UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ |
☐ | 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. |
(Exact name of Registrant as specified in its charter)
(Jurisdiction of incorporation or organization)
MP Menashe, 3780400
Israel
(Address of principal executive offices)
Chief Executive Officer
Caesarstone Ltd.
MP Menashe, 3780400
Israel
Telephone: +972 (4) 636-4555
Facsimile: +972 (4) 636-4400
(Name, telephone, email and/or facsimile number and address of company contact person)
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Ordinary Shares, par value NIS 0.04 per share | CSTE | The Nasdaq Stock Market LLC |
Large accelerated filer ☐ | Accelerated filer ☒ | Non-accelerated filer ☐ |
Emerging growth company ☐ |
U.S. GAAP ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
• | Adverse global conditions, including macroeconomic and geopolitical uncertainty, may negatively impact our financial results |
• | The outcome of litigations including those regarding silicosis, other bodily injury claims or other legal proceedings in which we are involved, and our ability to use our insurance policy to cover damages; |
• | Changes in laws and regulations relating to hazards associated with engineered quartz surfaces or the content of RCS in stone and engineered quartz surfaces may adversely and materially affect our business; |
• | Downturns in the home renovation, remodeling and residential construction sectors or the economy generally; |
• | Changes in the availability or prices to the prices of our raw materials or to the suppliers of our raw materials; |
• | Constraints in the global supply of, prices for, and availability of transportation of the raw materials, finished goods and other products essential to our operations; |
• | disruptions to our information technology systems globally, including by deliberate cyber-attacks; |
• | fluctuations in currency exchange rates, and we may not have adequately hedged against them; |
• | Our ability to raise funds to finance our current and future capital needs; |
• | Our ability to pass rising costs to our customers; |
• | The impact of the coronavirus (COVID-19) pandemic on end-consumers, the global economy and our business and results of operations; |
• | Competitive pressures from other manufacturers of quartz and other surface materials as well as increased |
• | Competition from lower-priced alternatives; |
• | Risks associated with changes in global trade policies or the imposition of tariffs; |
• | Our ability to successfully consummate business combinations or acquisitions and our success in integrating acquisitions, such as Lioli Ceramica Private Limited (“Lioli”) and Omicron Granite and Tile (“Omicron”), into our operations; |
• | our ability to manage required changes in our production and supply chain, and manufacture our products efficiently; |
• | disturbances to our operations, the operations of our equipment and raw material suppliers, distributors, customers, consumers or other third parties; |
• | our ability to effectively manage changes to our production and supply chain and effectively collaborate with Original Equipment Manufacturer (“OEM”) suppliers; |
• | our ability to execute our strategy to expand sales in certain markets; |
• | impacts on revenue from sales disruptions in our geographic concentrations or key markets; |
• | our reliance on third-party distributors, re-sellers, and a limited number of large retailers; |
• | our ability to effectively manage our inventory and successfully pursue a wider product offering; |
• | quarterly fluctuations in our results of operations as a result of seasonal factors and building construction cycles; |
• | the extent of our liability for environmental, health and safety, product liability and other matters; |
• | the protection of our brand, technology and intellectual property; |
• | the failure to meet or achieve our ESG goals, expectations or standards that could adversely affect our business, results of operations, financial condition, or stock price; |
• | our tax position, including meeting certain conditions required to receive certain tax benefits, our exposure to U.S. tax liabilities and related consequences under the U.S. Internal Revenue Code, and the continued availability of certain tax benefits granted by the Israeli government; |
• | compliance with and impacts of laws and changes in laws where we operate (Primarily Israel, the U.S., Canada and Australia); |
• | our ability to retain our senior management team and other skilled and experienced personnel; |
• | the effect of the share ownership by the Kibbutz and Tene; |
• | our ability to manage or resolve conflicts of interest arising from employee affiliations with Kibbutz Sdot-Yam (the “Kibbutz”) and with Tene Investment in Projects 2016 Limited Partnership (“Tene”); |
• | the effects of enforcements against us, our officers and directors in the United States; |
• | our ability to maintain our lease agreements with the Kibbutz, the Israeli Lands Administration (the “ILA”) and Caesarea Development Corporation; |
• | coverage by equity research analysts, publicly announced financial guidance, investor perceptions and our ability to meet other expectations (such as Environmental Social and Governance); |
• | the impacts of conditions in Israel, such as political developments, negative economic conditions or labor unrest; |
• | differences in the governance of shareholders’ rights under Israeli law; |
• | the amount and timing of our dividend payments; |
• | price volatility of, and effects of future sales on, our ordinary shares; |
• | our status as a foreign private issuer and related exemptions with respect thereto; and |
• | our expectations regarding regulatory matters applicable to us. |
• | The proposed reform to Israel's judicial system, the resulting extensive public protests and potential impacts on our operations in Israel. |
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A. | [Reserved] | 1 | |
B. | Capitalization and Indebtedness | 1 | |
C. | Reasons for the Offer and Use of Proceeds | 1 | |
D. | Risk Factors | 1 | |
37 | |||
A. | History and Development of the Company | 37 | |
B. | Business Overview | 38 | |
C. | Organizational Structure | 51 | |
D. | Property, Plants and Equipment | 52 | |
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A. | Operating Results | 54 | |
B. | Liquidity and Capital Resources | 67 | |
C. | Research and Development, Patents and Licenses | 70 | |
D. | Trend Information | 70 | |
E. | Critical Accounting Estimates | 70 | |
75 | |||
A. | Directors and Senior Management | 75 | |
B. | Compensation | 79 | |
C. | Board Practices | 84 | |
D. | Employees | ||
E. | Share ownership | ||
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A. | Major Shareholders | 99 | |
B. | Related Party Transactions | 102 | |
C. | Interests of Experts and Counsel | 107 | |
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A. | Consolidated Financial Statements and Other Financial Information | 107 | |
B. | Significant Changes | 110 | |
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A. | Offer and Listing Details | 110 | |
B. | Plan of Distribution | 110 | |
C. | Markets | 110 | |
D. | Selling Shareholders | 110 | |
E. | Dilution | 110 | |
F. | Expenses of the Issue | 110 | |
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A. | Share Capital | 110 | |
B. | Memorandum and Articles of Association | 111 | |
C. | Material Contracts | 111 | |
D. | Exchange Controls | 111 | |
E. | Taxation | 111 | |
F. | Dividends and Paying Agents | 122 | |
G. | Statements by Experts | 122 | |
H. | Documents on Display | 122 | |
I. | Subsidiary Information | 122 | |
J. | Annual Report to Security Holders |
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A. | [Reserved] |
B. | Capitalization and Indebtedness |
C. | Reasons for the Offer and Use of Proceeds |
D. | Risk Factors |
• | our ability to manage our relationships with OEMs; |
• | the extent to which we experience delays in delivery of products from OEMs or the quality of products produced by these OEMs does not meet our standards; |
• | damage or disruption to the ability of our OEMs to develop, manufacture and transport our products as a result of factors within or outside their control; |
• | failure by such OEMs to comply with applicable laws and regulations or accepted industry standards including ESG expectations set by us and our customers; and |
• | our ability to agree on the commercial terms with such vendors, or effectively enforce the terms of any verbal or written agreements, which could cause OEMs to cease manufacturing in the amounts required to meet the demand for our products, or at all. |
• | fluctuations in exchange rates; |
• | fluctuations in land and sea transportation costs, as well as delays or other changes in transportation and other time-to-market delays, including as a result of strikes; |
• | unpredictability of foreign currency exchange controls; |
• | compliance with unexpected changes in regulatory requirements; |
• | compliance with a variety of regulations and laws in each relevant jurisdiction; |
• | difficulties in collecting accounts receivable and longer collection periods; |
• | changes in tax laws and interpretation of those laws; |
• | taxes, tariffs, quotas, custom duties, trade barriers and other similar restrictions on our sales, purchases and exports which could be imposed by certain jurisdictions; |
• | negative or unforeseen consequences resulting from the introduction, termination, modification, or renegotiation of international trade agreements or treaties or the imposition of countervailing measures or antidumping duties or similar tariffs; |
• | difficulties enforcing intellectual property and contractual rights in certain jurisdictions; and |
• | economic changes, geopolitical regional conflicts, such as the invasion of Ukraine by Russia, terrorist activity, political unrest, civil strife, acts of war, strikes and other economic or political uncertainties. |
• | the composition of our board of directors (other than external directors); |
• | approving or rejecting a merger, consolidation or other business combination; and |
• | amending our articles of association, which govern the rights attached to our ordinary shares. |
• | the difficulty of integrating the operations and personnel of the acquired business; |
• | the potential disruption of our ongoing business; |
• | the potential distraction of management; |
• | expenses related to the acquisition; |
• | potential unknown liabilities associated with acquired businesses; |
• | challenges integrating completed combinations or acquisitions in an efficient and timely manner; and |
• | failure to realize the expected synergies or benefits in connection with a future combination or acquisition. |
A. | History and Development of the Company |
B. | Business Overview |
For the year ended December 31, | ||||||||||||||||||||
2022 | 2020 | 2016 | 2014 | 2012 | ||||||||||||||||
Region | ||||||||||||||||||||
United States | 21 | % | 20 | % | 14 | % | 8 | % | 6 | % | ||||||||||
Australia (not including New Zealand) | 48 | % | 47 | % | 45 | % | 39 | % | 35 | % | ||||||||||
Canada | 27 | % | 28 | % | 24 | % | 18 | % | 12 | % | ||||||||||
Israel (*) | 53 | % | 67 | % | 87 | % | 86 | % | 85 | % |
• | Emissions - Israel. On March 2018 and later on December 2019 the IMEP issued additional terms for business license for the Bar-Lev facility, and the Company has implemented all the required terms (including an online styrene emission monitoring system), and is still in the process of implementing all the cyber requirements in the poison permit, which will take effect in June 2023. The IMEP closely monitors our Bar-Lev facility’s implementation of the additional terms and emissions, specifically of styrene. During July 2021, the Company received a warning letter from the IMEP in which our Bar-Lev plant was notified of violations of the Clean Air Act and the plant’s business license terms, following an unannounced styrene emission sampling that revealed several cases of deviations from the styrene emission standard under the Clean Air Act in Israel. The IMEP has ordered the Company to take corrective and preventive actions, including reducing the expected timeframe for installation of additional Regenerative Thermal Oxidizer (“RTO”) system and to implement a continuous (online) monitoring device on the Bar-Lev plant’s fence. We are cooperating with the IMEP and are currently in the process of implementing all its requirements and remaining additional terms. Similarly, in October 2020 we received from the IMEP the final version of the additional terms to the business license for our Sdot-Yam facility, and the Company has implemented all the required terms (including an online styrene emission monitoring system), and is still in the process of implementing all the cyber requirements in the poison permit, which will take effect in June 2023. The IMEP closely monitors our Sdot-Yam facility emissions, specifically for its styrene emissions. During January 2021 we were informed of several cases of deviations from the styrene emission standard under the Clean Air Act in Israel at our Sdot-Yam plant, which were identified in an unannounced continuous monitoring inspection that was conducted on the Sdot-Yam plant’s fence by the municipal supervisory authority. During 2021 the municipal supervisory authority advised (but did not order) that a continuous monitoring system on the Sdot-Yam plant’s fence should be installed. In light of corrective actions taken by the Company and proper monitoring results, such a system is not considered at the moment. In February 2022, Israel adopted a long term goal for the reduction of environmental styrene emissions. Although such goal is not expected to impact our current operations, the adoption of new regulations could create an additional burden for any future investment in our Israeli facilities. We are constantly in the process of taking the required corrective actions in order to comply with the business license terms, the styrene emission standard and the IMEP instructions. |
• | Workers’ safety and health. The Israeli Ministry of Economics, Labor Division (“IMOE”) in Israel the U.S. Occupational Safety and Health Administration (“OSHA”) in the U.S. and the Indian Ministry of Labor and Employment, conduct audits of our plants, in which, among other things, it examines if there were any deviations from permitted ambient levels of RCS, styrene and acetone in the plants. We seek, on an ongoing basis, to continue reducing the level of exposure of our employees to RCS, styrene and acetone, while enforcing our employees’ use of personal protection equipment. . A fatal accident has occurred at the Company’s facility in February 2023. The accident’s circumstances are still explored by OSHA and immediate corrective actions were taken. A police investigation took place immediately after the accident, with no criminal suspicion nor follow-up actions. |
• | “Risks related to our business and industry—We may have exposure to greater-than-anticipated tax liabilities.” |
• | “Risks related to our incorporation and location in Israel— Conditions in Israel could materially and adversely affect our business.” |
• | “Risks related to our incorporation and location in Israel—The tax benefits that are available to us require us to continue to meet various conditions and may be terminated or reduced in the future, which could increase our costs and taxes.” |
• | “Risks related to our incorporation and location in Israel—If we are considered a ‘monopoly’ under Israeli law, we could be subject to certain restrictions that may limit our ability to freely conduct our business to which our competitors may not be subject. |
• | Our annual budget is based in part on these non-GAAP measures. |
• | Our management and board of directors use these non-GAAP measures to evaluate our operational performance and to compare it against our work plan and budget. |
• | amortization of purchased intangible assets; |
• | legal settlements (both gain or loss) and loss contingencies, due to the difficulty in predicting future events, their timing and size; |
• | material items related to business combination activities important to understanding our ongoing performance; |
• | excess cost of acquired inventory; |
• | expenses related to our share-based compensation; |
• | significant one-time offering costs; |
• | significant one-time non-recurring items (both gain or loss); |
• | material extraordinary tax and other awards or settlements, both amounts paid and received; and |
• | tax effects of the foregoing items. |
2022 | 2021 | 2020 | 2019 | 2018 | ||||||||||||||||
Reconciliation of Gross profit to Adjusted Gross profit: | ||||||||||||||||||||
Gross profit | $ | 163,245 | $ | 171,498 | $ | 133,942 | $ | 148,639 | $ | 163,414 | ||||||||||
Share-based compensation expense (a) | 315 | 321 | 416 | 285 | 163 | |||||||||||||||
Non-recurring import related expenses (income) | — | — | — | (1,501 | ) | 2,104 | ||||||||||||||
Amortization of assets related to acquisitions | 306 | 852 | 529 | — | — | |||||||||||||||
Other non-recurring items (b) | 237 | — | — | 1,661 | — | |||||||||||||||
Adjusted Gross profit | $ | 164,103 | $ | 172,671 | $ | 134,887 | $ | 149,084 | $ | 165,681 |
(a) | Share-based compensation includes expenses related to stock options and restricted stock units granted to employees and directors of the company. |
(b) | In 2022, reflects workforce reduction, and in 2019, reflects mainly one-time amortization of machinery equipment with no future alternative use, and one-time inventory write down due to discontinuation of certain product group manufacturing. |
2022 | 2021 | 2020 | 2019 | 2018 | ||||||||||||||||
Reconciliation of Net Income to Adjusted EBITDA:s | ||||||||||||||||||||
Net income (loss) | $ | (56,366 | ) | $ | 17,889 | $ | 7,622 | $ | 12,862 | $ | 24,568 | |||||||||
Finance expenses (income), net | (3,079 | ) | 7,590 | 10,199 | 5,578 | 3,639 | ||||||||||||||
Taxes on income | 758 | 1,950 | 4,700 | 6,243 | 4,560 | |||||||||||||||
Depreciation and amortization | 36,344 | 35,407 | 29,460 | 28,587 | 28,591 | |||||||||||||||
Legal settlements and loss contingencies, net (a) | 568 | 3,283 | 6,319 | 12,359 | 8,903 | |||||||||||||||
Contingent consideration adjustment related to acquisition | 120 | 284 | — | — | — | |||||||||||||||
Share-based compensation expense (b) | 1,502 | 1,845 | 2,858 | 3,632 | 1,684 | |||||||||||||||
Impairment expenses related to goodwill and long lived assets | 71,258 | — | — | — | — | |||||||||||||||
Non-recurring import related expense (income) | — | — | — | (1,501 | ) | 2,104 | ||||||||||||||
Acquisition-related expenses | 80 | — | 921 | — | — | |||||||||||||||
Other non-recurring items (c) | 684 | — | — | 1,286 | 1,157 | |||||||||||||||
Adjusted EBITDA | $ | 51,869 | $ | 68,248 | $ | 62,079 | $ | 69,046 | $ | 75,206 |
(a) | Consists of legal settlements expenses and loss contingencies, net related to product liability claims and other adjustments to ongoing legal claims, including related legal fees. |
(b) | Share-based compensation includes expenses related to stock options and restricted stock units granted to employees and directors of the company. |
(c) | In 2022, related to workforce reduction, in 2019, relates to non-recurring expenses related to North American region establishment, one-time charge related to reduction in headcount and certain activities including discontinuation of certain product group manufacturing, and in 2018 also relocation expenses of Caesarstone USA headquarters (company’s subsidiary). |
2022 | 2021 | 2020 | 2019 | 2018 | ||||||||||||||||
Reconciliation of Net Income (loss) Attributable to Controlling Interest to Adjusted Net Income Attributable to Controlling Interest: | ||||||||||||||||||||
Net income (loss) attributable to controlling interest | $ | (57,054 | ) | $ | 18,966 | $ | 7,218 | $ | 12,862 | $ | 24,405 | |||||||||
Legal settlements and loss contingencies, net (a) | 568 | 3,283 | 6,319 | 12,359 | 8,903 | |||||||||||||||
Contingent consideration adjustment related to acquisition | 120 | 284 | — | — | — | |||||||||||||||
Amortization of assets related to acquisitions, net of tax | 2,084 | 2,391 | 446 | — | — | |||||||||||||||
Share-based compensation expense (b) | 1,502 | 1,845 | 2,858 | 3,632 | 1,684 | |||||||||||||||
Non-cash revaluation of lease liabilities (c) | (9,527 | ) | 2,918 | 3,189 | 3,615 | — | ||||||||||||||
Non-recurring import related expense (income) | — | — | — | (1,501 | ) | 2,104 | ||||||||||||||
Impairment expenses related to goodwill and long lived assets | 71,258 | — | — | — | — | |||||||||||||||
Acquisition-related expenses | 80 | — | 921 | — | — | |||||||||||||||
Other non-recurring items (d) | 684 | — | — | 2,486 | 1,157 | |||||||||||||||
Total adjustments before tax | 66,769 | 10,721 | 13,733 | 20,591 | 13,848 | |||||||||||||||
Less tax on above adjustments (e) | (910 | ) | 1,054 | 4,488 | 6,729 | 2,168 | ||||||||||||||
Total adjustments after tax | $ | 67,679 | $ | 9,667 | $ | 9,245 | $ | 13,862 | $ | 11,680 | ||||||||||
Adjusted net income attributable to controlling interest | $ | 10,625 | $ | 28,633 | $ | 16,463 | $ | 26,724 | $ | 36,085 |
(a) | Consists of legal settlements expenses and loss contingencies, net related to product liability claims and other adjustments to ongoing legal claims, including related legal fees. |
(b) | Share-based compensation includes expenses related to stock options and restricted stock units granted to employees and directors of the company. |
(c) | Exchange rate differences deriving from revaluation of lease contracts in accordance with FASB ASC 842. |
(d) | In 2022, related to workforce reduction, in 2019, relates to non-recurring expenses related to North American region establishment, one time charge related to reduction in headcount and certain activities including discontinuation of certain product group manufacturing, one time amortization of machinery equipment with no future alternative use, and in 2018 also relocation expenses of Caesarstone USA headquarters (company’s subsidiary). |
(e) | Based on the effective tax rates of the relevant periods. |
C. | Organizational Structure |
D. | Property, Plants and Equipment |
Properties | Issuer’s Rights | Location | Purpose | Size |
Kibbutz Sdot-Yam(1) | Land Use Agreement | Caesarea, Central Israel | Headquarters, manufacturing facility, research and development center | Approximately 30,000 square meters of facility and approximately 48,000 square meters of un-covered yard* |
Bar-Lev Industrial Park manufacturing facility(2) | Land Use Agreement & Ownership | Carmiel, Northern Israel | Manufacturing facility | Approximately 23,000 square meters of facility and approximately 50,000 square meters of un-covered yard** |
Belfast Industrial Center(3)(4) | Ownership | Richmond Hill, Georgia, United States | Manufacturing facility | Approximately 26,000 square meters of facility and approximately 401,000 square meters of un-covered yard (excluding 56,089 square meters of wetland) |
Bharat Nagar(5) | Ownership | Morbi, Gujarat, India | Manufacturing facility | Approximately 60,000 square meters of facility and approximately 55,000 square meters of open land, gas yard, effluent treatment plant, labor colony and roads |
(1) | Leased pursuant to a land use agreement with Kibbutz Sdot-Yam entered in March 2012 with a term of 20 years, which replaced the former land use agreement. Starting from September 2014 we use an additional 9,000 square meters pursuant to Kibbutz Sdot-Yam’s consent under terms materially similar to the land use agreement. However, we have the right to return such additional office space and premises to Kibbutz Sdot-Yam at any time upon 90 days’ prior written notice. In September 2016, we exercised our right to return to the Kibbutz an additional office space of approximately 400 square meters which we used since January 2014 under terms materially similar to the land use agreement. The lands on which these facilities are located are held by the ILA and leased or subleased by Kibbutz Sdot-Yam pursuant to agreements described in “ITEM 7.B: Major Shareholders and Related Party Transactions—Related Party Transactions—Relationship and agreements with Kibbutz Sdot-Yam—Land use agreement.” |
(2) | We own 2,673 square meters of facility and 2,550 square meters of uncovered yard, and the remainder is leased pursuant to a land use agreement with Kibbutz Sdot-Yam entered into in March 2011, with a term of 10 years commencing in September 2012, which will be automatically renewed, unless we give two years’ prior notice, for an additional 10-year term. In 2021, the agreement was extended for an additional ten year period. This agreement was executed simultaneously with the land purchase and leaseback agreement we entered into with Kibbutz Sdot-Yam, according to which Kibbutz Sdot-Yam acquired from us our rights in the lands and facilities of the Bar-Lev industrial center, under a long term lease agreement we entered into with the ILA on June 6, 2007 to use the premises for an initial period of 49 years as of February 6, 2005, with an option to renew for an additional term of 49 years as of the end of the initial period. For more information, see “ITEM 7.B: Major Shareholders and Related Party Transactions—Related Party Transactions—Relationship and agreements with Kibbutz Sdot-Yam—Land purchase agreement and leaseback.” |
(3) | On September 17, 2013, we entered into a purchase agreement for the purchase of approximately 45 acres of land in Richmond Hill, Georgia, United States, comprising approximately 36.6 acres of upland and approximately 9 acres of wetland for our new U.S. manufacturing facility, the construction of which was completed in 2015. On June 22, 2015, we exercised a purchase option in the agreement and acquired approximately 19.4 acres of land, comprising approximately 18.0 acres of upland. On November 25, 2015, we entered into a new purchase agreement for the purchase of approximately 54.9 acres of additional land situated adjacent to the previously purchased land, comprising approximately 51.1 acres of upland. |
(4) | In December 2014, we entered into a bond purchase loan agreement, were issued a taxable revenue bond on December 1, 2014, and executed a corresponding lease agreement. Pursuant to these agreements, the Development Authority of Bryan County, an instrumentality of the State of Georgia and a public corporation (“DABC”), has acquired legal title of our facility in Richmond Hill, in the State of Georgia, U.S., and in consideration leased such facilities back to us. In addition, the facility was pledged by DABC in favor of us and DABC has committed to re-convey title to the facility to us upon the maturity of the bond or at any time at our request, upon our payment of $100 to DABC. Therefore, we consider such facilities to be owned by us. This arrangement was structured to grant us property tax abatement for ten years at 100% and additional five years at 50%, subject to our satisfying certain qualifying conditions with respect to headcount, average salaries paid to our employees and the total capital investment amount in our U.S. plant. In December 2015, we entered into an additional bond purchase loan agreement with the Development Authority of Bryan County, and were issued a second taxable revenue bond on December 22, 2015, to cover additional funds and assets which were utilized in the framework of constructing, acquiring and equipping our U.S. facility. If we were to expand our current U.S. facility, we would have been entitled to an additional taxable revenue bond and a corresponding property tax abatement. In 2017, we notified DABC that we will not be utilizing such additional bond at this time and, accordingly, it has expired. |
(5) | In October 2020, we acquired a majority stake, in Lioli, which owns the Bharat Nagar facility in Morbi, Gujarat, India. For more information on our title to the property in Morbi, Gujarat, India, see “ITEM 3.D. Key Information—Risk Factors—Operational Risks—Fully integrating Lioli’s and Omicron’s businesses may be more difficult, costly and time-consuming than expected, which may adversely affect our results of operations and the value of our common shares.” |
A. | Operating Results |
• | Our sales are impacted by home renovation and remodeling and new residential construction, and to a lesser extent, commercial construction. We estimate (supported also by the Freedonia Report) that approximately 60%-70% of our revenue in our main markets (U.S., Australia, Canada) is related to residential renovations and remodeling activities, while 30%-40% is related to new residential construction. |
• | Our revenues and results of operations exhibit some quarterly fluctuations as a result of seasonal influences which impact construction and renovation cycles. Due to the fact that certain of our operating costs are fixed, the impact of such fluctuations on our profitability is material. We believe that the second and third quarters tend to exhibit higher sales volumes than the other quarters because demand for our surfaces and other products is generally higher during the summer months in the northern hemisphere with the effort to complete new construction and renovation projects before the new school year. Conversely, the first quarter is typically impacted by the winter slowdown in the northern hemisphere in the construction industry and might impact sales in Israel depending on the timing of the spring holiday a particular year. Similarly, sales in Australia during the first quarter are negatively impacted by fewer construction and renovation projects. The fourth quarter is susceptible to being impacted by the onset of winter in the northern hemisphere and specifically the fourth quarter of 2022 recorded lower levels of revenue primarily as result of challenging macroeconomic conditions and lower demand. |
• | We conduct business in multiple countries in North America, South America, Europe, Asia-Pacific, Australia and the Middle East and as a result, we are exposed to risks associated with fluctuations in currency exchange rates between the U.S. dollar and certain other currencies in which we conduct business. A significant portion of our revenues is generated in U.S dollar, and to a lesser extent the Australian dollar, Canadian dollar, Euro and NIS. In 2022, 52.4% of our revenues were denominated in U.S. dollars, 16.8% in Australian dollars, 13.5% in Canadian dollars, 5.7% in Euros and 5.2% in NIS. As a result, devaluations of the Australian dollars, and to a lesser extent, the Canadian dollar relative to the U.S. dollar may unfavorably impact our profitability. Our expenses are largely denominated in U.S. dollars, NIS and Euro, with a smaller portion in Australian dollars and Canadian dollars. As a result, appreciation of the NIS, and to a lesser extent, the Euro relative to the U.S. dollar may unfavorably affect our profitability. We attempt to limit our exposure to foreign currency fluctuations through forward contracts, which, except for U.S. dollar/NIS forward contracts, are not designated as hedging accounting instruments under ASC 815, Derivatives and Hedging. As of December 31, 2022, we had total outstanding forward contracts with a notional amount of $54.5 million. These transactions were for a period of up to 12 months. The fair value of these foreign currency derivative contracts was negative $0.1 million, which is included in current assets and current liabilities, as of December 31, 2022. For further discussion of our foreign currency derivative contracts, see “ITEM 11: Quantitative and Qualitative Disclosures About Market Risk.” In addition, we entered derivative instruments not designated as hedging accounting to partially manage our exposure to fluctuations of styrene prices. As of December 31, 2022, we had one outstanding forward contract, related to styrene prices, with a notional amount of $0.4 million. This transaction was for a period of 1 month. The fair value of this styrene forward derivative contract was negative $0.4 million, which is included in current assets, as of December 31, 2021. |
Year ended December 31, | ||||||||||||||||||||||||
2022 | 2021 | 2020 | ||||||||||||||||||||||
Geographical Region | % of total revenues | Revenues in thousands of USD | % of total revenues | Revenues in thousands of USD | % of total revenues | Revenues in thousands of USD | ||||||||||||||||||
United States | 49.5 | % | $ | 342,293 | 47.4 | % | $ | 305,353 | 42.7 | % | $ | 207,496 | ||||||||||||
Canada | 13.5 | % | 93,377 | 13.1 | 84,467 | 14.9 | 72,492 | |||||||||||||||||
Latin America | 0.6 | % | 4,481 | 0.7 | 4,702 | 0.4 | 2,149 | |||||||||||||||||
Australia (incl. New Zealand) | 16.8 | % | 116,284 | 18.4 | 118,714 | 21.3 | 103,587 | |||||||||||||||||
Asia | 5.0 | % | 34,607 | 4.7 | 30,390 | 3.0 | 14,566 | |||||||||||||||||
EMEA | 9.2 | % | 63,320 | 9.4 | 60,836 | 9.3 | 45,201 | |||||||||||||||||
Israel | 5.3 | % | 36,444 | 6.1 | 39,430 | 8.4 | 40,921 | |||||||||||||||||
Total | 100.0 | % | $ | 690,806 | 100 | % | $ | 643,892 | 100.0 | % | $ | 486,412 |
Year ended December 31, | ||||||||||||||||||||||||
2022 | 2021 | 2020 | ||||||||||||||||||||||
Amount | % of Revenue | Amount | % of Revenue | Amount | % of Revenue | |||||||||||||||||||
(in thousands of U.S. dollars) | ||||||||||||||||||||||||
Consolidated Income Statement Data: | ||||||||||||||||||||||||
Revenues: | $ | 690,806 | 100 | % | $ | 643,892 | 100 | % | $ | 486,412 | 100.0 | % | ||||||||||||
Cost of revenues | 527,561 | 76.4 | 472,394 | 73.4 | 352,470 | 72.5 | ||||||||||||||||||
Gross profit | 163,245 | 23.6 | 171,498 | 26.6 | 133,942 | 27.5 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Research and development, net | 4,098 | 0.6 | 4,216 | 0.7 | 3,974 | 0.8 | ||||||||||||||||||
Marketing and selling | 94,412 | 13.7 | 85,725 | 13.3 | 62,047 | 12.8 | ||||||||||||||||||
General and administrative | 51,596 | 7.5 | 50,845 | 7.9 | 39,081 | 8.0 | ||||||||||||||||||
Impairment expenses related to goodwill and long lived assets | 71,258 | 10.3 | ||||||||||||||||||||||
Legal settlements and loss contingencies, net | 568 | 0.1 | 3,283 | 0.5 | 6,319 | 1.3 | ||||||||||||||||||
Total operating expenses | 221,932 | 32.3 | 144,069 | 22.4 | 111,421 | 22.9 | ||||||||||||||||||
Operating income (loss) | (58,687 | ) | (8.5 | ) | 27,429 | 4.3 | 22,521 | 4.6 | ||||||||||||||||
Finance expenses, net | (3,079 | ) | (0.4 | ) | 7,590 | 1.2 | 10,199 | 2.1 | ||||||||||||||||
Income before taxes on income (loss) | (55,608 | ) | (8.1 | ) | 19,839 | 3.1 | 12,322 | 2.5 | ||||||||||||||||
Taxes on income | 758 | 0.1 | 1,950 | 0.3 | 4,700 | 0.9 | ||||||||||||||||||
Net income (loss) | $ | (56,366 | ) | (8.2 | ) | $ | 17,889 | 2.8 | % | $ | 7,622 | 1.6 | % | |||||||||||
Net income (loss) attributable to non-controlling interest | 688 | 0.1 | (1,077 | ) | (0.2 | ) | 404 | 0.1 | ||||||||||||||||
Net income attributable to controlling interest (loss) | $ | (57,054 | ) | (8.3 | )% | $ | 18,966 | 2.9 | % | $ | 7,218 | 1.5 | % |
Three months ended | ||||||||||||||||||||||||||||||||
Dec. 31, 2022 | Sept. 30, 2022 | June 30, 2022 | Mar. 31, 2022 | Dec. 31, 2021 | Sept. 30, 2021 | June 30, 2021 | Mar. 31, 2021 | |||||||||||||||||||||||||
(as a % of revenue) | ||||||||||||||||||||||||||||||||
Consolidated Income Statement Data: | ||||||||||||||||||||||||||||||||
Revenues: | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||
Gross profit | 19.4 | 23 | 26.4 | 25.3 | 23.2 | 26.2 | 28.0 | 29.7 | ||||||||||||||||||||||||
Operating income (loss) | (47.2 | ) | 1.7 | 3.5 | 4.1 | 2.0 | 5.4 | 3.2 | 6.9 | |||||||||||||||||||||||
Net income (loss) | (46.4 | ) | (0.2 | ) | 6.2 | (0.8 | ) | (1.9 | ) | 3.6 | 0.9 | 9.5 |
Three months ended | ||||||||||||||||||||||||||||||||
Dec. 31, 2022 | Sept. 30, 2022 | June 30, 2022 | Mar. 31, 2022 | Dec. 31, 2021 | Sept. 30, 2021 | June 30, 2021 | Mar. 31, 2021 | |||||||||||||||||||||||||
(in thousands of U.S. dollars) | ||||||||||||||||||||||||||||||||
Consolidated Income Statement Data: | ||||||||||||||||||||||||||||||||
Revenues: | $ | 159,369 | $ | 180,727 | $ | 180,272 | $ | 170,438 | $ | 171,057 | $ | 163,341 | $ | 163,462 | $ | 146,032 | ||||||||||||||||
Revenues as a percentage of annual revenue | 23.1 | % | 26.2 | % | 26.1 | % | 24.7 | % | 26.6 | % | 25.3 | % | 25.4 | % | 22.7 | % | ||||||||||||||||
Gross profit | $ | 30,931 | $ | 41,617 | $ | 47,525 | $ | 43,172 | $ | 39,678 | $ | 42,734 | $ | 45,784 | $ | 43,302 | ||||||||||||||||
Operating income (loss) | (75,180 | ) | 3,155 | 6,356 | 6,982 | 3,342 | 8,876 | 5,173 | 10,038 | |||||||||||||||||||||||
Net income (loss) | (73,888 | ) | (364 | ) | 11,230 | (1,348 | ) | (3,303 | ) | 5,870 | 1,480 | 13,842 | ||||||||||||||||||||
Other financial data: | ||||||||||||||||||||||||||||||||
Adjusted Gross profit | 31,326 | 41,776 | 47,660 | 43,340 | 39,864 | 42,885 | 45,981 | 43,941 | ||||||||||||||||||||||||
Adjusted Gross profit as a percentage of annual adjusted Gross profit | 19.1 | % | 25.5 | % | 29 | % | 26.4 | % | 23.1 | % | 24.8 | % | 26.6 | % | 25.5 | % | ||||||||||||||||
Adjusted EBITDA | $ | 5,713 | $ | 13,389 | $ | 17,073 | $ | 15,694 | $ | 11,535 | $ | 17,684 | $ | 18,776 | $ | 20,253 | ||||||||||||||||
Adjusted EBITDA as a percentage of annual adjusted EBITDA | 11 | % | 25.8 | % | 32.9 | % | 30.3 | % | 16.9 | % | 25.9 | % | 27.5 | % | 29.7 | % | ||||||||||||||||
Adjusted net income attributable to controlling interest | $ | (836 | ) | $ | 13 | $ | 6,751 | $ | 4,698 | $ | 163 | $ | 6,830 | $ | 7,207 | $ | 14,434 | |||||||||||||||
Adjusted net income attributable to controlling interest as a percentage of annual adjusted net income | (7.9 | %) | 0.12 | % | 63.5 | % | 44.21 | % | 0.6 | % | 23.8 | % | 25.2 | % | 50.4 | % |
Three months ended | ||||||||||||||||||||||||||||||||
Dec. 31, 2022 | Sept. 30, 2022 | June 30, 2022 | Mar. 31, 2022 | Dec. 31, 2021 | Sept. 30, 2021 | June 30, 2021 | Mar. 31, 2021 | |||||||||||||||||||||||||
(in thousands of U.S. dollars) | ||||||||||||||||||||||||||||||||
Reconciliation of Gross profit to Adjusted Gross profit: | ||||||||||||||||||||||||||||||||
Gross profit | $ | 30,931 | $ | 41,617 | $ | 47,525 | $ | 43,172 | $ | 39,678 | $ | 42,734 | $ | 45,784 | $ | 43,302 | ||||||||||||||||
Share-based compensation expense (a) | 86 | 79 | 59 | 90 | 107 | 72 | 37 | 105 | ||||||||||||||||||||||||
Other non-recurring items (b) | 237 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Amortization of assets related to acquisitions | 72 | 80 | 76 | 78 | 79 | 79 | 160 | 534 | ||||||||||||||||||||||||
Adjusted Gross profit | $ | 31,326 | $ | 41,776 | $ | 47,660 | $ | 43,340 | $ | 39,864 | $ | 42,885 | $ | 45,981 | $ | 43,941 |
(a) | Share-based compensation includes expenses related to stock options and RSU’s granted to our employees and directors of the company. |
(b) | Restructuring expenses related to workforce reduction. |
Three months ended | ||||||||||||||||||||||||||||||||
Dec. 31, 2022 | Sept. 30, 2022 | June 30, 2022 | Mar. 31, 2022 | Dec. 31, 2021 | Sept. 30, 2021 | June 30, 2021 | Mar. 31, 2021 | |||||||||||||||||||||||||
(in thousands of U.S. dollars) | ||||||||||||||||||||||||||||||||
Reconciliation of Net Income (loss) to Adjusted EBITDA: | ||||||||||||||||||||||||||||||||
Net income (loss) | $ | (73,888 | ) | $ | (364 | ) | $ | 11,230 | $ | 6,656 | $ | (3,303 | ) | $ | 5,870 | $ | 1,480 | $ | 13,842 | |||||||||||||
Finance (income) expenses, net | 407 | 4,307 | (6,445 | ) | (1,348 | ) | 7,425 | 2,403 | 3,095 | (5,333 | ) | |||||||||||||||||||||
Taxes on income | (1,699 | ) | (788 | ) | 1,571 | 1,674 | (780 | ) | 603 | 598 | 1,529 | |||||||||||||||||||||
Depreciation and amortization related to acquisitions | 9,121 | 9,200 | 8,823 | 9,200 | 8,916 | 8,802 | 8,781 | 8,908 | ||||||||||||||||||||||||
Legal settlements and loss contingencies, net (a) | (492 | ) | 602 | 1,334 | (876 | ) | (1,181 | ) | (385 | ) | 4,109 | 740 | ||||||||||||||||||||
Contingent consideration adjustment related to acquisition | 63 | 57 | — | — | — | — | 284 | — | ||||||||||||||||||||||||
Share-based compensation expense (b) | 259 | 375 | 480 | 388 | 458 | 391 | 429 | 567 | ||||||||||||||||||||||||
Acquisition-related expenses | — | — | 80 | — | — | — | — | — | ||||||||||||||||||||||||
Impairment expenses related to goodwill and long lived assets | 71,258 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Other non-recurring items (c) | 684 | |||||||||||||||||||||||||||||||
Adjusted EBITDA | $ | 5,713 | $ | 13,389 | $ | 17,073 | $ | 15,694 | $ | 11,535 | $ | 17,684 | $ | 18,776 | $ | 20,253 |
(a) | Consists of legal settlements expenses and loss contingencies, net, related primarily to product liability claims and other adjustments to ongoing legal claims. |
(b) | Share-based compensation includes expenses related to stock options and RSU’s granted to our employees and directors of the company. |
(c) | Restructuring expenses related to workforce reduction. |
Three months ended | ||||||||||||||||||||||||||||||||
Dec. 31, 2022 | Sept. 30, 2022 | June 30, 2022 | Mar. 31, 2022 | Dec. 31, 2021 | Sept. 30, 2021 | June 30, 2021 | Mar. 31, 2021 | |||||||||||||||||||||||||
(in thousands of U.S. dollars) | ||||||||||||||||||||||||||||||||
Reconciliation of Net Income (loss) Attributable to Controlling Interest to Adjusted Net Income Attributable to Controlling Interest: | ||||||||||||||||||||||||||||||||
Net income (loss) attributable to controlling interest | $ | (73,966 | ) | $ | (463 | ) | $ | 11,147 | $ | 6,228 | $ | (2,877 | ) | $ | 5,948 | $ | 1,705 | $ | 14,190 | |||||||||||||
Legal settlements and loss contingencies, net (a) | (492 | ) | 602 | 1,334 | (876 | ) | (1,181 | ) | (385 | ) | 4,109 | 740 | ||||||||||||||||||||
Contingent consideration adjustment related to acquisition | 63 | 57 | — | — | — | — | 284 | — | ||||||||||||||||||||||||
Amortization of assets related to acquisitions, net of tax | 536 | 548 | 498 | 501 | 502 | 502 | 561 | 826 | ||||||||||||||||||||||||
Share-based compensation expense (b) | 259 | 375 | 480 | 388 | 458 | 391 | 429 | 567 | ||||||||||||||||||||||||
Non-cash revaluation of lease liabilities (c) | 676 | (796 | ) | (7,478 | ) | (1,928 | ) | 3,461 | 430 | 889 | (1,862 | ) | ||||||||||||||||||||
Acquisition-related expenses | — | — | 80 | — | — | — | — | — | ||||||||||||||||||||||||
Impairment expenses related to goodwill and long lived assets | 71,258 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Other non-recurring items (d) | 684 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total adjustments before tax | 72,984 | 786 | (5,086 | ) | (1,915 | ) | 3,240 | 938 | 6,272 | 271 | ||||||||||||||||||||||
Less tax on above adjustments | (146 | ) | 311 | (690 | ) | (385 | ) | 200 | 56 | 770 | 28 | |||||||||||||||||||||
Total adjustments after tax | 73,130 | 476 | (4,396 | ) | (1,530 | ) | 3,040 | 882 | 5,502 | 243 | ||||||||||||||||||||||
Adjusted net income attributable to controlling interest | (836 | ) | 13 | 6,751 | 4,698 | 163 | 6,830 | 7,207 | 14,434 | |||||||||||||||||||||||
Adjusted diluted EPS | $ | 0.02 | $ | 0.01 | $ | 0.20 | $ | 0.14 | $ | 0.01 | $ | 0.20 | $ | 0.21 | $ | 0.42 |
(a) | Consists of legal settlements expenses and loss contingencies, net, related primarily to product liability claims and other adjustments to ongoing legal claims. |
(b) | Share-based compensation includes expenses related to stock options and RSU’s granted to our employees and directors of the company. |
(c) | Exchange rate differences deriving from revaluation of lease contracts in accordance with FASB ASC 842. |
(d) | Restructuring expenses related to workforce reduction. |
B. | Liquidity and Capital Resources |
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
(in thousands of U.S. dollars) | ||||||||||||
Net cash provided (used) by operating activities | $ | (23,311 | ) | $ | 20,684 | $ | 47,618 | |||||
Net cash used in investing activities | (7,285 | ) | (34,885 | ) | (68,305 | ) | ||||||
Net cash provided (used) by financing activities | 9,156 | (25,254 | ) | (6,084 | ) |
C. | Research and Development, Patents and Licenses |
D. | Trend Information |
E. | Critical Accounting Estimates |
A. | Directors and Senior Management |
Name | Date of Birth | Position | ||
Officers | ||||
Yuval Dagim | December 13, 1962 | Chief Executive Officer* | ||
Nahum Trost | September 24, 1978 | Chief Financial Officer | ||
David Cullen | April 10, 1959 | Managing Director, APAC | ||
Ken Williams | April 4, 1961 | Managing Director, North America | ||
Amir Reske | October 13, 1973 | Managing Director, EMEA | ||
Idit Maayan Zohar | November 11, 1972 | Chief Marketing Officer | ||
Efrat Rimmer | March 31, 1977 | Vice President, Global Supply Chain and Commercial | ||
Amihai Seider | November 29, 1967 | Vice President, Global Production | ||
Erez Margalit | July 14, 1967 | Vice President, Global Research and Development | ||
Ron Mosberg | December 15, 1979 | General Counsel and Corporate Secretary | ||
Efrat Yitzhaki | November 23, 1972 | Vice President, Global Human Resources | ||
Eyal Levy | May 26, 1970 | Chief Information Officer | ||
Directors | ||||
Dr. Ariel Halperin(4) | March 18,1955 | Chairman | ||
Nurit Benjamini (1)(2)(3)(5)(6) | October 27, 1966 | Director | ||
Lily Ayalon(1)(2)(3)(5)(6) | June 17, 1965 | Director | ||
Roger Abravanel (4)(5) | July 27, 1946 | Director | ||
Dori Brown(4) | September 2,1971 | Director | ||
Ronald Kaplan(3) (5) | August 15, 1951 | Director | ||
Ofer Tsimchi(1)(2)(5) | September 15, 1959 | Director | ||
Shai Bober | July 17,1975 | Director | ||
Tom Pardo Izhaki | June 3, 1983 | Director |
(1) | Member of our audit committee. |
(2) | Member of our compensation committee. |
(3) | Member of our nominating committee. |
(4) | Member of our strategy committee. |
(5) | Independent under the Nasdaq rules. |
(6) | External director under the Israeli Companies Law. |
B. | Compensation of Officers and Directors |
Name and Principal Position (1) | Salary (2) | Bonus (3) | Equity-Based Compensation (4) | All other compensation (5) | Total | |||||||||||||||
(in U.S. dollars) | ||||||||||||||||||||
Yuval Dagim | 732,066 | - | 276,954 | - | 1,009,020 | |||||||||||||||
Ken Williams | 517,722 | 9,386 | 44,819 | 2,306 | 574,233 | |||||||||||||||
Nahum Trost | 339,020 | - | 115,225 | 51,639 | 505.884 | |||||||||||||||
Amir Reske | 391,978 | 20,898 | 28,582 | 46,165 | 487,623 | |||||||||||||||
David Cullen | 387,363 | 34,766 | 45,283 | 6,678 | 474,089 |
(1) | All Covered Executives are employed by us on a full time (100%) basis. |
(2) | Salary includes the Covered Executive’s gross salary plus payment of social benefits made by us on behalf of such Covered Executive. Such benefits may include, to the extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds (such as managers’ life insurance policy), education funds (referred to in Hebrew as “keren hishtalmut”), pension, severance, risk insurances (such as life, or work disability insurance), payments for social security and tax gross-up payments, vacation, medical insurance and benefits, convalescence or recreation pay and other benefits and perquisites consistent with our policies. |
(3) | Represents annual bonuses granted to the Covered Executive based on formulas set forth in the bonus plans and approvals set forth in the respective resolutions of our compensation committee and the board of directors. |
(4) | Represents the equity-based compensation expenses recorded in our consolidated financial statements for the year ended December 31, 2022, based on the option’s and RSU’s award’s fair value, calculated in accordance with accounting guidance for equity-based compensation. For a discussion of the assumptions used in reaching this valuation, see Note 2w to our consolidated financial statements. |
(5) | Includes mainly leased car, mobile phone and other fringe benefit expenses. |
C. | Board Practices |
• | an employment relationship; |
• | a business or professional relationship maintained on a regular basis; |
• | control; and |
• | service as an office holder, excluding service as a director in a private company prior to the first offering of its shares to the public if such director was appointed as a director of the private company in order to serve as an external director following the initial public offering. |
• | the majority of the shares that are voted at the meeting in favor of the election of the external director, excluding abstentions, include at least a majority of the votes of shareholders who are not controlling shareholders or have a personal interest in the appointment (excluding a personal interest that did not result from the shareholder’s relationship with the controlling shareholder); or |
• | the total number of shares held by the shareholders mentioned in the paragraph above that are voted against the election of the external director does not exceed two percent of the aggregate voting rights in the company. |
• | the chairperson of the board of directors; |
• | a controlling shareholder or a relative of a controlling shareholder; and |
• | any director employed by, or providing services on an ongoing basis to, the company, a controlling shareholder of the company or an entity controlled by a controlling shareholder of the company or any director who derives most of his or her income from the controlling shareholder. |
• | retaining and terminating our independent auditors, subject to board of directors and shareholder ratification; |
• | pre-approval of audit and non-audit services to be provided by the independent auditors; |
• | reviewing with management and our independent directors our quarterly and annual financial reports prior to their submission to the SEC; and |
• | approval of certain transactions with office holders and controlling shareholders and other related-party transactions. |
• | conduct of the appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates to serve as directors; |
• | review and recommend to the board any nominees for election as directors, including nominees recommended by shareholders, and consideration of the performance of incumbent directors whose terms are expiring in determining whether to nominate them to stand for re-election; |
• | review and recommend to the board regarding board member qualifications, board composition and structure, and recommend if necessary, measures to be taken so that the board reflects the appropriate balance of knowledge, experience, skills, expertise and diversity required for the board; and |
• | perform such other activities and functions as are required by applicable law, stock exchange rules or provisions in our articles of association, or as are otherwise necessary and advisable, in its or the board’s discretion, for the efficient discharge of its duties. |
• | reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other office holders; |
• | reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other office holders including evaluating their performance in light of such goals and objectives and determining their compensation based on such evaluation; |
• | reviewing and approving the granting of options and other incentive awards; and |
• | reviewing, evaluating and making recommendations regarding the compensation and benefits for our non-employee directors. |
• | the 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. |
• | at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in such matter, present and voting at such meeting, are voted in favor of the compensation package, excluding abstentions; or |
• | the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in such matter voting against the compensation package does not exceed 2% of the aggregate voting rights in the company. |
• | information on the business advisability of a given action brought for his or her approval or performed by virtue of his or her position; and |
• | all other important information pertaining to such action. |
• | refrain from any act involving a conflict of interest between the performance of his or her duties in the company and his or her other duties or personal affairs; |
• | refrain from any activity that is competitive with the business of the company; |
• | refrain from exploiting any business opportunity of the company for the purpose of gaining a personal advantage for himself or herself or others; and |
• | disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder. |
• | a transaction other than in the ordinary course of business; |
• | a transaction that is not on market terms; or |
• | a transaction that may have a material impact on the company’s profitability, assets or liabilities. |
• | a majority of the shares held by shareholders who have no personal interest in the transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding abstentions; or |
• | the shares voted by shareholders who have no personal interest in the transaction who vote against the transaction represent no more than 2% of the voting rights in the company. |
• | an amendment to the articles of association; |
• | an increase in the company’s authorized share capital; |
• | a merger; and |
• | the approval of related party transactions and acts of office holders that require shareholder approval. |
• | a monetary liability incurred by or imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such undertaking must be limited to certain events, which, in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail the foreseen events described above and amount or criteria; |
• | reasonable litigation expenses, including reasonable attorneys’ fees, incurred by the office holder as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no financial liability, was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent or in connection with a monetary sanction; |
• | a monetary liability imposed on him or her in favor of an injured party at an Administrative Procedure (as defined below) pursuant to Section 52(54)(a)(1)(a) of the Securities Law; |
• | expenses incurred by an office holder or certain compensation payments made to an injured party that were instituted against an office holder in connection with an Administrative Procedure under the Securities Law, including reasonable litigation expenses and reasonable attorneys’ fees; and |
• | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of a conviction for an offense that does not require proof of criminal intent. |
• | a breach of duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company; |
• | a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; |
• | a monetary liability imposed on the office holder in favor of a third party; |
• | a monetary liability imposed on the office holder in favor of an injured party at an Administrative Procedure pursuant to Section 52(54)(a)(1)(a) of the Securities Law; and |
• | expenses incurred by an office holder in connection with an Administrative Procedure instituted against him or her, including reasonable litigation expenses and reasonable attorneys’ fees. |
• | a breach of a duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; |
• | a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder; |
• | an act or omission committed with intent to derive illegal personal benefit; or |
• | a fine, monetary sanction or forfeit levied against the office holder. |
As of December 31, | ||||||||||||
Department | 2022 | 2021 | 2020 | |||||||||
Manufacturing and operations | 1,339 | 1,397 | 1,222 | |||||||||
Research and development | 17 | 24 | 26 | |||||||||
Sales, marketing, service and support | 557 | 651 | 580 | |||||||||
Management and administration | 198 | 200 | 171 | |||||||||
Total | 2,111 | 2,272 | 1,999 |
Name of Beneficial Owner | Number of Shares Beneficially Held(1) | Percent of Class | ||||||
Executive Officers | ||||||||
Yuval Dagim | * | * | ||||||
Nahum Trost | * | * | ||||||
David Cullen | * | * | ||||||
Ken Williams | * | * | ||||||
Amir Reske | * | * | ||||||
Idit Maayan Zohar | * | * | ||||||
Efrat Rimer | * | * | ||||||
Amihai Seider | * | * | ||||||
Erez Margalit | * | * | ||||||
Ron Mosberg | * | * | ||||||
Efrat Yitzhaki | * | * | ||||||
Eyal Levy | * | * | ||||||
Directors | ||||||||
Dr. Ariel Halperin(2) | * | * | ||||||
Nurit Benjamini | * | * | ||||||
Lily Ayalon | * | * | ||||||
Roger Abravanel | * | * | ||||||
Dori Brown | * | * | ||||||
Ronald Kaplan | * | * | ||||||
Ofer Tsimchi | * | * | ||||||
Shai Bober | * | * | ||||||
Tom Pardo Izhaki | * | * | ||||||
All current directors and executive officers as a group (21 persons)(2) |
* | Less than one percent of the outstanding ordinary shares. |
(1) | As used in this table, “beneficial ownership” means the sole or shared power to vote or direct the voting or to dispose or direct the disposition of any security. For purposes of this table, a person is deemed to be the beneficial owner of securities that can be acquired within 60 days from March 10, 2023, through the exercise of any option or warrant. Ordinary shares subject to options that are currently exercisable or exercisable within 60 days, or other awards that are convertible into our ordinary shares within 60 days, are deemed outstanding for computing the ownership percentage of the person holding such options or other agreements, but are not deemed outstanding for computing the ownership percentage of any other person. The amounts and percentages are based upon 34,511,391 ordinary shares outstanding as March 10, 2023. |
(2) | Includes 14,029,494 ordinary shares beneficially owned by Tene Investment in Projects 2016, L.P. (“Tene”). As further described in footnote (2) under “ITEM 7.A: Major Shareholders and Related Party Transactions—Major Shareholders,” Each of Dr. Halperin, Tene Growth Capital III (G.P.) Company Ltd. (“Tene III”), and Tene Growth Capital 3 (Fund 3 G.P.) Projects, L.P (“Tene III Projects”) may be deemed to share voting power over the 14,029,494 ordinary shares and dispositive power over the 5,589,494 ordinary shares, in each case, beneficially owned by Tene. See “ITEM 7.A: Major Shareholders and Related Party Transactions—Major Shareholders.” |
A. | Major Shareholders |
Name of Beneficial Owner | Number of Shares Beneficially Owned | Percentage of Shares Beneficially Held | ||||||
Mifalei Sdot-Yam Agricultural Cooperative Society Ltd. (1)(3) | 14,029,494 | 40.7 | % | |||||
Tene Investment in Projects 2016, L.P.(2)(3) | 14,029,494 | 40.7 | % | |||||
The Phoenix Holdings Ltd. (4) | 3,868,049 | 11.2 | % | |||||
Global Alpha Capital Management Ltd. (5) | 3,074,555 | 8.9 | % |
• | The parties agreed to vote at general meetings of our shareholders in the same manner, following discussions intended to reach an agreement on any matters proposed to be voted upon, with Tene determining the manner in which both parties will vote if no agreement is reached, except with respect to certain carved-out matters, with respect to which Mifalei Sdot-Yam will determine the manner in which both parties will vote if no agreement is reached. |
• | The parties agreed to use their best efforts to prevent any dilutive transactions that would reduce Mifalei Sdot-Yam’s holdings in us below 26% on a fully diluted basis, provided that such agreement will not apply as of the date on which the percentage of Mifalei Sdot-Yam’s holdings decreases below 26% of our outstanding shares on a fully diluted basis, for any reason whatsoever, or if Mifalei Sdot-Yam receives a satisfactory written certification from the Israel Land Authority permitting Mifalei Sdot-Yam’s holdings in us to decrease below 26%. Subject to certain exceptions, Mifalei Sdot-Yam will also continue to hold at least 6,850,000 of our ordinary shares for the seven-year term of the Shareholders’ Agreement, and in no case fewer than the number of ordinary shares that would permit Tene to exercise the Call Option in full. |
• | The parties agreed to use their best efforts to cause that at least four directors be elected to our board (one identified by Mifalei Sdot-Yam, two identified by Tene and another identified by Mifalei Sdot-Yam with Tene’s consent), provided that the parties will not propose a resolution at a general meeting of our shareholders that will contradict a recommendation of our board on elections. |
• | The parties granted each other certain tag-along rights with respect to their dispositions of ordinary shares. |
B. | Related Party Transactions |
C. | Interests of Experts and Counsel |
A. | Consolidated Financial Statements and Other Financial Information |
B. | Significant Changes |
A. | Offer and Listing Details |
B. | Plan of Distribution |
C. | Markets |
D. | Selling Shareholders |
E. | Dilution |
F. | Expenses of the Issue |
A. | Share Capital |
B. | Memorandum of Association and Articles of Association |
C. | Material Contracts |
Material Contract | Location in This Annual Report |
Agreements with Kibbutz Sdot-Yam | “ITEM 7: Major Shareholders and Related Party Transactions—Related Party Transactions—Relationship and agreements with Kibbutz Sdot-Yam.” |
Management Services Agreement with Tene | “ITEM 7: Major Shareholders and Related Party Transactions—Related Party Transactions—Management Services Agreement with Tene.” |
Agreements with Breton S.p.A. (Italy) | “ITEM 3: Key Information—Risk Factors—If we are unable to manufacture and/or ship our existing products globally as planned, our results of operations and future prospects will suffer.” |
Form of Indemnification Agreement | “ITEM 6: Directors, Senior Management and Employees—Board Practices—Exculpation, insurance and indemnification of officer holders.” |
D. | Exchange Controls |
E. | Taxation |
• | banks, financial institutions or insurance companies; |
• | real estate investment trusts, regulated investment companies or grantor trusts; |
• | dealers or traders in securities, commodities or currencies; |
• | tax-exempt entities; |
• | certain former citizens or long-term residents of the United States; |
• | persons that received our shares as compensation for the performance of services; |
• | persons that will hold our shares as part of a “hedging,” “integrated” or “conversion” transaction or as a position in a “straddle” for United States federal income tax purposes; |
• | partnerships (including entities classified as partnerships for United States federal income tax purposes) or other pass-through entities, or holders that will hold our shares through such an entity; |
• | S-corporations; |
• | holders that acquire ordinary shares as a result of holding or owning our preferred shares; |
• | U.S. Holders (as defined below) whose “functional currency” is not the U.S. Dollar; |
• | persons subject to special tax accounting rules as a result of any item of gross income with respect to our ordinary shares being taken into account in an applicable financial statement; or |
• | holders that own directly, indirectly or through attribution 10% or more of the voting power or value of our shares. |
• | an individual holder that is a citizen or resident of the United States; |
• | a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States or any state thereof, including the District of Columbia; |
• | an estate the income of which is subject to United States federal income taxation regardless of its source; or |
• | a trust if such trust has validly elected to be treated as a United States person for United States federal income tax purposes or if (1) a court within the United States is able to exercise primary supervision over its administration and (2) one or more United States persons have the authority to control all of the substantial decisions of such trust. |
• | at least 75% of its gross income is “passive income”; or |
• | at least 50% of the average value of its gross assets is attributable to assets that produce “passive income” or are held for the production of passive income. |
F. | Dividends and Paying Agents |
G. | Statements by Experts |
H. | Documents on Display |
I. | Subsidiary Information |
J. | Annual Report to Security Holders |
Australian dollar against U.S. dollar | Canadian dollar against U.S. dollar | NIS against U.S. dollar | Euro against U.S. dollar | |||||||||||||
2021 | 8.7 | % | 6.9 | % | 6.4 | % | 3.6 | % | ||||||||
2022 | (7.6 | )% | (3.7 | )% | (3.8 | )% | (11 | )% |
USD/NIS | EUR/USD | GBP/USD | USD/CAD | AUD/USD | TOTAL | ||||||||||||||||||||
Buy forward contracts | Notional | — | 9,305 | 3,511 | — | — | 12,817 | ||||||||||||||||||
Fair value | — | 288 | (18 | ) | — | — | 271 | ||||||||||||||||||
Average rate | — | 1.02 | 1.2 | — | — | — | |||||||||||||||||||
Sell forward contracts | Notional | 41,699 | — | — | --- | --- | 49,379 | ||||||||||||||||||
Fair value | (412 | ) | — | — | --- | --- | 1,697 | ||||||||||||||||||
Average rate | 3.454 | — | — | --- | --- | — | |||||||||||||||||||
Buy put options | Notional | — | — | — | — | — | — | ||||||||||||||||||
Fair value | — | — | — | — | — | — | |||||||||||||||||||
Average rate | — | — | — | — | — | — | |||||||||||||||||||
Sell call options | Notional | — | — | — | — | — | — | ||||||||||||||||||
Fair value | — | — | — | — | — | — | |||||||||||||||||||
Average rate | — | — | — | — | — | — | |||||||||||||||||||
Total notional value | 41,699 | 9,305 | 3,511 | --- | --- | 54,516 | |||||||||||||||||||
Total fair value | $ | (412 | ) | $ | 288 | (18 | ) | $ | --- | $ | --- | $ | (141 | ) |
• | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; |
• | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
• | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
2022 | 2021 | |||||||
(in thousands of U.S. dollars) | ||||||||
Audit fees(1) | $ | 743 | $ | 789 | ||||
Audit-related fees(2) | 1 | 103 | ||||||
Tax fees(3) | 82 | 128 | ||||||
All other fees(4) | 193 | 72 | ||||||
Total | $ | 1,019 | $ | 1,092 |
(1) | “Audit fees” include fees for services performed by our independent public accounting firm in connection with the integrated audit of our annual audit consolidated financial statements for 2022 and 2021, and its internal control over financial reporting as of December 31, 2022 and 2021, certain procedures regarding our quarterly financial results submitted on Form 6-K, and consultation concerning financial accounting and reporting standards. |
(2) | “Audit-related fees” relate to assurance and associated services that are traditionally performed by the independent auditor. |
(3) | “Tax fees” include fees for professional services rendered by our independent registered public accounting firm for tax compliance and tax advice and tax planning services on actual or contemplated transactions. |
(4) | “Other fees” include fees for services rendered by our independent registered public accounting firm with respect to supply chain consulting, governmental incentives, due diligence investigations and other matters. |
Number | Description | |
4.6 | Form of Letter of Exemption and Indemnification (7) | |
4.11 | ||
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document |
101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Label Linkbase Document | |
101.DEF 104 | Inline XBRL Taxonomy Extension Definition Linkbase Document Cover Page Interactive Data File (embedded within the Inline XBRL document) |
(1) | Previously filed with the Securities and Exchange Commission on March 23, 2020 as Exhibit 1.1 to the Company’s annual report on Form 20-F for the year ended December 31, 2019 and incorporated by reference herein. |
(2) | Previously filed with the Securities and Exchange Commission on March 6, 2012 as Exhibit 3.1 to the Company’s registration statement on Form F-1/A (File No. 333-179556) and incorporated by reference herein. |
(3) | Previously filed with the Securities and Exchange Commission on March 23, 2020 as Exhibit 2.1 to the Company’s annual report on Form 20-F for the year ended December 31, 2019 and incorporated by reference herein. |
(4) | Previously filed with the Securities and Exchange Commission on February 16, 2012 pursuant to a registration statement on Form F-1 (File No. 333-179556) and incorporated by reference herein. |
(5) | Previously filed with the Securities and Exchange Commission on March 7, 2016 pursuant as Exhibit 4.5 to the Company’s annual report on Form 20-F for the year ended December 31, 2015 and incorporated by reference herein. |
(6) | Previously filed with the Securities and Exchange Commission on December 23, 2020 as Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 333-251642) and incorporated by reference herein. |
(7) | Previously filed with the Securities and Exchange Commission on October 13, 2021 as Exhibit 99.1 to the Company’s current report on Form 6-K and incorporated by reference herein. |
(8) | Previously filed with the Securities and Exchange Commission on March 15, 2022 pursuant as Exhibit 4.10 to the Company’s annual report on Form 20-F for the year ended December 31, 2021 and incorporated by reference herein. |
(9) | Previously filed with the Securities and Exchange Commission on March 15, 2022 pursuant as Exhibit 4.11 to the Company’s annual report on Form 20-F for the year ended December 31, 2021 and incorporated by reference herein. |
(10) | Previously filed with the Securities and Exchange Commission on October 10, 2020 as Exhibit 99.1 to the Company’s current report on Form 6-K and incorporated by reference herein. |
* | Portions of this exhibit were omitted, and a complete copy of each agreement was provided separately to the Securities and Exchange Commission pursuant to the Company’s application requesting confidential treatment under Rule 24b-2 under the Exchange Act, which was subsequently approved by the SEC. |
** | Certain confidential information contained in this document, marked by brackets, was omitted because it is both (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed. “(***)” indicates where the information has been omitted from this exhibit |
∞ | English translation of original Hebrew document |
Caesarstone Ltd. | |
By: /s/ Yuval Dagim Yuval Dagim Chief Executive Officer | |
Date: March 15, 2023 |
CAESARSTONE LTD. AND ITS SUBSIDIARIES
Page | |
(PCAOB ID No. 1281) | F-2 - F-5 |
F-6 - F-7 | |
F-8 | |
F-9 | |
F-10 | |
F-11 - F-12 | |
F-13 - F-66 | |
(PCAOB ID No. 2233) | F-67 - F-69 |
Provision for bodily injury claims related to exposure to silica dust | |
Description of the matter | As described in note 11 to the consolidated financial statements, the Company is subject to numerous claims mainly by fabricators, their employees or the National Insurance Institute ("NII"), alleging that fabricators contracted illnesses, including silicosis, through exposure to silica particles during cutting, polishing, sawing, grinding, breaking, crushing, drilling, sanding or sculpting Company's products. The Company recognized a provision in relation to Silicosis claims when an unfavorable outcome was probable and the amount of the loss could be reasonably estimated. In order to determine the liability amount, the Company consults with legal counsels. Auditing the Company’s accounting for the Silicosis provision was complex due to the significant estimation required in determining the Company’s liability amount of $36 million. The estimate of the provision involved significant estimation uncertainty primarily due to the different stages of legal claims and the probability of loss, which in turn led to a high degree of auditor judgment and effort in performing procedures and evaluating management's conclusions related to these legal claims. |
How we addressed the matter in our audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the accounting of Silicosis claims provision, including management's assessment of the assumptions and data underlying the provision valuation. To evaluate the Company's assessment of the probability of incurrence of a loss and whether the loss was reasonably estimated, among other procedures, we read the minutes of the meeting of the committees of the board of directors and gained an understanding of the claims by inquiring of the external and internal legal counsels regarding the allegations. We also obtained external and internal legal counsels confirmation letters as well as a management representation letter. Our substantive procedures also included testing the accuracy, completeness and reasonableness of the underlying data used in management's provision assessment and attending meetings between management and legal counsels to determine a range of reasonably possible loss. We tested management’s assumptions by comparing prior period's estimates versus actual prior period's results and evaluating events occurring up to date of the auditor's report. We also inquired the legal counsels regarding the likelihood of the outcome of the claims and evaluated the Company’s legal contingency disclosures included in Note 11 to the consolidated financial statements. |
Impairment of Goodwill and Long-lived assets | ||
Description of the matter | As reflected in the Company’s consolidated financial statements, in Note 2l and 2k, as of December 31, 2022, the Company’s recorded a goodwill impairment charge of $44.8 million and an impairment charge of $26.4 Million for Long lived assets related to Sdot Yam production facility. As disclosed in Note 7 and 2 to the consolidated financial statements, goodwill is tested for impairment at least annually or more frequently if indicators of impairment arise. If the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying amount, a quantitative fair value test is performed. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value is recognized. Long-lived assets (assets group) to be held and used, are reviewed for impairment whenever events or circumstances indicate the carrying amount of the long-lived assets may not be recoverable. Recoverability of the Long-lived assets (assets group) is measured by a comparison of the undiscounted future cash flows the Long-lived assets (assets group) is expected to generate to the carrying amounts of the assets group. If such evaluation indicates that the carrying amount of the long lived assets (assets group) is not recoverable, an impairment loss is calculated based on the excess of the carrying amount of the long- lived assets (assets group) over its fair value. The Management identified indicators for impairment in the fourth quarter of 2022. Consequently, Management performed an impairment assessment of goodwill and impairment test of the long-lived assets of Sdot Yam production facility. Auditing the Company's impairment test for goodwill and long-lived assets (asset groups) of Sdot Yam production facility was complex and highly judgmental due to the significant estimation and assumptions in determining the fair value of the reporting unit and the fair value of the long-lived assets (assets group). In particular, the fair value estimates of the reporting unit were sensitive to changes in significant assumptions such as discount rate, revenue growth rate, operating margins, working capital, weighted average cost of capital, estimated spend on capital expenditures. These assumptions are sensitive to and affected by the expected future market or economic conditions, and industry and company-specific qualitative factors. Furthermore, management's significant assumptions used in determining the fair value of long-lived assets (assets group) of Sdot Yam production facility included estimation of the fair value for a unit of equipment (machine, storage facility, etc.) according to the age of the equipment, its condition and the estimated value according to accepted equipment prices in the relevant market (local or international market). These assumptions are sensitive and affected by the specific market and industry qualitive factors. | |
How we addressed the matter in our audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill and long-lived assets (assets group) impairment assessment process. Among other, we tested controls over management's review of the significant assumptions in estimating the fair value of the reporting unit and the fair value of the long-lived assets (assets group) of Sdot yam production facility the of the Company. To test the estimated fair value of the company, our audit procedures included, among others, assessing methodologies and testing the significant assumptions and underlying data used by the Company. We evaluated the Company’s valuation process by comparing the significant assumptions to current industry and economic trends, we analyzed management’s forecasted revenue including the revenue growth rate, profitability margins, working capital, discount rate and estimated spend on capital expenditures to identify, understand and evaluate the changes as compared to the historical results and to selected guideline companies in the industry. In addition, we performed a sensitivity analysis of significant assumptions to evaluate the changes in the fair value of the Company resulting from changes in the assumptions. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates. In addition, our valuation specialists performed independent comparative calculations to estimate the acquired entity’s weighted average cost of capital. To test the estimated fair value of the long-lived assets (assets group) of Sdot yam production facility, our audit procedures included, among others, understanding the company's valuation process, using a professional with specialized skills and knowledge to review the valuation, understand the work assumptions and the selected data used as part of the assessment. In addition, we performed a sensitivity analysis using performed independent comparative calculation to estimate the fair value of the long-lived assets (assets group) of the Sdot yam production facility. We also evaluated the related disclosures for goodwill and long lived assets included in Notes 2l, 2k, 6 and 7 to the consolidated financial statements. |
/s/KOST FORER GABBAY & KASIERER | |
A Member of Ernst & Young Global | |
We have served as the Company's auditor since 2004 | |
Tel-Aviv, Israel | |
March 15, 2023 |
We have audited Caesarstone Ltd. and subsidiaries’ internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework (the COSO criteria). In our opinion, Caesarstone Ltd. and subsidiaries (the Company) based on our audit and the report of other auditors maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
/s/KOST FORER GABBAY & KASIERER A Member of Ernst & Young Global |
Tel-Aviv, Israel |
March 15, 2023 |
CONSOLIDATED BALANCE SHEETS |
U.S. dollars in thousands |
December 31, | ||||||||||||
Note | 2022 | 2021 | ||||||||||
ASSETS | ||||||||||||
CURRENT ASSETS: | ||||||||||||
Cash and cash equivalents | $ | 52,081 | $ | 74,315 | ||||||||
Short-term available for sale marketable securities | 3 | 7,077 | 11,228 | |||||||||
Trade receivables (net of allowance for credit loss of $9,756 and $9,036 at December 31, 2022 and 2021, respectively) | 77,898 | 82,815 | ||||||||||
Other accounts receivable and prepaid expenses | 4 | 32,570 | 35,443 | |||||||||
Inventories | 5 | 238,232 | 204,725 | |||||||||
Total current assets | 407,858 | 408,526 | ||||||||||
LONG-TERM ASSETS: | ||||||||||||
Severance pay fund | 3,410 | 4,090 | ||||||||||
Other long-term receivables | 11 | - | 449 | |||||||||
Deferred tax assets, net | 12 | 16,251 | 10,880 | |||||||||
Long-term deposits and prepaid expenses | 3,255 | 3,832 | ||||||||||
Long-term available for sale marketable securities | 3 | - | 8,647 | |||||||||
Property, plant and equipment, net | 6 | 169,292 | 221,150 | |||||||||
Operating lease right-of-use assets | 10 | 144,098 | 154,652 | |||||||||
Intangible assets, net | 7 | 8,817 | 9,627 | |||||||||
Goodwill | 7 | - | 45,800 | |||||||||
Total long-term assets | 345,123 | 459,127 | ||||||||||
Total assets | $ | 752,981 | $ | 867,653 |
F - 6
CONSOLIDATED BALANCE SHEETS |
U.S. dollars in thousands (except share data) |
December 31, | ||||||||||||
Note | 2022 | 2021 | ||||||||||
LIABILITIES AND EQUITY | ||||||||||||
CURRENT LIABILITIES: | ||||||||||||
Short-term bank credit and current maturities of long- term bank loan | 8 | $ | 26,135 | $ | 12,523 | |||||||
Trade payables | 62,194 | 81,369 | ||||||||||
Related party and other loan | 14 | 283 | 2,276 | |||||||||
Short term legal settlements and loss contingencies | 11 | 17,595 | 22,592 | |||||||||
Accrued expenses and other liabilities | 9 | 58,777 | 64,534 | |||||||||
Total current liabilities | 164,984 | 183,294 | ||||||||||
LONG-TERM LIABILITIES: | ||||||||||||
Long-term other loans and financing liability of land from related parties | 14 | 483 | 6,240 | |||||||||
Long-term bank loan | 15 | 4,340 | - | |||||||||
Accrued severance pay | 4,750 | 5,500 | ||||||||||
Deferred tax liabilities, net | 12 | 4,288 | 4,992 | |||||||||
Long-term warranty provision | 1,262 | 1,280 | ||||||||||
Long term legal settlements and loss contingencies | 11 | 19,572 | 20,859 | |||||||||
Long-term operating lease liabilities | 10 | 124,353 | 143,324 | |||||||||
Total long-term liabilities | 159,048 | 182,195 | ||||||||||
COMMITMENTS AND CONTINGENT LIABILITIES | 11 | |||||||||||
REDEEMABLE NON-CONTROLLING INTEREST | 1,2 | 7,903 | 7,869 | |||||||||
EQUITY: | 13 | |||||||||||
Share capital- | ||||||||||||
Ordinary shares of NIS 0.04 par value - 200,000,000 shares authorized at December 31, 2022 and 2021; 34,610,399 and 35,756,166 issued at December 31, 2022 and 2021, respectively; 34,507,303 and 34,473,070 shares outstanding at December 31, 2022 and 2021, respectively | 371 | 371 | ||||||||||
Additional paid-in capital | 163,431 | 161,929 | ||||||||||
Capital fund related to non-controlling interest | (5,587 | ) | (5,587 | ) | ||||||||
Accumulated other comprehensive loss, net | (9,578 | ) | (704 | ) | ||||||||
Retained earnings | 311,839 | 377,716 | ||||||||||
Treasury shares at cost – 1,103,096 ordinary shares at December 31, 2022 and 2021 | (39,430 | ) | (39,430 | ) | ||||||||
Total equity | 421,046 | 494,295 | ||||||||||
Total liabilities and equity | 752,981 | 867,653 |
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Revenues | $ | 690,806 | $ | 643,892 | $ | 486,412 | ||||||
Cost of revenues | 527,561 | 472,394 | 352,470 | |||||||||
Gross profit | 163,245 | 171,498 | 133,942 | |||||||||
Operating expenses: | ||||||||||||
Research and development | 4,098 | 4,216 | 3,974 | |||||||||
Selling and marketing | 94,412 | 85,725 | 62,047 | |||||||||
General and administrative | 51,596 | 50,845 | 39,081 | |||||||||
Goodwill and long lived assets impairment charges | 71,258 | - | - | |||||||||
Legal settlements and loss contingencies, net | 568 | 3,283 | 6,319 | |||||||||
Total operating expenses | 221,932 | 144,069 | 111,421 | |||||||||
Operating income (loss) | (58,687 | ) | 27,429 | 22,521 | ||||||||
Finance expenses (income), net | (3,079 | ) | 7,590 | 10,199 | ||||||||
Income (loss) before taxes on income | (55,608 | ) | 19,839 | 12,322 | ||||||||
Taxes on income | 758 | 1,950 | 4,700 | |||||||||
Net income (loss) | $ | (56,366 | ) | $ | 17,889 | $ | 7,622 | |||||
Net income (loss) attributable to non-controlling interest | 688 | (1,077 | ) | 404 | ||||||||
Net income (loss) attributable to controlling interest | $ | (57,054 | ) | $ | 18,966 | $ | 7,218 | |||||
Basic and diluted net income (loss) per share of Ordinary shares | $ | (1.66 | ) | $ | 0.51 | $ | 0.21 | |||||
Weighted average number of Ordinary shares used in computing basic income (loss) per share (in thousands) | 34,488 | 34,462 | 34,419 | |||||||||
Weighted average number of Ordinary shares used in computing diluted income (loss) per share (in thousands) | 34,488 | 34,570 | 34,474 |
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Net income (loss) | $ | (56,366 | ) | $ | 17,889 | $ | 7,622 | |||||
Other comprehensive income (loss) before tax: | ||||||||||||
Foreign currency translation adjustments | (8,932 | ) | (2,186 | ) | 4,386 | |||||||
Unrealized income (loss) on foreign currency cash flow hedge | (699 | ) | 329 | - | ||||||||
Unrealized income (loss) on available for sale marketable securities | (84 | ) | (59 | ) | 21 | |||||||
Income tax expense related to components of other comprehensive loss | (11 | ) | (26 | ) | (8 | ) | ||||||
Total other comprehensive income (loss), net of tax | (9,726 | ) | (1,942 | ) | 4,399 | |||||||
Comprehensive income (loss) | (66,092 | ) | 15,947 | 12,021 | ||||||||
Less - comprehensive income (loss) attributable to non-controlling interest | 164 | 1,232 | (432 | ) | ||||||||
Comprehensive income (loss) attributable to controlling interest | $ | (65,928 | ) | $ | 17,179 | $ | 11,589 |
Common stock | Additional paid-in | Retained | Accumulated other comprehensive income (loss), | Capital fund related to non- controlling | Treasury | Total | ||||||||||||||||||||||||||
Shares | Amount | capital | earnings | net (1) | interest | shares | equity | |||||||||||||||||||||||||
Balance as of January 1, 2020 | 34,397,776 | 371 | 157,225 | 368,433 | (3,288 | ) | (5,587 | ) | (39,430 | ) | 477,724 | |||||||||||||||||||||
- | ||||||||||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | 4,371 | - | - | 4,371 | ||||||||||||||||||||||||
Net income | - | - | - | 7,218 | - | - | - | 7,218 | ||||||||||||||||||||||||
Equity-based compensation expense related to employees (2) | - | - | 2,858 | - | - | - | - | 2,858 | ||||||||||||||||||||||||
Dividend paid | - | - | - | (4,821 | ) | - | - | - | (4,821 | ) | ||||||||||||||||||||||
Cashless exercise of options and RSUs | 39,520 | (* | ) | (* | ) | - | - | - | - | - | ||||||||||||||||||||||
Balance as of December 31, 2020 | 34,437,296 | 371 | 160,083 | 370,830 | 1,083 | (5,587 | ) | (39,430 | ) | 487,350 | ||||||||||||||||||||||
- | ||||||||||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | (1,787 | ) | - | - | (1,787 | ) | ||||||||||||||||||||||
Net income attributable to controlling interest | - | - | - | 18,966 | - | - | - | 18,966 | ||||||||||||||||||||||||
Equity-based compensation expense related to employees (2) | - | - | 1,846 | - | - | - | - | 1,846 | ||||||||||||||||||||||||
Adjustment to redemption value of the non-controlling interest | - | - | - | (1,399 | ) | - | - | - | (1,399 | ) | ||||||||||||||||||||||
Dividend paid | - | - | - | (10,681 | ) | - | - | - | (10,681 | ) | ||||||||||||||||||||||
Cashless exercise of options and RSUs | 35,774 | (* | ) | (* | ) | - | - | - | - | - | ||||||||||||||||||||||
Balance as of December 31, 2021 | 34,473,070 | 371 | 161,929 | 377,716 | (704 | ) | (5,587 | ) | (39,430 | ) | 494,295 | |||||||||||||||||||||
- | ||||||||||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | (8,874 | ) | - | - | (8,874 | ) | ||||||||||||||||||||||
Net income (loss) attributable to controlling interest | - | - | - | (57,054 | ) | - | - | - | (57,054 | ) | ||||||||||||||||||||||
Equity-based compensation expense related to employees (2) | - | - | 1,502 | - | - | - | - | 1,502 | ||||||||||||||||||||||||
Adjustment to redemption value of the non-controlling interest | - | - | - | (198 | ) | - | - | - | (198 | ) | ||||||||||||||||||||||
Dividend paid | - | - | - | (8,625 | ) | - | - | - | (8,625 | ) | ||||||||||||||||||||||
Cashless exercise of options and RSUs | 34,233 | (* | ) | (* | ) | - | - | - | - | - | ||||||||||||||||||||||
Balance as of December 31, 2022 | 34,507,303 | 371 | 163,431 | 311,839 | (9,578 | ) | (5,587 | ) | (39,430 | ) | 421,046 |
(1) | Accumulated other comprehensive income (loss), net, comprised of foreign currency translation, hedging transactions and marketable securities. |
(2) | See also Note 13. |
(*) | Less than $1. |
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income (loss) | $ | (56,366 | ) | $ | 17,889 | $ | 7,622 | |||||
Adjustments required to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 36,344 | 35,407 | 29,460 | |||||||||
Share-based compensation expense | 1,502 | 1,846 | 2,858 | |||||||||
Accrued severance pay, net | (58 | ) | 121 | (14 | ) | |||||||
Changes in deferred tax, net | (5,693 | ) | (4,473 | ) | (895 | ) | ||||||
Capital loss (gain) from sale of property, plant and equipment | 67 | (3 | ) | 340 | ||||||||
Decrease (increase) in trade receivables | 2,612 | 815 | 6,070 | |||||||||
Decrease (increase) in other accounts receivable and prepaid expenses | 3,645 | (9,036 | ) | 9,318 | ||||||||
Decrease (increase) in inventories | (40,884 | ) | (54,189 | ) | 313 | |||||||
Increase (decrease) in trade payables | (21,032 | ) | 28,277 | (17,938 | ) | |||||||
Increase (decrease) in warranty provision | (119 | ) | 112 | (371 | ) | |||||||
Legal settlements and loss contingencies, net | 568 | 3,283 | 6,319 | |||||||||
Decrease (increase) in right of use assets | 28,056 | 25,906 | (12,154 | ) | ||||||||
Changes in lease liabilities | (36,478 | ) | (22,085 | ) | 16,126 | |||||||
Contingent consideration related to acquisition | 120 | (288 | ) | - | ||||||||
Amortization of premium and accretion of discount on marketable securities, net | 238 | 412 | 161 | |||||||||
Changes in accrued interest related to marketable securities | 74 | 42 | (1 | ) | ||||||||
Goodwill and long-lived assets impairment chargesd | 71,258 | - | - | |||||||||
Increase (decrease) in accrued expenses and other liabilities including related party | (7,165 | ) | (3,352 | ) | 404 | |||||||
Net cash (used in) provided by operating activities | (23,311 | ) | 20,684 | 47,618 | ||||||||
Cash flows from investing activities: | ||||||||||||
Net cash paid for acquisitions | (2,245 | ) | - | (28,962 | ) | |||||||
Purchase of property, plant and equipment | (17,801 | ) | (31,477 | ) | (19,824 | ) | ||||||
Proceeds from sale of property, plant and equipment | 12 | 9 | 13 | |||||||||
Repayment of assumed shareholders loan related to acquisition | - | (1,966 | ) | - | ||||||||
Investment in marketable securities | - | (11,738 | ) | (24,456 | ) | |||||||
Sales and maturity of marketable securities | 12,401 | 10,395 | 5,271 | |||||||||
Proceeds from (investment in) long-term deposits | 348 | (108 | ) | (347 | ) | |||||||
Net cash used in investing activities | (7,285 | ) | (34,885 | ) | (68,305 | ) |
CAESARSTONE LTD. AND ITS SUBSIDIARIES
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Cash flows from financing activities: | ||||||||||||
Dividend paid | $ | (8,625 | ) | $ | (10,681 | ) | $ | (4,821 | ) | |||
Assuming (repayment) of short-term bank credit and loans, net | 18,640 | (11,761 | ) | (18 | ) | |||||||
Contingent consideration related to acquisition | - | (1,492 | ) | - | ||||||||
Repayment of a financing liability of land | (859 | ) | (1,320 | ) | (1,245 | ) | ||||||
Net cash used in financing activities | 9,156 | (25,254 | ) | (6,084 | ) | |||||||
Effect of exchange rate differences on cash and cash equivalents | (794 | ) | (478 | ) | 1,647 | |||||||
Increase (decrease) in cash and cash equivalents | (22,234 | ) | (39,933 | ) | (25,124 | ) | ||||||
Cash and cash equivalents at beginning of year | 74,315 | 114,248 | 139,372 | |||||||||
Cash and cash equivalents at end of year | $ | 52,081 | $ | 74,315 | $ | 114,248 | ||||||
Cash received (paid) during the year for: | ||||||||||||
Interest paid | $ | (1,159 | ) | $ | (1,915 | ) | $ | - | ||||
Interest received | $ | 439 | $ | 465 | $ | 460 | ||||||
Tax paid | $ | (4,968 | ) | $ | (7,377 | ) | $ | (3,676 | ) | |||
Non cash activity during the year for: | ||||||||||||
Changes in trade payables balances related to purchase of property, plant and equipment | $ | (925 | ) | $ | (56 | ) | $ | (356 | ) | |||
Operating lease liabilities and right-of-use assets | $ | 18,569 | $ | 57,343 | $ | 60,750 |
NOTE 1:- | GENERAL |
a. | General: |
b. | Acquisition of Lioli Ceramica Pvt Ltd: |
c. | Acquisition of Omicron Supplies, LLC: |
F - 13
U.S. dollars in thousands (except share data)
NOTE 1:- | GENERAL (Cont.) |
d. | Acquisition of Magrab Naturtsen AB: |
Components of Purchase Price: | ||||
Cash | $ | 2,607 | ||
Contingent consideration | 875 | |||
Less: Cash acquired | 373 | |||
Net for allocation | 3,109 | |||
Allocation of Purchase Price: | ||||
Net tangible assets (liabilities): | ||||
Trade receivables and other current assets, net | 524 | |||
Property, plant and equipment, net | 41 | |||
Inventories, net | 1,233 | |||
ROU assets | 446 | |||
Trade payables | (523 | ) | ||
Accrued expenses and other liabilities | (378 | ) | ||
Short-term lease liability | (22 | ) | ||
Long-term lease and other non-current liabilities | (424 | ) | ||
Total net tangible assets | 897 | |||
Identifiable intangible assets: | ||||
Customer relationships (1) | 1,789 | |||
Deferred tax liabilities | (369 | ) | ||
Total identifiable intangible assets acquired | 1,420 | |||
Goodwill (2) | 792 | |||
Total purchase price allocation | $ | 3,109 |
F - 14
U.S. dollars in thousands (except share data)
NOTE 1:- | GENERAL (Cont.) |
(1) | Customer relationships represent the underlying relationships and agreements with Magrab's customer base. In assessing the value of the Customer Relationships, the Company used an income approach method. The Customer Relationships’ economic useful life is estimated at approximately 8 years, amortized using the straight-line method. |
(2) | The goodwill is primarily attributable to expected synergies resulting from the acquisition. |
e. | Major suppliers: |
F - 15
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").
a. | Use of estimates: |
b. | Financial statements in U.S. dollars: |
Accordingly, monetary accounts maintained in currencies other than the USD are re-measured into dollars in accordance with Accounting Standards Codification ("ASC") 830, "Foreign Currency Matters" (“ASC 830”). All transaction gains and losses resulting from the re-measurement of monetary balance sheet items denominated in non-USD currencies are reflected in the statements of operations as financial income or expenses as appropriate.
The financial statements of the Company’s subsidiaries of which the functional currency is not the USD have been translated into the USD. All amounts on the balance sheets have been translated into the USD using the exchange rates in effect on the relevant balance sheet dates. All amounts in the statements of income have been translated into the USD using the monthly average exchange rate in accordance with ASC 830. The resulting translation adjustments are reported as a component of accumulated other comprehensive income (loss), net in shareholders' equity.
F - 16
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
c. | Principles of consolidation: |
d. | Cash equivalents: |
e. | Short-term bank deposits: |
f. | Marketable securities: |
The Company classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable securities with maturities of 12 months or less are classified as short-term and marketable securities with maturities greater than 12 months are classified as long-term.
The Company assessed AFS debt securities with an amortized cost basis in excess of estimated fair value to determine what amount of that difference, if any, is caused by expected credit losses in accordance with ASC 326. Allowance for credit losses on AFS debt securities are recognized as a charge of credit loss expenses (income), net, on the consolidated statements of comprehensive income, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive income (loss) in stockholders' equity. The Company did not record credit loss allowance on its marketable securities during the year ended December 31, 2022 and 2021.
F - 17
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
g. | Derivatives: |
F - 18
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The following tables present fair value amounts of, and gains and losses recorded in relation to, the Company's derivative instruments and related hedged items:
|
| Balance sheet |
| Fair value of |
| |||||
|
|
|
| Year ended December 31, |
| |||||
|
|
|
| 2022 |
|
| 2021 |
| ||
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: | ||||||||||
Foreign exchange option and forward contracts | Other accounts receivable and prepaid expenses | 39 | 1,400 | |||||||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange option and forward contracts |
| Other accounts receivable and prepaid expenses |
|
| 333 |
|
|
| 297 |
|
Styrene forward contract | Other accounts receivable and prepaid expenses | - | 204 | |||||||
Total |
|
|
|
| 371 |
|
|
| 1,901 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange option and forward contracts | Accrued expenses and other liabilities | (450 | ) | - | ||||||
Derivatives not designated as hedging instruments: | ||||||||||
Foreign exchange option and forward contracts |
| Accrued expenses and other liabilities |
|
| (62 | ) |
|
| (329 | ) |
Styrene forward contract |
| Accrued expenses and other liabilities |
|
| (430 | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
| (942 | ) |
|
| (329 | ) |
F - 19
U.S. dollars in thousands (except share data)
The following tables present fair value amounts of, and gains and losses recorded in relation to, the Company's derivative instruments and related hedged items:
|
| Gain (loss) recognized in other comprehensive | Gain (loss) recognized in statements of income |
| |||||||||||||
|
| Year ended December 31, | Statements of income | Year ended |
| ||||||||||||
|
| 2022 |
|
| 2021 | Item | 2022 |
|
| 2021 |
| ||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign exchange forward contract |
|
| (709 | ) |
|
| 297 | Cost of revenues and Operating expenses |
| (2,555 | ) |
|
| (68 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Foreign exchange forward and options contracts |
|
| - |
|
|
| - | Financial expenses, net |
| 1,506 |
|
|
| 2,135 |
| ||
Styrene forward contracts |
|
| - |
|
|
| - | Financial expenses, net |
| 520 |
|
|
| 2,192 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Total |
|
| (709 | ) |
|
| 297 |
|
| (529 | ) |
|
| 4,259 |
|
h. | Inventories: |
F - 20
U.S. dollars in thousands (except share data)
h. | Inventories (cont.): |
The following table provides the details of the change in the Company's provision for inventory write-downs:
|
| December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
|
| |
Inventory provision, beginning of year |
| $ | 16,789 |
|
| $ | 16,607 |
|
Increase in inventory provision |
|
| 11,165 |
|
|
| 7,671 |
|
Write off |
|
| (6,216 | ) |
|
| (7,489 | ) |
|
|
|
|
|
|
|
|
|
Inventory provision, end of year |
| $ | 21,738 |
|
| $ | 16,789 |
|
i. | Property, plant and equipment, net: |
1. | Property, plant and equipment are stated at cost, net of accumulated depreciation and investment grants. |
2. | Costs recorded prior to a production line completion are reflected as construction in progress, which are recorded building and machinery assets at the date of purchase. Construction in progress includes direct expenditures for the construction of the production line and is stated at cost. Capitalized costs include costs incurred under the construction contract: advisory, consulting and direct internal costs (including labor) and operating costs incurred during the construction and installation phase. |
3. | Depreciation is calculated using the straight-line method over the estimated useful life of the assets at the following annual rates: |
| % |
|
|
Machinery and manufacturing equipment | 4 - 33 (mainly 10) |
Office equipment and furniture | 7 - 33 (mainly 7) |
Motor vehicles | 10 - 30 (mainly 20) |
Buildings | 4 - 5 |
Leasehold improvements | Over the shorter of the term of the lease or the life of the asset |
F - 21
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
j. | Leases: |
k. | Impairment of long-lived assets: |
F - 22
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
l. | Goodwill: |
(1) | An initial qualitative assessment may be performed to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. |
(2) | If the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying amount, a quantitative fair value test is performed. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value is recognized. |
F - 23
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
m. | Warranty: |
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
|
| |
January 1, |
| $ | 2,680 |
|
| $ | 2,579 |
|
|
|
|
|
|
|
|
|
|
Charged to costs and expenses relating to new sales |
|
| 1,461 |
|
|
| 1,559 |
|
Costs of product warranty claims |
|
| (1,923 | ) |
|
| (1,538 | ) |
Foreign currency translation adjustments |
|
| 283 |
|
|
| 80 |
|
|
|
|
|
|
|
|
|
|
December 31, |
| $ | 2,501 |
|
| $ | 2,680 |
|
n. | Revenue recognition: |
F - 24
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
3. Determine the transaction price:
o. | Research and development costs: |
p. | Income taxes: |
F - 25
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
p. | Income taxes (cont.): |
The Company accounts for its uncertain tax positions in accordance with ASC 740-10. ASC 740-10 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company classifies interest and penalties on income taxes as taxes on income.
q. | Advertising expenses: |
r. | Concentrations of credit risk: |
F - 26
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The following table provides the detail of the change in the Company's allowance for credit loss:
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
|
| |
January 1, |
| $ | 9,036 |
|
| $ | 6,783 |
|
|
|
|
|
|
|
|
|
|
Charges to expenses |
|
| 2,141 |
|
|
| 2,437 |
|
Write offs |
|
| (1,144 | ) |
|
| (121 | ) |
Foreign currency translation adjustments |
|
| (277 | ) |
|
| (63 | ) |
|
|
|
|
|
|
|
|
|
December 31, |
| $ | 9,756 |
|
| $ | 9,036 |
|
s. | Severance pay: |
F - 27
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
t. | Fair value of financial instruments: |
|
| Fair Value |
| Fair value measurements as of December 31, |
| |||||
Description |
| Hierarchy |
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
|
|
| ||
Measured at fair value on a recurring basis: |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| ||
Assets: |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| ||
Cash equivalents: |
|
|
|
|
|
|
|
| ||
Money market mutual funds |
| Level 1 |
| $ | 27 |
|
| $ | 175 |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term marketable securities: |
|
| �� |
|
|
|
|
|
|
|
Corporate bonds |
| Level 2 |
| $ | 7,077 |
|
| $ | 10,751 |
|
Governmental bonds |
| Level 2 |
| $ | - |
|
| $ | 477 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets |
| Level 2 |
| $ | 371 |
|
| $ | 1,901 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term marketable securities: |
|
|
|
|
|
|
|
|
| |
Corporate bonds |
| Level 2 |
| $ | - |
|
| $ | 8,647 |
|
Governmental bonds |
| Level 2 |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Consideration |
| Level 2 |
| $ | 995 |
|
| $ | - |
|
Derivative liabilities |
| Level 2 |
| $ | (942 | ) |
| $ | (329 | ) |
Redeemable Non-Controlling Interest | Level 3 | $ | 7,903 | $ | 7,869 |
F - 28
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
t. Fair value of financial instruments: (cont.)
Measured at fair value on a nonrecurring basis:
(a) As of December 31, 2022, in accordance with Subtopic 360-10, long-lived assets held and used were written down to their fair value, resulting in an impairment charge of $26,429, related to Property Plant and Equipment included in Sdot Yam facility production, which was included in the consolidated statements of income for the period. As of December 31, 2021, there were no indicators for fair value measurement of the long-lived assets held or used.
(b) As of December 31, 2022, in accordance with Subtopic 350-20, goodwill was written down in an impairment charge of $44,829, which was included in the consolidated statements of income for the period. As of December 31, 2021, no impairment was identified.
The carrying amounts of financial instruments not measured at fair value, including cash and cash equivalents, trade receivables, other accounts receivables, trade payables, accrued expenses and other liabilities, short term loans and short term bank credit, approximate their fair value due to the short-term maturities of such instruments.
u. | Basic and diluted net income (loss) per share: |
F - 29
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
v. | Comprehensive income and accumulated other comprehensive income (loss): |
|
| December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
|
| |
Accumulated loss on marketable securities |
| $ | (125 | ) |
| $ | (40 | ) |
Accumulated income (loss) on derivative instruments | (412 | ) | 297 | |||||
Accumulated foreign currency translation differences and other |
|
| (9,041 | ) |
|
| (961 | ) |
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss, net |
| $ | (9,578 | ) |
| $ | (704 | ) |
F - 30
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The following table summarizes the changes in AOCI, net of taxes for the year ended:
|
| Unrealized gains (losses) on derivative instruments |
|
| Unrealized gains (losses) on marketable securities |
|
| Accumulated foreign currency translation differences and other |
|
| Total |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Balance at January 1, 2021 |
|
| - |
|
|
| 13 |
|
|
| 1,070 |
|
|
| 1,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
| 229 |
|
|
| (53 | ) |
|
| (2,031 | ) |
|
| (1,855 | ) |
Amounts reclassified from AOCI |
|
| 68 |
|
|
| - |
|
|
| - |
|
|
| 68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period OCI |
|
| 297 |
|
|
| (53 | ) |
|
| (2,031 | ) |
|
| (1,787 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2021 |
|
| 297 |
|
|
| (40 | ) |
|
| (961 | ) |
|
| (704 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
| (3,264 | ) |
|
| (85 | ) |
|
| (8,080 | ) |
|
| (11,429 | ) |
Amounts reclassified from AOCI |
|
| 2,555 |
|
|
| - |
|
|
| - |
|
|
| 2,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period OCI |
|
| (709 | ) |
|
| (85 | ) |
|
| (8,080 | ) |
|
| (8,874 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2022 |
|
| (412 | ) |
|
| (125 | ) |
|
| (9,041 | ) |
|
| (9,578 | ) |
The following table shows the amounts reclassified from AOCI into the Consolidated Statements of Income, and the associated financial statement line item, for 2022 and 2021:
|
| December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Affected line item in the consolidated statements of income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
| $ | 1,921 |
|
| $ | 52 |
|
Research and development |
|
| 68 |
|
|
| 2 |
|
Marketing and selling |
|
| 249 |
|
|
| 6 |
|
General and administrative |
|
| 317 |
|
|
| 8 |
|
|
|
|
|
|
|
|
|
|
Total loss |
| $ | 2,555 |
|
| $ | 68 |
|
F - 31
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.):
w. | Accounting for stock-based compensation: |
|
| December 31, | ||||
|
| 2022 |
|
| 2021 | |
|
|
|
|
|
| |
Dividend yield |
| 0 - 3% |
| 0 - 3% | ||
Expected volatility |
| 40-45.0% |
| 45-48.0% | ||
Risk-free interest rate |
| 1-4.3% |
| 1-1.5% | ||
Expected life (in years) |
| 4-5.5 |
|
| 4-5.5 |
The Company used volatility data in accordance with ASC 718 and based on Company's historical data.
The computation of risk free interest rate is based on the rate available on the date of grant of a zero-coupon U.S. government bond with a remaining term equal to the expected term of the option.
F - 32
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The expected term of options granted is calculated using the simplified method (being the average between the vesting periods and the contractual life of the options).
For the vast majority of the options granted in 2022 and 2021, the dividend yield is zero, due to adjustment mechanism with respect to the exercise price upon payment of a dividend. For those options granted without adjustment mechanism, the dividend yield applied is 3%.
x. | Redeemable non-controlling interest: |
Year ended December 31, | ||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
|
|
|
|
|
|
|
|
|
|
| ||
Beginning of the year |
| $ | 7,869 |
|
| $ | 7,701 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assuming the non controlling interest due to acquisition |
|
| - |
|
|
| - |
|
|
| 7,269 |
|
Net income (loss) attributable to non-controlling interest |
|
| 688 |
|
|
| (1,077 | ) |
|
| 404 |
|
Adjustment to Put option value (*) |
|
| 198 |
|
|
| 1,399 |
|
|
| - |
|
Foreign currency translation adjustments |
|
| (852 | ) |
|
| (154 | ) |
|
| 28 |
|
Redeemable non-controlling interest - end of the year |
| $ | 7,903 |
|
| $ | 7,869 |
|
| $ | 7,701 |
|
(*) | See also Note 1b. |
F - 33
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
y. | Contingencies: |
z. | Business combination: |
F - 34
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
aa. | Impact of recently issued accounting standards: |
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606). This guidance is effective for fiscal years beginning after 15 December 2022 and interim periods within those fiscal years. Early adoption is permitted. |
The following is a summary of available-for-sale marketable securities at December 31, 2022:
Amortized cost | Gross unrealized gains | Gross unrealized losses | Accrued Interest | Fair value | ||||||||||||||||
Available-for-sale – matures within one year: | ||||||||||||||||||||
Corporate bonds | $ | 7,164 | $ | - | $ | 126 | $ | 39 | $ | 7,077 | ||||||||||
Total | $ | 7,164 | $ | - | $ | 126 | $ | 39 | $ | 7,077 |
F - 35
U.S. dollars in thousands (except share data)
NOTE 3: MARKETABLE SECURITIES (Cont.)
The following is a summary of available-for-sale marketable securities at December 31, 2021:
Amortized cost | Gross unrealized gains | Gross unrealized losses | Accrued Interest | Fair value | ||||||||||||||||
Available-for-sale – matures within one year: | ||||||||||||||||||||
Corporate bonds | $ | 10,688 | $ | 2 | $ | 4 | $ | 65 | $ | 10,751 | ||||||||||
Governmental bonds | 472 | - | - | 5 | 477 | |||||||||||||||
Total | $ | 11,160 | $ | 2 | $ | 4 | $ | 70 | $ | 11,228 | ||||||||||
Available for-sale – matures after one year: | ||||||||||||||||||||
Corporate bonds | $ | 8,642 | $ | - | $ | 38 | $ | 43 | $ | 8,647 | ||||||||||
Governmental bonds | - | - | - | - | - | |||||||||||||||
Total | $ | 8,642 | $ | - | $ | 38 | $ | 43 | $ | 8,647 | ||||||||||
Total | $ | 19,802 | $ | 2 | $ | 42 | $ | 113 | $ | 19,875 |
As of December 31, 2022 and 2021 the Company didn’t record an allowance for credit losses for its AFS marketable debt securities.
NOTE 4:- | OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES |
December 31, | ||||||||
2022 | 2021 | |||||||
Prepaid expenses | $ | 6,313 | $ | 5,882 | ||||
Government authorities | 13,005 | 14,289 | ||||||
Advances to suppliers | 3,439 | 5,541 | ||||||
Derivatives | 371 | 1,901 | ||||||
Other receivables (*) | 9,442 | 7,830 | ||||||
$ | 32,570 | $ | 35,443 |
NOTE 5:- | INVENTORIES |
December 31, | ||||||||
2022 | 2021 | |||||||
Raw materials | $ | 32,443 | $ | 35,896 | ||||
Work-in-progress | 4,058 | 2,948 | ||||||
Finished goods | 201,731 | 165,881 | ||||||
$ | 238,232 | $ | 204,725 |
F - 36
U.S. dollars in thousands (except share data)
NOTE 6:- | PROPERTY, PLANT AND EQUIPMENT, NET |
December 31, | ||||||||
2022 | 2021 | |||||||
Cost: | ||||||||
Machinery and manufacturing equipment, net (1) | $ | 334,156 | $ | 325,188 | ||||
Office equipment and furniture | 36,079 | 32,362 | ||||||
Motor vehicles | 5,139 | 5,150 | ||||||
Buildings and leasehold improvements | 129,679 | 142,868 | ||||||
Prepaid expenses related to operating lease (2) | 939 | 939 | ||||||
505,992 | 506,507 | |||||||
Accumulated depreciation and impairment: | ||||||||
Machinery and manufacturing equipment, net | 230,063 | 207,365 | ||||||
Office equipment and furniture | 24,491 | 21,278 | ||||||
Motor vehicles | 3,832 | 3,664 | ||||||
Buildings and leasehold improvements | 51,722 | 52,896 | ||||||
Prepaid expenses related to operating lease | 163 | 154 | ||||||
Impairment of fixed assets (3) | 26,429 | - | ||||||
336,700 | 285,357 | |||||||
Depreciated cost | $ | 169,292 | $ | 221,150 |
(1) | Presented net of investment grants received in the total amount of $7,693. |
(2) | Until 2012, the Company leased land from the Israel Lands Administration ("ILA") for its Bar-Lev manufacturing facility. The lease term started on February 6, 2005. The lease is for an initial non-cancellable term of 49 years, with a renewal option of an additional 49 years. |
(3) | Non cash pre-tax impairment charges (see also Note 2k). |
F - 37
U.S. dollars in thousands (except share data)
NOTE 7:- | GOODWILL AND INTANGIBLES |
Balance as of January 1, 2021 | $ | 47,472 | ||
Foreign currency translation adjustments | (1,672 | ) | ||
Balance as of December 31, 2021 | 45,800 | |||
Acquired through business combination (*) | 792 | |||
Goodwill Impairment (**) | (44,829 | ) | ||
Foreign currency translation adjustments | (1,763 | ) | ||
Balance as of December 31, 2022 | $ | - |
December 31, | ||||||||
2022 | 2021 | |||||||
Original amounts: | ||||||||
Customer relationships (*) | $ | 13,983 | $ | 12,193 | ||||
Accumulated amortization: | ||||||||
Customer relationships | (5,067 | ) | (2,537 | ) | ||||
Foreign currency translation adjustment | (99 | ) | (29 | ) | ||||
Total intangibles assets | $ | 8,817 | $ | 9,627 |
(*) | In 2022, includes $1,789 Acquired through business combination of Magrab. |
(1) | Amortization expense amounted to $2,531 and $2,435 for the years ended December 31, 2022 and 2021, respectively. |
(2) | Estimated amortization expenses for the following years as of December 31, 2022: |
2023 | $ | 2,662 | ||
2024 | 2,662 | |||
2025 | 2,427 | |||
2026 | 224 | |||
2027 and on | 842 | |||
$ | 8,817 |
F - 38
U.S. dollars in thousands (except share data)
NOTE 8:- | SHORT-TERM BANK CREDIT AND CURRENT MATURITIES OF LONG-TERM LOAN |
Weighted average interest | |||||||||||||||||
December 31, | December 31, | ||||||||||||||||
Currency | 2022 | 2021 | 2022 | 2021 | |||||||||||||
% | |||||||||||||||||
Short-term bank credit (*) | USD | 6.3 | - | $ | 21,183 | $ | - | ||||||||||
Short-term bank credit (**) | INR | 7.6 | 11.4 | $ | 2,674 | $ | 3,034 | ||||||||||
Current maturities of Long- term bank loan and other (**) | INR | 7.6 | 11.4 | $ | 2,278 | $ | 9,489 | ||||||||||
Total | $ | 26,135 | $ | 12,523 |
(**) Credit line and bank loan in Lioli - As of December 31, 2021 Lioli’s bank loan was presented as short term loan since it was not in compliance with the covenants under its loan agreement . During 2022, Lioli engaged with a new bank and signed a new loan agreement. The new loan agreement with the bank includes customary covenants. The financial covenants under the new agreement requires Lioli to maintain 700 million INR of own capital contribution. The new loan Agreement also includes certain customary negative covenants that require Lioli to refrain from certain actions unless bank’s consent obtained. As of December 31, 2022 Lioli is in compliance with the covenants under its new loan agreement, and therefore the Company presented such loan amount in current maturitites and long term loan based on loan repayment schedule. (see also Note 15). |
NOTE 9:- | ACCRUED EXPENSES AND OTHER LIABILITIES |
December 31, | ||||||||
2022 | 2021 | |||||||
Employees and payroll accruals | $ | 13,029 | $ | 17,676 | ||||
Accrued expenses | 12,003 | 10,508 | ||||||
Advances from customers | 1,998 | 2,690 | ||||||
Taxes payable | 4,892 | 6,013 | ||||||
Warranty provision | 1,239 | 1,400 | ||||||
Derivatives | 942 | 329 | ||||||
Sales return provision | 604 | 2,315 | ||||||
Operating lease liability short-term | 22,741 | 22,772 | ||||||
Contingent consideration liability and other | 1,329 | 831 | ||||||
$ | 58,777 | $ | 64,534 |
F - 39
U.S. dollars in thousands (except share data)
NOTE 10:- | LEASES |
a. | The following table summarizes the Company’s lease-related assets and liabilities recorded on the consolidated balance sheet: |
Classification | December 31, | December 31, | |||||||
Assets: | |||||||||
Operating lease assets | Operating lease right-of-use assets | $ | 144,098 | $ | 154,652 | ||||
Total lease assets | $ | 144,098 | $ | 154,652 | |||||
Liabilities: | |||||||||
Current lease liabilities | Accrued expenses and other liabilities | 22,741 | 22,772 | ||||||
Long-term lease liabilities | Long-term operating lease liabilities | 124,353 | 143,324 | ||||||
Total lease liabilities | $ | 147,094 | $ | 166,096 |
December 31, 2022 | December 31, 2021 | ||
Weighted-average remaining lease term — operating leases | 7.92 years | 8.82 years | |
Weighted-average discount rate — operating leases | 2.47% | 2.12% |
F - 40
U.S. dollars in thousands (except share data)
NOTE 10:- LEASES (CONT.)
b. | The components of operating lease cost for the year ended December 31, 2022 were as follows: |
December 31, 2022 | December 31, 2021 | |||||||
Operating lease cost: | ||||||||
Operating lease expense | $ | 27,583 | $ | 25,083 | ||||
Variable lease expense | 1,940 | 2,985 | ||||||
Short-term lease expense | 183 | 20 | ||||||
Sublease income | (999 | ) | (819 | ) | ||||
Total operating lease cost | $ | 28,707 | $ | 27,269 |
c. | The maturity of the Company’s operating lease liabilities for contracts with lease term greater than one year as of December 31, 2022 are as follows: |
December 31, | ||||
2023 | $ | 25,561 | ||
2024 | 23,111 | |||
2025 | 20,285 | |||
2026 | 18,826 | |||
2027 | 16,048 | |||
2028 and thereafter | 57,237 | |||
Total future lease payments (1) | 161,068 | |||
Less imputed interest | (13,974 | ) | ||
Total | $ | 147,094 |
(1) | Total lease payments have not been reduced by sublease rental payments of approximately $496 due in the future under non-cancelable subleases. |
d. | For additional information regarding lease transactions between related parties, refer to Note 14. |
F - 41
U.S. dollars in thousands (except share data)
NOTE 10:- LEASES (CONT.)
e. | The following table presents supplemental cash flow information related to the lease costs for operating leases: |
December 31, 2022 | December 31, 2021 | |||||||
Cash paid for amounts included in measurement of lease liabilities: | ||||||||
Operating cash flows for operating leases | $ | 26,003 | $ | 24,051 | ||||
Right-of-use assets obtained in exchange for new operating lease liabilities: | ||||||||
Operating leases | $ | 18,569 | $ | 57,342 |
NOTE 11:- | COMMITMENTS AND CONTINGENT LIABILITIES |
a. | Legal proceedings and contingencies: |
F - 42
U.S. dollars in thousands (except share data)
NOTE 11:- | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.) |
F - 43
U.S. dollars in thousands (except share data)
NOTE 11:- | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.) |
F - 44
U.S. dollars in thousands (except share data)
NOTE 11:- | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.) |
A summary of bodily injury claims for which the Company provided provision is as follows:
|
| Year ended December 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Outstanding claims, January 1, |
|
| 203 |
|
|
| 173 |
|
|
| 156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New claims |
|
| 87 |
|
|
| 73 |
|
|
| 38 |
|
Settled and dismissed claims |
|
| (69 | ) |
|
| (43 | ) |
|
| (21 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding claims, December 31 (*) |
|
| 221 |
|
|
| 203 |
|
|
| 173 |
|
(*) As of December 31, 2022, not including 8 pending claims filed against the Company in the United States which are at an early stage.
F - 45
U.S. dollars in thousands (except share data)
NOTE 11:- | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.) |
b. | Purchase obligation: |
c. | Pledges and guarantees: |
1. | As of December 31, 2022, the Company had outstanding guarantees and letters of credit with various expiration dates in a principal amount of approximately $13,293 related to facilities, machinery and equipment, and other miscellaneous guarantees. |
2. | See also note 15. |
F - 46
U.S. dollars in thousands (except share data)
NOTE 12:- | TAXES ON INCOME |
a. | Israeli taxation: |
1. | Corporate tax rate: |
2. | Foreign Exchange Regulations: |
3. | Tax benefits under Israel's Law for the Encouragement of Industry (Taxes), 1969: |
4. | Tax benefits under the Law for the Encouragement of Capital Investments, 1959: |
F - 47
U.S. dollars in thousands (except share data)
NOTE 12:- | TAXES ON INCOME (Cont.)
|
1. | Its main field of activity is biotechnology or nanotechnology as approved by the Head of the Administration of Industrial Research and Development. |
2. | The industrial enterprise's sales revenues in a specific market during the tax year do not exceed 75% of its total sales for that tax year. A "market" is defined as a separate country or customs territory. |
3. | At least 25% of the industrial enterprise's overall revenues during the tax year were generated from the enterprise's sales in a specific market with a population of at least 14 million starting from 2012 tax year. |
F - 48
U.S. dollars in thousands (except share data)
NOTE 12:- | TAXES ON INCOME (Cont.)
|
F - 49
U.S. dollars in thousands (except share data)
NOTE 12:- | TAXES ON INCOME (Cont.)
|
The Company did not apply to such order.
b. | Non-Israeli subsidiaries taxation: |
F - 50
U.S. dollars in thousands (except share data)
NOTE 12:- | TAXES ON INCOME (Cont.)
|
c. | Deferred income taxes: |
|
| December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and Intangible assets |
| $ | 253 |
|
| $ | 291 |
|
Other temporary differences (1) |
|
| 10,763 |
|
|
| 13,307 |
|
Temporary differences related to inventory (2) |
|
| 8,150 |
|
|
| 6,909 |
|
Carryforward losses, deductions and credits (3) |
|
| 4,569 |
|
|
| 1,584 |
|
Less-valuation allowance |
|
| (1,796 | ) |
|
| (717 | ) |
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
| 21,939 |
|
|
| 21,374 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment |
|
| (5,846 | ) |
|
| (10,507 | ) |
Intangible Assets |
|
| (1,687 | ) |
|
| (2,006 | ) |
Other temporary differences |
|
| (2,443 | ) |
|
| (2,973 | ) |
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
| (9,976 | ) |
|
| (15,486 | ) |
|
|
|
|
|
|
|
|
|
Deferred tax assets, net |
| $ | 11,963 |
|
| $ | 5,888 |
|
(1) | Deriving mainly from provision for labor related, provision for loss contingencies and lease accounting in accordance with ASC842. |
(2) | Deriving mainly from the provision for slow moving inventory and IRS section 263(a). |
(3) | Certain subsidiaries have tax loss carry-forwards totaling approximately $30,964 which can be carried forward and offset against taxable income, these carry-forward tax losses have no expiration date. In addition to the above, the Company carried back its 2020 U.S. subsidiaries losses in accordance with the CARES act. |
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the schedule of reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
F - 51
U.S. dollars in thousands (except share data)
NOTE 12:- | TAXES ON INCOME (Cont.)
|
d. | A reconciliation of the Company's effective tax rate to the statutory tax rate in Israel is as follows: |
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Income (loss) before taxes on income | $ | (55,608 | ) | $ | 19,839 | $ | 12,322 | |||||
Statutory tax rate in Israel | 23 | % | 23 | % | 23 | % | ||||||
Income (loss) taxes at statutory rate | $ | (12,790 | ) | $ | 4,563 | $ | 2,834 | |||||
Increase (decrease) in tax expenses resulting from: | ||||||||||||
Tax benefit arising from reduced rate as an "Preferred Enterprise" | 2,622 | (1,245 | ) | (120 | ) | |||||||
Non-deductible expenses, net | 10,745 | 1,039 | 1,764 | |||||||||
Decrease in taxes from prior years, also related to settlement with tax authorities | (735 | ) | (1,502 | ) | (868 | ) | ||||||
Tax adjustment in respect of foreign subsidiaries' different tax rates | (239 | ) | (650 | ) | (251 | ) | ||||||
Uncertain tax position | - | 110 | 1,659 | |||||||||
Changes in valuation allowance | 1,079 | (385 | ) | (280 | ) | |||||||
Others | 76 | 20 | (38 | ) | ||||||||
Income tax expense | $ | 758 | $ | 1,950 | $ | 4,700 | ||||||
Effective tax rate | (1 | )% | 10 | % | 38 | % | ||||||
Per share amounts (basic and diluted) of the tax benefit resulting from an "Preferred Enterprise" | $ | 0.12 | $ | (0.04 | ) | $ | (0.00 | ) |
F - 52
U.S. dollars in thousands (except share data)
NOTE 12:- | TAXES ON INCOME (Cont.)
|
e. | Income (loss) before taxes on income is comprised as follows: |
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Domestic | $ | (18,671 | ) | $ | 19,539 | $ | 12,859 | |||||
Foreign | (36,937 | ) | 300 | (537 | ) | |||||||
$ | (55,608 | ) | $ | 19,839 | $ | 12,322 |
f. | Tax expenses on income are comprised as follows: |
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Current taxes | $ | 6,832 | $ | 6,423 | $ | 5,597 | ||||||
Deferred taxes | (6,074 | ) | (4,473 | ) | (897 | ) | ||||||
$ | 758 | $ | 1,950 | $ | 4,700 | |||||||
Domestic | $ | 436 | $ | 1,190 | $ | 3,886 | ||||||
Foreign | 322 | 760 | 814 | |||||||||
$ | 758 | $ | 1,950 | $ | 4,700 |
g. | Tax assessments: |
F - 53
U.S. dollars in thousands (except share data)
NOTE 12:- | TAXES ON INCOME (Cont.)
|
h. | Uncertain tax positions: |
Gross tax liabilities at January 1, 2020 | $ | 4,913 | ||
Increase in tax positions for current year | 1,659 | |||
Addition of tax position of prior years | 118 | |||
Decrease in tax position resulting from settlement | (3,027 | ) | ||
Gross tax liabilities at December 31, 2020 | 3,663 | |||
Increase in tax positions for current year | 110 | |||
Gross tax liabilities at December 31, 2021 | 3,773 | |||
Release of tax position of prior years | (882 | ) | ||
Gross tax liabilities at December 31, 2022 | $ | 2,891 |
F - 54
U.S. dollars in thousands (except share data)
NOTE 13:- | SHAREHOLDERS' EQUITY |
a. | The Company's share capital consisted of the following as of December 31, 2022 and 2021: |
Authorized | Outstanding | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Number of shares | ||||||||||||||||
Ordinary shares of NIS 0.04 par value each | $ | 200,000,000 | $ | 200,000,000 | $ | 34,507,303 | $ | 34,473,070 |
b. | Ordinary shares: |
c. | Dividends: |
F - 55
U.S. dollars in thousands (except share data)
NOTE 13:- | SHAREHOLDERS' EQUITY (Cont.)
|
d. | Compensation plan: |
As of December 31, 2022, there was $2,173 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted to employees and directors under the Plan. That cost is expected to be recognized over a weighted-average period of 2.8 years.
Number of options | Weighted average exercise price | Aggregate intrinsic value | ||||||||||
Outstanding - beginning of the year | 1,600,575 | 16.87 | 47 | |||||||||
Granted | 233,100 | 10.27 | ||||||||||
Exercised | - | - | ||||||||||
Forfeited | (287,525 | ) | 21.74 | |||||||||
Outstanding - end of the year | 1,546,150 | 14.58 | - | |||||||||
Options exercisable at the end of the year | 839,013 | 16.94 | - | |||||||||
Vested and expected to vest | 839,013 | 16.94 | - |
F - 56
U.S. dollars in thousands (except share data)
NOTE 13:- | SHAREHOLDERS' EQUITY (Cont.)
|
Number of RSUs | Weighted average fair value | Aggregate intrinsic value | ||||||||||
Outstanding - end of the year | 83,228 | 13.92 | 940 | |||||||||
Granted | 34,965 | 9.25 | ||||||||||
Exercised | (34,298 | ) | 14.79 | |||||||||
Forfeited | (9,008 | ) | 5.38 | |||||||||
Outstanding - end of the year | 74,887 | 12.17 | 428 | |||||||||
RSUs exercisable at the end of the year | - | - | - | |||||||||
Vested and expected to vest | 74,887 | 12.17 | 428 |
Awards outstanding | Awards exercisable | |||||||||||||||||||||||||
Exercise price | Number of options | Weighted average remaining contractual life (years) | Weighted average exercise price per share | Number of options | Weighted average remaining contractual life (years) | Weighted average exercise price | ||||||||||||||||||||
$ | 0.01 (RSUs) | 74,887 | 5.75 | $ | 0.01 | - | - | $ | - | |||||||||||||||||
$ | 6.9-9.5 | 200,100 | 6.49 | $ | 8.59 | 4,000 | 4.35 | $ | 9.48 | |||||||||||||||||
$ | 10.2-19.7 | 1,180,050 | 4.03 | $ | 13.59 | 669,013 | 3.41 | $ | 14.04 | |||||||||||||||||
$ | 20.3-30.2 | 128,000 | 1.59 | $ | 26.98 | 128,000 | 1.59 | $ | 26.98 | |||||||||||||||||
$ | 31.5-41.5 | 38,000 | 0.23 | $ | 34.95 | 38,000 | 0.23 | $ | 34.95 | |||||||||||||||||
1,621,037 | 839,013 |
F - 57
U.S. dollars in thousands (except share data)
NOTE 13:- | SHAREHOLDERS' EQUITY (Cont.)
|
December 31, | ||||||||
2022 | 2021 | |||||||
Cost of revenues | $ | 315 | $ | 321 | ||||
Research and development expenses | 69 | 89 | ||||||
Marketing and selling expenses | 201 | 269 | ||||||
General and administrative expenses | 917 | 1,167 | ||||||
Total | $ | 1,502 | $ | 1,846 |
NOTE 14:- | TRANSACTIONS WITH RELATED PARTIES AND OTHER LOAN |
a. | Manpower agreement with the Kibbutz: |
F - 58
U.S. dollars in thousands (except share data)
NOTE 14:- | TRANSACTIONS WITH RELATED PARTIES AND OTHER LOAN (Cont.) |
F - 59
U.S. dollars in thousands (except share data)
NOTE 14:- | TRANSACTIONS WITH RELATED PARTIES AND OTHER LOAN (Cont.) |
b. | Services from the Kibbutz: |
F - 60
U.S. dollars in thousands (except share data)
NOTE 14:- | TRANSACTIONS WITH RELATED PARTIES AND OTHER LOAN (Cont.) |
c. | Land Use Agreement with the Kibbutz: |
F - 61
U.S. dollars in thousands (except share data)
NOTE 14:- | TRANSACTIONS WITH RELATED PARTIES AND OTHER LOAN (Cont.) |
d. | Financing liability of land: |
The Company's payments pursuant to the land use agreement totaled $5,684, $5,305 and $4,690 for the years ended December 31, 2022, 2021 and 2020, respectively.
F - 62
U.S. dollars in thousands (except share data)
NOTE 14:- | TRANSACTIONS WITH RELATED PARTIES AND OTHER LOAN (Cont.) |
e. | Details on transactions and balances with related parties and other loan: |
1. | The Company has, from time to time, entered into transactions with its shareholders (the Kibbutz). The following table summarizes such transactions: |
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Cost of revenues | $ | 8,870 | $ | 8,157 | $ | 7,200 | ||||||
Research and development | $ | 574 | $ | 547 | $ | 406 | ||||||
Selling and marketing | $ | 730 | $ | 723 | $ | 638 | ||||||
General and administrative | $ | 951 | $ | 873 | $ | 913 | ||||||
Finance expenses, net | $ | (392 | ) | $ | 106 | $ | 491 |
2. | Balances with related party and other loan: |
December 31, | ||||||||
2022 | 2021 | |||||||
Financing liability of land from related party- current maturities, and other related party balances (1) | $ | 283 | $ | 2,276 | ||||
Long-term financing liability of land from a related party (1) | $ | - | $ | 5,693 | ||||
Other loans (2) | $ | 483 | $ | 547 |
1. | Mainly reflects a financing leaseback of $10,900 related to Bar-Lev transaction from September 2012, that was granted to the Company by Kibbutz Sdot-Yam. The term of the leaseback was 10 years, ended on August 2022, and therefore is not part of the balance at year end. |
2. | During 2021, subject to certain conditions and regulatory approvals met by Lioli, the Company assumed 55% of the shareholders loan in Lioli. |
F - 63
U.S. dollars in thousands (except share data)
NOTE 15:- | LONG-TERM BANK LOAN |
a. | As part of the Lioli’s acquisition in 2020, the Company assumed also a bank loan from commercial banks in India. As of December 31, 2021, the loan was presented under Short-term bank credit due to certain unmet covenents with the bank of India (see also Note 8). |
b. | During 2022, lioli refinanced its old loan and signed on a new loan agreement with HDFC Bank. The new loan is denominated in Indian rupee and as of Dec 31, 2022 the new loan carries interest rate of 7.4% (MCLR+0.20%). The long-term loan repayable in equal monthly installment till September 2025 and outstanding balance as of December 31, 2022 is $4,340. |
c. | The new loan is secured by creating charge on Lioli’s land, building and plant and machineries and current assets including stock, receivables and other current assets. The Company has also provided the stand by letter of credit as a security. |
NOTE 16:- | MAJOR CUSTOMER AND GEOGRAPHIC INFORMATION |
a. | The Company manages its business on the basis of one reportable segment. The data is presented in accordance with Accounting Standard Codification 280, "Segments Reporting" ("ASC 280"). The following is a summary of revenue and long-lived assets (including Property, plant and equipment, intangible assets and operating lease right-of-use assets) by geographic area. Revenues are attributed to geographic areas based on the location of end customers. |
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
USA | $ | 342,293 | $ | 305,353 | $ | 207,496 | ||||||
Canada | 93,377 | 84,467 | 72,492 | |||||||||
Latin America | 4,481 | 4,702 | 2,149 | |||||||||
Australia | 116,284 | 118,714 | 103,587 | |||||||||
Asia | 34,607 | 30,390 | 14,566 | |||||||||
EMEA | 63,320 | 60,836 | 45,201 | |||||||||
Israel | 36,444 | 39,430 | 40,921 | |||||||||
$ | 690,806 | $ | 643,892 | $ | 486,412 |
F - 64
U.S. dollars in thousands (except share data)
NOTE 16:- | MAJOR CUSTOMER AND GEOGRAPHIC INFORMATION (Cont.)
|
b. | The following table presents total long-lived assets as of December 31, 2022 and 2021: |
December 31, | ||||||||
2022 | 2021 | |||||||
USA | $ | 149,173 | $ | 156,998 | ||||
Canada | 3,292 | 4,413 | ||||||
Australia | 10,337 | 13,143 | ||||||
Asia | 24,353 | 28,453 | ||||||
EMEA | 8,488 | 7,626 | ||||||
Israel | 126,564 | 174,796 | ||||||
$ | 322,207 | $ | 385,429 |
NOTE 17:- | SELECTED SUPPLEMENTARY STATEMENTS OF INCOME DATA |
a. | Finance (income) expense, net: |
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Finance expenses: | ||||||||||||
Interest in respect credit cards and bank fees | $ | 5,380 | $ | 4,702 | $ | 3,254 | ||||||
Interest in respect of loans | 346 | 2,035 | 1,053 | |||||||||
Amortization/accretion of premium/discount on marketable securities | 237 | 200 | 161 | |||||||||
Realized gain/loss from marketable securities, net | - | 134 | 11 | |||||||||
Changes in derivatives fair value | 1,509 | - | 3,427 | |||||||||
Foreign exchange transactions losses | 3,818 | 6,023 | 7,128 | |||||||||
11,290 | 13,094 | 15,034 | ||||||||||
Finance income: | ||||||||||||
Interest in respect of cash and cash equivalent and short-term bank deposits | 20 | 147 | 657 | |||||||||
Changes in derivatives fair value | - | 4,950 | - | |||||||||
Interest income from marketable securities | 287 | 407 | 213 | |||||||||
Foreign exchange transactions gains | 14,062 | - | 3,965 | |||||||||
14,369 | 5,504 | 4,835 | ||||||||||
Finance expenses (income), net | $ | (3,079 | ) | $ | 7,590 | $ | 10,199 |
F - 65
U.S. dollars in thousands (except share data)
NOTE 17:- | SELECTED SUPPLEMENTARY STATEMENTS OF INCOME DATA (CONT)
|
b. | Net earnings (loss) per share: |
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Net income (loss) attributable to controlling interest, as reported | $ | (57,054 | ) | $ | 18,966 | $ | 7,218 | |||||
Adjustment to redemption value of non-controlling interest | (198 | ) | (1,399 | ) | - | |||||||
Numerator for basic and diluted net income (loss) per share | $ | (57,252 | ) | $ | 17,567 | $ | 7,218 |
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Denominator for basic income (loss) per share | 34,488 | 34,462 | 34,419 | |||||||||
Effect of dilutive stock based awards | - | 108 | 55 | |||||||||
Denominator for diluted income (loss) per share | 34,488 | 34,570 | 34,474 |
Basic and diluted earnings (loss) per share | $ | (1.66 | ) | $ | 0.51 | $ | 0.21 |
• | Obtaining an understanding, evaluating the design and operating effectiveness of the controls around the goodwill impairment process; |
• | Assessing the reasonableness of management’s determination of the reporting unit and the allocation of goodwill; |
• | Assessing management’s impairment model for compliance with ASC 350 and ASC 820; |
• | Obtaining an understanding of the significant inputs and assumptions in management’s model, and assessing for reasonableness including: |
o | Reviewing the key inputs of the model and corroborating key assumptions against supporting documentation; |
o | Assessing the appropriateness of revenue growth assumptions in management’s forecast of cash flows in the current operating environment; |
o | Engaging our internal valuation specialists to assess the appropriateness of the impairment model as a fair value approach consistent with ASC 820; |
o | Engaging our internal valuation specialists to develop a range of independent estimates of the discount rate and comparing those to the discount rate selected by management; |
o | Performing sensitivity analysis on the significant inputs and assumptions made by management in preparing the valuation model; and |
• | Assessing the adequacy of disclosures in the financial report. |
• | Obtaining an understanding, evaluating the design and operating effectiveness of the controls around the recognition and measurement of the liability; |
• | Inquiring directly with all the Company’s attorneys utilized throughout the year; |
• | Obtaining an understanding of the significant inputs and assumptions in management’s estimate of the liability and assessing for reasonableness including: |
o | Inquiring with the Company’s attorneys and management regarding the status of open legal claims, relevant claim amounts, and other key assumptions and judgements; |
o | Assessing the reasonableness of assumptions by reference to historical settlement amounts; |
o | Recalculating the estimated claim liability; and |
• | Assessing the adequacy of disclosures in the financial report. |