Aerospace supplier TAT Technologies (NASDAQ: TATT) outlines risks and strategy
Filing Impact
Filing Sentiment
Form Type
20-F
Rhea-AI Filing Summary
TAT Technologies Ltd. files its annual Form 20-F detailing its aerospace and defense operations, structure and risks for the year ended December 31, 2025. The Israel-incorporated company had 12,983,137 ordinary shares outstanding and 659 employees as of that date, operating four main business units across Israel and the U.S.
Its activities focus on OEM heat transfer solutions and aviation accessories, MRO services for heat transfer components, MRO for APUs and landing gear, and jet engine component overhaul and coatings. Key customers include major OEMs, airlines and the U.S. and Israeli governments, with notable customer concentration and exposure to government contracts.
The filing emphasizes competitive pressures, reliance on key suppliers and strategic partnerships, inflation and supply-chain risks, cybersecurity and environmental liabilities, and significant geopolitical risk tied to Israel, including recent regional hostilities and reserve-duty mobilizations.
Positive
- None.
Negative
- None.
Insights
Comprehensive profile of a niche aerospace MRO/OEM with concentrated customers and Israel exposure.
TAT Technologies outlines a diversified but tightly focused model around thermal management, power and actuation, and maintenance, repair and overhaul. Four operating units span Israeli OEM activities and U.S.-based MRO for heat exchangers, APUs, landing gear, and jet engine components, serving major OEMs, airlines and militaries.
The narrative highlights structural dependencies: a handful of customers contribute a material share of revenue, and government contracts from the U.S. and Israel form a notable slice of sales. The company also relies on key suppliers and OEM licenses, particularly Honeywell, for both components and APU authorizations, which anchors but also concentrates its business.
Risks are broad: tight competition from OEM service divisions and airline in-house MRO, inflationary labor and material costs, inventory and backlog uncertainty, and cybersecurity and environmental liabilities. Geopolitical risk is elevated, with detailed discussion of recent regional hostilities and potential operational disruption in Israel, though management currently does not expect a material impact based on the information presented.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 20-F
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31 , 2025
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ______________ to _____________
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ...........................
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Commission file number: 0-16050
(Exact name of Registrant as specified in its charter
and translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Chief Financial Officer
Telephone: (704 ) 910-2215
Email: ehudb@tat-technologies.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol |
Name of each exchange on which registered
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Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or Common stock as of the close of the period covered by the annual report:
(as of December 31, 2025)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer ☐
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Non-accelerated filer ☐
Emerging growth company
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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
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Other ☐
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If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
TABLE OF CONTENTS
Page
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INTRODUCTION |
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1 | |
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PART I |
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3 | |
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Item 1. |
Identity of Directors, Senior Management and Advisers |
3 | |
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Item 2. |
Offer Statistics and Expected Timetable |
3 | |
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Item 3. |
Key Information |
3 | |
| A. |
Selected Financial Data |
3 | |
| B. |
Capitalization and Indebtedness |
3 | |
| C. |
Reasons for the Offer and Use of Proceeds |
3 | |
| D. |
Risk Factors |
3 | |
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Item 4. |
Information on the Company |
22 | |
| A. |
History and Development of TAT |
22 | |
| B. |
Business Overview |
25 | |
| C. |
Organizational Structure |
50 | |
| D. |
Property, Plants and Equipment |
50 | |
|
Item 4A. |
Unresolved Staff Comments |
52 | |
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Item 5 |
Operating and Financial Review and Prospects |
52 | |
| A. |
Company Overview |
52 | |
| B. |
Key Indicators |
53 | |
| C. |
Results of operations |
53 | |
| D. |
Critical Accounting Policies and Estimates |
59 | |
| E. |
Conditions in Israel |
60 | |
| F. |
Trade Relations |
61 | |
| G. |
Impact of Currency Fluctuation and of Inflation |
61 | |
| H. |
Corporate Tax Rate |
62 | |
| I. |
Recently Issued Accounting Standards |
62 | |
| J. |
Recently adopted accounting pronouncements: |
63 | |
| K. |
Liquidity and Capital Resources |
63 | |
| L. |
Research and Development, Patents and Licenses |
66 | |
| M. |
Trend Information | 66 | |
| N. |
Off-Balance Sheet Arrangements |
66 | |
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Item 6. |
Directors, Senior Management and Employees |
67 | |
| A. |
Directors and Senior Management |
67 | |
| B. |
Compensation of Directors and Executive Officers |
71 | |
| C. |
Board Practices |
73 | |
| D. |
Employees |
85 | |
| E. |
Share Ownership |
86 | |
| F. |
Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation |
88 | |
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Item 7. |
Major Shareholders and Related Party Transactions |
88 | |
| A. |
Major Shareholders |
88 | |
| B. |
Related Party Transactions |
91 | |
| C. |
Interests of Experts and Counsel |
91 | |
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Item 8. |
Financial Information |
91 | |
| A. |
Consolidated Statements and Other Financial Information |
91 | |
| B. |
Significant Changes |
92 | |
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Item 9. |
The Offer and Listing |
93 | |
| A. |
Offer and Listing Details |
93 | |
| B. |
Plan of Distribution |
93 | |
| C. |
Markets |
93 | |
| D. |
Selling Shareholders |
93 | |
| E. |
Dilution |
93 | |
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F. |
Expense of the Issue |
93 |
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Item 10. |
Additional Information |
94 | |
| A. |
Share Capital |
94 | |
| B. |
Memorandum and Articles of Association |
94 | |
| C. |
Material Contracts |
95 | |
| D. |
Exchange Controls |
95 | |
| E. |
Taxation |
96 | |
| F. |
Dividends and Paying Agents |
111 | |
| G. |
Statement by Experts |
111 | |
| H. |
Documents on Display |
111 | |
| I. |
Subsidiary Information |
112 | |
| J. |
Annual Report to Security Holders |
112 | |
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Item 11. |
QQuantitative and Qualitative Disclosures about Market Risk |
112 |
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Item 12. |
Description of Securities Other than Equity Securities |
112 |
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PART II |
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113 |
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Item 13. |
Defaults, Dividend Arrearages and Delinquencies |
113 |
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Item 14. |
Material Modifications to the Rights of Security Holders |
113 |
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Item 15. |
Controls and Procedures |
113 |
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Item 16. |
Reserved |
115 |
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Item 16A. |
Audit Committee Financial Expert |
115 |
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Item 16B. |
Code of Ethics |
115 |
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Item 16C. |
Principal Accountants Fees and Services |
116 |
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Item 16D. |
Exemptions from the Listing Standards for Audit Committee |
117 |
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Item 16E. |
Purchase of Equity Securities By Issuer and Affiliated Purchases |
117 |
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Item 16F. |
Change in Registrant’s Certifying Accountant.
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117 |
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Item 16G. |
Corporate Governance. |
117 |
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Item 16H. |
Mine Safety Disclosure | 117 |
| Item 16I. | Disclosure Regarding Foreign Jurisdictions That Prevent Inspections | 117 |
| Item 16J. | Insider Trading Policies | 118 |
| Item 16K. |
Cybersecurity | 118 |
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PART III |
119 | |
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Item 17. |
Financial Statements |
119 |
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Item 18. |
Financial Statements |
119 |
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Item 19. |
Exhibits |
119 |
INTRODUCTION
TAT Technologies Ltd. (“TAT”) is a leading provider
of solutions and services to the aerospace and defense industries, focused mainly on three product areas and services: Thermal Management,
Power and Actuation and Maintenance, Repair and Overhaul.
TAT employed, as of December 31, 2025, 659 employees and operates
in three locations: its facility in Kiryat Gat, Israel (TAT Israel and “Turbochrome”); Limco Airepair Inc. (“Limco”)
in Tulsa, Oklahoma; and Piedmont Aviation Component Services LLC (“Piedmont”) in Greensboro, North Carolina; the Company is
incorporated in the State of Israel and its principal executive offices are located in Charlotte, North Carolina.
The Company operates four operational units: (i) original
equipment manufacturing (“OEM”) of heat transfer solutions and aviation accessories through its Kiryat Gat facility (“TAT
Israel”); (ii) maintenance repair and overhaul (“MRO”) services for heat transfer components and OEM of heat transfer
solutions through its Limco subsidiary; (iii) MRO services for aviation components through its Piedmont subsidiary (mainly APU and LG);
and (iv) overhaul and coating of jet engine components through its Turbochrome subsidiary.
TAT targets the commercial aerospace (serving a wide range of types
and sizes of commercial and business jets), military aerospace and ground defense sectors. TAT has a global presence with hundreds of
customers worldwide, including OEMs and tier one players in their respective markets such as Boeing, Embraer, Lockheed Martin Corporation
(“Lockheed Martin”), Collins, Liebherr, Parker, the U.S. Armed Forces, and airlines such as American Airlines, Lufthansa and
others, and cargo carriers such as UPS, FedEx, and DHL among others.
TAT has earned a strong reputation for its quality and service-oriented
approach, reflected in its long-standing customer relationships. The Company’s operations are backed by a wide range of certifications
from the American, European, British and Chinese civil aviation authorities.
Through TAT Israel, TAT is an OEM of a broad range of heat transfer
solutions, air conditioning systems and other cooling systems used in mechanical and electronic systems on board military and commercial
aircraft as well as in ground systems. TAT Israel is also an OEM for a wide range of aviation accessories and provides MRO services for
military and commercial customers, mainly for aviation accessories. TAT Israel is a repair station certified by the Federal Aviation Administration
(“FAA”).
1
Through its Limco subsidiary, TAT provides MRO services for airlines,
air cargo carriers, maintenance service centers and the military, primarily for heat transfer components. Limco is a repair station certified
by the FAA and the European Aviation Safety Agency (“EASA”). Limco is also an OEM of heat transfer solutions for some of the
largest OEMs in the commercial and military industry.
Through its Piedmont subsidiary, TAT provides MRO services for
aviation components in the area of landing gear, Auxiliary Power Units (“APUs”) and Machining and Plating services (“MPG”).
Piedmont has a growing Trading and Leasing group that leases APUs (Boeing: 757, 767, 777, 737 and Airbus: A320) and purchases and sells
parts for the repair of APUs globally. Piedmont is an FAA-certified repair station and provides its services to airlines, air cargo
carriers, maintenance service centers and to the military.
Through its Turbochrome subsidiary, TAT provides MRO services in
the area of jet engine overhaul, which includes the overhaul and coating of jet engine components such as turbine vanes and blades, fan
blades, variable inlet guide vanes and afterburner flaps. Turbochrome is certified by the FAA, the EASA and the US Military.
In addition, TAT, through its Piedmont subsidiary, holds less than
5% of the equity securities of First Aviation Services Inc. (“FAvS”).
TAT’s ordinary shares are publicly traded on the NASDAQ Global
Market (“NASDAQ”) under the symbol “TATT” and on the Tel Aviv Stock Exchange (“TASE”) under the symbol
“TAT Tech”. As used in this annual report, the terms “TAT”, the “Company”, “we,”
“us,” and “our” mean TAT Technologies Ltd. and its consolidated subsidiaries, unless otherwise indicated.
TAT consolidated financial statements appearing in this annual
report are prepared in U.S. dollars and in accordance with generally accepted accounting principles in the United States (“U.S.
GAAP”). All references in this annual report to “dollars” or “$” are to U.S. dollars and all references
in this annual report to “NIS” are to Israeli New Shekels.
Statements made in this annual report concerning the contents of
any contract, agreement or other document are summaries of such contracts, agreements or documents and are not complete descriptions of
all of their terms. If we filed any of these documents as an exhibit to this annual report or to any previous filing with the Securities
and Exchange Commission (“SEC”), you may read the document itself for a complete recitation of its terms.
Except for the historical information contained in this annual
report, the statements contained in this annual report may constitute “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995, as amended, with respect to our business, financial condition and results of operations. Such forward-looking
statements reflect our current view with respect to future events and financial results. Statements which use the terms “believe,”
“expect,” “plan,” “intend,” “estimate,”, “anticipate”, “predict”
and similar expressions are intended to identify forward-looking statements. We remind readers that forward-looking statements are
merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could
cause the actual results, performance, levels of activity, our achievements, or industry results, to be materially different from any
future results, performance, levels of activity, our achievements expressed or implied by such forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required
by applicable law, including the securities laws of the United States, we undertake no obligation to publicly release any update or revision
to any forward-looking statements to reflect new information, future events or circumstances, or otherwise after the date hereof.
We have attempted to identify significant uncertainties and other factors affecting forward-looking statements in the Risk Factors that
appear in Item 3D. “Key Information - Risk Factors.”
2
PART
I
Item 1. Identity
of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer
Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A.
Reserved.
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
Investing in our ordinary shares involves certain risks and uncertainties.
You should carefully consider the risks and uncertainties described below before investing in our ordinary shares. Our business, prospects,
financial condition and results of operations could be adversely affected due to any of the following risks. In that case, the value of
our ordinary shares could decline, and you could lose all or part of your investment. This annual report also contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including the risks faced by us described below and elsewhere in this annual report.
3
Risks Related to Our Business and Our Industry
| • |
The aerospace industry is subject to significant regulation and oversight, and TAT
and its subsidiaries may incur significant fines, penalties and costs if TAT and its subsidiaries do not comply with these regulations.
|
| • |
TAT competes with a number of established companies in all aspects of TAT’s
business, many of which have significantly greater resources or capabilities than TAT. |
| • |
TAT derives a material share of its revenues from few major customers. If TAT loses
any of these customers or they reduce the amount of business they do with TAT, TAT’s revenues may be seriously affected. |
| • |
A part of the revenues of TAT and its subsidiaries are from contracts with the
U.S. and Israeli governments and are subject to special risks. A loss of all, or a major portion, of these revenues from government contracts
could have a material adverse effect on TAT’s operations. |
| • |
If TAT and its subsidiaries do not receive the governmental approvals necessary for
the export of their products, TAT’s revenues may decrease. Similarly, if TAT’s suppliers and partners do not receive their
government approvals necessary to export their products or designs to TAT, TAT’s revenues may decrease. |
| • |
TAT depends on a limited number of suppliers of components for certain of its products
and if TAT or any of its subsidiaries are unable to obtain these components when needed, they would experience delays in manufacturing
their products and TAT’s financial results could be adversely affected. |
| • |
TAT may face increased labor and raw materials costs. TAT may not be able to recoup
future increases in the cost of wages and raw materials required for its operations through price increases for its products. |
| • |
TAT’s future success depends on its ability to develop new offerings and technologies.
|
4
| • |
TAT may face significant risks in the management of its inventory, while failure to
effectively manage its inventory levels may result in supply imbalances that could harm its business. |
| • |
TAT’s backlog of projects under contract is subject to unexpected adjustments,
delays in payments and cancellations. |
| • |
TAT faces special risks from international sales operations which may have a material
adverse effect on TAT’s business, operating results and financial condition. |
| • |
TAT may engage in future acquisitions that could dilute TAT’s shareholders’
equity and harm TAT’s business, results of operations and financial condition. |
| • |
Our strategic partnerships and relationships carry inherent business risks. |
| • |
Rapid technological changes may adversely affect the market acceptance of TAT’s
products. |
| • |
TAT has fixed-price contracts with some of its customers and TAT bears the risk of
costs in excess of its estimates. In addition, TAT may not be able to pass on increased costs to its customers. |
| • |
TAT depends on its key executives; it may not be able to hire and retain additional
key employees or successfully integrate new members of its team; the loss of key employees could have a material adverse effect on TAT’s
business. |
| • |
TAT depends on its manufacturing and MRO facilities and any material damage to these
facilities may adversely impact TAT’s operations. |
| • |
TAT uses equipment that is not easily repaired or replaced, and therefore material
equipment failures could cause TAT or its subsidiaries to be unable to meet quality or delivery expectations of its customers. |
5
| • |
TAT may fail to maintain effective internal controls in accordance with Section 404
of the Sarbanes-Oxley Act of 2002. |
| • |
TAT has potential exposure to liabilities arising under environmental laws and regulations.
|
| • |
TAT is exposed to potential liabilities arising from product liability and warranty
claims.cy |
| • |
Significant disruptions of TAT’s information technology systems or breaches of
its data security could adversely affect TAT’s business. |
| • |
TAT’s activity in Israel may be adversely affected by a change in the exchange
rate of the NIS against the U.S Dollars. As exchange rates between the NIS and the dollar fluctuate continuously, exchange rate
fluctuations, particularly larger periodic devaluations, may have an impact on TAT’s profitability and period to period comparisons
of TAT’s results. |
Risk Factors Related to Our Ordinary Shares
| • |
TAT’s share price has been volatile in the past and may decline in the future.
|
Risks Relating to Our Location in Israel
| • |
Because TAT has significant operations in Israel, TAT may be subject to political,
economic and other conditions affecting Israel that could increase TAT’s operating expenses and disrupt TAT’s business.
|
| • |
The war in Israel and other conditions in Israel could materially affect TAT’s
business. |
| • |
TAT’s results of operations may be negatively affected by the obligation of its
personnel to perform military service. |
| • |
Your rights and responsibilities as a shareholder are governed by the Israeli law and
may differ in some respects from the rights and responsibilities of shareholders under U.S. law. |
| • |
Israeli law may delay, prevent or make difficult an acquisition of TAT, which could
prevent a change of control and, therefore, depresses the price of TAT’s shares. |
| • |
Investors and TAT’s shareholders generally may have difficulties enforcing
a U.S. judgment against TAT, TAT’s executive officers and directors in Israel or the United States, or asserting U.S. securities
laws claims in Israel. |
| • |
As a foreign private issuer whose shares are listed on the NASDAQ, TAT may follow certain
home country corporate governance practices instead of certain NASDAQ requirements. |
6
Risks Related to Our Business and Our Industry
The aerospace industry is subject to significant
regulation and oversight, and TAT and its subsidiaries may incur significant fines, penalties and costs if TAT and its subsidiaries do
not comply with these regulations.
The aerospace industry is highly regulated in the United States
and internationally. In order to manufacture, sell and service parts used in aircrafts, TAT and its subsidiaries must be certified, accepted
by regulatory authorities such as the FAA, the EASA, the United States Department of Defense, comparable agencies in other countries and/or
by the original equipment manufacturers (“OEMs”). If any of our material certifications, authorizations, permits or approvals
are revoked or suspended, TAT’s or its subsidiaries’ operations could be subjected to significant fines and penalties. Furthermore,
new and more demanding government regulations may be adopted in the future, or industry oversight may be increased. TAT and its subsidiaries
may need to incur significant additional costs to achieve compliance with new regulations or to reacquire a revoked or suspended license
or approval, which could materially reduce profitability.
TAT competes with a number
of established companies in all aspects of TAT’s business, many of which have significantly greater resources or capabilities than
TAT.
TAT faces competition from several well-established companies,
many of which possess greater resources and capabilities than TAT’s major competitors in the area of OEM heat transfer solutions
and aviation accessories, are other OEMs who manufacture heat transfer solutions. These include:
| (i) |
Manufacturers based in the United States, such as the Hughes-Treitler division of Ametek Inc., Boyd Corporation, Collins Aerospace,
Honeywell International, and Triumph Thermal Systems; |
| (ii) |
Manufacturers based in Europe such as HS Marston Aerospace Ltd., a subsidiary of Collins Aerospace, Secan and Liebherr-Aerospace
Toulouse S.A.; and |
| (iii) |
Manufacturers based in Asia such as Sumitomo Precision Products from Japan. |
Many of TAT's competitors are larger and possess considerably greater
resources, including market recognition. These advantages can allow them to achieve greater economies of scale and make them less
susceptible to price competition compared to TAT. Additionally, some of these companies are recognized as tier-one suppliers, offering
the customers a broader range of systems and products, alongside heat transfer solutions, as a complete package. TAT may struggle to provide
its products as part of integrated systems to the same degree as its competitors. Failing to meet these challenges could negatively impact
on TAT's business, financial health, and operational results in the long term.
TAT’s major competitors in the area of MRO services for heat
transfer components are the MRO Divisions of OEMs, including Honeywell, Honeywell Secan, Honeywell Singapore, Collins Aerospace Malaysia,
Collins Aerospace Maastricht, and Liebherr Aerospace Saline, in addition to the in-house maintenance services of various commercial airlines
and other independent service providers, including AAR, Drake Air – Ametek, American Cooler Service – Aviation Technical Services,
Lufthansa Technik and Parker Hannifin.
7
TAT’s major competitors in the area of MRO services for aviation
components, landing gear and APUs, are the service divisions of OEMs, the in-house maintenance services of various commercial airlines
and other independent service providers, including Standard Aero Group Inc., Aerotech International Inc., Honeywell International, AAR
Corp., Safran, Liebherr, Turbine Aero, Hawker Pacific and APRO.
TAT’s major competitors in the area of overhaul and coating of jet engine components
are the service divisions of OEMs, the in-house maintenance services of various commercial airlines and other independent service providers,
including Safran, General Electric, GKN, PAS MCT Japan and others. With respect to masking materials, TAT's major competitors are APV
Coatings, Praxair, Saint-Gobain and others.
Competition in the MRO market is based on turn-around time, price,
capacity, quality, engineering solutions, and breadth of services. A number of our competitors have inherent competitive advantages. For
example, we compete with the service divisions of large OEMs which are able to derive significant brand recognition from their OEM manufacturing
activities. We also compete with the in-house service divisions of large commercial airlines where there is a strong incentive for an
airline to fully utilize the services of its maintenance employees and facilities.
Further, TAT’s competitors may have additional competitive
advantages, such as:
• The
ability to adapt faster to changes in customer requirements and industry conditions or trends;
• Greater
access to capital;
• Stronger
relationships with customers and suppliers;
• Greater
name recognition;
• Access
to superior technology and greater marketing resources;
• The
ability to offer complete systems in addition to components; and
• The
ability to bundle heat transfer components and solutions and other aircraft components.
If TAT is unable to overcome these competitive disadvantages, then
TAT’s business, financial condition and results of operations would be adversely affected.
8
TAT derives a material share of its revenues from few major customers.
If TAT loses any of these customers or they reduce the amount of business they do with TAT, TAT’s revenues may be seriously affected.
Five customers accounted for approximately 32.6%, 29.9% and 28.46%
of TAT’s revenues for the years ended December 31, 2025, 2024 and 2023, respectively. TAT has a single customer of MRO that accounted
for approximately 14.5%, 12.8% and 12.6% of TAT’s revenues for the years ended December 31, 2025, 2024 and 2023, respectively. TAT’s
major customers may not maintain the same volume of business with TAT in the future. If TAT loses any of these customers or they reduce
the amount of business they do with TAT, TAT’s revenues may be seriously affected.
A part of the revenues of TAT and its subsidiaries
are from contracts with the U.S. and Israeli governments and are subject to special risks. A loss of all, or a major portion, of these
revenues from government contracts could have a material adverse effect on TAT’s operations.
A portion of the revenues of TAT and its subsidiaries are from
contracts with the U.S. and Israeli governments. Sales to the U.S. and Israeli governments accounted for approximately 9.3%, 12.4% and
8.3% of TAT’s revenues on a consolidated basis for the years ended December 31, 2025, 2024 and 2023, respectively.
Business with the U.S. and Israeli governments, as well as with
the governments of other countries, is subject to unique risks which do not exist when doing business with other private parties. These
risks include the ability of the governmental authorities to unilaterally:
| • |
Suspend TAT or any of its subsidiaries from receiving new contracts pending resolution of alleged violations of procurement laws
or regulations; |
• Terminate existing
contracts, with or without cause, at any time;
• Condition the receipt
of new contracts on conditions which are beyond the control of TAT;
• Reduce the value of
existing contracts;
|
• |
Audit the contract-related costs and fees of TAT and its subsidiaries, including allocated
indirect costs; and |
• Control or prohibit
the export of products of TAT and its subsidiaries.
Also, military and defense budget cuts may result in reduced demand
for the products and manufacturing services of TAT and its subsidiaries. Smaller budgets could lead to a reduction in the business revenues
of TAT and its subsidiaries.
9
If TAT and its subsidiaries do
not receive the governmental approvals necessary for the export of their products, TAT’s revenues may decrease. Similarly, if TAT’s
suppliers and partners do not receive their government approvals necessary to export their products or designs to TAT, TAT’s revenues
may decrease.
Under Israeli law, the export of certain products and know-how
of TAT and its subsidiaries is subject to approval by the Israeli Ministry of Defense. Prior to initiating sales proposals for the export
of these products and know-how and prior to the actual shipment of such products or know-how, TAT and its subsidiaries must obtain permits
from the Israeli Ministry of Defense. TAT and its subsidiaries may not be able to receive in a timely manner, or at all, all the required
permits for which they may apply in the future.
Similarly, many countries have laws according to which the export
of certain military products, technical designs and spare parts require the prior approval of, or an export license from, their governments.
This process also applies to our partners and suppliers. If TAT and its subsidiaries or its partners and suppliers are unable to receive
all the required permits and/or licenses in a timely manner, or at all, TAT’s revenues may decrease.
TAT depends on a limited number of suppliers
of components for certain of its products and if TAT or any of its subsidiaries are unable to obtain these components when needed, they
would experience delays in manufacturing their products and TAT’s financial results could be adversely affected.
TAT relies on a limited number of key suppliers for parts for certain
of its OEM activities and MRO services. Some of these suppliers are currently the sole source of one or more components upon which TAT
is dependent. For example, Honeywell International Inc. is a key supplier to TAT of APU spare parts and of certain other components used
by TAT and its subsidiaries for OEM activities and in the provision of MRO services. TAT's subsidiary, Piedmont, is a Honeywell licensed
Authorized Repair Center for APUs under two separate agreements, for military and commercial applications. In September 2020, Piedmont
entered into a ten-year agreement with Honeywell for commercial application. Under this agreement, Piedmont is designated as an authorized
MRO station under Honeywell's license.
Suppliers of some of these components require TAT to place orders
with significant lead times to assure supply in accordance with TAT’s requirements. A delay in the supply of these components can
significantly delay the delivery of our products and services. If TAT were to engage in a commercial dispute with or be unable to obtain
adequate supplies of parts from these suppliers at commercially reasonable prices or within the required lead time, TAT could experience
delays in manufacturing, and its financial results could be adversely affected. Increased costs associated with supplied materials or
components could increase TAT’s costs and reduce TAT’s profitability if TAT is unable to pass these cost increases on to its
customers.
10
TAT may be affected by changes in government
trade policies and international trade disputes that result in tariffs and other protectionist measures, which could adversely affect
our business in the future.
The U.S. government and the current administration have made public
statements and taken certain actions indicating significant changes in U.S. trade policy, including imposing new or increased tariffs
on certain goods imported into the United States from Canada, Mexico and China. In response, a number of other countries have announced
an intention to impose additional duties on imports from the United States. To date, our business has not been affected by such actions.
However, changes in government trade policies and international trade disputes that result in tariffs and other protectionist measures
could adversely affect our business in the future.
TAT may face increased labor and raw materials
costs. TAT may not be able to recoup future increases in the cost of wages and raw materials required for its operations through price
increases for its products.
We are impacted by inflationary increases in wages and the cost
of raw materials. In all countries in which we operate, wage and benefit inflation, whether driven by competition for talent or ordinary
course pay increases and other inflationary pressures, may increase our cost of providing services and reduce our profitability. Decreases
in the availability of supplies, increases in the cost of supplies, and delivery issues have caused shortages and delays, as well as increased
costs for the procurement of raw materials, components, and other supplies required for our performance. TAT may not be able to recoup
future increases in the cost of labor and raw materials through price increases for its products and services. Our operating profits and
margins under our contracts could be adversely affected by these factors, particularly if the current inflationary pressures are prolonged.
If TAT is unable to obtain the raw materials required for its operations, TAT could experience delays or disruptions in the provision
of its services, and its financial results could be adversely affected.
TAT’s future success depends on its ability to develop new
offerings and technologies.
The markets we serve are characterized by rapid changes in technologies
and evolving industry standards. In addition, some of our products are installed on, and some of our services are provided in connection
with platforms that may have a limited life or become obsolete. Unless we develop new offerings or enhance our existing offerings, we
may be susceptible to loss of market share resulting from the introduction of new or enhanced offerings by competitors.
TAT may face significant risks in the management
of its inventory, while failure to effectively manage its inventory levels may result in supply imbalances that could harm its business.
We maintain an inventory of exchangeable units of heat transfer
solutions, aviation accessories, aviation components, APUs, landing gear, engine blades and coating materials and other spare parts related
to our products and services in various locations, including with third party logistics providers. Due to the long lead time of our suppliers
and manufacturing cycles, we need to forecast demand and commit significant resources towards these inventories. As such, we are subject
to significant risks in managing the inventory needs of our business, including estimates of the appropriate demand across our products.
Should actual market conditions differ from our estimates, our future results of operations could be materially adversely affected. In
the future, we may be required to record write-downs of finished products and materials on-hand as a result of future changes in our sales
forecasts.
11
TAT’s backlog of projects under contract
is subject to unexpected adjustments, delays in payments and cancellations.
Our backlog includes purchase orders received from our customers
for our products or services and our estimation of the maximum potential revenues that are expected to be derived from frame agreements
with our customers over the life of the contract or 10 years – the lower of the two. There is no legal obligation from the customer
to purchase our products or services under those frame agreements. In addition, we use estimations to evaluate the potential revenue
from these agreements. From time to time, for reasons beyond our control, projects are delayed, scaled back, suspended or cancelled, or
the customer delays making payments, which may adversely affect the revenue, profit and cash flow that we ultimately receive from contracts
reflected in our backlog.
TAT faces special risks from international sales operations which
may have a material adverse effect on TAT’s business, operating results and financial condition.
For the years ended December 31, 2025, 2024 and 2023, approximately
92%, 94% and 93% of TAT’s sales, respectively, resulted from TAT’s international sales (i.e., excluding Israel). This revenue
concentration is subject to various risks, including:
• Governmental
embargoes or foreign trade restrictions;
• Changes
in U.S. and foreign governmental regulations;
• Changes
in foreign exchange rates;
• Tariffs;
• Other
trade barriers;
• Political,
economic and social instability; and
• Difficulties
collecting accounts receivable.
Accordingly, TAT and its subsidiaries may encounter significant
difficulties in connection with the sale of their products in international markets.
12
TAT may engage in future acquisitions that
could dilute TAT’s shareholders’ equity and harm TAT’s business, results of operations and financial condition.
TAT has pursued, and will continue to pursue, growth opportunities
through organic growth as well as the acquisition of businesses, products and technologies.
TAT is unable to predict whether or when any prospective acquisition
will be completed. TAT may not be able to successfully identify suitable acquisition candidates, complete acquisitions, integrate the
acquired businesses into its operations, or expand into new markets. The process of integrating an acquired business may be prolonged
due to unforeseen difficulties and may require a disproportionate amount of TAT’s resources, including management attention. Furthermore,
once integrated, acquisitions may not achieve comparable levels of revenues, profitability or productivity as TAT’s existing business
or otherwise perform as expected. The occurrence of any of these events could harm TAT’s business, financial condition or results
of operations. Future acquisitions may require substantial capital resources, which may require TAT to seek additional debt or equity
financing.
Future acquisitions by TAT could result in the following, any of
which could materially harm TAT’s results of operations or the price of TAT’s ordinary shares:
| • |
Issuance of equity securities that would dilute TAT’s shareholders’ percentages of ownership; |
| • |
Large one-time write-offs; |
| • |
The incurrence of debt and contingent liabilities; |
| • |
Difficulties in the assimilation and integration of operations, personnel, technologies, products and information systems of the
acquired companies; |
| • |
Diversion of management’s attention from other business activities and concerns; |
| • |
Contractual disputes; |
| • |
Risks of entering geographic and business markets in which TAT has no or only limited prior experience; and |
| • |
Potential loss of key employees of acquired organizations. |
13
Our strategic partnerships and relationships carry inherent business
risks.
We may participate in strategic partnerships and joint ventures
in a various countries. For example, we have signed a joint venture agreement with the Russian-based company Engineering (as defined below),
to establish a new facility for the provision of MRO services for heat transfer components in Russia and the Commonwealth of Independent
States (“CIS”).
Our actions with respect to these affiliated companies may be partially
restricted by shareholders agreements entered into with our strategic partners. Our business, financial condition, results of operations
and prospects may be materially harmed if disagreements arise with our partners. Additionally, our ability to withdraw funds and dividends
from these entities may depend on the consent of such partners. If one of our strategic partners becomes subject to investigation, sanctions
or liability, TAT might be adversely affected. Furthermore, strategic partnerships in emerging markets are accompanied by risks inherent
to those markets, such as an increased probability of a partner defaulting on obligations or losing a partner with important insights
in that region. Strategic partnerships in emerging markets are subject to greater risks than strategic partnerships in more developed
markets, including significant political, legal and economic risks and risks related to fluctuations in currencies
Rapid technological changes may adversely affect the market acceptance
of TAT's products.
The aerospace and defense markets in which TAT competes are subject
to technological changes, introduction of new products, changes in customer demands and evolving industry standards. For example, new
materials, new structures and 3D printing – a technology based on the principle of joining thin layers of materials, in horizontal
cross-section, to build up a real, three-dimensional object from a digital model – may enable the manufacturing of high-quality
and new characterization heat exchangers in serial production with a better return of value. The future success of TAT will depend upon
its ability to keep pace with technological developments and to timely address the increasingly sophisticated needs of its customers by
supporting existing and new technologies and by developing enhancements to its current products and by introducing new ones.
TAT has fixed-price contracts with some of
its customers and bears the risk of costs in excess of its estimates. In addition, TAT may not be able to pass on increased costs to its
customers.
TAT has entered into multi-year, fixed-price contracts with some
of its MRO and OEM customers. Pursuant to these contracts, TAT realizes all the benefits or costs resulting from any increases or decreases
in the cost of providing services and products to these customers. Several of TAT’s contracts do not allow TAT to recover for increases
in raw material prices, taxes or labor costs, while other contracts may permit, to a limited extent, periodic price adjustments. Any increase
in these costs could increase the cost of operating our business and reduce our profitability. Factors such as inaccurate pricing and
increases in the cost of labor, materials or overhead may result in cost over-runs and losses on those agreements. TAT may not succeed
in obtaining customer approval to re-price a particular product and may not be able to recoup previous losses resulting from incomplete
or inaccurate engineering data. In addition, as costs increase, TAT may not be able to pass on such increased costs to other customers.
This could materially impact TAT’s profitability.
14
TAT depends on its key executives; it may not
be able to hire and retain additional key employees or successfully integrate new members into its team; the loss of key employees could
have a material adverse effect on TAT’s business.
TAT’s success depends to a large extent on the experience
and expertise of its senior management. Any member of TAT’s senior management may choose to end his or her employment with TAT and
seek employment with others for any reason. The loss of the expertise of TAT’s senior management through death, disability or an
employee’s decision to end his or her employment could have a material and adverse effect on our business, financial condition
and results of operations. TAT is not the beneficiary of life or disability insurance covering any of its senior management, key employees
or other personnel.
TAT depends on its manufacturing and MRO facilities and any material
damage to these facilities may adversely impact TAT’s operations.
TAT’s results of operations depend in large part on its ability
to provide prompt and efficient service to its customers upon receipt of orders, either the manufacture and delivery of OEM products or
the provision of MRO services. As a result, any material disruption of TAT’s day-to-day operations could have a material adverse
effect on its business, customer relations and profitability. TAT relies on its facilities in Kiryat Gat, Israel, Kernersville and Greensboro,
North Carolina and Tulsa, Oklahoma for the manufacture of its OEM products and the provision of its MRO services. A war or terrorist act,
fire, flood, earthquake or other disaster or condition that significantly damaged or destroyed any of these facilities would have a material
adverse effect on the operations of TAT.
TAT uses equipment that is not easily repaired
or replaced, and therefore material equipment failures could cause TAT or its subsidiaries to be unable to meet quality or delivery expectations
of its customers.
Many of TAT’s service and manufacturing processes are dependent
on equipment that is not easily repaired or replaced. As a result, unexpected equipment failures could result in production delays or
the manufacture of defective products. TAT’s ability to meet its customers’ expectations with respect to on-time delivery
of repaired components or quality OEM products is critical. Failure by TAT to meet the quality or delivery expectations of its customers
could lead to the loss of one or more of its significant customers.
TAT may fail to maintain effective internal
controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.
The Sarbanes-Oxley Act of 2002 (“SOX”) imposes certain
duties on TAT and its executives and directors. TAT’s efforts to comply with the requirements of Section 404 of the SOX, governing
internal controls and procedures for financial reporting, have led to increased general and administrative expenses and a diversion of
management time and attention. TAT expects these compliance efforts will continue to require commitment of significant resources. As part
of these efforts, TAT may identify material weaknesses or significant deficiencies in its assessments of its internal controls over financial
reporting. Failure to maintain effective internal controls over financial reporting could result in investigation or sanctions by regulatory
authorities and could have a material adverse effect on TAT’s operating results, investor confidence in TAT’s reported financial
information and the market price of TAT’s ordinary shares.
15
TAT has potential exposure to liabilities arising
under environmental laws and regulations.
TAT’s business operations and facilities are subject to various
federal, state, and local laws and regulations related to the environment, including, but not limited to, regulations that govern the
discharge of pollutants and hazardous substances into the air and water, as well as the handling, storage and disposal of such materials.
Compliance with such laws as they relate to the handling, storage and disposal of hazardous substances is a significant obligation for
TAT across all of its facilities. If it fails to comply with these and other environmental-related laws and regulations, TAT would be
subject to serious consequences, including fines and other sanctions, and limitations on its operations due to changes to, or revocations
of, the environmental permits applicable to its facilities. The adoption of new laws and regulations, stricter enforcement of existing
laws and regulations, discovery of previously unknown contamination or the imposition of new cleanup requirements could require TAT to
incur costs and become subject to new or increased liabilities that could increase TAT’s operating costs and adversely affect the
manner in which we conduct our business.
Under certain environmental laws, liability associated with an
investigation or remediation of hazardous substances can arise from a broad range of properties, including properties currently or formerly
operated by TAT or any of its predecessors, as well as properties to which TAT sent hazardous substances or wastes for treatment, storage,
or disposal. Costs and other obligations can arise from claims for toxic torts, natural resources and other damages, as well as the investigation
and clean-up of contamination at such properties. Under certain environmental laws, such liability may be imposed jointly and severally,
meaning that TAT could be held responsible for more than its proportionate share of liability, and, in some cases, may even be responsible
for the entire liability at issue. The extent of any such liability is often difficult to predict, creating uncertainty regarding the
potential financial and operational impacts on TAT.
TAT is exposed to potential liabilities arising
from product liability and warranty claims.
TAT is exposed to potential liabilities for personal injury or
death as a result of the failure of an aircraft component that was designed, manufactured, serviced or supplied by TAT. TAT believes that,
in an effort to improve operating margins, some customers have delayed the replacement of parts beyond their recommended lifetime, which
may undermine aircraft safety and increase the risk of liability of TAT and its subsidiaries.
If any of our products are defective, we could be required to redesign
or recall those products or pay substantial damages or warranty claims. Such an event could result in significant expenses, disrupt sales,
and damage both TAT’s reputation and that of its products and services. There can be no assurance that TAT will not experience material
product liability losses in the future or incur significant costs to defend such claims. In addition, although TAT maintains product liability
insurance, there can be no assurance that its insurance coverage will be adequate if claims arise or that it would be able to maintain
insurance coverage in the future at an acceptable cost. A successful claim brought against TAT or its subsidiaries in excess of its available
insurance coverage may have a material adverse effect on TAT’s business.
Furthermore, contractual disputes over warranties can occur during
ordinary course of business. TAT may be subject to requests from customers for cost sharing or pricing adjustments as a part of their
commercial relationships, even though the customers had previously agreed to bear these risks.
16
Significant disruptions of our information
technology systems or breaches of our data security could adversely affect our business.
Our operations depend on the continued and secure functioning of
our computer and communications systems and the protection of information stored in computer databases maintained by us, and in certain
circumstances, by third parties. Such systems and databases are subject to breach, damage, disruption or failure from, among other things,
cyber-attacks and other unauthorized intrusions. In particular, we may be targeted by experienced computer hackers who may attempt to
penetrate our computer systems and misappropriate or compromise our confidential information or that of our customers. A significant invasion,
interruption, destruction or breakdown of our information technology, or IT, systems and/or infrastructure by persons with authorized
or unauthorized access could negatively impact our business and operations. We could also experience business interruption, information
theft and/or reputational damage from cyber-attacks, which may compromise our systems and lead to data leakage either internally or at
our third-party providers. Both data that has been inputted into our main IT platform, which covers records of transactions, financial
data and other data reflected in our results of operations, as well as data related to our proprietary rights (such as research and development,
and other intellectual property-related data), are subject to material cyber security risks. To date, we are not aware that we have experienced
any loss of, or disruption to, material information as a result of any such malware or cyber-attack.
TAT’s activity in Israel may be adversely
affected by a change in the exchange rate of the NIS against the U.S dollar. Because exchange rates between the NIS and the U.S dollar
fluctuate continuously, exchange rate fluctuations, particularly larger periodic devaluations, may have an impact on TAT’s profitability
and period to period comparisons of TAT’s results.
TAT’s financial statements are stated in U.S dollars, while
a portion of TAT’s expenses in Israel, primarily labor expenses, are incurred in NIS and a portion of our revenues are quoted in
NIS and in Euro. Additionally, certain assets, as well as a portion of TAT’s liabilities, are denominated in NIS. As exchange rates
between the NIS and the U.S dollar fluctuate continuously, such fluctuations, particularly larger periodic devaluations, may have an impact
on TAT’s profitability and period-to-period comparisons of TAT’s results. TAT’s results may be adversely affected by
the devaluation of the NIS in relation to the U.S dollar (or if such devaluation is on a lagging basis), particularly if TAT’s revenues
in NIS are higher than TAT’s expenses in NIS and/or if the value of TAT’s assets in NIS is higher than TAT’s liabilities
in NIS. Alternatively, TAT’s results may be adversely affected by an appreciation of the NIS in relation to the dollar (or if such
appreciation is on a lagging basis), if TAT’s expenses in NIS are higher than TAT’s revenues in NIS and/or TAT’s liabilities
in NIS are higher than TAT’s assets in NIS. From time to time, we enter into hedging transactions to attempt to limit the impact
of foreign currency fluctuations. However, the protection provided by such hedging transactions may be partial and leave certain exchange
rate-related losses and risks uncovered. Therefore, our business and profitability may still be harmed by such exchange rate fluctuations.
17
Risk Factors Related to Our Ordinary Shares
TAT’s share price has been volatile in
the past and may decline in the future.
TAT’s ordinary shares have experienced significant market
price and volume fluctuations in the past and may experience significant market price and volume fluctuations in the future, in response
to factors such as the following, some of which are beyond TAT’s control:
• Quarterly variations in TAT’s
operating results;
• Operating results that vary
from the expectations of securities analysts and investors;
| • |
Changes in expectations as to TAT’s future financial performance, including financial estimates by securities analysts and
investors; |
• Announcements of technological
innovations or new products by TAT or TAT’s competitors;
| • |
Announcements by TAT or TAT’s competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or
capital commitments; |
• Announcements by third parties
of significant claims or proceedings against us;
• Additions or departures of
key personnel;
• Future sales of TAT’s
ordinary shares by the Company or others;
• The effects of the war and
hostilities in Israel;
• De-listing of TAT’s
shares from NASDAQ and/or from the TASE;
• Stock market price and volume
fluctuation;
• Legal proceedings against
TAT ; and
• Regulatory actions by securities
which impacts TAT’s interaction with securities analysts and institutional investors
Equity stock markets can undergo extreme price and volume fluctuations.
Market fluctuations, as well as political and economic conditions, such as a recession, interest rate or currency rate fluctuations and
political events or hostilities in or surrounding Israel, could adversely affect the market price of TAT’s ordinary shares.
In the past, securities class action litigation has often been
brought against companies following periods of volatility in the market price of their securities. TAT may be the target of similar litigation
in the future. Securities litigation could result in substantial costs and divert management’s attention and resources both of which
could have a material adverse effect on TAT’s business and results of operations.
18
Risks Relating to Our Location in Israel
Because TAT is incorporated under the laws
of the Israel and has significant operations in Israel, TAT may be subject to political, economic and other conditions affecting Israel
(including the war and hostilities in Israel) that could materially affect our business.
TAT is incorporated under the laws of the State of Israel and has
executive offices and a manufacturing plant that are also located in Israel. As a result, political, economic and military conditions
in Israel and the surrounding region may directly affect our business and operations. Any major hostilities involving Israel, a full or
partial mobilization of reserve forces of the Israeli army, the interruption or curtailment of trade between Israel and its present trading
partners, or a significant downturn in the economic or financial condition of Israel could have a material adverse effect on TAT’s
business, financial condition and results of operations.
Since its establishment in 1948, Israel and its Arab neighbors
have engaged in a number of armed conflicts. A state of hostility, varying from time to time in intensity and degree, has led to security
and economic challenges for Israel. Major hostilities between Israel and its neighbors may hinder Israel’s international trade and
lead to economic downturn. This, in turn, could have a material adverse effect on TAT’s operations and business.
In addition, Israel faces threats from more distant neighbors,
in particular, Iran which attacked Israel during 2024 and 2025, and may be developing nuclear weapons and has targeted cyber-attacks against
Israeli entities, and terrorist groups in Yemen, which attached Israel and limited the movement of marine shipments to Israel through
the Red Sea.
On February 28, 2026, Israel and the United States launched a joint
attack on Iran, targeting key officials, military commanders and facilities, resulting in the death of Iran’s Supreme Leader and
other key officials and military commanders. In retaliation, Iran launched hundreds of ballistic missiles and drones against civilian
targets in Israel and against U.S. military bases, civilian aviation facilities and other civilian targets in several countries in the
Persian Gulf, including Jordan, Kuwait, Bahrain Qatar, Iraq, Saudi Arabia and United Arab Emirates. The war has also led to widespread
airspace closures in the region.
Currently TAT’s continues its business and operations but
the intensity and duration of Israel’s current war is difficult to predict, as are such war’s economic implications on our
business and operations and on Israel's economy in general.
Furthermore, there are a number of countries, primarily Arab
and Muslim countries, that restrict or frown upon business with Israel or Israeli companies, and TAT is precluded from marketing its products
to these countries. Restrictive laws or policies directed towards Israel or Israeli companies may have an adverse impact on TAT’s
operations, TAT’s financial results or the expansion of TAT’s business. These events may be intertwined with wider macroeconomic
indications of a deterioration of Israel’s economic standing, that may involve an additional downgrade in Israel’s credit
rating by rating agencies (such as the downgrade of the credit rating of Israel by Moody’s, S&P and Fitch), which may have a
material adverse effect on our company and its ability to effectively conduct its operations.
Finally, the current elected government in Israel is pursuing extensive
reforms to Israel's judicial system and has recently renewed its efforts to effect such changes. Certain financial, legal and commercial
organizations and entities have claimed that such changes, if adopted, could adversely affect the macroeconomic condition in which we
operate. At this stage, the proposed legislation has not become effective, and its scope has not been fully determined; we cannot assess
the potential impacts of these changes and their likelihood on our business, prospects, financial condition, and results of operation.
19
TAT’s results of operations may be negatively
affected by the obligation of its personnel to perform military service.
Many of TAT’s employees and some of TAT’s directors
and senior management based in Israel are obligated to perform annual reserve duty in the Israel Defense Forces (“IDF”) and
may be called for active duty under emergency circumstances at any time. If a military conflict or war arises, these individuals could
be required to serve in the military for extended periods of time. TAT’s operations could be disrupted by the absence of one or
more of its senior management, key employees or a significant number of other employees for a significant period due to military service.
Any such disruption in TAT’s operations could adversely affect TAT’s business. During the war and hostilities in Israel,
the IDF has called up hundreds of thousands of its reserve forces to serve. A number of our management and non-management employees are
currently subject to military service in the IDF and many of them have
been called to serve. In addition, the family members of many of our Israeli team members are currently serving in the IDF. Such disruption
could materially and adversely affect our business, prospects, financial condition, and results of operations.
Your rights and responsibilities as a shareholder
are governed by Israeli law and may differ in some respects from the rights and responsibilities of shareholders under U.S. law.
TAT is incorporated under Israeli law. The rights and responsibilities
of holders of TAT’s ordinary shares are governed by TAT’s articles of association and by the Israeli Companies Law (as defined
below). These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S.
corporations. In particular, each shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising
his or her rights and fulfilling his or her obligations toward the company and other shareholders and to refrain from abusing his power
in the company, including, among other things, in voting at the general meeting of shareholders on certain matters. The Companies Law
provides that these duties are applicable in shareholder votes on, among other things, amendments to a company’s articles of association,
increases in a company’s authorized share capital, mergers and interested party transactions requiring shareholder approval. In
addition, a controlling shareholder of an Israeli company, or a shareholder who knows that he or she possesses the power to determine
the outcome of a shareholder vote or who has the power to appoint or prevent the appointment of a director or officer in the company,
has a duty of fairness toward the company. However, Israeli law currently does not define the substance of this duty of fairness. Because
Israeli corporate law has undergone extensive revision in recent years, there is relatively little case law available to assist in understanding
the implications of these provisions that govern shareholder behavior.
Israeli law may delay, prevent or make difficult
an acquisition of TAT, which could prevent a change of control and, therefore, depresses the price of TAT’s shares.
Israeli corporate law regulates mergers, requires tender offers
for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant
shareholders and regulates other matters that may be relevant to these types of transactions. Furthermore, Israeli tax considerations
may make potential transactions unappealing to TAT or to some of TAT’s shareholders. These provisions of Israeli law may delay,
prevent or make difficult an acquisition of TAT, which could prevent a change of control and therefore depress the price of TAT’s
shares.
20
Investors and TAT’s shareholders generally
may have difficulties enforcing a U.S. judgment against TAT, TAT’s executive officers and directors or asserting U.S. securities
laws claims in Israel.
TAT is incorporated in Israel and the majority of TAT’s executive
officers and directors reside outside the United States. Service of process upon them may be difficult to effect within the United States.
Furthermore, many of TAT’s assets and most of the assets of TAT’s executive officers and directors are located outside the
United States. Therefore, a judgment obtained against TAT or certain of its executive officers and directors in the United States, including
one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not
be enforced by an Israeli court. It also may be difficult for you to assert U.S. securities law claims in original actions instituted
in Israel. Moreover, among other reasons, including but not limited to, fraud or absence of due process, or the existence of a judgment
which is at variance with another judgment that was given in the same matter or if a suit in the same matter between the same parties
was pending before a court or tribunal in Israel, an Israeli court will not enforce a non-Israeli judgment if it was given in
a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases) or if the enforcement
is likely to prejudice the sovereignty or security of the State of Israel.
As a foreign private issuer whose shares are
listed on NASDAQ, we may follow certain home country corporate governance practices instead of certain NASDAQ requirements which may not
afford shareholders with the same protections that shareholders of domestic companies have.
As a foreign private issuer whose shares are listed on the NASDAQ
Global Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of certain
provisions of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are applicable to U.S domestic public
companies. As a foreign private issuer listed on the NASDAQ Capital Market, we may also follow home country practice with regard
to, among other things, the requirement to obtain shareholder approval for certain dilutive events (such as for an issuance that will
result in a change of control of the Company, certain transactions other than a public offering involving issuances of a 20% or more interest
in the company and certain acquisitions of the stock or assets of another company). A foreign private issuer that elects to follow a home
country practice instead of NASDAQ requirements must submit to NASDAQ in advance a written statement from an independent counsel in such
issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws. In addition,
a foreign private issuer must disclose in its annual reports filed with the SEC each such requirement that it does not follow and describe
the home country practice followed by the issuer instead of any such requirement. Accordingly, our shareholders may not be afforded the
same protection as provided under NASDAQ’s corporate governance rules.
21
Item 4. Information
on the Company
A.
History and Development of TAT
TAT was incorporated under the laws of the State of Israel in April
1985 under the name Galaxy Graphics Ltd. TAT underwent several name changes, becoming Galagraph Ltd. in August 1986 and TAT Technologies
Ltd. in May 1992. TAT is a public limited liability company under the Israeli Companies Law 1999-5759, (“Israeli Companies Law”),
and operates under this law and associated legislation. TAT’s registered offices in Israel are located at 5 Hamelacha St., Netanya
4250540 Israel, and its telephone number is +972-8-862-8500. TAT’s website is www.tat-technologies.com. The information on TAT’S
website, or that can be accessed through the website, is not incorporated by reference into this annual report. The Company’s agent
for service of process in the United States is the Company’s subsidiary, Limco-Piedmont, Inc., with offices located at 5304 S. Lawton
Avenue, Tulsa, OK 74107 and its principal executive offices are located at 9335 Harris Corners Pkwy, Charlotte, NC 28269.
TAT was founded to develop the computerized systems business of
its then parent company, TAT Industries Ltd. (“TAT Industries”), a publicly-held Israeli corporation then engaged in the manufacture
and sale of aeronautical equipment. In December 1991, TAT acquired the heat exchange operations of TAT Industries and in 2000, TAT purchased
the remaining operations of TAT Industries relating to the manufacture and maintenance of aviation accessories and leased certain of its
properties.
In March 1987, TAT completed the initial public offering of its
securities in the United States. TAT was listed on the NASDAQ Global Market (then known as the NASDAQ National Market) from its initial
public offering until July 1998 when the listing of TAT’s ordinary shares was transferred to the NASDAQ Capital Market. On June
24, 2009, TAT’s ordinary shares resumed trading on the NASDAQ Global Market. Since August 2005 TAT’s shares have been traded
also on the TASE.
In 1993, TAT acquired Limco, which is located in Tulsa, Oklahoma.
Limco’s FAA-certified repair station provides MRO services for airlines, air cargo carriers, maintenance service centers and the
military, especially for heat transfer components. In addition to its MRO services, Limco is an OEM of heat transfer solutions for aircraft
and system manufacturers and other selected related products.
22
In 2005, Limco acquired Piedmont, a company located in Greensboro,
North Carolina, and certified by the FAA to perform MRO services of APUs and landing gear. Piedmont’s FAA-certified repair station
provides MRO services for airlines, air cargo carriers, maintenance service centers and the military, especially for landing gear and
APUs.
In July 2007, Limco-Piedmont completed an initial public offering
of its common stock and Limco-Piedmont’s shares were listed on the NASDAQ Global Market (symbol: LIMC) until July 2, 2009, when
TAT acquired all of the publicly held shares of Limco-Piedmont in a stock-for-stock merger. As a result of such merger, Limco-Piedmont
again became a wholly-owned subsidiary of TAT.
On December 4, 2009, TAT, through its subsidiary Piedmont, signed
an investment agreement with FAvS. According to the agreement, Piedmont was issued 288,334 shares of Class B common stock of FAvS, representing
37% of FAvS’ then share capital (total number of shares acquired was subsequently adjusted as result of a 1 for 20 reverse stock
split) and $750,000 of FAvS preferred shares (entitled to cash dividends at an annual rate of 12% payable quarterly or to additional preferred
shares at an annual rate of 15%) in return for Piedmont's propeller and parts businesses.
On March 11, 2015, Piedmont sold 237,932 shares of Class B common
stock of FAvS representing 23.18% of FAvS' share capital and its entire holdings in FAvS’ Series A preferred stock for an insignificant
amount. As of December 31, 2025, TAT owns less than 5% of FAvS’ issued and outstanding share capital.
In October 2015, TAT acquired Turbochrome, a company certified
by the FAA and EASA to perform overhaul and coating of jet engine components, including turbine vanes and blades and fan blades.
In November 2015, TAT entered into an agreement with Engineering
to establish a new MRO facility in Russia. The company, TAT-Engineering LLC, is based in Novosibirsk’s Tolmachevo airport and
provides services of minor repair, overhaul and recore for heat transfer components in Russia and the CIS. According to the joint venture
agreement, TAT owns 51% of TAT-Engineering's shares and the remaining 49% are held by Engineering.
23
In 2020 and 2021, TAT (through Piedmont) signed multiple strategic
contracts with the Fortune 100 multinational aerospace company Honeywell. Under these contracts, TAT was awarded a 10-year license for
repair and overhaul of APUs for Boeing and Airbus’s key platforms, including B737, B777, B767/757 and A320 aircraft as well as the
C17 which is used for military purposes. In addition, during these years, Piedmont has completed its facility upgrades required to commence
MRO operations for the GTCP331-500 (B777) and GTCP131-9 (A320/B737). In February 2023, TAT announced a contract expansion with a global
air carrier, pursuant to which TAT provides MRO services to the airline’s GTCP331 model APUs.
In May 29, 2025, the Company entered into an underwriting agreement
(the “Underwriting Agreement”) with Fimi Opportunity V, L.P., and Fimi Isarel Opportunity Five, Limited Partnership, as selling
shareholders (the “Selling Shareholders”), and Stifel, Nicolas & Company, Incorporated and Truist Securities, Inc., as
representatives of several underwrites (collectively, the “Underwriters”), relating to an underwritten public offering (the
“Offering”) of 4,150,000 ordinary shares of the Company at a public offering. The Company sold 1,625,000 ordinary shares and
the Selling Shareholders sold 2,525,000 ordinary shares.
Recent Developments
Events in Israel
On February 28, 2026, Israel and the United States launched
a joint attack on Iran, targeting key officials, military commanders and facilities, resulting in the death of Iran’s Supreme Leader
and other key officials and military commanders. In retaliation, Iran launched hundreds of ballistic missiles and drones against civilian
targets in Israel and against U.S. military bases, civilian aviation facilities and other civilian targets in several countries in the
Persian Gulf, including Jordan, Kuwait, Bahrain Qatar, Iraq, Saudi Arabia and United Arab Emirates. The war has also led to widespread
airspace closures in the region. At this time, we do not expect the current conflict to have a material impact on our financial and operational
results; however, since these are events beyond our control, their continuation or cessation may affect our expectations. We continue
to monitor political and military developments closely and examine the consequences for our operations, assets and financial and operational
results.
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B. Business
Overview
TAT is a leading provider of solutions and services to the commercial
and military aerospace and ground defense industries focused mainly on three product areas and services: Thermal Management, Power and
Actuation and Maintenance, Repair and Overhaul. TAT operates under four business unit: (i) OEM of heat transfer solutions and aviation
accessories through its Kiryat Gat facility (TAT Israel); (ii) MRO services for heat transfer components and OEM of heat transfer solutions
through its Limco subsidiary; (iii) MRO services for aviation components through its Piedmont subsidiary (mainly APU and LG); and (iv)
overhaul and coating of jet engine components through its Turbochrome subsidiary.
TAT’s activities in the area of OEM of heat transfer solutions
and aviation accessories through TAT Israel primarily include the design, development and manufacture of (i) a broad range of heat transfer
solutions, such as pre-coolers heat exchangers and oil/fuel hydraulic heat exchangers, used in mechanical and electronic systems on board
commercial, military and business aircraft; (ii) environmental control and power electronics cooling systems installed on board aircraft
and ground applications; and (iii) a variety of other mechanical aircraft accessories and systems such as pumps, valves, and turbine power
units.
TAT’s activities in the area of MRO and OEM of heat transfer
solutions include the MRO of heat transfer components and the manufacturing of certain heat transfer solutions. TAT’s Limco subsidiary
operates an FAA-certified repair station, which provides heat transfer MRO services for airlines, air cargo carriers, maintenance service
centers and the military.
TAT’s activities in the area of MRO services for aviation
components include the MRO of APUs, landing gear and other aircraft components. TAT’s Piedmont subsidiary operates an FAA-certified
repair station, which provides aircraft component MRO services for airlines, air cargo carriers, maintenance service centers and the military.
TAT’s activities in the area of jet engine overhaul through
its Turbochrome facility includes the overhaul and coating of jet engine components, including turbine vanes and blades, fan blades, variable
inlet guide vanes and afterburner flaps.
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OEM of Heat Transfer Solutions and Aviation
Accessories (TAT Israel)
TAT is an OEM of heat transfer solutions and aviation accessories
to the commercial and military aerospace and ground defense industries, primarily through its TAT Israel. The main OEM activity at TAT
Israel is the design and manufacture of a comprehensive line of heat exchangers and cold plates. Heat transfer solutions facilitate removal
and dissipation of heat generated during the operation of mechanical and electronic systems. TAT Israel's heat transfer solutions are
generally integrated into complete cooling systems. Using proprietary technological expertise, we design each heat transfer product to
meet the specific space, power, performance and other needs of our customers. TAT Israel's heat transfer solutions are marketed worldwide
for applications in commercial and military aircraft and electronic systems, the primary users of such equipment. TAT Israel's customers
include, Liebherr-Aerospace Toulouse S.A. (“Liebherr”), Boeing Aircraft Company (“Boeing”), Israel Aerospace Industries,
(“IAI”), Textron Aviation (“Cessna”), Pilatus Aircraft Ltd (“Pilatus”), Embraer Empresa Brasileira
de Aeronáutica S.A. (“Embraer”), Eaton Aerospace LLC (“Eaton”), Parker Hannifin Corporation (“Parker”), Bell
Helicopter, as well as the U.S. Air Force, U.S. Army, and U.S. Navy and other air forces from around the world. Such supply contracts
are generally long-term engagements that may have terms of ten years or more.
As part of its OEM activities, TAT Israel is also engaged in the
design, development and manufacture of complete cooling systems. This product line principally includes cooling systems for electronic
systems (used in airborne military platforms) and ground cooling systems (used in military facilities, tents, vehicles and other military
applications).
In addition, TAT Israel designs, develops and manufactures aviation
flow control accessories. These accessories include components, such as valves and pumps. Customers for TAT Israel aviation accessories
include Lockheed Martin Corporation, Boeing, Continental Motors , the Israel Air Force (“IAF”), IAI, Elbit Systems (“Elbit”),
Rafael Advanced Defense Systems (“Rafael”), as well as the U.S. Air Force and U.S. Navy and other air forces from around the
world.
TAT Israel's also provides limited MRO services to military customers,
mainly for aviation accessories as well as for certain heat transfer solutions. TAT Israel overhauls emergency power units, hydrazine
tanks, jet fuel starters, cooling turbines and various valves for the F-16 fighter aircraft. The customers for TAT Israel MRO services
include the IAF, IAI, various NATO countries, as well as the U.S. Air Force, U.S. Army and U.S. Navy.
TAT Israel relies on highly qualified personnel and strong engineering,
development and manufacturing capabilities that enable it to support its customers from the early program development phase to prototype
delivery.
TAT estimates the size of the markets in which TAT Israel operates
to be significant based on the scope of development projects and purchasing processes of its customers. Many of the projects TAT Israel
is engaged in are lengthy and complex, which account for its long-term supplier relationships and the customer loyalty it enjoys. TAT
plans to expand its TAT Israel operations in the OEM segment, among other things, by increasing the scope of work with its existing strategic
customers, establishing relationships with new customers, increasing its capabilities in complete systems/subsystems manufacturing, and
by targeting strategic territories with high commercial potential.
26
MRO Services for Heat Transfer Components and
OEM of Heat Transfer Solutions (Limco)
Through its Limco subsidiary TAT provides MRO services and OEM
services to the aerospace and ground defense industries in the field of heat transfer. Limco’s FAA-certified repair station provides
aircraft component MRO services for airlines, OEMs, air cargo carriers, maintenance service centers and the military. Limco is also certified
by the EASA, and the Civil Aviation Administration of China. Limco has NADCAP certification for dye penetrant testing, welding and heat
treating. Limco specializes in MRO services for components of aircraft, such as heat transfer components and ozone converters. Generally,
manufacturer specifications, government regulations and military maintenance regimens require that aircraft components undergo MRO servicing
at regular intervals or as necessary. Aircraft heat transfer components typically require MRO services, including repairs and installation
of replacement units, after two to five years of service or sooner if required. Aircraft manufacturers typically provide warranties on
new aircraft and their components and subsystems, which may range from one to five years. Warranty claims are generally the responsibility
of the OEM during the warranty period. Limco’s business opportunity usually begins upon the conclusion of the warranty period for
these components and subsystems. Limco’s customers include major U.S. domestic and international airlines, air cargo carriers, maintenance
service centers, OEMs such as commercial and military aircraft manufacturers and defense contractors, and the U.S. Armed Forces (Army,
Air Force, Navy and Coast Guard). MRO contracts with these types of customers are generally long-term engagements and may have terms of
one to five years or more.
Limco enjoys a strong reputation among customers for its competitive
pricing and fast turnaround time. It is recognized by leading OEMs of aerospace products to provide MRO services for their heat transfer
solutions. For example, Limco is a well-recognized Collins Aerospace Authorized repair center, providing MRO services for many of its
heat transfer solutions.
In addition to its MRO services, Limco also manufactures, on an
OEM basis, heat transfer solutions used in commercial, regional, business and military aviation platforms. Customers for Limco’s
heat transfer solutions include Boeing, the Defense Supply Center, Parker Hannifin, Raytheon Company (“Raytheon”), BAE Systems,
Bell Helicopter, Triumph Aerostructures, Northrop Grumman Corporation and Gulfstream Aerospace Corporation.
TAT estimates the size of the markets in which Limco operates to
be significant based on the number of aircraft requiring MRO services provided by Limco along with the customer loyalty Limco enjoys.
TAT plans to expand its Limco operations, among other things, by developing OEM and MRO capabilities for additional types of heat transfer
products with significant commercial potential.
27
MRO Services for Aviation Components (Piedmont)
Through its subsidiary Piedmont, TAT provides MRO services for
aviation components to the aerospace industry. Piedmont’s FAA- and EASA-certified repair station provides aircraft component MRO
services for commercial airlines, business jets, air cargo carriers, maintenance service providers as well as governments and military
forces worldwide. Piedmont specializes in MRO services for aircraft components, including APUs, landing gear and MPG. Generally, manufacturer
specifications, government regulations and military maintenance regimens require that aircraft components undergo MRO servicing at regular
intervals or as necessary. Aircraft components typically require MRO services, including repairs and installation of replacement units,
after three to ten years of service or sooner if required. Aircraft manufacturers typically provide warranties on new aircraft and their
components and subsystems, which may range from one to five years. Warranty claims are generally the responsibility of the OEM during
the warranty period. Piedmont’s business opportunity usually begins upon the conclusion of the warranty period for these components
and subsystems. Piedmont’s customers include U.S. domestic and international airlines, air cargo carriers and maintenance service
providers. MRO contracts with these types of customers are generally long-term engagements that may have terms of one to ten years or
more.
Piedmont is licensed by Honeywell as an authorized repair center
to provide MRO services for several types of its APU models. Piedmont has licensing agreements in place with the major landing gear manufacturers
Safran Landing Gear Systems and Liebherr Aerospace as well.
TAT estimates the size of the markets in which Piedmont operates
to be significant based on the number of aircraft requiring MRO services provided by Piedmont. TAT plans to expand its Piedmont operations
in the MRO segment by using Piedmont’s experience and reputation to develop MRO capabilities for additional types of APU and landing
gear applications as well as other aircraft systems/components with significant commercial potential and by offering additional supplementary
services such as MPG.
In this instance, Piedmont signed several strategic agreements
with Honeywell (aerospace division). Under these transactions, Honeywell granted a 10-year license to MRO with respect to the following
APU lines: 331-200\250, 331-500 that serves the Boeing 777 platform and 131 that serves the Boeing 737 platform and Airbus 319-320-321
platform. During 2021, Piedmont entered into the APU leasing activity with a purchase of eighteen 331-500APU engines from Honeywell, under
which Honeywell is the main customer for leasing these engines (pursuant to this agreement Piedmont is Honeywell's sole source for engines
for lease purposes). In 2022 Piedmont increased the lease pool by adding six 131-9A/B APU’s and five 331-200/250 APU’s.
Piedmont’s extensive experience in the repair and overhaul
of APUs and landing systems includes a comprehensive involvement in the industry supply chain. In addition to its MRO services, Piedmont
is active worldwide in the exchange, lease and individual component parts supply of its APU and landing gear products. Through a network
of industry partners and well-known aerospace parts distributors, Piedmont’s activity in the sale of parts is a robust element of
its business. Piedmont’s quality systems are AS9110 and NADCAP for non-destructive testing.
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Overhaul and Coating of Jet Engine Components
(Turbochrome)
Through its subsidiary Turbochrome, TAT provides MRO services for
jet engine components to the aerospace industry. Turbochrome’s FAA and EASA-certified repair station provides its services mainly
to maintenance service centers, airlines and the military. Turbochrome specializes in MRO services for engine components such as turbine
vanes and blades, compressor vanes and blades, fan blades and after burner flaps. Generally, manufacturer specifications, government regulations
and military maintenance regimens require that engine components undergo MRO servicing at regular intervals or as necessary. Commercial
engine components typically require MRO services after three to five years of service or sooner if required. Engine manufacturers typically
provide warranties on new engines and their components and subsystems, which may range from one to five years depending on the bargaining
power of the purchaser. Warranty claims are generally the responsibility of the OEM during the warranty period. Turbochrome’s
business opportunity usually begins upon the conclusion of the warranty period for these components. Turbochrome’s customers include
domestic and international airlines, maintenance service centers and the military.
Turbochrome also specializes in the manufacturing of coating powders
(for pack cementation aluminide coatings) and masking materials (for the prevention of coating in defined areas) used in the aviation
industry. Turbochrome provides these materials to OEMs and to maintenance service centers.
TAT estimates the size of the markets in which Turbochrome operates
to be significant based on the number of jet engines requiring MRO services. Turbochrome plans to expand its operations in the MRO segment
by using Turbochrome’s experience and reputation to develop MRO capabilities for additional types of jet engine components with
significant commercial potential.
Turbochrome’s quality system complies with ISO 9001 and AS9100, and with EASA
part 145 and FAA FAR 145 for the civil parts.
TAT-Engineering LLC
In November 2015, TAT signed an agreement with Russian-based Engineering
Holdings Ltd, of Moscow (“Engineering”), to establish a new facility for the provision of MRO services for heat transfer components.
The company, TAT-Engineering LLC, is based in Novosibirsk’s Tolmachevo airport. The entity was established in January 2016 and is
currently operating under FAA certifications and obtained FAA high-level repair approvals. Current efforts are focused on marketing
initiatives targeting the major Russian and CIS airlines and maintenance stations. However, due to sanctions imposed by the United
States, EU, Japan and other jurisdictions on certain industry sectors and entities in Russia and certain impacted regions, as well as
enhanced export controls on certain products and industries, during the years of 2023, 2024 and 2025, our joint venture in Russia
ceased to purchase heat-exchange cores from Limco, our US subsidiary, and therefore the joint venture had to materially limit the extent
of the MRO services it provides to its customers.
29
Business Strategy
TAT
aims to be the trusted partner to its strategic customers, delivering differentiated products and services in selected, high barrier-to-entry,
markets. This will enable TAT to develop the long-term high-value relationships it strives to have with its customers to effectively
complete and continue grow business and improve profitability. Currently, TAT’s focus is on three main markets: thermal management
solutions and services and Power and Actuation solutions and services and Repair and Overhaul.
Execution of TAT’s strategy is based on the following principles:
| • |
Increasing market share - continuing aggressive marketing efforts to win
new customers as well as to expand activities with existing customers, partly by focusing on cross selling opportunities between our different
businesses. As part of our efforts, we also intend to expand our marketing presence in existing territories, like the United States and
Western Europe as well as new territories, where TAT currently has a smaller presence and fewer customers, such as Eastern Europe, Latin
America and Asia. |
| • |
Organic growth and M&A - in addition to growing our existing businesses
organically as detailed above, we intend to evaluate complementary acquisition opportunities. |
| • |
Enhancing OEM capabilities - capitalizing on our technical expertise,
experience and reputation in the market of heat transfer solutions to expand the scope of our OEM offerings to new aircrafts or to new
platforms in the existing aircrafts such as electrification of aircraft and eVTOL. |
| • |
Expand the scope of MRO services - leveraging
our technical expertise, engineering resources and facilities to broaden MRO services to additional types of aircraft and additional aircraft
systems, subsystems and components while developing the required technical expertise to provide these additional MRO services. |
Products and Services
OEM of Heat Transfer Solutions and Aviation
Accessories
TAT Israel manufactures a wide range of heat transfer solutions
used on board aircraft, air conditioning systems, environmental control systems and cooling systems for electronics for military use.
These solutions are manufactured in compliance with all of the stringent quality assurance standards that apply to the manufacture of
aircraft parts. TAT Israel's quality system complies with ISO 9001, AS9100, Boeing quality systems approval D6-82479 and FAR 21.303 (the
FAA standard for Parts Manufacturer Approval) and NADCAP for non-destructive testing and welding.
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Heat Transfer Solutions
TAT Israel specializes in the design and manufacture of highly
efficient, compact and reliable heat transfer solutions that are designed to meet stringent constraints such as size, weight and environmental
conditions. Heat transfer solutions, such as heat exchangers and cold plates, are integral components of a wide variety of environmental
control, mechanical and engine systems, as well as a wide range of electronic systems. These systems generate heat during operation that
must be removed and dissipated. Heat transfer solutions facilitate the exchange of heat created through the operation of these systems
by transmitting the heat from a hot medium (air, oil or other fluids) to a cold medium for disposal.
In the aerospace industry, there is a constant need for improvements
in performance, weight, cost and reliability. In addition, as electronic systems become smaller and more densely packed, the need for
sophisticated and efficient heat transfer components used to provide the cooling functions becomes more critical. Using TAT Israel's technological
expertise, TAT believes it is well positioned to respond to these industry demands through continued new product development and product
improvements.
TAT Israel's principal heat transfer solutions include heat exchangers
and cold plates. Typically, air-to-air heat exchangers cool a jet engine’s bleed air which, when cooled, is then used in the aircraft’s
air conditioning, pressurization and pneumatic systems. The liquid-to-air heat exchangers cool liquids such as engine oil, hydraulic oil
and others used in other systems.
TAT Israel provides a one-stop-shop for all types of heat transfer
solutions. A significant portion of TAT Israel's heat transfer solutions is sold to customers in connection with the original manufacture
or retrofitting of particular aircraft equipment. TAT Israel generally enters into long-term supply contracts with its customers, which
require TAT Israel to supply heat transfer products as part of a larger project.
TAT Israel also manufactures other heat transfer solutions, such
as cooling chassis, heat sinks and cold plates (which may be air-to-air, liquid-to-air or liquid-to-liquid), to control and dispose heat
emitted by the operation of various electronic systems. Such products are currently utilized mainly in radar systems, avionics, electronic
warfare systems and various pods for targeting, navigation and night vision.
As a result of the specialized nature of the systems in which TAT
Israel's parts are included, spare and replacement parts for the original heat transfer solutions are also usually provided by TAT Israel.
Aviation Flow Control Accessories
TAT Israel is also engaged in the design, development, manufacture
and MRO services for aviation flow control accessories. These accessories include components such as valves and pumps.
Cooling and Air Conditioning Systems
TAT Israel is also engaged in the design, development and manufacture
of complete environmental control systems and cooling systems. This product line includes ground cooling systems mainly for military applications
such as mobile command and control units, command and control vehicles, armored vehicles, mobile broadcast units, mobile hospitals, etc.
In addition, TAT Israel designs, develops and manufactures power electronics cooling systems based on customer specifications, while providing
a complete engineering solution in compliance with strict civil aviation standards. TAT Israel's systems are used globally and are tested
under strict standards.
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MRO Services for Heat Transfer Components and OEM of Heat Transfer
Solutions
MRO Services for Heat Transfer Components
Through its Limco subsidiary in the U.S., TAT provides MRO services
for heat transfer components. The demand for MRO services is driven by the size and age of the aircraft fleet (including new aircrafts
entering into service), aircraft utilization and regulations set or promulgated by the FAA and other governmental authorities.
Due to the increased maintenance costs of their aging fleets many
carriers are seeking ways to reduce costs, minimize down-time, increase aircraft reliability and extend time between overhauls. One way
to accomplish this goal is through the outsourcing of more of their maintenance and support functions to reliable third parties. Furthermore,
we believe that commercial carriers making the decision to outsource their MRO requirements are searching for MRO service providers with
a wide-range of service capabilities. Such MRO service providers allow the carriers to concentrate their outsourcing of MRO services to
a select group of third-party providers. The global military aircraft fleet also presents similar opportunities for MRO service providers.
We believe that an aging military fleet and the increased use of upgrade programs aimed at extending the useful life of military aircraft
will provide continued MRO growth opportunities.
Limco specializes in the repair and overhaul of heat transfer components.
These components include heat exchangers, oil coolers, pre-coolers, reheaters, condensers, water separators, fuel heaters, evaporators
and ozone converters.
Limco is continually expanding its MRO capabilities based on market
need and/or customer request. Limco’s capabilities include heat transfer components used in aircraft and systems manufactured by
Airbus, Boeing, Bombardier, Cessna, Embraer, Lockheed Martin, Fokker, Liebherr-Aerospace, Collins Aerospace, Honeywell Aerospace and others.
Limco performs MRO services at its repair station in Tulsa, Oklahoma
which has ISO9001, AS9110 and AS9100 certification, NADCAP certification for dye penetrant testing, welding and heat treating, and is
licensed to provide MRO services by the FAA and EASA, as well as by the civil aviation Administration of China.
Limco offers different or various MRO services for heat transfer
components. If the damage is significant, Limco will remanufacture the unit, which generally entails replacing the core matrix of the
damaged or old heat transfer component in lieu of replacing the entire unit with a new one. Limco designs and develops these customized
remanufactured units as a cost-effective alternative to new part replacement. In the event of less severe damage, Limco will either overhaul
or repair the unit as necessary. Re-manufactured units carry warranties which are often equal or better than those provided to new units.
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OEM Authorizations and Licenses
Limco believes that establishing and maintaining relationships
with OEMs of aircraft systems and components is an important factor in achieving sustainable success as an independent MRO service provider.
OEMs grant independent MRO service providers authorization to perform repair and overhaul services on their behalf. OEMs generally grant
very few authorizations and maintain tight controls over their authorized MRO service providers in order to maintain high quality of service
to their customers. Obtaining OEM authorization requires sophisticated technological capabilities, experience-based industry knowledge
and substantial capital investment. Furthermore, Limco believes that service providers that have OEM authorization gain a competitive
advantage as they typically receive discounts on parts, technical information and OEM warranty support. Limco is an independent MRO service
provider that is a well-recognized repair center of Collins Aerospace (Hamilton Sundstrand), one of the largest heat transfer solutions
manufacturers in North America or in the United States.
OEM of Heat Transfer Solutions
In addition to its MRO services, Limco also acts as an OEM manufacturer
of heat transfer solutions used mainly in military aircraft and other ground applications and to a lesser extent, in commercial, regional
and business aircraft. Limco specializes in the design and manufacture of highly efficient heat transfer solutions, which are designed
to meet stringent constraints such as size, weight and applicable environmental conditions. These units include heat exchangers, oil coolers,
precoolers, reheaters, condensers, fuel heaters and evaporators.
Limco also manufactures demineralizer systems for U.S. Navy vessels,
including ships and nuclear submarines. Limco currently offers tens of OEM parts to the aerospace and ground defense industries. These
parts are manufactured in compliance with the stringent quality assurance standards that apply to the manufacture of aircraft and military
parts.
Limco’s quality systems are ISO9001, AS9110, AS9100 and NADCAP
for non-destructive testing, welding and heat treating and FAR 21.303 (the FAA standard for Parts Manufacturer Approval).
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MRO Services for Aviation Components
Through its Piedmont subsidiary, TAT provides MRO services for
aviation components, including APUs and landing gear. As previously mentioned, the demand for MRO services is driven by the size and age
of the aircraft fleet, aircraft utilization and regulations by the FAA and other governmental authorities.
Due to increased maintenance costs of their aging fleets many carriers
are seeking ways to reduce costs, minimize down-time, increase aircraft reliability and extend time between overhauls. One way to accomplish
this goal is through the outsourcing of more of their maintenance and support functions to reliable third parties. Furthermore, we also
believe that commercial carriers making the decision to outsource their MRO requirements are searching for MRO service providers that
offer a wide-range of service capabilities. These MRO service providers allow the carriers to concentrate their outsourcing of MRO services
to a select group of third-party providers. The global military aircraft fleet also presents similar opportunities for MRO service providers.
We believe that an aging military fleet and the increased use of upgrade programs aimed at extending the useful life of aircrafts will
provide continued MRO growth opportunities.
Piedmont specializes in the repair and overhaul of APUs and landing
gear. APUs are relatively small, self-contained generators used to start jet engines, usually with compressed air, and to provide electricity,
hydraulic pressure and air conditioning while an aircraft is on the ground. In many aircraft, an APU can also provide electrical power
during in-flight emergency situations. Landing gear is the structure that supports an aircraft on the ground and allows it to taxi, takeoff
and land.
Piedmont performs MRO services at its repair station in Greensboro,
North Carolina, which is licensed by the FAA and EASA. Piedmont specializes in providing comprehensive repair and overhaul services for
APU models manufactured by Honeywell, the leading OEM in the United States. In addition, Piedmont provides full repair, overhaul, machining,
plating and grinding services for landing gear systems for commercial and military aircraft. Piedmont has a long history in providing
landing gear MRO services for regional airliners, including aircraft manufactured by the French-Italian ATR (42/72), Gulfstream (G4),
Lockheed Martin (P3/C130) and the Brazilian Embraer (E170). At the end of 2020 Piedmont signed an exclusive contract with Honeywell
as Honeywell's exclusive rental bank provider for the APU 331-500 (used in the Boeing 777 platform). By signing this agreement with Honeywell
and purchasing 18 APU331-500 engines Piedmont entered a new segment of APU leasing. Piedmont also signed a contract to be an authorized
repair station for the 331-500 APU (serving the Boeing 777 platform) as well as the APU 131 serving the Boeing 737 platform and Airbus
319-320-321 platform.
34
OEM Authorizations and Licenses
Piedmont believes that establishing and maintaining relationships
with OEMs of aircraft systems and components is an important factor in achieving sustainable success as an independent MRO service provider.
OEMs grant independent MRO service providers authorizations or licenses to perform repair and overhaul services on the equipment they
manufacture. OEMs generally grant few authorizations or licenses and maintain tight controls over their authorized and licensed MRO service
providers, in order to maintain high quality of service to their customers. Obtaining OEM authorizations requires sophisticated technological
capabilities, experience-based industry knowledge and substantial capital investment. Piedmont believes that service providers that have
OEM authorizations and licenses gain a competitive advantage as they typically receive discounts on parts, technical information, OEM
warranty support and use of the OEM name in marketing. Piedmont is an authorized repair station licensed by Honeywell, the largest manufacturer
of APUs, for several of its APU models.
Machining, Plating and Grinding, or MPG Services
Piedmont has extended its services to include the provision of
MPG services, either as supplementary to its traditional MRO services or as stand-alone services. We believe that establishing and maintaining
customer relationships with our MPG shop is an important factor in achieving sustainable success as an independent MRO service provider
and creates a competitive advantage.
Overhaul and Coating of Jet Engine Components
Through its subsidiary, Turbochrome, TAT provides MRO services
for jet engine components to the aerospace industry. Turbochrome’s FAA and EASA-certified repair station provides its services mainly
to maintenance service centers, airlines and the military. Turbochrome specializes in MRO services for engine components such as turbine
vanes and blades, compressor vanes and blades, fan blades and after burner flaps. Generally, manufacturer specifications, government regulations
and military maintenance regimens require that engine components undergo MRO servicing at regular intervals or as necessary. Commercial
engine components typically require MRO services after three to five years of service or sooner if required. Engine manufacturers typically
provide warranties on new engines and their components and subsystems, which may range from one to five years depending on the bargaining
power of the purchaser. Engine manufacturers may also offer extended warranty agreements for 10 to 15 years for the engines. Warranty
claims are generally the responsibility of the OEM during the warranty period. Turbochrome’s business opportunity usually
begins upon the conclusion of the warranty period for these components. Turbochrome offers its customers DER (Designated Engineering Representatives)
and DOA (Design Organization Approval) repairs approved by the FAA and EASA. Turbochrome’s customers include U.S. domestic and international
airlines, maintenance service centers and the military.
TAT estimates the size of the markets in which Turbochrome operates
to be significant based on the number of jet engines requiring MRO services provided by Turbochrome. Turbochrome plans to expand its operations
in the MRO segment by using Turbochrome’s experience and reputation to develop MRO capabilities for additional types of jet engine
components with significant commercial potential.
Turbochrome’s quality system complies with ISO 9001 and AS9100,
and with EASA part 145, FAA FAR 145 for the civil parts, the Israel Laboratory Accreditation Authority under ISO/IEC 17025:20 and NADCAP
for 3 manufacturing procedures.
35
Manufacturing of masking and coating materials
Through its Turbochrome facility, TAT manufactures a wide range
of masking and coating materials for the aviation industry. These products are manufactured in compliance with all of the stringent quality
assurance standards that apply to the maintenance of aircraft engine components.
Customers
General
TAT targets a broad range of customers within the commercial and
military aerospace and ground defense industries. Our customers include commercial manufacturers of military equipment, commercial airlines,
aircraft manufacturers, military forces, the defense industry, and other manufacturers of electronic systems, aviation units and machinery
in the United States, Europe, CIS, Asia, Latin America and Israel. During 2025, TAT had revenues generated by more than 500 customers
worldwide.
Major Customers
OEM Customers
TAT, primarily through TAT Israel, sells its OEM solutions and
systems to commercial and military aircraft manufacturers and defense contractors and to the U.S. and Israeli governments.
Partial lists of OEM customers are set in the following table:
|
Aircraft manufacturers |
Boeing, Textron, Pilatus, Embraer, Lockheed Martin, Honda Aircraft, Cirrus, Gulfstream,
|
|
System manufacturers/integrators and defense contractors |
Liebherr, Rafael, Elbit, IAI, Parker, Eaton Aerospace, Safran, RTX, Raytheon-Collins.
|
The development projects and purchasing processes of many of TAT’s
OEM customers are lengthy and complex and accordingly, with some customers, TAT enters into frame agreements that determine certain legal
conditions, but under which the customer is not obligated to purchase any quantity of products. Typically, customers issue purchase orders
with the required supply quantity, price, lead times and other related terms.
36
MRO Customers
TAT services MRO customers primarily through Limco, Piedmont and
Turbochrome, including major U.S. domestic and international airlines, air cargo carriers, maintenance service centers, the U.S. Armed
Forces and other air forces from around the world.
TAT’s partial list of MRO customers is set forth in the following
table:
|
U.S. Domestic and international airlines and air cargo carriers |
Air France-KLM, Lufthansa, FedEx, UPS, American Airlines, Delta Airlines, United Airlines,
Air Canada Jazz, Republic Airways, DHL, Austrian Airlines, TAM, Thai, Korean Air, Air India, Swiftair, Allegiant Air, Empire Airlines,
Mountain Air Cargo, Alliance Airlines, |
|
Maintenance service centers |
Fokker, Honeywell International, Kellstrom Commercial, Aero Kool, Lufthansa Technik,
RTX through Collins, SR Technics, Turkish Technic, Delta Tech Ops, ST Aerospace Engineering, , Gulfstream, IAI, Haeco Americas , Air New-Zeeland,
AAR. |
|
Governments and military air forces |
U.S. Army, U.S. Air Force and U.S. Navy; Israeli Ministry of Defense, Israeli Air
Force; Japan Air Force. |
Military Contracts
Direct sales to the U.S. government, our largest government customer,
accounted for approximately 7.7% of TAT’s revenues for the year ended December 31, 2025, approximately 9.3% of our revenues for
the year ended December 31, 2024 and approximately 6.6% of our revenues for the year ended December 31, 2023.
Many of TAT’s military contracts are awarded on a competitive
basis based on technical merit, personnel qualifications, experience and price. TAT also receives some contract awards involving special
technical capabilities on a negotiated, noncompetitive basis due to TAT’s technical capabilities.
TAT provides products under government contracts that usually require
performance over a period of several months to several years. Long-term contracts for the U.S. military may be conditioned upon continued
availability of congressional appropriations. Variances between anticipated budget and congressional appropriations may result in a delay,
modification of scope or termination of these contracts.
The vast majority of the governmental contracts to which TAT is
party to are fixed-price contracts, some of which contain fixed-price escalation mechanism. Under these contracts, TAT agrees to perform
specific work for a fixed price and, accordingly, realizes the benefit or detriment to the extent that the actual cost of performing the
work differs from the contract price. The allowable government contract costs and fees of TAT are subject to audit and may result in non-reimbursement
of some contract costs and fees. While governments reserve the right to conduct further audits, audits conducted for periods through fiscal
year 2024 and 2025 have resulted in no material cost recovery disallowances for TAT.
TAT’s eligibility to perform under its government contracts
requires us to maintain adequate security measures. TAT has implemented security procedures that it believes adequately satisfies the
requirements of its current government contracts.
37
Backlog and Long-Term Agreements
Our backlog includes the following: (i) actual purchase orders,
and (ii) the estimated sales we expect to generate from long-term agreements during the life of the contract or 10 years the lower of
the two, for which we do not have actual purchase orders. It should be noted that under these long-term agreements there is no legal obligation
from the customer to purchase our products or services, yet typically our customers would not sign such an agreement unless there is a
specific business opportunity. As such, backlog information may not necessarily be indicative of future sales.
As
of December 31, 2025, our backlog included: (i) outstanding purchase orders representing an aggregate amount of $86 million, and (ii)
sales that we expect to generate from long-term agreements (the longest of which is until 2035) for which we have not yet received actual
purchase orders in an aggregate amount of $464 million totaling to a value of $550 million of long-term agreements and orders.
Product and Service Warranties
TAT provides warranties for its products and services ranging from
one to three years, depending on the nature of the specific product. To date, TAT’s warranty costs have not been substantial. As
of December 31, 2025, the combined warranty reserve for TAT was $0.4 million.
Competitive Environment
OEM of Heat Transfer Solutions and Aviation
Accessories
The aerospace and defense OEM industries in general and specifically,
the commercial and military aviation markets, are characterized by intense competition and the need to constantly be in the forefront
of technological innovations in order to be able to offer technologically-advanced and attractive products. Competition in these OEM markets
is also based on price, quality and on time delivery. TAT estimates the market size of heat transfer solutions to be significant based
on the scope of development projects and purchasing processes of the potential customers. TAT estimates that there is a small number of
competing suppliers in the aerospace and defense OEM markets due to the high barriers to entry to these markets, which include the need
for highly qualified and trained personnel, technologically advanced facilities and the need to obtain appropriate governmental approvals.
The nature of the projects in the commercial and military aviation OEM industry, which are often time consuming and complex, also require
long-term supplier relationships and customer loyalty in order to succeed.
38
TAT’s competitors in the global OEM aerospace and defense
industries can be divided into two main groups:
| • |
Complete system manufacturers that either independently or through subcontractors, design, develop and manufacture complete systems
(such as a manufacturer of aircraft hydraulic systems) directly for the platform manufacturer (i.e., for business jets). These companies
will typically compete on bids for complete systems and/or projects where the components/products TAT develops are part of the complete
system. In such cases, it is very likely that these companies will subcontract to companies such as TAT the design and manufacturing of
one or a few components in the system. Although some of these companies have the capabilities to design and manufacture each standalone
component in a complete system (i.e., a heat exchanger integrated in hydraulic systems) they usually do not compete with TAT in projects
where there is a specific requirement for a stand-alone component. |
| • |
Component manufacturers, such as TAT, for which the design and manufacture of components (such as heat exchangers or other types
of heat transfer solutions) is the main business (and which are normally situated in the “value chain” one tier below the
system manufacturers, such as a manufacturer of an aircraft’s hydraulic system and two tiers below the platform manufacturer, such
as a manufacturer of a new aircraft). These companies typically compete in projects where there is a specific requirement for a standalone
aviation component (such as a heat exchanger or other types of heat transfer solutions) and in tenders by manufacturers of complete systems
or products for sub-contractors. Although some of the component manufacturers have the capabilities to design, develop and manufacture
a complete system (i.e., environmental control system for a business jet) for a certain platform, these companies usually do not compete
on projects for complete systems in which their manufactured component constitutes a small part of the complete system, mainly due to
the high barriers to entry and to the difficulty to move up the “value chain” from a component supplier to a whole system
manufacturer. |
The major competitors of TAT in the area of OEM of heat transfer
solutions and aviation accessories include manufacturers in the United States such as the Hughes-Treitler division of Ametek, Lytron,
Niagara Thermal, Collins Aerospace, Honeywell International and AAR Corp; manufacturers based in Europe such as I.M.I. Marston, a subsidiary
of Collins Aerospace, Safran and Liebherr; and manufacturers based in Asia such as Sumitomo Precision Products from Japan. These competitors
may enjoy competitive advantages over TAT, such as:
| • |
Ability to adapt faster to changes in customer requirements and industry conditions or trends; |
| • |
Greater access to capital; |
| • |
Stronger relationships with customers and suppliers; |
| • |
Greater name recognition; |
| • |
Access to superior technology and greater marketing resources; |
| • |
Ability to offer complete systems in addition to components; and |
| • |
Ability to bundle heat transfer solutions and other aircraft components. |
39
MRO Services for Heat Transfer Components
The market for MRO services in the field of heat transfer components
is highly competitive. Competition in this market is based on price, turnaround time, quality and breadth of services. TAT’s global
competitors in the field of servicing heat transfer components can be divided into two main groups:
| • |
Service divisions of OEMs – generally, each OEM of products in the heat transfer solutions segment has the necessary capabilities
to provide MRO services for products it designs and manufactures throughout its lifetime, commencing with the initial warranty period
and through the after-market period. Service divisions of OEMs may also acquire capabilities to service products of other OEMs to further
expand their MRO services. |
| • |
Service centers – which often provide MRO services for a broad range of components and systems. These service centers can be
either the in-house maintenance services of commercial airlines or other independent service providers, such as TAT Israel and Limco.
|
For heat transfer MRO services, TAT’s major competitors are
AAR Corp, Honeywell, Drake Air – Ametek, Liebherr-Aerospace, American Cooler Service, Collins Aerospace Malaysia, Lufthansa Technik
and Parker Hannifin.
As an independent MRO service provider, Limco’s competitors
have inherent competitive advantages. For example, Limco competes with the service divisions of large OEMs which in some cases have design
authority with respect to their OEM solutions and are able to derive significant pricing advantages from their OEM manufacturing activities.
Limco also competes with the in-house service divisions of large commercial airlines where there is a strong incentive for an airline
to fully utilize the services of its maintenance employees and facilities. Further, Limco’s competitors may have additional competitive
advantages, such as:
| • |
Ability to bundle heat transfer and other aircraft components; |
| • |
Access to greater marketing resources; |
| • |
Access to superior technology; and |
| • |
Greater resources which allow for better turnaround time. |
40
MRO Services for Aviation
Components
The market for MRO services in which Piedmont operates is highly
competitive. Competition in this market is based on quality, price, turnaround time and breadth of services. Piedmont’s primary
MRO services competitors are the service divisions of OEMs, the in-house maintenance services of various commercial airlines and other
independent service providers, such as TAT or Piedmont. For APU and landing gear MRO services Piedmont’s major competitors are Standard
Aero Group., Aerotech International, Honeywell International, Chase Aerospace, Professional Aviation, Messier-Dowty Aerospace (MD), AAR,
Hawker Pacific, APRO, TAG Aero and Turbine Aero and others.
A number of Piedmont’s competitors have inherent competitive
advantages. For example, Piedmont competes with the service divisions of large OEMs which in some cases have design authority with respect
to their OEM products and are able to derive significant brand recognition from their OEM manufacturing activities. Piedmont also competes
with the in-house service divisions of large commercial airlines where there is a strong incentive for an airline to fully utilize the
services of its maintenance employees and facilities. Further, Piedmont’s competitors may have additional competitive advantages,
such as:
| • |
Better name recognition; |
| • |
Ability to bundle aviation and other aircraft components; |
| • |
Stronger relationships with customers and suppliers; |
| • |
Lower cost structure; |
| • |
Regional support near customers’ location; |
| • |
Access to greater marketing resources; |
| • |
Access to superior technology |
| • |
Greater access to capital; and |
| • |
Greater resources which allow for better turnaround time. |
41
Overhaul and Coating
of Jet Engine Components
The market for MRO services in which Turbochrome operates is highly
competitive. Competition in this market is based on quality, price, level of service and turnaround time. Turbochrome’s primary
MRO services competitors are the service divisions of OEMs, the in-house maintenance services of various commercial airlines and other
independent service providers, including Safran (Snecma), General Electric, GKN, PAS, Chromalloy Southwest, MCT Japan and others. With
respect to coating and masking materials, Turbochrome's competitor is APV Coatings.
A number of Turbochrome’s competitors have inherent competitive
advantages. For example, Turbochrome competes with the service divisions of large OEMs which may have design authority with respect to
their OEM products and are able to derive significant brand recognition from their OEM manufacturing activities. Turbochrome also competes
with the in-house service divisions of large commercial airlines and there is a strong incentive for an airline to fully utilize the services
of its maintenance employees and facilities. Further, Turbochrome’s competitors may have additional competitive advantages, such
as:
| • |
Ability to adapt faster to changes in customer requirements and industry conditions or trends; |
| • |
Better name recognition; |
| • |
Ability to bundle jet engine and other aircraft components; |
| • |
Stronger relationships with customers, OEMs and suppliers; |
| • |
Lower cost structure; |
| • |
Regional support near customers’ location; |
| • |
Access to greater marketing resources; |
| • |
Access to superior technology; |
| • |
Greater access to capital; and |
| • |
Greater resources which allow for better turnaround time |
42
Competitive Strengths
We believe that TAT’s success can be attributed to several
critical factors, including the following:
| • |
Engaging in pro-active account management efforts to preserve its customer base in existing projects, while working to broaden and
increase its involvement with such clients. |
| • |
Conducting marketing activities aimed at penetrating new geographical markets and winning new customers, while taking advantage of
the unique knowledge and expertise that TAT and its subsidiaries have gained in various areas. |
| • |
Entering into additional related operating segments that will enable TAT and its subsidiaries to fulfill their growth potential.
|
| • |
Providing customers with the best value, including competitive prices, by tailoring comprehensive service packages that combine the
design and planning of an OEM component, the manufacture of such component, and the provision of maintenance services. |
| • |
Extending MRO capabilities in order to establish a ‘one-stop-shop’ center for comprehensive MRO services for the types
of aircraft Limco and/or Piedmont and/or Turbochrome target. |
| • |
Enhancing our engineering capabilities in order to support customer needs related to new projects and in order to certify MRO services
that differ from processes previously approved by the FAA, EASA or other regulatory authorities. This allows shortening the long and complex
approval process, streamlining the design and certification process and reducing costs. |
| • |
Leveraging operational efficiencies to achieve shorter delivery times and reduce costs. |
| • |
Investing in new technologies and manufacturing techniques in the heat transfer solutions product line. |
| • |
Investing in innovations and improvements aimed at enhancing the quality and performance of our existing solutions and services as
well as the development of new products in an effort to strengthen our market position and enter into more advanced platforms. |
43
Engineering
We believe that our engineering capabilities is a strategic core
competency and key competitive advantage, which allows us to effectively compete in the market with companies which, in many cases, have
better name recognition and greater resources than we do. Our strong engineering capabilities enable us to meet our customers’ increasingly
complex demands to deliver high-quality and cost-effective solutions while maintaining efficient development cycles. These capabilities
are based on proprietary technological expertise and know-how developed by highly experienced multi-disciplinary teams over the years.
We believe that this proprietary knowledge coupled with our innovative and problem-solving approach allows us to provide our customers
with an overall superior solution – in both manufacturing and MRO services – in terms of quality, cost and turnaround time.
Our strong engineering capabilities are a key factor in preserving customer loyalty as well as supporting our efforts to expand our services
to new areas of growth.
TAT Israel's engineering staff has extensive knowledge and experience
in designing heat transfer solutions. In general, TAT Israel has manufacturing capabilities for most heat transfer solutions. TAT Israel
manufactures the necessary tools, fixtures, test equipment and special jigs which are required to manufacture, assemble and test these
products. TAT Israel developed proprietary design and analysis techniques which assist in the mechanical and thermal design of its products.
All of TAT Israel's products are inspected and tested by trained inspectors using highly sophisticated test equipment in accordance with
its customer requirements.
Limco’s engineering department enhances its ability to provide
its customers with high-end top-quality MRO services, supports the development of MRO services for new products with commercial potential
and supports its OEM activity. Limco’s engineering department employs certified mechanical and aerospace engineers. Limco’s
multi-disciplinary team of engineers specializes in, among others, heat transfer solutions and components and supports all processes of
thermal and structural analysis, mechanical and metallurgical research and development for manufacturing design. Limco’s engineers
have direct experience with aerospace component repair and with obtaining supplemental type certificates from the FAA. Limco’s engineering
department supports the development of new repairs capabilities that extend beyond the limits of the component maintenance manual and
utilizes DER to obtain the necessary FAA approvals.
Piedmont’s engineering department employs experienced mechanical
and aerospace engineers with repair station and manufacturing experience in both engineering and quality. Piedmont also has an FAA-certified
DER on staff with delegations in Auxiliary Power Units (APUs) & Mechanical Systems and with special delegation to manage and approve
repair specifications. In addition to developing quality major repairs, Piedmont’s engineers have experience in obtaining
supplemental type certificates and parts manufacturer approvals while working directly with the FAA Aircraft Certification Office.
Turbochrome’s engineering department enhances its ability
to provide its customers with high-end top-quality MRO services. Turbochrome’s engineering department employs several certified
mechanical and metallurgical engineers. Turbochrome’s multi-disciplinary team of engineers specializes in, among other things, turbine
components and supports all processes of thermal and structural analysis and mechanical and metallurgical research and development. Turbochrome’s
engineers have substantial experience with aerospace component repair and with obtaining DER and DOA certificates from the FAA and EASA.
44
Research and Development
State-of-the-Art R&D Testing Lab for Thermal Management Systems
In response to the rapidly evolving technological landscape and
the transformative shift driven by electric Vertical Takeoff and Landing (eVTOL) aircraft, TAT recognizes the increasing complexity and
demand for advanced thermal management systems. The rise of sophisticated electrical flying vehicles has introduced unprecedented challenges,
particularly in cooling performance, weight reduction, and compact design. To address these challenges, during 2025, as part of a strategic
plan by TAT’s management, TAT established a new R&D lab, FutureWorks, located in Charlotte, North Carolina which was built to
develop the next generation of thermal management systems. TAT’s FutureWorks, is designed to drive cutting-edge advancements in
sustainable aviation, focusing on the research, testing, and development of thermal management systems and heat exchangers to support
both today’s aircraft and the next generation of all electric, hybrid-electric, and hydrogen platforms.
This advanced facility will serve as a vital enabler of TAT's strategic
commitment to research and development, focusing on:
| • |
Performance Optimization: Achieving superior heat transfer efficiency while meeting stringent cooling requirements for modern aviation
systems. |
| • |
Physical Characteristics Enhancement: Reducing system size and weight to align with eVTOL and electric aircraft operational constraints.
|
| • |
Reliability and Durability: Extending product lifespan by leveraging advanced materials, manufacturing techniques, and rigorous testing
protocols. |
The laboratory is equipped with cutting-edge testing and simulation
infrastructure that allows for comprehensive analysis and validation across a wide spectrum of thermal management applications. Key features
include:
| • |
High-fidelity heat exchanger testing platforms capable of simulating real-world thermal conditions, including dynamic temperature,
pressure, and multi-phase flow. |
| • |
Integrated predictive modeling and simulation tools to accelerate the design and validation process. |
| • |
Real-time data acquisition and performance measurement systems for precise evaluation of thermal efficiency and reliability.
|
| • |
Scalable platforms for testing traditional and advanced technologies, including next-generation 3D-printed heat exchangers and custom
thermal solutions. |
45
Commitment to Innovation through Collaboration
TAT’s strategic approach underscores the dynamic nature of
customer requirements and the ever-changing competitive landscape. Recognizing that technological innovation is both imperative and continuous,
TAT actively fosters collaborative partnerships with customers and industry stakeholders. These partnerships serve as catalysts for:
| • |
Identifying emerging market needs and technological challenges. |
| • |
Co-developing tailored solutions that meet specific operational and environmental constraints. |
| • |
Accelerating product development timelines through iterative testing, feedback, and refinement. |
This collaboration enables TAT to not only enhance its existing
product offerings but also pioneer new solutions that deliver unmatched performance, efficiency, and reliability in the thermal management
sector.
Strategic Vision and Market Leadership
Through its state-of-the-art R&D lab and unwavering commitment
to innovation, TAT positions itself at the forefront of the thermal management industry. By investing in advanced technologies, rigorous
testing capabilities, and customer-centric solutions, TAT is well-prepared to meet the increasingly complex demands of modern aviation
and eVTOL platforms.
This forward-looking strategy ensures TAT’s ability to:
| • |
Deliver cutting-edge solutions that set new industry benchmarks. |
| • |
Adapt and respond to market potential with agility and precision. |
| • |
Exceed customer expectations by providing future-ready thermal management systems. |
By staying ahead of technological advancements and embracing a
proactive, collaborative approach, TAT strengthens its leadership in the dynamic aerospace market, delivering superior value and innovation
for customers worldwide.
46
Source and Availability of Raw Materials and Spare Parts
TAT and its subsidiaries acquire most of the components for the
manufacture of their products and provision of their services from a limited number of suppliers and subcontractors, the majority located
in Israel and the United States. Some of these suppliers are currently the sole source of one or more components upon which TAT and its
subsidiaries are dependent. Since many of TAT's and its subsidiaries’ purchases require long lead times, a delay in the supply of
an item can significantly delay the delivery of a product. Generally, TAT and its subsidiaries have not experienced significant difficulty
in obtaining timely deliveries of necessary components; however, if they are unable to obtain these components when needed, they would
experience delays in manufacturing their products and their financial results could be adversely affected.
The raw materials used in manufacturing programs are generally
readily available metals and alloys. TAT and its subsidiaries have not had any significant difficulty in obtaining such materials in the
past.
TAT and its subsidiaries select their suppliers primarily based
on their ability to ensure that their parts are serviceable and traceable to OEM-approved sources, their delivery performance and their
ability to help reduce the total cost of procuring those parts. For quality control, cost and efficiency reasons, TAT and its subsidiaries
generally purchase supplies only from vendors with who they have ongoing relationships or who their customers have previously approved.
Authorizations from OEMs often require that TAT purchase component
parts that are needed for its MRO services from the OEM or its designated distributors.
Wherever possible, TAT and its subsidiaries have made and continue
to make an effort to qualify second sources or have identified alternate sources for many of their parts needs.
Proprietary Rights
To date, TAT and its subsidiaries do not own any patents. TAT and
its subsidiaries rely, among others, on trade secrets protection laws. However, we believe that our success is less dependent on the ownership
of proprietary rights and more reliant on our innovative skills, technical competence, marketing proficiency and engineering abilities.
TAT and its subsidiaries do not possess any material registered trademarks.
47
Regulation
Israeli Export Regulations
Export of military-related products and “dual use”
products (items that are typically sold in the commercial market but that may also be used in the defense market) and related technical
information is subject to the enhanced Israeli export laws and regulation by the Ministry of Defense and Ministry of Economy. Currently,
the Israeli government approves exports to approved customers, provided such exports align with the Israeli policy and do not conflict
with national security considerations. TAT Israel is required to obtain a permit prior to initiating a sales proposal, and an export license
is ultimately necessary for the completion of the transaction.
While we have been successful in obtaining export permits in the
past, there is no insurance that we will be able to obtain the necessary export permits or licenses in the future. The Israeli Ministry
of Defense and Ministry of Economy may change the classification of our existing commercial products or may determine that new products
we develop are not exempt from Israeli Ministry of Defense or Ministry of Economy export control. This would place such products subject
to the Israeli Ministry of Defense or Ministry of Economy export control regulations as military products or “dual use” items,
which would impose stringent constraints on our sales process in relation to each sale transaction and limit our markets. If we do not
maintain our existing authorizations and exemptions or obtain necessary future authorizations and exemptions under the export control
laws and regulations of Israel, including export licenses for the sale of our equipment and the transfer of technical information, we
may be unable to export technical information or equipment outside of Israel, we may not be able to realize our market projections and
our business could be materially adversely affected.
U.S. Export Regulations
Export of defense products, military technical data and technical
services by our U.S. subsidiaries to Israel and other countries is subject to applicable approvals by the U.S. government under the U.S.
International Traffic in Arms Regulations (“ITAR”). Such approvals are typically in the form of an export license or a technical
assistance agreement (“TAA”). Other U.S. companies wishing to export defense products or military-related services and technology
to our Israeli and other non-U.S. entities are also required to obtain such export licenses and TAAs. An application for an export license
or a TAA requires disclosure of the intended end user and the use of the technology. Pursuant to recent export control reform initiatives
in the United States, a greater part of our U.S. subsidiaries’ and our U.S. suppliers' activities are becoming subject to control
under the Export Administration Act "dual use" regulations. The U.S. government may deny an export authorization if it determines that
a transaction is counter to U.S. policy or national security.
48
Aerospace and Safety Regulations
The commercial aerospace industry is subject to extensive regulation
by the authorities such as the FAA in the United States, EASA in Europe, and other governmental authorities worldwide. The military aerospace
industry is governed by military quality specifications established by the U.S. Department of Defense and ISO-9000 standards. TAT and
its subsidiaries are required to obtain certifications from one or more of these entities and, in some cases, by individual OEMs. Additionally,
TAT must meet the requirements of its customers, including OEMs and airlines that are subject to FAA regulations and evolving industry
standards, by providing these customers with products that comply with the regulatory requirements applicable to commercial flight operations.
TAT believes it currently meets or exceeds FAA maintenance standards
in its repair and overhaul activities. Our active or operating repair stations in Israel and the United States are approved by the FAA.
TAT also believes it currently complies with all applicable industry standards in its facilities.
TAT’s operations are further subject to a variety of worker
and community safety regulations, including the Occupational Safety and Health Act of 1970 (“OSHA”). OSHA mandates general
requirements for safe workplaces across the U.S., and provides special procedures and measures for handling certain hazardous and toxic
substances. TAT believes that its operations are in compliance with OSHA’s requirements.
TAT also believes that it is in material compliance with applicable
U.S., European and other governmental regulations affecting the aerospace and defense industries.
Israeli Regulations
TAT’s operations in Israel are subject to supervision by
the Israeli Ministry of Defense and the Civil Aviation Administration of Israel (“CAAI”). TAT Israel is certified by the IAF
and the Israeli Ministry of Defense for both manufacturing and maintenance. In addition, TAT Israel is also licensed as a repair station
for certain components by the CAAI. Furthermore, the export of certain products and/or know-how by TAT Israel is subject to approval by
the Defense Export Controls Agency (“DECA”) of the Israeli Ministry of Defense. DECA permits are required prior to submitting
sales proposals involving such exports, as well as for the actual export of such products.
Environmental Matters
TAT’s operations are subject to certain stringent environmental
laws and regulations at the federal, state and local levels in the United States and Israel, as well as to requirements established by
government agencies, including the U.S. Environmental Protection Agency. These regulatory authorities govern, among other matters, the
emission, discharge, generation, management, transportation and disposal of pollutants and hazardous substances. Regulatory authorities
may also require TAT to initiate actions to remediate the effects of hazardous substances that are or have been released into the environment,
and to obtain and maintain permits in connection with TAT’s operations. This extensive regulatory framework imposes significant
compliance burdens and risks.
Although TAT seeks to maintain its operations and facilities in
compliance with applicable environmental laws, there can be no assurance that violations do not exist or that future change to such laws,
regulations or their interpretations will not require TAT to make significant additional expenditures to ensure compliance.
49
Legal Proceedings
We are currently not a party to any material legal proceedings. We may from time to
time be subject to various legal or administrative claims and proceedings arising from the ordinary course of business.
C. Organizational
Structure
The legal name of our
company is TAT Technologies Ltd., and we are organized
under the laws of the State of Israel. We have two wholly-owned subsidiaries: Limco-Piedmont Inc., which is incorporated under the laws
of Delaware, and Turbochrome Ltd., which is incorporated under the laws of the State of Israel. See exhibit 8 for a full list of consolidated
subsidiaries.
D. Property,
Plants and Equipment
Facilities owned or leased by the Company
Israel Facilities
During 2022, TAT entered into a lease in Israel for a new manufacturing
facility. The facility, located in Kiryat Gat, is approximately 138,000 square feet, and the land on which the facility is located is
leased from the ILA. The leasehold rights are for a period ending in 2045 and are recorded in Turbochrome's name. Turbochrome paid the
entire lease payments due until 2045 in a one-time payment (discounted to present value).
In August 2025, TAT signed a new lease agreement for an expansion
of the facility in Kiryat Gat, Israel (additional 13,000 square feet), with a lease term of 5 years that will expire in August 2030. TAT
has an option of extending the terms of the lease for another 5 years, commencing upon expiration of the new lease term.
Executive office lease
TAT’s principal executive office is located in Charlotte,
NC. During 2023, TAT signed a lease agreement for approximately 6,505 rentable square feet facility in Harris Corners Parkway, Charlotte,
North Carolina, USA, which will expire in April 2029. In 2025 the rental expense for this property was $200,000.
50
Limco Facilities
Limco owns and operates a 55,000 square feet manufacturing plant
in Tulsa, Oklahoma which has historically supported all its business, including its aftermarket heat transfer component repair station.
This facility also has housed Limco’s administration, engineering, quality control and support services.
In May 2025, TAT on behalf of Limco signed a new lease agreement
for an R&D facility in North Carolina, USA, with a lease term of 10 years that will expire on April 30, 2035. Limco has the right
to terminate the lease at the end of the 7th year subject to payment of termination fee of $225 thousand plus other charges.
Limco also leases building #2, building #3, building #4, building
#5, and building #6. The lease on building #2 expires on November 30, 2026. The lessee or lessor may terminate the lease by giving
lessee or lessor six months advance written notice. The based rent for building #2 is $4,367 per month plus the annual percentage
increase in the CPI-W. Building #3 lease expired on January 31, 2014, however, the lease has renewed automatically from year to year since
that date. Either party has the right to cancel the lease with 30 days’ advance notice prior to the annual expiration of the
term. The based rent for building #3 is $1,505 per month plus the annual percentage increase in the CPI-W. The lease on building
#4 expires on March 31, 2030. The lessee or lessor may terminate the lease by giving the lessee or lessor 6 months advance written notice.
The based rent for building #4 is $3,500 per month plus the annual percentage increase in the CPI-W. The lease on building #5 expires
on March 31, 2030. The lessee or lessor may terminate the lease by giving the lessee or lessor 6 months advance written notice.
The based rent for building #5 is $4,100 per month plus the annual percentage increase in the CPI-W. The lease on building #6 expires
on March 31, 2032. The lessee or lessor may terminate the lease by giving the lessee or lessor 6 months advance written notice.
The based rent for building #6 is $9,364 per month plus the annual percentage increase in the CPI-W.
In 2025, 2024 and 2023, the rental expense for these properties
was $353 thousand, $247 thousand and $253 thousand, respectively.
Piedmont Facilities
In April 2025, Piedmont signed a renewal of leases for the approximately 82,000 square
feet, landing gear component and overhaul repair station as well as the MPG operation facilities in Greensboro, North Carolina. The renewal
of lease expires on June 30, 2030. In 2025, the rental expense was $362,000.In December 2023, Piedmont signed an additional lease
agreement for a facility in Kernersville, North Carolina, USA. The term of this lease is 3 years and will expire on December 31, 2026.
Piedmont has two options to extend the lease for additional successive terms of 1 year each. The rentable facility is approximately 49,203
square feet and the rent expense for 2025 was $180,000.
51
Item 4A. Unresolved
Staff Comments
There are no unresolved staff comments.
Item 5.
Operating and Financial Review and Prospects
The following discussion of our
results of operations should be read together with our 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.
A.
Company Overview
TAT is reliant on the robustness of the commercial and military
aerospace and ground defense industries. Any downturn in these industries could weaken demand for its solutions and services and negatively
impact its financial results. The commercial airline industry is cyclical and has historically been subject to fluctuations due to general
economic and political conditions, such as fuel and labor costs, price competition, downturns in the global economy and national and international
events.
TAT’s cost of revenues for OEM operations and MRO services
consists of component and material costs, direct labor costs, quality assurance costs, shipping expenses, royalties, overhead related
to manufacturing and depreciation of manufacturing equipment. TAT’s gross margin is affected by the proportion of its revenues generated
from each of its operational segments.
The principal factors that affect the operating income of TAT’s
four segments, in addition to their gross profit, is the expenditure on selling and marketing expenses and general and administrative
expenses. While TAT closely monitors its operating expenses to prevent unnecessary spending, we believe that these operating expenses
may increase in the future in accordance with our plans to grow the business.
TAT’s research and development expenses are related to new
products and technologies or significant improvement of existing products and technologies.
TAT’s selling and marketing expenses are related to commission
payments, compensation and related expenses of TAT’s sales teams, participation in trade shows, travel expenses, advertising expenses
and related costs for facilities and equipment.
TAT’s general and administrative expenses are related to
compensation and related expenses for executive, finance and administrative personnel, professional fees such as legal, audit, SOX, internal
audit, insurance premiums and general corporate expenses and related costs for facilities and equipment.
52
B. Key
Indicators
TAT’s management evaluates its performance by focusing on
key performance indicators, which are revenues, sources of revenues, gross profit, operating income and EBITDA. These key performance
indicators are primarily affected by the competitive landscape in which TAT operates and its ability to meet the challenges posed.
C. Results
of operations
The results of operations presented below should be reviewed in
conjunction with the consolidated financial statements as of December 31, 2025, and for the years ended December 31, 2025 and 2024.
|
Year Ended December 31, |
||||||||||||||||
|
2025 |
2024 |
|||||||||||||||
|
U.S. dollars in thousands |
Amount |
% |
Amount |
% |
||||||||||||
|
Revenues: |
||||||||||||||||
|
Products |
$ |
50,850 |
28.6 |
% |
$ |
47,710 |
31.4 |
% | ||||||||
|
Services |
127,165 |
71.4 |
% |
104,406 |
68.6 |
% | ||||||||||
|
178,015 |
100.0 |
% |
152,116 |
100.0 |
% | |||||||||||
|
Cost of goods: |
||||||||||||||||
|
Products |
35,793 |
20.1 |
% |
33,986 |
22.3 |
% | ||||||||||
|
Services |
98,124 |
55.1 |
% |
85,116 |
56.0 |
% | ||||||||||
|
133,917 |
75.2 |
% |
119,102 |
78.3 |
% | |||||||||||
|
Gross profit |
44,098 |
24.8 |
% |
33,014 |
21.7 |
% | ||||||||||
|
Operating expenses: |
||||||||||||||||
|
Research and development, net |
1,384 |
0.8 |
% |
1,248 |
0.8 |
% | ||||||||||
|
Selling and marketing |
8,576 |
4.8 |
% |
7,746 |
5.1 |
% | ||||||||||
|
General and administrative |
15,730 |
8.8 |
% |
11,901 |
7.8 |
% | ||||||||||
|
Other income |
(404 |
) |
(0.2 |
)% |
(383 |
) |
(0.3 |
)% | ||||||||
|
25,286 |
14.2 |
% |
20,512 |
13.5 |
% | |||||||||||
|
Operating income |
18,812 |
10.6 |
% |
12,502 |
8.2 |
% | ||||||||||
|
Interest expenses |
(1,010 |
) |
(0.6 |
)% |
(1,472 |
) |
(1.0 |
)% | ||||||||
|
Other financial income (expenses), net |
(325 |
) |
(0.2 |
)% |
(477 |
) |
(0.3 |
)% | ||||||||
|
Income before taxes on income |
17,477 |
9.8 |
% |
10,553 |
6.9 |
% | ||||||||||
|
Provision for taxes on income |
2,143 |
1.2 |
% |
195 |
0.1 |
% | ||||||||||
|
Profit before share of equity investment |
15,334 |
8.6 |
% |
10,358 |
6.8 |
% | ||||||||||
|
Share in profits of equity investment of affiliated companies |
1,488 |
0.8 |
% |
809 |
0.5 |
% | ||||||||||
|
Net income |
$ |
16,822 |
9.4 |
% |
$ |
11,167 |
7.3 |
% | ||||||||
53
Revenues
TAT, directly and through its subsidiaries, provides a variety
of solutions and services to the commercial and military aerospace and ground defense industries, including:
| (i) |
OEM of heat transfer solutions and aviation components, such as heat exchangers, pre-coolers and oil/fuel hydraulic coolers (through
TAT Israel); |
| (ii) |
MRO services for heat transfer components and OEM of heat transfer solutions (through our Limco subsidiary); |
| (iii) |
MRO services for aviation components (through our Piedmont subsidiary); and |
| (iv) |
Overhaul and coating of jet engine components (through our Turbochrome subsidiary). |
TAT’s revenues from its four operational segments were as
follows:
|
Year Ended December 31, |
||||||||||||||||||||||||
|
2025 |
2024 |
Change |
||||||||||||||||||||||
|
Revenues |
Amount |
% |
Amount |
% |
Amount |
% |
||||||||||||||||||
|
OEM of heat transfer solutions and aviation components
|
$ |
41,403 |
23.3 |
% |
$ |
36,466 |
24.0 |
% |
$ |
4,937 |
13.5 |
% | ||||||||||||
|
MRO services for heat transfer components and OEM of heat transfer
solutions |
44,448 |
25.0 |
% |
43,863 |
28.8 |
% |
585 |
1.3 |
% | |||||||||||||||
|
MRO services for aviation components |
85,234 |
47.9 |
% |
67,475 |
44.4 |
% |
17,759 |
26.3 |
% | |||||||||||||||
|
Overhaul and coating of jet engine components |
9,101 |
5.1 |
% |
7,392 |
4.9 |
% |
1,709 |
23.1 |
% | |||||||||||||||
|
Eliminations |
(2,171 |
) |
(1.2 |
)% |
(3,080 |
) |
(2.0 |
)% |
909 |
(29.5 |
)% | |||||||||||||
|
Total revenues |
$ |
178,015 |
100.0 |
% |
$ |
152,116 |
100.0 |
% |
$ |
25,899 |
17.0 |
% | ||||||||||||
54
The following table reflects the geographic breakdown of TAT’s
revenues for each of the two years ended December 31, 2025:
|
Year Ended December 31, |
||||||||||||||||||||||||
|
2025 |
2024 |
Change |
||||||||||||||||||||||
|
Revenues |
Amount |
% |
Amount |
% |
Amount |
% |
||||||||||||||||||
|
United States |
$ |
117,718 |
66.1 |
% |
$ |
104,326 |
68.6 |
% |
$ |
13,392 |
12.8 |
% | ||||||||||||
|
Israel |
14,006 |
7.9 |
% |
7,868 |
5.2 |
% |
6,138 |
78.0 |
% | |||||||||||||||
|
Other |
46,291 |
26.0 |
% |
39,922 |
26.2 |
% |
6,369 |
16.0 |
% | |||||||||||||||
|
Total revenues |
$ |
178,015 |
100.0 |
% |
$ |
152,116 |
100.0 |
% |
$ |
25,899 |
17.0 |
% | ||||||||||||
Total revenues were $178.0 million for the year ended December
31, 2025, compared to $152.1 million for the year ended December 31, 2024, an increase of 17.0%. This reflects (i) the increase in revenues
in the OEM of heat transfer solutions and aviation accessories segment; (ii) the increase in revenues in the MRO services for heat transfer
components and OEM of heat transfer solutions segment; (iii) the increase in revenues in the MRO services for aviation components segment;
and (iv) the increase in revenue in the overhaul and coating of jet
engine components segment.
Costs of Revenues
TAT’s cost of revenues for OEM operations and MRO services
consists of component and material costs, direct labor costs, quality assurance costs, royalties, shipping expenses, overhead related
to manufacturing and depreciation of manufacturing equipment.
TAT’s gross margin was affected by the proportion of TAT’s
revenues generated from OEM operations and MRO services in each of the reported years.
|
Year Ended December 31, |
||||||||||||||||||||||||
|
2025 |
2024 |
Change |
||||||||||||||||||||||
|
Cost of revenues |
Amount |
% |
Amount |
% |
Amount |
% |
||||||||||||||||||
|
OEM of heat transfer solutions and aviation components |
$ |
28,608 |
21.4 |
% |
$ |
24,965 |
21.0 |
% |
$ |
3,643 |
14.6 |
% | ||||||||||||
|
MRO services for heat transfer components and OEM of heat transfer solutions |
33,174 |
24.8 |
% |
35,978 |
30.2 |
% |
(2,804 |
) |
(7.8 |
)% | ||||||||||||||
|
MRO services for aviation components |
69,628 |
52.0 |
% |
56,798 |
47.7 |
% |
12,830 |
22.6 |
% | |||||||||||||||
|
Overhaul and coating of jet engine components |
4,828 |
3.6 |
% |
4,823 |
4.0 |
% |
5 |
0.1 |
% | |||||||||||||||
|
Eliminations |
(2,321 |
) |
(1.7 |
)% |
(3,462 |
) |
(2.9 |
)% |
1,141 |
(33.0 |
)% | |||||||||||||
|
Total cost of revenues |
$ |
133,917 |
100.0 |
% |
$ |
119,102 |
100.0 |
% |
$ |
14,815 |
12.4 |
% | ||||||||||||
Cost of revenues was $133.9 million for the
year ended December 31, 2025, compared to $119.1 million for the year ended December 31, 2024, an increase of 12.4%. Cost of revenues
as a percentage of revenues decreased to 75.2% for the year ended December 31, 2025, from 78.3% for the year ended December 31, 2024.
The increase in cost of revenues is primarily
due to the increase in revenue in a higher percentage compared to the increase in our fixed costs.
55
Operating Expenses
Research and
development expenses, net. Research and development expenses, net are related to new products and technologies or to a significant
improvement of products and technologies, net of grants and participations received.
Selling and
marketing expenses. Selling and marketing expenses consist primarily of commission payments, compensation and related expenses
of TAT’s sales teams, participation in trade shows, travel expenses, advertising expenses and related costs for facilities and equipment.
General and
administrative expenses. General and administrative expenses consist of compensation and related expenses for executives, finance
and administrative personnel, professional fees such as legal, audit, SOX, internal audit, other general corporate expenses and related
costs for facilities and equipment.
|
Year Ended December 31, |
||||||||||||||||||||||||
|
2025 |
2024 |
Change |
||||||||||||||||||||||
|
U.S. dollars in thousands |
Amount |
% |
Amount |
% |
Amount |
% |
||||||||||||||||||
|
Operating expenses |
||||||||||||||||||||||||
|
Research and development costs, net |
$ |
1,384 |
5.5 |
% |
$ |
1,248 |
6.1 |
% |
$ |
136 |
10.9 |
% | ||||||||||||
|
Selling and marketing |
8,576 |
33.9 |
% |
7,746 |
37.8 |
% |
830 |
10.7 |
% | |||||||||||||||
|
General and administrative |
15,730 |
62.2 |
% |
11,901 |
58.0 |
% |
3,829 |
32.2 |
% | |||||||||||||||
|
Other expenses (income) |
(404 |
) |
(1.6 |
)% |
|
(383 |
) |
(1.9 |
)% |
(21 |
) |
5.5 |
% | |||||||||||
|
Total operating expenses |
$ |
25,286 |
100.00 |
% |
$ |
20,512 |
100.00 |
% |
$ |
4,774 |
23.27 |
% | ||||||||||||
Research and development, net
Research and development expenses slightly
increased by 10.9% to $1.4 million for the year ended December 31, 2025, from $1.2 million for the year ended December 31, 2024. Research
and development expenses as a percentage of revenues remained at 0.8% for the year ended December 31, 2025, compared to 0.8% for the year
ended December 31, 2024. The Company received a $0.1 million grant from the Israeli government in June 2025 which was accounted for a
credit to research and development expenses.
56
Selling and marketing
Selling and marketing expenses were $8.5 million
for the year ended December 31, 2025, compared to $7.7 million for the year ended December 31, 2024. Selling and marketing expenses as
a percentage of revenues were 4.8% for the year ended December 31, 2025, compared to 5.1% for the year ended December 31, 2024.
General and administrative
General and administrative expenses were $15.7
million for the year ended December 31, 2025, compared to $11.9 million for the year ended December 31, 2024, an increase of 32.2% primarily
due to increases in personnel-related expenses mainly from additional headcount, merit increases and stock-based compensation; in legal
and professional services fees; in public company related expenses; and recruitment fees for key officers and senior executives. General
and administrative expenses as a percentage of revenues were 8.8% for the year ended December 31, 2025, compared to 7.8% for the year
ended December 31, 2024.
Other income (expense).
Other income (expense) results from capital gains on sale of property
and equipment and one time expenses.
Other income (expense)
Interest expenses, net.
Interest expenses, net consist of interest income and expense. Interest income and
expenses relate to the interest received from or paid to banks for the outstanding deposits and debts, respectively.
Financial expense,
net. Financial expense, net consists of exchange rate and interest income or expense. Interest income or expense relates to the
interest received from or paid to banks and changes in the rate of the NIS or other currencies against the U.S. dollar.
Tax expense.
Tax expense consists of Israeli and U.S. federal and state taxes on the income of TAT’s business and changes in deferred tax assets
or liabilities.
|
Year Ended December 31, |
||||||||||||||||
|
2025 |
2024 |
Change |
||||||||||||||
|
U.S. dollars in thousands |
Amount |
Amount |
Amount |
% |
||||||||||||
|
Interest expenses |
(1,010 |
) |
(1,472 |
) |
462 |
(31.4 |
)% | |||||||||
|
Other financial expenses, net |
(325 |
) |
(477 |
) |
152 |
(31.9 |
)% | |||||||||
|
Provision for taxes on income taxes |
2,143 |
195 |
1,948 |
999.0 |
% | |||||||||||
57
Interest expenses, net
Interest expense, net for the year ended December
31, 2025 were $1.0 million, compared to $1.5 million of interest expenses for the year ended December 31, 2025. Interest expense as a
percentage of revenues was 0.6% for the year ended December 31, 2025, compared to 1.0% for the year ended December 31, 2025.
Other financial expenses, net
Other financial expenses, net was $0.3 million
for the year ended December 31, 2025, compared to other financial expenses, net of $0.5 million for the year ended December 31, 2024.
The decrease was mainly due to revaluation of long-term loans in Israeli Shekel which were affected by favorable changes in exchange rates
of U.S. dollar and NIS during the year. Other financial income (expenses) as a percentage of revenues were 0.2% for the year ended December
31, 2025, compared to 0.3% for the year ended December 31, 2024.
Provision for taxes on income
Taxes on income for the year ended December
31, 2025, amounted to $2.1 million, compared to $0.2 million for the year ended December 31, 2024. Provision for taxes on income as a
percentage of revenues was 1.2% for the for the year ended December 31, 2025, compared to 0.1% for the year ended December 31, 2024.
Share in profits of equity investment of affiliated companies
Share in profits of equity investment of affiliated
companies for the year ended December 31, 2025, amounted to a gain of $1.5 million compared to $0.8 million for the year ended December
31, 2024. Share in profits of equity investment of affiliated companies as a percentage of revenues was 0.8% for the for the year ended
December 31, 2025, compared to 0.5% for the year ended December 31, 2024.
Year ended December 31, 2024 compared with
Year ended December 31, 2023
Please see Item 5 on Form 20-F for the Year ended December 31, 2024 filed with the SEC
on March 26, 2025 for this comparison.
58
D. Critical
Accounting Policies and Estimates
TAT’s consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the United States (“U.S. GAAP”). These accounting principles require management
to make certain estimates, judgments and assumptions based upon information available at the time that they are made, historical experience
and various other factors that are believed to be reasonable under the circumstances. These estimates, judgments and assumptions can affect
the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues
and expenses during the periods presented. While all the accounting policies impact the financial statements, certain policies may be
viewed to be critical. These policies are those that are both most important to the portrayal of TAT’s financial condition and results
of operations and require management’s most difficult, subjective and complex judgments and estimates. Actual results could differ
from those estimates.
In many cases, the accounting treatment of a particular transaction
is specifically dictated by U.S. GAAP and does not require management’s judgment in its application. There are also areas in which
management’s judgment in selecting among available alternatives would not produce a materially different result. Management has
reviewed these critical accounting policies and related disclosures with TAT’s audit committee.
TAT’s management believes the significant accounting policies
which affect management’s more significant judgments and estimates used in the preparation of TAT’s consolidated financial
statements and which are the most critical to aid in fully understanding and evaluating the reported financial results include the following:
| • |
Recoverability of Inventory; |
| • |
Income taxes. |
Inventory Valuation
Inventories are stated at the lower cost and net realizable value.
Cost of raw material and parts is determined using the moving average basis. Cost of work in progress and finished products is calculated
based on actual costs and the capitalized production costs, mainly labor and overhead and is determined based on the average basis. TAT’s
policy for valuation of inventory and commitments to purchase inventory, including the determination of obsolete or excess inventory,
requires it to perform a detailed assessment of inventory at each balance sheet date which includes a review of, among other factors,
an estimate of future demand for products within specific time frames, recoverability of existing inventory, as well as product lifecycle
and product development plans. The business environment in which TAT operates, the wide range of products that TAT offers and the relatively
short sales cycles TAT experiences, all contribute to the exercise of judgment relating to maintaining and writing-off of inventory levels.
The estimates of future demand that TAT uses in the valuation of inventory are the basis for its revenue forecast, which is also consistent
with its short-term manufacturing plan. Inventory reserves are also provided to cover risks arising from slow-moving items. Inventory
management remains an area of management focus as TAT balances the need to maintain strategic inventory levels to ensure competitive lead
times against the risk of inventory obsolescence due to changing technology and customer requirements. TAT writes down obsolete or slow-moving
inventory in an amount equal to the difference between the cost of inventory and the net realizable value based upon assumptions about
future demand, market conditions and sale forecasts. If actual market conditions are less favorable than TAT anticipates, additional inventory
write-downs may be required.
59
Income Taxes
TAT operates within multiple tax jurisdictions and is subject to
audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. In management’s
opinion, adequate provisions for income taxes have been made for all years. Although management believes that its estimates are reasonable,
no assurance can be given that the final tax outcome of these issues will not be different than those reflected in its historical income
tax provisions.
TAT uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax
bases of assets and liabilities and net operating loss and credit carry forwards using enacted tax rates in effect for the year in which
the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. Valuation allowances are established when it is more likely than not that some portion
of the deferred tax assets will not be realized. To the extent that TAT’s decisions and assumptions and historical reporting are
determined not to be compliant with applicable tax laws, TAT may be subject to adjustments in its reported income for tax purposes as
well as interest and penalties.
According to an acceptable interpretation that prescribes a minimum
recognition threshold, a tax position is required to meet before being recognized in the financial statements. The interpretation also
provides guidance on de-recognition of tax positions, classification on the balance sheet, interest and penalties, accounting in interim
periods, disclosure and transition. In addition, the interpretation requires significant judgment with respect to determining what constitutes
an individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement
of tax positions can materially affect the estimate of the effective tax rate and consequently affect our operating results.
E.
Conditions in Israel
TAT is incorporated under the laws of the State of Israel, certain
executive offices and manufacturing and research and development facilities are located in Israel. Please refer to “Item
3D – Risk Factors” for a description of governmental, economic, fiscal, monetary, or political policies or factors
that have materially affected or could materially affect TAT’s operations.
60
F.
Trade Relations
Israel is a member of the United Nations, the International Monetary
Fund, the International Bank for Reconstruction and Development, and the International Finance Corporation. Israel is also a member of
the World Trade Organization and is a signatory to the General Agreement on Tariffs and Trade. In addition, Israel benefits from preferential
trade arrangements under various trade preference programs in a number of jurisdictions, which permit the export of certain eligible products
either duty-free or at reduced tariff rates. Israel has entered into a number of bilateral and multilateral free trade agreements. In
July 1975, Israel and the European Union Community (now the European Union, or the “EU”) concluded a Free Trade Agreement,
granting certain advantages for Israeli exports to EU member states while requiring Israel to gradually reduce tariffs on imports from
these countries. In 1985, Israel and the United States entered into an agreement to establish a Free Trade Area, which eliminated all
tariff and some non-tariff barriers on most trade between the two countries. In January 1993, Israel entered into a free trade agreement
with the European Free Trade Association (“EFTA”) establishing a free-trade zone between Israel and the EFTA member states.
In November 1995, Israel entered into a further association agreement with the EU, which, among other things, includes a redefinition
of rules of origin and additional benefits, such as allowing Israel to become a member of the Research and Technology programs of the
European Union. During the recent years, Israel has expended its commercial and trade relations through additional free trade agreements
and trade cooperation frameworks with a number of other countries and regions. In addition, Israel has entered into additional free trade
agreements and trade cooperation frameworks with a number of other countries and regions, including certain countries in the Asia-Pacific
region and the Americas.
G.
Impact of Currency Fluctuation and of Inflation
TAT reports its financial results in US dollars and receives payment
primarily in US dollars or dollar-linked to NIS for all of its sales. However, a portion of its expenses, principally salaries and related
personnel expenses in Israel, are denominated in NIS. Additionally, certain assets, as well as a portion of its liabilities, are denominated
in NIS. Therefore, the US dollar cost of TAT’s operations is influenced by the extent to which inflation in Israel is offset, either
partially or fully, on a lagging basis or is not offset by the devaluation of the NIS in relation to the US dollar. When the rate of inflation
in Israel exceeds the rate of devaluation of the NIS against the U.S. dollar, the dollar cost of operations in Israel increases. If the
dollar cost of operations in Israel increases, its dollar-measured results of operations will be adversely affected. It is uncertain whether
TAT will be materially and adversely affected in the future if inflation in Israel exceeds the devaluation of the NIS against the US dollar
or if the timing of the devaluation lags behind inflation in Israel.
In 2025, the U.S. dollar depreciated in relation to the NIS at
a rate of 13%, from NIS 3.65 per $1 on December 31, 2024 to NIS 3.19 per $1 on December 31, 2025. The annual rate of inflation in Israel
was 2.6% in 2025 and 3.4% in 2024.
Because exchange rates between the NIS and the US dollar fluctuate
continuously, exchange rate fluctuations, and especially significant changes in the exchange rate, may have an impact on TAT’s profitability
and period-to-period comparisons of its results. The effects of foreign currency re-measurements are reported in TAT’s consolidated
financial statements in current operations. Although TAT hedges a portion of its exchange rate risk through the use of forward contracts
and other derivative instruments, there is no certainty that future results of operations will not be materially adversely affected by
currency fluctuations.
61
H.
Corporate Tax Rate
Israeli companies are generally subject to corporate tax on their taxable income (including
capital gains). The regular corporate tax rate for Israel was 23% for the year ended December 31, 2023, 2024 and 2025.
However, the rate is effectively reduced for income derived from Approved and Beneficiary
Enterprises, as defined by the Law for the Encouragement of Capital Investments, 1959, as amended.
For additional information, please see Item 10.E below “Taxation
- Israeli Tax Considerations - Tax Benefits under the Law for the Encouragement of Capital Investments, 1959”.
Certain investment income derived by TAT from investments may not be regarded by the
Israeli tax authorities as income from TAT’s Preferred Enterprise and consequently may be taxed at the regular statutory rate in
Israel.
Certain of TAT’s subsidiaries operate in and are subject
to the tax laws of various other jurisdictions, primarily the United States. TAT’s U.S. subsidiaries are taxed based on federal
and state tax laws. The U.S. federal statutory flat tax rate for tax years 2025 and 2024 is 21%.
I.
Recently Issued Accounting Standards
In November 2024, the FASB issued ASU No. 2024-03 Income
Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40). The ASU improves the disclosures
about a public business entity’s expenses and provides more detailed information about the types of expenses in commonly presented
expense captions. The amendments require that at each interim and annual reporting period an entity will, inter alia, disclose amounts
of purchases of inventory, employee compensation, depreciation and amortization included in each relevant expense caption (such as cost
of sales, SG&A and research and development). The ASU is effective for fiscal years beginning after December 15, 2026, and interim
periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating this ASU
to determine its impact on the Company's disclosures
On July 2025, the FASB issued ASU 2025-05, Financial
Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU
2025-05”). ASU 2025-05 provides a practical expedient that all entities can use when estimating expected credit losses for current
accounts receivable and current contract assets arising from transactions accounted for under ASC 606, Revenue from Contracts with Customers.
Under this practical expedient, an entity is allowed to assume that the current conditions it has applied in determining credit loss allowances
for current accounts receivable and current contract assets remain unchanged for the remaining life of those assets. ASU 2025-05 is effective
for fiscal years beginning after December 15, 2025, and interim reporting periods in those years. Entities that elect the practical expedient
and, if applicable, make the accounting policy election are required to apply the amendments prospectively. The Company is currently evaluating
the potential impact of this guidance on its consolidated financial statements and disclosures.
62
In December 2025, the Financial Accounting Standards Board (FASB)
issued Accounting Standard Update (ASU) 2025-10; Accounting for Government Grants Received by Business
Entities, which provides guidance on how companies should recognize, measure, and present government grants received. The new standard
is effective for annual and interim reporting periods beginning after December 15, 2028. The standard allows for a modified prospective,
modified retrospective, or retrospective transition. Early adoption is permitted. We are currently evaluating the impact of adopting this
new pronouncement.
J.
Recently adopted accounting pronouncements:
In December 2023, the FASB issued ASU 2023-09, Income
Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance income tax reporting disclosures and require disclosure of
specific categories in the tabular rate reconciliation. We adopted this standard for the annual period ending December 31, 2025 on a prospective
basis. We updated our income tax disclosures to comply with the requirements. See “Note 14: Income Taxes.” The adoption
of the standard did not have an impact on our financial position, results of operations, or liquidity.
K.
Liquidity and Capital Resources
On May 2025, TAT entered into an Underwriting Agreement with certain
Underwriters, relating to an underwritten public offering of 4,150,000 ordinary shares at a public offering price of $26.00 per share,
of which TAT sold 1,625,000 ordinary shares and the Selling Shareholders sold 2,525,000 ordinary shares (collectively, the “Firm
Shares”) which was closed on June 3, 2025. The gross proceeds of the offering to the Company were $42.3 million. Pursuant to the
Underwriting Agreement, TAT and the Selling Shareholders also granted the Underwriters an option to purchase up to an additional 242,298
and 380,202 ordinary shares from the Company and the Selling Shareholders, respectively (collectively, the “Options Shares”),
at a public offering price less the underwriting discount and commissions (the “Underwriters Option”). On June 26, 2025, following
the exercise by the Underwriters of the Underwriters Option in full, the sale and issuance of the Option Shares was completed. The total
gross proceeds of the sale and issuance of the Option Shares to TAT, were $6.3 million. The net proceeds for the Company from this public
offering after issuance costs was $45.4 million.
As of December 31, 2025, TAT had cash and cash equivalents and
restricted cash of $51.5 million compared to $ 7.4 million as of December 31, 2024, an increase of $44 million primarily due to the previously
mentioned public offering agreement in June 2025 coupled with strong cash flows from operations.
During 2025, TAT decreased its loans and lines of credit from commercial
banks by $4.4 million and repaid loans in the amount of $2.1 million.
|
Total long term loans and credit line balance amount as of the year ended December 31
|
|||||||||||||||||||
|
December 31, |
Current Interest Rate |
Duration (in Years) |
|||||||||||||||||
|
2025 |
2024 |
||||||||||||||||||
|
Israel |
|||||||||||||||||||
|
Government guaranteed loans |
a |
$ |
3,833 |
$ |
3,990 |
7.25 |
% |
5-10 |
|||||||||||
|
Commercial loans |
b |
1,961 |
2,171 |
6.65 |
% |
7 |
|||||||||||||
|
United States |
|||||||||||||||||||
|
Commercial loans |
c
|
5,480 |
6,285 |
3.75% - 4.2 |
% |
7-10 |
|||||||||||||
|
Line of credit |
d |
- |
4,350 |
7.25% - 8.6 |
% |
Revolving |
|||||||||||||
|
Machinery finance loans |
e |
438 |
575 |
6.5 |
% |
5 |
|||||||||||||
|
$ |
11,712 |
$ |
17,371 |
||||||||||||||||
63
The maturities of long-term loans are as follows:
|
Year |
Amount |
|||
|
2026 |
$ |
2,227 |
||
|
2027 |
3,427 |
|||
|
2028 |
2,057 |
|||
|
2029 |
1,534 |
|||
|
2030 and after |
2,467 |
|||
|
$ |
11,712 |
|||
In respect of the credit lines and the loans in (a), (c) and (d)
above, the Company and its subsidiaries are required to meet certain financial covenants. As of December 31, 2025 the Company and its
subsidiaries met all its covenants.
Capital expenditures for the years ended December 31, 2025, 2024
and 2023 were approximately $10.9 million, $3.9 million and $3.6 million, respectively. TAT funded these expenditures mainly from its
own cash resources and cash flows from operations.
TAT’s management believes that anticipated cash flow from
operations and its current cash balances will be sufficient to meet its cash requirements for at least 12 months from the financial statement
issuance date. TAT’s future capital requirements will depend on many factors, including its rate of revenue growth, the expansion
of its selling and marketing activities, costs associated with expansion into new markets and the timing of the introduction of new products
and services.
Cash Flows
The following table summarizes TAT’s cash flows for the periods
presented:
|
Year Ended December 31, |
||||||||||||
|
(in thousands) |
||||||||||||
|
U.S. dollars in thousands |
2025 |
2024 |
2023 |
|||||||||
|
Net cash provided by (used in) operating activities |
$ |
14,974 |
$ |
(5,818 |
) |
$ |
2,255 |
|||||
|
Net cash used in investing activities |
(10,054 |
) |
(3,851 |
) |
(3,579 |
) | ||||||
|
Net cash provided by financing activities |
39,212 |
161 |
10,240 |
|||||||||
|
Net increase (decrease) in cash and cash equivalents |
44,132 |
(9,508 |
) |
8,916 |
||||||||
|
Cash and cash equivalents at beginning of the year |
7,434 |
16,942 |
8,026 |
|||||||||
|
Cash and cash equivalents at end of the year |
$ |
51,566 |
$ |
7,434 |
$ |
16,942 |
||||||
64
Net cash provided by operating activities for the year ended December
31, 2025, amounted to approximately $15.0 million, compared to net cash used by operating activities of $5.8 million for the year ended
December 31, 2024 and net cash provided by operating activities of $2.3 million for the year ended December 31, 2023.
Net cash provided by operating activities for the year ended December
31, 2025 was principally derived from the following adjustments of non-cash line items: an upward adjustment of $5.1 million for
depreciation and amortization; an upward adjustment of $1.2 million for stock based compensation; an upward adjustment of $1.9 million
for the foreign currency loss and inventory valuation; an upward adjustment of $1.9 million for deferred income taxes; an offset adjustment
of $7.5 million for inventory; and a downward adjustment of $3.5 million for increase in trade accounts receivable.
Net cash used in operating activities for the year ended December
31, 2024 was impacted by the Company’s growing working capital needs. Net cash used in operating activities for the year ended December
31, 2024 was principally derived from the following adjustments of non-cash line items: an upward adjustment of $5.5 million for depreciation
and amortization; an upward adjustment of $4.7 million for an increase in trade accrued expenses other; an offset adjustment of $17.2
million for inventory; and a downward adjustment of $9.7 million for increase in trade accounts receivable.
Net cash provided by operating activities for the year ended December
31, 2023 was principally derived from the following adjustments of non-cash line items: an upward adjustment of $4.7 million for depreciation
and amortization; an upward adjustment of $4.1 million for an increase in trade accrued expenses other; an offset adjustment of $5.4 million
for inventory; and a downward adjustment of $4.2 million for increase in trade accounts receivable.
In the year ended December 31, 2025, net cash used by investing
activities was $10.1 million, out of which approximately $11.0 million was attributed to investment mainly in new machinery and equipment
and $0.9 million from sale of machinery and equipment.
In the year ended December 31, 2024, net cash used by investing
activities was $3.9 million, out of which approximately $5.1 million was attributed to investment mainly in new machinery and equipment
and $1 million from sale of machinery and equipment.
In the year ended December 31, 2023, net cash used by investing
activities was $3.6 million, out of which approximately $5.1 million was attributed to investment mainly in new machinery and buildings
and $2.0 million from sale of machinery and equipment.
In the year ended December 31, 2025, net cash provided by financing
activities was $39.2 million. In the year ended December 31, 2025, net cash provided by financing activities was primarily attributable
to a net amount of $45.4 million from issuance of ordinary shares during 2025, net of $6.5 million repayment of short term credit line
and repayment of long term loans.
65
In the year ended December 31, 2024, net cash provided by financing
activities was $0.2 million. In the year ended December 31, 2024, net cash provided by financing activities was primarily attributable
to an amount of $9.8 million from issuance of ordinary shares during 2024, net of $9.7 million repayment of short term credit line and
repayment of long term loans.
In the year ended December 31, 2023, net cash provided by financing
activities was primarily attributable to an amount of $10.2 million from issuance of ordinary shares and exercise of options during 2023.
L. Research
and Development, Patents and Licenses
Not applicable.
M. Trend
Information
In recent years, the aerospace industry in which we operate has
been impacted by the increase in number of commercial and defense aircraft, increase in commercial passenger traffic and a corresponding
increase in airlines’ revenue. Commercial carriers remain committed to their efforts to reduce cost of MRO activities and increase
efficiencies.
There is a risk that the political environment in Israel could
continue to prevent certain countries from doing business with us, in addition to the increased competition may have an adverse effect
on our business. Given 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.
N. Off-Balance
Sheet Arrangements
We are not a party to any material off-balance sheet arrangements.
In addition, we have no unconsolidated special purpose financing or partnership entities that are likely to create material contingent
obligations.
66
Item 6.
Directors, Senior Management and Employees
A. Directors
and Senior Management
Set forth below are the name, age, principal position and a biographical description
of each of our directors and executive officers, as of the date hereof:
|
Name |
Age |
Position |
| ||
|
Amos Malka (4)(5) |
73 |
Chairman of the Board of Directors |
| ||
|
Igal Zamir (5) |
|
60 |
|
Chief Executive Officer, President and Director |
|
|
Ehud Ben – Yair |
62 |
Chief Financial Officer |
|||
|
Jason Lewandowski |
52 |
Chief Operational Officer |
|||
|
Matthew Hinkle |
39 |
Chief Accounting Officer |
|||
|
Brian Rea |
55 |
Chief Human Resources Officer |
|||
|
Liron Topaz |
45 |
General Manager of TAT Israel |
|||
|
Bruce Patterson |
62 |
General Manager of Piedmont |
|||
|
Paul Maness |
42 |
General Manager of Limco |
|||
|
Moti Glick (1)(2)(4) |
|
73 |
|
Independent Director |
|
|
Ronnie Meninger (1)(3) |
|
69 |
|
Independent Director |
|
|
Amir Harel (1)(2)(3)(5) |
64 |
Independent Director |
|||
|
Eitan Oppenheim (1)(3)(5) |
60 |
Independent Director |
|||
|
Sagit Manor (1)(2)(4) |
53 |
Independent Director |
(1) “Independent Director” under SEC
requirements and NASDAQ Marketplace Rules
(2) Member of the Company’s Audit Committee
(3)
Member of the Company’s Compensation Committee
(4)
Member of the Nominating Governance and Sustainability Committee
(5)
Member of Investment and M&A Committee
67
Management
Mr. Igal Zamir serves
as TAT’s Chief Executive Officer and President in April 2016 and was appointed as a board member on July 2025. Prior to joining
TAT, from 2009 until 2013, Mr. Zamir served as President at Mapco Express, a wholly-owned subsidiary of Delek US Holdings Inc., a NYSE-listed
company which owns and operates 370 convenient stores and gas stations in the southeastern region of the United States. Prior to Mapco
Express, from 2006 until 2009, Mr. Zamir served as CEO of Metrolight, a provider of proprietary energy saving solutions in High Intensity
Discharge (HID) lighting systems. From 1998 until 2004, Mr. Zamir served as CEO of Rostam, a leading provider of private label feminine
hygiene products. Mr. Zamir holds a B.Sc. in Industrial Engineering from Tel Aviv University and an MBA from Bar-Ilan University.
Mr. Ehud Ben-Yair was
appointed as TAT's Chief Financial Officer in May 2018. Prior to joining TAT, Mr. Ben- Yair served as the Chief Financial Officer of SHL
Telemedicine, a public company traded on the Swiss stock exchange (SIX: SHLTN) engaging in the field of digital health. Between 2012-2016,
Mr. Ben Yair has served as the Chief Financial Officer of Opgal Optronics, a subsidiary of Elbit Systems (NASDAQ: ESLT), a company developing
and manufacturing thermal imaging cameras for military and civilian aerospace markets. Prior to that, Mr. Ben- Yair has served for 8 years
as the Chief Financial Officer of Orad Hi-Tech Systems, a public company traded on the AIM and German stock exchange (OHT), a company
developing, manufacturing and selling proprietary hardware to TV stations and broadcasters. Mr. Ben Yair is a Certified Public Accountant
and holds a B.A. in Economics and Accounting from the Ben-Gurion University in Israel.
Mr. Jason Lewandowski
was appointed as TAT’s COO in December 2022. Mr. Lewandowski began his professional career as a Surface Warfare Officer in the United
States Navy in May of 1997. After 7 years of service on 3 different warships, and US commendations for his role in Operation Enduring
Freedom, he left the US Navy and began his career in corporate America within Honeywell’s Aerospace business. From 2005 to
2017, he led varying leadership roles within Honeywell Aerospace’s operations and integrated supply chain teams at over 8 different
manufacturing locations. In his final position with Honeywell he was a multi-site Sr. Director of Operations overseeing 2 OEM facilities
that manufactured brake pads and air foils, and 3 R&O facilities that repaired and tested aircraft engines and APU’s. In 2017
Mr. Lewandowski left Honeywell to help scale operations for North America’s leading transit producer of purpose-built electric buses
and batteries, Proterra Inc. Over the next 5 years he served as GM of Proterra’s largest electric bus facility, VP of Supply
Chain, and VP of Manufacturing, playing an integral role in helping the company become publicly traded. Mr. Lewandowski holds a Bachelor
of Science in Electrical Engineering from Marquette University (1997) and an MBA from Carnegie Mellon’s Tepper School of Business
(2005).
Mr. Matthew
Hinkle was appointed as TAT's Chief Accounting Officer in September 2025. Mr. Hinkle began his career at Ernst & Young,
spending eight years in the assurance practice providing audit and advisory services where he built a strong foundation in technical accounting,
financial reporting, and internal controls. Prior to joining TAT, Mr. Hinkle served as the Senior Director of Accounting for The Anderson’s,
Inc,, a Fortune 500 public company traded on the NASDAQ exchange (ANDE). Mr. Hinkle is a Certified Public Accountant and holds a Bachelor’s
in Business Administration and a Master of Science in Accountancy degrees from the University of Toledo. He also holds an Executive Education
Certificate in Machine Learning in Business from MIT.
68
Mr. Brian Rea was
appointed to TAT’s Chief Human Resources Officer in September 2025. Before joining TAT Technologies, Brian served as Chief
Human Resources Officer at AmesburyTruth. There he led a comprehensive HR and EHS transformation for a workforce of 3,500 employees—advancing
talent acquisition, performance management, succession planning, and diversity & inclusion. He played a pivotal role in executive
transitions, served as Board Secretary, and supported the Compensation Committee in shaping governance and leadership strategy.
Earlier in his career, Brian held senior HR leadership roles with well-known organizations including MasterBrand Cabinets, Land O’Lakes, Post Foods, and PepsiCo’s Quaker Oats Division. His expertise spans labor and employee relations, organizational design, change leadership, and executive coaching, with a consistent record of driving growth through people-centric transformation. Brian holds an MBA in Organizational Leadership from Eastern University and a BA in Psychology from Elmira College.
Earlier in his career, Brian held senior HR leadership roles with well-known organizations including MasterBrand Cabinets, Land O’Lakes, Post Foods, and PepsiCo’s Quaker Oats Division. His expertise spans labor and employee relations, organizational design, change leadership, and executive coaching, with a consistent record of driving growth through people-centric transformation. Brian holds an MBA in Organizational Leadership from Eastern University and a BA in Psychology from Elmira College.
Mr. Liron Topaz
has been with TAT since 2017 and prior to his current role as General Manager of TAT Israel, he served as TAT’s Sales and
Marketing Executive Vice President. Prior to joining TAT, Mr. Topaz served as Vice President at A.L. GROUP and has managed and lead the
business development and marketing strategy of the entire group including four manufacturing facilities, five trading companies around
the globe and 1500 employees. Mr. Topaz holds a B.A. in Management and Economics from the Open University-Israel, and M.B.A in Business
administration from the Peres Academic Center, Israel.
Mr. Bruce Patterson
was appointed as General Manager of Piedmont in 2025. Mr. Patterson brings more than 35 years of experience in the aerospace manufacturing
industry, offering deep production expertise to meet the demands of today’s competitive marketplace. He has held senior management
and executive leadership roles with tier-one OEM airframe suppliers, including serving as COO at HAECO Cabin Solutions and EVP of Industrials
at Albers Aerospace. Throughout his career, Bruce has led the development of first-class interior products for many of the world’s
leading airlines, including Emirates, Etihad, British Airways, and Lufthansa, as well as seating programs directly for Airbus and The
Boeing Company. Mr. Patterson holds a Bachelor of Engineering in Mechanical & Industrial Engineering from Queen’s University
Belfast.
Mr. Paul Maness
was appointed as General Manager of Limco in March 2024. Mr. Manes brings years of experience in operations leadership as well
as military leadership as an Army Ranger. Prior to joining Limco, Mr. Manes worked as a Global Health and Safety Leader for Baker Hughes
and prior to that, as a Plant Manager for the same company in Claremore, Oklahoma. Before that, Paul served as the Plant Manager in a
machine assembly shop and an operations manager in a steel galvanizing facility. Mr. Manes has served in the United States Army for 24
years. Mr. Manes holds a Master's Degree from Webster University and a B.S from Oklahoma State University.
Mr. Lars Hesbjerg
was appointed as Vice President of Sales in April 2021. Prior joining TAT, Mr. Lars served 18 years with the Donaldson Company,
Inc. in various leadership roles. From 2019 to 2021 he served as Global Business Unit Director of Aerospace, and between 2016-2019 as
the Global Sales Director of Aerospace and Defense. Between 2011- 2016 he led the Off-Road OEM sales organization as the Sales Director
which included large OEMs such as Caterpillar, Bobcat. Between 2010 and 2011 he was the Director of Sales, Global On-Road OEM. Between
2006 -2011 he was the Sales Director of the Gas Turbine Group of Donaldson Company. Mr. Hesbjerg holds an economics degree from Niels
Brock College, a B.A. degree in International Business and an Executive Management Diploma degree from the University of Minnesota.
69
Directors
Mr. Amos Malka
was elected as Chairman of our Board of Directors in
June 2016. Mr. Malka is the founder and chairman of Spire Security Solutions Ltd., a security, intelligence and cyber security
provider. From 2018 until 2022, Mr. Malka served as the Chairman of the Board of Directors of Aitech Rugged Group Inc. From 2007 until
2015, Mr. Malka served as the chairman and CEO of Logic Industries Ltd. From 2007 until 2010, he also served as chairman of Plasan Sasa
LTD., an armored vehicle manufacturer. From 2005 until 2007, he served as the chairman of Albar, a leading company in the Israeli automobile
sector. From 2002 until 2005, Mr. Malka served as the CEO of Elul Technologies Ltd., an aerospace and defense business development and
consulting company .Mr. Malka also serves on the boards of directors of Imagesat International and Delek Automotive System. Mr.
Malka retired from the IDF in 2002 at the rank of Major General, after 31 years of service. He served as commander of the IDF Ground Forces
Command, and later as Head of the Israeli Defense Intelligence, a post he held until his retirement in 2002. Mr. Malka holds B.A. in History
from Tel Aviv University, Israel. He also graduated from the IDF Staff & Command College and its National Defense Academy.
Mr. Amir Harel joined
TAT’s Board of Directors in July 2025. Mr. Harel is serving as the Chief Financial Officer of PlaxidityX from August 2025.
Prior to that, Mr. Harel served as the Chief Financial Officer of Planck Resolution Ltd. from 2020 to 2025. Prior to joining Planck, Mr.
Harel served as the Chief Financial Officer of Tyto Care Ltd. from 2019 to 2020, as the Chief Financial Officer of Natural Intelligence
Ltd. from 2016 to 2019, as the Chief Financial Officer of Logic Industries Ltd. from 2015 to 2016, as the Chief Financial Officer of Amiad
Water Systems from 2011 to 2015, as the Chief Financial Officer of InSightec Ltd. from 2005 to 2011, as the Chief Financial Officer of
TransChip Inc. from 2004 to 2005, as the Chief Financial Officer of Tower Semiconductor Ltd. from 1998 to 2004, and as the Chief Financial
Officer of Elbit Vision Systems Ltd. from 1994 to 1998. Mr. Harel holds a B.Sc. in Industrial Engineering and a Master in Industrial Management
from the Technion – Israel Institute of Technology.
Mr. Moti Glick
joined TAT’s Board of Directors as an external director in November 2021. From 1991 until 2021 Mr. Glick served as the CEO of Overseas
Commerce, a public company traded on the Tel Aviv Stock Exchange. Prior to that Mr. Glick was CFO of Clal Trading, a public company
as well. Mr. Glick is a CPA (ISR) and holds a B.A. in Economics from Bar-Elan University.
Ms. Ronnie
Meninger joined TAT's Board of Directors as an independent director in November
2021. Ms. Meninger brings vast experience in industrial companies, having served as CEO of Chemada Fine Chemicals Ltd. and Algatechnologies
Ltd. among other managerial positions in various companies. Ms. Meninger serves on the boards of Albaad, OSG Group, and Maytronics.
For the last 11 years she acts as a business consultant for companies and startups. Mrs. Meninger holds a BSc in Life Sciences and an
MBA from the Hebrew University of Jerusalem.
Mr. Eithan Oppenheim joined
TAT’s Board of Directors in November 2025. Mr. Oppenheim currently serves as executive chairman of the board of Nova Ltd. (NVMI/NVMI.TA)
(“Nova”), a position he has held since March 2023, after previously serving as a member of Nova’s board since October
2019. From July 2013 to March 2023, Mr. Oppenheim served as President and Chief Executive Officer of Nova, and prior to that as Executive
Vice President Global Business Group since November 2010. Between 2009 and 2010, he was Vice President and Europe General Manager of Alvarion
Ltd., a Nasdaq-listed public company. From 2007 to 2009, Mr. Oppenheim served as Vice President of Sales and Marketing at OptimalTest
Ltd. Previously, from 2002 to 2006, he was Vice President – Business Manager of the Flat Panel Displays division at Orbotech Ltd.,
a Nasdaq-listed public company. From 2001 to 2002, he served as Managing Director of Asia Pacific at TTI Telecom International, a leading
provider of assurance, analytics and optimization solutions to communications service providers worldwide. From 1994 to 2001, Mr. Oppenheim
held several key executive positions at Comverse Network Systems Ltd., also a Nasdaq-listed public company. Mr. Oppenheim holds a B.A.
in Economics from the University of Haifa, Israel, and an M.B.A. from Ben-Gurion University of the Negev, Israel.
Ms. Sagit Manor
joined TAT’s Board of Directors in November 2025. Ms. Manor currently serves as the Chief Financial
Officer of Nayax Ltd. (NASDAQ/TASE: NYAX) (“Nayax”), a position she has held since 2021. Prior to joining Nayax, she served
for four years as Chief Executive Officer and Chief Financial Officer of Nyotron, an information-security company. Earlier, she served
as Vice President of Finance and Chief Financial Officer of Verifone, Inc., a financial technology manufacturing company. Ms. Manor also
serves as a director of Tigo Energy Inc. (Nasdaq: TYGO). She is a Certified Public Accountant and holds a Bachelor of Arts degree in Business
and Accounting from the College of Management Academic Studies in Rishon LeZion, Israel. Ms. Manor holds dual Israeli and American citizenship
and resides in the United States.
70
B. Compensation
of Directors and Executive Officers
The following table sets forth all compensation TAT paid to all of its directors and
executive officers as a group for the year ended December 31, 2025.
|
|
Salaries, fees, Commissions and bonuses (Amounts in Thousands US$) |
Other benefits (Amounts in Thousands US$) |
||||||
|
All directors and executive officers as a group (15 executives and directors) |
$ |
4,122 |
$ |
110 |
||||
During the year ended December 31, 2025, TAT paid its directors
(except for its active chairman of the Board of Directors, Mr. Amos Malka), the fixed medium amounts permitted by law to an external director
(within the meaning of the Israeli Companies Law) which was a per meeting attendance fee of NIS 2,954 (approximately $926), plus an annual
fee of NIS 79,347 (approximately $24,874).
Pursuant to its agreement with Mr. Amos Malka, TAT's active chairman
of the Board of Directors, TAT paid Mr. Malka a monthly fee of NIS 50,000 plus VAT.
In addition, the Company’s shareholders approved the following
compensation terms for each of Mr. Amir Harel, Mr. Eitan Oppenheim, and Ms. Sagit Manor (the “Eligible Directors”): an annual
cash retainer of $40,000 per board member, with additional annual fees for committee roles as follows: $16,000 for serving as Chair of
the Audit Committee, $12,000 for Chair of the Compensation Committee, $8,000 for Chair of the Nomination/Governance Committee, and $12,000
for Chair of the M&A/Investment Committee. Members of these committees will receive $8,000 for the Audit Committee, $6,000 for the
Compensation Committee, $4,000 for the Nomination/Governance Committee, and $6,000 for the M&A/Investment Committee. A “typical
director” (serving as Board Member Retainer, Chair of the Compensation Committee, and Member of the Audit Committee) would receive
total annual cash compensation of $60,000. For each Eligible Director the cash retainer will be paid in two semi-annual payment. For clarity,
an Eligible Director who has served during only a portion of the relevant semi-annual period will receive a prorated payment of the semi-annual
payment of the applicable retainer(s), calculated based on the number of days during such Eligible Director has served in the relevant
capacities. In addition, the proposed compensation terms will include a grant of Restricted Stock Units (“RSUs”) to each Eligible
Director, representing an annual grant value of $80,000 on the first trading day immediately following each annual meeting of the Company’s
stockholders (rounded to the nearest whole Share). The number of RSUs to be granted is based on the fair market value of the Company’s
shares on the date of grant, in accordance with the Company’s Incentive (as defined below). No Eligible Director may be granted,
in any fiscal year, equity awards (including any awards granted under the Plan) with values (based on their grant date fair value determined
in accordance with U.S. GAAP), and be provided any other compensation (including without limitation any cash retainers or fees) in amounts
that, in any fiscal year, in the aggregate, exceed $168,000.
71
In addition, the shareholders approved the grant of a one-time
special bonus to its Chief Financial Officer, Mr. Ehud Ben-Yair, in an amount equal to four months of his base salary, totaling $110,000.
This special bonus exceeds the cap set forth in the Company’s compensation policy, which limits total bonuses to seven months of
base salary, and was therefore approved as an exception to that policy. The bonus was intended to recognize Mr. Ben-Yair’s exceptional
efforts and significant contribution to the successful completion of an important milestone for the Company. The grant of the special
bonus was reviewed and approved by the Company’s compensation committee and Board of Directors and was submitted for shareholder
approval in accordance with applicable law.
The table below sets forth the compensation paid to our five
most highly compensated senior office holders (as defined in the Israeli Companies Law) during or with respect to the year ended December
31, 2025, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970. We refer
to the five individuals for whom disclosure is provided herein as our “Covered Executives.”
For purposes of the table and the summary below, and in accordance
with the above-mentioned securities regulations, “compensation” includes base salary, bonuses, equity-based compensation,
retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking to provide such
compensation.
|
Information Regarding Covered Executives (1)
(Amounts in Thousands US$) |
||||||||||||||||||||
|
Name and Principal Position(2)
|
Base Salary |
Benefits and
Perquisites(3) |
Variable Compensation(4)
|
Equity-Based
Compensation(5) |
Total |
|||||||||||||||
|
Igal Zamir, CEO and President |
$ |
371 |
$ |
8 |
$ |
257 |
$ |
401 |
$ |
1,037 |
||||||||||
|
Ehud Ben- Yair, CFO |
360 |
11 |
303 |
120 |
794 |
|||||||||||||||
|
Jason Lewandowski, COO |
299 |
14 |
107 |
15 |
435 |
|||||||||||||||
|
Liron Topaz, General Manager TAT Israel
|
210 |
61 |
95 |
99 |
465 |
|||||||||||||||
|
Paul Maness, General Manager Limco |
221 |
7 |
61 |
60 |
349 |
|||||||||||||||
|
(1) |
All amounts reported in the table are in terms of cost to TAT,
as recorded in our financial statements. |
|
(2) |
Cash compensation amounts denominated in currencies other than
the U.S. dollar were converted into U.S. dollars at the average conversion rate for the year ended December 31, 2025. |
|
(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 insurance and benefits,
risk insurance (e.g., life, disability, accident), convalescence pay, payments for social security, tax gross-up payments and other benefits
and perquisites consistent with our guidelines. |
|
(4) |
Amounts reported in this column refer to variable compensation mainly bonus payments
according to the company's incentive plan paid during 2025 in respect of performance related to fiscal year 2024 and special bonus paid
in 2025 for private placements/equity financing. |
|
(5)
|
Amounts reported in this column represent the expense recorded
in our financial statements for the year ended December 31, 2025 in connection with equity-based compensation granted to the Covered Executive.
|
72
C. Board
Practices
Introduction
Under the Israeli Companies Law and our articles of association,
the management of our business is vested in our board of directors. The board of directors may exercise all powers and may take all actions
that are not specifically granted to another organ in the Company (including our shareholders). Our executive officers are responsible
for our day-to-day management. Our executive officers have individual responsibilities established by our Chief Executive Officer and
board of directors.
Election of Directors
Our articles of association provide for a board of directors consisting
of such number of directors as may be determined from time to time at a general meeting of shareholders, provided that it shall be no
less than two or more than eleven. Our board of directors is currently composed of seven directors.
Pursuant to our articles of association and in accordance with
the Israeli Companies Law, our directors are elected at our annual general meeting of shareholders by a vote of the holders of a
majority of the voting power represented and voting at such meeting; in addition, directors may be appointed by a vote of a majority
of directors then in office. All our directors hold office until the annual general meeting of shareholders succeeding their election
(provided that if no directors are elected at the annual general meeting, the directors in office at the time such meeting was convened
shall continue to hold their office) or until their earlier death, resignation, removal or other circumstances as set forth in the Israeli
law. All the members of our board of directors may be re-elected upon completion of their term of office.
The Israeli Companies Law requires the board of directors of a
public company to determine a minimum number of directors with ‘‘accounting and financial expertise’’. Our
board of directors determined, accordingly, that at least two directors must have ‘‘accounting and financial expertise’’
as such term is defined by regulations promulgated under the Israeli Companies Law.
External and Independent Directors
External Directors. Under
the Companies Law, companies organized under the laws of the State of Israel that are “public companies,” including companies
with shares listed on NASDAQ, are generally required to appoint at least two external directors who meet the independence qualification
requirements in the Companies Law.
However, pursuant to Israeli relief regulations adopted in 2016,
an Israeli company traded on NASDAQ that does not have a “controlling shareholder” (as defined in the Companies Law) may elect
not to appoint external directors to its board of directors and not to comply with the audit committee and compensation committee composition
and chairperson requirements of the Companies Law; provided, the company complies with the applicable
NASDAQ independent director requirements and the NASDAQ audit committee and compensation committee composition requirements.
In accordance with the relief regulations, our nominating, governance
and environmental committee and board of directors elected, in August 2025, not to appoint external directors to the board of directors
and not to comply with the audit committee and compensation committee composition and chairperson requirements of the Companies Law, and
to transition our external directors to become “regular” independent directors within the meaning of the NASDAQ Marketplace
Rules.
73
Audit Committee
Under the Israeli Companies Law, the board of directors of any
public company must establish an audit committee. In general, the audit committee must consist of at least three directors and a
majority of the audit committee members must comply with the director independence requirements prescribed by the Israeli Companies Law.
The audit committee may not include (i) the chairman of the board of directors, (ii) any director employed by the Company or by a controlling
shareholder of the company (including a company which is controlled by the controlling shareholder), (iii) any director providing services
to the company or to a controlling shareholder of the company (including to a company which is controlled by the controlling shareholder)
on an ongoing basis, or (iv) a controlling shareholder or any of the controlling shareholder’s relatives.
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 SEC and NASDAQ and one of whom has accounting or related financial
management expertise at senior levels within a company.
Our audit committee acts also as a committee for the review and
the approval of our financial statements, and as such, assists our board of directors in overseeing 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 registered public accountants’ qualifications and independence, the performance
of our internal audit function and independent registered public accountants, finding any defects in the business management of our company
and proposing to our board of directors ways to correct such defects, approving related-party (officers, directors, controlling shareholder,
etc.) transactions with the company as required by Israeli law, examining the scope of work and the payment to our independent auditors
and such other duties as may be directed by our board of directors. 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 three members of our board of directors
who satisfy the respective “independence” requirements of the SEC, NASDAQ and Israeli law for audit committee members. Our
board of directors has determined that each member of our audit committee qualifies as an audit committee financial expert, as defined
by rules of the SEC. The audit committee meets at least once each quarter.
74
Compensation Committee
Under the Israeli Companies Law, the board of directors of any
public company must establish a compensation committee. The compensation committee must consist of at least three directors and a majority
of the committee members must comply with the director independence requirements prescribed by the Israeli Companies Law. Similar to the
rules that apply to the audit committee, the compensation committee may not include the chairman of the board, or any director employed
by us, by a controlling shareholder or by any entity controlled by a controlling shareholder, or any director providing services to us,
to a controlling shareholder or to any entity controlled by a controlling shareholder on a regular basis, or any director whose primary
income is dependent on a controlling shareholder, and may not include a controlling shareholder or any of its relatives. Individuals who
are not permitted to be compensation committee members may not participate in the committee’s meetings other than to present a particular
issue; provided, however, that an employee that is not a controlling shareholder or relative may participate in the committee’s
discussions but not in any vote; other than the company’s legal counsel and corporate secretary who may participate in the committee’s
discussions and votes if requested by the committee.
The compensation committee’s duties include recommending
to the board of directors a compensation policy for executives and monitor its implementation, approve compensation terms of executive
officers, directors and employees affiliated with controlling shareholders, make recommendations to the board of directors regarding the
issuance of equity incentive awards under our equity incentive plan and exempt certain compensation arrangements from the requirement
to obtain shareholder approval under the Israeli Companies Law. The compensation committee meets at least twice a year, with further meetings
to occur, or actions to be taken by unanimous written consent, when deemed necessary or desirable by the committee or its chairperson.
Our compensation committee consists of an independent director
under the respective requirements of the SEC and NASDAQ and complies with the Israeli Companies Law criteria for compensation committee
members.
Nominating Governance and Sustainability Committee
In November 2025, our board of directors established our Nominating
Governance and Sustainability Committee. The committee is responsible for identifying individuals qualified to become board members and
recommending that the board of directors consider the director nominees for election at the general meeting of shareholders. Additionally,
the committee is responsible for making recommendations to the Board regarding corporate governance matters and policies concerning business
conduct and ethics. The committee is also responsible for overseeing the Company’s strategies, policies, and programs related to
environmental, social, and governance (ESG) matters.
75
Investment and M&A Committee
In November 2025, our board of directors established our Investment
and M&A Committee. The committee is responsible for providing the board of directors with recommendations, in relation to: (i) the
Company’s financing strategy, and (ii) the identification and analysis of acquisition, merger, joint venture, and investment opportunities.
Internal Audit
The Israeli Companies Law requires the board of directors of a
public company to appoint an internal auditor following a recommendation by the audit committee. The role of the internal auditor is to
examine, among other things, the company’s compliance with applicable law and orderly business practice. The internal auditor must
meet certain statutory requirements of independence. Mr. Doron Cohen has served as our internal auditor since December 24, 2008.
Directors’ Service Contracts
There are no arrangements or understandings between us and any
of our subsidiaries, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination of their employment
or service as directors of our company or any of our subsidiaries.
Chairman of the Board
Under the Israeli Companies Law, the general manager of a company
(or a relative of the general manager) may not serve as the chairman of the board of directors, and the chairman of the board of directors
(or a relative of the chairman of the board of directors) may not serve as the general manager, unless approved by the shareholders by
a special majority vote prescribed by the Israeli Companies Law. The shareholder vote cannot authorize the appointment for a period of
longer than three years, which period may be extended from time to time by the shareholders with a similar special majority vote. The
chairman of the board of directors shall not hold any other position with the company (except as general manager if approved in accordance
with the above procedure) or in any entity controlled by the company, other than as chairman of the board of directors of a controlled
entity, and the company shall not delegate to the chairman duties that, directly or indirectly, make him or her subordinate to the general
manager.
76
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 acts 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 position, in connection with any existing or proposed
transaction by us. An office holder who did not disclose his or her personal interests will be deemed as breaching his or her fiduciary
duties. In addition, if the transaction is an extraordinary transaction, that is, a transaction other than in the ordinary course of business
or other than in accordance with 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, sibling, parent, grandparent, child
as well as sibling or parent of such person's spouse or the spouse of any of the above, or by any corporation in which the office holder
or his relative (as defined in the Israeli Companies Law) 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, in general, all arrangements as
to compensation of office holders who are not directors (other than the Chief Executive Officer) require the approval of the compensation
committee and the board of directors, including exculpation, insurance and indemnification of, or an undertaking to, indemnify an office
holder who is not a director. The compensation of office holders who are directors and compensation of the Chief Executive Officer must
be approved by the compensation committee, board of directors and the general meeting of shareholders.
77
Some 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. If the transaction is an extraordinary transaction (which is defined as a transaction
not in the ordinary course of business and for a material value) such a transaction must be approved by the audit committee and by the
board of directors itself, and under certain circumstances shareholder approval may be required. A director who has a personal interest
in a transaction that is considered at a meeting of the board of directors or the audit committee may not be present during the board
of directors or audit committee discussions and may not vote on the transaction, unless the transaction is not an extraordinary transaction
or the majority of the members of the board or the audit committee have a personal interest, as the case may be. In the event the majority
of the members of the board of directors or the audit committee have a personal interest, then the approval of the general meeting of
shareholders is also required.
Disclosure of Personal Interests of a Controlling Shareholder;
Approval of Certain Transactions
Pursuant the Companies Law, the disclosure requirements regarding
personal interest that apply to directors and executive officers also apply to a controlling shareholder of a public company. A controlling
shareholder is a shareholder who has the ability to direct the activities of a company, including s shareholder who holds 25% or more
of the voting rights if no other shareholder holds more than 50% of the voting rights. For this purpose, the holdings of all shareholders
who have a personal interest in the same transaction will be aggregated.
In addition, an extraordinary transaction between a public company
and a controlling shareholder has a personal interest, and the terms of any compensation arrangement of a controlling shareholder who
is an office holder or his relative, require the approval of a company’s audit committee (or compensation committee with respect
to compensation arrangements), board of directors and a special majority vote of shareholders without personal interest, in that order.
Compensation of Executive Officers and Directors
In accordance with the Israeli Companies Law, we have adopted a
compensation policy for our executive officers and directors. The purpose of the policy is to describe our overall compensation strategy
for our executive officers and directors and to provide guidelines for setting their compensation, as prescribed by the Israeli Companies
Law. In accordance with the Israeli Companies Law, the policy must be reviewed and readopted at least once every three years. On March
2025, the Company’s annual shareholders meeting, approved the renewal and amendment of the Company’s compensation policy for
an additional three years.
78
Approval of the compensation committee, the board of directors
and our shareholders, in that order, is required for the adoption of the compensation policy. The shareholders’ approval must include
the majority of shares voted at the meeting. In addition to the majority vote, the shareholder approval must satisfy either of two additional
tests:
| • |
The majority includes at least a majority of the shares voted by shareholders other than our controlling shareholders or shareholders
who have a personal interest in the adoption of the compensation policies; or |
| • |
The total number of shares held by non-controlling shareholders and disinterested shareholders that voted against the adoption of
the compensation policies does not exceed 2% of the aggregate voting rights of our company. |
Under the Israeli Companies Law, the compensation arrangements
for officers (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 officer who is not a director and is in compliance with our executive compensation policy,
the approval of the compensation committee is sufficient.
Arrangements regarding the compensation of the Chief Executive
Officer and directors require the approval of the compensation committee, the board of directors and our shareholders, in that order.
In certain limited cases, the compensation of a new Chief Executive Officer who is not a director may be the approved without approval
of the shareholders.
Variable Cash Incentive
The compensation committee and board of directors may adopt, from
time to time, a cash incentive plan, which will set forth for each executive certain targets which form such executives on target cash
payment (the “On Target Cash Plan”) and the rules or formula for calculation of the On Target Cash Plan payment once actual
achievements are known.
The compensation committee and board of directors may include in
the On Target Cash Plan predetermined thresholds and caps to correlate an executive’s On Target Cash Plan payments with actual achievements.
The actual payment of the annual On Target Cash Plan for the active
chairman of the board of directors (the “Active Chairman”), the CEO and other executives in a given year shall be capped as
determined by our board of directors, but in no event shall exceed the ratio set forth in the table below.
79
The On Target Cash Plans may be composed based on a mix of (i)
the company target; (ii) personal targets (KPIs); and (iii) personal evaluation. The weight to be assigned to each of the components per
each of the executives shall be as set forth in the table below.
|
Active Chairman |
CEO |
Other Executives | |
|
Company Target |
100% |
75% - 100% |
50%-100% |
|
Personal KPIs |
NONE |
NONE |
0%-30% |
|
Personal Evaluation |
NONE |
0%-25% |
0%-30% |
The company target shall be determined in accordance with all or
part of pre-determined targets of the sales budget, gross profit, operating profit, EBITDA, net income and net cash from operating activities,
all in accordance with TAT’s annual budget. If a company target shall apply to a Chief Executive Officer or a President of a subsidiary,
such target may be applied up to 100% with respect to the financial results of the relevant subsidiary, and the remaining cash incentive
with respect to the financial results of TAT and its subsidiaries on a consolidated basis.
The board of directors may determine to exclude certain profits
or loss items from the company target including, but not limited to, certain expenses related to acquisition of a new company, certain
expenses related to distribution of dividend, certain items of revenue or any other items per the board of directors’ sole discretion.
With regard to each one of the measurable targets, reference points
shall be determined in terms of numerical values, so that compliance with the precise numerical target as determined in the On Target
Cash Plan shall constitute compliance with 100% of the target, and also, numerical values shall be determined which will constitute the
lower threshold for compliance with the target. The actual rate of compliance with the targets shall be calculated in accordance with
the said reference points. Failure to comply with the minimum threshold of at least 75% of a specific target shall not entitle the executive
to an On Target Cash Plan payment in respect of the said target. In the event of compliance at a rate of 75% or more with a specific target,
the annual On Target Cash Plan shall be calculated in accordance with a key (i.e. linear, steps, etc.) which shall determine – in
relation to the point of compliance with the target – the amount of the payment in terms of a percentage of the executive annual
base salary, all as shall be set forth in the On Target Cash Plan. In this respect, the compensation committee and the board of directors
shall have the right to determine a higher (but not lower) entitlement threshold.
80
Indemnification and Insurance of Directors and Officers
Insurance of Office Holders
The Israeli Companies Law provides that a company may, if permitted
by its articles of association, enter into a contract to insure an office holder for acts or omissions performed by the office holder
in such capacity for:
| • |
Breach of his or her duty of care to the company or to another person; |
| • |
Breach of his or her duty of loyalty to the company, provided that the office holder acted in good faith and had reasonable cause
to assume that his act would not prejudice the company’s interests; |
| • |
Monetary liability imposed upon the office holder in favor of another person; |
| • |
A monetary obligation imposed on the office holder in favor of another person who was injured by a violation, as this term is defined
in section 52(54)(a)(1)(a) of the Israeli Securities Law, 1968 (“Israeli Securities Law”); and |
| • |
Expenses expended by the office holder, including reasonable litigation expenses, and including attorney's fees, in respect of any
proceeding under chapters 8-C, 8-D or 9-A of the Israeli Securities Law or in respect to any monetary sanction. |
81
Indemnification of Office Holders
The Israeli Companies Law provides that a company may, if permitted
by its articles of association, indemnify an office holder for acts or omissions performed by the office holder in such capacity for:
| • |
Monetary liability imposed on the office holder in favor of another person by any judgment, including a settlement or an arbitrator’s
award approved by a court; |
| • |
Reasonable litigation expenses, including attorney’s fees, actually incurred by the office holder as a result of an investigation
or proceeding instituted against him or her by a competent authority, provided that such investigation or proceeding concluded without
the filing of an indictment against the office holder or the imposition of any monetary liability in lieu of criminal proceedings, or
concluded without the filing of an indictment against the office holder and a monetary liability was imposed on the officer holder in
lieu of criminal proceedings with respect to a criminal offense that does not require proof of criminal intent; |
| • |
A monetary obligation imposed on the office holder in favor of another person who was injured by a violation, as this term is defined
in section 52(54)(a)(1)(a) of the Israeli Securities Law; |
| • |
Expenses expended by the office holder, including reasonable litigation expenses, and including attorney's fees, in respect of any
proceeding under chapters 8-C, 8-D or 9-A of the Israeli Securities Law or in respect to any monetary sanction; |
| • |
Reasonable litigation expenses, including attorneys’ fees, incurred by such office holder or which were imposed on him by a
court, in proceedings the company instituted against the office holder or that were instituted on the company’s behalf or by another
person, or in a criminal charge from which the office holder was acquitted, or in a criminal proceeding in which the office holder was
convicted of a crime which does not require proof of criminal intent; or |
| • |
Any other liability, payment or expense which the company may indemnify its office holders under the Israeli Company Law, the Israeli
Securities Law or other Israeli law. |
82
In accordance with the Israeli Companies Law, a company’s
articles of association may permit the company to:
| • |
Undertake in advance to indemnify an office holder, except that with respect to a financial liability imposed on the office holder
by any judgment, settlement or court-approved arbitration award, the undertaking must be limited to types of occurrences, which, in the
opinion of the company’s board of directors, are, at the time of the undertaking, foreseeable due to the company’s activities
and to an amount or standard that the board of directors has determined is reasonable under the circumstances; and |
| • |
Undertake in advance to indemnify an office holder for reasonable litigation expenses, including attorney’s fees, actually
incurred by the office holder as a result of an investigation or proceeding instituted against him or her by a competent authority, provided
that such investigation or proceeding concluded without the filing of an indictment against the office holder or the imposition of any
monetary liability in lieu of criminal proceedings, or concluded without the filing of an indictment against the office holder and a monetary
liability was imposed on the officer holder in lieu of criminal proceedings with respect to a criminal offense that does not require proof
of criminal intent. |
| • |
Undertake in advance to indemnify an office holder for reasonable litigation expenses, including attorneys’ fees, incurred
by such office holder or which were imposed on him by a court, in proceedings the company instituted against the office holder or that
were instituted on the company’s behalf or by another person, or in a criminal charge from which the office holder was acquitted,
or in a criminal proceeding in which the office holder was convicted of a crime which does not require proof of criminal intent.
|
| • |
Retroactively indemnify an office holder of the company. |
83
Limitations on Exculpation, Insurance and Indemnification
The Israeli Companies Law provides that neither a provision of
the articles of association permitting the company to enter into a contract to insure the liability of an office holder, nor a provision
in the articles of association or a resolution of the board of directors permitting the indemnification of an office holder, nor a provision
in the articles of association exempting an office holder from duty to the company shall be valid, where such insurance, indemnification
or exemption relates to any of the following:
| • |
Breach by the office holder of his duty of loyalty, except with respect to insurance coverage or indemnification if the office holder
acted in good faith and had reasonable grounds to assume that the act would not prejudice the company; |
| • |
Breach by the office holder of his duty of care if such breach was committed intentionally or recklessly, unless the breach was committed
only negligently; |
| • |
Any act or omission committed with intent to derive an unlawful personal gain; and |
| • |
Any fine or forfeiture imposed on the office holder. |
Pursuant to our articles of association, the total amount of indemnification
that we will pay (in addition to amounts received from an insurance company, if any) to all officers of the company, in aggregate, shall
not exceed, in all circumstances, more than 25% of the company's shareholders equity as set forth in the company's recent consolidated
financial statements prior to the date that the indemnity is paid. Our articles of association include provisions which allow us to insure,
indemnify and exempt our office holders, subject to the provisions of the Israeli Companies Law.
We maintain a directors’ and officers’ liability insurance
policy with a-per claim and aggregate coverage limit of $10 million, including legal costs incurred in Israel. In addition, our audit
committee, board of directors and shareholders resolved to indemnify our office holders, pursuant to a standard indemnification agreement
that provides for indemnification of an office holder in an aggregate amount not to exceed 25% of our equity capital (net worth). To date,
we have provided letters of indemnification to all of our officers and directors.
84
Clawback Policy
In
2023, we adopted a Clawback Policy in compliance with the SEC rules and NASDAQ listing standards to recover any excess incentive-based
compensation from current and former executive officers after an accounting restatement.
D. Employees
As of December 31, 2025, TAT and its subsidiaries employed 659
employees, of whom 427 were employed in manufacturing and quality control, 150 were employed in engineering and research and development
and 82 were employed in general & administration, sales and marketing. Of such employees, 209 were located in Israel and 450 were
employed by Limco and Piedmont located in the United States.
Employees in Israel are employed under collective or individual
employment agreements. Senior employees in special positions and members of management are employed under individual agreements. Collective
bargaining agreements are signed for specified terms and are renewed from time to time. During 2022, TAT's management and the union
of TAT Israel agreed to enter into a collective bargaining agreement with respect to employees of TAT Israel. On February 20, 2025, a
new collective bargaining agreement was signed that will be in effect until March 31, 2028.
In Turbochrome, a new collective bargaining agreement was also
signed with Turbochrome’s union on February 25, 2025, that will be in effect until March 31, 2028.
Certain provisions of the collective bargaining agreements between
the Histadrut (General Federation of Labor in Israel) and the Coordinating Bureau of Economic Organizations (including the Manufacturers
Association of Israel) are applicable to our Israeli employees by order of the Israeli Ministry of Economy and Industry. These provisions
concern mainly the length of the workday, minimum daily wages for professional workers, pension contributions, insurance for work-related
accidents, procedures for terminating employees, determination of severance pay and other employment terms. We generally provide our employees
with benefits and working conditions exceeding the required minimums. Furthermore, under the collective bargaining agreements, the wages
of most of our employees are linked to the CPI in Israel, although the extent of the linkage is limited.
85
In addition, Israeli law generally requires severance pay upon
the retirement or death of an employee or termination of employment without due cause. Furthermore, Israeli employees and employers are
required to pay predetermined sums to the National Insurance Institute which is similar to the United States Social Security Administration.
These payments amount to approximately 12% of wages, with the employee contributing approximately 43% and the employer approximately 56%.
We generally grant senior employees based in Israel participation
in a particular insurance product called “management insurance”. Management insurance provides a combination of savings plan,
insurance and severance pay benefits to the employee, giving the employee a lump sum payment upon retirement (rather than receiving annuity
payments) and securing their rights to receive severance pay, if legally entitled, upon termination of employment. In general, the employee
contributes an amount equal to approximately 5% to 6% of their wage and the employer contributes an additional amount of approximately
13-1/3% to 16% of such wage. Management insurance is not a legally mandated by Israeli law.
Limco-Piedmont sponsors a 401(K) QACA safe harbor profit sharing
plan covering substantially all of its employees in the United States. The plan requires the employer to contribute a match which is currently
done on a payroll period basis, matching 100% of the first 2% and 50% of the next 3%. In addition, the plan allows for a discretionary
qualified non-elective contribution for the plan year.
E. Share
Ownership
Beneficial Ownership of Executive Officers and Directors
Except as set forth under ‘Stock Option Plans’ and
in Item 7A below, none of our directors and executive officers beneficially owns more than 1% of our outstanding shares.
86
Stock Option Plans
In November 2011, our audit committee and board of directors approved
a stock option plan (the “2012 Plan”), which was subsequently approved by TAT’s shareholders, on June 28, 2012. According
to the 2012 Plan an aggregate of 980,000 options exercisable into up to 980,000 ordinary shares, of TAT may be granted to certain members
of our board of directors and certain senior executives at an exercise price not less than the fair market value of the shares covered
by the option on the date of grant.
On August 30, 2018, the Company's compensation committee, followed
by the Board of Directors, approved the amended and restated company's 2012 Plan (the “2012 Plan”). On October 4, 2018, the
Company's amended and restated 2012 Plan was approved at the annual general meeting of shareholders. As part of the Company's 2012 Plan’s
amendments it was determined that if the Company declares a cash dividend to its shareholders, and the distribution date of such dividend
will precede the exercise date of an option, including for the avoidance of doubt, options that have yet to become vested and options
which have been granted prior to the adoption of such amendment to the 2012 Plan, the exercise price of the option shall be reduced in
the amount equal to the cash dividend per share distributed by the Company.
Following the approval of TAT's audit committee and board of directors,
on November 8, 2022, the Company’s shareholders approved the Company’s 2022 stock option plan (the “2022 Plan”,
and together with the 2012 Plan, and the Amended and Restated Company’s 2022 Stock Option
Plan (as defined below), “Plans”). According to the 2022 Plan an aggregate of 550,000 options exercisable into up to 550,000
ordinary shares, of TAT may be granted to certain members of our board of directors and certain senior executives at an exercise price
not less than the fair market value of the shares covered by the option on the date of grant.
In March 2025, following the approval of TAT's audit committee
and board of directors, the Company’s shareholders annual meeting, approved the amended and restated Company’s 2022 Stock
Plan (the “Amended and Restated Company’s 2022 Stock Option Plan”).
The main amendment in the Amended and Restated Company's 2022 Stock Option Plan is the increase in the maximum number of ordinary shares
of the Company that may be issued under the Amended and Restated Company's 2022 Stock Option Plan by an additional 200,000 ordinary shares,
such that after the increase, the original option pool after the additional ordinary shares will equal a total of 750,000 ordinary shares.
A copy of the Amended and Restated Company’s 2022 Stock Option Plan is attached as an
exhibit to this Annual Report.
In November 2025, following the approval of TAT's audit committee
and board of directors, the Company’s shareholders annual meeting, approved amendments to the 2012 Plan and the 2022 Plan. Each
of these plans has been updated and expanded to reflect the broadened scope of equity-based awards that may now be granted under the plans.
Accordingly, the plans, previously known as the 2012 Stock Option Plan and the 2022 Stock Option Plan, have been renamed the 2012 Incentive
Plan and the 2022 Incentive Plan, respectively, to reflect this broader scope. These amendments are intended to provide the Company with
greater flexibility in structuring equity-based compensation, to better align the plans with current market practices and the evolving
needs of the Company, and to support the Company’s ability to attract, retain and incentivize key employees, officers, directors
and consultants.
87
In general, the options under the Plans vest over a period of 4
years as follows: 25% of the options vest upon the lapse of 12 months following the date of grant and the remaining 75% vest on a quarterly
basis over the remaining 3-year period. Pursuant to the Plans, any options that are cancelled or not exercised within the option period
determined in the relevant option agreement will become available for future grants.
The grant of options to Israeli employees under the Plans is subject
to the terms stipulated by Sections 102 and 102A of the Israeli Income Tax Ordinance. Each option grant is subject to the track
chosen by the Company, either Section 102 or Section 102A of the Israeli Income Tax Ordinance, and pursuant to the terms thereof, the
Company is not allowed to claim as an expense for tax purposes the amounts credited to employees as benefits, including amounts recorded
as salary benefits in the Company’s accounts, in respect of options granted to employees under the Plans, with the exception of
the work income benefit component, if any, determined on grant date. For nonemployees and for non-Israeli employees, the share option
plan is subject to Section 3(i) of the Israeli Income Tax Ordinance.
As of December 31, 2025, under the 2012 Plan there are 980,000
shares in the pool (of which 113,750 options are outstanding and 425,000 options are unallocated), and under the 2022 Plan there
are 750,000 shares in pool (of which 580,250 options and 5,934 restricted stock units are outstanding and 65,628 are unallocated).
In November 2025, following the approval of TAT's compensation
committee and board of directors, the Company’s shareholders annual meeting approved the grant of RSUs to each of Mr. Amir Harel,
Mr. Eitan Oppenhaim, and Ms. Sagit Manor, members of the Company’s board of directors, with a grant date fair value of $80,000 (1,987
RSUs per each director). These RSUs vest in full on the date of TAT’s next annual meeting of shareholders, subject to the director’s
continued service through such date.
F. Disclosure
of a Registrant’s Action to Recover Erroneously Awarded Compensation
Not applicable.
Item 7.
Major Shareholders and Related Party Transactions
A. Major
Shareholders
The following table sets forth certain information as of December
31, 2025, regarding the beneficial ownership by all shareholders known to us to own beneficially 5% or more of our ordinary shares:
|
Name |
Number of
Ordinary Shares
Beneficially Owned(1) |
Percentage of
Ownership(2) |
||||||
|
Meitav Investment House Ltd. (3) |
1,915,885 |
14.8 |
% | |||||
|
Phoenix Financial Ltd (4) |
949,438 |
7.3 |
% | |||||
|
Y.D. More Investments Ltd. (5) |
900,147 |
6.9 |
% | |||||
|
Wasatch Advisor LP (6) |
781,216 |
6.0 |
% | |||||
|
Migdal Insurance & Financial Holdings Ltd. |
678,353 |
5.1 |
% | |||||
| (1) |
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with
respect to securities. Ordinary shares relating to options and warrants currently exercisable or exercisable within 60 days of the date
of this table are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding
for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable,
the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.
|
88
| (2) |
The percentages shown are based on 12,983,137 ordinary shares issued and outstanding as of December 31, 2025 (net of 274,473 dormant
shares). |
| (3) |
Based on a Schedule 13G/A filed on January 22, 2026, Meitav Portfolio Management Ltd and Meitav Provident Funds & Pension Ltd.
share voting and dispositive power with respect to the 1,915,885 ordinary shares held by Meitav Investment House Ltd. The principal business
address of each of the above entities and persons is 1 Jabotinsky St, Bnie Brak, Israel. |
| (4) |
Based on a Schedule 13G/A filed on January 6, 2026, Phoenix Financial Ltd. share voting and dispositive power with respect to
the 949,438 ordinary shares held by Phoenix Financial Ltd. The principal business address of each of the above entities and persons
is Derech Hashalom 53, Israel. |
| (5) |
Based on a Schedule 13G/A filed on January 8, 2026, Y.D. More Investments Ltd, More Provident Funds & Pension Ltd., More
Mutual Funds Management (2013) Ltd., More Investment House Portfolio Management Ltd., BYM More Investments Ltd., Eli Levy, Yosef Levy,
Benjamin Meirov, Yosef Meirov, Michael Meirov, and Dotan Meirov share voting and dispositive power with respect to the 900,147 ordinary
shares held by Y.D. More Investments Ltd. The principal business address of each to the above entities and persons is 2 Ben-Gurion
Street, Ramat Gan, Israel. The securities reported herein are held by More Provident for the benefit of beneficiaries of various provident
and pension funds, More Mutual for the benefit of various mutual funds, and More Investment for the benefit of various portfolio management
clients. |
| (6) |
Based on a Schedule 13G/A filed on August 14, 2025, Wasatch Advisor LP share voting and dispositive power with respect to the
781,216 ordinary shares held by Wasatch Advisor LP. The principal business address is 505 Wakara Way, 3rd Floor, Salt Lake City,
84108, United States. |
| (7) |
Based on a Schedule 13G/A filed on February 17, 2026, Migdal Insurance & Financial Holdings Ltd share voting and dispositive
power with respect to the 678,353 ordinary shares held by Migdal Insurance & Financial Holdings Ltd. The principal business address
is 4 Efal Street; P.O. Box 3063; Petach Tikva 49512, Israel. |
89
Significant Changes in the Ownership of Major Shareholders
On December 21, 2023, TAT completed a private placement of 1,158,600
ordinary shares to Israeli institutional and accredited investors at NIS 31.70 per share, generating net proceeds of approximately NIS
36.2 million, representing about 11.5% of its outstanding shares post-issuance; subsequently, in September 2024, TAT accepted commitments
and on September 6, 2024 completed a further private placement of 673,340 ordinary shares at NIS 54.95 per share, yielding net proceeds
of approximately NIS 36.5 million, while its largest shareholder, the FIMI Funds, concurrently sold 2,349,706 ordinary shares to Israeli
institutional and accredited investors for an aggregate NIS 129.1 million (with no proceeds to TAT), resulting in the FIMI Funds beneficially
owning approximately 26.6% of the Company’s outstanding shares, with all such transactions conducted solely in Israel pursuant to
Regulation S under the U.S. Securities Act and subject to transfer restrictions.
On May 29, 2025, the Company entered into an underwriting agreement
(the “Underwriting Agreement”) with Fimi Opportunity V, L.P., and Fimi Isarel Opportunity Five, Limited Partnership, as selling
shareholders (the “Selling Shareholders”), and Stifel, Nicolas & Company, Incorporated and Truist Securities, Inc., as
representatives of several underwrites (collectively, the “Underwriters”), relating to an underwritten public offering (the
“Offering”) of 4,150,000 ordinary shares of the Company at a public offering. The Company sold 1,625,000 ordinary shares and
the Selling Shareholders sold 2,525,000 ordinary shares. Pursuant to the Underwriting Agreement, TAT and the Selling Shareholders also
granted the Underwriters an option to purchase up to an additional 242,298 and 380,202 ordinary shares from the Company and the Selling
Shareholders, respectively (collectively, the “Options Shares”), at a public offering price less the underwriting discount
and commissions (the “Underwriters Option”). On June 26, 2025, following the exercise by the Underwriters of the Underwriters
Option in full, the sale and issuance of the Option Shares was completed.
Major Shareholders Voting Rights
Our major shareholders do not have different voting rights.
Based on a review of the information provided to us by our transfer
agent, as of December 31, 2025, there were 20 holders of record of our ordinary shares, of which 19 record holders holding less than 1.0%
of our ordinary shares had registered addresses in the United States. 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 by
brokers or other nominees including CEDE & Co., the nominee for the Depositary Trust Company (the central depositary for the U.S.
brokerage community), which held approximately 98.02 % of our outstanding ordinary shares as of such date.
90
B. Related
Party Transactions
In March 2025, the Company's annual shareholders meeting approved
the grant of 50,000 options to purchase 50,000 of the Company's ordinary shares to Mr. Malka (replacing his previous option grant on 2016).
Additionally, the shareholders meeting approved the amendment to the compensation terms of Mr. Igal Zamir, the Company's Chief Executive
Officer, as follows: Mr. Zamir's base salary, has changed to fixed compensation of $470,000 per year, due to his relocation to the United
States. It was also approved to grant Mr. Zamir 200,000 options to purchase ordinary shares of the Company, and the grant of and a one-time
special bonus equivalent to two monthly salaries to both Mr. Zamir and Mr. Ehud Ben Yair, the Company's Chief Financial Officer.
In November 2025, Company's annual shareholders meeting approved
revised compensation terms for certain members of its Board of Directors, including Mr. Amir Harel, Mr. Eitan Oppenheim and Ms. Sagit
Manor (the “Eligible Directors”), in each case as an exception to the Company’s compensation policy. The revised terms
include an annual cash retainer, additional fees for service as a chair or member of Board committees, and annual equity-based compensation
in the form of restricted stock units, subject to shareholder approval and vesting conditions. In addition, the shareholders approved
the grant of a one-time special bonus to its Chief Financial Officer, Mr. Ehud Ben-Yair, in an amount equal to four months of his base
salary, totaling $110,000. This special bonus exceeds the cap set forth in the Company’s compensation policy, which limits total
bonuses to seven months of base salary, and was therefore approved as an exception to that policy.
C. Interests
of Experts and Counsel
Not applicable.
Item 8.
Financial Information
A. Consolidated
Statements and Other Financial Information
See the consolidated financial statements, including the notes
thereto, included in Item 18.
91
Legal Proceedings
We are party to ongoing litigation in the ordinary course of business
and other legal proceedings. For a discussion of these matters, see Note
11 to our consolidated financial statements included elsewhere in this annual report.
Dividend Distribution Policy
We may declare a dividend to be paid to the holders of our ordinary
shares in proportion to their respective shareholdings. Under the Israeli Companies Law, dividend distributions are determined by the
board of directors and do not require the approval of the shareholders of a company unless the company’s articles of association
provide otherwise. Our Articles do not require shareholder approval of a dividend distribution and provide that dividend distributions
may be determined by our board of directors.
Pursuant to the Israeli Companies Law, the distribution amount
is limited to the greater of retained earnings or earnings generated over the previous two years, according to our then last reviewed
or audited financial statements (less the amount of previously distributed dividends, if not reduced from the earnings), provided that
the end of the period to which the financial statements relate is not more than six months prior to the date of the distribution. If we
do not meet such criteria, then we may distribute dividends only with court approval. In each case, we are only permitted to distribute
a dividend if our board of directors and, if applicable, the court determines that there is no reasonable concern that payment of the
dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. In the event of our liquidation,
after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to
their shareholdings.
B. Significant
Changes
None
92
Item 9.
The Offer and Listing
A. Offer
and Listing Details
Our ordinary shares are traded on NASDAQ under the symbol “TATT”.
On August 16, 2005, we listed our shares for trade on the TASE as a dual listed company.
B. Plan
of Distribution
Not applicable.
C. Markets
Our ordinary shares are traded on NASDAQ under the symbol “TATT”.
On August 16, 2005, we listed our shares for trade on the TASE as a dual listed company.
D. Selling
Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expense
of the Issue
Not applicable.
93
Item 10.
Additional Information
A. Share
Capital
In November 2025, the Company’s shareholders annual meeting
approved to increase the authorized share capital by an additional 4,000,000 ordinary shares, bringing the total authorized share capital
to 19,000,000 ordinary shares.
B.
Memorandum and Articles of Association
Set out below is a description of certain provisions of our memorandum
of association, articles of association and of the Israeli Companies Law related to such provisions. This description is only a summary
and does not purport to be complete and is qualified by reference to the full text of the memorandum of association and articles of association,
which are incorporated by reference as exhibits to this annual report, and to Israeli law. In November 2025, the Company’s articles
of association were amended. A copy of our amended articles of association is filed as an exhibit to this Annual Report.
Purposes and Objects of the Company
We are a public company registered with the Israeli Companies Registry
and have been assigned company number 52-0035791. Section 2 of our articles of association provides that we were established for the purpose
of engaging in the business of providing services of planning, development, consultation and instruction in the electronics field. In
addition, the purpose of our company is to perform various corporate activities permissible under Israeli law.
Powers of the Directors
Under the provisions of the Israeli Companies Law which prevails
over our articles of association in certain issues, a director cannot participate in a meeting nor vote on a proposal, arrangement or
contract in which he or she is materially interested except in cases where a majority of the directors are materially interested in the
same transaction. In addition, our directors cannot vote on compensation to themselves without the approval of our compensation committee
and our shareholders at a general meeting, except for certain cases in which there is no need for the approval of the general meeting
in accordance with the regulations promulgated under the Israeli Companies Law. See Item 6. “Directors,
Senior Management and Employees – Board Practices – Approval of Related Party Transactions under Israeli Law.”
The authority of our directors to enter into borrowing arrangements
on our behalf is not limited, except in the same manner as any other transaction by us.
Our articles of association do not impose any mandatory retirement
or age-limit requirements on our directors, and our directors are not required to own shares in our company in order to qualify to serve
as directors.
94
Rights Attached to Shares
Our authorized share capital consists of 19,000,000 ordinary shares
with no par value. All outstanding ordinary shares are validly issued, fully paid and non-assessable.
Please refer to Exhibit 2.1 for Items 10.B.3, B.4, B.5, B.6, B.7,
B.8, B.9 and B.10.
C. Material
Contracts
Summaries of the following material contracts and amendments to
these contracts are included in this annual report in the places indicated.
|
Material
Contract |
Location
in This Annual Report |
|
Amended 2012 Incentive
Plan |
“ITEM
6.D Directors, Senior Management and Employees – Share Ownership – 2012 Stock Option Plan.” |
|
Amended and Restated
2022 Stock Incentive Plan |
“ITEM
6.D Directors, Senior Management and Employees – Share Ownership – 2022 Stock Option Plan.” |
|
Amended Compensation
Policy for Directors and Executives |
“ITEM
6.C Directors, Senior Management and Employees – Board Practices – Compensation of Executive Officers and Directors.”
|
|
Indemnification Agreement
of Directors and Officers |
“ITEM
6.C – Directors, Senior Management and Employees – Board Practices – Indemnification and Insurance of Directors and
Officers.” |
D.
Exchange Controls
Israeli law and regulations do not impose any material foreign
exchange restrictions on non-Israeli holders of our ordinary shares. In May 1998, a new “general permit” was issued under
the Israeli Currency Control Law, 1978, which removed most of the restrictions that previously existed under such law, and enabled Israeli
citizens to freely invest outside of Israel and freely convert Israeli currency into non-Israeli currencies.
Non-residents of Israel who purchase our ordinary shares will be
able to convert dividends, if any, thereon, and any amounts payable upon our dissolution, liquidation or winding up, as well as the proceeds
of any sale in Israel of our ordinary shares to an Israeli resident, into freely-repatriable dollars, at the exchange rate prevailing
at the time of conversion, provided that the Israeli income tax has been withheld (or paid) with respect to such amounts or an exemption
has been obtained.
95
E.
Taxation
The following is a discussion of Israeli and United States tax
consequences material to our shareholders. To the extent that the discussion is based on new tax legislation which has not been subject
to judicial or administrative interpretation, the views expressed in the discussion might not be accepted by the tax authorities in question.
The discussion is not intended, and should not be construed, as legal or professional tax advice and does not exhaust all possible tax
considerations.
You are urged to consult your own tax advisor as to the Israeli,
United States and other tax consequences of the purchase, ownership and disposition of our ordinary shares, including, in particular,
the effect of any non-Israeli, state or local taxes.
Israeli Tax Considerations
The following is a summary of the principal Israeli tax laws applicable
to us, and certain Israeli Government programs from which we benefit. This section also contains a discussion of material Israeli tax
consequences to our shareholders who are not residents or citizens of Israel. This summary does not discuss all aspects of Israeli tax
law that may be relevant to a particular investor in light of his or her personal investment circumstances, or to some types of investors
subject to special treatment under Israeli law. Examples of investors subject to special treatment under Israeli law include residents
of Israel, traders in securities, or persons who own, directly or indirectly, 10% or more of our outstanding voting capital, all of whom
are subject to special tax regimes not covered in this discussion. Some parts of this discussion are based on new tax legislation that
has not been subject to judicial or administrative interpretation. The discussion should not be construed as legal or professional tax
advice and does not cover all possible tax consequences.
General Corporate Tax Structure in Israel
Israeli companies are generally subject to corporate tax on their
taxable income at the rate of 23% in 2018 and thereafter. However, the effective tax rate payable by a company that derives income from
an Approved Enterprise, a Benefited Enterprise, a Preferred Enterprise or a Technology Enterprise may be considerably less. Capital Gain
derived by an Israeli resident company and / or royalties for which no tax clearance has been obtained from the ITA are subject to tax
at the regular corporate tax rate (23% in 2018 and thereafter).
96
Tax Benefits under the Law for the Encouragement of Capital Investments,
1959
The Law for the Encouragement of Capital Investments, 5719-1959
(the “Investment Law”) provides certain incentives for capital investments in production facilities (or other eligible assets).
The Investment Law was significantly amended effective as of April 1, 2005 (the “2005 Amendment”), as of January 1, 2011 (the
“2011 Amendment”) and as of January 1, 2017 (the “2017 Amendment”).
As to date, we have one capital investment program that has been
granted “Approved Enterprise” status under the Investment Law, and one program that qualify as a “Benefited Enterprise”
pursuant to the 2005 amendment. These programs were waived as part of the "Preferred Enterprise" which is part of the 2011 Amendment.
Prior to the 2005 Amendment, the Investment Law provided that capital
investments in a production facility (or other eligible assets), may be designated as an Approved Enterprise upon prior approval from
the Investment Center of the Israel Ministry of Industry, Trade and Labor (the “Investment Center”).
The 2005 Amendment revised the criteria for investments qualified
to receive tax benefits. An eligible investment program under the 2005 Amendment provided for benefits as a Benefited Enterprise (rather
than the previous terminology of Approved Enterprise). Among other things, the 2005 Amendment provided tax benefits to both local and
foreign investors. Companies that meet the specified criteria received the tax benefits without need for prior approval and instead, a
company was to claim the tax benefits offered by the Investment Law directly in its tax.
The period of tax benefits for the then new beneficiary enterprise
commences in the year that is the later of: (i) the year in which taxable income is first generated by a company, or (ii) a year selected
by the company for commencement, on the condition that the company meets certain provisions provided by the Investment Law.
The amendment does not apply to investment programs approved prior
to December 31, 2004 and applies only to new investment programs. We began to generate income under the provision of the 2005 Amendment
as of the beginning of 2006.
After expiration of the initial tax exemption period, the company
is eligible for what was considered then a reduced corporate tax rate of 10% to 25%, depending on the extent of foreign investment in
the company, for the following five to eight years, depending on the geographic location of the Benefited Enterprise within Israel. The
benefits period was limited to 12 years from completion of the investment under the approved plan or 14 years from the date of the approval,
whichever is earlier. A company in which more than 25% of the shareholders are non-residents of Israel, defined under the Investment Law
as a Foreign Investors Company, may be eligible for benefits for an extended period of up to ten years.
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In addition, pursuant to an amendment of the Investment Law, any
distribution of dividend as of August 15, 2021 will be prorated between exempt income and taxable income. As such, upon dividend distribution,
in case the company has accumulated exempt income, the company will be obligated to pay the corporate income tax it was exempted from
with respect to the exempt profits portion. Distribution of dividends derived from Approved Enterprise and Benefited Enterprise income
that was taxed at reduced rates, but not tax exempt, does not result in additional tax consequences to the company. Shareholders who receive
dividends derived from approved enterprise and Benefited Enterprise income were generally taxed at a rate of 15% which was withheld and
paid by the company paying the dividend if the dividend was distributed during the benefits period or within the following 12 years.
The benefits available to an Approved Enterprise and Benefited
Enterprise were conditioned upon terms stipulated in the Investment Law and the related regulations (which include making specified investments
in property and equipment, and financing a percentage of these investments with share capital), and, for an Approved Enterprise, the conditions
contained in the certificate of approval from the Investment Center. If we do not fulfill these conditions, in whole or in part,
the benefits can be cancelled and we may be required to refund the amount of the benefits, linked to the CPI in Israel plus interest.
We believe that our Approved Enterprise and Benefited Enterprise programs were operated in compliance with all applicable conditions and
criteria.
We have derived a material portion of our operating income from
our Approved Enterprise and Benefited Enterprise facilities. We were therefore eligible for a tax exemption for a limited period on undistributed
Approved Enterprise and Benefited Enterprise income.
Pursuant to the Investment Law, the income derived from those enterprises
was exempted from Israeli corporate tax for a specified benefit period (except to the extent that dividends are distributed during the
tax-exemption period other than upon liquidation) and subject to reduced corporate tax rates for an additional period.
Tax Benefits under the 2011 Amendment
Under the transitional provisions of the 2011 Amendment, TAT elected
to irrevocably implement the 2011 Amendment with respect to its existing Approved and Beneficiary Enterprises while waiving benefits provided
under the legislation prior to the 2011 Amendment.
Dividends paid out of income attributed to a Preferred Enterprise
will be subject to a withholding tax at the source at the rate of 20%, or such lower rate as may be provided in an applicable tax treaty.
However, if such dividends are paid to an Israeli company, no tax is required to be withheld (although, if the funds are subsequently
distributed to individuals or to non-Israeli residents (individuals and corporations), the withholding tax would apply).
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As of January 1, 2014, a Preferred Company is entitled to a reduced
corporate tax rate of 16% with respect to its income derived from its Preferred Enterprise, unless the Preferred Enterprise is located
in development area A, in which case the tax rate as of January 1, 2017 was 7.5% (our operations are currently not located in development
area A). Income which is not derived from Preferred Enterprise is subject to the regular corporate tax rate (23% in tax year 2018 and
thereafter).
Until 2021 TAT was located in an area in Israel that is designated
as elsewhere and as such is entitled to reduce tax rates of 16%. Starting 2022 TAT facilities moved to an area in Israel that is designated
as Zone A and as such entitled to reduce tax rates of 7.5%
Turbochrome is located in an area in Israel that is designated
as Zone A and as such entitled to reduce tax rates of 7.5% (as of 2017).
Tax Benefits under the 2017 Amendment
An amendment to the Investment Law, which became effective as of
January 1, 2017, provides new tax benefit to preferred companies for two types of “Technology Enterprise”, as described below,
and is in addition to the other existing tax beneficial programs under the Investment Law.
The new incentives regime will apply to "Preferred Technological
Enterprises" that meet certain conditions, as detailed in the 2017 Amendment. Preferred Technological Enterprises will be subject to a
corporate tax rate of 12% unless the Preferred Technological Enterprise is located in development zone A, in which case the rate will
be 7.5% with respect to the portion of income derived from intellectual property developed in Israel. The withholding tax on dividends
from income derived from intellectual property of the Preferred Technological Enterprises will be 4% for dividends paid to a foreign parent
company holding at least 90% of the shares of the distributing company. For other dividend distributions, the withholding tax rate will
be 20% (or a lower rate under a tax treaty, if applicable).
We cannot assure you that we will continue to qualify as an Industrial
Company or that the benefits described above will be available to us in the future.
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Tax Benefits and Grants for Research and Development
Israeli tax law allows, under specific conditions, a tax deduction
in the year incurred for expenditures, including capital expenditures, relating to scientific research and development projects, if the
expenditures are approved by the relevant Israeli government ministry, determined by the field of research, and the research and development
is for the promotion of the company and is carried out by or on behalf of the company seeking such deduction. Expenditures not so approved
are deductible over a three-year period. However, expenditures from proceeds made available to us through government grants are not deductible
according to Israeli law.
Tax Benefits under the Law for the Encouragement
of Industry (Taxes), 1969
According to the Law for the Encouragement of Industry (Taxes),
1969 (the “Industry Encouragement Law”), an ‘Industrial Company’ is an Israeli resident company, with at least
90% of the income of which, in a given tax year, (exclusive of income from some government loans) is derived from an Industrial Enterprise
owned by it and located in Israel or in the “Area”, in accordance with the definition in the section 3a of the Ordinance.
An ‘Industrial Companies” defined as an enterprise whose major activity in a given tax year is industrial production activity.
Under the Industry Encouragement Law, Industrial Companies are entitled to the following
tax benefits:
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Amortization of purchases of acquired technology and patents over an eight-year period for tax purposes; |
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Amortization of specified expenses incurred in connection with a public issuance of securities over a three-year period for tax purposes;
|
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Right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli Industrial Companies;
and |
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Accelerated depreciation rates on equipment and buildings. |
Eligibility for benefits under the Industry Encouragement Law is
not subject to receipt of prior approval from any governmental authority.
Special Provisions Relating to Taxation under Inflationary Conditions
The Income Tax Law (Inflationary Adjustments), 1985, referred to
as the Inflationary Adjustments Law, attempts to overcome the problems presented to a traditional tax system by an economy undergoing
rapid inflation. The Inflationary Adjustments Law is highly complex.
On February 26, 2008, the Israeli Parliament (the Knesset) enacted
the Income Tax Law (Inflationary Adjustments) (Amendment No. 20) (Restriction of Effective Period), 2008 (the “Inflationary Adjustments
Amendment”). In accordance with the Inflationary Adjustments Amendment, as of the 2008 tax year the provisions of the law are no
longer apply, other than the transitional provisions intended at preventing distortions in the tax calculations. In accordance with the
Inflationary Adjustments Amendment, commencing the 2008 tax year, income for tax purposes is no longer be adjusted to a real (net of inflation)
measurement basis. Furthermore, the depreciation of inflation immune assets and carried forward tax losses are no longer linked to the
CPI in Israel.
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Taxation
of Dividends Paid on our Ordinary Shares
Taxation of Israeli Shareholders
A distribution of dividends from income, which is not attributed
to an Approved Enterprise/ Benefited Enterprise/ Preferred Enterprise to an Israeli resident individual, will generally be subject to
Israeli income tax, at the rate of 25%, or 30% for a recipient that is a “Controlling Shareholder” (within the meaning of
the Israeli Income Tax Ordinance) at the time of distribution or at any time during the 12-month period preceding such distribution.
However, dividends distributed from taxable income accrued during
the benefits period of a Benefited Enterprise, subject to certain time limitations, are generally subject to Israeli income tax at the
reduced rate of 15%. Dividends paid out of income attributed to a Preferred Enterprise are generally subject to Israeli income tax at
the source at the rate of 20%.
Generally, Israeli resident corporations are exempt from Israeli
corporate tax on the receipt of dividends paid on shares of Israeli resident corporations and that the dividends were fully taxed at the
corporate tax rate in Israel, unless the dividends are distributed from taxable income that has accrued during the benefits period of
Approved Enterprise of Benefited Enterprise, in which case they are taxable at the rate of 15%.
It should be noted that we cannot assure you that we will designate
the profits that are being distributed in a way that will reduce shareholders’ tax liability to those tax rates.
Taxation of Non-Israeli Shareholders
The Ordinance generally provides that a non-Israeli resident (either
individual or corporation) is subject to, an Israeli income tax at the rate of 25%, or 30% if the recipient is a ”Controlling Shareholder”
at the time of distribution or at any time during the 12-month period preceding such distribution, unless a different rate is provided
in a treaty between Israel and the shareholder’s country of residence.
As aforesaid, dividends derived from any of our income generated
by an Approved Enterprise or Benefited Enterprise, are subject to withholding tax at a rate of 15% (or less based on applicable tax treaty),
and dividends derived from any of our income generated by a Preferred Enterprise are subject to withholding tax at a rate of 20% (or less
based on applicable tax treaty).
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Subject to the provisions of an applicable tax treaty, individuals
who are subject to tax in Israel (whether any such individual is an Israeli resident or non-Israeli resident) are also subject to an additional
tax at a rate of 3% on annual income (including, but not limited to, dividends, interest, and capital gain) exceeding ILS 721,000 for
2024, which amount is linked to the annual change in the Israeli consumer price index. Additionally, effective from January 1, 2025, a
further surtax of 2% will apply exclusively to capital income exceeding ILS 721,560.
Under the United States-Israel Tax Treaty, the maximum rate of
tax withheld at source in Israel on dividends paid to a holder of our ordinary shares who is a U.S. resident (for purposes of the United
States-Israel Tax Treaty) is 25%. However, generally the maximum rate of withholding tax on dividends, not generated by Approved / Benefited
/ Preferred Enterprises, that are paid to a U.S. corporation holding at least 10% or more of our outstanding voting capital from the start
of the tax year preceding the distribution of the dividend through (and including) the distribution of the dividends, is 12.5%, provided
that no more than 25% of our gross income of such preceding year consists of certain types of dividends and interest if a certificate
for a reduced withholding tax rate is obtained in advance from the Israeli Tax Authority. Notwithstanding the foregoing, dividends distributed
from income attributed to an Approved Enterprise, Benefited Enterprise or a Preferred Enterprise are subject to withholding tax rate of
15% for such a U.S. corporation shareholder, provided that the condition related to our gross income for the previous year (as set forth
in the previous sentence) is met.
The aforementioned rates under the United States-Israel Tax Treaty
will not apply if the dividend income was derived through a permanent establishment of the U.S. resident in Israel.
When the amount of tax due is not fully withheld at source, such
non-Israeli resident is obligated to file a tax return, report his or her Israeli income and pay the balance of the amount of tax due.
Capital gains taxes applicable to non-Israeli
shareholders
Capital gains from the sale of our ordinary shares by non-Israeli
shareholders are exempt from Israeli taxation, provided that the capital gain is not derived from a permanent establishment in Israel
according to section 97(b2) to the Israeli income tax ordinance. In addition, the U.S.-Israel Tax Treaty exempts U.S. residents who hold
less than 10% of our voting rights, and who held less than 10% of our voting rights during the 12 months prior to a sale of their shares,
from Israeli capital gains tax in connection with such sale.
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United States Federal Income Tax Consequences
The following discussion summarizes the material
U.S. federal income tax considerations generally applicable to the purchase, ownership and disposition of our ordinary shares. Unless
otherwise stated, this summary deals only with shareholders that are U.S. Holders (as defined below) who hold their ordinary shares as
capital assets.
As used in this section, the term “U.S. Holder” means
a beneficial owner of an ordinary share who is:
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An individual citizen or resident of the United States or an individual treated as a U.S. citizen or resident for U.S. federal income
tax purposes; |
| • |
A corporation or other entity taxable as a corporation for U.S. federal income tax purposes created or organized in or under the
laws of the United States, any State or the District of Columbia; |
| • |
An estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
| • |
Any trust if (A)(i) a court within the United States is able to exercise primary supervision over the administration of the trust
and (ii) one or more United States persons have the authority to control all substantial decisions of the trust, or (B) such trust validly
elects to be treated as a United States person. |
The term “Non-U.S. Holder” means a beneficial owner
of an ordinary share that is an individual, corporation, estate or trust and is not a U.S. Holder. The tax consequences to a Non-U.S.
Holder may differ substantially from the tax consequences to a U.S. Holder. Certain aspects of U.S. federal income tax relevant to a Non-U.S.
Holder are discussed below.
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This description is based on provisions of the U.S. Internal Revenue
Code of 1986, as amended (the “Code”), existing and proposed U.S. Treasury regulations promulgated thereunder, administrative
and judicial interpretations thereof, and the U.S.-Israel Tax Treaty, each as in effect as of the date of this annual report. In addition,
this description also relates to the Tax Cuts and Jobs Act (“TCJA”) signed into law on December 22, 2017, and the One Big
Beautiful Bill Act (“OBBBA”) signed into law on July 4, 2025. The OBBBA permanently extended most key individual and international
tax provisions of the TCJA that were previously scheduled to sunset at the end of 2025. These sources may change, possibly with retroactive
effect, and are open to differing interpretations. This description does not discuss all aspects of U.S. federal income taxation that
may be applicable to investors in light of their particular circumstances or to investors who are subject to special treatment under U.S.
federal income tax law, including:
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Insurance companies; |
| • |
Dealers in stocks, securities or currencies; |
| • |
Financial institutions and financial services entities; |
| • |
Real estate investment trusts; |
| • |
Regulated investment companies; |
| • |
Persons that receive ordinary shares in connection with the performance of services; |
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Tax-exempt organizations; |
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Persons that hold ordinary shares as part of a straddle or appreciated financial position or as part of a hedging, conversion or
other integrated instrument; |
| • |
Persons who hold the ordinary shares through partnerships or other pass-through entities; |
| • |
Individual retirement and other tax-deferred accounts; |
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Expatriates of the United States and certain former long-term residents of the United States; |
| • |
Persons liable for the alternative minimum tax; |
| • |
Persons having a “functional currency” other than the U.S. dollar; and |
| • |
Direct, indirect or constructive owners of 10% or more, by voting power or value, of our company. |
If a partnership or an entity treated as a partnership for U.S.
federal income tax purposes owns ordinary shares, the U.S. federal income tax treatment of a partner in such a partnership will generally
depend upon the status of the partner and the activities of the partnership. A partnership that owns ordinary shares and the partners
in such partnership should consult their own tax advisors about the U.S. federal income tax consequences of holding and disposing of ordinary
shares.
This discussion does not consider the possible application of U.S.
federal gift or estate tax or alternative minimum tax.
All investors are urged to consult their own tax advisors as to
the particular tax consequences to them of an investment in our ordinary shares, including the effect and applicability of United States
federal, state, local and foreign income and other tax laws (including estate and gift tax laws) and tax treaties.
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Distributions Paid on the Ordinary Shares
Subject to the discussion below under “Passive Foreign Investment
Company Considerations,” a U.S. Holder generally will be required to include in his or her gross income as ordinary dividend income
the amount of any distributions paid on the ordinary shares, including the amount of any Israeli taxes withheld, to the extent that those
distributions are paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Subject
to the discussion below under “Passive Foreign Investment Company Considerations,” distributions in excess of our earnings
and profits will be applied against and will reduce the U.S. Holder’s tax basis in its ordinary shares and, to the extent they exceed
that tax basis, will be treated as gain from a sale or exchange of those ordinary shares. In some cases, our dividends will not
qualify for the dividends-received deduction applicable to U.S. corporations.
Dividends that we pay in NIS, including the amount of any Israeli
taxes withheld therefrom, will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect
on the day such dividends are received, regardless of whether the payment is in fact converted into U.S. dollars. A U.S. Holder who receives
payment in NIS and converts NIS into U.S. dollars at an exchange rate other than the rate in effect on such day will have a foreign currency
exchange gain or loss that would be treated as ordinary income or loss. U.S. Holders should consult their own tax advisors concerning
the U.S. tax consequences of acquiring, holding and disposing of NIS.
Subject to certain limitations, “qualified dividend income”
received by a non-corporate U.S. Holder will generally be subject to taxation in the U.S at a lower rate than ordinary income. Distributions
taxable as dividends paid on the ordinary shares should qualify for lower tax rate provided that we are not a passive foreign investment
company (as described below) for U.S. tax purposes and that either: (i) we are entitled to benefits under the “U.S.-Israel Tax Treaty”
or (ii) the ordinary shares are readily tradable on an established securities market in the United States and certain other requirements
are met. We believe that we are entitled to benefits under the U.S.-Israel Tax Treaty and that the ordinary shares currently will be readily
tradable on an established securities market in the United States. However, no assurance can be given that the ordinary shares will remain
readily tradable. The rate reduction does not apply unless certain holding period requirements are satisfied. With respect to the ordinary
shares, the U.S. Holder must have held such shares for at least 61 days during the 121-day period beginning 60 days before the ex-dividend
date. The rate reduction also does not apply to dividends received from passive foreign investment companies, see discussion below, or
in respect of certain hedged positions or in certain other situations. The legislation enacting the reduced tax rate contains special
rules for computing the foreign tax credit limitation of a taxpayer who receives dividends subject to the reduced tax rate. U.S. Holders
of ordinary shares should consult their own tax advisors regarding the effect of these rules in their particular circumstances.
Subject to the discussion below under “Information Reporting
and Back-up Withholding,” a Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on dividends
received on ordinary shares unless that income is effectively connected with the conduct by that Non-U.S. Holder of a trade or business
in the United States, in which case a corporate Non-U.S. Holder may also be subject to the U.S. branch profits tax.
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Foreign Tax Credit
Any dividend income resulting from distributions we pay to a U.S.
Holder with respect to the ordinary shares generally may be treated as foreign source income for U.S. foreign tax credit limitation purposes.
For all taxable years ended until December 31, 2017, and subject to certain conditions and limitations, Israeli tax withheld on dividends
may be deducted from taxable income or credited against a U.S. Holder’s U.S. federal income tax liability. The limitation on foreign
taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, in general, any dividend
that we distribute should constitute “passive category income,” or, in the case of certain U.S. Holders, “general category
income.”
With respect to our corporate U.S. holders, the TCJA, as made permanent
by the OBBBA, provides a 100% deduction for the foreign-source h provides a 100% deduction for the foreign-source t provides a 100% deduction
for the foreign-source i provides a 100% deduction for the foreign-source portion of dividends received after January 1, 2018 from “specified
10-percent owned foreign corporations” by U.S. corporate holders, subject to a one-year holding period. No foreign tax credit, including
Israeli withholding tax (or deduction for foreign taxes paid with respect to qualifying dividends) would be permitted for foreign taxes
paid or accrued with respect to a qualifying dividend. Deduction would be unavailable for “hybrid dividends.” The dividend
received deduction enacted under the TCJA may not apply to dividends from a passive foreign investment company. This Section 245A dividends
received deduction was permanently extended by the OBBBA, with no substantive change to the relevant mechanics.
The rules relating to the determination of foreign source
income and the foreign tax credit are complex, and the availability of a foreign tax credit depends on numerous factors. Each investor
who is a U.S. Holder should consult with its own tax advisor to determine whether its income with respect to the ordinary shares would
be foreign source income and whether and to what extent that investor would be entitled to a foreign tax credit.
Disposition of Ordinary Shares
Upon the sale or other disposition of ordinary shares, subject
to the discussion below under “Passive Foreign Investment Company Considerations”, a U.S. Holder generally should recognize
capital gain or loss equal to the difference between the amount realized on the disposition and the holder’s adjusted tax basis
in the ordinary shares. U.S. Holders should consult their own tax advisors with respect to the tax consequences of the receipt of a currency
other than U.S. dollars upon such sale or other disposition.
Gain or loss upon the disposition of the ordinary shares will be
treated as long-term if, at the time of the sale or disposition, the ordinary shares were held for more than one year. The deductibility
of capital losses by a U.S. Holder is subject to limitations. In general, any gain or loss recognized by a U.S. Holder on the sale or
other disposition of ordinary shares will be U.S. source income or loss for U.S. foreign tax credit purposes. U.S. Holders should consult
their own tax advisors concerning the source of income for U.S. foreign tax credit purposes and the effect of the U.S.-Israel Tax Treaty
on the source of income.
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Subject to the discussion below under “Information Reporting
and Back-up Withholding,” a Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on any gain
realized on the sale or exchange of ordinary shares unless:
| • |
that gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States, and, if a
tax treaty applies, is attributable to a permanent establishment or fixed base of the Non-U.S. Holder in the United States; or |
| • |
in the case of any gain realized by an individual Non-U.S. Holder, that holder is present in the United States for 183 days or more
in the taxable year of the sale or exchange, and other conditions are met. |
Passive Foreign Investment Company Considerations
Special U.S. federal income tax rules apply to U.S. Holders owning
shares of a passive foreign investment company. A non-U.S. corporation will be considered a passive foreign investment company for any
taxable year in which, after applying certain look-through rules, 75% or more of its gross income consists of specified types of passive
income, or 50% or more of the average value of its assets consists of assets that produce, or are held for the production of, passive
income. For this purpose, passive income may include dividends, interest, royalties, rents, annuities and the excess of gains over losses
from the disposition of assets which produce passive income.
If we were classified as a passive foreign investment company,
a U.S. Holder could be subject to increased tax liability upon the sale or other disposition of ordinary shares or upon the receipt of
amounts treated as “excess distributions”. Under these rules, the excess distribution and any gain would be allocated ratably
over the U.S. Holder’s holding period for the ordinary shares, and the amount allocated to the current taxable year and any taxable
year prior to the first taxable year in which we were a passive foreign investment company would be taxed as ordinary income. The amount
allocated to each of the other taxable years would be subject to tax at the highest marginal tax rate in effect for the applicable class
of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed on the resulting tax allocated to such
other taxable years. The tax liability with respect to the amount allocated to years prior to the year of the disposition, or “excess
distribution”, cannot be offset by any net operating losses. In addition, holders of shares in a passive foreign investment company
may not receive a “step-up” in basis on shares acquired from a decedent. If we are a passive foreign investment company in
any year, a U.S. Holder would be required to file an annual return on IRS Form 8621 regarding distributions received with respect to ordinary
shares and any gain realized on the disposition of ordinary shares.
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Based on our current and projected income, assets and activities,
we do not believe that we will be a passive foreign investment company for our current taxable year. However, because the determination
of whether we are a passive foreign investment company is based upon the composition of our income and assets from time to time, we cannot
be certain that we will not be considered a passive foreign investment company for the current taxable year or any future taxable year.
The passive foreign investment company tax consequences described
above will not apply to a U.S. Holder if the U.S. Holder makes a timely election to treat us as a qualified electing fund (“QEF”).
If a U.S. Holder makes a timely QEF election, the U.S. Holder would be required to include in income for each taxable year its pro rata
share of our ordinary earnings as ordinary income and its pro rata share of our net capital gain as long-term capital gain, whether or
not such amounts are actually distributed to the U.S. Holder. However, a U.S. Holder would not be eligible to make a QEF election unless
we comply with certain applicable information reporting requirements. We will provide U.S. Holders with the information needed to report
income and gain under a QEF election should we become a passive foreign investment company.
As an alternative to making a QEF election, a U.S. Holder of passive
foreign investment company stock which is publicly traded may in certain circumstances avoid certain of the tax consequences generally
applicable to holders of a passive foreign investment company by electing to mark the stock to market annually and recognizing as ordinary
income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the passive
foreign investment company stock and the U.S. Holder’s adjusted tax basis in the passive foreign investment company stock. Losses
would be allowed only to the extent of net mark-to-market gain previously included by the U.S. Holder under the election for prior taxable
years. Income recognized and deductions allowed under the mark-to-market provisions, as well as any gain or loss on the disposition of
ordinary shares with respect to which the mark-to-market election is made, are generally treated as ordinary income or loss (except that
loss is treated as capital loss to the extent the loss exceeds the net mark-to-market gains, if any, that a U.S. Holder included in its
income with respect to such ordinary shares in prior years). However, gain or loss from the disposition of ordinary shares (as to which
a “mark-to-market” election was made) in a year in which we are no longer a passive foreign investment company, will be capital
gain or loss. The mark-to-market election is available for so long as our ordinary shares constitute “marketable stock,” which
includes stock of a passive foreign investment company that is “regularly traded” on a “qualified exchange or other
market.” Generally, a “qualified exchange or other market” includes a national securities exchange that is registered
with the SEC or the national market system established pursuant to Section 11A of the Securities Exchange Act of 1934. A class of stock
that is traded on one or more qualified exchanges or other markets is “regularly traded” on an exchange or market for any
calendar year during which that class of stock is traded, other than in the minimized quantities, on at least 15 days during each calendar
quarter. We believe that NASDAQ will constitute a qualified exchange or other market for this purpose. However, we cannot be certain that
our ordinary shares will continue to trade on NASDAQ or that the ordinary shares will be regularly traded for this purpose.
The rules applicable to owning shares of a passive foreign investment
company are complex, and each holder who is a U.S. Holder should consult with its own tax advisor regarding the consequences of investing
in a passive foreign investment company.
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Medicare Tax
Certain U.S. Holders that are individuals, estates or trusts may be subject to a 3.8%
Net Investment Income tax on all or a portion of their “net investment income”, which may include all or a portion of their
dividend income and net gains from the disposition of ordinary shares and warrants. Each U.S. Holder that is an individual, estate or
trust is urged to consult its tax advisors regarding the applicability of the Net Investment Income tax to its income and gains in respect
of its investment in our ordinary shares and warrants, including with respect to the eligibility to claim foreign tax credit against such
tax.
Information Reporting and Backup Withholding
Payments in respect of ordinary shares may be subject to information
reporting to the U.S. Internal Revenue Service (the “IRS”) and to U.S. backup withholding tax at a rate equal to the fourth
lowest income tax rate applicable to individuals (which, under current law, is 24%). Backup withholding will not apply, however, if you
(i) are a corporation or come within certain exempt categories, and demonstrate the fact when so required, or (ii) furnish a correct taxpayer
identification number and make any other required certification. U.S. Holders who are required to establish their exempt status generally
must provide such certification on IRS Form W-9.
Backup withholding is not an additional tax. Amounts withheld under
the backup withholding rules may be credited against a U.S. Holder’s U.S. tax liability, and a U.S. Holder may obtain a refund of
any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS.
Any U.S. holder who holds 10% or more in vote or value of our ordinary
shares will be subject to certain additional United States information reporting requirements.
U.S. Gift and Estate Tax
An individual U.S. Holder of ordinary shares will generally be
subject to U.S. gift and estate taxes with respect to ordinary shares in the same manner and to the same extent as with respect to other
types of personal property.
110
F. Dividends
and Paying Agents
Not applicable.
G. Statement
by Experts
Not applicable.
H. Documents
on Display
We are subject to the reporting requirements of the United States
Securities Exchange Act of 1934, as amended, as applicable to “foreign private issuers” as defined in Rule 3b-4 under the
Exchange Act, and in accordance therewith, we file annual and interim reports and other information with the SEC.
As a foreign private issuer, we are exempt from certain provisions
of the Exchange Act. Accordingly, our proxy solicitations are not subject to the disclosure and procedural requirements of Regulation
14A under the Exchange Act and transactions in our equity securities by our officers and directors are exempt from reporting and the “short-swing”
profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file
periodic reports and financial statements as frequently or as promptly as United States companies whose securities are registered under
the Exchange Act. However, we make available on our website www.tat-technologies.com, our annual audited financial statements, which have
been examined and reported on, with an opinion expressed by an independent public accounting firm, and we intend to file reports with
the SEC on Form 6-K containing unaudited financial information for the first three quarters of each fiscal year.
This annual report on Form 20-F and the exhibits thereto and any
other document we file pursuant to the Exchange Act may be inspected without charge and copied at prescribed rates at the following SEC
public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549; and on the SEC website (http://www.sec.gov) and on our
website www.tat-technologies.com. You may obtain information on the operation of the SEC’s public reference room in Washington,
D.C. by calling the SEC at 1-800-SEC-0330. The Exchange Act file number for our SEC filings is 0-16050.
In addition, since August 16, 2005, we are also listed on the TASE.
From such date we submit copies of all our filings with the SEC to the ISA and TASE. Such copies can be retrieved electronically through
the TASE internet messaging system (www.maya.tase.co.il) and, in addition, through the MAGNA distribution site of the ISA (www.magna.isa.gov.il).
The documents concerning our company which are referred to in this
annual report may also be inspected at our offices located at 9335 Harris Corners Pkwy, Charlotte, NC.
111
I. Subsidiary
Information
Not applicable.
J. Annual
Report to Security Holders
Not applicable.
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
We do not own and have not issued any market risk sensitive instruments
about which disclosure is required to be provided pursuant to this Item.
Effects of Currency Exchange Fluctuations
Our financial statements are stated in dollars, while a portion
of our expenses, primarily labor expenses, is incurred in NIS and a part of our revenues are quoted in NIS. Additionally, certain assets,
as well as a portion of our liabilities, are denominated in NIS. As a result, our operations may be affected by fluctuations of the U.S.
dollar/NIS exchange rate. We are hedging a portion of our exchange rate risk through forward transactions and the use of other derivative
instruments.
Item 12. Description
of Securities Other than Equity Securities
Not Applicable.
112
PART
II
Item 13. Defaults,
Dividend Arrearages and Delinquencies
None.
Item 14. Material
Modifications to the Rights of Security Holders
None.
Item 15. Controls
and Procedures
| (a) |
Disclosure Controls and Procedures |
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our chief
executive officer and chief financial officer to allow timely decisions regarding required disclosure. Our management, including our chief
executive officer and chief financial officer, conducted an evaluation of our disclosure controls and procedures, as defined under Exchange
Act Rule 13a-15(e), as of the end of the period covered by this annual report on Form 20-F. Based upon that evaluation, our chief executive
officer and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were effective.
113
| (b) |
Management's Annual Report on Internal Control over Financial Reporting |
Our management is responsible for establishing and maintaining
adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f)
promulgated under the Exchange Act 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 transactions 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 to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Our management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2025. In making this assessment, our management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on that assessment,
our management concluded that as of December 31, 2025, our internal control over financial reporting is effective.
114
| (c) |
Changes in Internal Control over Financial Reporting |
There was no change in our internal control over financial reporting
that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
| (d) |
Attestation Report of the Registered Public Accounting Firm |
Our internal control over financial reporting as of December 31, 2025 has been audited
by Kesselman & Kesselman, an independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International
Limited, as stated in their report which is included under “Item 18—Financial Statements.”
Item 16.
Reserved
Item 16A. Audit
Committee Financial Expert
Our board of directors has determined that each member of our audit
committee qualifies as an audit committee financial expert, as defined by rules of the SEC. For a brief listing of the relevant experience
of the member of our audit committee, 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 that applies to our chief executive
officer and all senior financial officers of our company, including the chief financial officer, chief accounting officer or controller,
or persons performing similar functions. The code of ethics is publicly available on our website at www.tat-technologies.com. Written
copies are available upon request. If we make any substantive amendment to the code of ethics or grant any waivers, including any implicit
waiver, from a provision of the codes of ethics, we will disclose the nature of such amendment or waiver on our website.
115
Item 16C.
Principal Accountant Fees and Services
Fees Paid to Independent Public Accountant
The following table sets forth, for each of the years indicated,
the fees paid to our principal independent registered public accounting firm. All of such fees were pre-approved by our audit committee.
|
Year Ended December 31, |
||||||||
|
Services Rendered |
2025 |
2024 |
||||||
|
Audit (1) |
$ |
515,717 |
$ |
323,321 |
||||
|
Tax (2) |
11,367 |
16,000 |
||||||
|
Total |
$ |
527,084 |
$ |
339,321 |
||||
| (1) |
Audit fees are for audit services for each of the years shown in the table, including fees associated with the annual audit and reviews
of our quarterly financial results, consultations on various accounting issues and audit services provided in connection with other statutory
or regulatory filings. |
| (2) |
Tax fees relate to professional services rendered for tax compliance and tax advice. These services include assistance regarding
international and Israeli taxation. |
Pre-Approval Policies and Procedures
Our audit committee has adopted a policy and procedures for the
pre-approval of audit and non-audit services rendered by our independent registered public accounting firm Kesselman & Kesselman,
a member of PricewaterhouseCoopers International Ltd. Pre-approval of an audit or non-audit service may be given as a general pre-approval,
as part of the audit committee’s approval of the scope of the engagement of our independent auditor, or on an individual basis.
Any proposed services exceeding general pre-approved levels also require specific pre-approval by our audit committee. The policy prohibits
retention of the independent public accountants to perform the prohibited non-audit functions defined in Section 201 of the Sarbanes-Oxley
Act or the rules of the SEC, and also requires the audit committee to consider whether proposed services are compatible with the independence
of the public accountants.
116
Item 16D.
Exemptions from the Listing Standards for Audit Committee
Not Applicable.
Item 16E. Purchase of Equity Securities by the
Issuer and Affiliated Purchasers
Not Applicable.
Item 16F. Change in Registrant’s Certifying Accountant.
Not Applicable.
Item 16G. Corporate
Governance
The following are the significant ways in which our corporate governance
practices differ from those followed by United States companies under NASDAQ rules:
Shareholder Approval. Although
NASDAQ rules generally require shareholder approval of equity compensation plans and material amendments thereto, we follow Israeli Companies
Law, which is to have such plans and amendments approved only by the board of directors, unless such arrangements are for the compensation
of directors, Chief Executive Officer or a transaction with the controlling shareholder, in which case they also require the approval
of the compensation committee and the shareholders.
In addition, rather than follow NASDAQ rules requiring shareholder
approval for the issuance of securities in certain circumstances, we follow Israeli law, under which a private placement of securities
requires approval by our board of directors and shareholders if it will cause a person to become a controlling shareholder (generally
presumed at 25% ownership) or if:
| o |
The securities issued amount to 20% or more of our outstanding voting rights before the issuance; |
| o |
Some or all of the consideration is other than cash or listed securities or the transaction is not in accordance with market terms;
and |
| o |
The transaction will increase the relative holdings of a shareholder that holds 5% or more of our outstanding share capital or voting
rights or that it will cause any person to become, as a result of the issuance, a holder of more than 5% of our outstanding share capital
or voting rights. |
Annual Reports. While
NASDAQ rules generally require that companies send an annual report to shareholders prior to the annual general meeting, we follow the
generally accepted business practice for companies in Israel. Specifically, we file annual reports on Form 20-F, which contain financial
statements audited by an independent registered public accounting firm, electronically with the SEC and post a copy on our website.
Item 16H.
Mine Safety Disclosure
Not applicable.
Item 16I. Disclosure
Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
117
ITEM 16J. Insider Trading Policies
We have adopted a written insider trading policy governing the purchase, sale, and other dispositions of our securities by directors, senior management, and employees that are reasonably designed to promote compliance with applicable insider trading laws, rules and regulations, and any listing standards applicable to us. A copy of the Insider Trading Policy is filed as an exhibit to this Annual Report.
Item 16K. Cybersecurity
We generally seek to address cybersecurity risks by implementing security measures on our internal computer systems. These security measures include firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are evaluated by our IT managers and improved through vulnerability assessments and cybersecurity threat intelligence.
Our Chief Operating Officer is responsible for implementing protection measures for our information systems from cybersecurity threats and promptly responding to any cybersecurity incidents.
118
PART III
Item 17. Financial Statements
We have elected to furnish financial statements and related information specified in Item 18.
Item 18. Financial Statements
Consolidated Financial Statements of the Company |
Item 19. Exhibits
The following exhibits are filed as a part of this Annual Report:
1.1 | Memorandum of Association of the Registrant |
1.2 | Amended and Restated Articles of Association of the Registrant |
2.1 | Description of the rights of each class of securities registered under Section 12 of the Securities Exchange Act of 1934 (1) |
4.1 | Amended 2012 Incentive Plan |
| 4.2 | Amended 2022 Stock Incentive Plan |
| 4.3 | Amended Executive and Directors Compensation Policy |
| 4.4 | Form of Officers Indemnification Undertaking |
| 4.5 | Insider Trading Policy |
| 8. | List of Consolidated Subsidiaries of the Registrant |
| 12.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended |
| 12.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended |
| 13.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 13.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 14.1 | Consent of independent registered public accounting firm |
| 97 | NASDAQ Clawback Policy |
119
101.INS | Inline XBRL Instance Document. | |||
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||
101.DEF | Inline XBRL Taxonomy Definition Linkbase Document. | |||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||
_________________
| (1) | Filed as Exhibit 2.1 to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2022, and incorporated herein by reference. |
120
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
TAT TECHNOLOGIES LTD. | ||
By: | /s/ Ehud Ben-Yair | |
Ehud Ben-Yair | ||
Chief Financial Officer (Principal Financial and Accounting Officer) | ||
Date: March 18, 2026 | ||
121
TAT TECHNOLOGIES LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2025
TAT TECHNOLOGIES LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2025
INDEX
|
Page
|
|
|
Report of Independent Registered Public Accounting Firm (PCAOB ID Number
|
F-2 - F-3
|
|
Consolidated Balance Sheets
|
F-4 - F-5
|
|
Consolidated Statements of Operations
|
F-6 - F-7
|
|
Consolidated Statements of Comprehensive Income (Loss)
|
F-8
|
|
Consolidated Statements of Changes in Shareholders' Equity
|
F-9
|
|
Consolidated Statements of Cash Flows
|
F-10 - F-11
|
|
Notes to Consolidated Financial Statements
|
F-12 - F-45
|
Report of Independent Registered Public Accounting Firm
To the board of directors and shareholders of TAT Technologies Ltd.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of TAT Technologies Ltd. and its subsidiaries (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of operations, of comprehensive income, of changes in shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15B. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
| Kesselman & Kesselman, 146 Derech Menachem Begin St. Tel-Aviv 6492103, Israel, |
P.O Box 7187 Tel-Aviv 6107120, Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il
F - 2
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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) 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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Recoverability assessment of inventory
As described in Notes 2 and 3 to the consolidated financial statements, the Company's consolidated inventory balance was $75,549 thousand as of December 31, 2025. The Company writes down its inventory for estimated obsolescence and unmarketable inventory equal to the difference between the cost of inventory and net realizable value based upon assumptions of future demand and market conditions. Changes in these assumptions could have a significant impact on the inventory's valuation.
The principal considerations for our determination that performing procedures relating to recoverability assesment of inventory is a critical audit matter are the significant judgement used by management when determining the assumptions relating to future demand and market conditions. This in turn led to a high degree of auditor judgement, subjectivity and effort in performing procedures and evaluating management's significant assumptions related to future demand and market conditions
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s inventory process, including controls over write down of obsolete and unmarketable inventory. These procedures also included, among others, (i) evaluating and testing management’s process for determining the write-down of obsolete and unmarketable inventory; (ii) Compared management’s assumptions related to future demand and market conditions to available external market data for a sample of inventory items; (iii) evaluated management’s ability to accurately estimate future demand by comparing actual inventory usage to estimates made in prior years.
|
|
|
|
March 18, 2026
|
Certified Public Accountants (Isr.)
|
|
A member firm of PricewaterhouseCoopers International Limited
|
We have served as the Company’s auditor since 2009.
F - 3
TAT TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS
U.S dollars in thousands
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Accounts receivable, net of allowance for credit losses of $
and $ |
|
|
||||||
|
Inventory
|
|
|
||||||
|
Prepaid expenses and other current assets
|
|
|
||||||
|
Total current assets
|
|
|
||||||
|
NON-CURRENT ASSETS:
|
||||||||
|
Property, plant and equipment, net
|
|
|
||||||
|
Operating lease right of use assets
|
|
|
||||||
|
Intangible assets, net
|
|
|
||||||
|
Investment in affiliates
|
|
|
||||||
|
Restricted deposit
|
|
|
||||||
|
Funds in respect of employee rights upon retirement
|
|
|
||||||
|
Deferred tax assets
|
|
|
||||||
|
Total non-current assets
|
|
|
||||||
|
Total assets
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 4
TAT TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS
U.S dollars in thousands
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
LIABILITIES AND SHAREHOLDERS 'EQUITY
|
||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Current maturities of long-term loans
|
$
|
|
$
|
|
||||
|
Short term loans
|
|
|
||||||
|
Accounts payable
|
|
|
||||||
|
Accrued expenses and other
|
|
|
||||||
|
Current maturities of operating lease liabilities
|
|
|
||||||
|
Total current liabilities
|
|
|
||||||
|
NON-CURRENT LIABILITIES:
|
||||||||
|
Long-term loans
|
|
|
||||||
|
Operating lease liabilities
|
|
|
||||||
|
Liability in respect of employee rights upon retirement
|
|
|
||||||
|
Deferred tax liabilities
|
|
|
||||||
|
Total non-current liabilities
|
|
|
||||||
|
COMMITMENTS AND CONTINGENCIES (NOTE 11)
|
||||||||
|
Total liabilities
|
|
|
||||||
|
SHAREHOLDERS 'EQUITY:
|
||||||||
|
Ordinary shares of NIS
Issued:
Outstanding:
|
|
|
||||||
|
Additional paid-in capital
|
|
|
||||||
|
Treasury shares, at cost,
|
(
|
)
|
(
|
)
|
||||
|
Accumulated other comprehensive income (loss)
|
|
(
|
)
|
|||||
|
Retained earnings
|
|
|
||||||
|
Total shareholders' equity
|
|
|
||||||
|
Total liabilities and shareholders' equity
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 5
TAT TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S dollars in thousands
|
Year ended December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Revenue:
|
||||||||||||
|
Products
|
$
|
|
$
|
|
$
|
|
||||||
|
Services
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Cost of revenue:
|
||||||||||||
|
Products
|
|
|
|
|||||||||
|
Services
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Gross profit
|
|
|
|
|||||||||
|
Operating expenses:
|
||||||||||||
|
Research and development, net
|
|
|
|
|||||||||
|
Selling and marketing
|
|
|
|
|||||||||
|
General and administrative
|
|
|
|
|||||||||
|
Other income
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
|
|
|
||||||||||
|
Operating income
|
|
|
|
|||||||||
|
Interest expense
|
|
|
|
|||||||||
|
Other financial (expenses) income, net
|
(
|
)
|
(
|
)
|
|
|||||||
|
Income before taxes on income
|
|
|
|
|||||||||
|
Provision for income taxes
|
|
|
|
|||||||||
|
Income before share of equity investment
|
|
|
|
|||||||||
|
Share in profit of equity investment of affiliated companies
|
|
|
|
|||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
TAT TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S dollars in thousands, except share and per share data
|
Year ended December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
|
Earnings per share
|
||||||||||||
|
Basic
|
$
|
|
$
|
|
$
|
|
||||||
|
Diluted
|
$
|
|
$
|
|
$
|
|
||||||
|
Weighted average number of shares outstanding
|
||||||||||||
|
Basic
|
|
|
|
|||||||||
|
Diluted
|
|
|
|
|||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
TAT TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
U.S dollars in thousands
|
Year ended December 31,
|
||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
|
Other comprehensive income (loss), net
|
||||||||||||
|
Net unrealized gains (losses) from derivatives
|
|
(
|
)
|
|
||||||||
|
Change in foreign currency translation adjustments
|
|
(
|
)
|
|
||||||||
|
Total other comprehensive income (loss)
|
|
(
|
)
|
|
||||||||
|
Total comprehensive income
|
$
|
|
$
|
|
$
|
|
||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 8
TAT TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S dollars in thousands, except share data
|
Ordinary shares
|
Additional paid-in capital
|
Accumulated
other comprehensive income (loss)
|
Treasury shares
|
Retained earnings
|
Total shareholders’ equity
|
|||||||||||||||||||||||
| Number of shares issued |
Amount | |||||||||||||||||||||||||||
|
BALANCE AT DECEMBER 31, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||||||
|
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2023:
|
||||||||||||||||||||||||||||
|
Comprehensive income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Exercise of options
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Issuance of common shares net of issuance costs of $
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Share based compensation
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
BALANCE AT DECEMBER 31, 2023
|
|
|
|
|
(
|
)
|
|
|
||||||||||||||||||||
|
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2024:
|
||||||||||||||||||||||||||||
|
Comprehensive income (loss)
|
-
|
|
|
(
|
)
|
|
|
|
||||||||||||||||||||
|
Exercise of options
|
|
|
(
|
)
|
|
|
|
|
||||||||||||||||||||
|
Cancel of shares par value
|
-
|
(
|
)
|
|
|
|
|
|
||||||||||||||||||||
|
Issuance of common shares net of issuance costs of $
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Share based compensation
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
BALANCE AT DECEMBER 31, 2024
|
|
|
|
(
|
)
|
(
|
)
|
|
|
|||||||||||||||||||
|
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2025:
|
||||||||||||||||||||||||||||
|
Comprehensive income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Exercise of options
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Issuance of common shares on public offering, net of issuance costs of $
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Exercise of the underwriters' option on public offering, net of issuance costs of $
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Share based compensation
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
BALANCE AT DECEMBER 31, 2025
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 9
TAT TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
Year ended December 31,
|
||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
||||||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
|
Loss (gain) from change in fair value of derivatives
|
|
|
(
|
)
|
||||||||
|
Net change in operating right of use asset and operating lease liability
|
|
|
|
|||||||||
|
Noncash financial expenses (income)
|
|
(
|
)
|
(
|
)
|
|||||||
|
Decrease in restructuring plan provision
|
|
(
|
)
|
(
|
)
|
|||||||
|
Change in allowance for credit losses
|
(
|
)
|
|
(
|
)
|
|||||||
|
Share in results of affiliated companies
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Share based compensation
|
|
|
|
|||||||||
|
Capital gains from sale of property, plant and equipment
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Deferred income taxes, net
|
|
|
|
|||||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
Increase in trade accounts receivable
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Decrease (increase) in other current assets and prepaid expenses
|
|
(
|
)
|
(
|
)
|
|||||||
|
Increase in inventory
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Increase (decrease) in trade accounts payable
|
|
|
(
|
)
|
||||||||
|
Increase (decrease) in accrued expenses and other
|
(
|
)
|
|
|
||||||||
|
Net cash provided by (used in) operating activities
|
|
(
|
)
|
|
||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Proceeds from sale of property, plant and equipment
|
|
|
|
|||||||||
|
Purchase of property, plant and equipment
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Purchase of intangible assets
|
|
|
(
|
)
|
||||||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 10
TAT TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
Year ended December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Repayments of long-term loans
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Net change in short term loans
|
(
|
)
|
(
|
)
|
|
|||||||
|
Proceeds from long-term loans received
|
|
|
|
|||||||||
|
Proceeds from issuance of ordinary shares and exercise of underwriters’ option
|
|
|
|
|||||||||
|
Issuance costs of ordinary shares and exercise of the underwriters' option
|
(
|
)
|
|
|
||||||||
|
Proceeds from exercise of options
|
|
|
|
|||||||||
|
Net cash provided by financing activities
|
|
|
|
|||||||||
|
Net increase (decrease) in cash and cash equivalents and restricted cash
|
|
(
|
)
|
|
||||||||
|
Cash and cash equivalents and restricted cash at beginning of period
|
|
|
|
|||||||||
|
Cash and cash equivalents and restricted cash at end of period
|
$
|
|
$
|
|
$
|
|
||||||
|
Supplementary information on investing and financing activities not involving cash flows:
|
||||||||||||
|
Additions of operating lease right-of-use assets and operating lease liabilities
|
|
|
|
|||||||||
|
Reclassification of inventory to property, plant and equipment
|
|
|
|
|||||||||
|
Supplemental disclosure of cash flow information:
|
||||||||||||
|
Interest paid
|
|
|
|
|||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 11
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
TAT Technologies Ltd., (“TAT” or the “Company”) an Israeli corporation, incorporated in 1985, is a leading provider of solutions and services to the aerospace and defense industries. TAT has the following wholly owned subsidiaries, hereinafter collectively referred to as the “Group”: Limco-Piedmont Inc. (“Limco-Piedmont”), Limco Airepair Inc. (“Limco”), a wholly owned Delaware subsidiary of Limco-Piedmont, Piedmont Aviation Component Services LLC (“Piedmont”), a North Carolina limited liability company, wholly owned subsidiary of Limco-Piedmont Inc., and Turbochrome Ltd. (“Turbochrome”). Additionally, the Company holds 51 % of TAT-Engineering LLC (“TAT-Engineering”), which was established in January 2016 as a joint venture. The accounting treatment of the joint venture is based on the equity method due to participating rights granted to the other stockholder.
TAT operations is focused on the following four segments: (i) original equipment manufacturing (“OEM”) of heat transfer solutions and aviation accessories mainly through its Kiryat Gat facility; (ii) MRO (“Maintenance Repair and Overhaul”) services for heat transfer components and OEM of heat transfer solutions through Limco; (iii) MRO services for aviation components (mainly Auxiliary Power Unit “APU” and Landing Gear “LG”) through Piedmont; and (iv) overhaul and coating of jet engine components through Turbochrome. TAT targets the commercial aerospace (serving a wide range of types and sizes of commercial and business jets), military aerospace and ground defense sectors. TAT’s shares are listed on both the NASDAQ (under the symbol TATT) and Tel-Aviv Stock Exchange (under the symbol TAT Tech).
On February 28, 2026, Israel and the United States launched a joint attack on Iran, targeting key officials, military commanders and facilities, resulting in the death of Iran’s Supreme Leader and other key officials and military commanders. In retaliation, Iran launched hundreds of ballistic missiles and drones against civilian targets in Israel and against U.S. military bases, civilian aviation facilities and other civilian targets in several countries in the Persian Gulf, including Jordan, Kuwait, Bahrain Qatar, Iraq, Saudi Arabia and United Arab Emirates. The war has also led to widespread airspace closures in the region.
Currently, TAT continues its business and operations but the intensity and duration of Israel’s current war is difficult to predict, as are such wars’ economic implications on our business and operations and on Israel's economy in general. To date, the Company’s operations and financial results have not been materially affected by these events.
Also, since this is an event beyond the Company’s control and may impact our Israeli activity, its continuation or cessation may affect our expectations. The Company continues to monitor its ongoing activities and will make any needed adjustments to ensure continuity of its business, while supporting the safety and well-being of its employees. For the years ended December 31, 2025, 2024 and 2023, the Group’s activity in Israel contributed $49.5 , $43.8 and $33.9 million out of total revenue of $178.0 , $152.1 and $113.8 million, respectively.
Furthermore, during 2025, global conflicts continue to create volatility in global financial and energy markets and contribute to supply chain shortages adding to the inflationary pressures in the global economy. These lead to higher material and labor costs, and as a result the Company decided to retain higher inventory levels. The Company actively collaborates with its suppliers to minimize the impacts of supply shortages on manufacturing and MRO services.
F - 12
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONT)
International operations are subject to a number of other risks, including import and export laws and the impact of tariffs. Changes in global tariff regimes, whether recently implemented or anticipated, may have broader implications for the Company’s operations. These may include increased volatility in purchasing prices due to shifting import costs, particularly with respect to raw materials and components sourced internationally.
Furthermore, elevated tariffs can affect the pricing structure and profitability of cross-border transactions, potentially requiring adjustments to existing contracts with customers and suppliers located outside of the United States. While the full impact of these tariffs remains uncertain, the Company expects that tariff related costs will be substantially passed to customers. As such, the Company is expecting minimal to no impact from the changes above.
Basis of Presentation
The Group's financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP").
Use of estimates in the preparation of financial statement
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose the nature of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting years. Actual results could differ from those estimates.
As applicable to these financial statements, the most significant estimates and assumptions relate to: recoverability of inventory and income taxes.
Functional currency
The majority revenues of the company and subsidiaries are generated in U.S. dollars ("dollars") and a substantial portion of the costs of the company and each subsidiary in the Group are incurred in dollars. Accordingly, the dollar is the currency of the primary economic environment in which the Group operates and accordingly its functional and reporting currency is the dollar.
Transactions and balances originally denominated in dollars are presented at their original amounts. Balances in currencies other than the U.S. dollar are translated into dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. For non-dollar transactions and other items in the statements of operations (indicated below), the following exchange rates are used: (i) for transactions – exchange rates at transaction dates or average rates; and (ii) for other items (derived from non-monetary balance sheet items such as depreciation and amortization, etc.) – historical exchange rates. Currency transaction gains and losses are carried to other financial income (expenses), net, as appropriate.
The financial statements of TAT-Engineering are included in the consolidated financial statements, based on translation into U.S. dollars. Balance of the Investment is translated at year-end exchange rates, while share in profit is translated at average exchange rates during the year. The remeasurement adjustments of foreign currencies translation are included in the Company’s shareholders’ equity as a component of accumulated other comprehensive income (loss).
F - 13
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of TAT and its subsidiaries.
Intercompany balances and transactions, including profits from intercompany sales not yet realized outside the Group, have been eliminated upon consolidation.
Cash and Cash equivalents
All highly liquid investments, which include short-term bank deposits, that are not restricted as to withdrawal or use. The period to maturity of which does not exceed three months at the time of investment, are considered to be cash equivalents.
Restricted Deposits
Restricted deposit consists primarily of bank deposits to secure obligations under our state loan and a letter of credit to a supplier. Restricted deposit is presented at cost, including accrued interest, and is classified based on the duration of the restriction. The following table provides a reconciliation of cash and cash equivalents and restricted deposit reported on the balance sheets that sum to the total of the same amounts shown on the statement of cash flows:
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Restricted deposit long term
|
|
|
||||||
|
Total cash and cash equivalents and restricted cash equivalents
|
$
|
|
$
|
|
||||
Accounts receivable, net
The Group’s accounts receivable balances are due from customers primarily in the airline and defense industries. Credit is extended based on evaluation of a customer’s financial condition credit insurance limits and generally, collateral is not required. Trade accounts receivable from sales of services and products are typically due from customers within 30 to 90 days. Trade accounts receivable balances are stated at amounts due from customers net of a provision for current expected losses.
The Company maintains the allowance for estimated losses resulting from the inability of the Company’s customers to make required payments. The allowance represents the current estimate of lifetime expected credit losses over the remaining duration of existing accounts receivable considering current market conditions and supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing evaluation of collectability, customer creditworthiness, historical levels of credit losses, and future expectations. Write-off activity and recoveries for the periods presented were not material.
F - 14
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT) |
Inventory
Inventory is measured at the lower of cost and net realizable value.
Inventories include raw materials and components, work in progress and finished products. Cost of raw material and components is determined using the “moving average” basis. Cost of work in progress and finished products is calculated based on actual costs. Capitalized production costs components, mainly labor and overhead, are determined on average basis over the production period.
Since the Group sells products and services related to airplane accessories for airplanes that can be in service for 20 to 50 years, the Group must keep a supply of such products and parts on hand while the airplanes are in use. The Group writes down its inventory for estimated obsolescence and unmarketable inventory equal to the difference between the cost of inventory and net realizable value, which includes costs to sell based upon assumptions of future demand and market conditions.
If actual market prices are less favorable than those projected by management, inventory write-downs may be required. When inventory is written down, a new lower cost basis for that inventory is established.
Property, plant and equipment
Property, plant and equipment are stated at cost, after deduction of the related investment grants, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, as follows:
|
Years
|
|||
|
Buildings
|
|
||
|
Leasehold improvements
|
|
||
|
Machinery and equipment
|
|
||
|
Motor vehicles
|
|
||
|
Office furniture and equipment
|
|
||
|
Internal use software
|
|
Leasehold improvements are amortized using the straight-line method over the period of the lease contract, or the estimated useful life of the asset, whichever is shorter.
Capitalized Software Costs
The Company accounts for its costs to develop software for internal use accordance with Accounting Standards (“ASC”) 350-40, Internal use Software. These costs are directly attributable to the development and implementation of a new ERP and supply chain software. The Company capitalizes the costs incurred during the development stage. Capitalized costs include software design, configuration, interfaces, coding, installation and testing, payroll, payroll-related expenses and external direct costs, which are directly associated with creating and enhancing internal use software. Capitalization of such costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete and is ready for its intended purpose.
Capitalized software costs are amortized on a straight-line basis over their estimated useful life. We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. Capitalized software costs are included in property, plant and equipment, net in the consolidated balance sheet.
F - 15
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)
Government grants
Grants received from the Israel Invitation Authority (“IIA”) for approved research and development projects are recognized at the time the Company is reasonably assured that it will be entitled to such grants, on the basis of the costs incurred and included as a deduction from research and development expenses.
Government grants relating to the purchase of property, plant and equipment are presented in the consolidated balance sheet as a deduction to the carrying amount of the asset and they are credited to profit or loss on a straight-line basis over the estimated useful lives of the related assets.
Grants received according to the European Research Council (“ERC”) and Paycheck Protection Program (PPP) plan launched by the US government are recognized at the time the Company is reasonably assured that it will be entitled to such grants, on the basis of the costs incurred and included as a deduction from cost of revenues and operational expenses, as applicable.
Investment in affiliates and share in results of equity investment of affiliated companies
Investment in which the Group exercises significant influence and which is not considered a subsidiary ("affiliate") is accounted for using the equity method, whereby the Group recognizes its proportionate share of the affiliated Company's net income or loss after the date of investment.
The Group reviews those investments for impairment whenever events indicate the carrying amount may not be recoverable.
On consolidation, transactions between the Group and the affiliate are eliminated in the amount which related to the Group's proportionate share of the affiliate.
Leases
The Company as a lessee
Under ASC 842, Leases, the Company determines if an arrangement is a lease at inception. Upon initial recognition, the Company recognized a liability at the present value of the lease payments to be made over the lease term and concurrently recognized a right of use (“ROU”) asset at the same amount of the liability, adjusted for any prepaid or accrued lease payments, plus initial direct costs incurred in respect of the lease.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets are recognized as the lease liability, adjusted for lease incentives received and prepayments made. Lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. On the commencement date, lease payments that include variable lease payments dependent on an index or a rate (such as the Consumer Price Index or a market interest rate), are initially measured using the index or rate at the commencement date. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The discount rate for the lease is the rate implicit in the lease unless that rate cannot be readily determined. As the Company’s leases do not provide an implicit rate, the Company’s uses its estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Lease expense is recognized on a straight-line basis over the lease term.
F - 16
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)
Income from leasing transactions
The Company accounts for certain leasing revenues in accordance with ASC 842, which qualify for operating lease treatment. For operating leases in which the Company is the lessor, lease payments are recognized as leasing revenue over the lease term on a straight-line basis. APUs engines under operating leases are classified as property, plant, and equipment and depreciated over the useful life, based on the lesser of 1,000 leasing days or 5,000 LLP (Life Limited Parts).
Identified intangible assets
Identifiable intangible assets are comprised of definite lived intangible assets – commercial license which are amortized over 10 years respectively, using the straight-line method over their estimated period of useful life as determined by identifying the period in which substantially all of the cash flows are expected to be generated. The amortization of the commercial license is recorded in the cost of sales.
Impairment of long-lived assets
Long-lived assets, including property, plant and equipment, operating lease right of use assets and definite life intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets (or asset group) may not be recoverable. In the event that the sum of the expected future cash flows (undiscounted and without interest charges) of the long-lived assets (or asset group) is less than the carrying amount of such assets, an impairment charge would be recognized and the assets (or asset group) would be written down to their estimated fair values.
Treasury Shares
Ordinary shares held by the Company are presented as a reduction of equity at their cost to the Company. The treasury shares have no rights.
Revenue Recognition
The Group generates its revenues from the sale of OEM products and systems, providing MRO services (remanufacture, maintenance, repair and overhaul services and long - term service contracts) and parts sales.
A contract with a customer exists only when: the parties to the contract have approved it and are committed to perform their respective obligations, the Company can identify each party’s rights regarding the distinct goods or services to be transferred (“performance obligations”), the Company can determine the transaction price for the goods or services to be transferred, the contract has commercial substance and it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.
Revenues are recorded in the amount of consideration to which the Company expects to be entitled in exchange for performance obligations upon transfer of control to the customer, excluding amounts collected on behalf of other third parties such as VAT and sales taxes.
F - 17
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)
To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, Revenue from Contracts with Customers, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the performance obligation is satisfied.
The Company has also adopted the following exemptions and accounting policies:
| • |
The Company accounts for shipping as fulfillment costs, in cases in which the shipping occurs after the customer has obtained control of a good.
|
| • |
The Company adjusts the promised amount of consideration for the effects of a significant financing component, in cases in which the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less.
|
| • |
Revenues from the sale of OEM products are recognized at a point in time when the customer obtains control of the product, typically upon shipment. Invoices are issued based on the customer's approved purchase order and payments are due from customers within 30 to 90 days from invoice date.
|
| • |
Revenues from the sale of MRO services is recognized at a point in time, which involve receiving customers' purchase orders, completing the service, and fulfilling inspection quality assurance obligations at the company's production site. Payments are due from customers within 30 to 90 days from invoice date.
|
Contract costs
The Company capitalizes certain costs, which are considered incremental costs, to obtain long-term contracts with customers that will be used in satisfying related performance obligations in the future; and are expected to be recovered. Such costs are amortized over the life of the expected contract period. Such contract costs are amortized and included in sales and marketing and general and administrative in the consolidated statements of operations.
Contract liabilities
Contract liabilities are mainly comprised of deferred revenues which are included under accrued expenses and other in the consolidated balance sheet.
Warranty costs
The Group provides warranties for its products and services ranging from one to three years, which vary with respect to each contract and in accordance with the nature of each specific product. According to Company's experience, most of the warranty costs are incurred during the first year of the contract.
The Group estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time revenue is recognized under accrued expenses and other in the consolidated balance sheet. The Group periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
Research and development
Research and development costs, net of grants, are charged to expenses as incurred and consist primarily of personnel and related expenses for research and development activities.
F - 18
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)
Fair value measurement
The Company’s financial instruments consist mainly of cash and cash equivalents, restricted deposits, accounts receivable, accounts payable, accrued expenses and other liabilities. The carrying values of these financial instruments approximate their fair values due to their short maturities. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data or active market data for similar but not identical assets or liabilities.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Group utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers credit risk in its assessment of fair value.
Concentrations of credit risk
Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, restricted deposits and accounts receivable.
Cash and cash equivalents are deposited with several major banks in Israel and the United States. Such deposits in the United States and Israel may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Group's cash and cash equivalents are financially sound, and that the Group has not been affected by certain banking institutions in the United States. Accordingly, minimal credit risk exists with respect to these financial instruments.
The Group's accounts receivable are derived mainly from sales to customers in the United States, Israel and Europe. The Group generally does not require collateral; however, in certain circumstances the Group may require letters of credit. Management believes that credit risks relating to accounts receivable are minimal since the majority of the Group's customers are world-leading manufacturers of aviation systems and aircrafts, international airlines, governments and air forces, and world-leading manufacturers and integrators of defense and ground systems. In addition, the Group has large number of customers with wide geographic spread which mitigates the credit risk. The Group performs ongoing credit evaluation of its customers' financial condition. As part of the risk management, the Company purchased a credit insurance policy from a well-known insurance Company. As of December 31, 2025 and 2024, the Company has a single customer which represents 13 % and 24 % of the Company's accounts receivable, respectively.
Income taxes
Income taxes are accounted for in accordance with ASC 740, Income Taxes. This statement prescribes the use of the asset and liability method; whereby deferred tax assets and liabilities account balances are determined based on temporary differences between financial reporting and tax basis of assets and liabilities and for tax loss carryforwards. Deferred taxes are measured using the enacted laws and tax rates that will be in effect when the differences are expected to be reversed. The Group provides a valuation allowance, if it is more likely than not that a portion of the deferred income tax assets will not be realized.
F - 19
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)
Taxes which would apply in the event of disposal of investments in domestic and foreign subsidiaries have not been taken into account in computing the deferred taxes, when the Group’s intention is to hold, and not to realize the investments.
The Group did not provide for deferred taxes attributable to dividend distribution out of retained tax-exempt earnings from "Approved/Benefited Enterprise" plans, since it intends to permanently reinvest them and has no intention to declare dividends out of such tax-exempt income in the foreseeable future. Management considers such retained earnings to be essentially permanent in duration.
The results for tax purposes for TAT’s Israeli subsidiaries are measured and reflected in NIS. As explained previously, the consolidated financial statements are measured and presented in U.S. dollars. In accordance with ASC 740, TAT has not provided deferred income taxes on the differences resulting from changes in exchange rate and indexation.
The Group follows a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate resolution. The Group’s policy is to include interest and penalties related to unrecognized tax benefits within other financial income (expense). Such liabilities are classified as long-term, unless the liability is expected to be resolved within twelve months from the balance sheet date.
Earnings per share
Basic earnings per share are computed by dividing net income by the weighted average shares outstanding of the Company's ordinary shares, for each period, net of treasury shares.
Diluted earnings per share are calculated by dividing the net income by the fully diluted weighted average share outstanding of ordinary shares outstanding during each period. Potentially dilutive shares include outstanding options and unvested RSUs granted to officers, directors and employees, using the treasury stock method.
Share-based compensation
The Group applies ASC 718 - Stock Based Compensation with respect to officers, directors and employees options and Restricted Stock Units (“RSUs”), which requires awards classified as equity awards to be accounted for using the grant-date fair value method. The fair value of option is estimated using the Black-Scholes valuation model, the compensation costs is recognized as expense over the requisite service period. The fair value of RSUs is equal to the market value of the Company's common shares on the date of grant.
The Group recognizes compensation cost for an award with only service conditions that has a graded vesting schedule using the accelerated method over the requisite service period.
F - 20
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)
Comprehensive income (loss)
Comprehensive income includes, in addition to net income, gains and losses of derivatives designated for cash flow hedge accounting and translation adjustments (net of related taxes where applicable).
Reclassification adjustments for gain or loss of derivatives are included in the relevant line item in the statement of income.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Group, but which will only be resolved when one or more future events occur or fail to occur. The Group’s management assesses such contingent liabilities and estimated legal fees. Such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Group or unasserted claims that may result in such proceedings, the Group’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
Management applies the guidance in ASC 450-20-25 – Contingencies, when assessing losses resulting from contingencies. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability is recorded as accrued expenses in the Group’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material are disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
Recently Issued Accounting Principles
Recently adopted accounting pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amended guidance enhances income tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid information. This guidance requires disclosure of specific categories in the effective tax rate reconciliation and further information on reconciling items meeting a quantitative threshold. In addition, the amended guidance requires disaggregating income taxes paid (net of refunds received) by federal, state, and foreign taxes. It also requires disaggregating individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amended guidance is effective for fiscal years beginning after December 15, 2024. The Company adopted this standard in the current period retrospectively to all prior periods presented in the entity’s financial statements. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures.
New accounting pronouncements effective in future periods
In November 2024, the FASB issued ASU No. 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). The ASU improves the disclosures about a public business entity’s expense and provides more detailed information about the types of expenses in commonly presented expense captions. The amendments require that at each interim and annual reporting period an entity will, inter alia, disclose amounts of purchases of inventory, employee compensation, depreciation and amortization included in each relevant expense caption (such as cost of sales, SG&A and research and development). The ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating this ASU to determine its impact on the Company's disclosures.
F - 21
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT)
On July 2025, the FASB issued ASU 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU 2025-05”). ASU 2025-05 provides a practical expedient that all entities can use when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under ASC 606, Revenue from Contracts with Customers. Under this practical expedient, an entity is allowed to assume that the current conditions it has applied in determining credit loss allowances for current accounts receivable and current contract assets remain unchanged for the remaining life of those assets. ASU 2025-05 is effective for fiscal years beginning after December 15, 2025, and interim reporting periods in those years. Entities that elect the practical expedient and, if applicable, make the accounting policy election are required to apply the amendments prospectively. The Company is currently evaluating the potential impact of this guidance on its consolidated financial statements and disclosures.
NOTE 3 - INVENTORY
Inventory is composed of the following:
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Raw materials and components
|
$
|
|
$
|
|
||||
|
Work in progress
|
|
|
||||||
|
Finished goods
|
|
|
||||||
|
Total inventory
|
$
|
|
$
|
|
||||
Inventory write-down expense due to slow-moving inventory amounted to $1,180 , $547 and $187 for the years ended December 31, 2025, 2024 and 2023, respectively.
The Company maintains a wide range of exchangeable units and other spare parts related to its products and services in various locations. Due to the long lead time of its suppliers and manufacturing cycles, the Company needs to forecast demand and commit significant resources towards these inventories. As such, the Company is subject to risks including excess inventory of exchangeable units and other spare parts that are no longer relevant.
NOTE 4 - INVESTMENT IN AFFILIATES
On November 25, 2015, the Company signed an agreement with a Russia-based Engineering Holding of Moscow (“Engineering”), to establish a new facility for the provision of services for heat transfer products. The new Company, TAT-Engineering LLC, established in January 2016, is based in Novosibirsk’s Tolmachevo airport and provides services for heat transfer products. TAT held 51 % of TAT-Engineering LLC's shares and the remaining 49 % are held by Engineering. The accounting treatment of the joint venture is based on the equity method due to participating rights granted to the other stockholder. The functional currency of TAT-Engineering is their local currency.
F - 22
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
|
NOTE 4 - INVESTMENT IN AFFILIATES (CONT)
|
The summarized financial information of TAT-Engineering LLC as follows:
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Balance sheets:
|
||||||||
|
Current assets
|
$
|
|
$
|
|
||||
|
Non-current assets
|
|
|
||||||
|
Current liabilities
|
|
|
||||||
|
Year ended December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Statements of operation:
|
||||||||||||
|
Revenues
|
$
|
|
$
|
|
$
|
|
||||||
|
Gross profit
|
|
|
|
|||||||||
|
Net income
|
|
|
|
|||||||||
|
Net income attributable to the Company
|
|
|
|
|||||||||
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET
Composition of assets, grouped by major classifications, is as follows:
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Cost:
|
||||||||
|
Land and buildings
|
$
|
|
$
|
|
||||
|
Leasehold improvements
|
|
|
||||||
|
Machinery and equipment
|
|
|
||||||
|
Motor vehicles
|
|
|
||||||
|
Office furniture and equipment
|
|
|
||||||
|
Internal use software
|
|
|
||||||
|
|
|
|||||||
|
Less: Accumulated depreciation and amortization
|
|
|
||||||
|
Depreciated cost
|
$
|
|
$
|
|
||||
Depreciation and amortization expenses amounted to $4,839 , $5,187 and $4,430 for the years ended December 31, 2025, 2024 and 2023, respectively.
F - 23
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 6 - LEASES
The Company provides its customers with leasing services of APU engines. The results are reported as part of the Company's activity in MRO services for aviation components. The net revenues from the lease services amounted to $6.9 , $5.1 and $5.5 million for the years ended December 31, 2025, 2024 and 2023, respectively.
The Company leases its operating and office facilities for various terms under long-term, non-cancellable operating lease agreements. The leases expire at various dates through , certain leases contain options to renew or terminate the lease, which are not reasonably certain to be exercised and therefore are not factored into our determination of lease payments.
In 2023, TAT signed a lease agreement for a facility in Charlotte, North Carolina, U.S., which will expire on April 30, 2029 . TAT recognized an operating ROU assets and related operating lease liability of approximately $1.0 million.
In January 2024, Piedmont entered into a lease agreement for a building which generated a ROU asset and related lease liability of approximately $0.5 million, which will last until .
In April 2025, Piedmont signed a renewal of lease agreement for a facility in Greensboro, North Carolina, U.S., for 5 years, with a lease term commencing on July 1, 2025, and that will expire on June 30, 2030 . Piedmont has an option of extending the terms of the lease for another 5 years, commencing upon expiration of the extended term. This option was not considered in the calculation of the ROU assets and lease liability. As a result, Piedmont recognized a ROU assets and related operating lease liability of approximately $1.6 million.
In May 2025, TAT on behalf of Limco signed a new lease agreement for an R&D facility in North Carolina, U.S., with a lease term of 10 years that will expire on April 30, 2035 . TAT has the right to terminate the lease at the end of the 7 th year subject to payment of termination fee of $225 thousand plus other charges. As a result, Limco recognized ROU assets and related operating lease liability of approximately $1.0 million.
In August 2025, TAT signed a new lease agreement for a facility in Kiryat Gat, Israel, with a lease term of 5 years that will expire in . TAT has an option of extending the terms of the lease for another 5 years, commencing upon expiration of the new lease term. This option was not considered in the calculation of the ROU assets and lease liability. As a result, TAT recognized an ROU assets and related operating lease liability of approximately $0.9 million.
During 2025 and 2024, TAT entered into lease agreements for 6 and 15 vehicles, respectively, for a term of 3 years, totaling approximately $0.6 million of ROU assets and related lease liabilities.
The lease expense was as follows:
|
Year ended December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Operating lease expenses
|
$
|
|
$
|
|
||||
Supplemental cash flow information related to leases was as follows:
|
Year ended December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Operating cash flows used for operating leases
|
$
|
|
$
|
|
||||
|
Right-of-use assets obtained in exchange for lease obligations (non-cash)
|
$
|
|
$
|
|
||||
F - 24
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 6 - LEASES (CONT)
Supplemental balance sheet information related to operating leases is as follows:
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Operating Leases
|
||||||||
|
Operating lease right-of-use assets
|
$ |
|
$ |
|
||||
|
Current operating lease liabilities
|
$ |
|
$ |
|
||||
|
Non-current operating lease liabilities
|
|
|
||||||
|
Total operating lease liabilities
|
$ |
|
$ |
|
||||
|
Weighted Average Remaining Lease Term
|
||||||||
|
Operating leases - Israel
|
|
|
||||||
|
Operating leases – United States
|
|
|
||||||
|
Weighted Average discount rate
|
||||||||
|
Operating leases - Israel
|
|
%
|
|
%
|
||||
|
Operating leases – United States
|
|
%
|
|
%
|
||||
As of December 31, 2025, the maturities of lease liabilities were as follows:
|
Year
|
Amount
|
|||
|
2026
|
$ |
|
||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029
|
|
|||
|
2029 and after
|
|
|||
|
Total lease payments
|
|
|||
|
Less imputed interest
|
(
|
)
|
||
|
Total
|
$
|
|
||
NOTE 7 - INTANGIBLE ASSETS
Intangible assets are composed of the following:
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Commercial licenses
|
||||||||
|
Cost
|
$
|
|
$
|
|
||||
|
Accumulated amortization
|
(
|
)
|
(
|
)
|
||||
|
Amortized cost
|
$
|
|
$
|
|
||||
In September 2020, Piedmont signed a 10-year agreement for the commercial MRO services for aviation components. Under this contract, Honeywell licensed Piedmont as an authorized MRO station of APU 331-20X.
Estimated amortization expenses for the five succeeding years are $279
F - 25
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 8 - LONG-TERM LOANS AND CREDIT LINES
Long-term loans and lines of credit composed of the following:
|
December 31,
|
Current
Interest Rate
|
Duration
(in Years)
|
|||||||||||||||
|
2025
|
2024
|
||||||||||||||||
|
Israel
|
|||||||||||||||||
|
Government guaranteed loans
|
a |
|
$
|
|
$
|
|
|
|
|||||||||
|
Commercial loans
|
b |
|
|
|
|
||||||||||||
|
United States
|
|||||||||||||||||
|
Commercial loans
|
c |
|
|
|
|
||||||||||||
|
Line of credit
|
d |
|
|
|
Revolving
|
||||||||||||
|
Machinery finance loans
|
e |
|
|
|
|
||||||||||||
|
$
|
|
$
|
|
||||||||||||||
| a. |
In 2020 and 2021, TAT obtained several loans from the Israeli banks (with a guaranty from the Israeli government) in an aggregate amount of $
|
| b. |
In March 2022, TAT obtained a loan from a commercial bank in the amount of $
|
| c. |
In May 2022, Piedmont obtained a loan from a commercial bank in the US in the amount of $
|
| d. |
In February 2022, Piedmont obtained a credit line from a US commercial bank in the amount of $
|
In March 2022, Limco obtained a line of credit for $5.0 million from a commercial bank in the US. Further, April 2024, Limco signed a contract extending the existing line of credit by 2 years. This line of credit bears annual fixed interest of 7.25 %. As of December 31, 2024, $1.5 million of this credit line was utilized. As of December 31, 2025, Limco has no outstanding drawdown on this line of credit.
| e. |
In 2023 Piedmont obtained loans from Machinery Finance totaling $
|
F - 26
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
|
NOTE 8 - LONG-TERM LOANS AND CREDIT LINES (CONT)
|
| f. |
In June 2023, TAT secured another short-term line of credit from an Israeli bank for $
|
In respect of the line of credits and the commercial loans, the Company and its subsidiaries are required to meet certain financial covenants. As of December 31, 2025, the Company and its subsidiaries met all its covenants
Maturities of long-term loans are as follows:
|
Year
|
Amount
|
|||
|
2026
|
$
|
|
||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029
|
|
|||
|
2030 and after
|
|
|||
|
$
|
|
|||
The carrying value of the Company’s long-term debt approximates its fair value, except for the following:
|
Fair value
|
Carrying Amount
|
|||||||||||||||
|
2025
|
2024
|
2025
|
2024
|
|||||||||||||
|
The TAT subsidiary loan at c above
|
$
|
|
$
|
|
$ |
|
$
|
|
||||||||
|
The other TAT subsidiary loan at c above
|
$
|
|
$
|
|
$ |
|
$
|
|
||||||||
NOTE 9 - ACCRUED EXPENSES AND OTHER
Accrued expenses and other is composed of the following:
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Accrued payroll and employees’ benefits
|
$
|
|
$
|
|
||||
|
Contract liabilities*
|
|
|
||||||
|
Accrued royalties
|
|
|
||||||
|
Accrued expenses
|
|
|
||||||
|
Warranty provision
|
|
|
||||||
|
Other
|
|
|
||||||
|
$
|
|
$
|
|
|||||
* Contract liabilities primarily included advance payments from customers expected to be recognized within a year. For the years ended December 31, 2025 and 2024, $3,153 and $4,209 , respectively, of the recognized revenue was included in deferred revenue at the beginning of the periods.
F - 27
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 10 - LONG-TERM EMPLOYEE-RELATED OBLIGATIONS
With regards to Israeli employees, the Company is required to make severance payments upon dismissal of an employee or upon termination of employment in certain circumstances. The severance payment liability due to the employees is based upon length of service and the latest monthly salary, (equivalent to one month’s salary for each year employed) is recorded on the Company’s balance sheet under “Liability in respect of employees rights upon retirement.” The liability is recorded as if it were payable at each balance sheet date on an undiscounted basis.
According to Section 14 of the Israeli Severance Pay Law, the Israeli Company’s liability for certain employees, according to their employment agreements, make regular deposits with certain insurance companies for accounts controlled by each applicable employee in order to secure the employee’s retirement benefit obligation. The Company and its Israeli subsidiary are fully relieved from any severance pay liability with respect to each such employee after it makes the payments on behalf of the employee. The liability accrued in respect of these employees and the amounts funded, as of the respective agreement dates, are not reflected in the Company balance sheet, as the amounts funded are not under the control and management of the Company and the pension or severance pay risks have been irrevocably transferred to the applicable insurance companies (the “Contribution Plan”).
With regard to employees that are not under the Contribution Plan, the liability is funded in part from the purchase of insurance policies or by the establishment of pension funds with dedicated deposits in the funds. The amounts used to fund these liabilities are included in the balance sheets under “Funds in respect of employee rights upon retirement.” These funds are Company’s assets.
In the years ended December 31, 2025, 2024 and 2023, the Company expense $760 , $582 , and $610 , respectively, with pension funds and insurance companies in connection with its severance payment obligations.
The amounts of severance payments, actually paid to retired employees, by TAT were $15 , $31 and $116 for the years ended December 31, 2025, 2024 and 2023.
TAT expects to pay $674 in future benefits to their employees during 2026 through 2035 upon their normal retirement age. The amount was determined based on the employee’s current salary rates and the number of service years that will be accumulated upon the retirement date.
These amounts do not include amounts that might be paid to employees that will cease working for the Israeli Company before their normal retirement age.
|
Year
|
Amount
|
|||
|
2026
|
$
|
|
||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029
|
|
|||
|
2030
|
|
|||
|
Thereafter (through 2035)
|
|
|||
|
Total
|
$
|
|
||
Limco-Piedmont sponsors a 401(k) safe harbor profit sharing plan covering substantially all of its employees. The plan requires the employer to contribute a match which is currently done on a payroll period basis, matching 100 % of the first 2 % and 50 % of all salary deferrals made up to the next 3%. In addition, the plan allows for a discretionary qualified non-elective contribution for the plan year. Contributions to the plan by Limco-Piedmont were $957 , $645 , and $569 for the years ended December 31, 2025, 2024 and 2023, respectively.
The Group expects to contribute approximately $1,804 in 2026 as it relates to the pension funds and insurance companies in respect of their severance and pension pay obligations in Israel as well as 401(k) contribution in the U.S.
F - 28
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Commission arrangements
The Group is contracted to pay sales commission ranging from 1 % to 10 % to sale agents and employees based on the total sales and profits from contracts. Commission expenses were $895 , $778 , and $361 for the years ended December 31, 2025, 2024 and 2023, respectively.
Royalty commitments
The Company is committed to paying royalties as percentage of revenue or as a percentage of purchase in the amount ranging from 5 % to 25 % to certain OEM as part of the Company’s license agreements. Royalties expense were $5,727 , $4,983 , and $3,298 for the years 2025, 2024 and 2023, respectively.
Guarantees
| (1) |
In order to secure TAT's liability to the Israeli customs, the Company provided bank guarantees in amounts of
|
| (2) |
TAT has provided bank guarantee to Ministry of Economy in amounts of
|
| (3) |
Turbochrome has provided a bank guarantee to the local planning and building committee in amounts of $
|
| (4) |
TAT has provided a bank guarantee for a building lease in the amount of
|
| (5) |
Gedera has provided a guarantee to a customer in the amount of $
|
Litigation
On July 12, 2022, TAT filed a suit against TAT Industries Ltd. in the District Court of Tel Aviv. TAT had leased the Gedera facility from TAT Industries Ltd. until the termination of the lease agreement in 2022. TAT asserts that TAT Industries Ltd. has unlawfully forfeited a bank guarantee that was granted for the benefit TAT Industries Ltd. in connection with the lease in Gedera in the amount of $750 thousands. On December 28, 2022, TAT Industries Ltd. filed a counterclaim against TAT asserting damages caused by TAT in connection with the lease in Gedera. The evidentiary hearings concluded on June 29, 2025, and the parties completed their closing arguments by November 23, 2025. TAT intends to vigorously defend the counterclaim by TAT Industries Ltd. and TAT estimates that is not probable that TAT Industries Ltd.’s claim against TAT will be approved.
F - 29
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 12 - SHAREHOLDERS' EQUITY
Ordinary Share
TAT's ordinary shares confer upon their holders' voting rights, the right to receive dividends, if declared, and any amounts payable upon the dissolution, liquidation or winding up of the affairs of TAT. TAT's treasury shares have no rights.
On September 1, 2024, TAT completed the issuance and sale of 673,340 ordinary shares in a private placement to Israeli institutional and accredited investors (as defined under Israel’s Securities Law, 5728-1968), for a purchase price of NIS 54.95 per share (which equaled $15.03 per share based on the exchange rate published by the Bank of Israel at such time), resulting in net proceeds to the Company, after a deduction of offering expenses, of approximately NIS 36.5 million (or approximately $10.0 million). The newly issued shares represent approximately 6.2 % of the Company’s issued and outstanding ordinary shares after the consummation of such sale. The private offering expenses totaled $163 thousand.
Pursuant to the resolution of the shareholders' meeting held on August 15, 2024, the Company’s articles of association were amended. This amendment cancels the par value of the Company’s Ordinary Shares. As a result of this change, $3,152 par value was reclassified from ordinary shares to additional paid-in capital.
At a special shareholder meeting in March 2025, TAT’s shareholders approved the increase of its authorized share capital from 13,000,000 to 15,000,000 ordinary shares.
On June 3, 2025, the Company completed a public offering of 1,625,000 of its ordinary shares, no par value per share, at a public offering price of $26.00 per share for gross proceeds of $42.3 million. The issuance costs incurred were $2.8 million, hence, generating net proceeds of $39.4 million. In addition, 2,525,000 ordinary shares were sold by existing shareholders as part of the same offering.
On June 26, 2025, the underwriters exercised in full their option to purchase an additional 242,298 ordinary shares from the Company and 380,202 ordinary shares from selling stockholders at offering price of $26.00 . The issuance costs incurred were $0.4 million. This resulted in additional net proceeds of approximately $6.0 million to the Company.
The net proceeds for the Company from this public offering after issuance costs is $45.4 million.
On November 4, 2025, at the Annual and Special General Meeting of the shareholders a resolution was approved to increase the authorized capital stock of the Company from 15,000,000 to 19,000,000 ordinary shares.
F - 30
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 12 - SHAREHOLDERS' EQUITY (CONT)
Stock option plans
In November 2011, the Company’s compensation committee and board of directors approved a stock option plan (the “2012 Plan”), which was subsequently approved by TAT’s shareholders, on June 28, 2012. According to the 2012 Plan, an aggregate of 980,000 options exercisable into up to 980,000 ordinary shares of TAT may be granted to certain members of our board of directors and certain senior executives at an exercise price not less than the fair market value of the shares covered by the option on the date of grant.
On August 30, 2018, the Company's compensation committee, followed by the Board of Directors, approved the amended and restated Company's 2012 Plan. On October 4, 2018, the Company's amended and restated 2012 Plan was approved at the annual general meeting of shareholders. As part of the Company's 2012 Plan’s amendments it was determined that if the Company declares a cash dividend to its shareholders, and the distribution date of such dividend will precede the exercise date of an Option, including for the avoidance of doubt, Options that have yet to become vested and Options which have been granted prior to the adoption of such amendment to the Plan, the exercise price of the option shall be reduced in the amount equal to the cash dividend per share distributed by the Company.
Following the approval of TAT's compensation committee and board of directors, on November 8, 2022, the Company’s shareholders approved the 2022 stock option plan with the same terms and condition as the 2012 plan (the “2022 Plan”, and together with the 2012 Plan, the “Plans”). According to the 2022 Plan, an aggregate of 550,000 options exercisable into up to 550,000 ordinary shares of TAT may be granted to certain members of our board of directors and certain senior executives at an exercise price not less than the fair market value of the shares covered by the option on the date of grant
In March 2025, following the approval of TAT's audit committee and board of directors, the Company’s shareholders annual meeting, approved the amended and restated Company’s 2022 Stock Plan (the “Amended and Restated Company’s 2022 Stock Option Plan”). The main amendment in the Amended and Restated Company's 2022 Stock Option Plan is the increase in the maximum number of ordinary shares of the Company that may be issued under the Amended and Restated Company's 2022 Stock Option Plan by an additional 200,000 ordinary shares, such that after the increase, the original option pool after the additional ordinary shares will equal a total of 750,000 ordinary shares.
Following the approval of TAT's compensation committee and board of directors, on November 4, 2025, the Company’s shareholders approved the amended and restated version of both the 2012 Stock Option Plan and the 2022 Stock Option Plan (together, the "Amended and Restated Incentive Plans"). Each of these plans has been updated and expanded to reflect the broadened scope of equity-based awards that may now be granted under the plans. Accordingly, the plans, previously known as the 2012 Stock Option Plan and the 2022 Stock Option Plan, have been renamed the 2012 Incentive Plan and the 2022 Incentive Plan, respectively, to reflect this broader scope. These amendments are intended to provide the Company with greater flexibility in structuring equity-based compensation, to better align the plans with current market practices and the evolving needs of the Company, and to support the Company’s ability to attract, retain and incentivize key employees, officers, directors and consultants. The amendments do not increase the total number of Ordinary Shares available for issuance under either plan. Additionally, under the amendments to the 2012 and 2022 Incentive Plans, the approval mechanism for changes to the plan was revised so that shareholder approval will no longer be required, instead, approvals will be made in accordance with the Israeli Companies Law.
F - 31
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 12 - SHAREHOLDERS' EQUITY (CONT)
The total aggregate shares in the pool under the Plans is 1,730,000 ordinary shares of the Company. At December 31, 2025, shares available for grant amounted to 490,628 ordinary shares.
In general, the options under the Plans vest over a period of 4 years as follows: 25 % of the options vest upon the lapse of 12 months following the date of grant and the remaining 75 % vest on a quarterly basis over the remaining 3 -year period. The options expired within 7 years from the date of grant. Pursuant to the Plans, any options that are cancelled or not exercised within the option period determined in the relevant option agreement will become available for future grants.
The grant of options to Israeli employees under the Plans is subject to the terms stipulated by Sections 102 and 102A of the Israeli Income Tax Ordinance. Each option grant is subject to the track chosen by the Company, either Section 102 or Section 102A of the Israeli Income Tax Ordinance, and pursuant to the terms thereof, the Company is not allowed to claim as an expense for tax purposes the amounts credited to employees as benefits, including amounts recorded as salary benefits in the Company’s accounts, in respect of options granted to employees under the Plans, with the exception of the work income benefit component, if any, determined on grant date. For nonemployees and for non-Israeli employees, the share option plan is subject to Section 3(i) of the Israeli Income Tax Ordinance which levied tax on income of non-residents derived or accrued in Israel.
The following table is a summary of the activity of TAT's Stock Incentive Plans:
|
Year ended December 31,
|
||||||||||||||||||||||||
|
2025
|
2024
|
2023
|
||||||||||||||||||||||
|
Number
of
options (in thousands)
|
Weighted
average
exercise
price
|
Number
of
options (in thousands)
|
Weighted
average
exercise
price
|
Number
of
options (in thousands)
|
Weighted
average
exercise
price
|
|||||||||||||||||||
|
Outstanding at the beginning of the year
|
|
$
|
|
|
$
|
|
|
$
|
|
|||||||||||||||
|
Granted
|
|
|
|
|
|
|
||||||||||||||||||
|
Forfeited
|
(
|
)
|
|
|
|
(
|
)
|
|
||||||||||||||||
|
Exercised*
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|
|||||||||||||||
|
Outstanding at the end of the year
|
|
$
|
|
|
$
|
|
|
$
|
|
|||||||||||||||
|
Exercisable at the end of the year
|
|
$
|
|
|
$
|
|
|
$
|
|
|||||||||||||||
The weighted-average grant-date fair value of options granted was $14.08 in 2025, $6.00 in 2024, and $2.45 in 2023. The aggregate intrinsic value for the options outstanding as of December 31, 2025, 2024 and 2023 was $12.16 million, $7.89 million and $1.78 million, respectively.
* Until September 2025, the Company allowed its employees to exercise stock options either by paying cash or through the cashless exercise mechanism. Starting September 2025, the Company stopped the cashless exercise mechanism.
F - 32
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 12 - SHAREHOLDERS' EQUITY (CONT)
The following table summarizes information concerning outstanding and exercisable awards as of December 31, 2025:
|
Awards outstanding
|
Awards exercisable
|
|||||||||||||||||
|
Exercise price
|
Number of awards outstanding at the end of the year
(in thousands)
|
Weighted
average
remaining contractual life (years)
|
Number of awards exercisable at the end of year
|
Weighted
average
remaining contractual life (years)
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
-
|
||||||||||||||
|
|
|
|
|
-
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
-
|
||||||||||||||
|
|
|
|
|
-
|
||||||||||||||
|
|
|
|
|
-
|
||||||||||||||
|
|
|
|
|
-
|
||||||||||||||
|
|
|
|||||||||||||||||
The fair value of the Company’s stock options granted under the 2012 and 2022 plan for the years ended December 31, 2025, 2024 and 2023 was estimated using the following assumptions:
|
2025
|
2024
|
2023
|
|||||||
|
Expected stock price volatility
|
|
|
|
||||||
|
Expected option life (in years)
|
|
|
|
||||||
|
Risk free interest rate
|
|
|
|
||||||
|
Dividend yield
|
|
|
|
The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options. The volatility factor used in the Black-Scholes option pricing model is based on historical stock price fluctuations. The expected term of options is based on the simplified method and forfeitures are recognized as they incur. The Company is able to use the simplified method as the options qualify as “plain vanilla” options as defined by ASC 718-10-S99 and since the Company does not have sufficient historical exercise data to provide a reasonable basis to estimate expected term. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the stock options granted. Following the Company's amended and restated 2012 stock plan and 2022 stock plan related to the adjustment of the exercise price in respect of dividend distribution, the dividend yield was amended to 0 %.
F - 33
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 12 - SHAREHOLDERS' EQUITY (CONT)
Share-based compensation expenses:
|
Year ended December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Cost of revenue
|
$
|
|
$
|
|
$
|
|
||||||
|
Research and development
|
|
|
|
|||||||||
|
Sales and marketing
|
|
|
|
|||||||||
|
General and administrative
|
|
|
|
|||||||||
|
Total stock-based compensation
|
$
|
|
$
|
|
$
|
|
||||||
As of December 31, 2025, total unrecognized compensation cost was $6,570 and is expected to be recognized over a weighted-average period of 1.7 years.
NOTE 13 - EARNINGS PER SHARE (“EPS”)
Basic earnings per share are based on the weighted average number of ordinary shares outstanding, net of treasury shares. Diluted EPS is based on those shares used in basic EPS plus shares that would have been outstanding assuming issuance of ordinary shares for all dilutive potential ordinary shares outstanding.
|
Year ended December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Numerator for EPS:
|
||||||||||||
|
Net Income
|
$
|
|
$
|
|
$
|
|
||||||
|
Denominator for EPS:
|
||||||||||||
|
Weighted average shares outstanding – basic
|
|
|
|
|||||||||
|
Dilutive shares
|
|
|
|
|||||||||
|
Weighted average shares outstanding – diluted
|
|
|
|
|||||||||
|
EPS:
|
||||||||||||
|
Basic
|
$
|
|
$
|
|
$
|
|
||||||
|
Diluted
|
$
|
|
$
|
|
$
|
|
||||||
NOTE 14 - TAXES ON INCOME
Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 ("the Law")
TAT and Turbochrome has elected to participate in the alternative package of tax benefits for its approved and benefited enterprise under the law.
Pursuant to such Law, the income derived from those enterprises will be exempt from Israeli corporate tax for a specified benefit period (except to the extent that dividends are distributed during the tax-exemption period other than upon liquidation) and subject to reduced corporate tax rates for an additional period.
In addition, pursuant to a recent amendment of the Law, any distribution of dividends as of August 15, 2021, will be prorated between exempt income and taxable income. As such, upon dividend distribution, in case the Company has accumulated exempt income, the Company will be obligated to pay corporate income tax it was exempted from with respect to the exempt profits portion.
F - 34
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 14 - TAXES ON INCOME (CONT)
Preferred Enterprises
In January 2011, additional amendments to the Law became effective (the “2011 Amendment”). Under the 2011 Amendment, income derived by ‘Preferred Companies’ from “Preferred Enterprises” (both as defined in the 2011 Amendment) would be subject to a uniform rate of corporate tax as opposed to the incentives that are limited to income from Approved or Benefiting Enterprises during their benefits period. According to the 2011 Amendment, the uniform tax rate on such income, referred to as “Preferred Income”, would be 6 % in areas in Israel that are designated as Development Zone A and 12 % elsewhere in Israel. Dividends distributed from taxable income derived from Preferred Enterprise would be subject to a 15 % tax (or lower, if so provided under an applicable tax treaty), which would generally be withheld by the distributing Company .While the Company may incur additional tax liability in the event of distribution of dividends from tax exempt income generated from its Approved and Benefiting Enterprises, no additional tax liability will be incurred by the Company in the event of distribution of dividends from income taxed in accordance with the 2011 Amendment.
Under the transitional provisions of the 2011 Amendment, the Company elected to irrevocably implement the 2011 Amendment, commencing 2011 and thereafter, and be regarded as a "Preferred Enterprise" with respect to its existing Approved and Benefited Enterprises while waiving benefits provided under the legislation prior to the 2011 Amendment.
Under a recent amendment, announced in August 2013, beginning in 2014, dividends paid out of income attributed to a Preferred Enterprise will be subject to a withholding tax rate of 20 % (instead of 15%). In addition, tax rates under the Preferred Enterprise were also raised effective January 1, 2014, to 9 % in Zone A and 16 %. The uniform tax rate for Development Zone A, as of January 1, 2017, is 7.5 % (as part of changes enacted in Amendment 73).
TAT and Turbochrome are located in an area in Israel that is designated as Zone A and as such entitled to reduce tax rates of 7.5 %.
Israel corporate tax rate
The taxable income of TAT, not subject to benefits as detailed above, is taxed at corporate tax rate, which was 23% for all years included in these financial statements.
Capital gain is subject to capital gain tax according to corporate tax rate in the year which the assets are sold.
As of December 31, 2025 and 2024, the Company has an accumulated tax loss carryforward in Israel of approximately $7,635 and $8,217 , respectively. Such carryforward loss has no expiration date.
U.S. subsidiaries tax rates
The U.S. subsidiaries are taxed based on federal and state tax laws. The federal statutory tax rate for 2025, 2024 and 2023 was 21 % plus 2.5 % to 4 % for state taxes.
On July 4, 2025, the U.S. enacted H.R. 1 "A bill to provide for reconciliation pursuant to Title II of H. Con. Res. 14", commonly referred to as the One Big Beautiful Bill Act ("OBBBA", or "OB3"). OB3 contains a broad range of provisions affecting businesses, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, including provisions related to bonus depreciation and immediately expensing of domestic research and development, as well as modifications to foreign derived intangible income and the restoration of other favorable tax provisions. The legislation has multiple effective dates, with certain provisions, including elective 100% bonus depreciation for assets placed in service after January 19, 2025, with many others generally not effective until 2026 through 2027. The Company’s provision for income tax reflects the impact of the enactment of the Act.
As of December 31, 2025 and 2024, the Company has a federal accumulated tax loss carryforward of approximately $6,826 and $7,860 , respectively. Under U.S. tax laws, subject to certain limitations, carryforward tax losses originating in tax years beginning after January 1, 2018, have no expiration date, but are limited as a deduction to 80 % of taxable income in any given year.
F - 35
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 14 - TAXES ON INCOME (CONT)
Tax assessments
TAT’s income tax assessments are considered final through 2018. Turbochrome income tax assessments are considered final through 2018. Limco-Piedmont income tax assessments are considered final through 2019.
Income before taxes on income is comprised as follows:
|
Year ended December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Domestic (Israel)
|
$
|
|
$
|
|
$
|
|
||||||
|
Foreign (United States)
|
|
|
|
|||||||||
|
$
|
|
$
|
|
$
|
|
|||||||
Taxes on income included in the statements of income:
|
Year ended December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Current:
|
||||||||||||
|
Domestic (Israel)
|
$
|
|
$
|
|
$
|
|
||||||
|
Foreign (United States)
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Deferred:
|
||||||||||||
|
Domestic (Israel)
|
(
|
)
|
(
|
)
|
|
|||||||
|
Foreign (United States)
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
$
|
|
$
|
|
$
|
|
|||||||
F - 36
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 14 - TAXES ON INCOME (CONT)
|
Income taxes paid
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Federal taxes
|
||||||||||||
|
Domestic (Israel)
|
$
|
|
$
|
|
$
|
|
||||||
|
Foreign (United States)
|
|
|
|
|||||||||
|
$
|
|
$
|
|
$
|
|
|||||||
Income tax reconciliation
A reconciliation of the reported tax expense assuming all income is taxed at the statutory rate to taxes on income as reported in the statements of income:
|
Year ended December 31,
|
||||||||||||||||||||||||
|
2025
|
2024
|
2023
|
||||||||||||||||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||||||||
|
Israel statutory tax rate
|
$
|
|
|
%
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||||||
|
Foreign tax effects
|
||||||||||||||||||||||||
|
United States
|
||||||||||||||||||||||||
|
Statutory tax rate difference between Israel and United States
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|||||||||||||
|
Non-taxable or non-deductible items
|
|
|
|
|
|
|
||||||||||||||||||
|
Foreign country state/local taxes
|
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||
|
Other adjustments
|
|
|
(
|
)
|
|
|
|
|||||||||||||||||
|
Israel preferred enterprise regime
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||
|
Changes in valuation allowance
|
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Non-taxable or non-deductible items
|
(
|
)
|
|
|
|
|
|
|||||||||||||||||
|
Foreign exchange difference
|
(
|
)
|
(
|
)
|
|
|
|
|
||||||||||||||||
|
Other adjustments
|
(
|
)
|
|
|
|
(
|
)
|
|
||||||||||||||||
|
Effective tax rate
|
$
|
|
|
%
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||||||
F - 37
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 14 - TAXES ON INCOME (CONT)
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 TAT's deferred tax liabilities and assets are as follows:
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Net operating losses carryforward
|
$
|
|
$
|
|
||||
|
Inventory reserves
|
|
|
||||||
|
Interest limitation
|
|
|
||||||
|
Provisions for employee benefits
|
|
|
||||||
|
R&D expenses
|
|
|
||||||
|
Capital tax losses carryforward
|
|
|
||||||
|
Others
|
|
|
||||||
|
Deferred tax assets, before valuation allowance
|
|
|
||||||
|
Valuation allowance (VA)
|
(
|
)
|
(
|
)
|
||||
|
Deferred tax assets, net
|
|
|
||||||
|
Deferred tax liabilities:
|
||||||||
|
Property, plant and equipment
|
(
|
)
|
(
|
)
|
||||
|
Intangible assets
|
(
|
)
|
(
|
)
|
||||
|
Other temporary differences deferred tax liabilities
|
(
|
)
|
(
|
)
|
||||
|
Deferred tax liabilities
|
(
|
)
|
(
|
)
|
||||
|
Net
|
$
|
(
|
)
|
$
|
|
|||
The following table summarizes the changes in the valuation allowance for deferred tax assets:
|
Balance, December 31, 2022
|
$
|
|
||||||
|
Deductions during the year
|
(
|
)
|
||||||
|
Balance, December 31, 2023
|
|
|||||||
|
VA release during the year
|
(
|
)
|
||||||
|
Deductions during the year
|
(
|
)
|
||||||
|
Balance, December 31, 2024
|
|
|||||||
|
VA increase during the year
|
|
|||||||
|
Balance, December 31, 2025
|
$
|
|
Valuation allowance
In assessing the likelihood of realizing deferred tax assets, management considers factors such as prior earnings history, expected future earnings and the reversal of existing taxable temporary differences. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Deferred taxes are determined by utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and tax bases of assets and liabilities under the applicable tax laws. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the determination of the appropriate valuation allowances, the Company has considered the most recent projections of future business results and taxable income by jurisdiction. Actual results may vary in comparison to current projections. After consideration of the evidence described above, management believes it is more likely than not that deferred tax assets will not be realized. Therefore, during the year ended December 31, 2025, the Company recorded an additional $126 in respect of the valuation allowance applied on deferred tax assets recorded in Israel. As at December 31, 2025, the Company maintained a full valuation allowance relating to carry forward capital losses in Israel since management believes it is more likely than not that the deferred tax assets will not be realized.
F - 38
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 15 - SEGMENT INFORMATION
Segment Activities
TAT operates under four segments: (i) Original equipment manufacturing (“OEM”) of heat transfer solutions and aviation accessories mainly through our Kiryat Gat facility; (ii) MRO services for heat transfer components and OEM of heat transfer solutions through Limco ; (iii) MRO services for aviation components (mainly APU and LG) through Piedmont; and (iv) Overhaul and coating of jet engine components through Turbochrome.
| • |
OEM of heat transfer solutions and aviation accessories primarily include the design, development and manufacture of (i) broad range of heat transfer solutions, such as pre-coolers heat exchangers and oil/fuel hydraulic heat exchangers, used in mechanical and electronic systems on board of commercial, military and business aircraft; (ii) environmental control and power electronics cooling systems installed on board aircraft in and ground applications; and (iii) a variety of other mechanical aircraft accessories and systems such as pumps, valves, and turbine power units.
|
| • |
MRO Services for heat transfer components and OEM of heat transfer solutions primarily include the MRO of heat transfer components and to a lesser extent, the manufacturing of certain heat transfer solutions. TAT’s Limco subsidiary operates an FAA-certified repair station, which provides heat transfer MRO services for airlines, air cargo carriers, maintenance service centers and the military.
|
| • |
MRO services for aviation components include the MRO of APUs, landing gears and other aircraft components, as well as APU lease activity. TAT’s Piedmont subsidiary operates an FAA-certified repair station, which provides aircraft component MRO services for airlines, air cargo carriers, maintenance service centers and the military.
|
| • |
TAT’s activities in the area of overhaul and coating of jet engine components includes the overhaul and coating of jet engine components, including turbine vanes and blades, fan blades, variable inlet guide vanes and afterburner flaps.
|
The Group’s chief operating decision-maker ("CODM") is the CEO of the Company. The CODM evaluate segment performance and allocate the Company’s resources, the CODM uses segment measures of revenue, gross profit, operating income and total assets. The CODM reviews budget-to-actual variances of both profit measures on a monthly basis when making decisions about allocation of the Company’s resources to the segments.
F - 39
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 15 - SEGMENT INFORMATION (CONT)
Segments statement operations disclosure
The following financial information is the information that CODM uses for analyzing the segment results. The following financial information is a summary of the operating income of each operational segment:
|
Year ended December 31, 2025
|
||||||||||||||||||||||||
|
OEM of Heat Transfer Solutions and Aviation Accessories
|
MRO Services for heat transfer components and OEM of heat transfer solutions
|
MRO services for Aviation Components and Lease
|
Overhaul and coating of jet engine components
|
Elimination of inter-Company sales
|
Consolidated
|
|||||||||||||||||||
|
Revenues external
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Revenues internal
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Cost of revenues
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Gross profit
|
|
|
|
|
|
|
||||||||||||||||||
|
Research and development
|
|
|
|
|
|
|
||||||||||||||||||
|
Selling and marketing
|
|
|
|
|
|
|
||||||||||||||||||
|
General and administrative
|
|
|
|
|
|
|
||||||||||||||||||
|
Other segment expenses (income)*
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||
|
Operating income
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|||||||||||||
|
Financial expenses, net
|
(
|
)
|
||||||||||||||||||||||
|
Income before provision for income taxes
|
$
|
|
||||||||||||||||||||||
F - 40
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 15 - SEGMENT INFORMATION (CONT)
Segments statement operations disclosure (cont.)
|
Year ended December 31, 2024
|
||||||||||||||||||||||||
|
OEM of Heat Transfer Solutions and Aviation Accessories
|
MRO Services for heat transfer components and OEM of heat transfer solutions
|
MRO services for Aviation Components and Lease
|
Overhaul and coating of jet engine components
|
Elimination of inter-Company sales
|
Consolidated
|
|||||||||||||||||||
|
Revenues external
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Revenues internal
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Cost of revenues
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Gross profit
|
|
|
|
|
|
|
||||||||||||||||||
|
Research and development
|
|
|
|
|
|
|
||||||||||||||||||
|
Selling and marketing
|
|
|
|
|
|
|
||||||||||||||||||
|
General and administrative
|
|
|
|
|
|
|
||||||||||||||||||
|
Other segment expenses (income)*
|
|
|
* (
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||||||||
|
Operating income
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
|
||||||||||||
|
Financial expenses, net
|
(
|
)
|
||||||||||||||||||||||
|
Income before provision for income taxes
|
$
|
|
||||||||||||||||||||||
*Gain profit from fixed asset sales
F - 41
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 15 - SEGMENT INFORMATION (CONT)
Segments statement operations disclosure (cont.)
|
Year ended December 31, 2023
|
||||||||||||||||||||||||
|
OEM of Heat Transfer Solutions and Aviation Accessories
|
MRO Services for heat transfer components and OEM of heat transfer solutions
|
MRO services for Aviation Components and Lease
|
Overhaul and coating of jet engine components
|
Elimination of inter-Company sales
|
Consolidated
|
|||||||||||||||||||
|
Revenues external
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Revenues internal
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Cost of revenues
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Gross profit
|
|
|
|
|
|
|
||||||||||||||||||
|
Research and development
|
|
|
|
|
|
|
||||||||||||||||||
|
Selling and marketing
|
|
|
|
|
|
|
||||||||||||||||||
|
General and administrative
|
|
|
|
|
|
|
||||||||||||||||||
|
Other segment expenses (income)
|
|
(
|
)
|
*(
|
)
|
(
|
)
|
|
(
|
)
|
||||||||||||||
|
Operating income
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|
||||||||||||
|
Financial expenses, net
|
(
|
)
|
||||||||||||||||||||||
|
Income before provision for income taxes
|
$
|
|
||||||||||||||||||||||
*Gain profit from fixed asset sales
F - 42
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 15 - SEGMENT INFORMATION (CONT)
The following financial information identifies the assets, depreciation and amortization, and capital expenditures to segments:
|
Year ended December 31, 2025
|
||||||||||||||||||||||||
|
OEM of Heat Transfer Solutions and Aviation Accessories
|
MRO Services for heat transfer components and OEM of heat transfer solutions
|
MRO services for Aviation Components and Lease
|
Overhaul and coating of jet engine components
|
Amounts not allocated to segments
|
Consolidated
|
|||||||||||||||||||
|
Total assets
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||
|
Depreciation and amortization
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Expenditure for segment assets
|
|
|
|
|
|
|
||||||||||||||||||
|
Year ended December 31, 2024
|
||||||||||||||||||||||||
|
OEM of Heat Transfer Solutions and Aviation Accessories
|
MRO Services for heat transfer components and OEM of heat transfer solutions
|
MRO services for Aviation Components and Lease
|
Overhaul and coating of jet engine components
|
Amounts not allocated to segments
|
Consolidated
|
|||||||||||||||||||
|
Total assets
|
$
|
|
$
|
|
$
|
|
$
|
|
(
|
)
|
$
|
|
||||||||||||
|
Depreciation and amortization
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Expenditure for segment assets
|
|
|
|
|
|
|
||||||||||||||||||
F - 43
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 16 - ENTITY-WIDE DISCLOSURE
Total revenues - by geographical location were attributed according to customer residential country as follows:
|
Year ended December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Sale of products
|
||||||||||||
|
United States
|
$
|
|
$
|
|
$
|
|
||||||
|
Israel
|
|
|
|
|||||||||
|
Europe
|
|
|
|
|||||||||
|
Other
|
|
|
|
|||||||||
|
$
|
|
$
|
|
$
|
|
|||||||
|
Year ended December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Sale of Services
|
||||||||||||
|
United States
|
$
|
|
$
|
|
$
|
|
||||||
|
Israel
|
|
|
|
|||||||||
|
Europe
|
|
|
|
|||||||||
|
Other
|
|
|
|
|||||||||
|
$
|
|
$
|
|
$
|
|
|||||||
Total long-lived assets - by geographical location were as follows:
|
December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
United States
|
$
|
|
$
|
|
$
|
|
||||||
|
Israel
|
|
|
|
|||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
||||||
Major Customers
The Company has a single customer in MRO services for Aviation Components and lease which has annual sales in 2025 constitute 14.48 % from the total group sales. The Company has a single customer which has annual sales in 2024 constitute 12.8 % from the total group sales. The Company has a single customer which has annual sales in 2023 constitute 12.6 % from the total group sales.
F - 44
TAT TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 17- SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS INFORMATION
|
Warranty
provision
|
Provision for current expected credit losses
|
|||||||
|
Balance, as of December 31, 2022
|
$
|
|
$
|
|
||||
|
Additions
|
|
|
||||||
|
Deductions
|
|
(
|
)
|
|||||
|
Balance, as of December 31, 2023
|
|
|
||||||
|
Additions
|
|
|
||||||
|
Deductions
|
|
(
|
)
|
|||||
|
Balance as of December 31, 2024
|
|
|
||||||
|
Additions
|
|
|
||||||
|
Deductions
|
(
|
)
|
(
|
)
|
||||
|
Balance as of December 31, 2025
|
$
|
|
$
|
|
||||
F - 45
FAQ
What does TAT Technologies (TATT) primarily do in the aerospace sector?
TAT Technologies focuses on aerospace and defense thermal management, power and actuation, and MRO services. It designs and manufactures heat transfer solutions and aviation accessories, and provides maintenance, repair and overhaul for heat exchangers, APUs, landing gear and jet engine components through its Israel and U.S. subsidiaries.
How is TAT Technologies (TATT) organizationally structured?
The company operates four main units: TAT Israel for OEM heat transfer and accessories, Limco for heat transfer MRO and OEM, Piedmont for APU and landing gear MRO and leasing, and Turbochrome for jet engine component overhaul, coatings, and masking/coating materials manufacturing.
How concentrated is TAT Technologies’ (TATT) customer base?
Customer concentration is meaningful: five customers represented approximately 32.6% of revenue in 2025. A single MRO customer contributed about 14.5% of revenues. The filing notes that loss or reduction of business from these customers could seriously affect overall revenue.
What geopolitical risks does TAT Technologies (TATT) face due to its Israel base?
TAT is incorporated in Israel with key facilities there, so it is exposed to regional wars, hostilities and political instability. The report describes recent attacks involving Israel, Iran and neighboring states and notes reserve-duty mobilizations that may disrupt operations and negatively affect results.
What role do government contracts play for TAT Technologies (TATT)?
Contracts with the U.S. and Israeli governments form a notable portion of revenue, about 9.3% in 2025. These contracts carry special risks, including unilateral termination, value reductions, export controls and potential defense budget cuts that could materially affect demand for TAT’s products and services.
How does TAT Technologies (TATT) generate revenue from MRO services?
Through subsidiaries Limco, Piedmont and Turbochrome, TAT provides FAA and EASA-certified MRO for heat transfer components, APUs, landing gear and engine parts. Revenue arises from recurring overhaul cycles after OEM warranty periods, long-term service contracts and related leasing and parts trading activities.
What recent capital markets activity did TAT Technologies (TATT) disclose?
On May 29, 2025, the company entered an underwriting agreement for an underwritten public offering of 4,150,000 ordinary shares. TAT sold 1,625,000 shares, while selling shareholders sold 2,525,000 shares through underwriters led by Stifel and Truist Securities.
Tat Techn
NASDAQ:TATT
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