D
.
|
Property, Plants and Equipment
|
Our headquarters are located in a modern office park which we own in Petah Tikva, Israel. This facility consists of approximately 380,000 square feet, out of which approximately 184,328 square feet are currently used by us and the remainder is subleased or offered for sublease to third parties.
We have NOCs in Australia, Peru and Colombia from which we perform network services and customer support functions.
We own facilities located on approximately 140,400 square feet of land in Backnang, Germany. Since May 2002, these facilities are leased to a third party, which lease expires on December 31, 2025. We own approximately 13,800 square feet of research and development facilities and rent approximately 12,600 square feet of manufacturing facilities in Sofia, Bulgaria, which lease will expire on May 31, 2018, and rent approximately 7,750 square feet in Moldova for research and development activities. Our Wavestream subsidiary currently occupies approximately 32,500
square feet of facilities for office space, research and development and manufacturing in San Dimas, California under a lease, which will expire on March 31, 2020.
We also maintain facilities in Brazil, Colombia, Mexico, China, Peru and Australia, along with representative offices in Bangkok (Thailand), New Delhi (India), Almaty (Kazakhstan), Jakarta (Indonesia), Moscow (Russia), Singapore and small facilities in other locations throughout the world.
We consider our current office space sufficient to meet our anticipated needs for the foreseeable future and suitable for the conduct of our business.
ITEM 4A: UNRESOLVED STAFF COMMENTS
There are no unresolved staff comments.
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. Operating Results
The following discussion of our results of operations should be read together with our audited consolidated financial statements and the related notes, which appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our current plans, estimates and beliefs and involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report.
Introduction
We are a global provider of satellite-based broadband communications. We design and manufacture ground segment equipment, and provide comprehensive solutions and end-to-end services, powered by our e technology. Our portfolio comprises a cloud based satellite network platform, VSATs, amplifiers, high-speed modems, on-the-move antennas and high power SSPAs and BUCs. Our solutions support multiple applications with a full portfolio of products to address key applications including broadband access, cellular backhaul, enterprise, in-flight connectivity, maritime, trains, defense and public safety, all while meeting stringent service level requirements. We also provide connectivity services, internet access and telephony, to enterprise, government and residential customers utilizing both our own networks, and also other networks that we install, mainly based on BOT contracts. We also provide managed network services over VSAT networks owned by others.
We have a large installed base and have shipped more than 1.5 million satellite terminals to customers in approximately 90 countries on six continents since 1989. We have twenty sales and support offices worldwide, three NOCs and five R&D centers. Our products are primarily sold to communication service providers and operators that use satellite communications to serve enterprise, government and residential users. We also provide services directly to end‑users in certain countries.
Through 2017, we operated in three business segments, comprised of our Commercial, Mobility and Services divisions:
•
Commercial Division
– provides advanced fixed satellite networks, satellite communication systems, small cell solutions and associated professional services and comprehensive turnkey solutions and fully managed satellite services solutions. Our customers are service providers, satellite operators, mobile network operators, or MNOs, telecommunication companies, or Telcos, and large enterprises worldwide. We focus on high throughput satellites, or HTS, opportunities worldwide, with focus on cellular backhaul, and are driving meaningful partnerships with satellite operators to leverage our technology and breadth of services to deploy and operate the ground segment.
•
Mobility Division
– provides advanced, satellite communication on the move systems, including airborne, maritime and ground-mobile satellite systems and solutions. Our customers are service providers, system integrators, defense and homeland security organizations, as well as other commercial entities worldwide. The division provides solutions for land, sea and air connectivity, while placing major focus on the high-growth market of In-Flight Connectivity, or IFC, with its unique leading technology. The division’s portfolio comprises high-speed modems, high performance on-the-move antennas and high efficiency, high power Solid State Amplifiers (SSPAs) and BUCs.
•
Services Division
– provides managed network and services for rural broadband access via our subsidiaries in Peru and Colombia. Our connectivity solutions have been implemented in large and national scale projects. Our terrestrial and satellite networks provide Internet and telephony services to thousands of rural communities and schools. Our turnkey solutions start with supplying network infrastructure, continue through ensuring high-quality, reliable connectivity and include full network support and maintenance, as well as support for applications that run on the installed network.
Commencing in the first quarter of
2018, in order to more accurately reflect management’s focus, organizational alignment, our customer base and end markets, we will operate in three new business segments, as follows:
|
·
|
Fixed Networks includes broadband satellite network equipment including our cellular backhaul solutions and services for Telcos, as well as our products and solutions for enterprises, consumers and governments worldwide, which are currently under the Commercial division. In addition, it includes our network operation and managed services activity in Peru and Colombia, which are currently part of the Services segment.
|
|
·
|
Mobility Solutions (previously named Mobility division) will remain intact and will continue to include satellite communication equipment for on-the-move satellite communications including our IFC activity as well as our defense and
homeland security activities
.
|
|
·
|
Terrestrial Infrastructure Projects includes our construction of the FITEL fiber and microwave network in Peru, which is currently part of the Services division.
|
The above changes in our reportable segments will have no effect on the goodwill assignment among the divisions.
Financial Statements in U.S. Dollars
The currency of the primary economic environment in which most of our operations are conducted is the U.S. dollar and, therefore, we use the U.S. dollar as our functional and reporting currency. Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Gains and losses arising from non-U.S. dollar transactions and balances are included in the consolidated statements of operations. The financial statements of certain foreign subsidiaries, whose functional currency has been determined to be their local currency, have been translated into U.S. dollars. The assets and liabilities of these subsidiaries have been translated using the exchange rates in effect at the balance sheet date. Statements of operations amounts have been translated using specific rates. The resulting translation adjustments are reported as a component of shareholders’ equity in accumulated other comprehensive income (loss).
Explanation of Key Income Statement Items
Revenues
We generate revenues mainly from the sale of products, including construction of networks, from services for satellite-based communications networks and from providing connectivity services, Internet access and telephony, to enterprise, government and residential customers under large-scale contracts that utilize both our own networks and also other networks that we install, mainly based on BOT contracts.
These large‑ scale contracts sometimes involve the installation of thousands of VSATs
or massive fiber-optic transport and access networks
.
Sale of products includes principally the sale of VSATs, hubs, SSPAs, low-profile antennas and on-the-Move / on-the-Pause terminals and the construction phase of large-scale projects. Service revenues include access to and communication via satellites, or space segment, installation of network equipment, telephone services, Internet services, consulting, on-line network monitoring, network maintenance and repair services. We sell our products primarily through our direct sales force and indirectly through resellers or system integrators. Sales consummated by our sales force and sales to resellers or system integrators are considered sales to end-users.
In 2017, 2016 and 2015, FITEL a Services Division customer, accounted for 28%, 34% and 11% of our revenues, respectively
.
Costs and Operating Expenses
Cost of revenues, for both products and services, includes the cost of system design, equipment, satellite capacity, salaries and related costs, allocated overhead costs, depreciation, customer service, interconnection charges and third party maintenance and installation.
Our research and development expenses, net of grants received, consist of salaries and related costs, raw materials, subcontractor expenses, related depreciation costs and overhead allocated to research and development activities.
Our selling and marketing expenses consist primarily of salaries and related costs, commissions earned by sales and marketing personnel, trade show expenses, promotional expenses and overhead costs allocated to selling and marketing activities, as well as depreciation expenses and travel costs.
Our general and administrative expenses consist primarily of salaries and related costs, allocated overhead costs, office supplies and administrative costs, bad debts, fees and expenses of our directors, depreciation, and professional service fees, including legal, insurance and audit fees.
Our operating results are significantly affected by, among other things, the timing of contract awards and the performance of agreements. As a result, our revenues and income (loss) may fluctuate substantially from quarter to quarter, and we believe that comparisons over longer periods of time may be more meaningful. The nature of certain of our expenses is mainly fixed or partially fixed and any fluctuation in revenues will generate a significant variation in gross profit and net income (loss).
Critical Accounting Policies and Estimates
The preparation of the financial information in conformity with generally accepted accounting principles requires 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. On an ongoing basis, we evaluate our estimates, mainly related to trade receivables, inventories, deferred charges, long-lived assets, intangibles and goodwill, revenues, stock based compensation relating to options and contingencies. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial information included in this annual report.
Consolidation.
Our consolidated financial statements include the accounts of our company and those of our subsidiaries, in which we have a controlling voting interest, as well as entities consolidated under the Variable Interest Entities, or VIEs, provisions of ASC 810, “Consolidation”
, or
ASC 810. Inter-company balances and transactions have been eliminated upon consolidation.
Most of the activity of Gilat Colombia consists of operating subsidized projects for the Ministry of ITC, through its “Dirección de Conectividad”, or DirCon, (formerly known as the Compartel Program). The first projects were
originally
awarded to our Colombian subsidiaries in 1999 and 2002 and were extended several times. An additional project was awarded to us in 2011 and was completed in December 2013. Another project was awarded to us by the Ministry of ITC in 2013 and was extended in 2017. The project is ongoing and scheduled to be completed in 2018.
As required in the bid documents for the Ministry of ITC projects, we established trusts, or the Trusts, and entered into a governing trust agreement for each project, or collectively the Trust Agreements. The Trusts were established for the purpose of holding the network equipment, processing payments to subcontractors, and holding the funds received through the subsidy from the government until they are released in accordance with the terms of the subsidy and paid to us. The Trusts are a mechanism to allow the government to review amounts to be paid with the subsidy and to verify that such funds are used in accordance with the transaction documents and the terms of the subsidy. We generate revenues both from the subsidy, as well as from the use of the network that we operate.
The Trusts are considered VIEs and we are identified as the primary beneficiary of the Trusts. Under ASC 810, we perform ongoing assessments of whether we are the primary beneficiary of a VIE. As our assessment provides that we have the power to direct the activities of a VIE that most significantly impacts the VIE’s activities (we are responsible for establishing and operating the networks), the obligation to absorb losses of the VIE that could potentially be significant to the VIE and the right to receive benefits from the VIE that could potentially be significant to the VIE economic performance, we therefore concluded that we are the primary beneficiary of the Trusts. As such, the Trusts were consolidated in our financial statements since their inception.
The cash held by the Trusts is consolidated within our financial statements and classified as “Restricted cash held by trustees”. The advances from customers received by the Trusts are consolidated within our financial statements and classified as “Advances from customers held by trustees”.
Revenues.
Revenues from product sales are recognized in accordance with ASC 605-10, “Revenue recognition” and with ASC 605-25 “Multiple-Element Arrangements” (“ASC 605”), when delivery has occurred, persuasive evidence of an agreement exists, the vendor’s fee is fixed or determinable, no further obligation exists and collectability is probable. When significant acceptance provision is included in the arrangement, revenues are deferred until the acceptance occurs. Generally, we do not grant rights of return. Service revenues are recognized ratably over the period of the contract or as services are performed, as applicable.
When a sales arrangement contains multiple elements, such as equipment and services, we allocate revenues to each element based on a selling price hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence
, or
VSOE
,
if available, third party evidence
, or
TPE
,
if VSOE is not available, or estimated selling price
, or
ESP
,
if neither VSOE nor TPE is available. In multiple element arrangements, revenues are allocated to each separate unit of accounting for each of the deliverables using the relative selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy. Where VSOE or TPE does not exist we establish ESP, based on our management judgment, considering internal factors such as margin objectives, pricing practices and historical sales.
Revenue from products under sales-type-lease contracts are recognized in accordance with ASC 840 “Leases”
, or
ASC 840, upon installation or upon shipment, in cases where the customer obtains its own or other’s installation services. The net investments in sales-type-leases are discounted at the interest rates implicit in the leases. The present values of payments due under sales-type-lease contracts are recorded as revenues at the time of shipment or installation, as appropriate. Future interest income is deferred and recognized over the related lease term as financial income.
Revenue from products and services under operating leases of equipment are recognized ratably over the lease period, in accordance with ASC 840.
Revenues from contracts in which we provide construction or production of products (“Production-Type Contracts”) which are significantly customized to the buyer’s specifications are recognized in accordance with ASC 605-35, “Construction-Type and Production-Type Contracts”. In Production-Type Contracts under which we produce units of a basic product in a continuous or sequential production process, we recognize revenues based on the units-of-delivery method, recognizing revenue for each unit on the date that unit is delivered. In other Production-Type Contracts, which require significant construction and customization to the customer’s specifications, we recognize revenues using the percentage-of-completion method of accounting based on the input measure by using the ratio of costs related to construction performance incurred to the total estimated amount of such costs. The amount of revenue recognized is based on the total fees under the arrangement and the percentage of completion achieved. Provisions for estimated losses on uncompleted contracts, if any, are made in the period in which such losses are first determined, in the amount of the estimated loss on the entire contact.
Deferred revenue and advances from customers represent amounts received by
our company
when the criteria for revenue recognition as described above are not met and are included in “Advances from customers and deferred revenues” and “Other long-term liabilities”, as appropriate. When deferred revenue is recognized as revenue, the associated deferred costs are also recognized as cost of sales
.
Income Taxes.
We are subject to income taxation in the United States, Israel and numerous other jurisdictions. Determining our provision for income taxes requires significant management judgment. In addition, our provision for income taxes could be adversely affected by many factors, including, among other things, changes to our operating structure, changes in the amounts of earnings in jurisdictions with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes in tax laws. We are subject to ongoing tax examinations in various jurisdictions. Tax authorities may disagree with our intercompany charges, cross-jurisdictional transfer pricing or other matters and assess additional taxes. While we regularly evaluate the likely outcomes of these examinations to determine the adequacy of our provision for income taxes, there can be no assurance that the outcomes of such examinations will not have a material impact on our results of operations and cash flows. In addition, we may be audited in various jurisdictions, and such jurisdictions may assess additional taxes against us. Although we believe our tax estimates are reasonable, the final determination of any tax audits or litigation could be materially different from our historical tax provisions and accruals, which could have a material adverse effect on our results of operations or cash flows in the period or periods for which a determination is made.
Significant judgment is required to determine the recognition and measurement attributes prescribed in Accounting Standards Codification, (“ASC 740-10-25”). In addition, ASC 740-10-25 applies to all income tax positions, including the potential recovery of previously paid taxes, which if settled unfavorably could adversely impact our provision for income taxes. Further, as a result of certain of our ongoing employment and capital investment actions and commitments, our income in certain countries is subject to reduced tax rates. Our failure to meet these commitments could adversely impact our provision for income taxes. In addition, we are subject to the continuous examination of our income tax returns by Israeli, U.S. and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our results of operations.
Accounts Receivable and Allowance for Doubtful Accounts.
We are required to estimate our ability to collect our trade receivables. A considerable amount of judgment is required in assessing their ultimate realization. We provided
allowances
for receivables relating to customers that were specifically identified by our management as having difficulties paying their respective receivables. If the financial condition of our customers deteriorates, resulting in their inability to make payments, additional allowances may be required. These estimates are based on historical bad debt experience and other known factors
pertaining to these customers
. If the historical data we used to determine these estimates does not properly reflect future realization, additional allowances may be required.
Inventory Valuation.
We are required to state our inventories at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. At each balance sheet date, we evaluate our inventory balance for excess quantities and obsolescence. This evaluation includes an analysis of sales levels by product and projections of future demand. We write-off inventories that are considered obsolete. Remaining inventory balances are adjusted to the lower of cost or net realizable value. If future demand for our old or new products or market conditions is less favorable than our projections, inventory write-offs may be required and would be reflected in cost of revenues for such period.
Impairment of Intangible Assets and Long-Lived Assets.
We periodically evaluate our intangible assets and long-lived assets
(mainly property and equipment) in all of our reporting units
for potential impairment indicators in accordance with ASC 360, “Property, Plant and Equipment”, or “ASC 360”. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions, operational performance
and prospects
of our acquired businesses and investments. Our long-lived 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 the assets to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. In measuring the recoverability of assets, we are required to make estimates and judgments in assessing our future cash flows which derive from the estimated useful life of our current primary assets, and compare that with the carrying amount of the assets. Additional significant estimates used by management in the methodologies employed to assess the recoverability of our long-lived assets include estimates of future short-term and long-term growth rates, useful lives of assets, market acceptance of products and services, our success in winning bids and other judgmental assumptions, which are also affected by factors detailed in our risk factors section in this annual report.
During 2017 and 2016, we did not identify any impairment losses of long-lived assets. Future events could cause us to conclude that impairment indicators exist, and that additional long-lived assets and intangible assets associated with our acquired businesses are impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.
During 2015, we encountered higher than expected expenses related to our project in Colombia, which resulted in operating and cash flow losses from this project. We considered these losses, combined with our projections for continuing losses from this project, as indicators of potential impairment of Gilat Colombia’s long lived assets and led us to evaluate the recoverability of those assets based on the future undiscounted cash flows expected to be generated by the assets. Following such evaluation, we came to the conclusion that the long-lived assets are not recoverable and impairment loss was calculated based on the excess of the carrying amount of the long-lived assets over the long-lived assets fair value. The $10.1 million impairment loss was recorded as part of “Impairment of long lived assets” in our statement of operations in the consolidated financial statements included in this annual report.
Goodwill
. Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. Under ASC 350 “Intangibles - Goodwill and Others”
, or ASC 350
, goodwill is not amortized, but rather is subject to an annual impairment test. ASC 350 requires goodwill to be tested for impairment at least annually or between annual tests in certain circumstances, and written off if and to the extent it is impaired. We conduct our impairment testing in the fourth quarter of each year,
or more often if there are indicators of impairment present. We first assess qualitative factors, for all of our reporting units, to determine whether it is necessary to perform the quantitative goodwill impairment test. If the qualitative assessment does not result in a more likely than not indication of impairment, no further impairment testing is required, otherwise the goodwill is tested for impairment by comparing the fair value of the reporting unit with its carrying value. Fair value is determined using discounted cash flows. Significant estimates used in the fair value methodologies include estimates of future cash flows, future growth rates and the weighted average cost of capital of the reporting units.
In 2017, following an improvement in the Mobility segment results, we performed a qualitative assessment and concluded that it is not more likely than not that the fair value of the reporting units is less than their carrying amounts and accordingly it is unnecessary to perform the two-step quantitative goodwill impairment test.
In 2016, we performed both qualitative and quantitative assessment and concluded that no impairment of goodwill needs to be recorded.
In 2015, the continuing pressure on the DoD budget in the United States along with delayed orders from other clients as well as other factors, resulted in a decline in revenues and operational results of our Mobility Division compared to budget and prior year’s results. These factors were considered by us as indicators of a potential impairment of the Mobility Division’s goodwill.
In accordance with ASC 350, “Intangible – Goodwill and Other” (“ASC 350”), following the identification of impairment indicators, we performed a goodwill impairment test for the two reporting units in the Mobility Division, using the income approach to value the reporting units’ fair value.
The material assumptions used for the income approach were five (5) years of projected cash flows, a long-term growth rate of 4% and a discounted rate of 13%.
The impairment test resulted in a goodwill impairment of $20.4 million in 2015, attributable to the Wavestream reporting unit. This impairment was recorded as part of “Goodwill impairment” in our statement of operations.
Legal and Other Contingencies.
We are currently involved in certain legal and other proceedings and are also aware of certain tax and other legal exposures relating to our business. We are required to assess the likelihood of any adverse judgments or outcomes of these proceedings or contingencies as well as potential ranges of probable losses. A determination of the amount of accruals required, if any, for these contingencies is made after careful analysis.
Liabilities related to legal proceedings, demands and claims are recorded in accordance with ASC 450, “Contingencies”
, or ASC 450
, which defines a contingency as “an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.” In accordance with ASC 450, accruals for exposures or contingencies are being provided when the expected outcome is probable and when the amount of loss can be reasonably estimated. It is possible, however, that future results of operations for any particular quarter or annual period could be materially affected by changes in our assumptions, the actual outcome of such proceedings or as a result of the effectiveness of our strategies related to these proceedings.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Revenues.
Revenues for the years ended December 31, 2017 and 2016 for our three divisions were as follows:
|
|
Year Ended
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
U.S. dollars
in thousands
|
|
|
Percentage
change
|
|
|
Percentage
of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
56,740
|
|
|
|
62,030
|
|
|
|
(8.5
|
)%
|
|
|
20.1
|
%
|
|
|
22.2
|
%
|
Services
|
|
|
27,126
|
|
|
|
31,791
|
|
|
|
(15.2
|
)%
|
|
|
9.6
|
%
|
|
|
11.4
|
%
|
|
|
|
83,866
|
|
|
|
94,001
|
|
|
|
(10.8
|
)%
|
|
|
29.7
|
%
|
|
|
33.6
|
%
|
Mobility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
79,524
|
|
|
|
59,363
|
|
|
|
34.0
|
%
|
|
|
28.1
|
%
|
|
|
21.2
|
%
|
Services
|
|
|
8,873
|
|
|
|
3,548
|
|
|
|
150.1
|
%
|
|
|
3.1
|
%
|
|
|
1.3
|
%
|
|
|
|
88,397
|
|
|
|
62,911
|
|
|
|
40.5
|
%
|
|
|
31.3
|
%
|
|
|
22.5
|
%
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
78,258
|
|
|
|
92,898
|
|
|
|
(15.8
|
)%
|
|
|
27.7
|
%
|
|
|
33.2
|
%
|
Services
|
|
|
32,235
|
|
|
|
29,741
|
|
|
|
8.4
|
%
|
|
|
11.4
|
%
|
|
|
10.6
|
%
|
|
|
|
110,493
|
|
|
|
122,639
|
|
|
|
(9.9
|
)%
|
|
|
39.1
|
%
|
|
|
43.9
|
%
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
214,522
|
|
|
|
214,291
|
|
|
|
0.1
|
%
|
|
|
75.9
|
%
|
|
|
76.7
|
%
|
Services
|
|
|
68,234
|
|
|
|
65,260
|
|
|
|
4.6
|
%
|
|
|
24.1
|
%
|
|
|
23.3
|
%
|
Total
|
|
|
282,756
|
|
|
|
279,551
|
|
|
|
1.1
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Our total revenues for the years ended December 31, 2017 and 2016 were $282.8 million and $279.6 million, respectively. The increase in 2017 is mainly attributable to an increase of approximately $25.5 million in Mobility Division revenues, largely offset by a decrease of $10.1 in Commercial Division revenues and a $12.1 million decrease in Services Division revenues.
The increase in Mobility Division revenues is primarily attributable to an increase in sales related to airborne mobility products, principally IFC products and our Wavestream products.
The decrease in our Commercial Division revenues is primarily attributable to lower sales in the Asia Pacific and China regions partially offset by higher revenues in the Latin America region.
The decrease in Services Division revenues is primarily attributable to lower revenues from the four FITEL projects which we were awarded in 2015. We began deploying the first three projects during 2015 and the fourth in 2016. The four FITEL projects are expected to generate revenues of approximately $393 million over a period of approximately 13 years.
Gross profit.
The gross profit and the gross margin of our three divisions for the years ended December 31, 2017 and 2016 was as follows:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
U.S. dollars in thousands
|
|
|
Percentage of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
17,587
|
|
|
|
18,018
|
|
|
|
31.0
|
%
|
|
|
29.0
|
%
|
Services
|
|
|
12,832
|
|
|
|
18,580
|
|
|
|
47.3
|
%
|
|
|
58.1
|
%
|
|
|
|
30,419
|
|
|
|
36,598
|
|
|
|
36.3
|
%
|
|
|
38.9
|
%
|
Mobility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
37,294
|
|
|
|
19,965
|
|
|
|
46.9
|
%
|
|
|
33.6
|
%
|
Services
|
|
|
4,610
|
|
|
|
1,984
|
|
|
|
52.0
|
%
|
|
|
55.9
|
%
|
|
|
|
41,904
|
|
|
|
21,949
|
|
|
|
47.4
|
%
|
|
|
34.9
|
%
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
6,473
|
|
|
|
13,745
|
|
|
|
8.3
|
%
|
|
|
14.8
|
%
|
Services
|
|
|
3,699
|
|
|
|
3,198
|
|
|
|
11.5
|
%
|
|
|
10.8
|
%
|
|
|
|
10,172
|
|
|
|
16,943
|
|
|
|
9.2
|
%
|
|
|
13.8
|
%
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
61,355
|
|
|
|
51,728
|
|
|
|
28.6
|
%
|
|
|
24.1
|
%
|
Services
|
|
|
21,140
|
|
|
|
23,762
|
|
|
|
31.0
|
%
|
|
|
36.4
|
%
|
Total
|
|
|
82,495
|
|
|
|
75,490
|
|
|
|
29.2
|
%
|
|
|
27.0
|
%
|
Our gross profit is affected year-to-year by the mix of revenues between products and services, the regions in which we operate, the size of our transactions and the timing of when such transactions are consummated. Moreover, from time to time we may have large-scale projects which can cause material fluctuations in our gross profit. As such, we are subject to
year-to-year
fluctuation in our gross profit.
Our gross profit margin increased to 29.2% in 2017 from 27% in 2016. The increase in our gross profit margin in
the year ended December 31, 2017
is mainly attributable to substantial higher revenue volume in our Mobility Division which is characterized with higher gross profit margins compared to our other divisions
. This increase was partially offset by a decrease in
our gross profit margin in the Services and Commercial Divisions.
The increase in the gross profit margin of the Mobility Division is mainly attributable to a
different revenue mix
and higher revenues
in
the year ended December 31, 2017 compared to the year ended December 31,
2016
.
The decrease in the Commercial Division’s gross profit margin is mainly attributable to lower revenues and a slightly higher fixed expenses level
in
the year ended December 31, 2017, compared to the year ended December 31,
2016.
In the Services Division, the decrease in the gross profit margin is attributable to lower revenue from the FITEL projects and higher fixed expenses
in
the year ended December 31, 2017 compared to the year ended December 31,
2016
.
Research and development expenses, net
.
Our research and development expenses are incurred by our Commercial and Mobility Divisions. Our research and development expenses for the years ended December 31, 2017 and 2016 were as follows:
|
|
Year Ended
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
U.S. dollars
in thousands
|
|
|
Percentage change
|
|
|
Percentage
of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses incurred
|
|
|
12,956
|
|
|
|
14,222
|
|
|
|
(8.9
|
)%
|
|
|
15.4
|
%
|
|
|
15.1
|
%
|
Less - grants
|
|
|
784
|
|
|
|
1,623
|
|
|
|
(51.7
|
)%
|
|
|
0.9
|
%
|
|
|
1.7
|
%
|
|
|
|
12,172
|
|
|
|
12,599
|
|
|
|
(3.4
|
)%
|
|
|
14.5
|
%
|
|
|
13.4
|
%
|
Mobility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses incurred
|
|
|
16,476
|
|
|
|
12,254
|
|
|
|
34.5
|
%
|
|
|
18.6
|
%
|
|
|
19.5
|
%
|
Less - grants
|
|
|
634
|
|
|
|
-
|
|
|
|
635.0
|
%
|
|
|
0.7
|
%
|
|
|
0.0
|
%
|
|
|
|
15,842
|
|
|
|
12,254
|
|
|
|
29.3
|
%
|
|
|
17.9
|
%
|
|
|
19.5
|
%
|
Total, net (*)
|
|
|
28,014
|
|
|
|
24,853
|
|
|
|
12.7
|
%
|
|
|
16.3
|
%
|
|
|
17.5
|
%
|
(*) percentage of total net research and development costs of revenues is calculated based on total revenues of our Commercial and Mobility Divisions.
Research and development expenses increased by approximately $3.2 million in 2017 compared to 2016. The increase in expenses is related to our increased investments in R&D efforts in the Mobility Division to support our growing business.
Selling and marketing expenses.
The selling and marketing expenses of our three reportable divisions for the years ended December 31, 2017 and 2016 were as follows:
|
|
Year Ended
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
U.S. dollars
in thousands
|
|
|
Percentage change
|
|
|
Percentage
of revenues
|
|
Commercial
|
|
|
16,925
|
|
|
|
17,153
|
|
|
|
(1.3
|
)%
|
|
|
20.2
|
%
|
|
|
18.2
|
%
|
Mobility
|
|
|
5,782
|
|
|
|
5,483
|
|
|
|
5.5
|
%
|
|
|
6.5
|
%
|
|
|
8.7
|
%
|
Services
|
|
|
1,052
|
|
|
|
775
|
|
|
|
35.7
|
%
|
|
|
1.0
|
%
|
|
|
0.6
|
%
|
Total
|
|
|
23,759
|
|
|
|
23,441
|
|
|
|
1.5
|
%
|
|
|
8.4
|
%
|
|
|
8.4
|
%
|
Selling and marketing expenses increased by approximately $0.3 million in the year ended December 31, 2017 compared to the year ended December 31, 2016. Selling and marketing expenses increased in each of our Mobility and Services Divisions by approximately $0.3 million. This increase was partially offset by a decrease of $0.2 million in our Commercial Division.
General and administrative expenses.
The general and administrative expenses of our three divisions for the years ended December 31, 2017 and 2016 were as follows:
|
|
Year Ended
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
U.S. dollars
in thousands
|
|
|
Percentage change
|
|
|
Percentage
of revenues
|
|
Commercial
|
|
|
6,016
|
|
|
|
10,657
|
|
|
|
(43.5
|
)%
|
|
|
7.2
|
%
|
|
|
11.3
|
%
|
Mobility
|
|
|
6,326
|
|
|
|
9,138
|
|
|
|
(30.8
|
)%
|
|
|
7.2
|
%
|
|
|
14.5
|
%
|
Services
|
|
|
7,519
|
|
|
|
6,676
|
|
|
|
12.6
|
%
|
|
|
6.8
|
%
|
|
|
5.4
|
%
|
Total
|
|
|
19,861
|
|
|
|
26,471
|
|
|
|
(25.0
|
)%
|
|
|
7.0
|
%
|
|
|
9.5
|
%
|
General and administrative expenses decreased by approximately $6.6 million
in the year ended December 31, 2017 compared to the year ended December 31, 2016
. This decrease is attributable to $4.6 million and $2.8 million decreases in the expenses of our Commercial and Mobility Divisions, respectively, partially offset by an increase of $0.8 million in the expenses of our Services Division.
The decrease in expenses of our Commercial Division is primarily attributable to an accrual for bad debt related to a governmental customer in Venezuela arising from the worsening economic situation and the credit downgrade in that country that was recorded in 2016.
The $2.8 million decrease in our Mobility Division expenses, is primarily attributable to lower legal expenses
due to the conclusion of trade secrets litigation that we initiated in 2015 against former employees in the U.S.
.
T
he increase in expenses of our Services Division in 2017 is primarily attributable to higher salaries and related benefits expenses and higher depreciation expenses.
Financial expenses, net.
In the year ended December 31, 2017, we had financial expenses of approximately $4.3 million compared to financial expenses of approximately $4.8 million in 2016. The decrease in our financial expenses is
primarily attributable to
lower
bank charges, surety and guaranty expenses, mainly related to our projects in Latin America.
Taxes on income.
Taxes on income are dependent upon where our profits are generated, such as the location and taxation of our subsidiaries
as well as changes in deferred tax assets and liabilities recorded mainly as part of business combinations. In the year ended December 31, 2017 we had a tax benefit of approximately $0.2 million compared to tax expenses of approximately $1.3 million in the year ended December 31, 2016.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Revenues.
Revenues for the years ended December 31, 2016 and 2015 for our three divisions were as follows:
|
|
Year Ended
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S. dollars
in thousands
|
|
|
Percentage change
|
|
|
Percentage
of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
62,030
|
|
|
|
65,666
|
|
|
|
(5.5
|
)%
|
|
|
22.2
|
%
|
|
|
33.2
|
%
|
Services
|
|
|
31,971
|
|
|
|
35,269
|
|
|
|
(9.4
|
)%
|
|
|
11.4
|
%
|
|
|
17.9
|
%
|
|
|
|
94,001
|
|
|
|
100,935
|
|
|
|
(6.9
|
)%
|
|
|
33.6
|
%
|
|
|
51.1
|
%
|
Mobility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
59,363
|
|
|
|
38,746
|
|
|
|
53.2
|
%
|
|
|
21.2
|
%
|
|
|
19.6
|
%
|
Services
|
|
|
3,548
|
|
|
|
2,366
|
|
|
|
50.0
|
%
|
|
|
1.3
|
%
|
|
|
1.2
|
%
|
|
|
|
62,911
|
|
|
|
41,112
|
|
|
|
53.0
|
%
|
|
|
22.5
|
%
|
|
|
20.8
|
%
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
92,898
|
|
|
|
24,558
|
|
|
|
278.3
|
%
|
|
|
33.3
|
%
|
|
|
12.4
|
%
|
Services
|
|
|
29,741
|
|
|
|
30,938
|
|
|
|
(3.9
|
)%
|
|
|
10.6
|
%
|
|
|
15.7
|
%
|
|
|
|
122,639
|
|
|
|
55,496
|
|
|
|
121.0
|
%
|
|
|
43.9
|
%
|
|
|
28.1
|
%
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
214,291
|
|
|
|
128,970
|
|
|
|
66.2
|
%
|
|
|
76.7
|
%
|
|
|
65.3
|
%
|
Services
|
|
|
65,260
|
|
|
|
68,573
|
|
|
|
(4.8
|
)%
|
|
|
23.3
|
%
|
|
|
34.7
|
%
|
Total
|
|
|
279,551
|
|
|
|
197,543
|
|
|
|
41.5
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Our total revenues for the years ended December 31, 2016 and 2015 were $279.6 million and $197.5 million, respectively. The increase in 2016 is mainly attributable to an increase of approximately $67.1 million in Services Division revenues and a $21.8 million increase in Mobility Division revenues, partially offset by a decrease of $6.9 million in Commercial Division revenues.
The increase in Services Division revenues is primarily attributable to revenues from the four FITEL projects which we were awarded in 2015. We began deploying the first three projects during 2015 and the fourth in 2016. The four FITEL projects are expected to generate revenues of approximately $393 million over a period of approximately 13 years.
The increase in Mobility Division revenues is primarily attributable to an increase in sales related to airborne mobility products, principally IFC products and our Wavestream products.
The decrease in our Commercial Division revenues is primarily attributable to lower sales in the Latin America region due to adverse economic conditions in the entire region, including the entry of a large customer in Brazil into judicial reorganization proceedings. In addition, the satellite industry is shifting to HTS technology which is characterized by large deals with a longer decision-making process. This extended decision-making process affected our results in 2016.
Gross profit.
The gross profit and the gross margin of our three divisions for the years ended December 31, 2016 and 2015 was as follows:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S. dollars in thousands
|
|
|
Percentage of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
18,018
|
|
|
|
17,943
|
|
|
|
29.0
|
%
|
|
|
27.3
|
%
|
Services
|
|
|
18,580
|
|
|
|
19,567
|
|
|
|
58.1
|
%
|
|
|
55.5
|
%
|
|
|
|
36,598
|
|
|
|
37,510
|
|
|
|
38.9
|
%
|
|
|
37.2
|
%
|
Mobility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
19,965
|
|
|
|
9,443
|
|
|
|
33.6
|
%
|
|
|
24.4
|
%
|
Services
|
|
|
1,984
|
|
|
|
954
|
|
|
|
55.9
|
%
|
|
|
40.3
|
%
|
|
|
|
21,949
|
|
|
|
10,397
|
|
|
|
34.9
|
%
|
|
|
25.3
|
%
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
13,745
|
|
|
|
6,901
|
|
|
|
14.8
|
%
|
|
|
28.1
|
%
|
Services
|
|
|
3,198
|
|
|
|
(583
|
)
|
|
|
10.8
|
%
|
|
|
(1.9
|
)%
|
Impairment of long lived assets
|
|
|
-
|
|
|
|
(10,137
|
)
|
|
|
0.0
|
%
|
|
|
(18.3
|
)%
|
|
|
|
16,943
|
|
|
|
(3,819
|
)
|
|
|
13.8
|
%
|
|
|
(6.9
|
)%
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
51,728
|
|
|
|
34,287
|
|
|
|
24.1
|
%
|
|
|
26.6
|
%
|
Services
|
|
|
23,762
|
|
|
|
19,938
|
|
|
|
36.4
|
%
|
|
|
29.1
|
%
|
Impairment of long lived assets
|
|
|
-
|
|
|
|
(10,137
|
)
|
|
|
0.0
|
%
|
|
|
(5.1
|
)%
|
Total
|
|
|
75,490
|
|
|
|
44,088
|
|
|
|
27.0
|
%
|
|
|
22.3
|
%
|
Our gross profit margin increased to 27.0% in 2016 from 22.3% in 2015. The increase in our gross profit margin in
the year ended December 31, 2016
is mainly attributable to an
increase in our overall sales compared to
the year ended December 31,
2015 and an
impairment of long lived assets
of
approximately $10.1 million that we recorded in
2015.
The increase in the Commercial Division’s gross profit margin is mainly attributable to revenues from deals with higher margins
in
the year ended December 31, 2016, compared to the year ended December 31,
2015,
partially offset by lower revenues over a similar level of fixed expenses
in
the year ended December 31, 2016 compared to the year ended December 31,
2015
.
The increase in the gross profit margin of the Mobility Division is mainly attributable to higher revenues partially offset by a higher level of fixed expenses
in
the year ended December 31, 2016 compared to the year ended December 31,
2015
.
In the Services Division, the increase in our gross profit margin is attributable to the impairment of long-lived assets of approximately $10.1 million which was recorded in 2015, coupled with higher revenue from the FITEL projects in the year ended December 31, 2016, compared to the year ended December 31, 2015. During 2015, we encountered higher than expected expenses related to our project in Colombia, which resulted in operating and cash flow losses. Consequently, we identified an impairment loss of property and equipment, net and long-term deferred charges, which are part of “other assets” in our balance sheet, in the amount of $4.1 million and $6.0 million, respectively. The total impairment loss of $10.1 million was recorded as part of “Impairment of long lived assets” in the statement of operations.
Research and development expenses, net
.
Our research and development expenses are incurred by our Commercial and Mobility Divisions. Our research and development expenses for the years ended
December 31, 2016 and 2015 were as follows:
|
|
Year Ended
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S. dollars
in thousands
|
|
|
Percentage change
|
|
|
Percentage
of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses incurred
|
|
|
14,222
|
|
|
|
16,698
|
|
|
|
(14.8
|
)%
|
|
|
15.1
|
%
|
|
|
16.5
|
%
|
Less - grants
|
|
|
1,623
|
|
|
|
2,523
|
|
|
|
(35.7
|
)%
|
|
|
1.7
|
%
|
|
|
2.5
|
%
|
|
|
|
12,599
|
|
|
|
14,175
|
|
|
|
(11.1
|
)%
|
|
|
13.4
|
%
|
|
|
14.0
|
%
|
Mobility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses incurred
|
|
|
12,254
|
|
|
|
8,254
|
|
|
|
48.5
|
%
|
|
|
19.5
|
%
|
|
|
20.1
|
%
|
Less - grants
|
|
|
0
|
|
|
|
17
|
|
|
|
(100.0
|
)%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
12,254
|
|
|
|
8,237
|
|
|
|
48.8
|
%
|
|
|
19.5
|
%
|
|
|
20.0
|
%
|
Total, net (*)
|
|
|
24,853
|
|
|
|
22,412
|
|
|
|
10.9
|
%
|
|
|
17.5
|
%
|
|
|
15.8
|
%
|
(*) percentage of total net research and development costs of revenues is calculated based on the total revenues from our Commercial and Mobility Divisions.
Research and development expenses increased by approximately $2.4 million in 2016 compared to 2015. The increase in expenses is related to our increased investments in R&D efforts in the Mobility Division to support our growing business. Grants from the
Innovation Authority
decreased by approximately $0.9 million in 2016 compared to 2015.
Selling and marketing expenses.
The selling and marketing expenses of our three reportable divisions for the years ended December 31, 2016 and 2015 were as follows:
|
|
Year Ended
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
Percentage
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S. dollars
in thousands
|
|
|
Change
|
|
|
Percentage of revenues
per division
|
|
Commercial
|
|
|
17,153
|
|
|
|
16,839
|
|
|
|
1.9
|
%
|
|
|
18.2
|
%
|
|
|
16.7
|
%
|
Mobility
|
|
|
5,483
|
|
|
|
6,947
|
|
|
|
(21.1
|
)%
|
|
|
8.7
|
%
|
|
|
16.9
|
%
|
Services
|
|
|
775
|
|
|
|
1,037
|
|
|
|
(25.3
|
)%
|
|
|
0.6
|
%
|
|
|
1.9
|
%
|
Total
|
|
|
23,411
|
|
|
|
24,823
|
|
|
|
(5.7
|
)%
|
|
|
8.4
|
%
|
|
|
12.6
|
%
|
Selling and marketing expenses decreased by approximately $1.4 million in the year ended December 31, 2016 compared to the year ended December 31, 2015. Selling and marketing expenses decreased in our Mobility and Services Divisions by approximately $1.5 million and $0.2 million, respectively, which decreases were partially offset by an increase of $0.3 million in our Commercial Division.
The increase in expenses in
the Mobility Division
is mainly attributable to an increase in freight and agent commission expenses. The decrease in Mobility Division expenses is mainly attributable to decreased salaries and related benefits and other expenses resulting from a reduction in work force and from cost efficiencies.
General and administrative expenses.
The general and administrative expenses of our three divisions for the years ended December 31, 2016 and 2015 were as follows:
|
|
Year Ended
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
Percentage
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S. dollars
in thousands
|
|
|
Change
|
|
|
Percentage of revenues
per division
|
|
Commercial
|
|
|
10,657
|
|
|
|
6,622
|
|
|
|
60.9
|
%
|
|
|
11.3
|
%
|
|
|
6.6
|
%
|
Mobility
|
|
|
9,138
|
|
|
|
6,271
|
|
|
|
45.7
|
%
|
|
|
14.5
|
%
|
|
|
15.3
|
%
|
Services
|
|
|
6,676
|
|
|
|
5,751
|
|
|
|
16.1
|
%
|
|
|
5.4
|
%
|
|
|
10.4
|
%
|
Total
|
|
|
26,471
|
|
|
|
18,644
|
|
|
|
42.0
|
%
|
|
|
9.5
|
%
|
|
|
9.4
|
%
|
General and administrative expenses increased by approximately $7.8 million
in the year ended December 31, 2016 compared to the year ended December 31, 2015
. This increase is attributable to $4.0 million, $2.9 million and $0.9 million increases in the expenses of our Commercial, Mobility and Services Divisions, respectively.
The increase in expenses of our Commercial Division is primarily attributable to an accrual for bad debt attributable to the Commercial Division’s governmental customer in Venezuela arising from the worsening economic situation and the credit downgrade in that country.
In our Mobility Division, the $2.9 million increase is primarily attributable to higher legal expenses
due to trade secrets litigation in the United States that we initiated in 2015 against former employees,, amounting to approximately $4.4 million in expenses in 2016 compared to $0.8 million in 2015
. T
he increase in expenses of our Services Division in 2016 is primarily attributable to higher salaries and related benefits expenses.
Goodwill impairment
. We conducted our impairment testing in the fourth quarter of 2016. Goodwill for all of our reporting units was tested for impairment by comparing the fair value of the reporting unit with its carrying. No impairment losses were identified in 2016.
In 2015, we identified certain indicators that affected the carrying value of the goodwill of Wavestream within our Mobility Division. The continuing pressure on the DoD budget in the United States along with delayed orders from other clients as well as other elements, were reflected in the reduction of Wavestream’s actual revenues and operational results. We performed an analysis of Wavestream’s implied carrying value in accordance with ASC 350 and as a result of this analysis, we recorded goodwill impairment losses of approximately $20.4 million in the year ended December 31, 2015.
Restructuring Costs.
In 2015, we initiated a restructuring plan to improve our operating efficiency at various operating sites and to reduce our operating expenses in the future. As a result, we recognized expenses of approximately $1.5 million in 2015, mainly for one-time employee termination benefits and costs to terminate a contract.
Financial expenses, net.
In the year ended December 31, 2016, we had financial expenses of approximately $4.8 million compared to financial expenses of approximately $7.2 million in 2015. The decrease in our financial expenses is
primarily attributable to
changes in
exchange rate between the local currency and the
U.S. dollar in the countries where some of our subsidiaries are located partially offset by higher bank charges, surety and guaranty expenses, mainly related to our projects in Latin America.
Taxes on income.
Taxes on income are dependent upon where our profits are generated, such as the location and taxation of our subsidiaries
as well as changes in deferred tax assets and liabilities recorded mainly as part of business combinations. Tax expenses in the year ended December 31, 2016 were approximately $1.3 million compared to approximately $1.2 million in the year ended December 31, 2015.
Variability of Quarterly Operating Results
Our revenues and profitability may vary from quarter to quarter and in any given year, depending primarily on the sales mix of our family of products and the mix of the various components of the products, sale prices, and production costs, as well as on entering into new service contracts, the termination of existing service contracts, or different profitability levels between different service contracts. Sales of our products to a customer typically consist of numerous VSATs and related hub equipment, SSPAs, BUCs, and low-profile antennas, which carry varying sales prices and margins.
Annual and quarterly fluctuations in our results of operations may be caused by the timing and composition of orders by our customers and the timing of our ability to recognize revenues. Our future results may also be affected by a number of factors, including our ability to continue to develop, introduce and deliver new and enhanced products on a timely basis and expand into new product offerings at competitive prices, to integrate our recent acquisitions, to anticipate effectively customer demands and to manage future inventory levels in line with anticipated demand. Our results may also be affected by currency exchange rate fluctuations and economic conditions in the geographical areas in which we operate. In addition, our revenues may vary significantly from quarter to quarter as a result of, among other factors, the timing of new product announcements and releases by our competitors and us. We cannot be certain that revenues, gross profit and net income (or loss) in any particular quarter will not vary from the preceding or comparable quarters. Our expense levels are based, in part, on expectations as to future revenues. If revenues are below expectations, operating results are likely to be adversely affected. In addition, a substantial portion of our expenses are fixed (
e.g
. space segment, lease payments) and adjusting expenses in
the event
revenues drop unexpectedly often takes considerable time. As a result, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. Due to all of the foregoing factors, it is possible that in some future quarters our revenues or operating results will be below the expectations of public market analysts or investors. In such event, the market price of our shares would likely be materially adversely affected.
Conditions in Israel
We are organized under the laws of the State of Israel, where we also maintain our headquarters and
a material portion of our laboratory capacity and principal
research and development facilities. See Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Location in Israel” for a description of governmental, economic, fiscal, monetary or political factors that have materially affected or could materially affect our operations.
Impact of Inflation and Currency Fluctuations
While most of our sales and service contracts are in U.S. dollars or are linked to the U.S. dollar and most of our expenses are in U.S. dollars and NIS, portions of our projects in Latin America as well as our operation in Australia, Asia and Europe are linked to their respective local currencies. The foreign exchange risks are often significant due to fluctuations in local currencies relative to the U.S. dollar.
The influence on the U.S. dollar cost of our operations in Israel relates primarily to the cost of salaries in Israel, which are paid in NIS and constitute a substantial portion of our expenses in NIS. In 2017, the rate of inflation in Israel was 0.4% and the U.S. dollar depreciated in relation to the NIS at a rate of 9.8%, from NIS 3.845 per $1 on December 31, 2016 to NIS 3.467 per $1 on December 31, 2017. If future inflation in Israel exceeds the devaluation of the NIS against the U.S. dollar or if the timing of such devaluation lags behind increases in inflation in Israel, our results of operations may be materially adversely affected. In 2017 and 2016, in order to limit these risks, we entered into hedging agreements to cover certain of our NIS to U.S. dollar exchange rate exposures.
Our monetary balances that are not linked to the U.S. dollar impacted our financial expenses during the 2017 and 2016 periods. This is due to heavy fluctuations in currency rates in certain regions in which we do business, mainly in Latin America, Australia and Europe. There can be no assurance that our results of operations will not be materially adversely affected by other currency fluctuations in the future.
Effective Corporate Tax Rate
The corporate tax rate in Israel effective as of January 1, 2017 is 24%, compared with 25% in 2016 and 26.5% in 2015. As of January 1, 2018, the corporate tax rate in Israel was reduced to 23% .
The Law for the Encouragement of Capital Investments, 1959
, or
Investments Law, provides that a capital investment in eligible facilities may, upon application to the Investment Center of the Ministry of Industry, Trade and Labor of the State of Israel, be designated as an “Approved Enterprise”, and now known as a “Privileged Enterprise”. A Privileged Enterprise is eligible for tax benefits on taxable income derived from its approved enterprise programs.
On April 1, 2005, an amendment to the Israeli Law for the Encouragement of Capital Investments, 1959, or the Investment Law, came into effect
that
limits the scope of enterprises which may be approved by the Investment Center by setting criteria for the approval of a facility, such as provisions generally requiring that at least 25% of their business income will be derived from export. A facility that is approved is called a “Benefitted Enterprise.” Additionally, the
2005 amendment
enacted major changes in the manner in which tax benefits are awarded under the Investment Law, so that companies no longer require Investment Center approval in order to qualify for tax benefits.
Our company chose 2005 and 2011 as the years of election in order to receive tax benefits as a Benefitted Enterprise under the Investment Law amendment. Our period of benefits as a Benefitted Enterprise under the 2005 election expired on December 31, 2017. Our period of benefits as a Benefitted Enterprise under the 2011 election will expire in 2023. See “Item 10 - Additional Information - Israeli Tax Consideration”. If we fail to comply with the conditions applicable to this status under the Investment Law, we may be required to pay additional taxes and penalties or make refunds and may be denied future benefits. From time to time, the government of Israel has discussed reducing or eliminating the benefits available under such programs, and therefore these benefits may not be available in the future at current levels, or at all.
To the extent we become profitable for Israeli tax purposes, we may be eligible for a tax exemption for a limited period on undistributed Benefitted Enterprise income, and an additional subsequent period of reduced corporate tax rates (ranging between 10% and 25%, depending on the level of foreign ownership of our shares), on such undistributed Benefitted Enterprise income. Income from sources other than the “Benefitted Enterprises” during the relevant period of benefits will be taxable at the regular corporate tax rates. As of December 31, 2017, we did not generate income under the provisions of the
Investment Law
.
Under an amendment to the Investment Law effective January 1, 2011, upon an irrevocable election made by the company, a uniform rate of corporate tax will apply to all qualified income of certain industrial companies, as opposed to the currently applicable law’s incentives that are limited to income from Benefitted Enterprises during their benefits period. Under the amended law, "Preferred Enterprise", the uniform tax rates were 10% in geographical areas in Israel designated as Development Zone A and 15% elsewhere in Israel during 2011-2012. The uniform tax rates were reduced to 7% and 12.5%, respectively to the mentioned geographic areas in 2013. The uniform tax rate for 2014 and onwards is set to 9% in areas in Israel designated as Development Zone A and 16% elsewhere in Israel. The profits of these industrial companies will be freely distributable as dividends, subject to a 20% withholding tax (or lower, under an applicable tax treaty).
According to a December 2016 amendment to the Investment Law, a preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9% effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%).
Under the transition provisions of the 2011 legislation, we may elect whether to irrevocably implement the 2011 law, while waiving benefits provided under the currently applicable law, or rather to keep implementing the currently applicable law during the next years. Implementing the January 1, 2011 law is permissible at any stage.
The December 2016 amendment also prescribes special tax tracks for technological enterprises. The new tax tracks under the amendment are as follows:
Technological preferred enterprise
- an enterprise whose total consolidated revenues (parent company and all subsidiaries) is less than NIS 10 billion. A technological preferred enterprise, as defined in the Law, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property (in development area A - a tax rate of 7.5%).
Special technological preferred enterprise
- an enterprise whose total consolidated revenues (parent company and all subsidiaries) exceeds NIS 10 billion. Such enterprise will be subject to tax at a rate of 6% on profits deriving from intellectual property, regardless of the enterprise’s geographical location.
Any dividends distributed to “foreign companies”, as defined in the Law, deriving from income from the technological enterprises will be subject to tax at a rate of 4%.
Impact of Recently Issued Accounting Pronouncements
In May 2014, the FASB issued Accounting Standard Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The ASU is effective for us in 2018 using either of two methods: (i) retrospective application of ASU 2014-09 to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective application of ASU 2014-09 with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09 (“Modified Retrospective Adoption Transition Method”).We have established an implementation team and have started analyzing the impact of the guidance. We have established an implementation team and have started analyzing the impact of the guidance. This includes reviewing revenue contracts across all revenue streams and evaluating potential differences that would result from applying the requirements under the standard. We adopted the new standard on January 1, 2018 using the Modified Retrospective Adoption Transition Method.
We have completed our evaluation of the standard and do not expect a material change in our pattern of revenue recognition. In addition, the standard requires the deferral and amortization of “incremental” costs incurred to obtain a contract. The primary contract acquisition cost for our company are sales commissions. Under current GAAP, we expense sales commissions as incurred while under the standard such costs will be classified as a contract asset and amortized over a period that approximates the timing of revenue recognition on the underlying contracts. We recorded an asset and a cumulative effect to retained earnings of approximately $ 1.5 million on the opening balance sheet at January 1, 2018.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). The new guidance requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU 2016-02 also will require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018 including interim periods within those fiscal years, but early adoption is permitted. The ASU requires a modified retrospective transition approach and provides certain optional transition relief. We are currently evaluating when we will adopt this new standard and the expected impact on our consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13). ASU 2016-13 significantly changes the way impairment of financial instruments is recognized by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of financial instruments. The main provisions of ASU 2016-13 include (1) replacing the “incurred loss” approach under current GAAP with an “expected loss” model for instruments measured at amortized cost, (2) requiring entities to record an allowance for available-for-sale debt securities rather than reduce the carrying amount of the investments, as is required by the other-than-temporary-impairment model under current GAAP, and (3) a simplified accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted. We are currently evaluating the expected impact of the standard on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). This new standard clarifies certain aspects of the statement of cash flows, including the classification of debt prepayment or debt extinguishment costs or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees and beneficial interests in securitization transactions. This new standard also clarifies that an entity should determine each separately identifiable source of use within the cash receipts and payments on the basis of the nature of the underlying cash flows. In situations in which cash receipts and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item. ASU 2016-15 will generally be applied retrospectively and is effective for annual periods beginning after December 15, 2017. We do not expect that this new guidance will have a material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for us as of the first quarter of 2018. We expect that the adoption of ASU 2016-18 will affect our operating and investing activities in our consolidated statements of cash flow as both activities include material changes in the restricted cash balances.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 eliminates Step 2 of the goodwill impairment test, which requires the calculation of the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Instead, an entity will compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We are currently evaluating the expected impact of the standard on our consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands the activities that qualify for hedge accounting and simplifies the rules for reporting hedging transactions. The standard is effective for our company beginning January 1, 2019. Early adoption is permitted. We are currently evaluating the expected impact of the standard on our consolidated financial statements.
B
.
|
Liquidity and Capital Resources
|
Since our inception, our financing requirements have been met through cash from funds generated by private equity investments, public offerings, issuances of convertible subordinate notes, bank loans and credit facilities, operations, as well as funding from research and development grants. We have used available funds primarily for working capital, capital expenditures and strategic investments.
As of December 31, 2017, we had cash and cash equivalents of $53.0 million, short-term and long-term restricted cash of $29.5 million and short-term restricted cash held in trustees’ accounts of $4.3 million. As of December 31, 2016, we had cash and cash equivalents of $40.1 million, short-term and long-term restricted cash of $62.4 million, short-term restricted cash held in trustees’ accounts of $9.1 million.
In March 2016, we concluded a rights offering, raising gross proceeds of approximately $35.3 million and issuing 9,874,170 ordinary shares. Under the rights offering we granted, at no charge to the holders of our ordinary shares as of the record date for the rights offering, one non-transferable subscription right to purchase two ordinary shares for each nine (9) ordinary shares owned at a price of $7.16 (reflecting a price of $3.58 per share).
We believe that our working capital is sufficient for our present requirements over the next 12 months.
As of December 31, 2017, our long-term debt was approximately $17.1 million, comprised of long-term loans of $12.6 million and current maturities of long-term loans of $4.5 million. The long term loans primarily consist of a loan that was received in December 2010 in the amount of $40 million from First International Bank of Israel, or FIBI, which
bears interest of 4.77%
.
As of December 31, 2017, the principal outstanding balance of this loan was $16 million.
In addition, in connection with the Regional FITEL Projects, we were required to post certain advance payment guarantees and performance guarantees with FITEL. These requirements were principally satisfied through surety bonds issued by Amtrust Europe Limited, or Amtrust, for the benefit of FITEL, through a Peruvian fronting insurance company as well as through the issuance of bank guarantees by FIBI and by
The Hong Kong and Shanghai Banking Corporation, or HSBC
. Under the arrangements with FIBI, HSBC and Amtrust, we are required to observe certain conditions, including the requirement to maintain an amount of restricted cash. As of December 31 2017, we were in compliance with these requirements.
Under the provisions of our agreements with FIBI and HSBC, we undertook to
satisfy certain financial and other covenants. As of December 31, 2017 we are in compliance with these covenants.
Our credit and guarantee agreements also contain various restrictions and limitations that may impact us. These restrictions and limitations relate to incurrence of indebtedness, contingent obligations, negative pledges, liens, mergers and acquisitions, change of control, asset sales, dividends and distributions, redemption or repurchase of equity interests, certain debt payments and modifications of loans and investments. The agreements also stipulate a floating charge on our assets to secure fulfillment of our obligations to FIBI and HSBC as well as other pledges, including a fixed pledge, on certain assets and property.
The following table summarizes our cash flows for the periods presented:
|
|
Years Ended December 31, 2017
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S. dollars in thousands
|
|
Net cash provided by (used in) operating activities
|
|
|
20,800
|
|
|
|
10,778
|
|
|
|
(14,787
|
)
|
Net cash provided by (used in) investing activities
|
|
|
(3,975
|
)
|
|
|
(13,569
|
)
|
|
|
12,340
|
|
Net cash provided by (used in) financing activities
|
|
|
(4,012
|
)
|
|
|
23,921
|
|
|
|
(5,867
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
11
|
|
|
|
568
|
|
|
|
(977
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
12,824
|
|
|
|
21,698
|
|
|
|
(9,291
|
)
|
Cash and cash equivalents at beginning of the period
|
|
|
40,133
|
|
|
|
18,435
|
|
|
|
27,726
|
|
Cash and cash equivalents at end of the period
|
|
|
52,957
|
|
|
|
40,133
|
|
|
|
18,435
|
|
Our cash and cash equivalents increased by approximately $12.8 million during the year ended December 31, 2017 as a result of the following:
Operating activities
. Cash provided by our operating activities was approximately $20.8 million in 2017 compared to cash used in operating activities of approximately $10.8 million in 2016. The cash provided by our operating activities in 2017 was primarily attributable to our improved operating results in 2017, adjusted for non-cash activity, including the impact of changes in restricted cash directly related to operating activities, depreciation and amortization expenses, offset by changes in trade receivables, inventories and advances from customers.
Investing activities
. Cash used in investing activities was approximately $4 million in 2017 compared to approximately $13.6 million in 2016. The changes in our cash in 2017 derived from changes in restricted cash and by the purchase of property and equipment.
Financing activities
. Cash used in financing activities was approximately $4 million in 2017 compared to cash provided by financing activities of approximately $23.9 million in 2016. The cash used in financing activities are mainly repayments of long term loans.
Our cash and cash equivalents increased by approximately $21.7 million during the year ended December 31, 2016 as a result of the following:
Operating activities
. Cash provided by our operating activities was approximately $10.8 million in 2016 compared to cash used in operating activities of approximately $14.8 million in 2015. The cash provided by our operating activities in 2016 was primarily attributable to our improved operating results in 2016, adjusted for non-cash activity, including the impact of changes in advances from customers, offset by depreciation and amortization expenses, changes in trade receivables and restricted cash received directly related to operating activities.
Investing activities
. Cash used in investing activities was approximately $13.6 million in 2016 compared to cash provided by investing activities of approximately $12.3 million in 2015. The changes in our cash in 2016 derived from changes in restricted cash and by the purchase of property and equipment.
Financing activities
. Cash provided by financing activities was approximately $23.9 million in 2016 compared to cash used in financing activities in 2015 of approximately $5.9 million. The cash provided by financing activities in 2016 derived primarily from the proceeds received from the issuance of shares in a rights offering, which was partially offset by repayment of long-term loans and short term bank credits.
C
.
|
Research and Development
|
We devote significant resources to research and development projects designed to enhance our VSAT, Satellite Communication on-the-move antennas and SSPAs products, to multiply the applications for which they can be used and to develop new products, including expanding our portfolio to address IFC applications. We intend to continue to devote substantial resources to complete the development of certain features, including improving functionality, support higher throughput, improving space segment utilization and network resilience, thereby contributing to reducing the cost of our products.
We conduct our research and development activities in Israel, Bulgaria, Moldova, the United States (California) and Singapore. Our Bulgarian center focuses on developments related to our Satellite Communication on-the-move antennas. Our facilities in California and Singapore are dedicated to the continuing design and development of SSPAs. Our facilities in Moldova and Israel work on research and development of VSATs, baseband equipment and network management. In our R&D center in Israel we established a new group developing state-of-the-art Radio Frequency Integrated Circuits, or RFICs for our electronically-steered antennas.
We devoted significant research and development resources over the last few years to the development of our SkyEdge family of products, including to the development of our own proprietary hardware platforms for both baseband equipment and software. In 2017, we invested heavily in developing new functionality for IFC application, including new VSAT platforms, global bandwidth management, beam switching and introduction of the new coding schemas that significantly improve spectral efficiency. We continued to invest in optimizing solutions for cellular backhaul, improving throughput, supported security and resilience. We develop our own network software as well as software for our VSATs.
Our software and our internally developed hardware are proprietary and we have implemented protective measures both of a legal and practical nature. We have obtained and registered patents in the U.S. and in various other countries in which we offer our products and services. We rely upon the copyright laws to protect against unauthorized copying of the object code of our software and upon copyright and trade secret laws for the protection of the source code of our software. We derive additional protection for our software by generally licensing only the object code to customers and keeping the source code confidential. In addition, we enter into confidentiality agreements with our customers and other business partners to protect our software technology and trade secrets. We have also obtained trademark registrations in the U.S. and various other countries for additional protection of our intellectual property. Despite all of these measures, it is possible that competitors could copy certain aspects of our technology or obtain information that we regard as a trade secret in violation of our legal rights.
We participate in various programs under which we have received and are eligible to receive research and development grants for financing research and development projects in Israel, pursuant to the provisions of The Encouragement of Industrial Research and Development Law, 1984. We are also participating in grant research programs of the European Union, Horizon 2020. With respect to some of our funding programs, we are obligated to pay royalties from the revenues derived from products developed within the framework of such programs. However, most of our programs are non-royalty bearing programs.
The following table sets forth, for the years indicated, our gross research and development expenditures, the portion of such expenditures which was funded mainly by non-royalty bearing grants and the net cost of our research and development activities:
|
|
Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(U.S. dollars in thousands)
|
|
Gross research and development costs
|
|
|
29,433
|
|
|
|
26,477
|
|
|
|
24,952
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants.
|
|
|
1,419
|
|
|
|
1,624
|
|
|
|
2,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development costs - net
|
|
|
28,014
|
|
|
|
24,853
|
|
|
|
22,412
|
|
The satellite communications industry is moving toward HTS technology that employs multi-beam transmission for more efficient use of space segment. In addition to GEO-HTS, new satellite constellations of HTS-MEO and HTS-GEO are scheduled to be launched in the coming years. With the scheduled launch of numerous HTS, we believe that development of products using this technology for the different satellites and constellations will be an important competitive factor in the satellite communications market. We are continuing our efforts to enhance our current products and develop new ones to support the advantages of this technology.
The continued increase in HTS supply is projected to produce a reduction in bandwidth price. This reduction is expected to make satellite communications economically viable for more broadband, cellular and mobility applications. Accordingly, satellite communications is expected to economically increase cellular coverage and service in rural, metro-edge and metro areas in developed and developing countries. This trend may result in the growth of the small-cell market and the need to rapidly deploy LTE backhaul.
We continue to focus on the mobility trend which has been driven by the
projected growth of mobility applications, especially on airplanes, and also on trains and seagoing vessels, as well as defense-related applications.
In the past few years the satellite communications market has experienced increasing competition both from within its sector and from competing communication technologies. Specifically, the expansion of cellular coverage in rural areas worldwide, increased terrestrial infrastructures as well as the advancement of wireless technologies, increases the options for our potential and existing customers. In addition, the number of satellite communications providers in the market has increased and prices of technologies continue to decline. Another development in our industry is the increasing demand for complete solutions which encompass far more than a single platform of a communications solution.
We believe that the political environment in Israel could continue to prevent certain countries from doing business with us and this, in addition to the increased competition and reduced prices in the telecommunications industry overall, may have an adverse effect on our business. Given all of the above, we cannot guarantee or predict what our sales will be, what trends will develop, and if any changes in our business and marketing strategy will be implemented.
E.
|
Off-Balance Sheet Arrangements
|
At times, we guarantee the performance of our work to some of our customers, primarily government entities. Guarantees are often required for our performance during the installation and operational periods of long-term rural telephony projects such as in Latin America, and for the performance of other projects (government and corporate) throughout the rest of the world. The guarantees typically expire when certain operational milestones are met. In addition, from time to time, we provide corporate guarantees to guarantee the performance of our subsidiaries. No guarantees have ever been exercised against us.
In order to guarantee our performance obligations and the down payment we received under the Regional FITEL Projects, we provided bank guarantees by FIBI and by HSBC and surety bonds for the benefit of FITEL, which surety bonds have been issued by Amtrust through a Peruvian insurance company in an aggregate amount of approximately $125.1 million at December 31, 2017. We have provided Amtrust with a corporate guarantee in the amount of approximately $57.3 million. In addition,
we have restricted cash of approximately $21.5 million as collateral for these guarantees
.
Our credit and guarantee agreements also contain various covenants, restrictions and limitations that may impact us. These covenants, restrictions and limitations relate to incurrence of indebtedness, contingent obligations, negative pledges, liens, mergers and acquisitions, change of control, asset sales, dividends and distributions, redemption or repurchase of equity interests, certain debt payments and modifications of loans and investments. The agreements also stipulate a floating charge on our assets to secure fulfillment of our obligations to FIBI and HSBC as well as other pledges, including a fixed pledge, on certain assets and property. As of December 31, 2017, the aggregate amount of bank guarantees and surety bonds from insurance companies outstanding to secure our various performance obligations was approximately $152.4 million, including an aggregate of approximately $145.7 million on behalf of our subsidiaries in Peru. We have restricted cash of approximately $29.4 million as collateral for these guarantees.
In order to guarantee our performance obligations for our current activities in Colombia, we purchased insurance from an insurance company in Colombia. We have provided the insurance company with various corporate guarantees, guaranteeing our performance and our employee salary and benefit costs of approximately 56.62 billion Colombian Pesos (approximately $19 million based on the representative rate of exchange published as of December 31, 2017) and 12.31 billion Colombian Pesos (approximately $4.1 million based on the representative rate of exchange published as of December 31, 2017), respectively.
F.
|
Tabular Disclosure of Contractual Obligations
|
The following table summarizes our minimum contractual obligations as of December 31, 2017 and the effect we expect them to have on our liquidity and cash flow in future periods:
Contractual Obligations
|
|
Payments due by period (in U.S. dollars in thousands)
|
|
|
|
Total
|
|
|
2018
|
|
|
|
2019-2020
|
|
|
|
2021-2022
|
|
|
|
2023
|
|
Long-term loans *
|
|
|
17,061
|
|
|
|
4,479
|
|
|
|
8,582
|
|
|
|
4,000
|
|
|
|
-
|
|
Operating lease (mainly space segment)
|
|
|
19,068
|
|
|
|
8,800
|
|
|
|
9,219
|
|
|
|
908
|
|
|
|
141
|
|
Purchase commitments (mainly inventory)
|
|
|
19,183
|
|
|
|
19,183
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other long-term debt
|
|
|
2,050
|
|
|
|
2,050
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total contractual cash obligations
|
|
|
57,362
|
|
|
|
34,512
|
|
|
|
17,801
|
|
|
|
4,908
|
|
|
|
141
|
|
(*) Future interest payments are not included due to variability in interest rates.
ITEM 6: DIRECTORS AND SENIOR MANAGEMENT
A.
|
Directors and Senior Management
|
The following table sets forth the name, age, position(s) and a brief account of the business experience of each of the
directors and executive officers:
Name
|
Age
|
Position(s)
|
Dov Baharav
|
67
|
Chairman of the Board of Directors
|
Yona Ovadia
|
58
|
Chief Executive Officer
|
Amiram Boehm (3)
|
46
|
Director
|
Dafna Cohen (1)(2)(4)(5)
|
48
|
Director
|
Ishay Davidi
|
56
|
Director
|
Amir Ofek (3)
|
42
|
Director
|
Aylon (Lonny)
Rafaeli (1) (2)(4)
|
64
|
Director
|
Meir Shamir
(3)
|
66
|
Director
|
Dafna Sharir
(1)(4)
|
49
|
Director
|
Elyezer Shkedy (1)(2)(4)(5)
|
59
|
Director
|
Michal Aharonov
|
46
|
Vice President, Commercial
|
Michael Barak
|
45
|
Vice President, Commercial Aviation & Mobility
|
Nirit Barnea
|
50
|
Vice President, Human Resources
|
Ron Levin
|
43
|
Vice President, Global Accounts
|
Adi Sfadia
|
47
|
Chief Financial Officer
|
Yuval Shani
|
52
|
Chief Operating Officer
|
Alik Shimelmits
|
56
|
Vice President, Research & Development
|
|
(1)
|
Member of our Audit Committee.
|
|
(2)
|
Member of our Compensation and Stock Option Committee.
|
|
(3)
|
“Independent Director” under the applicable NASDAQ Marketplace Rules (see explanation below)
|
|
(4)
|
“Independent Director” under the applicable NASDAQ Marketplace Rules and the applicable rules of the U.S. Securities and Exchange Commission (the “SEC”) (see explanation below)
|
|
(5)
|
“External Director” as required by Israel’s Companies Law (see explanation below)
|
Dov Baharav
has served as the Chairman of our Board of Directors since May 2014 and also served as our interim Chief Executive Officer from May 2015 until March 31, 2016.
Mr. Baharav has served as the chairman of the board of directors of Cyberint Inc., a provider of cyber security services and products solutions, since October 2014.
Mr. Baharav
has served as a member of the board of directors of Mellanox Technologies Ltd., a supplier of end-to-end InfiniBand and Ethernet connectivity solutions and services for servers and storage, since November 2010. Mr. Baharav served as the chairman of the board of directors of Israel Aerospace Industries, Ltd., a defense and civil aerospace technology company, from July 2011 until October 2013. Mr. Baharav served as a member of the Board of directors of Allot Communications Ltd., a global provider of intelligent broadband solutions, from March 2013 until July 2014. From July 2002 until November 2010, Mr. Baharav served as president and chief executive officer of Amdocs Limited, a communications services company. He also served as a member of Amdocs’ board of directors and executive committee from July 2002 until November 2010. Mr. Baharav joined Amdocs in 1991 as vice president and then became president of Amdocs’ principal U.S. subsidiary, Amdocs, Inc., and served as chief financial officer of Amdocs from 1995 until June 2002. From 1983 until 1991, Mr. Baharav served as chief operating officer of Oprotech Ltd., an electro-optical device company. Mr. Baharav is Chairman of the scholarship fund of the College of Management Academic Studies in Rishon Lezion, Israel. Mr. Baharav holds a Bachelor of Science degree in Physics and Accounting, as well as an M.B.A. degree from Tel Aviv University
Yona Ovadia
joined our company in March 2015 as Vice President, Services and Commercial Division. He has served as our Chief Executive Officer since March 31, 2016. Prior to joining our company, Mr. Ovadia served as Group President & Head of Services Group at Amdocs from 2013 to 2015. Prior to such time, from 2010 until 2013 Mr. Ovadia served as Head of Delivery & Managed Services at Amdocs Ltd. and prior thereto he served in various executive positions at Amdocs, mainly in the areas of services and managed services, with a position as management member since 1997. Mr. Ovadia holds a B.Sc. degree in Mathematics and Computer Science from Tel Aviv University.
Amiram Boehm
has served on our Board of Directors since December 2012. Mr. Boehm
has been a Partner in the FIMI Opportunity Funds, Israel’s largest group of private equity funds, since 2004. Mr. Boehm serves as the Managing Partner and Chief Executive Officer of FITE GP (2004), and as a director of Ham-Let (Israel-Canada) Ltd., Hadera Paper Ltd (TASE)., Rekah Pharmaceuticals Ltd (TASE), Pharm-up Ltd (TASE)., TAT Technologies Ltd. (NASDAQ, TASE) and DIMAR Ltd, DelekSon Ltd and Galam Ltd. Mr. Boehm previously served as a director of Ormat Technologies Inc. (NYSE, TASE), Scope Metal Trading, Ltd. (TASE), Inter Industries, Ltd. (TASE), Global Wire Ltd. (TASE), Telkoor Telecom Ltd. (TASE) and Solbar Industries Ltd. (previously traded on the TASE). Prior to joining FIMI, from 1999 until 2004, Mr. Boehm served as Head of Research of Discount Capital Markets, the investment arm of Israel Discount Bank. Mr. Boehm holds a B.A. degree in Economics and
a LL.B. degree
from Tel Aviv University and a Joint M.B.A. degree from Northwestern University and Tel Aviv University.
Dafna Cohen
has served on our Board of Directors as an external director
(within the meaning of the Israeli Companies Law)
since December 2014. Ms. Cohen is the Head of Business Control and Investor Relations of EL-AL Israel Airlines Ltd., a company traded on the TASE and also serves as an independent business and financial advisor. Ms. Cohen has served as a member of board of directors of Formula Systems (1985) Ltd since 2009 (NASDAQ and TASE). Ms. Cohen served as Director of Global Treasury of MediaMind Technologies Inc. (previously traded on NASDAQ) and as a member of the investment committee of its board of directors from 2010 to 2011. Prior to that, Ms. Cohen served as a Director of Investments and as a Treasurer of Emblaze Ltd. and as a member of the investment committee of its board of directors from 2005 to 2009 (London Stock Exchange). Prior to that, Ms. Cohen served as an Investment Manager for Leumi Partners, a wholly owned subsidiary of Bank Leumi, and as a manager at the derivatives sector of the Investment Division of Bank Leumi. Ms. Cohen previously served as a member of boards of directors of XTL Biopharmaceuticals Ltd. (NASDAQ and TASE) from 2009 to 2015, Europort Ltd from 2012 to 2014 (TASE) and of Inventech Central Ltd from 2011 to 2012 (TASE). Ms. Cohen holds an M.B.A. degree in Finance and Accounting and a B.A. degree in Economics and Political Science, both from The Hebrew University of Jerusalem.
Ishay Davidi
has served on our Board of Directors since December 2012. Mr. Davidi
is the Founder and has served as Chief Executive Officer of the FIMI Opportunity Funds, Israel’s largest group of private equity funds, since 1996. Mr. Davidi currently serves as Chairman of the board of directors of Inrom Industries Ltd., Hadera Paper Ltd. (TASE) and Polyram plastics, Dimar Cutting Tools, and as director at Ham-Let (Israel-Canada) Ltd. (TASE), Rekah Pharmaceuticals Ltd. (TASE), Tadir-Gan Precision materials (TASE),
C. Mer Industries Ltd. (TASE), GI Ltd, SOS Ltd and DelekSon Ltd.
Mr. Davidi previously served as the Chairman of the board of directors of Retalix (previously traded on NASDAQ and TASE) from August 2008 until January 2010, of Tefron Ltd. (New York Stock Exchange and TASE) and of Tadir-Gan (TASE), and as a director at Pharm Up Ltd (TASE), Ormat Industries Ltd. (previously traded on TASE), Retalix, Tadiran Communications Ltd. (TASE), Lipman Electronic Engineering Ltd. (NASDAQ and TASE), Merhav Ceramic and Building Materials Center Ltd. (TASE), TAT Technologies Ltd. (NASDAQ and TASE), Orian C.M. Ltd. (TASE), Ophir Optronics Ltd., Overseas Commerce Ltd, (TASE),
Scope Metals Group Ltd. (TASE)
and Formula Systems Ltd. (NASDAQ and TASE). Prior to establishing FIMI, from 1993 until 1996, Mr. Davidi was the Founder and Chief Executive Officer of Tikvah Fund, a private Israeli investment fund. From 1992 until 1993 Mr. Davidi was the Chief Executive Officer of Zer Science Industries Ltd., a developer of diagnostics equipment for the healthcare industry. Mr. Davidi holds a B.Sc. degree in Industrial and Management Engineering from Tel Aviv University, Israel, and a M.B.A. degree from Bar Ilan University, Israel.
Amir Ofek
has served on our Board of Directors since December 2014. Mr. Ofek is Chief Executive Officer of Cyberint Inc., a provider of cyber security services and products solutions. Mr. Ofek has served as a director on the board of Cyberint since September 2014. Mr. Ofek also serves as a partner at Baharav Ventures Ltd. (“BVL”), a company wholly owned by the Chairman of our Board of Directors, Mr. Baharav. Prior to joining BVL, Mr. Ofek worked at Amdocs Inc., the leading BSS/OSS provider, from 2006 to 2014, where he served as VP Client Business Executive SingTel Group at Amdocs, based in Singapore from 2009. Prior to this role, Mr. Ofek served as Director of Management Services at Amdocs from 2007 to 2009 and in the Corporate Strategy unit from 2006 to 2007. Before joining Amdocs in 2006, Mr. Ofek worked for Elbit Systems Ltd., a leading aerospace defense company, from 2001 to 2005. Mr. Ofek holds a BSc. degree (Cum Laude) in Industrial Engineering and Management, majoring in Information Systems from the Technion-Israel Institute of Technology and an M.B.A. degree from the European Institute of Business Administration (INSEAD) in Fontainebleau, France.
Aylon (Lonny) Rafaeli
has served on our Board of Directors since May 2016. Mr. Rafaeli
is a strategy and business development manager and consultant. From 2007 through 2012, Mr. Rafaeli was Director of Business Development at MST, a concentrated photo voltaic company. Prior to joining MST, Mr. Rafaeli was Managing Partner at E. Barak Associates, a strategic consulting company. Prior to this role, Mr. Rafaeli was Chief Executive Officer of Hasbro Israel (toys). Mr. Rafaeli is a member of the board of directors of the TALI Education Fund and a veteran association of an IDF elite unit. Mr. Rafaeli also served in the past as a director of Lenox Investment and Azimuth Technologies. Mr. Rafaeli holds an Executive M.B.A. degree in Strategic Management from The Hebrew University of Jerusalem.
Meir Shamir
has served on our Board of Directors since May 2016. Mr. Shamir is the chief executive officer and a director of Mivtach Shamir holdings Ltd., a public company traded on the Tel Aviv Stock Exchange. Mivtach Shamir is a holding company active in spotting and initiating investments in technology and in commercial real estate development in Israel and throughout Europe, the U.S. India. Mr. Shamir served as a navigator in the Israeli Air Force. Mr. Shamir is an active philanthropist and since 2012 he has served as the Head of the Presidency of “Taglit” (Birthright Israel)
.
Mr. Shamir holds a Business & Economics Administration degree and received an Honorary Doctorate from Bar Ilan University.
Dafna Sharir
has served on our Board of Directors since May 2016. Ms. Sharir is an Independent Consultant in the areas of mergers and acquisitions and business development. Ms. Sharir served as Senior Vice President Investments of Ampal Corp. between 2002 and 2005. Before that she served as Director of Mergers and Acquisitions at Amdocs (until 2002). Between 1994 and 1996, Ms. Sharir worked as a tax attorney with Cravath, Swaine & Moore in New York. Ms. Sharir is a director of Frutarom Industries Ltd. and served in the past as a director of Ormat Industries Inc. Ms. Sharir holds a B.A. degree in Economics and an LL.B degree, both from Tel Aviv University, an LL.M. in Tax Law from New York University, and an M.B.A. degree from INSEAD.
Major General (ret.) Elyezer Shkedy
,
has served on our Board of Directors since June 2017. Mr. Shkedy is a business development manager and consultant. From January 2010 to March 2014, Mr. Shkedy was the Chief Executive Officer of El-Al Israel Airlines. Prior to joining El-Al, Mr. Shkedy served as Commander of the Israeli Air Force, from April 2004 until May 2008, after a long career as a fighter pilot and moving up through several command positions in the Israeli Air Force. Mr. Shkedy holds an M.A. degree (with distinction) in Systems Management from NPS, the Naval Postgraduate School in Monterey, California, U.S. and a B.Sc. degree in Mathematics and Computer Science (with distinction) from Ben Gurion University in Israel.
Michal Aharonov
has served as our Vice President, Global Accounts and Telecom Services since October 2015 and was promoted in August 2017 to Vice President, Commercial. Prior to joining Gilat, from 2013 until 2015, Ms. Aharonov served as Vice President, Head of Sales and Services at Essence Group. Prior thereto, from 2008 until 2012, Ms. Aharonov served as Vice President, Global Strategic Sourcing at Amdocs, after having served since 2000 in various positions at Amdocs. Ms. Aharonov holds a Master’s degree in Public Administration focusing on financial information systems from Clark University in Massachusetts, U.S. and a B.A. degree in Business Management and Finance from the College of Management – Academic Studies in Tel Aviv, Israel.
Michael Barak
serves as Vice President, Head of the Commercial Aviation & Mobility Division at Gilat since December 2016. Mr. Barak joined Gilat in 2012 and served as Head of Mobility & Defense Line-of-Business Overseeing R&D, Marketing and Sales of Gilat’s Defense and Mobility product lines. He was then appointed RVP Commercial Aviation & Mobility and spearheaded Gilat’s strategic entry into the commercial aviation IFC market. Prior to joining Gilat, Mr. Barak was part of the founding and management team at RaySat Inc. and served in several key positions in the company: VP Marketing, VP Sales and Business Development, until its full acquisition by Gilat in 2010. Mr. Barak holds a M.Sc. degree in Corporate Finance and a B.A. degree in Computer Science (Cum Laude) from the Interdisciplinary Center in Herzeliya.
Nirit Barnea
has served as our Vice President, Human Resources since June 2015. Prior to joining Gilat, from 2010 until 2014, Ms. Barnea served as the Global VP HR of 3M Attenti Ltd. (formerly DMATEK Ltd.). Prior thereto, Ms. Barnea held several senior management HR positions for various software and telecommunications companies. Ms. Barnea holds an M.A. degree in Sociology from Tel Aviv University and a B.A. degree in Economics and Business Administration from Haifa University.
Ron Levin
serves as Vice President, Global Accounts at Gilat, where he leads Gilat’s activities with Satellite Operators and Broadband Managed Services. Prior to Gilat, he headed Strategic Sales at ECI Telecom, a leading telecom equipment provider. Previously Mr. Levin headed Product Management at Jungo Software Technologies, a software company of home and small business gateways, which was later acquired by NDS and Cisco. Mr. Levin holds a M.Sc. degree in Management from the University of Tel Aviv and a B.Sc. degree in Computer Engineering from the Technion, Israel Institute of Technology in Haifa.
Adi Sfadia
has served as our Chief Financial Officer since November 2015. Prior to joining Gilat Mr. Sfadia served as CFO of Starhome Ltd., a wholly owned subsidiary of Fortissimo Capital, from January 2013. From 2008 to 2013, Mr. Sfadia served as CFO of Radvision Ltd. (previously traded on NASDAQ and TASE). From 2004 until 2008, Mr. Sfadia served as Radvision’s Corporate Controller and Vice President of Finance.
Prior to that, Mr. Sfadia served in several senior financial positions in Israeli companies, where he gained wide financial and managerial experience. Mr. Sfadia served five years in a public accounting position with Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global. Mr. Sfadia holds a B.A. degree in Business Administration and an M.B.A. degree (magna cum laude) from The College of Management in Tel Aviv and Rishon Lezion, and is a Certified Public Accountant in Israel.
Yuval Shani
serves as Gilat’s Chief Operating Officer. Mr. Yuval Shani has over 20 years of executive experience in the fields of Global Operations, Supply Chain and Delivery Management. Prior to joining Gilat, Yuval served as Vice President Global Operations at Lumenis. Previously, he headed Global Operations and
Manufacturing
at Check Point. Yuval has also worked at Microsemi as Vice President Operations and General Manager of the company’s Israeli site. During his career, Yuval has served in various management positions in high growth public companies such as Nice and 3Com, and has been the lead person responsible for the implementation of operational excellence practices. Yuval holds an M.B.A. degree, specializing in Finance, and a B.A. degree (cum laude) in Economics & Management, both from Manchester University.
Alik Shimelmits
has served as our Vice President, Research and Development since May 2013. Prior to joining Gilat, from 2007 to 2013, Mr. Shimelmits served as Head of Transport Networks R&D for ECI Telecom Ltd. and prior to that as VP Research and Development for Axerra Networks Ltd. from 1999 to 2007. From 1991 to 1999, Mr. Shimelmits held various technical and managerial positions at ECI Telecom, having last served there as Associate Vice President R&D, Software Development, SDH Product Line. Mr. Shimelmits holds a M.Sc. degree in Applied Mathematics from Moscow Institute of Electronic Engineering and a B.Sc. degree in Computer Science from Moscow Institute of Chemical Engineering.
B.
|
Compensation
of Directors and Officers
|
The following table sets forth the aggregate compensation paid to or accrued on behalf of all of our directors and officers as a group for the year ended December 31, 2017:
|
|
Salaries, Fees, Directors’ Fees,
Commissions and Bonuses
(1)
|
|
|
Amounts Set Aside for Pension, Retirement and
Similar Benefits
|
|
All directors and officers as a group (19 persons)
(2)
|
|
$
|
4,138,377
|
|
|
$
|
505,586
|
|
|
(1)
|
Includes bonuses and equity-based compensation accrued in 2017, but does not include business travel, professional and business association dues and expenses reimbursed to our directors and officers, and other benefits commonly reimbursed or paid by companies in Israel.
|
|
(2)
|
Includes two directors and officers that ceased to hold office during 2017 and four directors and officers that joined us during 2017.
|
In accordance with Israeli law requirements, the table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or with respect to the year ended December 31, 2017, in accordance with the expenses recorded in our financial statements for the year ended December 31, 2017. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”
For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary, bonuses, equity-based compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking to provide such compensation.
Summary Compensation Table
Information Regarding the Covered Executive in US dollars
(1)
|
|
Name and Principal Position
(2)
|
|
Base Salary
|
|
|
Benefits and
Perquisites
(3)
|
|
|
Variable
Compensation
(4)
|
|
|
Equity-Based
Compensation
(5)
|
|
|
Total
|
|
Yona Ovadia,
CEO
|
|
|
369,368
|
|
|
|
98,968
|
|
|
|
276,686
|
|
|
|
138,336
|
|
|
|
883,358
|
|
Michael Barak, VP Commercial
Aviation & Mobility
|
|
|
179,642
|
|
|
|
49,961
|
|
|
|
271,524
|
|
|
|
22,582
|
|
|
|
523,709
|
|
Dov Baharav,
Chairman of the Board
|
|
|
209,223
|
|
|
|
-
|
|
|
|
113,431
|
|
|
|
162,993
|
|
|
|
485,647
|
|
Adi Sfadia,
CFO
|
|
|
218,262
|
|
|
|
58,676
|
|
|
|
126,528
|
|
|
|
40,288
|
|
|
|
443,755
|
|
Michal Aharonov,
VP Commercial
|
|
|
218,262
|
|
|
|
70,519
|
|
|
|
104,746
|
|
|
|
25,523
|
|
|
|
419,050
|
|
|
(1)
|
All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.
|
|
(2)
|
All executive officers listed in the table were employed or provided services on a full-time basis during 2017. Mr. Barak became a senior office holder (as defined in the Companies Law) during 2017. The compensation information in the table above includes compensation accrued for full year 2017, including for the period prior to Mr. Barak's appointment as a senior office holder.
|
|
(3)
|
Amounts reported in this column include benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites may include, to the extent applicable to each executive, payments, contributions and/or allocations for savings funds, pension, severance, vacation, car or car allowance, medical insurances and benefits, risk insurances (e.g., life, disability, accident), convalescence pay, payments for social security and other benefits and perquisites consistent with our guidelines, but do not include business travel, relocation, professional and business association dues and expenses reimbursed to our directors and officers.
|
|
(4)
|
Amounts reported in this column refer to Variable Compensation such as commission, incentive and bonus payments as recorded in our financial statements for the year ended December 31, 2017.
|
|
(5)
|
Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2017, with respect to equity-based compensation granted to the Covered Executive.
|
In accordance with the approval of our shareholders and in accordance with Israeli corporate law regarding compensation of external directors, each of our non-employee directors and external directors (all of our current directors except for our Chairman of the Board of Directors) is entitled to receive annual compensation payable quarterly of approximately NIS
93,690
(currently equivalent to approximately $27,023), and an additional fee of approximately NIS 1,924 (currently equivalent to approximately $545) for each board or committee meeting attended. In addition, Board members are compensated for telephone participation in board and committee meetings in an amount of 60% of what would be received for physical attendance and for written resolutions in an amount equal to 50% of same. All the above amounts are linked to changes in the Israeli consumer price index as of September 2014 and subject to changes in the amounts payable pursuant to Israeli law from time to time.
During 2017, we granted options to purchase 50,000 ordinary shares to Elyezer Shkedy
, our
External Director
, at an exercise price of $4.88 per share, which in accordance with our Executive Compensation Policy (as discussed below) reflected an exercise price 5% greater than the closing price of our ordinary shares on the NASDAQ Global Select market on the last trading day prior to the grant date. The options vest in 12 equal quarterly installments over a three-year period and will remain exercisable for 12 months following cessation or termination of service (other than for cause).
As of December 31, 2017, our directors and executive officers as a group, consisting of 17 persons, held options to purchase an aggregate of 1,910,000 ordinary shares, having exercise prices ranging from $3.77 to $6.72. Generally, the options granted to our directors, vest over a three-year period (except in the case of our Chairman, Dov Baharav, which vest over a four-year period) and the options granted to our executive officers vest over a four-year period. The options will expire between 2019 and 2023. All of such options were awarded under our stock option plans described in Item 6E - “Directors, Senior Management and Employees - Share Ownership - 2008 Share Incentive Plan”.
Chairman Services.
We and Mr. Baharav, through his controlled company, entered into an agreement dated May 20, 2014, or the Chairman Agreement, under which Mr. Baharav serves as Chairman of the Board of Directors of our company. Mr. Baharav also served as interim Chief Executive Officer from May 2015 until March 2016. Under the Chairman Agreement, for the period that he served as both Chairman and CEO Mr. Baharav was entitled (directly or through his controlled company) to: (i)
a monthly fee in the amount of NIS 110,000 (approximately $31,700)
; (ii) payment of the cash value of various fringe benefits, in an aggregate amount of up to NIS 41,942 per month (approximately $12,100), which is equal to the employer’s cost that would have been incurred by the company for such benefits if the Chairman served in an employee status
and (iii) full time office space and secretarial assistance and reimbursement for out-of-pocket expenses incurred by him in connection with his service. For his services as Chairman, since April 2016, Mr. Baharav is entitled (directly or through his controlled company) to: (i) a monthly fee in the amount of NIS 44,000 (approximately $12,700); (ii) payment of the cash value of various fringe benefits, in an aggregate amount of up to NIS 18,697 (approximately $5,400) per month, which is equal to the employer’s cost that would have been incurred by us for such benefits if the Chairman served in an employee status; and (iii) full time office space and secretarial assistance and reimbursement for out-of-pocket expenses incurred by him in connection with his service. In May 2014, Mr. Baharav was granted options to purchase 250,000 of our ordinary shares, at an exercise price of $5.06 per share, and in May 2015, Mr. Baharav was granted options to purchase 150,000 of our ordinary shares exercisable at a price of $6.72 per share. The options were granted under our 2008 Option Plan and vest ratably, each quarter over a four-year period so long as Mr. Baharav continues to serve as Chairman of our company, and will remain exercisable during such service and for an additional 12 month period following termination of service (other than for cause). Unvested options will immediately vest in the event of a change in control. We may terminate the agreement prior to the end of its term by providing two months paid notice and an additional two months
’
salary. Mr. Baharav now serves only as Chairman. An annual cash bonus plan of 3.6 base monthly salaries was also approved for the years 2016 to 2018, upon achievement of a threshold of 80% of the company’s target operating profit metric. Additionally, Mr. Baharav may be eligible for an over- achievement bonus of up to one and a half base monthly salaries.
CEO Services.
Mr. Ovadia has served as our Chief Executive Officer since March 31, 2016. Under his employment agreement, Mr. Ovadia is entitled to
a monthly salary in the amount of NIS 110,000 (approximately $31,700)
and fringe benefits including social benefits, annual vacation and reimbursement of expenses. An annual cash bonus plan of six base monthly salaries was also approved for the years 2016 to 2018, upon achievement of a threshold of 80% of the company’s target operating profit metric. Additionally, Mr. Ovadia may be eligible for an over- achievement bonus of up to two and a half base monthly salaries. The foregoing is in addition to the 2016 grant of options to Mr. Ovadia under our 2008 Option Plan, to purchase 400,000 of our ordinary shares, as described above. During 2016, Mr. Ovadia was granted options to purchase 400,000 ordinary shares at an exercise price of $5.02 per share. The options were granted under our 2008 Option Plan and vest in 16 equal quarterly installments over a four-year period so long as Mr. Ovadia serves at our company, and will remain exercisable for 12 months following cessation or termination of service (other than for cause).
Unvested options will immediately vest in the event of a change in control.
In accordance with the Israeli Companies Law, we adopted an Executive Compensation Policy for our executive officers and directors. The purpose of the policy is to describe our overall compensation strategy for our executive officers and directors and to provide guidelines for setting their compensation, as prescribed by the Israeli Companies Law. In accordance with the Israeli Companies Law, the Executive Compensation Policy must be reviewed and readopted at least once every three years. The policy was last amended in June 2017.
Approval by the Compensation Committee, the Board of Directors and our shareholders, in that order, is required for the adoption of the Executive Compensation Policy. The shareholders’ approval must include the majority of shares voted at the meeting. In addition to the majority vote, the shareholders’ approval must satisfy either of two additional tests:
|
·
|
the majority includes at least a majority of the shares voted by shareholders other than our controlling shareholders or shareholders who have a personal interest in the adoption of the Executive Compensation Policy; or
|
|
·
|
the total number of shares held by non-controlling shareholders and disinterested shareholders that voted against the adoption of the Executive Compensation Policy does not exceed 2% of the aggregate voting rights of our company.
|
In the event that the Executive Compensation Policy is not approved by the shareholders, the compensation committee and the board of directors may still approve the policy, if the compensation committee and the board of directors determine, based on specified reasons and following further discussion of the matter, that the compensation policy is in the best interests of the company.
Under the Israeli Companies Law, the compensation arrangements for “office holders” (other than the Chief Executive Officer) who are not directors require the approval of the Compensation Committee and the Board of Directors; provided, however, that if the compensation arrangement is not in compliance with our Executive Compensation Policy, the arrangement may only be approved by the Compensation Committee and the Board of Directors for special reasons to be noted, and the compensation arrangement shall also require a special shareholder approval. If the compensation arrangement is an immaterial amendment to an existing compensation arrangement of an “office holder” who is not a director and is in compliance with our Executive Compensation Policy, the approval of the Compensation Committee is sufficient. An “office holder” is defined under Israeli Companies Law as a general manager, chief executive officer, chief business manager, deputy general manager, vice general manager, any other person assuming the responsibilities of any of the foregoing positions without regard to such person’s title, a director and a manager directly subordinate to the chief executive officer.
Arrangements regarding the compensation of directors require the approval of the Compensation Committee, the Board and our shareholders, in that order.
Arrangements regarding the compensation of the Chief Executive Officer require the approval of the Compensation Committee, the Board and our shareholders by special majority, in that order. In certain limited cases, the compensation of a new Chief Executive Officer who is not a director may be approved without approval of our shareholders.
Election of Directors
Our Articles of Association provide that our Board of Directors shall consist of not less than five and not more than nine directors as shall be determined from time to time by a majority vote at the general meeting of our shareholders. Our shareholders resolved to set the size of our Board of Directors at nine members, including two external directors.
Pursuant to our Articles of Association, each beneficial owner of 14% or more of our issued and outstanding ordinary shares is entitled to appoint, at each annual general meeting of our shareholders, one member to our Board of Directors, provided that a total of not more than four directors are so appointed. In the event that more than four qualifying beneficial owners notify us that they desire to appoint a member to our board of directors, only the four shareholders beneficially owning the greatest number of shares shall each be entitled to appoint a member to our Board of Directors. So long as our ordinary shares are listed for trading on NASDAQ, we may require that any such appointed director qualify as an “independent director” as provided in the NASDAQ rules then in effect. Our Board of Directors has the right to remove any such appointed director when the beneficial ownership of the shareholder who appointed such director falls below 14% of our issued and outstanding ordinary shares.
Our Articles of Association provide that a majority of the voting power at the annual general meeting of our shareholders will elect the remaining members of the board of directors, including external directors as required under the Companies Law. At any annual general meeting at which directors are appointed pursuant to the preceding paragraph, the calculation of the vote of any beneficial owner who appointed a director pursuant to the preceding paragraph shall not take into consideration, for the purpose of electing the remaining directors, ordinary shares constituting 14% of our issued and outstanding ordinary shares held by such appointing beneficial owner.
Each of our directors (except for external directors) serve, subject to early resignation or vacation of office in certain circumstances as set forth in our Articles of Association, until the adjournment of the next annual general meeting of our shareholders following the general meeting in which such director was elected. The holders of a majority of the voting power represented at a general meeting of our shareholders in person or by proxy will be entitled to (i) remove any director(s), other than external directors and directors appointed by beneficial holders of 14% or more of our issued and outstanding ordinary shares as set forth above, (ii) elect directors instead of directors so removed, or (iii) fill any vacancy, however created, in the board of directors. Our board of directors may also appoint additional directors, whether to fill a vacancy or in order to bring the total number of serving directors to the number determined by our shareholders. Such directors will serve until the next general meeting of our shareholders following such appointment.
Currently, no shareholder beneficially holding 14% or more of our issued and outstanding ordinary shares has exercised its right to appoint a director.
External Directors
and Independent Directors
External Directors
.
Under the Israeli Companies Law, public companies are required to elect at least two external directors who must meet specified standards of independence. External directors may not have had during the two years preceding their appointment, directly or indirectly through a relative, partner, employer or controlled entity, any affiliation with (i) the company, (ii) those of its shareholders who are controlling shareholders at the time of appointment and/or their relatives, or (iii) any entity controlled by the company or by its controlling shareholders.
The term “affiliation” includes an employment relationship, a business or professional relationship maintained on a regular basis, control and services as an office holder.
The term “controlling shareholder” is defined as a shareholder who has the ability to direct the activities of a company, other than if this power derives solely from the shareholder’s position on the board of directors or any
other position with the company. The definition also includes shareholders that hold 25% or more of the voting rights if no other shareholder holds more than 50% of the voting rights in the company.
In addition, an individual may not be appointed as an external director in a company that does not have a controlling shareholder, in the event that he has affiliation, at the time of his appointment, to the chairman, chief executive officer, a 5% shareholder or the chief financial officer. An individual may not be appointed as an external director if his relative, partner, employer, supervisor, or an entity he controls, has other than negligible business or professional relations with any of the persons with which the external director himself may not be affiliated.
No person can serve as an external director if the person’s other positions or business creates or may create conflicts of interest with the person’s responsibilities as an external director. Until the lapse of two years from termination of office, a company may not engage an external director as an employee or otherwise.
If, at the time an external director is to be appointed, all current members of the board of directors, who are not controlling shareholders of the company or their relatives, are of the same gender, then at least one external director appointed must be of the other gender.
The Israeli Companies Law further requires that external directors have either financial and accounting expertise or professional competence, as determined by the company’s board of directors. Under relevant regulations, a director having financial and accounting expertise is a person who, due to his or her education, experience and talents, is highly skilled in respect of, and understands, business and accounting matters and financial reports, in a manner that enables him or her to have an in-depth understanding of the company’s financial information and to stimulate discussion in respect of the manner in which the financial data is presented. Under the regulations, a director having professional competence is a person who meets any of the following criteria: (i) has an academic degree in either economics, business administration, accounting, law or public administration; (ii) has a different academic degree or has completed higher education in an area relevant to the company’s business or in an area relevant to his or her position; or (iii) has at least five years’ experience in any of the following, or has a total of five years’ experience in at least two of the following: (a) a senior position in the business management of a corporation with a substantial scope of business, (b) a senior public position or a senior position in public service, or (c) a senior position in the main field of the company’s business.
At least one of the external directors is required to qualify as a financial and accounting expert, as determined by the board of directors.
Our Board of Directors has determined that both Ms. Dafna Cohen and Mr. Elyezer Shkedy have “accounting and financial expertise” as defined by the Israeli Companies law.
External directors serve for an initial three-year term. The initial three-year term of service can be extended, at the election of a company subject to certain conditions, by two additional three-year terms. External directors will be elected by a majority vote at a shareholders’ meeting, provided that either the majority of shares voted at the meeting, including at least half of the shares held by non-controlling shareholders voted at the meeting, vote in favor; or the total number of shares held by non-controlling shareholders voted against does not exceed two percent of the aggregate voting rights in the company.
The term of office of external directors of Israeli companies traded on certain foreign stock exchanges, including the NASDAQ Global Select Market, may be further extended, indefinitely, in increments of additional three-year terms, in each case provided that, in addition to reelection in such manner described above, (i) the audit committee and subsequently the board of directors of the Company confirm that, in light of the external director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period is beneficial to the Company, and (ii) prior to the approval of the reelection of the external director, the Company’s shareholders have been informed of the term previously served by such nominee and of the reasons why the board of directors and audit committee recommended the extension of such nominee’s term.
External directors can be removed from office only by the court or by the same special majority of shareholders that can elect them, and then only if the external directors cease to meet the statutory qualifications with respect to their appointment or if they violate their fiduciary duty to the company. The court may additionally remove external directors from office if they were convicted of certain offenses by a non-Israeli court or are permanently unable to fulfill their position.
An external director is entitled to compensation as provided in regulations adopted under the Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with such service.
The Companies Law requires external directors to submit to the company, prior to the date of the notice of the general meeting convened to elect the external directors, a declaration stating their compliance with the requirements imposed by Companies Law for the office of external director.
Our Board of Directors
currently
has
two external directors
under Israeli law
: (i) Ms. Dafna Cohen, who was re
elected to serve as an external director in January 2018
; and (ii) Mr. Elyezer Shkedy who was
elected to serve as an external director in June 2017.
Independent Directors
. In general, NASDAQ Marketplace Rules require that the board of directors of a NASDAQ-listed company have a majority of independent directors, within the meaning of NASDAQ rules. Our Board of Directors has determined that seven out of the nine members of our Board of Directors are independent directors under NASDAQ requirements.
Pursuant to the Israeli Companies Law, a director may be qualified as an independent director if such director is either (i) an external director; or (ii) a director that served as a board member less than nine years and the audit committee has approved that he or she meets the independence requirements of an external director. A majority of the members serving on the audit committee and the compensation committee must be independent under the Israeli Companies Law.
Chairman of the Board
Under the Companies Law, the Chief Executive Officer (referred to as a “general manager” under the Companies Law) or a relative of the Chief Executive may not serve as the chairman of the board of directors, and the chairman or a relative of the chairman may not be vested with authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting, provided that either:
|
·
|
such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in such appointment, present and voting at such meeting; or
|
|
·
|
the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in such appointment voting against such appointment does not exceed two percent of the aggregate voting rights in the company.
|
In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the chairman of the board of directors; the chairman of the board may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the chairman of the board may not serve in any other position in the company or a controlled company, but he may serve as a director or chairman of a subsidiary.
Committees of the Board of Directors
Our Articles of Association provide that the Board of Directors may delegate its powers to committees of the Board of Directors as it deems appropriate, to the extent permitted by Israeli Companies Law. All of the external directors must serve on our audit committee and compensation committee (including one external director serving as the chair of the audit committee and compensation committee), and at least one external director must serve on each other committee that may be established by our Board of Directors.
Audit Committee.
Under the Israeli Companies Law, publicly traded companies must establish an audit committee. The audit committee must consist of at least three members, and must include all of the company’s external directors, including one external director serving as chair of the audit committee. A majority of an audit committee must be comprised of “independent directors” (as such term is defined in the Companies Law). The chairman of the board of directors, directors employed by, or that provide services on a regular basis to, the company or to a controlling shareholder or a company controlled by a controlling shareholder (or whose main livelihood depends on a controlling shareholder), any controlling shareholder and any relative of a controlling shareholder may not be a member of the audit committee. An audit committee may not approve an action or a transaction with an officer or director, a transaction in which an officer or director has a personal interest, a transaction with a controlling shareholder and certain other transactions specified in the Companies Law, unless at the time of approval two external directors are serving as members of the audit committee and at least one of the external directors was present at the meeting in which approval was granted.
In addition, the NASDAQ Marketplace Rules require us to establish an audit committee comprised of at least three members, all of whom must be independent directors, each of whom is financially literate and satisfies the respective “independence” requirements of the Securities and Exchange Commission and NASDAQ and one of whom has accounting or related financial management expertise at senior levels within a company.
Our Audit Committee oversees (in addition to the Board) the accounting and financial reporting processes of our company and audits of our financial statements, including the integrity of our financial statements, compliance with legal and regulatory requirements, our independent auditors’ qualifications, independence, compensation, and performance, and the performance of our internal audit function. Our Audit Committee is also required to determine whether there are deficiencies in the business management of our company and in such event propose to our Board of Directors the means of correcting such deficiencies,
determine whether certain related party actions and transactions are “material” or “extraordinary” in connection with their approval procedures,
approve related-party transactions as required by Israeli law and
establish whistle blower procedures (including in respect of the protections afforded to whistle blowers).
The Audit Committee may consult from time to time with our independent auditors and internal auditor with respect to matters involving financial reporting and internal accounting controls.
Our Audit Committee consists of Ms. Cohen, Ms. Sharir, Mr. Shkedy and Mr. Rafaeli. All of the members of our Audit Committee satisfy the respective “independence” requirements of the Securities and Exchange Commission and NASDAQ, and the composition of our Audit Committee satisfies the audit committee composition requirements of the Israeli Companies Law. Our Board of Directors has determined that both Ms. Cohen and
Mr. Shkedy
qualify as Audit Committee financial experts, as required by the rules of the Securities and Exchange Commission and NASDAQ.
Compensation and Stock Option Committee.
Under the Israeli Companies Law, publicly traded companies must establish a compensation committee, including an external director serving as chair of the compensation committee. The compensation committee must consist of at least three members, and must include all of the company’s external directors. The additional members of the compensation committee must satisfy the criteria for remuneration applicable to the external directors.
Our Compensation and Stock Option Committee consists of
Ms. Cohen,
Mr. Shkedy and Mr. Rafaeli. All of the members of our Compensation and Stock Option Committee are independent directors, within the meaning of NASDAQ rules and the composition of our Compensation and Stock Option Committee complies with the compensation committee composition requirements of the Israeli Companies Law.
Under Israeli Companies Law, the compensation committee is responsible for: (i) making recommendations to the Board of Directors with respect to the approval of the Executive Compensation Policy; (ii) providing the Board of Directors with recommendations with respect to any amendments or updates to the Executive Compensation Policy and periodically reviewing the implementation thereof; (iii) reviewing and approving arrangements with respect to the terms of office and employment of office holders; and (iv) determining whether or not to exempt a transaction with a candidate for chief executive officer from shareholder approval.
In addition, our Compensation and Stock Option Committee offers recommendations to the Board of Directors regarding equity compensation issues
(with the Board also approving compensation of our executive officers)
, and administers our option plans, subject to general guidelines determined by our Board of Directors from time to time. The Compensation and Stock Option Committee also makes recommendations to our Board of Directors in connection with the terms of employment of our chief executive officer and all other executive officers.
Recent Israeli Regulations
In March 2016, the Israeli Companies Law Regulations were amended to reduce certain duplicative regulatory burdens to which Israeli companies publicly-traded on NASDAQ are subject. Generally, pursuant to the new regulations, an Israeli company traded on NASDAQ that does not have a “controlling shareholder” (as defined in the Israeli Companies Law) will be able to elect not to appoint External Directors to its Board of Directors and not to comply with the Audit Committee and Compensation Committee composition and chairman requirements of the Israeli Companies Law (as described above); provided, the company complies with the applicable NASDAQ independent director requirements and the NASDAQ Audit Committee and Compensation Committee composition requirements.
Since our largest shareholder, the FIMI funds, are deemed to be a “controlling shareholder” under the Israeli Companies Law, we are not currently eligible to benefit from the relief provided by these new amended Israeli regulations.
Internal Audit
The Israeli Companies Law requires the board of directors of a public company to appoint an internal auditor nominated by the audit committee. The internal auditor must meet certain statutory requirements of independence. 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 practice. Our internal auditor is Mr. Doron Cohen, CPA of Fahn Kanne, Grant Thornton.
Directors’ Service Contracts
There are no arrangements or understandings with any of our directors providing for benefits upon termination of their employment or service as directors of our company or any of our subsidiaries, other than with our Chairman of the Board, Mr. Dov Baharav. Mr. Baharav’s agreement with us stipulates that we may terminate his agreement prior to the end of its four-year term by providing Mr. Baharav with two months’ notice and an additional two months’ salary.
Approval of Related Party Transactions under Israeli Law
Fiduciary Duties of Office Holders
The Israeli Companies Law codifies the fiduciary duties that “office holders,” including directors and executive officers, owe to a company. An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act at a level of care that a reasonable office holder in the same position would employ under the same circumstances. This includes the duty to utilize reasonable means to obtain: (i) information regarding the business feasibility of a given action brought for his approval or performed by him by virtue of his position; and (ii) all other information of importance pertaining to the foregoing actions. The duty of loyalty requires that an office holder act in good faith and for the benefit of the company, including: (i) avoiding any conflict of interest between the office holder’s position in the company and any other position he holds or his personal affairs; (ii) avoiding any competition with the company’s business; (iii) avoiding exploiting any business opportunity of the company in order to receive personal gain for the office holder or others; and (iv) disclosing to the company any information or documents relating to the company’s affairs that the office holder has received by virtue of his position as an office holder.
Disclosure of Personal Interests of an Office Holder; Approval of Transactions with Office Holders
The Israeli Companies Law requires that an office holder promptly, and no later than the first board meeting at which such transaction is considered, disclose any personal interest that he or she may have and all related material information known to him or her and any documents in their possession, in connection with any existing or proposed transaction relating to our company. In addition, if the transaction is an extraordinary transaction, that is, a transaction other than in the ordinary course of business, other than on market terms, or likely to have a material impact on the company’s profitability, assets or liabilities, the office holder must also disclose any personal interest held by the office holder’s spouse, siblings, parents, grandparents, descendants, spouse’s descendants and the spouses of any of the foregoing (“relatives”), or by any corporation in which the office holder or a relative is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager.
Under the Israeli Companies Law, all arrangements as to compensation of office holders who are not directors other than the chief executive officer require approval by both the compensation committee and the board of directors. The terms of office and employment of the chief executive officer and the directors require the approval of the compensation committee, the board of directors and shareholders. See also “Item 6.C—Board Practices; Compensation of Office Holders”.
Some other transactions, actions and arrangements involving an office holder (or a third party in which an office holder has an interest) must be approved by the board of directors or as otherwise provided for in a company’s articles of association, however, a transaction that is not for the benefit of the company may not be approved. In some cases, such a transaction must be approved by the audit committee and by the board of directors, and under certain circumstances shareholder approval may be required as well. Generally, in all matters in which a director has a personal interest he or she shall not be permitted to vote on the matter or be present at the meeting in which the matter is considered, except in case of a transaction that is not extraordinary or for the purpose of presenting the proposed transaction, if the chairman of the audit committee or board of directors (as applicable) determines it necessary. Should a majority of the audit committee or of the board of directors have a personal interest in the matter, then: (a) all of the directors are permitted to vote on the matter and attend the meeting at which the matter is considered; and (b) the matter requires approval of the shareholders at a general meeting.
Disclosure of Personal Interests of a Controlling Shareholder; Approval of Transactions with Controlling Shareholders
The disclosure requirements that apply to an office holder also apply to a transaction in which a controlling shareholder of the company has a personal interest. The Israeli Companies Law provides that extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, and agreements relating to employment and compensation of a controlling shareholder, 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. Shareholders’ approval shall either include at least a half of the shares held by disinterested shareholders participating in the vote, or, alternatively, the total shareholdings of disinterested shareholders voting against the transaction must not represent more than two percent of the voting rights. Agreements relating to engagement or provision of services for a period exceeding three years, must generally be approved once every three years.
For these purposes, a shareholder that holds 25% or more of the voting rights in a company is considered a controlling shareholder if no other shareholder holds more than 50% of the voting rights.
Under the Companies Regulations (Relief regarding Related Party Transactions), 5760-2000, promulgated under the Israeli Companies Law, as amended, certain extraordinary transactions between a public company and its controlling shareholder(s) do not require shareholder approval. In addition, under such regulations, directors’ compensation and employment arrangements in a public company do not require the approval of the shareholders if both the compensation committee and the board of directors agree that such arrangements are solely for the benefit of the company or if the directors’ compensation does not exceed the maximum amount of compensation for external directors determined by applicable regulations. Also, employment and compensation arrangements for an office holder that is a controlling shareholder of a public company do not require shareholder approval if certain criteria are met. The foregoing exemptions from shareholder approval will not apply if one or more shareholders holding at least 1% of the issued and outstanding share capital of the company or of the company’s voting rights, objects to the use of these exemptions, provided that such objection is submitted to the company in writing not later than fourteen days from the date of the filing of a report regarding the adoption of such resolution by the company. If such objection is duly and timely submitted, then the transaction or compensation arrangement of the directors will require shareholders’ approval as detailed above.
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 a person would become a 25% or greater shareholder of the company. This rule does not apply if there is already another 25% or greater shareholder 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 a person would hold greater than a 45% interest in the company, unless there is another shareholder holding more than a 45% interest in the company. These requirements do not apply if (i) in general, the acquisition was made in a private placement that received shareholders’ approval, (ii) was from a 25% or greater shareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, if there is not already a 25% or greater shareholder of the company, or (iii) was from a shareholder holding a 45% interest in the company which resulted in the acquirer becoming a holder of a 45% interest in the company if there is not already a 45% or greater shareholder of the company.
If, as a result of an acquisition of shares, a person will hold more than 90% of a public company’s outstanding shares or a class of shares, the acquisition must be made by means of a full tender offer for all of the outstanding shares or a class of shares. If less than 5% of the outstanding shares are not tendered in such full tender offer, all of the outstanding shares or class of shares will be transferred to the acquirer. The Israeli Companies Law provides for appraisal rights if any shareholder files a request in court within six months following the consummation of a full tender offer.
However, the acquirer may stipulate in the tender offer that any shareholder tendering his shares will not be entitled to appraisal rights.
If more than 5% of the outstanding shares are not tendered in the tender offer, then the acquirer may not acquire shares in the tender offer that will cause his shareholding to exceed 90% of the outstanding shares.
Exemption, Indemnification and Insurance of Directors and Officers
Under the Israeli Companies Law, a company may not exempt an office holder from liability with respect to a breach of his fiduciary duty, but may exempt in advance an office holder from his liability to the company, in whole or in part, with respect to a breach of his duty of care. However, a company may not exculpate in advance a director from his or her liability to the company with respect to a breach of his duty of care in connection with distributions (as defined in the Companies Law) or for certain breaches listed below.
Pursuant to the Companies Law, a company may indemnify an office holder against: (i) a financial obligation imposed on him in favor of another person by a court judgment, including a compromise judgment or an arbitrator’s award approved by court; (ii) reasonable litigation expenses, including attorney’s fees, expended by the office holder as a result of an investigation or proceeding instituted against him by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment against him and either (A) concluded without the imposition of any financial liability in lieu of criminal proceedings or (B) concluded with the imposition of a financial liability in lieu of criminal proceedings but relates to a criminal offense that does not require proof of criminal intent; and (iii) expenses, including reasonable litigation expenses and legal fees, incurred by an office holder as a result of a proceeding instituted against such office holder in relation to (A) infringements that may impose financial sanction pursuant to the provisions of Chapter H’3 under the Israeli Securities Law, 1968, or the Securities Law, or (B) administrative infringements pursuant to the provisions of Chapter H’4 under the Securities Law, or (C) infringements pursuant to the provisions of Chapter I’1 under the Securities Law.
The indemnification of an office holder must be expressly permitted in the articles of association, under which the company may (i) undertake in advance to indemnify its office holders with respect to certain types of events that can be foreseen at the time of giving such undertaking and up to an amount determined by the board of directors to be reasonable under the circumstances, or (ii) provide indemnification retroactively in amounts deemed to be reasonable by the board of directors.
A company may also procure insurance for an office holder’s liability in consequence of an act performed in the scope of his office, in the following cases: (i) a breach of the duty of care of such office holder, (ii) a breach of fiduciary duty, only if the office holder acted in good faith and had reasonable grounds to believe that such act would not be detrimental to the company, or (iii) a monetary obligation imposed on the office holder for the benefit of another person. Subject to the provisions of the Companies Law and the Securities Law, a company may also enter into a contract for procurement of insurance for an office holder for (a) expenses, including reasonable litigation expenses and legal fees, incurred by the office holder as a result of a proceeding instituted against such office holder in relation to (A) infringements that may impose financial sanction pursuant to the provisions of Chapter H’3 under the Securities Law or (B) administrative infringements pursuant to the provisions of Chapter H’4 under the Securities Law or (C) infringements pursuant to the provisions of Chapter I’1 under the Securities Law and (b) payments made to the injured parties of such infringement under Section 52ND(a)(1)(a) of the Securities Law.
A company may not indemnify an office holder against, nor enter into an insurance contract which would provide coverage for, any monetary liability incurred as a result of any of the following:
|
·
|
a breach by the office holder of his fiduciary duty unless the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
|
|
·
|
a breach by the office holder of his duty of care if such breach was performed intentionally or recklessly
;
|
|
·
|
any act or omission carried out with the intent to derive an illegal personal gain; or
|
|
·
|
any fine or penalty levied against the office holder as a result of a criminal offense
.
|
Under the Companies Law, exemption and indemnification of, and procurement of insurance coverage for, a company’s office holders, must be approved under the same terms that apply to approval of the terms of office and employment of the office holders. For more information, see Item 6.B - “Directors, Senior Management and Employees – Compensation of Directors and Officers”
.
Our Articles of Association allow us to exempt any office holder to the maximum extent permitted by law, before or after the occurrence giving rise to such exemption. Our Articles of Association also provide that we may indemnify any office holder, to the maximum extent permitted by law, against any liabilities he or she may incur in such capacity, limited with respect (i) to the categories of events that can be foreseen in advance by our Board of Directors when authorizing such undertaking and (ii) to the amount of such indemnification as determined retroactively by our Board of Directors to be reasonable in the particular circumstances. Similarly, we may also agree to indemnify an office holder for past occurrences, whether or not we are obligated under any agreement to provide such indemnification. Our Articles of Association also allow us to procure insurance covering any past or present officer holder against any liability which he or she may incur in such capacity, to the maximum extent permitted by law. Such insurance may also cover the company for indemnifying such office holder.
We have obtained directors’ and officers’ liability insurance covering our officers and directors and those of our subsidiaries for certain claims. In addition, we have provided our directors and officers with letters providing them with exemption and indemnification to the fullest extent permitted under Israeli law (except that we are not required to exempt our directors and officers from liability for damages caused as a result of a breach of the office holder’s duty of care in transactions in which our controlling shareholder or an office holder has a personal interest).
Israeli Securities Authority Administrative Enforcement
Under the Israeli Securities Law, the Israeli Securities Authority, or ISA, may take certain administrative enforcement actions against a company or a person, including a director, officer or shareholder of a company, if carrying out certain transgressions designated in the Securities Law.
The Securities Law also requires that the chief executive officer of a company supervise and take all reasonable measures to prevent the company or any of its employees from breaching certain provisions of the Israeli Securities Law. The chief executive officer is presumed to have fulfilled such supervisory duty if the company adopts internal enforcement procedures designed to prevent such breaches, appoints a representative to supervise the implementation of such procedures and takes measures to correct the breach and prevent its reoccurrence. The ISA is authorized to impose fines on any person or company breaching certain provisions designated under the Companies Law.
We have adopted several codes and policies, which contain various corporate governance principles, including a Code of Ethics (which includes Whistle Blower procedures), Insider Trading Policy and a Policy Prohibiting Bribery and Corruption, all of which are available on our website at www.gilat.com. See “Item 16B – Code of Ethics”.
As of December 31, 2017, we had 1,041 full-time employees, including 251 employees in engineering, research and development, 485 employees in manufacturing, operations and technical support, 83 employees in marketing and sales, 122 employees in administration and finance and 100 in other departments. Of these employees, 313 were based in our facilities in Israel, 116 were employed in the U.S., 399 were employed in Latin America and 213 were employed in Asia, the Far East and other parts of the world. These numbers reflect decrease in headcount since December 31, 2016 of 27 employees worldwide.
As of December 31, 2016, we had 1,068 full-time employees, including 259 employees in engineering, research and development, 512 employees in manufacturing, operations and technical support, 76 employees in marketing and sales, 125 employees in administration and finance and 96 in other departments. Of these employees, 318 were based in our facilities in Israel, 104 were employed in the U.S., 430 were employed in Latin America and 216 were employed in Asia, the Far East and other parts of the world. These numbers reflect increase in headcount since December 31, 2015 of 31 employees worldwide.
As of December 31, 2015, we had 1,037 full-time employees, including 280 employees in engineering, research and development, 436 employees in manufacturing, operations and technical support, 91 employees in marketing and sales, 144 employees in administration and finance and 86 in other departments. Of these employees, 303 were based in our facilities in Israel, 100 were employed in the U.S., 408 were employed in Latin America and 226 were employed in Asia, the Far East and other parts of the world. These numbers reflect an increase in headcount since December 31, 2014 of 101 employees worldwide.
We also utilize temporary employees, as necessary, to supplement our manufacturing and other capabilities.
We provide our employees around the world with fringe benefits in accordance with applicable law and we are subject to various labor laws and labor practices around the world.
Recent rulings by Israel’s National Labor Court and changes to Israel’s largest labor union’s bylaws substantially facilitate the organization of a labor union in companies in Israel
. We and our employees are not parties to any collective bargaining agreements and our employees are not represented by any labor union. However, certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Manufacturers’ Association of Israel) are applicable to all Israeli employees by order of the Israeli Minister of Economy and Industry. These provisions principally concern the length of the work day and the work week, minimum wages for workers, contributions to a pension fund, insurance for work-related accidents, procedures for dismissing employees, determination of severance pay and other conditions of employment. These provisions are modified from time to time.
Israeli law generally requires severance pay upon termination, resignation in certain instances or death of an employee. Our ongoing severance obligations are partially funded by making monthly payments to approved severance funds or insurance policies, with the remainder accrued as a long-term liability in our consolidated financial statements. In addition, Israeli employees and employers are required to pay specified amounts to the National Insurance Institute, which is, in essence, parallel to the U.S. Social Security Administration. Our permanent employees are generally covered by life and pension insurance policies providing customary benefits to employees, including retirement and severance benefits.
Our U.S. subsidiaries sponsor a retirement plan for eligible employees. Their 401(k) Plan is a “safe harbor” 401(k) Plan and allows eligible employees to defer compensation up to the maximum amount allowed under the current Internal Revenue Code. As a “safe harbor” plan, our US subsidiary must make a mandatory contribution to the 401(k) Plan to satisfy certain nondiscrimination requirements under the Internal Revenue Code. This mandatory contribution is made to all eligible employees.
Beneficial Ownership of Executive Officers and Directors
As of December 31, 2017, our directors and executive officers as a group (17 persons) held options to purchase 1,910,000 of our ordinary shares under our share options plans (described below), exercisable at a weighted average exercise price of $5.23 per share with expiration dates ranging from February 2019 to August 2023.
2008 Share Incentive Plan
In October 2008, our Board of Directors adopted the 2008 Share Incentive Plan,
or the 2008 Plan,
for issuance of options, RSUs and other forms of equity based awards to
our and our subsidiaries’ directors, officers, consultants and employees. The term of the 2008 Plan had been extended by an additional ten-year period, commencing October 2015. Our Board of Directors also adopted
a sub-plan to enable qualified optionees certain tax benefits under the Israeli Income Tax Ordinance. F
ollowing increases approved by our Board of Directors,
the total
number of ordinary shares reserved for issuance of options under the 2008 Plan is 5.57 million shares. As of December 31, 2017, we have granted options to purchase 4,116,176 ordinary shares under the 2008 Plan (excluding options that were granted and cancelled), pursuant to which 1,308,176 ordinary shares have been issued as of December 31, 2017. The exercise prices for the outstanding options range from $3.14 to $8.14 and such options expire
at various times from
May 2018 to November 2023.
As of December 31, 2017, we have granted 1,344,686 RSUs under the 2008 Plan
(excluding RSUs that were granted and canceled), pursuant to which, 1,344,686 ordinary shares have been issued
as of December 31, 2017
.
The term of the options granted under the 2008 Plan is six years, subject to the terms of the specific plan and grant letter.
The RSUs and options granted under the 2008 Plan to our executives generally vest quarterly or annually over a four-year period. The options granted under the 2008 Plan to our directors generally vest ratably each quarter over a three-year period except in the case of the grant to our Chairman of the Board of Directors, in which the options vest ratably each quarter over a four-year period.
The purpose of the 2008 Plan is to enable us to attract and retain qualified persons as employees, officers, directors, consultants and advisors and to motivate such persons by providing them with an equity participation in our company. The Section 102 Plans are designed to afford qualified optionees certain tax benefits under the Israeli Income Tax Ordinance.
The 2008 Plan is administered by the Compensation and Stock Option Committee appointed by our Board of Directors. The Compensation and Stock Option Committee recommends to our Board, or in case of office holders, approves, the persons entitled to receive options and RSUs, the terms and conditions on which options or rights to purchase are granted and the number of shares subject thereto. The grants of options and RSUs are approved by our Board.
Options issued pursuant to the 2008 Plan may be granted to our
and our subsidiaries’ directors, officers, consultants and
employees. The exercise price of incentive share options issued pursuant to the Plans must be not less than the closing price of our ordinary shares on NASDAQ on the date of grant of the options or, if the closing price is not quoted on such date, on the preceding trading day.
Options are exercisable and restrictions on disposition of shares lapse according to the terms of the applicable plan and of the individual agreements under which such options were granted or awards issued.
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The following table sets forth certain information regarding the beneficial ownership of our ordinary shares, as of March 11, 2018, by each person who we believe beneficially owns 5% or more of our outstanding ordinary shares and all of our directors and executive officers as a group.
Beneficial ownership of shares is determined under rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. The percentage ownership of each such person is based on the number of ordinary Shares outstanding as of March 11, 2018 and includes the number of ordinary shares underlying options and RSUs that are exercisable within sixty (60) days from the date of March 11, 2018. Ordinary Shares subject to these options and RSUs are deemed to be outstanding for the purpose of computing the ownership percentage of the person holding these options and RSUs, but are not deemed to be outstanding for the purpose of computing the ownership percentage of any other person. The information in the table below is based on 54,782,267 Ordinary Shares outstanding as of March 11, 2018. Each of our outstanding ordinary shares has identical rights in all respects. The information in the table below with respect to the beneficial ownership of shareholders is based on the public filings of such shareholders with the SEC through March 11, 2018 and information provided to us by such shareholders.
Name
|
|
Number of Shares
|
|
|
Percent
|
|
FIMI Funds (1).
|
|
|
18,901,865
|
|
|
|
34.4
|
%
|
Itshak Sharon (Tshuva) (2)
|
|
|
4,479,411
|
|
|
|
8.2
|
%
|
Mivtah Shamir Holdings Ltd. (3)
|
|
|
5,375,647
|
|
|
|
9.8
|
%
|
Renaissance Technologies LLC., and Renaissance Technologies Holdings Corporation (4)
|
|
|
2,814,930
|
|
|
|
5.1
|
%
|
All directors and executive officers as a group (17 persons) (5)
|
|
|
2,124,379
|
|
|
|
3.8
|
%
|
____________________________________________________
|
(1)
|
Based on a Schedule 13D/A filed on April 7, 2016 with the SEC and information provided to our company, FIMI Opportunity IV, L.P., FIMI Israel Opportunity IV, Limited Partnership (the “FIMI IV Funds”), FIMI Opportunity V, L.P., FIMI Israel Opportunity Five, Limited Partnership (the “FIMI V Funds” and together with the FIMI IV Funds, the “FIMI Funds”), FIMI IV 2007 Ltd., FIMI FIVE 2012 Ltd., Shira and Ishay Davidi Management Ltd. and Mr. Ishay Davidi share voting and dispositive power with respect to the 18,901,865 shares held by the FIMI Funds. FIMI IV 2007 Ltd. is the managing general partner of the FIMI IV Funds. FIMI FIVE 2012 Ltd. is the managing general partner of the FIMI V Funds. Shira and Ishay Davidi Management Ltd. controls FIMI IV 2007 Ltd. and FIMI FIVE 2012 Ltd. Mr. Ishay Davidi controls Shira and Ishay Davidi Management Ltd. and is the Chief Executive Officer of all the entities listed above. These holdings include options to purchase 100,000 ordinary shares held by FIMI IV 2007 Ltd., which are currently exercisable or are exercisable within 60 days of the date hereof granted to it by our company in connection with the service of its executives, Ishay Davidi and Amiram Boehm, as members of our Board. The principal business address of each of the above entities and of Mr. Davidi is c/o FIMI IV 2007 Ltd., Electra Tower, 98 Yigal Alon St., Tel-Aviv 6789141, Israel.
|
|
(2)
|
Based on a Schedule 13G/A filed on February 20, 2018 with the SEC by Itshak Sharon (Tshuva), Delek Group Ltd. and The Phoenix Holding Ltd and other information provided to us by such shareholders. The ordinary shares are beneficially owned by various direct or indirect, majority or wholly-owned subsidiaries of the Phoenix Holding Ltd. (“the Subsidiaries”).
The
Subsidiaries manage their own funds and/or the funds of others, including for holders of exchange-traded notes or various insurance policies, members of pension or provident funds, unit holders of mutual funds, and portfolio management clients. Each of the Subsidiaries operates under independent management and makes its own independent voting and investment decisions. Itshak Sharon (Tshuva) holds 4,479,411.58 ordinary shares as follows: (i) 25,314.78 ordinary shares are held by Excellence trust funds; (ii) 433,681.22 ordinary shares are held by certain Excellence ETF's, (iii) 468,516.68 ordinary shares are held by The Phoenix "nostro" accounts (iv) 3,435,697.90 ordinary shares are held by certain partnership that invests in Israeli securities; and (v) 116,201 ordinary shares are held by a partnership that invests in shares of companies listed in the Tel Aviv 125 index. The Phoenix Holding Ltd. is a majority-owned subsidiary of Delek Group Ltd. The principal business address of Itshak Sharon (Tshuva) and Delek Investments and Properties Ltd. is 7 Giborei Israel Street, P.O.B. 8464, Netanya, 4250407, Israel. The principal business address of the Phoenix Holding Ltd. is Derech Hashalom 53, Givataim, 5345433, Israel.
|
|
(3)
|
Based on a Schedule 13G/A filed on April 7, 2016 by Mivtach Shamir Holdings Ltd. and information provided to us by such shareholder. The principal office of Mivtach Shamir Holdings Ltd. is 27 Habarzel Street, Tel-Aviv.
|
|
(4)
|
Based on Schedule 13G/A filed on February 14, 2018, with the SEC by Renaissance Technologies LLC., or RTC and Renaissance Technologies Holdings Corporation, or RTHC.
|
|
(5)
|
As of
March 11
, 2018, all directors and executive officers as a group (17 persons) held
1,053,375
options that are vested or that vest within 60 days of
March 11, 2
018.
|
Significant Changes in the Ownership of Major Shareholders
As of March 21, 2016, our major shareholders were FIMI Funds, holding 15,042,672 ordinary shares (approximately 33.8% ownership), Itshak Sharon (Tshuva), beneficially owning 5,222,218 ordinary shares (approximately 11.8% ownership),
Mivtah Shamir Holdings Ltd.
beneficially owning 4,398,256
ordinary shares (approximately 9.9% ownership) and Meitav Dash Investments Ltd. beneficially owning 2,365,786
ordinary shares (approximately 5.3% ownership).
As of March 21, 2017, our major shareholders were FIMI Funds, beneficially owning 18,901,865 ordinary shares (approximately 34.4% ownership), Itshak Sharon (Tshuva), beneficially owning 6,279,235 ordinary shares (approximately 11.5% ownership),
Mivtah Shamir Holdings Ltd.
beneficially owning 5,375,647
ordinary shares (approximately 9.8% ownership) and Meitav Dash Investments Ltd. beneficially owning
2,865,219
ordinary shares (approximately 5.5% ownership).
As of March 11, 2018, our major shareholders were FIMI Funds, beneficially owning 18,901,865 ordinary shares (approximately 34.4% ownership),
Mivtah Shamir Holdings Ltd.
beneficially owning
5,375,647
ordinary shares (approximately 9.8% ownership), Itshak Sharon (Tshuva), beneficially owning 4,479,411 ordinary shares (approximately 8.2% ownership), and Renaissance Technologies LLC. and Renaissance Technologies Holdings Corporation, together beneficially owning 2,814,930
ordinary shares (approximately 5.1% ownership).
Major Shareholders Voting Rights
The voting rights of our major shareholders do not differ from the voting rights of other holders of our ordinary shares, except to the extent that they hold more than 14% and as such, they will have a right to appoint a director, subject to certain conditions set forth in our Articles of Association.
Record Holders
Based on a review of the information provided to us by our transfer agent, as of March 11, 2018, there were 78 holders of record of our ordinary shares, of which 54 record holders holding approximately 82.43% of our ordinary shares had registered addresses in the U.S. These numbers are not representative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside since many of these ordinary shares were held of record by brokers or other nominees, including CEDE & Co., the nominee for the Depositary Company (the central depositary for the U.S. brokerage community), which held approximately 82.42
%
of our outstanding ordinary shares as of said date.
B.
|
Related Party Transactions.
|
Since 2014, our Board of Directors approved that we enter into several agreements for the purchase of infrastructure, construction and services from C. Mer Industries Ltd., or C. Mer, for an aggregate amount of approximately $25.1 million. FIMI holds approximately 36.6% of C. Mer’s share capital and our director, Ishay Davidi, is also a member of the board of directors of C. Mer, a publicly traded company (TASE). These transactions were approved by our Audit Committee and Board of Directors in accordance with the requirements of the Israeli Companies Law.
In addition, in December 2015 we entered into a memorandum of understanding with Orbit Communication Systems, or Orbit, a publicly traded company (TASE), for development and manufacture of antenna for an aggregate amount of approximately $1.75 million. The memorandum specifies prices per additional product units ordered in the future by our company. In August 2017, FIMI acquired approximately 33.5% of Orbit’s share capital and representatives of FIMI serve on Orbit’s board of directors. This transaction was ratified by our Audit Committee and Board of Directors in accordance with the requirements of the Israeli Companies Law.
C.
|
Interests of Experts and Counsel.
|
Not applicable.
ITEM 8: FINANCIAL INFORMATION
A. Consolidated Statements
See the consolidated financial statements, including the notes thereto, and the exhibits listed in Item 18 hereof and incorporated herein by this reference.
Export Sales
For information on our revenues breakdown for the past three years, see Item 5: “Operating and Financial Review and Prospects.”
Legal Proceedings
We are a party to various legal proceedings incident to our business. Except as noted below, there are no material legal proceedings pending or, to our knowledge, threatened against us or our subsidiaries, and we are not involved in any legal proceedings that our management believes, individually or in the aggregate, would have a material adverse effect on our business, financial condition or operating results.
In 2003, the Brazilian tax authority filed a claim against our inactive subsidiary in Brazil, SPC International Ltda, for the payment of taxes allegedly due from the subsidiary. After numerous hearings and appeals at various appellate levels in Brazil, the Superior Court and the Supreme Court in February and March 2016 ruled against the subsidiary in final non-appealable decisions. As of December 31, 2017, the total amount of this claim, including interest, penalties and legal fees is approximately $10.8 million, of which approximately $1.2 million is the principal. The Brazilian tax authorities initiated foreclosure proceedings against the subsidiary and certain of its former managers. Pursuant to the court’s decision, published in March 2016, the foreclosure proceedings against the former managers were cancelled. The tax authorities appealed such decision which appeal was rejected in July 2017. This court ruling is final and
is not appealable. Based on Brazilian external counsel’s opinion, we believe that the subsidiary has solid arguments to sustain that further collection proceedings are barred due to statute of limitation and that the inclusion of any additional co-obligors in the tax foreclosure certificate should be barred due to the applicable statute of limitations and that the foreclosure procedures cannot legally be redirected to other group entities and managers who were not cited in the foreclosure certificate. Accordingly, we believe that the chances that such redirection will lead to a loss recognition are remote.
In October 2014, our Peruvian subsidiary applied to the Chamber of Commerce of Lima, Peru for initiation of arbitration proceedings against the Ministry of Transport and Communications of Peru and FITEL. The arbitration is related to the FITEL projects awarded to us in 2000-2001. Under these projects, our subsidiary provided fixed public telephony services in rural areas of Peru. Our subsidiary’s main claim is related to damages caused by the promotion of mobile telephony in such areas by the Peruvian government. The arbitral tribunal was established and our subsidiary filed its detailed statement of claim in April 2015, which was followed by a response statement of the Ministry of Transport and Communications of Peru and FITEL in July 2015 supported by a statement by Osiptel, the Peruvian regulator of telecommunications. The evidentiary stage has recently concluded and we are now waiting for the arbitration award.
In October 2017, we were informed that a former subcontractor that we engaged in connection with the Kioskos project in Colombia has initiated an arbitration proceeding against our local subsidiary. The amount of the claim is approximately US$ 6.9 million. While we have not been served with complaint, based on the information in our possession, we believe that we have made adequate accruals relating to this proceeding
We are also a party to various regulatory proceedings incident to our business. To the knowledge of our management, none of such proceedings is material to us or to our subsidiaries.
Dividend Policy
We have never paid cash dividends on our ordinary shares and do not anticipate paying any cash dividends in the foreseeable future. Israeli law limits the distribution of cash dividends to the greater of retained earnings or earnings generated over the two most recent years, in either case provided that we reasonably believe that the dividend will not render us unable to meet our current or foreseeable obligations when due.
Notwithstanding the foregoing, dividends may be paid with the approval of a court, provided that there is no reasonable concern that such dividend distribution will prevent the company from satisfying its current and foreseeable obligations, as they become due.
In the event we declare dividends in the future, we will pay those dividends in NIS. Because exchange rates between NIS and the dollar fluctuate continuously, a U.S. shareholder will be subject to currency fluctuation between the date when the dividends are declared and the date the dividends are paid.
B.
Significant Changes
Not applicable.
ITEM 9: THE OFFER AND LISTING
A.
|
Offer and Listing Details
|
Annual Share Price Information
The following table sets forth, for each of the years indicated, the high and low market prices of our ordinary shares on the NASDAQ Global Select Market and the TASE.
|
|
NASDAQ
|
|
|
TASE
|
|
Year
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
$
|
6.20
|
|
|
$
|
4.09
|
|
|
$
|
6.00
|
|
|
$
|
4.05
|
|
2014
|
|
$
|
5.71
|
|
|
$
|
4.50
|
|
|
$
|
5.68
|
|
|
$
|
4.45
|
|
2015
|
|
$
|
7.07
|
|
|
$
|
3.11
|
|
|
$
|
6.93
|
|
|
$
|
3.09
|
|
2016
|
|
$
|
5.50
|
|
|
$
|
3.28
|
|
|
$
|
5.42
|
|
|
$
|
3.22
|
|
2017
|
|
$
|
7.90
|
|
|
$
|
4.12
|
|
|
$
|
8.04
|
|
|
$
|
4.09
|
|
Quarterly Share Price Information
The following table sets forth, for each of the full financial quarters in the years indicated the high and low market prices of our ordinary shares on the NASDAQ Global Select Market and the TASE:
|
|
NASDAQ
|
|
|
TASE
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
4.69
|
|
|
$
|
3.28
|
|
|
$
|
4.65
|
|
|
$
|
3.22
|
|
Second quarter
|
|
$
|
4.95
|
|
|
$
|
4.21
|
|
|
$
|
5.01
|
|
|
$
|
4.18
|
|
Third quarter
|
|
$
|
5.19
|
|
|
$
|
4.05
|
|
|
$
|
5.12
|
|
|
$
|
4.03
|
|
Fourth quarter
|
|
$
|
5.50
|
|
|
$
|
4.21
|
|
|
$
|
5.42
|
|
|
$
|
4.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
6.19
|
|
|
$
|
4.97
|
|
|
$
|
6.34
|
|
|
$
|
4.85
|
|
Second quarter
|
|
$
|
5.47
|
|
|
$
|
4.12
|
|
|
$
|
5.43
|
|
|
$
|
4.09
|
|
Third quarter
|
|
$
|
6.20
|
|
|
$
|
5.22
|
|
|
$
|
6.24
|
|
|
$
|
5.03
|
|
Fourth quarter
|
|
$
|
7.90
|
|
|
$
|
5.99
|
|
|
$
|
8.04
|
|
|
$
|
5.87
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter (through March 11, 2018)
|
|
$
|
9.22
|
|
|
$
|
7.36
|
|
|
$
|
9.02
|
|
|
$
|
7.37
|
|
Monthly Share Price Information
The following table sets forth, for the most recent six months, the high and low market prices of our ordinary shares on the NASDAQ Global Select Market and the TASE:
|
|
NASDAQ
|
|
|
TASE
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
October 2017
|
|
$
|
7.37
|
|
|
$
|
5.99
|
|
|
$
|
7.16
|
|
|
$
|
5.87
|
|
November 2017
|
|
$
|
7.90
|
|
|
$
|
7.10
|
|
|
$
|
7.76
|
|
|
$
|
7.10
|
|
December 2017
|
|
$
|
7.87
|
|
|
$
|
6.89
|
|
|
$
|
8.04
|
|
|
$
|
6.82
|
|
January 2018
|
|
$
|
8.40
|
|
|
$
|
7.87
|
|
|
$
|
8.59
|
|
|
$
|
7.85
|
|
February 2018
|
|
$
|
9.22
|
|
|
$
|
7.36
|
|
|
$
|
9.02
|
|
|
$
|
7.37
|
|
March 2018 (through March 11, 2018)
|
|
$
|
8.90
|
|
|
$
|
8.54
|
|
|
$
|
8.93
|
|
|
$
|
8.49
|
|
Not applicable.
Our ordinary shares are listed on the NASDAQ Global Select Market under the symbol “GILT” and are also traded on the TASE.
Not applicable.
Not applicable.
Not applicable.
ITEM 10: ADDITIONAL INFORMATION
Not applicable.
B.
|
Memorandum and Articles of Association
|
Set out below is a description of certain provisions of our Articles of Association and of the Israeli Companies Law related to such provisions. This description is only a summary, does not purport to be complete and is qualified by reference to the full text of the Articles of Association, which are incorporated by reference as exhibits to this annual report, and to Israeli law.
Registration and Purposes
We are an Israeli public company registered with the Israel companies register, registration No. 52-003893-6.
Under the Companies Law, a company may define its purpose as to engage in any lawful business and may broaden the scope of its purpose to the grant of reasonable donations for any proper charitable cause, even if the basis for any such donation is not dependent upon business considerations. Our Articles of Association provide that our purpose is to engage in any business permitted by law and that we may also grant reasonable donations for any proper charitable cause.
Powers of the Directors
Under the provisions of the Israeli Companies Law and our Articles of Association, a director cannot vote on a proposal, arrangement or contract in which he or she has a personal interest, nor attend a meeting during which such transaction is considered, except in event of a transaction that is not extraordinary or for the purpose of presenting the proposed transaction, if the chairman of the audit committee or board of directors (as applicable) determines it necessary. In addition, the terms of office and employment of the directors require the approval of the compensation committee, the board of directors and shareholders. For more information regarding the requirements for approval of certain transactions, see Item 6B - “Directors, Senior Management and Employees – “Compensation of Directors and Officers”.
Rights Attached to Ordinary Shares
Our authorized share capital consists of 90,000,000 ordinary shares, nominal value NIS 0.2 per share. All outstanding ordinary shares are validly issued and fully paid. Certain rights attached to the ordinary shares are as described below.
Voting Rights
.
Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. Shareholders may vote in person or by proxy. 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 may be authorized in the future by the shareholders.
Dividend and Liquidation Rights; Rights to Shares in our Company’s Profits.
Our ordinary shares are entitled to the full amount of any cash or share dividend declared, in proportion to the paid up nominal value of their respective holdings. In the event of liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to the paid up nominal value of their respective holdings. Such rights may be affected by a 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 by the shareholders.
Generally, pursuant to the Israeli Companies Law, the decision to distribute dividends and the amount to be distributed, whether interim or final, is made by the board of directors. Accordingly, under our Articles of Association, our Board of Directors has the authority to determine the amount and time for payment of interim dividends and final dividends.
Under the Israeli Companies Law, dividends may be paid only out of a company’s net profits for the two years preceding the distribution of the dividends, or from accumulated retained earnings, calculated in the manner prescribed in the Israeli Companies Law. Pursuant to Israeli Companies Law, in any distribution of dividends, our Board of Directors is required to determine that there is no reasonable concern that the distribution of dividends will prevent our company from meeting our existing and foreseeable obligations as they become due. Our Articles of Association provide that no dividends shall be paid otherwise than out of our profits and that any such dividend shall carry no interest. In addition, upon the recommendation of our Board of Directors, approved by the shareholders, we may cause dividends to be paid in kind.
Our shareholders have the right to share in our profits distributed as a dividend and any other permitted distribution, if any.
Annual and Special General Meetings
Record Date for General Meeting
Under the regulations promulgated under the Israeli Companies Law, for the purpose of a shareholder vote, the record date for companies traded outside of Israel, such as our company, can be set between four and 40 days before the date of the meeting.
Notice of General Meetings; Omission to Give Notice
The Companies
Law provides that a company, the shares of which are traded on an exchange must give notice of a general meeting to its shareholders of record of at least 21 days, and in certain instances at least 35 days prior to the meeting, unless the company’s Articles of Association provide that a notice need not be sent. Accordingly, our Articles of Association provide that not less than 21 days’ prior notice shall be given to shareholders of record of every general meeting of shareholders. They further provide that notice of a general meeting of shareholders shall be given in accordance with any law and otherwise as the Board of Directors may determine. In addition, our Articles of Association provide that no shareholder present, in person or by proxy, at the commencement of a general meeting of shareholders shall be entitled to seek the revocation of any proceedings or resolutions adopted at such general meeting of shareholders on grounds of any deficiency in the notice given for such meeting relating to the time or place thereof.
Annual General Meetings and Special General Meetings
Under Israeli Companies Law, an annual meeting of the shareholders should be held once in every calendar year and not more than 15 months from the last annual meeting. Israeli Companies Law provides that a special meeting of shareholders must be called by the board of directors upon the written request of (i) two directors, (ii) one‑fourth of the serving directors, (iii) one or more shareholders who hold(s) at least five percent of the issued share capital and at least one percent of the voting power of the company, or (iv) one or more shareholders who have at least five percent of the voting power of the company. Within 21 days of receipt of such request, the board of directors is required to convene the special meeting for a time no later than 35 days after notice is given to the shareholders. Our Articles of Association provide that our Board of Directors may call a special meeting of the shareholders at any time and shall be obligated to call a special meeting as specified above.
Quorum at General Meetings
Under our Articles of Association, the required quorum for any general meeting of shareholders and for any class meeting is two or more shareholders present in person or by proxy and holding at least twenty- five percent (25%) of the issued shares (or of the issued shares of such class in the event of a class meeting). The required quorum in a meeting that was adjourned because a quorum was not present, shall be two shareholders present in person or by proxy. Under our Articles of Association, if the original meeting was called as a special meeting, the quorum in the adjourned meeting shall be one or more shareholders, present in person or by proxy and holding the number of shares required to call such a meeting.
Adoption of Resolutions at General Meetings
Our Articles of Association provide for voting by a written ballot only. In addition, in accordance with Companies Law, our Articles of Association provide that the declaration of the Chairman of the Meeting as to the results of a vote is not deemed to be conclusive, but rather prima facie evidence of the fact. Under our Articles of Association,
unless a different majority is required by law,
any resolution of the shareholders, except a resolution for voluntary liquidation of the company and, in certain circumstances, a resolution to amend our Articles of Association, shall be deemed adopted if approved by the vote of the holders of a majority of the voting power represented at such meeting in person or by proxy.
Election and Removal of Directors
Under our Articles of Association, the ordinary shares do not have cumulative voting rights in the election of directors.
Under our Articles of Association, our Board of Directors shall consist of not less than five and not more than nine directors as shall be determined from time to time by a majority vote at the general meeting of our shareholders. Our shareholders have resolved that our Board of Directors shall consist of a total of nine directors, including two external directors.
Our Articles of Association further provide that each beneficial owner of 14% or more of our issued and outstanding ordinary shares shall be entitled to appoint, at each annual general meeting of our shareholders, one member to our Board of Directors referred to as an “Appointed Director”, provided that a total of not more than four Appointed Directors are so appointed. In the event more than four such qualifying beneficial owners notify us that they desire to appoint an Appointed Director, only the four shareholders beneficially owning the greatest number of shares shall each be entitled to appoint an Appointed Director.
For the purposes of the preceding paragraph, a “beneficial owner” of ordinary shares means any person or entity who, directly or indirectly, has the power to vote, or to direct the voting of, such ordinary shares. All ordinary shares beneficially owned by a person or entity, regardless of the form which such beneficial ownership takes, shall be aggregated in calculating the number of ordinary shares beneficially owned by such person or entity. All persons and entities that are affiliates (as defined below) of each other shall be deemed to be one person or entity for the purposes of this definition. For the purposes of the preceding paragraph, an “affiliate” means, with respect to any person or entity, any other person or entity controlling, controlled by, or under common control with such person or entity. “Control” shall have the meaning ascribed to it in the Israeli Securities Law – 1968, i.e., the ability to direct the acts of a company. Any person holding one half or more of the voting power of a company of the right to appoint directors or to appoint the chief executive officer is presumed to have control of the company.
The Articles of Association further stipulate that as a condition to the appointment of an Appointed Director, any appointing shareholder that delivers to our company a letter of appointment shall, prior to such delivery, be required to file with the Securities and Exchange Commission a Schedule 13D, or an amendment to its Schedule 13D if there is any change in the facts set forth in its Schedule 13D already on file with the Securities and Exchange Commission which discloses any such change in its holdings of ordinary shares, regardless of whether any filing or amendment is required to be filed under the rules of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. In addition, any Appointing Shareholder shall be obligated to notify us in writing of any sale, transfer, assignment or other disposition of any kind of ordinary shares by such appointing shareholder that results in the reduction of its beneficial ownership to below the percentage indicated above, immediately after the occurrence of such disposition of shares but in any event not later than the earliest of (i) ten (10) days thereafter, or (ii) the next Annual General Meeting. Without derogating from the foregoing, so long as an Appointed Director serves on the Board of Directors, the appointing shareholder which appointed such Appointed Director shall provide us, upon our written request at any time and from time to time, with reasonable evidence of its beneficial ownership in our company.
Under our Articles of Association, so long as our ordinary shares are listed for trading on NASDAQ, we may require that any Appointed Director qualify as an “independent director” as provided for in the NASDAQ rules then in effect. In addition, in no event may a person become an Appointed Director unless such person does not, at the time of appointment, and did not, within two years prior thereto, engage, directly or indirectly, in any activity which competes with us, whether as a director, officer, employee, contractor, consultant, partner or otherwise.
Under our Articles of Association, the annual general meeting of our shareholders, by the vote of the holders of a majority of the voting power represented at such meeting in person or by proxy, will elect the remaining members of the Board of Directors. At any annual general meeting at which Appointed Directors are appointed as set forth above, the calculation of the vote of any beneficial owner who appointed a director pursuant to the preceding paragraph shall not take into consideration, for the purpose of electing the remaining directors, ordinary shares constituting 14% of our issued and outstanding ordinary shares held by such appointing beneficial owner.
Appointed Directors may be removed by our Board of Directors when the beneficial ownership of the shareholder who appointed such Appointed Director falls below 14% of our ordinary shares. In addition, the office of an Appointed Director will expire upon the removal of the Appointed Director by the shareholder who appointed such Appointed Director or when the Appointed Director ceases to qualify as an “independent director” as set forth above.
Currently, no shareholder beneficially holding 14% or more of our issued and outstanding ordinary shares has exercised its right to appoint an Appointed Director.
Our Articles of Association further provide that the affirmative vote of a majority of the shares then represented at a general meeting of shareholders shall be entitled to remove director(s) other than Appointed Directors from office (unless pursuant to circumstances or events prescribed under the Companies Law), to elect directors instead of directors so removed or to fill any vacancy, however created, in the Board of Directors. Subject to the foregoing and to early resignation or ipso facto termination of office as provided in our Articles of Association, each director shall serve until the adjournment of the annual general meeting following the general meeting at which such director was elected.
Our directors may, at any time and from time to time, appoint a director to temporarily fill a vacancy on the Board of Directors or in their body (subject to the maximum number of directors in the Board of Directors as set forth above), except that if the number of directors then in office constitutes less than a majority of the number of directors set by the shareholders, as mentioned above, they may only act in an emergency, or to fill the vacancy up to the minimum number required to effect corporate action or in order to call a general meeting for the purpose of electing directors.
Qualification of Directors
Our Articles of Association provide that no person shall be disqualified to serve as a director by reason of such person not holding shares in our company or by reason of not having served as a director in the past. Our directors are not subject, under the Israeli Companies Law or our Articles of Association, to an age limit requirement. Under the Israeli Companies Law, a person cannot serve as a director if such person has been convicted of certain offenses (generally, for 5 years after such conviction, unless specifically authorized by the court), if an administrative decision by the Israel Securities Authority disqualified such director’s nomination to the board of a public company, or if the person has been declared bankrupt.
Borrowing Powers
The Israeli Companies Law authorizes the board of directors of a company, among other things, to determine the credit limit of a company and to issue bonds. Our Articles of Association state that our Board of Directors may, from time to time, at its discretion, cause us to borrow or secure the payment of any sum or sums of money, and may secure or provide for the repayment of such sum or sums in such manner, at such times and upon such terms and conditions as it deems fit.
Foreign Ownership
Neither our Articles of Association nor Israeli law restrict in any way the ownership of our ordinary shares by nonresidents of Israel, or restrict the voting or other rights of nonresidents of Israel. Notwithstanding, under Israeli law, nationals of certain countries that are, or have been, in a state of war with Israel may not be recognized as owners of ordinary shares, without a special government permit.
Change of Control Provisions Under Israeli Law
The Israeli Companies Law provides that an acquisition of shares in a public company, such as ours, 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 in the company. This rule does not apply if there is already another holder of 25% percent of the voting rights. Similarly, the Israeli Companies Law provides that an acquisition of the shares must be made by means of a tender offer, if, as a result of the acquisition, a person would become a holder of 45% of the voting rights in the company, unless there is another person holding at that time more than 45% of the voting rights of the company.
The Israeli Companies Law provides for mergers between Israeli companies, if each party to the transaction obtains the appropriate approval of its board of directors and shareholders. A “merger” is defined in the Companies Law as a transfer of all assets and liabilities (including conditional, future, known and unknown liabilities) of a target company to another company, the consequence of which is the dissolution of the target company in accordance with the provisions of the Companies Law. For purposes of the shareholder vote of each merging entity, unless a court rules otherwise, the merger requires the approval of a majority of the shares of that entity that are not held by the other entity or are not held by any person who holds 25% or more of the shares or the right to appoint 25% or more of the directors of the other entity. Our Articles of Association provide that a merger requires the approval of the holders of a majority of the shares voting thereon.
If, however, the merger involves a merger with a company’s own controlling shareholder or if the controlling shareholder has a personal interest in the merger, then the merger is subject to the same special majority approval that governs all extraordinary transactions with controlling shareholders (as described above in Item 6 E under “—Approval of Related Party Transactions Under Israeli Law”). In the event that the merger transaction has not been approved by either of the above-described special majorities (as applicable), the holders of at least 25% of the voting rights of the company may apply to a court for approval of the merger. The court may approve the merger if it is found that the merger is fair and reasonable, taking into account the valuation 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, a court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties of the merger to their creditors.
A merger may not be completed unless at least 50 days have passed from the date that a proposal of the merger was filed with the Israeli Registrar of Companies by each merging company and 30 days from the date that shareholder approval of both merging companies was obtained. The merger proposal may be filed once a shareholder meeting has been called to approve the merger.
Modification of Rights Attached to Shares
The rights attached to any class of shares (unless otherwise provided by the terms of issue of such class), such as voting, dividends and the like, may be modified by the affirmative vote of a majority of the issued shares of the class at a general meeting of the holders of the shares of such class.
While we have numerous contracts with customers and distributors, we do not deem any individual contract to be a material contract that is not in the ordinary course of our business, except as set forth below:
In March and December 2015,
the Peruvian government
awarded us the Regional FITEL Projects for the construction of networks, operation of the networks for a defined period and their transfer to the government, which are expected to generate aggregate revenues of $393 million to be recognized over approximately 13 years. In accordance with the bid conditions, we established a subsidiary in Peru, GNP, to enter into written agreements with the Peruvian government for each of the four regional projects that were awarded.
In order to guarantee our performance obligations and the down payment we received under the FITEL Projects, we issued bank guarantees and surety bonds for the benefit of FITEL. The bank guarantees were issued by FIBI and HSBC and the surety bonds were issued by Amtrust through a Peruvian insurance company. The aggregate amount of the bank guarantees and surety bonds, as at December 31, 2017, was approximately $125.1 million. We have also provided Amtrust with a corporate guarantee in the amount of approximately $57.3 million.
In addition, we have restricted cash of approximately $21.5 million as collateral for these guarantees.
There are no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of the shares. However, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.
Non-residents of Israel who purchase our securities with non-Israeli currency will be able to repatriate dividends (if any), liquidation distributions and the proceeds of any sale of such securities, into non-Israeli currencies at the rate of exchange prevailing at the time of repatriation, provided that any applicable Israeli taxes have been paid (or withheld) on such amounts.
Neither our Articles of Association nor the laws of the State of Israel restrict in any way the ownership or voting of Ordinary Shares by non-residents of Israel, except with respect to citizens of countries that are in a state of war with Israel.
The following is a discussion of Israeli and U.S. tax consequences material to our shareholders. To the extent that the discussion is based on new tax legislation which has not been subject to judicial or administrative interpretation, the views expressed in the discussion might not be accepted by the tax authorities in question. The discussion is not intended, and should not be construed, as legal or professional tax advice and does not exhaust all possible tax considerations.
Holders of our ordinary shares should consult their own tax advisors as to the U.S., Israeli or other tax consequences of the purchase, ownership and disposition of ordinary shares, including, in particular, the effect of any foreign, state or local taxes.
ISRAELI TAX CONSIDERATIONS
The following is a summary of certain Israeli income tax and capital gains tax consequences for non-Israeli residents as well as Israeli residents holding our ordinary shares. The summary is based on provisions of the Israeli Income Tax Ordinance (new version), 1961 and regulations promulgated thereunder, as well as on administrative and judicial interpretations, all as currently in effect, and all of which are subject to change (possibly with retroactive effect) and to differing interpretations. There might be changes in the tax rates and in the circumstances in which they apply, and other modifications which might change the tax consequences to you. The summary is intended for general purposes only, and does not relate to all relevant tax aspects. The discussion is not intended and should not be construed as legal or professional tax advice sufficient for decision making. This summary does not discuss all aspects of Israeli income and capital gain taxation that may be applicable to investors in light of their particular circumstances or to investors who are subject to special status or treatment under Israeli tax law.
FOR THE FOREGOING AND OTHER REASONS, YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF YOUR HOLDINGS. WE ARE NOT MAKING ANY REPRESENTATIONS REGARDING THE PARTICULAR TAX CONSEQUENCES AS TO ANY HOLDER, NOR ARE WE OR OUR ADVISORS RENDERING ANY FORM OF LEGAL OPINION OR PROFESSIONAL TAX ADVICE AS TO SUCH TAX CONSEQUENCES.
Generally, income of Israeli companies is subject to corporate tax
. The Israeli corporate
tax rate effective as of January 1, 2017 is 24%, compared with 25% in 2016 and 26.5% in 2015. As of January 1, 2018, the corporate tax rate in Israel was reduced to 23%.
Israeli Tax Consequences of Holding Our Stock
Non-Israeli residents
Non-Israeli residents are subject to tax on income accrued or derived from Israeli sources. These include, inter alia, dividends, royalties and interest, as well as other types of income (e.g., from provision of services in Israel). We are required to withhold income tax on any such payments we make to non-residents. Israel presently has no estate or gift tax.
Capital Gains
Israeli law generally imposes tax on capital gains derived from the sale of securities and other Israeli capital assets, including shares in Israeli resident companies, unless a specific exemption is available or a treaty between Israel and the country of the non-resident provides otherwise. Capital gains from sales of our ordinary shares will be tax exempt for non-Israeli residents provided certain conditions are met (one of these conditions is that the gains are not derived through a permanent establishment that the non-resident maintains in Israel).
Subject to the exemptions provided by the Israeli law, as described above, pursuant to the tax treaty between Israel and the U.S., or the Treaty, U.S. residents are generally exempt from Israeli capital gains tax on capital gain derived from the sale of our shares. This exemption does not apply to U.S. residents holding (at the time of the sale or in the preceding 12 months) 10% or more of the voting power in the Company.
Dividends
The
statutory withholding tax rate for dividends distributed by an Israeli company to non-resident shareholders
is
generally
25%. The rate is reduced to 15% for dividends distributed out of income generated by an Approved Enterprise. A different withholding tax rate may apply as a result of a tax treaty between Israel and shareholder’s country of residence.
Under the Treaty, the maximum Israeli tax rate on dividends paid to a corporate holder of our ordinary shares who is a U.S. resident is 25%. However, dividends paid to a U.S. corporation holding at least 10% of our voting power in the year of the sale and in the entire preceding tax year shall be subject to a 15% tax withholding rate, if the dividend is generated by an Approved Enterprise or 12.5% if the dividends are not generated by an Approved Enterprise.
Interest
Interest paid by us (e.g., on our convertible notes) is treated as income derived from an Israeli source and is subject to Israeli tax. Generally, interest payments are subject to withholding of a standard tax rate of 25% (the rate may be reduced to 15% for certain debt instruments), unless reduced pursuant to an applicable tax treaty. In some instances (e.g., where the recipient of the interest is an individual holding 10% or more of our shares or voting rights) a higher tax rate would apply.
Filing of Tax Returns in Israel
Non-Israeli residents who receive interest, dividend or royalty income derived or accrued in Israel, from which Israeli tax was withheld, are generally exempt from Israeli tax filing obligations, provided that: (i) such income was not derived from a business conducted in Israel, and (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed.
Israeli Residents
Capital Gains
Israeli law imposes capital gains tax on capital gains derived from the sale of securities and other capital assets, including ordinary shares. Generally, gains from sale of ordinary shares acquired prior to January 1, 2012 are subject to a 20% capital gains tax for individuals. The tax rate is increased to 25% for sale of shares by an individual shareholder holding 10% or more of the shares or voting power in the company (i.e., a substantial shareholder). Corporate shareholders are subject to a 25% capital gains tax rate.
Following enactment of the Tax Burden Law, starting January 1, 2012, the capital gains tax rate applicable to individuals upon the sale of our shares is such individual’s marginal (income) tax rate but not more than 25% (or 30% with respect to a substantial shareholder).
With respect to corporate investors,
the rate of
capital gains tax
imposed on the sale of shares is
equal to the corporate tax rate
, which was 26.5% in 2015,
25% in 2016, 24% in 2017 and 23% effective as of January 1, 2018.
Individual shareholders dealing with securities in Israel are taxed at their marginal tax rates applicable to business income (up to 48% in 2016 and up to 47% from 2017).
In addition, as of January 1, 2013, shareholders that are individuals who have taxable income that exceeds ILS 800,000 in a tax year (linked to the CPI each year –ILS 810,270 in 2015, ILS 803,520 in 2016), will be subject to an additional tax, referred to as High Income Tax, at the rate of 2% on their taxable income for such tax year which is in excess of such amount. Effective January 1, 2017, the High Income tax rate increased to 3% and its threshold was lowered to ILS 640,000 in 2017 and to ILS 641,880 in 2018. For this purpose taxable income will include taxable capital gains from the sale of our shares and taxable income from dividend distributions.
Dividends
Distribution of dividend income, other than bonus shares (stock dividends), to Israeli residents holding our ordinary shares is generally subject to income tax at a rate of 25% for individuals and 30% for a substantial individual shareholder. Israeli resident corporations are exempt from income tax on dividends, provided the dividend was paid out of income generated in Israel.
Generally, dividends distributed from taxable income accrued during the period of benefits of a Benefitted Enterprise, are taxable at the rate of 15%, if the dividend is distributed during the tax benefit period, or within an additional 12 years after the lapse of that period.
Interest
Interest income is generally subject to a tax rate of up to 25% for individuals. The rate applicable to an individual who is substantial shareholder is the marginal tax rate. The rate may be reduced to 15% for certain debt instruments. Interest paid to Israeli companies is taxed at the standard corporate income tax rate applicable to companies. We may be required to withhold tax on interest payments up to the applicable corporate tax rate for companies, and in certain instances up to the marginal tax rate for individuals.
Tax Benefits under the Law for the Encouragement of Capital Investments, 1959
Tax benefits under the 2005 Amendment
On April 1, 2005, a comprehensive amendment to the Investment Law came into effect, (the “Amendment”). The Amendment includes revisions to the criteria for investments qualified to receive tax benefits as an Approved Enterprise. The Amendment applies to new investment programs and investment programs commencing after 2004, and does not apply to investment programs approved prior to December 31, 2004.
As a result of the Amendment, it was no longer necessary for a company to apply to the Investment Center in order to acquire Approved Enterprise status. Instead, a company whose facilities meet the criteria for tax benefits set out by the Amendment, may receive the tax benefits afforded to a “Benefitted Enterprise” by independently selecting the tax year from which the period of benefits under the Investment Law are to commence and notifying the Israeli Tax Authority within 12 months of the end of that year.
Generally, tax benefits under the Amendment are available to production facilities (or other eligible facilities), that derive more than 25% of their business income from exports. In order to receive the tax benefits, the company must make a certain minimum investment in the acquisition of manufacturing assets such as machinery and equipment. Such investment may be made over a period of no more than three years ending at the end of the year in which the company requested to have the tax benefits apply to its Benefitted Enterprise.
We were eligible under the terms of minimum qualification investment and elected the years 2005 and 2011 to have the tax benefits apply.
Tax benefits are available until the earlier of 7 or 10 years from the
date that the period of benefits
commenced, and the lapse of 12 years from the first day of the
year in which the election was made.
Our periods of benefits as a Benefitted Enterprise under the 2005 election expired on December 31, 2017. Our periods of benefits as a Benefitted Enterprise under the 2011 election will expire in 2023.
The tax benefits include exemption from corporate tax on undistributed income for a period of two to ten years, depending on the geographic location of the Benefitted Enterprise within Israel, and a reduced corporate tax rate of 10% to 25% for the remainder of the benefits period, depending on the level of foreign investment in the company. If the company pays a dividend out of income derived from the Benefited Enterprise during the tax exemption period, such income will be subject to corporate tax at the applicable rate (10%-25%) in respect of the grossed up amount of the dividend that we may distribute. We would be required to withhold tax at a rate of 15% from any dividends distributed from income derived from the Benefitted Enterprise.
Benefits under
the 2011, 2013 and 2016 Amendments
Under an amendment to the Investment Law effective January 1, 2011, upon an irrevocable election made by the company, a uniform corporate tax rate will apply to all qualifying income of the company, as opposed to the previous law’s tax incentives that were limited to income only from Benefitted Enterprises during their benefit period (Preferred Enterprise). Under the amended law, the uniform tax rate was 7% in geographical areas in Israel designated as Development Zone A and 12.5% elsewhere in Israel in 2013 The uniform tax rate from 2014 and onwards is set to 9% in areas in Israel designated as Development Zone A and 16% elsewhere in Israel.
A dividend distributed from income which is attributed to a Preferred Enterprise will be subject to withholding tax at the following rates: (i) Israeli resident corporation –0%, (ii) Israeli resident individual – 20% in 2014 and onwards (iii) non-Israeli resident - 20% in 2014 and onwards, subject to a reduced tax rate under the provisions of an applicable double tax treaty.
According to an Amendment from December 2016, a preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9% effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%).
Under the transitory provisions of the January 1, 2011 legislation, we may opt whether to irrevocably implement the Amendment and waive benefits provided under the prior law or keep the prior benefits. This decision may be taken at any stage. We will consider in the future whether to opt for the benefits under the Amendment.
The December 2016 amendment also prescribes special tax tracks for technological enterprises. The new tax tracks under the amendment are as follows:
Technological preferred enterprise
- an enterprise whose total consolidated revenues (parent company and all subsidiaries) is less than NIS 10 billion. A technological preferred enterprise, as defined in the Law, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property (in development area A - a tax rate of 7.5%).
Special technological preferred enterprise
- an enterprise whose total consolidated revenues (parent company and all subsidiaries) exceeds NIS 10 billion. Such enterprise will be subject to tax at a rate of 6% on profits deriving from intellectual property, regardless of the enterprise’s geographical location.
Any dividends distributed to “foreign companies”, as defined in the Law, deriving from income from the technological enterprises will be subject to tax at a rate of 4%.
Israeli Transfer Pricing Regulations
Israeli transfer pricing legislation generally provides that all cross-border transactions carried out between related parties be conducted on an arm’s length basis and be taxed accordingly. The transfer pricing regulations are not expected to have a material effect on our company.
United States Federal Income Taxation
The following is a general discussion of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our ordinary shares. This description addresses only the U.S. federal income tax considerations that may be relevant to U.S. Holders (as defined below) who hold our ordinary shares as capital assets. This summary is based on the U.S. Internal Revenue Code of 1986, as amended, (the "Code") Treasury regulations promulgated thereunder, judicial and administrative interpretations thereof, and the U.S.-Israel Tax Treaty, or the Treaty, all as in effect on the date hereof and all of which are subject to change either prospectively or retroactively or to differing interpretations. There can be no assurance that the U.S. Internal Revenue Service, or the IRS, will not take a different position concerning the tax consequences of the acquisition, ownership and disposition of our ordinary shares or that such a position would not be sustained. This discussion does not address all tax considerations that may be relevant with respect to an investment in our ordinary shares. In addition, this description does not account for the specific circumstances of any particular investor, such as:
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·
|
financial institutions or financial services entities;
|
·
certain insurance companies;
|
·
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investors liable for alternative minimum tax;
|
|
·
|
regulated investment companies,
real estate investment trusts, or grantor trusts;
|
·
dealers or traders in securities, commodities or currencies;
|
·
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tax-exempt organizations;
|
|
·
|
certain former citizens or long-term residents of the United States;
|
|
·
|
non-resident aliens of the United States or taxpayers whose functional currency is not the U.S. dollar;
|
|
·
|
persons who hold ordinary shares through partnerships or other pass-through entities;
|
|
·
|
persons who acquire their ordinary shares through the exercise or cancellation of employee stock options or otherwise as compensation for services;
|
|
·
|
direct, indirect or constructive owners of
investors that actually or constructively own at least 10% of the total combined voting power of our shares or at least 10% of our shares by value; or
|
|
·
|
investors holding ordinary shares as part of a straddle, appreciated financial position, a hedging transaction or conversion transaction.
|
If a partnership or an entity treated as a partnership for U.S. federal income tax purposes owns our ordinary shares, the U.S. federal income tax treatment of a partner in such a partnership will generally depend upon the status of the partner and the activities of the partnership. A partnership that owns our ordinary shares and the partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of holding and disposing of ordinary shares.
This summary does not address the effect of any U.S. federal taxation (such as estate and gift tax) other than U.S. federal income taxation. In addition, this summary does not include any discussion of state, local or
non-U.S. taxation.
For purposes of this summary,
as used herein, the term “U.S. Holder” means a person that is eligible for the benefits of the Treaty and is a beneficial owner of an ordinary share who is, for U.S. federal income tax purposes:
|
·
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an individual who is a citizen or a resident of the United States;
|
|
·
|
a corporation or other entity taxable as a corporation for United States federal income tax purposes, created or organized in or under the laws of the United States or any political subdivision thereof or the District of Columbia;
|
|
·
|
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
|
|
·
|
a trust if such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or if (1) a court within the United States is able to exercise primary supervision over its administration and (2) one or more U.S. persons have the authority to control all of the substantial decisions of such trust.
|
Unless otherwise indicated, it is assumed for the purposes of this discussion that the Company is not, and will not become, a “passive foreign investment company,” or a PFIC, for U.S. federal income tax purposes. See
“—Passive Foreign Investment Companies
” below.
Taxation of Distributions
Subject to the discussion below under the heading
“—Passive Foreign Investment Companies
,” the gross amount of any distributions received with respect to our ordinary shares, including the amount of any Israeli taxes withheld therefrom, will constitute dividends for U.S. federal income tax purposes when such distribution is actually or constructively received, to the extent such distribution is paid out of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. Because we do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that the entire amount of any distribution will generally be reported as dividend income to you. Dividends are included in gross income as ordinary income unless such dividends meet the requirements of "qualified dividend income" as set forth in more detail below. Distributions in excess of our current and accumulated earnings and profits would be treated as a non-taxable return of capital to the extent of your adjusted tax basis in our ordinary shares and any amount in excess of your tax basis would be treated as gain from the sale of ordinary shares. See “
—Sale, Exchange or Other Disposition of Ordinary Shares
” below for a discussion of the taxation of capital gains. Our dividends would not qualify for the dividends-received deduction generally available to corporations under section 243 of the Code.
Dividends that we pay in NIS, including the amount of any Israeli taxes withheld therefrom, will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day such dividends are received, regardless of whether the payment is in fact converted into U.S. dollars. A U.S. Holder who receives payment in NIS and converts NIS into U.S. dollars at an exchange rate other than the rate in effect on such day may have a foreign currency exchange gain or loss that would generally be treated as U.S.-source ordinary income or loss. U.S. Holders should consult their own tax advisors concerning the U.S. tax consequences of acquiring, holding and disposing of NIS.
Subject to complex limitations, some of which vary depending upon the U.S. Holder’s circumstances, any Israeli withholding tax imposed on dividends paid with respect to our ordinary shares, may be a foreign income tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability (or, alternatively, for deduction against income in determining such tax liability). Israeli taxes withheld in excess of the applicable rate allowed by the Treaty (if any) will not be eligible for credit against a U.S. Holder’s federal income tax liability. The limitation on foreign income taxes eligible for credit is calculated separately with respect to specific classes of income. Dividends paid with respect to our common stock generally will be treated as foreign-source passive category income or, in the case of certain U.S. Holders, general category income for U.S. foreign tax credit purposes. Further, there are special rules for computing the foreign tax credit limitation of a taxpayer who receives dividends subject to a reduced tax rate. A U.S. Holder may be denied a foreign tax credit with respect to Israeli income tax withheld from dividends received on our ordinary shares if such U.S. Holder fails to satisfy certain minimum holding period requirements or to the extent such U.S. Holder’s position in ordinary shares is hedged. An election to deduct foreign taxes instead of claiming foreign tax credit applies to all foreign taxes paid or accrued in the taxable year. The rules relating to the determination of the foreign tax credit are complex, and you should consult with your own tax advisors to determine whether and to what extent you would be entitled to this credit.
Subject to certain limitations (possibly including the PFIC rules discussed below), “qualified dividend income” received by a non-corporate U.S. Holder may be subject to tax at the lower long-term capital gain rates (currently, a maximum rate of 20%). Distributions taxable as dividends paid on our ordinary shares should qualify for a reduced rate if we are a “qualified foreign corporation,” as defined in Code section 1(h)(11)(C). We will be a qualified foreign corporation if either: (i) we are entitled to benefits under the Treaty, or (ii) our ordinary shares are readily tradable on an established securities market in the United States and certain other requirements are met.
We believe that we are entitled to benefits under the Treaty and that our ordinary shares currently are readily tradable on an established securities market in the United States (see discussion below). However, no assurance can be given that our ordinary shares will remain readily tradable. The rate reduction does not apply unless certain holding period requirements are satisfied, nor does it apply to dividends received from a PFIC (see discussion below), in respect of certain risk-reduction transactions, or in certain other situations. U.S. Holders of our ordinary shares should consult their own tax advisors regarding the effect of these rules in their particular circumstances.
Sale, Exchange or Other Disposition of Ordinary Shares
Subject to the discussion of PFIC rules below,
if you sell or otherwise dispose of our ordinary shares (other than with respect to certain non-recognition transactions), you will generally recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other disposition and your adjusted tax basis in our ordinary shares, in each case determined in U.S. dollars. Such gain or loss will generally be capital gain or loss and will be long-term capital gain or loss if you have held the ordinary shares for more than one year at the time of the sale or other disposition. Long-term capital gain realized by a non-corporate U.S. Holder is generally eligible for a preferential tax rate (currently at a maximum of 20%). In general, any gain that you recognize on the sale or other disposition of ordinary shares will be U.S.-source for purposes of the foreign tax credit limitation; losses will generally be allocated against U.S. source income. Deduction of capital losses is subject to certain limitations under the Code.
In the case of a cash basis U.S. Holder who receives NIS in connection with the sale or disposition of our ordinary shares, the amount realized will be based on the U.S. dollar value of the NIS received with respect to the ordinary shares as determined on the settlement date of such exchange. A cash basis U.S. Holder who receives payment in NIS and converts NIS into U.S. dollars at a conversion rate other than the rate in effect on the settlement date may have a foreign currency exchange gain or loss, based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which would be treated as ordinary income or loss.
An accrual basis U.S. Holder may elect the same treatment required of cash basis taxpayers with respect to a sale or disposition of our ordinary shares that are traded on an established securities market, provided that the election is applied consistently from year to year. Such election may not be changed without the consent of the IRS. In the event that an accrual basis U.S. Holder does not elect to be treated as a cash basis taxpayer (pursuant to the Treasury regulations applicable to foreign currency transactions), such U.S. Holder is required to calculate the value of the proceeds as of the "trade date" and may have a foreign currency gain or loss for U.S. federal income tax purposes in the event of any difference between the U.S. dollar value of NIS prevailing on the trade date and on the settlement date. Any such currency gain or loss generally would be treated as U.S.- source ordinary income or loss and would be subject to tax in addition to the gain or loss, if any, recognized by such U.S. Holder on the sale or disposition of such ordinary shares.
Passive Foreign Investment Companies
We believe that we were not a PFIC for U.S. federal income tax purposes for the taxable year of 2017. However, since PFIC status depends upon the composition of our income and assets and the market value of our assets from time to time, there can be no assurance that we will not be considered a PFIC for any future taxable year. If we were a PFIC for any taxable year during which a U.S. Holder owned ordinary shares, certain adverse consequences could apply to the U.S. Holder. Specifically, unless a U.S. Holder makes one of the elections mentioned below, gain recognized by the U.S. Holder on a sale or other disposition of ordinary shares would be allocated ratably over the U.S. Holder’s holding period for the ordinary shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the resulting tax liability. Further, any distribution in excess of 125% of the average of the annual distributions received by the U.S. Holder on our ordinary shares during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, would be subject to taxation as described immediately above. Certain elections (such as a mark-to-market election or a QEF election) may be available to U.S. Holders and may result in alternative tax treatment. U.S. Holders should consult their tax advisors as to the availability and consequences of a mark-to-market election or a QEF election with respect to their ordinary shares.
In addition, if we were a PFIC for a taxable year in which we pay a dividend or the prior taxable year, the favorable dividend rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply. If we were a PFIC for any taxable year in which a U.S. Holder owned our shares, the U.S. Holder would generally be required to file annual returns with the IRS on IRS Form 8621.
Additional Tax on Investment Income
In addition to the income taxes described above,
U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds may be subject to a 3.8% Medicare contribution tax on net investment income, which includes dividends and capital gains from the sale or exchange of our ordinary shares
.
Backup Withholding and Information Reporting
Payments in respect of our ordinary shares may be subject to information reporting to the IRS and to U.S. backup withholding tax at the rate (currently) of 24%.
Backup withholding will not apply, however, if you (i) fall within certain exempt categories, and demonstrate the fact when so required, or (ii) furnish a correct taxpayer identification number and make any other required certification.
Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a U.S. Holder’s U.S. tax liability. Alternatively, a U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS.
U.S. citizens and individuals taxable as resident aliens of the United States that own “specified foreign financial assets” (as defined in Section 6038D of the Code and the regulations thereunder) with an aggregate value in a taxable year in excess of certain thresholds (as determined under rules in Treasury regulations) and that are required to file a U.S. federal income tax return generally will be required to file an information report with respect to those assets with their tax returns. IRS Form 8938 has been issued for that purpose. “Specified foreign financial assets” include any financial accounts maintained by foreign financial institutions, foreign stocks held directly, and interests in foreign estates, foreign pension plans or foreign deferred compensation plans. Under those rules, our ordinary shares, whether owned directly or through a financial institution, estate or pension or deferred compensation plan, would be “specified foreign financial assets.” Under Treasury regulations, the reporting obligation applies to certain U.S. entities that hold, directly or indirectly, specified foreign financial assets. Penalties can apply if there is a failure to satisfy this reporting obligation. In addition, in the event a U.S. Holder that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such U.S. Holder for the related tax year may not close until three years after the date that the required information is filed. A U.S. Holder is urged to consult the U.S. Holder’s tax advisor regarding the reporting obligation.
Any U.S. Holder who acquires more than $100,000 of our ordinary shares or holds 10% or more in vote or value of our ordinary shares may be subject to certain additional U.S. information reporting requirements.
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. You should consult your tax advisor concerning the tax consequences of your particular situation.
F.
|
Dividend and Paying Agents
|
Not applicable.
Not applicable.
We are subject to certain of the reporting requirements of the Securities and Exchange Act of 1934, as amended, or the Exchange Act, as applicable to “foreign private issuers” as defined in Rule 3b-4 under the Exchange Act. As a foreign private issuer, we are exempt from certain provisions of the Exchange Act. Accordingly, our proxy solicitations are not subject to the disclosure and procedural requirements of Regulation 14A under the Exchange Act, and transactions in our equity securities by our officers and directors are exempt from reporting and the “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we file with the Securities and Exchange Commission an annual report on Form 20-F containing financial statements audited by an independent accounting firm. We also submit to the Securities and Exchange Commission reports on Form 6-K containing (among other things) press releases and unaudited financial information. We post our annual report on Form 20-F on our website (
http://www.gilat.com
) promptly following the filing of our annual report with the Securities and Exchange Commission. The information on our website is not incorporated by reference into this annual report.
This annual report and the exhibits thereto and any other document we file pursuant to the Exchange Act may be inspected without charge and copied at prescribed rates at the Securities and Exchange Commission public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Securities and Exchange Commission’s public reference room in Washington, D.C. by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Exchange Act file number for our Securities and Exchange Commission filings is 000-21218.
The Securities and Exchange Commission maintains a website at
www.sec.gov
that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the Securities and Exchange Commission using its EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system.
The documents concerning our company that are referred to in this annual report may also be inspected at our offices located at
Gilat House, 21 Yegia Kapayim Street, Kiryat Arye, Petah Tikva, 4913020 Israel.
I.
|
Subsidiary Information
|
Not applicable.
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
A significant portion of our revenues are generated in U.S. dollars or linked to the dollar. In addition, a substantial portion of our costs are incurred in U.S. dollars. We believe that the U.S. dollar is the primary currency of the economic environment in which our Company and certain of our subsidiaries operate. Thus, the functional and reporting currency of our Company and certain of our subsidiaries is the U.S. dollar.
Accordingly, monetary accounts maintained in currencies other than the U.S. dollar are remeasured into U.S. dollars in accordance with ASC 830, “Foreign Currency Matters” (“ASC 830”). All transaction gains and losses of the remeasurement of monetary balance sheet items are reflected in the consolidated statements of operations as financial income or expenses, as appropriate.
The financial statements of some of our foreign subsidiaries, whose functional currency has been determined to be their local currency, have been translated into U.S. dollars. Assets and liabilities
have been translated using the exchange rates in effect at the balance sheet date. Statements of operations amounts have been translated using specific rates. The resulting translation adjustments are reported as a component of equity in accumulated other comprehensive income (loss).
While a significant portion of our revenues and expenses are generated in U.S. dollars, a portion of our expenses are denominated in NIS,
and to a lesser extent, other non-U.S. dollar currencies
which lead us to be exposed to financial market risk associated with changes in foreign currency exchange rates. In order to reduce the impact of foreign currency rate volatility of future cash flows caused by changes in foreign exchange rates, in some cases we use currency forward contracts. If our currency forward contracts meet the definition of a hedge, and are so designated, changes in the fair value of the contracts will be offset against changes in the fair value of the hedged assets or liabilities through earnings. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. Our hedging reduces, but does not eliminate, the impact of foreign currency rate movements, and due to such movements the results of our operations may be adversely affected.
During the year ended December 31, 2017, we recognized a net loss of $1.1 million related to the effective portion of our hedging instruments. The effective portion of the hedged instruments was included as an offset or addition to payroll expenses in the statement of operations. The ineffective portion of the hedged instrument during the year ended December 31, 2017 was immaterial and was recorded as financial expenses, net.
During 2015 we entered into forward contracts in order to hedge the exposure to variability in expected future cash flows resulting from changes in related foreign currency exchange rates. These contracts did not meet the requirement for hedge accounting. The net amount recorded as financial income (expense) related to these contracts in 2015 and 2016 was $2.1 million and $(0.7) million, respectively.
As of December 31, 2017, the fair value of the assets of the outstanding forward contracts that meet the requirement for hedge accounting was $0.2 million. There are no outstanding forward contracts that did not meet the requirement for hedge accounting.
The table below details our balance sheet exposure by currency and interest rates:
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Expected Maturity Dates
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2018
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2019
|
|
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2020
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|
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2021
|
|
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2022 and thereafter
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(In thousands)
|
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Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Restricted cash - in U.S. dollars
|
|
|
27,294
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted interest rate
|
|
|
1.25
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
In other currency
|
|
|
1,994
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
187
|
|
Weighted interest rate
|
|
|
1.00
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7.94
|
%
|
Restricted cash held by Trustees
|
|
|
4,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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In other currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted interest rate
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term loans (including current maturities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In U.S. dollars
|
|
|
4,000
|
|
|
|
4,000
|
|
|
|
4,000
|
|
|
|
4,000
|
|
|
|
0
|
|
Weighted interest rate
|
|
|
4.77
|
%
|
|
|
4.77
|
%
|
|
|
4.77
|
%
|
|
|
4.77
|
%
|
|
|
0.00
|
%
|
In other currency
|
|
|
479
|
|
|
|
479
|
|
|
|
103
|
|
|
|
0
|
|
|
|
0
|
|
Weighted interest rate
|
|
|
2.75
|
%
|
|
|
2.75
|
%
|
|
|
2.75
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None
ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
ITEM 15: CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our chief executive officer 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, 2017, have concluded that, as of such date, our disclosure controls and procedures were effective and ensured that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the rules of the Securities and Exchange Commission.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
|
·
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transaction and dispositions of the assets of the company;
|
|
·
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
|
|
·
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of the company’s assets that could have a material effect on the financial statements.
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting, as of December 31, 2017. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on that assessment, our management concluded that as of December 31, 2017, our internal control over financial reporting is effective.
The effectiveness of management’s internal control over financial reporting as of December 31, 2017 has been audited by our company’s independent registered public accountants, Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global. The report, which expresses an unqualified opinion on our company’s internal control over financial reporting, is included with our consolidated financial statements included elsewhere in this annual report.
Changes in Internal Control over Financial Reporting
During the period covered by this Annual Report on Form 20-F, no changes in our internal control over financial reporting have occurred that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that each of Ms. Cohen and
Mr. Shkedy
meets the definition of an audit committee financial expert as defined
by rules of the Securities and Exchange Commission. Our Board also determined that each of Ms. Cohen and Mr. Shkedy is independent under the requirements of the NASDAQ Marketplace Rules. For a brief listing of
Ms. Cohen and Mr. Shkedy’s
relevant experience, see Item 6.A. “Directors, Senior Management and Employees - Directors and Senior Management.”
ITEM 16B: CODE OF ETHICS
We have adopted a Code of Ethics for executive and financial officers that also applies to all of our employees. The Code of Ethics is publicly available on our website at www.gilat.com. Written copies are available upon request. If we make any substantive amendments to the Code of Ethics or grant any waivers, including any implicit waiver, from a provision of this code to our chief executive officer, chief financial officer or corporate controller, we will disclose the nature of such amendment or waiver on our website. Our Code of Ethics includes a whistleblower policy which provides an anonymous means for employees and others to communicate with various bodies within our company, including our Audit Committee.
ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees Billed
or Expected to be Billed by Independent Auditors
The following table sets forth, for each of the years indicated, the fees billed or expected to be billed to us by our independent auditors
and the percentage of each of the fees out of the total amount billed or expected to be billed by the auditors.
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Services Rendered
|
|
Fees
(in thousands)
|
|
|
Percentages
|
|
|
Fees
(in thousands)
|
|
|
Percentages
|
|
Audit
fees
(1)
|
|
$
|
691
|
|
|
|
88.57
|
%
|
|
$
|
699
|
|
|
|
91.53
|
%
|
Tax
fees
(2)
|
|
$
|
38
|
|
|
|
4.93
|
%
|
|
$
|
29
|
|
|
|
3.80
|
%
|
Other (3)
|
|
$
|
51
|
|
|
|
6.50
|
%
|
|
$
|
36
|
|
|
|
4.67
|
%
|
Total
|
|
$
|
780
|
|
|
|
100
|
%
|
|
$
|
764
|
|
|
|
100
|
%
|
(1)
|
Audit fees are fees for audit services for each of the years shown in this table, including fees associated with the annual audit, services provided in connection with audit of our internal control over financial reporting and audit services provided in connection with other statutory or regulatory filings.
|
(2)
|
Tax fees are fees for professional services rendered by our auditors for tax compliance, tax planning and tax advice on actual or contemplated transactions.
|
(3)
|
Other fees are fees for professional services other than audit or tax related fees, rendered in connection with our business activities; such fees in 2017 were mainly related to implementation of new accounting standards and in 2016 were mainly related to the rights offering.
|
Plicies and Procedures
Our Audit Committee has adopted a policy and procedures for the approval of audit and non-audit services rendered by our principal accountants, Kost Forer Gabbay & Kasierer, a Member of Ernst & Young Global and other members of Ernst & Young Global. The policy generally requires the Audit Committee’s approval of the scope of the engagement of our principal accountants
or on an individual engagement basis. The policy prohibits retention of our principal accountants
to perform the prohibited non-audit functions defined in Section 201 of the Sarbanes-Oxley Act of 2002 or the rules of the SEC, and also considers whether proposed services are compatible with the independence of the public auditors.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E: PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
In the year ended December 31, 2017,
neither we nor any affiliated purchaser purchased
any of our securities.
ITEM 16F:
CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
ITEM 16G. CORPORATE GOVERNANCE
Under NASDAQ Marketplace
Rule 5615(a)(3)
or Rule
5615(a)(3)
, foreign private issuers, such as our company, are permitted to follow certain home country corporate governance practices in lieu of certain requirements of Listing Rule 5600 Series, with the exception of those rules which are required to be followed pursuant to the provisions of Listing Rule 5615(a)(3).
We have elected to follow
Israeli law and practice instead of the requirements of Listing Rule 5600 Series, as described below:
|
·
|
The requirement to obtain shareholder approval for the establishment or material amendment of certain equity based compensation plans and arrangements, under which shares may be acquired by officers, directors, employees or consultants. Under Israeli law and practice, the approval of the board of directors is required for the establishment or material amendment of such equity based compensation plans and arrangements. However, any equity based compensation arrangement with a director or the Chief Executive Officer or the material amendment of such an arrangement must be approved by our Compensation and Stock Option Committee, Board of Directors and shareholders, in that order
|
|
·
|
The requirements regarding the director nominations process. We do not have a nomination committee. Under Israeli law and practice, our Board of Directors is authorized to recommend to our shareholders director nominees for election, and certain of our shareholders may nominate candidates for election as directors by the general meeting of shareholders.
|
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
PART III
ITEM 17: FINANCIAL STATEMENTS
Not applicable.
ITEM 18: FINANCIAL STATEMENTS
The financial statements required by this item are found at the end of this annual report, beginning on page F-1.
ITEM 19: EXHIBITS
1.1
|
Memorandum of Association, as amended. Previously filed as Exhibit 1.1 to our Annual Report on Form 20-F for the fiscal year ending December 31, 2000, which Exhibit is incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.INS
|
XBRL Instance Document *.
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document.
|
|
101.PRE
|
XBRL Taxonomy Presentation Linkbase Document.
|
|
101.CAL
|
XBRL Taxonomy Calculation Linkbase Document.
|
|
101.LAB
|
XBRL Taxonomy Label Linkbase Document.
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
___________________
*
|
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
|
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.
|
GILAT SATELLITE NETWORKS LTD.
|
|
|
By:
|
/s/ Yona Ovadia
|
|
|
|
Yona Ovadia
|
|
|
|
Chief Executive Officer
|
|
Date: March 20, 2018
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2017
IN U.S. DOLLARS
INDEX
|
Page
|
|
|
|
F-2 - F-4
|
|
|
|
F-5 - F-6
|
|
|
|
F-7
|
|
|
|
F-8
|
|
|
|
F-9
|
|
|
|
F-10 - F-12
|
|
|
|
F-13 - F-57
|
|
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A,
Tel-Aviv 6492102, Israel
|
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCUNTING FIRM
To the Shareholders and Board of Directors and Shareholders of
GILAT SATELLITE NETWORKS LTD.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Gilat Satellite Networks Ltd. ("the Company") and its subsidiaries as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income (loss),
shareholders' equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes
(collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
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, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 20, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
We have served as the Company‘s auditor since 2000.
Tel-Aviv, Israel
March 20, 2018
|
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A,
Tel-Aviv 6492102, Israel
|
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
|
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Gilat Satellite Networks Ltd.
Opinion on Internal Control over Financial Reporting
We have audited Gilat Satellite Networks Ltd. ("the Company") and its subsidiaries' internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, the Company and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income (loss),
shareholders' equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes, and our report dated March 20, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
|
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A,
Tel-Aviv 6492102, Israel
|
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
|
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/ KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
Tel-Aviv, Israel
March 20, 2018
CONSOLIDATED
BALANCE SHEETS
U.S. dollars in thousands
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
52,957
|
|
|
$
|
40,133
|
|
Restricted cash
|
|
|
29,288
|
|
|
|
62,229
|
|
Restricted cash held by trustees
|
|
|
4,325
|
|
|
|
9,058
|
|
Trade receivables, net
|
|
|
108,842
|
|
|
|
89,377
|
|
Inventories
|
|
|
28,853
|
|
|
|
21,469
|
|
Other current assets
|
|
|
21,686
|
|
|
|
17,017
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
245,951
|
|
|
|
239,283
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM INVESTMENTS AND RECEIVABLES:
|
|
|
|
|
|
|
|
|
Severance pay funds
|
|
|
8,188
|
|
|
|
7,791
|
|
Other long-term receivables
|
|
|
1,258
|
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
Total
long-term investments and receivables
|
|
|
9,446
|
|
|
|
8,227
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
82,246
|
|
|
|
80,837
|
|
|
|
|
|
|
|
|
|
|
INTANGIBLE ASSETS, NET
|
|
|
5,709
|
|
|
|
11,383
|
|
|
|
|
|
|
|
|
|
|
GOODWILL
|
|
|
43,468
|
|
|
|
43,468
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
386,820
|
|
|
$
|
383,198
|
|
The accompanying notes are an integral part of the consolidated financial statements.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
Current maturities of long-term loans
|
|
$
|
4,479
|
|
|
$
|
4,617
|
|
Trade payables
|
|
|
33,715
|
|
|
|
29,625
|
|
Accrued expenses
|
|
|
70,534
|
|
|
|
53,429
|
|
Advances from customers and deferred revenues
|
|
|
16,721
|
|
|
|
37,659
|
|
Advances from customers held by trustees
|
|
|
1,416
|
|
|
|
7,498
|
|
Other current liabilities
|
|
|
20,044
|
|
|
|
13,846
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
146,909
|
|
|
|
146,674
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Long-term loans, net of current maturities
|
|
|
12,582
|
|
|
|
16,932
|
|
Accrued severance pay
|
|
|
7,999
|
|
|
|
7,485
|
|
Other long-term liabilities
|
|
|
1,008
|
|
|
|
2,281
|
|
|
|
|
|
|
|
|
|
|
Total
long-term liabilities
|
|
|
21,589
|
|
|
|
26,698
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Share capital -
Ordinary shares of NIS 0.2 par value: Authorized: 90,000,000 shares at December 31, 2017 and 2016; Issued and outstanding: 54,737,267 and 54,592,667 shares at December 31, 2017 and 2016, respectively
|
|
|
2,601
|
|
|
|
2,593
|
|
Additional paid-in capital
|
|
|
921,726
|
|
|
|
920,162
|
|
Accumulated other comprehensive loss
|
|
|
(3,046
|
)
|
|
|
(3,224
|
)
|
Accumulated deficit
|
|
|
(702,959
|
)
|
|
|
(709,705
|
)
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
218,322
|
|
|
|
209,826
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
386,820
|
|
|
$
|
383,198
|
|
The accompanying notes are an integral part of the consolidated financial statements.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
INCOME (LOSS)
U.S. dollars in thousands (except share and per share data)
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
214,522
|
|
|
$
|
214,291
|
|
|
$
|
128,970
|
|
Services
|
|
|
68,234
|
|
|
|
65,260
|
|
|
|
68,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
282,756
|
|
|
|
279,551
|
|
|
|
197,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
153,167
|
|
|
|
162,563
|
|
|
|
94,683
|
|
Services
|
|
|
47,094
|
|
|
|
41,498
|
|
|
|
48,635
|
|
Impairment of long-lived assets
|
|
|
-
|
|
|
|
-
|
|
|
|
10,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
cost of revenues
|
|
|
200,261
|
|
|
|
204,061
|
|
|
|
153,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
82,495
|
|
|
|
75,490
|
|
|
|
44,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development, net
|
|
|
28,014
|
|
|
|
24,853
|
|
|
|
22,412
|
|
Selling and marketing
|
|
|
23,759
|
|
|
|
23,411
|
|
|
|
24,823
|
|
General and administrative
|
|
|
19,861
|
|
|
|
26,471
|
|
|
|
18,644
|
|
Restructuring costs
|
|
|
-
|
|
|
|
-
|
|
|
|
1,508
|
|
Goodwill impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
20,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
71,634
|
|
|
|
74,735
|
|
|
|
87,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
10,861
|
|
|
|
755
|
|
|
|
(43,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses, net
|
|
|
(4,307
|
)
|
|
|
(4,843
|
)
|
|
|
(7,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before taxes on income
|
|
|
6,554
|
|
|
|
(4,088
|
)
|
|
|
(50,944
|
)
|
Taxes on income (benefit)
|
|
|
(247
|
)
|
|
|
1,252
|
|
|
|
1,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
6,801
|
|
|
|
(5,340
|
)
|
|
|
(52,134
|
)
|
Loss from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
6,801
|
|
|
$
|
(5,340
|
)
|
|
$
|
(52,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.12
|
|
|
$
|
(0.10
|
)
|
|
$
|
(1.16
|
)
|
Discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
income (loss) per share
|
|
$
|
0.12
|
|
|
$
|
(0.10
|
)
|
|
$
|
(1.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computing earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
54,680,822
|
|
|
|
51,970,458
|
|
|
|
45,026,069
|
|
Diluted
|
|
|
54,851,967
|
|
|
|
51,970,458
|
|
|
|
45,026,069
|
|
The accompanying notes are an integral part of the consolidated financial statements.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
U.S. dollars in thousands
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
6,801
|
|
|
$
|
(5,340
|
)
|
|
$
|
(52,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(95
|
)
|
|
|
514
|
|
|
|
(3,022
|
)
|
Change in unrealized gain (loss) on hedging instruments, net
|
|
|
1,419
|
|
|
|
396
|
|
|
|
(124
|
)
|
Less - reclassification adjustments for net loss (gain) realized and included in income (loss) on hedging instruments, net
|
|
|
(1,146
|
)
|
|
|
(407
|
)
|
|
|
839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
178
|
|
|
|
503
|
|
|
|
(2,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
6,979
|
|
|
$
|
(4,837
|
)
|
|
$
|
(54,641
|
)
|
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY
U.S. dollars in thousands (except share data)
|
|
Number of
Ordinary shares
|
|
|
Share
capital
|
|
|
Additional
paid-in
capital
|
|
|
Accumulated
other
comprehensive
income (loss)
|
|
|
Accumulated
deficit
|
|
|
Total
shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2015
|
|
|
42,730,424
|
|
|
$
|
1,966
|
|
|
$
|
876,624
|
|
|
$
|
(1,420
|
)
|
|
$
|
(652,031
|
)
|
|
$
|
225,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted share units (RSUs)
|
|
|
283,175
|
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
Stock-based compensation of options and RSUs
|
|
|
-
|
|
|
|
-
|
|
|
|
1,901
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,901
|
|
Exercise of stock options
|
|
|
1,319,448
|
|
|
|
68
|
|
|
|
5,601
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,669
|
|
Comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,307
|
)
|
|
|
(52,334
|
)
|
|
|
(54,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
|
44,333,047
|
|
|
|
2,048
|
|
|
|
884,126
|
|
|
|
(3,727
|
)
|
|
|
(704,365
|
)
|
|
|
178,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares in a rights offering, net of issuance costs
|
|
|
9,874,170
|
|
|
|
525
|
|
|
|
34,560
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,085
|
|
Issuance of restricted share units (RSUs)
|
|
|
214,350
|
|
|
|
11
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
Stock-based compensation of options and RSUs
|
|
|
-
|
|
|
|
-
|
|
|
|
908
|
|
|
|
-
|
|
|
|
-
|
|
|
|
908
|
|
Exercise of stock options
|
|
|
171,100
|
|
|
|
9
|
|
|
|
568
|
|
|
|
-
|
|
|
|
-
|
|
|
|
577
|
|
Comprehensive income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
503
|
|
|
|
(5,340
|
)
|
|
|
(4,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
54,592,667
|
|
|
|
2,593
|
|
|
|
920,162
|
|
|
|
(3,224
|
)
|
|
|
(709,705
|
)
|
|
|
209,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of adoption of ASU 2016-09
|
|
|
-
|
|
|
|
-
|
|
|
|
55
|
|
|
|
-
|
|
|
|
(55
|
)
|
|
|
-
|
|
Issuance of restricted share units (RSUs)
|
|
|
8,100
|
|
|
|
*
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
*
|
)
|
Stock-based compensation of options and RSUs
|
|
|
-
|
|
|
|
-
|
|
|
|
856
|
|
|
|
-
|
|
|
|
-
|
|
|
|
856
|
|
Exercise of stock options
|
|
|
136,500
|
|
|
|
8
|
|
|
|
653
|
|
|
|
-
|
|
|
|
-
|
|
|
|
661
|
|
Comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
178
|
|
|
|
6,801
|
|
|
|
6,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
|
|
54,737,267
|
|
|
$
|
2,601
|
|
|
$
|
921,726
|
|
|
$
|
(3,046
|
)
|
|
$
|
(702,959
|
)
|
|
$
|
218,322
|
|
*) Represents an amount lower than $ 1.
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
U.S. dollars in thousands
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
6,801
|
|
|
$
|
(5,340
|
)
|
|
$
|
(52,334
|
)
|
Loss from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
6,801
|
|
|
|
(5,340
|
)
|
|
|
(52,134
|
)
|
Adjustments required to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
13,140
|
|
|
|
13,108
|
|
|
|
15,072
|
|
Goodwill impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
20,402
|
|
Impairment of long-lived assets
|
|
|
-
|
|
|
|
-
|
|
|
|
10,137
|
|
Stock-based compensation of options and RSUs
|
|
|
856
|
|
|
|
908
|
|
|
|
1,901
|
|
Accrued severance pay, net
|
|
|
118
|
|
|
|
(267
|
)
|
|
|
(111
|
)
|
Accrued interest and exchange rate differences on restricted cash and deposits, net
|
|
|
(239
|
)
|
|
|
(442
|
)
|
|
|
842
|
|
Exchange rate differences on long-term loans
|
|
|
186
|
|
|
|
(43
|
)
|
|
|
(288
|
)
|
Deferred income taxes, net
|
|
|
189
|
|
|
|
4
|
|
|
|
1
|
|
Decrease (increase) in trade receivables, net
|
|
|
(19,588
|
)
|
|
|
(37,586
|
)
|
|
|
4,553
|
|
Decrease (increase) in other assets (including short-term, long-term and deferred charges)
|
|
|
(4,029
|
)
|
|
|
(3,474
|
)
|
|
|
1,080
|
|
Decrease (increase) in inventories
|
|
|
(10,763
|
)
|
|
|
2,221
|
|
|
|
(2,821
|
)
|
Decrease (increase) in restricted cash directly related to operating activities, net
|
|
|
38,123
|
|
|
|
48,519
|
|
|
|
(87,004
|
)
|
Increase (decrease) in trade payables
|
|
|
4,087
|
|
|
|
12,454
|
|
|
|
(5,133
|
)
|
Increase in accrued expenses
|
|
|
14,898
|
|
|
|
30,149
|
|
|
|
2,935
|
|
Increase (decrease) in advances from customers
|
|
|
(18,959
|
)
|
|
|
(53,081
|
)
|
|
|
79,884
|
|
Increase (decrease) in advances from customers held by trustees
|
|
|
(6,185
|
)
|
|
|
(18
|
)
|
|
|
(2,243
|
)
|
Increase (decrease) in other current liabilities and other long-term liabilities
|
|
|
2,165
|
|
|
|
3,666
|
|
|
|
(1,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
20,800
|
|
|
|
10,778
|
|
|
|
(14,787
|
)
|
The accompanying notes are an integral part of the consolidated financial statements.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
$
|
(3,692
|
)
|
|
$
|
(4,307
|
)
|
|
$
|
(3,930
|
)
|
Investment in restricted cash (including long-term)
|
|
|
(5,700
|
)
|
|
|
(17,001
|
)
|
|
|
(22,717
|
)
|
Proceeds from restricted cash (including long-term)
|
|
|
661
|
|
|
|
7,441
|
|
|
|
34,120
|
|
Investment in restricted cash held by trustees
|
|
|
(14,218
|
)
|
|
|
(16,200
|
)
|
|
|
(16,634
|
)
|
Proceeds from restricted cash held by trustees
|
|
|
18,974
|
|
|
|
16,498
|
|
|
|
21,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(3,975
|
)
|
|
|
(13,569
|
)
|
|
|
12,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease payments
|
|
|
-
|
|
|
|
(309
|
)
|
|
|
(609
|
)
|
Issuance of shares in a rights offering, net of issuance costs
|
|
|
-
|
|
|
|
35,085
|
|
|
|
-
|
|
Issuance of restricted stock units and exercise of stock option
|
|
|
661
|
|
|
|
588
|
|
|
|
5,683
|
|
Payment of obligation related to the purchase of intangible asset
|
|
|
-
|
|
|
|
-
|
|
|
|
(500
|
)
|
Short-term bank credit and loans, net
|
|
|
-
|
|
|
|
(7,000
|
)
|
|
|
(5,897
|
)
|
Repayment of long-term loans
|
|
|
(4,673
|
)
|
|
|
(4,443
|
)
|
|
|
(4,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(4,012
|
)
|
|
|
23,921
|
|
|
|
(5,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
11
|
|
|
|
568
|
|
|
|
(977
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
12,824
|
|
|
|
21,698
|
|
|
|
(9,291
|
)
|
Cash and cash equivalents at the beginning of the year
|
|
|
40,133
|
|
|
|
18,435
|
|
|
|
27,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
$
|
52,957
|
|
|
$
|
40,133
|
|
|
$
|
18,435
|
|
The accompanying notes are an integral part of the consolidated financial statements.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Supplementary cash flow activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Cash paid during the year for continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
906
|
|
|
$
|
1,448
|
|
|
$
|
1,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
2,410
|
|
|
$
|
2,105
|
|
|
$
|
517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment that were not paid for and reclassification from inventories to property and equipment
|
|
$
|
5,710
|
|
|
$
|
2,452
|
|
|
$
|
2,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification from property and equipment to inventories
|
|
$
|
129
|
|
|
$
|
733
|
|
|
$
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
26
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Gilat Satellite Networks Ltd. (the "Company") and its subsidiaries (the "Group" or "Gilat") is a global provider of end-to-end broadband satellite communication ("Satcom") network solutions and services. Gilat designs, manufactures and provides full network management and equipment for Satcom as well as professional services to satellite operators and service providers worldwide. The equipment consists of very small aperture terminals ("VSATs"), solid-state power amplifiers ("SSPAs"), block up converters ("BUCs"), low-profile antennas and on-the-Move/on-the-Pause terminals. VSATs are earth-based terminals that transmit and receive broadband internet, voice, data and video via satellite. In addition, Gilat provides integrated small cell solutions with its satellite backhaul for the cellular market. Gilat also provides connectivity services, internet access and telephony to enterprise, government and residential customers over its own networks, over third party networks and also over networks which Gilat installs based on Build Operate Transfer ("BOT") contracts. Additionally, Gilat builds telecommunication infrastructure, typically using fiber-optic and wireless technologies for broadband connectivity.
The Company was incorporated in Israel in 1987 and launched its first generation VSAT in 1989.
The Group's business is managed and reported through three separate reportable segments, consisting of the Group’s Commercial, Mobility and Services divisions. Commencing the first quarter of 2018, following changes in the Company's strategy and organizational structure, the Company conducted an analysis of its business segments, resulting in a change to its segment reporting. For further information, refer to Note 13. As to the Group's major customers, geographic and segment information, see Note 13.
|
b.
|
Discontinued operation:
|
On December 2, 2013, the Company sold its subsidiary, Spacenet Inc. ("Spacenet"), to SageNet of Tulsa, LLC for approximately $ 16,000, subject to certain post-closing adjustments and expenses, the Company recorded a loss of $ 1,385 as a result of this sale. The Company previously provided managed network communications services through Spacenet utilizing satellite wireline and wireless networks and associated technology mainly in the United States. During 2015, some of the post-closing adjustments were resolved and consequently the Company incurred additional expenses in the aggregate amount of $ 200, which were accounted as discontinued operations. During 2017 and 2016, no additional expenses were incurred. Spacenet was previously part of the Services division.
|
c.
|
The Company depends on a major supplier to supply certain components and services for the production of its products or providing services. If this supplier fails to deliver or delays the delivery of the necessary components or services, the Company will be required to seek alternative sources of supply. A change in suppliers could result in manufacturing delays or services delays which could cause a possible loss of sales and, or, additional incremental costs and, consequently, could adversely affect the Company's results of operations and financial position.
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"), followed on a consistent basis.
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
The majority of the revenues of the Company and certain of its subsidiaries are generated in U.S. dollars ("dollar") or linked to the dollar. In addition, a substantial portion of the Company's and certain of its subsidiaries' costs are incurred in dollars. The Company's management believes that the dollar is the primary currency of the economic environment in which the Company and certain of its subsidiaries operate. Thus, the functional and reporting currency of the Company and certain of its subsidiaries is the dollar.
Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into dollars in accordance with ASC 830, "Foreign Currency Matters" ("ASC 830"). All transaction gains and losses of the remeasurement of monetary balance sheet items are reflected in the consolidated statements of income (loss) as financial income or expenses, as appropriate.
The financial statements of certain foreign subsidiaries, whose functional currency has been determined to be their local currency, have been translated into dollars. Assets and liabilities have been translated using the exchange rates in effect at the balance sheet date. Statements of income (loss) amounts have been translated using specific rates. The resulting translation adjustments are reported as a component of shareholders’ equity in accumulated other comprehensive income (loss).
|
c.
|
Principles of consolidation:
|
The consolidated financial statements include the accounts of the Company and its subsidiaries in which the Company has a controlling voting interest and entities consolidated under the variable interest entities ("VIE") provisions of ASC 810, "Consolidation" ("ASC 810"). Inter-company balances and transactions have been eliminated upon consolidation.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Most of the activity of Gilat Colombia S.A. E.S.P. ("Gilat Colombia") consists of operating subsidized projects for the Colombian Ministry of Information Technologies and Communications ("Ministry of ITC") through its "Dirección de Conectividad", or DirCon, (formerly known as Compartel Program). The first projects were originally awarded to Gilat's Colombian subsidiaries in 1999 and 2002 and were extended several times. An additional project was awarded to Gilat Colombia by the Ministry of ITC in 2011 and was completed in December 2013. The subsidiary was awarded another project from the Ministry of ITC in 2013, which was further extended in 2017, and which is ongoing and scheduled to be completed in 2018.
As required in the bid documents for the Ministry of ITC projects, the Group established trusts (the "Trusts") and entered into governing trust agreements for each project (collectively, the "Trust Agreements"). The Trusts were established for the purpose of holding the network equipment, processing payments to subcontractors, and holding the funds received through the subsidy (the "Subsidy") from the government until they are released in accordance with the terms of the Subsidy and paid to Gilat Colombia. The Trusts are a mechanism to allow the Colombian government to review amounts to be paid with the Subsidy and verify that such funds are used in accordance with the transaction document and the terms of the Subsidy. Gilat Colombia generates revenues both from the Subsidy, as well as from the use of the network that it operates.
The Trusts are considered VIEs and Gilat Colombia is identified as the primary beneficiary of the Trusts.
Under ASC 810, the Company performs ongoing reassessments of whether it is the primary beneficiary of the VIE. The assessment of Company's management is that the Company has the power to direct the activities of a VIE that most significantly impact the VIE's activities (it is responsible for establishing and operating the networks), and the obligation to absorb losses of the VIE that could potentially be significant to the VIE and the right to receive benefits from the VIE that could potentially be significant to the VIE's economic performance. As such, the Trusts were consolidated in the financial statements of the Company since their inception.
The cash held by the Trusts is consolidated within the financial statements of the Company and classified as "Restricted cash held by trustees". The advances from customers received by the Trusts are consolidated within the financial statements of the Company and classified as "Advances from customers held by trustees".
Cash equivalents are short-term highly liquid investments that are not restricted as to withdrawals or use with maturities of three months or less at the date acquired.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
e.
|
Short-term and long-term restricted cash:
|
Short-term restricted cash is either invested in certificates of deposit, which mature within one year, or in short-term highly liquid investments that are restricted to withdrawals or use. As of December 31, 2017, the vast majority of this amount was linked to the dollar. Such certificates of deposit are used as collateral for performance and advance payment guarantees to customers, surety bonds and loans and the lease of some of the Group's offices, and bear weighted average interest rates of 1.23% and 0.36% as of December 31, 2017 and 2016, respectively.
Long-term restricted cash is primarily invested in certificates of deposit, which mature in more than one year. As of December 31, 2017, the amount is linked to currencies other than the dollar. It bears annual weighted average interest rates of 7.94% and 5.89% as of December 31, 2017 and 2016, respectively. Such certificates of deposit are used as collateral for performance guarantees to customers, loans and the lease of the Group's offices.
|
f.
|
Restricted cash held by trustees:
|
As of December 31, 2017 and 2016, short-term restricted cash held by trustees is invested in a savings bank account linked to the Colombian Peso. The restricted cash is being released based upon performance milestones as stipulated in the agreements with the Ministry of ITC (see Note 2c).
Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventory write-offs are provided to cover risks arising from slow-moving items, excess inventories, discontinued products, new products introduction and for market prices lower than cost. Any write-off is recognized in the consolidated statement of income (loss) as cost of revenues. In addition, if required, the Group records a liability for firm non-cancelable and unconditional purchase commitments with contract manufacturers for quantities in excess of the Group's future demands forecast consistent with its valuation of excess and obsolete inventory.
Cost is determined as follows:
Raw materials, parts and supplies - using the weighted average cost method.
Work-in-progress - represents the cost of manufacturing with the addition of allocable indirect manufacturing costs, using the weighted average cost method.
Finished products - calculated on the basis of raw materials, direct manufacturing costs with the addition of allocable indirect manufacturing costs, using the weighted average cost method.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
h.
|
Property and equipment, net:
|
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets as follows:
|
|
Years
|
|
|
|
Buildings
|
|
50
|
Computers, software and electronic equipment
|
|
3 - 16
|
Office furniture and equipment
|
|
3 - 17
|
Vehicles
|
|
5 - 7
|
Leasehold improvements are amortized by the straight-line method over the term of the lease or the estimated useful life of the improvements, whichever is shorter.
Network equipment under operating leases is carried at cost less accumulated depreciation and depreciated using the straight-line method over the useful life of the assets. The Group has accounted for its assets which are under a capital lease arrangement in accordance with ASC 840 "Leases" ("ASC 840"). Accordingly, assets under a capital lease are stated as assets of the Group on the basis of ordinary purchase prices (without the financing component), and depreciated according to the usual depreciation rates applicable to such assets. The lease payments payable in forthcoming years, net of the interest component included in them, are included in liabilities. The interest in respect of such amounts is accrued on a current basis and is charged to earnings.
Intangible assets subject to amortization are initially recognized based on the fair value allocated to them, and subsequently stated at amortized cost. The assets are amortized over their estimated useful lives using the straight-line method over an estimated period during which benefits are expected to be received, in accordance with ASC 350, "Intangible - Goodwill and Other" ("ASC 350") as the following weighted average
in years:
|
|
Years
|
|
|
|
Technology
|
|
7.9
|
Customer relationships
|
|
6.8
|
Marketing rights and patents
|
|
12.1
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
j.
|
Impairment of long-lived assets
|
The Group's long-lived assets and identifiable intangible assets that are subject to amortization are reviewed for impairment in accordance with ASC 360, "Property, Plant and Equipment" ("ASC 360"), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. Such measurement includes significant estimates. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
However, the carrying amount of a group of assets is not to be reduced below its fair value.
Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
In 2017 and 2016, no impairments of long-lived assets were recorded.
During 2015, the Company encountered higher than expected expenses related to its subsidized project for the Ministry of ITC, which resulted in operating and cash flow losses from this project. Consequently, the Company identified an impairment loss of property and equipment, net and long-term deferred charges, which are included in "other assets" in the consolidated balance sheet, in the amount of $ 4,106 and $ 6,031, respectively. The total impairment loss in the amount of $ 10,137 was recorded as part of "Impairment of long-lived assets" within cost of revenues in the consolidated statement of income (loss) and is attributed to the Services division.
k.
Goodwill:
Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. Under ASC 350, goodwill is not amortized, but rather is subject to an annual impairment test. Goodwill is tested for impairment at the reporting unit level by comparing the fair value of the reporting unit with its carrying value. The Company performs its annual impairment analysis of goodwill in the fourth quarter of the year, or more often if there are indicators of impairment present.
ASC 350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If the qualitative assessment does not result in a more likely than not indication of impairment, no further impairment testing is required. If it does result in a more likely than not indication of impairment, the two-step impairment test is performed. Alternatively, ASC 350 permits an entity to bypass the qualitative assessment for any reporting unit and proceed directly to performing the first step of the goodwill impairment test.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The provisions of ASC 350 require that the quantitative two-step impairment test will be performed on goodwill at the level of the reporting units. In the first step, or "Step one", the Company compares the fair value of each reporting unit to its carrying value. If the fair value exceeds the carrying value of the net assets, goodwill is considered not impaired, and the Company is not required to perform further testing. If the carrying value of the net assets exceeds the fair value, then the Company must perform the second step, or "Step two", of the impairment test in order to determine the implied fair value of goodwill. To determine the fair value used in Step one, the Company uses discounted cash flows. If and when the Company is required to perform a Step two analysis, determining the fair value of its net assets and its off-balance sheet intangibles, then the Company would be required to make judgments that involve the use of significant estimates and assumptions.
The Company determines the fair value of each reporting unit by using the income approach, which utilizes a discounted cash flow model, as it believes that this approach best approximates the reporting unit's fair value. Judgments and assumptions related to revenue, operating income, future short-term and long-term growth rates, weighted average cost of capital, interest, capital expenditures, cash flows, and market conditions are inherent in developing the discounted cash flow model. The Company considers historical rates and current market conditions when determining the discount and growth rates to use in its analyses. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for its goodwill.
In 2017, following an improvement in the Mobility segment results, the Company performed a qualitative assessment and concluded that it is not more likely than not that the fair value of the reporting units is less than their carrying amounts and accordingly it is unnecessary to perform the two-step quantitative goodwill impairment test.
In 2016, the Company performed both qualitative and quantitative assessment and concluded that no impairment of goodwill needs to be recorded.
Following the existence of impairment indicators during 2015, the Company performed in that year a goodwill impairment test for the two reporting units in the Mobility Division, using the income approach to value the reporting units' fair value. The impairment test resulted in a goodwill impairment of $ 20,402 attributable to the Wavestream reporting unit. This impairment was recorded as a "Goodwill impairment" within operating expenses in the consolidated statement of income (loss). The material assumptions used for the income approach were five (5) years of projected cash flows, a long-term growth rate of 4% and discount rate of 13%.
The Company is currently involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Group generates revenues mainly from the sale of products (including construction of networks), satellite-based communications networks services and from providing connectivity services, internet access and telephony. The Company sells its products and services to enterprises, government and residential customers under large-scale contracts that utilize both the Company’s networks and other networks that the Company installs, mainly based on BOT contracts. These large‑scale contracts sometimes involve the installation of thousands of VSATs or massive fiber-optic networks.
Sale of products includes mainly the sale of VSATs, hubs, SSPAs, low-profile antennas, on-the-move/on-the-pause terminals, and construction and installation of large-scale networks based on BOT contracts.
Sale of services includes access to and communication via satellites ("space segment"), installation of equipment, telephone services, internet services, consulting, on-line network monitoring, network maintenance and repair services. The Group sells its products primarily through its direct sales force and indirectly through resellers or system integrators. Sales consummated by the Group's sales force and sales to resellers or system integrators are considered sales to end-users.
Revenues from product sales are recognized in accordance with ASC 605-10, "Revenue recognition" and with ASC 605-25 "Multiple-Element Arrangements" ("ASC 605"), when delivery has occurred, persuasive evidence of an agreement exists, the vendor's fee is fixed or determinable, no further obligation exists and collectability is probable. When significant acceptance provisions are included in the arrangement revenues are deferred until the acceptance occurs. Generally, the Group does not grant rights of return. Service revenues are recognized ratably over the period of the contract or as services are performed, as applicable.
When a sales arrangement contains multiple elements, such as equipment and services, the Company allocates revenues to each element based on a selling price hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence (''VSOE'') if available, third party evidence (''TPE'') if VSOE is not available, or estimated selling price (''ESP'') if neither VSOE nor TPE is available. In multiple element arrangements, revenues are allocated to each separate unit of accounting for each of the deliverables using the relative selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy. Where VSOE or TPE does not exist, the Group establishes ESP based on management judgment, considering internal factors such as margin objectives, pricing practices and historical sales.
Revenue from products under sales-type lease contracts is recognized in accordance with ASC 840 upon installation or upon delivery, in cases where the customer obtains its own or other's installation services. The net investments in sales-type leases are discounted at the interest rates implicit in the leases. The present values of payments due under sales-type lease contracts are recorded as revenue at the time of shipment or installation, as appropriate. Future interest income is deferred and recognized over the related lease term as financial income.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Revenue from products and services under operating leases of equipment is recognized ratably over the lease period, in accordance with ASC 840.
Revenues from contracts under which the Group provides construction or production of products ("Production-Type Contracts") which are significantly customized to the buyer's specifications are recognized in accordance with ASC 605-35, "Construction-Type and Production-Type Contracts". In Production-Type Contracts under which units of a basic product in a continuous or sequential production process are produced, revenues are recognized based on the units-of-delivery method, recognizing revenue for each unit on the date that unit is delivered. In other Production-Type Contracts, which require significant construction and customization to the customer's specifications, revenues are recognized using the percentage-of-completion method of accounting based on the input measure by using the ratio of costs related to construction performance incurred to the total estimated amount of such costs. The amount of revenue recognized is based on the total fees under the arrangement and the percentage of completion achieved. Provisions for estimated losses on uncompleted contracts, if any, are made in the period in which such losses are first determined, in the amount of the estimated loss on the entire contact.
Deferred revenue and advances from customers represent amounts received by the Group when the criteria for revenue recognition as described above are not met and are included in "Advances from customers and deferred revenues" and "Other long-term liabilities". When deferred revenue is recognized as revenue, the associated deferred charges are also recognized as cost of revenues
.
|
n.
|
Shipping and advertising expenses:
|
Selling and marketing expenses include shipping expenses in the amounts of $ 1,225, $ 1,367 and $ 976 for the years ended December 31, 2017, 2016 and 2015, respectively.
Advertising costs are expensed as incurred. Advertising expenses amounted to $ 204, $ 243 and $ 181 for the years ended December 31, 2017, 2016 and 2015, respectively.
Generally, the Group provides product warranties for periods between twelve to twenty four months at no extra charge. A provision is recorded for estimated warranty costs based on the Group's experience. Warranty expenses amounted to $ 323, $ 704 and $ 864 for the years ended December 31, 2017, 2016 and 2015, respectively.
|
p.
|
Research and development expenses:
|
Research and development costs are charged to the consolidated statements of income (loss) as incurred and are presented net of government grants. ASC 985, "Software", requires capitalization of certain software development costs subsequent to the establishment of technological feasibility.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Based on the Company's product development process, technological feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working models and the point at which the products are ready for general release has been insignificant. Therefore, all research and development costs have been expensed.
|
q.
|
Research and development grants:
|
The Group receives royalty-bearing and non-royalty-bearing grants from the Government of Israel and from other funding sources, for approved research and development projects. These grants are recognized at the time the Group is entitled to such grants on the basis of the costs incurred or milestones achieved as provided by the relevant agreement and included as a deduction from research and development expenses.
Research and development grants deducted from research and development expenses amounted to $ 1,419, $ 1,624 and $ 2,540 for the years ended December 31, 2017, 2016 and 2015, respectively.
|
r.
|
Accounting for stock-based compensation:
|
The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation-Stock Compensation" ("ASC 718"). ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period in the Company's consolidated statement of income (loss).
The Company recognizes compensation expenses for the value of its awards, based on the straight-line method over the requisite service period of each of the awards.
The Company selected the Black-Scholes-Merton option-pricing model as the most appropriate fair value method for its stock options awards and the fair value of restricted share units ("RSUs") based on the market stock price on the date of grant. The option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility was calculated based upon actual historical stock price movements. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.
Effective as of January 1, 2017, the Company adopted Accounting Standards Update 2016-09, “Compensation-Stock Compensation (Topic 718)” (“ASU2016-09”) on a modified, retrospective basis. ASU 2016-09 permits entities to make an accounting policy election related to how forfeitures will impact the recognition of compensation cost for stock - based compensation: to estimate the total number of awards for which the requisite service period will not be rendered or to account for forfeitures as they occur. Upon adoption of ASU 2016-09, the Company elected to change its accounting policy to account for forfeitures as they occur. The change was applied on a modified, retrospective basis with a cumulative-effect adjustment to retained earnings of $55 (which increased the accumulated deficit) as of January 1, 2017.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Group accounts for income taxes in accordance with ASC 740, "Income Taxes" ("ASC 740"). ASC 740 prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between the financial reporting and the tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Group provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that a portion or all of the deferred tax assets will not be realized.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, related to balance sheet classification of deferred taxes. The ASU requires that deferred tax assets and liabilities be classified as noncurrent in the statement of financial position, thereby simplifying the current guidance that requires an entity to separate deferred assets and liabilities into current and noncurrent amounts. ASU 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company has adopted ASU 2015-17 on a prospective basis, as of December 31, 2017, and its statement of financial position as of this date reflects the revised classification of current deferred tax assets and liabilities as noncurrent. The adoption of ASU 2015-17 resulted in an immaterial impact on the Group's consolidated financial statements as of December 31, 2016, and therefore was not adjusted retrospectively.
The Group implements a two-step approach for recognizing and measuring uncertain tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination.
Measurement (step two) is only addressed if step one has been satisfied (i.e., the position is more likely than not to be sustained) otherwise a full liability in respect of a tax position not meeting the more than likely than not criteria is recognized.
Under step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis that is more-likely-than-not to be realized upon ultimate settlement.
The Group classifies interest and penalties on income taxes as financial expenses and general and administrative expenses, respectively.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
t.
|
Concentrations of credit risks:
|
Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, short-term and long-term restricted cash, short-term restricted cash held by trustees and trade receivables.
The majority of the Group's cash and cash equivalents are invested in dollars with major banks in Israel, the United States and South America. Generally, these cash and cash equivalents may be redeemed upon demand and therefore, management believes that they bear lower risk.
The majority of the Group's short-term and long-term restricted cash are invested in dollars with major banks in Israel. The Group is entitled to receive the restricted cash generally based upon actual performance of its projects.
The Company also has restricted cash held by trustees, which is invested in Colombian Pesos with major banks in Colombia. As of December 31, 2017, restricted cash held by the trustees amounted to $ 4,325. The Company is entitled to receive the restricted cash held by the trustee in stages based upon operational milestones. The cash held in the trusts is reflected in the Company's consolidated balance sheet as "Restricted cash held by trustees".
Trade receivables of the Group are mainly derived from sales to major customers located in South and Central America and Asia. The Group performs ongoing credit evaluations of its customers and obtains letters of credit and bank guarantees for certain receivables. An allowance for doubtful accounts is determined with respect to specific debts that the Group has determined to be doubtful of collection.
The Company has recorded bad debt expenses in the amounts of $ 2,231, $ 6,222 and $ 1,369 for the years ended December 31, 2017, 2016 and 2015, respectively.
|
u.
|
Employee related benefits:
|
Severance pay:
The Company's liability for severance pay for its Israeli employees is calculated pursuant to the Israeli Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date. Employees whose employment is terminated by the Company or who are otherwise entitled to severance pay in accordance with Israeli law or labor agreements are entitled to one month's salary for each year of employment or a portion thereof. The Company's liability for all of its Israeli employees is partly provided for by monthly deposits for insurance policies and the remainder by an accrual. The value of these policies is recorded as an asset in the Company's consolidated balance sheet.
During April and May 2008 (the "transition date"), the Company amended the contracts of most of its Israeli employees so that starting on the transition date, such employees are subject to Section 14 of the Severance Pay Law, 1963 ("Section 14") for severance pay accumulated in periods of employment subsequent to the transition date. In accordance with Section 14, upon termination, the release of the contributed amounts from the fund to the employee shall relieve the Company from any further severance liability and no additional payments shall be made by the Company to the employee. As a result, the related obligation and amounts deposited on behalf of such obligation are not stated on the consolidated balance sheet, as the Company is legally released from severance obligation to employees once the amounts have been deposited, and the Company has no further legal ownership of the amounts deposited.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The carrying value for the deposited funds for the Company's employees' severance pay for employment periods prior to the transition date include profits and losses accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to the Israeli Severance Pay Law or labor agreements.
Severance pay expenses for the years ended December 31, 2017, 2016 and 2015, amounted to $ 2,819, $ 2,577 and $ 2,407, respectively.
401(k) profit sharing plans:
The Group has a number of savings plans in the United States that qualify under Section 401(k) of the current Internal Revenue Code as a “safe harbor” plan. The Group must make a mandatory contribution to the 401(k) plan to satisfy certain nondiscrimination requirements under the Internal Revenue Code. This mandatory contribution is made to all eligible employees. The contribution costs for all the plans were $ 411, $ 357 and $ 327 for the years ended 2017, 2016 and 2015, respectively.
|
v.
|
Fair value of financial instruments:
|
The Group applies ASC 820, "Fair Value Measurements and Disclosures" ("ASC 820"). Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., "the exit price") in an orderly transaction between market participants at the measurement date.
In determining fair value, the Group uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Group. Unobservable inputs are inputs that reflect the Group's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The hierarchy is broken down into three levels based on the inputs as follows:
|
Level 1 -
|
Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
|
|
Level 2 -
|
Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
|
|
Level 3 -
|
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3.
The carrying amounts of cash and cash equivalents, restricted cash, trade receivables, other current assets, trade payables, accrued expenses and other current liabilities approximate their fair value due to the short-term maturities of such instruments.
Based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities, the Company estimates that the carrying value of its long-term debt approximates fair value.
The Group measured the fair value of the forward contracts in accordance with ASC 820 and classified them as level 2. Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.
The Company accounts for restructuring activities in accordance to ASC 420, "Exit or Disposal Cost Obligations", which requires that a liability for a cost associated with an exit or disposal activity be recognized and measured. During 2015, the Company initiated a restructuring plan to improve its operating efficiency at its various operating sites and to reduce its operating expenses. As a result of the restructuring plan, the Company recorded $ 367 for one-time employee termination benefits and $ 1,141 for costs to terminate a manufacturing contract for the year ended December 31, 2015. All of the expenses accrued under the 2015 restructuring plan were paid during 2015 and 2016.
|
x.
|
Earnings (loss) per share:
|
In accordance with ASC 260, "Earnings per Share", basic earnings (loss) per share is computed based on the weighted average number of Ordinary shares outstanding during each period. Diluted earnings (loss) per share is computed based on the weighted average number of Ordinary shares outstanding during each period, plus dilutive potential Ordinary shares considered outstanding during the period. The total weighted average number of shares related to the outstanding options excluded from the calculations of diluted earnings (loss) per share, as they would have been anti-dilutive, was 1,627,552, 2,227,150 and 3,925,236 for the years ended December 31, 2017, 2016 and 2015, respectively.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
y.
|
Derivatives and hedging activities:
|
ASC 815, "Derivatives and Hedging" ("ASC 815"), as amended, requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income (loss). If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings.
The Company measured the fair value of the forward contracts in accordance with ASC 820 (classified as level 2).
The Company entered into forward and cylinder contracts to hedge against the risk of changes in future cash flow from payments of payroll and related expenses denominated in New Israeli Shekels ("NIS").
|
z.
|
Comprehensive income (loss):
|
The Company accounts for comprehensive income (loss) in accordance with ASC 220, "Comprehensive Income". Comprehensive income (loss) generally represents all changes in shareholders’ equity during the period except those resulting from investments by, or distributions to, shareholders. The Company determined that its items of other comprehensive income (loss) relate to unrealized gains and losses on hedging derivative instruments and foreign currency translation adjustments.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The following table shows the components of accumulated other comprehensive income (loss), as of December 31, 2017 and 2016:
|
|
Year ended December 31, 2017
|
|
|
|
Foreign currency translation adjustments
|
|
|
Unrealized gains (losses) on cash flow hedges
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(3,122
|
)
|
|
$
|
(102
|
)
|
|
$
|
(3,224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before reclassifications
|
|
|
(95
|
)
|
|
|
1,419
|
|
|
|
1,324
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
-
|
|
|
|
(1,146
|
)
|
|
|
(1,146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
|
(95
|
)
|
|
|
273
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(3,217
|
)
|
|
$
|
171
|
|
|
$
|
(3,046
|
)
|
|
|
Year ended December 31, 2016
|
|
|
|
Foreign currency translation adjustments
|
|
|
Unrealized gains (losses) on cash flow hedges
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(3,636
|
)
|
|
$
|
(91
|
)
|
|
$
|
(3,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before reclassifications
|
|
|
514
|
|
|
|
396
|
|
|
|
910
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
-
|
|
|
|
(407
|
)
|
|
|
(407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
|
514
|
|
|
|
(11
|
)
|
|
|
503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(3,122
|
)
|
|
$
|
(102
|
)
|
|
$
|
(3,224
|
)
|
|
aa.
|
Impact of recently issued accounting pronouncements:
|
In May 2014, the FASB issued Accounting Standard Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The ASU is effective for the Company in 2018 using either of two methods: (i) retrospective application of ASU 2014-09 to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective application of ASU 2014-09 with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09 ("Modified Retrospective Adoption Transition Method").
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company has established an implementation team to analyze the potential impact the standard will have on its consolidated financial statements and related disclosures as well as its business processes, systems and controls. This includes reviewing revenue contracts across all revenue streams and evaluating potential differences that would result from applying the requirements under the standard. The Company adopted the new standard on January 1, 2018 using the Modified Retrospective Adoption Transition Method.
The Company has completed its evaluation of the Standard and does not expect a material change in its pattern of revenue recognition. In addition, the Standard requires the deferral and amortization of “incremental” costs incurred to obtain a contract. The primary contract acquisition cost for the Company are sales commissions. Under current GAAP, the Company expenses sales commissions as incurred while under the Standard such costs will be classified as a contract asset and amortized over a period that approximates the timing of revenue recognition on the underlying contracts. The Company recorded an asset and a cumulative effect to retained earnings of approximately $ 1,500 on the opening balance sheet at January 1, 2018.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). The new guidance requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU 2016-02 also will require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02
is effective for annual reporting periods beginning after December 15, 2018 including interim periods within those fiscal years, but early adoption is permitted. The ASU requires a modified retrospective transition approach and provides certain optional transition relief. The Company is currently evaluating when it will adopt this new standard and the expected impact on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13). ASU 2016-13 significantly changes the way impairment of financial instruments is recognized by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of financial instruments. The main provisions of ASU 2016-13 include (1) replacing the “incurred loss” approach under current GAAP with an “expected loss” model for instruments measured at amortized cost, (2) requiring entities to record an allowance for available-for-sale debt securities rather than reduce the carrying amount of the investments, as is required by the other-than-temporary-impairment model under current GAAP, and (3) a simplified accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted. The Company is currently evaluating the expected impact of the standard on its consolidated financial statements.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). This new standard clarifies certain aspects of the statement of cash flows, including the classification of debt prepayment or debt extinguishment costs or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees and beneficial interests in securitization transactions. This new standard also clarifies that an entity should determine each separately identifiable source of use within the cash receipts and payments on the basis of the nature of the underlying cash flows. In situations in which cash receipts and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item. ASU 2016-15
will generally be applied retrospectively and is effective for annual periods beginning after December 15, 2017. The Company does not expect that this new guidance will have a material impact on its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective for the Company in the first quarter of 2018 and early adoption is permitted. The Company expects the adoption will affect its operating and investing activities in its consolidated statements of cash flow as both activities include material changes in the restricted cash balances.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 eliminates Step 2 of the goodwill impairment test, which requires the calculation of the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Instead, an entity will compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently evaluating the expected impact of the standard on its consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands the activities that qualify for hedge accounting and simplifies the rules for reporting hedging transactions. The standard is effective for the Company beginning January 1, 2019. Early adoption is permitted. The Company is currently evaluating the expected impact of the standard on its consolidated financial statements.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
|
a.
|
Inventories are comprised of the following:
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Raw materials, parts and supplies
|
|
$
|
7,367
|
|
|
$
|
6,461
|
|
Work in progress
|
|
|
10,300
|
|
|
|
6,541
|
|
Finished products
|
|
|
11,186
|
|
|
|
8,467
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,853
|
|
|
$
|
21,469
|
|
|
b.
|
Inventory write-offs totaled $ 3,270, $ 4,833 and $ 2,054 in 2017, 2016 and 2015, respectively.
|
NOTE 4:-
|
PROPERTY AND EQUIPMENT, NET
|
|
a.
|
Composition of property and equipment, grouped by major classifications, is as follows:
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings and land
|
|
$
|
90,914
|
|
|
$
|
90,564
|
|
Computers, software and electronic equipment
|
|
|
45,119
|
|
|
|
44,993
|
|
Network equipment
|
|
|
40,016
|
|
|
|
76,917
|
|
Office furniture and equipment
|
|
|
5,387
|
|
|
|
5,930
|
|
Vehicles
|
|
|
390
|
|
|
|
444
|
|
Leasehold improvements
|
|
|
2,522
|
|
|
|
2,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184,348
|
|
|
|
221,396
|
|
Accumulated depreciation and impairment *)
|
|
|
102,102
|
|
|
|
140,559
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost
|
|
$
|
82,246
|
|
|
$
|
80,837
|
|
|
*)
|
During the year ended December 31, 2015, the Company recorded an impairment loss of $ 4,106. The impairment loss was recorded as reduction of the cost of network equipment and computers, software and electronic equipment in the amounts of $ 4,030 and $ 76, respectively.
|
|
**)
|
The Company recorded a reduction of $ 46,051 and $ 33,299 to the cost and accumulated depreciation of fully depreciated equipment and leasehold improvements that are no longer in use for the year ended December 31, 2017 and 2016, respectively.
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 4:-
|
PROPERTY AND EQUIPMENT, NET (Cont.)
|
|
b.
|
Depreciation expenses totaled $ 7,465, $ 7,337 and $ 9,256 in 2017, 2016 and 2015, respectively.
|
|
c.
|
As for pledges and securities, see also Note 11e.
|
NOTE 5:-
|
INTANGIBLE ASSETS, NET
|
|
a.
|
Composition of intangible assets, grouped by major classifications, is as follows:
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Original amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
$
|
42,504
|
|
|
$
|
42,504
|
|
Customer relationships
|
|
|
4,466
|
|
|
|
4,466
|
|
Marketing rights and patents
|
|
|
3,421
|
|
|
|
3,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,391
|
|
|
|
50,391
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
38,232
|
|
|
|
33,243
|
|
Customer relationships
|
|
|
4,466
|
|
|
|
3,999
|
|
Marketing rights and patents
|
|
|
1,985
|
|
|
|
1,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,683
|
|
|
|
39,008
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,708
|
|
|
$
|
11,383
|
|
|
b.
|
Amortization expenses amounted to $ 5,675, $ 5,771 and $ 5,816 for the years ended December 31, 2017, 2016 and 2015, respectively.
|
|
c.
|
Estimated amortization expenses for the following years is as follows:
|
Year ending December 31,
|
|
|
|
|
|
|
|
2018
|
|
$
|
3,274
|
|
2019
|
|
|
911
|
|
2020
|
|
|
441
|
|
2021
|
|
|
431
|
|
2022 and thereafter
|
|
|
651
|
|
|
|
|
|
|
|
|
$
|
5,708
|
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Goodwill *)
|
|
$
|
105,647
|
|
|
$
|
105,647
|
|
Accumulated impairment losses
|
|
|
(62,179
|
)
|
|
|
(62,179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,468
|
|
|
$
|
43,468
|
|
|
*)
|
The carrying amount of the goodwill is associated with the Mobility Division.
|
NOTE 7:-
|
COMMITMENTS AND CONTINGENCIES
|
The Company's subsidiaries entered into various non-cancelable operating lease agreements for certain of their offices and facilities, expiring between 2018 and 2023. Minimum lease commitments under non-cancelable operating lease agreements as of December 31, 2017, are as follows:
|
|
Lease
|
|
Year ending December 31,
|
|
commitments
|
|
|
|
|
|
2018
|
|
$
|
1,391
|
|
2019
|
|
|
621
|
|
2020
|
|
|
141
|
|
2021
|
|
|
134
|
|
2022 and thereafter
|
|
|
279
|
|
|
|
|
|
|
|
|
$
|
2,566
|
|
Rent expenses during the years ended December 31, 2017, 2016 and 2015 were $ 2,599, $ 2,568 and $ 2,548, respectively.
Some of the Group's lease agreements do not include renewal options.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 7:-
|
COMMITMENTS AND CONTINGENCIES (Cont.)
|
|
b.
|
Commitments with respect to space segment services:
|
The Company provides its customers with space segment capacity services, which are purchased from third parties. Future minimum payments due for space segment services to be rendered subsequent to December 31, 2017, are as follows:
Year ending December 31,
|
|
|
|
|
|
|
|
2018
|
|
$
|
7,409
|
|
2019
|
|
|
3,942
|
|
2020
|
|
|
4,515
|
|
2021
|
|
|
332
|
|
2022
|
|
|
304
|
|
|
|
|
|
|
|
|
$
|
16,502
|
|
Space segment services expenses during the years ended December 31, 2017, 2016 and 2015 were $ 11,184, $ 10,278 and $ 8,333, respectively.
|
c.
|
In 2017 and 2016, the Company's primary material purchase commitments were with inventory suppliers. The Company's material inventory purchase commitments are based on purchase orders, or on outstanding agreements with some of the Company's suppliers of inventory. As of December 31, 2017 and 2016, the Company's major outstanding inventory purchase commitments amounted to $ 19,183 and $ 13,494, respectively, all of which were orders placed or commitments made in the ordinary course of its business. As of December 31, 2017 and 2016, $ 6,408 and $ 5,530, respectively, of these orders and commitments, were from suppliers which can be considered sole or limited in number.
|
|
1.
|
The Company is committed to pay royalties to the Israel
Innovation Authority ("IIA"), formerly known as the Office of the Chief Scientist
of the Ministry of Economy of the Government of Israel on proceeds from sales of products resulting from the research and development projects in which the
IIA
participated with royalty bearing grants. In the event that development of a specific product in which the
IIA
participated is successful, the Company will be obligated to repay the grants through royalty payments at the rate of 3% to 5% based on the sales of the Company, up to 100% of the grants received linked to the dollar. Grants are subject to interest at a rate equal to the 12 month LIBOR rate. The obligation to pay these royalties is contingent upon actual sales of the products and, in the absence of such sales, no payment is required.
|
As of December 31, 2017 and 2016, the Company had a contingent liability to pay royalties in the amount of approximately $ 1,396 and $ 1,237, respectively.
The Company did not pay or accrue any amounts for such royalties during the years ended December 31, 2017, 2016 and 2015.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 7:-
|
COMMITMENTS AND CONTINGENCIES (Cont.)
|
|
2.
|
Research and development projects undertaken by the Company were partially financed by the Binational Industrial Research and Development Foundation ("BIRD Foundation"). The Company is committed to pay royalties to the BIRD Foundation at a rate of 5% of sales proceeds generating from projects for which the BIRD Foundation provided funding up to 150% of the sum financed by the BIRD Foundation.
|
The obligation to pay these royalties is contingent on actual sales of the products and in the absence of such sales, no payment is required.
As of December 31, 2017 and 2016, the Company had a contingent liability to pay royalties in the amount of approximately $ 202 and $ 202, respectively.
The Company did not pay or accrue any amounts for such royalties during the years ended December 31, 2017, 2016 and 2015.
In 2003, the Brazilian tax authority filed a claim against the Company's subsidiary in Brazil (an inactive company), for the payment of taxes allegedly due by the subsidiary. Several legal proceedings with respect to this matter were carried out in the Brazilian courts. These proceedings were concluded with a final unfavorable decision against the subsidiary in February and March 2016. As of December 31, 2017, the total amount of this claim, including interest, penalties and legal fees, is approximately $ 10,849, of which approximately $ 1,200 is principal. Based on the Company's external legal counsel's opinion, the Company believes that any foreclosure procedures against the subsidiary cannot be legally redirected to any of the Group's entities and managers. Accordingly, the chances that such redirection will lead to a loss recognition are remote and therefore, the Company did not record any accrual related to this litigation.
In October 2017, the Company was informed that a former subcontractor that was engaged in connection with the project of the Company’s subsidiary in Colombia has initiated an arbitration proceeding against the subsidiary. The amount of the claim is approximately $ 6,900. While the subsidiary has not been served with the complaint, based on the information in the Company’s possession, the Company believes that it has made adequate accruals relating to this proceeding.
In addition, the Group is in the midst of different stages of audits and disputes with various tax authorities in different parts of the world, specifically in certain jurisdictions in Latin America. Further, the Company is the defendant in various other lawsuits, including employment-related litigation claims and other legal proceedings in the normal course of its business. While the Company intends to defend the aforementioned matters vigorously, it believes that a loss in excess of its accrued liability with respect to these claims is not probable.
|
f.
|
Pledges and securities, see Note 11e.
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 7:-
|
COMMITMENTS AND CONTINGENCIES (Cont.)
|
The Group guarantees its performance to certain customers through bank guarantees, surety bonds from insurance companies and corporate guarantees. Guarantees are often required for the Group's performance during the installation and operational periods. The guarantees typically expire when certain operational milestones are met.
As of December 31, 2017, the aggregate amount of bank guarantees and surety bonds from insurance companies outstanding in order to secure the Group's various obligations was $ 152,422, including an aggregate of $ 145,673 on behalf of its subsidiaries in Peru. The Group has $ 29,438 of restricted cash to secure these guarantees.
In accordance with ASC 460, "Guarantees" ("ASC 460"), as the guarantees above are performance guarantees for the Group's own performance, such guarantees are excluded from the scope of ASC 460. The Group has not recorded any liability for such amounts, since the Group expects that its performance will be acceptable. To date, no guarantees have ever been exercised against the Group.
NOTE 8:-
|
DERIVATIVE INSTRUMENTS
|
The following table details the fair value of derivative instruments in the consolidated balance sheet:
|
|
|
|
|
|
Fair value of derivative instruments
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
Balance sheet line item
|
|
2017
|
|
|
2016
|
|
Derivative:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts / options (1)
|
|
|
|
|
Other current assets (liabilities)
|
|
$
|
170
|
|
|
$
|
(102
|
)
|
|
(1)
|
To protect against changes in value of forecasted foreign currency cash flows resulting from salaries and related payments that are denominated in NIS, the Company has entered into foreign currency forward contracts. These contracts are designated as cash flows hedges, as defined by ASC 815, as amended, and are considered highly effective as hedges of these expenses. The forward contracts are expected to occur at various dates within the following twelve months.
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 8:-
|
DERIVATIVE INSTRUMENTS (Cont.)
|
During the years ended December 31, 2017, 2016 and 2015, the Company recognized net income (loss) related to the effective portion of its hedging instruments. The effective portion of the hedged instruments has been included as an offset (addition) of payroll expenses and other operating expenses in the consolidated statement of income (loss) in the following line items:
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues of products
|
|
$
|
158
|
|
|
$
|
53
|
|
|
$
|
(100
|
)
|
Cost of revenues of services
|
|
|
82
|
|
|
|
24
|
|
|
|
(55
|
)
|
Research and development, net
|
|
|
440
|
|
|
|
154
|
|
|
|
(291
|
)
|
Selling and marketing
|
|
|
192
|
|
|
|
72
|
|
|
|
(180
|
)
|
General and administrative
|
|
|
242
|
|
|
|
90
|
|
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,114
|
|
|
$
|
393
|
|
|
$
|
(813
|
)
|
The ineffective portion of the hedged instrument which was recorded during the years ended December 31, 2017, 2016 and 2015, was immaterial and has been recorded as financial income (expenses). As of December 31, 2017 and 2016, the Company had outstanding forward contracts in the notional amount of $ 16,007 and $ 18,360, respectively.
NOTE 9:-
|
SHAREHOLDERS’ EQUITY
|
|
1.
|
Ordinary shares confer upon their holders voting rights, the right to receive cash dividends and the right to share in excess assets upon liquidation of the Company.
|
|
2.
|
In March 2016, the Company consummated a rights offering, in which the Company granted, at no charge to the holders of the Company's ordinary shares as of the record date for the rights offering, for each nine (9) ordinary shares owned, one non-transferable subscription right to purchase two ordinary shares at a price of $ 7.16 (reflecting a price of $ 3.58 per share). Through this rights offering the Company issued 9,874,170 ordinary shares and raised a gross amount of $ 35,350. Issuance expenses amounted to $ 265.
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 9:-
|
SHAREHOLDERS’ EQUITY
(Cont.)
|
Description of plans
:
In October 2008, the compensation stock option committee of the Company's Board of Directors approved the adoption of the 2008 Stock Incentive Plan (the "2008 Plan") with 1,000,000 shares or stock options available for grant and a sub-plan to enable qualified optionees certain tax benefits under the Israeli Income Tax Ordinance. Among the incentives that may be adopted are stock options, performance share awards, performance share unit awards, restricted shares, restricted share unit awards and other stock-based awards. In October 2010, April 2012, April 2015, April 2016, February 2017 and August 2017 the Company's Board of Directors approved, in the aggregate, a 4,572,000 shares increase in the number of shares available for grant under the 2008 Plan to a total of 5,572,000 shares available for future grants. As of December 31, 2017, an aggregate of 111,138 shares are still available for future grants under the 2008 Plan.
Options granted under the 2008 Plan vest quarterly over two to four years or annually over four years. The options expire after six, seven or ten years from the date of grant. RSUs granted under the 2008 Plan and vest quarterly or annually over four years. Any options or RSUs, which are forfeited or canceled before expiration of the 2008 Plan, become available for future grants.
Valuation assumptions:
The Company estimates the fair value of the stock options granted using the Black-Scholes-Merton option-pricing model, which requires a number of assumptions: the expected volatility is based upon actual historical stock price movements; the expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to be outstanding; the risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 9:-
|
SHAREHOLDERS’ EQUITY
(Cont.)
|
Options granted to employees:
The fair value of the Company's stock options granted to employees for the year ended December 31, 2017 was estimated using the following weighted average assumptions:
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
|
|
|
Risk free interest
|
|
1.66%-2.00%
|
|
Dividend yields
|
|
0%
|
|
Volatility
|
|
33%
|
|
Expected term (in years)
|
|
4.52
|
|
A summary of employee option balances under the 2008 Plan as of December 31, 2017 and changes during the year then ended are as follows:
|
|
Number of options
|
|
|
Weighted-average exercise price
|
|
|
Weighted- average remaining contractual term
(in years)
|
|
|
Aggregate intrinsic value
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2017
|
|
|
2,400,000
|
|
|
$
|
5.0
|
|
|
|
4.4
|
|
|
$
|
380
|
|
Granted
|
|
|
605,000
|
|
|
$
|
5.8
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(136,500
|
)
|
|
$
|
5.0
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(60,500
|
)
|
|
$
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
2,808,000
|
|
|
$
|
5.2
|
|
|
|
4.0
|
|
|
$
|
7,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2017
|
|
|
1,030,833
|
|
|
$
|
5.1
|
|
|
|
3.0
|
|
|
$
|
2,699
|
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 9:-
|
SHAREHOLDERS’ EQUITY
(Cont.)
|
The weighted-average grant-date fair value of options granted to employees during the year ended December 31, 2017 was $ 1.57. The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on the last trading day of the year 2017 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2017. These amounts change based on the fair market value of the Company's stock. Total intrinsic value of options exercised for the year ended December 31, 2017 was $ 134.
The outstanding and exercisable options granted to employees under the 2008 Plan as of December 31, 2017, have been separated into ranges of exercise price as follows:
|
|
|
Options
|
|
|
Weighted
|
|
|
|
|
|
Options
|
|
|
Weighted
|
|
|
|
|
outstanding
|
|
|
average
|
|
|
Weighted
|
|
|
exercisable
|
|
|
average exercise
|
|
Ranges of
|
|
|
as of
|
|
|
remaining
|
|
|
average
|
|
|
as of
|
|
|
price of
|
|
exercise
|
|
|
December 31,
|
|
|
contractual
|
|
|
exercise
|
|
|
December 31,
|
|
|
exercisable
|
|
price
|
|
|
2017
|
|
|
life (years)
|
|
|
price
|
|
|
2017
|
|
|
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.14-4.62
|
|
|
|
310,000
|
|
|
|
3.7
|
|
|
$
|
4.0
|
|
|
|
113,500
|
|
|
$
|
3.8
|
|
$
|
4.79-6.72
|
|
|
|
2,478,000
|
|
|
|
4.0
|
|
|
$
|
5.3
|
|
|
|
917,333
|
|
|
$
|
5.3
|
|
$
|
8.14
|
|
|
|
20,000
|
|
|
|
5.9
|
|
|
$
|
8.1
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,808,000
|
|
|
|
4.0
|
|
|
$
|
5.2
|
|
|
|
1,030,833
|
|
|
$
|
5.1
|
|
Restricted Share Units ("RSUs") granted to employees:
The fair value of RSUs is estimated based on the market value of the Company's stock on the date of the award.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 9:-
|
SHAREHOLDERS’ EQUITY (Cont.)
|
During 2017, the Company did not grant any RSUs. Previously granted RSUs vest over a four year period. The following table summarizes information regarding the number of RSUs issued and outstanding as of December 31, 2017and changes during the year then ended:
Employees:
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
|
Number of RSUs
|
|
|
Weighted
average
grant date
fair value
|
|
|
|
|
|
|
|
|
RSUs outstanding at the beginning of the year
|
|
|
8,100
|
|
|
$
|
5.8
|
|
Vested
|
|
|
(8,100
|
)
|
|
$
|
5.8
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
RSUs outstanding at the end of the year
|
|
|
-
|
|
|
$
|
-
|
|
As of December 31, 2017, there were no outstanding RSUs.
Additional stock-based compensation data:
As of December 31, 2017, there was $ 1,886 of unrecognized compensation costs related to non-vested stock-based compensation arrangements granted to employees under the 2008 Plan. The cost related to employees is expected to be recognized over a weighted-average period of 2.69 years.
|
1.
|
In the event that cash dividends are declared by the Company, such dividends will be declared and paid in Israeli currency. Under current Israeli regulations, any cash dividend in Israeli currency paid in respect of ordinary shares purchased by non-residents of Israel with non-Israeli currency, may be freely repatriated in such non-Israeli currency, at the exchange rate prevailing at the time of repatriation. The Company does not expect to pay cash dividends in the foreseeable future.
|
|
2.
|
Pursuant to the terms of a loan from a bank (see also Note 11e), the Company is restricted from paying cash dividends to its shareholders without initial approval from the bank.
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 10:-
|
TAXES ON INCOME
|
Generally, income of Israeli companies is subject to corporate tax. The corporate tax rate in Israel, effective as of January 1, 2018, is 23%, compared with 24% in 2017, 25% in 2016 and 26.5% in 2015.
|
2.
|
Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the "Law"):
|
Certain production facilities of the Company have been granted 'Benefitted Enterprise' status under the provision of the Law.
The Company was eligible under the terms of minimum qualifying investment and elected 2005 and 2011 as the Year of Election.
Income derived from Benefitted Enterprises is tax exempt for a period of two years out of the period of benefits. Based on the percentage of foreign shareholding in the Company, income derived during the remaining years of benefits is taxable at the rate of 10%-25%.
The period of benefits of the Benefitted Enterprises under the 2005 election expired on December 31, 2017, and under the 2011 election will expire in 2023
.
As of December 31, 2017, the Company did not generate income from the Benefitted Enterprises.
The Company does not expect to pay any cash dividends. In the event of distribution of dividends from the above mentioned tax exempt income, the amount distributed would be taxed at a corporate tax rate of 10% to 25%, depending on the level of foreign investment in the Company.
Income from sources other than a "Benefitted Enterprise" during the benefit period is subject to tax at the regular corporate tax rate (26.5% in 2015, 25% in 2016, 24% for 2017 and 23% effective as of January 1, 2018).
On January 1, 2011, new legislation that constitutes a major amendment to the Law was enacted (the "Amendment Legislation"). Under the Amendment Legislation, a uniform rate of corporate tax would apply to all qualified income of certain industrial companies, as opposed to the current law's incentives that are limited to income from "Benefitted Enterprises" during their benefits period. According to the Amendment Legislation, the uniform tax rate for 2014 and onwards is set at 9% in geographical areas in Israel designated as Development Zone A and 16% elsewhere in Israel. The profits of these Industrial Companies would be freely distributable as dividends, subject to a 20% withholding tax (or lower, under an applicable tax treaty). The Company is not located in Development Zone A.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 10:-
|
TAXES ON INCOME (Cont.)
|
According to an Amendment from December 2016, a preferred enterprise located in Development Zone A will be subject to a tax rate of 7.5% instead of 9% effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%).
Under the transitory provisions of the Amendment Legislation, the Company may elect whether to irrevocably implement the new law in its Israeli company while waiving benefits provided under the current law or keep implementing the current law during the next years. Changing from the current law to the new law is permissible at any stage.
The Amendment also prescribes special tax tracks for technological enterprises.
The new tax tracks under the Amendment are as follows:
Technological preferred enterprise - an enterprise for which total consolidated revenues of its parent company and all subsidiaries are less than NIS 10 billion. A technological preferred enterprise, as defined in the Law, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property (in Development Zone A- a tax rate of 7.5%).
Special technological preferred enterprise - an enterprise for which total consolidated revenues of its parent company and all subsidiaries exceed NIS 10 billion. Such enterprise will be subject to tax at a rate of 6% on profits deriving from intellectual property, regardless of the enterprise's geographical location.
Any dividends distributed to "foreign companies", as defined in the Law, deriving from income from the technological enterprises will be subject to tax at a rate of 4%.
|
b.
|
Income taxes on non-Israeli subsidiaries:
|
Non-Israeli subsidiaries are taxed according to the tax laws in their respective domiciles of residence. The Company has not made any provisions relating to undistributed earnings of the Company's foreign subsidiaries since the Company has no current plans to distribute such earnings. If earnings are distributed to Israel in the form of dividends or otherwise, the Company may be subject to additional Israeli income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. As of December 31, 2017, the amount of undistributed earnings of non-Israeli subsidiaries, which is considered indefinitely reinvested, was $2,828 with a corresponding unrecognized deferred tax liability of $390.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 10:-
|
TAXES ON INCOME (Cont.)
|
On December 22, 2017, the U.S. Tax Cuts and Jobs Acts was enacted into law. The new legislation contains several key tax provisions that will impact the Company. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, a one-time repatriation tax on accumulated foreign earnings, a limitation on the tax deductibility of interest expense, an acceleration of business asset expensing, and a reduction in the amount of executive pay that could qualify as a tax deduction. The lower corporate income tax rate will require the Company to remeasure its U.S. deferred tax assets and liabilities as well as reassess the realizability of its deferred tax assets and liabilities. ASC 740 requires the Company to recognize the effect of the tax law changes in the period of enactment. However, the SEC staff has issued SAB 118 which will allow the Company to record provisional amounts during a measurement period.
The Company has concluded that a reasonable estimate could be developed for the effects of the tax reform. However, due to the short time frame between the enactment of the reform and the year end, its fundamental changes, the accounting complexity, and the expected ongoing guidance and accounting interpretations over the next 12 months, the Company considers the accounting of the deferred tax remeasurement and other items to be incomplete. These effects have been included in the consolidated financial statements for the year ended December 31, 2017 as provisional amounts, which had no effect on the benefit from taxes on income due to the valuation allowance.
During the measurement period, the Company might need to reflect adjustments to the provisional amounts upon obtaining, preparing, or analyzing additional information about facts and circumstances that existed as of the enactment date that, if known, would have affected the income tax effects initially reported as provisional amounts.
The measurement period will end when the Company obtains, prepares, and analyzes the information needed in order to complete the accounting requirements under ASC Topic 740 or on December 22, 2018, whichever is earlier. The Company expects to complete its analysis within the measurement period in accordance with SAB 118.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 10:-
|
TAXES ON INCOME (Cont.)
|
|
c.
|
Carryforward tax losses and credits:
|
As of December 31, 2017, the Company had operating loss carry forwards for Israeli income tax purposes of approximately $ 103,000, which may be offset indefinitely against future taxable income.
The Company's U.S. subsidiaries had carryforward tax losses of approximately $ 19,000 as of December 31, 2017. Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the "change in ownership" provisions of Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating loss before utilization. In the U.S., carryforward tax losses can be utilized within 20 years.
The Group has carryforward tax losses relating to other subsidiaries in Europe and Latin America of approximately $ 6,000 (which can be utilized within 9 years) and $ 34,000 ($ 13,500 can be utilized within 4 years and $ 20,500 can be utilized indefinitely), as of December 31, 2017 respectively.
|
d.
|
Deferred income taxes:
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Group’s deferred tax liabilities and assets are as follows:
|
|
|
|
December 31,
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
1.
|
|
Provided in respect of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carryforward tax losses
|
|
$
|
36,199
|
|
|
$
|
39,734
|
|
|
|
|
Property, equipment and intangibles
|
|
|
1,484
|
|
|
|
3,936
|
|
|
|
|
Deferred revenues
|
|
|
2,224
|
|
|
|
902
|
|
|
|
|
Research and development costs
|
|
|
1,716
|
|
|
|
2,228
|
|
|
|
|
Other
|
|
|
10,154
|
|
|
|
6,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
51,777
|
|
|
|
53,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(44,882
|
)
|
|
|
(48,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
6,895
|
|
|
|
4,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and intangibles
|
|
|
(3,098
|
)
|
|
|
(4,839
|
)
|
|
|
|
Subsidy income
|
|
|
(3,093
|
)
|
|
|
-
|
|
|
|
|
Other
|
|
|
(829
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(7,020
|
)
|
|
|
(4,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
(125
|
)
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
|
2.
|
|
Deferred taxes are included in the consolidated balance sheets, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
-
|
|
|
$
|
64
|
|
|
|
|
Long term receivables
|
|
$
|
861
|
|
|
$
|
-
|
|
|
|
|
Long term liabilities
|
|
$
|
(986
|
)
|
|
$
|
-
|
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 10:-
|
TAXES ON INCOME (Cont.)
|
|
3.
|
The
Peruvian government
awarded the Company's subsidiary in Peru ("the Subsidiary") the Regional FITEL Projects under four separate bids for the construction of fiber and wireless networks, operation of the networks for a defined period and their transfer to the government. The income derived from the construction of the project is an exempt subsidy, and therefore a significant uncertainty arises about the Subsidiary's eligibility to deduct certain construction costs incurred in generating the exempt income against future taxable income. Accordingly, as of December 31, 2017, the Company did not record deferred income taxes to reflect the total net tax effects of the potential temporary differences.
|
|
4.
|
As of December 31, 2017, the Group decreased the valuation allowance by $ 3,343, resulting from changes in temporary differences relating to property, equipment and intangibles and from carryforward tax losses. The Company provided valuation allowance for a significant portion of the deferred tax regarding the carryforwards losses and other temporary differences that management believes is not expected to be realized in the foreseeable future.
|
|
5.
|
The functional and reporting currency of the Company and certain of its subsidiaries is the dollar. The difference between the annual changes in the NIS/dollar exchange rate causes a further difference between taxable income and the income before taxes shown in the financial statements. In accordance with ASC 740, the Company has not provided deferred income taxes on the difference between the functional currency and the tax basis of assets and liabilities.
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 10:-
|
TAXES ON INCOME (Cont.)
|
|
e.
|
Reconciling items between the statutory tax rate of the Company and the actual taxes on income (tax benefit):
|
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Income (loss) before taxes on income from continuing operations, as reported in the consolidated statements of income (loss)
|
|
$
|
6,554
|
|
|
$
|
(4,088
|
)
|
|
$
|
(50,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory tax rate
|
|
|
24.0
|
%
|
|
|
25.0
|
%
|
|
|
26.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theoretical taxes on income (tax benefit)
|
|
$
|
1,573
|
|
|
$
|
(1,022
|
)
|
|
$
|
(13,500
|
)
|
Currency differences
|
|
|
(3,225
|
)
|
|
|
(2,174
|
)
|
|
|
1,709
|
|
Tax adjustment in respect of different tax rates and "Benefitted Enterprise" status
|
|
|
2,849
|
|
|
|
(5,580
|
)
|
|
|
(131
|
)
|
Changes in valuation allowance
|
|
|
(3,343
|
)
|
|
|
11,832
|
|
|
|
6,273
|
|
Forfeiture of carryforward tax losses
|
|
|
622
|
|
|
|
261
|
|
|
|
929
|
|
Goodwill impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
6,937
|
|
Exempt revenues - subsidy
|
|
|
(2,646
|
)
|
|
|
(4,224
|
)
|
|
|
(2,573
|
)
|
U.S. Tax Cuts and Jobs Acts effect
|
|
|
2,138
|
|
|
|
-
|
|
|
|
-
|
|
Nondeductible expenses and other differences
|
|
|
1,785
|
|
|
|
2,159
|
|
|
|
1,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(247
|
)
|
|
$
|
1,252
|
|
|
$
|
1,190
|
|
|
f.
|
Taxes on income (tax benefit) included in the consolidated statements of income (loss):
|
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(436
|
)
|
|
$
|
1,248
|
|
|
$
|
1,189
|
|
Deferred
|
|
|
189
|
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(247
|
)
|
|
$
|
1,252
|
|
|
$
|
1,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
768
|
|
|
$
|
555
|
|
|
$
|
679
|
|
Foreign
|
|
|
(1,015
|
)
|
|
|
697
|
|
|
|
511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(247
|
)
|
|
$
|
1,252
|
|
|
$
|
1,190
|
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 10:-
|
TAXES ON INCOME (Cont.)
|
|
g.
|
Income (loss) before taxes on income (tax benefit) from continuing operations:
|
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
1,289
|
|
|
$
|
(8,056
|
)
|
|
$
|
(12,273
|
)
|
Foreign
|
|
|
5,265
|
|
|
|
3,968
|
|
|
|
(38,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,554
|
|
|
$
|
(4,088
|
)
|
|
$
|
(50,944
|
)
|
|
h.
|
Accounting for uncertainty in income taxes:
|
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
776
|
|
|
$
|
871
|
|
Settlements with tax authorities
|
|
|
(718
|
)
|
|
|
-
|
|
Reductions for prior years' tax position
|
|
|
(58
|
)
|
|
|
(95
|
)
|
Additions for prior years' tax position
|
|
|
129
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of year
|
|
$
|
129
|
|
|
$
|
776
|
|
The unrecognized tax benefits include accrued penalties and interest of $ 107 and $ 304 as of December 31, 2017 and 2016, respectively. During the years ended December 31, 2017, and 2016, the Group recorded income (expenses) of $ 197 and $ (54) on the reversal of penalties and interest, respectively.
The Group does not expect a reversal of unrecognized tax benefits in the next 12 months.
The Company and its subsidiaries file income tax returns in Israel and in other jurisdictions of its subsidiaries.
The Company's tax assessments through 2014 are considered final.
As of December 31, 2017, the tax returns of the Company and its main subsidiaries are still subject to audits by the tax authorities for the tax years 2010 through 2016.
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 11:-
|
SUPPLEMENTARY CONSOLIDATED BALANCE SHEET INFORMATION
|
|
a.
|
Trade receivables, net:
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Billed
|
|
$
|
55,295
|
|
|
$
|
57,320
|
|
Unbilled *)
|
|
|
57,443
|
|
|
|
41,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,738
|
|
|
|
99,033
|
|
Less - Allowance for doubtful accounts
|
|
|
(3,896
|
)
|
|
|
(9,656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
108,842
|
|
|
$
|
89,377
|
|
|
*)
|
The unbilled amount was recognized based on the progress of the construction phase of a large-scale project in Peru (the "Project"). As part of the construction phase, the Company's subsidiary in Peru deploys fiber and wireless networks in rural areas. The Project is accounted as a Production-Type Contract using the percentage-of-completion method. The unbilled amount, for which the Company has enforceable rights, will become due at the time the payment milestones under the contract are reached. The milestone occurs upon the completion of certain objective, representing the progress of the project, which vary between the different areas and type of networks. Subsequent to the balance sheet date and as of the date of this report, the Company received payments in an aggregate amount of $ 28,616 with respect to the Project.
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Governmental authorities
|
|
$
|
7,468
|
|
|
$
|
6,184
|
|
Prepaid expenses
|
|
|
4,220
|
|
|
|
3,784
|
|
Deferred charges
|
|
|
7,100
|
|
|
|
3,817
|
|
Employees
|
|
|
39
|
|
|
|
90
|
|
Grants receivable
|
|
|
-
|
|
|
|
276
|
|
Advance payments to suppliers
|
|
|
1,136
|
|
|
|
1,824
|
|
Derivative instruments
|
|
|
170
|
|
|
|
-
|
|
Deferred taxes
|
|
|
-
|
|
|
|
64
|
|
Other
|
|
|
1,553
|
|
|
|
978
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,686
|
|
|
$
|
17,017
|
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 11:-
|
SUPPLEMENTARY CONSOLIDATED BALANCE SHEET INFORMATION (Cont.)
|
|
c.
|
Other current liabilities:
|
|
|
December 31,
|
|
|
|
201
7
|
|
|
2016
|
|
|
|
|
|
|
|
|
Payroll and related employee accruals
|
|
$
|
14,644
|
|
|
$
|
10,971
|
|
Derivative instruments
|
|
|
-
|
|
|
|
103
|
|
Government authorities
|
|
|
2,206
|
|
|
|
585
|
|
Other
|
|
|
3,194
|
|
|
|
2,187
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,044
|
|
|
$
|
13,846
|
|
d.
Long-term loans:
|
|
|
|
|
Interest rate for
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Linkage
|
|
%
|
|
|
Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans from banks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
U.S. dollars
|
|
|
4.77
|
|
|
|
4.77
|
|
|
|
2021
|
|
|
$
|
16,000
|
|
|
$
|
20,000
|
|
(b)
|
|
|
Euro
|
|
EURIBOR +2.75
|
|
|
EURIBOR +2.75
|
|
|
|
2020
|
|
|
|
1,061
|
|
|
|
1,458
|
|
(c)
|
|
|
Euro
|
|
|
-
|
|
|
|
6.0
|
|
|
|
2017
|
|
|
|
-
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,061
|
|
|
|
21,549
|
|
Less - current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,479
|
|
|
|
4,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,582
|
|
|
$
|
16,932
|
|
|
(a)
|
The Company entered into a loan agreement with an Israeli bank. The loan is secured
by a floating charge on the assets of the Company, and is further secured by a fixed pledge (mortgage) on the Company's real estate in Israel. In addition, there are financial covenants associated with the loan. As of December 31, 2017 the Company is in compliance with these covenants.
|
|
(b)
|
A Dutch subsidiary of the Company entered into a mortgage and loan agreement with a German bank. The amount of the mortgage is collateralized by the subsidiary's facilities in Germany.
|
|
(c)
|
Raysat BG entered into a mortgage business loan with a Bulgarian bank. The amount of the mortgage is collateralized by Raysat BG’s building in Bulgaria. The loan was fully repaid during 2017.
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 11:-
|
SUPPLEMENTARY CONSOLIDATED BALANCE SHEET INFORMATION (Cont.)
|
|
e.
|
Long-term debt maturities for loans after December 31, 2017, are as follows:
|
Year ending December 31,
|
|
|
|
|
|
|
|
2018
|
|
$
|
4,479
|
|
2019
|
|
|
4,479
|
|
2020
|
|
|
4,103
|
|
2021
|
|
|
4,000
|
|
|
|
|
|
|
|
|
$
|
17,061
|
|
Interest expenses on the long-term loans amounted to $ 822, $ 1,066 and $ 1,237 for the years ended December 31, 2017, 2016 and 2015, respectively.
|
f.
|
Other long-term liabilities:
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Long-term tax accrual
|
|
$
|
22
|
|
|
$
|
776
|
|
Long-term deferred taxes
|
|
|
986
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
1,505
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,008
|
|
|
$
|
2,281
|
|
NOTE 12:-
|
SELECTED CONSOLIDATED STATEMENTS OF INCOME (LOSS) DATA
|
a.
Financial expenses, net:
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on cash equivalents, bank deposits and restricted cash
|
|
$
|
447
|
|
|
$
|
1,027
|
|
|
$
|
549
|
|
Other
|
|
|
355
|
|
|
|
81
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
802
|
|
|
|
1,108
|
|
|
|
549
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest with respect to bank credit, loans and other
|
|
|
844
|
|
|
|
1,098
|
|
|
|
1,539
|
|
Exchange rate differences
|
|
|
226
|
|
|
|
452
|
|
|
|
3,887
|
|
Bank charges
|
|
|
3,857
|
|
|
|
4,323
|
|
|
|
2,344
|
|
Other
|
|
|
182
|
|
|
|
78
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,109
|
|
|
|
5,951
|
|
|
|
7,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial expenses, net
|
|
$
|
4,307
|
|
|
$
|
4,843
|
|
|
$
|
7,243
|
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 12:-
|
SELECTED CONSOLIDATED STATEMENTS OF INCOME (LOSS) DATA (Cont.)
|
b.
Earnings (loss) per share:
The following table sets forth the computation of basic and diluted net earnings (loss) per share:
|
|
Year ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Numerator for basic and diluted earnings (loss) per share -
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to holders of Ordinary shares:
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
6,801
|
|
|
$
|
(4,837
|
)
|
|
$
|
(52,134
|
)
|
From discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,801
|
|
|
|
(4,837
|
)
|
|
|
(52,334
|
)
|
|
2.
|
Denominator (number of shares in thousands):
|
Denominator for basic net loss per share -
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
|
|
|
54,681
|
|
|
|
51,970
|
|
|
|
45,026
|
|
Add-employee stock options
|
|
|
171
|
|
|
|
*)
-
|
|
|
|
*)
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net earnings (loss) per share - adjusted weighted average shares assuming exercise of options
|
|
|
54,852
|
|
|
|
51,970
|
|
|
|
45,026
|
|
The earnings (loss) per share for the year ended December 31, 2015 was adjusted, following the rights offering that the Company consummated in March 2016.
NOTE 13:-
|
CUSTOMERS, GEOGRAPHIC AND SEGMENT INFORMATION
|
The Company applies ASC 280, "Segment Reporting" ("ASC 280"). Segments are managed separately and can be described as follows:
The Company's business is managed and reported as three separate reportable segments, comprised of the Company's named Commercial, Mobility and Services division:
|
·
|
Commercial division - provides advanced fixed satellite networks, satellite communication systems, small cell solutions and associated professional services and comprehensive turnkey solutions and fully managed satellite services solutions. Customers are service providers, satellite operators, mobile network operators, or MNOs, telecommunication companies, or Telcos, and large enterprises worldwide. The division focuses on high
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 13:-
|
CUSTOMERS, GEOGRAPHIC AND SEGMENT INFORMATION (Cont.)
|
|
·
|
throughput satellites, or HTS, opportunities worldwide, with focus on cellular backhaul, and are driving meaningful partnerships with satellite operators to leverage the Company’s technology and breadth of services to deploy and operate the ground segment.
|
|
·
|
Mobility division – provides advanced, satellite communication on the move systems, including airborne, maritime and ground-mobile satellite systems and solutions. Customers are service providers, system integrators, defense and homeland security organizations, as well as other commercial entities worldwide. The division provides solutions for land, sea and air connectivity, while placing major focus on the high-growth market of In-Flight Connectivity, or IFC, with its unique leading technology. The division’s portfolio comprises high-speed modems, high performance on-the-move antennas and high efficiency, high power SSPAs and BUCs.
|
|
·
|
Services division – provides managed network and services for rural broadband access through the Company’s subsidiaries. The Company’s connectivity solutions have been implemented in large and national scale projects. The division’s satellite and terrestrial networks provide broadband internet and telephony services to thousands of rural communities and schools. The Company's turnkey solutions start with supplying network infrastructure, continue through ensuring high-quality, reliable connectivity and include full network support and maintenance, as well as support for applications that run on the installed network.
|
|
a.
|
Information on the reportable segments:
|
|
1.
|
The measurement of the reportable operating segments is based on the same accounting principles applied in these financial statements which includes certain corporate overhead allocations.
|
|
2.
|
Financial data relating to reportable operating segments:
|
|
|
Year ended December 31, 2017
|
|
|
|
Commercial
|
|
|
Mobility
|
|
|
Services
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
83,866
|
|
|
$
|
88,397
|
|
|
$
|
110,493
|
|
|
$
|
282,756
|
|
Cost of revenues
|
|
|
53,447
|
|
|
|
46,493
|
|
|
|
100,321
|
|
|
|
200,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
30,419
|
|
|
|
41,904
|
|
|
|
10,172
|
|
|
|
82,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development, net
|
|
|
12,172
|
|
|
|
15,842
|
|
|
|
-
|
|
|
|
28,014
|
|
Selling and marketing
|
|
|
16,925
|
|
|
|
5,782
|
|
|
|
1,052
|
|
|
|
23,759
|
|
General and administrative
|
|
|
6,016
|
|
|
|
6,326
|
|
|
|
7,519
|
|
|
|
19,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(4,694
|
)
|
|
|
13,954
|
|
|
|
1,601
|
|
|
|
10,861
|
|
Financial expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,307
|
|
Income before taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,554
|
|
Taxes on income (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(247
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
$
|
3,600
|
|
|
$
|
7,902
|
|
|
$
|
1,638
|
|
|
$
|
13,140
|
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 13:-
|
CUSTOMERS, GEOGRAPHIC AND SEGMENT INFORMATION (Cont.)
|
|
|
Year ended December 31, 2016
|
|
|
|
Commercial
|
|
|
Mobility
|
|
|
Services
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
94,001
|
|
|
$
|
62,911
|
|
|
$
|
122,639
|
|
|
$
|
279,551
|
|
Cost of revenues
|
|
|
57,403
|
|
|
|
40,962
|
|
|
|
105,696
|
|
|
|
204,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
36,598
|
|
|
|
21,949
|
|
|
|
16,943
|
|
|
|
75,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development, net
|
|
|
12,599
|
|
|
|
12,254
|
|
|
|
-
|
|
|
|
24,853
|
|
Selling and marketing
|
|
|
17,153
|
|
|
|
5,483
|
|
|
|
775
|
|
|
|
23,411
|
|
General and administrative
|
|
|
10,657
|
|
|
|
9,138
|
|
|
|
6,676
|
|
|
|
26,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(3,811
|
)
|
|
|
(4,926
|
)
|
|
|
9,492
|
|
|
|
755
|
|
Financial expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,843
|
)
|
Loss before taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,088
|
)
|
Taxes on income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,252
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
$
|
4,467
|
|
|
$
|
7,530
|
|
|
$
|
1,111
|
|
|
$
|
13,108
|
|
|
|
Year ended December 31, 2015
|
|
|
|
Commercial
|
|
|
Mobility
|
|
|
Services
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
100,935
|
|
|
$
|
41,112
|
|
|
$
|
55,496
|
|
|
$
|
197,543
|
|
Cost of revenues
|
|
|
63,425
|
|
|
|
30,715
|
|
|
|
49,178
|
|
|
|
143,318
|
|
Impairment of long-lived assets
|
|
|
-
|
|
|
|
-
|
|
|
|
10,137
|
|
|
|
10,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
37,510
|
|
|
|
10,397
|
|
|
|
(3,819
|
)
|
|
|
44,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development, net
|
|
|
14,175
|
|
|
|
8,237
|
|
|
|
-
|
|
|
|
22,412
|
|
Selling and marketing
|
|
|
16,839
|
|
|
|
6,947
|
|
|
|
1,037
|
|
|
|
24,823
|
|
General and administrative
|
|
|
6,622
|
|
|
|
6,271
|
|
|
|
5,751
|
|
|
|
18,644
|
|
Restructuring costs
|
|
|
1,078
|
|
|
|
421
|
|
|
|
9
|
|
|
|
1,508
|
|
Goodwill impairment
|
|
|
-
|
|
|
|
20,402
|
|
|
|
-
|
|
|
|
20,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,204
|
)
|
|
|
(31,881
|
)
|
|
|
(10,616
|
)
|
|
|
(43,701
|
)
|
Financial expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,243
|
)
|
Loss before taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,944
|
)
|
Taxes on income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,190
|
|
Loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,134
|
)
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
$
|
4,546
|
|
|
$
|
7,322
|
|
|
$
|
3,204
|
|
|
$
|
15,072
|
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 13:-
|
CUSTOMERS, GEOGRAPHIC AND SEGMENT INFORMATION (Cont.)
|
|
b.
|
Revenues by geographic areas:
|
Following is a summary of revenues by geographic areas. Revenues attributed to geographic areas, based on the location of the end customers and in accordance with ASC 280, are as follows:
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Latin America
|
|
$
|
132,134
|
|
|
$
|
143,491
|
|
|
$
|
100,443
|
|
APAC
|
|
|
34,586
|
|
|
|
47,094
|
|
|
|
47,843
|
|
North America
|
|
|
73,921
|
|
|
|
54,728
|
|
|
|
28,242
|
|
EMEA
|
|
|
42,115
|
|
|
|
34,238
|
|
|
|
21,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
282,756
|
|
|
$
|
279,551
|
|
|
$
|
197,543
|
|
|
c.
|
Revenues from a major Services division customer located in Peru accounted for 28%, 34% and 11% of the total consolidated revenues for the years ended December 31, 2017, 2016 and 2015, respectively.
|
|
d.
|
The Group's long-lived assets are located as follows:
|
Property and Equipment, net:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Israel
|
|
$
|
62,606
|
|
|
$
|
62,648
|
|
Latin America
|
|
|
5,000
|
|
|
|
5,740
|
|
United States
|
|
|
3,733
|
|
|
|
1,705
|
|
Europe
|
|
|
9,426
|
|
|
|
9,641
|
|
Other
|
|
|
1,481
|
|
|
|
1,103
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,246
|
|
|
$
|
80,837
|
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 13:-
|
CUSTOMERS, GEOGRAPHIC AND SEGMENT INFORMATION (Cont.)
|
|
e.
|
Commencing on the first quarter of 2018, in order to more accurately reflect the Company's management focus, organizational alignment, customer base and end markets, the Company will operate in three new business segments, as follows:
|
|
·
|
Fixed Networks includes broadband satellite network equipment including
the Company’s
cellular backhaul solutions and services for Telcos, as well as its products and solutions for enterprises, consumers and governments worldwide, which are currently under the Commercial division. In addition, it includes the Company's network operation and managed services activity in Peru and Colombia, which are currently part of the Services division.
|
|
·
|
Mobility Solutions (previously named Mobility division) will remain intact and will continue to include satellite communication equipment for on-the-move satellite communications including the Company’s In Flight Connectivity (“IFC”) activity as well as its defense and homeland security activities
.
|
|
·
|
Terrestrial Infrastructure Projects includes the Company's construction of fiber network in Peru, which is currently part of the Services division.
|
The above changes in the Company's reportable segments will have no effect on the goodwill assignment among the divisions.
NOTE 14:-
|
RELATED PARTY BALANCES AND TRANSACTIONS
|
|
a.
|
The Company entered into a number of agreements for the purchase of infrastructure, construction and services from C. Mer Industries Ltd. ("C. Mer"), a publicly traded company in Israel (TASE). The Company's controlling shareholder, Fimi Opportunity Funds (“Fimi”), holds approximately 36.6% of C. Mer's share capital.
|
|
b.
|
In December 2015 the Company entered into a memorandum of understanding with Orbit Communication Systems, (“Orbit”), a publicly traded company (TASE), for development and manufacture of antenna for an aggregate amount of approximately $ 1,750. The memorandum specifies prices per additional product units ordered in the future by the Company. In August 2017, FIMI acquired approximately 33.5% of Orbit’s share capital and representatives of FIMI serve on Orbit’s board of directors. Transactions with Orbit are presented for the period starting August 2017.
|
GILAT SATELLITE NETWORKS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 14:-
|
RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)
|
|
c.
|
T
ransactions with the related parties:
|
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues of products
|
|
$
|
5,706
|
|
|
$
|
10,978
|
|
|
$
|
2,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
25
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
$
|
100
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
d.
|
B
alances with the related parties:
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
3,331
|
|
|
$
|
3,080
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
1,220
|
|
|
$
|
5,022
|
|
F - 57