Ituran Earnings 2020-12-31

Balance Sheet	Income Statement	Cash Flow

Ituran Location & Control Ltd.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020.

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report..........................................

For the transition period from ____________ to ____________

Commission file number. 001-32618

image provided by client

ITURAN LOCATION AND CONTROL LTD.

(Exact name of Registrant as specified in its charter)

ITURAN LOCATION AND CONTROL LTD.

(Translation of Registrant’s name into English)

Israel

(Jurisdiction of incorporation or organization)

3 Hashikma street, Azour, 5800182 Israel

(Address of principal executive offices)

Guy Aharonov, General Counsel, 3 Hashikma street, Azour, 5800182 Israel, Tel: 972-3-5571314, Facsimile: 972-3-5571327

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered

Ordinary Shares, par value NIS 0.33¹/₃per share	ITRN	Nasdaq Global Select Market

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

SEC 1852 (04-20) - Persons who respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

23,475,431

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes ⌧ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

☐ Yes ⌧ No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer", "accelerated filer", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ⌧

Non-accelerated filer ☐

Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ⌧

International Financial Reporting Standards as issued

by the International Accounting Standards Board ☐

Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

☐ Item 17 ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

☐ Yes ☐ No

The Annual Report of Ituran, together with the Financial Condition and Results of Operations covering that 12 months period, are incorporated by reference into Ituran registration statement on Form F-3 (File No. 333-222289).

TABLE OF CONTENTS


USE OF CERTAIN TERMS	IV
FORWARD LOOKING STATEMENTS	IV
ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	1
ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE	1
ITEM 3.KEY INFORMATION	1
A. SELECTED FINANCIAL DATA	1
B. CAPITALIZATION AND INDEBTEDNESS	3
C. REASONS FOR THE OFFER AND USE OF PROCEEDS	3
D. RISK FACTORS	3
ITEM 4.INFORMATION ON THE COMPANY	11
A. HISTORY AND DEVELOPMENT OF THE COMPANY	11
B. BUSINESS OVERVIEW	12
C. ORGANIZATIONAL STRUCTURE	21
D. PROPERTY, PLANTS AND EQUIPMENT	22
ITEM 4.A. UNRESOLVED STAFF COMMENTS	23
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS	23
A. OPERATING RESULTS	23
B. LIQUIDITY AND CAPITAL RESOURCES	34
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES	36
D. TREND INFORMATION	37
E. OFF-BALANCE SHEET ARRANGEMENTS	37
F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS	37
G. SAFE HARBOR	37
ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	38
A. DIRECTORS AND SENIOR MANAGEMENT	38
B. COMPENSATION	41
C. BOARD PRACTICES	43
D. EMPLOYEES	46
E. SHARE OWNERSHIP	49

ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	50
A. MAJOR SHAREHOLDERS	50
B. RELATED PARTY TRANSACTIONS	51
C. INTERESTS OF EXPERTS AND COUNSEL	56
ITEM 8.FINANCIAL INFORMATION	56
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION	56
B. SIGNIFICANT CHANGES	57
ITEM 9.THE OFFER AND LISTING	57
A. OFFER AND LISTING DETAILS	57
B. PLAN OF DISTRIBUTION	58
C. MARKETS	58
D. SELLING SHAREHOLDERS	58
E. DILUTION	58
F. EXPENSES OF THE ISSUE	58
ITEM 10.ADDITIONAL INFORMATION	58
A. SHARE CAPITAL	58
B. MEMORANDUM AND ARTICLES OF ASSOCIATION	58
C. MATERIAL CONTRACTS	65
D. EXCHANGE CONTROLS	65
E. TAXATION	65
F. DIVIDENDS AND PAYING AGENTS	72
G. STATEMENT BY EXPERTS	72
H. DOCUMENTS ON DISPLAY	72
I. SUBSIDIARY INFORMATION	72
ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	72
ITEM 12.DESCRIPTIONS OF SECURITIES OTHER THAN EQUITY SECURITIES	73
ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	73
ITEM 14A.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	73
ITEM 15.CONTROLS AND PROCEDURES	73
ITEM 16.[RESERVED]	76

iii

USE OF CERTAIN TERMS

As used herein, and unless the context suggests otherwise, the terms “we”, “us”, “our” or “Ituran” refer to Ituran Location and Control Ltd. and its consolidated subsidiaries.

We have prepared our consolidated financial statements in US Dollars. Our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All references herein to “dollars” or “$” or “USD” are to United States dollars, and all references to “NIS” are to New Israeli Shekels.

FORWARD LOOKING STATEMENTS

This Annual Report on Form 20-F contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The use of the words “projects,” “believes,” “expects,” “may,” “plans” or “intends,” or words of similar import, identifies a statement as “forward-looking.” The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties. These forward-looking statements are based on the assumption that we will not lose a significant customer or customers or experience increased fluctuations of demand or rescheduling of purchase orders, that our markets will continue to grow, that our products will remain accepted within their respective markets and will not be replaced by new technology, that competitive conditions within our markets will not change materially or adversely, that we will retain key technical and management personnel, that our forecasts will accurately anticipate market demand, and that there will be no material adverse change in our operations or business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. In addition, our business and operations are subject to substantial risks which increase the uncertainty inherent in the forward-looking statements. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. Factors that could cause actual results to differ from our expectations or projections include the risks and uncertainties described in this annual report in Item 3D: Risk Factors. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statements or other information contained in this report, whether as a result of new information, future events or otherwise. You are advised, however, to consult any additional disclosures we make in our reports on Form 6-K filed with the U.S. Securities and Exchange Commission (“SEC”).

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. SELECTED FINANCIAL DATA

The selected consolidated financial data below is provided under generally accepted accounting principles in the U.S. (U.S. GAAP). You should read the selected consolidated financial data presented in this Item together with Item 5 – Operating and Financial Review and Prospects and with our consolidated financial statements included elsewhere in this annual report.

Our selected consolidated statements of income data for the years ended December 31, 2018, 2019 and 2020 and our selected consolidated balance sheet data as of December 31, 2019 and 2020 have been derived from our consolidated financial statements included elsewhere in this report. The selected consolidated statements of income data for each of the years ended December 31, 2016 and 2017, and the selected consolidated balance sheet data as of December 31, 2016, 2017 and 2018, are derived from our audited consolidated financial statements not included in this report.

Selected Financial Data Under U.S. GAAP:

Consolidated Statements of Income Data

	Year Ended December 31,
	2020			2019			2018			2017			2016
	In USD
	In thousands, except per share amounts
Revenues:
Telematics services		182,944			204,728			181,357			169,752			141,940
Telematics products		62,683			74,604			71,978			64,884			57,634
Total Revenues		245,627			279,332			253,335			234,636			199,574
Cost of Revenues:
Telematics services		81,365			90,158			70,329			60,256			50,633
Telematics products		48,747			58,656			55,678			54,996			46,910
Total cost of revenues		130,112			148,814			126,007			115,252			97,543

Gross profit		115,515			130,518			127,328			119,384			102,031

Research and development expenses		12,767			13,913			6,223			3,160			2,895
Selling and marketing expenses		11,014			12,778			11,340			12,246			10,074
General and administrative expenses		49,705			55,166			47,693			47,590			40,228
Impairment of goodwill		10,508			12,292			-			-			-
Impairment of intangible assets and other expenses (income) net		3,690			13,715			(306	)		(147	)		836

Operating Income		27,831			22,654			62,378			56,535			47,998
Other income (expenses), net		(272	)		(26	)		13,138			-			-
Financing income (expenses), net		1,480			576			717			(989	)		2,056

Income before income tax		29,039			23,204			76,233			55,546			50,054

Income tax		(10,856	)		(12,234	)		(17,273	)		(17,705	)		(14,877	)
Share in gains (losses) of affiliated companies, net		(842	)		(3,203	)		4,219			8,520			(449	)

Net income for the year		17,341			7,767			63,179			46,361			4,728
Less: net income attributable to non-controlling interest		(1,218	)		(878	)		(2,504	)		(2,567	)		(2,589	)

Net income attributable to Company stockholders		16,123			6,889			60,675			43,794			32,139

Earnings per share
Basic	$	0.78		$	0.33		$	2.88		$	2.09		$	1.53
Diluted	$	0.78		$	0.33		$	2.88		$	2.09		$	1.53
Weighted average number of shares outstanding
Basic		20,813			21,037			21,077			20,968			20,968
Diluted		20,813			21,037			21,077			20,968			20,968

Consolidated Balance Sheets Data:

	Year Ended December 31,
	2020		2019		2018		2017		2016
	In USD
	In thousands, except per share amounts

Cash & Cash Equivalent; and investment in trading marketable securities		78,846		54,322		53,295		40,465		31,485
Working Capital		66,708		73,085		84,214		71,360		55,062
Total Assets		312,472		339,235		373,792		215,159		178,019
Total Liabilities		182,573		203,321		213,592		81,930		69,848
Retained Earnings		127,684		116,479		129,580		92,065		71,717
Stockholders’ Equity		127,192		129,330		153,693		125,790		102,229
Dividend declared per share		0.24		0.95		0.95		1.12		0.86

Other Data:

	Year Ended December 31,
	2020			2019			2018			2017			2016
Subscribers of telematics services ⁽¹⁾		1,768,000			1,781,000			1,770,000			1,160,000			1,057,000
Average monthly churn rate		3	%		3.3	%		2.8	%		3.2	%		3.1	%

⁽¹⁾ Number of subscribers are rounded to the nearest thousand.

B. CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

D. RISK FACTORS

Our business, operating results and financial condition could be seriously harmed due to any of the following risks, among others. If we do not successfully address the risks to which we are subject, we could experience a material adverse effect on our business, results of operations and financial condition and our share price may decline, which may result in a loss of all or part of your investment. We cannot assure you that we will successfully address any of these risks. You should carefully consider the following factors as well as the other information contained and incorporated by reference in this annual report before taking any investment decision with respect to our securities. See “Forward Looking Statements” on page iv above.

RISKS RELATED TO OUR BUSINESS

Failure to maintain our existing relationships or establish new relationships with insurance companies or car manufacturers could adversely affect our revenues and growth potential.

Revenues from our stolen vehicle recovery services, which we refer to as SVR services, (“SVR”) and automatic vehicle location (“AVL”) products, which we refer to as telematics products, are primarily dependent on our relationships with insurance companies. In Israel, insurance companies drive demand for our SVR services and telematics products by encouraging and, in some cases, requiring customers to subscribe to vehicle location services and purchase vehicle location products such as ours. In certain subsidiaries in Brazil and Argentina, insurance companies enter into written agreements to subscribe to our services and purchase or lease our products directly. Our inability to maintain our existing relationships or establish new relationships with insurance companies could adversely affect our revenues and growth potential. In some of the territories in which we operate, we have business relation with car manufacturers. Our inability to maintain our existing relationships or establish new relationships with car manufacturers companies could adversely affect our revenues and growth potential. In some of territories we operate in, we have business relation with car manufacturers. Our inability to maintain our existing relationships or establish new relationships with car manufacturers companies could adversely affect our revenues and growth potential.

Changes in practices of insurance companies in the markets in which we provide our SVR services and sell our telematics products could adversely affect our revenues and growth potential.

We depend on the practices of insurance companies in the markets in which we provide our SVR services and sell our telematics products. In Israel, insurance companies either mandate the use of SVR services and telematics products, or their equivalent, as a prerequisite for providing insurance coverage to owners of certain medium- and high-end vehicles or provide insurance premium discounts to encourage vehicle owners to subscribe to services and purchase products such as ours. In certain subsidiaries in Brazil and Argentina, insurance companies mainly lease our telematics products directly and subsequently require their customers to subscribe to our SVR services.

Therefore, we rely on insurance companies’ continued practice of:

▪

accepting vehicle location and recovery technology as a preferred security product;

▪

requiring or providing a premium discount for using location and recovery services and products;

▪

mandating or encouraging use of our SVR services and telematics products, or similar services and products, for vehicles with the same or similar threshold values and for the same or similar required duration of use; and

If any of these policies or practices change, revenues from sales of our SVR services and telematics products could decline, which could adversely affect our revenues and growth potential.

A reduction in vehicle theft rates may adversely impact demand for our SVR services and telematics products.

Demand for our SVR services and telematics products depends primarily on prevailing or expected vehicle theft rates. Vehicle theft rates may decline as a result of various reasons, such as the availability of improved security systems, implementation of improved or more effective law enforcement measures, or improved economic or political conditions in markets that have high theft rates. If vehicle theft rates in any or all of our existing markets decline, or if insurance companies or our other customers believe that vehicle theft rates have declined or are expected to decline, demand for our SVR services and telematics products may decline.

A decline in sales of new cars at the markets in which we operate could result in reduced demand for our telematics services and telematics products.

Our SVR services and telematics products are primarily used to protect cars and are often installed before or immediately after their initial sale. Consequently, a reduction in sales of vehicles could reduce our addressable market for SVR services and telematics products. New vehicle sales may decline for various reasons, including an increase in new vehicle tariffs, taxes or gas prices. A decline in vehicle production levels or labor disputes affecting the automobile industry in the markets where we operate may also impact the volume of new vehicle sales. A decline in sales of new vehicles in the markets in which we provide our SVR services or sell our telematics products could result in reduced demand for such services and products.

There is significant competition in the markets in which we offer our services and products and our results of operations could be adversely affected if we fail to compete successfully.

The markets for our services and products are highly competitive. We compete primarily on the basis of the technological innovation, quality and price of our services and products. Our most competitive market is the telematics services market and the related telematics products market, due to the existence of a wide variety of competing services and products and alternative technologies that offer various levels of protection and tracking capabilities, including global positioning systems, or GPS, satellite- or network-based cellular systems and direction-finding homing technologies. Some of these competing services and products, such as certain GPS-based products, are installed in new cars by vehicle manufacturers prior to their initial sale, which effectively precludes us from competing for such subscribers in the SVR market. Furthermore, providers of competing services or products may extend their offerings to the locations in which we operate, or new competitors may enter the telematics services market. Our telematics products also compete with less sophisticated theft protection devices such as standard car alarms, immobilizers, steering wheel locks and homing devices, some of which may be significantly cheaper. Some of these competing products have greater brand recognition than our telematics products.

The development of new or improved competitive products, systems or technologies that compete with our telematics products may render our products less competitive or obsolete, which could cause a decline in our revenues and profitability.

We are engaged in businesses characterized by rapid technological change and frequent new product developments and enhancements. The number of companies developing and marketing new telematics products has expanded considerably in recent years. The development of new or improved products, systems or technologies that compete with our telematics products, for both our SVR and fleet management services, may render our products and services less competitive and we may not be able to enhance our technology in a timely manner. In addition to the competition resulting from new products, systems or technologies, our future product enhancements may not adequately meet the requirements of the marketplace and may not achieve the broad market acceptance necessary to generate significant revenues. Any of the foregoing could cause a decline in our revenues and profitability.

The inability of local law enforcement agencies to timely and effectively recover the stolen vehicles we locate could negatively impact customers’ perception of the usefulness of our SVR services and telematics products, adversely affecting our revenues.

Our telematics products identify the location of vehicles in which our products are installed. Following a notification of an unauthorized entry, or if we receive notification of the vehicle’s theft from a subscriber, we notify the relevant law enforcement agency of the location of the subscriber’s vehicle and generally rely on local law enforcement or governmental agencies to recover the stolen vehicle. We cannot control nor predict the response time of the relevant local law enforcement or other governmental agencies responsible for recovering stolen vehicles, nor that the stolen vehicles, once located, will be recovered at all. In the past, some stolen vehicles in which our telematics products were installed were not recovered on timely manner, from the time an unauthorized entry is confirmed or reported to the time the vehicle is recovered. To the extent that the relevant agencies do not effectively and timely respond to our calls and recover stolen vehicles, our recovery rates would likely diminish, which may, in turn, negatively impact customers’ perception of the usefulness of our SVR services and telematics products, adversely affecting our revenues.

The ability to detect, deactivate, disable or otherwise inhibit the effectiveness of our telematics products could adversely affect demand for such products and our revenues.

The effectiveness of our telematics products is dependent, in part, on the inability of unauthorized persons to deactivate or otherwise alter the functioning of our telematics products or the vehicle anti-theft devices that work in conjunction with our telematics products. As sales of our telematics products increase, criminals in the markets in which we operate may become increasingly aware of our telematics products and may develop methods or technologies to detect, deactivate or disable our tracking devices or the vehicle anti-theft devices that work in conjunction with our telematics products. We believe that, as is the case with any product intended to prevent vehicle theft, over time, there may be an increased ability of unauthorized persons to detect, deactivate, disable or otherwise inhibit the effectiveness of our telematics products, although it is difficult to verify this fact. An increase in the ability of unauthorized persons to detect, deactivate, disable or otherwise inhibit the effectiveness of our telematics products could adversely affect demand for our products and our revenues.

We rely on some intellectual property that we license from third parties, the loss of which could preclude us from providing our SVR services or market and sell some of our telematics products, which would adversely affect our revenues.

We license from third parties some of the technology that we need in order to provide our SVR services and market and sell some of our telematics products. In the event that such licenses were to be terminated, or if such licenses were rendered unenforceable or invalid and we would not be able to license similar technology from other parties, it would require us, at a minimum, to obtain rights to a different technology and reconfigure our telematics products accordingly. In addition, some of the licenses we obtained from third parties are non-exclusive, which may enable other entities to obtain identical licenses from such third parties to operate in the places in which we conduct our business resulting in increased competition and could adversely affect our revenues.

Our ability to sell some of our services and products depends upon the prior receipt and maintenance of various governmental licenses and approvals and our failure to obtain or maintain such licenses and approvals, or third-party use of the same licenses and frequencies, could result in a disruption or curtailment of our operations, a significant increase in costs and a decline in revenues.

We are required to obtain specific licenses and approvals from various governmental authorities in order to conduct our operations. For example, some of our telematics products use radio frequencies that are licensed and renewed periodically from the Ministry of Communications in Israel and similar agencies worldwide. As we continue to expand into additional markets, we will be required to obtain new permits and approvals from relevant governmental authorities. Furthermore, once our telematics infrastructure is deployed and our telematics end-units are sold to subscribers, a change in radio frequencies would require us to recalibrate all of our antennas and replace or modify all end-units held by subscribers, which would be costly and may result in delays in the provision of our SVR services. In addition, some of the governmental licenses for radio frequencies that we currently use may be preempted by third parties. In Israel, our license is designated as a “joint” license, allowing the government to grant third parties a license to use the same frequencies, and in Brazil our license is designated as a “secondary”, non-exclusive license, which allows the government to grant a third party a primary license to use such frequencies, which third-party use could adversely affect, disrupt or curtail our operations. Our inability to maintain necessary governmental licenses and frequency approvals, or third-party use of or interference with the same licenses or frequencies, could result in a significant increase in costs and decline in revenues.

Our SVR services business model is based on the existence of certain conditions, the loss or lack of which in existing or potential markets could adversely affect our revenues generated in existing markets or our growth potential.

Our SVR services business model and, consequently, our ability to provide our SVR services and sell our telematics products, relies on our ability to successfully identify markets in which:

▪

the rate of car theft or consumer concern over vehicle safety is high;

▪

satisfactory radio frequencies are available to us for our RF technology, that allow us to operate our business in an uninterrupted manner; and

▪

insurance companies, car manufacturers or owners of cars believe that the value of cars justifies incurring the expense associated with the deployment of SVR services.

The absence of such conditions, our inability to locate markets in which such conditions exist or the loss of any one of the above conditions in markets we currently serve could adversely affect our revenues generated in existing markets or our growth potential.

The loss of key personnel could adversely affect our business and prospects for growth.

Our success depends upon the efforts and abilities of key management personnel, including our President and our Co-Chief Executive Officers. Loss of the services of one or more of such key personnel could adversely affect our ability to execute our business plan. In addition, we believe that our future success depends in part upon our ability to attract, retain and motivate qualified personnel necessary for the development of our business. If one or more members of our management team or other key technical personnel become unable or unwilling to continue in their present positions, and if additional key personnel cannot be hired and retained as needed, our business and prospects for growth could be adversely affected.

We rely on third parties to manufacture our telematics products, which could affect our ability to provide such products in a timely and cost-effective manner, adversely impacting our revenues and profit margins.

We outsource the manufacturing of a significant part of our telematics products to third parties. We use manufacturers for production of our telematics products and we do not maintain significant levels of inventories to support us in the event of an unexpected interruption in its manufacturing process. If our principal manufacturer or any of our other manufacturers is unable to or fails to manufacture our products in a timely manner, we may not be able to secure alternative manufacturing facilities without experiencing an interruption in the supply of our products or an increase in production costs. Any such interruption or increase in production costs could affect our ability to provide our telematics products in a timely and cost-effective manner, adversely impacting our revenues and profit margins.

We rely on two major suppliers to supply us with various products and services. Each of these suppliers supply us with different type of products and services and act as single supplier of such products and services.

We rely on two major suppliers to supply us with various products and services, one of them is our subsidiary. Each of these suppliers supply us with different type of products and services and act as single supplier of such products and services.

Termination of relations with one of our major suppliers would adversely affect our operations and revenues.

We depend on the use of specialized quality assurance testing equipment for the production of our telematics products, the loss or unavailability of which could adversely affect our results of operations.

We and our third-party manufacturers use specialized quality assurance testing equipment in the production of our products. The replacement of any such equipment as a result of its failure or loss could result in a disruption of our production process or an increase in costs, which could adversely affect our results of operations.

The adoption of industry standards that do not incorporate the technology we use may decrease or eliminate the demand for our services or products and could harm our results of operations.

There are no established industry standards in all of the businesses in which we sell our telematics products. For example, vehicle location devices may operate by employing various technologies, including network triangulation, GPS, satellite-based or network-based cellular or direction-finding homing systems. The development of industry standards that do not incorporate the technology we use may decrease or eliminate the demand for our services or products and we may not be able to develop new services and products that are in compliance with such new industry standards on a cost-effective basis. If industry standards develop and such standards do not incorporate our telematics products and we are unable to effectively adapt to such new standards, such development could harm our results of operations.

Expansion of our operations to new markets involves risks and our failure to manage such risks may delay or preclude our ability to generate anticipated revenues and may impede our overall growth strategy.

We anticipate future growth to be attributable to our business activities in new markets, particularly in developing countries, where we may encounter additional risks and challenges, such as longer payment cycles, potentially adverse tax consequences, potential difficulties in collecting receivables and potential difficulties in enforcing agreements or other rights in foreign legal systems. The challenges and risks of entering a new market may delay or preclude our ability to generate anticipated revenues and may impede our overall growth strategy.

Part of our services rely on GPS/GPRS-based technology owned and controlled by others, the loss, impairment or increased expense of which could negatively impact our immediate and future revenues from, or growth of, our services and adversely affect our results of operations.

Part of our business relies on signals from GPS/GPRS satellites built and maintained by third parties. If GPS/GPRS satellites become unavailable to us, or if the costs associated with using GPS/GPRS technology increase such that it is no longer feasible or cost-effective for us to use such technology, we will not be able to adequately provide our services. In addition, if one or more GPS/GPRS satellites malfunction, there could be a substantial delay before such satellites are repaired or replaced, if at all. The occurrence of any of the foregoing events could negatively impact our immediate and future revenues from, or growth of, our telematics services and adversely affect our results of operations.

Material cyber security failure may harm our operations, which rely on use of information technology and wireless transmission.

Our telematics and SVR services, relies on the use of information technology which under a major cyber security breach, could harm our operations. We are using physical services, wireless transmitting stations, GPRS/GPS, and in lesser account cloud computing to provide our services. There are risks associated with storing and transmitting data, which due to cyber security breach may be corrupted, and the store data on remote servers may be destroyed, damaged, seized, or otherwise no longer accessible, which may temporary decrease our ability to deliver telematics and SVR services.

We implemented cyber security controls – which consists of three pillars: prevention, detection and response (data recovery in the event of a cyber breach). We perform an ongoing review of our systems and an annual external review of our cyber security controls and their implementation. However, such cyber security controls may not be able to prevent all unexpected weaknesses. In the event of a cyber-attack, we could experience the corruption or loss of data, misappropriation of assets or sensitive information, including customer information, or operational disruption. This could result in response costs and various financial loss and may subject us to litigation and cause damage to our reputation, for which we may not be covered under our current insurance policies and may lead to substantial loss of revenues.

Some of our employees in our subsidiaries in Brazil and Argentina are members of labor unions and a dispute between us and any such labor union could result in a labor strike that could delay or preclude altogether our ability to generate revenues in the markets where such employees are located.

Some of our employees in our subsidiaries in Brazil and Argentina are members of labor unions. If a labor dispute were to develop between us and our unionized employees, such employees could go on strike and we could suffer work stoppage for a significant period of time. A labor dispute can be difficult to resolve and may require us to seek arbitration for resolution, which arbitration can be time consuming, distracting to management, expensive and difficult to predict. The occurrence of a labor dispute with our unionized employees could delay or preclude altogether our ability to generate revenues in the markets where such employees are located.

COVID-19 Pandemic

A regional or a global health pandemic, including COVID-19, could severely affect our business, results of operations and financial condition due to impacts on our suppliers and customers, as well as impacts from remote work arrangements, actions taken to contain the disease or treat its impact and the speed and extent of the recovery.

A regional or a global health pandemic, depending upon its duration and severity, could have a material adverse effect on our business. For example, the COVID-19 pandemic has had numerous effects on the global economy and governmental authorities around the world have implemented measures to reduce the spread of COVID-19. These measures, including shutdowns and “shelter-in-place” orders suggested or mandated by governmental authorities or otherwise elected by companies as a preventive measure, have adversely affected workforces, customers, consumer sentiment, economies and financial markets, and, along with decreased consumer spending, have led to an economic downturn in many of our markets.

As a result of the COVID-19 pandemic, as near-term measures, we have transitioned many of our employees to remote working arrangements. The transition has had little impact on our employee productivity and has not caused material interruption to our business.

We are unable to accurately predict the impact that COVID-19 will have on our operations going forward due to uncertainties that will be dictated by the length of time that the pandemic and related disruptions continue, the impact of governmental regulations that might be imposed in response to the pandemic and overall changes in consumer behavior. Numerous state and local jurisdictions have imposed, and others in the future may impose, “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Governments all over the world are continuing to impose limitations on gatherings, social distancing measures and restrictions on movement, only allowing essential businesses to remain open. Such orders or restrictions have and are continuing to result in temporary store closures, work stoppages, slowdowns and delays, travel restrictions and cancellation of events, among other effects, any of which may negatively impact workforces, customers, consumer sentiment and the economies in many of our markets, and as a result, may adversely affect our operations.

We are subject to litigation that could result in significant costs to us.

On July 13, 2015, we received a purported class action lawsuit which was filed against the Company in the District Court of Central Region in Tel-Aviv by one plaintiff who is a subscriber of the Company, alleging that the Company, which was declared a monopoly under the Israeli Antitrust Law, unlawfully abused its power as a monopoly and discriminated between its customers. The lawsuit is yet to be approved as a class action. The total amount claimed if the lawsuit is approved as a class action was estimated by the plaintiff to be approximately NIS 300 million (approximately USD 93 million). Based on an opinion of its legal counsels, the Company believes that the lawsuit lacks substantiation, and that the Company has good defense arguments in respect of claims made by the plaintiff and that the chances that the suit will not be approved as a class action lawsuit are higher than it will be approved. While we cannot predict the outcome of this case, if we are not successful in defending our claim, we could be subject to significant costs, adversely affecting our results of operations.

For additional information on these lawsuits and for information concerning additional litigation proceedings, please refer to Item 8.A – “Consolidated financial Statements and other Financial Information” under the caption “Material Legal Proceedings” below.

We have not applied nor obtained for several of the permits required for the operation of some of our base sites. To the extent enforcement is sought, the breadth, quality and capacity of our network coverage could be materially affected.

The provision of our SVR services depends upon adequate network coverage for accurate tracking information. In Israel, we have installed 98 base sites that provide complete communications coverage in Israel. Similarly, we have communications coverage in Sao Paulo (120 sites), Rio (6sites), Brazil and Buenos Aires, Argentina (37 sites). The installation and operation of most of our base sites require building permits from local or regional zoning authorities as well as a number of additional permits from governmental and regulatory authorities.

Currently most of our base sites in Israel and Brazil and some of our base sites in Argentina operate without local building permits or the equivalent. Although relevant authorities in Israel, Brazil and Argentina have not historically enforced penalties for non-compliance with certain permit regulations, following ongoing press coverage and actions by various public interest groups, relevant Israeli authorities have began seeking enforcement of permit regulations, especially with respect to antennas constructed for cellular phone operators. Some possible enforcement measures include the closure or demolition of existing base sites or the imposition of limitation on erection of new base stations. Should these enforcement measures be imposed upon us in Israel, Brazil or Argentina, the extent, quality and capacity of our network coverage and, as a result, our ability to provide SVR services, may be adversely affected. In Israel we are in process of achieving compliance with the regulation of our base stations, such process can take several years.

Currency fluctuations may result in valuation adjustments in our assets and liabilities and could cause our results of operations to decline.

The valuation of our assets and liabilities, our revenues received, and the related expenses incurred are not always denominated in the same currency. This lack of correlation between revenues and expenses exposes us to risks resulting from currency fluctuations. These currency fluctuations could have an adverse effect on our results of operations, such currency fluctuations take place in several countries in which we operate which affects our operation results in these countries. In addition, fluctuations in currencies may result in valuation adjustments in our assets and liabilities which could cause our results of operations to decline.

RISKS RELATED TO OUR OPERATIONS IN ISRAEL

We are headquartered in Israel and therefore our results of operations may be adversely affected by political, economic and military instability in Israel.

Our headquarters are located in Israel and most our key employees, officers and directors are residents of Israel. Accordingly, security, political and economic conditions in Israel directly affect our business. Over the past several decades, a number of armed conflicts have taken place between Israel and its Arab neighbors. During July-August 2014, Israel was engaged in an armed conflict with a militant group and political party who control the Gaza Strip. These conflicts involved missile strikes against civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions in Israel. Continued or increased hostilities, future armed conflicts, political developments in other states in the region or continued or increased terrorism could make it more difficult for us to conduct our operations in Israel, which could increase our costs and adversely affect our financial results.

Furthermore, there are a number of countries, primarily in the Middle East, that still restrict business with Israel or Israeli companies and as a result our company is precluded from marketing its products in these countries. Restrictive laws or policies directed toward Israel or Israeli businesses could have an adverse effect on our ability to grow our business and our results of operations.

Under Israeli law, we are considered a “monopoly” and therefore subject to certain restrictions that may negatively impact our ability to grow our business in Israel.

We have been declared a monopoly under the Israeli Economy competition Law (formerly known as Restrictive Trade Practices Law, 1988) (the “Israeli Antitrust Law”), in the market for the provision of systems for the location of vehicles. Under Israeli law, a monopoly is prohibited from taking certain actions, such as predatory pricing and the provision of loyalty discounts, which prohibitions do not apply to other companies. The Israeli antitrust authority (under its new name - Competition Authority) may further declare that we have abused our position in the market. Any such declaration in any suit in which it is claimed that we engage in anti-competitive conduct would serve as prima facie evidence that we are a monopoly or that we have engaged in anti-competitive behavior. Furthermore, we may be ordered to take or refrain from taking certain actions, such as set maximum prices, in order to protect against unfair competition. If we breach certain provisions of the Israeli Antitrust Law, including as a monopoly, the Israeli Competition authority may also impose on us in an administrative procedure, financial sanctions in an amount of up to the lower of NIS 100 million (approximately US$31.0 million) or 8% of our annual revenues for the last financial year prior to such breach. Restraints on our operations as a result of being considered a “monopoly” in Israel could adversely affect our ability to grow our business in Israel.

It may be difficult and costly to enforce a judgment issued in the United States against us, our executive officers and directors, or to assert United States securities laws claims in Israel or serve process on our officers and directors.

We are incorporated and headquartered in Israel. As a result, our executive officers and directors are non-residents of the United States and a substantial portion of our assets and the assets of these persons are located outside of the United States. Therefore, service of process upon any of these officers or directors may be difficult to effect in the United States. Furthermore, it may be difficult to enforce a judgment issued against us in the United States or any of such persons in both United States courts and other courts abroad.

Additionally, there is doubt as to the enforceability of civil liabilities under United States federal securities laws in actions originally instituted in Israel or in actions for the enforcement of a judgment obtained in the United States on the basis of civil liabilities in Israel.

Provisions of Israeli corporate and tax law may delay, prevent or otherwise encumber a merger with, or an acquisition of, our company, which could prevent a change of control, even when the terms of such transaction are favorable to us and our shareholders.

We may be subject to Israeli corporate law which regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. In addition, our articles of association contain, among other things, provisions that may make it more difficult to acquire our company, such as classified board provisions and certain restrictions on the members of our board pursuant to regulatory requirements of the Israeli Ministry of Communication. Furthermore, Israeli tax considerations may make potential transaction structures involving the acquisition of our company unappealing to us or to some of our shareholders. See Item 10.B. – “Memorandum and Articles of Association” - “Our Corporate Practices under the Israeli Companies Law” under the caption “Approval of Transactions under Israeli law” and Item 10.E. – “Taxation” under the caption “Israeli Tax Considerations” for additional discussion of some anti-takeover effects of Israeli law. These provisions of Israeli law and our articles of association may delay, prevent or otherwise encumber a merger with, or an acquisition of, our company or any of our assets, which could have the effect of delaying or preventing a change in control of our company, even when the terms of such a transaction could be favorable to our shareholders.

The rights and responsibilities of our shareholders will be governed by Israeli law and may differ in some respects from the rights and responsibilities of shareholders under United States law.

We are incorporated under Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by our memorandum of association, articles of association and by Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical US-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing his, her or its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters. Israeli corporate law has undergone extensive revisions in recent years and, as a result, there is little case law available to assist in understanding the implications of these provisions that govern shareholders’ actions, which may be interpreted to impose additional obligations on holders of our ordinary shares that are typically not imposed on shareholders of US-based corporations.

GENERAL RISKS RELATED TO OUR ORDINARY SHARES AND THE ECONOMY

Future sales of our ordinary shares could reduce the market price of our ordinary shares.

If we or our shareholders sell substantial amounts of our ordinary shares on the Nasdaq Global Select Market, the market price of our ordinary shares may decline.

The market price of our ordinary shares is subject to fluctuation, which could result in substantial losses for our investors.

The stock market in general, and the market price of our ordinary shares in particular, are subject to fluctuation, and changes in our share price may be unrelated to our operating performance. The market price of our ordinary shares has fluctuated in the past, and we expect it will continue to do so, as a result of a number of factors, including:

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the gain or loss of significant orders or customers;

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recruitment or departure of key personnel;

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the announcement of new products or service enhancements by us or our competitors;

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quarterly variations in our or our competitors' results of operations;

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announcements related to litigation;

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changes in earnings estimates, investors' perceptions, recommendations by securities analysts or our failure to achieve analysts' earnings estimates;

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developments in our industry; and

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general market conditions and other factors unrelated to our operating performance or the operating performance of our competitors.

These factors and price fluctuations may materially and adversely affect the market price of our ordinary shares and result in substantial losses to our investors.

Somewhat significant portion of our ordinary shares are held by a small number of existing shareholders and our articles of association provide for a staggered board, which may hinder change of control.

Moked Ituran Ltd. currently beneficially owns approximately 19.58% of our outstanding ordinary shares (not including treasury stock held by us). Other than applicable regulatory requirements under applicable law, Moked Ituran Ltd., is not prohibited from selling an interest in our company to a third party. In addition, our articles of association provide for a staggered board which may delay, prevent or deter a change in control. For additional information concerning our staggered board, see Item 6.A – Directors and Senior Management.

U.S. investors in our company could suffer adverse tax consequences if we are characterized as a passive foreign investment company.

If, for any taxable year, our passive income or our assets that produce passive income exceed levels established by the Internal Revenue Code, we may be characterized as a passive foreign investment company, which we refer to as PFIC, for US federal income tax purposes. This characterization could result in adverse US tax consequences to our shareholders who are U.S. Holders. See Item 10.E. – “Taxation” under the caption “United States Tax Considerations” below, for more information about which shareholders may qualify as U.S. Holders. If we were classified as a PFIC, a U.S. Holder could be subject to increased tax liability upon the sale or other disposition of our ordinary shares or upon the receipt of amounts treated as “excess distributions.” Under such rules, the excess distribution and any gain would be allocated ratably over the U.S. Holder’s holding period for the ordinary shares and the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which we were a PFIC would be taxed as ordinary income. The amount allocated to each of the other taxable years would be subject to tax at the highest marginal rate in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed on the resulting tax allocated to such other taxable years. In addition, U.S holders of shares in a PFIC may not receive a “step-up” in basis on shares acquired from a decedent. U.S. Holders should consult with their own U.S. tax advisors with respect to the United States tax consequences of investing in our ordinary shares as well as the specific application of the “excess distribution” and other rules discussed in this paragraph. For a discussion of how we might be characterized as a PFIC and related tax consequences, please see Item 10.E. – “Taxation” under the caption “United States Tax Considerations–Passive foreign investment company considerations”.

Securities we issue to fund our operations or in connection with acquisitions could dilute our shareholders ownership or impact the value of our ordinary shares.

We may decide to raise additional funds through a public or private debt or equity financing to fund our operations or finance acquisitions. If we issue additional equity securities, the percentage of ownership of our shareholders will be reduced and the new equity securities may have rights superior to those of our ordinary shares, which may, in turn, adversely affect the value of our ordinary shares.

Global and local economic downturns could reduce the level of consumer spending and available credit within the automobile industry, which could adversely affect demand for our products and services and negatively impact our financial results.

Current and future economic conditions could adversely affect consumer spending in the automobile industry, as such spending is often discretionary and may decline during economic downturns when consumers have less disposable income. Consequently, changes in general economic conditions resulting in a significant decrease in dealer automobile sales or in a tightening of credit in financial markets, such as the 2007 U.S. subprime mortgage crisis and resulting credit crunch, could adversely impact our future revenue and earnings. Such decreases could also affect the financial security of the automobile dealers and manufactures with whom we do business. The delayed payment from or closure of our larger dealer groups could affect our ability to collect on our receivables. Similar effects could result from local economic downturns in either one of our main markets of operations, i.e. Israel, Brazil, Mexico, Colombia, Ecuador and Argentina. Given the volatile nature of the current market disruption, we may not timely anticipate or manage such existing or new risks. Our failure to do so could materially and adversely affect our business, financial condition, results of operations and prospects.

ITEM 4. INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

Our History

Our legal name is Ituran Location and Control Ltd. and we were incorporated under the laws of the State of Israel on February 1994 as a subsidiary of Tadiran Ltd., an Israeli-based designer and manufacturer of telecommunications equipment, software and defense electronic systems, whose original business purpose was to adapt military-grade technologies for the civilian market.

We are mainly engaged in the area of Telematics services, consisting of stolen vehicle recovery, fleet management services, connected cars, UBI, and other tracking services. We also provide telematics products used in connection with our Telematics services and various other applications. We currently primarily provide our services as well as sell and lease our products in Israel, Brazil, Argentina, Mexico, Ecuador, Colombia, Canada and the United States.

In May 1998, we completed the initial public offering of our ordinary shares in Israel and our ordinary shares began trading on the Tel-Aviv Stock Exchange. In September 2005, we publicly offered our ordinary shares in the United States. On May 25, 2016 our shares were delisted from the Tel Aviv stock exchange, and our ordinary shares are currently quoted only on Nasdaq under the symbol “ITRN”.

On September 13, 2018 we closed the acquisition of 81.3% of the shares of Road Track Holding S.L, (following transaction name was changed to Ituran Spain Holding) a telematics company operating primarily in the Latin American region ("RTH Transaction").

We paid the shareholders of Road Track Holding S.L $91.7 million for 81.3% of the company valuing the company at approximately $113 million. Of this, $75.7 million was paid in cash, through a debt facility provided by Ituran’s lending bank. An additional $12 million was paid in our shares (373,489 shares). The remaining $4 million will be paid out of the company’s equity as a bonus over the coming three years to the senior management of Road Track Holding S.L who will remain with us through the end of that period. The final consideration paid to the sellers was subject to downward adjustments depending on the full year 2018 performance of the Road Track business. Based on the aforementioned mechanism, during April 2019 an amount of 300,472 shares (approximately valued at $ 11 million) were transferred to our ownership. Based on indemnification provisions we were also compensated in an amount of 1.0 million USD. Following three years of joint operations, we will purchase the remainder of Road Track’s shares at a price based on a valuation that will be made at that time.

We are subject to the provisions of the Israeli Companies Law, 5759-1999. Our principal executive offices are located at 3 Hashikma Street, Azour 58001, Israel, and our telephone number is +972-3-557-1333. Our website address is www.ituran.com (the information contained therein or linked thereto shall not be considered incorporated by reference in this annual report). Our agent for service of process in the United States Ituran USA Inc.1700 NW 64th ST. SUITE 100 Fort Lauderdale, Florida 33309, and its telephone number is +1 (866) 543-5433.

Principal Capital Expenditures

We had capital expenditures of $ 10.2 million in 2020, $18.3 million in 2019, and $21.4 million in 2018. We have financed our capital expenditures with cash generated from our operations.

Our capital expenditures in 2020, 2019, and 2018 consisted primarily of acquisition of operational equipment for $ 3.9 million, $7.1 million, and $13.7 million respectively.

B. BUSINESS OVERVIEW

Overview

We believe we are a leading provider of telematics services, consisting predominantly of stolen vehicle recovery, fleet management services and other tracking services as well as connected car and UBI (usage base insurance). We also provide telematics products used in connection with our telematics services. We currently primarily provide our services and sell and lease our products in Israel, Brazil, Argentina, Mexico, Ecuador, Colombia, United States, Canada and other regions through our distributers. We utilize technologies that enable precise and secure high-speed data transmission and analysis. Some of the technology underlying our products was originally developed for the Israeli Defense Forces in order to locate downed pilots.

We generate our revenues from subscription fees paid for our telematics services and from the sale and lease of our telematics products.

We describe below the principal markets in which we compete. For a breakdown of total revenues by category of activity and geographic market for each of the last three financial years, please see Item 5.A - Operating Results under the caption “Revenues”.

Telematics Services

In 2020, 74% of our revenues were attributable to our telematics services. As of December 31, 2020 , we primarily provided our services in Israel, Brazil, and other Countries to approximately 643,000, 452,000, and 673,000 subscribers, respectively.

Following RTH Transaction we have direct agreements with 2 major car manufacturers and our products developed by RTH subsidiary are embedded in the cars or otherwise approved by the car manufacturer. This connection requires us to stand up for the highest car manufacturer automotive standards.

Stolen vehicle recovery services

Our stolen vehicle recovery and tracking services, which we refer to as SVR services, enable us to locate, track and recover stolen vehicles for our subscribers. Our customers include individual vehicle owners who subscribe to our services directly, car manufacturers and insurance companies that either require their customers to install a security system or offer their customers financial incentives to subscribe to SVR services such as ours. In certain countries, insurance companies directly subscribe to our SVR services on behalf of their customers.

Fleet management services

Our fleet management services enable corporate and individual customers to track and manage their vehicles in real time. Our services improve appointment scheduling, route management and fleet usage tracking, thereby increasing efficiency and reducing operating costs for our customers. We market and sell our services to a broad range of vehicle fleet operators and individual vehicle owners in different geographic locations and industries. As of December 31, 2020, we provided our services to approximately 324,000 end-users through 23,000 corporate customers in countries where we operate directly and through distributers.

Value-added services

The locator services that we offer allow customers to protect valuable merchandise and equipment. We currently provide locator services in Israel, Brazil, Mexico, Colombia, Ecuador and Argentina. In addition, through a call center, we provide 24-hour on-demand navigation guidance, information and assistance to our customers. Such services include the provision of traffic reports, help with directions and information on the location gas stations, car repair shops, post offices, hospitals and other facilities. We offer our concierge services to our subscribers in Israel, Argentina, Ecuador, Colombia and Brazil.

"Connected Car"- The service platform includes a back office application, a telematics device installed in the vehicle, mobile apps for both IOS and Android and an interface using the car infotainment screen. Such services include information on car service history, information on some car systems, remote communication with the car in order to detect malfunctions, and to provide pre-emptive car maintenance alerts for both mechanical failures and operational issues such as a low tire pressure alert. The system also enables booking service appointments, both from the infotainment system interface in the system and from the user's mobile app and additional related operational, and marketing services, as well as information analysis. ”Connected Car’ is operating in Israel, Brazil, Colombia, Mexico, Argentina and Ecuador.

“Usage Based Insurance” (UBI) – we have developed a unique product (hardware and software) that measure and analyze the driving behavior in a verity of aspects by the driver, which enables insurance companies to offer a tailor -made and personalized insurance policy. The UBI has already been implemented and marketed by five Israeli insurance companies and we intend to accelerate its marketing and work with additional insurance companies in year 2021.

Telematics Products

In 2020 26% of our revenues were attributable to the sale of our telematics products. Our telematics products employ short - and medium-range communication between two-way wireless modems and are used for various applications, including automatic vehicle location, which we refer to as telematics products.

Our telematics products enable the location and tracking of vehicles, as well as assets, and are used by us primarily to provide SVR and fleet management services to our customers. Each subscriber to our SVR services has our telematics end-unit installed in his or her vehicle. Subscribers to services for locating equipment and merchandise will use our SMART and GPS/GPRS products.

Our Services and Products

Telematics services

Stolen vehicle recovery

Our stolen vehicle recovery system is based on three main components: a telematics end-unit that is installed in the vehicle, a network of base stations and a 24-hour manned control center. Once the control center receives indication of an unauthorized entry into a vehicle equipped with our telematics end-unit, our operators decide whether it is a false alarm or an actual unauthorized entry. If it is determined to be an unauthorized entry, or if a notification of the vehicle’s theft is received directly from the vehicle operator, our operators transmit a signal that activates the transmitter installed in the vehicle. We then pinpoint the location of the transmitter with terrestrial network triangulation technology or GPRS technology and notify the relevant law enforcement agency. In Israel, Brazil, Mexico, Colombia, Ecuador and Argentina, we also maintain private enforcement units, which work together with local police to recover the vehicle. In addition, we have the capability to immobilize vehicles remotely from our control centers.

Fleet management

We offer our customers the ability to use a comprehensive application for fleet management both by using an Internet site and workstations. Our system allows our customers 24-hour access to information on their fleets through our active control center and we are able to tailor our system to our customers’ specific needs.

Our solutions allow our subscribers to effectively manage and control their fleet, and thereby to reduce their operating costs, optimize work hours and appointment scheduling and improve their services and operations. Our system includes the following features:

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the ability to locate the fleet’s vehicles;

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continuous data communication with the fleet’s vehicles;

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real-time vehicle status indicators: speed, distance driven, direction of travel, driver name, motion start/stop, engine start/stop, speeding, diagnostic alerts, driver behavior and more;

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recording of determined events and analysis of data over time to improve driving and vehicle use;

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remote monitoring and processing of data, such as temperature control in refrigerated or chilled compartments, time stamp, tire pressure and heat and other complementary data;

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connection to standard organization systems;

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accident notification;

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task management optimization.

Value-added services

Locator services. Our services allow consumers to protect valuable merchandise and equipment. We provide our locator services in Israel, Brazil, Ecuador, Colombia, Mexico and Argentina.

Concierge services. Through a call center, we provide 24-hour on-demand navigation guidance, information and assistance to our customers. Such services include the provision of traffic reports, help with directions and information on the location of gas stations, car repair shops, post offices, hospitals and other facilities. We provide our concierge services to subscribers in Brazil, Argentina, Ecuador, Colombia and Israel.

“UBI” and "Connected Car". We provide UBI services in Israel through five insurance companies, and Connected Car services in Israel, Brazil, Colombia, Mexico, Argentina and Ecuador. For additional information on the service, see Item 4.B. – “Information on the Company “ - “Business Overview” under the caption “Telematics Services”

Telematics products

Our telematics products are used for various applications in the telematics markets and primarily in connection with our telematics services described above.

Our telematics products enable the location and tracking of vehicles, as well as assets or persons, and are primarily used by us in providing our SVR and fleet management services. Each subscriber to our SVR services has at least one of our end-units installed in his or her vehicle. Subscribers to services for locating persons or valuables will use our SMART and GPS/GPRS products. Our key telematics products for telematics applications include:

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Base Site: a radio receiver, which includes a processor and a data computation unit to collect and send data to and from transponders and send that data to control centers as part of the terrestrial infrastructure of the location system;

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Control Center: a center consisting of software used to collect data from various base sites, conduct location calculations and transmit location data to various customers and law enforcement agencies;

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GPS/GPRS-based products: navigation and tracking devices installed in vehicles; and

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SMART: a portable transmitter installed in vehicles (including motorcycles) that sends a signal to the base site, enabling the location of vehicles, equipment or an individual;

Geographical Information

The following table lists the key services and products that we currently sell or lease in different regions of the world:

Country	Services offered	Products sold
Israel	SVR, Fleet Management, Value-added services,including: Connected Car, UBI	Telematics Products

Brazil, Argentina, Mexico, Ecuador, Colombia	SVR, Fleet Management, Value-added services,including: Connected Car	Telematics Products

United States	SVR, Fleet Management, Value-added services,including: Asset protection to Auto Lenders	Telematics Products

In each of the above countries we maintain a control center, which is operated 24 hours a day, 365 days a year. The following is a short description of key operating statistics about our telematics services in the countries in which we operate (including through RTH subsidiaries):

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Israel: We commenced operations in Israel in 1995 and we had approximately 643,000 subscribers as of December 31, 2020. The operations in Israel were expended through M& A transactions with local companies (following the RTH Transaction) as well as organic growth. We operate throughout Israel in providing services through GPS/GPRS and RF based products and services.

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Brazil: We commenced operations in Brazil in 2000 and we had approximately 452,000 subscribers as of December 31, 2020. The operations were expended through M& A transactions with local companies (following the RTH Transaction) as well as organic growth. We currently provide RF based products and services only in the metropolitan areas of Sao Paulo, Campinas, Americans and Rio de Janeiro. However, we operate throughout Brazil in providing GPS/GPRS and RF based products and services.

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Argentina: We commenced operations in Argentina in 2002. The operations were expended through M&A transactions with local companies (following the RTH Transaction) as well as organic growth. We currently provide RF based products and services only in the metropolitan area of Buenos Aires. However, we also operate throughout Argentina in providing GPS/GPRS based products and services.

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United States: We commenced operations in the United States in 2000. We provide GPS/GPRS products and services throughout the United States.

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Mexico: We acquired the operations in Mexico in September 2018 as part of the RTH Transaction. We currently provide GPS/GPRS based products and services.

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Ecuador: We acquired the operations in Ecuador in September 2018 as part of the RTH Transaction. We currently provide GPS/GPRS based products and services.

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Colombia: We acquired the operations in Colombia in September 2018 as part of the RTH Transaction. We currently provide GPS/GPRS based products and services.

In all of the abovementioned countries (except of Israel and Brazil), and others, we had approximately 673,000 subscribers as of December 31, 2020.

Customers, Marketing and Sales

We market and sell our products and services to a broad range of customers that vary in size, geographic location and industry. In 2018 no single customer or group of related customers comprised more than 10% of our total annual revenues. In 2019 one of our customers comprised 15.8% of our total annual revenues. In 2020 no single customer or group of related customers comprised more than 10% of our total annual revenues.

Our selling and marketing objective is to achieve broad market penetration through targeted marketing and sales activities. As of December 31, 2020, our selling and marketing team consisted of 71 employees.

(A) Telematics services

Stolen vehicle recovery

Our customers in the SVR market include insurance companies, car manufactures and individual vehicle owners. As of December 31, 2020, majority of our subscribers use SVR services.

Our marketing and sales efforts are principally focused on five target groups: insurance companies and agents, car manufacturers, dealers and importers, cooperative sales channels (mostly vehicle fleet operators and owners) and private subscribers.

We maintain marketing and sales departments in each geographical market in which we operate. Each department is responsible for maintaining our relationships with our principal target groups. These responsibilities also include advertising and branding, sales promotions and sweepstakes.

In Israel, we focus our marketing efforts on insurance companies and agents, dealers and importers, cooperative sales channels (mostly vehicle fleet operators and owners) and private subscribers. In Brazil and Argentina our marketing and sales efforts are principally focused in all five target groups, as described above. In the United States, we believe that insurance companies do not constitute a material influence in the marketing of SVR services or telematics products. Most of our sales in the United States are made through car dealerships and dealers for new or used cars and cooperative sales channels (mostly vehicle fleet operators and owners). In Mexico, Colombia and Ecuador we focus our marketing efforts on dealers and importers, cooperative sales channels (mostly vehicle fleet operators and owners), private subscribers and car manufactures.

Fleet management

Vehicle fleet management systems are primarily marketed through vehicle fleets’ departments, which form a part of our regional marketing departments. We conduct in-depth research to identify companies that will gain efficiency and cost savings through the implementation of our products and services and conduct targeted marketing campaigns to these companies. In addition, we participate in professional conventions and advertise in professional publications and journals designed for our target customers. Our customers in the fleet management market include small-, mid- and large-size enterprises and individuals. As of December 31, 2020, we provided our services to approximately 324,000 end users through 23,000 corporate customers and individuals in Israel, Brazil, Argentina, United States, Mexico, Colombia, Ecuador and through distributers in other regions.

Value-added services

“Concierge Services” -Our concierge services are provided to existing SVR customers. A few thousands SMART devices were installed in valuable merchandise and equipment.

"Connected Car"- The service platform includes a back-office application, a telematics device installed in the vehicle, mobile apps for both IOS and Android and an interface using the car infotainment screen. Such services include information on car service history, information on some car systems, remote communication with the car in order to detect malfunctions, and to provide pre-emptive car maintenance alerts for both mechanical failures and operational issues such as a low tire pressure alert. The system also enables booking service appointments, both from the infotainment system interface in the system and from the user's mobile app, and additional related operational, and marketing services, as well as information analysis.” Connected Car’ is operating in Israel, Brazil, Colombia, Mexico, Argentina and Ecuador. As of December 31, 2020 we had 468,000 subscribers.

“Usage Based Insurance (UBI)" – we have developed a unique product (hardware and software) that measure and analyze the driving behavior in a verity of aspects by the driver, which enables insurance companies to offer a tailor -made and personalized insurance policy. The UBI has already been implemented and marketed by five Israeli insurance companies and we intend to accelerate its marketing and work with additional insurance companies in year 2021.

(B) Telematics products

Our telematics end-units are primarily used by us in providing our telematics services, including, SVR, fleet management, "Connected Car" and value-added services, at the regions we operate.

Competition

We face strong competition for our services and products in each market in which we operate. We compete primarily on technology edge, functionality, ease of use, quality, price, service availability, geographic coverage, track record of recovery rates and response times and financial strength.

(A) Telematics services

We compete with a variety of companies in each of our markets. The three major technologies utilized by our competitors are GPS/cellular, network-based cellular and radio frequency-based homing systems. In addition, new competitors utilizing other technologies may continue to enter the market.

Stolen vehicle recovery

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Israel. Our primary competitors in Israel are Pointer and Skylock Ltd.

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Brazil. Brazil is a highly fragmented market with many companies selling competing products and services (including immobilizers and other less-sophisticated vehicle security systems). Our main competitors in Brazil are Sascar, Zatix, CEABS, Car Systems, GolSat, Sat-Company.

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Argentina. Argentina is a highly fragmented market with many companies selling competing products and services (including immobilizers and other less-sophisticated vehicle security systems). Our main competitors in Argentina are LoJack Corporation, Pointer Argentina S.A., Prosegur S.A. and Megatrans S.A.

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United States. In the United States, there are several major companies offering various theft protection and recovery products that compete with our product and service offerings, including LoJack Corporation, OnStar Corporation, Advantage GPS/Procon Analytics, Sarekon GPS, Calamp, Spireon (which also includes SysLocate and GoldStar), PassTime, Guide Point, Icon and I-Metrik SVR.

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Colombia is a highly fragmented market. Main companies operate under the satellite/cellular infrastructure. Our main competitors are LoJack Corporation (under Detekor Brand), Prosegur, SATRACK (Local Company).

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Mexico is a highly fragmented market in tracking and satellite location services, in which there are multiple companies dedicated to providing comprehensive satellite tracking, fleet management and vehicle recovery solutions with GPS technology through the marketing of similar devices and technologies to ours, highly specialized in fleet management. The direct competitors are LoJack Corporation, Encontrack S.A. and Pointer Recuperación S.A.

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Ecuador highly fragmented market. Main companies operate under the satellite/cellular infrastructure. Our main competitors are Lojack,Tracklink and Carsync.

We believe that we are a leading provider of telematics services in Israel, as we are deemed a monopoly in this field; however, we are unable to provide specific market share information in the markets of our operations for various reasons, including the broad range of services and products that compete in these markets, the non-existence of trade publications with respect to the products and services we offer in such markets and the lack of meaningful or accurate market research or data available to us.

Fleet Management

The vehicle fleet management market is highly fragmented with many corporations offering location products and services. Our major competitors are:

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Israel: Pointer, ISR, Traffilog and Skylock;

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United States: GPS Insight, Trimble, Network Fleet, Street Eagle, FleetMatics, Navtrack, Teletrac, Trim Track, FleetBoss, PassTime, Verizon, AT&T, Geotab, Fleet-Complete,Sprint, Zubie, and Spireon;

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Brazil: Sascar, Zatix, CEABS and GolSat;

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Argentina: LoJack Corporation, Megatrans SA., Sitrac S.A., American Tracer, Ubicar S.A.,Sky Cop. and Prosegur S.A;

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Mexico: LoJack Corporation, Encotrack and Easytrack;

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Ecuador: Hunter (LoJack Corporation), Tracklink and Sherlock;

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Colombia: Satrack, Carlink and Detector.

(B) Telematics products

Our telematics system for automatic vehicle location is based on terrestrial network triangulation technology and primarily competes with companies that use one of three main technologies: GPS/GPRS (in combination with telematics), network-based cellular communication and radio frequency-based homing.

Telematics products based on GPS, network-based cellular and homing technologies do not require the construction of a separate infrastructure of base stations as with terrestrial network triangulation systems.

GPS receivers require line of sight to at least three satellites, which reduces their effectiveness in areas where the satellite signals are subject to interference and “noise” (such as urban areas, buildings or parking garages, forests and other enclosed or underground spaces). GPS and network-based cellular systems are also prone to jamming since the tracking signal receivers are located in the vehicle and can be easily tampered with. In addition, the satellites utilized by GPS devices are managed by the United States Department of Defense and can be subject to forced temporary outages. The main disadvantage of homing systems is that they provide only the general direction and not the precise location of the end-unit. In addition, homing systems require that the vehicle be reported stolen before the tracking signal can be activated, which may result in a delay between vehicle theft and recovery.

The GPS technology can receive and transmit a massive capacity of data which enable us to provide a better data analysis and variety of additional services.

Terrestrial network triangulation system does not require line of sight and the signals are not easily interrupted in densely populated or obstructed areas. Also, the signals are transmitted from the end-unit in the vehicle to a network of base stations. Therefore, in order to jam the system, receivers in each individual base station within range of the end-unit would have to be jammed, which is difficult to accomplish. Additionally, since the primary application of terrestrial network triangulation systems in the telematics industry is vehicle location and not continuous two-way communication, short bursts of data are sufficient for tracking purposes, which enable the network of base stations to be deployed at a much lower density in the coverage area than traditional network-based cellular base stations. Terrestrial network triangulation systems are capable of determining the precise location, and not just the general direction, of a vehicle at any moment in time. Furthermore, when connected with the existing theft protection system in the vehicle, terrestrial network triangulation systems automatically alert the control center when a vehicle is stolen and do not require that the vehicle be reported stolen, which can potentially reduce stolen vehicle recovery times to a few minutes. The main disadvantage of terrestrial network triangulation systems is the necessity to deploy a physical infrastructure, including the construction, development and deployment of a network of base stations and a control center and the need to address the various financial, legal and practical issues associated with such deployment. Any such deployment entails an investment of a sizable amount of money prior to the receipt of any revenues.

Since our telematics end-units are primarily used by us in providing our telematics services, the information provided above concerning our competition in this market is applicable to the competition in the telematics products’ market as well.

Manufacturing Operations and Suppliers

Our telematics products are manufactured and assembled by a limited number of manufacturers in Israel (including our subsidiary E.R.M) and in China. We engage with our manufacturers on a full turn-key basis, where we supply detailed production files and materials list and receive a final product that we sell directly to our clients. Other than our dependency on manufacturing suppliers, as described in Item 3D. - “Risk Factors” above, we do not depend on a single manufacturer for the production of our products. Our quality assurance and testing operations are performed by our manufacturers at their facilities, while using our quality assurance and testing equipment and in accordance with the test procedures designated by us. We monitor quality with respect to key stages of the production process, including the selection of components and subassembly suppliers, warehouse procedures, assembly of goods, final testing, packaging and shipping. We are ISO 9001 certified. Some of our products are within the highest car manufacture automotive standard. We believe that our quality assurance procedures have been instrumental in achieving the high degree of reliability of our products.

Several components and subassemblies included in our products are presently obtainable from a single source or a limited group of suppliers and subcontractors. We maintain strong relationships with our manufacturers and suppliers to ensure that we receive an adequate supply of products, components and raw materials at favorable prices and to access their latest technologies and product specifications.

Proprietary Rights

We seek to protect our intellectual property through patents, trademarks, contractual rights, trade secrets, know-how, technical measures and confidentiality, non-disclosure and assignment of inventions agreements and other appropriate protective measures to protect our proprietary rights in the primary markets in which we operate. The continued use of some licenses granted by third parties to use their intellectual property is material to our business. Please refer to Item 3D. – Risk Factors, under the caption “We rely on some intellectual property that we license from third parties, the loss of which could preclude us from providing our SVR services or market and sell some of our telematics products, which would adversely affect our revenues” above.

We typically enter into non-disclosure and confidentiality agreements with our employees and consultants. We also seek these protective agreements from some of our suppliers and subcontractors who have access to sensitive information regarding our intellectual property. These agreements provide that confidential information developed or made known during the course of a relationship with us is to be kept confidential and not disclosed to third parties, except in specific circumstances.

Our stolen vehicle recovery system is based on three main components: (i) a telematics end-unit that is installed in the vehicle, (ii) (for RF technology based telematics units) a network of base stations that relay information between the vehicle location units and the control center, certain components of which were developed by third parties and are currently licensed to us and (iii) a 24-hour manned control center consisting of software used to manage communications and the exchange of information among the hardware components of the telematics system, certain components of which were developed by third parties and licensed to us.

“Ituran” and “Mr. Big” and the related logos are our trademarks, the former has been registered in Israel, Hong Kong and as a European Union and the latter has been registered in Israel. “Mapa” trademark and its related logos where sold as part of the sale of Mapa to an unrelated party to us.

Regulatory Environment

In order to provide our SVR services in the locations where we currently operate, we need to obtain four primary types of licenses and permits: (i) for our products utilizing the RF technology - a license that allows us to use designated frequencies for broadcasting, transmission or reception of signals and information and to provide telecommunication services to our customers, (ii) for our products utilizing the RF technology - a building permit, which permits us to erect our base sites and transmit therefrom, (iii) product specific licenses (commonly known as type approvals), which enable us to use the equipment necessary for our services, and (iv) a general commerce license, which allows us to offer our services to the public.

The telecommunication services and frequency license and general commerce licenses we require are granted by the applicable national agency regulating communications in the markets in which we operate, specifically, the Ministry of Communication, in Israel, Anatel. Agencia Nacional de Telecomunicatoes in Brazil. Modernization Ministry in Argentina and the Federal Communications Commission in USA. The product specific licenses we require are granted in Israel by the Ministry of Communication, in Brazil by IBRACE (the Instituto Brasileiro de Certificatao de Productos para Telecominicatoes), in Argentina by the Autoridad Federal de Tecnologias de la Información y las Comunicaciones, in the United States by the Federal Communications Commission, and Ministry of Information Technology and Communications in Colombia. In Mexico, the regulatory authority is the Federal Telecommunications Commission, however, because of the type of services we provide, we are not obligated entities; In Ecuador's case, the regulatory body is the Telecommunications Regulatory and Control Agency, however, we are not subject to either.

In Brazil, the general commerce licenses, such as the city permits, are granted by the local municipalities and other specific entities, depending on the licenses required.

Our frequency licenses in all of the locations where we operate are “secondary” or “joint”, which means that the government may grant another person or persons, typically a cellular operator, a primary license to the same frequencies and, to the extent our operations interfere with the operations of the other person, we would have to modify our operations to accommodate the joint use of the frequencies. All of these licenses are also subject to revocation, alteration or limitation by the respective authority granting them. While any events that would cause us to change frequencies or to modify our operations could have a material adverse effect on us, we do not believe that this is a likely event in any of the locations where we provide our SVR services.

Our frequency license in Israel was renewed for a term of five (5) years until January 31, 2023. Our frequency licenses in Brazil will expire in 2034. Except in Brazil, we have options to extend all of our frequency licenses for periods ranging from three- to ten-years. A renewal application in Brazil will be submitted 6 months before the frequency license expiration date, to provide us a new license for a period of ten (10) years. In Argentina, on July 15, 1999, the SECOM (Secretary of Communication dependent of Economy Ministry) granted us a license to provide services in a Secondary Band. On December 2015, SECOM was converted into the Modernization Ministry, with ENACOM (National Communication Entity) which is a decentralized entity that works within the scope of the Modernization Ministry.

Nevertheless, our frequency is still authorized, there is a new entrant with ENACOM Authorization to provide LTE service. If this entrant starts the activity, we will face an incompatibility situation. We received the authorization from ENACOM to use a 12-month trial in Band 8 902-905/947-950 MHz bands additionally to our current frequencies. During this period, we will perform a test to obtain a definitive authorization. Due to the Covid-19 Pandemic we have not managed an extension to the trial period so as not to compromise future network development. We have decided to wait for a formal request from ENACOM to start again with this trail.

On December 9, 2016, we were informed that one of the cellular providers in Argentina, which shares some of our frequencies, intends to implement on them 4G cellular service. Such service may cause Interference that may impede the provision of our SVR service in Argentina. We are negotiating with ENACOM to define new frequency which we will migrate into. Subject to the applicable laws, and ENACOM decision, the migration process may take few years, and will be determined by ENACOM.

In Israel and Brazil, like our competitors and most cellular operators, we are not in compliance with all relevant laws and regulations in connection with the erection of transmission antennas (our base sites). As of the date hereof, most of our base sites in Israel and Brazil are operating without local building permits. Currently, there is heightened awareness of this issue in Israel, particularly in connection with base sites of cellular providers, and possible sanctions could include fines and even the closure or demolition of these base sites. In Brazil, Brazilian authorities enforce permit requirements and impose penalties for non-compliance with such requirements. However, we do not believe this is likely. Obtaining such required permits may involve additional fees as well as payments to the Land Administration Authority.

In Israel the required permits and approvals for the erection of the base sites include:

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erection and operating permits from the Israeli Ministry of the Environment;

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permits from the Israeli Civil Aviation Authority, in certain cases;

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permits from the Israeli Defense Forces;

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approval from Israel’s Land Administration and/or from Civil Administration in the Territories, which usually also involves payment for the land use rights; and

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building permits from local or regional zoning authorities in Israel and Brazil.

We are continuously in the process of obtaining the relevant permits required for the construction of our base sites in Israel, however, to date, we have been issued only 15 of these permits (13 of them have expired). With respect to the general permit from Israel’s Land Administration, in 2005 we entered into an agreement with the Israel’s Land Administration, pursuant to which the general permit has been issued to us against an annual consideration based on the date of approval of our base sites. The agreement had expired on December 31, 2010. In the event that the Israel Land Administration claims consideration for the building of the base sites without a permit, we may be subject to penalties and payment of annual consideration for the years of use of those base sites.

In Brazil, very few providers of wireless telecommunications services obtain the required permits for the erection of transmission antennas due to the nature of the approval process. Currently we do not have such permits (except Anatel permits). In Brazil, we try to minimize our risk by locating most of our equipment in sub-leased sites which are already used by other telecommunication service providers, such as cellular operators.

In Brazil the required permits for the building of our base sites include:

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a permit from Anatel (National Agency for Telecommunication)

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a permit from IBAMA (Environment national agency) and/or state EPAs

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Municipal permits

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a permit from the fire department; and a

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permit from COMAR (Aviation authorities)

ANATEL permits are required only for sites where we have transmission equipment and we have obtained all the permits required with this agency. Special IBAMA permits need to be obtained only for ground sites which are located in certain preservation areas. We have few sites of this kind, most of them are collocated sites where we pay for the right of use and permits are undertaken by the landowner. Fire Department permits are required only for equipment rooms and we have not applied for any as of this date. COMAR permits are needed only for a very few of our sites, most of which are collocated.

In Argentina, the installation of an antenna support structure requires the authorization of the owner of the building or the land in which it is intended to be install. The Municipalities regulate through specific Municipal Ordinances are granting urban licenses for our base stations’ installation.

The regulation referred to the civil work of the support structure of the antenna, (masts / towers / anchors / bracing, etc.) is not the competence of ENACOM (National Communication Entity), so it cannot exercise jurisdiction over it. This situation is determined in articles 39, 40 and 41 of the National Law 19798/72, and in Resolution No. 795 CNT / 92, ratified by Resolution 302 SC / 99. Therefore, the claims and queries related to the installation, the deterioration or poor conditions or related to the support structures, should be addressed to the municipalities. It should be noted that the owner of a station in operation assumes responsibility for the works and accessory facilities that must be executed to install a radio station, attributing the technical responsibility of a civil work, to the designer and the director of the same, being this situation framed in what is established in articles 1273 and following of the Civil and Commercial Code of the Nation.

We are not in compliance with all relevant laws and regulations in connection with the erection of antennas; some of them in the past were closure by Municipalities. As of the date hereof, most of our base sites operating without local Municipality permits, possible sanctions could include fines and even the closure of those sites. In Argentina authorities enforce permit requirements and impose penalties for non-compliance with such requirements. Obtaining such required permits may involve additional fees as well as payments to Municipality Authority.

We have been declared a monopoly under the Israeli Antitrust Law, 1988, in the provision of systems for the location of vehicles in Israel. This law prohibits a monopoly from abusing its market position in a manner that might reduce competition in the market or negatively affect the public. For instance, a monopoly is prohibited from engaging in predatory pricing and providing loyalty discounts, which prohibitions do not apply to other companies. The law empowers the Commissioner of Competition to instruct a monopoly abusing its market power to perform certain acts or to refrain from taking certain acts in order to prevent the abuse. Additionally, any declaration by the Israeli Competition authority that a monopoly has abused its position in the market may serve in any suit in which it is claimed that such a monopoly engages in anti-competitive conduct, as prima facie evidence that it has engaged in anti-competitive behavior. Our declaration as a monopoly in the market of “provision of systems for the location of vehicles in Israel” was not accompanied with any instructions or special restrictions beyond the provisions of The Economic Competition Law. Although we may be ordered to take or refrain from taking certain actions, to date we have not been subject to such restrictions.

In Colombia we have to pay 2.2% on the annual gross income generated by the provision of our services to the Ministry of Information Technologies and Communications (MINTIC) for use of telecommunication spectrum (resolution 0290 MINTIC) and 0.1% to Commission Regulatory of Communications (CRC) in the same terms (resolution 5807 CRC).

In Ecuador and Mexico there are no levies imposed on our activities.

Other Investments

As part of our ongoing business we are engaged and encountered by many potential investment which may have correlation to our core business. The following are the main investments we have consummated during last seven years.

Bringg - On December 2013 the Company invested $1.4 million in Bringg delivery technologies Ltd. (formerly Overvyoo Ltd.), an Israeli start-up company developing solutions for the management of mobile/field workforce. On January and July, 2015, we invested additional amounts of $1.1 million and US$ 2 million, respectively. During the years 2015 - 2020, additional investors, which are not related to us, invested in Bringg a total amount of approximately $80 million, which reduced our capital share in Bringg. Following such investments, we now hold 19.72% of Bringg’s share capital.

SaverOne Ltd - On March 2017, we invested an amount of $0.9 million in SaverOne 2014 Ltd., an Israeli start-up company developing a system that aims to reduce the occurrence of road accidents by preventing the use of distracting mobile apps while driving (The system prevents the driver from using texting applications while the vehicle is in motion, leaving other passengers unaffected).

During the years 2017 – 2020 we invested additional amount of approximately $0.8 million.

On June 2020 SaverOne have consummated public registration on the Israeli Stock Market (TASE) and thus its shares became equity investment with readily determinable fair value. We now hold approximately 10% of SaverOne’s share capital.

As of December 31,2020, the fair value of our investment in SaverOne is approximately US$ 6.6 million.

C. ORGANIZATIONAL STRUCTURE

In July 1995, Moked Ituran Ltd. purchased our company and the assets used in connection with its operations from Tadiran and Tadiran Public Offerings Ltd. In September 2018, we acquired a majority of the shares of Road Track, a telematics company operating primarily in the Latin American region.

List of Significant Subsidiaries

Name of Subsidiary	Country of Incorporation	Proportion of Ownership Interest

Ituran USA Holdings Inc	USA		100	%
Ituran USA Inc	USA		85.80	%
Ituran de Argentina S.A	Argentina		100	%
Ituran Sistemas de Monitoramento Ltda	Brazil		98.75	%
Ituran Instalacoes Ltda	Brazil		98.75	%
Teleran Holding Ltda	Brazil		99.99	%
Ituran servicos Ltda	Brazil		98.75	%
E.R.M. Electronic Systems Limited	Israel		51	%
Mapa Mapping & Publishing Ltd	Israel		100	%
Ituran Spain Holding S.L	Spain		81.28	%
Ituran Road Track Monitaramento de Veiculos LTDA	Brazil		90.65	%
Ituran Road Track Argentina, S.A	Argentina		90.65	%
Global Telematics Solutions HK, Limited	Hong Kong		90.65	%
Road Track De Colombia S.A.S	Colombia		81.28	%
Road Track Ecuador, S.A.	Ecuador		81.28	%
Road Track Mexico S.A. De C.V	Mexico		81.28	%
Road Track HK Telematics Limited	Hong Kong		81.28	%
E.D.T.E – Drive Technology Ltd	Israel		81.28	%
Ituran Tech Ltd	Israel		99.99	%

D. PROPERTY, PLANTS AND EQUIPMENT

As of the date of this report, we don’t own any real estate other than the following properties: An office building of 8 floors in the area of approximately 5,356 sqm (57,651 square feet), which was purchased by our subsidiary Ituran Sistemas de Monitoramento Ltda (Ituran Brazil) in Sao Paulo, Brazil, and was later, on December 3, 2014 sold to us, A building located in Rua Joao pessoa 450, Sao Caetano do Sul, Estado de Sao Paulo in Sao Paulo, Brazil in the area of approximately 36,936 square feet which was purchased by our subsidiary Ituran Road Track Monitoramento de Veiculos, Ltda which serve as an Operating center, A building located in Avenida del Taller No.36 Col. Transito in Mexico in the area of approximately 21,132 square feet which was purchased by our subsidiary Road Track Mexico, S.A de C.V which serve as an Operating center, a building located in Manuel Najas Oel 81 and Juan de Selis in Quito, Ecuador in the area of approximately 23,875 square feet which was purchased by our subsidiary Road Track Ecuador, S.A which serve as an Operating center, and a building located in Keren Ha' Yesod 15, Tirat Ha'Carmel, Israel at the area of approximately 5,025 square feet which was purchased by our subsidiary E.D.T.E – Drive Technology Ltd which serve as an Office space and a warehouse.

Other than the property in Brazil, Ecuador and Mexico and Israel, all of our offices, headquarters, control centers and facilities are leased in accordance with our specific needs in the areas in which we operate. Additionally, we lease space for our base sites, in order to operate the reception and transmission stations of the system, in each area in which we provide our SVR services.

In 2020 we leased an aggregate of approximately $63,234 square feet of office space in Azour and Holon, Israel. In 2020, the annual lease payments for these facilities were approximately $1,069,000 The initial term of the primary lease (in Azour) expired on March 31, 2013; and we renewed the lease until April 2022. These premises include our executive offices and the administrative and operational centers for our operations as well as our customer service, value-added services and technical support centers for the Israeli market. We also lease 3,000 square feet for a warehouse and offices in Tirat Ha’Carmel for $ 34,000 annually.

In Buenos Aires, Argentina, we lease approximately 4,521 square feet for office space for the total amount of $ 22,352 annually, approximately 1,238 square feet for our control center for $ 6,120 annually, approximately 5,253 square feet for our installation center for $ 32,123 annually, approximately 2,121 square feet for our warehouse for $ 15,048 annually, and approximately 2,121 square feet for our third warehouse for $ 13,599 annually.

In Bogota, Colombia, we lease approximately 9,035 square feet for office space and Operating center for the amount of $ 85,000 annually, and additional 2,403 square feet for Operating center for the amount of $ 19,290 annually. The latter was terminated on May 2020.

In Mexico City, Mexico, we lease approximately 3,875 square feet for Corporate Office for the amount of $ 35,000 annually. This was terminated on November 2020. Additionally, we lease a warehouse for the amount of $3,000 annually.

In Sao Paulo, Brazil, we lease approximately 7,535 square feet for Parking lot for the amount of $ 30,000 annually.

In Guayaquil, Ecuador, we lease approximately 5,832 square feet for Warehouse for the amount of $30,000 annually. In Quito, Ecuador, we lease approximately 7,354 square feet for Warehouse for the amount of $ 30,000 annually. In Cuenca, Ecuador, we lease approximately 538 square feet for Warehouse for the amount of $ 3,399 annually. In Ibarra, Ecuador, we lease approximately 3,875 square feet for Corporate Office for the amount of $ 1,956 annually.

We lease approximately 9,260 square feet for our offices and control center in Florida for an amount of $ 165,000 annually for period of 60 months commencing March 24, 2016 and ending March 23, 2021, and a 12 months extension starting March 24,2021 at a reduced annual rate of $140,000 annually.

We leased approximately 6,458 square feet of office space, stores and warehouse in Brazil for approximately 446,000 ($86,000) Brazilian Real annually. The lease agreements will expire and will have to be renewed on August 21, 2024, December 2024, as applicable to each engagement.

We believe that our facilities are suitable and adequate for our operations as currently conducted. In the event that additional facilities will be required, we believe that we could obtain such facilities at commercially reasonable rates.

The size of our base station sites varies from approximately 11 to 44 square feet. In Israel, we have 98 base stations and we rent most base station sites independently for a monthly rate ranging from $200 to $2,000 per site depending on the location, size and other factors; for certain sites we do not pay any rent. The typical duration of a lease agreement for our base stations in Israel is five years and we generally have a right to renew the term of the lease agreements for a period ranging between two and five years. In Brazil, we have 147 base station sites, of which 23 sites are leased from the same entity under a 15 years-contract, (commencing from 2012) for a monthly rate ranging from $500 to $1,750 per site. The remaining 124 sites are leased independently for an annual rate ranging from $200 to $550 depending on the location, size and other factors, and the typical duration for these leases is five years. In Argentina, we have 37 base station sites, all of which are leased from six entities for a monthly rate ranging from $350 to $960 per site. The duration of the lease ranges from one to two years.

We do not believe that we have a legal retirement obligation associated with the operating leases for our base sites pursuant to the relevant accounting standards, since we do not own any real property. However, we are obligated pursuant to certain of the operating leases for our base sites, mainly for base sites in Israel, Brazil and Argentina, to restore facilities or remove equipment at the end of the lease term. Since the restoration is limited to any construction or property installed on the property, which in our case is only the installed antennas, we do not believe that these obligations, individually or in the aggregate, will result in us incurring a material expense.

ITEM 4.A. UNRESOLVED STAFF COMMENTS

Not applicable

ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A. OPERATING RESULTS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this report.

Introduction

We believe we are a leading provider of telematics services, consisting predominantly of stolen vehicle recovery, which we refer to as SVR, and tracking services. We also provide telematics products used in connection with our SVR services and for various other applications. We currently provide our services and sell and lease our products mainly in Israel, Brazil, Argentina and the United States and since September 2018 also in Colombia, Mexico and Ecuador.

Our operations consist of two segments: Telematics services and telematics products.

Our telematics services segment consists of our SVR, "Connected Car" fleet management, UBI, and value-added services. We currently operate our telematics services throughout the regions we operate.

Our telematics products segment consists of our short - and medium-range two-way telematics products. We sell our telematics end-units to customers that subscribe to our telematics services.

Outlook

We have historically experienced growth in most of the markets in which we provide our telematics services. These markets are generally characterized by high car theft rates, insurance companies and car manufactures that are seeking solutions to limit their actual losses resulting from car theft and increase their sales by adding additional value to the customer, and hence the Brazilian market continues to represent growth potential for our telematics services. The growth in subscribers within our telematics services segment also has a direct impact on the sale or lease of our telematics products, as they are an integral component of our telematics services and are installed in each subscriber’s vehicle. In Israel, in recent years the market experienced an increased car sales which positively affect our sales as compared with previous years.

Please refer to Item 3D. – Risk Factors above in respect of factors that could negatively impact our business.

Geographical breakdown

Telematics services’ subscriber base

The following table sets forth the geographic breakdown of subscribers to our telematics services as of the dates indicated:

	As of December 31,
	2020		2019		2018
Israel		643,000		610,000		551,000
Brazil		452,000		489,000		555,000
Others		673,000		682,000		664,000

Total⁽¹⁾		1,768,000		1,781,000		1,770,000

⁽¹⁾ All numbers provided are rounded, and therefore totals may be slightly different than the results obtained by adding the numbers provided.

Revenues

The following table sets forth the geographic breakdown of our revenues for each of our business segments for the relevant periods indicated.

	Year ended December 31,
	2020				2019				2018⁽²⁾
	In USD, in Millions
	Telematics services		Telematics products		Telematics services		Telematics products		Telematics services		Telematics products
Israel		85.1		35.4		77.6		32.5		72.0		44.2
Brazil		60.0		1.5		85.1		12.9		86.3		4.6
Others		37.8		25.8		42.0		29.2		23.1		23.2
Total⁽¹⁾		182.9		62.7		204.7		74.6		181.4		72.0

⁽¹⁾ We attribute revenues to countries based on the location of the customer.

⁽²⁾ The revenues include RTH results from the closing date, September 13, 2018.

Telematics services segment

We generate revenues from rendering our SVR, fleet management connected car and value-added services. A majority of our revenues represent subscription fees paid to us by our customers. We recognize revenues from subscription fees on a monthly basis. Our customers are free to terminate their subscription at any time. In the absence of such termination, the subscription term continues automatically. We also generate subscription fees from our fleet management services. Assuming no additional growth in our subscriber base and based on our historical average churn rates of 3% per month in this segment, we can anticipate that at least 90% of our subscription fees generated in a prior quarter will recur in the following quarter.

Telematics products segment

We generate revenues from sale of our telematics products to customers in Israel, Brazil, Argentina, Mexico, Colombia, Ecuador and the United States. We currently sell or lease our telematics end-units in each of the above regions. Growth in our subscriber base is the principal driver for the sale of our telematics products. We recognize revenues from sales of our telematics products upon transfer of control to the customer (usually upon delivery).

Cost of revenues

Telematics services segment

The cost of revenues in our telematics services segment consists primarily of staffing, maintenance and operation of our control centers and base stations, costs associated with our staff and costs incurred for private enforcement, licenses, permits and royalties, as well as communication costs and costs due to depreciation of leased products and installation fees. Cost of revenues for sales of our fleet management services also includes payments to a third party who markets our services.

Telematics products segment

The cost of revenues in our telematics products segment consists primarily of production costs of our third-party manufacturers and costs associated with installation fees.

Operating expenses

Research and development

Our research and development expenses consist primarily of salaries, costs of materials and other overhead expenses, primarily in connection with the design and development of our telematics products. We expense some of our research and development costs as incurred. Subject to certain criteria we capitalize software development costs. For further information see Note 1S to our consolidated Financial statements.

Selling and marketing

Our selling and marketing expenses consist primarily of advertising, salaries, commissions and other employee expenses related to our selling and marketing team and promotional and public relations expenses.

General and administrative

Our general and administrative expenses consist primarily of salaries, bonuses, accounting and other general corporate expenses.

Operating Income

Telematics services segment

Operating income in our telematics services segment is primarily affected by increases in our subscriber base and our ability to increase the resulting revenues without a commensurate increase in our corresponding costs.

Telematics products segment

Operating income in our telematics products segment is primarily affected by our ability to increase sales of our telematics products.

Financing expenses (income), net

Financing income (expenses),net ,include, inter alia ,short-term and long-term interest expenses, financial commissions, income (expenses) in respect of changes in obligation to purchase non-controlling interests ,and gains (losses) from currency fluctuations from the translation of monetary balance sheet items denominated in currencies other than the functional currency of each entity in the group, gains (losses) in respect of marketable securities and other investments, and expenses related to tax positions.

Taxes on income

Income earned from our services and product sales is subject to tax in the country in which we provide our services or from which we sell our products.

Critical Accounting Policies and Estimates

Our critical accounting policies are more fully described in Note 1 to our consolidated financial statements appearing elsewhere in this report. However, certain of our accounting policies require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on a periodic basis. We base our estimates on historical experience, industry trends, authoritative pronouncements and various other assumptions that we believe to be reasonable under the circumstances. Such assumptions and estimates are subject to an inherent degree of uncertainty.

The following are our critical accounting policies and the significant judgments and estimates affecting the application of those policies in our consolidated financial statements. See Note 1 to our consolidated financial statements included elsewhere in this report.

Revenue recognition

We and our subsidiaries generate revenue from subscriber fees for the provision of services and sales of systems and products, mainly in respect of fleet management services, stolen vehicle recovery services and other value-added services. To a lesser extent, revenues are also derived from technical support services. we and our subsidiaries sell the systems primarily through their direct sales force and indirectly through resellers.

On January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) to all contracts, using the modified retrospective method.

The cumulative impact of the adoption in an amount of approximately US$3 million (net of tax), was recognized as a reduction to retained earnings as of January 1, 2018.

In accordance with ASC 606, we determine revenue recognition through the following five steps:

•

Identification of the contract, or contracts, with a customer;

•

Identification of the performance obligations in the contract;

•

Determination of the transaction price;

•

Allocation of the transaction price to the performance obligations in the contract; and

•

Recognition of revenue when, or as, we satisfy a performance obligation.

A contract with a customer exists when all of the following criteria are met: the parties to the contract have approved it (in writing, orally, or in accordance with other customary business practices) and are committed to perform their respective obligations, we can identify each party’s rights regarding the distinct goods or services to be transferred (“performance obligations”), we can determine the transaction price for the goods or services to be transferred, the contract has commercial substance and it is probable that we will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

For each type of contract at inception, we assess the goods or service promised in a contract with a customer and identifies the performance obligations. With respect to contracts that are determined to have multiple performance obligations, such as contracts that combine product with services (mostly SVR services) and/or rights to use assets, we allocate the contract’s transaction price to each performance obligation using its best estimate of the relative standalone selling price of each distinct good or service in the contract. The primary method used to estimate the relative standalone selling price is expected costs of satisfying a performance obligation and an appropriate margin for that distinct good or service.

Revenues are recognized when, or as, control of services or products is transferred to the customers at a point in time or over time, as applicable to each performance obligation.

Revenues are recorded in the amount of consideration to which we expect to be entitled in exchange for performance obligations upon transfer of control to the customer, excluding amounts collected on behalf of other third parties and sales taxes.

We do not adjust the amount of consideration for the effects of a significant financing component since we expect, at most contracts inception, that the period between the time of transfer of the promised goods or services to the customer and the time the customer pays for these goods or services to be generally one year or less, based on the practical expedient. our credit terms to customers are, on average, between thirty and ninety days.

In accordance with ASC 606, our revenues are recognized as follows:

Revenues from sales of Automatic Vehicle Location ("AVL") products are recognized when the control of the product passed to the customer (usually upon delivery).

Revenues from provision of SVR services are recognized over time, as the customers simultaneously receive and consume the benefits we provided.

For arrangements that involve the delivery or performance of multiple products (mostly, AVL products), services (such as SVR services) and/or rights to use assets, we analyze whether the goods or services that were promised to the customer are distinct. A good or service promised to a customer is considered ‘distinct’ if both of the following criteria are met: 1. The customer can benefit from the good or service, either on its own or together with other resources that are readily available to the customer; and, 2. Our promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. When the above criteria are met the revenue recognition for the related products and/or services are recognized as described in 1 and 2 above, as applicable. With respect to arrangement that are determined to have multiple performance obligations that are distinct, we allocate the contract transaction price to each performance obligation using its best estimate of the relative standalone selling price of each distinct good or service in the contract. The primary method used to estimate the relative standalone selling price is the expected costs of satisfying the performance obligation with an appropriate margin for that distinct good or service.

Revenues from SVR services subscription fees and from installation services, sold to customers within a single contractually binding arrangement were accounted for revenue recognition purposes, as a single performance obligation, since the installation services element was determined not to be ‘distinct’. Accordingly, the entire contract fee for the two deliverables was recognized over time, on a straight-line basis over the subscription period.

Amounts earned by certain Brazilian subsidiary for arranging a bundle transaction of SVR services subscription and installation services together with insurance services to be supplied by a third-party insurance company, are recognized ratably on a straight-line basis over the subscription period (see 3 above), since the amount allocated to us (for the SVR services subscription, installation services and for arranging the transaction), was contingent upon the delivery of the SVR services. As the insurance company is acting as a principal with respect to the insurance component, we recognized only the net amounts as revenues, after deduction of amounts related to the insurance component.

Deferred revenues include unearned amounts received from customers (mostly for the provision of installation, future subscription services and extended warranty) but not yet recognized as revenues. Such deferred revenues are recognized as described in paragraph 3 above or paragraph 6 below, as applicable.

Extended warranty - In the majority of countries, in which we operates, the statutory warranty period is one year, and the extended warranty covers periods beyond year one. Revenues from extended warranty include warranty services which were sold separately for a monthly fee, or warranty services that were determined to represent a separate performance obligation and were sold together with an AVL unit. Such revenues are recognized over the duration of the warranty periods.

Contingencies

We and our subsidiaries are involved in certain legal proceedings that arise from time to time in the ordinary course of their business and in connection with certain agreements with third parties. Except for income tax contingencies, we records accruals for contingencies to the extent that the management concludes that the occurrence is probable and that the related liabilities are estimable. Legal expenses associated with contingencies are expensed as incurred.

Goodwill and intangible assets

Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in business combinations accounted for in accordance with the "purchase method" and is allocated to reporting units at acquisition. Goodwill is not amortized but rather tested for impairment at least annually in accordance with the provisions of ASC Topic 350, "Intangibles - Goodwill and Other". we elected to perform the goodwill annual impairment test for its operating units as follows:

•

An amount of approximately $35.8 million (as of December 31, 2020) relates to two different reporting units (resulted from RTH transaction) should be tested on June 30, of each year, or more often if indicators of impairment are present. As described below, we were also required to perform an impairment test with respect to these units on December 31, 2020.

•

An amount of approximately $4.1 million (as of December 31, 2020) relates to two different reporting units (resulted from past acquisitions) is tested at December 31 of each year, or more often if indicators of impairment are present.

As required by ASC Topic 350, we choose either to perform a qualitative assessment whether the quantitative goodwill impairment test is necessary or proceeds directly to the quantitative goodwill impairment test. Such determination is made for each reporting unit on a stand-alone basis. The qualitative assessment includes various factors such as macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, earnings multiples, gross margin and cash flows from operating activities and other relevant factors. When we choose to perform a qualitative assessment and determines that it is more likely than not (more than 50 percent likelihood) that the fair value of the reporting unit is less than its carrying value, then we proceeds to the quantitative goodwill impairment test. If we determine otherwise, no further evaluation is necessary.

With respect to goodwill impairment tests performed before the adoption of ASU 2017-04, when we decided or required to perform the quantitative goodwill impairment test, we firstly were required to compare the fair value of the reporting unit to its carrying value ("step 1"). If the fair value of the reporting unit exceeded the carrying value of the reporting unit net assets (including the goodwill allocated to such reporting unit), goodwill was considered not to be impaired, and no further testing was required. If the carrying value was determined to exceed the fair value of the reporting unit, then the implied fair value of goodwill was determined by subtracting the fair value of all the identifiable net assets from the fair value of the reporting unit. An impairment loss was recorded for the excess, if any, of the carrying value of the goodwill allocated to the reporting unit over its implied fair value ("step 2").

Commencing the adoption of ASU 2017-04 (which eliminated Step 2 from the goodwill impairment, see also Note 10), when we decide or is required to perform the quantitative goodwill impairment test, we compare the fair value of the reporting unit to its carrying value and an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. In the performance of the quantitative analysis we applied assumptions that market participants would consider in determining the fair value of each reporting unit and the fair value of the identifiable assets and liabilities of the reporting units, as applicable.

As of December 31, 2020, we had four reporting units which include goodwill (four in 2019 and two in 2018).

Telematics services:

Under the telematics services segment there are two reporting units with goodwill. For one of which (resulted from past acquisitions) with an allocated amount of approximately US$ 1.9 million of goodwill, we performed a qualitative assessment as of December 31, 2020 and 2019, and concluded that the qualitative assessment did not result in a more likely than not indication of impairment, and therefore no further impairment testing was required, with respect to such units.

For the second reporting unit (resulted from RTH transaction) with an allocated amount of approximately US$ 41.8 million of goodwill (as of June 30, 2020, before the impairment test), we performed the annual impairment test, as of June 30, 2020 and recorded impairment of approximately US$ 9.5 million. The impairment was recorded in the consolidated statement of income under a separate line ("Impairment of goodwill").

As of December 31, 2020, the remaining balance of goodwill related to this unit is approximately US$ 32.3 million. Due to existence of negative factors during the following months until December 31,2020, we performed a qualitative assessment as of that date and concluded that the qualitative assessment did not result in a more likely than not indication of impairment, and therefore no further impairment testing was required, with respect to such unit.

Telematics products:

Under the telematics products segment there are two reporting units with goodwill, for one of which (resulted from past acquisitions) with an allocated amount of approximately US$ 2.2 million of goodwill, we performed a qualitative assessment as of December 31, 2020 and 2019, and concluded that the qualitative assessment did not result in a more likely than not indication of impairment, and therefore no further impairment testing was required, with respect to such units.

For the second reporting unit (resulted from RTH transaction) with an allocated amount of approximately US$ 4.5 million of goodwill (as of June 30, 2020, before the impairment test), we performed annual impairment test, as of June 30, 2020 and recorded impairment of approximately US$ 1.0 million. The impairment was recorded in the consolidated statement of income under a separate line ("Impairment of goodwill").

As of December 31, 2020, the remaining balance of goodwill related to this unit is approximately US$ 3.5 million. Due to existence of negative factors during the following months until December 31,2020, we performed a qualitative assessment as of that date and concluded that the qualitative assessment did not result in a more likely than not indication of impairment, and therefore no further impairment testing was required, with respect to such unit.

Intangible assets with finite live (As of December 31,2020, the Balance of intangible assets consist of customer relationship, technology and others) are amortized using the straight-line basis over their useful lives, to reflect the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up.

As a part of RTH transaction we identified intangible assets in a fair value (as of the acquisition date) of approximately US$ 38.6 million.

As of December 31, 2020, the intangible assets are amortized as follows:

	Years
Customer relationship	3
Technology services	5
Other	5

During 2020 and 2019 we recorded an intangible assets impairment loss in the amount of approximately US$ 3.7 million and US$ 13.9 million, respectively. The impairment was recorded in the consolidated statement of income under "Impairment of intangible assets and other expenses".

Obligation to purchase non-controlling interests

An obligation to acquire shares of a subsidiary held by Non-controlling interests at a stated future date, represents liability under ASC Topic 480. Upon initial recognition such liability is measured at fair value in accordance with ASC Topic 480-10-30-3 at the amount of cash that would be paid under the conditions specified in the contract if the shares were repurchased immediately and in subsequent periods at the amount of cash that would be paid under the conditions specified in the contract if settlement occurred at the reporting date with any change in value from the previous reporting date recognized as interest cost. In addition, the Non-controlling interests subject to such obligation are not recognized and no earnings are allocated to them.

Results of Operations

The following table sets forth for the periods indicated selected items from our consolidated statements of income as a percentage of our total revenues.

	Year Ended December 31,
	%
Consolidated statements of operations data:	2020			2019			2018
Revenues:
Telematics services		74.5			73.3			71.6
Telematics product		25.5			26.7			28.4

Total Revenues		100			100			100
Cost of Revenues:
Telematics services		33.2			32.3			27.8
Telematics products		19.8			21.0			21.9

Total cost of revenues		53.0			53.3			49.7

Gross profit		47.0			46.7			50.3
Operating Expenses:
Research and development expenses		5.2			5.0			2.4
Selling and marketing Expenses		4.5			4.6			4.5
General and administrative expenses, net		20.2			19.7			18.8
Impairment of goodwill		4.3			4.4
Impairment of intangible assets and other expenses (income), net		1.5			4.9			(0.1	)

Total operating expenses		35.7			38.6			25.6
Operating Income		11.3			8.1			24.7
Other income expenses, net		(0.1	)		-			5.1
Financing income, net		0.6			0.2			0.3

Income before income tax		11.8			8.3			30.1
Income tax		(4.4	)		(4.4	)		(6.8	)
Share in gains (losses) of affiliated companies, net		(0.3	)		(1.1	)		1.7

Net income for the year		7.1			2.8			25.0
Less: net income attributable to non-controlling interests		(0.5	)		(0.3	)		(1.0	)

Net income attributable to company stockholders		6.6			2.5			24.0

Analysis of our Operation Results for the Year ended December 31, 2020 as compared to the Year ended December 31, 2019

Revenues

Total revenues decreased from $279.3 million in 2019 to $245.6 million in 2020 or 12%. This decrease consisted a decrease of $ 21.8 million from subscription fees from our telematics services and a decrease of $ 11.9 million from sales of our telematics products.

Telematics services segment

Revenues in our telematics services segment decreased by $ 21.8 million from $ 204.7 million in 2019 to $182.9 million in 2020, or 10.6 %. Mainly due to the negative fluctuation of the Brazilian Real vs the USD in an amount of approximately $17.3 million.

Telematics products segment

Revenues in our telematics products segment decreased from $ 74.6 million in 2019, to $62.7 million in 2020 or 16 %. This decrease of $11.9 million is primarily due to a decrease in sales, mainly in our business relating to the OEM market in Brazil. This decrease was offset by a minor positive impact of exchange rate fluctuations of the NIS vs the USD in an amount of approximate $0.4 million.

Cost of revenues

Total cost of revenues decreased from $ 148.8 million in 2019, to $130.1 million in 2020 or 12.6%. This decrease consisted of a decrease of $8.8 million in the Telematics services segment and a decrease of $9.9 million in the telematics product segment. As a percentage of total revenues, cost of revenues decreased from 53.3% in 2019 to 53% in 2020.

Telematics services segment

Cost of revenues for our Telematics services segment decreased from $90.2 million in 2019, to $81.4 million in 2020 or 9.8 %. This decrease was primarily due to the effect of exchange rate fluctuations in an amount of approximately $ 7.9 million and a decrease in salary expenses of approximately $3 million, the abovementioned were offset by increased in some other expenses items in insignificant amount each. As a percentage of total revenues for this segment, cost of revenues increased from 44.0% in 2019 to 44.5% in 2020.

Telematics products segment

Cost of revenues for our telematics products segment decreased from $ 58.6 million in 2019, to $ 48.7 million in 2020 or 16.9 %. This decrease was mainly due to the decrease in our products’ sales. As a percentage of total revenues for this segment, cost of revenues decreased from 78.6 % in 2019, to 77.8% in 2020 mainly due to a change in the mixture of products sales.

Operating expenses

Research and development

Our research and development expenses decreased from $ 13.9 million in 2019 to $ 12.8 million in 2020. As a percentage of total revenues, research and development expenses increased slightly from 5.0 % in 2019 to 5.2 % in 2020.

Selling and marketing

Our selling and marketing expenses decreased from $ 12.8 million in 2019 to $ 11 million in 2020. As a percentage of total revenues, selling and marketing expenses decreased slightly from 4.6 % in 2019 to 4.5 % in 2020.

General and administrative

General and administrative expenses decreased from $55.2 million in 2019, to $ 49.7 million in 2020 or 10%. The decrease was mainly due to the effect of exchange rate fluctuations in amount of $5 million and a decrease in salary expenses of approximately $1.8 million. The abovementioned were offset primarily due to an increase in insurance cost in an amount of $0.5 million and allowance for doubtful accounts in an amount of $1 million. As a percentage of total revenues, general and administrative expenses increased from 19.7% in 2019 to 20.2 % in 2020.

Impairment of goodwill

On June 30,2020, an impairment of approximately $10.5 million was recorded, primarily due to increase in the country’s risk indicator, as part of the effects of Covid - 19. On December 31,2020, based on our qualitative assessment, no additional negative factors were spotted ,therefore another impairment was not indicated.

On December 31, 2019, an impairment on the amount of $12.3 million was recorded primarily due to the increase in the country’s risk indicator.

Impairment of intangible assets and other expenses (income), net

During 2020 and 2019 the company recorded an intangible assets impairment loss in the amount of approximately US$ 3.7 million and US$ 13.9 million, respectively. The impairment was recorded in the consolidated statement of income under "Impairment of intangible assets and other expenses".

Other expenses

Other expenses in amount of $0.3 million in 2020 was mainly due to one-time reduction of one of our investments in other companies. In 2019 other expenses was in amount of $26 thousand.

Operating income

Total operating income increased from $ 22.7 million in 2019, to $27.8 million in 2020 or 22.5 %. This increase of approximately $ 5.1 million reflects an increase of $ 2.5 million in the operating income in the telematics service segment and a decrease of $ 2.6 million in the operating loss in the telematics products segment.

Telematics services segment

Operating income in our telematics services segment increased from $26.1 million in 2019 to $ 28.6 million in 2020, or 9.6 %. This increase was mainly attributed to the decrease in the impairment of goodwill and of impairment of intangible assets from $22 million in 2019 to $11.3 million in 2020 which were offset by effect of the exchange rates fluctuation and from the decrease of our gross revenues in our telematics services segment.

As a percentage of in our telematics services segment revenues, operating income in our telematics services segment increased from 12.7 % in 2019 to 15.7 % in 2020.

Telematics products segment

Operating loss in our telematics products segment decreased from $3.4 million in 2019 to $0.8 million in 2020. This decrease in operating loss was mainly attributed to the decrease in the impairment of goodwill and of impairment of intangible assets from $4.2 million in 2019 to $2.9 million. And from the decrease of our gross revenues in our telematics products segment.

As a percentage of in our telematics services segment revenues, operating losses in our telematics services segment increased from (4.6) % in 2019 to (1.3) % in 2020.

Financing income, net

Financing income, net, was $ 0.6 million in 2019 compared with $ 1.5 million in 2020.

The increase in the financing income was mainly due to an increase in gain in respect of marketable securities and other investments in an amount of $4.6 million. The abovementioned were offset by a decrease in income in respect of changes in obligation to purchase non-controlling interests in an amount of $2.4 million and an increase in expenses related to taxes positions in an amount of $0.7 million.

Income Tax

Income Tax expenses decreased from $ 12.2 million in 2019, to $ 10.9 million in 2020 or 10.6 %. As a percentage of income before tax, income tax expenses decreased from 52.7% in 2019 to 37.4 % in 2020 primarily due to recorded an (non- deductible for tax) impairment in goodwill and intangible assets related to RTH transaction in 2019 in an amount of $ 22.9 million, and in 2020 in an amount of $13.3 million.

As a percentage from income before tax, exclude the impairment which mentioned above, income tax expenses decreased from 27.1% in 2019 to 25.5% in 2020.

Analysis of our Operation Results for the Year ended December 31, 2019 as compared to the Year ended December 31, 2018

(Please take into consideration that 2018 operation results include RTH Results from the closing date, September 13, 2018)

Revenues

Total revenues increased from $253.3 million in 2018 to $279.3 million in 2019 or 10.3%. This increase consisted of an increase of $ 23.4 million from subscription fees from our telematics services and an increase of $ 2.6 million from sales of our telematics products.

Telematics services segment

Revenues in our telematics services segment increased by $ 23.4 million from $181.4 million in 2018, or 13 % to $204.7 million in 2019 mainly due to an increase in our average annual number of subscribers from 1,475,000 in 2018 to 1,776,000 in 2019 including due to RTH transaction. However, this increase was offset by the negative impact of exchange rate fluctuations of non-US dollar revenue in an amount of approximately $10.5 million. If the negative impact of the exchange rate fluctuation wasn’t accounted, our revenue would increase by $ 33.93 million or 18.6%.

Telematics products segment

Revenues in our telematics products segment increased from $ 72.0 million in 2018, to $74.6 million in 2019 or 3.6%. This increase of $ 2.6 million is primarily due to expanding our business activities following RTH acquisition and consolidating RTH Financial Statements. However, this increase was offset by decrease in sales in the Israeli market, as well as, by a negative impact of exchange rate fluctuations of non-US dollar revenue in an amount of approximately $ 0.2 million. If the negative impact of the exchange rate fluctuation wasn’t accounted, our revenue would increase by $ 2.8 million or 3.9%.

Cost of revenues

Total cost of revenues increased from $ 126.0 million in 2018, to 148.8 in 2019 or 18.1%. This increase consisted of an increase of $ 19.8 million in the Telematics services segment and an increase of $ 3.0 million in the telematics product segment. As a percentage of total revenues, cost of revenues increased from 49.7% in 2018 to 53.3% in 2019.

Telematics services segment

Cost of revenues for our Telematics services segment increased from $ 70.3 million in 2018, to $ 90.2 million in 2019 or 28.2%. This increase was primarily due an increase in salary expenses of approximately $ 12.9 million, depreciation expenses of $ 1.3 million and as a result of consolidating RTH expenses, which all abovementioned were offset by effect of exchange rate fluctuations in an amount of approximately $ 5.0 million. As a percentage of total revenues for this segment, cost of revenues increased from 38.8% in 2018 to 44.0% in 2019.

Telematics products segment

Cost of revenues for our telematics products segment increased from $ 55.7 million in 2018, to $ 58.7 million in 2019 or 5.4%. This increase was mainly due to the increase in our products’ sales following RTH acquisition. As a percentage of total revenues for this segment, cost of revenues decreased from 77.4% in 2018, to 78.6% in 2019 mainly due to a change in the mixture of products sales.

Operating expenses

Research and development

Our research and development expenses increased from $ 6.2 million in 2018 to $ 13.9 million in 2019. As a percentage of total revenues, research and development expenses increased from 2.4 % in 2018 to 5.0 % in 2019 mostly due to RTH acquisition.

Selling and marketing

Our selling and marketing expenses increased from $ 11.3 million in 2018 to $ 12.8 million in 2019. As a percentage of total revenues, selling and marketing expenses increased from 4.5 % in 2018 to 4.6 % in 2019.

General and administrative

General and administrative expenses increased from $47.7 million in 2018, to $ 55.2 million in 2019 or 15.7%.

The increase was mainly due to RTH contribution in an amount of $8.0 million, and an increase in salary expenses of approximately $ 1.4 million. The abovementioned were offset primarily by the effect of exchange rate fluctuations in amount of $ 2.6 million. As a percentage of total revenues, general and administrative expenses increased from 18.8% in 2018 to 19.7 % in 2019.

Impairment of goodwill

Due to the existence of various negative factors during the second half of year 2019, it was determined that impairment test as of December 31 ,2019 is required. Accordingly, we (using the assistance of third-party appraiser) preformed impairment test for the goodwill and intangible assets. As a result, we recorded a goodwill impairment in the amount of $12.3 million primarily due to decline in current and future forecast results of Road Track. No impairment was required in year 2018.

Impairment of intangible assets and Other expenses (income), net

An impairment of intangible assets in an amount of $ 13.9 million and other income of $0.2 million in 2019 compare to no impairment and $0.3 million other income during 2018.

Operating income

Total operating income decreased from $ 62.4 million in 2018, to 22.7 in 2019 or (63.7 %). This decrease of approximately $ 39.7 million reflects decrease of $ 30.8 million in the operating income in the telematics service segment and a decrease of $ 8.9 million in the operating income in the telematics products segment.

Telematics services segment

Operating income in our telematics services segment decreased from $56.9 million in 2018 to $ 26.1 million in 2019, or 54.2%. This decrease was mainly attributed to the impairment of $ 20.3 million and the effect of the exchange rates fluctuation of $ 3.9 million.

Telematics products segment

Operating income (loss) in our telematics products segment decreased from $ 5.5 million in 2018 to $ (3.4) million in 2019. This decrease in the operating income was primarily due to the impairment of $ 6 million and the change in the product sales mixture.

Other income, net (non-operational)

In 2018, as a result of the acquisition of RTH, the Company gained control over certain companies that previously were accounted in accordance with the equity method and started to consolidate their financial statement. Following the abovementioned, the Company recorded a one-time gain in the amount of approximately $14.7 million from measurement of the previous investment in those affiliated companies at the acquisition date to fair value.

Financing income, net

Financing income, net, was $ 0.7 million in 2018 compared with an income of $ 0.6 million in 2019.

Income Tax

Income Tax expenses decreased from $ 17.3 million in 2018, to $ 12.2 million in 2019 or 29.2 %. As a percentage of income before tax, income tax expenses increased from 22.7% in 2018 to 52.7 % in 2019 primarily due to:

1. In 2018 we recorded nontaxable income in amount of $14.7 million related to RTH Transaction.

2. We recorded an (non- deductible for tax) impairment in goodwill and intangible assets in 2019 in an amount of $ 20.2 million related to RTH transaction.

Impact of Currency Fluctuations on Results of Operations, Liabilities and Assets

Although we report our consolidated financial statements in dollars, in 2018, 2019 and 2020, a portion of our revenues and direct expenses was derived in other currencies. For fiscal years 2018, 2019 and 2020 we derived approximately 19.8%, 29.3% and 30.6% of our revenues in dollars and other currencies, 45.9%, 40.0% and 49.2% in NIS, 34.3%, 30.7% and 20.2% in Brazilian Reals. In fiscal years 2018, 2019 and 2020, 16.6%, 33.4% and 29.0% of our expenses were incurred in dollars and other currencies, 58.9 %, 42.5% and 50.6% in NIS and 24.5%, 24.1% and 20.4% in Brazilian Reals.

Exchange differences upon conversion from our functional currency to dollars (presentation currency) are accumulated as a separate component of accumulated other comprehensive income under stockholders’ equity. In the year 2020, accumulated other comprehensive income decreased by $ 12.9 million as compared to the year 2019. In the year 2019, accumulated other comprehensive income decreased by $ 4.1 million as compared to the year 2018. In 2018, accumulated other comprehensive income decreased by $12.8 million as compared to the year 2017.

The fluctuation of the other currencies in which we incur our expenses or generate revenues against the dollar has had the effect of increasing or decreasing (as applicable) reported revenues, cost of revenues and operating expenses in such foreign currencies when converted into dollars from period to period. The following table illustrates the effect of the changes in exchange rates on our revenues, gross profit and operating income for the periods indicated:

	Year Ended December 31,
	2018				2019				2020
	Actual		At 2017 exchange rates ⁽¹⁾		Actual		At 2018 exchange rates ⁽¹⁾		Actual		At 2019 exchange rates ⁽¹⁾
	(In thousands of US$)
Revenues		253,335		267,398		279,332		289,676		245,627		262,529
Gross profit		127,328		134,854		130,518		135,730		115,515		122,708
Operating income		62,378		67,340		22,654		25,419		27,831		31,229

⁽¹⁾ Based on average exchange rates during the period. Those columns are Non GAAP information.

Our policy remains to reduce exposure to exchange rate fluctuations by entering into foreign currency forward transactions that mainly qualify as hedging transactions under ASC Topic 815, “Derivatives and Hedging”, the results of which are reflected in our income statements as revenues or cost of revenues. The result of these transactions, which are affected by fluctuations in exchange rates, could cause our revenues, cost of revenues, gross profit and operating income to fluctuate.

B. LIQUIDITY AND CAPITAL RESOURCES

We fund our operations primarily from cash and cash equivalents generated from operations. As of December, 31 2018, 2019 and 2020, we had $ 53.3 million, $54.3 million and $ 78.8 million in cash and marketable securities and $84.2 million, $73.1 million and $ 66.7 million in working capital, respectively. We hold our cash and cash equivalents in US dollars or the local currency of their location.

As of December, 2020 we had a long- term loan from an Israeli bank at the amount of $ 34.1 million and a short term loans at the amount of $ 20.4 million. As of December, 2019 we had a long - term loan from an Israeli bank at the amount of $ 49.8 million and a short term loans at the amount of $ 18.1 million. As of December 31, 2018, 2019 and 2020, we also had $ 3.8 million, $ 4.1 million and $1.9 million respectively, available to us under existing lines of credit. As of December 31, 2018, we utilized $ 1.9 million from our line of credit, as of December 31, 2019 we did not use our credit line, and as of December 31,2020 we utilized $ 0.3 million of our credit line.

For a reference concerning our use of financial instruments for hedging purposes, please see Item 5.A – Operating Results under the captions “Impact of Currency Fluctuations on Results of Operations, Liabilities and Assets”.

We believe that our cash flow from operations, availability under our lines of credit and cash and marketable securities will be adequate to fund our capital expenditures, contractual commitments and other demands and commitments for the foreseeable future as well as for the long-term. We believe that cash flow generated from operations and cash available to us from our credit facilities will be sufficient to cover future expansion of our various businesses into new geographical markets or new products, as currently contemplated and as we describe herein. However, if existing cash and cash generated from operations are insufficient to satisfy our liquidity requirements, we may seek financing elsewhere by selling additional equity or debt securities or by obtaining additional credit facilities.

As of December 31, 2018, 2019 and 2020 we had long-term liabilities of, $14.8 million, $17.0 million and $19.7 million respectively, for employee rights upon retirement for certain of our employees that become payable upon their retirement. Our Israeli employees are entitled to one month’s salary, equal to the applicable monthly salary at the time of such employee’s retirement, for each year of employment, or a portion thereof, upon retirement. This liability is partially funded by deposit balances maintained for these employee benefits in the amount of $9.5 million , $11.5 million and $13.6 million as of December 31, 2018, 2019 and 2020 respectively. The deposited funds include profits accumulated up to the balance sheet date and may be withdrawn upon the fulfillment of the obligation pursuant to Israeli severance pay laws or labor agreements.

In Argentina, new economic Policies related to the external sector have been in effect since August 2019, motivated by the liabilities in dollars and the inability of the Government to deal with it in the initially agreed terms. These measures were initially taken by the outgoing Government and then deepened by the new elected Government that began on December 10, 2019. The following regulations currently apply:

1. Currency market:

a. Individuals can only acquire dollars for savings, in the amount of US $ 200 per month. On this purchase applies 30% taxes. It applies for all abroad and tourism expenses also.

b. Companies are not allowed to acquire dollars.

2. Imports:

a. The Information System called SIMI is maintained. Imports and their payments require prior authorization from the government.

b. Payment for the importation of services also requires authorization from the government.

c. Both types of imports (goods and services) require compliance with Transfer Pricing Report and other tax regulations.

3. Income Tax and Dividends:

a. Payment of dividends to shareholders abroad requires prior authorization from the Central Bank.

b. The Corporate Income Tax rate remains at 30% for 2020 fiscal year. The reduction to 25% was postponed for fiscal year 2021.

c. On dividends originated 7% tax will be withheld as shareholders Income Tax.

In Ecuador, there are two unique Laws which are relevant to our activities:

Remittance tax (Impuesto a la Salida de Divisas) - Remittance tax of 5% is imposed on the transfer of money abroad in cash or through pay checks, transfers, or courier of any nature carried out with or without the mediation of the Ecuadorian financial system, including transfer from foreign bank accounts. Dividends are exempt from this tax, under certain considerations.

Labor profit sharing - Although it is not considered a tax, companies are obligated to pay 15% of their pre-tax earnings to their employees. This payment is considered a deductible expense for CIT computation purposes.

In Mexico, All Mexican employers, whether individuals or entities, are required to calculate and pay mandatory profit- sharing payments to employees within 60 days following the filing of their annual Mexican tax return. The obligation for employers to make such payments is based on the legal provisions in Section IX of Article 123 of the Political Constitution of the United Mexican States, which establishes that employees shall have the right to participate in their employer’s profits in the amount of 10% of such employer’s taxable income. As such, the following types of employees have the right to receive profit sharing payments: (a) permanent employees hired to carry out normal, long-term work for an employer, without regard to the number of days worked during the January 1 through December 31, 2019 fiscal year; (b) eventual permanent employees who have worked for an employer fewer than 60 days, whether continuously or sporadically, during the fiscal year referred to above; (c) former employees who have the right to claim profit sharing payments, when such rights have not lapsed.

Following the revision of our dividend policy in 2012, we declared and paid regularly quarterly dividends in 2018 and 2019.

On February 26, 2017 we have revised our dividend policy, which came in force starting from 2017, that our dividends will be declared and distributed on a quarterly basis in an amount of at least 5 million USD subject to the provisions of the Israeli laws concerning lawful distribution of dividends.

Dividend we declare in respect to 2018 result:

In May 23, 2018 we declared a quarterly dividend in the amount of $5 million, which was paid (net of taxes at the rate of 25%) on July 11, 2018, with respect to the first quarter of 2018. On August 30, 2018 we declared a quarterly dividend in the amount of $5 million, which was paid (net of taxes at the rate of 25%) on October 10, 2018, with respect to the second quarter of 2018. On November 26, 2018 we declared a quarterly dividend in the amount of $5 million, which was paid (net of taxes at the rate of 25%) on January 9, 2019, with respect to the third quarter of 2018. On March 11, 2019 we declared a quarterly dividend in the amount of $5 million, which was paid (net of taxes at the rate of 25%) on April 10, 2019 with respect to the fourth quarter of 2018.

Dividend we declare in respect to 2019 result:

In May 21, 2019 we declared a quarterly dividend in the amount of $5 million, which was paid (net of taxes at the rate of 25%) on July 3, 2019, with respect to the first quarter of 2019. On August 28, 2019 we declared a quarterly dividend in the amount of $5 million, which was paid (net of taxes at the rate of 25%) on October 10, 2019, with respect to the second quarter of 2019. On November 25, 2019 we declared a quarterly dividend in the amount of $5 million, which was paid (net of taxes at the rate of 25%) on January 9, 2020, with respect to the third quarter of 2019. On March 4, 2020 we declared a quarterly dividend in the amount of $5 million, which was paid (net of taxes at the rate of 25%) on April 7, 2020 with respect to the fourth quarter of 2019.

On May 13, 2020, we declared the suspension of the dividend distribution due to the Covid-19 pandemic.

On March 3, 2021, we declared the renewal of the dividend distribution policy of at least $3 million a quarter. On the same date we also declared a quarterly dividend in an amount of $10 million, which was paid (net of taxes at the rate of 25%) on April 6, 2021 with respect to the fourth quarter of 2020.

Until the RTH Transaction, we have repurchased 2,507,314 of our shares, out of these shares 373,489 shares were resold as part of the consideration in the RTH Transaction. As part of the RTH Transaction price adjustment 300,472 shares were returned to us in April 2019. As part of implementation of our Board of Directors decision of 25 million USD share repurchase program, our wholly owned subsidiary executed agreements pursuant to Rule 10b-5 and Rule 10b-18 to commence from July 10^th 2019. The agreement was terminated on December 31,2019.

Share repurchases were funded by our wholly owned subsidiary with available cash. Repurchases of the Company’s ordinary shares was based on Rule10b-18 terms. As of December 31, 2019 we purchased 227,828 of our shares for approximately $ 6 million.

As of the date of this report the updated quantity of treasury shares is 2,662,125 (including the aforementioned 227,828 shares which are entitled to dividend distributed).

20-F	2020-12-31	Filed 2021-04-26
20-F	2019-12-31	Filed 2020-04-23
20-F	2018-12-31	Filed 2019-04-30
20-F	2017-12-31	Filed 2018-04-30
20-F	2016-12-31	Filed 2017-04-27
20-F	2015-12-31	Filed 2016-04-20
20-F	2013-12-31	Filed 2014-04-10
20-F	2012-12-31	Filed 2013-04-25
20-F	2011-12-31	Filed 2012-04-30
20-F	2010-12-31	Filed 2011-06-28
20-F	2009-12-31	Filed 2010-05-24

EX-12.1	exhibit_12-1.htm
EX-12.2	exhibit_12-2.htm
EX-13	exhibit_13.htm
EX-14	exhibit_14.htm

ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT	76
ITEM 16B.CODE OF ETHICS	76
ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES	76
ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	76
ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	77
ITEM 16F.CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT	77
ITEM 16G.CORPORATE GOVERNANCE	77
ITEM 16H.MINE SAFETY DISCLOSURE	77
ITEM 17.FINANCIAL STATEMENTS	77
ITEM 18.FINANCIAL STATEMENTS	77
ITEM 19.EXHIBITS	78

ITRN 20F Annual Report

Ituran Earnings 2020-12-31