UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐
☒
☐
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2021.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Date of event requiring this shell company report..........................................
For the transition period from ____________ to ____________
Commission file number. 001-32618
ITURAN LOCATION AND CONTROL LTD.
(Exact name of Registrant as specified in its charter)
ITURAN LOCATION AND CONTROL LTD.
(Translation of Registrant’s name into English)
Israel
(Jurisdiction of incorporation or organization)
3 Hashikma street, Azour, 5800182 Israel
(Address of principal executive offices)
Guy Aharonov, General Counsel, 3 Hashikma street, Azour, 5800182 Israel, Tel: 972-3-5571314, Facsimile: 972-3-5571327
(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:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Ordinary Shares, par value NIS 0.331/3 per share
ITRN
Nasdaq Global Select Market
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
SEC 1852 (04-20) - Persons who respond to the collection of information contained in this form are not required to respond unless the
form displays a currently valid OMB control number.
(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:
20,533,586
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
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 from their obligations under those Sections.
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.
Large accelerated filer ☐
Accelerated filer ⌧
Non-accelerated filer ☐ Emerging growth company ☐
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. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements
included in this filing:
U.S. GAAP ⌧
International Financial Reporting Standards as issued
by the International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement
item the registrant has elected to follow:
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-
2 of the Exchange Act).
☐ Yes ☒ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by
a court.
☐ Yes ☐ No
TABLE OF CONTENTS
1
iii
iii
USE OF CERTAIN TERMS ......................................................................................................................................
FORWARD LOOKING STATEMENTS ..................................................................................................................
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS .....................................................1
ITEM 1.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE .......................................................................................1
ITEM 3. KEY INFORMATION................................................................................................................................
SELECTED FINANCIAL DATA ..........................................................................................................................1
A.
CAPITALIZATION AND INDEBTEDNESS ................................................................................................ 3
B.
REASONS FOR THE OFFER AND USE OF PROCEEDS ..................................................................................3
C.
RISK FACTORS.....................................................................................................................................................3
D.
12
INFORMATION ON THE COMPANY ................................................................................................
ITEM 4.
HISTORY AND DEVELOPMENT OF THE COMPANY ....................................................................................
12
A.
BUSINESS OVERVIEW................................................................................................................................12
B.
23
ORGANIZATIONAL STRUCTURE .....................................................................................................................
C.
PROPERTY, PLANTS AND EQUIPMENT ................................................................................................ 24
D.
ITEM 4.A. UNRESOLVED STAFF COMMENTS ..................................................................................................................
25
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS ................................................................ 25
OPERATING RESULTS ................................................................................................................................25
A.
LIQUIDITY AND CAPITAL RESOURCES ................................................................................................ 36
B.
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES ................................................................39
C.
TREND INFORMATION ................................................................................................................................39
D.
OFF-BALANCE SHEET ARRANGEMENTS ................................................................................................39
E.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS ................................................................40
F.
G.
40
SAFE HARBOR .....................................................................................................................................................
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ................................................................ 40
DIRECTORS AND SENIOR MANAGEMENT ................................................................................................40
A.
43
COMPENSATION .................................................................................................................................................
B.
46
BOARD PRACTICES ................................................................................................................................
C.
EMPLOYEES .........................................................................................................................................................
D.
50
SHARE OWNERSHIP ................................................................................................................................ 52
E.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS .........................................................
53
MAJOR SHAREHOLDERS ................................................................................................................................53
A.
RELATED PARTY TRANSACTIONS .................................................................................................................
B.
55
INTERESTS OF EXPERTS AND COUNSEL ................................................................................................59
C.
59
FINANCIAL INFORMATION ..............................................................................................................................
ITEM 8.
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION ................................
A.
59
SIGNIFICANT CHANGES ................................................................................................................................60
B.
60
THE OFFER AND LISTING ................................................................................................................................
ITEM 9.
OFFER AND LISTING DETAILS ........................................................................................................................
A.
60
PLAN OF DISTRIBUTION ................................................................................................................................60
B.
60
MARKETS .............................................................................................................................................................
C.
60
SELLING SHAREHOLDERS ...............................................................................................................................
D.
DILUTION .............................................................................................................................................................
E.
60
EXPENSES OF THE ISSUE ................................................................................................................................61
F.
i
61
ITEM 10. ADDITIONAL INFORMATION ...........................................................................................................................
61
SHARE CAPITAL .................................................................................................................................................
A.
MEMORANDUM AND ARTICLES OF ASSOCIATION ...................................................................................
B.
61
MATERIAL CONTRACTS ................................................................................................................................68
C.
EXCHANGE CONTROLS ................................................................................................................................68
D.
68
TAXATION ............................................................................................................................................................
E.
75
DIVIDENDS AND PAYING AGENTS ................................................................................................
F.
75
STATEMENT BY EXPERTS ................................................................................................................................
G.
76
DOCUMENTS ON DISPLAY ...............................................................................................................................
H.
I.
76
SUBSIDIARY INFORMATION ............................................................................................................................
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ................................76
77
ITEM 12. DESCRIPTIONS OF SECURITIES OTHER THAN EQUITY SECURITIES .....................................................
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ................................................................
77
ITEM 14A. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
77
PROCEEDS ............................................................................................................................................................
77
ITEM 15. CONTROLS AND PROCEDURES .......................................................................................................................
ITEM 16.
80
[RESERVED] .........................................................................................................................................................
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT ................................................................................................80
80
ITEM 16B. CODE OF ETHICS ................................................................................................................................
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES ........................................................................................
80
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ................................80
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS ..................
80
ITEM 16F. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT ................................................................81
81
ITEM 16G. CORPORATE GOVERNANCE ............................................................................................................................
81
ITEM 16H. MINE SAFETY DISCLOSURE ............................................................................................................................
81
ITEM 17. FINANCIAL STATEMENTS ................................................................................................................................
81
ITEM 18. FINANCIAL STATEMENTS ................................................................................................................................
82
ITEM 19. EXHIBITS ..............................................................................................................................................................
ii
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.
FORWARD LOOKING 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 consult any additional
disclosures we make in our reports on Form 6-K filed with the U.S. Securities and Exchange Commission (“SEC”).
iii
[This Page Intentionally Left Blank]
PART I
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3.
KEY INFORMATION
A.
SELECTED FINANCIAL DATA
The selected consolidated financial data below is provided under generally accepted accounting principles in the
U.S. (U.S. GAAP). You should read the selected consolidated financial data presented in this Item together with Item 5 –
Operating and Financial Review and Prospects and with our consolidated financial statements included elsewhere in this
annual report.
Our selected consolidated statements of income data for the years ended December 31, 2019, 2020 and 2021
and our selected consolidated balance sheet data as of December 31, 2020 and 2021 have been derived from our
consolidated financial statements included elsewhere in this report. The selected consolidated statements of income data
for each of the years ended December 31, 2017 and 2018, and the selected consolidated balance sheet data as of
December 31, 2017, 2018 and 2019, are derived from our audited consolidated financial statements not included in this
report.
1
Selected Financial Data Under U.S. GAAP:
Consolidated Statements of Income Data
2021
2020
Year Ended December 31,
2019
In USD
In thousands, except per share amounts
2018
2017
Revenues:
Telematics services ....................................
Telematics products ...................................
Total Revenues ..........................................
189,649
81,235
270,884
182,944
62,683
245,627
204,728
74,604
279,332
181,357
71,978
253,335
Cost of Revenues:
Telematics services ....................................
Telematics products ...................................
Total cost of revenues ...................................
84,783
59,619
144,402
81,365
48,747
130,112
90,158
58,656
148,814
70,329
55,678
126,007
169,752
64,884
234,636
60,256
54,996
115,252
Gross profit ................................................
126,482
115,515
130,518
127,328
119,384
Research and development expenses .........
Selling and marketing expenses .................
General and administrative expenses .........
Impairment of goodwill .............................
Impairment of intangible assets and
other expenses (income) net ...................
Operating Income ......................................
Other income (expenses), net .....................
Financing income (expenses), net .................
Income before income tax .............................
Income tax .....................................................
Share in gains (losses) of affiliated
companies, net ...........................................
Net income for the year ................................
Less: net income attributable to non-
14,099
11,906
46,118
-
(256)
54,615
(109)
(5,538)
48,968
12,767
11,014
49,705
10,508
3,690
27,831
(272)
1,480
29,039
13,913
12,778
55,166
12,292
13,715
22,654
(26)
576
23,204
6,223
11,340
47,693
-
(306)
62,378
13,138
717
76,233
3,160
12,246
47,590
-
(147 )
56,535
-
(989 )
55,546
(11,854)
(10,856))
(12,234)
(17,273)
(17,705 )
(102)
37,012
(842)
17,341
(3,203)
7,767
4,219
63,179
8,520
46,361
controlling interest .....................................
(2,756)
(1,218)
(878)
(2,504)
(2,567 )
Net income attributable to Company
stockholders ..............................................
34,256
16,123
6,889
60,675
43,794
Earnings per share
Basic ..........................................................
Diluted .......................................................
1,65
1,65
0.77
0.77
0.33
0.33
2.88
2.88
2.09
2.09
Weighted average number of shares
outstanding
Basic ..........................................................
Diluted .......................................................
20,769
20,769
20,813
20,813
21,037
21,037
21,077
21,077
20,968
20,968
2
Consolidated Balance Sheets Data:
2021
2020
Year Ended December 31,
2019
In USD
In thousands, except per share amounts
2018
2017
Cash & Cash Equivalent; and investment in
54,711
trading marketable securities ..........................
58,102
Working Capital .................................................
Total Assets ........................................................ 293,021
Total Liabilities .................................................. 155,218
Retained Earnings .............................................. 143,259
Stockholders’ Equity .......................................... 132,460
0.90
Dividend declared per share ...............................
78,846
66,708
312,472
182,573
127,684
127,192
0.24
54,322
73,085
339,235
203,321
116,479
129,330
0.95
53,295
84,214
373,792
213,592
129,580
153,693
0.95
40,465
71,360
215,159
81,930
92,065
125,790
1.12
Other Data:
Subscribers of telematics services (1).................... 1,881,000
Average monthly churn rate ................................
3 %
2021
Year Ended December 31,
2019
1,781,000
2018
1,770,000
2020
1,768,000
2017
1,160,000
3 %
3.3%
2.8%
3.2%
(1) Number of subscribers are rounded to the nearest thousand.
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 and incorporated by reference in this annual report before taking any investment decision with respect to
our securities. See “Forward Looking Statements” on page iv above.
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. In certain subsidiaries in Brazil and Argentina, insurance
companies 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 relation with
car manufacturers. Our inability to maintain our existing relationships or establish new relationships with car
manufacturers companies could adversely affect our revenues and growth potential.
3
Changes in practices of insurance companies in the markets in which we provide our SVR services and sell
our telematics products could adversely affect our revenues and growth potential.
We depend on the practices of insurance companies 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 and 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. In certain 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:
accepting vehicle location and recovery technology as a preferred security product;
requiring or providing a premium discount for using location and recovery services and products;
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; and
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 sales of new cars at the markets in which we operate could result in reduced demand for our
telematics services and telematics products.
Our SVR services and telematics products are primarily used to protect cars and are often installed before or
immediately after their initial sale. Consequently, a reduction in sales of vehicles could reduce our addressable market
for SVR services and telematics products. New vehicle sales may decline for various reasons, including an increase in
new vehicle 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 sales of new
vehicles in the markets in which we provide our SVR services or sell our telematics products could result in reduced
demand for such 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
cars by vehicle manufacturers prior to their initial sale, which effectively precludes us from competing for such
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.
4
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.
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 such products and 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 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 revenues.
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.
5
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.
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.
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 generated in existing markets or 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:
the rate of car theft or consumer concern over vehicle safety is high;
satisfactory radio frequencies are available to us for our RF technology, that allow us to operate our business in an
uninterrupted manner; and
insurance companies, car manufacturers or owners of cars believe that the value of cars justifies incurring the
expense associated with the deployment of SVR services.
The absence of such conditions, our inability to locate markets in which such conditions exist or the loss of any one
of the above conditions in markets we currently serve could adversely affect our revenues generated in existing markets
or our growth potential.
The loss of key personnel could adversely affect our business and prospects for growth.
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 prospects for growth could be
adversely affected.
We rely on third parties to manufacture our telematics products, which could affect our ability to provide
such 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 an unexpected interruption in its 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.
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We rely on two major suppliers to supply us with various products and software. Each of these suppliers
supply us with different type of products and services and act as single supplier of such 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 type of products and software and act as single supplier of such 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
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.
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.
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 cyber security 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 temporary 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
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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.
COVID-19 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.
A regional or a global health pandemic, depending upon its duration and severity, could have a material adverse
effect on our business. For example, the COVID-19 pandemic has had numerous effects on the global economy and
governmental authorities around the world have implemented measures to reduce the spread of COVID-19. These
measures, including shutdowns and “shelter-in-place” orders suggested or mandated by governmental authorities or
otherwise elected by companies as a preventive measure, have adversely affected workforces, customers, consumer
sentiment, economies and financial markets, and, along with decreased consumer spending, have led to an economic
downturn in many of our markets.
As a result of the COVID-19 pandemic, as near-term measures, we have transitioned many of our employees to
remote working arrangements. The transition has had little impact on our employee productivity and has not caused
material interruption to our business.
We are unable to accurately predict the impact that COVID-19 will have on our operations going forward due to
uncertainties that will be dictated by the length of time that the pandemic and related disruptions continue, the impact of
governmental regulations that might be imposed in response to the pandemic and overall changes in consumer behavior.
Numerous state and local jurisdictions have imposed, and others in the future may impose, “shelter-in-place” orders,
quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of
COVID-19. Governments all over the world are continuing to impose limitations on gatherings, social distancing
measures and restrictions on movement, only allowing essential businesses to remain open. Such orders or restrictions
have and are continuing to result in temporary store closures, work stoppages, slowdowns and delays, travel restrictions
and cancellation of events, among other effects, any of which may negatively impact workforces, customers, consumer
sentiment and the economies in many of our markets, and as a result, may adversely affect our operations.
We are subject to litigation that could result in significant costs to us.
On July 13, 2015, we received a purported class action lawsuit which was filed against the Company in the District
Court of Central Region in Tel-Aviv by one plaintiff who is a subscriber of the Company, alleging that the Company,
which was declared a monopoly under the Israeli Antitrust Law, unlawfully abused its power as a monopoly and
discriminated between its customers. The lawsuit is yet to be approved as a class action. The total amount claimed if the
lawsuit is approved as a class action was estimated by the plaintiff to be approximately NIS 300 million (approximately
USD 96 million). Based on an opinion of its legal counsels, the Company believes that the lawsuit lacks substantiation,
and that the Company has good defense arguments in respect of claims made by the plaintiff and that the chances that the
suit will not be approved as a class action lawsuit are higher than it will be approved. While we cannot predict the
outcome of this case, if we are not successful in defending our claim, we could be subject to significant costs, adversely
affecting our results of operations.
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For additional information on these lawsuits and for information concerning additional litigation proceedings, please
refer to Item 8.A – “Consolidated financial Statements and other Financial Information” under the caption “Material
Legal Proceedings” below.
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 and Rio Brazil and Buenos Aires, Argentina. 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 erection 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, such 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 neighbors. During July-August 2014
and during May 2021, 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.
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.
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.
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
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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 behavior. 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 NIS 100 million (approximately US$32 million) 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 favorable 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 favorable to our shareholders.
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.
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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 19.87% 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.
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 ratably over the U.S. Holder’s holding period for the ordinary shares and the amount allocated to the current
taxable year and any taxable year prior to the first taxable year in which we were a 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”.
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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, Mexico, Colombia, Ecuador and Argentina.
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. and we were incorporated under the laws of the State of Israel on
February 1994 as a subsidiary of Tadiran Ltd., an Israeli-based designer and manufacturer of telecommunications
equipment, software and defense 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 as well as sell and
lease our products in Israel, Brazil, Argentina, Mexico, Ecuador, Colombia, Canada and the United States.
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 our shares were voluntarily delisted from the Tel Aviv stock exchange, and our ordinary shares
are currently quoted only on Nasdaq under the symbol “ITRN”.
On September 13, 2018 we closed the acquisition of 81.3% of the shares of Road Track Holding S.L, (following
transaction name was changed to Ituran Spain Holdings S.L) a telematics company operating primarily in the Latin
American region ("RTH Transaction").
We paid the shareholders of Road Track Holding S.L $91.7 million for 81.3% of the company valuing the company
at approximately $113 million. Of this, $75.7 million was paid in cash, through a debt facility provided by Ituran’s
lending bank. An additional $12 million was paid in our shares (373,489 shares). The remaining $4 million was paid out
of the company’s equity as a bonus over the coming three years to the senior management of Road Track Holding S.L
who remained with us through the end of that period. The above mentioned consideration paid to the sellers was subject
to downward adjustments depending on the full year 2018 performance of the Road Track business. Based on the
aforementioned mechanism, during April 2019 an amount of 300,472 shares (approximately valued at $ 11 million) were
transferred to our ownership. Based on indemnification provisions we were also compensated in an amount of 1.0
million USD. On September 22, 2021, we closed the acquisition, of the remaining 18.7% shares of Ituran Spain Holdings
S.L., for a total amount of $11.2 million and therefore completed the full ownership of Ituran Spain Holdings S.L.
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We are subject to the provisions of the Israeli Companies Law, 5759-1999. 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 Ituran USA Inc.1700 NW 64th ST. SUITE
100 Fort Lauderdale, Florida 33309, and its telephone number is +1 (866) 543-5433.
Principal Capital Expenditures
We had capital expenditures of $16.6 million in 2021, $ 10.2 million in 2020 and $18.3 million in 2019. We have
financed our capital expenditures with cash generated from our operations.
Our capital expenditures in 2021, 2020 and 2019 consisted primarily of acquisition of operational equipment for $
7.0 million, $3.9 million, and $7.1 million respectively.
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 UBI (usage base insurance). 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, Argentina, Mexico, Ecuador, Colombia, United States, Canada and 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 Defense 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 2021, 70% of our revenues were attributable to our telematics services. As of December 31, 2021, we provided
our services in Israel, Brazil, and other countries to approximately 653,000, 453,000, and 775,000 subscribers,
respectively.
Following RTH Transaction we have direct agreements with 2 major car manufacturers and our products developed
by RTH subsidiary are embedded in the cars or otherwise approved by the car manufacturer. This connection requires us
to stand up for 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.
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, 2021,
we provided our services to approximately 421,000 end-users through 25,000 corporate customers in countries where we
operate directly and through distributers.
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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, Mexico, Colombia, Ecuador and Argentina. 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, Argentina, Ecuador,
Colombia and Brazil.
"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, Colombia, Mexico,
Argentina and Ecuador.
“Usage Based Insurance” (UBI) – we have developed a unique product (hardware and software) that measure and
analyze the driving behavior 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 seven Israeli
insurance companies and we intend to accelerate its marketing and work with additional insurance companies in year
2022.
“Auto Financing” - A strong second-hand car market in many of our geographies in Latin America, and new fintech
startups as well as the 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 behavior and
thereby to decrease the risk of the loan pledged against the car.
Telematics Products
In 2021, 30% 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 Telematics services as described above to our customers. Each subscriber to our services has our telematics
end-unit installed in his or her vehicle. Subscribers to services for locating equipment and merchandise will 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, Mexico, Colombia, Ecuador and Argentina,
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.
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.
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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:
•
•
•
•
•
•
•
•
the ability to locate the fleet’s vehicles;
continuous data communication with the fleet’s vehicles;
real-time vehicle status indicators: speed, distance driven, direction of travel, driver name, motion
start/stop, engine start/stop, speeding, diagnostic alerts, driver behavior and more;
recording of determined events and analysis of data over time to improve driving and vehicle use;
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;
connection to standard organization systems;
accident notification;
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, Ecuador, Colombia, Mexico and Argentina.
Concierge services. 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 Argentina, Ecuador, Colombia and Israel.
“UBI” and "Connected Car". We provide UBI services in Israel through seven insurance companies, and
Connected Car services in Israel, Brazil, Colombia, Mexico, Argentina and Ecuador. 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;
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;
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;
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Geographical Information
The following table lists the key services and products that we currently sell or lease in different regions of the world:
Country
Israel
Services offered
SVR,
Products sold
Telematics Products
Fleet Management,
Value-added services, including:
Connected Car,
UBI
Brazil, Argentina,
Mexico, Ecuador, Colombia
SVR,
Fleet Management,
Telematics Products
United States
Value-added services, including:
Connected Car
SVR,
Fleet Management,
Value-added services, including:
Asset protection to Auto Lenders
Telematics Products
In each of the above countries we maintain a control center, 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 (including through RTH subsidiaries):
■
■
■
■
■
■
Israel: We commenced operations in Israel in 1995 and we had approximately 653,000 subscribers as of
December 31, 2021. 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 453,000 subscribers as of
December 31, 2021. The operations were expended through M& A transactions with local companies
(following the RTH Transaction) as well as 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.
Argentina: We commenced operations in Argentina in 2002. We currently provide 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.
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.
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 of Israel and Brazil), and others, we had approximately 775,000
subscribers as of December 31, 2021.
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. In 2019 one of our customers comprised 15.8% of our total annual revenues. In 2020 and 2021 no
single customer or group of related customers comprised more than 10% of our total annual revenues.
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Our selling and marketing objective is to achieve broad market penetration through targeted marketing and sales
activities. As of December 31, 2021, our selling and marketing team consisted of 84 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, 2021, 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) and
private subscribers.
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 cars and
cooperative sales channels (mostly vehicle fleet operators and owners). 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, 2021, we provided our services to approximately 421,000 end
users through 25,000 corporate customers and individuals in Israel, Brazil, Argentina, United States, Mexico, Colombia,
Ecuador and through distributers in other regions.
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 user's mobile app, and additional related operational, and
marketing services, as well as information analysis.” Connected Car’ is operating in Israel, Brazil, Colombia, Mexico,
Argentina and Ecuador. As of December 31, 2021 we had 472,000 subscribers.
“Usage Based Insurance (UBI)" – we have developed a unique product (hardware and software) that measure
and analyze the driving behavior 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 Seven Israeli
insurance companies and we intend to accelerate its marketing and work with additional insurance companies in year
2022.
(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.
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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.
Fleet Management
The vehicle fleet management market is highly fragmented with many corporations offering location products
and services. Our major competitors are:
•
Israel: Pointer, ISR, Traffilog and Skylock;
• United States: GPS Insight, Trimble, Network Fleet, Street Eagle, FleetMatics, Navtrack, Teletrac, Trim
Track, FleetBoss, PassTime, Verizon, AT&T, Geotab, Fleet-Complete,Sprint, Zubie, and Spireon;
• Brazil: Sascar, Zatix, CEABS, 3S and GolSat;
• Argentina: LoJack Corporation, Megatrans SA., Sitrac S.A., American Tracer, Ubicar S.A.,Sky Cop. and
Prosegur S.A;
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• 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 Defense 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.
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,
although’ the impact on our total purchase cost was immaterial,
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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 favorable 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.
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.
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In addition, we also have an “environmental policy”. This policy sets goals in terms of preserving the
environment, raising employees 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.
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.
Our frequency license in Israel was renewed for a term of five (5) years until January 31, 2023. Our frequency
licenses in Brazil will expire in 2034. Except in Brazil, 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.
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 trail.
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.
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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 Defense 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.
We are continuously in the process of obtaining the relevant permits required for the construction of our base
sites in Israel, however, to date, we have been issued only 15 of these permits (13 of them have expired). With respect to
the general permit from Israel’s Land Administration, in 2005 we entered into an agreement with the Israel’s Land
Administration, pursuant to which the general permit has been issued to us against an annual consideration based on the
date of approval of our base sites. The agreement had expired on December 31, 2010. In the event that the Israel Land
Administration claims consideration for the building of the base sites without a permit, we may be subject to penalties
and payment of annual consideration for the years of use of those base sites.
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.
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
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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 closure 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 behavior.
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 investment 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 16.9% 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).
During the years 2017 – 2021 we invested additional amount of approximately $0.8 million.
On June 2020 SaverOne have consummated public registration on the Israeli Stock Market (“TASE”) and thus
its shares became equity investment with readily determinable fair value. We now hold approximately 9.7% of
SaverOne’s share capital.
As of December 31, 2021, the fair value of our investment in SaverOne is approximately US$ 4.3 million.
On December 29, 2021, SaverOne filed with the SEC a confidential submission of Form F-1.
C.
ORGANIZATIONAL STRUCTURE
In July 1995, Moked Ituran Ltd. purchased our company and the assets used in connection with its 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.
23
List of Significant Subsidiaries
Name of Subsidiary
Country of
Incorporation
Proportion of
Ownership
Interest
Ituran USA Holdings Inc............................................................................
Ituran USA Inc ...........................................................................................
Ituran de Argentina S.A .............................................................................
Ituran Sistemas de Monitoramento Ltda ....................................................
Ituran Instalacoes Ltda ...............................................................................
Teleran Holding Ltda .................................................................................
Ituran servicos Ltda ....................................................................................
E.R.M. Electronic Systems Limited ...........................................................
Mapa Mapping & Publishing Ltd ...............................................................
Ituran Spain Holding S.L ...........................................................................
Ituran Road Track Monitaramento de Veiculos LTDA ..............................
Ituran Road Track Argentina, S.A..............................................................
Global Telematics Solutions HK, Limited .................................................
Road Track De Colombia S.A.S ................................................................
Road Track Ecuador, S.A. ..........................................................................
Road Track Mexico S.A. De C.V ...............................................................
Road Track HK Telematics Limited ..........................................................
E.D.T.E – Drive Technology Ltd ...............................................................
Ituran Tech Ltd ...........................................................................................
D.
PROPERTY, PLANTS AND EQUIPMENT
USA
USA
Argentina
Brazil
Brazil
Brazil
Brazil
Israel
Israel
Spain
Brazil
Argentina
Hong Kong
Colombia
Ecuador
Mexico
Hong Kong
Israel
Israel
100%
85.80%
100%
98.75%
98.75%
99.99%
98.75%
49.5%1
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99.99%
As of the date of this report, we don’t own any real estate other than the following properties: An office building
of 8 floors in the area of 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 us, 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 23,875 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.
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 2021 we leased an aggregate of approximately 61,876 square feet of office space in Azour and Holon, Israel.
In 2021, the annual lease payments for these facilities were approximately $1,292,000. The initial term of the primary
lease (in Azour) expired on March 31, 2013; and we renewed the lease until April 2022. The lease is expected to be
extended for additional 7 years under the same terms. 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 3,000 square feet for a warehouse and
offices in Tirat Ha’Carmel for $ 62,000 annually.
In Buenos Aires, Argentina, we lease approximately 8,611 square feet for office space for the total amount of
AR$12.772.992 ($ 98.253) annually, approximately 1,238 square feet for our control center for AR$ 3.258.000 ($
25.061) annually and approximately 2,121 square feet for our warehouse for AR$ 2.040.000 ($ 15,692) annually.
24
In Bogota, Colombia, we lease approximately 9,035 square feet for office space and Operating center for the
amount of $63,049 annually,
In Mexico City, Mexico, we lease approximately 3,875 square feet for Corporate Office for the amount of $
35,000 annually. This was terminated in November 2020. Additionally, 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 ($48,000) 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 2,459 square feet for Warehouse for the amount of $ 30,000
annually. In Quito, Ecuador, we lease approximately 1,014 square feet for Warehouse for the amount of $ 11,700
annually. In Cuenca, Ecuador, we lease approximately 170 square feet for Warehouse for the amount of $ 3,400
annually. In Ibarra, Ecuador, we lease approximately 349 square feet for Corporate Office for the amount of $ 1,800
annually.
We leased approximately 9,260 square feet for our offices and control center in Florida for an amount of $
166,500 annually for period of 60 months commencing March 24, 2016 and ended March 23, 2021, and a 24 monthes
extension starting March 24, 2021 at a reduced annual rate of $146,000 annually.
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.
1 The proportion of voting power is 51%.
25
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 147 base station sites, of which 23 sites
are leased from the same entity under a 15 years-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.
ITEM 4.A.
UNRESOLVED STAFF COMMENTS
Not applicable
ITEM 5:
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A.
OPERATING RESULTS
The following discussion and analysis should be read in conjunction with our consolidated financial
statements and notes thereto included elsewhere in this report.
Introduction
We believe we are a leading provider of telematics services, consisting predominantly of stolen vehicle
recovery, which we refer to as SVR, and tracking services. We also provide telematics products used in connection with
our SVR services and for various other applications. We currently provide our services and sell and lease our products
mainly in Israel, Brazil, Argentina and the United States and since September 2018 also in Colombia, Mexico and
Ecuador.
Our operations consist of two segments: Telematics services and telematics products.
Our telematics services segment consists of our SVR, "Connected Car" fleet management, UBI, and other
value-added services. We currently operate our telematics services throughout the regions we operate.
Our telematics products segment consists of our short - and medium-range two-way telematics products. We
sell our telematics end-units to customers that subscribe to our telematics services.
Outlook
We have historically experienced 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 increase their sales by adding additional value to the customer, and hence the Brazilian market continues to represent
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 an increased car sales
which positively affect our sales as compared with previous years.
Please refer to Item 3D. – Risk Factors above in respect of factors that could negatively impact our business.
26
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:
Israel .................................................................................................................
Brazil ................................................................................................................
Others ...............................................................................................................
As of December 31,
2020
643,000
452,000
673,000
2021
653,000
453,000
775,000
2019
610,000
489,000
682,000
Total(1) ............................................................................................................. 1,881,000 1,768,000 1,781,000
(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.
2021
Year ended December 31,
2020
In USD, in Millions
Telematics
services
Telematics
products
Telematics
services
Telematics
products
Israel .........................
Brazil ........................
Others .......................
96.5
55.2
37.9
Total(1) ......................
189.6
44.1
2.6
34.6
81.3
85.1
60.0
37.8
182.9
35.4
1.5
25.8
62.7
(1) We attribute revenues to countries based on the location of the customer.
Telematics services segment
2019
Telemati
c services
77.6
85.1
42.0
204.7
Telematics
products
32.5
12.9
29.2
74.6
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 95% 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, Argentina, Mexico,
Colombia, Ecuador and the United States. 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.
27
Telematics products segment
The cost of revenues in our telematics products segment consists primarily of production costs of our third-party
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. 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.
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.
28
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”).
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.
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 its best estimate of the relative standalone
selling price of each distinct good or service 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.
In accordance with ASC 606, our 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 our performance as we perform.
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, we analyze 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. Our promise to transfer the good
29
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,we
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, we estimate 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 we sell 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, right to use assets (AVL products installed in customer
vehicles) and installation services, 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.
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 us (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, we 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.
6. Extended warranty
In the majority of countries, in which the we operate, 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.
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:
A. An amount of approximately $35.8 million (as of December 31, 2021) relates to two different reporting units
(resulted from the RT acquisition). we have historically performed an annual goodwill assessment as of June 30
of each year or more often if indicators of impairment are presented (including June 30, 2021). During the
fourth quarter of 2021, following the second closing of the RT acquisition we decided to change the date of its
30
annual impairment assessment from June 30 to December 31. The change was made because we believe that the
second closing gives a fair value to the goodwill presented in its report.
B. An amount of approximately $4.2 million (as of December 31, 2021) relates to two different reporting units
(resulted from past acquisitions) is tested on December 31 of each year, or more often if indicators of
impairment are present.
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 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, 2021, 2020 and 2019, we 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 (resulted from
past acquisitions) with an allocated amount of approximately US$ 2.0 million of goodwill, we performed a qualitative
assessment as of December 31, 2021 and 2020, 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$ 32.2
million of goodwill (as of December 31, 2021), we performed the annual impairment test, as of June 30, 2021 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.
Accordingly, we performed a qualitative assessment as of December 31, 2021, 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 US$ 2.2 million of goodwill, we performed a qualitative
assessment as of December 31, 2021 and 2020, 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.
31
For the second reporting unit (resulted from RT acquisition) with an allocated amount of approximately US$ 3.6
million of goodwill (as of December 31, 2021), we performed the annual impairment test, as of June 30, 2021 and
reached to a conclusion that no impairment should be recorded at that point. The impairment test was performed using
the second approach (quantitative test).
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, 2021, 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.
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:
Revenues:
Telematics services ..................................................................................
Telematics product ...................................................................................
Total Revenues .........................................................................................
Cost of Revenues:
Telematics services ..................................................................................
Telematics products .................................................................................
Total cost of revenues ..............................................................................
Gross profit ..............................................................................................
Operating Expenses:
Research and development expenses .......................................................
Selling and marketing Expenses...............................................................
General and administrative expenses, net ................................................
Impairment of goodwill ............................................................................
Impairment of intangible assets and other expenses (income), net ..........
Total operating expenses .......................................................................
Operating Income .....................................................................................
Other income expenses, net ......................................................................
Financing income, net ..............................................................................
Income before income tax ........................................................................
Income tax ................................................................................................
Share in gains (losses) of affiliated companies, net .................................
Net income for the year ............................................................................
Less: net income attributable to non-controlling interests ........................
Net income attributable to company stockholders ...................................
Year Ended December 31,
%
2020
2021
2019
70.0
30.0
100
31.3
22.0
53.3
46.7
5.2
4.4
17.0
-
(0.1)
26.5
20.2
(0.1)
(2.0)
18.1
(4.4)
(0.1)
13.6
(1.0)
12.6
74.5
25.5
100
33.2
19.8
53.0
47.0
5.2
4.5
20.2
4.3
1.5
35.7
11.3
(0.1)
0.6
11.8
(4.4)
(0.3)
7.1
(0.5)
6.6
73.3
26.7
100
32.3
21.0
53.3
46.7
5.0
4.6
19.7
4.4
4.9
38.6
8.1
-
0.2
8.3
(4.4)
(1.1)
2.8
(0.3)
2.5
Analysis of our Operation Results for the Year ended December 31, 2021 as compared to the Year ended December
31, 2020
Revenues
Total revenues increased from $245.6 million in 2020 to $270.9 million in 2021 or 10%. This increase consisted of
an increase of $ 6.7 million from subscription fees from our telematics services and an increase of $ 18.6 million from
sales of our telematics products.
Telematics services segment
Revenues in our telematics services segment increased by $ 6.7 million from $ 182.9 million in 2020 to $189.6
million in 2021, or 4 %. Mainly due to the increase in 113,000 subscribers.
32
Telematics products segment
Revenues in our telematics products segment increased from $ 62.7 million in 2020, to $81.3 million in 2021 or 30
%. This increase of $18.6 million is primarily due to an increase in sales, mainly in our business in Israel. This increase
was also affected by a positive impact of exchange rate fluctuations of the NIS vs the USD in an amount of approximate
$3.6 million.
Cost of revenues
Total cost of revenues increased from $ 130.1 million in 2020, to $144.4 million in 2021 or 11%. This increase
consisted of an increase of $3.4 million in the telematics services segment and an increase of $10.9 million in the
telematics product segment. As a percentage of total revenues, cost of revenues remain intact approximately 53%.
Telematics services segment
Cost of revenues for our telematics services segment increased from $81.4 million in 2020, to $84.8 million in 2021
or 4 %. This increase was primarily due to the effect of exchange rate fluctuations in an amount of approximately $ 1.4
million and an increase in salary expenses of approximately $2.3 million. As a percentage of total revenues for this
segment, cost of revenues slightly increased from 44.5% in 2020 to 44.7% in 2021.
Telematics products segment
Cost of revenues for our telematics products segment increased from $ 48.7 million in 2020, to $ 59.6 million in
2021 or 22%. This increase was mainly due to the increase in our products’ sales. As a percentage of total revenues for
this segment, cost of revenues decreased from 77.8 % in 2020, to 73.4% in 2021.
Operating expenses
Research and development
Our research and development expenses increased from $ 12.8 million in 2020 to $ 14.1 million in 2021. As a
percentage of total revenues, research and development expenses did not increase, and remain at 5.2 % in 2020 and in
2021.
Selling and marketing
Our selling and marketing expenses increased from $ 11.0 million in 2020 to $ 11.9 million in 2021. As a percentage
of total revenues, selling and marketing expenses slightly decreased from 4.5 % in 2020 to 4.4 % in 2021.
General and administrative
General and administrative expenses decreased from $49.7 million in 2020, to $ 46.1 million in 2021 or 7%. The
decrease was mainly due to the effect of allowance for doubtful accounts in amount of $4.2 million, the abovementioned
were offset primarily due to an increase in salaries expenses in an amount of $0.8 million. As a percentage of total
revenues, general and administrative expenses decreased from 20.2% in 2020 to 17.0% in 2021.
Impairment of goodwill
During 2021, we did not record any goodwill impairment loss.
On June 30,2020, an impairment of approximately $10.5 million was recorded, primarily due to increase in the
country’s risk indicator, as part of the effects of Covid - 19.
Impairment of intangible assets and other expenses (income), net
During 2021 no intangible assets impairment loss was recorded. During 2020 the company recorded an intangible
assets impairment loss in the amount of approximately US$ 3.7 million, respectively. The impairment was recorded in
the consolidated statement of income under "Impairment of intangible assets and other expenses".
Operating income
Total operating income increased from $ 27.8 million in 2020, to $54.6 million in 2021 or 96 %. This increase of
approximately $ 26.8 million was mainly due to the impairment loss in an amount of approximately $ 14.2 million
recorded in 2020. The rest of the increase of approximately $ 12.6 million reflects an increase of $ 8.1 million in the
33
operating income in the telematics service segment and an increase of $ 4.5 million in the operating income in the
telematics products segment.
Telematics services segment
Operating income in our telematics services segment increased from $28.6 million in 2020 to $ 48.1 million in 2021,
or 68 %. This increase was mainly attributed to the impairment of goodwill and of impairment of intangible assets of
$11.3 million recorded on 2020, and from the increase of our subscriber’s client base.
As a percentage of our telematics services segment revenues, operating income in our telematics services segment
increased from 15.7 % in 2020 to 25.3 % in 2021.
Telematics products segment
Operating income (loss) in our telematics products segment increased from loss of $0.8 million in 2020 to income of
$6.5 million in 2021. This increase in operating income was mainly attributed to the impairment of goodwill and
intangible assets of $2.8 million recorded in 2020 and from the increase of our revenues in our telematics products
segment.
As a percentage of our telematics services segment revenues, operating income (loss) in our telematics services
segment increased from (1.3) % in 2020 to 8 % in 2021.
Financing income, net
Financing income, net, were $ 1.5 million in 2020 compared with an expense of $ 5.5 million in 2021.
The increase in the financing expense was mainly due to an increase in losses in respect of marketable securities
from an income amount of $4.3 million in 2020 to an expense in an amount of $2.4 million in 2021.
Income Tax
Income Tax expenses increase from $ 10.9 million in 2020, to $ 11.9 million in 2021 or 9%. As a percentage of
income before tax, income tax expenses decreased from 37.4% in 2020 to 24.2% in 2021 primarily due to an (non-
deductible for tax) impairment in goodwill and intangible assets related to RTH transaction in 2020 in an amount of $
14.2 million, and no impairment in goodwill and intangible assets related to RTH transaction in 2021. Also, a (non-
deductible for tax) gain in 2020 and losses in 2021 in respect of marketable securities value.
As a percentage from income before tax, exclude the impairment which mentioned above, income tax expenses
decreased from 25.5% in 2020 to 24.2% in 2021.
Analysis of our Operation Results for the Year ended December 31, 2020 as compared to the Year ended December
31, 2019
Revenues
Total revenues decreased from $279.3 million in 2019 to $245.6 million in 2020 or 12%. This decrease consisted a
decrease of $ 21.8 million from subscription fees from our telematics services and a decrease of $ 11.9 million from sales
of our telematics products.
Telematics services segment
Revenues in our telematics services segment decreased by $ 21.8 million from $ 204.7 million in 2019 to $182.9
million in 2020, or 10.6 %. Mainly due to the negative fluctuation of the Brazilian Real vs the USD in an amount of
approximately $17.3 million.
Telematics products segment
Revenues in our telematics products segment decreased from $ 74.6 million in 2019, to $62.7 million in 2020 or 16
%. This decrease of $11.9 million is primarily due to a decrease in sales, mainly in our business relating to the OEM
market in Brazil. This decrease was offset by a minor positive impact of exchange rate fluctuations of the NIS vs the
USD in an amount of approximate $0.4 million.
34
Cost of revenues
Total cost of revenues decreased from $ 148.8 million in 2019, to $130.1 million in 2020 or 12.6%. This decrease
consisted of a decrease of $8.8 million in the Telematics services segment and a decrease of $9.9 million in the
telematics product segment. As a percentage of total revenues, cost of revenues decreased from 53.3% in 2019 to 53% in
2020.
Telematics services segment
Cost of revenues for our Telematics services segment decreased from $90.2 million in 2019, to $81.4 million in
2020 or 9.8 %. This decrease was primarily due to the effect of exchange rate fluctuations in an amount of approximately
$ 7.9 million and a decrease in salary expenses of approximately $3 million, the abovementioned were offset by
increased in some other expenses items in insignificant amount each. As a percentage of total revenues for this segment,
cost of revenues increased from 44.0% in 2019 to 44.5% in 2020.
Telematics products segment
Cost of revenues for our telematics products segment decreased from $ 58.6 million in 2019, to $ 48.7 million in
2020 or 16.9 %. This decrease was mainly due to the decrease in our products’ sales. As a percentage of total revenues
for this segment, cost of revenues decreased from 78.6 % in 2019, to 77.8% in 2020 mainly due to a change in the
mixture of products sales.
Operating expenses
Research and development
Our research and development expenses decreased from $ 13.9 million in 2019 to $ 12.8 million in 2020. As a
percentage of total revenues, research and development expenses increased slightly from 5.0 % in 2019 to 5.2 % in 2020.
Selling and marketing
Our selling and marketing expenses decreased from $ 12.8 million in 2019 to $ 11 million in 2020. As a percentage
of total revenues, selling and marketing expenses decreased slightly from 4.6 % in 2019 to 4.5 % in 2020.
General and administrative
General and administrative expenses decreased from $55.2 million in 2019, to $ 49.7 million in 2020 or 10%. The
decrease was mainly due to the effect of exchange rate fluctuations in amount of $5 million and a decrease in salary
expenses of approximately $1.8 million. The abovementioned were offset primarily due to an increase in insurance cost
in an amount of $0.5 million and allowance for doubtful accounts in an amount of $1 million. As a percentage of total
revenues, general and administrative expenses increased from 19.7% in 2019 to 20.2 % in 2020.
Impairment of goodwill
On June 30,2020, an impairment of approximately $10.5 million was recorded, primarily due to increase in the
country’s risk indicator, as part of the effects of Covid - 19. On December 31,2020, based on our qualitative assessment,
no additional negative factors were spotted, therefore another impairment was not indicated.
On December 31, 2019, an impairment on the amount of $12.3 million was recorded primarily due to the increase in
the country’s risk indicator.
Impairment of intangible assets and Other expenses (income), net
During 2020 and 2019 thej company recorded an intangible assets impairment loss in the amount of approximately
US$ 3.7 million and US$ 13.9 million, respectively. The impairment was recorded in the consolidated statement of
income under “Impairment of intangible assets and other expenses”.
Other expenses
Other expenses in amount of $0.3 million in 2020 was mainly due to one-time reduction of one of our investments in
other companies. In 2019 other expenses was in amount of $26 thousand.
35
Operating income
Total operating income increased from $ 22.7 million in 2019, to $27.8 million in 2020 or 22.5 %. This increase of
approximately $ 5.1 million reflects an increase of $ 2.5 million in the operating income in the telematics service
segment and a decrease of $ 2.6 million in the operating loss in the telematics products segment.
Telematics services segment
Operating income in our telematics services segment increased from $26.1 million in 2019 to $ 28.6 million in 2020,
or 9.6 %. This increase was mainly attributed to the decrease in the impairment of goodwill and of impairment of
intangible assets from $22 million in 2019 to $11.3 million in 2020 which were offset by effect of the exchange rates
fluctuation and from the decrease of our gross revenues in our telematics services segment.
As a percentage of in our telematics services segment revenues, operating income in our telematics services segment
increased from 12.7 % in 2019 to 15.7 % in 2020.
Telematics products segment
Operating loss in our telematics products segment decreased from $3.4 million in 2019 to $0.8 million in 2020. This
decrease in operating loss was mainly attributed to the decrease in the impairment of goodwill and of impairment of
intangible assets from $4.2 million in 2019 to $2.9 million. And from the decrease of our gross revenues in our
telematics products segment.
As a percentage of in our telematics services segment revenues, operating losses in our telematics services segment
increased from (4.6) % in 2019 to (1.3) % in 2020.
Financing income, net
Financing income, net, was $ 0.6 million in 2019 compared with $ 1.5 million in 2020.
The increase in the financing income was mainly due to an increase in gain in respect of marketable securities and
other investments in an amount of $4.6 million. The abovementioned were offset by a decrease in income in respect of
changes in obligation to purchase non-controlling interests in an amount of $2.4 million and an increase in expenses
related to taxes positions in an amount of $0.7 million.
Income Tax
Income Tax expenses decreased from $ 12.2 million in 2019, to $ 10.9 million in 2020 or 10.6 %. As a percentage of
income before tax, income tax expenses decreased from 52.7% in 2019 to 37.4 % in 2020 primarily due to recorded an
(non- deductible for tax) impairment in goodwill and intangible assets related to RTH transaction in 2019 in an amount
of $ 22.9 million, and in 2020 in an amount of $13.3 million.
As a percentage from income before tax, exclude the impairment which mentioned above, income tax expenses
decreased from 27.1% in 2019 to 25.5% in 2020.
Impact of Currency Fluctuations on Results of Operations, Liabilities and Assets
Although we report our consolidated financial statements in dollars, in 2019, 2020 and 2021, a portion of our
revenues and direct expenses was derived in other currencies. For fiscal years 2019, 2020 and 2021 we derived
approximately 29.3%, 30.6% and 26.6% of our revenues in dollars and other currencies, 40.0%, 49.2% and 52.0% in
NIS, 30.7%, 20.2% and 21.4% in Brazilian Reals. In fiscal years 2019, 2020 and 2021, 33.4%, 29.0% and 30.9% of our
expenses were incurred in dollars and other currencies, 42.5 %, 50.6% and 52.3% in NIS and 24.1%, 20.4% and 16.8%
in Brazilian Reals.
Exchange differences upon translation of our financial statements from the functional currency (NIS) to US Dollars
(presentation currency) are accumulated as a separate component of accumulated other comprehensive income under
stockholders’ equity. In the years 2021, 2020 and 2019 the effect of the translation that was carried to accumulated other
comprehensive income was ($ 2.9) million, ($ 12.9) million and ($ 4.1) million, respectively.
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:
36
2019
At 2018
exchange
rates (1)
Actual
Revenues .....................
Gross profit .................
Operating income ........
279,332
130,518
22,654
289,676
135,730
25,419
Year Ended December 31,
2020
Actual
At 2019
exchange
rates (1)
(In thousands of US$)
245,627
115,515
27,831
262,529
122,708
31,229
2021
At 2020
exchange
rates (1)
Actual
270,884
126,482
54,615
264,507
123,734
53,595
(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.
B.
LIQUIDITY AND CAPITAL RESOURCES
We fund our operations primarily from cash and cash equivalents generated from operations. As of December, 31
2019, 2020 and 2021, we had $ 54.3 million, $78.8 million and $54.7million in cash and marketable securities and $73.1
million, $66.7 million and $58.1million 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, 2021 we had a long- term loan from an Israeli bank at the amount of $ 13.2million and a short
term loans at the amount of $ 18.3 million. As of December, 2020 we had a long - term loan from an Israeli bank at the
amount of $ 34.1 million and a short term loans at the amount of $ 20.4 million. As of December 31, 2019, 2020 and
2021, we also had $ 4.1 million, $ 1.9 million and $1.6 million respectively, available to us under existing lines of credit.
As of December 31, 2019, we did not use our credit line, as of December 31, 2020 utilized $0.3 million of our credit line,
and as of December 31,2021 we utilized $ 0.7 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, 2019, 2020 and 2021 we had long-term liabilities of, $17.0 million, $19.7 million and $22.5
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 $11.5 million, $13.6 million and
$16.2 million as of December 31, 2019, 2020 and 2021 respectively. The deposited funds include profits accumulated up
to the balance sheet date and may be withdrawn upon the fulfillment of the obligation pursuant to Israeli severance pay
laws or labor agreements.
In Argentina, new economic policies related to the external sector have been in effect since August 2019, motivated by
the liabilities in dollars and the inability of the Government to deal with it in the initially agreed terms. These measures
were initially taken by the outgoing Government and then deepened by the new elected Government that began on
December 10, 2019. The following regulations currently apply:
1. Currency market:
a. Individuals can only acquire dollars for savings, in the amount of US $ 200 per month. On this purchase
applies 35% taxes. It applies for all abroad and tourism expenses also.
b. Companies are not allowed to acquire dollars.
37
2. Imports:
a. The Information System called SIMI is maintained. Imports and their payments require prior
authorization from the government.
b. Payment for the importation of services also requires authorization from the government.
c. Both types of imports (goods and services) require compliance with Transfer Pricing Report and other tax
regulations.
3. Income Tax and Dividends:
a. Payment of dividends to shareholders abroad requires prior authorization from the Central Bank.
b. The following chart shows the new scenario for the Corporate Income Tax rate that will apply for fiscal years
commencing since January 1st, 2021.
The amount will be adjusted by inflation since January 2022.
Accumulated net taxable profit
will pay a fix amount of plus a
the following amount
More than AR$
up to AR$
% over
AR$
AR$
AR$
- AR$
5.000.000,00 AR$
- 25% AR$
-
5.000.000,00 AR$
50.000.000,00 AR$
1.250.000,00 30% AR$
5.000.000,00
50.000.000,00
en adelante
AR$
14.750.000,00 35% AR$
50.000.000,00
c. On dividends originated 7% tax will be withheld as shareholders Income Tax.
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.
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.
Dividend we declare in respect to 2019 result:
In May 21, 2019 we declared a quarterly dividend in the amount of $5 million, which was paid (net of taxes at the
rate of 25%) on July 3, 2019, with respect to the first quarter of 2019. On August 28, 2019 we declared a quarterly
dividend in the amount of $5 million, which was paid (net of taxes at the rate of 25%) on October 10, 2019, with respect
to the second quarter of 2019. On November 25, 2019 we declared a quarterly dividend in the amount of $5 million,
which was paid (net of taxes at the rate of 25%) on January 9, 2020, with respect to the third quarter of 2019. On March
4, 2020 we declared a quarterly dividend in the amount of $5 million, which was paid (net of taxes at the rate of 25%) on
April 7, 2020 with respect to the fourth quarter of 2019.
38
Dividend we declare in respect to 2020 result:
On May 13, 2020, we declared the suspension of the dividend distribution due to the Covid-19 pandemic. On March
3, 2021, we declared the renewal of the dividend distribution policy of at least $3 million a quarter. On the same date we
also declared a quarterly dividend in an amount of $10 million, which was paid (net of taxes at the rate of 25%) on April
6, 2021 with respect to the fourth quarter of 2020.
Dividend we declare 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.
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 Rule10b-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 April 2022, until April 15, we purchased additional 21,089 shares.
As of April 15, 2022, the updated quantity of treasury shares is 2,962,934 (including 477,642 shares which are
entitled to dividend distributed).
The following table sets forth the components of our historical cash flows for the periods indicated:
2021
Year ended December 31,
2020
(In thousands)
2019
Net cash provided by operating activities .............................................
Net cash used in investing activities......................................................
Net cash used in financing activities .....................................................
Effect of exchange rate changes on cash and cash equivalents .............
Net increase/decrease in cash and cash equivalents ..............................
55,790
(18,524)
(58,666)
(477)
(21,877)
60,068
(11,479)
(29,449)
(921)
18,219
59,679
(18,287)
(38,927)
101
2,566
Years ended December 31, 2021, December 31, 2020 and December 31, 2019
Net cash provided by operating activities
Our operating activities provided cash of $59.7 million in 2019, $60.1 million in 2020 and $55.8 million in 2021.
Cash from operating activities in 2021 decreased in an amount of approximately $ 4.3 million, this decreased was
mainly due to an increase in inventory.
Net cash used in investing activities
Net cash used in investing activities in 2021 in an amount of approximately $ 18.5 million, included capital
expenditure in the amount of $ 16.6 million.
Net cash used in investing activities in 2020 in an amount of approximately $ 11.5 million, included capital
expenditure in the amount of $ 10.2 million.
Net cash used in investing activities in 2019 in an amount of approximately $18.3 million, included capital
expenditure in the amount of $ 18.3 million.
39
Net cash used in financing activities
Net cash used in financing activities in 2021 in an amount of approximately $ 58.7 million consisted primarily a
repayment of short and long term credit from financial institution in an amount of $ 23.6 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.
Net cash used in by financing activities in 2020 in an amount of approximately $ 29.4 million consisted primarily of
a repayment of short and long term credit from financial institution in amount of $ 17 million, cash dividend payment in
an amount of approximately $ 10 million and a cash dividend payment in an amount of approximately $ 1.7 million paid
by our subsidiaries to the non - controlling interests.
Net cash used in by financing activities in 2019 in an amount of approximately $ 38.9 million consisted primarily of
a repayment of short and long term credit from financial institution in amount of $ 11.1 million, cash dividend payment
in an amount of approximately $ 19.8 million and a cash dividend payment in an amount of approximately $ 2.0 million
paid by our subsidiary to the non - controlling interests, and acquisition of our shares for $ 6 million.
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 $14.1 million in 2021 $
12.8 million in 2020, and $ 13.9 million in 2019.
D.
TREND INFORMATION
As a result of the COVID-19 pandemic, as near-term measures, we have transitioned many of our employees to
remote working arrangements. The transition has had little impact on our employee productivity and has not caused
material interruption to our business.
We are unable to accurately predict the impact that COVID-19 will have on our operations going forward due to
uncertainties that will be dictated by the length of time that the pandemic and related disruptions continue, the impact of
governmental regulations that might be imposed in response to the pandemic and overall changes in consumer behavior.
Numerous state and local jurisdictions have imposed, and others in the future may impose, “shelter-in-place” orders,
quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of
COVID-19. Governments all over the world are continuing to impose limitations on gatherings, social distancing
measures and restrictions on movement, only allowing essential businesses to remain open. Such orders or restrictions
have and are continuing to result in temporary store closures, work stoppages, slowdowns and delays, travel restrictions
and cancellation of events, among other effects, any of which may negatively impact workforces, customers, consumer
sentiment and the economies in many of our markets, and as a result, may adversely affect our operations.
COVID-19 pandemic may have a negative effect on our business in the forthcoming quarters in several spheres. In
order to mitigate our expenses we reduced the basic monthly payments of some of our senior management by 25% and
deferred payments of part of their bonuses (see Item 6.B hereinafter), reduced salaries of our employees by 10%-40%
(especially in 2nd and 3rd quarters of year 2021) which reduction we lifted recently. We also halted our dividend
distribution until recently (see Item 5B above on page 34) and also either reduced some of the payments for services
rendered by developers as well as reduction of rental payments. The aforementioned should be deemed as a forward-
looking analysis under Section 21E of the Securities Exchange Act and Section 27A of the Securities Act, 1933.
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,
40
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to
investors.
F.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
Contractual obligations and commercial commitments
The following table summarizes our material contractual obligations as of December 31, 2021:
Contractual obligations
Total
Less than
1 year
1-3 years
3-5 years
After 5 years
(In USD thousands)
Payments due by period
*Operating leases ...................................
Purchase Obligations ..............................
Long – term debt obligations .................
Total ......................................................
5,174
17,843
31,426
54,443
2,768
17,843
18,257
38,868
1,567
-
13,169
14,736
614
-
-
614
225
-
-
225
* Please see consolidated financial statements, Note 7.
G.
SAFE HARBOR
The safe harbor provided in Section 27A of the Securities Act and Sections 21E of the Exchange Act shall apply,
among other things, to forward looking information provided in Item 5. F.
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
DIRECTORS AND SENIOR MANAGEMENT
The following persons are our directors, senior management and employees upon whose work we are dependent:
Name
Age
Position
Izzy Sheratzky ...................................
Yehuda Kahane .................................
Ze’ev Koren ......................................
Efraim Sheratzky ...............................
Eyal Sheratzky ..................................
Nir Sheratzky ....................................
Gil Sheratzky .....................................
Yoav Kahane(1)(2) ............................
Yigal Shani ........................................
Israel Baron (1)(2)(3) + .............................
Gidon Kotler (1)(2)(3) .......................
Tal Sheratzky- Jaffa ..........................
Ami Saranga ......................................
Eli Kamer ..........................................
Guy Aharonov ...................................
Udi Mizrahi .......................................
Shahar Sheratzky ...............................
75
77
77
69
53
50
44
48
77
68
81
44
58
55
56
50
42
President and director
Director
Chairman of the Board of Directors and an independent director
Director
Co-Chief Executive Officer and Director
Co-Chief Executive Officer and Director
CEO of our Subsidiary, International Activity and Business
Development Officer and a Director
Director and an independent director
Director
External Director
External Director
Director and an independent director
Deputy Chief Executive Officer
Executive Vice President, Finance; Chief Financial Officer
General Counsel
Deputy Chief Executive Officer International Operation and VP of
Finance
Vice President, head of our business division
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
41
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 Coller 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 Defense 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.
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.
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
42
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
Yoav Kahane has served as director of our company since 1998. Mr. Kahane is serving as Chief Executive Officer of
VIZO Specs Ltd, a start up 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 Chief Business Officer of PrintCB, developer and
manufacturer of Advanced Copper Materials for Car Electrification. Since 2015 Mr. Kahane has co-founded and served
as the Chief Executive Officer of Spot-On Therapeutics Ltd., a startup company that develops a non-invasive brain
stimulation technology for the treatment of balance disorders and falls prevention. 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. 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.
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 reelected on
December 10, 2020 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 shareholders meeting
approved additional extension of the term of Mr. Gideon Kotler, our external director, for additional three years
(beginning April 30, 2020).
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 12, 2019, in annual general shareholders meeting, to serve as director in
Class A for additional period until third succeeding Annual General meeting, thereafter.
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.
43
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 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 of 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. Gideon
Kotler, our external director, for additional three years (beginning April 30, 2017), which was extended to additional
term of three years commencing on April 30, 2020. On December 10, 2020, an annual general and special shareholders
meeting approved the re-election of Mr. Israel Baron, our external director, for additional three years.
Shareholders Agreement and Articles of Association of Moked Ituran Ltd.
Pursuant to Moked Ituran Ltd's 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 shareholdings meeting for the relevant class of directors (four directors in class A and B and three in class C). The
aforementioned is in effect only 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, 2021 was approximately $ 286,000. 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 2021, we paid the sum of NIS 443,000
(approximately $137,000) to our external directors, NIS 200,000 (approximately $ 62,000) to Mr. Ze’ev Koren, NIS
161,000 (approximately $50,000) to Mr. Yoav Kahane, NIS 120,000 (approximately $37,000) to Ms. Tal Sheratzky-
Jaffa. We do not have any agreements with directors providing for benefits upon termination of their respective services
as such.
Due to the Covid-19 effect, since April 2020 we reduced the monthly compensation of our President, Co-CEOs and
manager of the Business Development by 25%. This was lifted since March, 2021. Due to the Covid-19 effect we also
reduced the monthly salaries of our employees by 10%. This was lifted since January 2021. The aggregate costs to the
Company of the compensation to our Co-Chief Executive Officers in 2021 were $4.5 million (including bonuses). The
44
aggregate compensation paid to all of our officers as a group during 2021 was approximately $ 13.4 million. In 2021 we
paid an aggregate amount of $ 69,000 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.
The following table sets forth the breakdown of the compensation of our 5 highest paid officers in 2021 according to
our 2021 financial reports:
Management
fees
Wage
Social
components
Car
value
Bonus
(results
based)
Bonus (Share
yield based)
Total
Compensation components (in thousand US Dollars)
Izzy Sheratzky
(President) ................
Eyal Sheratzky (Co-
Chief Executive
Officer) ....................
Nir Sheratzky (Co-
Chief Executive
Officer) ....................
Gil Sheratzky (CEO
of our Subsidiary.
International
Activity and
Business
Development
Officer) ....................
Shahar Sheratzky
(Vice president,
head of our
business division).....
Total of our 5
highest paid
officers.....................
781
608
608
-
-
-
-
-
-
-
1,228
836
2,845
-
-
975
975
650
2,233
650
2,233
435
-
-
-
697
464
1,596
-
182
44
17
229
-
472
2,432
182
44
17
4,104
2,600
9,379
During 2021, we set aside $535,000for 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 2021, 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.
On December 10, 2020 our annual general meeting of shareholders approved the extension of service agreements as
independent contractors, of Messrs. Izzy Sheratzky, Eyal Sheratzky, Nir Sheratzky and Gil Sheratzky for a period of
additional three years.
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
45
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 2021, we paid a total of $ 842,000to 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.
Our general shareholders meeting approved our compensation policy for office holders on October 31, 2013, and on
November 7, 2016 and later on December 12, 2019 approved a renewal and several minor amendments in our
compensation policy (in order to reflect several changes in Israeli Company Law). 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. For further details, see our full compensation policy
for office holders, which is filed herewith as Exhibit 4.24 under Item 19 – Exhibits.
46
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
47
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.
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 reelected on of
December 10, 2020 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 reelected 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, 2020.
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 and Yoav Kahane. 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
48
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.
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 22nd 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 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 its last combined financial
reports which were published prior to the approval of the transaction.
2.
(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.
Insignificant transaction:
Definition: such transaction which is not higher than 0.25% of the equity of the company according 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
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 the decisions of
the company).
49
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 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.
50
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,
2020
2021
2019
By area of activity:
Control Center ..........................................................................................
Research and Development ......................................................................
Sales and Marketing .................................................................................
Technical support and IT..........................................................................
Finance, Administration and Management...............................................
Private enforcement and operations .........................................................
Manufacturing ..........................................................................................
Total ........................................................................................................
By geographic location (out of total):
Israel .........................................................................................................
Brazil ........................................................................................................
Others .......................................................................................................
Total ........................................................................................................
520
136
84
489
375
1,041
169
2,814
864
782
1,168
2,814
568
137
71
494
351
1,015
125
2,761
855
820
1,086
2,761
552
154
69
467
380
1,143
143
2,908
863
884
1,161
2,908
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 50% 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).
51
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 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).
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.
On December 13, 2019, the new Government issued Decree No. 34/2019, which doubles the amount of
compensation for dismissal without just cause, initially governing a period of 180 days, which was later extended, as
well as the extension of the prohibition of dismissals and suspension without just cause until December 31st, 2021.
Currently the prohibition of dismissals has been repealed, however regarding aggravated compensation, under DNU
886/2021 published on 12/23/2021, has been extended until June 30th, 2022, with a scheme of different and decreasing
percentages in 2-month tranches.
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 1.36%d for January to November 2021 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 a number of 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 installments throughout the year instead of in lump sums. Employees
52
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.
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 (MMS), 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 MMS 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
MMS, 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 sets forth, as of April 15, 2022 the share ownership of our directors and executive officers listed in
Item 6.A above. 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)
Izzy Sheratzky (4)..................................................................................................
Professor Yehuda Kahane (5) ................................................................................
Zeev Koren ..........................................................................................................
Efraim Sheratzky (6) .............................................................................................
Yigal Shani (7) ......................................................................................................
Eyal Sheratzky ....................................................................................................
Nir Sheratzky ......................................................................................................
Gil Sheratzky .......................................................................................................
Yoav Kahane .......................................................................................................
Tal Sheratzky-Jaffa .............................................................................................
Israel Baron .........................................................................................................
Gidon Kotler .......................................................................................................
Ami Saranga ........................................................................................................
Eli Kamer ............................................................................................................
Guy Aharonov .....................................................................................................
Udi Mizrahi .........................................................................................................
Shahar Sheratzky .................................................................................................
* Own less than one percent of our shares.
Number of
Ordinary
Shares
Beneficially
Owned (2)
Percentage of
beneficial
ownership (3)
4,077,317
1,451,137
-
223,008
229,052
-
-
-
-
2,403*
-
105*
-
-
-
-
-
19.87
7.06
-
1.09
1.12
-
-
-
-
0.0112*
-
*
-
-
-
-
-
(1) This table includes only current directors and officers that beneficially hold our shares.
53
(2) Beneficial ownership’ is determined in accordance with the rules of the Securities and Exchange Commission (as
defined in Rule 13d – 3 under the Securities Exchange Act of 1934) 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.
(3) Amounts in this column are based on 23,475,431 ordinary shares issued as of April 15, 2022, less 2,962,934 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 that
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) 3,956 shares directly owned by Efraim Sheratzky, (b) 25,000 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) 25,000 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.
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 15, 2022, 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.
54
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
Moked Ituran Ltd. (1) .................................................................................................
All directors and executive officers as a group (2). ....................................................
Vulcan Value Partners (3) ..........................................................................................
FMR LLC. (4) ............................................................................................................
Renaissance Technologies LLC. (5) ..........................................................................
The Phoenix Holdings Ltd(6) .....................................................................................
Ibex Investors LLC(7) ................................................................................................
Treasury shares..........................................................................................................
Number of
Ordinary
Shares
Beneficially
Owned
4,075,952
4,137,827
3,138,608
1,540,997
1,279,400
1,773,049
1,144,707
2,962,934
% Voting
19.87
20.17
15.30
7.51
6.24
8.64
5.58
(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
14, 2022. 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, 2022.
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, 2022.
(5) The information presented herein is based on Form 13G filed by Renaissance Technologies LLC. (“RTC”)
Renaissance Technologies Holdings Corporation (“RTHC”) on February 11, 2022. 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 11, 2022.
(6) The information presented herein is based on Form 13G filed by The Phoenix Holdings Ltd. (“The Phoenix”) on
February 7, 2022. According to the information presented on such Form 13G, the shares are beneficially owned by The
Phoneix Group. For further information on the beneficial ownership by the portfolio accounts, please refer to Form 13G
filed by The Phoneix on February 7, 2022.
(7) The information presented herein is based on Form 13G filed by Ibex Investors LLC (“Ibex”) on January 27, 2022
and form 13GA filed on April 4, 2022. According to the information presented on such Form 13G, the shares are directly
beneficially owned by Ibex Israel Fund LLLP, 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 January 27, 2022.
As of December 2021, we had a total of approximately 3,670 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.
55
B.
RELATED PARTY TRANSACTIONS
Transactions with our directors and principal officers
We purchase our insurance policies, including our directors’ and officers’ insurance, through Tzivtit Insurance
Agency (1998) Ltd., an insurance agency owned by Efraim Sheratzky, a director of the company and a shareholder of
Moked, the brother of the President of our company and the uncle of both of our Co-Chief Executive Officers, and by
Yigal Shani, who is one of our directors and is a shareholder of Moked. During 2021 We paid an annual aggregate
amount of NIS 1,469,000 or $455,000 , for our basic insurance policies and NIS 3,111,000 or $963,000 for our directors’
and officers’ insurance policy. During 2021 Tzivtit Insurance Agency was entitled to commissions in an aggregate
amount of NIS 367,000 or $ 114,00 which is paid by the insurance company on account of these policies.
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 D&O 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 D&O 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 NIS 225,000 (or $70,000) 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 according this new service agreement in
2019, 2020 and 2021 were approximately $ 2,136,000, $ 1,096,000 and $ 3,412,000 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 NIS 175,000 (or $ 54,000) 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
56
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
2019, 2020 and 2021 was approximately $ 1,707,000, $ 864,000 and $ 2,692,000 respectively (the numbers include
value added tax).
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 NIS 175,000 (or $ 54,000) 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 2019, 2020 and 2021 was approximately, $
1,707,000, $ 864,000 and $ 2,692,000 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 NIS 125,000 (or $ 39,000) 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 2019, 2020 and 2021
according to this new service agreement, were approximately $ 1,051,000, $ 518,000 and $ 1,934,000 respectively (the
numbers include value added tax).
Messrs Izzy Sheratzky, Eyal Sheratzky, Nir Sheratzky and Gil Sheratzky, due to the Covid-19 effect on the society
in general and including the Company, based on their own initiative, agreed temporarily to decrease their base salary by
25% from April 2020, for an indefinite period. Such reduction was in effect until March 2021.
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-
57
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, by the Company’s general meeting of shareholders, which
sets forth the principles of our office holders’ compensation.
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 installments 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 installment) and during the second calendar year (for the second installment)
following the Entitlement Date, respectively. The Deferred Portion shall be linked to the consumer price index
known on the Entitlement Date.
58
• 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.
“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
59
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.
In 2021 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 2021:
Izzy Sheratzky .....................
Eyal Sheratzky ....................
Nir Sheratzky ......................
Gil Sheratzky ......................
1,207
975
975
696
In US$ thousands
(83)
(65)
(65)
(46)
83
65
65
46
1,207
975
975
696
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 NIS 15,000, 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 2019, 2020, 2021 were approximately, $ 62,000 , $ 64,000 and $ 69,000 respectively.
Transactions with our affiliates and associates
We purchase our GPS/GPRS equipment from our subsidiary, E.R.M Electronic Systems Limited. In , 2019 , 2020
and 2021, Ituran, including its subsidiaries in Brazil, Argentina and USA, purchased GPS/GPRS equipment from E.R.M
in the sum of approximately, NIS 51.6 Million (or $ 14.5 Million) , NIS 54.5 Million (or $ 15.8 Million) and NIS 64.6
Million (or $ 20.0 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
(contribution
for FUNTELL contribution
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
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$21.5 million (US$ 3.9 million). as of December 2021 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
to Fund
for
60
therefore the chances of our success are more likely than not. We have filed our defense against such claims. We are
currently awaiting the Lower Court or Administrative decisions on all the aforementioned FUST and FUNTELL claims.
On July 13, 2015 we received a purported class action lawsuit which was filed against the Company in the District
Court of Central Region in Tel-Aviv, by one plaintiff who is a subscriber of the Company, alleging that the Company,
which was declared a monopoly under the Israeli Antitrust Law, 1988, unlawfully abused its power as a monopoly and
discriminated between its customers. The plaintiff claims that the alleged discrimination resulted from the Company
charging higher monthly subscription fees from customers who are obliged by insurance company requirements to install
location and recovery systems in their vehicles than the monthly subscription fees that are charged from customers who
are not required by insurance companies to install location and recovery systems in their vehicles. In addition, the
plaintiff claims that the Company offers to customers who are not required by insurance companies to install location
and recovery systems in their vehicles, a discounted warrantee service to their location and recovery systems. The
plaintiff claims in addition to the above, that such actions raise additional causes of action against the Company such as
negotiations without good faith, executing contract without good faith, breach of contract, unjust enrichment, breach of
consumer protection laws, tort laws, and breach of statutory duty. The lawsuit is yet to be approved as a class action. The
total amount claimed if the lawsuit is approved as a class action was estimated by the plaintiff to be approximately NIS
300 million (approximately USD 96 million). Our defense against the approval of the class action lawsuit was filed on
January 3, 2016. The plaintiff has responded to our defense on February 29, 2016. Hearing for first stage, i.e. whether
claim will be approved as a class action are over and parties filed their summaries. On November 17, 2020, the court
informed the parties that it decided to stall his decision whether to prove the class action, until The Supreme Court of
Israel will render its decision in another case that involves a relevant issue. A class action lawsuit based on similar
claims, against the Company, which was filed on form 6-K on March 22, 2011, was dismissed by the court on the
request of both parties, on March 5, 2012 for a small compensation to the plaintiff and his attorneys, in a total amount of
NIS 30,000 (approximately USD 9,300). Such dismissal of a similar class action lawsuit may have a positive effect on
the Company’s defense against the current lawsuit. Based on an opinion of our legal counsels, we have good defense
arguments in respect of claims made by the plaintiff and that the chances that the lawsuit will not be approved as a class
action lawsuit are higher than it will be approved. While we cannot predict the outcome of this case, if we are not
successful in defending our claim, we could be subject to significant costs, adversely affecting our results of operations.
10.B. – “Memorandum and Articles of Association” - “Our Corporate Practices under the Israeli Companies Law”
under the caption “Approval of Transactions under Israeli law”
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, 2021.
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
61
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.
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
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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.
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,
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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.
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.
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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.
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
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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:
the transaction is not accompanied by an amendment to the acquirer’s memorandum or articles of association;
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
there is no “cross-ownership” of shares of the merging companies, as described above.
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.
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;
appointment or termination of our auditors;
appointment and dismissal of external directors;
approval of acts and transactions requiring general meeting approval pursuant to the Israeli Companies Law;
increase or reduction of our authorized share capital;
a merger; and
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.
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.
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
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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:
•
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.
• 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.
• 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.
• 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.
• 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.
• A financial liability imposed on the office holder in favor of a third party.
An Israeli company may not indemnify or insure an office holder against any of the following:
•
•
•
•
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;
a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the
negligent conduct of the office holder;
an act or omission committed with intent to derive illegal personal benefit; or
a fine, civil fine, monetary penalty or forfeit levied against the office holder.
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
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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.
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.
C.
MATERIAL CONTRACTS
For information concerning our service contracts with our President and Co-Chief Executive Officers, see Item 7.B
– Related Party Transactions.
D.
EXCHANGE CONTROLS
Ordinary shares purchased by nonresidents 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.
E.
TAXATION
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.
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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:
an individual citizen or resident of the United States;
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);
an estate, the income of which is subject to United States federal income taxation regardless of its source; or
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.
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.
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:
insurance companies;
dealers or traders in stocks, securities or currencies;
financial institutions and financial services entities;
real estate investment trusts;
regulated investment companies;
grantor trusts;
persons that receive ordinary shares as compensation for the performance of services;
tax-exempt organizations;
persons that hold ordinary shares as a position in a straddle or as part of a hedging, conversion or other integrated
instrument;
individual retirement and other tax-deferred accounts;
expatriates of the United States;
persons having a functional currency that is not the US dollar; or
direct, indirect or constructive owners of 10% or more, by voting power or value, of our ordinary shares.
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.
70
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 first
quarter of 2021.
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:
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
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.
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
75% or more of its gross income consists of specified types of passive income, or
50% or more of the average value of its assets consists of passive assets, which generally means assets that generate,
or are held for the production of, “passive income.”
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 ratably 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.
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
72
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.
73
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 canceled 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, 2021, only 2 of our Israeli subsidiaries is entitled to a “Preferred Company” status pursuant to
the Investments Law.
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 NIS 10 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
74
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, 2021, 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 NIS
640,000, will be liable for an additional 3% on the portion that is in excess of NIS 640,000 (as of January 1, 2022, the
amount is 663,240 NIS).
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.
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 will be generally subject to a withholding tax rate of 20%. An individual whose taxable income
during a tax year is in excess of NIS 810,720, will be liable for an additional 2% on the portion that is in excess of NIS
75
810,720. from January 1, 2022 taxpayers having taxable income of NIS 663,240 will be subject to 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 foreign shareholders own in excess of
90% of the 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.
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
and delivery of formal certificate for such tax rate to be deducted at source.
A non-resident of Israel who receives dividends from which 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, 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 business 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 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.
F.
DIVIDENDS AND PAYING AGENTS
Not applicable
G.
STATEMENT BY EXPERTS
Not applicable.
76
H.
DOCUMENTS ON DISPLAY
We are required to file reports and other information with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 and the regulations thereunder applicable to foreign private issuers. Reports and other
information filed by us with the Securities and Exchange Commission may be inspected and copied at the Securities and
Exchange Commission’s public reference facilities described below. We are not required to file periodic information as
frequently or as promptly as United States companies. As a foreign private issuer, we are also exempt from the rules
under the Exchange Act prescribing the furnishing and content of proxy statements; and our officers, directors and
principal shareholders are exempt from the reporting and other provisions of Section 16 of the Exchange Act.
You may review a copy of our filings with the Securities and Exchange Commission, including any exhibits and
schedules, at the Securities and Exchange Commission’s public reference facilities at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. You may also obtain copies of such materials at prescribed rates by writing to the Public
Reference Section of the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. You may
call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms.
As a foreign private issuer, we are now required to file through the Securities and Exchange Commission’s EDGAR
system and our periodic filings are therefore available on the Securities and Exchange Commission’s Web site at
http://www.sec.gov. You may read and copy any reports, statements or other information that we file with the Securities
and Exchange Commission at the Securities and Exchange Commission facilities listed above. These Securities and
Exchange Commission filings are also available to the public from commercial document retrieval services.
I.
SUBSIDIARY INFORMATION
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 2019, 2020 and 2021, a portion of our
revenues and direct expenses was derived in other currencies. For fiscal years 2019, 2020 and 2021, we derived
approximately 29.3%, 30.6% and 26.6% of our revenues in dollars and other currencies, 40.0%, 49.2% and 52.0% in
NIS, 30.7% , 20.2% and 21.4% in Brazilian Reals. In fiscal years, 2019, 2020 and 2021, 33.4%, 29.0% and 30.9% of our
expenses were incurred in dollars and other currencies, 42.5%, 50.6% and 52.3% in NIS and 24.1% , 20.4% and 16.8%
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 2021, accumulated other comprehensive income decreased by $ 2.9 Million. In the year 2020 accumulated other
comprehensive income decreased by $12.9 Million and in the year 2019, accumulated other comprehensive income
decreased by $4.1.
The fluctuation of the other currencies in which we incur our expenses or generate revenues against the dollar has
had the effect of increasing or decreasing (as applicable) reported revenues, cost of revenues and operating expenses in
such foreign currencies when converted into dollars from period to period. The following table illustrates the effect of
the changes in exchange rates on our revenues, gross profit and operating income for the periods indicated:
2019
At 2018
exchange
rates (1)
Actual
Year Ended December 31,
2020
Actual
At 2019
exchange
rates (1)
Actual
2021
At 2020
exchange
rates (1)
Revenues .....................
Gross profit .................
Operating income ........
279,332
130,518
22,654
289,676
135,730
25,419
(In US$ thousands)
245,627
115,515
27,831
262,529
122,708
31,229
270,884
126,482
54,615
264,507
123,734
53,595
(1) Based on average exchange rates during the period. Those columns are Non GAAP information.
77
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.A
None
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
ITEM 15.
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, 2021 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.
(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,
2021. 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, 2021, 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, 2021 and such report is included elsewhere in
this Form 20 -F.
78
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,
2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
(C) Attestation Report of the Registered Public Accounting Firm.
79
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 32 Hamasger Street
Tel-Aviv 6721118,
Fahn Kanne & Co.
Head Office
Board of Directors and Stockholders
ITURAN LOCATION AND CONTROL LTD.
ISRAEL
PO Box 36172, 6136101
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, 2021, 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, based on our audit, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2021, 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,
2021, and our report dated April 26, 2022, 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 26, 2022
80
ITEM 16.
[RESERVED]
ITEM 16A.
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.(YLC- to review)
ITEM 16B.
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.
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fahn Kanne & Co. Grant Thornton Israel (“Grant Thornton”), has served as our independent auditors. On December
10, 2021 they have been re-elected by our shareholders to serve as our independent auditors for the year 2021, 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 2020 and 2021:
Audit Fees (1) .................................................................................................................................
Tax Fees (2) ....................................................................................................................................
Total .............................................................................................................................................
2021
2020
(in thousands, USD)
573
7
580
572
48
620
(1) The audit fees for the years ended December 31, 2020 and 2021 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 2020 and 2021.
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
During 2020, the Company did not purchase any of its shares. In year 2019 we purchased through our wholly owned
subsidiary 227,828 of our shares. In 2019 we announced a purchase plan under Rule 10b-5 and Rule 10b-18 to purchase
our shares up to $ 25 million. Plan was terminated on December 31, 2019. Plan was publicly filed on July 1,2019. On
August 2, 2021, we renewed the agreement 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.
81
Period
Total Number of
Shares
Average Price Paid
per Share
Total Proceeds
August 2021
September 2021
October 2021
November 2021
December 2021
15,000
56,409
59,428
60,688
88,195
Total 2021
279,720
26.23
26.15
26.38
26.71
25.21
26.03
394,485
1,475,218
1,567,434
1,620,889
2,223,215
7,281,241
ITEM 16F.
CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G.
CORPORATE GOVERNANCE
Maximum
Approximate Value
that May Yet to Be
Purchased Under the
Program
18,607,714
17,132,496
15,565,062
13,944,173
11,720,958
11,720,958
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.
PART III
ITEM 17.
FINANCIAL STATEMENTS
See “Item 18—Financial Statements.”
ITEM 18.
FINANCIAL STATEMENTS
The following consolidated financial statements and related registered public accounting firms’ reports are filed as
part of this annual report:
Report of Independent Registered Public Accounting Firm ............................................................................. F-2 - F-4
Consolidated Balance Sheets ............................................................................................................................ F-5 - F-6
Consolidated Statements of Income .................................................................................................................. F-7 - F-7
Statements of Comprehensive Income .............................................................................................................. F-8 - F-8
Statement of Changes in Equity ........................................................................................................................ F-9 - F-10
Consolidated Statements of Cash Flows ........................................................................................................... F-11 - F-12
Notes to Consolidated Financial Statements ..................................................................................................... F-13 - F-48
Page
82
ITEM 19.
EXHIBITS
Description of Document
1.1
1.2
2.1
2.2
2.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Amended and Restated Articles of Association of the Company (7)
Form of Memorandum of Association of the Company (English Translation) (1)
Shareholders Agreement, dated May 18, 1998, by and between Moked Ituran Ltd., Moked Services,
Information, Management, Investments, Yehuda Kahane Ltd., F.K. Generators and Equipment Ltd., Gideon
Ezra, Ltd., Efraim Sheratzky, and Yigal Shani (English translation). (1)
Form of Amendment to Shareholders Agreement dated May 18, 1998, by and between Moked Ituran Ltd.,
Moked Services, Information, Management and Investments, Yehuda Kahane Ltd., F.K. Generators and
Equipment Ltd., Gideon Ezra, Ltd., Efraim Sheratzky and/or T.S.D. Holdings Ltd., and Yigal Shani and/or
G.N.S. Holdings Ltd. (English translation). (1)
Form of the second Amendment to Shareholders Agreement dated May 18, 1998, by and between Moked
Ituran Ltd., Moked Services, Information, Management and Investments, Yehuda Kahane Ltd., F.K.
Generators and Equipment Ltd., Gideon Ezra, Ltd., Efraim Sheratzky and/or T.S.D. Holdings Ltd., and Yigal
Shani and/or G.N.S. Holdings Ltd. (English translation). (5)
Consulting Services Agreement, dated March 23, 1998, by and between the Registrant and Yehuda Kahane
Ltd., including addendum thereof, as of May 25, 2003 (English translation). (1)
Unprotected Lease Agreement, dated February 7, 2002, by and between Mofari Ltd. and the Registrant and
addendum thereof, dated February 19, 2002 (English translation) (1)
Addendum to February 7, 2002 Unprotected Lease Agreement, by and between Mofari Ltd. and the Registrant,
dated October 31, 2012. (6)
Lease Agreement, dated May 29, 2002, by and between Rinat Yogev Nadlan and Ituran Cellular
Communication Ltd. (English translation). (1)(4)
Lease Agreement, dated March 16, 2000, by and between Teleran Localizacao e Controle Ltda. and T4U
Holding B.V., and addendum thereof, dated May 31, 2000. (1)
Form of Directors’ Letter of Indemnity (English translation). (6)
Frame Product and Services Purchase Agreement dated January 1, 2008 by and between Ituran Location and
Control Ltd. and Telematics Wireless Ltd. (2) *
Radio Location System License Agreement, dated July 13, 2004, by and between Teletrac, Inc., and Telematics
Wireless Ltd. (1)
Ituran Location & Control Compensation Policy, as approved on November 7, 2016. (7)
Service Agreement, dated as of February 1, 2014, by and among Ituran Location & Control Ltd., Izzy
Sheratzky and A. Sheratzky Holdings Ltd. (English Translation). (6)
4.9(a) Addendum dated April 4, 2017 to the Service Agreement, dated as of February 1, 2014, by and among Ituran
Location & Control Ltd., Izzy Sheratzky and A. Sheratzky Holdings Ltd. (7)
4.10
Service Agreement, dated as of February 1, 2014, by and among Ituran Location & Control Ltd., ORAS
Capital Ltd. and Eyal Sheratzky. (6)
4.10 (a) Addendum dated April 4, 2017 to the Service Agreement, dated as of February 1, 2014, by and among Ituran
Location &Control Ltd., ORAS Capital Ltd. and Eyal Sheratzky. (7)
4.11
Service Agreement, dated as of February 1, 2014, by and among Ituran Location & Control Ltd., Galnir
Management and Investments Ltd. and Nir Sheratzky. (6)
4.11 (a) Addendum dated April 4, 2017 to the Service Agreement, dated as of February 1, 2014, by and among Ituran
Location &Control Ltd., Galnir Management and Investments Ltd. and Nir Sheratzky.(7)
4.12
Service Agreement, dated as of February 1, 2014, by and among E-Com Global Electronic Commerce
Ltd., ZERO-TO-ONE S.B.L. INVESTMENTS LTD. and Gil Sheratzky. (6)
83
4.12 (a) Addendum dated April 4, 2017 to the Service Agreement, dated as of February 1, 2014, by and among E-Com
Global Electronic Commerce Ltd., ZERO-TO-ONE S.B.L. INVESTMENTS LTD. and Gil Sheratzky. (7)
4.13
8
12.1
12.2
13
Purchase Agreement, dated as of July 23, 2018, by and among Ituran Location & Control Ltd. and Yomuna
Investments S.L., Viatka Investments S.L., I-Gelt Holdings, LLC, East Holdings, LLC and Road Track Holding
S.L***
List of significant subsidiaries.
Certifications by co-chief executive officers as required by Rule 13a-14(a).
Certification by person serving in the capacity of chief financial officer as required by Rule 13a-14(a).
Certifications by the co-chief executive officers and the person serving in the capacity of chief financial officer
as required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
(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) 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.
84
ITURAN LOCATION AND CONTROL LTD.
Consolidated Financial Statements
as of December 31, 2021
[This Page Intentionally Left Blank]
ITURAN LOCATION AND CONTROL LTD.
Consolidated Financial Statements
as of December 31, 2021
Table of Contents
Report of Independent Registered Public Accounting Firm ................................................................................. F-2
Page
(PCAOB ID 1375)
Consolidated Financial Statements:
Balance Sheets ........................................................................................................................................................ F-5
Statements of Income .............................................................................................................................................. F-7
Statements of Comprehensive Income .................................................................................................................... F-8
Statements of Changes in Equity............................................................................................................................. F-9
Statements of Cash Flows ....................................................................................................................................... F-11
Notes to Consolidated Financial Statements ........................................................................................................... F-13
=======================
=============
[This Page Intentionally Left Blank]
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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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 26, 2022 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.
Certified Public Accountants
Fahn Kanne & Co. is the Israeli member firm of Grant Thornton International Ltd
F - 2
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that (i) relate to
accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially
challenging, subjective, or complex judgments. The communication of a 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 separate opinions on the critical audit matter or on the accounts or disclosures to which it
relates.
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$39,999 and US$16,753 thousand, respectively, as of December 31,
2021. 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 (including COVID-19 impact estimates). 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.
Certified Public Accountants
Fahn Kanne & Co. is the Israeli member firm of Grant Thornton International Ltd
F - 3
Our audit procedures related to this matter included the following, among others. We tested the design and the operating
effectiveness of controls relating to management’s goodwill and intangible assets impairment analysis, including controls
over the valuation. 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 (i)
the current and past performance of the reporting units, (ii) the consistency with external market and industry data, and
(iii) the constituency 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.
FAHN KANNE & CO. GRANT THORNTON ISRAEL
Certified Public Accountants (Isr.)
We have served as the Company’s auditor since 1997.
Tel-Aviv, Israel
April 26, 2022
Certified Public Accountants
Fahn Kanne & Co. is the Israeli member firm of Grant Thornton International Ltd
F - 4
ITURAN LOCATION AND CONTROL LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands)
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 ...............................................
US dollars
December 31,
2021
2020
50,306
4,405
43,916
36,979
27,128
162,734
885
1,866
3,146
11,091
16,205
33,193
72,183
6,663
39,343
38,624
22,622
179,435
908
1,263
2,953
11,360
13,558
30,042
Property and equipment, net (Note 6) ......................................................................
35,652
37,653
Operating lease right of use assets, net (Note 7).......................................................
4,690
5,548
Intangible assets, net (Note 8) ....................................................................................
16,753
19,932
Goodwill (Note 9) ........................................................................................................
39,999
39,862
Total assets ..................................................................................................................
293,021
312,472
The accompanying notes are an integral part of the consolidated financial statements.
F - 5
ITURAN LOCATION AND CONTROL LTD.
CONSOLIDATED BALANCE SHEETS (cont.)
(in thousands, except share data)
Current liabilities
Credit from banking institutions (Note 10A) ............................................................
Accounts payable ......................................................................................................
Deferred revenues .....................................................................................................
Obligation to purchase non-controlling interests (Notes 1Y) ....................................
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 .....................................................................
Other non-current liabilities ......................................................................................
US dollars
December 31,
2021
2020
18,257
21,275
24,333
-
40,767
104,632
1,952
13,169
22,476
8,902
1,750
2,337
50,586
20,388
19,716
24,351
10,595
37,677
112,727
2,494
34,068
19,715
8,536
2,692
2,341
69,846
Contingent liabilities (Note 12)
Equity:
Stockholders’ equity (Note 13)
Share capital – ordinary shares of NIS 0.33⅓ par value: ..........................................
Authorized – December 31, 2021 and 2020 – 60,000,000 shares
Issued and outstanding – December 31, 2021 and 2020 – 23,475,431 shares
Additional paid- in capital .........................................................................................
Accumulated other comprehensive loss ....................................................................
Retained earnings
Treasury stock at cost – December 31, 2021 – 2,941,845 shares and December 31,
2020 – 2,662,125 shares. ..........................................................................................
Stockholders’ equity ...................................................................................................
Non-controlling interests ...........................................................................................
Total equity .................................................................................................................
1,983
1,983
78,334
(41,888)
143,259
(49,228)
132,460
5,343
137,803
78,304
(38,832)
127,684
(41,947)
127,192
2,707
129,899
Total liabilities and equity .........................................................................................
293,021
312,472
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
ITURAN LOCATION AND CONTROL LTD.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except earnings per share)
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 ..............................................
Impairment of goodwill (Note 9) ....................................................
Impairment of intangible assets and other expenses (income), net
(Note 8) ........................................................................................
Operating income .........................................................................
Other expense, net ...........................................................................
Financing income (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 .........................................
US dollars
Year ended December 31,
2020
2019
2021
189,649
81,235
270,884
182,944
62,683
245,627
204,728
74,604
279,332
84,783
59,619
144,402
126,482
14,099
11,906
46,118
-
(256)
54,615
(109)
(5,538)
48,968
(11,854)
(102)
37,012
(2,756)
34,256
81,365
48,747
130,112
115,515
12,767
11,014
49,705
10,508
3,690
27,831
(272)
1,480
29,039
(10,856)
(842)
17,341
(1,218)
16,123
90,158
58,656
148,814
130,518
13,913
12,778
55,166
12,292
13,715
22,654
(26)
576
23,204
(12,234)
(3,203)
7,767
(878)
6,889
Basic and diluted earnings per share attributable to
Company’s stockholders (Note 16) ...........................................
1.65
0.77
0.33
Basic and diluted weighted average number of shares
outstanding .................................................................................
20,769
20,813
21,037
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
ITURAN LOCATION AND CONTROL LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
US dollars
Year ended December 31,
2020
2019
2021
Net income for the year ......................................................................
37,012
17,341
7,767
Other comprehensive loss, net of tax:
Foreign currency translation adjustments ...........................................
Unrealized losses in respect of derivative financial instruments
designated for cash flow hedge .......................................................
Reclassification of net gains realized to net income...........................
Other comprehensive loss, net of tax .................................................
Comprehensive income ......................................................................
Less: comprehensive income attributable to non-controlling
interests ...........................................................................................
Comprehensive income attributable to the Company.........................
(2,935 )
(12,918)
-
-
(2,935 )
-
-
(12,918)
34,077
4,423
(2,877 )
31,200
(1,267)
3,156
(4,054)
(384)
(399)
(4,837)
2,930
(1,302)
1,628
The accompanying notes are an integral part of the consolidated financial statements.
F - 8
ITURAN LOCATION AND CONTROL LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Ordinary shares
COMPANY STOCKHOLDERS
(in thousands)
Number of
shares
Share capital
amount
Additional paid
in capital
Accumulated other
comprehensive loss
Retained
earnings
Treasury
stock
Purchase price
adjustment
to be settled
in shares
Non-
controlling
interests Total
US dollars
(except
for number of
shares) ..................
Balance as
of January 1,
2019 .......................
Changes during
2019:
Treasury shares
return (*) ..............
Purchase of
treasury shares
(**) ........................
Net income
Other
comprehensiv
e loss ....................
Dividend paid to
non-
controlling
interests .................
Dividend paid ............
Dividend
declared .................
Balance as
of December
31, 2019 .................
23,476
1,983
78,680
(20,604) 129,580
(25,146)
(10,800)
6,507 160,200
-
(10,800)
10,800
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,889
(6,001)
-
(5,261)
-
-
-
- (14,940)
-
(5,050)
-
-
-
-
-
-
-
-
-
-
-
- (6,001)
878 7,767
424 (4,837)
(1,225 ) (1,225)
- (14,940)
- (5,050)
6,584 135,914
23,476
1,983
78,680
(25,865) 116,479
(41,947)
(*) See Note 3
(**) See Note 14A5
The accompanying notes are an integral part of the consolidated financial statements.
F - 9
ITURAN LOCATION AND CONTROL LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (cont.)
COMPANY STOCKHOLDERS
(in thousands)
Ordinary shares
Number
of shares
Share capital
amount
Additional paid
in
capital
Accumulated other
comprehensive
loss
Retained
earnings
Treasury
stock
Non-
controlling
interests
Total
23,476
1,983
78,680
(25,865)
116,479
(41,947)
6,584 135,914
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(430 )
54
-
16,123
(12,967)
-
-
(4,918)
-
-
-
-
1,218
17,341
49
(12,918 )
(1,461)
-
(1,461 )
(4,918 )
-
-
-
-
-
-
-
(3,363)
(3,363 )
-
-
-
(320)
(750 )
-
-
54
23,476
1,983
78,304
(38,832)
127,684
(41,947)
2,707 129,899
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
34,256
(3,056)
-
-
-
-
-
(15,809)
(2,872)
-
-
-
-
-
2,756
37,012
121
(2,935 )
(241)
-
-
(241 )
(15,809 )
(2,872 )
(7,281)
(7,281 )
-
30
-
-
-
-
30
23,476
1,983
78,334
(41,888)
143,259
(49,228)
5,343 137,803
US dollars (except
for number
of shares)
Balance as of
January 1, 2020 .......
Changes during
2020:
Net income ...................
Other comprehensive
loss ..........................
Dividend paid to
non-controlling
interests ....................
Dividend paid ...............
Dividend declared to
non-controlling
interests ....................
Purchase of
subsidiary shares
from non-
controlling
interests ....................
Stock-based
compensation in a
subsidiary
company ...................
Balance as of
December 31,
2020 ..........................
Changes during
2021:
Net income ...................
Other comprehensive
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 ..........................
(*) See Note 13A6
The accompanying notes are an integral part of the consolidated financial statements.
F - 10
ITURAN LOCATION AND CONTROL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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 (gains) 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 ................................................
Decrease (increase) in accounts receivable ........................................................................
Decrease in other current and non-current assets ...............................................................
Increase (decrease) in inventories ......................................................................................
Increase (decrease) in accounts payable ............................................................................
Increase (decrease) in deferred revenues ...........................................................................
Increase (decrease) in obligation to purchase non-controlling interests ............................
Impairment of goodwill .....................................................................................................
Impairment of other intangible assets ................................................................................
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 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 ..........................................................................................
Purchase of shares from non-controlling interests .............................................................
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 ......................................................
US dollars
Year ended December 31,
2019
2020
2021
37,012 17,341
7,767
(266 )
(4,101 )
1,445
842
(2,158 )
199
(47 )
2,387
2,069
102
(443 )
(166 )
(3,994 )
1,047
(3,841 )
1,776
318
967
18,096 18,831 22,843
26
241
1,094
3,203
(2,246)
112
4,496 10,704
2,021
3,064
3,815
3,120
(1,125)
(658 )
(7,392)
(5,367 )
(3,215)
(848 )
- 10,508 12,292
3,661 13,862
-
(4,323)
9,959
507
55,790 60,068 59,679
(2,097 )
(1,191)
(1,148 )
(16,626 ) (10,234 ) (18,310)
(55)
(1,102)
(16)
(229)
216
2,400
(18,524 ) (11,479 ) (18,287)
(136 )
-
(48 )
(539 )
922
-
(90 )
-
(32 )
(467 )
223
269
(23,576 ) (18,157 )
-
(11,281 )
1,186
(197 )
-
(7,281 )
-
(750 )
(15,809 )
(522 )
(8,938)
-
(2,167)
(6,001)
-
(9,967 ) (19,848)
(1,973)
(1,761 )
(58,666 ) (29,449 ) (38,927)
101
(921 )
2,566
(21,877 ) 18,219
72,183 53,964 51,398
50,306 72,183 53,964
(477 )
Supplementary information on investing and financing activities not involving cash flows:
In November 2021, the Company declared a dividend in an amount of US$3 million. The dividend was paid in January
2022.
In June 2020, an Israeli investee have completed public registration in Israel and its shares became equity investment
with readily determinable fair value. As a result, the Company reclassified the above-mentioned investment (in the
amount of approximately US$3.6 million) from investment in other companies (under long-term investments and other
assets) to investment in marketable securities (under current assets).
The accompanying notes are an integral part of the consolidated financial statements.
F - 11
ITURAN LOCATION AND CONTROL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)
Supplementary disclosure of cash flow information
(in thousands)
US dollars
Year ended December 31,
2020
2019
2021
Interest paid ........................................................................................
979
1,956
1,788
Income taxes paid, net of refunds .......................................................
13,497
14,402
10,376
The accompanying notes are an integral part of the consolidated financial statements.
F - 12
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 “Group”) 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 81.3% of the shares of Road
Track Holding S.L (Today called Ituran Spain Holdings) (“Road Track” or "Ituran Spain
Holdings"), a telematics’ company operating primarily in the Latin American region.
On September 22, 2021 the Company purchased the remaining 18.7% of shares in Ituran
Spain Holdings. This was in line with the original acquisition agreement with the former
shareholders of this subsidiary.
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 group 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 - 13
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:
At December 31,
Exchange rate
of one US dollar
Israeli CPI(*)
NIS
Brazilian Real
2021 ................................................................
2020 ................................................................
2019 ................................................................
3.110
3.215
3.456
5.5805 117.03 points
5.1967 113.84 points
4.0307 114.63 points
Increase (decrease) during the year:
2021 ................................................................
2020 ................................................................
2019 ................................................................
(3.27)%
(6.97)%
(7.79)%
7.39%
28.93%
4.02%
2.80%
(0.69)%
0.60%
(*) Based on the Index for the month ending on each balance sheet date, on the basis of
2008 average.
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).
As of December 31, 2021, the impact of the outbreak of COVID-19 continues to unfold. As a
result, some of the Company's estimates and assumptions required increased judgment and
carry a higher degree of variability and volatility. As events continue to evolve and additional
information becomes available, the Company's estimates may change materially in future
periods
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 Group, are also
eliminated. Non-controlling interests are presented in equity.
F - 14
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 1
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. Principles of consolidation (cont.)
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 Group 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 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.
Changes in fair value measurement of debt and equity securities for the years 2021, 2020 and 2019
amounted to gain (loss) of approximately (US$ 2,387), US$ 2,453 and (US$ 241) 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. Allowance for doubtful accounts
The allowance for doubtful accounts is determined with respect to amounts the Group 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's 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 receivable are written off against the allowance for uncollectible accounts when the
Company determines amounts are no longer collectible
See also Note 21A.
The allowance in respect of accounts receivable at December 31, 2021 and 2020 was
US$ 3,368,000 and US$ 4,111,000, respectively.
F - 15
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 1
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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 Group
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 Group 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 Group, was 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.
When the Company obtain control of an affiliated company that was previously accounted for by
the equity method, the investment is then remeasured at its fair value as of the date of which
control was obtained and any remeasurement gain or loss 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 2021, 2020 and 2019, 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.
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.
In June 2020, an Israeli investee have completed public registration in Israel and its shares became
equity investment with readily determinable fair value. As a result, the Company remeasured the
investment to its fair value and recorded gain in the amount of approximately $1.9 million in the
consolidated statement of income under Financing income, net.
J. Derivatives
The group 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.
F - 16
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 1
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
J. Derivatives (cont.)
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. As of December 31, 2021 and 2020 and during the years then ended, the
company did not have material financial derivatives.
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 20%-33%) ...........
Office furniture, equipment and computers ........
Buildings ............................................................
Vehicles ..............................................................
Leasehold improvements .................................... Duration of the lease which is less or equal to
%
6.5-33
7-33
2.5
15
useful life.
L. Impairment of long-lived assets
The Group’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 Group 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.
F - 17
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 1
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
M. Income taxes (cont.)
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.
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".
The Company elected to perform the goodwill annual impairment test for its operating units
as follows:
A. An amount of approximately $35.8 million (as of December 31, 2021) relates to two
different reporting units (resulted from the RT acquisition). The Company has historically
performed an annual goodwill assessment as of June 30 of each year (including June 30,
2021) or more often if indicators of impairment are presented. During the fourth quarter
of 2021, following the second closing of the RT acquisition the Company decided to
change the date of its annual impairment assessment from June 30 to December 31. The
change was made because the Company believe that the second closing provided an
appropriate basis to the fair value of such reporting units.
B. An amount of approximately $4.2 million (as of December 31, 2021) relates to two
different reporting units (resulted from past acquisitions) is tested on December 31 of
each year, or more often if indicators of impairment are present.
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.
F - 18
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.)
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 the Company decided or was required to perform
the quantitative goodwill impairment test, the Company firstly was 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 the adoption of ASU 2017-04 (which eliminated Step 2 from the goodwill
impairment test), 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, 2021, 2020 and 2019, 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 (resulted from past acquisitions) with an allocated amount of approximately
US$ 2.0 million of goodwill, the Company performed a qualitative assessment as of
December 31, 2021 and 2020, 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$ 32.2 million of goodwill (as of December 31, 2021), the Company
performed the annual impairment test, as of June 30, 2021 and reached to a conclusion that no
impairment should be recorded at that point. The impairment test was perform using the
income approach (quantitative test).
The Company has 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, the Company decided to change the date of its annual
impairment assessment from June 30 to December 31. Accordingly, the Company performed a
qualitative assessment as of December 31, 2021, 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.
F - 19
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 (resulted from past acquisitions) with an allocated amount of approximately
US$ 2.2 million of goodwill, the Company performed a qualitative assessment as of
December 31, 2021 and 2020, 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$ 3.6 million of goodwill (as of December 31, 2021), the Company
performed the annual impairment test, as of June 30, 2021 and reached to a conclusion that no
impairment should be recorded at that point. The impairment test was perform using the
income approach (quantitative test).
The Company has 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, the Company decided to change the date
of its annual impairment assessment from June 30 to December 31. Accordingly, the
Company performed a qualitative assessment as of December 31, 2021, 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.
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, 2021, the intangible assets are amortized as follows:
Customer relationship ...............................................................................
Technology services ..................................................................................
Other .........................................................................................................
Years
3
5
5
During 2021, the Company did not record any impairment. During 2020 and 2019, the
Company recorded an intangible assets impairment loss in the amount of approximately
US$3.7 million and US$13.9 million, respectively. The impairment was recorded in the
consolidated statement of income under "Impairment of intangible assets and other expenses".
See Note 8.
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 - 20
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, 2021,
2020 and 2019, amounted to US$ 1,910 US$ 1,610 and US$ 1,557 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.
Revenue recognition accounting policy applied from January 1, 2018 (following the adoption of
ASC Topic 606);
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.
F - 21
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 1
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Q. Revenue recognition (cont.)
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.
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).
F - 22
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 1
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Q. Revenue recognition (cont.)
Revenues from SVR services subscription fees, right to use assets (AVL products installed in
customers vehicles) and installation services, 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.
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 years ended December 31, 2021 and 2020 the Company recognized revenue of
approximately US$ 24.4 million and US$ 29.1 million, respectively, that was included in the
deferred revenue balance at the beginning of each reporting period.
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.
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”.
F - 23
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 1
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
S. Research and development costs (cont.)
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, 2021 and 2020, no such unrecoverable amounts were identified.
T. Advertising costs
Advertising costs are expensed as incurred.
Advertising expenses for the years ended December 31, 2021, 2020 and 2019 amounted to
US$ 8.0 million, US$ 8.1 million and US$ 9.5 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.
F - 24
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 1
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
V. Fair value measurements (cont.)
Regarding the fair value measurements of financial assets and liabilities and the fair value
hierarchy of such measurements, see Note 21C.
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).
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.
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. 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 19C 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 - 25
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, represents 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 Group 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.
Lease accounting policy applied from January 1, 2019 (following the adoption of ASC Topic
842):
On January 1, 2019, the Company adopted ASC Topic 842, Leases (“ASC 842”) and all its related
amendments using the modified retrospective transition approach.
The Group 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.
F - 26
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 1
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Z. Leases (cont.)
incremental borrowing rate based on
With the exception of short-term leases, Operating leases are included at the commencement date
as a lease liability, which represent the group ‘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
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 group’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.
AA. Reclassification
Certain comparative figures have been reclassified to conform to the current year presentation.
Such reclassifications did not have any significant impact on the Company's equity, net income or
cash flows.
AB. Recently issued accounting pronouncements
Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes (“ASU 2019-12”)
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes, which simplifies the accounting for income taxes by eliminating
certain exceptions to the guidance in Topic 740 related to the approach for intra-period tax
allocation, the methodology for calculating income taxes in an interim period and the recognition
of deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the
accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the
accounting for transactions that result in a step-up in the tax basis of goodwill and allocating
consolidated income taxes to separate financial statements of entities not subject to income tax.
ASU 2019-12 is effective for annual and interim periods in fiscal years beginning after December
15, 2020. Early adoption is permitted.
The Company adopted ASU 2019-12 in January 1, 2021. However, the adoption of ASU 2019-12
did not have a significant impact on the Company's consolidated financial statements.
F - 27
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 2
- OTHER CURRENT ASSETS
US dollars
December 31,
(in thousands)
Prepaid expenses ................................................................................................
Government institutions ...............................................................................................
Deferred contract costs ................................................................................................
Advances to suppliers ................................................................................................
Employees ....................................................................................................................
Others
2021
20,858
6,687
7,521
1,116
309
488
36,979
2020
22,996
6,247
6,993
1,286
287
815
38,624
NOTE 3
-
INVENTORIES
(in thousands)
Finished products ........................................................................................
Raw materials .............................................................................................
NOTE 4
-
INVESTMENTS IN AFFILIATED AND OTHER COMPANIES
A. Investment in affiliated companies
(in thousands)
Bringg .........................................................................................................
Lumax .........................................................................................................
Cellutrack ...................................................................................................
B. Investment in other companies
US dollars
December 31,
2021
2020
14,156
12,972
27,128
17,106
5,516
22,622
US dollars
December 31,
2021
2020
500
357
28
885
700
208
-
908
During the years 2020-2021, the Company made additional investments in two Israeli startups and
in one new Israeli startup.
The total investments in such companies were US$ 0.6 and US$ 0.5 million during the years
ended December 31,2021 and 2020, respectively.
In June 2020, an Israeli investee have completed public registration in Israel stock market and its
shares became equity investment with readily determinable fair value. As a result, the Company
reclassified the abovementioned investment (in the amount of approximately US$3.6 million)
from investment in other companies (under long-term investments and other assets) to investment
in marketable securities (under current assets)
F - 28
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 5
- OTHER NON-CURRENT ASSETS
(in thousands)
Deferred contract costs (*) .......................................................................
Deposits ...................................................................................................
(*)See Note 1W.
NOTE 6
- PROPERTY AND EQUIPMENT, NET
A. Property and equipment, net consists of the following:
(in thousands)
Cost:
Operating equipment (*) ....................................................................
Office furniture, equipment and computers .......................................
Land ...................................................................................................
Buildings ............................................................................................
Vehicles .............................................................................................
Leasehold improvements ...................................................................
Less – accumulated depreciation (**) ................................................
Total property and equipment, net .....................................................
US dollars
December 31,
2021
2020
2,840
306
3,146
2,674
279
2,953
US dollars
December 31,
2021
2020
43,751
51,788
1,728
5,818
9,976
9,750
122,811
(87,159 )
35,652
47,647
50,851
1,819
6,415
9,498
9,515
125,745
(88,092)
37,653
(*)
(**)
As of December 31, 2021, and 2020, an amount of US$ 25.5 million and
US$ 29.4 million is subject to operating lease transactions, respectively.
As of December 31, 2021, and 2020, an amount of US$ 13.5 million and
US$ 17.0 million is subject to operating lease transactions, respectively.
B. During the years ended December 31, 2021, 2020 and 2019, depreciation expenses were
US$ 12.3 million, US$ 12.9 million and US$ 15.0 million, respectively and additional equipment
was purchased in an amount of US$ 13.7 million, US$ 7.2 million and US$ 11.3 million,
respectively.
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 2022 and 2030. 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 - 29
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 7
- LEASES (cont.)
The components of lease costs, lease term and discount rate are as follows:
(in thousands)
Operating 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:
(in Million)
US dollars
Year Ended
December
31, 2021
1,781
646
285
22
2,734
0.50
4.11
1.89
1.25
2.71
3.71
9.36
7.49
US dollars
Year Ended
December
31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases .....................................................
2.7
F - 30
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 7
- LEASES (cont.)
The following is a schedule, by years, of maturities of operating lease liabilities as of December 31,
2021:
US dollars
December
31, 2021
Period:
2022 ..................................................................................................................
2023 ..................................................................................................................
2024 ..................................................................................................................
2025 ..................................................................................................................
2026 ..................................................................................................................
Thereafter ..........................................................................................................
Total operating lease payments .........................................................................
Less: imputed interest .......................................................................................
Present value of lease liabilities ........................................................................
NOTE 8
-
INTANGIBLE ASSETS, NET
3,106
773
422
346
268
224
5,139
(449)
4,690
December
31,
2020
Closing
balance
December 31,
2019
Opening
balance
Impairment (*)
US dollars
Year ended December 31,
2020
Amortization (**) Additions
Translation
differences
9,107
13,776
3,988
26,871
(3,661)
-
-
(3,661)
(2,115)
(2,871)
(896)
(5,882)
-
2,992
-
2,992
-
243
(631)
(388)
3,331
14,140
2,461
19,932
(in thousands)
Costumer
relationship ...........
Technology ...............
Others ........................
(in thousands)
Costumer
relationship ...........
Technology ...............
Others ........................
December 31,
2020
Opening
balance
3,331
14,140
2,461
19,932
US dollars
Year ended December 31,
2021
Impairment Amortization (**) Additions
Translation
differences
December
31,
2021
Closing
balance
-
-
-
-
(1,486)
(3,573)
(769)
(5,828)
-
2,891
62
2,953
-
148
(452)
(304)
1,845
13,606
1,302
16,753
(*)
Due to the decline in the results of Road Track in the first half of 2020 and the expectation of
management for further potential decrease in Road Track anticipated performance, the
Company performed on June 30, 2020, an impairment analysis of the intangible assets which
relate directly to the operation of Road Track. Based on such analysis the Company recorded
an impairment charge further described below:
In order to determine the fair value of such intangible assets, the Company, based on a
valuation performed by the management, with the assistance of a third-party appraiser,
utilized the "Relief from Royalties" valuation method. Accordingly, certain assumptions and
judgments were made in order to determine the future income from which royalties will be
derived from and in order to determine the appropriate rate of royalties and rate of discount.
F - 31
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 8
-
INTANGIBLE ASSETS, NET (cont.)
As a result of the above, the Company recorded, an impairment loss in an amount of US$
3,661 thousand in 2020, with respect to Costumer relationship, that was recorded under
"impairment of intangible assets and other expenses" in the consolidated statement of income.
See also Note 1N.
(**)
As of December 31, 2021, the estimated aggregate amortization of intangible assets for the
next five years is as follows: 2022- US$ 6,226 thousand, 2023- US$ 4,792 thousand, 2024-
US$ 3,604 thousand, 2025- US$ 2,007 thousand and 2026 – US$ 124 thousand.
NOTE 9
- GOODWILL
The changes in the carrying amount of goodwill for the years ended December 31, 2021 and 2020 are
as follows:
(in thousands)
Balance as of January 1, 2020 .................
Changes during 2020:
Impairment (**) ......................................
Translation differences ............................
Balance as of December 31, 2020 (*) .....
Changes during 2021:
Translation differences ............................
Balance as of December 31, 2021 (*) .....
US dollars
Telematics
services
Telematics products
Total
43,383
(9,479)
248
34,152
63
34,215
6,703
50,086
(1,029)
36
5,710
74
5,784
(10,508)
284
39,862
137
39,999
(*)
The accumulated amount of goodwill impairment loss as of December 31, 2021, and 2020 was
US$ 29.89 million.
(**) As a result of the circumstances described in note 9(*) the Company recorded on June 30,
2020, a goodwill impairment in the total amount of US$ 10.5 million in connection with two
reporting units (both units related to Road track operations). One reporting unit within the
Telematics services and the other reporting unit within the Telematics product's segments. The
impairment was based on valuation performed by the management using the assistance of a
third-party appraiser in accordance with the income approach. The significant assumptions
used for the assessment were 3.5 years of projected net cash flows, a discount rate of 17.5%
and a long-term growth rate of 0.5%.
The Company, with the assistance of a third-party appraiser, performed the annual goodwill
impairment test, as of June 30, 2021 and reached to a conclusion that no impairment should be
recorded at that point.
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, the Company decided to change the date of its annual impairment
assessment from June 30 to December 31. Accordingly, the Company performed a qualitative
assessment as of December 31, 2021, 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.
F - 32
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 10
- CREDIT FROM BANKING INSTITUTIONS
A. Short term loans:
(in thousands)
Short-term loans - linked to the Mexican Pezo................................
Current maturities of long-term loan (Note 10B) ................................
US dollars
December 31,
2021
2020
699
17,558
18,257
920
19,468
20,388
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, 2021, the prime rate
was 1.6%) + 0.53%. In December 2018 and March 2021, the Company repaid to the bank in an
early repayments 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 is obligated to comply with the following
covenants (the “Loan Covenants”):
• Equity to total assets Ratio - The Ratio will not be less than 30%.
• Total equity - Total equity will not be less than $15 million.
• Net debt to EBITDA Ratio - The Ratio will not exceed 4.
• EBITDA - EBITDA will not be less than $10 million.
The company is required to maintain such covenants on a quarterly basis
Upon noncompliance with any of the above mentioned covenants, the bank shall have the right to
demand immediate repayment of the remaining balance of the loan.
During 2020, 2021 and as of December 31, 2021, and 2020, the Company was in compliance with
the Loan Covenants.
C. Maturity dates:
(in thousands)
First year ........................................................................................................
Second year ...................................................................................................
US dollars
December 31,
2021
18,257
13,169
31,426
D. Lines of credit:
Unutilized short-term lines of credit of the Group as of December 31, 2021, aggregated to
US$ 0.9 million.
F - 33
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 11
- OTHER CURRENT LIABILITIES
D. Lines of credit: (cont.)
Composition:
(in thousands)
Accrued expenses .........................................................................
Accrued payroll and related taxes ................................................
Government institutions ...............................................................
Accrued dividend .........................................................................
Operating lease liabilities, current ................................................
Others ...........................................................................................
US dollars
December 31,
2021
2020
14,967
8,395
7,513
4,403
2,940
2,549
40,767
16,000
7,724
6,379
1,461
2,856
3,257
37,677
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$21.7 million (US$ 3.9 million). as of December 2021, 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 defense against such claims. We are currently awaiting the Lower Court or
Administrative decisions on all the aforementioned FUST and FUNTELL claims.
F - 34
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 12 - CONTINGENT LIABILITIES (cont.)
A. Claims (Cont.)
2. On July 13, 2015 the company received a purported class action lawsuit which was filed
against the Company in the District Court of Central Region in Tel-Aviv, by one plaintiff who
is a subscriber of the Company, alleging that the Company, which was declared a monopoly
under the Israeli Antitrust Law, 1988, unlawfully abused its power as a monopoly and
discriminated between its customers. The plaintiff claims that the alleged discrimination
resulted from the Company charging higher monthly subscription fees from customers who
are obliged by insurance company requirements to install location and recovery systems in
their vehicles than the monthly subscription fees that are charged from customers who are not
required by insurance companies to install location and recovery systems in their vehicles. In
addition, the plaintiff claims that the Company offers to customers who are not required by
insurance companies to install location and recovery systems in their vehicles, a discounted
warranty service to their location and recovery systems. The plaintiff claims in addition to the
above, that such actions raise additional causes of action against the Company such as
negotiations without good faith, executing contract without good faith, breach of contract,
unjust enrichment, breach of consumer protection laws, tort laws, and breach of statutory
duty. The lawsuit is yet to be approved as a class action. The total amount claimed if the
lawsuit is approved as a class action was estimated by the plaintiff to be approximately
NIS 300 million (approximately US$ 96 million). Our defense against the approval of the
class action lawsuit was filed on January 3, 2016. The plaintiff has responded to our defense
on February 29, 2016. Hearing for first stage, i.e. whether claim will be approved as a class
action are over and parties are filing their summaries. A class action lawsuit based on similar
claims, against the Company, which was filed on form 6-K on March 22, 2011, was dismissed
by the court on the request of both parties, on March 5, 2012 for a small compensation to the
plaintiff and his attorneys, in a total amount of NIS 30,000 (approximately US$ 9,300). Such
dismissal of a similar class action lawsuit may have a positive effect on the Company's
defense against the current lawsuit. Based on the opinion of the company's legal counsels, the
chances that the lawsuit will not be approved as a class action lawsuit are higher than it will
be approved. if the company will not be successful in defending these claims, the company
could be subject to significant costs, adversely affecting our results of operations.
3. 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 Antitrust 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, 2021, minimum future rentals under operating leases of buildings, vehicles
and base station sites for periods were as follows: 2022 – US$ 2.6 million, 2023 –
US$ 1.3 million, 2024 US$ 0.4 million, and hereafter– US$ 0.8 million.
The leasing fees expensed in each of the years ended December 31, 2021, 2020 and 2019, were
US$ 2.7 million, US$ 3.2 million and US$ 4.1 million, respectively.
F - 35
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 13
-
STOCKHOLDERS’ EQUITY
A. Share capital:
1. Composition:
December 31, 2021 and 2020
Ordinary shares of NIS 0.33⅓ each ...............................
Registered
60,000,000
Issued and
outstanding
23,475,431
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. As of December 31, 2017, an amount of 2,507,314 ordinary shares representing 10.7% of the
share capital of the Company were held by the Company as treasury shares.
As part of the Acquisition of Ituran Spain Holdings, the Company reissued, in September
2018, 373,489 ordinary shares to the previous shareholders of Road Track (as part of the
consideration paid to the sellers), of which 300,472 were returned to the Company in April
2019 due to downward transaction price adjustment.
5. On May 21, 2019, the board of directors approved a share buyback program, which Ituran has
commenced. Under which, the Company is able to repurchase Ituran shares in an amount up
to $25 million by December 31, 2020.
6. During 2019, the Company's fully owned subsidiary had repurchased a total of 227,828 shares
amounting to approximately $6.0 million. 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 25 million and the actual purchases until 2021 was
only 6 million).
During 2021, the Company's fully owned subsidiary had repurchased a total of 228,725 shares
amounting to approximately $6.0 million.
During 2021, the Company had repurchased a total of 50,995 shares amounting to
approximately $1.3 million.
As of December 31, 2021, an amount of 2,941,845 ordinary shares representing 12.5% of the
share capital of the Company is held by the Group as treasury shares.
7. Treasury stock have no voting rights.
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 by the
Company and its subsidiaries (presented as a separate item in the statement of changes in
equity) must be deducted from the amount of retained earnings.
2. On February 27, 2017, the board of directors approved a change in the dividend policy. The
new policy calls for a dividend of $5 million, at minimum per quarter. This new policy
became effective starting from the dividend for the first quarter 2017.
F - 36
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 13
-
STOCKHOLDERS’ EQUITY (cont.)
B. Retained earnings (Cont.)
3. 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.
4. During May 2020 (As part of the steps the Company did in order to deal with Covid-19), the
Company's board of directors unanimously approved a freeze on the dividend distribution
policy until further notice.
5. 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 $0.48 per share,
totaling approximately US$10 million. The Company paid the dividend on April 6, 2021.
6. On March 3, 2021, the board of directors also approved a dividend policy of $3 million, per
quarter.
7. During the years ended December 31, 2021, 2020 and 2019, the Company declared dividends
totaling
in
US$ 19.0, 5.0 and 20.0 million, respectively (including fourth quarter dividend declared and
paid on the following month of January).
amount of US$ 0.9, US$ 0.24 and US$ 0.95,
share,
per
the
NOTE 14
- FINANCING INCOME (EXPENSES), NET
(in thousands)
Short-term interest expenses commissions and
other ................................................................
Gains (loss) in respect of marketable securities
and other investments ......................................
Interest expenses in respect of long-term loans ..
Interest income in respect of deposits .................
Income (expenses) related to taxes positions ......
Exchange rate differences and others, net...........
Income (expenses) in respect of changes in
obligation to purchase
non-controlling interests (*) ...............................
(*) See Note 1Y
US dollars
Year ended December 31,
2020
2021
2019
(1,367)
(2,387)
(883)
538
190
(662)
(895)
4,375
(1,299)
302
(501)
(1,350)
(944)
(241)
(1,666)
500
203
(491)
(967)
(5,538)
848
1,480
3,215
576
F - 37
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:
(in thousands)
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 ....................................
US dollars
Year ended December 31,
2020
2019
2021
4,916
6,954
11,870
(300)
(143)
(443)
339
88
427
11,854
5,841
4,341
10,182
(553)
(1,605)
(2,158)
(*) 2,751
81
2,832
10,856
6,155
7,674
13,829
299
(2,545)
(2,246)
439
212
651
12,234
the years 2016-2018 amounting
(*) During November 2020, the Company has received from the Israeli tax authority ("ITA") tax
assessments for
to approximately NIS 13 million
(approximately US$ 4 million). An amount of approximately NIS 6 million (approximately
US$ 2 million) due to the timing differences (out of this amount, approximately NIS 2 million
were claim in the tax assessment for the year ended December 31, 2019) related to the
deduction of certain expenses for tax purposes, which was agreed to be deducted in the
coming years. Accordingly,
recorded an amount of NIS 9 million
(approximately US$ 3 million) as tax expense related to prior periods and a deferred tax
benefit in a similar amount. In addition, the Company was required to pay the ITA an amount
of NIS 2 million (approximately US$ 0.5 million) as interest expense. Such amount was
recognized as part of financing income, net.
the Company
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 where
results of operations for tax purposes were measured in terms of earnings in NIS after adjustments
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 9% to 7.5% (the tax rate applicable to a preferred enterprise located in areas other than
Development Zone A. remained unchanged at 16%). The Economic Efficiency Law also
outlined new benefit tracks for preferred technology enterprises.
F - 38
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 15
-
INCOME TAX (cont.)
C. The Law for the Encouragement of Capital Investments, 1959 (the "Investment Law")
(Cont.)
2. As of December 31, 2021, 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.
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 group with consolidated revenues of less than NIS 10 billion. A Technological
Preferred Enterprise which is located in areas other than Development Zone A will be subject
to a tax rate of 12% on profits derived from intellectual property, and a Technological
Preferred Enterprise in Development Zone A will be subject to tax rate at a 7.5%.
2. As of December 31, 2021, 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 12% corporate tax rate. Income
not eligible for Technological Preferred Enterprise is taxed at the regular corporate tax rate or
at the preferred tax rate as mention in Note C2 above, as the case may be.
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 2019, 2020 and 2021.
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, 2021, there is no losses carried forward that are likely to use in the near
future.
F - 39
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:
(in thousands)
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 ....................................................
Taxes in respect of withholding at the
source from royalties and dividends ..
Adjustment in respect of tax rate deriving
from “approved enterprises” ..............
Tax related to previous years ..................
Others ......................................................
K. Summary of deferred taxes
Composition:
US dollars
Year ended December 31,
2020
2019
2021
48,968
23 %
11,263
(282 )
446
1,202
-
(1,874 )
427
672
11,854
29,039
23 %
6,679
2,220
423
753
-
(1,583 )
2,832
(468 )
10,856
23,204
23 %
5,337
3,117
297
3,045
725
(128 )
651
(810 )
12,234
(in thousands)
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 ..........................................
(in thousands)
Deferred income taxes included in long-term investments
and other assets .................................................................
Deferred income taxes included in long-term liabilities .......
US dollars
December 31,
2021
2020
1,697
1,362
3,963
2,117
9,139
1,894
1,400
4,292
1,280
8,866
US dollars
December 31,
2021
2020
11,091
(1,952 )
9,139
11,360
(2,494)
8,866
F - 40
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 15
-
INCOME TAX (cont.)
L. Income before income taxes is composed as follows:
(in thousands)
The Company and its Israeli subsidiaries .....
Non-Israeli subsidiaries ................................
US dollars
Year ended December 31,
2020
2019
2021
39,594
9,374
48,968
38,469
(9,430)
29,039
27,045
(3,841)
23,204
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, 2021, 2020 and 2019, are as follows:
(in thousands)
Net income attributable to stockholder's used for
the computation of basic and diluted earnings
per share ..........................................................
(in thousands)
Weighted average number of shares used in the
computation of basic and diluted earnings per
share ................................................................
NOTE 17
- RELATED PARTIES
US dollars
Year ended December 31,
2020
2021
2019
34,256
16,123
6,889
Number of shares
Year ended December 31,
2020
2021
2019
20,769
20,813
21,037
A. The Tzivtit Insurance Ltd. (“Tzivtit Insurance”), owned by a director of the Company, serves as
the Company’s insurance agent and provides the Company with elementary insurance and
managers insurance.
In respect of these insurance services, Tzivtit Insurance is 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 2021, US$ 455 thousand and US$ 963 thousand, respectively (In
2020 US$ 430 thousand and US$ 877 thousand, respectively.)
Tzivtit Insurance is entitled to commissions in an aggregate amount of NIS 368 thousand
(US$ 114 thousand) to be paid to Tzivtit Insurance by the insurance company on account of these
policies, (US$ 130 thousand and US$ 130 thousand in 2020 and 2019, respectively).
B. In accordance with an agreement with a related party (as amended), Prof. Yehuda Kahane, for
financial consulting, the Company is required to pay the consultant monthly consulting fees of
NIS 15,000 (US$ 4,800) a month, linked to the Israeli Consumer Price Index. The aggregate
amount paid to Professor Kahane in each of the years 2021, 2020 and 2019 was approximately
US$ 69,000, US$ 64,000 and US$ 62,000, respectively.
F - 41
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 17
- RELATED PARTIES (cont.)
C. 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 225,000, 175,000, 175,000 and 125,000 respectively plus
VAT (US$72,000, US$56,000, US$56,000 and US$40,000 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, 2019 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:
F - 42
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 17
- RELATED PARTIES (cont.)
C. (cont.)
Company's Profit-Before-Tax Targets
(In US$ thousands) (*)
24,001 - 27,500.............................................. 20%
27,501-31,000................................................ 45%
31,001-35,000................................................ 75%
35,001-39,000................................................ 110%
Above 39,001 ................................................ 150%
Level of Incentive - As a Percentage of the
Executive Office Holder's Annual Cost of Pay
"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.
(*) Profit before tax target will not include adjustment of the value of assets and obligations to
their fair value in accordance with accounting standards.
•
"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 – since the date of its approval (an "Examined Period"), as compared
to the benchmark Yield over such Examined Period; and to the extent that the Company's
Stock Yield exceeds the benchmark 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.
F - 43
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 17
- RELATED PARTIES (cont.)
C. (cont.)
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.
In 2021 and 2020 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
Offices 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 Company's executive Offices Holders also agreed to temporarily delay the payment of
their Target-based Cash Incentives for 2020, during the first quarter of 2021 the Company
paid the executive Offices Holders the incentives for 2020 (additional amount of $3 million).
Herein below is attached table regards the aggregate amounts paid to Executive Offices
Holders:
(in thousands)
Izzy Sheratzky ..........
Eyal Sheratzky .........
Nir Sheratzky ...........
Gil Sheratzky ...........
NOTE 18
-
SEGMENT REPORTING
A. General information:
US dollars
Year ended December 31,
2021
3,412
2,692
2,692
1,934
2020
1,096
864
864
518
2019
2,136
1,707
1,707
1,051
The operations of the Group 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 Group.
The reportable segments are viewed and evaluated separately by the Company's 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.
F - 44
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 18
-
SEGMENT REPORTING (cont.)
A. General information: (cont.)
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 Group 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.
B. Information about reported segment profit or loss and assets:
(in thousands)
Telematics services Telematics products Total
US dollars
Year ended December 31, 2021
Revenues ......................................
Operating income .........................
Assets ...........................................
Goodwill ......................................
Expenditures for assets .................
Depreciation and amortization .....
Year ended December 31, 2020
Revenues ......................................
Operating income (loss) ...............
Assets ...........................................
Goodwill ......................................
Expenditures for assets .................
Depreciation and amortization .....
Impairment of goodwill ................
Impairment of intangible assets ....
Year ended December 31, 2019
Revenues ......................................
Operating income (loss) ...............
Assets ...........................................
Goodwill ......................................
Expenditures for assets .................
Depreciation and amortization .....
Impairment of goodwill ................
Impairment of intangible assets ....
189,649
48,072
79,535
34,216
9,057
11,411
182,944
28,666
89,939
34,152
6,116
12,471
9,479
1,869
204,728
26,092
118,361
43,383
11,050
14,671
11,088
10,914
81,235
6,543
38,312
5,783
1,053
2,142
62,683
(835)
22,425
5,710
1,142
2,008
1,029
1,792
74,604
(3,438)
28,114
6,703
1,890
2,483
1,204
2,948
270,884
54,615
117,847
39,999
10,110
13,553
245,627
27,831
112,364
39,862
7,258
14,479
10,508
3,661
279,332
22,654
146,475
50,086
12,940
17,154
12,292
13,862
F - 45
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 18
-
SEGMENT REPORTING (cont.)
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.
D. Reconciliations of reportable segment revenues, profit or loss, and assets, to the enterprise’s
consolidated totals:
(in thousands)
US dollars
Year ended December 31,
2020
2021
2019
Total revenues of reportable segment and consolidated
revenues ................................................................................ 270,884 245,627 279,332
Operating income
Total operating income for reportable segments .................... 54,615 27,831 22,654
Unallocated amounts:
576
Financing income, net ............................................................
Other expense, net
(26)
Consolidated income before taxes on income ........................ 48,968 29,039 23,204
(5,538)
(109)
1,480
(272)
Assets
Total assets for reportable segments (*) ................................. 157,846 152,226 196,561
Other unallocated amounts:
Current assets ......................................................................... 93,244 117,295 88,777
4,926
Investments in affiliated and other companies .......................
Property and equipment, net................................................... 15,783 17,180 20,877
Other unallocated amounts
23,397 23,600 28,094
Consolidated total assets (at year end) ................................... 293,021 312,472 339,235
2,171
2,751
Other significant items
7,258 12,940
Total expenditures for assets of reportable segments ............. 10,110
Unallocated amounts ..............................................................
5,359
2,976
6,516
Consolidated total expenditures for assets ............................. 16,626 10,234 18,299
Total depreciation, amortization and impairment for reportable
segments ............................................................................... 13,553 28,648 43,308
Unallocated amounts ..............................................................
5,689
Consolidated total depreciation, amortization and
4,352
4,543
impairment.......................................................................... 18,096 33,000 48,997
(*) Including goodwill.
F - 46
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 18
-
SEGMENT REPORTING (cont.)
E. Geographic information
(in thousands)
Revenues
Year ended December 31,
2020
2019
2021
Israel ..................................................
Brazil ..................................................
Others .................................................
Total ...............................................
140,569
57,764
72,551
270,884
120,515
61,470
63,642
245,627
110,102
98,020
71,210
279,332
(in thousands)
Property and equipment, net
December 31,
2020
2019
2021
Israel ..................................................
Brazil ..................................................
Others .................................................
Total ...............................................
14,524
13,617
7,511
35,652
13,784
14,462
9,407
37,653
14,967
21,218
9,715
45,900
- 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 2019, the Company had one costumer (global world vehicles manufacturer) which
represent 15.8% of the Company's total sales.
During 2020, and 2021 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, 2020 and 2021:
US dollars
Reportable segments result of operations
(in thousands)
At a point of
time .................
Over a period
of time .............
Year ended December 31, 2020
Telematics
services
Telematics
products
Year ended December 31, 2021
Telematics
services
Telematics
products Total
Total
-
60,953 60,953
-
78,947 78,947
182,944
182,944
1,730 184,674
62,683 245,627
189,649
189,649
2,288 191,937
81,235 270,884
F - 47
ITURAN LOCATION AND CONTROL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 18
-
SEGMENT REPORTING (cont.)
G. Major product lines and timing of revenue recognition (cont.)
In the following table, revenue is disaggregated by primary major product lines, and timing of
revenue recognition for the year ended December 31, 2019:
(in thousands)
At a point of time ............................
Over a period of time.......................
US dollars
Reportable segments result of operations
Year ended December 31, 2019
Telematics services Telematics products
72,626
-
1,978
204,728
74,604
204,728
Total
72,626
206,706
279,332
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 Group’s cash and cash equivalents, deposits in short-term investments (and
investments in trading marketable securities), as of December 31, 2021 and 2020, 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 Group’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 Group’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.
However, during the years ended December 31, 2021, and 2020 such activity was limited.
B. Foreign exchange risk management
The Group 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 2017 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. Such transactions were settled
during the years 2017, 2018 and 2019.
During the years 2021 and 2020 the company did not have hedging activity, and as of December
31, 2021, and 2020 there were no material forward exchange contracts outstanding.
F - 48
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 derivatives 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. However, as of December 31, 2021 and 2020, the company did not have material
financial derivatives.
The fair value of the financial instruments included in the working capital of the Group (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.
The fair value of the long-term liability (loans from bank institutions) approximates its fair value,
as the loan carries variable interest rate.
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 fair value of the Company's obligation to purchase non-controlling interests was based on the
amount of cash that would be paid to settle the liability if settlement occurred at the balance sheet
date. 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. See Note 1Y.
The Company's financial assets measured at fair value on a recurring basis, consisted of the
following types of instruments as of December 31, 2021 and 2020:
(in thousands)
Level 1
December 31, 2021
Level 2
Level 3
Trading securities ..........................................
Total ..............................................................
4,405
4,405
-
-
(in thousands)
Level 1
December 31, 2020
Level 2
Level 3
Trading securities ..........................................
Total ..............................................................
6,663
6,663
-
-
-
-
-
-
F - 49
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.
SIGNATURES
ITURAN LOCATION AND CONTROL LTD.
(Registrant)
By: /s/ Eyal Sheratzky
Eyal Sheratzky
/s/ Nir Sheratzky
Nir Sheratzky
Co-Chief Executive Officers
Dated: April 26, 2022
84
[This Page Intentionally Left Blank]
List of Significant Subsidiaries
Exhibit 8
Country of
Incorporation
Proportion of
Ownership
Interest
Name of Subsidiary
Ituran USA Holdings Inc ........................................................................................
Ituran USA Inc .......................................................................................................
Ituran de Argentina S.A..........................................................................................
Ituran Sistemas de Monitoramento Ltda ................................................................
Ituran Instalacoes Ltda ...........................................................................................
Teleran Holding Ltda .............................................................................................
Ituran servicos Ltda ................................................................................................
E.R.M. Electronic Systems Limited .......................................................................
Mapa Mapping & Publishing Ltd ...........................................................................
Ituran Spain Holding S.L........................................................................................
Ituran Road Track Monitaramento de Veiculos LTDA .........................................
Ituran Road Track Argentina, S.A ..........................................................................
Global Telematics Solutions HK, Limited .............................................................
Road Track De Colombia S.A.S ............................................................................
Road Track Ecuador, S.A. .....................................................................................
Road Track Mexico S.A. De C.V ...........................................................................
Road Track HK Telematics Limited ......................................................................
E.D.T.E – Drive Technology Ltd ...........................................................................
Ituran Tech Ltd ......................................................................................................
USA
USA
Argentina
Brazil
Brazil
Brazil
Brazil
Israel
Israel
Spain
Brazil
Argentina
Hong Kong
Colombia
Ecuador
Mexico
Hong Kong
Israel
Israel
1 The proportion of voting power is 51%.
100%
85.80%
100%
98.75%
98.75%
99.99%
98.75%
49.5%1
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99.99%
Exhibit 12.1
CERTIFICATION OF THE CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT
I, Eyal Sheratzky, certify that:
1. I have reviewed this annual report on Form 20-F of Ituran Location and Control Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the
periods presented in this report;
4. The company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the company's internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the
company's internal control over financial reporting, and
5. The company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the company's auditors and the audit committee of company's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal controls over
financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the company's internal controls over financial reporting.
Date: April 26, 2022
/s/ Eyal Sheratzky
Eyal Sheratzky
Co-Chief Executive Officer
CERTIFICATION OF THE CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT
I, Nir Sheratzky, certify that:
1. I have reviewed this annual report on Form 20-F of Ituran Location and Control Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the
periods presented in this report;
4. The company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the company's internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the
company's internal control over financial reporting, and
5. The company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the company's auditors and the audit committee of company's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal controls over
financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the company's internal controls over financial reporting.
Date: April 26, 2022
/s/ Nir Sheratzky
Nir Sheratzky
Co-Chief Executive Office
Exhibit 12.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT
I, Eli Kamer, certify that:
1. I have reviewed this annual report on Form 20-F of Ituran Location and Control Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the
periods presented in this report;
4. The company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the company's internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the
company's internal control over financial reporting, and
5. The company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the company's auditors and the audit committee of company's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal controls over
financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the company's internal controls over financial reporting.
Date: April 26, 2022
/s/ Eli Kamer
Eli Kamer
Chief Financial Officer
Exhibit 13
CERTIFICATION OF THE COMPANY'S CO-CHIEF EXECUTIVE OFFICERS
AS REQUIRED BY RULE 13a-14(b) OF THE SECURITIES EXCHANGE ACT AND
SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
In connection with the Annual Report on Form 20-F of Ituran Location and Control Ltd. (the "Company") for the period
ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each
of the undersigned Co-Chief Executive Officers of the Company, certify that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: April 26, 2022
/s/ Eyal Sheratzky
________________
Eyal Sheratzky
Co-Chief Executive Officer
/s/ Nir Sheratzky
________________
Nir Sheratzky
Co-Chief Executive Officer
CERTIFICATION OF THE COMPANY'S CHIEF FINANCIAL OFFICER
AS REQUIRED BY RULE 13a-14(b) OF THE SECURITIES EXCHANGE ACT AND
SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
In connection with the Annual Report on Form 20-F of Ituran Location and Control Ltd. (the "Company") for the period
ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned Chief Financial Officer of the Company, certify that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: April ,26 2022
/s/ Eli Kamer
__________________
Eli Kamer
Chief Financial Officer