares.
We may decide to raise additional funds through a public or private debt or equity financing
to fund our operations or finance acquisitions. If we issue additional equity securities, the percentage of ownership of our shareholders
will be reduced and the new equity securities may have rights superior to those of our ordinary shares, which may, in turn, adversely
affect the value of our ordinary shares.
Global and local economic downturns could reduce the level of consumer
spending and available credit within the automobile industry, which could adversely affect demand for our products and services and negatively
impact our financial results.
Current and future economic conditions could adversely affect consumer spending in the
automobile industry, as such spending is often discretionary and may decline during economic downturns when consumers have less disposable
income. Consequently, changes in general economic conditions resulting in a significant decrease in dealer automobile sales or in a tightening
of credit in financial markets, such as the 2007 U.S. subprime mortgage crisis and resulting credit crunch, could adversely impact our
future revenue and earnings. Such decreases could also affect the financial security of the automobile dealers and manufactures with whom
we do business. The delayed payment from or closure of our larger dealer groups could affect our ability to collect on our receivables.
Similar effects could result from local economic downturns in either one of our main markets of operations, i.e. Israel, Brazil and other
regions which we operate. Given the volatile nature of the current market disruption, we may not timely anticipate or manage such existing
or new risks. Our failure to do so could materially and adversely affect our business, financial condition, results of operations and
prospects.
| ITEM 4. |
INFORMATION ON THE COMPANY
|
|
|
A. |
HISTORY AND DEVELOPMENT OF THE COMPANY
|
Our History
Our legal name is Ituran Location and Control Ltd. We were incorporated under the laws
of the State of Israel in 1994 as a subsidiary of Tadiran Ltd., an Israeli-based designer and manufacturer of telecommunications equipment,
software and defence electronic systems, whose original business purpose was to adapt military-grade technologies for the civilian market.
We are mainly engaged in the area of Telematics services, consisting of stolen vehicle
recovery, fleet management services, connected cars, UBI, and other tracking services. We also provide telematics products used in connection
with our Telematics services and various other applications. We currently primarily provide our services and sell and lease our products
in Israel, Brazil, and other regions where we operate. We also provide fleet management services in other countries through distributors.
9
In May 1998, we completed the initial public offering of our ordinary shares in Israel
and our ordinary shares began trading on the Tel-Aviv Stock Exchange. In September 2005, we publicly offered our ordinary shares in the
United States. On May 25, 2016, we voluntarily delisted our shares from the Tel Aviv Stock Exchange, and our ordinary shares are currently
quoted only on Nasdaq under the symbol “ITRN”.
Our principal executive offices are located at 3 Hashikma Street, Azour 58001, Israel,
and our telephone number is +972-3-557-1333. Our website address is
www.ituran.com
(the
information contained therein or linked thereto shall not be considered incorporated by reference in this annual report). Our agent for
service of process in the United States is Ituran USA Inc.1700 NW 64th ST. SUITE 100 Fort Lauderdale, Florida 33309, and its telephone
number is +1 (866) 543-5433. As a company whose ordinary shares are registered under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), we report publicly to the SEC. The SEC maintains an Internet site (http:// www.sec.gov) that contains
reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Principal Capital Expenditures
We had capital expenditures of $14.2 million in 2023, $26.5 million in 2022, and $16.6
million in 2021 primarily in Israel, Brazil and Mexico, consisting primarily of acquisitions of the operational equipment we use to provide.
We financed our capital expenditures with cash flows generated from our operations.
|
|
B. |
BUSINESS OVERVIEW
|
Overview
We believe we are a leading provider of telematics services, consisting predominantly
of stolen vehicle recovery, fleet management services and other tracking services as well as connected car and usage base insurance (UBI).
We also provide telematics products used in connection with our telematics services. We currently primarily provide our services and sell
and lease our products in Israel, Brazil, and our other regions which we operate and also other regions through our distributers. We utilize
technologies that enable precise and secure high-speed data transmission and analysis. Some of the technology underlying our products
was originally developed for the Israeli Defence Forces in order to locate downed pilots.
We generate our revenues from subscription fees paid for our telematics services and
from the sale and lease of our telematics products.
We describe below the principal markets in which we compete. For a breakdown of total
revenues by category of activity and geographic market for each of the last three financial years, please see Item 5.A - Operating Results
under the caption “Revenues”.
Telematics Services
In 2023, 73.3% of our revenues were attributable to our telematics services. As of December
31, 2023, we provided our services in Israel, Brazil, and other countries to approximately 814,000, 672,000 and 766,000 subscribers, respectively.
We have direct agreements with two major car manufacturers and our products are
embedded in their vehicles or otherwise approved by the car manufacturers. This connection requires us to meet the highest car manufacturer
automotive standards.
Stolen vehicle recovery services
Our stolen vehicle recovery and tracking services, which we refer to as SVR services,
enable us to locate, track and recover stolen vehicles for our subscribers. Our customers include individual vehicle owners who subscribe
to our services directly, car manufacturers and insurance companies that either require their customers to install a security system or
offer their customers financial incentives to subscribe to SVR services such as ours. In certain countries, insurance companies directly
subscribe to our SVR services on behalf of their customers.
10
Fleet management services
Our fleet management services enable corporate and individual customers to track and
manage their vehicles in real time. Our services improve appointment scheduling, route management and fleet usage tracking, thereby increasing
efficiency and reducing operating costs for our customers. We market and sell our services to a broad range of vehicle fleet operators
and individual vehicle owners in different geographic locations and industries. As of December 31, 2023, we provided our services to approximately
477,000 end-users through corporate customers in countries where we operate directly and through 25,000 distributers.
Value-added services
The locator services that we offer allow customers to protect valuable merchandise and
equipment. We currently provide locator services in Israel, Brazil, and other regions which we operate. In addition, through a call center,
we provide 24-hour on-demand navigation guidance, information and assistance to our customers. Such services include the provision of
traffic reports, help with directions and information on the location gas stations, car repair shops, post offices, hospitals and other
facilities. We offer our concierge services to our subscribers in Israel, Brazil and other regions which we operate.
“Connected Car”- The service platform includes a back-office application,
a telematics device installed in the vehicle, mobile apps for both IOS and Android and an interface using the car infotainment screen.
Such services include information on car service history, information on some car systems, remote communication with the car in order
to detect malfunctions, and to provide pre-emptive car maintenance alerts for both mechanical failures and operational issues such as
a low tire pressure alert. The system also enables booking service appointments, both from the infotainment system interface in the system
and from the user’s mobile app and additional related operational, and marketing services, as well as information analysis.
“Connected Car” is operating in Israel, Brazil, and other regions which we operate.
“Usage Based Insurance” (UBI) – we have developed a unique product
(hardware and software) that measure and analyse the driving behaviour in a verity of aspects by the driver, which enables insurance companies
to offer a tailor -made and personalized insurance policy. The UBI has already been implemented and marketed by the majority of the insurance
companies in Israel.
“Auto Financing” - A strong second-hand car market in many of our geographies
in Latin America, and new fintech start-ups as well as banks enter this segment to provide the financing in this market. However, they
need a provider of location-based and connected-car technology, such as Ituran, to monitor the car location and driver’s behaviour
and thereby decrease the risk of the car loans they make in these markets..
Telematics Products
In 2023, 26.7% of our revenues were attributable to the sale of our telematics products.
Our telematics products employ short - and medium-range communication between two-way wireless modems and are used for various applications,
including automatic vehicle location, which we refer to as telematics products.
Our telematics products enable the location and tracking of vehicles, as well as assets,
and are used by us primarily to provide SVR and fleet management services to our customers. Each subscriber to our services has our telematics
end-unit installed in their vehicle. Subscribers to services for locating equipment and merchandise use our SMART and GPS/GPRS products.
Our Services and Products
Telematics services
Stolen vehicle recovery
Our stolen vehicle recovery system is based on three main components: a telematics end-unit
that is installed in the vehicle, a network of base stations and a 24-hour manned control center. Once the control center receives indication
of an unauthorized entry into a vehicle equipped with our telematics end-unit, our operators decide whether it is a false alarm or an
actual unauthorized entry. If it is determined to be an unauthorized entry, or if a notification of the vehicle’s theft is received
directly from the vehicle operator, our operators transmit a signal that activates the transmitter installed in the vehicle. We then pinpoint
the location of the transmitter with terrestrial network triangulation technology or GPRS technology and notify the relevant law enforcement
agency. In Israel, Brazil, and the other regions which we operate, we also maintain private enforcement units, which work together with
local police to recover the vehicle. In addition, we have the capability to immobilize vehicles remotely from our control centers.
11
Fleet management
We offer our customers the ability to use a comprehensive application for fleet management
both by using an Internet site and workstations. Our system allows our customers 24-hour access to information on their fleets through
our active control center and we are able to tailor our system to our customers’ specific needs.
Our solutions allow our subscribers to effectively manage and control their fleet, and
thereby to reduce their operating costs, optimize work hours and appointment scheduling and improve their services and operations. Our
system includes the following features:
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|
• |
the ability to locate the fleet’s vehicles;
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• |
continuous data communication with the fleet’s vehicles;
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• |
real-time vehicle status indicators: speed, distance driven, direction of travel, driver name, motion start/stop, engine start/stop,
speeding, diagnostic alerts, driver behaviour and more;
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• |
recording of determined events and analysis of data over time to improve driving and vehicle use;
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• |
remote monitoring and processing of data, such as temperature control in refrigerated or chilled compartments, time stamp, tire pressure
and heat and other complementary data;
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• |
connection to standard organization systems;
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• |
accident notification;
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• |
task management optimization.
|
Value-added services
Locator services
. Our services allow consumers
to protect valuable merchandise and equipment. We provide our locator services in Israel, Brazil, and other regions which we operate.
Concierge services and Connected car
. Through
a call center, we provide 24-hour on-demand navigation guidance, information and assistance to our customers. Such services include the
provision of traffic reports, help with directions and information on the location of gas stations, car repair shops, post offices, hospitals
and other facilities. We provide our concierge services to subscribers in Israel, Brazil and other regions which we operate.
“UBI” and “Connected Car”
.
We provide UBI services in Israel through seven insurance companies, and Connected Car services in Israel, Brazil, and other regions
which we operate. For additional information on the service, see Item 4.B. – “Information on the Company “ - “Business
Overview” under the caption “Telematics Services”
Telematics products
Our telematics products are used for various applications in the telematics markets
and primarily in connection with our telematics services described above.
Our telematics products enable the location and tracking of vehicles, as well as assets
or persons, and are primarily used by us in providing our telematics services. Each subscriber to our services has at least one of our
end-units installed in his or her vehicle. Subscribers to services for locating persons or valuables will use our SMART and GPS/GPRS products.
Our key telematics products for telematics applications include:
| ■ |
Base Site
: a radio receiver, which includes a processor and a data computation unit to collect
and send data to and from transponders and send that data to control centers as part of the terrestrial infrastructure of the location
system;
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| ■ |
Control Center
: a center consisting of software used to collect data from various base sites,
conduct location calculations and transmit location data to various customers and law enforcement agencies;
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| ■ |
GPS/GPRS-based products:
navigation and tracking devices installed in vehicles; and
|
| ■ |
SMART
: a portable transmitter installed in vehicles (including motorcycles) that sends a signal
to the base site, enabling the location of vehicles, equipment or an individual.
|
12
Geographical Information
The following table lists the key services and products that we currently sell or lease
in different regions of the world:
|
Country
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Services offered
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Products sold
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Israel
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SVR,
Fleet Management,
Value-added services, including:
Connected Car,
UBI
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Telematics Products
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|
Brazil
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SVR,
Fleet Management,
Value-added services, including:
Connected Car
|
|
Telematics Products
|
|
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|
|
|
|
Mexico, Ecuador, Colombia
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SVR,
Fleet Management,
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Telematics Products
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Value-added services, including:
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|
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Connected Car
|
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|
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United States
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SVR,
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Telematics Products
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Fleet Management,
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|
Value-added services, including:
Asset protection to Auto Lenders |
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Argentina
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SVR,
Fleet Management,
Value-added services, including:
Connected Car
|
Telematics Products
|
We maintain a control center in each of the countries listed above, which is operated
24 hours a day, 365 days a year. The following is a short description of key operating statistics about our telematics services in the
countries in which we operate:
| ■ |
Israel:
We commenced operations in Israel in 1995 and we had approximately 814,000 subscribers
as of December 31, 2023. The operations in Israel were expended through M A transactions with local companies (following the RTH
Transaction) as well as organic growth. We operate throughout Israel in providing services through GPS/GPRS and RF based products and
services.
|
| ◾ |
Brazil:
We commenced operations in Brazil in 2000 and we had approximately 672,000 subscribers
as of December 31, 2023. The operations were expended through organic growth. We currently provide RF based products and services only
in the metropolitan areas of Sao Paulo, Campinas, Americans and Rio de Janeiro. However, we operate throughout Brazil in providing GPS/GPRS
based products and services.
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| ■ |
Argentina:
We commenced operations in Argentina in 2002. We currently provide to our
current customers (not for new installations) RF based products and services only in the metropolitan area of Buenos Aires. However, we
also operate throughout Argentina in providing GPS/GPRS based products and services.
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| ■ |
United States:
We commenced operations in the United States in 2000. We provide GPS/GPRS
products and services throughout the United States.
|
| ■ |
Mexico:
We acquired the operations in Mexico in September 2018 as part of the RTH Transaction.
We currently provide GPS/GPRS based products and services.
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13
| ■ |
Ecuador:
We acquired the operations in Ecuador in September 2018 as part of the RTH Transaction.
We currently provide GPS/GPRS based products and services.
|
| ■ |
Colombia:
We acquired the operations in Colombia in September 2018 as part of the RTH
Transaction. We currently provide GPS/GPRS based products and services.
|
In all of the abovementioned countries (except for Israel and Brazil), and others, we
had approximately 766,000 subscribers as of December 31, 2023.
Customers, Marketing and Sales
We market and sell our products and services to a broad range of customers that vary
in size, geographic location and industry. No single customer or group of related customers comprised more than 10% of our total annual
revenues in the last three years.
Our selling and marketing objective is to achieve broad market penetration through targeted
marketing and sales activities. As of December 31, 2023, our selling and marketing team consisted of 103 employees.
(A) Telematics services
Stolen vehicle recovery
Our customers in the SVR market include insurance companies, car manufactures and individual
vehicle owners. As of December 31, 2023, majority of our subscribers use SVR services.
Our marketing and sales efforts are principally focused on five target groups: insurance
companies and agents, car manufacturers, dealers and importers, cooperative sales channels (mostly vehicle fleet operators and owners),
private and fleet subscribers, and finance Institution.
We maintain marketing and sales departments in each geographical market in which we
operate. Each department is responsible for maintaining our relationships with our principal target groups. These responsibilities also
include advertising and branding, sales promotions and sweepstakes.
In Israel, we focus our marketing efforts on insurance companies and agents, dealers
and importers, cooperative sales channels (mostly vehicle fleet operators and owners) and private subscribers.
In Brazil and Argentina our marketing and sales efforts are principally focused in all
five target groups, as described above. In the United States, we believe that insurance companies do not constitute a material influence
in the marketing of SVR services or telematics products.
Most of our sales in the United States are made through car dealerships and dealers
for new or used vehicles and cooperative sales channels. In Mexico, Colombia and Ecuador we focus our marketing efforts on dealers and
importers, cooperative sales channels (mostly vehicle fleet operators and owners), private subscribers and car manufactures.
Fleet management
Vehicle fleet management systems are primarily marketed through vehicle fleets’
departments, which form a part of our regional marketing departments. We conduct in-depth research to identify companies that will gain
efficiency and cost savings through the implementation of our products and services and conduct targeted marketing campaigns to these
companies. In addition, we participate in professional conventions and advertise in professional publications and journals designed for
our target customers. Our customers in the fleet management market include small-, mid- and large-size enterprises and individuals. As
of December 31, 2023, we provided our services to approximately end users through, 477,000 corporate customers and individuals in Israel,
Brazil, Argentina, United States, Mexico, Colombia, Ecuador and through distributers in other regions.
14
Value-added services
“Concierge Services” - Our concierge services are provided to existing
SVR customers. A few thousands SMART devices were installed in valuable merchandise and equipment.
“Connected Car”- The service platform includes a back-office application,
a telematics device installed in the vehicle, mobile apps for both IOS and Android and an interface using the car infotainment screen.
Such services include information on car service history, information on some car systems, remote communication with the car in order
to detect malfunctions, and to provide pre-emptive car maintenance alerts for both mechanical failures and operational issues such as
a low tire pressure alert. The system also enables booking service appointments, both from the infotainment system interface in the system
and from the users mobile app, and additional related operational, and marketing services, as well as information analysis. ”Connected
Car” is operating in Israel, Brazil, and other regions which we operate.
“Usage Based Insurance (“UBI”)” – we have developed a
unique product (hardware and software) that measure and analyse the driving behaviour in a verity of aspects by the driver, which enables
insurance companies to offer a tailor -made and personalized insurance policy. The UBI has already been implemented and marketed by the
majority of the insurance companies in Israel, and we intend to accelerate its marketing and work with additional insurance companies
in year 2023.
(B) Telematics products
Our telematics end-units are primarily used by us in providing our telematics services,
including, SVR, fleet management, “Connected Car” and value-added services, at the regions we operate.
Competition
We face strong competition for our services and products in each market in which we
operate. We compete primarily on technology edge, functionality, ease of use, quality, price, service availability, geographic coverage,
track record of recovery rates and response times and financial strength.
(A) Telematics services
We compete with a variety of companies in each of our markets. The three major technologies
utilized by our competitors are GPS/cellular, network-based cellular and radio frequency-based homing systems. In addition, new competitors
utilizing other technologies may continue to enter the market.
Stolen vehicle recovery
| ◾ |
Israel.
Our primary competitors in Israel are Pointer and Skylock Ltd.
|
| ◾ |
Brazil.
Brazil is a highly fragmented market with many companies selling competing products
and services (including immobilizers and other less-sophisticated vehicle security systems). Our main competitors in Brazil are Sascar,
Zatix, CEABS, Car Systems, Sat-Company, 3S.
|
| ◾ |
Argentina.
Argentina is a highly fragmented market with many companies selling competing
products and services (including immobilizers and other less-sophisticated vehicle security systems). Our main competitors in Argentina
are LoJack Corporation, Pointer Argentina S.A., Prosegur S.A. and Megatrans S.A.
|
| ◾ |
United States.
In the United States, there are several major companies offering various
theft protection and recovery products that compete with our product and service offerings, including LoJack Corporation, OnStar Corporation,
Advantage GPS/Procon Analytics, Sarekon GPS, Calamp, Spireon (which also includes SysLocate and GoldStar), PassTime, Guide Point, Icon
and I-Metrik SVR.
|
| ◾ |
Colombia.
Colombia
is a highly fragmented
market. Main companies operate under the satellite/cellular infrastructure. Our main competitors are LoJack Corporation (under Detekor
Brand), Prosegur, SATRACK (Local Company).
|
| ◾ |
Mexico
. Mexico is a highly fragmented market in tracking and satellite location services,
in which there are multiple companies dedicated to providing comprehensive satellite tracking, fleet management and vehicle recovery solutions
with GPS technology through the marketing of similar devices and technologies to ours, highly specialized in fleet management. The direct
competitors are LoJack Corporation, Encontrack S.A. and Pointer Recuperación S.A.
|
| ◾ |
Ecuador.
Ecuador is
highly fragmented market.
Main companies operate under the satellite/cellular infrastructure
.
Our main
competitors
are Hunter (Lojack Corporation), Tracklink and Carsync.
|
We believe that we are a leading provider of telematics services in Israel, as we are
deemed a monopoly in this field; however, we are unable to provide specific market share information in the markets of our operations
for various reasons, including the broad range of services and products that compete in these markets, the non-existence of trade publications
with respect to the products and services we offer in such markets and the lack of meaningful or accurate market research or data available
to us.
15
Fleet Management
The vehicle fleet management market is highly fragmented with many corporations offering
location products and services. Our major competitors are:
|
|
• |
Israel
: Pointer Telocation, ISR, Traffilog and Skylock;
|
|
|
• |
United States
: GPS Insight, Trimble, Network Fleet, Street Eagle, FleetMatics, Navtrack, Teletrac,
Trim Track, FleetBoss, PassTime, Verizon, ATT, Geotab, Fleet-Complete,Sprint, Zubie, and Spireon;
|
|
|
• |
Brazil
: Sascar, Zatix, CEABS, 3S and GolSat;
|
|
|
• |
Argentina
: LoJack Corporation, Megatrans S.A., Sitrac S.A., American Tracer, Ubicar S.A.,
Sky Cop. and YPF S.A.;
|
|
|
• |
Mexico
: LoJack Corporation, Encotrack, Easytrack, Geotab and Tracker;
|
|
|
• |
Ecuador
: Hunter (LoJack Corporation), Tracklink, Carsync and Sherlock;
|
|
|
• |
Colombia
:
Satrack, Detector and Prosegur.
|
(B) Telematics products
Our telematics system for automatic vehicle location is based on terrestrial network
triangulation technology and GPS/GPRS and primarily competes with companies that use one of three main technologies: GPS/GPRS (in
combination with telematics), network-based cellular communication and radio frequency-based homing.
Telematics products based on GPS, network-based cellular and homing technologies do
not require the construction of a separate infrastructure of base stations as with terrestrial network triangulation systems.
GPS receivers require line of sight to at least three satellites, which reduces
their effectiveness in areas where the satellite signals are subject to interference and “noise” (such as urban areas, buildings
or parking garages, forests and other enclosed or underground spaces). GPS and network-based cellular systems are also prone to jamming
since the tracking signal receivers are located in the vehicle and can be easily tampered with. In addition, the satellites utilized by
GPS devices are managed by the United States Department of Defence and can be subject to forced temporary outages. The main disadvantage
of homing systems is that they provide only the general direction and not the precise location of the end-unit. In addition, homing systems
require that the vehicle be reported stolen before the tracking signal can be activated, which may result in a delay between vehicle theft
and recovery.
The GPS technology can receive and transmit a massive capacity of data which enable
us to provide a better data analysis and variety of additional services.
Terrestrial network triangulation system does not require line
of sight and the signals are not easily interrupted in densely populated or obstructed areas. Also, the signals are transmitted from the
end-unit in the vehicle to a network of base stations. Therefore, in order to jam the system, receivers in each individual base station
within range of the end-unit would have to be jammed, which is difficult to accomplish. Additionally, since the primary application of
terrestrial network triangulation systems in the telematics industry is vehicle location and not continuous two-way communication,
short bursts of data are sufficient for tracking purposes, which enable the network of base stations to be deployed at a much lower density
in the coverage area than traditional network-based cellular base stations. Terrestrial network triangulation systems are capable of determining
the precise location, and not just the general direction, of a vehicle at any moment in time. Furthermore, when connected with the existing
theft protection system in the vehicle, terrestrial network triangulation systems automatically alert the control center when a vehicle
is stolen and do not require that the vehicle be reported stolen, which can potentially reduce stolen vehicle recovery times to a few
minutes. The main disadvantage of terrestrial network triangulation systems is the necessity to deploy a physical infrastructure, including
the construction, development and deployment of a network of base stations and a control center and the need to address the various financial,
legal and practical issues associated with such deployment. Any such deployment entails an investment of a sizable amount of money prior
to the receipt of any revenues.
Since our telematics end-units are primarily used by us in providing our telematics
services, the information provided above concerning our competition in this market is applicable to the competition in the telematics
products’ market as well.
16
Manufacturing Operations and Suppliers
Our telematics products are manufactured and assembled by a limited number of manufacturers
in Israel (including our subsidiary E.R.M) and in China. We engage with our manufacturers on a full turn-key basis, where we supply detailed
production files and materials list and receive a final product that we sell directly to our clients. Other than our dependency on manufacturing
suppliers, as described in Item 3D. -“Risk Factors” above, we do not depend on a single manufacturer for the production
of our products. Our quality assurance and testing operations are performed by our manufacturers at their facilities, while using our
quality assurance and testing equipment and in accordance with the test procedures designated by us. We monitor quality with respect to
key stages of the production process, including the selection of components and subassembly suppliers, warehouse procedures, assembly
of goods, final testing, packaging and shipping. We are ISO 9001 certified. Some of our products are within the highest car manufacture
automotive standard. We believe that our quality assurance procedures have been instrumental in achieving the high degree of reliability
of our products. Due to the recent shortage of several components, prices of several components accelerated.
Several components and subassemblies included in our products are presently obtainable
from a single source or a limited group of suppliers and subcontractors. We maintain strong relationships with our manufacturers and suppliers
to ensure that we receive an adequate supply of products, components and raw materials at favourable prices and to access their latest
technologies and product specifications.
Proprietary Rights
We seek to protect our intellectual property through patents, trademarks, contractual
rights, trade secrets, know-how, technical measures and confidentiality, non-disclosure and assignment of inventions agreements and other
appropriate protective measures to protect our proprietary rights in the primary markets in which we operate. The continued use of some
licenses granted by third parties to use their intellectual property is material to our business. Please refer to Item 3D. – Risk
Factors, under the caption “We rely on some intellectual property that we license from third parties, the loss of which could preclude
us from providing our SVR services or market and sell some of our telematics products, which would adversely affect our revenues”
above.
We typically enter into non-disclosure and confidentiality agreements with our employees
and consultants. We also seek these protective agreements from some of our suppliers and subcontractors who have access to sensitive information
regarding our intellectual property. These agreements provide that confidential information developed or made known during the course
of a relationship with us is to be kept confidential and not disclosed to third parties, except in specific circumstances.
Our stolen vehicle recovery system is based on three main components: (i) a telematics
end-unit that is installed in the vehicle, (ii) (for RF technology based telematics units) a network of base stations that relay information
between the vehicle location units and the control center, certain components of which were developed by third parties and are currently
licensed to us and (iii) a 24-hour manned control center consisting of software used to manage communications and the exchange of information
among the hardware components of the telematics system, certain components of which were developed by third parties and licensed to us.
“Ituran” and “Mr. Big” and the related logos are our trademarks,
the former has been registered in Israel, Hong Kong and as a European Union and the latter has been registered in Israel. “Mapa”
trademark and its related logos where sold as part of the sale of Mapa to an unrelated party to us.
Environmental, Social and Governance (ESG) Practices
As a global brand with material social and economic influence, we recognize that our
success can only be built alongside the success of our stakeholders, including, our users, partners, and employees. We aim to achieve
high ESG standards while continuing to develop our business and executing on our strategy.
We conduct our business activities and develop policies based on a firm commitment to
ethical practices and corporate governance best practices. This includes the “code of business conduct and ethics” and anti-bribery/corruption
area where we have a policy of zero tolerance for corruption. This also includes a “Whistle Blower” procedure whose purpose
is to dissuade and to prevent illegal activity and conduct of business that may harm our good reputation. Our code of business conduct
and ethics, and the Whistle Blower procedure are published in our website.
17
We promote and support fair social and economic opportunities in the professional services
global market. We recognize that there are systemic and cultural biases, caused by age, gender, race, ethnicity, sexual orientation, religion,
or ability, and we know these biases can reduce the accessibility to opportunities on a global scale. It is our mission to reduce these
accessibility gaps worldwide through our services, the programs we support, and the partners with whom we work. We invest resources into
data privacy and how we can protect our users by, among other things, building key infrastructures and policies to safeguard the data
on our platform and the privacy of our users.
We advance fairness and transparency in our workforce and we promote and implement fair
labor practices and employees’ human rights throughout our organization. We respect data privacy relating to our employees. We act
to prevent sexual harassment and workplace bullying. We also implement non-discriminatory hiring and promotion practices and actively
pursue gender diversity in our workforce.
We value and celebrate diversity within our community. Our work environment seeks to
foster an inclusive culture, where our employees feel challenged and in possession of the tools to thrive at work. We are continuously
learning and looking at ways to continue to create an environment that is an inclusive place of work. Furthermore, we recognize the importance
of environmental matters. In 2023 we received the “Great Place to Work” achievement.
In addition, we also have an “environmental policy”. This policy sets goals
in terms of preserving the environment, raising employee’s awareness and developing and promotion products that will help our customers
to save fuel and as a result to reduce waste, air pollution and gas emissions greenhouse. We also adopted a “Code of conduct of
Ituran’s Suppliers and Agents” which sets high standards in choosing our suppliers, In terms of business honestly, ethically
and quality drive. Our environmental policy and the Code of conduct of Ituran’s Suppliers and Agents our both published in our website
at
https://www.ituran.com/
.
Regulatory Environment
In order to provide our SVR services in the locations where we currently operate, we
need to obtain four primary types of licenses and permits: (i) for our products utilizing the RF technology - a license that allows us
to use designated frequencies for broadcasting, transmission or reception of signals and information and to provide telecommunication
services to our customers, (ii) for our products utilizing the RF technology - a building permit, which permits us to erect our base sites
and transmit therefrom, (iii) product specific licenses (commonly known as type approvals), which enable us to use the equipment necessary
for our services, and (iv) a general commerce license, which allows us to offer our services to the public.
The telecommunication services and frequency license and general commerce licenses we
require are granted by the applicable national agency regulating communications in the markets in which we operate, specifically, the
Ministry of Communication, in Israel, Anatel. Agencia Nacional de Telecomunicatoes in Brazil. Modernization Ministry in Argentina
and the Federal Communications Commission in USA. The product specific licenses we require are granted in Israel by the Ministry of Communication,
in Brazil by IBRACE (the Instituto Brasileiro de Certificatao de Productos para Telecominicatoes), in Argentina by the Autoridad Federal
de Tecnologias de la Información y las Comunicaciones, in the United States by the Federal Communications Commission, and Ministry
of Information Technology and Communications and Regulatory Communications Commission in Colombia. In Mexico, the regulatory authority
is the Federal Telecommunications Commission, however, because of the type of services we provide, we are not obligated entities; In Ecuador’s
case, the regulatory body is the Telecommunications Regulatory and Control Agency, however, we are not subject to either.
In Brazil, the general commerce licenses, such as the city permits, are granted by the
local municipalities and other specific entities, depending on the licenses required.
Our frequency licenses in all of the locations where we operate are “secondary”
or “joint”, which means that the government may grant another person or persons, typically a cellular operator, a primary
license to the same frequencies and, to the extent our operations interfere with the operations of the other person, we would have to
modify our operations to accommodate the joint use of the frequencies. All of these licenses are also subject to revocation, alteration
or limitation by the respective authority granting them. While any events that would cause us to change frequencies or to modify our operations
could have a material adverse effect on us, we do not believe that this is a likely event in any of the locations where we provide our
SVR services.
Frequency license following new regulations since October 2022, there is no need
any more for the extension of our frequency license, and registration with a specific registrar is sufficient. Our frequency licenses
in Brazil will expire in 2034. We have options to extend all of our frequency licenses for periods ranging from three- to ten-years.
A renewal application in Brazil will be submitted 6 months before the frequency license expiration date, to provide us a new license for
a period of ten (10) years. In Argentina, on July 15, 1999, the SECOM (Secretary of Communication dependent of Economy Ministry) granted
us a license to provide services in a Secondary Band. On December 2015, SECOM was converted into the Modernization Ministry, with ENACOM
(National Communication Entity) which is a decentralized entity that works within the scope of the Modernization Ministry.
18
Nevertheless, our frequency is still authorized, there is a new entrant with ENACOM
Authorization to provide LTE service. If this entrant starts the activity, we will face an incompatibility situation. We received the
authorization from ENACOM to use a 12-month trial in Band 8 902-905/947-950 MHz bands additionally to our current frequencies. During
this period, we will perform a test to obtain a definitive authorization. Due to the Covid-19 Pandemic we have not managed an extension
to the trial period so as not to compromise future network development. We have decided to wait for a formal request from ENACOM
to start again with this trial.
On December 9, 2016, we were informed that one of the cellular providers in Argentina,
which shares some of our frequencies, intends to implement on them 4G cellular service. Such service may cause Interference that may impede
the provision of our SVR service in Argentina. We are negotiating with ENACOM to define new frequency which we will migrate into. Subject
to the applicable laws, and ENACOM decision, the migration process may take few years, and will be determined by ENACOM.
In Israel and Brazil, like our competitors and most cellular operators, we are not in
compliance with all relevant laws and regulations in connection with the erection of transmission antennas (our base sites). As of the
date hereof, most of our base sites in Israel and Brazil are operating without local building permits. Currently, there is heightened
awareness of this issue in Israel, particularly in connection with base sites of cellular providers, and possible sanctions could include
fines and even the closure or demolition of these base sites. In Brazil, Brazilian authorities enforce permit requirements and impose
penalties for non-compliance with such requirements. However, we do not believe this is likely. Obtaining such required permits may involve
additional fees as well as payments to the Land Administration Authority.
In Israel the required permits and approvals for the erection of the base sites include:
| ◾ |
erection and operating permits from the Israeli Ministry of the Environment;
|
| ◾ |
permits from the Israeli Civil Aviation Authority, in certain cases;
|
| ◾ |
permits from the Israeli Defence Forces;
|
| ◾ |
approval from Israel’s Land Administration and/or from Civil Administration in the Territories, which usually also involves
payment for the land use rights; and
|
| ◾ |
building permits from local or regional zoning authorities in Israel and Brazil.
|
In Brazil, very few providers of wireless telecommunications services obtain the required
permits for the erection of transmission antennas due to the nature of the approval process. Currently we do not have such permits (except
Anatel permits). In Brazil, we try to minimize our risk by locating most of our equipment in sub-leased sites which are already used by
other telecommunication service providers, such as cellular operators.
In Brazil the required permits for the building of our base sites include:
|
|
• |
a permit from Anatel (National Agency for Telecommunication)
|
|
|
• |
a permit from IBAMA (Environment national agency) and/or state EPAs
|
|
|
• |
municipal permits
|
|
|
• |
a permit from the fire department; and
|
|
|
• |
a permit from COMAR (aviation authorities).
|
ANATEL permits are required only for sites where we have transmission equipment and
we have obtained all the permits required with this agency. Special IBAMA permits need to be obtained only for ground sites which are
located in certain preservation areas. We have few sites of this kind, most of them are collocated sites where we pay for the right of
use and permits are undertaken by the landowner. Fire Department permits are required only for equipment rooms and we have not applied
for any as of this date. COMAR permits are needed only for a very few of our sites, most of which are collocated.
19
In Argentina, the installation of an antenna support structure requires the authorization
of the owner of the building or the land in which it is intended to be install. The Municipalities regulate through specific Municipal
Ordinances are granting urban licenses for our base stations’ installation.
The regulation referred to the civil work of the support structure of the antenna,
(masts / towers / anchors / bracing, etc.) is not the competence of ENACOM (National Communication Entity), so it cannot exercise jurisdiction
over it. This situation is determined in articles 39, 40 and 41 of the National Law 19798/72, and in Resolution No. 795 CNT / 92, ratified
by Resolution 302 SC / 99. Therefore, the claims and queries related to the installation, the deterioration or poor conditions or related
to the support structures, should be addressed to the municipalities. It should be noted that the owner of a station in operation
assumes responsibility for the works and accessory facilities that must be executed to install a radio station, attributing the technical
responsibility of a civil work, to the designer and the director of the same, being this situation framed in what is established in articles
1273 and following of the Civil and Commercial Code of the Nation.
We are not in compliance with all relevant laws and regulations in connection with the
erection of antennas; some of them in the past were demolished by Municipalities. As of the date hereof, most of our base sites operating
without local Municipality permits, possible sanctions could include fines and even the closure of those sites. In Argentina authorities
enforce permit requirements and impose penalties for non-compliance with such requirements. Obtaining such required permits may involve
additional fees as well as payments to Municipality Authority.
We have been declared a monopoly under the Israeli Antitrust Law, 1988, in the provision
of systems for the location of vehicles in Israel. This law prohibits a monopoly from abusing its market position in a manner that might
reduce competition in the market or negatively affect the public. For instance, a monopoly is prohibited from engaging in predatory pricing
and providing loyalty discounts, which prohibitions do not apply to other companies. The law empowers the Commissioner of Competition
to instruct a monopoly abusing its market power to perform certain acts or to refrain from taking certain acts in order to prevent the
abuse. Additionally, any declaration by the Israeli Competition authority that a monopoly has abused its position in the market may serve
in any suit in which it is claimed that such a monopoly engages in anti-competitive conduct, as
prima
facie
evidence that it has engaged in anti-competitive behaviour. Our declaration as a monopoly in the market of “provision
of systems for the location of vehicles in Israel” was not accompanied with any instructions or special restrictions beyond the
provisions of The Economic Competition Law. Although we may be ordered to take or refrain from taking certain actions, to date we have
not been subject to such restrictions.
In Colombia we have to pay 2.2% on the annual gross income generated by the provision
of our services to the Ministry of Information Technologies and Communications (MINTIC) for use of telecommunication spectrum (resolution
0290 MINTIC) and 0.1% to Commission Regulatory of Communications (CRC) in the same terms (resolution 5807 CRC).
In Ecuador and Mexico there are no levies imposed on our activities.
Other Investments
As part of our ongoing business we are engaged and encountered by many potential investments
which may have correlation to our core business. The following are the main investments we have consummated during last seven years.
Bringg - On December 2013 the Company invested $1.4 million in
Bringg delivery technologies Ltd. (formerly Overvyoo Ltd.), an Israeli start-up company developing solutions for the management of mobile/field
workforce. On January and July, 2015, we invested additional amounts of $1.1 million and US$2 million, respectively. During the years
2015 - 2020, additional investors, which are not related to us, invested in Bringg a total amount of approximately $80 million, which
reduced our capital share in Bringg. During 2021, Bringg, raised an additional $100 million, which sets Bringg’s valuation
at $1 billion. Following such investment, we now hold 16.3% of Bringg’s share capital
SaverOne Ltd - On March 2017, we invested an amount of $0.9 million in SaverOne 2014
Ltd., an Israeli start-up company developing a system
that aims to reduce the occurrence of
road accidents by preventing the use of distracting mobile apps while driving (The system prevents the driver from using texting applications
while the vehicle is in motion, leaving other passengers unaffected).
20
During the years 2017 – 2021 we invested additional amount of approximately $0.8
million.
On June 2020 SaverOne have consummated public registration on the
Tel Aviv Stock Exchange (
“
TASE
”
) and thus its
shares became equity investment with readily determinable fair value. We now hold approximately 1.2% of SaverOne’s share capital.
In June 2022, SaverOne completed in initial public offering on the Nasdaq Capital Market
(Symbol: SVRE). As of December 31, 2023, the fair value of our investment in SaverOne is approximately US$0.1 million.
C.
ORGANIZATIONAL STRUCTURE
In July 1995, Moked Ituran Ltd. purchased our company and the assets used in connection
with our operations from Tadiran and Tadiran Public Offerings Ltd. In September 2018, we acquired a majority of the shares of Road Track,
a telematics company operating primarily in the Latin American region.
List of Significant subsidiaries:
|
Name of Subsidiary
|
|
Country of Incorporation
|
|
Proportion of Ownership Interest
|
|
|
|
|
|
|
|
Ituran USA Holdings Inc
|
|
USA
|
|
100%
|
|
Ituran USA Inc
|
|
USA
|
|
85.80%
|
|
Ituran de Argentina S.A.
|
|
Argentina
|
|
100%
|
|
Ituran Sistemas de Monitoramento Ltda
|
|
Brazil
|
|
98.75%
|
|
Ituran Instalacoes Ltda
|
|
Brazil
|
|
98.75%
|
|
Teleran Holding Ltda
|
|
Brazil
|
|
99.99%
|
|
Ituran servicos Ltda
|
|
Brazil
|
|
98.75%
|
|
E.R.M. Electronic Systems Limited
|
|
Israel
|
|
49.5%
1
|
|
Mapa Mapping Publishing Ltd
|
|
Israel
|
|
100%
|
|
Ituran Spain Holding S.L
|
|
Spain
|
|
100%
|
|
Ituran Road Track Monitaramento de Veiculos LTDA
|
|
Brazil
|
|
100%
|
|
Ituran Road Track Argentina, S.A.
|
|
Argentina
|
|
100%
|
|
Global Telematics Solutions HK, Limited
|
|
Hong Kong
|
|
100%
|
|
Road Track De Colombia S.A.S
|
|
Colombia
|
|
100%
|
|
Road Track Ecuador, S.A.
|
|
Ecuador
|
|
100%
|
|
Ituran Chile S.A.
|
Chile
|
100%
|
||
|
Ituran Uruguay S.A.S
|
Uruguay
|
100%
|
||
|
Road Track Mexico S.A. De C.V
|
|
Mexico
|
|
100%
|
|
Road Track HK Telematics Limited
|
|
Hong Kong
|
|
100%
|
|
E.D.T.E – Drive Technology Ltd
|
|
Israel
|
|
100%
|
|
Ituran Tech Ltd
|
|
Israel
|
|
100%
|
| D. |
PROPERTY, PLANTS AND EQUIPMENT
|
As of the date of this annual report, we own and lease the following properties: An
office building of eight floors (approximately 5,356 sqm (57,651 square feet)), which was purchased by our subsidiary Ituran Sistemas
de Monitoramento Ltda (Ituran Brazil) in Sao Paulo, Brazil, and was later, on December 3, 2014 sold to Ituran Location and Control Ltd,
A building located in Rua Joao pessoa 450, Sao Caetano do Sul, Estado de Sao Paulo in Sao Paulo, Brazil in the area of approximately 36,936
square feet which was purchased by our subsidiary Ituran Road Track Monitoramento de Veiculos, Ltda which serve as an Operating center,
A building located in Avenida del Taller No.36 Col. Transito in Mexico in the area of approximately 21,132 square feet which was purchased
by our subsidiary Road Track Mexico, S.A de C.V which serve as an Operating center, a building located in Manuel Najas Oel 81 and Juan
de Selis in Quito, Ecuador in the area of approximately 24,176 square feet which was purchased by our subsidiary Road Track Ecuador, S.A
which serve as an Operating center, and a building located in Keren Ha’ Yesod 15,
Tirat Ha’Carmel, Israel at the area of approximately 5,025 square feet which was
purchased by our subsidiary E.D.T.E – Drive Technology Ltd which serve as an office space and a warehouse.
1
The proportion of
voting power is 51%
21
Other than the property in Brazil, Ecuador and Mexico and Israel, all of our offices,
headquarters, control centers and facilities are leased in accordance with our specific needs in the areas in which we operate. Additionally,
we lease space for our base sites, in order to operate the reception and transmission stations of the system, in each area in which we
provide our SVR services.
In 2023 we leased an aggregate of approximately 66,580 square feet of office space in
Azour and Holon, Israel. In 2023, the annual lease payments for these facilities were approximately 1,301,000. The lease ends by April
2029. These premises include our executive offices and the administrative and operational centers for our operations as well as our customer
service, value-added services and technical support centers and warehouse for the Israeli market. We also lease 1,000 square feet for
a warehouse in Tirat Ha’Carmel for $20,000 annually.
In Buenos Aires, Argentina, we lease approximately 2,723 square feet for office space
for the total amount of AR$23,855,632 ($80,808) annually, approximately 9,188 square feet for our control center (C3) and Data Center
for AR$6,685, 000 ($22,644) annually and approximately 1,500 square feet for our warehouse for AR$2,442,347 ($8,273) annually.
In Bogota, Colombia, we lease approximately 9,035 square feet for office space and Operating
center for the amount of $71,320 annually.
In Mexico City, Mexico, we lease a warehouse for the amount of $3,000 annually.
We leased approximately 12,916 square feet of office space, stores and warehouse in
Brazil for approximately 264,000 ($56,000) Brazilian Real annually. The lease agreements will expire and will have to be renewed on August
21, 2026 and December 2024, as applicable to each engagement.
In Guayaquil, Ecuador, we lease approximately 7,828 square feet
for Warehouse for the amount of $30,000 annually. In Quito, Ecuador, we lease approximately 3,229 square feet for Warehouse for the amount
of $11,700 annually. In Cuenca, Ecuador, we lease approximately 538 square feet for Warehouse for the amount of $3,521 annually. .
We leased approximately 9,260 square feet for our offices and control center in Florida
for an amount of $171,000 annually, the lease term automatically extends for periods of one month from March 31 2023, and for each additional
month thereafter until the tenant provides the landlord written notice that it intends to vacate the premises with 6 months notice.
We believe that our facilities are suitable and adequate for our operations as currently
conducted. In the event that additional facilities will be required, we believe that we could obtain such facilities at commercially reasonable
rates.
The size of our base station sites varies from approximately 11 to 44 square feet. In
Israel, we have 98 base stations and we rent most base station sites independently for a monthly rate ranging from $200 to $2,200 per
site depending on the location, size and other factors; for certain sites we do not pay any rent. The typical duration of a lease agreement
for our base stations in Israel is five years and we generally have a right to renew the term of the lease agreements for a period ranging
between two and five years. In Brazil, we have 144 base station sites, of which 20 sites are leased from the same entity under a 15 year-contract,
(commencing from 2012) for a monthly rate ranging from $500 to $1,750 per site. The remaining 124 sites are leased independently for an
annual rate ranging from $200 to $550 depending on the location, size and other factors, and the typical duration for these leases is
five years. In Argentina, we have 37 base station sites, all of which are leased from six entities for a monthly rate ranging from $215
to $930 per site. The duration of the lease ranges from one to two years.
We do not believe that we have a legal retirement obligation associated with the operating
leases for our base sites pursuant to the relevant accounting standards, since we do not own any real property. However, we are obligated
pursuant to certain of the operating leases for our base sites, mainly for base sites in Israel, Brazil and Argentina, to restore facilities
or remove equipment at the end of the lease term. Since the restoration is limited to any construction or property installed on the property,
which in our case is only the installed antennas, we do not believe that these obligations, individually or in the aggregate, will result
in us incurring a material expense.
22
| ITEM 4. A. |
UNRESOLVED STAFF COMMENTS
|
None.
| ITEM 5 |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
|
|
A. |
OPERATING RESULTS
|
The information contained in this section
should be read in conjunction with our financial statements for the year ended December 31, 2023 and related notes and the information
contained elsewhere in this annual report. Our financial statements have been prepared in accordance with U.S. GAAP. This discussion contains
forward-looking statements that are subject to known and unknown risks and uncertainties. As a result of many factors, such as those set
forth under “ITEM 3.D. Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements,” our actual results
may differ materially from those anticipated in these forward-looking statements.
For
a discussion and analysis of our results of operations for 2022 compared to 2021, refer to Part I, Item 5. Operating and Financial Review
and Prospects, in our Annual Report on Form 20-F for the fiscal year ended December 31, 2022, which was filed with the SEC on April 19,
2023.
Outlook
We have historically sold our services and products in Israel and Brazil with a presence
in other primarily emerging markets. In 2023, we experienced revenue growth in most of the markets in which we provide our telematics
services. These markets, which are the main markets that we operate in, are generally characterized by high car theft rates, insurance
companies and car manufactures that are seeking solutions to limit their actual losses resulting from car theft and increasing their sales
by adding additional value to the customer. As a result, we believe the Brazilian market continues to provide growth potential for
our telematics services. The growth in subscribers within our telematics services segment also has a direct impact on the sale or lease
of our telematics products, as they are an integral component of our telematics services and are installed in each subscriber’s
vehicle. In Israel, in recent years the market experienced increased levels of car sales which positively affected our sales as compared
with previous years.
Geographical breakdown
Telematics services’ subscriber base
The following table sets forth the geographic
breakdown of subscribers to our telematics services as of the dates indicated:
|
2023
|
2022
|
2021
|
||||||||||
|
Israel
|
814,000
|
738,000
|
653,000
|
|||||||||
|
Brazil
|
672,000
|
558,000
|
453,000
|
|||||||||
|
Others
|
766,000
|
770,000
|
775,000
|
|||||||||
|
|
||||||||||||
|
Total
(1)
|
2,252,000
|
2,066,000
|
1,881,000
|
|||||||||
(1) All numbers provided are rounded, and therefore totals may be slightly different
than the results obtained by adding the numbers provided.
Revenues
The following table sets forth the geographic breakdown of our revenues for each of
our business segments for the relevant periods indicated.
|
|
2023
|
2022
|
2021
|
|||||||||||||||||||||
|
|
Telematics
services
|
Telematics
products
|
Telematics
services
|
Telematics
products
|
Telematics
services
|
Telematics
products
|
||||||||||||||||||
|
Israel
|
104.4
|
49.9
|
103.3
|
48.0
|
96.5
|
44.1
|
||||||||||||||||||
|
Brazil
|
83.8
|
2.0
|
66.7
|
2.4
|
55.2
|
2.6
|
||||||||||||||||||
|
Others
|
46.4
|
33.5
|
39.6
|
33.1
|
37.9
|
34.6
|
||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total
(1)
|
234.6
|
85.4
|
209.6
|
83.5
|
189.6
|
81.3
|
||||||||||||||||||
(1)
We attribute revenues
to countries based on the location of the customer.
23
Telematics services segment
We generate revenues from rendering our SVR, fleet management connected car, UBI and
other value-added services. A majority of our revenues represent subscription fees paid to us by our customers. We recognize revenues
from subscription fees on a monthly basis. Most of our customers are free to terminate their subscription at any time. In the absence
of such termination, the subscription term continues automatically. We also generate subscription fees from our fleet management services.
Assuming no additional growth in our subscriber base and based on our historical average churn rates of 3% per month in this segment,
we can anticipate that at least 90% of our subscription fees generated in a prior quarter will recur in the following quarter.
Telematics products segment
We generate revenues from sale of our telematics products to customers in Israel, Brazil,
and other regions which we operate. We currently sell or lease our telematics end-units in each of the above regions. Growth in our subscriber
base is the principal driver for the sale of our telematics products. We recognize revenues from sales of our telematics products upon
transfer of control to the customer (usually upon delivery).
Cost of revenues
Telematics services segment
The cost of revenues in our telematics services segment consists primarily of staffing,
maintenance and operation of our control centers and base stations, costs associated with our staff and costs incurred for private enforcement,
licenses, permits and royalties, as well as communication costs and costs due to depreciation of leased products and installation fees.
Cost of revenues for sales of our fleet management services also includes payments to a third party who markets our services.
Telematics products segment
The cost of revenues in our telematics products segment consists primarily of the cost
of unit of our manufacturers and costs associated with installation fees.
Operating expenses
Research and development
Our research and development expenses consist primarily of salaries, costs of materials
and other overhead expenses, primarily in connection with the design and development of our telematics products and software solutions.
We expense some of our research and development costs as incurred. Subject to certain criteria we capitalize software development costs.
For further information see Note 1S to our consolidated financial statements.
Selling and marketing
Our selling and marketing expenses consist primarily of advertising, salaries, commissions
and other employee expenses related to our selling and marketing team and promotional and public relations expenses.
General and administrative
Our general and administrative expenses consist primarily of salaries, bonuses, accounting
and other general corporate expenses.
Operating Income
Telematics services segment
Operating income in our telematics services segment is primarily affected by increases
in our subscriber base and our ability to increase the resulting revenues without a commensurate increase in our corresponding costs.
Telematics products segment
Operating income in our telematics products segment is primarily affected by our ability
to increase sales of our telematics products.
24
Financing expenses (income), net
Financing income (expenses), net ,include, inter alia ,short-term and long-term interest
expenses, financial commissions, income (expenses) in respect of changes in obligation to purchase non-controlling interests ,and gains
(losses) from currency fluctuations from the translation of monetary balance sheet items denominated in currencies other than the functional
currency of each entity in the group, gains (losses) in respect of marketable securities and other investments, and expenses related to
tax positions.
Taxes on income
Income earned from our services and product sales is subject to tax in the country in
which we provide our services or from which we sell our products.
Critical Accounting Policies and Estimates
Our critical accounting policies are more fully described in Note 1 to our consolidated
financial statements appearing elsewhere in this report. However, certain of our accounting policies require us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and
liabilities. We evaluate our estimates on a periodic basis. We base our estimates on historical experience, industry trends, authoritative
pronouncements and various other assumptions that we believe to be reasonable under the circumstances. Such assumptions and estimates
are subject to an inherent degree of uncertainty.
The following are our critical accounting policies and the significant judgments and
estimates affecting the application of those policies in our consolidated financial statements. See Note 1 to our consolidated financial
statements included elsewhere in this report.
Revenue recognition
We and our subsidiaries generate revenue from subscriber fees for the provision of services
and sales of systems and products, mainly in respect of fleet management services, stolen vehicle recovery services and other value-added
services. To a lesser extent, revenues are also derived from technical support services. We and our subsidiaries sell the systems primarily
through their direct sales force and indirectly through resellers.
Revenue recognition accounting policy applied from January 1, 2018 (following the adoption
of ASC Topic 606);
We apply ASC Topic 606, Revenue from Contracts with Customers (“ASC
606”) to all contracts, using the modified retrospective method.
In accordance with ASC 606, we determine revenue recognition through the following five
steps:
|
|
• |
Identification of the contract, or contracts, with a customer;
|
|
|
• |
Identification of the performance obligations in the contract;
|
|
|
• |
Determination of the transaction price;
|
|
|
• |
Allocation of the transaction price to the performance obligations in the contract; and
|
|
|
• |
Recognition of revenue when, or as, we satisfy a performance obligation.
|
A contract with a customer exists when all of the following criteria are met: the parties
to the contract have approved it (in writing, orally, or in accordance with other customary business practices) and are committed to perform
their respective obligations, we can identify each party’s rights regarding the distinct goods or services to be transferred (“performance
obligations”), we can determine the transaction price for the goods or services to be transferred, the contract has commercial substance
and it is probable that we will collect substantially all of the consideration to which it will be entitled in exchange for the goods
or services that will be transferred to the customer.
25
For each type of contract, at inception, we assess the goods or service promised in
a contract with a customer and identifies the performance obligations. With respect to contracts that are determined to have multiple
performance obligations, such as contracts that combine product with services (mostly SVR services) and/or rights to use assets, we allocate
the contract’s transaction price to each performance obligation using either its best estimate of the relative standalone selling
price of each distinct good or service in the contract. The primary method used to estimate the relative standalone selling price is expected
costs of satisfying a performance obligation and an appropriate margin for that distinct good or service. or when applicable we use the
residual approach (an entity under certain conditions may estimate the standalone selling price by reference to the total transaction
price less the sum of the observable standalone selling prices of other goods or services promised in the contract). However, when
applicable (see below), we estimate the selling prices of certain services using the residual approach. Revenues are recognized when,
or as, control of services or products is transferred to the customers at a point in time or over time, as applicable to each performance
obligation.
Revenues are recorded in the amount of consideration to which we expect to be entitled
in exchange for performance obligations upon transfer of control to the customer, excluding amounts collected on behalf of other third
parties and sales taxes.
We do not adjust the amount of consideration for the effects of a significant financing
component since we expect, at most contracts’ inception, that the period between the time of transfer of the promised goods or services
to the customer and the time the customer pays for these goods or services to be generally one year or less, based on the practical expedient.
Our credit terms to customers are, on average, between thirty and ninety days.
Contingencies
We and our subsidiaries are involved in certain legal proceedings that arise from time
to time in the ordinary course of their business and in connection with certain agreements with third parties. Except for income tax contingencies,
we records accruals for contingencies to the extent that the management concludes that the occurrence is probable and that the related
liabilities are estimable. Legal expenses associated with contingencies are expensed as incurred.
Goodwill and intangible assets
Goodwill represents the excess of the purchase price over the fair value of the identifiable
net assets acquired in business combinations accounted for in accordance with the “purchase method” and is allocated to reporting
units at acquisition. Goodwill is not amortized but rather tested for impairment at least annually in accordance with the provisions
of ASC Topic 350, “Intangibles - Goodwill and Other”.
We elected to perform the goodwill annual impairment test for its operating units as
follows: the entire balance of goodwill (an amount of approximately 39.4 million (as of December 31, 2023) relates to four different
reporting units . is tested for impairments on December 31, each year or more often.
As required by ASC Topic 350, we choose either to perform a qualitative assessment whether
the quantitative goodwill impairment test is necessary or proceeds directly to the quantitative goodwill impairment test. Such determination
is made for each reporting unit on a stand-alone basis. The qualitative assessment includes various factors such as macroeconomic conditions,
industry and market considerations, cost factors, overall financial performance, earnings multiples, gross margin and cash flows from
operating activities and other relevant factors. When we choose to perform a qualitative assessment and determines that it is more likely
than not (more than 50 percent likelihood) that the fair value of the reporting unit is less than its carrying value, then we proceed
to the quantitative goodwill impairment test. If we determine otherwise, no further evaluation is necessary.
With respect to goodwill impairment tests performed before the adoption of ASU 2017-04
(which became effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15,2019), when we
decided or were required to perform the quantitative goodwill impairment test, we firstly were required to compare the fair value of the
reporting unit to its carrying value (“step 1”). If the fair value of the reporting unit exceeded the carrying value of the
reporting unit net assets (including the goodwill allocated to such reporting unit), goodwill was considered not to be impaired, and no
further testing was required. If the carrying value was determined to exceed the fair value of the reporting unit, then the implied fair
value of goodwill was determined by subtracting the fair value of all the identifiable net assets from the fair value of the reporting
unit. An impairment loss was recorded for the excess, if any, of the carrying value of the goodwill allocated to the reporting unit over
its implied fair value (“step 2”).
Commencing fiscal 2022,upon the adoption of ASU 2017-04 (which eliminated Step
2 from the goodwill impairment, when we decide or are required to perform the quantitative goodwill impairment test, we compare the fair
value of the reporting unit to its carrying value and an impairment charge is recognized for the amount by which the carrying amount exceeds
the reporting unit’s fair value, if any. In the performance of the quantitative analysis, we apply assumptions that market participants
would consider in determining the fair value of each reporting unit.
As of December 31, 2023, 2022 and 2021, we had four reporting units which include goodwill.
26
Telematics services:
Under the telematics services segment there are two reporting units with goodwill. For
one of which (resulted from past acquisitions) with an allocated amount of approximately US$1.7 million of goodwill, we performed a qualitative
assessment as of December 31, 2023 and 2022, and concluded that the qualitative assessment did not result in a more likely than not indication
of impairment, and therefore no further impairment testing was required, with respect to such units.
For the second reporting unit (resulted from RT acquisition from year 2018:“RT
acquisition”) with an allocated amount of approximately US$32.3 million of goodwill (as of December 31, 2023), we performed the
annual impairment test, as of December 31, 2023, and reached to a conclusion that no impairment should be recorded at that point.
We have historically performed an annual goodwill assessment for such reporting
unit as of June 30 of each year or more often if indicators of impairment are presented. following the second closing of the RT acquisition,
we decided to change the date of its annual impairment assessment from June 30 to December 31.
We performed a qualitative assessment as of December 31, 2023, and concluded that the
qualitative assessment did not result in a more likely than not indication of impairment, and therefore no further impairment testing
was required, with respect to such units.
Telematics products:
Under the telematics products segment there are two reporting units with goodwill, for
one of which (resulted from past acquisitions) with an allocated amount of approximately 2.0 US$ of goodwill, we performed a qualitative
assessment as of December 31, 2023 and 2022, and concluded that the qualitative assessment did not result in a more likely than not
indication of impairment, and therefore no further impairment testing was required, with respect to such units.
For the second reporting unit (resulted from RT acquisition) with an allocated amount
of approximately US$3.5 million of goodwill (as of December 31, 2023), we performed the annual impairment test, as of December 31, 2023,
and reached to a conclusion that no impairment should be recorded at that point. We have historically performed an annual goodwill assessment
as of June 30 of each year or more often if indicators of impairment are presented. following the second closing of the RT acquisition,
we decided to change the date of its annual impairment assessment from June 30 to December 31. We performed a qualitative assessment as
of December 31, 2023, and concluded that the qualitative assessment did not result in a more likely than not indication of impairment,
and therefore no further impairment testing was required, with respect to such unit.
27
Results of Operations
The following table sets forth for the periods indicated selected items from our consolidated
statements of income as a percentage of our total revenues.
|
Consolidated statements of operations data:
|
2023
|
2022
|
2021
|
|||||||||
|
Revenues:
|
||||||||||||
|
Telematics services
|
73.3
|
71.5
|
70.0
|
|||||||||
|
Telematics product
|
26.7
|
28.5
|
30.0
|
|||||||||
|
Total Revenues
|
100
|
100
|
100
|
|||||||||
|
Cost of Revenues:
|
||||||||||||
|
Telematics services
|
30.8
|
30.8
|
30.8
|
|||||||||
|
Telematics products
|
21.3
|
22.3
|
22.0
|
|||||||||
|
Total cost of revenues
|
52.1
|
53.1
|
52.8
|
|||||||||
|
Gross profit
|
47.9
|
46.9
|
47.2
|
|||||||||
|
Operating Expenses:
|
||||||||||||
|
Research and development expenses
|
5.3
|
5.7
|
5.2
|
|||||||||
|
Selling and marketing Expenses
|
4.3
|
4.5
|
4.9
|
|||||||||
|
General and administrative expenses, net
|
17.7
|
16.6
|
17.0
|
|||||||||
|
Impairment of goodwill
|
--
|
-
|
-
|
|||||||||
|
Impairment of intangible assets and other expenses (income), net
|
--
|
-
|
(0.1
|
)
|
||||||||
|
Total operating expenses
|
27.3
|
26.8
|
27.0
|
|||||||||
|
Operating Income
|
20.6
|
20.1
|
20.2
|
|||||||||
|
Other income expenses, net
|
-
|
-
|
(0.1
|
)
|
||||||||
|
Financing income, net
|
(0.5
|
)
|
(2.0
|
)
|
(2.0
|
)
|
||||||
|
Income before income tax
|
20.1
|
18.1
|
18.1
|
|||||||||
|
Income tax
|
(4.2
|
)
|
(4.4
|
)
|
(4.4
|
)
|
||||||
|
Share in gains (losses) of affiliated companies, net
|
(0.2
|
)
|
(0.2
|
)
|
(0.1
|
)
|
||||||
|
Net income for the year
|
15.7
|
13.5
|
13.6
|
|||||||||
|
Less: net income attributable to non-controlling interests
|
(0.7
|
)
|
(0.8
|
)
|
(1.0
|
)
|
||||||
|
Net income attributable to company stockholders
|
15.0
|
12.7
|
12.6
|
|||||||||
Analysis of our Operation Results for the Year ended December 31,
2023 as compared to the Year ended December 31, 2022
Revenues
Total revenues increased from $293.1 million in 2022 to $320.0 million in 2023 or 9%.
This increase consisted of an increase of $25.0 million from subscription fees from our telematics services and an increase of $1.9 million
from sales of our telematics products.
Telematics services segment
Revenues in our telematics services segment increased by $25.0 million from $209.6 million
in 2022 to $234.5 million in 2023, or 12%. The increase was mainly due to an increase in our average annual number of subscribers
from 1,996,000 in 2022 to 2,186,000 in 2023.
28
Telematics products segment
Revenues in our telematics products segment increased from $83.5 million in 2022, to
$85.4 million in 2023 or 2 %. This increase of $1.9 million was primarily due to an increase in the quantity of units’ sales.
Cost of revenues
Total cost of revenues increased from $155.5 million in 2022, to $166.8 million in 2023
or 7 %. This increase consisted of an increase of $8.6 million in the telematics services segment and an increase of $2.7 million in the
telematics product segment. As a percentage of total revenues, cost of revenues decreased slightly from 53.0% in 2022 to 52.1% in 2023.
Telematics services segment
Cost of revenues for our telematics services segment increased from $90.1 million in
2022, to $98.7 million in 2023 or 9.5%. This increase was primarily due to an increase in salary expenses of approximately $2.0 million,
an increase in depreciation and amortization expenses of approximately $1.7 million and increase in installation and communication costs
expenses of approximately $4.5 million. As a percentage of total revenues for this segment, cost of revenues decreased from 43% in 2022
to 42.1% in 2023.
Telematics products segment
Cost of revenues for our telematics products segment increased from $65.4 million in
2022, to $68.1 million in 2023 or 4.2%. This increase was mainly due to the increase in our products’ sales and the change in the
mixture of products sales. As a percentage of total revenues for this segment, cost of revenues increased from 78.3 % in 2022, to 79.7%
in 2023.
Operating expenses
Research and development.
Our research and development expenses increased from $16.8 million in 2022 to $17.0
million in 2023. As a percentage of total revenues, research and development expenses decreased from 5.7% in 2022 to5.3% in 2023.
Selling and marketing
Our selling and marketing expenses increased from $13.3 million in 2022 to $13.6 million
in 2023. As a percentage of total revenues, selling and marketing expenses decreased from 4.5 % in 2022 to 4.3% in 2023.
General and administrative
General and administrative expenses increased from $48.7 million in 2022, to $56.6 million
in 2023 or 16.3%. The increase was mainly due to an increase in salary expenses of approximately $4.6 million and an increase in expenses
related to returning to work in offices in amount of $1.3 million. As a percentage of total revenues, general and administrative expenses
increased from 16.6% in 2022 to 17.7 % in 2023.
Operating income
Total operating income increased from $58.8 million in 2022, to $66.0 million in 2023
or 12.2%. This increase of approximately $7.2 million reflects an increase of $8.8 million in the operating income in the telematics service
segment and a decrease of $1.6 million in the operating loss in the telematics products segment.
Telematics services segment
Operating income in our telematics services segment increased from $56.3 million in
2022 to $65.0 million in 2023, or 15.5%. This increase was mainly attributed to the increase of our average base of subscribers from 1,974,000
subscribers in 2022 to 2,186,000 subscribers in 2023.
As a percentage of income in our telematics services segment revenues, operating income
in our telematics services segment increased from 26.9% in 2022 to 27.7% in 2023.
29
Telematics products segment
Operating income in our telematics products segment decreased from $2.5 million in 2022
to $0.9 million in 2023. This decrease in operating income was mainly attributed to the increase in other product costs and sales mixture.
As a percentage of income in our telematics products segment revenues, operating income
in our telematics products segment decreased from 3.0 % in 2022 to 1.1 % in 2023.
Financing expenses, net
Financing expenses, net, was $5.9 million in 2022 compared with $1.6 million in 2023.
The decrease in the financing expenses was mainly due to a decrease in losses in respect
of marketable securities and other investments in an amount of $3.8 million.
Income Tax
Income Tax expenses increased from $12.7 million in 2022, to $13.3 million in 2023 or
4.8%. As a percentage of income before tax, income tax expenses decreased from 24.1 % in 2022 to 20.7% in 2023
mainly
due to the countries profit mixture.
Impact of Currency Fluctuations on Results of Operations, Liabilities and Assets
Although we report our consolidated financial
statements in dollars, in 2021, 2022 and 2023, a portion of our revenues and direct expenses was derived in other currencies. For fiscal
years 2021, 2022 and 2023 we derived approximately 26.6%, 24.8 % and 25.3% of our revenues in dollars and other currencies, 52.0% , 51.6%
and 48.3% in NIS, 21.4%, 23.6% and 26.4% in Brazilian Reals. In fiscal years 2021, 2022 and 2023, 30.9%, 28.1% and 27.0% of our
expenses were incurred in dollars and other currencies, 52.3%, 53.4% and 51.2% in NIS and 16.8%, 18.5% and 21.8% in Brazilian Reals.
Exchange differences upon conversion from
our functional currency to dollars (presentation currency) are accumulated as a separate component of accumulated other comprehensive
income under stockholders’ equity. In the year 2023, accumulated other comprehensive income increased by $0.8 million. In the year
2022, accumulated other comprehensive income decreased by $4.6 million. In 2021, accumulated other comprehensive income decreased by $2.9
million.
The fluctuation of the other currencies in
which we incur our expenses or generate revenues against the dollar has had the effect of increasing or decreasing (as applicable) reported
revenues, cost of revenues and operating expenses in such foreign currencies when converted into dollars from period to period. The following
table illustrates the effect of the changes in exchange rates on our revenues, gross profit and operating income for the periods indicated:
|
Year ended December 31,
|
||||||||||||||||||||||
|
2021
|
2022
|
2023
|
||||||||||||||||||||
|
Actual
|
At 2020 exchange rates
|
Actual
|
At 2021 exchange rates
|
Actual
|
At 2022 exchange rates
|
|||||||||||||||||
|
(In thousands of US$)
|
||||||||||||||||||||||
|
270,884
|
264,507
|
293,072
|
296,752
|
319,978
|
329,420
|
|||||||||||||||||
|
127,838
|
125,090
|
137,562
|
139,120
|
153,161
|
158,291
|
|||||||||||||||||
|
54,615
|
53,595
|
58,774
|
59,218
|
65,955
|
67,422
|
|||||||||||||||||
(1)
Based on average exchange
rates during the period.
Those columns are Non GAAP information.
Our policy remains to reduce exposure to exchange
rate fluctuations by entering into foreign currency forward transactions that mainly qualify as hedging transactions under ASC Topic 815,
“Derivatives
and Hedging”
, the results of which are reflected in our income statements as revenues or cost of revenues. The result of
these transactions, which are affected by fluctuations in exchange rates, could cause our revenues, cost of revenues, gross profit and
operating income to fluctuate.
30
|
|
B. |
LIQUIDITY AND CAPITAL RESOURCES
|
We fund our operations primarily from cash and cash equivalents generated from operations.
As of December, 31, 2021, 2022 and 2023 we had $54.7 million, $28.2 million and $53.6 million in cash and marketable securities and
$58.1 million, $57.7 million and $86.8 million in working capital, respectively. We hold most of our cash and cash equivalents in US dollars
or the local currency of their location.
As of December 31, 2023 we had a long term loan at the amount of $0.2 million and a
short term loans at the amount of $0.4 million. As of December 31, 2022 we had a long- term loan from an Israeli bank at the
amount of $0.3 million and a short term loans at the amount of $11.8 million. As of December, 2021 we had a long-term loan from an Israeli
bank in the amount of $13.7 million and a short term loans at the amount of $17.8 million. As of December 2021 ,2022 and 2023, we also
had $1.6 million, $1.7 million and $2.1 million, respectively, available to us under existing lines of credit. As of December 31, 2021
we utilized $0.7 million of our credit line, as of December 31, 2022 we utilized $0.6 million of our credit line and, and as of December
31, 2023 we utilized $0.6 million of our credit line.
We believe that our cash flow from operations, availability under our lines of credit
and cash and marketable securities will be adequate to fund our capital expenditures, contractual commitments and other demands and commitments
for the foreseeable future as well as for the long-term. We believe that cash flow generated from operations and cash available to us
from our credit facilities will be sufficient to cover future expansion of our various businesses into new geographical markets or new
products, as currently contemplated and as we describe herein. However, if existing cash and cash generated from operations are insufficient
to satisfy our liquidity requirements, we may seek financing elsewhere by selling additional equity or debt securities or by obtaining
additional credit facilities.
As of December 31, 2021,2022 and 2023 we had long-term liabilities of $22.5 million,
$21.2 million, and $24.6 million, respectively, for employee rights upon retirement for certain of our employees that become payable upon
their retirement. Our Israeli employees are entitled to one month’s salary, equal to the applicable monthly salary at the time of
such employee’s retirement, for each year of employment, or a portion thereof, upon retirement. This liability is partially funded
by deposit balances maintained for these employee benefits in the amount of $16.2 million, $15.1 million and $18.5 million, as of December,
2021 ,2022 and 2023 respectively. The deposited funds include profits accumulated up to the balance sheet date and may be withdrawn upon
the fulfilment of the obligation pursuant to Israeli severance pay laws or labor agreements.
In Ecuador, there are two unique Laws which are relevant to our activities:
|
|
1. |
Remittance tax (Impuesto a la Salida de Divisas) - Remittance tax of 5% is imposed on the transfer of money abroad in cash or through
pay checks, transfers, or courier of any nature carried out with or without the mediation of the Ecuadorian financial system, including
transfer from foreign bank accounts. Dividends are exempt from this tax, under certain considerations.
|
|
|
2. |
Labor profit sharing - Although it is not considered a tax, companies are obligated to pay 15% of their pre-tax earnings to their
employees. This payment is considered a deductible expense for CIT computation purposes.
|
In Mexico, All Mexican employers, whether individuals or entities, are required to calculate
and pay mandatory profit- sharing payments to employees within 60 days following the filing of their annual Mexican tax return. The obligation
for employers to make such payments is based on the legal provisions in Section IX of Article 123 of the Political Constitution of the
United Mexican States, which establishes that employees shall have the right to participate in their employer’s profits in the amount
of 10% of such employer’s taxable income. As such, the following types of employees have the right to receive profit sharing payments:
(a) permanent employees hired to carry out normal, long-term work for an employer, without regard to the number of days worked during
the January 1 through December 31, 2019 fiscal year; (b) eventual permanent employees who have worked for an employer fewer than 60 days,
whether continuously or sporadically, during the fiscal year referred to above; (c) former employees who have the right to claim profit
sharing payments, when such rights have not lapsed.
31
Dividends
On February 26, 2017 we have revised our dividend policy, which came in force starting
from 2017, that our dividends will be declared and distributed on a quarterly basis in an amount of at least 5 million USD subject to
the provisions of the Israeli laws concerning lawful distribution of dividends. During years 2021-2022 we reduced our quarterly dividend
to $3 million due to Covid-19 ,but on November 2023 our Board decided to resume the same $5 million as dividend distributed quarterly
and in February 2024 the board of directors approved the increase of quarterly dividend to $8 million.
Dividend we declared in respect to 2021 result:
On May 25, 2021, we declared a quarterly dividend in the amount of $3 million, which
was paid (net of taxes at the rate of 25%) on July 14, 2021, with respect to the first quarter of 2021. On August
23
,
2021,
we declared a quarterly dividend in the amount of $3 million, which was paid (net of taxes at the rate of 25%) on October 13, 2021, with
respect to the second quarter of 2021. On November 16, 2021, we declared a quarterly dividend on the amount of $3 million, which was paid
(net of taxes at the rate of 25%) on January 5, 2022, with respect to the third quarter of 2021. On March 7, 2022, we declared a quarterly
dividend of $3 million, which was paid (net of taxes at the rate of 25%) on April 6, 2022, with respect to the fourth quarter of 2021.
Dividend we declared in respect to 2022 result:
On May 24, 2022, we declared a quarterly dividend in the amount of 3 million, which
was paid (net of taxes at the rate of 25%) on July 14, 2022, with respect to the first quarter of 2022. On August 29. 2022, we declared
a quarterly dividend in the amount of 3, million, which was paid (net of taxes at the rate of 25%) on October 13, 2022, with respect to
the second quarter of 2022. On November 21, 2022, we declared a quarterly dividend in the amount of 3 million, which was paid (net of
taxes at the rate of 25%) on January 4, 2023.
Dividend we declared in respect to 2023 result:
On May 21, 2023, we declared a quarterly dividend in the amount of 3 million, which
was paid (net of taxes at the rate of 25%) on July 12, 2023, with respect to the first quarter of 2023. On August 15. 2023, we declared
a quarterly dividend in the amount of 3, million, which was paid (net of taxes at the rate of 25%) on October 11 , 2023, with respect
to the second quarter of 2023. On November 27, 2023, we declared a quarterly dividend in the amount of 5 million, which was paid (net
of taxes at the rate of 25%) on January 4, 2024. On February 29,2024 we declared a quarterly dividend in the amount of 8 million, which
was paid (net of taxes at the rate of 25%) on April 3, 2024
Until the RTH Transaction, we have repurchased 2,507,314 of our shares, out of these
shares (373,489 shares) were resold as part of the consideration in the RTH Transaction. As part of the RTH Transaction price adjustment
300,472 shares were returned to us in April 2019. As part of implementation of our Board of Directors decision of 25 million USD share
repurchase program, Share repurchases were funded by our wholly owned subsidiary with available cash. Repurchases of the Company’s
ordinary shares were based on Rule 10b-18 terms. During the years 2019 and 2021 we purchased 227,828 and 228,725 of our shares for
approximately $6 million each year. During the year 2021, we also directly purchased additional 50,995 shares for approximately $1.3 million
not through publicly announced plans. During 2022 we purchased additional 357,362 shares for approximately $5 million. During 2023 we
purchased additional 282,644 shares for approximately $6.6 million.
32
As of the date of this report, the updated quantity of treasury
shares are 3,581,851 (including the aforementioned, 603,142 shares which are entitled to dividend distributed). The following table sets
forth the components of our historical cash flows for the periods indicated:
|
|
Year ended December 31,
|
|||||||||||
|
|
2023
|
2022
|
2021
|
|||||||||
|
|
(In thousands)
|
|||||||||||
|
|
||||||||||||
|
Net cash provided by operating activities
|
77,218
|
45,118
|
55,790
|
|||||||||
|
Net cash used in investing activities
|
(17,229
|
)
|
(27,354
|
)
|
(18,524
|
)
|
||||||
|
Net cash used in financing activities
|
(32,934
|
)
|
(36,360
|
)
|
(58,666
|
)
|
||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
(1,471
|
)
|
(3,860
|
)
|
(477
|
)
|
||||||
|
Net increase/decrease in cash and cash equivalents
|
25,584
|
(22,456
|
)
|
(21,877
|
)
|
|||||||
Years ended December 31, 2023, December 31, 2022, and December 31, 2021
Net cash provided by operating activities.
Our operating activities provided cash of $55.8 million in 2021, $45.1 million
in 2022 and $77.2 million in 2023.
Cash from operating activities in 2023 increased in an amount of approximately $32.1
million, this increase was mainly due to the growth in our net profit, decrease in inventory and an increase in our deferred revenues
proceeds.
Net cash used in investing activities.
Net cash used in investing activities in 2023 in an amount of approximately $17.2 million,
included capital expenditure in the amount of $14.2 million.
Net cash used in investing activities in 2022 in an amount of approximately $27,4 million,
included capital expenditure in the amount of $26.5 million.
Net cash used in investing activities in 2021 in an amount of approximately $18.2 million,
included capital expenditure in the amount of $16.6 million.
Net cash used in financing activities.
Net cash used in financing activities in 2023
in an amount of approximately $32.9 million consisted primarily of a repayment of short and long term credit from financial institution
in an amount of $11.4 million, cash dividend payment in an amount of approximately $14.9 million and acquisition of company shares in
an amount of approximately $6.6 million.
Net cash used in financing
activities in 2022 in an amount of approximately $36.4 million consisted primarily of a repayment of short- and long-term credit from
financial institution in an amount of $16.5 million, cash dividend payment in an amount of approximately $11.5 million and acquisition
of company shares in an amount of approximately $8.5 million.
Net cash used in by financing activities in 2021 in an amount of approximately $58.9
million consisted primarily of a repayment of short- and long-term credit from financial institution in amount of $23.8 million, cash
dividend payment in an amount of approximately $15.8 million a cash payment to settle the obligation to purchase non-controlling interest
in an amount of approximately $11.3 million and an acquisition of company shares in an amount of approximately $7.3 million.
33
|
|
C. |
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
|
Most of our research and development activities take place in Israel, Mexico, Colombia
and Ecuador. Our Research and Design department is constantly working on upgrading the service infrastructure and improving our fleet
management applications, including by introducing new services and uses of the system, while utilizing both internal development staff
and outsourcing such activities to third parties, as well as developing new service platforms for cellular/GPS based devices.
Expenditures for research and development activities undertaken by us were approximately
$17.0 million in 2023, $16.8 million in 2022, $14.1 million in 2021.
|
|
D. |
TREND INFORMATION
|
The COVID-19 pandemic had little impact on our business during year 2022. Nevertheless,
in case this pandemic or similar in effect will erupt this may have an adverse effect on our business.
Please see Item 4.A. – History and Development of the Company and Item 4.B. –
Business Overview above for trend information.
|
|
E. |
OFF-BALANCE SHEET ARRANGEMENTS
|
We do not have off-balance sheet arrangements (as such term is defined in Item 5E. of
the Form 20-F) that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial
conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
34
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
|
A. |
DIRECTORS AND SENIOR MANAGEMENT
|
The following table sets forth information regarding our executive officers, key employees
and directors as of the date of this annual report:
|
Name
|
Age
|
Position
|
|
|
|
|
|
Izzy Sheratzky
|
77
|
President and director
|
|
Yehuda Kahane
|
79
|
Director
|
|
Ze’ev Koren
|
79
|
Chairman of the Board of Directors and an independent director
|
|
Efraim Sheratzky
|
71
|
Director
|
|
Eyal Sheratzky
|
55
|
Co-Chief Executive Officer and Director
|
|
Nir Sheratzky
|
52
|
Co-Chief Executive Officer and Director
|
|
Gil Sheratzky
|
46
|
CEO of our Subsidiary, International Activity and Business Development Officer and a Director
|
|
Yoav Kahane(1)(2)
|
50
|
Director and an independent Director
|
|
Yigal Shani
|
79
|
Director
|
|
Israel Baron (1)(2)(3)
+
|
70
|
External Director
|
|
Gidon Kotler (1)(2)(3)
|
83
|
External Director
|
|
Tal Sheratzky- Jaffa
|
46
|
Director and an independent director
|
|
Ami Saranga
|
60
|
Deputy Chief Executive Officer
|
|
Eli Kamer
|
57
|
Executive Vice President, Finance; Chief Financial Officer
|
|
Guy Aharonov
|
58
|
General Counsel
|
|
Udi Mizrahi
|
52
|
Deputy Chief Executive Officer International Operation and VP of Finance
|
Notes:
(
1
)
Member of audit committee
(
2
)
Member of compensation committee
(
3
)
External director elected in accordance with the Israeli Companies Law
+
Chairperson
of all committees
35
Izzy Sheratzky
is a co-founder of our company
and its President. He has previously served as the Chairman of our Board of Directors, which in our company constitutes both an officer
and director positions, ever since our company was acquired from Tadiran in 1995. Until 2003, Mr. Sheratzky also served as our Chief Executive
Officer. Mr. Sheratzky also serves as the Chairman of the Board of Directors of Moked (1973) Investigations Company Ltd., Moked Services,
Information and Investments Ltd., and Moked Ituran. He also serves as a director in Tikal Document Collection Ltd. Mr. Sheratzky is the
father of Eyal, Nir and Gil Sheratzky, Brother of Efraim
Sheratzky and uncle of Tal Sheratzky-Jaffa.
Yehuda Kahane
is a co-founder of our company
and has served on our board since 1995. Professor Kahane is an entrepreneur in both the academic and business arenas. He is a Fellow of
the World Academy of Art and Science. He received the 2011 highest international award for his lasting contribution to the theory, practice
and education in insurance and risk management, as well as a lifetime achievements award by the Israeli Insurance industry. He is a co-founder
and chairperson of the YK Center for Preparing for the New Economy. Kahane is a Professor (Emeritus) from the Collar Business, Tel Aviv
University where he headed the Institute for Business and the Environment. He taught at many business schools around the world, including
the Wharton School, the University of Texas (Austin), the University of Toronto and the University of Florida, and has founded and served
as the first Dean of the Israeli Academic School of Insurance. Professor Kahane chairs and is a major owner of Capital Point Ltd., and
is active in the formation, seed investment and management of start-up companies and technological incubators, unrelated to our company.
He chairs the association for the visually impaired people in Herzliya and Sharon district, and a board member of the Center for Blind
People in Israel (The Umbrella organization). He is an honorary member of the Israel-Brazil Chamber of Commerce. Professor Kahane holds
a BA degree in Economics and Statistics, an MA degree in Business Administration and a PhD in Finance from the Hebrew University of Jerusalem
and is a Fellow of the Israeli Association of Actuaries. He specializes in insurance, risk management, environmental issues and technological
forecasting. He is the father of Yoav Kahane.
Zeev Koren
has served as a director of
our company since 2006 and since 2011 serves as the Chairman of the Board of Directors of the Company. In 1988 Brigadier Gen. (Res) Koren
retired from the Israel Defence Forces after a career of 25 years, where in his final position he served as the head of human resources
planning for the general staff division. Since then he has served in a senior capacity in companies in the fields of international forwarding
and medical services. During the past ten years he has also served as the general manager of a Provident Management Company. He holds
a B.A. in Political Science and Criminology from Bar Ilan University.
Efraim Sheratzky
was appointed to the board
on February 9, 2015, to replace Mr. Amos Kurz, as a Class A Director. Efraim Sheratzky studied insurance in the Israeli Insurance College.
Efraim Sheratzky owns together with Yigal Shani, Tzivtit Insurance Agency (1998) Ltd. Efraim Sheratzky served as our director from 1999
and until 2005. Efraim Sheratzky is the brother of Izzy Sheratzky and the uncle of Eyal, Nir and Gil Sheratzky and father of Ms. Tal Sheratzky
-
Jaffa.
Mr.
Efraim Sheratzky
was elected, on December 14, 2022, in annual general shareholders meeting,
to serve as a director in Class A for additional period until third succeeding Annual General meeting, thereafter.
Eyal Sheratzky
has served as a director
of our company since its acquisition from Tadiran in 1995 and currently serves as a Co-Chief Executive Officer since 2003. Prior to 2003,
he served as Vice President of Business Development during the years 1999 through 2002. Mr. Sheratzky also serves as a director of Moked
Ituran and certain of our other subsidiaries, including Ituran Network. From 1994 to 1999, he served as the Chief Executive Officer of
Moked Services, Information and Investments and as legal advisor to several of our affiliated companies. Mr. Sheratzky holds LLB and LLM
degrees from Tel Aviv University School of Law and an Executive MBA degree from the Kellogg School of Management at Northwestern University,
USA. Mr. Sheratzky is the son of Izzy Sheratzky and the brother of Nir and Gil Sheratzky and nephew of Effraim Sheratzky. Mr. Eyal
Sheratzky
was
elected, on December 14, 2022, in annual general shareholders meeting, to serve as a director in Class A for additional period until third
succeeding Annual General meeting, thereafter.
Nir Sheratzky
has served as a director
of our company since its acquisition from Tadiran in 1995 and currently serves as a Co-Chief Executive Officer since 2003. Prior to 2003,
Mr. Sheratzky served as an Executive Officer in our company from 1995 to 2003. Mr. Sheratzky is also a director in Moked Ituran. He holds
BA and MA degrees in Economics from Tel Aviv University. Nir is the son of Izzy Sheratzky and the brother of Eyal and Gil Sheratzky and
nephew of Effraim Sheratzky.
Gil Sheratzky
serves as a director of our
company and since 2013 as our International Activity and Business Development Officer. Mr. Sheratzky has been serving since January 23,
2007 as the Chief Executive Officer of our subsidiary, E-Com Global Electronic Commerce Ltd. From 2003 and until 2013 Mr. Sheratzky served
as our marketing communication officer. During the years 2000 - 2001 Gil worked in our control center, and during the years 2001 - 2002
he worked in an advertising agency. Mr. Sheratzky holds a BA in Business Administration from the Herzliya Interdisciplinary Center,
and an MBA degree from the Booth School of Business at Chicago University, USA. Gil serves also as director in Saver One Bringg and chairman
of Mapa GIS (a subsidiary of Ituran). Gil Sheratzky is the son of Izzy Sheratzky and the brother of Eyal Sheratzky and Nir Sheratzky and
nephew of Effraim Sheratzky
36
Yoav Kahane
(Director and an Independent Director,
and also a member of audit committee and a member of compensation committee) has served as director of our company since 1998. Mr. Kahane
is serving as the Chief Executive Officer of Vizo Specs Ltd,a startup company he co-founded that develop a non-invasive technology for
immediate enhancement of attention and the treatment of ADHD .During 2020 he served as CBO of PrintCB ,developer and manufacturer of advanced
copper materials for car electrification. a. During 2006-2014, Mr. Kahane has worked for Enzymotec in various managerial positions including
Director of Business Development, VP Sales Marketing, Infant Nutrition Business Unit Manager, Chief Executive Officer and Chairman
of Advanced Lipids AB, a joint venture of AAK AB and Enzymotec, specializing in nutritional ingredients to the infant nutrition industry.
During the years 2004-2005, Mr. Kahane served as Vice President of Sales and Marketing in Elbit Vision Systems Ltd. During the years 2001
and 2002, he served as Manager of Business Development in Denver Holdings and Investments Ltd. In 2000, Mr. Kahane established Ituran
Florida Corp. and served as its Chief Executive Officer until 2001. Mr. Kahane holds a BA degree in Life Sciences from Tel-Aviv University,
a BA degree in Insurance and an MBA degree from the University of Haifa. Yoav Kahane is the son of Professor Yehuda Kahane. Mr. Kahane.
Mr. Kahane was elected, on December 14, 2022, in annual general shareholders meeting, to serve as an Independent Director in Class A for
additional period until third succeeding Annual General meeting, thereafter.
Yigal Shani
has served as a director of
our company since its acquisition from Tadiran in 1995. Mr. Shani is an insurance agent and a partner in the insurance agency Tzivtit
Insurance Agency (1998) Ltd. together with Efraim
Sheratzky, which provides insurance services
to our company. Mr. Shani has resigned on March 13, 2014 in order to allow compliance with the provisions of the Israeli Companies Law,
which require that the board of directors to include at least one female and was reappointed on February 9, 2015 to replace Mr. Avner
Kurz, as a Class B Director.
Israel Baron
has been serving as an external
director of our company since 2003 and is the Chairman of our board’s committees. Mr. Baron served as a director in Poalim Trust
Services Ltd., a fully owned subsidiary of Bank Hapoalim Ltd from 2009 until 2017. In addition, Mr. Baron has been serving as Chief Executive
Officer of several public sector employee retirement and saving plans since 2003. Prior to 2003, Mr. Baron managed an organizational consulting
firm, served as an investment manager in the Isaac Tshuva group during the years 1999 to 2001 and as Chief Executive Officer of Gmulot
Investment Company Ltd. Mr. Baron serves as a director of Quality Baron Management Services Ltd. and until 2004 he served as a director
of Brill Shoe Industries Ltd. Mr. Baron is a certified CPA and holds a BA degree in Economics and Accounting from the Bar-Ilan University
in Ramat-Gan, Israel. Israel Baron was re-elected on Noveember 30, 2023 for additional 3-year term to serve as external director.
Gidon Kotler
is an external director of
our company. He was nominated on April 30, 2014. Prior to his retirement on 2016, Mr. Kotler has been serving as the assets manager of
Strauss-Group Ltd., one of Israel’s largest public companies, since 1997. Prior to that, Mr. Kotler has served for 3 years as the
chief executive officer of the Tel-Aviv New Central Bus Station, and for 14 years as the chief executive officer of the Dizengof Center’s
management company. Mr. Kotler has served as an external director of Elran Real Estate Ltd. from 2007 until 2010. On December 28, 2016,
an annual general shareholders meeting approved the extension of the term of Mr. Gideon Kotler, our external director, for additional
three years (beginning April 30, 2017). On December 12, 2019, an annual general shareholder meeting approved additional extension of the
term of Mr. Gideon Kotler, our external director, for additional three years (beginning April 30, 2020), which was extended for an additional
three years (beginning April 30, 2023), in an annual shareholder’s general meeting held on December 14, 2022.
Ms. Tal Sheratzky-Jaffa
was until recently
a Vice President at Margalit Startup City, a unique Israeli organization focused on building and creating centers of excellence worldwide.
Prior to joining Margalit Startup City, Ms. Sheratzky-Jaffa was a Strategy and Development Manager at Reality Investment Funds, Israeli
value-add real estate fund. Prior to joining Reality Investment Funds, Ms. Sheratzky-Jaffa was a partner at the Israeli law firm Amit,
Pollak, Matalon and Co., specializing in the fields of investment funds, mergers and acquisitions, high-tech and corporate governance,
and an associate at the New York offices of the US law firm Akin Gump Strauss Hauer Feld. Ms. Sheratzky-Jaffa holds LL.M degree
from Columbia University (New York), LL. B from Haifa University and B.A (economics) from Haifa University and is a member of the Israeli
Bar Association and the New York State Bar. Ms. Sheratzky-Jaffa is the nephew of Izzy Sheratzky and the cousin of Eyal, Nir and Gil Sheratzky
and the daughter of Efraim Sheratzky. Ms. Sheratzky – Jaffa was elected, on December 14, 2022, in annual general shareholders meeting,
to serve as director in Class A for additional period until third succeeding Annual General meeting, thereafter.
37
Ami Saranga
has been serving as the Deputy
Chief Executive Officer of our company since 2011. Prior to that Mr. Saranga served as our VP Marketing since 2008. Prior to 2008, Mr.
Saranga managed the SME division of Pelephone Communications Ltd., one of Israel’s largest telecommunication network operators.
Mr. Saranga holds a BA degree in Business Administration from Ruppin Academic Center, Israel.
Eli Kamer
has served as Executive Vice
President, Finance and Chief Financial Officer of our company since 1999, after serving as its Finance Department Manager since 1997.
Prior such date, Mr. Kamer worked as an accountant in Fahn Kanne Co., our independent registered public accountant. Mr. Kamer is
a CPA and holds a BA degree in Business Administration from the Israel College of Management and an MBA degree in business administration
from Bar Ilan University.
Guy Aharonov
has served as our in-house
legal counsel since 1999. Prior to joining our company, he has worked as an attorney in Cohen Lahat Co. Mr. Aharonov holds LLB and
LLM degrees from Tel Aviv University.
Udi Mizrahi
has served as our VP Finance
since 2000. On his current position Mr. Mizrahi serve as a Deputy Chief Executive Officer International Operation and VP of Finance. Mr.
Mizrahi is a CPA and holds a BA degree in accounting and economics from Ruppin Academic Center, Israel.
Shahar Sheratzky
has served
in different marketing roles in our company since 2007. In January 2022 Mr. Shahar Sheratzky was nominated to Vice president, head of
our business division. Among his responsibilities are the marketing, selling and digital fields. Mr. Sheratzky holds a MBA degree in business
administration with a specialization in global marketing from Reichman University, Israel. Mr. Shahar Sheratzky is the nephew of Izzy
Sheratzky and the cousin of Eyal, Nir and Gil Sheratzky and the son of Efraim Sheratzky.
Our articles of association provide for staggered three-year terms for all our directors
(except our external directors, who are elected in accordance with the provisions of the Israeli Companies Law). The directors on our
board (excluding the external directors) are divided into three classes, and each class of directors serves for a term of three years,
as follows: Izzy Sheratzky, Gil Sheratzky and Zeev Koren (class C), who were re-elected on December 13, 2021; Nir Sheratzky, Yigal Shani
and Yehuda Kahane (class B), who were re-elected on December 10, 2020; and Eyal Sheratzky, Efraim Sheratzky, Tal Sheratzky-Jaffa
and Yoav Kahane (class A), who were re-elected on December 12, 2019. This classification of the board of directors may delay or prevent
a change of control of our company.
On December 28, 2016, an annual general shareholders meeting approved the extension
of the term of Mr. Gidon Kotler, our external director, for additional three years (beginning April 30, 2017), which was extended to additional
term of three years. On November 30, 2023, an annual general and special shareholders meeting approved the re-election of Mr.
Israel Baron, our external director, for additional three years.
38
Diversity of the Board of Directors
The table below provides
certain information regarding the composition of our Board. Each of the categories listed in the below table has the meaning as it
is used in Nasdaq Rule 5605(f) and related instructions.
Board Diversity Matrix
(As of April 18 , 2024)
|
Country of Principal Executive Offices
|
Israel
|
||||
|
Foreign Private Issuer
|
Yes
|
||||
|
Disclosure Prohibited under Home Country Law
|
No
|
||||
|
Total Number of Directors
|
12
|
||||
|
Part I: Gender Identity
|
Female
|
Male
|
Non-Binary
|
Did Not Disclose Gender
|
|
|
Directors
|
1
|
11
|
|
|
|
|
Part II: Demographic Background
|
|
||||
|
Underrepresented Individual in Home Country Jurisdiction
|
0
|
||||
|
LGBTQ+
|
0
|
||||
|
Did Not Disclose Demographic Background
|
0
|
||||
Shareholders Agreement and Articles of Association of Moked Ituran Ltd.
Pursuant to Moked Ituran Ltds articles of association and agreement (as amended) between
its shareholders, there is a mechanism in place with regard to directors to be designated and voted for election by Moked Ituran Ltd in
each of our annual shareholders meeting for the relevant class of directors (four directors in class A and B and three in class C). This
arrangement for the election of directors is only effective for as long as Moked Ituran Ltd. holds at least 15% of our issued and outstanding
share capital.
|
|
B. |
COMPENSATION
|
The aggregate direct compensation we paid to our directors who
are not officers for their services as directors as a group for the year ended December 31, 2023 was approximately $278,000. Directors
are reimbursed for expenses incurred in connection with their attendance of board or committee meetings. The compensation payable to external
directors is determined in accordance with regulations promulgated under the Israeli Companies Law. See Item 6.C - Board Practices under
the caption “External directors” below. Our audit committee and board of directors approved compensation for Mr. Ze’ev
Koren, for serving as the Chairman of our board of directors, and for Mr. Yoav Kahane, for serving as a member of our board committees,
such that they shall be compensated in the same manner as our external directors are compensated, annually and per meeting, in accordance
with the Companies Regulations (Rules for the Compensation and Expenses of an External Director), 2000-5760. In 2023, we paid the sum
of NIS508,000 (approximately $138,000) to our external directors, NIS200,000 (approximately $54,000) to Mr. Ze’ev Koren, NIS189,000
(approximately $51,000) to Mr. Yoav Kahane, NIS127,000 (approximately $34,000) to Ms. Tal Sheratzky-Jaffa. We do not have any agreements
with directors providing for benefits upon termination of their respective services as such.
The aggregate costs to the Company of the compensation to our Co-Chief
Executive Officers in 2023 were $3.7 million. The aggregate compensation paid to all of our officers as a group during 2023 was approximately
$11.6 million. In 2023 we paid an aggregate amount of $66,000 to one director who provided us with services. The above compensation amounts
include amounts attributable to automobiles made available to our officers and other fringe benefits commonly reimbursed or paid by companies
in Israel. Employee directors do not receive additional fees for their services as directors.
39
The following table sets forth the breakdown of the compensation
of our five highest paid officers in 2023:
|
Management
fees |
Wage
|
Social
components |
Car value
|
Bonus
(results based) |
Bonus (Share
yield based) |
Total
|
||||||||||||||||||||||
|
Compensation components (in thousand US Dollars)
|
||||||||||||||||||||||||||||
|
Izzy Sheratzky (President)
|
789
|
-
|
-
|
-
|
1,049
|
504
|
2,342
|
|||||||||||||||||||||
|
Eyal Sheratzky (Co-Chief Executive Officer
|
614
|
-
|
-
|
-
|
854
|
392
|
1,860
|
|||||||||||||||||||||
|
Nir Sheratzky (Co-Chief Executive Officer)
|
614
|
-
|
-
|
-
|
854
|
392
|
1,860
|
|||||||||||||||||||||
|
Gil Sheratzky (CEO of our Subsidiary. International Activity and Business Development Officer)
|
439
|
-
|
-
|
-
|
610
|
280
|
1,329
|
|||||||||||||||||||||
|
Shachar Sheratzky (Vice president, head of our business division)
|
208
|
38
|
23
|
233
|
-
|
502
|
||||||||||||||||||||||
|
Total of our 5 highest paid officers $7,893,000
|
||||||||||||||||||||||||||||
During 2023, we set aside $455,000 for the benefit of our officers for pension, retirement
or similar benefits. We do not set aside any funds for the benefit of our directors who are not employees for any pension, retirement
or similar benefits.
All numbers in this section are rounded to the nearest thousand.
During 2023, Messrs. Izzy Sheratzky, Eyal Sheratzky, Nir Sheratzky
and Gil Sheratzky provided their services as President, Co-Chief Executive Officers and CEO of our Subsidiary International Activity
and Business Development Officer respectively, as independent contractors pursuant to services agreements, which were adopted by our shareholders
meeting in January 2014, which terms correspond to our compensation policy as described below.
40
For further details concerning such terms of service, please see Item 7.B – Related
Parties Transactions under the caption “Transactions with our directors and principal officers.”
In 2006, our compensation committee has devised a bonus scheme pursuant to which some
of our officers and employees received shares of our profit before tax on a consolidated basis, based on their seniority, level of global
and domestic involvement, contribution to our operations and other criteria set by the compensation committee. In 2010, our compensation
committee resolved that additional managers shall be entitled to receive bonuses under this bonus scheme and that some of the grantees
should continue to receive a bonus based on our consolidated results and some should receive a bonus based only on our solo financial
statements. During 2023, we paid a total of $1,086,000 to our officers and employees pursuant to the above bonus schemes.
Our compensation policy for office holders
In December 2012, amendment no. 20 to the Israeli Companies Law became effective. Among
other things, this amendment requires Israeli public companies to set forth their policy regarding their office holders’ terms of
office, including fixed compensation, target-based incentives, equity awards, severance and other benefits. The amendments also set forth
the considerations that should be applied when devising a compensation policy for office holders.
The term “office holder” is defined in the Israeli Companies Law, to mean
the chief executive officer, chief business officer, deputy chief executive officer, vice chief executive officer, any other person fulfilling
such position even if his title is different, as well as a director or a manager directly subordinate to the chief executive officer.
The compensation policy must be approved every three years by the board of directors,
after considering the recommendations of the compensation committee; and generally requires the approval of the company’s general
meeting of shareholders by a special majority of shareholders who are not controlling shareholders and who do not have a personal interest
in the approval of the policy; or, alternatively, that the non-controlling shareholders and shareholders who do not have a personal interest
in the matter who are present and vote against the policy hold two percent or less of the voting power of the company.
The compensation policy does not intend to amend any officer’s existing terms
of office; nor to bestow any officer with a right to receive the compensation, or any element thereof set forth therein. However, generally,
once the compensation policy is approved, all future terms of service of office holders should conform to its provisions. The specific
terms of office of each officer shall be separately determined in accordance with the relevant provisions of the Israeli Companies Law
and the regulations promulgated thereunder.
41
Our general shareholders meeting approved our compensation policy for office holders
on October 31, 2013, and on November 7, 2016, and later on December 14, 2022 approved a renewal of the compensation policy . The
policy applies to office holders of the Company (see definition above), who serve as the Company’s President, Chief Executive
Officer(s) and other executives who are deemed office holders of the Company, as well as office holders of the Company’s Israeli
wholly owned subsidiaries, provided they report to the chief executive officer. The policy also applies to directors of the Company.
Our compensation policy for office holders was formulated in view of our belief that
our business success is the result of the excellence of our human resources and their devotion to the achievement of our company’s
goals. Therefore, it is aimed at offering our officers with a competitive compensation package that will align their incentives with those
of our company and our shareholders, and at motivating them to achieve the goals of our company, while avoiding undue pressure to take
excessive risks. Among other factors, our compensation committee and board of directors have considered, as required by amendment no.
20 to the Israeli Companies Law and as reflected in the policy: (a) the advancement of the company’s goals, its business plan and
its policy with a long-term view; (b) the creation of appropriate incentives for office holders, considering the company’s risk
management policy; (c) the size of the company and the nature of its business; (d) with respect to variable components of the terms of
office – the contribution of the office holders to the achievement of the company’s goals and to the maximization of its profits,
with a long-term view and in accordance with the position of the office holder.
The compensation policy incorporates all matters required to be included in a compensation
policy as mandated by amendment 20 to the Israeli Companies Law, including (without limitation): (a) the requirement to consider the office
holders’ education, skills, professional experience, expertise, position and past compensation agreements; (b) consideration of
the ratios between overall compensation of the officers and the average and median salary of the other employees of the Company; (c) the
board’s right to reduce variable compensation; (d) the determination of a maximum period for advanced and transition periods upon
termination of services; (e) basing variable components of compensation on key performance indicators and on measurable criteria; (f)
determining the ratio between fixed and variable components of compensation and setting forth caps on the amount of variable compensation
payable; and (g) a claw-back provision with respect to restatements of financial statements.
42
|
|
C. |
BOARD PRACTICES
|
Board of Directors
Pursuant to our articles of association as presently in effect, our board of directors
generally consists of twelve directors, including at least three independent directors in accordance with the listing rules of Nasdaq
concerning the composition of audit committees, of whom two directors are external directors as required by Israeli law. Our independent
directors, as such term is defined under the Nasdaq listing rules, are Mr. Baron, Mr. Kotler, Mr. Koren, Mr. Yoav Kahane and Ms. Tal Sheratzky
- Jaffa, Pursuant to our articles of association, other than the external directors, for whom special election requirements apply
(see “External directors” below), our directors are elected, by majority of our shareholders and may be removed by special
majority. However, see Item 6.A – Directors and Senior Management for a description of our staggered board and the shareholders
agreement and articles of association of Moked Ituran Ltd. Our board of directors may at any time and from time to time appoint any other
person as a director to fill a vacancy until the general meeting of shareholders in which the term of service of the replaced director
was scheduled to expire.
Pursuant to the Israeli Companies Law, our chairman convenes and presides over the meetings
of the board. In addition, any two directors may convene a meeting of the board of directors, as well as a director who becomes aware
of a company’s matter that allegedly involves a breach of the law or an improper business conduct. A quorum consists of a majority
of the members of the board, and decisions are taken by a vote of the majority of the members present. Our articles of association provide
that such quorum will in no event be less than two directors.
We are incorporated in Israel and are therefore subject to the provisions of the Israeli
Companies Law, including certain corporate governance provisions. Our ordinary shares are listed on the Nasdaq Global Select Market (Our
shares were delisted from the Tel Aviv stock exchange on May 25, 2016, for additional information see Item 9.A – Price History of
Our Shares), and we are therefore subject to certain provisions of the Israeli securities laws, the U.S. securities laws and the Nasdaq
listing rules. See also Item 16.G. – Corporate Governance below for additional information concerning our compliance with the Nasdaq
listing rules and exemptions therefrom.
According to our Articles of Association, some of our officers and employees (including
the chairman of our board and at least one third member of the Board) should be citizens and residents of Israel and receive clearance
approval from the Israeli General Security Service. All the members of our board comply with these requirements.
On February 26, 2017 our board has adopted an Internal Compliance policy, which following
review of our internal process included a comprehensive update of our internal regulations and codification of our internal regulations,
all pursuant to the applicable Israeli laws.
External directors
Under Israeli law, the board of directors of companies whose shares are publicly traded
are required to include at least two members who qualify as external directors. External directors are to be elected by a majority vote
at a shareholders’ meeting, provided that either:
| ◾ |
Such majority includes at least the majority of the shares held by all non-controlling shareholders or those having personal interest
in the nomination, except personal interest which is not resulting from connections with controlling shareholders, present and voting
at such meeting; or
|
| ◾ |
The total number of shares voted against the election of the external director and held by shareholders other than controlling shareholders
or those having personal interest in the nomination, except personal interest which is not resulting from connections with controlling
shareholders, must not exceed 2% of the shares whose holders are entitled to vote at any meeting of shareholders.
|
External directors are generally elected to serve an initial term of three years and
may be re-elected to serve in that capacity for two additional three-year terms; however, companies whose securities are listed on recognized
foreign exchanges, such as Nasdaq, may extend the service terms of their external directors for additional unlimited terms, each of no
more of than three years , subject to the approval of the audit committee and the board of directors that such extension is for the benefit
of the company in view of the directors’ expertise and special contribution to the operation of the board and its committees and
these reasons together with the term served by the external director were presented to the shareholders prior to their approval (see the
Israeli Companies Regulations (Allowances for Companies with Securities Listed on an Exchange Outside Israel), 2000-5760). The appointment
of an external director for additional terms may be brought for the approval of the shareholders either by the board of directors or by
a shareholder that holds at least 1% of the company’s voting rights, provided that the nominee is not a related or competing shareholder
(as defined below) or a relative thereof, at the time of the appointment, and does not have an affinity to such shareholder (as defined
below) at the time of the appointment or the two years preceding such appointment. The term “related or competing shareholder”
means the shareholder who proposed the appointment or a 5% shareholder of the company if, at the time of the appointment, his controlling
person or a company controlled by either of them, has business relations with the company, or if he, his controlling person or a company
controlled by either of them are competitors of the company. The term “affinity” means the on-going existence of work relationship,
business or professional relationship or control and the service as an officer.
43
External directors may generally be removed from office by the same majority of shareholders
required for their election or by a court, in each case, only under limited circumstances, including if they cease to meet the statutory
qualification for their appointment or violate the duty of loyalty to the company.
If at the time of the appointment of an external director, all directors who are not
controlling persons or their relatives are of the same gender, then the elected external director must be of the other gender.
Each committee of the board of directors that is vested with an authority of the board
must include at least one external director, except that the audit committee and compensation committee must include all external directors
then serving on the board of directors. The Israeli Companies Law prohibits external directors from receiving, directly or indirectly,
any compensation other than for services as an external director pursuant to the provisions and limitations set forth in the applicable
regulations promulgated under the Israeli Companies Law.
Israeli law provides that a person is not qualified to serve as an external director
if he is a relative (as defined in the Israeli Companies Law) of the company’s controlling person, or if, at the time of his/her
appointment and/or at any time during the two years preceding his or her appointment, that person, a relative, partner or employer of
that person, or any entity under that person’s control, has or has had an affinity (as defined above) to the company, its controlling
person or its relative or to any entity that, as of the date of appointment, or at any time during the two years preceding that date,
is controlled by the company or by its controlling person. In addition, no person may serve as an external director if that person’s
professional activities create, or may create, a conflict of interest with that person’s responsibilities as a director or otherwise
interfere with that person’s ability to serve as a director; and, a person already serving as a director of one company may not
be appointed as an external director of the company if at that time a director of the company is serving as an external director of the
first company. In addition, a company, controlling shareholder and any other entity controlled by the controlling shareholder may not
grant to such external director, its spouse or child, any benefits, directly or indirectly, and the external director, its spouse or child
may not be appointed to serve in any position, may not be employed by and may not, directly or indirectly, render any professional services
to the company, such controlling shareholder or any other entity controlled by the controlling shareholder, during the first two years
following such external director’s termination of tenure of office, and with respect to a relative who is not the external director’s
spouse or child – during the first year following such termination.
Mr. Israel Baron is now serving his seventh term as an external director of the Company,
who was re-elected on of November 30, 2023 for a term of 3 years. Mr. Gideon Kotler was appointed on April 30, 2014 by an extraordinary
shareholders meeting as our new external director, following the death of our former external director, Dr. Orna Ophir, in January 2014
and was re-elected by our general shareholders meeting on December 28, 2016, for his second term, of additional 3 years term starting
from April 30, 2017, which was later extended for additional term of three years beginning ,April 30 , 2023.
Audit committee
Under Israeli law, the board of directors of a public company must appoint an audit
committee. The audit committee must comprise of at least three directors, including all of the external directors and the chairman of
the audit committee must be an external director. In addition, the majority of the members of the audit committee must be independent
directors. Under the Israeli Companies Law, a director is considered “independent” if he/she is an external director or if
he/she meets the qualifications of an external director, has not served as a director of the company for over 9 consecutive years, and
has been classified as such. Under Israeli regulations a director who serves more than 9 consecutive years as a director may still be
deemed as “independent director” provided the Audit committee and thereafter the board of directors resolved that his-her
tenure as a director for an extend term is for the benefit of the company based on his/her expertise and unique contribution to the board
and its committees. Our Audit committee and board of directors so resolved with regard to Messrs. Israel Baron Gidon Kotler. The audit
committee may not include the chairman of the board, any director who is employed by the company or regularly provides services to the
company (other than as a board member), a controlling shareholder or any relative of such person. All audit committee decisions must be
approved by a majority of the committee members of which the majority of members present are independent directors. Furthermore, a person
who is not eligible to serve on the audit committee is restricted from participating in its meetings and votes, unless the chairman of
the audit committee determines that such person’s presence is necessary in order to present a certain matter, provided however,
that the company employees who are not controlling shareholders or relatives of such shareholders may be present in the meetings but not
in the actual votes and likewise, company counsel and secretary who are not controlling shareholders or relatives of such shareholders
may be present in meetings and decisions of such present is requested by the audit committee.
44
Our audit committee must also meet the requirements of the Nasdaq listing rules concerning
audit committees.
Our board of directors has formed an audit committee that is empowered, among other
things, to exercise the powers of the board of directors concerning our accounting, reporting and financial control practices. Our audit
committee operates in accordance with a charter, which complies with the provisions of the Israeli Companies Law and the Nasdaq listing
rules. The members of the audit committee are currently Messrs. Israel Baron, Gidon Kotler and Yoav Kahane, all of whom are independent
as required of members of the audit committee under the Nasdaq listing rules. Mr. Gidon Kotler was appointed on April 30, 2014 to replace
Dr. Orna Ophir who passed away in January 2014. Our board of directors has determined that Mr. Israel Baron possesses financial sophistication
as required by Rule 5605(c)(2) under the Nasdaq listing rules, and that both Mr. Baron and Mr. Kotler possess accounting and financial
expertise as defined by Israeli regulations.
Pursuant to the Israeli Companies Regulations (Provisions and Conditions regarding the
Financial Statements’ Authorization Process), 2010, a reporting entity, except for a reporting entity that is subject to Chapter
E(3) of the Israeli Securities Act, is required to establish a committee of the board of directors for the examination of financial statements.
Since we are a reporting entity under Chapter E(3), we are not obliged to constitute a committee for the examination of financial statements;
and therefore, commencing with the financial statements for the first quarter of 2013, we ceased holding meetings of the examination of
financial statements committee; and instead, our audit committee considers the financial statements prior to their approval by the board.
Pursuant to the 22
nd
amendment
in the Israeli Company law, which was set to define new rules to approve transaction of the public company with its controlling shareholders,
or the transaction in which the controlling shareholder has interest. The law requires from our Audit committee to set up rules to define
the criteria for classification of transactions, which are neither Insignificant Transactions nor extraordinary transactions, and their
procedures of approval that will be determined per each year in advance. In addition, the law requires from the Audit Committee to set
methods of examining transactions with the controlling shareholders, in order to enable their classification and their comparison to the
conditions in the free market. The Audit Committee resolved on September 29, 2014 as follows:
|
|
1. |
Transaction that is neither extraordinary, nor insignificant.
|
Definition: the relevant criteria that is calculated for the transaction is such transaction
which is higher than 0.25% of the equity of the company according to its last combined financial reports, or higher than 1% of average
net revenue of the past 3 years of the company in their absolute value, in the last 2 calendar years prior to the date of the transaction
is being reported according the last financial report of the company.
Methods of approval: approval by the senior management of the company (from vice chief
executive officer and higher) and report to the Board. The following transactions will require also the approval of the Audit Committee:
|
|
(1) |
Transaction which is higher than 4.5% of the equity of the company according to its last combined financial reports which were published
prior to the approval of the transaction.
|
|
|
(2) |
Transaction that involves risks or significant exposure beyond mere monetary liabilities or obligations.
|
|
|
(3) |
Transaction in which the company enters a new activity field or exits from an existing activity field.
|
|
|
2. |
Insignificant transaction:
|
Definition: such transaction which is not higher than 0.25% of the equity of the company
according to its last combined financial reports or is not higher than 1% of average net revenue of the past 3 years of the company in
their absolute value, in the last 2 calendar years prior to the date of the transaction is being reported according to the last financial
report of the company.
Methods of approval: Approval by the management of the company or by the officer in
charge in the company (vice chief executive officer, other officer or other in charged body in the company according to the decisions
of the company).
45
|
|
3. |
General rules:
|
|
|
(1) |
Any transaction with a controlling shareholder or any transaction that a controlling shareholder has an interest in, will be brought
before the Audit Committee, which will determine its type and decide on case by case basis on defining it as an insignificant transaction
or other kind of transaction, and will decide on its review and on its approval.
|
|
|
(2) |
According to the adopted criteria, transactions with Tzivtit Insurance Agency (1998) Ltd. and with Rinat Yogev Nadlan Ltd. shall
be classified as insignificant transactions. If the extent of such transactions will remain similar during the following years, our management
shall be deemed qualified to approve such transactions and to report them to the Audit Committee.
|
|
|
(3) |
Every year the criteria for classifying transactions as set up above shall be brought for re-approval by the Audit Committee.
|
Compensation committee
The Israeli Companies Law mandates the appointment of a compensation committee comprising
of at least three directors. The compensation committee must include all of the external directors, who shall constitute the majority
of the members thereof, and its remaining members shall be directors whose terms of service comply with the provisions promulgated concerning
the remuneration of external directors. The chairman of the committee must be an external director. The members of the Compensation committee
are currently Israel Baron, Gideon Kotler and Yoav Kahane. Mr. Gidon Kotler was appointed on April 30, 2014 to replace Dr. Orna Ophir
who passed away in January 2014. All members of our compensation committee are independent directors as defined by the Nasdaq listing
rules, and all of whom meet the composition requirements under the Israeli Companies Law. Since February 2016, the Israeli Companies Law
permits that Audit Committee can serve also as a Compensation committee, provided that it will comply with requirements of the Compensation
Committee as explained above.
Under the Israeli Companies Law, the compensation committee is responsible for: (i)
making recommendations to the board of directors with respect to the approval of the compensation policy for office holders 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 of office holders; and (iv) determining whether or not to exempt a transaction with a candidate for chief executive
officer from shareholders’ approval.
Furthermore, our compensation committee oversees, on behalf of the Board, the management
of Ituran’s compensation and other human resources-related issues and otherwise carries out on behalf of the Board its responsibilities
relating to these issues. The committee is responsible for establishing annual and long-term performance goals and objectives for our
executive officers. In addition, as required under the Nasdaq listing rules, our compensation committee is responsible for the appointment,
compensation and oversight of the work of any compensation consultant, legal counsel and other adviser retained by the committee; and
may retain such advice only after taking into account the considerations set forth in the Nasdaq listing rules in this respect. Our compensation
committee operates in accordance with a charter, which complies with the provisions of the Israeli Companies Law and the Nasdaq listing
rules.
According to our compensation committee charter, the compensation committee, among its
other duties, is responsible on reviewing the disclosure in this form which concerns the Compensation Policy and the sections describing
the Terms of Service of Officers, controlling persons and their relatives.
Internal auditor
Under the Israeli Companies Law, the board of directors of a public company must appoint
an internal auditor nominated by the audit committee. An internal auditor may not be:
| ◾ |
a person (or a relative of a person) who holds more than 5% of the company’s shares or voting rights;
|
| ◾ |
a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;
|
| ◾ |
an executive officer, director or other affiliate of the company; or
|
| ◾ |
a member of the company’s independent accounting firm.
|
The role of the internal auditor is to examine, among other things, the compliance of
the company’s conduct with applicable law and orderly business procedures. Our internal auditor in 2020 was Shimon Yarel, CPA,
who has served as our internal auditor since January 1999. On March 2, 2021, the audit committee and the board of directors approved
the appointment of Ms. Alexandra Meron Yarel as an internal auditor instead of Mr Shimon Yarel, and that is due to his retirement.
46
|
|
D. |
EMPLOYEES
|
The following table sets forth the total number of our employees at the end of each
of the past three years, and a breakdown of such employees by main category of activity and by geographic location:
|
|
Year Ended December 31,
|
|||||||||||
|
|
2023
|
2022
|
2021
|
|||||||||
|
By area of activity:
|
||||||||||||
|
Control Center
|
380
|
385
|
520
|
|||||||||
|
Research and Development
|
167
|
159
|
136
|
|||||||||
|
Sales and Marketing
|
103
|
92
|
84
|
|||||||||
|
Technical support and IT
|
491
|
501
|
489
|
|||||||||
|
Finance, Administration and Management
|
321
|
356
|
375
|
|||||||||
|
Private enforcement and operations
|
1,196
|
1,075
|
1,041
|
|||||||||
|
Manufacturing
|
183
|
168
|
169
|
|||||||||
|
Total
|
2,841
|
2,736
|
2,814
|
|||||||||
|
|
||||||||||||
|
By geographic location (out of total):
|
||||||||||||
|
Israel
|
906
|
795
|
864
|
|||||||||
|
Brazil
|
865
|
861
|
782
|
|||||||||
|
Others
|
1,070
|
1,080
|
1,168
|
|||||||||
|
Total
|
2,841
|
2,736
|
2,814
|
|||||||||
We consider our relations with our employees to be satisfactory and have no ongoing
major labor disputes or material labor-related litigation. Our employees are subject to local labor laws and regulations, which in some
countries are more stringent than others. Some of our senior executives also have employment agreements that may grant them rights in
excess of those provided by the applicable laws.
Israel
Our employees in Israel are subject to Israeli labor laws and regulations and employment
customs. The applicable labor laws and regulations principally concern matters such as paid annual vacation, paid sick days, length of
the workday, payment for overtime and severance pay. Israeli law generally requires severance pay equal to one month’s salary for
each year of employment upon retirement or death of an employee or termination of employment without cause. Furthermore, Israeli employees
and employers are required to pay predetermined sums to the National Insurance Institute, which is similar to the United States Social
Security Administration. Since January 1, 1995, these amounts also include payments for national health insurance.
Israeli labor laws impose on employers increased liability, including monetary sanctions
and criminal liability, in cases of violations of certain labor laws and certain violations by contractors providing maintenance, security
and cleaning services.
Brazil
Our employment agreements in Brazil are subject to Brazilian labor laws and regulations,
to collective labor agreements or bargaining arrangements with unions and contract. The laws and regulations in Brazil govern almost all
aspects of an employment relationship and do not leave much room to be negotiated with the employee. Still, employment contracts create
obligations to the parties if they are in compliance with the law. The Labor Code mainly governs the employees’ right to paid annual
vacation, paid sick days, the maximum length of a workday, minimum payment for overtime and statutory severance pay. Brazilian law generally
requires severance pay equal to 40% of the balance of the employee’s FGTS account (a mandatory fund to guarantee severance and unemployment).
The FGTS can also be withdrawn when the employee retires, dies or his employment is terminated without cause, among others. Brazilian
employers are required to purchase health insurance for employees only in the event it is set forth by the applicable collective labor
agreement, contract or company policy, and are required to cover employees’ food and travel costs whenever a business trip is required,
and to make deposits into a Guarantee Severance Fund (the so-called “FGTS”). Furthermore, Brazilian employees and employers
are required to make contributions to the National Insurance Institute (“INSS”), similar to the United States Social Security
Administration. Our collections to the National Insurance Institute amount to 34.8% to 39.8% of the payrolls, out of which 8% to 11% (limited
to R$5,839.45 of individual salary) corresponds to contributions by the employees deducted from salaries and 26.8% is the fixed part we
pay. Our contribution of 26.8% includes mandatory contribution to the Public Insurance for Labor Accidents and Diseases (SAT). According
to Decree Law 6957/2009 such portion, which varies from 1% to 3% of payroll, should be multiplied by another factor (FAP) from 0.5 to
2 in order to reduce or increase our burden to reflect statistics of occupational accidents and diseases in our business.
All of our employees in Brazil, excluding the chief executive officer, some directors
(VPs) and some IT providers are represented by a labor union and the employees’ mandatory contributions to their union are paid
by us. The law no. 13.467/2017, which entered into force on November 11, 2017, made the labor union contribution optional (i.e., discounted
only upon the employees’ consent).
47
Argentina
Our employees in Argentina are subject to Argentine labor laws and regulations and other
special practices and employment customs. The laws and regulations in Argentina control all aspects of labor relations and designate a
general Employment Contract with which all employees and employers must comply. This general Employment Contract adopts by reference the
provisions of the Labor Law which principally concerns matters such as paid annual vacation, paid sick days, the length of the workday,
and payment for overtime and severance pay.
Argentine law generally requires severance pay equal to one month per year of service
upon the termination of employment without a justified cause.
Argentine employers are also required to contribute for the following items: (a) Pension
funds 20.70 % (b) health insurance for employees 6% (c) occupational accident insurance 1.56% for January to December 2023 and 1,74% since
December 2021 on %; and (d) Retirement fund insurance 2.5% (only this item is for Union Employees). All the rates should be applied on
the gross salary.
Our employees in Argentina, excluding the chief executive officer and several other
employees, are members of a labor union and the employee member fees are paid by them.
United States
We have no collective bargaining agreements with any of our employees in the United
States and none of our employees are members of a union.
Mexico
The hiring of employees in Mexico is subject to the regulations of the Federal Labor
Law, the Social Security Law, the Infonavit Law, the Income Tax Law, Afore, and Infonacot In these laws both workers and employers have
obligations and rights; the percentage corresponding to the employer is 40% in Payroll and Employee Tax depending on their level of income.
The working relationship between employer and employee is regulated by the Individual work contract In Mexico we have several modalities
of types of Labor Contract, according to the permanence and type of contract, example: Contract for a Determined Time, Permanent Contract,
and Contract for Determined Work. In these Contracts the conditions of the work are specified. Within our company we also have working
relationships through outsourcing, where our employees have the same rights and obligations and adhere to the same internal and legal
guidelines. Contract terminations without cause by the employer require the payment of 3 months’ salary as a concept of damages.
Ecuador
Our employees in Ecuador are subject by the Ecuadorian Labor Code. The Labor Code provides
for a 40-hour work week, 15 calendar days of annual paid vacation, restrictions and sanctions for those who employ child labor, general
protection of worker health and safety, minimum wages and bonuses, maternity and paternity leave, and employer-provided benefits. The
2008 Constitution bans child labor, requires hiring workers with disabilities, and unpaid internships are not permitted in Ecuador. The
law also mandates that employees’ thirteenth and fourteenth month bonuses, which are required by law, be paid in instalments throughout
the year instead of in lump sums. Employees have the option to opt out of this change and continue to receive the payments in lump sums.
The law eliminates fixed-term employee contracts and replaced them with indefinite contracts, which shortens the allowable trial period
for employees to 90 days. The Law for Labor Justice and Recognition of Work in the Home, which included several changes related to labor
and social security, took effect in April 2015. Workers in the private sector have the constitutional right to form trade unions and local
law allows for unionization of any company with more than 30 employees. Private employers are required to engage in collective bargaining
with recognized unions. The Labor Code provides for resolution of union´s conflicts through a tripartite arbitration and conciliation
board process. The Code also prohibits discrimination against union members and requires that employers provide space for union activities.
48
Colombia
Our employees in Colombia are subject to Colombian labor laws and regulations. All employees
have an indefinite term employment contract and the law determines a minimum monthly salary (SMM), which is increased annually by the
government and used to calculate labor obligations. 48 hours are the maximum hours for a week. All employees are affiliated with the Social
Security System (Health, Pension and Occupational Risks), a percentage is paid by the company and the other by the employee, the calculation
depends on the salary. The law determines additional benefits called social benefits payable by the company: Holidays: 15 working days
for each year worked; Premium corresponds to the payment of 15 days of salary per semester worked or fraction; Unemployment corresponds
to the payment of 30 days of salary per year worked or fraction; Unemployment interest corresponds to 12% of severance pay; Employees
who earn less than 2 SMM must be given 3 times a year clothing and footwear or equivalent in bonuses. Termination of employment relationship
by the company without a justified reason, is coupled with compensation to the employee. Additionally, for every 20 employees, the company
must hire an apprentice who will receive financial support from 1 SMM, and who will be employed for a period of 6 months. Currently the
company doesn’t have any unionized employee. For year 2022, Income Tax raises to 35%, as a result of tax reform approved by Colombia
congress on 2021 (2021 income tax rate was 31%).
|
|
E. |
SHARE OWNERSHIP
|
The following table sets forth share ownership information for our directors and executive
officers listed in Item 6.A above as of April 10, 2024. All of the information with respect to beneficial ownership by our directors and
executive officers has been furnished by the respective director or executive officer, as the case may be.
|
Name of Director/Officer (1)
|
Number of
Ordinary Shares Beneficially Owned (2) |
Percentage of
beneficial ownership (3) |
|||||
|
Izzy Sheratzky
(4)
|
4,077,317
|
20.50
|
|||||
|
Professor Yehuda Kahane
(5)
|
1,451,137
|
7.29
|
|||||
|
Zeev Koren
|
-
|
-
|
|||||
|
Efraim Sheratzky
(6)
|
219,408
|
1.09
|
|||||
|
Yigal Shani
(7)
|
223,052
|
1.12
|
|||||
|
Eyal Sheratzky
|
-
|
-
|
|||||
|
Nir Sheratzky
|
-
|
-
|
|||||
|
Gil Sheratzky
|
-
|
-
|
|||||
|
Yoav Kahane
|
-
|
-
|
|||||
|
Tal Sheratzky-Jaffa
|
2,403
|
*
|
0.01
|
*
|
|||
|
Israel Baron
|
-
|
-
|
|||||
|
Gidon Kotler
|
105
|
*
|
*
|
||||
|
Ami Saranga
|
-
|
-
|
|||||
|
Eli Kamer
|
-
|
-
|
|||||
|
Guy Aharonov
|
-
|
-
|
|||||
|
Udi Mizrahi
|
-
|
-
|
|||||
|
Shahar Sheratzky
|
-
|
-
|
|||||
* Own less than one percent of our shares.
| (1) |
This table includes only current directors and officers that beneficially hold our shares.
|
| (2) |
Beneficial ownership’ is determined in accordance with the rules of the Securities and Exchange Commission (as defined in Rule
13d – 3 under the Exchange Act) and shares deemed beneficially owned by virtue of the right of any person or group to acquire such
ordinary shares within 60 days are treated as outstanding only for the purposes of determining the percent owned by such person or group.
To our knowledge, the persons and entities named in the table above are believed to have sole voting and investment power with respect
to all ordinary shares shown as owned by them, except as described below.
|
49
| (3) |
Amounts in this column are based on 23,475,431 ordinary shares issued as of April 10, 2024, less 3,581,851 treasury shares
held by us.
|
| (4) |
Shares beneficially owned include: (a) 4,075,952 shares owned by Moked Ituran Ltd., which Mr. Sheratzky is deemed to beneficially
owns due to his shared voting and investment power over such shares in accordance with those certain shareholders agreement, dated May
18, 1998 as amended on September 6, 2005 and on September 17, 2014, among Moked Ituran and its shareholders, which we refer to as the
Moked Shareholders Agreement. For further information concerning the Moked Shareholders Agreement see the discussion under Item 6.A. –
Directors and Senior Management under the caption “Shareholders Agreement and Articles of Association of Moked Ituran Ltd.”
above; (b) 1,365 shares that are directly held by Mr. Sheratzky’s wife, Maddie Sheratzky.
|
| (5) |
Shares beneficially owned include: (a) 13,264 shares directly owned by Professor Kahane jointly with his wife, Rivka Kahane;(b) 5,782
shares owned by Yehuda Kahane Ltd., which Professor Kahane may be considered to beneficially own by virtue of his shared voting and investment
control of the company through his 50% shareholdings thereof, the other 50% being owned by his wife, Rivka Kahane; and (c) 1,432,091 shares
owned by Moked Ituran Ltd., which Professor Kahane may be considered to beneficially own by virtue of his right to direct the disposition
of such shares in accordance with Moked’s articles of association. Professor Kahane has shared voting and investment control over
Yehuda Kahane Ltd., a holder of 35.13% of the shares of Moked Ituran.
|
| (6) |
Shares beneficially owned include: (a) 3,356 shares directly owned by Efraim Sheratzky, (b) 18,500 shares owned by Tzivtit Insurance
Agency (1998) Ltd., which Efraim Sheratzky may be considered to beneficially own by virtue of his shared voting and investment control
over such shares through his 50% ownership thereof, the other 50% of the shares held by Yigal Shani, and (c) 206,552 shares owned by Moked
Ituran, which Mr. Sheratzky may be considered to beneficially own by virtue of his right to direct the disposition of such shares in accordance
with Moked’s articles of association. Mr. Sheratzky may be considered to beneficially own such shares by virtue of his sole voting
and investment control over his wholly owned G T.S.D. Holdings Ltd, the holder of 3.75% of Moked’s shares.
|
| (7) |
Shares beneficially owned include: (a) 10,000 shares directly owned by Yigal Shani, (b) 18,500 shares owned by Tzivtit Insurance
Agency (1998) Ltd., which Yigal Shani may be considered to beneficially own by virtue of his shared voting and investment control over
such shares through his 50% ownership thereof, the other 50% of the shares held by Efraim Sheratzky, and (c) 206,552 shares owned by Moked
Ituran, which Mr. Shani may be considered to beneficially own by virtue of his right to direct the disposition of such shares in accordance
with Moked’s articles of association. Mr. Shani may be considered to beneficially own such shares by virtue of his sole voting and
investment control over his wholly owned G.N.S. Holdings, the holder of 3.75% of Moked’s shares.
|
| F. |
DISCLOSURE OF REGISTRANT’S ACTION TO RECOVER ERRENOUSLY AWARDED COMPENSATION.
|
Not applicable.
| ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
|
|
A. |
MAJOR SHAREHOLDERS
|
The following table shows the number of our ordinary shares beneficially owned by (a)
the shareholders known to us as of April 10, 2024, to beneficially own more than 5% of our outstanding ordinary shares and (b) all of
our directors and executive officers as a group.
Please also see Item
6.E above.There are no shares underlying options or warrants held by such persons. Beneficial ownership is determined in accordance
with the rules of the SEC and includes voting or investment power with respect to ordinary shares.
50
The shareholders listed below do not have any different or special voting rights from
any other shareholders of our company. Except where otherwise indicated, we believe, based on information furnished by the owners, that
the beneficial owners of the ordinary shares listed below have sole investment and voting power with respect to such shares.
|
Shareholder
|
Number of
Ordinary
Shares
Beneficially
Owned
|
% Voting
|
||||||
|
Moked Ituran Ltd. (
1
)
|
4,075,952
|
20.47
|
||||||
|
All directors and executive officers as a group (
2
).
|
4,125,227
|
20.74
|
||||||
|
Vulcan Value Partners (
3
)
|
1,681,329
|
8.45
|
||||||
|
FMR LLC. (
4
)
|
1,228,293
|
6.174
|
||||||
|
Renaissance Technologies LLC. (
5
)
|
1,123,800
|
5.65
|
||||||
|
Ibex Investors LLC(
6
)
|
1,168,815
|
5.9
|
||||||
|
|
||||||||
|
Treasury shares
|
3,581,851
|
|||||||
(1)
Moked’s
articles of association provides that each of Moked’s shareholders shall have the right to direct Moked to dispose of such number
of our shares corresponding to his or her relative shareholdings in Moked. In addition, ownership of all shares held by Moked are attributed
to Mr. Izzy Sheratzky by virtue of his holdings in Moked. Please see Item 6.E above for the ownership of our shares attributed to Moked’s
shareholders. For further information please see Item 6.A – Directors and Senior Management under the caption “Shareholders
Agreement and Articles of Association of Moked Ituran Ltd” above.
(2)
Includes shares
held by Moked Ituran Ltd., which ownership are attributed to some of these directors and executive officers.
(3)
The
information presented herein is based on Form 13G filed by Vulcan Value Partners, LLC (“Vulcan”) on February 13, 2024. According
to the information presented on such Form 13G, Vulcan is an investment adviser, and various persons, including the investment companies
and owners of the separate accounts to which Vulcan serves as investment adviser, have the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, the Company’s securities that are the subject of Form 13G.
(4)
The
information presented herein is based on Form 13G filed by FMR LLC. (“FMR”) on February 9, 2024. According to
the information presented on such Form 13G, the shares are beneficially owned by members of the Johnson family, including Abigail P. Johnson,
are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power
of FMR LLC. For further information on the beneficial ownership by the portfolio accounts, please refer to Form 13G filed by FMR on February
9, 2024.
(5)
The
information presented herein is based on Form 13G filed by Renaissance Technologies LLC. (“RTC”) Renaissance Technologies
Holdings Corporation (“RTHC”
)
on February 13, 2024. According to the information
presented on such Form 13G, the shares are beneficially owned by RTC, which is a Delaware limited liability company. For further information
on the beneficial ownership by the portfolio accounts, please refer to Form 13G filed by RTC on February 13, 2024.
(6)
The
information presented herein is based on Form 13G filed by Ibex Investors LLC (“Ibex”) on February 14, 2024. According to
the information presented on such Form 13G, the shares are directly beneficially owned by Ibex Israel Fund LLP, a Delaware limited
liability partnership (the “Fund”), and Ibex is the investment manager of the Fund. For further information on the beneficial
ownership please refer to Form 13G filed by Ibex on February 14, 2024.
As of November 2023, we had a total of approximately 1,000 shareholders
(including the Depository Trust Company) of record in the United States with registered addresses in the United States. The number of
record holders in the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial
holders are resident since many of these ordinary shares were held of record by brokers or other nominees.
51
|
|
B. |
RELATED PARTY TRANSACTIONS
|
Transactions with our directors and principal officers
We have entered into indemnification agreements with each of our directors and officers
and the officers and directors of our subsidiaries providing them with indemnification for liabilities or expenses incurred as a result
of acts performed by them in their capacity as our directors and officers. Our general meeting of shareholders approved on January 28,
2014 an amendment to these indemnification agreements and the grant thereof to office holders, including controlling persons and their
relatives, who serve at our company and its subsidiaries from time to time. For the full indemnification agreements as so approved, please
see Exhibit 4.19 under Item 19 – Exhibits.
Our general meeting of shareholders has also approved on January 28, 2014 the procurement
from time to time of directors’ and officers’ insurance policies covering the liability of office holders, including controlling
persons and their relatives, who serve at the Company and its subsidiaries from time to time, under the following terms: (a) the principal
terms of the DO insurance policies shall not materially deviate from the terms of our current directors’ and officers’
insurance policy; or (b) to the extent that the Company shall desire to procure a DO insurance policy, which a material term thereof
adversely deviates ( from our company’s point of view) from the terms of the current policy, then our company’s board of the
directors shall confirm that, notwithstanding such deviation, our procurement of such policy is compatible with market terms and does
not materially affect our profitability, assets or liabilities..
In February 2014, following the approval of our general meeting of shareholders on January
28, 2014, we entered into service agreements, setting forth the terms of service of our President and Co-Chief Executive Officers in compliance
with our compensation policy for office holders; and E-Com entered into a service agreement setting forth the terms of service of its
Chief Executive Officer in compliance with our compensation policy for officer holders. The principal terms of these agreements are as
follows:
Mr
. Izzy Sheratzky
shall provide his services
as an independent contractor through A. Sheratzky Holdings Ltd., which shall be entitled to a monthly payment of NIS243,000 (or $66,000)
plus VAT, linked to the consumer price index for December 2013. At the request of the service provider, part of the fixed monthly pay
may be granted through benefits, such as the provision of a company car for the use o/f Mr. Sheratzky and the payment of its maintenance
costs and the cost of tax resulting there from the fixed monthly pay shall also include Mr. Sheratzky’s entitlement for a 25 days’
vacation and sick days as provided by law. The service provider shall also be entitled to payment or reimbursement of expenses, including
hosting expenses, subsistence allowance abroad and participation in work-related home telephone expenses. The service provider shall be
entitled to Target-based Cash Incentives and Excess Return Cash Incentives as detailed below. The agreement shall be in force for a period
of 3 years and may be terminated upon 180 days’ advance notice of termination; however, the company may terminate the agreement
without an advance notice and without compensation if the following shall occur: (a) Mr. Sheratzky is convicted of a criminal offense
involving moral turpitude; (b) a final court ruling (without the possibility of appeal) determines that Mr. Sheratzky has breached his
fiduciary duty towards the company; (c) a final court ruling (without the possibility of appeal) determines that Mr. Sheratzky has materially
breached the agreement through the unauthorized disclosure of company’s secrets or competition with the company. The aggregate amounts
paid to A. Sheratzky Holdings according this new service agreement in ,,2021, 2022 and 2023 were approximately $3,412,000 , $3,380,000
and $2,155,000 respectively (the numbers include 17% value added tax).
Mr. Eyal Sheratzky
shall
provide his services as an independent contractor through ORAS Capital Ltd. which shall be entitled to a monthly payment of NIS189 ,000
(or $51,000) plus VAT, linked to the consumer price index for December 2013. At the request of the service provider, part of the fixed
monthly pay may be granted through benefits, such as the provision of a company car for the use of Mr. Sheratzky and the payment of its
maintenance costs and the cost of tax resulting therefrom. The fixed monthly pay shall also include Mr. Sheratzky’s entitlement
for a 25 days’ vacation and sick days as provided by law. The service provider shall also be entitled to payment or reimbursement
of expenses, including hosting expenses and subsistence allowance abroad. The service provider shall be entitled to Target-based Cash
Incentives and Excess Return Cash Incentives as detailed below. The agreement shall be in force for a period of 3 years and may be terminated
upon 180 days’ advance notice of termination; however, the company may terminate the agreement without an advance notice and without
compensation if the following shall occur: (a) Mr. Sheratzky is convicted of a criminal offense involving moral turpitude; (b) a final
court ruling (without the possibility of appeal) determines that Mr. Sheratzky has breached his fiduciary duty towards the company; (c)
a final court ruling (without the possibility of appeal) determines that Mr. Sheratzky has materially breached the agreement through the
unauthorized disclosure of company’s secrets or competition with the company. The aggregate amount paid to ORAS Capital Ltd in ,
2021 , 2022 and 2023 was approximately, $2,692,000, $2,679,000 and $1,727,000, respectively (the numbers include value added tax).
52
Mr. Nir Sheratzky
shall provide his services
as an independent contractor through Galnir Management and Investments Ltd., which shall be entitled to a monthly payment of NIS189 ,000
(or $51,000) plus VAT, linked to the consumer price index for December 2013. At the request of the service provider, part of the fixed
monthly pay may be granted through benefits, such as the provision of a company car for the use of Mr. Sheratzky and the payment of its
maintenance costs and the cost of tax resulting therefrom. The fixed monthly pay shall also include Mr. Sheratzky’s entitlement
for a 25 days’ vacation and sick days as provided by law. The service provider shall also be entitled to payment or reimbursement
of expenses, including hosting expenses and subsistence allowance abroad. The service provider shall be entitled to Target-based Cash
Incentives and Excess Return Cash Incentives as detailed below. The agreement shall be in force for a period of 3 years and may be terminated
upon 180 days’ advance notice of termination; however, the company may terminate the agreement without an advance notice and without
compensation if the following shall occur: (a) Mr. Sheratzky is convicted of a criminal offense involving moral turpitude; (b) a final
court ruling (without the possibility of appeal) determines that Mr. Sheratzky has breached his fiduciary duty towards the company; (c)
a final court ruling (without the possibility of appeal) determines that Mr. Sheratzky has materially breached the agreement through the
unauthorized disclosure of company’s secrets or competition with the company. The aggregate amount paid to Galnir Management and
Investments Ltd, in ,2021, 2022 and 2023 was approximately, $2,692,000 , $2,679,000 and $1,727,000 respectively (the numbers
include value added tax).
Mr. Gil Sheratzky
shall provide his services
as an independent contractor through ZERO-TO-ONE S.B.L. INVESTMENTS LTD., which shall be entitled to a monthly payment of NIS135,000 (or
$37,000) plus VAT, linked to the consumer price index for December 2013. At the request of the service provider, part of the fixed monthly
pay may be granted through benefits, such as the provision of a company car for the use of Mr. Sheratzky and the payment of its maintenance
costs and the cost of tax resulting therefrom. The fixed monthly pay shall also include Mr. Sheratzky’s entitlement for a 25 days’
vacation and sick days as provided by law. The service provider shall also be entitled to payment or reimbursement of expenses, including
hosting expenses and subsistence allowance abroad. The service provider shall be entitled to Target-based Cash Incentives and Excess Return
Cash Incentives as detailed below. The agreement shall be in force for a period of 3 years and may be terminated upon two months’
advance notice of termination; however, E-Com may terminate the agreement without an advance notice and without compensation if the following
shall occur: (a) Mr. Sheratzky is convicted of a criminal offense involving moral turpitude; (b) a final court ruling (without the possibility
of appeal) determines that Mr. Sheratzky has breached his fiduciary duty towards E-Com; (c) a final court ruling (without the possibility
of appeal) determines that Mr. Sheratzky has materially breached the agreement through the unauthorized disclosure of E-Com’ and/or
company’s secrets or competition with E-Com and/or the company. The aggregate amount paid to ZERO-TO-ONE S.B.L. INVESTMENTS LTD,
in ,2021 and 2022 and 2023 according to this new service agreement, were approximately, $1,934,000 , $1,841,000 and
$1,227,000 respectively (the numbers include value added tax).
Each of the above agreements also provides that the executives may request to provide
their services to the company as an employee, and not through a service provider, and in such event, the they shall execute an employment
agreement with the company, in lieu of the above service agreements, which shall also set forth the provisions of social security and
other benefits that the company usually grants its senior executive officers (which may not deviate from the provisions of the Compensation
Policy in this respect). In any event, it was agreed that the nature of the agreement pursuant to which the services are provided shall
not affect the cost to us of the provision of the services as set forth in the service agreements.
The aforementioned agreements were extended on April 20, 2020 (commencing as of February
1, 2020) subject to the approval of our next general shareholders meeting, for additional three years, with accordance to the provisions
of Israeli Company Law and Israeli Companies Regulations (Relaxations in Transactions with Interested Parties) 5760-2000, and were approved
accordingly by our compensation committee and our board of directors. Our shareholders meeting approved the aforementioned agreements
for an additional period of three years on December 10, 2020.
All agreements mentioned above are in compliance with our amended compensation policy
as approved on November 7, 2016 and re approved on December 12, 2019, and thereafter on December 14, 2022, by the Company’s general
meeting of shareholders, which sets forth the principles of our office holders’ compensation.
53
The terms of the Cash Incentives applicable to each of Messrs. Izzy Sheratzky, Eyal
Sheratzky, Nir Sheratzky and Gil Sheratzky (the
“Executive Office Holders”
), as
set forth in their agreements referred to above (the
“Agreements”
), are as follows:
|
|
• |
“Target-based Cash Incentives” means a cash incentive awarded to the Executive Office Holders for the company’s
achievement of the following Profit-Before-Tax targets in each calendar year following the effective date of the above agreements, in
which the Minimum Threshold (as defined below) has been achieved:
|
|
Company’s Profit-Before-Tax Targets
(in USD thousands) |
Level of Incentive - As a Percentage of the
Executive Office Holder’s Annual Cost of Pay
|
|
24,001 - 27,500
|
20%
|
|
27,501-31,000
|
45%
|
|
31,001-35,000
|
75%
|
|
35,001-39,000
|
110%
|
|
Above 39,001
|
150%
|
“Minimum Threshold” means, with respect to a particular calendar year, a
Minimum Company’s Return on Equity (as defined below) of 15%, and a minimum company’s Profit before Tax of USD 24 million.
“Return on Equity” means, with respect to a particular calendar year, the
ratio between the net income for such year and the average of the shareholders’ equity at the beginning of such calendar year and
at the end of each calendar quarter of such year; calculated in accordance with the company’s audited or reviewed consolidated financial
statements for such year, as the case may be, after taking into account Executive Officers’ compensation, but excluding adjustments
of the value of assets and obligations to their fair value in accordance with accounting standards.
“Profit-Before-Tax” means, with respect to a particular calendar year, the
company’s profit before tax for such year in accordance with the company’s audited consolidated financial statements for such
year, after taking into account Executive Officers’ compensation, but excluding adjustments of the value of assets and obligations
to their fair value in accordance with accounting standards.
“Executive Officers” means Office Holders of the Company (“Nosei Misra”,
as such term is defined in the Companies Law) who serve as the company’s President, Co-CEOs and other executives who are deemed
Office Holders of the company, as well as Office Holders of the company’s Israeli wholly owned subsidiaries, provided they report
to the CEO.
“Cost of Pay” means, with respect to independent contractors – their
invoice amount plus company car and related expenses; and with respect to employees - their base pay (i.e. fixed gross amount payable
to the employee in return for his services, excluding expenses, benefits and bonuses) plus 40% thereof.
|
|
• |
Target-based Cash Incentives shall become payable upon the lapse of 30 days from the date of publication of the company’s audited
annual financial statements (the “
Entitlement Date
”); and such cash incentive shall
be paid on such date. However, if an Executive Office Holder’s Target-based Cash Incentives exceed an amount equal to 100% of such
Executive Office Holder’s annual Cost of Pay (the “
100% Threshold
”), then 20%
of the amount by which the Target-based Cash Incentives exceed the 100% Threshold (the “
Deferred
Portion
”) shall not be paid on their Entitlement Date, but rather shall be deferred and paid in two equal instalments on
the first and second anniversary of the Entitlement Date, provided that the Minimum Threshold was achieved during the first calendar year
(for the first instalment) and during the second calendar year (for the second instalment) following the Entitlement Date, respectively.
The Deferred Portion shall be linked to the consumer price index known on the Entitlement Date.
|
|
|
• |
The company may pay to the Executive Office Holders advances on account of expected Target-based Cash Incentives, based on the company’s
reviewed financial statements, prior to the Entitlement Date; provided that if on the Entitlement Date, it turns out that such advances
exceed the Target-based Cash Incentives to which the Executive Office Holders are entitled, then the excess amounts shall be returned
to the Company or shall be deducted from the payment of the remainder Target-based Cash Incentives on the Entitlement Date, as the case
may be.
|
|
|
• |
“
Excess Return Cash Incentives
” means a cash grant based on the company’s
Stock Yield as compared to the Russell 2000 Index’s Yield, as set forth below.
|
54
“
Company’s Stock Yield
” means
the percentage of increase or decrease of the company’s stock price on Nasdaq over an Examined Period (as defined below), as adjusted
for dividend distribution, calculated based on the average adjusted closing price of the company’s shares on the Nasdaq during the
5 business days prior to and the 5 business days after the commencement and end of such Examined Period.
“
Russell 2000 Index’s Yield
”
means the percentage of increase or decrease of the Russell 2000 Index over an Examined Period, calculated based on the average Russell
2000 Index closing quotes during the 5 business days prior to and the 5 business days after the commencement and end of such Examined
Period.
At the end of each calendar year, the company shall examine the Company’s Stock
Yield since January 1 of such year or, with respect to the first year of such grant – since the date of its approval (an “Examined
Period”), as compared to the Russell 2000 Index’s Yield over such Examined Period; and to the extent that the Company’s
Stock Yield exceeds the Russell 2000 Index’s Yield for such period, each of the Executive Office Holders shall receive an amount
equal to 50% of his monthly Cost of Pay for each 1% of excess return (in percentage points’ terms), or a relative amount in the
event of a partial excess return. For the avoidance of doubt, in the event that the Company’s Stock Yield during such period is
negative, no grant shall be awarded.
The Excess Return Cash Incentive for each year shall not exceed an amount equal to the
Executive Officer Holder’s annual Cost of Pay.
|
|
• |
In the event that an Agreement is terminated during a calendar year, the company’s compensation committee and board of directors
shall determine the relative amounts out of the Target-based Cash Incentives and/or Excess Return Cash Incentives to which the relevant
Executive Office Holder is entitled for the portion of the year during which the Agreement was in force; and these amounts shall be paid
within 30 days after the termination of service/employment, as the case may be.
|
|
|
• |
On the date of determination of each Executive Office Holder’s entitlement for a Target-based Cash Incentive for a particular
year, the company’s compensation committee shall examine whether the total amount of grants to which Executive Officers are entitled
with respect to such calendar year and which constitute variable components of their terms of services (the “Total Amount of Grants
to Executive Officers”), exceed an amount equal to 10% of the Company’s EBITDA for such year (the “EBITDA’s Threshold”),
as calculated in accordance with data extracted from the company’s audited consolidated annual financial statements, after taking
into account the Executive Officers’ fixed compensation but excluding their variable compensation. In such event, the amount by
which the Total Amount of Grants to Executive Officers exceeds the EBITDA’s Threshold shall be referred to as the “Excess
Amount”.
|
|
|
• |
In the event that the Total Amount of Grants to Executive Officers exceeds the EBITDA’s Threshold, then the Target-based Cash
Incentive and the Excess Return Cash Incentive to which an Executive Office Holder is entitled (together, the “Grants”) shall
be reduced by an amount equal to the Executive Office Holder’s Rate of Grants (as defined below) out of the Excess Amount. The term
“Executive Office Holder’s Rate of Grants” means, with respect to a particular Executive Office Holder, the percentage
which such Executive Office Holder’s Grants constitute out of the Total Amount of Grants to Executive Officers.
|
|
|
• |
The company’s board of directors shall have the right, under special circumstances at its discretion, to reduce the amount
of Grants to which the Executive Office Holders are entitled, upon a 60 days prior notice.
|
|
|
• |
The Executive Office Holder shall be required to return any compensation paid to them on the basis of results included in financial
statements that turned out to be erroneous and were subsequently restated in the company’s financial statements published during
the three year period following publication of the erroneous financial statements; to the extent they would not have been entitled to
the compensation actually received had it been determined based on the restated financial statements. In such case, compensation amounts
will be returned within 60 days from the date of publication of the restated financial statements, net of taxes that were withheld thereon.
If the Executive Office Holder has a right to reclaim such tax payments with respect to Grants which were paid in excess, from the relevant
tax authorities, then the Executive Office Holder shall reasonably act to reclaim such amounts from the tax authorities and upon their
receipt, shall remit them to the company.
|
55
In 2022 Executive Office Holders were eligible
to Target based cash incentives at the maximum rate of (150%) as follows (which is included in the aforementioned payments according to
the above new service agreements):
|
Executive Office Holders
|
Target-based Cash Incentive
|
Deferred Portion for the next 2 years
|
Deferred Portion from last 2 years
|
Total to be paid for 2022:
|
||||||||||||
|
|
In US$ thousands
|
|||||||||||||||
|
Izzy Sheratzky
|
1,049
|
(73
|
)
|
73
|
1,049
|
|||||||||||
|
Eyal Sheratzky
|
854
|
(57
|
)
|
57
|
854
|
|||||||||||
|
Nir Sheratzky
|
854
|
(57
|
)
|
57
|
854
|
|||||||||||
|
Gil Sheratzky
|
610
|
(41
|
)
|
41
|
610
|
|||||||||||
For the full-service agreements regarding the services of our President, Co-Chief Executive
Officers and the Chief Executive Officer of E-Com, please see Exhibits 4.9-4.12(a) attached hereto.
On January 28, 2014, our general meeting of shareholders re-approved the terms of engagement
of Professor Yehuda Kahane, which were set forth in a financial services agreement, dated March 23, 1998, between our company and Professor
Kahane. Pursuant to this agreement, as amended in May 2003, we are obligated to pay Professor Kahane a monthly consulting fee of NIS15,000,
or approximately $4,000, linked to the Israeli consumer price index as known on May 1, 2003. The term of the agreement automatically renews
every two-years; however, either party may terminate it by providing a 180-day prior notice. The aggregate amounts paid to Professor Kahane
by virtue of this agreement in each of the years 2021,2022 and 2023 were approximately $69,000, $70,000 and $66,000, respectively.
Transactions with our affiliates and associates
We purchase our GPS/GPRS equipment from our subsidiary, E.R.M Electronic Systems Limited.
In 2021 and 2022 2023, Ituran, including its subsidiaries in Brazil, Argentina and USA, purchased GPS/GPRS equipment from E.R.M
in the sum of approximately NIS64.6 Million (or $20.0 Million) NIS96.2 million (or $28.6 million) and NIS 95.1 ($26.2 million),
respectively.
|
|
C. |
INTERESTS OF EXPERTS AND COUNSEL
|
Not applicable.
| ITEM 8. |
FINANCIAL INFORMATION
|
|
|
A. |
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
|
For the audited financial statements and audit reports required to be contained in this
annual report, please see Item 18 below.
Material Legal Proceedings
During year 2016 Brazilian Federal Communication Agency –
Anatel issued a tax assessment for FUST contribution (contribution on telecommunication services) levied on the monitoring services rendered
by us and additional tax assessment for FUNTELL contribution (contribution to Fund for the Technological Development of Telecommunication)
levied on the monitoring services rendered by us regarding, all for the period 2007-2012.Total amounts of approximately R$28.0 million
(US$5.6 million). as of December 2023 including interest and penalties. The reason Anatel demand the payment of FUST and FUNTELL from
us is the fact that in order to provide monitoring services we need to operate telecommunication equipment in a given radio frequency.
We hold a telecommunication license from Anatel (for information on our licenses see item 4B. “Information on the company”
– “Business overview” under the caption “Regulatory Environment”). The authorities have construed that we
render telecommunication services and taxes should be levied in relation to Net Revenues. Based on the legal opinion of the subsidiary’s
Brazilian legal counsel we believe that such claim is without merit, the interpretation of the legislation is mistaken, given that we
don’t render telecommunication services, but rather services of monitoring goods and persons for security purposes and therefore the
chances of our success are more likely than not. We have filed our defence against such claims. We are currently awaiting the Lower Court
or Administrative decisions on all the aforementioned FUST and FUNTELL claims.
10.B. – “Memorandum and Articles of Association” - “Our Corporate
Practices under the Israeli Companies Law” under the caption “Approval of Transactions under Israeli law”
56
Dividend distribution policy
For a description of our dividend policy, see Item 5.B – Liquidity and Capital
Resources above.
|
|
B. |
SIGNIFICANT CHANGES
|
Except as stated in this annual report, there are no significant changes since December
31, 2023.
|
ITEM 9.
|
THE OFFER AND LISTING
|
|
|
A. |
LISTING DETAILS AND MARKET PRICE INFORMATION
|
Our ordinary shares have been trading on Nasdaq under the symbol “ITRN”
since September 2005.
|
|
B. |
PLAN OF DISTRIBUTION
|
Not applicable.
|
|
C. |
MARKETS
|
Our ordinary shares are quoted on the Nasdaq Global Select Market under the symbol “ITRN”.
|
|
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 AND ARTICLES OF ASSOCIATION
|
Our number with the Israeli Registrar of Companies is 52-004381-1. Our purpose appears
in our memorandum of association and includes engaging in any lawful business.
Articles of Association; Israeli Companies Law
Articles of Association
Pursuant to our articles of association our objectives are to engage in any lawful business
and our purpose is to operate in accordance with business considerations to maximize our profits. We may take into consideration, inter
alia, the interests of our creditors, employee and the public interest. Please also see a summarized description of our purposes and activities
under the caption “Overview” in Item B.4. above.
57
Our Corporate Practice Under the Israeli Companies Law
Approval of Transactions under Israeli Law
Directors and executive officers
Fiduciary duties
Israeli law codifies the fiduciary duties that office holders owe to a company. An office
holder is defined as any director, managing director, general manager, chief executive officer, executive vice president, vice president,
other manager directly subordinate to the general manager or any other person assuming the responsibilities of any of these positions
regardless of that person’s title. Each person listed in the table under “Management—Executive Officers and Directors”
is an office holder of our company under the Israeli Companies Law.
An office holder’s fiduciary duties consist of a duty of loyalty and a duty of
care. The duty of loyalty requires the office holder to avoid any conflict of interest between the office holder’s position in the
company and personal affairs, and proscribes any competition with the company or the exploitation of any business opportunity of the company
in order to receive personal advantage for himself or others. This duty also requires him or her to reveal to the company any information
or documents relating to the company’s affairs that the office holder has received due to his or her position as an office holder.
The duty of care requires an office holder to act with a level of care that a reasonable office holder in the same position would employ
under the same circumstances. This includes the duty to use reasonable means to obtain information regarding the advisability of a given
action submitted for his or her approval or performed by virtue of his or her position and all other relevant information pertaining to
these actions.
Disclosure of Personal interest
Israeli law requires that an office holder promptly disclose to the board of directors
any personal interest that he or she may have and all related material information known to him or her concerning any existing or proposed
transaction with the company. A personal interest, as defined by the Israeli Companies Law, includes a personal interest of any person
in an act or transaction of the company, including a personal interest of one’s relative or of a corporate body in which such person
or a relative of such person is a 5% or greater shareholder, a holder of 5% or more of the voting rights, a director or general manager,
or in which he or she has the right to appoint at least one director or the general manager, but excluding a personal interest stemming
solely from one’s ownership of shares in the company. A personal interest also includes personal interest of a person voting pursuant
to a proxy given by another person even if the other person does not have personal interest, regardless of whether the person given the
proxy to vote at the meeting is given directions to vote in a certain manner or given discretion to vote independently. An office holder
must disclose his personal interest no later than the first meeting of the company’s board of directors that discusses the particular
transaction. An office holder is not obliged to disclose such information if the personal interest of the office holder derives solely
of the personal interest of his or her relative in a transaction that is not an “extraordinary transaction.” The Israeli Companies
Law defines an “extraordinary transaction” as a transaction not in the ordinary course of business, not on market terms or
that is likely to have a material impact on the company’s profitability, assets or liabilities. The term “relative”
is defined by the Israeli Companies Law as a spouse, sibling, parent, grandparent, descendent, and descendent, brother, sister or parent
of a spouse or the spouse of any of the foregoing.
The Israeli Companies Law provides that once an office holder has complied with the
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, or approve an action by the office holder that would otherwise be deemed a breach of duty of loyalty.
Such a transaction generally requires approval by the board of directors, unless the articles of association provide otherwise. Our articles
of association do not provide otherwise. If the transaction considered is an extraordinary transaction, audit committee approval is required
prior to approval by the board of directors. For the approval of arrangements regarding the compensation, indemnification or insurance
of executive officers and directors, see “Compensation arrangements” below. A company may not approve a transaction or action
that is adverse to the company’s interest or that is not performed by the office holder in good faith.
A director who has a personal interest in a matter involving an extraordinary transaction,
as defined in the Israeli Companies Law, which is considered at a meeting of the board of directors or the audit committee may not attend
that meeting or vote on that matter, unless a majority of the directors or members of the audit committee, as applicable, also have a
personal interest in the matter. Any transaction in which a majority of the directors has a personal interest requires shareholder approval.
Compensation arrangements
Subject to the provisions relating to related-party transactions as described below,
the terms of office of office holders other than the chief executive officer and directors, require the approval of both our compensation
committee and the board of directors; and the terms of office of chief executive officers and directors require the approval of the compensation
committee, the board of directors and our shareholders. However due to the change in the Israeli Company law, from February 2016, the
extension or renewal of terms of office of chief executive officer, which terms are not improving the previous terms or not significantly
different, and are according to the compensation policy, shall not require approval by the shareholders meeting. In addition, according
to recent changes in Israeli Company law, chief executive officer can decide upon insignificant change in the terms of office of his subordinate
officers, subject to additional conditions and requirement to include such right in the compensation policy of the company (such
requirement was fulfilled in our renewed compensation policy which was approved by our shareholder’s committee on November 7, 2016).
In addition, according to Israeli Company Regulations (Relaxations in Transactions with Interested Parties) 5760-2000, transaction with
board members and chief executive, on their term of office, which is according to the compensation policy and according to terms of office
which are not better than the terms of office of previous holder of such position or there is no significant difference between the two
engagements and relevant circumstances, including the scope of employment, may be approved by our compensation committee and the board
of directors, and will not require general shareholders meeting approval until the next general meeting which will be announced by the
company. “terms of office” includes the grant of an exemption, insurance, undertaking to indemnify or indemnification, retirement
compensation, and any benefit, other payment or an undertaking to pay, which are granted by virtue of serving as an office holder.
58
Shareholders
Controlling shareholders
Pursuant to Israeli law, the disclosure requirements regarding personal interests that
apply to an office holder also apply to a “controlling shareholder” of a public company. A “controlling shareholder”
is a shareholder who has the ability to direct the activities of a company, and for the purpose of the disclosure requirements and approval
of related party transactions, the term includes any shareholder holding 25% or more of the voting rights if no other shareholder holds
more than 50% of the voting rights in the company. Two or more shareholders with a personal interest in the approval of the same transaction
are deemed to be one shareholder. Currently there is no shareholder of us who holds more than 25% of the voting rights.
Required approval
Extraordinary transactions of a public company and 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, a transaction concerning the terms of compensation of the controlling shareholder or the controlling shareholder’s relative,
directly or indirectly, through a company controlled by him in respect of receipt of services from same and if he is an office holder
or an employee – the terms of his employment, generally require the approval of the audit committee (or with respect to Terms of
Office and Employment – the compensation committee), the board of directors and the shareholders, in that order. If required, shareholder
approval must include the majority of shares voted at the meeting. In addition, either:
| ◾ |
the majority must include at least the majority of the shares of disinterested shareholders voted at the meeting; or
|
| ◾ |
the total number of shares of disinterested shareholders who voted against the transaction must not exceed 2% of the aggregate voting
rights in the company.
|
Transactions for a period of more than three years generally need to be brought for
approval in accordance with the above procedures every three years.
A Shareholder is required according to Israeli Companies Law in certain votes on transactions
to disclose his/her personal interest. Failure to disclose such interest will invalidate the casted vote of such shareholder and the Company
shall not count it. According to our Articles of Association, a Shareholder seeking to vote using a proxy with respect to a resolution
which requires that the majority for its adoption include at least a specified majority of the votes of all those not having a personal
interest (as defined in the Companies Law) shall mark on the Proxy, if he or she has Personal Interest in such resolution, and in such
case the Company will not count his/her vote for such resolution. In event the shareholder will vote by other means than Proxy, he/she
shall notify the company of his/her Personal Interest in writing prior to the time of the General Meeting. Such notice either in Proxy
or in writing (as applicable) shall be a condition for the right to vote with respect to a resolution which requires that the majority
for its adoption include at least a specified majority of the votes of all those not having a Personal Interest.
59
Shareholder duties
Pursuant to the Israeli Companies Law, a shareholder has a duty to act in good faith
and in customary way toward the company and other shareholders and to refrain from abusing his or her power in the company, including,
among other things, in voting at the general meeting of shareholders and class meetings with respect to the following matters:
| ◾ |
an amendment to the company’s articles of association;
|
| ◾ |
an increase of the company’s authorized share capital;
|
| ◾ |
a merger; or
|
| ◾ |
interested party transactions that require shareholder approval.
|
In addition, specified shareholders have a duty of fairness toward the company. These
shareholders include any controlling shareholder, any shareholder who knows that it possesses the power to determine the outcome of a
shareholder vote and any shareholder who has the power to appoint or to prevent the appointment of an office holder of the company or
other power towards the company. The Israeli 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.
Anti take-over provisions; mergers and acquisitions under Israeli
Law
Tender offers
Full Tender Offer
. A person wishing to acquire
shares or any class of shares, or voting rights of a publicly traded Israeli company and who would, as a result, hold over 90% of the
company’s issued and outstanding share capital or of a class of shares that are listed, is required by the Israeli Companies Law
to make a tender offer to all of the company’s shareholders or all shareholders of such class of shares, as applicable, for the
purchase of all of the issued and outstanding shares of the company or of that class of shares, as applicable. If the shareholders who
do not respond to the offer hold less than 5% of the issued share capital of the company or of that class of shares, as applicable, and
the majority of shareholders who are disinterested accepted the offer, then all of the shares that the acquirer offered to purchase will
be transferred to the acquirer by operation of law (however, full tender offer shall be accepted if shareholders who objected to the offer
constituted less than 2% of the issued and outstanding share capital of the company to which the offer relates). However, the shareholders
may petition the court to determine that the consideration for the shares constituted less than their fair value and that their fair value
should be paid to the offerees. If the full tender offer is not accepted as described above, the acquirer may not acquire shares from
shareholders who accepted the tender offer that would provide it over 90% of the company’s issued and outstanding share capital
or of the shares comprising such class, as applicable.
Special Tender Offer
. The Israeli Companies
Law provides that an acquisition of shares of a public company must be made by means of a tender offer if as a result of the acquisition
the purchaser would become a holder of 25% or more of the voting rights of the company. This rule does not apply if there is already another
holder of 25% or more of the voting rights of the company. Similarly, the Israeli Companies Law provides that an acquisition of shares
in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a holder of more
than 45% of the voting rights of the company, if there is no other holder of more than 45% of the voting rights of the company. The foregoing
provisions do not apply to:
| ◾ |
a private placement in which the company’s shareholders approved such holder owning 25% or more of the voting rights of the
company (provided that there is no other shareholder that holds 25% or more of the voting rights of the company); or more than 45% of
the voting rights of the company (provided that there is no other shareholder that holds 45% or more of the voting rights of the company);
or
|
| ◾ |
a purchase from an existing holder of 25% or more of the voting rights of the company that results in another person becoming a holder
of 25% or more of the voting rights of the company; or
|
| ◾ |
purchase from an existing holder of more than 45% of the voting rights of the company that results in another person becoming a holder
of more than 45% of the voting rights of the company.
|
In the event that a special tender offer is made, a company’s board of directors
is required to express its opinion on the advisability of the offer or shall abstain from expressing any opinion if it is unable to do
so, provided that it gives the reasons for its abstention. An office holder in a target company who, in his or her capacity as an office
holder, performs an action the purpose of which is to cause the failure of an existing or foreseeable special tender offer or is to impair
the chances of its acceptance, is liable to the potential purchaser and shareholders for damages, unless such office holder acted in good
faith and had reasonable grounds to believe he or she was acting for the benefit of the company. However, office holders of the target
company may negotiate with the potential purchaser in order to improve the terms of the special tender offer and may further negotiate
with third parties in order to obtain a competing offer.
60
If a special tender offer was accepted by a majority of the shareholders who announced
their stand on such offer, then shareholders who did not announce their stand or who had objected to the offer may accept the offer within
four days of the last day set for the acceptance of the offer.
In the event that a special tender offer is accepted, the purchaser or any person or
entity controlling it at the time of the offer or under common control with the purchaser or such controlling person or entity shall refrain
from making a subsequent tender offer for the purchase of shares of the target company and cannot execute a merger with the target company
for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or
merger in the initial special tender offer.
Regulations promulgated under the Israeli Companies Law provide that these tender offer
requirements do not apply to companies whose shares are listed for trading outside of Israel if, according to the law in the country in
which the shares are traded or the rules and regulations of the stock exchange on which the shares are traded:
|
|
• |
There is a limitation on acquisition of any level of control of the company, or
|
|
|
• |
The acquisition of any level of control requires the purchaser to offer a tender offer to the public.
|
Merger
The Israeli Companies Law permits merger transactions if approved by each party’s
board of directors and shareholders. Pursuant to the Israeli Companies Law and our articles of association as currently in effect, merger
transactions may be approved by holders of a simple majority of our shares present, in person or by proxy, at a general meeting and voting
on the transaction. In determining whether the required majority has approved the merger in the event of “cross ownership”
between the merging companies, namely, if our shares are held by the other party to the merger, or by any person holding at least 25%
of the outstanding voting shares or 25% of the means of appointing directors of the other party to the merger, then a vote against the
merger by holders of the majority of the shares present and voting, excluding shares held by the other party or by such person, or anyone
acting on behalf of either of them, including any of their affiliates, is sufficient to reject the merger transaction. If the transaction
would have been approved but for the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger
upon the request of holders of at least 25% of the voting rights of a company, if the court holds that the merger is fair and reasonable,
taking into account the value of the parties to the merger and the consideration offered to the shareholders. Upon the request of a creditor
of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern
that, as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger.
In addition, a merger may not be consummated unless at least 50 days have passed from the time that a proposal for approval of the merger
has been filed with the Israeli Registrar of Companies and 30 days have passed from the date of the approval of the shareholders of the
merging companies.
The Israeli Companies Law further provides that the foregoing approval requirements
will not apply to shareholders of a wholly owned subsidiary in a roll-up merger transaction, or to the shareholders of the acquirer if:
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the transaction is not accompanied by an amendment to the acquirer’s memorandum or articles of association;
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the transaction does not contemplate the issuance of more than 20% of the voting rights of the acquirer that would result in any
shareholder becoming a controlling shareholder; and
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there is no “cross-ownership” of shares of the merging companies, as described above.
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For these purposes, “controlling shareholder” is a shareholder who has the
ability to direct the activities of a company, including a shareholder who owns 25% or more of the voting rights if no other shareholder
owns more than 50% of the voting rights.
The Israeli Companies Law allows us to create and issue shares having rights different
from those attached to our ordinary shares, including shares providing certain preferred or additional rights to voting, distributions
or other matters and shares having preemptive rights. In the future, if we do create and issue a class of shares other than our ordinary
shares, such class of shares, depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise
prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization of a new
class of shares will require an amendment to our articles of association. Shareholders voting at such a meeting will be subject to the
restrictions under the Israeli Companies Law. See “Voting, Shareholder Meetings and Resolutions” below.
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Dividend and Liquidation Rights
.
We may declare a dividend to be paid to the holders of our ordinary shares according
to their rights and interests in our profits. If we dissolve, after satisfaction of liabilities to creditors, our assets will be distributed
to the holders of our ordinary shares in proportion to their shareholdings. This right may be affected by the grant of preferential dividend
or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future. Our articles
of association provide that shareholder approval would not be required for the declaration of dividends. Dividends may only be paid out
of our retained earnings or “profits” accrued over a period of two years, as defined in the Israeli Companies Law, whichever
is greater, according to the last reviewed or audited financial reports of the company, provided that the date of the financial reports
is not more than six months before the date of distribution (the “profits” test), and further provided 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, as determined
by our Board of Directors. However, if we do not meet the profit requirement, a court may allow us to distribute a dividend, as long as
the court is convinced that there is no reasonable risk that a distribution might prevent us from being able to meet our existing and
anticipated obligations as they become due. For more information on our ability to grant or declare dividends, see Item 8.A – Financial
Information under the caption “Dividend Distribution Policy” above.
Voting, Shareholder Meetings
and Resolutions
.
As a foreign private issuer, we have elected to follow our home country practices in
lieu of the Nasdaq Marketplace Rule requiring an issuer to hold its annual meeting of its shareholders no later than one year after the
end of the issuer’s fiscal year-end. Specifically, according to the Israeli Companies Law, we are required to hold an annual general
meeting of our shareholders once every calendar year, and no later than 15 months after the date of the previous annual general meeting.
All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our Board of Directors may call
special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Israeli
Companies Law provides that the board of directors of a public company is required to convene a special meeting upon the request of (a)
any two directors of the company or one quarter of its board of directors or (b) one or more shareholders holding, in the aggregate, (i)
5% of the outstanding shares of the company and 1% of the voting power in the company or (ii) 5% of the voting power in the company.
Pursuant to our articles of association, shareholders are entitled to participate and
vote at general meetings and are the shareholders of record on a date to be decided by our Board of Directors, provided that such date
is not more than 40 days, nor less than four days, prior to the date of the general meeting, except as otherwise permitted by the Israeli
Companies Law. Furthermore, the Israeli Companies Law dictates that resolutions regarding the following matters must be passed at a general
meeting of our shareholders:
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amendments to our articles of association;
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appointment or termination of our auditors;
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appointment and dismissal of external directors;
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approval of acts and transactions requiring general meeting approval pursuant to the Israeli Companies Law;
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increase or reduction of our authorized share capital;
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a merger; and
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the exercise of the Board of Directors’ powers by a general meeting, if the Board of Directors is unable to exercise its powers
and the exercise of any of its powers is required for our proper management.
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The Israeli Companies Law and our articles of association require that a notice of any
annual or special shareholders meeting will be provided 21 days prior to the meeting, except where the regulation prescribe for a period
of not less than 35 days if the agenda includes certain resolutions to be adopted at the general meeting.
Pursuant to our articles of association, holders of ordinary shares have one vote for
each ordinary share held on all matters submitted to a vote of the shareholders. These voting rights may be affected by the grant of any
special voting rights to the holders of a class of shares with preferential rights that we may authorize in the future. The quorum required
for our ordinary meetings of shareholders consists of at least two shareholders present in person or by proxy, who hold or represent between
them at least thirty-three and one-third percent of the total outstanding voting rights. A meeting adjourned for lack of a quorum generally
is adjourned to the same day in the following week at the same time and place or on a later date specified in the summons or notice of
the meeting. At the reconvened meeting, any number of our shareholders present in person or by proxy shall constitute a lawful quorum.
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Our articles of association provide that, other than with respect to the amendment of
the provisions of the articles of association with respect to the appointment of directors and a resolution for removal of a director
and the resolution of removal of a director, which action requires a majority vote of 75%, all resolutions of the shareholders require
a simple majority.
Israeli law does not provide for public companies such as ours to have shareholder resolutions
adopted by means of a written consent in lieu of a shareholders meeting. The Israeli Companies Law provides that a shareholder, in exercising
his or her rights and performing his or her obligations toward the company and its other shareholders, must act in good faith and in an
acceptable manner and avoid abusing his or her powers. This is required, among other things, when voting at general meetings on matters
such as changes to the articles of association, increasing the company’s registered capital, mergers and approval of related-party
transactions. In addition, pursuant to the Israeli Companies Law, any controlling shareholder, any shareholder who knows that its vote
can determine the outcome of a shareholder vote and any shareholder who, under the company’s articles of association, can appoint
or prevent the appointment of an office holder, is required to act with fairness towards the company.
An ordinary resolution requires approval by the holders of a simple majority of the
voting rights represented at the meeting, in person, by proxy or by written ballot, and voting on the resolution. Under the Israeli Companies
Law, unless otherwise provided in the articles of association or applicable law, all resolutions of the shareholders require a simple
majority. A resolution for the voluntary winding up of the company requires the approval of holders of 75% of the voting rights represented
at the meeting, in person, by proxy or by written ballot and voting on the resolution. For information regarding the majority required
for approval of related party transactions, see “Approval of related party transactions under Israeli law” above.
Transfer of Shares and Notice
.
Our ordinary shares that are fully paid are issued in registered form and may be freely
transferred under our articles of association unless the transfer is restricted or prohibited by applicable law or rules of a stock exchange
on which the shares are traded.
Election of Directors
.
Our ordinary shares do not have cumulative voting rights in the
election of directors. As a result, the holders of a majority of the voting power represented at a shareholders meeting have the power
to elect all of our directors, subject to the special approval requirements for external directors described under the caption “External
directors” in Item 6.C. – “Board Practices” above. Pursuant to the Israeli Companies Law, the procedures for the
appointment and removal and the term of office of directors, other than external directors, may be contained in the articles of association
of a company. Our articles of association provide for staggered terms for directors. This provision may be amended only by a vote
of 75% of our shares voting at a meeting of shareholders. The appointing mechanism of our directors is further described under the caption
“Shareholders Agreement and Articles of Association of Moked Ituran Ltd.” in item 6.A. – “Directors and Senior
Management” above.
Insurance, Indemnification and Exculpation
of Directors and Officers
.
Under the Israeli 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 do not include such a provision. An Israeli company may not exculpate
a director for liability arising out of a breach of duty of care in respect of a prohibited dividend or distribution to shareholders.
Under the Israeli Companies Law, a company may indemnify an office holder in respect
of the following liabilities and expenses incurred for acts performed as an office holder, either in advance of an event or following
an event, provided a provision authorizing such indemnification is included in its articles of association:
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Financial liability imposed on him or her in favor of another person pursuant to a judgment, 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 an undertaking must be limited to 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 abovementioned events and amount or criteria.
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Reasonable litigation expenses, including 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,
such as a criminal penalty, 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 monetary penalty.
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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. Under the Israeli
Companies Law, a company may obtain insurance for an office holder against liabilities incurred in his or her capacity as an office holder
if and to the extent provided in the company’s articles of association.
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A breach of 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.
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A breach of duty of care to the company or to a third party, including a breach arising out of the negligent conduct of the office
holder.
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A financial liability imposed on the office holder in favor of a third party.
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An Israeli company may not indemnify or insure an office holder against any of the following:
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a breach of duty of loyalty, except 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;
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a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office
holder;
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an act or omission committed with intent to derive illegal personal benefit; or
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a fine, civil fine, monetary penalty or forfeit levied against the office holder.
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Under the Israeli Companies Law, exculpation, indemnification and insurance of office
holders must be approved by our compensation committee and our board of directors and, in respect to our chief executive officer, directors
and controlling persons, by our shareholders. However, due to the change in the Israeli Company law, from February 2016, the extension
or renewal of terms of office (which includes exculpation, indemnification and insurance) of chief executive officer, which terms are
not improving the previous terms or not significantly different, and are according to the compensation policy, shall not require approval
by the shareholders meeting. In addition, according to changes in Israeli Company law from March 2016, chief executive officer can decide
upon insignificant change in the terms of office of his subordinate officers, subject to additional conditions and requirement to include
such right in the compensation policy of the company.
Our articles of association allow us to indemnify and ensure our office holders to the
fullest extent permitted by the Israeli Companies Law. Our articles of association also allow us to insure or indemnify any person who
is not an office holder, including any employee, agent, consultant or contractor who is not an office holder.
We currently have directors’ and officers’ liability insurance covering
our officers and directors (including the officers and directors of our subsidiaries) against certain claims. No claims for liability
have been filed under this policy to date.
Our compensation committee, board of directors and shareholders have resolved to indemnify
our directors and officers to the fullest extent permitted by law and by our articles of association for liabilities that are of certain
enumerated types of events, subject to an aggregate sum equal to 25% of the shareholders equity outstanding at the time a claim for identification
is made as indicated by our then latest financial statements (which sum also includes all insurance amounts received by such directors
and officers under directors and officers insurance policies maintained by us). For further details, see Item 7.B – Related Party
Transactions above.
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Change in Capital
.
Our articles of association enable us to increase or reduce our share capital. Any such
changes are subject to the provisions of the Israeli Companies Law and must be approved by a resolution duly passed by our shareholders
at a general meeting and voting on such change in the capital. In addition, transactions that have the effect of reducing capital, such
as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance of shares for less
than their nominal value, require a resolution of the Board of Directors and court approval.
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C. |
MATERIAL CONTRACTS
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For information concerning our service contracts with our President and Co-Chief Executive
Officers, see Item 7.B – Related Party Transactions.
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D. |
EXCHANGE CONTROLS
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Ordinary shares purchased by non-residents of Israel with certain non-Israeli currencies
(including dollars) and any amounts payable upon the dissolution, liquidation or winding up of our affairs, as well as the proceeds of
any sale in Israel of our securities to an Israeli resident, may be paid in non-Israeli currencies (including US dollars) or, if paid
in NIS, may be converted into freely repatriable currencies at the rate of exchange prevailing at the time of conversion – pursuant
to the general permit issued under the Israeli Currency Control Law, 1978, provided that Israeli income tax has been paid on (or withheld
from) such payments. Because exchange rates between the NIS and the U.S. dollar fluctuate continuously, U.S. shareholders will be subject
to any such currency fluctuation during the period from when a dividend is declared through the date payment is made in U.S. dollars.
Investments outside Israel by our company no longer require specific approval from the Controller of Foreign Currency at the Bank of Israel.
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E. |
TAXATION
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The following describes certain income tax issues relating to us and also certain income
tax consequences arising from the purchase, ownership and disposition of our ordinary shares.
This
discussion is for general information only and is not intended, and should not be construed, as legal or professional tax advice and does
not cover all possible tax considerations
. To the extent that the discussion is based on legislation yet to be judicially or administratively
interpreted, there can be no assurance that the views expressed herein will accord with any such interpretation in the future. Accordingly,
holders of our ordinary shares should consult their own tax advisor as to the particular tax consequences arising from your purchase,
ownership and disposition of ordinary shares, including the effects of applicable Israeli, United States and other laws and possible changes
in the tax laws.
The following discussion represents a summary of the material United States Israeli
tax laws affecting us and our shareholders.
United States Tax Considerations
The following discussion is a description of the material United States, or US, federal
income tax considerations applicable to the acquisition, ownership and disposition of our ordinary shares by US Holders who hold such
ordinary shares as “capital assets”. As used in this section, the term “US Holder” means a beneficial owner of
an ordinary share who is:
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an individual citizen or resident of the United States;
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a corporation or partnership created or organized in or under the laws of the United States or of any state of the United States
or the District of Columbia (other than a partnership, including any entity treated as a partnership for U.S. tax purposes, that is not
treated as a US person under any applicable Treasury regulations);
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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 the trust has elected validly to be treated as a US person for United States federal income tax purposes or if a US court
is able to exercise primary supervision over the trust’s administration and one or more US persons have the authority to control
all of the trust’s substantial decisions.
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The term “Non-US Holder” means a beneficial owner of an ordinary share who
is not a US Holder. The tax consequences to a Non-US Holder may differ substantially from the tax consequences to a US Holder. This discussion
does not address any aspects of US federal income tax which may be relevant to a Non-US Holder. Accordingly, Non-US Holders are strongly
urged to consult with their own tax advisors.
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This description is based on provisions of the United States Internal Revenue Code of
1986, as amended, existing, proposed and temporary US Treasury regulations and administrative and judicial interpretations thereof, each
as available and in effect as of the date of this report. These sources may change, possibly with retroactive effect, and are open to
differing interpretations. This description does not discuss all aspects of US federal income taxation that may be applicable to investors
in light of their particular circumstances or to investors who are subject to special treatment under US federal income tax law, including:
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insurance companies;
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dealers or traders in stocks, securities or currencies;
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financial institutions and financial services entities;
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real estate investment trusts;
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regulated investment companies;
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grantor trusts;
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persons that receive ordinary shares as compensation for the performance of services;
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tax-exempt organizations;
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persons that hold ordinary shares as a position in a straddle or as part of a hedging, conversion or other integrated instrument;
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individual retirement and other tax-deferred accounts;
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expatriates of the United States;
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persons having a functional currency that is not the US dollar; or
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direct, indirect or constructive owners of 10% or more, by voting power or value, of our ordinary shares.
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This description also does not consider the US federal gift or estate tax or alternative
minimum tax consequences of the acquisition, ownership and disposition of our ordinary shares.
If a partnership (or any other entity treated as a partnership for US 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 should consult its tax advisor as to its tax consequences.
We urge our shareholders to consult with your own tax advisor regarding
the tax consequences of acquiring, owning or disposing of our ordinary shares, including the effects of US federal, state, local and foreign
and other tax laws. This summary does not constitute, and should not be construed as, legal or tax advice to holders of our shares.
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Medicare Tax
Beginning January 1, 2013, certain individuals, estates and trusts,
which have income above the statutory threshold amounts, generally will be subject to a 3.8% Medicare tax on their investment income and
gain, with limited exceptions. US Holders should consult their own tax advisors concerning Medicare tax consequences, if any, of owning
or disposing of our ordinary shares.
Distribution Paid on the Ordinary Shares
As of November 16, 2009, our dividend policy provides for an annual
dividend distribution in an amount not less than 50% of our net profits, calculated based on the audited financial statements for the
period ending on December 31 of the fiscal year with respect to which the relevant dividend is paid. On February 21, 2012, we revised
our dividend policy so that our dividends will be declared and distributed on a quarterly basis in an amount not less than 50% of our
net profits, calculated on the basis of our reviewed quarterly financial statements each fiscal year. On February 27, 2017, the board
of directors approved a change in the dividend policy. This policy called for a dividend of $5 million, at minimum per quarter. this policy
became effective starting from the dividends for the first quarter of 2017. During 2020 and due to the Covid-19 effects, such distribution
was suspended. On March 3, 2021, we declared the renewal of the dividend distribution policy of at least $3 million a quarter. This new
policy became effective starting from the fourth quarter of 2020.
Subject to the discussion below under “Passive Foreign Investment Company Considerations”,
US Holders, for US federal income tax purposes, will generally be required to include in their gross income as ordinary dividend income
(unless qualifies as “qualified dividend income”) in the amount of any distributions made to them in cash or property (other
than certain distributions, if any, of our ordinary shares distributed pro rata to all our shareholders), with respect to their ordinary
shares, before reduction for any Israeli taxes withheld (without regard to whether any portion of such tax may be refunded to them by
the Israeli tax authorities), to the extent that those distributions are paid out of our current or accumulated earnings and profits as
determined for US federal income tax purposes. Subject to the discussion below under “Passive Foreign Investment Company Considerations”,
distributions in excess of our current and accumulated earnings and profits as determined under US federal income tax principles will
be applied first against, and will reduce their tax basis in, your ordinary shares and, to the extent they exceed that tax basis, will
then be treated as capital gain. We do not maintain calculations of our earnings and profits under US federal income tax principles. Our
dividends will not qualify for the dividends-received deduction generally available to corporate US Holders.
For a US Holder, if we pay a dividend in NIS, any such dividend, including the amount
of any Israeli taxes withheld, will be includible in such US Holder’s income in a US dollar amount calculated by reference to the
currency exchange rate in effect on the day the distribution is includible in your income, regardless of whether the NIS are converted
into US dollars. Any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend is includible
in such US Holder’s income to the date that payment is converted into US dollars generally will be treated as ordinary income or
loss.
A non-corporate US Holder’s “qualified dividend income” currently
is subject to tax at reduced rates not exceeding 23.8% (including, if applicable, Medicare tax at a rate of 3.8%). For purposes of determining
whether a non-corporate US Holders will have “qualified dividend income”, “qualified dividend income” generally
includes dividends paid by a foreign corporation if either:
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the stock of that corporation with respect to which the dividends are paid is readily tradable on an established securities market
in the US, or
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that corporation is eligible for benefits of a comprehensive income tax treaty with the US that includes an information exchange
program and is determined to be satisfactory by the US Secretary of the Treasury. The Internal Revenue Service has determined that the
US-Israel Tax Treaty is satisfactory for this purpose.
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In addition, under current law, a non-corporate US Holder must generally hold his ordinary
shares for more than 60 days during the 121-day period beginning 60 days prior to the ex-dividend date in order for the dividend to qualify
as “qualified dividend income”.
Dividends paid by a foreign corporation will not be treated as “qualified dividend
income”, however, if such corporation is treated, for the tax year in which the dividend is paid or the preceding tax year, as a
“passive foreign investment company” for US federal income tax purposes. We do not believe that we will be classified as a
“passive foreign investment company” for US federal income tax purposes for our current taxable year. However, see the discussion
under “Passive Foreign Investment Company Considerations” below.
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Foreign Tax Credit
Any dividends paid by us to a US Holder with respect to our ordinary shares generally
will be treated as foreign source passive income for US foreign tax credit purposes. Subject to the foreign tax credit limitations, a
US Holder may elect to credit any Israeli income taxes withheld from dividends paid on our ordinary shares against such shareholder’s
US federal income tax liability (provided,
inter alia
, such shareholder satisfies certain
holding requirements with respect to our ordinary shares). Amounts withheld in excess of the Treaty tax rate, however, will not be creditable
against such shareholder’s US federal income tax liability. As an alternative to claiming a foreign tax credit, such shareholder
may instead claim a deduction for any withheld Israeli income taxes, but only for a year in which such shareholder elects to do so with
respect to all foreign income taxes. The amount of foreign income taxes that may be claimed as a credit in any year is subject to complex
limitations and restrictions, which must be determined on an individual basis by each shareholder. Accordingly, our shareholders should
consult their own tax advisor to determine whether their income with respect to their ordinary shares would be foreign source income and
whether and to what extent they would be entitled to the credit.
Disposition of Ordinary Shares
Upon the sale or other disposition of ordinary shares, subject to the discussion below
under “Passive Foreign Investment Company Considerations”, if a holder of our shares is a US Holder, such shareholder generally
will recognize capital gain or loss equal to the difference between the amount realized on the disposition and such shareholder’s
adjusted tax basis in the ordinary shares, which is usually the cost of such shares, in dollars. US Holders should consult their own advisors
with respect to the tax consequences of the receipt of a currency other than dollars upon such sale or other disposition.
Gain or loss upon the disposition of the ordinary shares will be treated as long-term
if, at the time of the disposition, the ordinary shares were held for more than one year. Long-term capital gains realized by non-corporate
US Holders generally are subject to a lower maximum marginal US federal income tax rate than the maximum marginal US federal income tax
rate applicable to ordinary income, other than qualified dividend income, as defined above, generally, not exceeding 23.8% (including,
if applicable, Medicare tax at a rate of 3.8%). The deductibility of capital losses by a US Holder is subject to limitations. In general,
any gain or loss recognized by a US Holder on the sale or other disposition of ordinary shares will be US source income or loss for US
foreign tax credit purposes. US Holders should consult their own tax advisors concerning the source of income for US foreign tax credit
purposes and the effect of the US-Israel Tax Treaty on the source of income.
Passive Foreign Investment Company Considerations
Special US federal income tax rules apply to US Holders owning shares of a “passive
foreign investment company”, or a PFIC, for US federal income tax purposes. A non-US corporation will be considered a PFIC for any
taxable year in which, after applying look-through rules, either
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75% or more of its gross income consists of specified types of passive income, or
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50% or more of the average value of its assets consists of passive assets, which generally means assets that generate, or are held
for the production of, “passive income.”
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Passive income for this purpose generally includes dividends, interest, royalties, rents and gains from commodities and securities
transactions and includes amounts derived by reason of the temporary investment of funds. If we were classified as a PFIC, and you are
a US Holder, you could be subject to increased tax liability upon the sale or other disposition of ordinary shares or upon the receipt
of amounts treated as “excess distributions” (generally, your ratable portion of distributions in any year which are greater
than 125% of the average annual distribution received by you either in the shorter of the three preceding years or your holding period).
Under these rules, the excess distribution and any gain would be allocated rateably over our shareholders’ holding period for the
ordinary shares, and the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which we
were a PFIC would be taxed as ordinary income. The amount allocated to each of the other taxable years would be subject to tax at the
highest marginal rate in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit
would be imposed on the resulting tax allocated to such other taxable years. In addition, holders of stock in a PFIC may not receive a
“step-up” in basis on shares acquired from a decedent. If any of our shareholders are US Holders who hold ordinary shares
during a period when we are a PFIC, such shareholders be subject to the foregoing rules even if we cease to be a PFIC.
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We believe that we will not be classified as a PFIC for US federal income tax purposes
for our current taxable year and we anticipate that we will not become a PFIC in any future taxable year based on our financial statements,
our current expectations regarding the value and nature of our assets, and the sources and nature of our income. This conclusion, however,
is a factual determination that must be made annually based on income and assets for the entire taxable year and thus may be subject to
change. It is not possible to determine whether we will be a PFIC for the current taxable year until after the close of the year and our
status in future years depends on our income, assets and activities in those years. In addition, because the market price of our ordinary
shares is likely to fluctuate and the market price of the shares of technology companies has been especially volatile, and because that
market price may affect the determination of whether we will be considered a PFIC, we cannot assure any US Holder that we will not be
considered a PFIC for any taxable year.
If we were a PFIC, our shareholders could avoid certain tax consequences referred to
above by making an election to treat us as a qualified electing fund or by electing to mark the ordinary shares to market. A US Holder
may make a qualified electing fund election only if we furnish the US Holder with certain tax information and we do not presently intend
to prepare or provide this information. Alternatively, a US Holder of PFIC stock that is publicly traded may elect to mark the stock to
market annually and recognize as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year
between the fair market value of the PFIC stock and the US Holder’s adjusted tax basis in the PFIC stock. Losses would be allowed
only to the extent of net mark-to-market gain previously included by the US Holder under the election for prior taxable years. This election
is available for as long as our ordinary shares constitute “marketable stock,” which includes stock that is “regularly
traded” on a “qualified exchange or other market.” We believe that the Nasdaq Global Select Market will constitute a
qualified exchange or other market for this purpose. However, no assurances can be provided that our ordinary shares will continue to
trade on the Nasdaq Global Select Market or that the shares will be regularly traded for this purpose.
According to law amendments effective in 2010, US persons that are shareholders in a
PFIC generally will be required to file an annual report disclosing the ownership of such shares and certain other information.
The rules applicable to owning shares of a PFIC are complex, and our shareholders should
consult with their own tax advisor regarding the tax consequences that would arise if we were treated as a PFIC.
Information Reporting and Back-up Withholding
Dividend payments with respect to ordinary shares and proceeds from the sale or disposition
of ordinary shares made within the United States or by a US payor or US middleman may be subject to information reporting to the Internal
Revenue Service and possible US backup withholding. Certain exempt recipients (such as corporations) are not subject to these information
reporting requirements. Backup withholding also will not apply to a US Holder who furnishes a correct taxpayer identification number and
makes any other required certification or otherwise is exempt from US backup withholding requirements. US Holders who are required to
establish their exempt status must provide such certification on Internal Revenue Service Form W-9. US Holders should consult their tax
advisors regarding the application of the US information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld under the backup withholding
rules may be credited against a US Holder’s US federal income tax liability and a US Holder may obtain a refund of any excess amounts
withheld by filing the appropriate claim for refund with the Internal Revenue Service and furnishing any required information in a timely
manner.
The above description is not intended to constitute a complete analysis of all tax consequences
relating to acquisition, ownership and disposition of our ordinary shares. Our shareholders are urged to consult their own tax advisor
concerning the tax consequences of their particular situation.
Israeli Tax Considerations
The following is a summary of the current material Israeli tax laws applicable to companies
in Israel with special reference to its effect on us. This section also contains a discussion of certain Israeli government programs from
which we may benefit and some Israeli tax consequences to persons acquiring ordinary shares. This summary does not discuss all the acts
of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types
of investors subject to special treatment under Israeli law. Examples of this kind of investor include residents of Israel, traders in
securities or persons that own, directly or indirectly, 10% or more of our outstanding capital, all of whom are subject to special tax
regimes not covered in this discussion. Some parts of this discussion are based on new tax legislation that has not been subject to judicial
or administrative interpretation. Accordingly, we cannot assure you that the views expressed in the discussion will be accepted by the
tax authorities in question. The discussion is not intended and should not be construed as legal or professional tax advice and does not
cover all possible tax considerations.
69
The discussion below should not be construed as legal or professional tax advice and
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 in particular, the effect of any foreign,
state or local taxes.
General Corporate Tax Structure in Israel
Israeli companies are generally subject to corporate tax on their taxable income. In
2013 the corporate tax rate was 25%. On August 5, 2013 the Israeli Parliament amended the Income Tax Ordinance, by which, inter alia,
the corporate tax rate was raised by 1.5% to a rate of 26.5% s from 2014, and in 2015was 26.5%, and for 2016 the corporate tax decreased
to a rate of 25%. According to new amendment, the regular corporate tax for 2017 decreased to a rate of 24% and, as of 2018 and thereafter,
there will be a further reduction to 23%. Capital gains derived after January 1, 2010 are subject to a corporate tax rate imposed in the
sale year.
Tax Benefits Under the Law for the Encouragement of Capital Investments, 1959, as amended
Under the Israeli law, Israeli subsidiary of the company is entitled to various tax
benefits by virtue of the “Preferred Enterprise” status that was granted to her production under the “Investment Law”.
There can be no assurance that this Israeli subsidiary will continue to qualify as “Preferred Enterprises” in the future or
that the benefits will be granted in the future.
Reform of the Investments Law under the 2010 and 2013 Amendments
On December 29, 2010, the Israeli parliament approved an amendment to the Investments
Law, effective as of January 1, 2011, which introduces a new status of “
Preferred Company
”
and “
Preferred Enterprise
”. The amendment allows enterprises meeting certain required
criteria to enjoy grants as well as tax benefits. The amendment also introduces certain changes to the map of geographic development areas
for purposes of the Investments Law, which will take effect in future years. The amendment generally abolishes the previous tax benefit
routes that were afforded under the Investment Law, specifically the tax-exemption periods previously allowed, and introduces new tax
benefits for industrial enterprises meeting the criteria of the law, which include among others the following:
On August 5, 2013 the Israeli Parliament amended the Investments Law, by which, inter
alia, it cancelled the scheduled progressive reduction in the corporate tax rate for Preferred Enterprises and set it at 16% for enterprises
located elsewhere as of January 1, 2014.
On December 2016 the Israeli Parliament amended the Investments Law, by which, inter
alia, it reduced for Preferred Enterprises which is located in areas other than “Development Zone A” and set it at 7.5% for
enterprises located elsewhere as of January 1, 2017.
|
|
• |
The reduced tax rates will no longer be contingent upon making a minimum qualifying investment in productive assets.
|
|
|
• |
A definition of “preferred income” was introduced into the Investments Law to include certain types of income that are
generated by the Israeli production activity of a preferred enterprise.
|
A Preferred Company (as defined in the Investments Law) may generally elect to apply
the provisions of the amendment to preferred income produced or generated by it commencing from January 1, 2011. The amendment provides
various transitional provisions which allow, under certain circumstances, to apply the new regime to investment programs previously approved
or elected under the Investments Law in its previous form, or to continue existing investment programs under the provisions of the Investment
Law in its previous form for a certain period of time.
As of December 31, 2023, only 1 of our Israeli subsidiaries is entitled to a “Preferred
Company” status pursuant to the Investments Law.(see Note 15 c.2 to the Financial Statements).
70
Tax Benefits under the 2016 Amendment
In December 2016 new legislation amended the Investment Law (the “2016 Amendment”).
Under the 2016 Amendment a new status of “Technological Preferred Enterprise” was introduced to the Investment Law.
Technological Preferred Enterprise – an enterprise which, amongst other conditions,
is part of a consolidated group with consolidated revenues of less than NIS10 billion. A Technological Preferred Enterprise which is located
in areas other than Development Zone A will be subject to tax at a rate of 12% on profits derived from intellectual property, and a Technological
Preferred Enterprise in Development Zone A will be subject to tax at a rate of 7.5%.
Income
not eligible for Technological Preferred Enterprise is taxed at the regular corporate tax rate or at the preferred tax rate as mentioned
above, as the case may be.
As of December 31, 2023, 2 of our Israeli subsidiaries are entitled to a “Technological
Preferred Enterprise” status pursuant to the Investments Law.
Taxation of Non-Israeli Subsidiaries
Non-Israeli subsidiaries are generally taxed based upon tax laws applicable in their
countries of residence. In accordance with the provisions of Israeli-controlled foreign corporation rules, certain income of a non-Israeli
subsidiary, if the subsidiary’s primary source of income is passive income (such as interest, dividends, royalties, rental income
or income from capital gains), may be deemed distributed as a dividend to the Israeli parent company and consequently is subject to Israeli
taxation. An Israeli company that is subject to Israeli taxes on such deemed dividend income of its non-Israeli subsidiaries may generally
receive a credit for non-Israeli income taxes paid by the subsidiary in its country of residence or are to be withheld from the actual
dividend distributions.
On December 23, 2013 the Israeli Parliament amended the Income Tax Ordinance, with profound
changes to the tax treatment of CFC, mainly with regard to the following:
|
|
• |
Reducing the tax rate criterion: a company is considered CFC If the tax rate applicable to passive income does not exceed 15 % (instead
of 20 %).
|
|
|
• |
Sale of a security will be considered passive income, unless the holding duration is less than one year and it has been shown that
the security served in a business.
|
|
|
• |
Cancel the notional credit mechanism and replacing it with dividend deduction against the actual dividend distribution. Tax refund
may be allowed under certain conditions.
|
|
|
• |
Dividends derived from income that was taxed at a rate of at least 15% shall not be considered “passive income” under
certain conditions.
|
Taxation of our shareholders
Capital Gains Taxes Applicable to Israeli Resident Shareholders
The income tax rate applicable to Real Capital Gain derived by an Israeli individual
from the sale of shares which had been purchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However,
if such shareholder is considered a “Substantial Shareholder” (as defined below) 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%. A “
substantial shareholder
”
is generally a person who alone, or together with his relative or another person who collaborates with him on a permanent basis, hold,
directly or indirectly, at least 10% of any of the “means of control” of the corporation. “
Means
of control
” generally include the right to vote, receive profits, nominate a director or an officer, receive assets upon
liquidation, or order someone who holds any of the aforesaid rights how to act, and all regardless of the source of such right.
Generally, as of January 1, 2012, the tax rate applicable to capital gains derived from
by Israeli resident company on the sale of shares, whether listed on a stock market or not, is the corporate tax rate in Israel (commencing
from January 1, 2018, 23%).
Commencing as of January 1, 2017, an individual whose taxable income during a tax year
is in excess of NIS640,000, will be liable for an additional 3% on the portion that is in excess of NIS 640,000 (as of January 1,
2024, the amount is 721,560NIS).
Moreover, capital gains derived by a shareholder who is a dealer or trader in securities,
or to whom such income is otherwise taxable as ordinary business income, are taxed in Israel at ordinary income rates (currently up to
48% for individuals in 2014). Pursuant to Amendment No. 234 to the Income Tax Ordinance there was a decrease of 1% and stands at 47% from
January 1, 2017 and onwards.
71
Taxation of Israeli shareholders on receipt of dividends
Israeli resident individuals are subject to Israeli income tax on the receipt of dividends
paid, at the rate of 25%, or 30% for a shareholder that is considered a “Substantial Shareholder” (as defined above) at any
time during the 12-month period preceding such distribution. A distribution of dividend to Israeli resident individuals from income attributed
to a Preferred Enterprise income or a Technological Preferred Enterprise income will be generally subject to a withholding tax rate of
20%. An individual whose taxable income during a tax year is in excess of NIS810,720, will be liable for an additional 2% on the portion
that is in excess of NIS810,720. From January 1, 2017 taxpayers having taxable income of NIS640,000 will be subject to an additional tax
payment at the rate of 2% (and commencing from January 1, 2017 – an additional tax payment at the rate of 3%) on the portion of
their taxable income for such tax year that is in excess such threshold. For this purpose, taxable income includes taxable capital gains
from the sale of our shares and taxable income from dividend distributions.
Dividends paid from income derived from Preferred Enterprises are
subject to withholding at the rate of 20%. Any dividends distributed to foreign companies, as defined in the Investment law, derived from
income from the Technological Preferred Enterprise will be subject to tax at a rate of 4%, provided the foreign company holds over 90%
of the outstanding shareholding.
Dividends paid on our ordinary shares to Israeli companies are exempt from such tax,
except for dividends distributed from income derived outside of Israel, which are subject to the corporate tax rate.
Taxation of non-Israeli shareholders on receipt of dividends
.
Non-residents of Israel are subject to income tax on income accrued or derived from
sources in Israel, including dividends paid by Israeli companies. On distributions of dividends other than stock dividends, income tax
(generally collected by means of withholding) will generally apply at the rate of 25%, or 30% for a shareholder that is considered a significant
shareholder (as defined above) at any time during the 12-month period preceding such distribution, unless a different rate is provided
in a treaty between Israel and the shareholder’s country of residence. Dividends paid from income derived from Approved or Benefited
Enterprises are subject to withholding at the rate of 20%, or 4% for Benefited Enterprises in the Ireland Track. Under the U.S.-Israel
Tax Treaty, the maximum tax on dividends paid to a holder of ordinary shares who qualifies as a resident of the United States within the
meaning of the U.S.-Israel Tax Treaty is 25%. The treaty provides for reduced tax rates on dividends if (a) the shareholder is a U.S.
corporation holding at least 10% of our issued voting power during the part of the tax year that precedes the date of payment of the dividend
and held such minimal percentage during the whole of its prior tax year, and (b) not more than 25% of the Israeli company’s gross
income consists of interest or dividends, other than dividends or interest received from subsidiary corporations or corporations 50% or
more of the outstanding voting shares of which is owned by the Israeli company. The reduced treaty rate, if applicable, is 15% in the
case of dividends paid from income derived from Approved, Benefited or Preferred Enterprise or 12.5% otherwise and subject that the non-Israeli
shareholder would provide to prior to the divided distribution a certificate from the Israeli Tax Authority for the reduce tax rates under
the tax treaty with their country of residence and additional conditions must be met A distribution of dividend to non-Israeli resident
from income attributed to a Preferred Enterprise will be generally subject to withholding tax rates of 20%, subject to a reduced rate
under the provisions of any applicable double tax treaty.
A non-resident of Israel who receives dividends from which full tax was withheld is
generally exempt from the duty to file returns in Israel in respect of such income, provided such income was not derived from a business
conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.
Capital Gains Taxes Applicable to Non-Israeli Resident Shareholders.
Israeli law generally imposes a capital gains tax on the sale of securities and any
other capital asset. But, generally non-Israeli residents are exempt from Israeli capital gains tax on any gains derived from the
sale of shares of Israeli companies publicly traded on a recognized stock exchange or regulated market outside of Israel, provided that
the shares were purchased after January 1, 2009, capital gain does not belong to the foreign resident’s permanent establishment
in Israel, the security was not acquired by the foreign resident from a relative and the shares are not listed on Israeli stock exchange
upon the sale of the shares. After the company’s shares had been listed for trading on a foreign Exchange capital gain does not
belong to the foreign resident’s permanent establishment in Israel, the shares had to be acquired after the listing of the shares
of the company on a stock exchange outside of Israel, and the provisions of section 101 of the Ordinance, the provisions of the Adjustments
Law and provisions under section 130A of the Ordinance do not apply to the capital gain, non-Israeli corporations will not be entitled
to such exemption if an Israeli resident (i) has a controlling interest of more than 25% in such non-Israeli corporation, or (ii) is the
beneficiary or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
In some instances where our shareholders may be liable to Israeli tax on the sale of
their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at the source.
72
|
|
F. |
DIVIDENDS AND PAYING AGENTS
|
Not applicable.
|
|
G. |
STATEMENT BY EXPERTS
|
Not applicable.
|
|
H. |
DOCUMENTS ON DISPLAY
|
We are subject to certain
information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will file reports
with the SEC. The SEC maintains an Internet website that contains reports and other information regarding issuers that file electronically
with the SEC. Our filings with the SEC are also available to the public through the SEC’s website at 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 will be 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, quarterly 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.
However, we will file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by the SEC,
an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm, and may submit
to the SEC, on a Form 6-K, unaudited interim financial information.
We maintain a corporate
website at http://www.ituran.com. Information contained on, or that can be accessed through, our website and the other websites referenced
above do not constitute a part of this annual report on Form 20-F. We have included these website addresses in this annual report on Form
20-F solely as inactive textual references.
|
|
I. |
SUBSIDIARY INFORMATION
|
Not applicable.
|
|
J. |
ANNUAL REPORT TO SECURITY HOLDERS
|
Not applicable.
|
ITEM 11
.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The principal market risks to which we are exposed as a result of our operations are
foreign exchange rate risks and interest rate risks.
Foreign exchange rate risk
Although we report our consolidated financial statements in dollars, in 2021 2022
and 2023 , a portion of our revenues and direct expenses was derived in other currencies. For fiscal years ,2021 and 2022 and 2023, we
derived approximately 24.3% ,24.8% and 25.3% of our revenues in dollars and other currencies, 52.0% 51.6% and 48.3%, in NIS, 21.4% , 23.6%
and 26.4% in Brazilian Reals. In fiscal years, 2021 , 2022 and 2023 , 30.9% , 28.1% and 27.0% of our expenses were incurred in dollars
and other currencies, 52.3%, 53.4% and 51.2% in NIS and 16.8% , 18.5% and 21.8% in Brazilian Reals.
Exchange differences upon conversion from our functional currency to dollars (presentation
currency) are accumulated as a separate component of accumulated other comprehensive income (loss) under stockholders’ equity. In
the year 2023 a profit of $0.8 million, in the year 2022 a loss of $4.6 Million.
73
The fluctuation of the other currencies in which we incur our expenses or generate revenues
against the dollar has had the effect of increasing or decreasing (as applicable) reported revenues, cost of revenues and operating expenses
in such foreign currencies when converted into dollars from period to period. The following table illustrates the effect of the changes
in exchange rates on our revenues, gross profit and operating income for the periods indicated:
|
|
Year Ended December 31,
|
|||||||||||||||||||||||
|
|
2021
|
2022
|
2023
|
|||||||||||||||||||||
|
|
Actual
|
At 2020
exchange rates (1) |
Actual
|
At 2021
exchange rates (1) |
Actual
|
At 2022
exchange rates (1) |
||||||||||||||||||
|
|
(In US$ thousands)
|
|||||||||||||||||||||||
|
Revenues
|
270,884
|
264,507
|
293,072
|
296,752
|
234,541
|
329,420 | ||||||||||||||||||
|
Gross profit
|
126,482
|
123,734
|
137,562
|
139,120
|
153,161
|
158,291
|
||||||||||||||||||
|
Operating income
|
54,615
|
53,595
|
58,774
|
59,218
|
65,955
|
67,422
|
||||||||||||||||||
(1)
Based on average exchange
rates during the period.
Those columns are Non GAAP information.
Our policy remains to reduce exposure
to exchange rate fluctuations by entering into foreign currency forward transactions that mainly qualify as hedging transactions under
ASC Topic 815,
“Derivatives and Hedging”
the results of which are reflected
in our income statements as revenues or cost of revenues. Currently, the item most likely to be affected by the foreign currency risk
is our inventory purchase price. Therefore, from time to time, we enter into such forward contracts, generally of 3 to 20 months’
duration in order to hedge a portion of our foreign currency risk on the inventory purchase price. The result of these transactions, which
are affected by fluctuations in exchange rates, could cause our cost of revenues, gross profit and operating income to fluctuate.
Interest rate risk
We invest our cash balances in each country in local currency in bank deposits and therefore,
we are exposed to interest rate fluctuation in those currencies, but we do not believe such risks to be material. We do not use derivative
financial instruments to limit exposure to interest rate risk.
|
ITEM 12.
|
DESCRIPTIONS OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Not applicable.
PART II
|
ITEM 13.
|
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|
Not applicable
| ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|
None
|
ITEM15.
|
CONTROLS AND PROCEDURES
|
(A) Disclosure Controls and Procedures
Our co-chief executive officers and chief financial officer, after evaluating the effectiveness
of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of December 31,
2023 have concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information required to
be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including
our co-chief executive officers and chief financial officer, to allow timely decisions regarding required disclosure and is recorded,
processed, summarized and reported within the periods specified by the SEC’s rules and forms.
74
(B) Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is designed to provide
reasonable assurance to our management and the board of directors regarding the reliability of financial reporting and the preparation
and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurances
with respect to financial statement preparation and presentation. 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 decline.
Our management assessed the effectiveness of our internal control over financial reporting,
as of December 31, 2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013 Framework).
Based on such assessment, our management has concluded that, as of December 31,
2023, our internal control over financial reporting is effective.
Fahn Kanne Co. Grant Thornton Israel,
our independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting,
as of December 31, 2023 and such report is included elsewhere in this Form 20 -F.
(C)
Attestation Report of the Registered Public
Accounting Firm.
75
|
|
|
Fahn Kanne Co.
|
|
|
|
Head Office
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
32 Hamasger Street
|
|
|
|
Tel-Aviv 6721118,
|
|
Board of Directors and Stockholders
|
|
ISRAEL
|
|
|
|
PO Box 36172, 6136101
|
|
ITURAN LOCATION AND CONTROL LTD.
|
|
|
|
|
|
T +972 3 7106666
|
|
|
|
F +972 3 7106660
|
|
|
|
www.gtfk.co.il
|
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Ituran Location and
Control Ltd. and Subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in the 2013
Internal
Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2023, based on criteria established in the 2013
Internal Control—Integrated Framework
issued
by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended
December 31, 2023, and our report dated April 18, 2024, expressed an unqualified opinion on those financial statements.
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 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/ FAHN KANNE CO. GRANT THORNTON ISRAEL
Certified Public Accountants (Isr.)
Tel-Aviv, Israel
April 18, 2024
76
(D) Change in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting during
the year ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
|
ITEM16.
|
[RESERVED]
|
|
ITEM16A.
|
AUDIT COMMITTEE FINANCIAL EXPERT
|
Our board of directors determined that Mr. Israel Baron, one of our independent directors,
is an “audit committee financial expert”, as defined by the applicable regulations promulgated under Section 407 of the Sarbanes-Oxley
Act. For information concerning the experience of Mr. Baron, please refer to Item 6.A – Directors and Senior Management, above.
|
ITEM16B.
|
CODE OF ETHICS
|
In 2005, we adopted a Code of Ethics that applies to our senior management, including
chief executive officer, chief financial officer, internal auditor and other individuals performing similar functions. Code of Business
Conduct and Ethics was revised on February 26, 2017 as part of our Internal Compliance Program. The amendments were imposing on our employee’s
stricter rules on compliance with Intellectual properties laws, compliance with Foreign Corrupt Practices Act, restrictions and rules
on posting information on Ituran on social media and online networking websites, adding additional disciplinary measures and providing
contact details of our compliance officer. The Code of Business Conduct and Ethics has been posted on our website at www.ituran.com.
|
ITEM16C.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
Fahn Kanne Co. Grant Thornton Israel (“Grant Thornton”), has served
as our independent auditors. On November 30, 2023 they have been re-elected by our shareholders to serve as our independent auditors for
the year 2024, until the next general meeting of the shareholders. The following table presents aggregate fees for professional audit
services and other services rendered by Grant Thornton, for 2023 and 2022:
|
|
2023
|
2022
|
||||||
|
|
(in thousands, USD)
|
|||||||
|
Audit Fees
(1)
|
596
|
581
|
||||||
|
Tax Fees
(2)
|
17
|
13
|
||||||
|
Total
|
613
|
594
|
||||||
|
|
(1) |
The audit fees for the years ended December 31, 2023 and 2022 respectively, were for professional services rendered for the audits
of our annual consolidated financial statements, review of consolidated quarterly financial statements and statutory audits.
|
|
|
(2) |
Consists of all tax related services.
|
Our audit committee has approved the above audit and non-audit services provided by
Grant Thornton, during the years 2023 and 2022.
|
ITEM 16D.
|
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
Not applicable.
77
| ITEM 16E. |
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|
On August 2, 2021, we renewed our purchase plan under Rule 10b-5 and Rule 10b-18
to purchase our shares for the year 2021 and purchased an additional 279,720 of our shares. During the year 2021, we purchased through
our only owned subsidiary under the Plan 228,725 shares and an additional 50,995 shares not through publicly announced plans. During the
year 2022 we purchased additional 357,362 of our shares. On February 28, 2023 we announced another purchase plan under Rule 10b-5 and
Rule 10b-18 to purchase our shares for another $10 million. During the year 2023 we purchased additional 282,644 of our shares.
|
Period
|
Total number of shares purchased
|
Average price paid per share
|
Total number of shares purchased as part of
publicly announced plans or programs
|
Maximum Approximate Value that May Yet to
Be Purchased Under the Program
|
|
March 2023
|
53,558
|
22.40
|
1,199,971
|
12,075,963
|
|
April 2023
|
48,118
|
21.66
|
1,117,933
|
10,958,030
|
|
May 2023
|
55,102
|
21.77
|
1,199,776
|
9,758,254
|
|
June 2023
|
49,418
|
24.28
|
1,199,977
|
8,558,277
|
|
July 2023
|
50,336
|
25.17
|
1,267,171
|
7,291,106
|
|
August 2023
|
22,612
|
27.78
|
628,260
|
6,662,846
|
|
Total 2023
|
282,644
|
6,613,088
|
6,662,846
|
|
ITEM 16F.
|
CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
|
Not applicable.
|
ITEM 16G.
|
CORPORATE GOVERNANCE
|
Under NASDAQ Marketplace Rule 5615(a)(3), foreign private issuers, such as our company,
are permitted to follow certain home country corporate governance practices instead of certain provisions of the Rule 5600 series and
the requirement to distribute annual and interim reports. A foreign private issuer that elects to follow a home country practice instead
of any of such provisions, must disclose in its annual reports each requirement that it does not follow, describe the home country practice
followed by the company in lieu of such requirements, satisfy the voting rights (Rule 5640) requirements, have an audit committee that
satisfies Rule 5605(c)(3), and ensure that such audit committee’s members meet the independence requirement in Rule 5605(c)(2)(A).
In reliance upon Rule 5615(a)(3), as a foreign private issuer, we have elected to follow our home country practices, absent home country
rules requiring otherwise, in lieu of certain Nasdaq Marketplace Rules. Specifically, in Israel, it is not required that a public company
have (i) a majority of independent board members or that independent directors have regularly scheduled meetings at which only independent
directors are present, or (iii) independent oversight of director nominations. As a result, we have elected to follow Israeli law regarding
the independence requirements of our board of directors. See “External directors” above. In addition, our board of directors
has not appointed a nominating committee and, instead, elects to follow Israeli law, which provides that a company may determine its method
of nominating its directors.
|
ITEM 16H.
|
MINE SAFETY DISCLOSURE
|
Not applicable.
|
ITEM 16I.
|
DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS
|
Not applicable.
78
|
ITEM 16J.
|
Insider Trading Policies
|
We have an insider trading policy and procedures governing the sale, and
other dispositions of our shares by directors, senior management and employees that is designated to promote compliance with applicable
insider trading laws, rules and regulations and any listing standards applicable to us. The Policy is attached hereto as Exhibit 19.
|
ITEM 16K.
|
Cybersecurity
|
Risk management and Strategy
|
|
1. |
Cybersecurity risk management is an integral part of our overall enterprise risk management program. We face certain cybersecurity
risks due to: (1) the substantial level of harm that could occur to us, our customers and business partners in case we suffer impacts
of a material cybersecurity incident; (2) the networks and systems we must defend against cybersecurity attacks; (3) the use of our systems,
products and processes and (4) our use of third-party products and services.
|
|
|
2. |
We are committed to maintaining robust governance and oversight of these risks and to implement mechanisms, controls, technologies,
and processes designed to help us assess, identify, and manage these risks.
|
|
|
3. |
We have not experienced a cybersecurity threat or incident that resulted in or is reasonably likely to result in a material adverse
impact to our business or operations. With that, there can be no guarantee that we will not experience such an incident in the future.
Such incidents, whether successful or not, could result in our incurring significant costs related to, for example, rebuilding our internal
systems, implementing additional threat protection measures, providing modifications or replacements to our products and services, defending
against litigation, responding to regulatory inquiries or actions, paying damages or taking other remedial steps with respect to third
parties, as well as incurring significant reputational harm.
|
|
|
4. |
In addition, these threats are constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing
adequate preventative measures. We have seen a worldwide increase in cyberattack volume, frequency, and sophistication and we constantly
expand our cybersecurity budget in accordance with such increase We constantly seek to detect and investigate unauthorized attempts and
attacks against our network, products, and services, and to prevent their occurrence and recurrence where practicable through changes
or updates to our internal processes and tools and changes or updates to our products and services. however, we remain potentially vulnerable
to known or unknown threats. In some instances, we, our suppliers and customers can be unaware of a threat or incident or effects.
|
Governance
|
|
5. |
Further, there is increasing regulation regarding responses to cybersecurity incidents, including reporting to regulators, which
could subject us to additional liability and reputational harm.
|
|
|
6. |
We aim to incorporate industry best practices throughout our cybersecurity program. Our cybersecurity strategy focuses on implementing
effective and efficient controls, technologies, and other processes to assess, identify, and manage material cybersecurity risks. Our
cybersecurity program is designed to be aligned with applicable industry standards and is assessed annually by independent third-party
auditors. We have processes in place to assess, identify, manage, and address material cybersecurity threats and incidents. These include,
among other things: ongoing security awareness training for employees; mechanisms to detect and monitor unusual network activity and containment
and incident response tools.
|
79
|
|
7. |
We are actively seeking benchmarking and awareness of best practices. We monitor issues that are internally discovered or externally
reported that may affect our products and have processes to assess those issues for potential cybersecurity impact or risk. We also have
a process in place to manage cybersecurity risks associated with third-party service providers. We impose security requirements upon our
suppliers and intends to broaden such security requirements globally in the near future, including,
inter
alia
: maintaining an effective security management program; abiding by information handling and asset management requirements;
and notifying us in the event of any known or suspected cyber incident.
|
|
|
8. |
Our Board of Directors has oversight of cybersecurity risk, which it manages as part of our enterprise risk management program. That
program is utilized in making decisions with respect to company priorities, resource allocations, and oversight structures. The Board
of Directors is assisted by the Audit Committee, which reviews our cybersecurity program with management and reports to the Board of Directors,
and also assisted by the Company’s Vice Presidents of Information Technology (VPIT), Chief Information Security Officers (CISO’s),
Data Protection Officer (DPO) and Ituran IT Director International. Cybersecurity reviews by the Audit Committee or the Board of Directors
generally occur at least once annually, or more frequently as determined to be necessary or advisable.
|
|
|
9. |
Our cybersecurity program is run by our CISO’s, who reports to our VPIT’s. Our CISO’s is informed about and monitors
prevention, detection, mitigation, and remediation efforts through regular communication and reporting from professionals in the information
security team, many of whom hold cybersecurity certifications such as a Certified Information Systems Security Professional or Certified
Information Security Manager and using technological tools and software and results from third party audits. Our CISO’s and VPIT’s
have extensive experience assessing and managing cybersecurity programs and cybersecurity risk. Our CISO’s and VPIT’s regularly
report directly to the Audit Committee or the Board of Directors on our cybersecurity program and efforts to prevent, detect, mitigate,
and remediate issues. In addition, we have an escalation process in place to inform senior management and the Board of Directors of material
issues.
|
PART III
ITEM 17.
FINANCIAL STATEMENTS
See “Item 18—Financial Statements.”
ITEM 18.
FINANCIAL STATEMENTS
The consolidated financial statements and the related notes required by this Item are included in this
annual report on Form 20-F beginning on page F-1.
80
ITEM 19.
EXHIBITS
|
|
Description of Document
|
|
|
|
81
| 97.1. | Policy Relating to Recovery of Erroneously Awarded Compensation. |
| 19. | Insider Trading Policy. |
|
|
(1) |
Filed as an exhibit to the Registrant’s Registration Statement on Form F-1 (File No. 333-128028) filed on September 23, 2005
and incorporated herein by reference.
2
|
|
|
(2) |
Filed as an exhibit to the annual report on Form 20-F for the year ended December 31, 2007 and incorporated herein by reference.
|
|
|
(3) |
Filed as an exhibit to the annual report on Form 20-F for the year ended December 31, 2010 and incorporated herein by reference.
|
|
|
(4) |
The current lessee under this agreement is the Registrant.
|
|
|
(5) |
Filed as an exhibit to Form 13G of Yehuda Kahane for the year ended December 31, 2014, filed on February 17, 2015, and incorporated
herein by reference.
|
|
|
(6) |
Filed as an exhibit to the annual report on Form 20-F for the year ended December 31, 2013 and incorporated herein by reference.
|
|
|
(7) |
Filed as an exhibit to the annual report on Form 20-F for the year ended December 31, 2016 and incorporated herein by reference.
|
*
Certain
portions of this exhibit have been omitted pursuant to an order granting confidential treatment by the United States Securities and Exchange
Commission. The omitted non-public information has been filed with the United States Securities and Exchange Commission
** Previously filed
*** Certain portions of this exhibit have been omitted.
82
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.
ITURAN LOCATION AND CONTROL LTD.
(Registrant)
|
By: /s/ Eyal Sheratzky
|
/s/ Nir Sheratzky
|
||
|
Eyal Sheratzky
|
Nir Sheratzky
|
||
|
Co-Chief Executive Officers
|
Dated: April 18, 2024
83
ITURAN LOCATION AND CONTROL LTD.
Consolidated Financial Statements
as of December 31, 2023
ITURAN LOCATION AND CONTROL LTD.
Consolidated Financial Statements
as of December 31, 2023
Table of Contents
|
Page
|
|
|
Report of Independent Registered Public Accounting Firm
(PCAOB ID
|
F-2
|
|
Consolidated Financial Statements
:
|
|
|
F-4
|
|
|
F-6
|
|
|
F-7
|
|
|
F-8
|
|
|
F-9
|
|
|
F-11
|
=======================
=============
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
ITURAN LOCATION AND CONTROL LTD.
|
Fahn Kanne Co.
Head Office
32 Hamasger Street
Tel-Aviv 6721118, ISRAEL
PO Box 36172, 6136101
T +972 3 7106666
F +972 3 7106660
www.gtfk.co.il
|
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Ituran Location and Control Ltd. and subsidiaries (the “Company”) as of December 31, 2023, and 2022, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 April 18, 2024, 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 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 provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a 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) relates to accounts or disclosures that are material to the consolidated 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 consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F - 2
Critical Audit Matter (cont.)
Goodwill and intangible assets impairment analysis
As described further in Note 1N, Note 8 and Note 9 to the consolidated financial statement, the Company’s consolidated goodwill and intangible assets balances were US$ 10,830 and US$ 39,400 thousand, respectively, as of December 31, 2023. As disclosed by management, goodwill is assigned to reporting units and tested for impairment at least annually, and whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. Management determines the fair value of its reporting units using the income approach. Within the income approach, the method that was used is the discounted cash flow method with respect to the goodwill impairment analysis. Management started with a forecast of all the expected net cash flows associated with the reporting units, which includes the application of a terminal value, and then applied a discount rate to arrive at a net present value amount. Cash flow projections are based on management’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. With respect to the intangible asset's impairment analysis, management measures the recoverability of such assets to be held and used by a comparison of the carrying amount of the asset to the future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.
We identified the goodwill and intangible assets impairment analysis as a critical audit matter. The principal considerations for our determination that performing procedures relating to the goodwill and intangible assets impairment analysis is a critical audit matter are due to the significant judgment by management when determining the fair value measurement of the reporting units and the intangible assets. This in turn led to a high degree of auditor judgment, effort and subjectivity in performing procedures and evaluating management’s fair value estimate, which included significant assumptions related to revenue growth rates, expected cash flows, discount rate and terminal growth rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Our audit procedures related to this matter included the following, among others. We tested management’s process for determining the fair value estimate, which included evaluating the appropriateness of the discounted cash flow model; testing the completeness, accuracy and relevance of underlying data used in the model; and evaluating the reasonableness of significant assumptions used by management, including revenue growth rates, discount rate and terminal growth rate with respect to goodwill and future revenues and discount rate with respect to other intangible assets. Evaluating management’s assumptions related to revenue growth rates and terminal growth rate involved evaluating whether the assumptions used by management were reasonable considering (1) the current and past performance of the reporting units, (2) the consistency with external market and industry data, and (3) the consistency of the assumptions used with evidence obtained in other areas of the audit. We also used professionals with specialized skill and knowledge to assist in the evaluation of management’s discounted cash flow model, and certain significant assumptions, including the discount rate.
Certified Public Accountants (Isr.)
We have served as the Company’s auditor since 1997.
April 18, 2024
F - 3
ITURAN LOCATION AND CONTROL LTD.
CONSOLIDATED BALANCE SHEETS
|
US dollars
|
||||||||
|
December 31,
|
||||||||
|
(in thousands)
|
2023
|
2022
|
||||||
|
Current assets
|
||||||||
|
Cash and cash equivalents
|
|
|
||||||
|
Investment in marketable securities
|
|
|
||||||
|
Accounts receivable (net of allowance for doubtful accounts)
|
|
|
||||||
|
Other current assets (Note 2)
|
|
|
||||||
|
Inventories (Note 3)
|
|
|
||||||
|
|
|
|||||||
|
Long-term investments and other assets
|
||||||||
|
Investments in affiliated companies (Note 4A)
|
|
|
||||||
|
Investments in other companies (Note 4B)
|
|
|
||||||
|
Other non-current assets (Note 5)
|
|
|
||||||
|
Deferred income taxes (Note 15)
|
|
|
||||||
|
Funds in respect of employee rights upon retirement
|
|
|
||||||
|
|
|
|||||||
|
|
||||||||
|
Property and equipment, net
(Note 6)
|
|
|
||||||
|
Operating lease right of use assets, net
(Note 7)
|
|
|
||||||
|
Intangible assets, net
(Note 8)
|
|
|
||||||
|
Goodwill
(Note 9
)
|
|
|
||||||
|
Total assets
|
|
|
||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 4
ITURAN LOCATION AND CONTROL LTD.
CONSOLIDATED BALANCE SHEETS
|
US dollars
|
||||||||
|
December 31,
|
||||||||
|
(in thousands, except share data)
|
2023
|
2022
|
||||||
|
Current liabilities
|
||||||||
|
Credit from banking institutions (Note 10A)
|
|
|
||||||
|
Accounts payable
|
|
|
||||||
|
Deferred revenues
|
|
|
||||||
|
Other current liabilities (Note 11)
|
|
|
||||||
|
|
|
|||||||
|
Long-term liabilities
|
||||||||
|
Deferred income taxes (Note 15)
|
|
|
||||||
|
Loan from bank institution (Note 10B)
|
|
|
||||||
|
Liability for employee rights upon retirement
|
|
|
||||||
|
Deferred revenues
|
|
|
||||||
|
Operating lease liabilities, non-current (Note 7)
|
|
|
||||||
|
Other non-current liabilities
|
|
|
||||||
|
|
|
|||||||
|
Commitments and contingent liabilities
(Note 12
)
|
|
|
||||||
|
Equity:
|
||||||||
|
Stockholders’ equity
(Note 13)
|
||||||||
|
Share capital – ordinary shares of NIS
|
|
|
||||||
|
Authorized – December 31, 2023 and 2022 –
|
||||||||
|
Issued and outstanding – December 31, 2023 and 2022 –
|
||||||||
|
Additional paid- in capital
|
|
|
||||||
|
Accumulated other comprehensive loss
|
(
|
)
|
(
|
)
|
||||
|
Retained earnings
|
|
|
||||||
|
Treasury stock at cost – December 31, 2023 –
|
(
|
)
|
(
|
)
|
||||
|
Stockholders’ equity
|
|
|
||||||
|
Non-controlling interests
|
|
|
||||||
|
Total equity
|
|
|
||||||
|
Total liabilities and equity
|
|
|
||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 5
ITURAN LOCATION AND CONTROL LTD.
CONSOLIDATED STATEMENTS OF INCOME
|
US dollars
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
(in thousands except earnings per share)
|
2023
|
2022
|
2021
|
|||||||||
|
Revenues:
|
||||||||||||
|
Telematics services
|
|
|
|
|||||||||
|
Telematics products
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Cost of revenues:
|
||||||||||||
|
Telematics services
|
|
|
|
|||||||||
|
Telematics products
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Gross profit
|
|
|
|
|||||||||
|
Research and development expenses
|
|
|
|
|||||||||
|
Selling and marketing expenses
|
|
|
|
|||||||||
|
General and administrative expenses
|
|
|
|
|||||||||
|
Other expenses (income), net (Note 8)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Operating income
|
|
|
|
|||||||||
|
Other income (expenses), net
|
|
|
(
|
)
|
||||||||
|
Financing expenses, net (Note 14)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Income before income tax
|
|
|
|
|||||||||
|
Income tax expenses (Note 15)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Share in losses of affiliated companies, net (Note 4A)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net income for the year
|
|
|
|
|||||||||
|
Less: Net income attributable to non-controlling interest
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net income attributable to the Company
|
|
|
|
|||||||||
|
Basic and diluted earnings per share attributable to Company’s stockholders (Note 16)
|
|
|
|
|||||||||
|
Basic and diluted weighted average number of shares outstanding
|
|
|
|
|||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
ITURAN LOCATION AND CONTROL LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(loss)
|
US dollars
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
(in thousands)
|
2023
|
2022
|
2021
|
|||||||||
|
Net income for the year
|
|
|
|
|||||||||
|
Other comprehensive income (loss), net of tax:
|
||||||||||||
|
Unrealized losses in respect of derivative financial instruments designated for cash flow hedge
|
(
|
)
|
|
|
||||||||
|
Foreign currency translation adjustments
|
|
(
|
)
|
(
|
)
|
|||||||
|
Other comprehensive income (loss), net of tax
|
|
(
|
)
|
(
|
)
|
|||||||
|
Comprehensive income
|
|
|
|
|||||||||
|
Less: comprehensive income attributable to non-controlling interests
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Comprehensive income attributable to the Company
|
|
|
|
|||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
ITURAN LOCATION AND CONTROL LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
(in thousands)
|
||||||||||||||||||||||||||||||||
|
COMPANY STOCKHOLDERS
|
||||||||||||||||||||||||||||||||
|
Ordinary shares
|
||||||||||||||||||||||||||||||||
|
Number
of shares |
Share capital amount
|
Additional paid - in capital
|
Accumulated other comprehensive loss
|
Retained earnings
|
Treasury
stock |
Non-controlling interests
|
Total
|
|||||||||||||||||||||||||
|
US dollars (except for number of shares)
|
||||||||||||||||||||||||||||||||
|
Balance as of January 1, 2021
|
|
|
|
(
|
)
|
|
(
|
)
|
|
|
||||||||||||||||||||||
|
Changes during 2021:
|
||||||||||||||||||||||||||||||||
|
Net income
|
-
|
-
|
-
|
-
|
|
-
|
|
|
||||||||||||||||||||||||
|
Other comprehensive income (loss)
|
-
|
-
|
-
|
(
|
)
|
-
|
-
|
|
(
|
)
|
||||||||||||||||||||||
|
Dividend paid to non-controlling interests
|
-
|
-
|
-
|
-
|
-
|
-
|
(
|
)
|
(
|
)
|
||||||||||||||||||||||
|
Dividend paid
|
-
|
-
|
-
|
-
|
(
|
)
|
-
|
-
|
(
|
)
|
||||||||||||||||||||||
|
Dividend declared
|
-
|
-
|
-
|
-
|
(
|
)
|
-
|
-
|
(
|
)
|
||||||||||||||||||||||
|
Purchase of treasury shares (*)
|
-
|
-
|
(
|
)
|
(
|
)
|
||||||||||||||||||||||||||
|
Stock-based compensation in a subsidiary company
|
-
|
-
|
|
-
|
-
|
-
|
-
|
|
||||||||||||||||||||||||
|
Balance as of December 31, 2021
|
|
|
|
(
|
)
|
|
(
|
)
|
|
|
||||||||||||||||||||||
|
Changes during 2022:
|
||||||||||||||||||||||||||||||||
|
Net income
|
-
|
-
|
-
|
-
|
|
-
|
|
|
||||||||||||||||||||||||
|
Other comprehensive loss
|
-
|
-
|
-
|
(
|
)
|
-
|
-
|
(
|
)
|
(
|
)
|
|||||||||||||||||||||
|
Dividend paid
|
-
|
-
|
-
|
-
|
(
|
)
|
-
|
-
|
(
|
)
|
||||||||||||||||||||||
|
Dividend declared
|
-
|
-
|
-
|
-
|
(
|
)
|
-
|
-
|
(
|
)
|
||||||||||||||||||||||
|
Purchase of treasury shares (*)
|
-
|
-
|
-
|
-
|
-
|
(
|
)
|
-
|
(
|
)
|
||||||||||||||||||||||
|
Stock-based compensation in a subsidiary company
|
-
|
-
|
|
-
|
-
|
-
|
-
|
|
||||||||||||||||||||||||
|
Balance as of December 31, 2022
|
|
|
|
(
|
)
|
|
(
|
)
|
|
|
||||||||||||||||||||||
|
Changes during 2023:
|
||||||||||||||||||||||||||||||||
|
Net income
|
-
|
-
|
-
|
-
|
|
-
|
|
|
||||||||||||||||||||||||
|
Other comprehensive income (loss)
|
-
|
-
|
-
|
|
-
|
-
|
(
|
)
|
|
|||||||||||||||||||||||
|
Dividend paid to non-controlling interests
|
-
|
-
|
-
|
-
|
-
|
-
|
(
|
)
|
(
|
)
|
||||||||||||||||||||||
|
Dividend paid
|
-
|
-
|
-
|
-
|
(
|
)
|
-
|
-
|
(
|
)
|
||||||||||||||||||||||
|
Dividend declared
|
-
|
-
|
-
|
-
|
(
|
)
|
-
|
-
|
(
|
)
|
||||||||||||||||||||||
|
Purchase of treasury shares (*)
|
-
|
-
|
-
|
-
|
-
|
(
|
)
|
-
|
(
|
)
|
||||||||||||||||||||||
|
Stock-based compensation in a subsidiary company
|
-
|
-
|
|
-
|
-
|
-
|
-
|
|
||||||||||||||||||||||||
|
Balance as of December 31, 2023
|
|
|
|
(
|
)
|
|
(
|
)
|
|
|
||||||||||||||||||||||
(*) See Note 13A6.
The accompanying notes are an integral part of the
consolidated
financial statements.
F - 8
ITURAN LOCATION AND CONTROL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
US dollars
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
(in thousands)
|
2023
|
2022
|
2021
|
|||||||||
|
Cash flows from operating activities
|
||||||||||||
|
Net income for the year
|
|
|
|
|||||||||
|
Adjustments to reconcile net income to net cash from operating activities:
|
||||||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
|
Interest and exchange rate on long term credit
|
|
|
(
|
)
|
||||||||
|
Loss in respect of trading marketable securities and other investments
|
|
|
|
|||||||||
|
Increase in liability for employee rights upon retirement
|
|
|
|
|||||||||
|
Share in losses of affiliated companies, net
|
|
|
|
|||||||||
|
Deferred income taxes
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Capital loss (gain) on sale of property and equipment, net
|
|
(
|
)
|
(
|
)
|
|||||||
|
Increase in accounts receivable
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Decrease (increase) in other current and non-current assets
|
(
|
)
|
(
|
)
|
|
|||||||
|
Decrease (Increase) in inventories
|
|
(
|
)
|
(
|
)
|
|||||||
|
Increase (decrease) in accounts payable
|
(
|
)
|
|
|
||||||||
|
Increase in deferred revenues
|
|
|
|
|||||||||
|
Increase in obligation to purchase non-controlling interests
|
|
|
|
|||||||||
|
Increase (decrease) in other current and non-current liabilities
|
|
(
|
)
|
|
||||||||
|
Net cash provided by operating activities
|
|
|
|
|||||||||
|
Cash flows from investment activities
|
||||||||||||
|
Increase in funds in respect of employee rights upon retirement,
net of withdrawals |
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Capital expenditures
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Investment in affiliated company
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Investment in marketable securities
|
|
(
|
)
|
|
||||||||
|
Investments in (repayment of) long - term deposit
|
(
|
)
|
|
(
|
)
|
|||||||
|
Investments in other companies, net
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceeds from sale of property and equipment
|
|
|
|
|||||||||
|
Sale of marketable securities
|
|
|
|
|||||||||
|
Net cash used in investment activities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Cash flows from financing activities
|
||||||||||||
|
Repayment of long-term loan
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Settlement of obligation to purchase non-controlling interests
|
|
|
(
|
)
|
||||||||
|
Short term credit from banking institutions
|
|
|
|
|||||||||
|
Acquisition of company shares
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Dividend paid
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Dividend paid to non-controlling interests
|
(
|
)
|
|
(
|
)
|
|||||||
|
Net cash used in financing activities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net change in cash and cash equivalents
|
|
(
|
)
|
(
|
)
|
|||||||
|
Balance of cash and cash equivalents at beginning of year
|
|
|
|
|||||||||
|
Balance of cash and cash equivalents at end of year
|
|
|
|
|||||||||
Supplementary information on investing and financing activities not involving cash flows:
In November 2023, the Company declared a dividend in an amount of US$
5
million. The dividend was paid in January 2024.
The accompanying notes are an integral part of the
consolidated
financial statements.
F - 9
ITURAN LOCATION AND CONTROL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)
Supplementary disclosure of cash flow information
|
US dollars
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
(in thousands)
|
2023
|
2022
|
2021
|
|||||||||
|
Interest paid
|
|
|
|
|||||||||
|
Income taxes paid, net of refunds
|
|
|
|
|||||||||
The accompanying notes are an integral part of the
consolidated
financial statements.
F - 10
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| NOTE 1 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| A. |
General
|
| 1. |
Operations
|
|
Ituran Location and Control Ltd. (the “Company”) commenced operations in 1994. The Company and its subsidiaries (the “Company”) are engaged in the provision of Location based Telematics services and machine-to-machine Telematics products for use in stolen vehicle recovery, fleet management and other applications.
On September 13, 2018, the Company closed the acquisition of
On September 22, 2021 the Company purchased the remaining
|
| 2. |
Functional currency and translation to the reporting currency
The functional currency of the Company and its subsidiaries located in Israel (except those that are held through the subsidiary “Road track”) is the New Israeli Shekel (“NIS”), which is the local currency in which those entities operate. The functional currency of the foreign subsidiaries located in Brazil, Mexico and Colombia is the local currency in each country and the functional currency of the rest of the subsidiaries (including Argentinian subsidiaries that operates in highly inflationary economy) is the US Dollar. Regarding the Argentinian subsidiaries see below.
The consolidated financial statements of the Company and all of its subsidiaries were translated into U.S. dollars in accordance with the standards of the Financial Accounting Standards Board ("FASB"). Accordingly, assets and liabilities were translated from local currencies to U.S. dollars using yearend exchange rates, and income and expense items were translated at average exchange rates during the year.
Gains or losses resulting from translation adjustments (which result from translating an entity’s financial statements into U.S. dollars if its functional currency is different than the U.S. dollar) are reported in other comprehensive income and are reflected in equity, under “accumulated other comprehensive income (loss)”. Translation gains and losses resulting from changes in exchange rates used in the translation of intercompany balances that are long term investment nature (i.e. which their settlement is not planned or anticipated) are also included in other comprehensive income (loss).
When an economy in which a foreign entity of the Company operates, becomes highly inflationary environment (an economy with a cumulative inflation rate of approximately 100% or more over a three-year period, such as the Company's subsidiaries in Argentina), the financial statements of that foreign entity are remeasured as if its functional currency is the reporting currency of its parent.
Balances denominated in, or linked to foreign currency are stated on the basis of the exchange rates prevailing at the balance sheet date. For foreign currency transactions included in the statement of income, the exchange rates applicable on the relevant transaction dates are used. Transaction gains or losses arising from changes in the exchange rates used in the translation of such balances are carried to financing income or expenses as applicable.
|
F - 11
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 1 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| A. |
General (cont.)
|
| 2. |
Functional currency and translation to the reporting currency (cont.)
|
|
The following table presents data regarding the dollar exchange rate of relevant currencies and the Israeli CPI: |
|
Exchange rate
of one US dollar
|
Israeli CPI
(*)
|
||||||||
|
NIS
|
Brazilian
Real
|
||||||||
|
At December 31
,
|
|||||||||
|
2023
|
|
|
|
||||||
|
2022
|
|
|
|
||||||
|
2021
|
|
|
|
||||||
|
Increase (decrease) during the year:
|
|||||||||
|
2023
|
|
(
|
|
||||||
|
2022
|
|
(
|
|
||||||
|
2021
|
(
|
|
|
||||||
| (*) |
|
| 3. |
Basis of presentation
The consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
|
| 4. |
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from the estimates.
As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to legal contingencies, valuation of goodwill and other intangible assets and revenue recognition and related deferred expenses (contract costs).
|
| 5. |
Iron Swords War
In October 2023, the Israeli government declared a state of war in response to an attack on civilians at its southern border. Subsequently, additional attacks were launched towards northern Israel. The new security situation has led to several challenges, including some disruptions in supply chains, a shortage of personnel due to mobilization for reserve duty, and fluctuations in foreign currency exchange rates relative to the Israeli shekel.
Regional tensions involving Houthis attacks on commercial ships have recently intensified, affecting shipping operation at the Red Sea. This could lead to delays in shipments as well as increased shipping costs.
The Company has taken measures to ensure the safety of its employees and business partners, as well as the communities in which it operates, in order to minimize any potential impact on its business, including avoidance of disruption to operation in its facilities in Israel.
As of today, the security situation in recent months had a non-material impact on the Company’s business results. However, since the developments related to the war situation, as well as its duration, are unpredictable, the Company has no ability to estimate the extent of the war’s potential impact on its future business and results. The Company continuously monitors the developments and will take all necessary actions to minimize any negative consequences to its operations and assets.
|
F - 12
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 1 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| B. |
Principles of consolidation
|
The consolidated financial statements include the accounts of the Company and all of its subsidiaries. In these financial statements, the term “subsidiary” refers to a company over which the Company exerts control and the financial statements of which are consolidated with those of the Company. Significant intercompany transactions and balances are eliminated upon consolidation; profits from intercompany sales, not yet realized outside of the Company, are also eliminated. Non-controlling interests are presented in equity.
Changes in the Company ownership interest in a subsidiary while the control is retained are accounted for as equity transactions and accordingly no gain or loss is recognized in consolidated net income or comprehensive income. Upon such transaction, the carrying amount of the non-controlling interest is adjusted to reflect the change in its ownership interest in the subsidiary and any difference between the fair value of the consideration received or paid and the amount by which the non-controlling interest was adjusted is recognized in additional paid-in capital.
| C. |
Cash and cash equivalents
|
The Company considers all highly liquid investments, which include short-term bank deposits that are not restricted as to withdrawal or use, and short-term debentures, with original periods to maturity not exceeding three months, to be cash equivalents.
| D. |
Marketable securities
|
The Company account for its investments in marketable debt securities in accordance with ASC Topic 320-10, which is applicable to Debt Securities only, while equity securities are accounted for in accordance with ASC Topic 321-10,
"Investments - Equity Securities"
(“ASC Topic 321-10”).
According to ASC Topic 321-10, equity securities with readily determinable fair value are measured upon initial recognition and in subsequent periods at fair value with gains and losses reported periodically in earnings as financing income or expenses.
The investments in debt and equity securities that were held by the Company during the reported periods and were subject to the provisions of ASC Topic 320-10 were designated by management as trading securities. The security was acquired with intent to sell it in the near future.
Changes in fair value measurement of debt and equity securities for the years 2023, 2022 and 2021 amounted to loss of approximately US$ (
89
), US$ (
3,860
) and US$ (
2,387
) thousand, respectively.
| E. |
Treasury stock
|
Company shares held by the Company and a wholly owned subsidiary are presented as a reduction of equity, at their cost, under the caption “Treasury Stock”. Gains and losses upon sale of these shares, net of related income taxes, are recorded as additional paid in capital.
F - 13
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 1 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| F. |
Allowance for doubtful accounts
|
The allowance for doubtful accounts is determined with respect to amounts the Company has determined to be doubtful of collection, in order to reflect the expected credit losses on accounts receivable balances. Judgment is required in the estimation of the allowance for doubtful accounts and the Company evaluates the collectability of its accounts receivable based on a combination of factors including , among other things, the past experience with customers, the length of time that the balance is past due using an aging schedule, the customer's current ability to pay and their the creditworthiness using all available information about the credit risk on such customers taking into consideration the current business environment. If it becomes aware of a customer’s inability to meet its financial obligations, a specific allowance is recorded to reduce the net receivable to the amount reasonably believed to be collectible from such customer.
Accounts receivables are written off against the allowance for uncollectible accounts when the Company determines amounts are no longer collectible.
See also Note 19A.
The allowance in respect of accounts receivable at December 31, 2023 and 2022 was US$
5,171
and US$
4,946
thousand, respectively
| G. |
Inventories
|
Inventories are stated at the lower of cost or net realizable value. Cost of raw materials and finished products is mainly determined on the basis of first-in, first-out (FIFO). Other method which is utilized for determining the value of inventories is the moving average. The Company regularly reviews its inventories for obsolescence and other impairment risks and reserves are established when necessary.
| H. |
Investment in affiliated companies
|
Investments in companies in which the Company has significant influence but less than controlling interests, are accounted for by the equity method. Income on intercompany sales, not yet realized outside of the Company, is eliminated. The Company also reviews these investments for impairment whenever events indicate the carrying amount may not be recoverable.
In accordance with ASC Topic 323-10-40-1, a change in the Company’s proportionate share of an investee’s equity, resulting from issuance of shares by the investee to third parties, is accounted for as if the Company had sold a proportionate share of its investment. Any gain or loss resulting from an investee’s share issuance is recognized in earnings.
Management evaluates investments in affiliated companies, for evidence of other-than-temporary declines in value. Such evaluation is dependent on the specific facts and circumstances and includes analysis of relevant financial information (e.g., budgets, business plans, financial statements, etc.). During 2023, 2022 and 2021, no impairment was identified with respect to such affiliated companies.
Investments in companies in which the Company no longer has significant influence, are classified as "investments in other companies". See I below.
F - 14
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 1 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| I. |
Investment in other companies
|
Equity investments without readily determinable fair values are measured at cost, less impairment, and plus or minus subsequent adjustments for observable price changes. Periodic changes in the basis of these equity investments are reported in current earnings. In addition, at each reporting period a qualitative assessment is performed to identify impairment. When a qualitative assessment indicates an impairment exists, the Company estimates the fair value of the investment and recognize in current earnings an impairment loss equal to the difference between the fair value and the carrying amount of the equity investment.
| J. |
Derivatives
|
The Company applies the provisions of ASC Topic 815, "Derivatives and Hedging". In accordance with ASC Topic 815, all the derivative financial instruments are recognized as either assets or liabilities on the balance sheet at fair value. The accounting for changes in the fair value of a derivative financial instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For derivative financial instruments that are designated and qualify as hedging instruments for accounting purposes, 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.
From time to time the Company carries out transactions involving foreign exchange derivative financial instruments mainly (forward exchange contracts) which are mostly designed to hedge the cash flows expected to be paid with respect to forecasted monthly purchases of inventory, denominated in currencies other than the functional currency of the Company. Such transactions were designated as hedging instruments on the date that the Company entered into such derivative contracts and were determined to qualify as cash flow hedges under ASC Topic 815.
The entire changes in fair value of the derivative instruments designated for hedging purposes that were determined as qualifying for hedging purposes (including the ineffective components of the hedging relationship) are reported as other comprehensive income (loss), net of tax under the caption "unrealized gains (losses) in respect of derivative financial instruments designated for cash flow hedge" and are reclassified to the statements of income when the hedged transaction realizes.
For all other derivative financial instruments that are not designated or qualify as hedging instruments for accounting purposes, the changes in fair value are recognized periodically in profit or loss, as incurred.
See also Note 19B for further information regarding the hedging activities of the Company.
F - 15
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 1 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| K. |
Property and equipment
|
| 1. |
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated on the straight-line method over the shorter of the estimated useful life of the property or the duration of the lease.
|
| 2. |
Rates of depreciation:
|
|
%
|
|||
|
Operating equipment (mainly
|
|
||
|
Office furniture, equipment and computers
|
|
||
|
Buildings
|
|
||
|
Vehicles
|
|
||
|
Leasehold improvements
|
is less or equal to useful life. |
| L. |
Impairment of long-lived assets
|
The Company’s long-lived assets (including finite-lived intangible assets) are reviewed for impairment, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value (see also Note 1N).
| M. |
Income taxes
|
The Company accounts for income taxes in accordance with ASC Topic 740-10,
"Income Taxes"
. According to this guidance, deferred income taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and the tax bases of assets and liabilities under the applicable tax law. Deferred tax balances are computed using the tax rates expected to be in effect at the time when these differences reverse. Valuation allowances in respect of the deferred tax assets are provided for if, based upon the weight of available evidence, it is more likely than not that all or a portion of the deferred income tax assets will not be realized. Deferred tax balances are presented as non-current amounts.
US GAAP provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is "more-likely-than-not" to be sustained were to be challenged by a taxing authority. The assessment of a tax position is based solely on the technical merits of the position, without regard the likelihood that the tax position may be challenged. If an uncertain tax position meets the "more-likely-than-not" threshold, the largest amount of tax benefit that is greater than 50% likely to be recognized upon ultimate settlement with the taxing authority is recorded.
The Company recognizes interest as interest expenses (among financing expenses) and penalties, if any, related to unrecognized tax benefits in its provision for income tax.
F - 16
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 1 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| N. |
Goodwill and intangible assets
|
| 1. |
Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in business combinations accounted for in accordance with the "purchase method" and is allocated to reporting units at acquisition. Goodwill is not amortized but rather tested for impairment at least annually in accordance with the provisions of ASC Topic 350, "Intangibles - Goodwill and Other". Commencing fiscal 2021, the annual goodwill assessment as of December 31, each year.
|
As required by ASC Topic 350, the Company chooses either to perform a qualitative assessment whether the quantitative goodwill impairment test is necessary or proceeds directly to the quantitative goodwill impairment test. Such determination is made for each reporting unit on a stand-alone basis. The qualitative assessment includes various factors such as macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, earnings multiples, gross margin and cash flows from operating activities and other relevant factors. When the Company chooses to perform a qualitative assessment and determines that it is more likely than not (more than 50 percent likelihood) that the fair value of the reporting unit is less than its carrying value, then the Company proceeds to the quantitative goodwill impairment test. If the Company determines otherwise, no further evaluation is necessary.
When the Company decides or is required to perform the quantitative goodwill impairment test, the Company compares the fair value of the reporting unit to its carrying value and an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. In the performance of the quantitative analysis the Company applies assumptions that market participants would consider in determining the fair value of each reporting unit.
As of December 31, 2023, 2022 and 2021, the Company had four reporting units which include goodwill.
Telematics services:
Under the telematics services segment there are two reporting units with goodwill. For one of which with an allocated amount of approximately US$
1.7
million of goodwill, the Company performed a qualitative assessment as of December 31, 2023 and 2022, and concluded that the qualitative assessment did not result in a more likely than not indication of impairment, and therefore no further impairment testing was required, with respect to such unit.
For the second reporting unit (resulted from RT acquisition) with an allocated amount of approximately US$
32.3
million of goodwill (as of December 31, 2023), the Company performed the annual impairment test, as of December 31, 2023 using a qualitative assessment and reached to a conclusion that no impairment should be recorded at that point. The impairment test was performed using the income approach.
F - 17
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 1 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| N. |
Goodwill and intangible assets (cont.)
|
| 1. |
(cont.)
|
Telematics products:
Under the telematics products segment there are two reporting units with goodwill, for one of which with an allocated amount of approximately US$
2.0
million of goodwill, the Company performed a qualitative assessment as of December 31, 2023 and 2022, and concluded that the qualitative assessment did not result in a more likely than not indication of impairment, and therefore no further impairment testing was required, with respect to such unit.
For the second reporting unit (resulted from RT acquisition) with an allocated amount of approximately US$
3.5
million of goodwill (as of December 31, 2023), the Company performed the annual impairment test, as of December 31, 2023, using a qualitative assessment and reached to a conclusion that no impairment should be recorded at that point. The impairment test was perform using the income approach.
| 2. |
Intangible assets with finite live are amortized using the straight-line basis over their useful lives, to reflect the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up.
|
As of December 31, 2023, the intangible assets are amortized as follows:
|
|
Years
|
||
|
Technology services
|
|
||
| Other |
|
During 2023 and 2022, the Company did not record any impairment.
Recoverability of intangible assets is measured as described in Note 1L above.
| O. |
Contingencies
|
The Company and its subsidiaries are involved in certain legal proceedings that arise from time to time in the ordinary course of their business and in connection with certain agreements with third parties. Except for income tax contingencies, the Company records accruals for contingencies to the extent that the management concludes that the occurrence is probable and that the related liabilities are estimable. Legal expenses associated with contingencies are expensed as incurred.
F - 18
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 1 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| P. |
Funds in respect of, and liability for employee rights upon retirement
|
The Company's liability for employee rights upon retirement with respect to its Israeli employees is calculated, pursuant to Israeli severance pay law, based on the most recent salary of each employee multiplied by the number of years of employment, as of the balance sheet date. Employees are entitled to one month's salary for each year of employment, or a portion thereof. The Company makes monthly deposits to insurance policies and severance pay funds. The liability of the Company is fully provided for. The Company also has defined contribution plans for which it makes contributions to severance pay funds and appropriate insurance policies
The deposited funds include profits or losses accumulated up to the balance sheet date. The deposited funds may be withdrawn upon the fulfillment of the obligation pursuant to Israeli severance pay laws or labor agreements. The value of the deposited funds is based on the cash surrender value of these policies, and includes profits or losses. Withdrawal of the reserve monies is contingent upon the fulfillment of detailed provision in the Law.
The liability for employee rights upon retirement in respect of the employees of the non-Israeli subsidiaries of the Company, is calculated on the basis of the labor laws of the country in which the subsidiary is located and is covered by an appropriate accrual.
Severance payments for the abovementioned policies for the years ended December 31, 2023, 2022 and 2021, amounted to US$
2,218
, US$
2,115
and US$
1,910
thousand, respectively.
| Q. |
Revenue recognition |
|
The Company and its subsidiaries generate revenue from subscriber fees for the provision of services and sales of systems and products, mainly in respect of fleet management services, stolen vehicle recovery services and other value-added services. To a lesser extent, revenues are also derived from technical support services. The Company and its subsidiaries sell the systems primarily through their direct sales force and indirectly through resellers.
The Company applies ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).
In accordance with ASC 606, the Company determines revenue recognition through the following five steps:
| 1. |
Identification of the contract, or contracts, with a customer;
|
| 2. |
Identification of the performance obligations in the contract;
|
| 3. |
Determination of the transaction price;
|
| 4. |
Allocation of the transaction price to the performance obligations in the contract; and
|
| 5. |
Recognition of revenue when, or as, the Company satisfies a performance obligation.
|
A contract with a customer exists when all of the following criteria are met: the parties to the contract have approved it (in writing, orally, or in accordance with other customary business practices) and are committed to perform their respective obligations, the Company can identify each party’s rights regarding the distinct goods or services to be transferred (“performance obligations”), the Company can determine the transaction price for the goods or services to be transferred, the contract has commercial substance and it is probable that the Company will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.
For each type of contract, at inception, the Company assesses the goods or service promised in a contract with a customer and identifies the performance obligations. With respect to contracts that are determined to have multiple performance obligations, such as contracts that combine product with services (mostly SVR services) and/or rights to use assets, the Company allocates the contract’s transaction price to each performance obligation using its best estimate of the relative standalone selling price of each distinct good or service in the contract. However, when applicable (see below), the company estimates the selling prices of certain services using the residual approach.
F - 19
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 1 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| Q. |
Revenue recognition (cont.)
|
Revenues are recognized when, or as, control of services or products is transferred to the customers at a point in time or over time, as applicable to each performance obligation.
Revenues are recorded in the amount of consideration to which the Company expects to be entitled in exchange for performance obligations upon transfer of control to the customer, excluding amounts collected on behalf of other third parties and sales taxes.
The Company does not adjust the amount of consideration for the effects of a significant financing component since the Company expects, at most contracts' inception, that the period between the time of transfer of the promised goods or services to the customer and the time the customer pays for these goods or services to be generally one year or less, based on the practical expedient. The Company’s credit terms to customers are, on average, between thirty and ninety days.
In accordance with ASC 606, the Company’s revenues are recognized as follows:
| 1. |
Revenues from sales of Automatic Vehicle Location ("AVL") products are recognized when the control of the product passed to the customer (usually upon delivery).
|
| 2. |
Revenues from provision of SVR services are recognized over time, as the customers simultaneously receive and consume the benefits provided by the Company performance as the Company performs.
|
| 3. |
For arrangements that involve the delivery or performance of multiple products (mostly, AVL products), services (such as SVR services) and/or rights to use assets, the Company analyzes whether the goods or services that were promised to the customer are distinct. A good or service promised to a customer is considered ‘distinct’ if both of the following criteria are met: 1. The customer can benefit from the good or service, either on its own or together with other resources that are readily available to the customer; and, 2. The Company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. When the above criteria are met, the revenue recognition for the related products and/or services are recognized as described in 1 and 2 above, as applicable.
|
With respect to arrangement that are determined to have multiple performance obligations that are distinct, the Company allocates the contract’s transaction price to each performance obligation using the relative standalone selling price of each distinct good or service in the contract. However, in certain circumstances, the company estimates the selling prices of the SVR services (which are sold together with AVL products) using the residual approach. Under the residual approach, the standalone selling price of the SVR services is estimated by reference to the total transaction price less the sum of the observable standalone selling prices of all other goods or services promised in the contract. Such approach is used since the Company sells the same type of service in those jurisdictions to different customers (at or near the same time) for a broad range of amounts (thus, the stand-alone selling price is highly variable).
Revenues from SVR services subscription fees and from installation services (related to AVL products that remain as the company property), sold to customers within a single contractually binding arrangement were accounted for revenue recognition purposes, as a single performance obligation, since the installation services element was determined not to be ‘distinct’. Accordingly, the entire contract fee for the two deliverables was recognized over time, on a straight-line basis over the subscription period.
F - 20
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 1 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| Q. |
Revenue recognition (cont.)
|
| 4. |
Amounts earned by certain Brazilian subsidiary for arranging a bundle transaction of SVR services subscription and installation services together with insurance services to be supplied by a third party insurance company, are recognized ratably on a straight-line basis over the subscription period (see 2 above), since the amount allocated to the Company (for the SVR services subscription, installation services and for arranging the transaction), is contingent upon the delivery of the SVR services. As the insurance company is acting as a principal with respect to the insurance component, the Company recognized only the net amounts as revenues, after deduction of amounts related to the insurance component.
|
| 5. |
Deferred revenues include unearned amounts received from customers (mostly for the provision of installation, future subscription services and extended warranty) but not yet recognized as revenues. Such deferred revenues are recognized as described in paragraph 2 above or paragraph 6 below, as applicable. For the year ended December 31, 2023, the Company recognized revenue of approximately US$
|
| 6. |
Extended warranty - In the majority of countries, in which the Company operates, the statutory warranty period is one year, and the extended warranty covers periods beyond year one. Revenues from extended warranty include warranty services which were sold separately for a monthly fee, or warranty services that were determined to represent a separate performance obligation and were sold together with an AVL unit. Such revenues are recognized over the duration of the warranty periods.
|
| 7. |
Payment terms – The vast majority of the company's payment terms are between 30 to 90 days.
|
| R. |
Warranty costs
|
The Company provides a standard warranty for its products to end-users at no extra charge. The Company estimates the costs that may be incurred under its warranty obligation and records a liability at the time the related revenues are recognized.
Among the factors affecting the warranty liability are the number of installed units and historical percentages of warranty claims. The Company periodically assesses the adequacy of the recorded warranty liability and adjusts the amount to the extent necessary. To date, warranty costs and the related liabilities related to the standard warranty period have not been material.
| S. |
Research and development costs
|
| 1. |
Research and development costs (other than computer software related expenses) are expensed as incurred.
|
| 2. |
Software Development Costs
|
All research and development costs incurred in the process of software development before establishment of technological feasibility are charged to expenses as incurred. Costs incurred subsequent to the establishment of technological feasibility are capitalized according to the principles set forth in ASC Topic 985-20, “Costs of Software to be Sold, Leased or Marketed”.
Capitalized software costs are amortized on a product-by-product basis by the straight-line method over the estimated useful life of the software product (
3
-
5
years).
The Company assesses the recoverability of these intangible assets on a regular basis by assessing the net realizable value of such intangible assets based on the estimated future gross revenues from each product net of the estimated future costs of completing and disposing of that product (including the estimated costs of performing maintenance and customer support over the remaining economical useful life), cost of completion of products and cost of delivery to customers over its remaining economical useful life. During each of the years ended December 31, 2023 and 2022, no such unrecoverable amounts were identified.
F - 21
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 1 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| T. |
Advertising costs
|
Advertising costs are expensed as incurred.
Advertising expenses for the years ended December 31, 2023, 2022 and 2021 amounted to US$
7.3
million, US$
7.3
million and US$
8.0
million, respectively. Advertising expenses are presented among "selling and marketing expenses".
| U. |
Earnings per share
|
Basic earnings per share are computed by dividing net income attributable to the common shares, by the weighted average number of shares outstanding during the year, net of the weighted average number of treasury stock.
In computing diluted earnings per share, basic earnings per share are adjusted to reflect the effect of any potential dilutive ordinary shares. During the reporting periods there were no such potential shares.
| V. |
Fair value measurements
|
The Company measures fair value and discloses fair value measurements for financial and non-financial assets and liabilities. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
As such, fair value is a market-based measurement that is required to be determined based on the assumptions that market participants would use to determine the price of an asset or a liability.
As a basis for considering such assumptions, fair value accounting standard establishes the following fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3 - Unobservable inputs are used when little or no market data is available. Level 3 inputs are considered as the lowest priority under the fair value hierarchy.
In determining fair value, companies are required to utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as to consider counterparty credit risk in the assessment of fair value.
Regarding the fair value measurements of financial assets and liabilities and the fair value hierarchy of such measurements, see also Note 19C.
The Company also measures certain non-financial assets, consisting mainly of certain reporting units (as part of goodwill impairment test) and intangible assets at fair value on a nonrecurring basis. These assets are adjusted to fair value when they are considered to be impaired (see 1N and 1L above).
F - 22
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 1 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| W. |
Contract costs and prepaid expenses
|
Direct installation expenses by certain Brazilian subsidiary were determined not to represent a separate performance obligation for revenue recognition purposes in accordance with the principles of ASC 606, as they were determined not to be considered ‘distinct’ (see Note 1Q above). The Company has determined that such installation expenses, and certain other commission and other direct expenses incurred by the company's subsidiaries, relate directly to obtaining or fulfilling contract with a specific subscriber, they generate or enhance the Company resources and are expected to be recovered.
An amount of US$
8.9
million was amortized in 2023.
In accordance with ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers, such costs are capitalized and presented as "contract costs" within the balances "Other current assets" and "Other non-current assets", as applicable.
|
The contract costs are amortized over the estimated life of the related subscription arrangements by the straight-line method. Costs that do not meet the aforementioned criteria, are recognized immediately as expenses.
|
|
Prepaid expenses, consist mainly of amounts paid by certain Brazilian subsidiary to insurance companies as a prepaid insurance on behalf of its customers as part of bundle transactions of SVR services together with insurance services to be supplied by a third-party insurance company. Under such transactions, the customers are required accordingly to pay to the Brazilian subsidiary a monthly fee for all the bundled services (see Note 1Q regarding the revenue recognition of such bundle transactions). The insurance companies are obligated to refund any unearned insurance amounts to the Brazilian subsidiary in the event of termination of the transaction by the customers. The prepaid expenses are amortized over the contractual life of the insurance service with the insurance company (usually 12 months) by the straight-line method. The amortization is netted against the monthly receipts from customers for the bundled services.
|
| X. |
Stock-based compensation
|
The Company accounts for stock-based compensation to employees and non-employees in accordance with ASC 718, "
Compensation - Stock Compensation
", ("ASC 718"). The fair value of the award, is recognized in the Company's consolidated statement of income as an expense over the requisite service periods. However, when a grant includes a performance condition (that is not considered as 'market condition'), the compensation cost is recognized if and when it is probable that the condition will be achieved. During the reported periods there were no significant grants of equity-based payment awards.
The Company measures and recognizes compensation expense for cash bonuses to senior employees, which are based, or partly based, on the price of the Company’s shares in accordance with ASC 718 -30, "Compensation-Stock Compensation - Awards Classified as Liabilities" (See Note 17C regarding "Excess Return Cash Incentives").
The awards are measured at the grant date at their fair value and remeasured at the end of each reporting period through settlement, with changes in the fair value recognized as compensation cost over the requisite service period. Compensation cost for awards that are subject to market conditions are be attributed separately for each vesting tranche of the award (generally calendar year).
F - 23
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 1 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| Y. |
Obligation to purchase non-controlling interests
|
An obligation to acquire shares of a subsidiary held by Non-controlling interests at a stated future date, represented liability under ASC Topic 480. Upon initial recognition such liability was measured at fair value in accordance with ASC Topic 480-10-30-3 at the amount of cash that would be paid under the conditions specified in the contract if the shares were repurchased immediately and in subsequent periods at the amount of cash that would be paid under the conditions specified in the contract if settlement occurred at the reporting date with any change in value from the previous reporting date recognized as interest cost. In addition, the Non-controlling interests subject to such obligation were not recognized and no earnings were allocated to them.
On September 22, 2021, the Company settled the obligation to purchase the remaining
18.7
% of the shares of Ituran Spain Holdings for cash in the amount of $
11.3
million. As a result, the balance of the obligation to purchase non-controlling interests was derecognized.
| Z. |
Leases
|
The Company entered into several non-cancelable lease agreements for real estate (mainly offices, warehouses and base sites), network equipment and vehicles for use in its operations, which are classified as operating leases.
The Company determines if an arrangement is a lease at inception.
A classification of a lease is determined based on the following criteria:
| 1. |
The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
|
| 2. |
The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
|
| 3. |
The lease term is for the major part of the remaining economic life of the underlying asset (Generally, 75% or more of the remaining economic life of the underlying assets).
|
| 4. |
The present value of the sum of the lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset (Generally, 90% or more of the fair value of the underlying asset).
|
| 5. |
The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.
|
If any of these five criteria is met, the lease is classified as a finance lease. Otherwise, the lease is classified as an operating lease.
With the exception of short-term leases, Operating leases are included at the commencement date as a lease liability, which represent the Company ‘s obligation to make lease payments arising from a lease, measured on a discounted basis. As the leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on information available on the commencement date in determining the present value of lease payments. Concurrently, the Company recognizes a right-of-use asset ("ROU") at the same amount of the liability, adjusted for any prepaid or accrued lease payments, plus initial direct costs incurred in respect of the lease which represents the Company’s right to use, or control the use of, a specified asset for the lease term. In subsequent periods the ROU asset is measured at the present value of the remaining lease payments, adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term and any unamortized initial direct costs. Further, the Company recognizes lease expenses on a straight-line basis over the lease term.
Lease liabilities are classified as current and non-current liabilities in the consolidated balance sheets. ROU assets are presented as non-current assets.
See also Note 7.
F - 24
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 1 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| AA. |
Recently issued accounting pronouncements
|
In October 2021, the FASB issued ASU 2021-08 “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for the fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. Adopting the new guidance in an interim period other than the first fiscal quarter requires an entity to apply the new guidance to all prior business combinations that have occurred since the beginning of the annual period in which the new guidance was adopted. The Company applied the provisions of ASU 2021-08 prospectively commencing January 1, 2023. However, the adoption did not have notable effect on the consolidated financial statements.
| AB. |
Recently issued accounting pronouncements, not yet adopted
|
ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure”
On November 27, 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure” (“ASU 2023-07”).
ASU 2023-07 is aimed to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In accordance with ASU 2023-07, public entities are required to disclose significant segment expenses by reportable segment if they are regularly provided to the CODM and included in each reported measure of segment profit or loss. Such disclosures are required on both an annual and an interim basis. In addition, the amendments in ASU 2023-07 enhance interim disclosure by requiring that all existing annual disclosures about segment profit or loss must be provided on an interim basis in addition to disclosure of significant segment expenses and other segment items. ASU 2023-07 also clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss,
ASU 2023-07 provides new segment disclosure requirements for entities with a single reportable segment and contain other disclosure requirements such as the CODM’s title and position is required on an annual basis, as well as an explanation of how the CODM uses the reported measure(s) and other disclosures.
ASU 2023-07 applies to all public entities that are required to report segment information in accordance with ASC 280.
ASU 2023-07 is effective in a retrospective manner, for fiscal years beginning after Dec. 15, 2023, and interim periods within fiscal years beginning after Dec. 15, 2024. Early adoption is permitted.
The company is still in the process of evaluating the impact of adoption of this standard.
F - 25
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| AB. |
Recently issued accounting pronouncements, not yet adopted (cont.)
|
Income Taxes (Topic 740): Improvements to Income Tax Disclosures
On December 14, the FASB issued ASC 2023-09— Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASC 2023-09”).
ASC 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09, Improvements to Income Tax Disclosures, applies to all entities subject to income taxes.
The amendments in ASU 2023-09 require that public business entities (PBE’s) on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. Specifically, PBE’s are required to disclose a tabular reconciliation, using both percentages and reporting currency amounts, according to specific categories. Separate disclosure is required for any reconciling item in which the effect of the item is equal to or greater than 5 percent of the amount computed by multiplying the income (or loss) from continuing operations before income taxes by the applicable statutory income tax rate.
Also, ASC 2023-09 require that all entities disclose on an annual basis, information about income taxes paid, including the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions. In addition, ASC 2023-09 require that all entities disclose information about income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and Income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign.
The amendments in ASC 2023-09 also eliminate certain current disclosure requirements.
For public business entities (PBEs), the new requirements will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted.
The company is still in the process of evaluating the impact of adoption of this standard.
| NOTE 2 | - | OTHER CURRENT ASSETS |
|
US dollars
|
||||||||
|
December 31,
|
||||||||
|
(in thousands)
|
2023
|
2022
|
||||||
|
Prepaid expenses (*)
|
|
|
||||||
|
Government institutions
|
|
|
||||||
|
Deferred contract costs (*)
|
|
|
||||||
|
Advances to suppliers
|
|
|
||||||
|
Employees
|
|
|
||||||
|
Others
|
|
|
||||||
|
|
|
|||||||
(*) See Note 1W
F - 26
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 3 | - | INVENTORIES |
|
US dollars
|
||||||||
|
December 31,
|
||||||||
|
(in thousands)
|
2023
|
2022
|
||||||
|
Finished products
|
|
|
||||||
|
Raw materials
|
|
|
||||||
|
|
|
|||||||
| NOTE 4 | - | INVESTMENTS IN AFFILIATED AND OTHER COMPANIES |
| A. |
Investment in affiliated companies
|
|
US dollars
|
||||||||
|
December 31,
|
||||||||
|
(in thousands)
|
2023
|
2022
|
||||||
|
Bringg
|
|
|
||||||
|
Lumax
|
|
|
||||||
|
Ituran MOB
|
|
|
||||||
|
Cellutrack
|
|
|
||||||
|
|
|
|||||||
| B. |
Investment in other companies
|
During the years 2022-2023, the Company made additional investments in two Israeli startups.
The total investments in such companies were US$
0.48
and US$
0.14
million during the years ended December 31, 2023 and 2022, respectively.
| NOTE 5 | - | OTHER NON-CURRENT ASSETS |
|
US dollars
|
||||||||
|
December 31,
|
||||||||
|
(in thousands)
|
2023
|
2022
|
||||||
|
Deferred contract costs (*)
|
|
|
||||||
|
Deposits
|
|
|
||||||
|
|
|
|||||||
| (*) |
See Note 1W.
|
F - 27
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 6 | - | PROPERTY AND EQUIPMENT, NET |
| A. |
Property and equipment, net consists of the following:
|
|
US dollars
|
||||||||
|
December 31,
|
||||||||
|
(in thousands)
|
2023
|
2022
|
||||||
|
Cost:
|
||||||||
|
Operating equipment (*)
|
|
|
||||||
|
Office furniture, equipment and computers
|
|
|
||||||
|
Land
|
|
|
||||||
|
Buildings
|
|
|
||||||
|
Vehicles
|
|
|
||||||
|
Leasehold improvements
|
|
|
||||||
|
|
|
|||||||
|
Less – accumulated depreciation (**)
|
(
|
)
|
(
|
)
|
||||
|
Total property and equipment, net
|
|
|
||||||
| (*) |
As of December 31, 2023 and 2022, an amount of US$
|
| (**) |
As of December 31, 2023 and 2022, an amount of US$
|
| B. |
During the years ended December 31, 2023, 2022 and 2021, depreciation expenses were US$
|
| NOTE 7 | - | LEASES |
The Company have entered into several non-cancelable operating lease agreements for real estate (mainly offices, warehouse and base stations), vehicles and certain network equipment. In addition to rent, the leases may require payment of maintenance, insurance and other operating expenses. The Company's leases have original lease periods expiring between 2024 and 2029. Payments due under such lease contracts include primarily fixed payments. The Company does not assume renewals in the determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement (or become as such in future date). The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
F - 28
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 7 | - | LEASES (cont.) |
The components of annual lease costs, lease term and discount rate are as follows:
|
|
US dollars
|
|||
|
|
Year Ended
|
|||
|
(in thousands)
|
December 31, 2023
|
|||
|
Operating annual lease cost:
|
||||
|
Office and warehouse space
|
|
|||
|
Base stations
|
|
|||
|
Vehicle
|
|
|||
|
Others
|
|
|||
|
|
|
|||
|
Weighted Average Remaining Lease Term (years):
|
||||
|
Office space
|
|
|||
|
Base stations
|
|
|||
|
Vehicle
|
|
|||
|
Others
|
|
|||
|
|
||||
|
Weighted Average Discount Rate (%):
|
||||
|
Office space
|
|
|||
|
Base stations
|
|
|||
|
vehicle
|
|
|||
|
Others
|
|
|||
Supplemental cash flow information related to operating leases was as follows:
|
|
US dollars
|
|||
|
|
Year Ended
|
|||
|
(in million)
|
December 31, 2023
|
|||
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|||
|
Operating cash flows from operating leases
|
||||
The following is a schedule, by years, of maturities of operating lease liabilities as of December 31, 2023:
|
|
US dollars
|
|||
|
(in thousands)
|
December 31, 2023
|
|||
|
|
||||
|
Period:
|
||||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
Thereafter
|
|
|||
|
Total operating lease payments
|
|
|||
|
Less: imputed interest
|
(
|
)
|
||
|
Present value of lease liabilities
|
|
|||
F - 29
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 8 | - | INTANGIBLE ASSETS, NET |
|
US dollars
|
||||||||||||||||||||||||
|
December 31,
|
Year ended December 31,
|
December 31,
|
||||||||||||||||||||||
|
2021
|
2022
|
2022
|
||||||||||||||||||||||
|
(in thousands)
|
Opening balance
|
Impairment
|
Amortization (*)
|
Additions
|
Translation differences
|
Closing balance
|
||||||||||||||||||
|
Costumer relationship
|
|
|
(
|
)
|
|
|
|
|||||||||||||||||
|
Technology
|
|
|
(
|
)
|
|
(
|
)
|
|
||||||||||||||||
|
Others
|
|
|
(
|
)
|
|
|
|
|||||||||||||||||
|
|
|
(
|
)
|
|
(
|
)
|
|
|||||||||||||||||
|
US dollars
|
||||||||||||||||||||||||
|
December 31,
|
Year ended December 31,
|
December 31,
|
||||||||||||||||||||||
|
2022
|
2023
|
2023
|
||||||||||||||||||||||
|
(in thousands)
|
Opening balance
|
Impairment
|
Amortization (*)
|
Additions
|
Translation differences
|
Closing balance
|
||||||||||||||||||
|
Costumer relationship
|
|
|
(
|
)
|
|
|
|
|||||||||||||||||
|
Technology
|
|
|
(
|
)
|
|
(
|
)
|
|
||||||||||||||||
|
Others
|
|
|
(
|
)
|
|
|
|
|||||||||||||||||
|
|
|
(
|
)
|
|
(
|
)
|
|
|||||||||||||||||
During the years 2021-2023, the impairment analysis of intangible assets did not result in any impairment charge.
| (*) |
As of December 31, 2023, the estimated aggregate amortization of intangible assets for the next five years is as follows: 2024- US$
|
F - 30
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 9 | - | GOODWILL |
The changes in the carrying amount of goodwill for the years ended December 31, 2023 and 2022 are as follows:
|
US dollars
|
||||||||||||
|
Telematics
services
|
Telematics products
|
Total
|
||||||||||
|
(in thousands)
|
||||||||||||
|
Balance as of January 1, 2022
|
|
|
|
|||||||||
|
Changes during 2022:
|
||||||||||||
|
Translation differences
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Balance as of December 31, 2022 (*)
|
|
|
|
|||||||||
|
Changes during 2023:
|
||||||||||||
|
Translation differences
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Balance as of December 31, 2023 (*)
|
|
|
|
|||||||||
| (*) |
The accumulated amount of goodwill impairment loss as of December 31, 2023, and 2022 was US$
|
The Company has historically performed an annual goodwill assessment as of June 30 of each year or more often if indicators of impairment are presented. following the second closing of the RT acquisition (which was completed on September 22, 2021), the Company decided to change the date of its annual impairment assessment from June 30 to December 31.
The Company performed annual assessments as of December 31, 2023, 2022 and 2021, and reached a conclusion that no impairment should be recorded at such dates.
| NOTE 10 | - | CREDIT FROM BANKING INSTITUTIONS |
| A. |
Short term loans:
|
|
US dollars
|
||||||||
|
December 31,
|
||||||||
|
(in thousands)
|
2023
|
2022
|
||||||
|
Short-term loans - linked to the Mexican Pezo
|
|
|
||||||
|
Current maturities of long-term loan and credit line utilized (Note 10B)
|
|
|
||||||
|
|
|
|||||||
F - 31
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 10 | - | CREDIT FROM BANKING INSTITUTIONS (cont.) |
| B. |
Long term loan:
|
In August 2018, the Company signed on Loan Agreement (the “Loan agreement”) with commercial Israeli bank (the “Bank”) under which the Company has received an amount of approximately
296
million NIS (US$
81.7
million) (the “Loan”) from the bank for a period of
5
-years that bears an annual interest rate of prime rate (as of December 31, 2023, the prime rate was
6.25
%) +
0.53
%. In December 2018 and March 2021, the Company early repaid the bank amounts of approximately
30
and
20
million NIS respectively (US$
8.0
and US$
6.0
million, respectively).
According to the loan agreement the Company was obligated to comply with the following covenants (the “Loan Covenants”):
| • |
Equity to total assets Ratio - The Ratio will not be less than
|
| • |
Total equity - Total equity will not be less than $
|
| • |
Net debt to EBITDA Ratio - The Ratio will not exceed 4.
|
| • |
EBITDA - EBITDA will not be less than $
|
The company is required to maintain such covenants on a quarterly basis
Upon noncompliance with any of the abovementioned covenants, the bank shall have the right to demand immediate repayment of the remaining balance of the loan.
During 2021, 2022 and 2023 and as of December 31, 2022, and 2021, the Company was in compliance with the Loan Covenants.
During 2023 the company repaid the remaining balance of the loan.
| C. |
Maturity dates:
|
|
US dollars
|
||||
|
December 31,
|
||||
|
(in thousands)
|
2023
|
|||
|
First year
|
|
|||
|
Second year
|
|
|||
|
|
||||
| D. | Lines of credit: |
Unutilized short-term lines of credit of the Company as of December 31, 2023, aggregated to US$
1.5
million.
| NOTE 11 | - | OTHER CURRENT LIABILITIES |
|
Composition:
|
||||||||
| US dollars | ||||||||
|
December 31,
|
||||||||
|
(in thousands)
|
2023
|
2022
|
||||||
|
Accrued expenses
|
|
|
||||||
|
Accrued payroll and related taxes
|
|
|
||||||
|
Government institutions
|
|
|
||||||
|
Accrued dividend
|
|
|
||||||
|
Operating lease liabilities, current
|
|
|
||||||
|
Others
|
|
|
||||||
|
|
|
|||||||
F - 32
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 12 | - | CONTINGENT LIABILITIES |
| A. |
Claims
|
| 1. |
During year 2016 Brazilian Federal Communication Agency – Anatel issued a tax assessment for FUST contribution (contribution on telecommunication services) levied on the monitoring services rendered by us and additional tax assessment for FUNTELL contribution (contribution to Fund for the Technological Development of Telecommunication) levied on the monitoring services rendered by us regarding all for the period 2007-2012.Total amounts of approximately R$
|
| 2. |
Claims are filed against the Company and its subsidiaries from time to time during the ordinary course of business, usually with respect to civil, labor and commercial matters. The Company's management believes, based on its legal counsels' assessment, that the provision for contingencies recognized in the balance sheet is sufficient and that currently there are no claims (other than those described in this Note above) that are material, to the consolidated financial statements as a whole.
|
| B. |
The Company was declared a monopoly under the Israeli Antitrust Law, 1988, in the market for the provision of systems for the location of vehicles in Israel. Under Israeli law, a monopoly is prohibited from taking certain actions, such as predatory pricing and the provision of loyalty discounts, which prohibitions do not apply to other companies. The Israeli Competition Authority may further declare that the Company has abused its position in the market. Any such declaration in any suit in which it is claimed that the Company engages in anticompetitive conduct may serve as
prima facie
evidence that the Company is either a monopoly or that it has engaged in anticompetitive behavior. Furthermore, it may be ordered to take or refrain from taking certain actions, such as setting maximum prices, in order to protect against unfair competition.
|
| C. |
Commitments
|
As of December 31, 2023, minimum future rentals under operating leases of buildings, vehicles and base station sites for periods were as follows: 2024 – US$
3.5
million, 2025 – US$
2.1
million, 2026 US$
1.4
million, and hereafter– US$
2.6
million.
The leasing fees expensed in each of the years ended December 31, 2023, 2022 and 2021, were US$
3.4
million, US$
3.3
million and US$
2.7
million, respectively.
F - 33
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 13 | - | STOCKHOLDERS’ EQUITY |
| A. |
Share capital:
|
| 1. |
Composition:
|
|
December 31, 2023 and 2022
|
Registered
|
Issued and outstanding
|
||||||
|
Ordinary shares of NIS
|
|
|
||||||
| 2. |
In September 2005, the Company registered its ordinary shares for trade in the United States.
|
| 3. |
The Ordinary shares of the Company confer upon their holders the right to receive notice to participate and vote in general meetings of the Company and the right to receive dividends, if and when, declared.
|
| 4. |
On July 21, 2021, the board of directors approved to continue the share buyback program that was approved on May 21, 2019 (total amount that was approved on May 21, 2019, was
|
During 2021, a Company's fully owned subsidiary had repurchased a total of
228,725
shares amounting to approximately $
6.0
million.
During 2021, the Company repurchased a total of
50,995
shares amounting to approximately $
1.3
million.
During 2022, a Company's fully owned subsidiary had repurchased a total of
146,589
shares amounting to approximately $
3.4
million.
During 2022, the Company repurchased a total of
210,773
shares amounting to approximately $
5.0
million.
During 2023, the Company repurchased a total of
282,644
shares amounting to approximately $
6.6
million.
As of December 31, 2023, an amount of
3,581,851
ordinary shares representing
15.26
% of the share capital of the Company is held by the Company and its' fully owned subsidiary as treasury shares. (
3,299,207
shares as of December 31, 2022).
| 5. |
Treasury stock have no voting rights.
|
F - 34
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 13 | - | STOCKHOLDERS’ EQUITY (cont.) |
| B. |
Retained earnings
|
| 1. |
In determining the amount of retained earnings available for distribution as a dividend, the Israeli Companies Law stipulates that the cost of the Company’s shares acquired either by the Company or its subsidiary (presented as a separate item in the consolidated balance sheet and the statement of changes in equity) must be deducted from the amount of retained earnings.
|
| 2. |
Dividends are declared and paid in NIS. Dividends paid to stockholders outside Israel are converted into dollars on the basis of the exchange rate prevailing at the date of declaration.
|
| 3. |
During May 2020 (As part of the steps the Company did in order to cope with Covid-19), the Company's board of directors unanimously approved a freeze on the dividend distribution policy until further notice.
|
| 4. |
On March 3, 2021, the board of directors unanimously approved the unfreeze of the dividend policy and approved the distribution of a cash dividend in the amount of $
|
| 5. |
On March 3, 2021, the board of directors also approved a dividend policy of $
|
| 6. |
In November 2023 our Board decided to resume to a $
|
| 7. |
In February 2024 the board of directors approved the increase of quarterly dividend to $
|
| 8. |
During the years ended December 31, 2023, 2022 and 2021, the Company declared dividends in the amount of US$
|
| NOTE 14 | - | FINANCING EXPENSES, NET |
|
US dollars
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
(in thousands)
|
2023
|
2022
|
2021
|
|||||||||
|
Short-term interest expenses commissions and other
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Loss in respect of marketable securities and other investments
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Interest expenses in respect of long-term loans
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Interest income in respect of deposits
|
|
|
|
|||||||||
|
Income related to taxes positions
|
|
|
|
|||||||||
|
Exchange rate differences and others, net
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Expenses in respect of changes in obligation to purchase non-controlling interests (*)
|
|
|
(
|
)
|
||||||||
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
| (*) |
See Note 1Y
|
F - 35
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 15 | - | INCOME TAX |
| A. |
Taxes on income included in the statements of income:
|
|
US dollars
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
(in thousands)
|
2023
|
2022
|
2021
|
|||||||||
|
Income taxes (tax benefit):
|
||||||||||||
|
Current taxes:
|
||||||||||||
|
In Israel
|
|
|
|
|||||||||
|
Outside Israel
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Deferred taxes:
|
||||||||||||
|
In Israel
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Outside Israel
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
Taxes in respect of prior years:
|
||||||||||||
|
In Israel
|
|
(
|
)
|
|
||||||||
|
Outside Israel
|
|
|
|
|||||||||
|
|
(
|
)
|
|
|||||||||
|
|
|
|
||||||||||
| B. |
Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985 (the “Inflationary Adjustment Law”)
|
Until December 31, 2007, the Company and its Israeli subsidiaries reported income for tax purposes in accordance with the provisions of the Inflationary Adjustments Law, whereby taxable income was measured in NIS, adjusted for changes in the Israeli Consumer Price Index ("CPI"). Commencing January 1, 2008, this law became void, and in its place, there are transition provisions, whereby the results of operations for tax purposes are measured on a nominal basis.
| C. | The Law for the Encouragement of Capital Investments, 1959 (the "Investment Law") |
| 1. |
On December 22, 2016, the Israeli parliament passed the Law for Economic Efficiency (Legislative Amendments for Achieving Budget Objectives in the Budget Years 2017 and 2018) – 2016 (hereinafter – the “Economic Efficiency Law”) and on December 29, 2016, the Law was publicized in the Official Gazette. The Economic Efficiency Law, among other things, reduced the tax rate applicable to a preferred enterprise located in Development Zone A from
|
| 2. |
As of December 31, 2023, one Israeli subsidiary (located in areas other than Development Zone A) is entitled to a "Preferred Company " status pursuant to the investment law and subject to 16% corporate tax rate.
|
F - 36
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 15 | - | INCOME TAX (cont.) |
| D. |
The Law for the Encouragement of Capital Investments, 1959, under the 2016 amendment (the "Investment Law")
|
| 1. |
In December 2016 new legislation amended the Investments Law (the "2016 amendment"). Under the 2016 amendment a new status of "Technological Preferred Enterprise" was introduced to the Investment Law.
Technological Preferred Enterprise – an enterprise which, amongst other condition, is part of a consolidated Company with consolidated revenues of less than NIS
|
| 2. |
As of December 31, 2023, two Israeli subsidiaries
(
located in areas other than Development Zone A) are entitled to a "Technological Preferred Enterprise" status pursuant to the investment (under the 2016 amendment) law and subject to
|
| E. |
Israeli corporate tax rates
|
Taxable income of the Company and its Israeli subsidiaries (that are not entitled to special tax rates as described above) is subject to a corporate tax rate of 23% in 2021, 2022 and 2023.
| F. |
Non-Israeli subsidiaries
|
Non-Israeli subsidiaries are taxed according to the tax laws and rates in their country of residence.
| G. |
Use of assumptions and judgments
|
The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and can be ambiguous; the Company is, therefore, obliged to make many subjective assumptions and judgments regarding the application of such laws and regulations to its facts and circumstances. In addition, interpretations of and guidance surrounding income tax laws and regulations are subject to changes over time. Any changes in the Company's subjective assumptions and judgments could materially affect amounts recognized in its consolidated balance sheets and statements of income.
| H. |
Tax assessments
|
The Company and certain Israeli subsidiary have received final tax assessments through the 2018, One of the subsidiaries in Brazil has received final tax assessments through the 2015 tax year. The other subsidiaries have not yet been assessed since incorporation.
| I. |
Carry forward
foreign tax credits and tax losses
|
As of December 31, 2023, there are no losses carried forward that are likely to be used in the near future.
F - 37
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 15 | - | INCOME TAX (cont.) |
| J. |
The following is reconciliation between the theoretical tax on pretax income, at the applicable Israeli tax rate, and the tax expense reported in the financial statements:
|
|
US dollars
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
(in thousands)
|
2023
|
2022
|
2021
|
|||||||||
|
Pretax income
|
|
|
|
|||||||||
|
Statutory tax rate
|
|
%
|
|
%
|
|
%
|
||||||
|
Tax computed at the ordinary tax rate
|
|
|
|
|||||||||
|
Nondeductible expenses (income)
|
(
|
)
|
|
(
|
)
|
|||||||
|
Losses and timing differences in respect of which no deferred taxes assets were recognized
|
(
|
)
|
|
|
||||||||
|
Tax adjustment in respect of different tax rates
|
|
|
|
|||||||||
|
Adjustment in respect of tax rate deriving from “approved enterprises”
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Tax related to previous years
|
|
(
|
)
|
|
||||||||
|
Others
|
|
(
|
)
|
|
||||||||
|
|
|
|
||||||||||
| K. |
Summary of deferred taxes
|
|
Composition:
|
||||||||
|
US dollars
|
||||||||
|
December 31,
|
||||||||
|
(in thousands)
|
2023
|
2022
|
||||||
|
Deferred taxes
|
||||||||
|
Provision for vacation, recreation and bad debt
|
|
|
||||||
|
Provision for other employee related obligations
|
|
|
||||||
|
Provision for deferred revenues/expenses and other obligations
|
|
|
||||||
|
Other temporary differences, net
|
|
|
||||||
|
|
|
|||||||
|
US dollars
|
||||||||
|
December 31,
|
||||||||
|
(in thousands)
|
2023
|
2022
|
||||||
|
Deferred income taxes included in long-term investments and other assets
|
|
|
||||||
|
Deferred income taxes included in long-term liabilities
|
(
|
)
|
(
|
)
|
||||
|
|
|
|||||||
| L. |
Income before income taxes is composed as follows:
|
|
US dollars
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
(in thousands)
|
2023
|
2022
|
2021
|
|||||||||
|
The Company and its Israeli subsidiaries
|
|
|
|
|||||||||
|
Non-Israeli subsidiaries
|
|
|
|
|||||||||
|
|
|
|
||||||||||
F - 38
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 16 | - | EARNINGS PER SHARE |
During the periods, there were no potential instruments that could be exercised or converted to ordinary shares. The net income and the weighted average number of shares used in computing basic and diluted earnings per share for the years ended December 31, 2023, 2022 and 2021, are as follows:
|
US dollars
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
(in thousands)
|
2023
|
2022
|
2021
|
|||||||||
|
Net income attributable to stockholder's used for the computation of basic and diluted earnings per share
|
|
|
|
|||||||||
|
Number of shares
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
(in thousands)
|
2023
|
2022
|
2021
|
|||||||||
|
Weighted average number of shares used in the computation of basic and diluted earnings per share
|
|
|
|
|||||||||
| NOTE 17 | - | RELATED PARTIES |
| A. |
The Tzivtit Insurance Ltd. (“Tzivtit Insurance”), owned by a director of the Company, served as the Company’s insurance agent and provides the Company with elementary insurance and managers insurance.
|
In respect of these insurance services, Tzivtit Insurance was entitled to receive commissions at various rates, paid by the insurance company (which is not considered a related party).
With respect to basic insurance policies, and directors and offices insurance policies, the Company paid to the insurance company in 2022, US$
502
thousand and US$
870
thousand, respectively.)
Tzivtit Insurance was entitled to commissions in an aggregate amount of US
115
thousand and US$
114
thousand in 2022 and 2021, respectively). to be paid to Tzivtit Insurance by the insurance company on account of these policies. The Company paid monthly consulting fees of NIS
15,000
(US$
4,800
) a month, linked to the Israeli Consumer Price Index to Professor Kahane. The aggregate amount paid to Professor Kahane in each of the years 2023, 2022 and 2021 was approximately US$
66,000
, US$
70,000
and US$
69,000
, respectively.
In January 2023, Tzivtit sold its insurance operation to a third party.
F - 39
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 17 | - | RELATED PARTIES (cont.) |
| B. |
In February 2014, following the approval of the Company's general meeting of shareholders on January 28, 2014, the Company entered into new service agreements, setting forth the terms of service of its President, Co-Chief Executive Officers and its International Activity and Business Development Officer, in compliance with the Company's compensation policy for office holders; and E-Com entered into a service agreement setting forth the terms of service of its Chief Executive Officer in compliance with the Company's compensation policy for officer holders. The principal terms of these agreements are as follows:
|
Messrs. Izzy Sheratzky, Eyal Sheratzky, Nir Sheratzky and Gil Sheratzky (the "Executive Offices Holders" or "the Executives"), shall provide services as independent contractors, which shall be entitled to a monthly payment of NIS
243,000
,
189,000
,
189,000
and
135,000
respectively plus VAT (US$
66,000
, US$
51,000
, US$
51,000
and US$
37,000
respectively) linked to the consumer price index for December 2013. At the request of the service providers, part of the fixed monthly pay may be granted through benefits, such as the provision of a company car and the payment of its maintenance costs and the cost of tax resulting therefrom. The fixed monthly pay shall also include 25 days' vacation and sick days as provided by law. The service providers shall also be entitled to payment or reimbursement of expenses, including hosting expenses, subsistence allowance abroad and participation in work-related home telephone expenses. The service providers shall be entitled to Target-based Cash Incentives and Excess Return Cash Incentives as detailed below. The agreement shall be in force for a period of 3 years (On December 12, 2022 the Company's general meeting of shareholders has reapproved the compensation policy for additional 3 years) and may be terminated upon
180
days' advance notice of termination; however, the Company may terminate the agreement without an advance notice and without compensation if the following shall occur: (a) The service provider is convicted of a criminal offense involving moral turpitude; (b) a final court ruling (without the possibility of appeal) determines that The service provider has breached his fiduciary duty towards the Company; (c) a final court ruling (without the possibility of appeal) determines that the service provider has materially breached the agreement through the unauthorized disclosure of Company's secrets or competition with the Company.
Each of the above agreements also provides that the executives may request to provide their services to the Company as employees, and not through a service provider, and in such event, the they shall execute an employment agreement with the Company, in lieu of the above service agreements, which shall also set forth the provisions of social security and other benefits that the Company usually grants its senior executive officers (which may not deviate from the provisions of the Compensation policy in this respect). In any event, it was agreed that the nature of the agreement pursuant to which the services are provided shall not affect the company's provision of the services as set forth in the service agreements.
The terms of the Cash incentives applicable to the "Executive Offices Holders", as set forth in their agreements referred to above (the "Agreements"), are as follows:
| • |
"Target-based Cash Incentives" means a cash incentive awarded to the Executive Office Holders for the Company's achievement of the following Profit-Before-Tax targets in each calendar year following the effective date of the above agreements, in which the Minimum Threshold (as defined below) has been achieved:
|
|
Company's Profit-Before-Tax Targets
(In US$ thousands) (*)
|
Level of Incentive - As a Percentage of the Executive Office Holder's Annual Cost of Pay
|
|
|
24,001 - 27,500
|
|
|
|
27,501-31,000
|
|
|
|
31,001-35,000
|
|
|
|
35,001-39,000
|
|
|
|
Above 39,001
|
|
"Minimum Threshold" means, with respect to a particular calendar year, a minimum Company's Return on Equity of
15
%, and a minimum company's Profit before Tax of USD
24
million.
| (*) |
As of December 31, 2023, the estimated aggregate amortization of intangible assets for the next five years is as follows: 2024- US$
|
F - 40
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 17 | - | RELATED PARTIES (cont.) |
|
B. |
(cont.) |
| • |
"Excess Return Cash Incentives" means that at the end of each calendar year, the Company shall examine the Company's Stock Yield since January 1 of such year or, with respect to the first year of such grant –
|
The Excess Return Cash Incentive for each year shall not exceed an amount equal to the Executive Officer Holder's annual Cost of Pay.
In the event that an Agreement is terminated during a calendar year, the Company's compensation committee and board of directors shall determine the relative amounts out of the Target-based Cash Incentives and/or Excess Return Cash Incentives to which the relevant Executive Office Holder is entitled for the portion of the year during which the Agreement was in force; and these amounts shall be paid within
30
days after the termination of service/employment, as the case may be.
On the date of determination of each Executive Office Holder's entitlement for a Target-based Cash Incentive for a particular year, the Company's compensation committee shall examine whether the total amount of grants to which Executive Officers are entitled with respect to such calendar year and which constitute variable components of their terms of services (the "Total Amount of Grants to Executive Officers"), exceed an amount equal to
10
% of the Company's EBITDA for such year (the "EBITDA's Threshold"), as calculated in accordance with data extracted from the Company's audited consolidated annual financial statements, after taking into account the Executive Officers' fixed compensation but excluding their variable compensation. In such event, the amount by which the Total Amount of Grants to Executive Officers exceeds the EBITDA's Threshold shall be referred to as the "Excess Amount".
In the event that the Total Amount of Grants to Executive Officers exceeds the EBITDA's Threshold, then the Target-based Cash Incentive and the Excess Return Cash Incentive to which an Executive Office Holder is entitled (together, the "Grants") shall be reduced by an amount equal to the Executive Office Holder's Rate of Grants (as defined below) out of the Excess Amount. The term "Executive Office Holder's Rate of Grants" means, with respect to a particular Executive Office Holder, the percentage which such Executive Office Holder's Grants constitute out of the Total Amount of Grants to Executive Officers.
The Company's board of directors shall have the right, under special circumstances at its discretion, to reduce the amount of Grants to which the Executive Office Holders are entitled, upon a
60
days prior notice.
The Executive Office Holder shall be required to return any compensation paid to them on the basis of results included in financial statements that turned out to be erroneous and were subsequently restated in the Company's financial statements published during the three year period following publication of the erroneous financial statements; to the extent they would not have been entitled to the compensation actually received had it been determined based on the restated financial statements. In such case, compensation amounts will be returned within
60
days from the date of publication of the restated financial statements, net of taxes that were withheld thereon. If the Executive Office Holder has a right to reclaim such tax payments with respect to Grants which were paid in excess, from the relevant tax authorities, then the Executive Office Holder shall reasonably act to reclaim such amounts from the tax authorities and upon their receipt, shall remit them to the Company.
F - 41
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 17 | - | RELATED PARTIES (cont.) |
|
B. |
(cont.) |
In 2023, 2022 and 2021 Executive Offices Holders were entitled to Target based cash incentives at the maximum rate of (
150
%).
Due to the Covid-19 effects and based on their own initiative, the Company's Executive Office Holders agreed to temporarily decrease their base salary by
25
% from April 2020, for an indefinite period until they will perceive that the effect of Covid -19 on Company’s business will be less significant. In April 2021, the temporarily decrease in their base salary reduction was canceled.
The table below summarizes the aggregate amounts paid to the company's Executive Office Holders:
|
US dollars
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
(in thousands)
|
2023
|
2022
|
2021
|
|||||||||
|
Izzy Sheratzky
|
|
|
|
|||||||||
|
Eyal Sheratzky
|
|
|
|
|||||||||
|
Nir Sheratzky
|
|
|
|
|||||||||
|
Gil Sheratzky
|
|
|
|
|||||||||
| NOTE 18 | - | SEGMENT REPORTING |
| A. |
General information:
|
The operations of the Company are conducted through two different core activities: Location based services ("Telematics services") and Wireless communications products ("Telematics products"). These activities also represent the reportable segments of the Company.
The reportable segments are viewed and evaluated separately by Chief Operating Decision Maker (the Company's Co-Chief Executive Officers), since the marketing strategies, processes and expected long term financial performances of the segments are different.
Telematics services:
The telematics services segment consists predominantly of regionally- based stolen vehicle recovery (SVR) services, fleet management services and value-added services that include among others, connected car, UBI (usage base insurance), personal advanced locater services and concierge services.
The Company provides Location based services in Israel, Brazil, Argentina, Colombia, Mexico, Ecuador and the United States.
Telematics products:
The telematics product segment consists mainly of short and medium range two-way machine-to-machine wireless communications products that are used for various applications, including automatic vehicle location, and automatic vehicle identification.
F - 42
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 18 | - | SEGMENT REPORTING (cont.) |
| B. |
Information about reported segment profit or loss and assets:
|
|
US dollars
|
||||||||||||
|
(in thousands)
|
Telematics services
|
Telematics products
|
Total
|
|||||||||
|
Year ended December 31, 2023
|
||||||||||||
|
Revenues
|
|
|
|
|||||||||
|
Operating income
|
|
|
|
|||||||||
|
Assets
|
|
|
|
|||||||||
|
Goodwill
|
|
|
|
|||||||||
|
Expenditures for assets
|
|
|
|
|||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
|
Year ended December 31, 2022
|
||||||||||||
|
Revenues
|
|
|
|
|||||||||
|
Operating income
|
|
|
|
|||||||||
|
Assets
|
|
|
|
|||||||||
|
Goodwill
|
|
|
|
|||||||||
|
Expenditures for assets
|
|
|
|
|||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
|
Year ended December 31, 2021
|
||||||||||||
|
Revenues
|
|
|
|
|||||||||
|
Operating income
|
|
|
|
|||||||||
|
Assets
|
|
|
|
|||||||||
|
Goodwill
|
|
|
|
|||||||||
|
Expenditures for assets
|
|
|
|
|||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
| C. |
Information about reported segment profit or loss and assets:
|
The evaluation of performance is based on the operating income of each of the two reportable segments.
Accounting policies of the segments are the same as those described in the accounting policies applied in the consolidated financial statements.
Due to the nature of the reportable segments, there have been no inter-segment sales or transfers during the reported periods.
Financing expenses, net, non-operating other expenses, net, taxes on income and the share of the Company in losses of affiliated companies were not allocated to the reportable segments, since these items are carried and evaluated on the enterprise level.
F - 43
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 18 | - | SEGMENT REPORTING (cont.) |
| D. |
Reconciliations of reportable segment revenues, profit or loss, and assets, to the enterprise’s consolidated totals:
|
|
US dollars
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
(in thousands)
|
2023
|
2022
|
2021
|
|||||||||
|
Total revenues of reportable segment and consolidated revenues
|
|
|
|
|||||||||
|
Operating income
|
||||||||||||
|
Total operating income for reportable segments
|
|
|
|
|||||||||
|
Unallocated amounts:
|
||||||||||||
|
Financing income, net
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Other expense, net
|
|
|
(
|
)
|
||||||||
|
Consolidated income before taxes on income
|
|
|
|
|||||||||
|
Assets
|
||||||||||||
|
Total assets for reportable segments (*)
|
|
|
|
|||||||||
|
Other unallocated amounts:
|
||||||||||||
|
Current assets
|
|
|
|
|||||||||
|
Investments in affiliated and other companies
|
|
|
|
|||||||||
|
Property and equipment, net
|
|
|
|
|||||||||
|
Other unallocated amounts
|
|
|
|
|||||||||
|
Consolidated total assets (at year end)
|
|
|
|
|||||||||
|
Other significant items
|
||||||||||||
|
Total expenditures for assets of reportable segments
|
|
|
|
|||||||||
|
Unallocated amounts
|
|
|
|
|||||||||
|
Consolidated total expenditures for assets
|
|
|
|
|||||||||
|
Total depreciation, amortization and impairment for reportable segments
|
|
|
|
|||||||||
|
Unallocated amounts
|
|
|
|
|||||||||
|
Consolidated total depreciation, amortization and impairment
|
|
|
|
|||||||||
| (*) |
Including goodwill.
|
F - 44
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 18 | - | SEGMENT REPORTING (cont.) |
| E. |
Geographic information
|
|
Revenues
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
(in thousands)
|
2023
|
2022
|
2021
|
|||||||||
|
Israel
|
|
|
|
|||||||||
|
Brazil
|
|
|
|
|||||||||
|
Others
|
|
|
|
|||||||||
|
Total
|
|
|
|
|||||||||
|
Property and equipment, net
|
||||||||||||
|
December 31,
|
||||||||||||
|
(in thousands)
|
2023
|
2022
|
2021
|
|||||||||
|
Israel
|
|
|
|
|||||||||
|
Brazil
|
|
|
|
|||||||||
|
Others
|
|
|
|
|||||||||
|
Total
|
|
|
|
|||||||||
| - |
Revenues were attributed to countries based on customer location.
|
| - |
Property and equipment were classified based on major geographic areas in which the Company operates.
|
| F. |
Major customers
|
During 2021, 2022 and 2023 there were no sales exceeding 10% of total revenues to none of the Company customers.
| G. |
Major product lines and timing of revenue recognition
|
In the following table, revenue is disaggregated by primary major product lines, and timing of revenue recognition for the years ended December 31, 2022 and 2023:
|
US dollars
|
||||||||||||||||||||||||
|
Reportable segments result of operations
|
||||||||||||||||||||||||
|
(in thousands)
|
Year ended December 31, 2022
|
Year ended December 31, 2023
|
||||||||||||||||||||||
|
Telematics services
|
Telematics products
|
Total
|
Telematics services
|
Telematics products
|
Total
|
|||||||||||||||||||
|
At a point of time
|
|
|
|
|
|
|
||||||||||||||||||
|
Over a period of time
|
|
|
|
|
|
|
||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
In the following table, revenue is disaggregated by primary major product lines, and timing of revenue recognition for the year ended December 31, 2021:
|
US dollars
|
||||||||||||
|
Reportable segments result of operations
|
||||||||||||
|
(in thousands)
|
Year ended December 31, 2021
|
|||||||||||
|
Telematics services
|
Telematics products
|
Total
|
||||||||||
|
At a point of time
|
|
|
|
|||||||||
|
Over a period of time
|
|
|
|
|||||||||
|
|
|
|
||||||||||
F - 45
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 19 | - | FINANCIAL INSTRUMENTS AND RISKS MANAGEMENT |
| A. |
Concentrations of credit risks
|
Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents, accounts receivables and marketable securities.
Most of the Company’s cash and cash equivalents, deposits in short-term investments (and investments in trading marketable securities), as of December 31, 2023 and 2022, were deposited with major banks with high credit rating. The Company is of the opinion that the credit risk in respect of these balances is immaterial.
Most of the Company’s sales are made in Israel, Brazil, Argentina, Mexico, Ecuador, Colombia and the United States to a large number of customers, including insurance companies and Car manufacturers. Management periodically evaluates the collectability of the trade receivables to determine the amounts that are doubtful of collection and determine a proper allowance for doubtful accounts. Accordingly, management believes that the Company’s trade receivables do not represent a substantial concentration of credit risk.
From time to time the Company enters into foreign exchange forward contracts intended to protect against the increase in the purchase price of forecasted inventory purchases dominated in currencies other than the functional currency of the purchasing entity. Regarding the activity in 2023 see B below.
However, during the years ended December 31, 2023, and 2022 such activity was limited.
| B. |
Foreign exchange risk management
|
The Company operates internationally, which gives rise to exposure to market risks mainly from changes in exchange rates of foreign currencies in relation to the functional currency of each of the entities of the group.
During the years 2022 and 2021 the Company did not have hedging activity, and as of December 31, 2022, and 2021 there were no material forward exchange contracts outstanding.
During 2023 the Company entered into foreign currency forward transactions in order to protect itself against the risk that the eventual cash flows resulting from anticipated transactions (mainly purchases of inventory), denominated in currencies other than the functional currency of the purchasing entity, will be affected by changes in exchange rates. As of December 31, 2023, 12 transactions that originated in 2023 remain outstanding.
During 2023, all the financial derivatives were designated and accounted for as hedging instruments.
The following table summarizes a tabular disclosure of (a) fair values of derivative instruments in the balance sheets and (b) the effect of derivative instruments in the statements of income:
F - 46
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 19 | - | FINANCIAL INSTRUMENTS AND RISKS MANAGEMENT (cont.) |
| B. |
Foreign exchange risk management (cont.)
|
Fair values of derivative instruments:
|
Assets derivatives
|
|||||
|
As of December 31, 2023
|
Thousands of US dollars
|
||||
|
Balance sheet location
|
Fair
value
|
||||
|
Derivatives designated as hedging instruments:
|
|||||
|
Foreign exchange contracts
|
Other current liabilities
|
|
|||
Amounts reclassified to statement of comprehensive income (loss):
|
Derivatives designated
as hedging instruments
|
Location of loss recognized in income
|
Amount of gain
recognized in income
|
|||
|
Year ended December 31, 2023
|
Thousands of US dollars
|
||||
|
Foreign exchange contracts
|
Unrealized losses in respect of derivative financial instruments designated for cash flow hedge
|
|
|||
As of December 31, 2023, the notional amount of forward exchange contract with respect to cash follow hedge of anticipated transactions amounted to US$
18
million (US$
1.5
million per month for the next 12 months).
F - 47
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
| NOTE 19 | - | FINANCIAL INSTRUMENTS AND RISKS MANAGEMENT (cont.) |
| C. |
Fair value of financial instruments
|
The Company measures fair value and discloses fair value measurements for financial assets and liabilities. Fair value is an exit price, representing the amount that would be received to sell an asset or the amount that would be paid to transfer a liability in an orderly transaction between market participants.
The Company measured cash and cash equivalents, marketable securities and derivative financial instruments at fair value. Such financial instruments are measured at fair value, on a recurring basis. The measurement of cash and cash equivalents and marketable securities are classified within Level 1. The fair value of derivatives generally reflects the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting dates, based on the prevailing currency prices and the relevant interest rates. Such measurement is classified within Level 2.
The fair value of the financial instruments included in the working capital of the Company (cash and cash equivalents, accounts receivable, accounts payable and other current assets and liabilities) approximates their carrying value, due to the short-term maturity of such instruments.
See Note 1N regarding non-recurring measurement of the fair value of certain non-financial assets (mainly reporting units with goodwill and other definite-lite intangible assets).
The Company's financial assets measured at fair value on a recurring basis, consisted of the following types of instruments as of December 31, 2023 and 2022:
|
December 31, 2023
|
||||||||||||
|
(in thousands)
|
Level 1
|
Level 2
|
Level 3
|
|||||||||
|
Derivatives designated as hedging instruments
|
|
|
|
|||||||||
|
Trading securities
|
|
|
|
|||||||||
|
Total
|
|
|
|
|||||||||
|
December 31, 2022
|
||||||||||||
|
(in thousands)
|
Level 1
|
Level 2
|
Level 3
|
|||||||||
|
Trading securities
|
|
|
|
|||||||||
|
Total
|
|
|
|
|||||||||
F - 48
TABLE OF CONTENTS
Part I: Gender IdentityPart Ii: Demographic BackgroundItem 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. Descriptions 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 16D. Exemptions From The Listing Standards For Audit CommitteesItem 16E. Purchases Of Equity Securities By The Issuer and Affiliated PurchasersItem 16F. Changes in Registrant S Certifying AccountantItem 16G. Corporate GovernanceItem 16H. Mine Safety DisclosureItem 16I. Disclosure Regarding Foreign Jurisdiction That Prevent InspectionsItem 16J. Insider Trading PoliciesItem 16K. CybersecurityPart IIIItem 17. Financial StatementsItem 18. Financial StatementsItem 19. ExhibitsNote 1 - Summary Of Significant Accounting PoliciesNote 1 - Summary Of Significant Accounting Policies (cont.)Note 2 - Other Current AssetsNote 3 - InventoriesNote 4 - Investments in Affiliated and Other CompaniesNote 5 - Other Non-current AssetsNote 6 - Property and Equipment, NetNote 7 - LeasesNote 7 - Leases (cont.)Note 8 - Intangible Assets, NetNote 9 - GoodwillNote 10 - Credit From Banking InstitutionsNote 10 - Credit From Banking Institutions (cont.)Note 11 - Other Current LiabilitiesNote 12 - Contingent LiabilitiesNote 13 - Stockholders EquityNote 13 - Stockholders Equity (cont.)Note 14 - Financing Expenses, NetNote 15 - Income TaxNote 15 - Income Tax (cont.)Note 16 - Earnings Per ShareNote 17 - Related PartiesNote 17 - Related Parties (cont.)Note 17 - Related Parties (cont.) B. (cont.)Note 18 - Segment ReportingNote 18 - Segment Reporting (cont.)Note 19 - Financial Instruments and Risks ManagementNote 19 - Financial Instruments and Risks Management (cont.)