Ituran Earnings 2019-12-31

Balance Sheet	Income Statement	Cash Flow

20-F 1 zk2024284.htm 20-F

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

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

For the fiscal year ended December 31, 2019

Commission file no. 001-32618

ITURAN LOCATION AND CONTROL LTD.
(Exact name of Registrant as specified in its charter and
translation of Registrant’s name into English)

Israel
(Jurisdiction of incorporation or organization)

3 Hashikma Street, Azour, Israel
(Address of principal executive offices)

Eli Kamer, Chief Financial Officer, 3 Hashikma Street, Azour, 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		Name of each exchange on which registered

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

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

None
(Title of Class)

Securities for which there is 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 Ordinary Shares

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

Yes ☐ No ⌧

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

Yes ☐ No ⌧

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

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act (check one):

Large Accelerated Filer ☐

Accelerated Filer ⌧

Non-accelerated filer ☐

Emerging growth company ☐

If you are 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 which basis of accounting the registrant had 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 month 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	4
C.	REASONS FOR THE OFFER AND USE OF PROCEEDS	4
D.	RISK FACTORS	4
ITEM 4.	INFORMATION ON THE COMPANY	12
A.	HISTORY AND DEVELOPMENT OF THE COMPANY	12
B.	BUSINESS OVERVIEW	13
C.	ORGANIZATIONAL STRUCTURE	22
D.	PROPERTY, PLANTS AND EQUIPMENT	23
ITEM 4.A.	UNRESOLVED STAFF COMMENTS	24
ITEM 5:	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	24
A.	OPERATING RESULTS	24
B.	LIQUIDITY AND CAPITAL RESOURCES	36
C.	RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES	39
D.	TREND INFORMATION	39
E.	OFF-BALANCE SHEET ARRANGEMENTS	39
F.	TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS	40
G.	SAFE HARBOR	40

ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	41
A.	DIRECTORS AND SENIOR MANAGEMENT	41
B.	COMPENSATION	44
C.	BOARD PRACTICES	46
D.	EMPLOYEES	50
E.	SHARE OWNERSHIP	52

ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	53
A.	MAJOR SHAREHOLDERS	53
B.	RELATED PARTY TRANSACTIONS	54
C.	INTERESTS OF EXPERTS AND COUNSEL	58
ITEM 8.	FINANCIAL INFORMATION	59
A.	CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION	59
B.	SIGNIFICANT CHANGES	60
ITEM 9.	THE OFFER AND LISTING	61
A.	OFFER AND LISTING DETAILS	61
B.	PLAN OF DISTRIBUTION	61
C.	MARKETS	61
D.	SELLING SHAREHOLDERS	61
E.	DILUTION	61
F.	EXPENSES OF THE ISSUE	61
ITEM 10.	ADDITIONAL INFORMATION	61
A.	SHARE CAPITAL	61
B.	MEMORANDUM AND ARTICLES OF ASSOCIATION	61
C.	MATERIAL CONTRACTS	68
D.	EXCHANGE CONTROLS	68
E.	TAXATION	68

F.	DIVIDENDS AND PAYING AGENTS	75
G.	STATEMENT BY EXPERTS	75
H.	DOCUMENTS ON DISPLAY	75
I.	SUBSIDIARY INFORMATION	75
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	75
ITEM 12.	DESCRIPTIONS OF SECURITIES OTHER THAN EQUITY SECURITIES	76
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	76
ITEM 14A.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	76
ITEM 15.	CONTROLS AND PROCEDURES	76
ITEM 16.	[RESERVED]	84

ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	84
ITEM 16B.	CODE OF ETHICS	84
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	84
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	84
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	84
ITEM 16F.	CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT	85
ITEM 16G.	CORPORATE GOVERNANCE	85
ITEM 16H.	MINE SAFETY DISCLOSURE	85
ITEM 17.	FINANCIAL STATEMENTS	85
ITEM 18.	FINANCIAL STATEMENTS	85
ITEM 19.	EXHIBITS	86

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, 2017, 2018 and 2019 and our selected consolidated balance sheet data as of December 31, 2018 and 2019 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, 2015 and 2016, and the selected consolidated balance sheet data as of December 31, 2015, 2016 and 2017, 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,
	2019			2018			2017			2016			2015
	In USD
	In thousands, except per share amounts
Revenues:
Telematics services		204,728			181,357			169,752			141,940			127,683
Telematics products		74,604			71,978			64,884			57,634			47,945

Total Revenues		279,332			253,335			234,636			199,574			175,628
Cost of Revenues:
Telematics services		90,158			70,329			60,256			50,633			47,875
Telematics products		58,656			55,678			54,996			46,910			37,872

Total cost of revenues		148,814			126,007			115,252			97,543			85,747

Gross profit		130,518			127,328			119,384			102,031			89,881

Research and development expenses		13,913			6,223			3,160			2,895			2,401
Selling and marketing expenses		12,778			11,340			12,246			10,074			9,303
General and administrative expenses		55,166			47,693			47,590			40,228			37,801
Impairment of goodwill		12,292			-			-			-			-
Impairment of intangible assets and other expenses (income) net		13,715			(306	)		(147	)		836			(268	)

Operating Income		22,654			62,378			56,535			47,998			40,644
Other income (expenses), net		(26	)		13,138			-			-			-
Financing income (expenses), net		576			717			(989	)		2,056			1,189

Income before income tax		23,204			76,233			55,546			50,054			41,833
Income tax		(12,234	)		(17,273	)		(17,705	)		(14,877	)		(12,822	)
Share in gains (losses) of affiliated companies, net		(3,203	)		4,219			8,520			(449	)		(2,439	)

Net income for the year		7,767			63,179			46,361			34,728			26,572
Less: net income attributable to non-controlling interest		(878	)		(2,504	)		(2,567	)		(2,589	)		(1,601	)

Net income attributable to Company stockholders		6,889			60,675			43,794			32,139			24,971

Earnings per share
Basic	$	0.33		$	2.88		$	2.09		$	1.53		$	1.19
Diluted	$	0.33		$	2.88		$	2.09		$	1.53		$	1.19
Weighted average number of shares outstanding
Basic		21,037			21,077			20,968			20,968			20,968
Diluted		21,037			21,077			20,968			20,968			20,968

Consolidated Balance Sheets Data

	Year Ended December 31,
	2019		2018		2017		2016		2015
	In USD
	In thousands, except per share amounts

Cash & Cash Equivalent; and investment in trading marketable securities		54,322		53,295		40,465		31,485		29,051
Working Capital		73,085		84,214		71,360		55,062		50,124
Total Assets		339,235		373,792		215,159		178,019		142,003
Total Liabilities		203,321		213,592		81,930		69,848		54,182
Retained Earnings		116,479		129,580		92,065		71,717		57,739
Stockholders’ Equity		129,330		153,693		125,790		102,229		83,698
Dividend declared per share		0.95		0.95		1.12		0.86		0.78

Other Data:

	Year Ended December 31,
	2019			2018			2017			2016			2015
Subscribers of telematics services ⁽¹⁾		1,781,000			1,770,000			1,160,000			1,057,000			948,000
Average monthly churn rate		3.3	%		2.8	%		3.2	%		3.1	%		3.3	%

(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 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.

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 SVR 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 (although we also provide services based on GPS/GPRS technology), 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.

We face risks associated with our recent acquisition of a majority of the shares of Road Track Holding S.L. ("Road Track"), a telematics company operating primarily in the Latin American region, and if we fail to integrate its business successfully, our operating results will be negatively affected.

On September 13, 2018, we acquired a majority of the shares of Road Track Holding S.L. (today: Ituran Spain Holding S.L., “Road Track”), a telematics company operating primarily in the Latin American region. The success of this acquisition will depend, in part, on our ongoing process of integrating Road Track and the Road Track brand with our historical business, which will be time consuming and require optimization and allocation of resources. The compatibility of the technologies and operations being integrated and combining disparate corporate cultures present potentially significant challenges. Continuing the successful integration of Road Track will require us to retain the current key management and other personnel, incorporate the acquired products and capabilities into our product offerings from a sales and marketing perspective, integrate and support pre-existing supplier, distribution and customer relationships, combine or centralize back office accounting, order processing, purchasing and support functions and establish and maintain proper internal control over financial reporting. If we cannot overcome these challenges in a timely and efficient manner, or at all, we may not realize the anticipated benefits from our acquisition of Road Track and the Road Track brand, or it may take longer to realize these benefits than we currently expect, either of which could materially harm our business or results of operations.

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.

We had in year 2019 one customer which represented more than 10% of our total sales .The loss of all or a substantial portion of our sales to this customer could have an adverse impact on us.

In year 2019 we had one customer (global world vehicles manufacturer) which stands for a substantial portion of our total sales (15.8 %). The loss of all or a substantial portion of our sales to the customer could have an adverse effect on our results of operations by reducing cash flows and our ability to spread costs over a larger revenue base. We may make fewer sales to this customer for a variety of reasons, including but not limited to: (1) loss of awarded business; (2) reduced demand for our customers’ products.

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 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 fleet management 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

In December 2019, a new strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, Hubei Province, China. During January, February and March of 2020, COVID-19 has spread globally, including in Israel, Europe, and America. In response to the COVID-19 virus, countries have taken different measures in relation to prevention and containment including lock-down and quarantine. The COVID-19 virus continues to impact worldwide economic activity and pose the risk that we or our employees, contractors, suppliers, customers and other business partners may be prevented from conducting certain business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities or otherwise elected by companies as a preventive measure. We rely, with respect to some of our products, on manufacturers in China. The effects of the COVID-19 may result in such products not being produced and/or shipped to us. In addition, mandated government authority measures or other measures elected by companies as preventive measures may lead to our consumers being unable to complete purchases or other activities. COVID-19 may have an adverse effect on trading, on our operations, collection of our client debt and, its continuous spread and protective measures taken by the authorities may adversely affect our future results of operations, cash flows and financial condition.

COVID-19 pandemic may have a negative effect on our business in the forthcoming quarters in several spheres ,such as a decrease in purchase of new cars in our markets or a recession in one of our markets .The aforementioned may evolve in different volumes , measures and implications which may not be currently foreseen whereas the COVID-19 pandemic is in its preliminary stage and therefore there are uncertainties surrounding the implications .As of today, since the COVID-19 erupted we already had several effects, such as decrease in new installations and in sale of our products.

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 87 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.

On July 19, 2018 we received two class action lawsuits that were filed against the Company, alleging that the Company violated the Protection of Privacy Law, 5741 – 1981 and the Protection of Privacy Regulations (Data Security) 5777-2017. The plaintiffs request that the lawsuits will be approved as a class action and allege that we did not secure customer information properly, as required by the law, and that the lack of information security procedures allowed hacking into the company's website, which caused exposure of customers sensitive personal information. The lawsuits are yet to be approved as a class action suit. The total amount claimed if the lawsuits are to be approved as a class action were estimated by the plaintiffs to be approximately NIS 600 million (approximately USD 170 million). Our defense against the approval of the class action lawsuits was filed on December 13, 2018.

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 (27 sites) and Rio (120 sites) , Brazil and Buenos Aires, Argentina. The installation and operation of most of our base sites require building permits from local or regional zoning authorities as well as a number of additional permits from governmental and regulatory authorities.

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

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

The valuation of our assets and liabilities, our revenues received, and the related expenses incurred are not always denominated in the same currency. This lack of correlation between revenues and expenses exposes us to risks resulting from currency fluctuations. These currency fluctuations could have an adverse effect on our results of operations, such currency fluctuations take place in Argentina, Brazil, and Colombia 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$29.50 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.

RISKS RELATED TO OUR ORDINARY SHARES AND THE ECONOMY

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

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

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

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

◾	the gain or loss of significant orders or customers;

◾	recruitment or departure of key personnel;

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

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

◾	announcements related to litigation;

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

◾	developments in our industry; and

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

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

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

Moked Ituran Ltd. currently beneficially owns approximately 19.58% 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 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, 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 $ 18.3 million in 2019, $21.4 million in 2018, and $16.3 million in 2017. We have financed our capital expenditures with cash generated from our operations.

Our capital expenditures in 2019, 2018, and 2017 consisted primarily of acquisition of operational equipment for $ 7.1 million, $13.7 million, and $7.3 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 2019, 73 % of our revenues were attributable to our telematics services. As of December 31, 2019 , we primarily provided our services in Israel, Brazil, and other Countries to approximately 610,000, 489,000, and 682,000 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 and purchase automatic vehicle location products supporting these SVR services from us 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, 2019 , we provided our services to approximately 262,000 end-users through 45,000 corporate customers in Israel, Brazil, Argentina, Mexico, Ecuador, Colombia, United States and through distributers in other regions.

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 three Israeli insurance companies and we intend to accelerate its marketing and work with additional insurance companies in year 2020.

Telematics Products

In 2019 27 % 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:

•

the ability to locate the fleet’s vehicles;

•

continuous data communication with the fleet’s vehicles;

•

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

•

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

•

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

•

connection to standard organization systems;

•

accident notification;

•

driver’s behavior; and

•

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.

"Connected Car". 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:

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

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

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

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

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,	Telematics Products
	Value-added services,including:
	"Connected Car"

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

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

^■

Israel: We commenced operations in Israel in 1995 and we had approximately 610,000 subscribers as of December 31, 2019. The operations in Israel were expended through M& A transactions with local companies as well as organic growth. We operate throughout Israel in providing services through GPS/GPRS based products and services.

◾

Brazil: We commenced operations in Brazil in 2000 and we had approximately 489,000 subscribers as of December 31, 2019. The operations were expended through M& A transactions with local companies as well as organic growth. We currently provide RF based products and services only in the metropolitan areas of Sao Paulo, Campinas, Americans and Rio de Janeiro. However, we operate throughout Brazil in providing GPS/GPRS based products and services.

^■	Argentina: We commenced operations in Argentina in 2002. We currently provide RF based products and services only in the metropolitan area of Buenos Aires. However, we also operate throughout Argentina in providing GPS/GPRS based products and services.

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

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

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

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

In all of the abovementioned countries (except of Israel and Brazil) we had approximately 682,000 subscribers as of December 31, 2019.

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 2017and 2018 no single customer or group of related customers comprised more than10% of our total annual revenues. In 2019 one of our customers comprised 15.8% 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, 2019, our selling and marketing team consisted of 69 employees.

(A) Telematics services

Stolen vehicle recovery

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.

Our customers in the SVR market include insurance companies, car manufactures and individual vehicle owners. As of December 31, 2019, we had a total of approximately 1,781,000 subscribers for our SVR services.

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, 2019, we provided our services to approximately 262,000 end users through 45,000 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.

“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 three Israeli insurance companies and we intend to accelerate its marketing and work with additional insurance companies in year 2020.

(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

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

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

^■

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

^■

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

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

◾

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

◾	Ecuador highly fragmented market. Basically, 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 in Israel are Pointer, ISR, Traffilog and Skylock; our major competitors in the United States are GPS Insight, Trimble, Network Fleet, Street Eagle, FleetMatics, Navtrack, Teletrac, Trim Track, FleetBoss, PassTime, Verizon, AT&T, Geotab, Fleet-Complete,Sprint, Zubie, and Spireon; our major competitors in Brazil are Sascar, Zatix, CEABS and AutoTrack; our major competitors in Argentina are LoJack Corporation, Megatrans SA., Sitrac S.A., American Tracer, Ubicar S.A.,Sky Cop. and Prosegur S.A ,our major competitors in Mexico are LoJack Corporation, Encotrack and Easytrack,our major competitors in Ecuador are Hunter (LoJack Corporation), Tracklink and Sherlock, our major competitors in Colombia are 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, Ministerio de Modernizacion in Argentina, the Federal Communications Commission, in the United States and Ministry of Information Technology and Communications in Colombia.. 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 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.

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:

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

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

^■	permits from the Israeli Defense Forces;

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

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

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

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

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

•

a permit from Anatel (National Agency for Telecommunication)

•

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

•

Municipal permits

•

a permit from the fire department; and a

•

permit from COMAR (Aviation authorities)

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

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

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

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		88.5	%
Ituran de Argentina S.A	Argentina		100	%
Ituran Sistemas de Monitoramento Ltda	Brazil		98	%
Ituran Instalacoes Ltda	Brazil		98	%
Teleran Holding Ltda	Brazil		99.99	%
Ituran servicos Ltda	Brazil		98	%
E.R.M. Electronic Systems Limited	Israel		51	%
Mapa Mapping & Publishing Ltd	Israel		100	%
Ituran Spain Holding S.L	Spain		81.3	%
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		81.3	%
Road Track Ecuador, S.A.	Ecuador		81.3	%
Road Track Mexico S.A. De C.V	Mexico		81.3	%
Road Track HK Telematics Limited	Hong Kong		81.3	%
E.D.T.E – Drive Technology Ltd	Israel		81.3	%

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 2019 we leased an aggregate of approximately 61,900 square feet of office space in Azour and Holon, Israel. In 2019, the annual lease payments for these facilities were approximately $1,065,000 The initial term of the primary lease (in Azour) expired on March 31, 2013; and we renewed the lease until 2020. 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 2300 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 $ 33,898 annually, approximately 1,238 square feet for our control center for $ 9,282 annually, approximately 5,253 square feet for our installation center for $ 40,009 annually, approximately 2,121 square feet for our warehouse for $ 15,048 annually, and approximately 862 square feet for our third warehouse for $ 1,709 annually.

In Bogota, Colombia, we lease approximately 9,035 square feet for office space and Operating center for the amount of $ 80,451 annually, and additional 2,403 square feet for Operating center for the amount of $ 19,290 annually.

In Mexico City, Mexico, we lease approximately 3,875 square feet for Corporate Office for the amount of $ 42,000 annually. It is important to note that this amount has increased to USD 7,000 monthly as of 2019. 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 $ 37,000 annually.

In Guayaquil, Ecuador, we lease approximately 7,829 square feet for Warehouse for the amount of $30,000 annually. In Quito, Ecuador, we lease approximately 538 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 $ 140,000 annually for period of 60 months commencing March 24, 2016 and ending March 23, 2021, subject to a 3% annual increase per year, starting April 1, 2017.

In 2018, we leased approximately 6,754 square feet of office space, stores and warehouse in Brazil for approximately $500,000 annually. The lease agreements will expire and will have to be renewed on August 21, 2020, December 2020, and December, 2026, 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 (except of one site in Rio de Janeiro that costs around $ 950 approximately) depending on the location, size and other factors, and the typical duration for these leases is five years. In Argentina, we have 44 base station sites, all of which are leased from six entities for a monthly rate ranging from $300 to $1,300 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

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 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.

In September 2018 we purchased majority shares of Road Track .Due to the decline in the results of Road Track we performed impairment analysis of intangible assets and goodwill and the combined tests resulted in impairment of $ 26.2 million which is reduced by $ 6.0 million due to expected decrease of liability to purchase remainder of 18.7% shares of Road Track, which ultimately resulted in an amount of $ 20.2 million in the net income.(see notes 9,10 &16 to the Consolidated Financial Statements).

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,
	2019		2018		2017
Israel		610,000		551,000		501,000
Brazil		489,000		555,000		438,000
Others		682,000		664,000		221,000

Total⁽¹⁾		1,781,000		1,770,000		1,160,000

(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,
	2019				2018⁽²⁾				2017
	In USD, in Millions
	Telematics services		Telematics products		Telematics services		Telematics products		Telematics services		Telematics products
Israel		77.6		32.5		72.0		44.2		69.2		47.3
Brazil		85.1		12.9		86.3		4.6		85.1		4.4
Others		42.0		29.2		23.1		23.2		15.5		13.2
Total⁽¹⁾		204.7		74.6		181.4		72.0		169.8		64.9

(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 sales and leases of our SVR, fleet management 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 the 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 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 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.

Revenue recognition accounting policy applied until December 31, 2017 (prior to the adoption of ASC Topic 606);

Revenues were recognized when delivery has occurred and, where applicable, after installation has been completed, there was persuasive evidence of an arrangement, the fee was fixed or determinable and collection of the related receivable was reasonably assured and no further obligations existed. In cases where delivery has occurred, but the required installation has not been performed, we did not recognize the revenues until the installation was completed.

Our revenues were recognized as follows:

1.	Revenues from sales were recognized when title and risk of loss of the product passed to the customer (usually upon delivery).

We applied the provisions of ASC Topic 605-25, "Revenue Recognition - Multiple-Element Arrangements", as amended. ASC Topic 605-25 provided guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. For such arrangements, each element of the contract was accounted for as a separate unit when it provided the customer value on a stand-alone basis and if an arrangement included a right of return relative to a delivered item, delivery or performance of the undelivered item or items was considered probable and substantially in the control of us. According to ASC 605-25, as amended, when neither "vendor specific objective evidence" of selling price, nor third party price existed, we were required to develop a best estimate of the selling price of the deliverables and the entire arrangement consideration was allocated to the deliverables based on the relative selling prices.

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 unit of accounting in accordance with ASC Topic 605-25, since the installation services element was determined not to have a value on a stand-alone basis to the customer. Accordingly, the entire contract fee for the two deliverables was recognized ratably on a straight-line basis over the subscription period.

Amounts earned by the 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, were recognized ratably on a straight-line basis over the subscription period, since the amount allocated to the company, was contingent upon the delivery of the SVR services. As the insurance company was the primary obligor of the insurance component, the company recognized only the net amounts as revenues, after deduction of amounts related to the insurance component.

4.	Deferred revenues included unearned amounts received from customers (mostly for the provision of installation and subscription services) but not yet recognized as revenues. Such deferred revenues were recognized as described in paragraph 2, above.

5.	Extended warranty

Revenues from extended warranty which were provided for a monthly fee and were sold separately, were recognized over the duration of the warranty periods.

Revenue recognition accounting policy applied from January 1, 2018 (following the adoption of ASC Topic 606);

On January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) to all contracts, using the modified retrospective method. Under such method of adoption, the results for reporting periods beginning after January 1, 2018 are presented in accordance with ASC Topic 606, while prior period amounts were not adjusted and are reported in accordance with the previous accounting treatment required under ASC Topic 605.

The cumulative impact of the adoption in an amount of approximately US$3 million (net of tax), was recognized as an adjustment 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.

Upon each contract inception, we assess the goods or services 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) customer support, 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. In assessing whether to allocate variable consideration to a specific part of the contract, we consider the nature of variable payment (if any) and whether it relates specifically to its efforts to satisfy a specific part of the contract.

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 contract inception, that the period between the time of transfer of the promised goods or services to the customer and the time the customer pays for these goods or services to be generally one year or less, based on the practical expedient. Our credit terms to customers are, on average, between thirty and ninety days.

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

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

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

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’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 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 the company (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, the company 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 2 above or paragraph 6 below, as applicable.

6.	Extended warranty

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

Accounting for income taxes

We account for income taxes in accordance with ASC Topic 740-10, "Income Taxes". According to this guidance, deferred income taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and the tax bases of assets and liabilities under the applicable tax law. Deferred tax balances are computed using the tax rates expected to be in effect at the time when these differences reverse. Valuation allowances in respect of the deferred tax assets are provided for if, based upon the weight of available evidence, it is more likely than not that all or a portion of the deferred income tax assets will not be realized.

US GAAP provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is "more-likely-than-not" to be sustained were to be challenged by a taxing authority. The assessment of a tax position is based solely on the technical merits of the position, without regard the likelihood that the tax position may be challenged. If an uncertain tax position meets the "more-likely-than-not" threshold, the largest amount of tax benefit that is greater than 50% likely to be recognized upon ultimate settlement with the taxing authority is recorded.

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 record 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.

Our material legal proceedings are fully described in Item 8.A. – “Consolidated Statements and other Financial Information” under the caption “Material Legal Proceedings” below.

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".

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

When we decide or is required to perform the two-step goodwill impairment test, we compare the fair value of the reporting unit to its carrying value ("step 1"). If the fair value of the reporting unit exceeds the carrying value of the reporting unit net assets (including the goodwill allocated to such reporting unit), goodwill is considered not to be impaired, and no further testing is required. If the carrying value exceeds the fair value of the reporting unit, then the implied fair value of goodwill is determined by subtracting the fair value of all the identifiable net assets from the fair value of the reporting unit. An impairment loss is 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").

We apply 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, 2019, we had four reporting units that include goodwill (two in 2017 and in 2018). We completed the assignment of goodwill resulted from the acquisition of Road Track and allocated two new reporting units.

We performed a qualitative assessment for two reporting units as of December 31, 2019 and 2018, 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.We also performed impairment test for two reporting units related to Road Track which resulted in a recorded goodwill impairment in the amount of $12.3 million (see note 10 to the consolidated financial statements).

Intangible assets with finite lives (as of December 31, 2019, 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 the acquisition of Road Track described in Note 3 to the consolidated financial statements, we got control over intangible assets in a fair value of approximately US$ 38,583 thousand.

As of December 31, 2019, the intangible assets are amortized over a period of 3 to 6 years. In year 2019 we recorded an impairment of intangible assets in the amount of $ 13,862 thousand (see note 9 to the consolidated financial statements).

Recoverability of intangible assets is measured as described in Note 1L to the consolidated financial statements.

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 purchased 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:	2019			2018			2017
Revenues:
Telematics services		73.3			71.6			72.3
Telematics product		26.7			28.4			27.7

Total Revenues		100			100			100
Cost of Revenues:
Telematics services		32.3			27.8			25.7
Telematics products		21.0			21.9			23.4

Total cost of revenues		53.3			49.7			49.1

Gross profit		46.7			50.3			50.9
Operating Expenses:
Research and development expenses		5.0			2.4			1.3
Selling and marketing Expenses		4.6			4.5			5.2
General and administrative expenses, net		19.7			18.8			20.2
Impairment of goodwill
Impairment of intangible assets and other expenses (income), net		4.9			(0.1	)		(0.1	)

Total operating expenses		38.6			25.6			26.6
Operating Income		8.1			24.7			24.1
Financing income (expenses), net		0.2			0.3			(0.4	)
Other income (expenses), net		-			5.1			-

Income before income tax		8.3			30.1			23.7
Income tax		(4.4	)		(6.8	)		(7.5	)
Share in gains (losses) of affiliated companies, net		(1.1	)		1.7			3.6

Net income for the year		2.8			25.0			19.8
Less: net income attributable to non-controlling interests		0.3			(1.0	)		(1.1	)

Net income attributable to company stockholders		2.5			24.0			18.7

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, to74.6 $ 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 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:

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

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.

Analysis of our Operation Results for the Year ended December 31, 2018 as compared to the Year ended December 31, 2017

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

Revenues

Total revenues increased from $234.6 million in 2017 to $253.3 million in 2018, or 8%. This increase consisted of an increase of $ 11.6 million from subscription fees from our telematics services and an increase of $ 7.1 million from sales of our telematics products.

Telematics services segment

Revenues in our telematics services segment increased by $ 11.6 million from $169.8 million in 2017 to $181.4 million in 2018, or 6.8 % mainly due to an increase in our average annual number of subscribers from 1,110,000 subscribers in 2017 to 1,475,000 in 2018. However, this increase was offset by the negative impact of exchange rate fluctuations of non-US dollar revenue in an amount of approximately $ 28 million. If the negative impact of the exchange rate fluctuation wasn’t accounted, our revenue would increase by $ 39.6 million or 23.3%.

Telematics products segment

Revenues in our telematics products segment increased from $ 64.9 million in 2017 to $ 72.0 million in 2018, or 10.9% .This increase of $ 7.1 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 $ 0.5 million. If the negative impact of the exchange rate fluctuation wasn’t accounted, our revenue would increase by $ 7.6 million or 11.7%.

Cost of revenues

Total cost of revenues increased from $115.2 million in 2017 to $126.0 million in 2018, or 9.4%. This increase consisted of an increase of $ 10.1 million in the Telematics services segment and an increase of $ 0.7 million in the telematics product segment. As a percentage of total revenues, cost of revenues increased from 49.1% in 2017 to 49.7% in 2018.

Telematics services segment

Cost of revenues for our Telematics services segment increased from $60.2 million in 2017 to $70.3 million in 2018, or 16.8 %. This increase was primarily due an increase in salary expenses of approximately $ 5.9 million, depreciation expenses of $0.7 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 $ 6.0 million. As a percentage of total revenues for this segment, cost of revenues increased from 35.5% in 2017 to 38.8% in 2018.

Telematics products segment

Cost of revenues for our telematics products segment increased from $ 55.0 million in 2017 to $ 55.7 million in 2018, or 1.3 %. 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 84.8% in 2017 to 77.4 % in 2018, mainly due to a change in the mixture of products sales.

Operating expenses

Research and development

Our research and development expenses increased from $3.2 million in 2017 to $ 6.2 million in 2018. As a percentage of total revenues, research and development expenses increased from 1.3% in 2017 to 2.4 % in 2018 mostly due to RTH acquisition.

Selling and marketing

Our selling and marketing expenses decreased from $12.2 million in 2017 to $ 11.3 million in 2018. As a percentage of total revenues, selling and marketing expenses decreased from 5.2% in 2017 to 4.5 % in 2018.

General and administrative

General and administrative expenses increased slightly from $47.6 million in 2017 to $47.7 million in 2018, or 0.2%.

The increase was mainly due to RTH contribution in an amount of $3.8 million, an increase in allowance for doubtful accounts in the amount of $1.3 million and increase in depreciation expenses in amount of $0.6 million. The abovementioned were offset primarily by a decrease in salary expenses in the amount of $ 2.1 million (mainly due to decreased in cash grant based on the company’s Share Yield based on the compensation policy) and by the effect of exchange rate fluctuations in amount of $ 2.9 million. As a percentage of total revenues, general and administrative expenses decreased from 20.2% in 2017 to 18.8% in 2018.

Other expenses (income), net

Other income, net in 2017 were $ 0.1 million compared with $ 0.3 million in 2018.

Operating income

Total operating income increased from $ 56.5 million in 2017 to $ 62.4 million in 2018, or 10.4%. This increase of approximately $ 5.9 million reflects increase of $ 1.9 million in the operating income in the telematics service segment and an increase of $ 4.0 million in the operating income in the telematics products segment.

Telematics services segment

Operating income in our telematics services segment increased from $55.0 million in 2017 to $56.9 million in 2018, or 3.5%. This increase was mainly attributed to the increase of our average base of subscribers from 1,110,000 subscribers in 2017 to 1,475,000 subscribers in 2018 due to RTH consolidation, which was offset mainly by the effect of exchange rates fluctuation.

Telematics products segment

Operating income in our telematics products segment increased from $ 1.5 million in 2017 to $ 5.5 million in 2018. This increase in the operating income was primarily due to a change in the products sales mixture.

Other income, net (non-operational)

In 2018, as a result of the acquisition of RTH, the Company gained control over the affiliated companies 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.

In 2017 there were no other income as stated.

Financing income (expenses), net

Financing income (expenses), net, was $ 1 million expenses in 2017 compared with an income of $ 0.7 million in 2018. This shift in the amount of $ 1.7 million was mainly due to a decrease in interest incurred on tax assessment for previous years in Israel and Brazil in an amount of $ 2.4 million, which was offset by an increase in interest with respect of long-term loans in the amount of $ 0.5 million.

Income Tax

Income Tax expenses decreased from $17.7 million in 2017 to $ 17.3 million in 2018, or 2.3%. As a percentage of income before tax, income tax expenses decreased from 31.9% in 2017 to 22.7% in 2018 primarily due to:

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

2. In 2017 we had tax payment assessment for previous years in the amount of $ 3.3 million.

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

Although we report our consolidated financial statements in dollars, in 2017, 2018 and 2019, a portion of our revenues and direct expenses was derived in other currencies. For fiscal years 2017, 2018 and 2019 we derived approximately 14.6%, 19.8% and 29.3% of our revenues in dollars and other currencies, 47.9%, 45.9% and 40.0 % in NIS, 37.5%, 34.3% and 30.7% in Brazilian Reals. In fiscal years 2017, 2018 and 2019 , 20.4%,16.6% and 33.4 % of our expenses were incurred in dollars and other currencies, 51.5%,58.9 % and 42.50% in NIS and 28.1%, 24.5% and 24.1% 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 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. In 2017, accumulated other comprehensive income increased by $4.2 million as compared to the year 2016.

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,
	2017				2018				2019
	Actual		At 2016 exchange rates ⁽¹⁾		Actual		At 2017 exchange rates ⁽¹⁾		Actual		At 2018 exchange rates ⁽¹⁾
	(In thousands of US$)
Revenues		234,636		221,925		253,335		267,398		279,332		289,676
Gross profit		119,384		113,369		127,328		134,854		130,518		135,730
Operating income		56,535		52,838		62,378		67,340		22,654		25,419

(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 2017 2018 and 2019, we had $ 40.5 million, $53.3 million and $ 54.3 million in cash and marketable securities and $71.4 million, $84.2million and $73.1 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, 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, 2017 2018 and 2019, we also had $ 0.8 million , $ 3.8 million and $4.1 million respectively, available to us under existing lines of credit. As of December 31, 2017, we did not utilize our lines of credit. As of December 31, 2018, we utilized $ 1.9 million from our line of credit and as of December 31, 2019 we did not utilize our line of credit.

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, 2017, 2018 and 2019 we had long-term liabilities of, $14.1 million , $14.8 million and $ 17.0 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 $9.6 million, $9.5 million and $11.5 million as of December 31, 2017, 2018 and 2019 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 2019 and 2020 fiscal years. 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 2017, 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.

In 2017 we declared and paid such dividends as follows:

On May 17, 2017 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, 2017, with respect to the first quarter of 2017. On August 16, 2017 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, 2017, with respect to the second quarter of 2017. On November 15, 2017 we declared a quarterly dividend in the amount of $5 million, which was paid (net of taxes at the rate of 25%) on January 10, 2018, with respect to the third quarter of 2017. On February 27, 2018 we declared a quarterly dividend in the amount of $5 million, which was paid (net of taxes at the rate of 25%) on April 11, 2018 with respect to the fourth quarter of 2017.

In 2018 we declared and paid such dividends as follows:

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.

In 2019 we declared and paid such dividends as follows

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.

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 will be made 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).

The following table sets forth the components of our historical cash flows for the periods indicated:

	Year ended December 31,
	2019			2018			2017
	(In thousands)

Net cash provided by operating activities		59,679			53,264			43,907
Net cash used in investing activities		(18,287	)		(84,854	)		(14,685	)
Net cash provided by (used in) financing activities		(38,927	)		49,769			(24,266	)
Effect of exchange rate changes on cash and cash equivalents		101			(3,687	)		863
Net increase in cash and cash equivalents		2,566			14,492			5,819

Years ended December 31, 2019, December 31, 2018 and December 31, 2017

Net cash provided by operating activities

Our operating activities provided cash of $43.9 million in 2017, $53.3 million in 2018 and $59.7 million in 2019.

The increase of approximately $ 6.4 million in cash from operating activities in 2019 as opposed to 2018 was due primarily to:

- A decrease of $ 4.5 million in account receivables.

Net cash used in investing activities

Net cash used in investing activities in 2019 in an amount of approximately $ 18.3 million, included capital expenditure in the amount of $ 18.3 million.

Net cash used in investing activities in 2018 in an amount of approximately $84.9 million, includes acquisition of subsidiary in the amount of $69.0 million and capital expenditure in the amount of $ 21.7 million.

Net cash used in investing activities in 2017 in an amount of approximately $14.7 million, includes mainly capital expenditures in the amount of $16.2 million, investment in other companies in the amount of $1.3 million, and investments in marketable securities net in an amount of $3.3 million. These investments were offset by repayments of loans from affiliated companies, net, in an amount of $6.1 million.

Net cash provided by (used in) financing activities

Net cash used in by financing activities in 2019 in an amount of approximately $ 38.9 million consisted primarily of a repayment of short and long term credit from financial institution in amount of $ 11.1 million, cash dividend payment in an amount of approximately $ 19.8 million and a cash dividend payment in an amount of approximately $ 2.0 million paid by our subsidiary to the non- controlling interests and an acquisition of our shares for $ 6 million.

Net cash provided by financing activities in 2018 in an amount of approximately $49.8 million consisted primarily of a receipt of a loan in an amount of $81.7 million, repayment of short and long term credit from financial institution in amount of $ 9.0 million, cash dividend payment in an amount of approximately $20.2 million and a cash dividend payment in an amount of approximately $ 2.7 million paid by our subsidiary to the non- controlling interests.

Net cash used in financing activities in 2017 in an amount of approximately $24.3 million consisted primarily of a cash dividend payment in an amount of $22.6 million and a cash dividend payment in an amount of approximately $1.6 million paid by our subsidiary to the non-controlling interests.

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

Most of our research and development activities take place in Israel and Ecuador. Our Research and Design department is constantly working on upgrading the service infrastructure and improving our fleet management applications, including by introducing new services and uses of the system, while utilizing both internal development staff and outsourcing such activities to third parties, as well as developing new service platforms for cellular/GPS based devices.

Expenditures for research and development activities undertaken by us were approximately $ 13.9 million in 2019, $ 6.2 million in 2018, and $ 3.2 million in 2017.

D. TREND INFORMATION

COVID-19 pandemic may have a negative effect on our business in the forthcoming quarters in several spheres ,such as a decrease in purchase of new cars in Israeli market ,a slowdown in the insurance business in Brazil or a recession in one of our markets .The aforementioned may evolve in different volumes , measures and implications which may not be currently foreseen whereas the COVID-19 pandemic is in its preliminary stage and therefore there are uncertainties surrounding the implications .As of today, since the COVID-19 erupted we already had several effects, such as decrease in new installations and in sale of our products. The aforementioned should be deemed as a forward-looking analysis under Section 21E of the Securities Exchange Act and Section 27A of the Securities Act,1933.

Please see Item 4.A. – History and Development of the Company and Item 4.B. – Business Overview above for trend information.

E. OFF-BALANCE SHEET ARRANGEMENTS

We do not have off-balance sheet arrangements (as such term is defined in Item 5E. of the Form 20-F) that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

Contractual obligations and commercial commitments

The following table summarizes our material contractual obligations as of December 31, 2019:

	Payments due by period
Contractual obligations	Total		Less than 1 year		1-3 years		3-5 years		After 5 years
	(In USD thousands)

Operating leases		12,777		4,179		3,731		2,471		2,396
Purchase Obligations		2,695		2,695		-		-		-
Obligation to purchase non-controlling interests		11,743		-		11,743		-		-
Long – term debt obligations		67,913		18,110		36,220		13,583		-
Total		95,128		24,984		51,694		16,054		2,396

G. SAFE HARBOR

The safe harbor provided in Section 27A of the Securities Act and Sections 21E of the Exchange Act shall apply, among other things, to forward looking information provided in Item 5. F.

ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

DIRECTORS AND SENIOR MANAGEMENT

The following persons are our directors, senior management and employees upon whose work we are dependent:

Name	Age	Position

Izzy Sheratzky	73	President and director
Yehuda Kahane	75	Director
Ze’ev Koren	75	Chairman of the Board of Directors and an independent director
Efraim Sheratzky	67	Director
Eyal Sheratzky	51	Co-Chief Executive Officer and Director
Nir Sheratzky	48	Co-Chief Executive Officer and Director
Gil Sheratzky	42	CEO of our Subsidiary, International Activity and Business Development Officer and a Director
Yoav Kahane(1)(2)	46	Director and an independent director
Yigal Shani	75	Director
Israel Baron (1)(2)(3)⁺	66	External Director
Gidon Kotler (1)(2)(3)	79	External Director
Tal Sheratzky- Jaffa	42	Director and an independent director
Ami Saranga	56	Deputy Chief Executive Officer
Eli Kamer	53	Executive Vice President, Finance; Chief Financial Officer
Guy Aharonov	54	General Counsel
Udi Mizrahi	48	Deputy Chief Executive Officer International Operation and VP of Finance

Notes:

(¹) Member of audit committee

(²) Member of compensation committee

(³) External director elected in accordance with the Israeli Companies Law

⁺Chairperson of all committees

Izzy Sheratzky is a co-founder of our company and its President. He has previously served as the Chairman of our Board of Directors, which in our company constitutes both an officer and director positions, ever since our company was acquired from Tadiran in 1995. Until 2003, Mr. Sheratzky also served as our Chief Executive Officer. Mr. Sheratzky also serves as the Chairman of the Board of Directors of Moked (1973) Investigations Company Ltd., Moked Services, Information and Investments Ltd., and Moked Ituran. He also serves as a director in Tikal Document Collection Ltd. Mr. Sheratzky is the father of Eyal, Nir and Gil Sheratzky, Brother of Efraim Sheratzky and uncle of Tal Sheratzky-Jaffa.

Yehuda Kahane is a co-founder of our company and has served on our board since 1995. Professor Kahane is an entrepreneur in both the academic and business arenas. He is a Fellow of the World Academy of Art and Science. He received the 2011 highest international award for his lasting contribution to the theory, practice and education in insurance and risk management, as well as a lifetime achievements award by the Israeli Insurance industry. He is a co-founder and chairperson of the YK Center for Preparing for the New Economy. Kahane is a Professor (Emeritus) from the Coller Business, Tel Aviv University where he headed the Institute for Business and the Environment. He taught at many business schools around the world, including the Wharton School, the University of Texas (Austin), the University of Toronto and the University of Florida, and has founded and served as the first Dean of the Israeli Academic School of Insurance. Professor Kahane chairs and is a major owner of Capital Point Ltd., and is active in the formation, seed investment and management of start-up companies and technological incubators, unrelated to our company. He chairs the association for the visually impaired people in Herzlia and Sharon district, and a board member of the Center for Blind People in Israel (The Umbrella organization). He is an honorary member of the Israel-Brazil Chamber of Commerce. Professor Kahane holds a BA degree in Economics and Statistics, an MA degree in Business Administration and a PhD in Finance from the Hebrew University of Jerusalem and is a Fellow of the Israeli Association of Actuaries. He specializes in insurance, risk management, environmental issues and technological forecasting. He is the father of Yoav Kahane.

Zeev Koren has served as a director of our company since 2006 and since 2011 serves as the Chairman of the Board of Directors of the Company. In 1988 Brigadier Gen. (Res) Koren retired from the Israel Defense Forces after a career of 25 years, where in his final position he served as the head of human resources planning for the general staff division. Since then he has served in a senior capacity in companies in the fields of international forwarding and medical services. During the past ten years he has also served as the general manager of a Provident Management Company. He holds a B.A. in Political Science and Criminology from Bar Ilan University.

Efraim Sheratzky was appointed to the board on February 9, 2015 to replace Mr. Amos Kurz, as a Class A Director. Efraim Sheratzky studied insurance in the Israeli Insurance College. Efraim Sheratzky owns together with Yigal Shani, Tzivtit Insurance Agency (1998) Ltd. Efraim Sheratzky served as our director from 1999 and until 2005. Efraim Sheratzky is the brother of Izzy Sheratzky and the uncle of Eyal, Nir and Gil Sheratzky and father of Ms. Tal Sheratzky-Jaffa.

Eyal Sheratzky has served as a director of our company since its acquisition from Tadiran in 1995 and currently serves as a Co-Chief Executive Officer since 2003. Prior to 2003, he served as Vice President of Business Development during the years 1999 through 2002. Mr. Sheratzky also serves as a director of Moked Ituran and certain of our other subsidiaries, including Ituran Network. From 1994 to 1999, he served as the Chief Executive Officer of Moked Services, Information and Investments and as legal advisor to several of our affiliated companies. Mr. Sheratzky holds LLB and LLM degrees from Tel Aviv University School of Law and an Executive MBA degree from the Kellogg School of Management at Northwestern University, USA. Mr. Sheratzky is the son of Izzy Sheratzky and the brother of Nir and Gil Sheratzky and nephew of Effraim Sheratzky.

Nir Sheratzky has served as a director of our company since its acquisition from Tadiran in 1995 and currently serves as a Co-Chief Executive Officer since 2003. Prior to 2003, Mr. Sheratzky served as an Executive Officer in our company from 1995 to 2003. Mr. Sheratzky is also a director in Moked Ituran. He holds BA and MA degrees in Economics from Tel Aviv University. Nir is the son of Izzy Sheratzky and the brother of Eyal and Gil Sheratzky and nephew of Effraim Sheratzky.

Gil Sheratzky serves as a director of our company and since 2013 as our International Activity and Business Development Officer. Mr. Sheratzky has been serving since January 23, 2007 as the Chief Executive Officer of our subsidiary, E-Com Global Electronic Commerce Ltd. From 2003 and until 2013 Mr. Sheratzky served as our advertising officer. During the years 2000 - 2001 Gil worked in our control center, and during the years 2001 - 2002 he worked in an advertising agency. Mr. Sheratzky holds a BA in Business Administration from the Herzliya Interdisciplinary Center, and an MBA degree from the Booth School of Business at Chicago University, USA. Gil Sheratzky is the son of Izzy Sheratzky and the brother of Eyal Sheratzky and Nir Sheratzky and nephew of Effraim Sheratzky.

Yoav Kahane Yoav Kahane has served as director of our company since 1998. Mr. Kahahe is serving as Chief Business Officer of PrintCB, developer and manufacturer of copper ink for Printed Electronics. During 2015-2019 Mr. Kahane has co-founded and served as the Chief Executive Officer of Spot-On Therapeutics Ltd., a startup company that develops a non-invasive brain stimulation technology for the treatment of balance disorders, falls prevention and ADHD. During 2006-2014, Mr. Kahane has worked for Enzymotec in various managerial positions including Director of Business Development, VP Sales & Marketing, Infant Nutrition Business Unit Manager, Chief Executive Officer and Chairman of Advanced Lipids AB, a joint venture of AAK AB and Enzymotec, specializing in nutritional ingredients to the infant nutrition industry. During the years 2004-2005, Mr. Kahane served as Vice President of Sales and Marketing in Elbit Vision Systems Ltd. In 2000, Mr. Kahane established Ituran Florida Corp. and served as its Chief Executive Officer until 2001. Mr. Kahane holds a BA degree in Life Sciences from Tel-Aviv University, a BA degree in Insurance and an MBA degree from the University of Haifa. Yoav Kahane is the son of Professor Yehuda Kahane.

Yigal Shani has served as a director of our company since its acquisition from Tadiran in 1995. Mr. Shani is an insurance agent and a partner in the insurance agency Tzivtit Insurance Agency (1998) Ltd. together with Efraim Sheratzky, which provides insurance services to our company. Mr. Shani, has resigned on March 13, 2014 in order to allow compliance with the provisions of the Israeli Companies Law, which require that the board of directors to include at least one female and was reappointed on February 9, 2015 to replace Mr. Avner Kurz, as a Class B Director. Mr. Shani was reelected on November 9, 2017.

Israel Baron has been serving as an external director of our company since 2003 and is the Chairman of our board’s committees. Mr. Baron served as a director in Poalim Trust Services Ltd., a fully owned subsidiary of Bank Hapoalim Ltd from 2009 until 2017. In addition, Mr. Baron has been serving as Chief Executive Officer of several public sector employee retirement and saving plans since 2003. Prior to 2003, Mr. Baron managed an organizational consulting firm, served as an investment manager in the Isaac Tshuva group during the years 1999 to 2001 and as Chief Executive Officer of Gmulot Investment Company Ltd. Mr. Baron serves as a director of Quality Baron Management Services Ltd. and until 2004 he served as a director of Brill Shoe Industries Ltd. Mr. Baron is a certified CPA and holds a BA degree in Economics and Accounting from the Bar-Ilan University in Ramat-Gan, Israel. Israel Baron was reelected on December 21, 2017 for additional 3-year term to serve as external director.

Gidon Kotler is an external director of our company. He was nominated on April 30, 2014. Prior to his retirement on 2016, Mr. Kotler has been serving as the assets manager of Strauss-Group Ltd., one of Israel’s largest public companies, since 1997. Prior to that, Mr. Kotler has served for 3 years as the chief executive officer of the Tel-Aviv New Central Bus Station, and for 14 years as the chief executive officer of the Dizengof Center’s management company. Mr. Kotler has served as an external director of Elran Real Estate Ltd. from 2007 until 2010. On December 28, 2016, an annual general shareholders meeting approved the extension of the term of Mr. Gideon Kotler, our external director, for additional three years (beginning April 30, 2017).. On December 12, 2019, an annual general shareholders meeting approved additional extension of the term of Mr. Gideon Kotler, our external director, for additional three years (beginning April 30, 2020).

Ms. Tal Sheratzky -Jaffa was appointed as a member of the board and serves as a Class A director until December 28, 2019). Ms. Sheratzky-Jaffa is a Strategy and Development Manager at Reality Investment Funds, Israeli value-add real estate fund. Prior to joining Reality Investment Funds, Ms. Sheratzky-Jaffa was a Partner at the Israeli law firm Amit, Pollak, Matalon and Co., specializing in the fields of investment funds, mergers and acquisitions, high-tech and corporate governance, and an associate at the New York offices of the US law firm Akin Gump Strauss Hauer & Feld. Ms. Sheratzky-Jaffa holds LL.M degree from Columbia University (New York), LL.B from Haifa University and B.A (economics) from Haifa University, and is a member of the Israeli Bar Association and the New York State Bar. Ms. Sheratzky-Jaffa is the nephew of Izzy Sheratzky and the cousin of Eyal, Nir and Gil Sheratzky and the daughter of Efraim Sheratzky. Ms. Sheratzky – Jaffa was elected, on December 12, 2019, in annual general shareholders meeting, to serve as director in Class A for additional period until third succeeding Annual General meeting, thereafter.

Ami Saranga has been serving as the Deputy Chief Executive Officer of our company since 2011. Prior to that Mr. Saranga served as our VP Marketing since 2008. Prior to 2008, Mr. Saranga managed the SME division of Pelephone Communications Ltd., one of Israel’s largest telecommunication network operators. Mr. Saranga holds a BA degree in Business Administration from Ruppin Academic Center, Israel.

Eli Kamer has served as Executive Vice President, Finance and Chief Financial Officer of our company since 1999, after serving as its Finance Department Manager since 1997. Prior such date, Mr. Kamer worked as an accountant in Fahn Kanne & Co., our independent registered public accountant. Mr. Kamer is a CPA and holds a BA degree in Business Administration from the Israel College of Management and an MBA degree in business administration from Bar Ilan University.

Guy Aharonov has served as our in-house legal counsel since 1999. Prior to joining our company, he has worked as an attorney in Cohen Lahat & Co. Mr. Aharonov holds LLB and LLM degrees from Tel Aviv University.

Udi Mizrahi has served as our VP Finance since 2000. On his current position Mr. Mizrahi serve as a Deputy Chief Executive Officer International Operation and VP of Finance. Mr. Mizrahi is a CPA and holds a BA degree in accounting and economics from Ruppin Academic Center, Israel.

Our articles of association provide for staggered three-year terms for all of our directors (except our external directors, who are elected in accordance with the provisions of the Israeli Companies Law). The directors on our board (excluding the external directors) are divided into three classes, and each class of directors serves for a term of three years, as follows: Nir Sheratzky, Yigal Shani and Yehuda Kahane (class B), who were re-elected on November 9, 2017; Izzy Sheratzky, Gil Sheratzky and Zeev Koren (class C), who were re-elected on December 12, 2018; and Eyal Sheratzky, Efraim Sheratzky, Tal Sheratzky-Jaffa and Yoav Kahane (class A), who were re-elected on December 12, 2019. This classification of the board of directors may delay or prevent a change of control of our company.

On December 28, 2016, an annual general shareholders meeting approved the extension of the term of Mr. Gideon Kotler, our external director, for additional three years (beginning April 30, 2017), which was extended to additional term of three years commencing on April 30,2020. On December 21, 2017, an annual general and special shareholders meeting approved the re-election of Mr. Israel Baron, our external director, for additional three years.

Shareholders Agreement and Articles of Association of Moked Ituran Ltd.

Pursuant to Moked Ituran Ltd's articles of association and agreement (as amended) between its shareholders, there is a mechanism in place with regard to directors to be designated and voted for election by Moked Ituran Ltd in each of our annual shareholdings meeting for the relevant class of directors (four directors in class A and B and three in class C).The aforementioned is in effect only for as long as Moked Ituran Ltd holds at least 15% of our issued and outstanding share capital.

COMPENSATION

The aggregate direct compensation we paid to our directors who are not officers for their services as directors as a group for the year ended December 31, 2019 was approximately $261,000. Directors are reimbursed for expenses incurred in connection with their attendance of board or committee meetings. The compensation payable to external directors is determined in accordance with regulations promulgated under the Israeli Companies Law. See Item 6.C - Board Practices under the caption “External directors” below. Our audit committee and board of directors approved compensation for Mr. Ze’ev Koren, for serving as the Chairman of our board of directors, and for Mr. Yoav Kahane, for serving as a member of our board committees, such that they shall be compensated in the same manner as our external directors are compensated, annually and per meeting, in accordance with the Companies Regulations (Rules for the Compensation and Expenses of an External Director), 2000-5760. In 2019, we paid the sum of NIS 446,000 (approximately $ 125,000) to our external directors, NIS 200,000 (approximately $ 56,000 ) to Mr. Ze’ev Koren, NIS 168,000 (approximately $ 47,000) to Mr. Yoav Kahane, NIS 116,000 (approximately $ 32,000 ) to Ms. Tal Sheratzky-Jaffa.

We do not have any agreements with directors providing for benefits upon termination of their respective services as such.

The aggregate costs to the Company of the compensation to our Co-Chief Executive Officers in 2019 were $ 2.9 million. The aggregate compensation paid to all of our officers as a group during 2019 was approximately $ 10 million. In 2019 we paid an aggregate amount of $ 62,000 to one director who provided us with services. The above compensation amounts include amounts attributable to automobiles made available to our officers and other fringe benefits commonly reimbursed or paid by companies in Israel. Employee directors do not receive additional fees for their services as directors.

The following table sets forth the breakdown of the compensation of our 5 highest paid officers in 2019 according to our 2019 financial reports:

	Management fees		Wage		Social components		Car value		Bonus (results based)		Bonus (Share yield based)		Total
	Compensation components (in thousand US Dollars)
Izzy Sheratzky (President)		756		-		-		-		1,086		-		1,842
Eyal Sheratzky (Co-Chief Executive Officer)		588		-		-		-		884		-		1,472
Nir Sheratzky (Co-Chief Executive Officer)		588		-		-		-		884		-		1,472
Gil Sheratzky (CEO of our Subsidiary. International Activity and Business Development Officer)		417		-		-		-		631		-		1,048
Ami Saranga (Deputy Chief Executive Officer)		-		209		48		29		112		-		398

Total of our 5 highest paid officers		2,349		209		48		29		3,597				6,232

During 2019, we set aside $547,000 for the benefit of our officers for pension, retirement or similar benefits. We do not set aside any funds for the benefit of our directors who are not employees for any pension, retirement or similar benefits.

All numbers in this section are rounded to the nearest thousand.

During 2019, Messrs. Izzy Sheratzky, Eyal Sheratzky, Nir Sheratzky and Gil Sheratzky provided their services as President, Co-Chief Executive Officers and CEO of our Subsidiary & International Activity and Business Development Officer respectively, as independent contractors pursuant to services agreements, which were adopted by our shareholders meeting in January 2014, which terms correspond to our compensation policy as described below.

On November 9, 2017 our annual general meeting of shareholders approved the extension of service agreements as independent contractors, of Messrs. Izzy Sheratzky, Eyal Sheratzky, Nir Sheratzky and Gil Sheratzky for a period of additional three years.

Such agreements were extended subject to the approval of our next general shareholders meeting, for additional three years, with accordance to the provisions of Israeli Company Law and Israeli Companies Regulations (Relaxations in Transactions with Interested Parties) 5760-2000, and were approved accordingly by our compensation committee and our board of directors on April20 , 2020.

For further details concerning such terms of service, please see Item 7.B – Related Parties Transactions under the caption “Transactions with our directors and principal officers.”

In 2006, our compensation committee has devised a bonus scheme pursuant to which some of our officers and employees received shares of our profit before tax on a consolidated basis, based on their seniority, level of global and domestic involvement, contribution to our operations and other criteria set by the compensation committee. In 2010, our compensation committee resolved that additional managers shall be entitled to receive bonuses under this bonus scheme and that some of the grantees should continue to receive a bonus based on our consolidated results and some should receive a bonus based only on our solo financial statements. During 2019, we paid a total of $ 720,000 to our officers and employees pursuant to the above bonus schemes..

Our compensation policy for office holders

In December 2012, amendment no. 20 to the Israeli Companies Law became effective. Among other things, this amendment requires Israeli public companies to set forth their policy regarding their office holders’ terms of office, including fixed compensation, target-based incentives, equity awards, severance and other benefits. The amendments also set forth the considerations that should be applied when devising a compensation policy for office holders.

The term “office holder” is defined in the Israeli Companies Law, to mean the chief executive officer, chief business officer, deputy chief executive officer, vice chief executive officer, any other person fulfilling such position even if his title is different, as well as a director or a manager directly subordinate to the chief executive officer.

The compensation policy must be approved every three years by the board of directors, after considering the recommendations of the compensation committee; and generally requires the approval of the company’s general meeting of shareholders by a special majority of shareholders who are not controlling shareholders and who do not have a personal interest in the approval of the policy; or, alternatively, that the non-controlling shareholders and shareholders who do not have a personal interest in the matter who are present and vote against the policy hold two percent or less of the voting power of the company.

The compensation policy does not intend to amend any officer’s existing terms of office; nor to bestow any officer with a right to receive the compensation, or any element thereof set forth therein. However, generally, once the compensation policy is approved, all future terms of service of office holders should conform to its provisions. The specific terms of office of each officer shall be separately determined in accordance with the relevant provisions of the Israeli Companies Law and the regulations promulgated thereunder.

Our general shareholders meeting approved our compensation policy for office holders on October 31, 2013, and on November 7, 2016 and later on December 12,2019 approved a renewal and several minor amendments in our compensation policy (in order to reflect several changes in Israeli Company Law). The policy applies to office holders of the Company (see definition above), who serve as the Company’s President, Chief Executive Officer(s) and other executives who are deemed office holders of the Company, as well as office holders of the Company’s Israeli wholly owned subsidiaries, provided they report to the chief executive officer. The policy also applies to directors of the Company.

Our compensation policy for office holders was formulated in view of our belief that our business success is the result of the excellence of our human resources and their devotion to the achievement of our company’s goals. Therefore, it is aimed at offering our officers with a competitive compensation package that will align their incentives with those of our company and our shareholders, and at motivating them to achieve the goals of our company, while avoiding undue pressure to take excessive risks. Among other factors, our compensation committee and board of directors have considered, as required by amendment no. 20 to the Israeli Companies Law and as reflected in the policy: (a) the advancement of the company’s goals, its business plan and its policy with a long-term view; (b) the creation of appropriate incentives for office holders, considering the company’s risk management policy; (c) the size of the company and the nature of its business; (d) with respect to variable components of the terms of office – the contribution of the office holders to the achievement of the company’s goals and to the maximization of its profits, with a long-term view and in accordance with the position of the office holder.

The compensation policy incorporates all matters required to be included in a compensation policy as mandated by amendment 20 to the Israeli Companies Law, including (without limitation): (a) the requirement to consider the office holders’ education, skills, professional experience, expertise, position and past compensation agreements; (b) consideration of the ratios between overall compensation of the officers and the average and median salary of the other employees of the Company; (c) the board’s right to reduce variable compensation; (d) the determination of a maximum period for advanced and transition periods upon termination of services; (e) basing variable components of compensation on key performance indicators and on measurable criteria; (f) determining the ratio between fixed and variable components of compensation and setting forth caps on the amount of variable compensation payable; and (g) a claw-back provision with respect to restatements of financial statements. For further details, see our full compensation policy for office holders, which is filed herewith as Exhibit 4.24 under Item 19 – Exhibits.

BOARD PRACTICES

Board of Directors

Pursuant to our articles of association as presently in effect, our board of directors generally consists of twelve directors, including at least three independent directors in accordance with the listing rules of Nasdaq concerning the composition of audit committees, of whom two directors are external directors as required by Israeli law. Our independent directors, as such term is defined under the Nasdaq listing rules, are Mr. Baron, Mr. Kotler, Mr. Koren, Mr. Yoav Kahane and Ms. Tal Sheratzky - Jaffa, Pursuant to our articles of association, other than the external directors, for whom special election requirements apply (see “External directors” below), our directors are elected, by majority of our shareholders and may be removed by special majority. However, see Item 6.A – Directors and Senior Management for a description of our staggered board and the shareholders agreement and articles of association of Moked Ituran Ltd. Our board of directors may at any time and from time to time appoint any other person as a director to fill a vacancy until the general meeting of shareholders in which the term of service of the replaced director was scheduled to expire.

Pursuant to the Israeli Companies Law, our chairman convenes and presides over the meetings of the board. In addition, any two directors may convene a meeting of the board of directors, as well as a director who becomes aware of a company’s matter that allegedly involves a breach of the law or an improper business conduct. A quorum consists of a majority of the members of the board, and decisions are taken by a vote of the majority of the members present. Our articles of association provide that such quorum will in no event be less than two directors.

We are incorporated in Israel and are therefore subject to the provisions of the Israeli Companies Law, including certain corporate governance provisions. Our ordinary shares are listed on the Nasdaq Global Select Market (Our shares were delisted from the Tel Aviv stock exchange on May 25, 2016, for additional information see Item 9.A – Price History of Our Shares), and we are therefore subject to certain provisions of the Israeli securities laws, the U.S. securities Laws and the Nasdaq listing rules. See also Item 16.G. – Corporate Governance below for additional information concerning our compliance with the Nasdaq listing rules and exemptions therefrom.

According to our Articles of Association, some of our officers and employees (including the chairman of our board and at least one third member of the Board) should be citizens and residents of Israel and receive clearance approval from the Israeli General Security Service. All the members of our board comply with these requirements.

On February 26, 2017 our board has adopted an Internal Compliance policy, which following review of our internal process included a comprehensive update of our internal regulations and codification of our internal regulations, all pursuant to the applicable Israeli laws.

External directors

Under Israeli law, the board of directors of companies whose shares are publicly traded are required to include at least two members who qualify as external directors. External directors are to be elected by a majority vote at a shareholders’ meeting, provided that either:

◾	Such majority includes at least the majority of the shares held by all non-controlling shareholders or those having personal interest in the nomination, except personal interest which is not resulting from connections with controlling shareholders, present and voting at such meeting; or

◾

The total number of shares voted against the election of the external director and held by shareholders other than controlling shareholders or those having personal interest in the nomination, except personal interest which is not resulting from connections with controlling shareholders, must not exceed 2% of the shares whose holders are entitled to vote at any meeting of shareholders.

External directors are generally elected to serve an initial term of three years and may be re-elected to serve in that capacity for two additional three-year terms; however, companies whose securities are listed on recognized foreign exchanges, such as Nasdaq, may extend the service terms of their external directors for additional unlimited terms, each of no more of than three years , subject to the approval of the audit committee and the board of directors that such extension is for the benefit of the company in view of the directors’ expertise and special contribution to the operation of the board and its committees and these reasons together with the term served by the external director were presented to the shareholders prior to their approval (see the Israeli Companies Regulations (Allowances for Companies with Securities Listed on an Exchange Outside Israel), 2000-5760). The appointment of an external director for additional terms may be brought for the approval of the shareholders either by the board of directors or by a shareholder that holds at least 1% of the company’s voting rights, provided that the nominee is not a related or competing shareholder (as defined below) or a relative thereof, at the time of the appointment, and does not have an affinity to such shareholder (as defined below) at the time of the appointment or the two years preceding such appointment. The term “related or competing shareholder” means the shareholder who proposed the appointment or a 5% shareholder of the company if, at the time of the appointment, his controlling person or a company controlled by either of them, has business relations with the company, or if he, his controlling person or a company controlled by either of them are competitors of the company. The term “affinity” means the on-going existence of work relationship, business or professional relationship or control and the service as an officer.

External directors may generally be removed from office by the same majority of shareholders required for their election or by a court, in each case, only under limited circumstances, including if they cease to meet the statutory qualification for their appointment or violate the duty of loyalty to the company.

If at the time of the appointment of an external director, all directors who are not controlling persons or their relatives are of the same gender, then the elected external director must be of the other gender.

Each committee of the board of directors that is vested with an authority of the board must include at least one external director, except that the audit committee and compensation committee must include all external directors then serving on the board of directors. The Israeli Companies Law prohibits external directors from receiving, directly or indirectly, any compensation other than for services as an external director pursuant to the provisions and limitations set forth in the applicable regulations promulgated under the Israeli Companies Law.

Israeli law provides that a person is not qualified to serve as an external director if he is a relative (as defined in the Israeli Companies Law) of the company’s controlling person, or if, at the time of his/her appointment and/or at any time during the two years preceding his or her appointment, that person, a relative, partner or employer of that person, or any entity under that person’s control, has or has had an affinity (as defined above) to the company, its controlling person or its relative or to any entity that, as of the date of appointment, or at any time during the two years preceding that date, is controlled by the company or by its controlling person. In addition, no person may serve as an external director if that person’s professional activities create, or may create, a conflict of interest with that person’s responsibilities as a director or otherwise interfere with that person’s ability to serve as a director; and, a person already serving as a director of one company may not be appointed as an external director of the company if at that time a director of the company is serving as an external director of the first company. In addition, a company, controlling shareholder and any other entity controlled by the controlling shareholder may not grant to such external director, its spouse or child, any benefits, directly or indirectly, and the external director, its spouse or child may not be appointed to serve in any position, may not be employed by and may not, directly or indirectly, render any professional services to the company, such controlling shareholder or any other entity controlled by the controlling shareholder, during the first two years following such external director’s termination of tenure of office, and with respect to a relative who is not the external director’s spouse or child – during the first year following such termination.

Mr. Israel Baron is now serving his sixth term as an external director of the Company, who was reelected on of December 21, 2017 for a term of 3 years. Mr. Gideon Kotler was appointed on April 30, 2014 by an extraordinary shareholders meeting as our new external director, following the death of our former external director, Dr. Orna Ophir, in January 2014 and was reelected by our general shareholders meeting on December 28, 2016, for his second term, of additional 3 years term starting from April 30, 2017,which was later extended for additional term of three years beginning April 30,2020.

Audit committee

Under Israeli law, the board of directors of a public company must appoint an audit committee. The audit committee must comprise of at least three directors, including all of the external directors and the chairman of the audit committee must be an external director. In addition, the majority of the members of the audit committee must be independent directors. Under the Israeli Companies Law, a director is considered “independent” if he/she is an external director or if he/she meets the qualifications of an external director, has not served as a director of the company for over 9 consecutive years, and has been classified as such. Under Israeli regulations a director who serves more than 9 consecutive years as a director may still be deemed as "independent director" provided the Audit committee and thereafter the board of directors resolved that his-her tenure as a director for an extend term is for the benefit of the company based on his/her expertise and unique contribution to the board and its committees. Our Audit committee and board of directors so resolved with regard to Messrs. Israel Baron and Yoav Kahane. The audit committee may not include the chairman of the board, any director who is employed by the company or regularly provides services to the company (other than as a board member), a controlling shareholder or any relative of such person. All audit committee decisions must be approved by a majority of the committee members of which the majority of members present are independent directors. Furthermore, a person who is not eligible to serve on the audit committee is restricted from participating in its meetings and votes, unless the chairman of the audit committee determines that such person’s presence is necessary in order to present a certain matter, provided however, that the company employees who are not controlling shareholders or relatives of such shareholders may be present in the meetings but not in the actual votes and likewise, company counsel and secretary who are not controlling shareholders or relatives of such shareholders may be present in meetings and decisions of such present is requested by the audit committee.

Our audit committee must also meet the requirements of the Nasdaq listing rules concerning audit committees.

Our board of directors has formed an audit committee that is empowered, among other things, to exercise the powers of the board of directors concerning our accounting, reporting and financial control practices. Our audit committee operates in accordance with a charter, which complies with the provisions of the Israeli Companies Law and the Nasdaq listing rules. The members of the audit committee are currently Messrs. Israel Baron, Gidon Kotler and Yoav Kahane, all of whom are independent as required of members of the audit committee under the Nasdaq listing rules. Mr. Gidon Kotler was appointed on April 30, 2014 to replace Dr. Orna Ophir who passed away in January 2014. Our board of directors has determined that Mr. Israel Baron possesses financial sophistication as required by Rule 5605(c)(2) under the Nasdaq listing rules, and that both Mr. Baron and Mr. Kotler possess accounting and financial expertise as defined by Israeli regulations.

Pursuant to the Israeli Companies Regulations (Provisions and Conditions regarding the Financial Statements’ Authorization Process), 2010, a reporting entity, except for a reporting entity that is subject to Chapter E(3) of the Israeli Securities Act, is required to establish a committee of the board of directors for the examination of financial statements. Since we are a reporting entity under Chapter E(3), we are not obliged to constitute a committee for the examination of financial statements; and therefore, commencing with the financial statements for the first quarter of 2013, we ceased holding meetings of the examination of financial statements committee; and instead, our audit committee considers the financial statements prior to their approval by the board.

Pursuant to the 22^nd amendment in the Israeli Company law, which was set to define new rules to approve transaction of the public company with its controlling shareholders, or the transaction in which the controlling shareholder has interest. The law requires from our Audit committee to set up rules to define the criteria for classification of transactions, which are neither Insignificant Transactions nor extraordinary transactions, and their procedures of approval that will be determined per each year in advance. In addition, the law requires from the Audit Committee to set methods of examining transactions with the controlling shareholders, in order to enable their classification and their comparison to the conditions in the free market. The Audit Committee resolved on September 29, 2014 as follows:

Transaction that is neither extraordinary, nor insignificant.

Definition: the relevant criteria that is calculated for the transaction is such transaction which is higher than 0.25% of the equity of the company according its last combined financial reports, or higher than 1% of average net revenue of the past 3 years of the company in their absolute value, in the last 2 calendar years prior to the date of the transaction is being reported according the last financial report of the company.

Methods of approval: approval by the senior management of the company (from vice chief executive officer and higher) and report to the Board. The following transactions will require also the approval of the Audit Committee:

(1)

Transaction which is higher than 4.5% of the equity of the company according its last combined financial reports which were published prior to the approval of the transaction.

(2)

Transaction that involves risks or significant exposure beyond mere monetary liabilities or obligations.

(3)

Transaction in which the company enters a new activity field or exits from an existing activity field.

Insignificant transaction:

Definition: such transaction which is not higher than 0.25% of the equity of the company according its last combined financial reports or is not higher than 1% of average net revenue of the past 3 years of the company in their absolute value, in the last 2 calendar years prior to the date of the transaction is being reported according the last financial report of the company.

Methods of approval: Approval by the management of the company or by the officer in charge in the company (vice chief executive officer, other officer or other in charged body in the company according the decisions of the company).

General rules:

(1)

Any transaction with a controlling shareholder or any transaction that a controlling shareholder has an interest in, will be brought before the Audit Committee, which will determine its type and decide on case by case basis on defining it as an insignificant transaction or other kind of transaction, and will decide on its review and on its approval.

(2)

According the adopted criteria, transactions with Tzivtit Insurance Agency (1998) Ltd. and with Rinat Yogev Nadlan Ltd. shall be classified as insignificant transactions. If the extent of such transactions will remain similar during the following years, our management shall be deemed qualified to approve such transactions and to report them to the Audit Committee.

(3)

Every year the criteria for classifying transactions as set up above shall be brought for re-approval by the Audit Committee.

Compensation committee

The Israeli Companies Law mandates the appointment of a compensation committee comprising of at least three directors. The compensation committee must include all of the external directors, who shall constitute the majority of the members thereof, and its remaining members shall be directors whose terms of service comply with the provisions promulgated concerning the remuneration of external directors. The chairman of the committee must be an external director. The members of the Compensation committee are currently Israel Baron, Gideon Kotler and Yoav Kahane. Mr. Gidon Kotler was appointed on April 30, 2014 to replace Dr. Orna Ophir who passed away in January 2014. All members of our compensation committee are independent directors as defined by the Nasdaq listing rules, and all of whom meet the composition requirements under the Israeli Companies Law. Since February 2016, the Israeli Companies Law permits that Audit Committee can serve also as a Compensation committee, provided that it will comply with requirements of the Compensation Committee as explained above.

Under the Israeli Companies Law, the compensation committee is responsible for: (i) making recommendations to the board of directors with respect to the approval of the compensation policy for office holders and any extensions thereto; (ii) periodically reviewing the implementation of the compensation policy and providing the board of directors with recommendations with respect to any amendments or updates thereto; (iii) reviewing and resolving whether or not to approve arrangements with respect to the terms of office of office holders; and (iv) determining whether or not to exempt a transaction with a candidate for chief executive officer from shareholders' approval.

Furthermore, our compensation committee oversees, on behalf of the Board, the management of Ituran’s compensation and other human resources-related issues and otherwise carries out on behalf of the Board its responsibilities relating to these issues. The committee is responsible for establishing annual and long-term performance goals and objectives for our executive officers. In addition, as required under the Nasdaq listing rules, our compensation committee is responsible for the appointment, compensation and oversight of the work of any compensation consultant, legal counsel and other adviser retained by the committee; and may retain such advice only after taking into account the considerations set forth in the Nasdaq listing rules in this respect. Our compensation committee operates in accordance with a charter, which complies with the provisions of the Israeli Companies Law and the Nasdaq listing rules.

According to our compensation committee charter, the compensation committee, among its other duties, is responsible on reviewing the disclosure in this form which concerns the Compensation Policy and the sections describing the Terms of Service of Officers, controlling persons and their relatives.

Internal auditor

Under the Israeli Companies Law, the board of directors of a public company must appoint an internal auditor nominated by the audit committee. An internal auditor may not be:

◾	a person (or a relative of a person) who holds more than 5% of the company’s shares or voting rights;

◾	a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;

◾	an executive officer, director or other affiliate of the company; or

◾	a member of the company’s independent accounting firm.

The role of the internal auditor is to examine, among other things, the compliance of the company’s conduct with applicable law and orderly business procedures. Our internal auditor is Simon Yarel, CPA, who has served as our internal auditor since January 1999.

EMPLOYEES

The following table sets forth the total number of our employees at the end of each of the past three years, and a breakdown of such employees by main category of activity and by geographic location:

	Year Ended December 31,
	2019		2018		2017
By area of activity:
Control Center		552		532		460
Research and Development		154		162		51
Sales and Marketing		69		45		104
Technical support and IT		467		652		346
Finance, Administration and Management		380		385		260
Private enforcement and operations		1,143		1,236		366
Manufacturing		143		160		131
Total		2,908		3,172		1,718

By geographic location (out of total):
Israel		863		855		843
Brazil

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-4.9A	exhibit_4-9a.htm
EX-4.10A	exhibit_4-10a.htm
EX-4.11A	exhibit_4-11a.htm
EX-4.12A	exhibit_4-12a.htm
EX-12.1	exhibit_12-1.htm
EX-12.2	exhibit_12-2.htm
EX-13	exhibit_13.htm
EX-14.1	exhibit_14-1.htm
EX-14.2	exhibit_14-2.htm
EX-14.3	exhibit_14-3.htm

ITRN 20F Annual Report

Ituran Earnings 2019-12-31