SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 


F O R M  6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934

For the Month of December 2015

GILAT SATELLITE NETWORKS LTD.
 (Name of Registrant)

21 YEGIA KAPAYIM, KIRYAT ARYE, PETAH TIKVAH, ISRAEL
(Address of Principal Executive Office)

    Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F S                                Form 40-F o

    Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

    Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

    Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o                       No T

    If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-

 
This form 6-k is being incorporated by reference into the registrant's registration statements on Form F-3 (registration no. 333-195680) and registration statements on Form S-8 (registration nos. 333-113932, 333-123410, 333-132649, 333-158476, 333-180552, and 333-187021 and 333-204867).

 
 

 

Attached hereto as Exhibits 99.1 and 99.2 are Registrant’s Condensed Interim Consolidated Financial Statements as of September 30, 2015 and for the Nine Months ended September 30, 2015 and September 30, 2014 and Management's Discussion and Analysis of Financial Condition and Results of Operations.
 
Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
Gilat Satellite Networks Ltd.
(Registrant)
 
       
Dated December, 30, 2015
By:
/s/ Ran Tal  
    Ran Tal  
   
General Counsel and Corporate Secretary
 
       
 
 
 

 
 
GILAT SATELLITE NETWORKS LTD.
6-K Exhibits
 
99.1  Condensed Interim Consolidated Financial Statements of Gilat Satellite Networks Ltd. and its subsidiaries as of September 30, 2015 and for the Nine  Months ended September 30, 2015 and September 30, 2014.
 
99.2 Management's Discussion and Analysis of Financial Condition and Results of Operations.
 


 

 


 




Exhibit 99.1
 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2015

IN U.S. DOLLARS

UNAUDITED

INDEX


 
 

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES

CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

   
September 30,
2015
   
December 31, 2014
 
   
Unaudited
       
ASSETS
           
             
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 27,723     $ 27,726  
Restricted cash
    68,405       25,983  
Restricted cash held by trustees
    1,204       15,441  
Trade receivables, net
    38,731       57,728  
Inventories
    28,830       25,112  
Other current assets
    16,036       14,760  
                 
Total current assets
    180,929       166,750  
                 
LONG-TERM INVESTMENTS AND RECEIVABLES:
               
Severance pay funds
    7,690       8,085  
Long-term restricted cash
    177       216  
Other long-term receivables
    7,081       12,124  
                 
Total long-term investments and receivables
    14,948       20,425  
                 
PROPERTY AND EQUIPMENT, NET
    85,972       90,893  
                 
INTANGIBLE ASSETS, NET
    18,597       22,970  
                 
GOODWILL
    43,468       63,870  
                 
Total assets
  $ 343,914     $ 364,908  
 
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
 
 
F - 2

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share and per share data)
 
   
September 30,
2015
   
December 31, 2014
 
   
Unaudited
       
             
LIABILITIES AND EQUITY
           
             
CURRENT LIABILITIES:
           
Short-term bank credit and loans
  $ 9,124     $ 15,857  
Current maturities of long-term loans
    4,557       4,595  
Trade payables
    14,661       22,850  
Accrued expenses
    20,284       22,475  
Advances from customers
    58,545       2,940  
Advances from customers held by trustees
    2,614       12,858  
Other current liabilities
    17,349       18,587  
                 
Total current liabilities
    127,134       100,162  
                 
LONG-TERM LIABILITIES:
               
Long-term loans, net of current maturities
    21,680       26,271  
Accrued severance pay
    7,489       8,157  
Other long-term liabilities
    4,380       5,179  
                 
Total long-term liabilities
    33,549       39,607  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
EQUITY:
               
Share capital -
Ordinary shares of NIS 0.2 par value: Authorized - 90,000,000 shares at September 30, 2015 and December 31, 2014; Issued and outstanding 44,291,647 and 42,730,424 shares as of September 30,2015 and December 31, 2014, respectively
    2,046       1,966  
Additional paid-in capital
    883,803       876,624  
Accumulated other comprehensive loss
    (3,502 )     (1,420 )
Accumulated deficit
    (699,116 )     (652,031 )
                 
Total equity
    183,231       225,139  
                 
Total liabilities and equity
  $ 343,914     $ 364,908  
 
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
 
 
F - 3

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands (except share and per share data)

   
Nine months ended
September 30,
 
   
2015
   
2014
 
   
Unaudited
   
Unaudited
 
Revenue:
           
Products
  $ 79,511     $ 107,056  
Services
    50,350       54,980  
                 
Total revenue
    129,861       162,036  
                 
Cost of revenue:
               
Products
    57,625       73,611  
Services
    38,512       30,562  
                 
Total cost of revenue
    96,137       104,173  
                 
Gross profit
    33,724       57,863  
                 
Operating expenses:
               
Research and development costs, net
    18,680       19,029  
Selling and marketing expenses
    18,725       25,280  
    General and administrative expenses
    15,226       14,011  
    Restructuring costs
    986       -  
Goodwill impairment
    20,402       -  
                 
Operating loss
    (40,295 )     (457 )
                 
Financial expenses, net
    (5,850 )     (1,898 )
                 
Loss before taxes on income
    (46,145 )     (2,355 )
Taxes on income
    740       783  
                 
Net loss from continuing operations
  $ (46,885 )   $ (3,138 )
Net loss from discontinued operation
  $ (200 )   $ (795 )
Net loss
  $ (47,085 )   $ (3,933 )
                 
Net loss per share (basic and diluted):
               
Continuing operations
  $ (1.08 )   $ (0.07 )
Discontinued operation
  $ (0.00 )   $ (0.02 )
Total net loss per share
  $ (1.08 )   $ (0.09 )
                 
Weighted average number of shares used in computing net loss per share:
               
Basic and diluted
    43,436,470       42,371,039  
 
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
 
 
F - 4

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

U.S. dollars in thousands

   
Nine months ended
September 30,
 
   
2015
   
2014
 
   
Unaudited
   
Unaudited
 
             
Net loss
  $ (47,085 )   $ (3,933 )
Other comprehensive loss
               
Foreign currency translation adjustments
    (2,702 )     (1,281 )
Reclassification adjustments for realizes loss on hedging instruments, net
    788       122  
Unrealized loss on hedging instruments, net
    (168 )     (902 )
 
               
Total comprehensive loss
  $ (49,167 )   $ (5,994 )
 
The accompanying notes are an integral part of the condensed interim consolidated financial statements.

 
F - 5

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

U.S. dollars in thousands (except share data)

   
Number of
Ordinary shares
   
Share
capital
   
Additional
paid-in
capital
   
Accumulated
other
comprehensive
income (loss)
   
Accumulated
deficit
   
Total
shareholders'
equity
 
                                     
Balance as of January 1, 2014
    42,125,774     $ 1,932     $ 873,045     $ 1,591     $ (650,535 )   $ 226,033  
Issuance of restricted share units (RSU)
    332,650       19       -       -       -       19  
Stock-based compensation of options and RSUs related to employees and non- employees
    -       -       2,427       -       -       2,427  
Exercise of stock options
    272,000       15       1,152       -       -       1,167  
Comprehensive loss
    -       -       -       (3,011 )     (1,496 )     (4,507 )
                                                 
Balance as of December 31, 2014
    42,730,424       1,966       876,624       (1,420 )     (652,031 )     225,139  
Issuance of restricted share units (RSUs)
    277,175       14       -       -       -       14  
Stock-based compensation of options and RSUs related to employees and non- employees
    -       -       1,665       -       -       1,665  
Exercise of stock options
    1,284,048       66       5,514       -       -       5,580  
Comprehensive loss
    -       -       -       (2,082 )     (47,085 )     (49,167 )
                                                 
Balance as of September 30, 2015 (unaudited)
    44,291,647     $ 2,046       883,803     $ *)  (3,502 )   $ (699,116 )   $ 183,231  
 
*)
As of September 30, 2015 the comprehensive loss consists of $ 3,316 foreign currency translation adjustments and $ 186 unrealized loss on hedging instruments.

The accompanying notes are an integral part of the condensed interim consolidated financial statements.
 
 
F - 6

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

   
Nine months ended
September 30,
 
   
2015
   
2014
 
   
Unaudited
 
Cash flows from continuing operations:
           
             
Cash flows from operating activities:
           
             
Net Loss
  $ (47,085 )   $ (3,933 )
Net loss from discontinued operation
    (200 )     (795 )
Net loss from continuing operations
  $ (46,885 )   $ (3,138 )
Adjustments required to reconcile net loss from continuing operations to net cash used in operating activities:
               
Depreciation and amortization
    11,459       11,626  
Goodwill impairment
    20,402       -  
Stock-based compensation of options and RSUs related to employees and non- employees
    1,665       1,843  
Accrued severance pay, net
    (274 )     42  
Accrued interest and exchange rate differences on short and long-term restricted cash, net
    207       464  
Exchange rate differences on long-term loans
    (221 )     (311 )
Capital loss from disposal of property and equipment
    121       241  
Deferred income taxes
    11       (56 )
Decrease in trade receivables, net
    16,730       1,538  
Decrease (increase) in other assets (including short-term, long-term and deferred charges)
    862       (11,731 )
Increase in inventories
    (4,911 )     (1,226 )
Increase in restricted cash directly related to operating activities
    (52,736 )     -  
Decrease in trade payables
    (7,647 )     (4,704 )
Increase (decrease) in accrued expenses
    (509 )     1,491  
Increase (decrease) in advances from customer
    55,616       (12,424 )
Decrease in advances from customer, held by trustees
    (8,411 )     (65 )
Decrease in other current liabilities and other long-term liabilities
    (406 )     (7,177 )
                 
Net cash used in operating activities
    (14,927 )     (23,587 )
                 
Cash flows from investing activities:
               
                 
Purchase of property and equipment
    (3,109 )     (12,195 )
Investment in restricted cash held by trustees
    (6,109 )     (5,914 )
Proceeds from restricted cash held by trustees
    18,649       8,625  
Investment in restricted cash (including long-term)
    (22,411 )     (10,581 )
Proceeds from restricted cash (including long-term)
    32,559       232  
                 
Net cash provided by (used in) investing activities
  $ 19,579     $ (19,833 )
 
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
 
 
F - 7

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

   
Nine months ended
September 30,
 
   
2015
   
2014
 
   
Unaudited
 
             
Cash flows from financing activities:
           
             
Issuance of RSUs and exercise of stock options
  $ 5,594     $ 748  
Capital lease payments
    (407 )     (86 )
Payment of obligation related to the purchase of intangible assets
    (500 )     (500 )
Proceeds from (repayment of) short-term bank credit, net
    (3,811 )     14,177  
Repayments of long-term loans
    (4,409 )     (4,484 )
                 
Net cash provided by (used in) financing activities
    (3,533 )     9,855  
                 
Effect of exchange rate changes on cash and cash equivalents
    (1,122 )     (221 )
                 
Decrease in cash and cash equivalents
    (3 )     (33,786 )
Cash and cash equivalents at the beginning of the period
    27,726       58,424  
                 
Cash and cash equivalents at the end of the period
  $ 27,723     $ 24,638  
             
Supplementary cash flow activities:
           
               
(1)
Cash paid during the period for:
           
 
Interest
  $ 1,499     $ 1,692  
                   
 
Income taxes
  $ 362     $  1,432  
                   
(2)
Non-cash transactions-
               
                   
 
Classification from inventories to property and equipment
  $ 996     $ 3,511  
                   
 
Classification from property and equipment to inventories
  $ 14     $ 1,254  
 
The accompanying notes are an integral part of the condensed interim consolidated financial statements.

 
F - 8

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands
 
NOTE 1:
GENERAL

 
a.
Organization:
 
Gilat Satellite Networks Ltd. (the "Company" or "Gilat") and its subsidiaries (the "Group") is a global provider of end-to-end broadband satellite communication (“Satcom”), network solutions and services. The Group designs, manufactures and provide full network management and equipment for Satcom as well as professional services to satellite operators and service providers worldwide. The equipment consists of very small aperture terminals (“VSATs”), solid-state power amplifiers (“SSPAs”), block up converters (“BUCs”), low-profile antennas and on-the-Move/on-the-Pause terminals.  VSATs are earth-based terminals that transmit and receive broadband Internet, voice, data and video via satellite. VSAT networks have significant advantages over wireline and wireless networks, as VSATs can provide highly reliable, cost-effective, fast to deploy, end-to-end communications regardless of the number of sites or their geographic locations. In addition, the Company provides integrated small cell solutions with its satellite backhaul for the cellular market.

Gilat was incorporated in Israel in 1987 and launched its first generation VSAT in 1989. For a description of principal markets and customers, see Note 10.
 
The Company’s business is managed and reported as three separate reportable segments, comprised of the Company's named Commercial, Mobility (previously named Defense) and Services Divisions:
 
 
·
Commercial Division - provides VSAT networks, satellite communication products, small cell solutions and associated professional services and comprehensive turnkey solutions. Commercial Division customers include:  service providers, satellite operators, mobile network operators (“MNOs”), telecommunication companies (“Telcos”) and large enterprises worldwide. The Commercial Division is focusing on high throughput satellite (“HTS”) initiatives worldwide and is driving meaningful partnerships with satellite operators to leverage the Company’s technology and breadth of services to deploy and operate the ground segment.
 
 
·
Mobility Division provides on-the-Move/on-the-Pause satellite communication products and solutions to in flight connectivity (“IFC”) service providers, system integrators, defense and homeland security organizations, as well as to other commercial entities worldwide. The Mobility Division provides solutions on land, sea and air, while placing a major focus on the high-growth market of commercial IFC, with its unique leading technology. In addition, the division includes the operations of the Company’s subsidiary, Wavestream Corporation (“Wavestream”), whose sales are primarily to IFC integrators as well as defense industry integrators.
 
 
·
Service Division - provides managed network and services for rural broadband access through the Company’s subsidiaries in Peru and Colombia. Our connectivity solutions have been implemented in large and national scale projects. Gilat's terrestrial and satellite networks provide Internet and telephony services to thousands of rural communities and schools worldwide. The Services Division turnkey solutions supply network infrastructure, ensure high-quality, reliable connectivity and include full network support and maintenance, as well as support for applications that run on the installed network.
 
 
F - 9

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands
 
NOTE 1:
GENERAL (Cont.)
 
 
b.
The Company depends on a major supplier for certain components and services for the production of its products and to provide services. If this supplier fails to deliver or delays the delivery of the necessary components or services, the Company will be required to seek alternative sources of supply. A change in suppliers could result in manufacturing delays or services delays which could cause additional incremental costs  or a possible loss of sales and, consequently, could adversely affect the Company's results of operations and financial position.
 
 
c.
Impairment of goodwill related to Wavestream
 
The continuing pressure on the Department of Defense (“DoD”) budget in the United State along with delayed orders from other clients as well as other factors, resulted in a decline in Wavestream's actual revenues and operational results during the nine months ended September 30, 2015 compared to budget and forecasted projections. These factors were considered by the Company's management as indicators of a potential impairment of Wavestream's tangible, intangible assets and goodwill.

In accordance with ASC 350, following the identification of the impairment indicators, the Company performed a goodwill impairment test as of September 30, 2015, which resulted in a goodwill impairment of $ 20,402 attributable to the Wavestream reporting unit. This impairment was recorded as part of “Goodwill impairment” in the Statement of Operations and is attributed to the Mobility Division.
  
The material assumptions used for the income approach were five (5) years of projected cash flows, a long-term growth rate of 4% and discounted rate of 13%.

In addition, these factors required the Company to evaluate the fair value of Wavestream's tangible and intangible assets based on the updated future undiscounted cash flows expected to be generated by the assets in accordance with ASC 360 "Property, Plant and Equipment" (“ASC 360"). The projected undiscounted cash flows as of September 30, 2015 indicated that the carrying amount of Wavestream's tangible and intangible assets should not be impaired.

 
F - 10

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2:            SIGNIFICANT ACCOUNTING POLICIES

 
a.
The significant accounting policies applied in the financial statements of the Company as of December 31, 2014, are applied consistently in these interim financial statements.
 
 
b.
Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its subsidiaries, in which the Company has a controlling voting interest and entities consolidated under the variable interest entities ("VIE") provisions of ASC 810, "Consolidation" ("ASC 810"). Inter-company balances and transactions have been eliminated upon consolidation.

The Company also applies the provisions of ASC 810 which provides a framework for identifying VIEs and determining when a company should include the assets, liabilities, noncontrolling interests and results of activities of a VIE in its consolidated financial statements.
 
Most of the activity of Gilat Colombia consists of operating subsidized projects for the governmental authority, dirección de conectividad (“DirCon”), which was formerly known as Compartel. The DirCon projects were originally awarded to Gilat’s Colombian subsidiaries in 1999 and 2002 and were extended several times. An additional DirCon project that was awarded to Gilat Colombia in 2011 was completed in December 2013. Gilat Colombia was awarded another DirCon project in 2013 which is scheduled to be completed in 2018.

As required by the DirCon projects' bid documents, the Group established trusts (the "Trusts") and entered into governing trust agreements (one for each project awarded) (collectively, the "Trust Agreements"). The Trusts were established for the purpose of holding the network equipment, processing payments to subcontractors, and holding the funds received through the subsidies provided by DirCon (each a "Subsidy" and collectively the “Subsidies”) until they are released in accordance with the terms of each Subsidy and paid to the Group. The Trusts are a mechanism to allow the government of Colombia to review the amounts of each Subsidy and verify that such funds are used in accordance with the transaction documents of each project and the terms of the Subsidy. Gilat Colombia generates revenues from the Subsidies as well as from the use of the networks that it operates.
 
The Trusts are considered VIEs and Gilat Colombia is identified as the primary beneficiary of the Trusts.
 
Under ASC 810 the Company performs ongoing reassessments of whether it is the primary beneficiary of a VIE. As the assessment of Company's management is that the Company has the power to direct the activities of a VIE that most significantly impact the VIE's activities ( the responsibility for establishing and operating the networks), and the obligation to absorb losses of the VIE that could potentially be significant to the VIE and the right to receive benefits from the VIE that could potentially be significant to the VIE’s economic performance, it was therefore concluded by management that the Company is the primary beneficiary of the Trusts.  As such, the Trusts were consolidated in the financial statements of the Company since their inception.
 
 
F - 11

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
As of September 30, 2015 and December 31, 2014, the Trusts' assets amounted to $1,204 and $15,441, respectively. These assets are consolidated within the financial statements of the Company and are classified as "Restricted cash held by trustees".

As of September 30, December 31, 2014, the Trusts' liabilities amounted to $2,614 and $12,858, respectively. These liabilities are consolidated within the financial statements of the Company and mainly classified as "Short-term advances from customers, held by trustees".

 
c.
Impact of recently issued accounting standards:

In May 2014, FASB and IASB issued ASU 2014-09, "Revenue from Contracts with Customers" (Topic 606), Presentation of new revenue recognition standard that will supersede existing revenue guidance under US GAAP and IFRS, which is effective for annual reporting periods beginning after December 15, 2016. ASU 2014-09 will require the core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.
 
In July 2015, the FASB affirmed its proposal to defer the effective date of the guidance in ASU 2014-09 for all entities by one year. As a result, if the proposal is formally adopted by the issuance of a new ASU, the new revenue standard (currently discussed in ASU 2014-09) would be effective for the Company for annual reporting periods beginning after December 15, 2017. The FASB also affirmed its proposal to permit all entities to early adopt the guidance in the new revenue standard, but not before annual periods beginning after December 15, 2016. The Company is currently in the process of evaluating the effect the adoption of ASU 2014-09 may have on its consolidated financial statements.
 
NOTE 3:
UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

These unaudited condensed interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015.
 
 
F - 12

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands
 
NOTE 3:
UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
 
The condensed consolidated balance sheet at December 31, 2014 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements.
 
The unaudited condensed interim financial statements should be read in conjunction with the Company's annual financial statements and accompanying notes as of December 31, 2014 included in the Company's Annual Report on Form 20-F, filed with the Securities Exchange Commission on April 1, 2015.
 
NOTE 4:           INVENTORIES

 
a.
Inventories are comprised of the following:

   
September 30,
   
December 31,
 
   
2015
   
2014
 
   
Unaudited
       
             
Raw materials, parts and supplies
  $ 8,036     $ 8,130  
Work in progress
      7,515       5,477  
Finished products
    13,279       11,505  
                 
    $ 28,830     $ 25,112  

 
b.
Inventory write-offs for the nine months ended September 30, 2015 and 2014, totaled $1,423 and $915, respectively.

 
F - 13

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands
 
NOTE 5:
COMMITMENTS AND CONTINGENCIES

 
a.
Legal and tax contingencies:
 
 
1.
In 2003, the Brazilian tax authority filed a claim against the Company's subsidiary in Brazil (an inactive company), for the payment of taxes allegedly payable by the subsidiary in the amount of approximately $4,000. In January 2004 and December 2005, the subsidiary filed its administrative defense, which was denied by the first and second level Brazilian courts, respectively.  In September 2006, our subsidiary filed an annulment action seeking judicial cancellation of the claim. In May 2009, the subsidiary received notice of the court's first level decision, which cancelled a significant portion of the claim, but upheld two items of the assessment. Under this decision, the subsidiary's principal liability was reduced to approximately $1,500. This decision was appealed by both the subsidiary and the Brazilian tax authorities.
 
In June 2012, the São Paulo Court of Appeals ruled against the subsidiary, which is an inactive company, accepting the claims of the tax authorities. In September 2012, the subsidiary filed an appeal to the Brazilian Superior Court of Justice and to the Brazilian Supreme Court. In October 2014, the appeals were not admitted by the São Paulo Court of Appeals and the subsidiary filed appeals on such decision, which are pending. Based on external counsel's opinion, the Company believes that the subsidiary has a reasonable chance of success to reverse the ruling of the São Paulo Court of Appeals. Accordingly, as of September 30, 2015, the Company’s inactive subsidiary faces a tax exposure of approximately $8,863, including interest, penalties, legal fees and exchange rate differences. The Brazilian tax authorities initiated foreclosure proceedings against the subsidiary and certain of its former managers. The foreclosure proceedings against the former managers were cancelled by court in November 2015. The tax authorities are required by law to appeal such a decision. Based on the Company’s Brazilian external counsel's opinion, the Company believes that the inclusion of any additional co-obligors in the tax foreclosure certificate should be barred due to the applicable statute of limitations. Based on such opinion of counsel, the Company believes that the foreclosure procedures legally cannot be redirected to other Group entities and managers who have not been cited in the foreclosure certificate. Accordingly, the chances that such redirection will lead to a loss recognition are remote.
  
 
2.
The Group has certain tax exposures in some of the jurisdictions in which it conducts business, specifically in certain jurisdictions in Latin America. The Group is in the midst of different stages of audits and has received certain tax assessments. The tax authorities in these and in other jurisdictions in which the Group operates as well as the Israeli Tax Authorities may raise additional claims, which might result in increased exposures and ultimately, payment of additional taxes.

 
F - 14

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands
 
NOTE 5:
COMMITMENTS AND CONTINGENCIES (Cont.)
 
 
3.
The Group has accrued $5,185 and $3,441 as of September 30, 2015 and December 31, 2014, respectively, for the expected implications of such legal and tax contingencies. These accruals consist of $2,539 and $2,689 of tax related accruals and $2,646 and $752 of legal and other accruals as of September 30, 2015 and December 31, 2014, respectively. The accruals related to tax contingencies have been assessed by the Group's management, based on the advice of outside legal and tax advisers. The total estimated exposure for the aforementioned tax related accruals is $23,149 and $12,053 as of September 30, 2015 and December 31, 2014, respectively. The estimated exposure for legal and other related accruals is $9,635 and $2,472 as of September 30, 2015 and December 31, 2014, respectively.
 
In 2014 the Group's subsidiary joined a federal tax amnesty program in Brazil ("Refis"). The Refis program allows companies to pay reduced amounts of interest and fines, or none at all, in order to settle their open tax cases (direct and indirect taxes). The subsidiary paid approximately $2,059 under the Refis program. Accordingly, it then reversed accruals that were previously recorded in its books for some of these claims and therefore recorded income of approximately $619 in general and administrative expenses, $1,811 in financial income and an expense of $315 in tax expenses.
 
The tax accruals include various tax matters such as taxes on income, property taxes, sales and use tax and value added tax, that are in different stages of audits, for which tax assessments have been received, or various tax exposures in which the Group has assessed the exposure and determined that an accrual is necessary. The accruals related to legal contingencies have been assessed by the Group's management based on the advice of independent legal advisers and are comprised of matters for which legal proceedings have been initiated against the Group.
 
The exposures and provisions related to income taxes have been assessed and provided for in accordance with ASC 740-10. Liabilities related to legal proceedings, demands and claims and other taxes are recorded in accordance with ASC 450, "Contingencies" ("ASC 450"), when it is probable that a liability has been incurred and the associated amount can be reasonably estimated. The Group's management, based on its legal counsels' opinions', believes that an adequate accrual was provided to cover the costs to resolve the aforementioned legal proceedings, demands and claims.
 
 
F - 15

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands
 
NOTE 5:
COMMITMENTS AND CONTINGENCIES (Cont.)

 
b.
Guarantees:

The Group guarantees its performance to certain customers (generally to government entities) through bank guarantees and corporate guarantees. Guarantees are often required for the Group's performance during the installation and operational periods of long-term rural telephony projects such as in Latin America, and for the performance of other projects (government and corporate) throughout the rest of the world. The guarantees typically expire when certain operational milestones are met.

As of September 30, 2015, the aggregate amount of bank guarantees and surety bonds outstanding in order to secure the Group's various performance obligations was $122,434, including an aggregate of $88,763 on behalf of the subsidiary in Peru. The Group has $59,735 of restricted cash as collateral for these guarantees.
 
In order to guarantee the Group's performance obligations for its activities in Colombia, the Group secured insurance from a Colombian insurance company. The Group has provided the insurance company with various corporate guarantees, guaranteeing the Group's performance and its employees’ salary and benefit costs of approximately $13,951 and $3,033, respectively.

In accordance with ASC 460, "Guarantees" ("ASC 460"), as the guarantees above are performance guarantees for the Group's own performance, such guarantees are excluded from the scope of ASC 460. The Group has not recorded any liability for such amounts, since the Group expects that its performance will be acceptable. To date, no guarantees have ever been exercised against the Group.
 
NOTE 6:
NET LOSS PER SHARE

Basic net earnings (loss) per share are computed based on the weighted average number of Ordinary shares outstanding during each period. Diluted net earnings (loss) per share are computed based on the weighted average number of Ordinary shares outstanding during each period, plus dilutive potential Ordinary shares considered outstanding during the period, in accordance with ASC 260, "Earning per Share" ("ASC 260"). The total weighted average number of shares related to the outstanding options and RSUs excluded from the calculations of diluted net loss per share, as they would have been anti-dilutive for all periods presented, was 4,343,813 and 5,703,521 for the nine months ended September 30, 2015 and 2014, respectively.

All employee stock options and RSUs were anti-dilutive for the periods of nine months ended September 30, 2015 and 2014.

 
F - 16

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 7:
DERIVATIVE INSTRUMENTS

To protect against changes in value of forecasted foreign currency cash flows resulting from salaries and related  payments that are denominated in NIS, the Company has entered into foreign currency forward contracts. These contracts are designated as cash flows hedges, as defined by ASC 815, as amended, and are considered highly effective as hedges of these expenses. The forward contracts are expected to occur at various dates within the following 12 months.
 
During the nine months ended September 30, 2015 and 2014, the Company recognized a net loss related to the effective portion of the hedging instruments. The effective portion of the hedged instruments has been included as an offset (addition) of payroll expenses and other operating expenses in the statement of operations in the following line items:
 
   
Nine months ended
September 30,
 
   
2015
   
2014
 
   
Unaudited
 
Cost of revenues of products
  $ (97 )   $ (15 )
Cost of revenues of services
    (54 )     (10 )
Research and development, net
    (282 )     (46 )
Selling and marketing
    (175 )     (23 )
General and administrative
    (182 )     (28 )
                 
    $ (788 )   $ (123 )
 
The ineffective portion of the hedged instruments which was recorded during the nine months ended September 30, 2015 and 2014, was immaterial and has been recorded as financial income (loss).

One of the Group's subsidiaries entered into forward contracts in order to hedge the exposure to variability in expected future cash flows resulting from changes in related foreign currency exchange rates. These contracts did not meet the requirement for hedge accounting. The amount recorded as financial income related to these contracts in the period of nine months ended in September 30, 2015 and 2014 was $1,133 and $302, respectively.
  
 
F - 17

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 8:
DISCONTINUED OPERATION:
 
In December 2, 2013, the Company sold its subsidiary, Spacenet Inc. (“ Spacenet”) subsidiary to SageNet of Tulsa, LLC for approximately $16,000, subject to certain post-closing adjustments and expenses. The Company recorded a loss of $1,385 as a result of this sale. The Company previously provided managed network communications services through Spacenet utilizing satellite wireline and wireless networks and associated technology mainly in the United States. Spacenet was sold in order to allow the Company to better focus its assets and management attention on its core business strategy and strategic target markets.
  
During 2015 and 2014, the post-closing adjustments were resolved and consequently the Company incurred additional expenses of $200 and $795, respectively, related to those adjustments.
Spacenet was previously part of the Service Division. Following its sale, Spacenet's results, as well as income and costs related to the sale were accounted as discontinued operation.
 
NOTE 9:
RESTRUCTURING COSTS:
 
During the third quarter of 2015, the Company initiated restructuring plans to improve its operating efficiency at its various operating sites and to reduce its operating expenses. As a result of the restructuring plans, as of September 30, 2015 the Company recognized costs of $202 for one-time employee termination benefits and $784 for costs to terminate a contract. These costs were recorded as part of “Restructuring Costs” in the Statement of Operations and are attributable to the Mobility and Commercial Divisions. Out of the total amount of restructuring expenses, $599 was paid by September 30, 2015.
 
 
F - 18

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands
 
NOTE 10:
CUSTOMERS, GEOGRAPHIC AND SEGMENTS INFORMATION

The Group applies ASC 280, "Segment Reporting" ("ASC 280"). Segments are managed separately, for information on operating segments see Note 1a:

 
a.
Information on the reportable segments:

 
1.
The measurement of the reportable operating segments is based on the same accounting principles applied in these financial statements.
 
 
2.
Financial data relating to reportable operating segments:

   
Nine months ended
September 30, 2015 (unaudited)
 
   
Commercial
   
Mobility
   
Services
   
Total
 
                         
Revenues
    70,026       28,695       31,140       129,861  
Cost of revenues
    43,824       22,672       29,641       96,137  
                                 
Gross profit
    26,202       6,023       1,499       33,724  
                                 
R&D expenses:
                               
Expenses incurred
    12,875       6,368       -       19,243  
Less – grants
    546       17       -       563  
                                 
      12,329       6,351       -       18,680  
                                 
Selling and marketing
    12,416       5,485       824       18,725  
General and administrative
    6,134       5,020       4,072       15,226  
Restructuring costs
    705       281       -       986  
Goodwill impairment
    -       20,402       -       20,402  
                                 
Operating loss
    (5,382 )     (31,516 )     (3,397 )     (40,295 )
Financial expenses, net
                            (5,850 )
Loss before taxes
                            (46,145 )
Taxes on income
                            740  
Net loss from continuing operations
                            (46,885 )
Net loss from discontinued operation
                            (200 )
Net loss
                            (47,085 )
                                 
Depreciation and amortization expenses
    3,554       5,503       2,402       11,459  

 
F - 19

 

GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands
 
NOTE 10:
CUSTOMERS, GEOGRAPHIC AND SEGMENTS INFORMATION (Cont.)

   
Nine months ended
September 30, 2014 (unaudited)
 
   
Commercial
   
Mobility
   
Services
   
Total
 
                         
Revenues
    97,603       38,972       25,461       162,036  
Cost of revenues
    57,667       26,300       20,206       104,173  
                                 
Gross profit
    39,936       12,672       5,255       57,863  
                                 
R&D expenses:
                               
Expenses incurred
    14,153       6,678       -       20,831  
Less – grants
    1,406       396       -       1,802  
                                 
      12,747       6,282       -       19,029  
                                 
Selling and marketing
    18,458       5,807       1,015       25,280  
General and administrative
    5,255       4,097       4,659       14,011  
                                 
Operating income (loss)
    3,476       (3,514 )     (419 )     (457 )
Financial expenses, net
                            (1,898 )
Loss before taxes
                            (2,355 )
Taxes on income
                            783  
Net loss from continuing operations
                            (3,138 )
Net loss from discontinued operation
                            (795 )
Net loss
                            (3,933 )
                                 
Depreciation and amortization expenses
    3,638       6,225       1,763       11,626  

 
b.
Revenues by geographic areas:

Following is a summary of revenues by geographic areas. Revenues attributed to geographic areas, based on the location of the end customers, and in accordance with ASC 280, are as follows:

   
Nine months ended
 
   
September 30,
 
   
2015
   
2014
 
   
Unaudited
 
             
Latin America
  $ 59,721     $ 71,841  
Asia and Asia Pacific
    32,678       36,423  
United States
    21,669       28,690  
Europe
    15,539       11,883  
Africa
    254       13,199  
                 
    $   129,861     $ 162,036  

 
F - 20

 
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 10:
CUSTOMERS, GEOGRAPHIC AND SEGMENTS INFORMATION (Cont.)

 
c.
A major customer located in Latin America accounted for 11% of the total consolidated revenues for the nine months ended September 30, 2015. During the nine months ended September 30, 2014 the Group did not have any customer generating revenues exceeding 10% of the Group’s total revenues.

 
d.
The Group's long-lived assets are located as follows:

   
September 30,
   
December 31,
 
   
2015
   
2014
 
   
Unaudited
       
             
Israel
  $ 64,433     $ 66,457  
Latin America
    8,982       11,932  
United States
    1,861       1,999  
Europe
    9,610       9,486  
Other
    1,086       1,019  
                 
    $ 85,972     $ 90,893  
 
 
F - 21






Exhibit 99.2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 
The following discussion and analysis of our financial condition as of September 30, 2015 and results of operations for the nine months ended September 30, 2015 and September 30, 2014 should be read together with our financial statements and related notes included elsewhere in this filing and our audited financial statements included in our Annual Report on Form 20-F for the fiscal year ended December 31, 2014. This discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, that involve risks, uncertainties and assumptions. Words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “predict,” “potential” and similar expressions, as they relate to us, our business and our management, are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this report. The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. All statements other than statements about historical facts are statements that could be deemed forward-looking statements.
 
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth under the section entitled “Risk Factors” in our Annual Report on Form 20-F for the fiscal year ended December 31, 2014. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this filing. All forward-looking statements included in this filing are based on information available to us on the date of this filing, and we assume no obligation to update any forward-looking statements contained in this filing. Our interim financial results may not be indicative of the financial results of future periods.
 
Unless the context requires otherwise, references in this report to the “Company,” “Group”, “we,” “us” and “our” refer to Gilat Satellite Networks Ltd. and its subsidiaries.
 
Overview
 
We are a leading global provider of end-to-end broadband satellite communication, or Satcom, network solutions and services. We design, manufacture and provide full network management and equipment for Satcom as well as professional services to satellite operators and service providers worldwide. The equipment consists of very small aperture terminals, or VSATs, solid-state power amplifiers, or SSPAs, block up converters, or BUCs, low-profile antennas and on-the-Move/on-the-Pause terminals.  VSATs are earth-based terminals that transmit and receive broadband Internet, voice, data and video via satellite. VSAT networks have significant advantages over wireline and wireless networks, as VSATs can provide highly reliable, cost-effective, fast to deploy, end-to-end communications regardless of the number of sites or their geographic locations.  In addition, we provide for the cellular market integrated small cell with our satellite backhaul.
 
In addition to developing Satcom equipment, we have proven experience in delivering complex projects and services worldwide. We offer complete turnkey integrated solutions including:
 
 
·
Fully managed Satcom services
 
·
Satellite  capacity
 
·
Remote network operation
 
·
Call center support
 
·
Hub and field operations
 
·
Build Operate Transfer of Rural Communication Networks

We have a large installed base spanning 90 countries, having sold over 1.2 million terminals and currently have over 500 active networks.
 
We have 20 sales and support offices worldwide, four network operations centers, or NOCs, and five R&D centers. Our products are sold to communication service providers and operators which use VSATs to serve enterprise, government and residential users, to mobile network operators and to system integrators that use our technology. Our solutions and services are also sold to defense and homeland security organizations. In addition, we provide services directly to end-users in various market segments, including in certain countries in Latin America and also provide managed network services , such as in Australia, over a VSAT network owned by a third party.
 
 
 

 

We operate three business divisions, comprised of our Commercial, Mobility and Services divisions:
 
 
 •
Commercial Division - provides VSAT networks, satellite communication products, small cell solutions and associated professional services and comprehensive turnkey solutions. Our customers are:  service providers, satellite operators, mobile network operators, or MNOs, telecommunication companies, or Telcos, and large enterprises worldwide. We are focusing on high throughput satellites, or HTS, initiatives worldwide and are driving meaningful partnerships with satellite operators to leverage our technology and breadth of services to deploy and operate the ground segment.
 
 
 •
Mobility Division - provides on-the-Move/on-the-Pause satellite communication products and solutions to in flight connectivity, or IFC, service providers, system integrators, defense and homeland security organizations, as well as to other commercial entities worldwide. The division provides solutions on land, sea and air, while placing major focus on the high-growth market of commercial IFC, with its unique leading technology. In addition, the division includes the operations of our Wavestream Corporation subsidiary, or Wavestream, whose sales are primarily to IFC integrators as well as defense integrators.
 
 
 •
Services Division – provides managed network and services for rural broadband access via its subsidiaries in Peru and Colombia. Our connectivity solutions have been implemented in large and national scale projects. Gilat's terrestrial and satellite networks provide Internet and telephony services to thousands of rural communities and schools worldwide. Our turnkey solutions start with supplying network infrastructure, continue through ensuring high-quality, reliable connectivity and include full network support and maintenance, as well as support for applications that run on the installed network.
 
In December 2013, we sold our Spacenet subsidiary, to SageNet for approximately $16 million, subject to certain post-closing adjustments and expenses. During 2015 and 2014, the post-closing adjustments were resolved and consequently we incurred additional expenses of approximately $0.2 million and $0.8 million, respectively related to those adjustments. These additional expenses are accounted as discontinued operations. Spacenet was previously part of the Services Division.
 
Critical Accounting Policies and Estimates

The preparation of the financial information in conformity with generally accepted accounting principles requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, mainly related to account receivables, inventories, deferred charges, long-lived assets, intangible and goodwill, revenues, stock based compensation relating to options and contingencies. We base our estimates on historical experience and on various assumptions, including assumptions of third parties that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Please refer to our discussion of critical accounting policies in our Annual Report on Form 20-F for the fiscal year ended December 31, 2014 for a discussion about those policies that we believe are the most important to the understanding of our financial condition and results of operations as such policies affect our more significant judgments and estimates used in the preparation of the financial information included in this interim report.

 
 

 

RESULTS OF OPERATIONS:
 
Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

 
Revenues

Revenues for the nine months ended September 30, 2015 and 2014 for our three Divisions were as follows:
 
   
Nine months ended
         
Nine months ended
 
   
September 30,
         
September 30,
 
   
2015
   
2014
   
Percentage
   
2015
   
2014
 
   
U.S. dollars in thousands
   
change
   
Percentage of revenues
 
   
Unaudited
   
Unaudited
 
                               
Commercial
                             
 Equipment
  $ 45,169     $ 61,663       (26.7 )%     34.8 %     38.1 %
 Services
    24,857       35,940       (30.8 )%     19.1 %     22.2 %
      70,026       97,603       (28.3 )%     53.9 %     60.3 %
Mobility
                                       
 Equipment
    26,741       36,316       (26.4 )%     20.6 %     22.4 %
 Services
    1,954       2,656       (26.4 )%     1.5 %     1.6 %
      28,695       38,972       (26.4 )%     22.1 %     24.0 %
Services
                                       
 Equipment
    7,601       9,077       (16.3 )%     5.9 %     5.6 %
 Services
    23,539       16,384       43.7 %     18.1 %     10.1 %
      31,140       25,461       22.3 %     24.0 %     15.7 %
Total
                                       
 Equipment
    79,511       107,056       (25.7 )%     61.2 %     66.1 %
 Services
    50,350       54,980       (8.4 )%     38.8 %     33.9 %
Total
  $ 129,861     $ 162,036       (19.9 )%     100.0 %     100.0 %

Our total revenues for the nine months ended September 30, 2015 were approximately $129.9 million, as compared to approximately $162.0 million for the same period in 2014. The decrease in our total revenues in the nine months ended September 30, 2015, compared to the same period in 2014, is mainly attributable to a decrease of approximately $27.6 million in Commercial Division revenues and an approximately $10.3 million decrease in Mobility Division revenues, partially offset by an increase of approximately $5.7 million in Services Division revenues.

The decrease in our Commercial Division revenues is primarily attributable to the completion of a few significantly large deals we had in the nine months ended September 30, 2014 in LATAM, Africa and Australia. In the nine months ended September 30, 2015 we did not secure deals of that magnitude. The satellite industry is shifting to HTS technology which is characterized by large deals with a longer decision-making process. This extended decision-making process has affected our results in the first three quarters of 2015. 

The decrease in Mobility Division revenues is primarily attributable to a decrease in our defense related revenues that was caused by a continued decrease in US DoD demand.
 
The increase in Services Division revenues is primarily attributable to the Kioscos project in Colombia, which is a services project from which we began to recognize revenues during 2014. Our revenues for the nine months ended September 30, 2015, do not reflect material revenues from the three Fitel projects that we were awarded in March 2015, which are expected to generate $285 million in revenues over 11 years and the recent award of an additional Fitel project with expected revenues of $108 million over same period.
 
 
 

 

Gross profit

The gross profit (loss) of our three divisions for the nine months ended September 30, 2015 and 2014 were as follows:
 
   
Nine months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
   
U.S. dollars in thousands
   
Percentage of revenues per segment
 
   
Unaudited
   
Unaudited
   
Unaudited
   
Unaudited
 
                         
Commercial
                       
 Equipment
  $ 13,200     $ 19,456       29.2 %     31.6 %
 Services
    13,002       20,480       52.3 %     57.0 %
      26,202       39,936       37.4 %     40.9 %
Mobility
                               
 Equipment
    5,277       10,907       19.7 %     30.0 %
 Services
    746       1,765       38.2 %     66.5 %
      6,023       12,672       21.0 %     32.5 %
Services
                               
 Equipment
    3,409       3,082       44.8 %     34.0 %
 Services
    (1,910 )     2,173       (8.1 )%     13.3 %
      1,499       5,255       4.8 %     20.6 %
Total
                               
 Equipment
    22,699       33,445       28.5 %     31.2 %
 Services
    11,025       24,418       21.9 %     44.4 %
Total
  $ 33,724     $ 57,863       26.0 %     35.7 %
 
Our gross profit is affected year-to-year by the mix of revenues between equipment and services (where equipment sales generally have a higher margin), the regions in which we operate, the size of our transactions and the timing in which such transactions are consummated. As such, we are subject to year-to-year fluctuation in our gross profit.

Our gross profit margin decreased to 26% in the nine months ended September 30, 2015, from 35.7% in the nine months ended September 30, 2014. The decrease in our gross profit margin in the nine months ended September 30, 2015 is attributable to the decrease in our overall sales and specifically to decreased equipment sales compared to the same period in 2014. As a result of the fixed cost component in our costs of goods sold, the decrease in overall sales generally resulted in a significant decrease in overall gross margin, as further discussed below.
 
        In the Commercial Division, the decrease in our gross profit margin is mainly attributable to lower revenues over a similar level of fixed expenses in the nine months ended September 30, 2015, compared to the same period of 2014.
 
        In the Mobility Division, the decrease in our gross profit margin is mainly attributable to lower revenues coupled with lower margin deals in the nine months ended September 30, 2015, compared to the same period of 2014.

In our Services Division, the decrease of gross profit margin is attributable to revenue from the Kisocos project in Colombia which carries a lower gross margin than average.

 
 

 

Research and Development Expenses, net

Research and development expenses of our three divisions for the nine months ended September 30, 2015 and 2014 were as follows:
 
   
Nine months ended
         
Nine months ended
 
   
September 30,
         
September 30,
 
   
2015
   
2014
   
Percentage
   
2015
   
2014
 
   
U.S. dollars in thousands
   
change
   
Percentage of revenues per Division
 
   
Unaudited
   
Unaudited
   
Unaudited
 
                               
Commercial
                             
Expenses incurred
  $ 12,875     $ 14,153       (9.0 )%     18.4 %     14.5 %
Less – OCS grants
    546       1,406       (61.2 )%     0.8 %     1.4 %
      12,329       12,747       (3.3 )%     17.6 %     13.1 %
Mobility
                                       
Expenses incurred
    6,368       6,678       (4.6 )%     22.2 %     17.1 %
Less – OCS grants
    17       396       (95.7 )%     0.1 %     1.0 %
      6,351       6,282       1.1 %     22.1 %     16.1 %
                                         
Total, net
  $ 18,680     $ 19,029       (1.8 )%     18.9 %     13.9 %
 
Net research and development expenses decreased by $0.3 million. Gross research and development expenses decreased by approximately $1.6 million in the nine months ended September 30, 2015 compared to the same period of 2014 in both our Commercial and Mobility Divisions. The decrease in gross research and development expenses is mainly attributable to our continuing efforts to integrate and create synergies in our research and development activities worldwide and to the appreciation of the U.S. dollar in relation to the NIS. This decrease was partially offset by a decrease of $1.2 million in grants received from the Israeli office of Chief Scientist, or the OCS, mainly due to the lower approved budget by the Israeli government in the nine months ended September 30, 2015 compared to the same period of 2014.

 
 

 

Selling and Marketing Expenses

Selling and marketing expenses of our three divisions for the nine months ended September 30, 2015 and 2014 were as follows:
 
   
Nine months ended
         
Nine months ended
 
   
September 30,
         
September 30,
 
   
2015
   
2014
   
Percentage
   
2015
   
2014
 
   
U.S. dollars in thousands
   
change
   
Percentage of revenues per Division
 
   
Unaudited
   
Unaudited
   
Unaudited
   
Unaudited
   
Unaudited
 
Commercial
  $ 12,416     $ 18,458       (32.7 )%     17.7 %     18.9 %
Mobility
    5,485       5,807       (5.5 )%     19.1 %     14.9 %
Services
    824       1,015       (18.8 )%     2.6 %     4.0 %
Total
  $ 18,725     $ 25,280       (25.9 )%     14.4 %     15.6 %
 
Selling and marketing expenses decreased by approximately $6.6 million in the nine months ended September 30, 2015, compared to the same period of 2014. This decrease is mainly attributable to a decrease in freight and agent commission expenses related to certain projects of the Commercial Division in LATAM.

General and Administrative Expenses

General and administrative expenses of our three divisions for the nine months ended September 30, 2015 and 2014 were as follows:

   
Nine months ended
         
Nine months ended
 
   
September 30,
         
September 30,
 
   
2015
   
2014
   
Percentage
   
2015
   
2014
 
   
U.S. dollars in thousands
   
change
   
Percentage of revenues per Division
 
   
Unaudited
   
Unaudited
   
Unaudited
 
Commercial
  $ 6,134     $ 5,255       16.7 %     8.8 %     5.4 %
Mobility
    5,020       4,097       22.5 %     17.5 %     10.5 %
Services
    4,072       4,659       (12.6 )%     13.1 %     18.3 %
Total
  $ 15,226     $ 14,011       8.7 %     11.7 %     8.6 %
 
        General and administrative expenses increased by approximately $1.2 million in the nine months ended September 30, 2015, compared to the same period of 2014. This increase is attributable to a $0.9 million increase in the expenses of both our Commercial and Mobility Divisions, which increases were partially offset by a decrease of $0.6 million in our Services Division.

In our Commercial Division, the $0.9 million increase in expenses is primarily attributable to an increase in bad debt expense attributable to certain customers and to the reversal of certain accruals in the nine months ended September 30, 2014 due to our participation in a tax amnesty program in Brazil (Refis).This increase was partially offset by a decrease in salaries and benefits expenses.

In our Mobility Division, the $0.9 million increase is primarily attributable to higher legal expenses.

In our Services Division, the $0.6 million decrease is primarily attributable to lower salaries due to a reduction in head count and effect of exchange rates.
 
 
 

 

Goodwill impairment

In September 2015, we identified certain indicators that affected the carrying value of the goodwill of Wavestream within our Mobility Division. The continuing pressure on the Department of Defense, or DoD, budget in the United State along with delayed orders from other clients as well as other elements, were reflected in the reduction of Wavestream's actual revenues and operational results during the nine months ended September 30, 2015 compared to the budget and forecasted projection. We performed an analysis of Wavestream’s implied carrying value in accordance with ASC 350. As a result of this analysis, we recorded goodwill impairment losses of approximately $20.4 million in 2015. We are continuing to monitor the results of our reporting units.

Restructuring costs

In September 2015, we initiated a restructuring plan to improve our operating efficiency at various operating sites and to reduce our operating expenses in the future. As a result, we recognized expenses of $1.0 million in the nine months ended September 30, 2015, for one-time employee termination benefits and costs to terminate a contract.

Financial Expenses, net

In the nine months ended September 30, 2015, our financial expenses were approximately $5.9 million compared to financial expenses of $1.9 million in the same period of 2014. The increase in our financial expenses is primarily attributable to exchange rate differences between local currency and the U.S. dollar in the countries where some of our subsidiaries are located, higher bank charges mainly related to our projects in LATAM and due to our participation in a tax amnesty program in Brazil (Refis) and the reversal of related accruals in 2014.

Taxes on Income

  Taxes on income are dependent upon where our profit is generated. In the nine months ended September 30, 2015 we recorded tax expenses of $0.7 million compared to tax expenses of $0.8 million in the same period in 2014. The decrease in taxes on income is mainly due to our participation in a tax amnesty program in Brazil (Refis) in 2014 and the related expenses incurred.
 
Impact of Inflation and Currency Fluctuations
 
While most of our sales and service contracts are in U.S. dollars or are linked to the U.S. dollar and most of our expenses are in U.S. dollars and NIS, portions of our projects in Latin America as well as our operation in Australia and Europe are linked to their respective local currencies. The foreign exchange risks are often significant due to fluctuations in local currencies relative to the U.S. dollar.

The influence on the U.S. dollar cost of our operations in Israel relates primarily to the cost of salaries in Israel, which are paid in NIS and constitute a substantial portion of our expenses in NIS. In the first nine months of 2015, the rate of inflation in Israel was -0.6% and the U.S. dollar appreciated in relation to the NIS at a rate of 0.87%, from NIS 3.889 per $1 on December 31, 2014 to NIS 3.923 per $1 on September 30, 2015. If future inflation in Israel exceeds the devaluation of the NIS against the U.S. dollar or if the timing of such devaluation lags behind increases in inflation in Israel, our results of operations may be materially adversely affected. In 2015 and 2014, in order to limit these risks, we entered into hedging agreements to cover certain of our NIS to U.S. dollar exchange rate exposures.

Our monetary balances that are not linked to the U.S. dollar impacted our financial expenses during the 2015 and 2014 periods. This is due to heavy fluctuations in currency rates in certain regions in which we do business, mainly in Latin America, Australia and Europe. There can be no assurance that our results of operations will not be materially adversely affected by other currency fluctuations in the future.

 
 

 

Variability of Quarterly Operating Results

Our revenues and profitability may vary from quarter to quarter and in any given year, depending primarily on the sales mix of our family of products and the mix of the various components of the products (i.e. the volume of sales of remote terminals versus hub equipment), sale prices, and production costs, as well as on entering into new service contracts, the termination of existing service contracts, or different profitability levels between different service contracts. Sales of our products to a customer typically consist of numerous remote terminals and related hub equipment, SSPAs, BUCs, and low-profile antennas, which carry varying sales prices and margins.

Annual and quarterly fluctuations in our results of operations may be caused by the timing and composition of orders by our customers and the timing of our ability to recognize revenues. Our future results may also be affected by a number of factors, including our ability to continue to develop, introduce and deliver new and enhanced products on a timely basis and expand into new product offerings at competitive prices, to integrate our recent acquisitions, to anticipate effectively customer demands and to manage future inventory levels in line with anticipated demand. Our results may also be affected by currency exchange rate fluctuations and economic conditions in the geographical areas in which we operate. In addition, our revenues may vary significantly from quarter to quarter as a result of, among other factors, the timing of new product announcements and releases by our competitors and us. We cannot be certain that revenues, gross profit and net income (or loss) in any particular quarter will not vary from the preceding or comparable quarters. Our expense levels are based, in part, on expectations as to future revenues. If revenues are below expectations, operating results are likely to be adversely affected. In addition, a substantial portion of our expenses are fixed (e.g. space segment, lease payments) and adjusting expenses in the event revenues drop unexpectedly often takes considerable time. As a result, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. Due to all of the foregoing factors, it is possible that in some future quarters our revenues or operating results will be below the expectations of public market analysts or investors. In such event, the market price of our shares would likely be materially adversely affected.

Liquidity and Capital Resources

Since inception, our financing requirements have been met through cash from funds generated by operating activities, private equity investments, public offerings, issuances of convertible notes, bank loans and other financial agreements, as well as funding from research and development grants. We have used available funds primarily for working capital, capital expenditures and strategic investments.

As of September 30, 2015, we had cash and cash equivalents of $27.7 million, short-term and long-term restricted cash of $68.6 million, short-term restricted cash held in trustees' accounts of $1.2 million and short-term bank credits of $9.1 million. As of December 31, 2014, we had cash and cash equivalents of $27.7 million, short-term and long-term restricted cash of $26.2 million, short-term restricted cash held in trustees' accounts of $15.4 million and short-term bank credits of $15.9 million.

As of September 30, 2015, our total debt was approximately $26.2 million, comprised of long-term loans of $21.7 million and current maturities of long-term loans of $4.5 million.

               We believe that our working capital is sufficient for our present requirements over the next 12 months.

 
 

 

The following table summarizes our cash flows for the periods presented:

   
Nine months ended September 30,
 
   
2015
   
2014
 
   
US Dollars in thousands
 
   
Unaudited
 
             
Net cash used in operating activities
  $ (14,927 )   $ (23,587 )
Net cash provided by (used in) investing activities
    19,579       (19,833 )
Net cash provided by (used in) financing activities
    (3,533 )     9,855  
Effect of exchange rate changes on cash and cash equivalents
    (1,122 )     (221 )
Net decrease in cash and cash equivalents
    (3 )     (33,786 )
Cash and cash equivalents at beginning of the period
    27,726       58,424  
Cash and cash equivalents at end of the period
  $ 27,723     $ 24,638  

Our cash and cash equivalents remained at the same level during the nine months ended September 30, 2015 and decreased by approximately $33.8 million during the nine months ended September 30, 2014, as a result of the following:

Operating activities - Cash used in operating activities was approximately $14.9 million and $23.6 million, for the nine months ended September 30, 2015 and 2014, respectively. The cash used in our operating activities in the nine months period ended September 30, 2015 consisted primarily of net income adjusted for non-cash activity, including goodwill impairment and depreciation and amortization and received restricted cash directly related to operating activities which were offset by increase in advances from customers. The net cash used in our operating activities in the nine months period ended September 30, 2014 consisted primarily of net income adjusted for non-cash activity, including depreciation and amortization, increase in other assets, decrease in other liabilities and decrease in advances from customers.

Investing activities - Cash provided by investing activities was approximately $19.6 million in the nine months period ended September 30, 2015. Cash used in investing activities was approximately $19.8 million for the nine months ended September 30, 2014. The changes in our cash derived from our investing activities consisted of purchase of property and equipment and changes in restricted cash.

Financing activities - Cash used in financing activities was approximately $3.5 million in the nine months period ended September 30, 2015. Cash provided by financing activities was approximately $9.9 million in the nine months period ended September 30, 2014. Cash used in financing activities in the nine months period ended September 30, 2015 consisted primarily of repayment of long-term loans and short term bank credit, partially offset by the issuance of restricted stock units and exercise of stock options. Cash provided by financing activities in the nine months period ended September 30, 2014 consisted primarily of proceeds from short term bank credit, partially offset by repayments of long-term loans.
 







v3.3.1.900
Document and Entity Information
9 Months Ended
Sep. 30, 2015
Document And Entity Information [Abstract]  
Document Type 6-K
Amendment Flag false
Document Period End Date Sep. 30, 2015
Entity Registrant Name GILAT SATELLITE NETWORKS LTD
Entity Central Index Key 0000897322
Current Fiscal Year End Date --12-31
Document Fiscal Year Focus 2015
Document Fiscal Period Focus Q3
Entity Filer Category Accelerated Filer


v3.3.1.900
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Sep. 30, 2015
Dec. 31, 2014
CURRENT ASSETS:    
Cash and cash equivalents $ 27,723 $ 27,726
Restricted cash 68,405 25,983
Restricted cash held by trustees 1,204 15,441
Trade receivables, net 38,731 57,728
Inventories 28,830 25,112
Other current assets 16,036 14,760
Total current assets 180,929 166,750
LONG-TERM INVESTMENTS AND RECEIVABLES:    
Severance pay funds 7,690 8,085
Long-term restricted cash 177 216
Other long-term receivables 7,081 12,124
Total long-term investments and receivables 14,948 20,425
PROPERTY AND EQUIPMENT, NET 85,972 90,893
INTANGIBLE ASSETS, NET 18,597 22,970
GOODWILL 43,468 63,870
Total assets 343,914 364,908
CURRENT LIABILITIES:    
Short-term bank credit and loans 9,124 15,857
Current maturities of long-term loans 4,557 4,595
Trade payables 14,661 22,850
Accrued expenses 20,284 22,475
Advances from customers 58,545 2,940
Advances from customers held by trustees 2,614 12,858
Other current liabilities 17,349 18,587
Total current liabilities 127,134 100,162
LONG-TERM LIABILITIES:    
Long-term loans, net of current maturities 21,680 26,271
Accrued severance pay 7,489 8,157
Other long-term liabilities 4,380 5,179
Total long-term liabilities $ 33,549 $ 39,607
COMMITMENTS AND CONTINGENCIES
EQUITY:    
Share capital - Ordinary shares of NIS 0.2 par value: Authorized - 90,000,000 shares at September 30, 2015 and December 31, 2014; Issued and outstanding 44,291,647 and 42,730,424 shares as of September 30,2015 and December 31, 2014, respectively $ 2,046 $ 1,966
Additional paid-in capital 883,803 876,624
Accumulated other comprehensive loss (3,502) (1,420)
Accumulated deficit (699,116) (652,031)
Total equity 183,231 225,139
Total liabilities and equity $ 343,914 $ 364,908


v3.3.1.900
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS (Parenthetical) - ₪ / shares
Sep. 30, 2015
Dec. 31, 2014
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS [Abstract]    
Ordinary shares, par value per share ₪ 0.2 ₪ 0.2
Ordinary shares, shares authorized 90,000,000 90,000,000
Ordinary shares, shares issued 44,291,647 42,730,424
Ordinary shares, shares outstanding 44,291,647 42,730,424


v3.3.1.900
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Revenue:    
Products $ 79,511 $ 107,056
Services 50,350 54,980
Total revenue 129,861 162,036
Cost of revenue:    
Products 57,625 73,611
Services 38,512 30,562
Total cost of revenue 96,137 104,173
Gross profit 33,724 57,863
Operating expenses:    
Research and development costs, net 18,680 19,029
Selling and marketing expenses 18,725 25,280
General and administrative expenses 15,226 $ 14,011
Restructuring costs 986
Goodwill impairment 20,402
Operating loss (40,295) $ (457)
Financial expenses, net (5,850) (1,898)
Loss before taxes on income (46,145) (2,355)
Taxes on income 740 783
Net loss from continuing operations (46,885) (3,138)
Net loss from discontinued operation (200) (795)
Net loss $ (47,085) $ (3,933)
Net loss per share (basic and diluted):    
Continuing operations $ (1.08) $ (0.07)
Discontinued operation 0.00 (0.02)
Total net loss per share $ (1.08) $ (0.09)
Weighted average number of shares used in computing net loss per share:    
Basic and diluted 43,436,470 42,371,039


v3.3.1.900
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS [Abstract]    
Net loss $ (47,085) $ (3,933)
Other comprehensive loss    
Foreign currency translation adjustments (2,702) (1,281)
Reclassification adjustments for realizes loss on hedging instruments, net 788 122
Unrealized loss on hedging instruments, net (168) (902)
Total comprehensive loss $ (49,167) $ (5,994)


v3.3.1.900
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - USD ($)
$ in Thousands
Total
Ordinary Shares [Member]
Additional Paid-in Capital [Member]
Accumulated other comprehensive income (loss) [Member]
Accumulated Deficit [Member]
Balance at Dec. 31, 2013 $ 226,033 $ 1,932 $ 873,045 $ 1,591 $ (650,535)
Balance, shares at Dec. 31, 2013   42,125,774      
Issuance of restricted share units (RSUs) 19 $ 19
Issuance of restricted share units (RSUs), shares   332,650      
Stock-based compensation of options and RSUs related to employees and non- employees 2,427 $ 2,427
Exercise of stock options 1,167 $ 15 $ 1,152
Exercise of stock options, shares   272,000      
Comprehensive loss (4,507) $ (3,011) $ (1,496)
Balance at Dec. 31, 2014 $ 225,139 $ 1,966 $ 876,624 $ (1,420) $ (652,031)
Balance, shares at Dec. 31, 2014 42,730,424 42,730,424      
Issuance of restricted share units (RSUs) $ 14 $ 14
Issuance of restricted share units (RSUs), shares   277,175      
Stock-based compensation of options and RSUs related to employees and non- employees 1,665 $ 1,665
Exercise of stock options 5,580 $ 66 $ 5,514
Exercise of stock options, shares   1,284,048      
Comprehensive loss (49,167) $ (2,082) $ (47,085)
Balance at Sep. 30, 2015 $ 183,231 $ 2,046 $ 883,803 $ (3,502) [1] $ (699,116)
Balance, shares at Sep. 30, 2015 44,291,647 44,291,647      
[1] As of September 30, 2015 the comprehensive loss consists of $ 3,316 foreign currency translation adjustments and $ 186 unrealized loss on hedging instruments.


v3.3.1.900
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Parenthetical)
$ in Thousands
Sep. 30, 2015
USD ($)
Comprehensive loss $ (3,502)
Foreign currency translation adjustments [Member]  
Comprehensive loss 3,316
Unrealized loss on hedging instruments [Member]  
Comprehensive loss $ 186


v3.3.1.900
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Cash flows from continuing operations:    
Net loss $ (47,085) $ (3,933)
Net loss from discontinued operation (200) (795)
Net loss from continuing operations (46,885) (3,138)
Adjustments required to reconcile net loss from continuing operations to net cash used in operating activities:    
Depreciation and amortization 11,459 $ 11,626
Goodwill impairment 20,402
Stock-based compensation of options and RSUs related to employees and non- employees 1,665 $ 1,843
Accrued severance pay, net (274) 42
Accrued interest and exchange rate differences on short and long-term restricted cash, net 207 464
Exchange rate differences on long-term loans (221) (311)
Capital loss from disposal of property and equipment 121 241
Deferred income taxes 11 (56)
Decrease in trade receivables, net 16,730 1,538
Decrease (increase) in other assets (including short-term, long-term and deferred charges) 862 (11,731)
Increase in inventories (4,911) $ (1,226)
Increase in restricted cash directly related to operating activities (52,736)
Decrease in trade payables (7,647) $ (4,704)
Increase (decrease) in accrued expenses (509) 1,491
Increase (decrease) in advances from customer 55,616 (12,424)
Decrease in advances from customer, held by trustees (8,411) (65)
Decrease in other current liabilities and other long-term liabilities (406) (7,177)
Net cash used in operating activities (14,927) (23,587)
Cash flows from investing activities:    
Purchase of property and equipment (3,109) (12,195)
Investment in restricted cash held by trustees (6,109) (5,914)
Proceeds from restricted cash held by trustees 18,649 8,625
Investment in restricted cash (including long-term) (22,411) (10,581)
Proceeds from restricted cash (including long-term) 32,559 232
Net cash provided by (used in) investing activities 19,579 (19,833)
Cash flows from financing activities:    
Issuance of RSUs and exercise of stock options 5,594 748
Capital lease payments (407) (86)
Payment of obligation related to the purchase of intangible assets (500) (500)
Proceeds from (repayment of) short-term bank credit, net (3,811) 14,177
Repayments of long-term loans (4,409) (4,484)
Net cash provided by (used in) financing activities (3,533) 9,855
Cash flows from discontinued operations    
Effect of exchange rate changes on cash and cash equivalents (1,122) (221)
Decrease in cash and cash equivalents (3) (33,786)
Cash and cash equivalents at the beginning of the period 27,726 58,424
Cash and cash equivalents at the end of the period 27,723 24,638
Cash paid during the period for:    
Interest 1,499 1,692
Income taxes 362 1,432
Non-cash transactions-    
Classification from inventories to property and equipment 996 3,511
Classification from property and equipment to inventories $ 14 $ 1,254


v3.3.1.900
GENERAL
9 Months Ended
Sep. 30, 2015
GENERAL [Abstract]  
GENERAL
NOTE 1: GENERAL

               


a. Organization:

              

Gilat Satellite Networks Ltd. (the "Company" or "Gilat") and its subsidiaries (the "Group") is a global provider of end-to-end broadband satellite communication (“Satcom”), network solutions and services. The Group designs, manufactures and provide full network management and equipment for Satcom as well as professional services to satellite operators and service providers worldwide. The equipment consists of very small aperture terminals (“VSATs”), solid-state power amplifiers (“SSPAs”), block up converters (“BUCs”), low-profile antennas and on-the-Move/on-the-Pause terminals. VSATs are earth-based terminals that transmit and receive broadband Internet, voice, data and video via satellite. VSAT networks have significant advantages over wireline and wireless networks, as VSATs can provide highly reliable, cost-effective, fast to deploy, end-to-end communications regardless of the number of sites or their geographic locations. In addition, the Company provides integrated small cell solutions with its satellite backhaul for the cellular market.

 

Gilat was incorporated in Israel in 1987 and launched its first generation VSAT in 1989. For a description of principal markets and customers, see Note 10.

 

The Company's business is managed and reported as three separate reportable segments, comprised of the Company's named Commercial, Mobility (previously named Defense) and Services Divisions:

 

  • Commercial Division - provides VSAT networks, satellite communication products, small cell solutions and associated professional services and comprehensive turnkey solutions. Commercial Division customers include: service providers, satellite operators, mobile network operators (“MNOs”), telecommunication companies (“Telcos”) and large enterprises worldwide. The Commercial Division is focusing on high throughput satellite (“HTS”) initiatives worldwide and is driving meaningful partnerships with satellite operators to leverage the Company's technology and breadth of services to deploy and operate the ground segment.

  • Mobility Division provides on-the-Move/on-the-Pause satellite communication products and solutions to in flight connectivity (“IFC”) service providers, system integrators, defense and homeland security organizations, as well as to other commercial entities worldwide. The Mobility Division provides solutions on land, sea and air, while placing a major focus on the high-growth market of commercial IFC, with its unique leading technology. In addition, the division includes the operations of the Company's subsidiary, Wavestream Corporation (“Wavestream”), whose sales are primarily to IFC integrators as well as defense industry integrators.

  • Service Division - provides managed network and services for rural broadband access through the Company's subsidiaries in Peru and Colombia. Our connectivity solutions have been implemented in large and national scale projects. Gilat's terrestrial and satellite networks provide Internet and telephony services to thousands of rural communities and schools worldwide. The Services Division turnkey solutions supply network infrastructure, ensure high-quality, reliable connectivity and include full network support and maintenance, as well as support for applications that run on the installed network.

 


b. The Company depends on a major supplier for certain components and services for the production of its products and to provide services. If this supplier fails to deliver or delays the delivery of the necessary components or services, the Company will be required to seek alternative sources of supply. A change in suppliers could result in manufacturing delays or services delays which could cause additional incremental costs or a possible loss of sales and, consequently, could adversely affect the Company's results of operations and financial position.

                

  c.  Impairment of goodwill related to Wavestream

             

The continuing pressure on the Department of Defense (“DoD”) budget in the United State along with delayed orders from other clients as well as other factors, resulted in a decline in Wavestream's actual revenues and operational results during the nine months ended September 30, 2015 compared to budget and forecasted projections. These factors were considered by the Company's management as indicators of a potential impairment of Wavestream's tangible, intangible assets and goodwill.

 

In accordance with ASC 350, following the identification of the impairment indicators, the Company performed a goodwill impairment test as of September 30, 2015, which resulted in a goodwill impairment of $20,402 attributable to the Wavestream reporting unit. This impairment was recorded as part of “Goodwill impairment” in the Statement of Operations and is attributed to the Mobility Division.

 

The material assumptions used for the income approach were five (5) years of projected cash flows, a long-term growth rate of 4% and discounted rate of 13%.


In addition, these factors required the Company to evaluate the fair value of Wavestream's tangible and intangible assets based on the updated future undiscounted cash flows expected to be generated by the assets in accordance with ASC 360 "Property, Plant and Equipment" (“ASC 360"). The projected undiscounted cash flows as of September 30, 2015 indicated that the carrying amount of Wavestream's tangible and intangible assets should not be impaired.



v3.3.1.900
SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 30, 2015
SIGNIFICANT ACCOUNTING POLICIES [Abstract]  
SIGNIFICANT ACCOUNTING POLICIES
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

 


a. The significant accounting policies applied in the financial statements of the Company as of December 31, 2014, are applied consistently in these interim financial statements.

              


b. Principles of consolidation:

 

The consolidated financial statements include the accounts of the Company and its subsidiaries, in which the Company has a controlling voting interest and entities consolidated under the variable interest entities ("VIE") provisions of ASC 810, "Consolidation" ("ASC 810"). Inter-company balances and transactions have been eliminated upon consolidation.

 

The Company also applies the provisions of ASC 810 which provides a framework for identifying VIEs and determining when a company should include the assets, liabilities, noncontrolling interests and results of activities of a VIE in its consolidated financial statements.

 

Most of the activity of Gilat Colombia consists of operating subsidized projects for the governmental authority, dirección de conectividad (“DirCon”), which was formerly known as Compartel. The DirCon projects were originally awarded to Gilat's Colombian subsidiaries in 1999 and 2002 and were extended several times. An additional DirCon project that was awarded to Gilat Colombia in 2011 was completed in December 2013. Gilat Colombia was awarded another DirCon project in 2013 which is scheduled to be completed in 2018.

 

As required by the DirCon projects' bid documents, the Group established trusts (the "Trusts") and entered into governing trust agreements (one for each project awarded) (collectively, the "Trust Agreements"). The Trusts were established for the purpose of holding the network equipment, processing payments to subcontractors, and holding the funds received through the subsidies provided by DirCon (each a "Subsidy" and collectively the “Subsidies”) until they are released in accordance with the terms of each Subsidy and paid to the Group. The Trusts are a mechanism to allow the government of Colombia to review the amounts of each Subsidy and verify that such funds are used in accordance with the transaction documents of each project and the terms of the Subsidy. Gilat Colombia generates revenues from the Subsidies as well as from the use of the networks that it operates.

 

The Trusts are considered VIEs and Gilat Colombia is identified as the primary beneficiary of the Trusts.

 

Under ASC 810 the Company performs ongoing reassessments of whether it is the primary beneficiary of a VIE. As the assessment of Company's management is that the Company has the power to direct the activities of a VIE that most significantly impact the VIE's activities ( the responsibility for establishing and operating the networks), and the obligation to absorb losses of the VIE that could potentially be significant to the VIE and the right to receive benefits from the VIE that could potentially be significant to the VIE's economic performance, it was therefore concluded by management that the Company is the primary beneficiary of the Trusts. As such, the Trusts were consolidated in the financial statements of the Company since their inception.

 

As of September 30, 2015 and December 31, 2014, the Trusts' assets amounted to $1,204 and $15,441, respectively. These assets are consolidated within the financial statements of the Company and are classified as "Restricted cash held by trustees".

 

As of September 30, December 31, 2014, the Trusts' liabilities amounted to $2,614 and $12,858, respectively. These liabilities are consolidated within the financial statements of the Company and mainly classified as "Short-term advances from customers, held by trustees".

 


c.  Impact of recently issued accounting standards:

 

In May 2014, FASB and IASB issued ASU 2014-09, "Revenue from Contracts with Customers" (Topic 606), Presentation of new revenue recognition standard that will supersede existing revenue guidance under US GAAP and IFRS, which is effective for annual reporting periods beginning after December 15, 2016. ASU 2014-09 will require the core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today's guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

In July 2015, the FASB affirmed its proposal to defer the effective date of the guidance in ASU 2014-09 for all entities by one year. As a result, if the proposal is formally adopted by the issuance of a new ASU, the new revenue standard (currently discussed in ASU 2014-09) would be effective for the Company for annual reporting periods beginning after December 15, 2017. The FASB also affirmed its proposal to permit all entities to early adopt the guidance in the new revenue standard, but not before annual periods beginning after December 15, 2016. The Company is currently in the process of evaluating the effect the adoption of ASU 2014-09 may have on its consolidated financial statements.



v3.3.1.900
UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
9 Months Ended
Sep. 30, 2015
UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS [Abstract]  
UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

These unaudited condensed interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015.

 

The condensed consolidated balance sheet at December 31, 2014 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements.

 

The unaudited condensed interim financial statements should be read in conjunction with the Company's annual financial statements and accompanying notes as of December 31, 2014 included in the Company's Annual Report on Form 20-F, filed with the Securities Exchange Commission on April 1, 2015.



v3.3.1.900
INVENTORIES
9 Months Ended
Sep. 30, 2015
INVENTORIES [Abstract]  
INVENTORIES
NOTE 4:           INVENTORIES

 

 
a.
Inventories are comprised of the following:

              

 

September 30,

 

December 31,

 

 

2015

 

2014 

 

 

Unaudited

 

 

 


     

Raw materials, parts and supplies

  $ 8,036     $ 8,130

Work in progress

  7,515     5,477

Finished products

  13,279     11,505
     
  $ 28,830     $ 25,112



b.  Inventory write-offs for the nine months ended September 30, 2015 and 2014, totaled $1,423 and $915, respectively.


v3.3.1.900
COMMITMENTS AND CONTINGENCIES
9 Months Ended
Sep. 30, 2015
COMMITMENTS AND CONTINGENCIES [Abstract]  
COMMITMENTS AND CONTINGENCIES
NOTE 5: COMMITMENTS AND CONTINGENCIES

 


a. Legal and tax contingencies:



1. In 2003, the Brazilian tax authority filed a claim against the Company's subsidiary in Brazil (an inactive company), for the payment of taxes allegedly payable by the subsidiary in the amount of approximately $4,000. In January 2004 and December 2005, the subsidiary filed its administrative defense, which was denied by the first and second level Brazilian courts, respectively.  In September 2006, our subsidiary filed an annulment action seeking judicial cancellation of the claim. In May 2009, the subsidiary received notice of the court's first level decision, which cancelled a significant portion of the claim, but upheld two items of the assessment. Under this decision, the subsidiary's principal liability was reduced to approximately $ 1,500. This decision was appealed by both the subsidiary and the Brazilian tax authorities.

 

In June 2012, the São Paulo Court of Appeals ruled against the subsidiary, which is an inactive company, accepting the claims of the tax authorities. In September 2012, the subsidiary filed an appeal to the Brazilian Superior Court of Justice and to the Brazilian Supreme Court. In October 2014, the appeals were not admitted by the São Paulo Court of Appeals and the subsidiary filed appeals on such decision, which are pending. Based on external counsel's opinion, the Company believes that the subsidiary has a reasonable chance of success to reverse the ruling of the São Paulo Court of Appeals. Accordingly, as of September 30, 2015, the Company's inactive subsidiary faces a tax exposure of approximately $8,863, including interest, penalties, legal fees and exchange rate differences. The Brazilian tax authorities initiated foreclosure proceedings against the subsidiary and certain of its former managers. The foreclosure proceedings against the former managers were cancelled by court in November 2015. The tax authorities are required by law to appeal such a decision Based on the Company's Brazilian external counsel's opinion, the Company believes that the inclusion of any additional co-obligors in the tax foreclosure certificate should be barred due to the applicable statute of limitations. Based on such opinion of counsel, the Company believes that the foreclosure procedures legally cannot be redirected to other Group entities and managers who have not been cited in the foreclosure certificate. Accordingly, the chances that such redirection will lead to a loss recognition are remote.

 


2. The Group has certain tax exposures in some of the jurisdictions in which it conducts business, specifically in certain jurisdictions in Latin America. The Group is in the midst of different stages of audits and has received certain tax assessments. The tax authorities in these and in other jurisdictions in which the Group operates as well as the Israeli Tax Authorities may raise additional claims, which might result in increased exposures and ultimately, payment of additional taxes.

              


3. The Group has accrued $5,185 and $3,441 as of September 30, 2015 and December 31, 2014, respectively, for the expected implications of such legal and tax contingencies. These accruals consist of $2,539 and $2,689 of tax related accruals and $2,646 and $752 of legal and other accruals as of September 30, 2015 and December 31, 2014, respectively. The accruals related to tax contingencies have been assessed by the Group's management, based on the advice of outside legal and tax advisers. The total estimated exposure for the aforementioned tax related accruals is $23,149 and $12,053 as of September 30, 2015 and December 31, 2014, respectively. The estimated exposure for legal and other related accruals is $9,635 and $2,472 as of September 30, 2015 and December 31, 2014, respectively. 

               

In 2014 the Group's subsidiary joined a federal tax amnesty program in Brazil ("Refis"). The Refis program allows companies to pay reduced amounts of interest and fines, or none at all, in order to settle their open tax cases (direct and indirect taxes). The subsidiary paid approximately $2,059 under the Refis program. Accordingly, it then reversed accruals that were previously recorded in its books for some of these claims and therefore recorded income of approximately $619 in general and administrative expenses, $1,811 in financial income and an expense of $315 in tax expenses.

 

The tax accruals include various tax matters such as taxes on income, property taxes, sales and use tax and value added tax, that are in different stages of audits, for which tax assessments have been received, or various tax exposures in which the Group has assessed the exposure and determined that an accrual is necessary. The accruals related to legal contingencies have been assessed by the Group's management based on the advice of independent legal advisers and are comprised of matters for which legal proceedings have been initiated against the Group.

 

The exposures and provisions related to income taxes have been assessed and provided for in accordance with ASC 740-10. Liabilities related to legal proceedings, demands and claims and other taxes are recorded in accordance with ASC 450, "Contingencies" ("ASC 450"), when it is probable that a liability has been incurred and the associated amount can be reasonably estimated. The Group's management, based on its legal counsels' opinions', believes that an adequate accrual was provided to cover the costs to resolve the aforementioned legal proceedings, demands and claims.

 


b. Guarantees:

 

The Group guarantees its performance to certain customers (generally to government entities) through bank guarantees and corporate guarantees. Guarantees are often required for the Group's performance during the installation and operational periods of long-term rural telephony projects such as in Latin America, and for the performance of other projects (government and corporate) throughout the rest of the world. The guarantees typically expire when certain operational milestones are met.

 

As of September 30, 2015, the aggregate amount of bank guarantees and surety bonds outstanding in order to secure the Group's various performance obligations was $122,434, including an aggregate of $88,763 on behalf of the subsidiary in Peru. The Group has $59,735 of restricted cash as collateral for these guarantees.

 

In order to guarantee the Group's performance obligations for its activities in Colombia, the Group secured insurance from a Colombian insurance company. The Group has provided the insurance company with various corporate guarantees, guaranteeing the Group's performance and its employees' salary and benefit costs of approximately $13,951 and $3,033, respectively.

 

In accordance with ASC 460, "Guarantees" ("ASC 460"), as the guarantees above are performance guarantees for the Group's own performance, such guarantees are excluded from the scope of ASC 460. The Group has not recorded any liability for such amounts, since the Group expects that its performance will be acceptable. To date, no guarantees have ever been exercised against the Group.



v3.3.1.900
NET LOSS PER SHARE
9 Months Ended
Sep. 30, 2015
NET LOSS PER SHARE [Abstract]  
NET LOSS PER SHARE
NOTE 6: NET LOSS PER SHARE

 

Basic net earnings (loss) per share are computed based on the weighted average number of Ordinary shares outstanding during each period. Diluted net earnings (loss) per share are computed based on the weighted average number of Ordinary shares outstanding during each period, plus dilutive potential Ordinary shares considered outstanding during the period, in accordance with ASC 260, "Earning per Share" ("ASC 260"). The total weighted average number of shares related to the outstanding options and RSUs excluded from the calculations of diluted net loss per share, as they would have been anti-dilutive for all periods presented, was 4,343,813 and 5,703,521 for the nine months ended September 30, 2015 and 2014, respectively.


All employee stock options and RSUs were anti-dilutive for the periods of nine months ended September 30, 2015 and 2014.



v3.3.1.900
DERIVATIVE INSTRUMENTS
9 Months Ended
Sep. 30, 2015
DERIVATIVE INSTRUMENTS [Abstract]  
DERIVATIVE INSTRUMENTS
NOTE 7: DERIVATIVE INSTRUMENTS

 

To protect against changes in value of forecasted foreign currency cash flows resulting from salaries and related payments that are denominated in NIS, the Company has entered into foreign currency forward contracts. These contracts are designated as cash flows hedges, as defined by ASC 815, as amended, and are considered highly effective as hedges of these expenses. The forward contracts are expected to occur at various dates within the following 12 months.

 

During the nine months ended September 30, 2015 and 2014, the Company recognized a net loss related to the effective portion of the hedging instruments. The effective portion of the hedged instruments has been included as an offset (addition) of payroll expenses and other operating expenses in the statement of operations in the following line items:

 

 

Nine months ended
September 30,

 

 

2015

 

2014

 

 

 

             

 

 

   Unaudited      

Cost of revenues of products

 

$  (97)   $ (15 )

Cost of revenues of services

 

   (54)     (10 )

Research and development, net 

 

   (282)     (46)

Selling and marketing

 

   (175)     (23 )

General and administrative

 

   (182)     (28 )
         
  $  (788)     $ (123 )

 

The ineffective portion of the hedged instruments which was recorded during the nine months ended September 30, 2015 and 2014, was immaterial and has been recorded as financial income (loss).

 

One of the Group's subsidiaries entered into forward contracts in order to hedge the exposure to variability in expected future cash flows resulting from changes in related foreign currency exchange rates. These contracts did not meet the requirement for hedge accounting. The amount recorded as financial income related to these contracts in the period of nine months ended in September 30, 2015 and 2014 was $1,133 and $302, respectively.



v3.3.1.900
DISCONTINUED OPERATION:
9 Months Ended
Sep. 30, 2015
DISCONTINUED OPERATION: [Abstract]  
DISCONTINUED OPERATION:
NOTE 8: DISCONTINUED OPERATION:

 

In December 2, 2013, the Company sold its subsidiary, Spacenet Inc. (“ Spacenet”) subsidiary to SageNet of Tulsa, LLC for approximately $16,000, subject to certain post-closing adjustments and expenses. The Company recorded a loss of $1,385 as a result of this sale. The Company previously provided managed network communications services through Spacenet utilizing satellite wireline and wireless networks and associated technology mainly in the United States. Spacenet was sold in order to allow the Company to better focus its assets and management attention on its core business strategy and strategic target markets.

 

During 2015 and 2014, the post-closing adjustments were resolved and consequently the Company incurred additional expenses of $200 and $795, respectively, related to those adjustments.

 

Spacenet was previously part of the Service Division. Following its sale, Spacenet's results, as well as income and costs related to the sale were accounted as discontinued operation.



v3.3.1.900
RESTRUCTURING COSTS:
9 Months Ended
Sep. 30, 2015
RESTRUCTURING COSTS: [Abstract]  
RESTRUCTURING COSTS:
NOTE 9: RESTRUCTURING COSTS:

 

During the third quarter of 2015, the Company initiated restructuring plans to improve its operating efficiency at its various operating sites and to reduce its operating expenses. As a result of the restructuring plans, as of September 30, 2015 the Company recognized costs of $202 for one-time employee termination benefits and $784 for costs to terminate a contract. These costs were recorded as part of “Restructuring Costs” in the Statement of Operations and are attributable to the Mobility and Commercial Divisions. Out of the total amount of restructuring expenses, $599 was paid by September 30, 2015.



v3.3.1.900
CUSTOMERS, GEOGRAPHIC AND SEGMENTS INFORMATION
9 Months Ended
Sep. 30, 2015
CUSTOMERS, GEOGRAPHIC AND SEGMENTS INFORMATION [Abstract]  
CUSTOMERS, GEOGRAPHIC AND SEGMENTS INFORMATION
NOTE 10: CUSTOMERS, GEOGRAPHIC AND SEGMENTS INFORMATION

 


The Group applies ASC 280, "Segment Reporting" ("ASC 280"). Segments are managed separately, for information on operating segments see Note 1a:

 



a.  Information on the reportable segments:
       
    1. The measurement of the reportable operating segments is based on the same accounting principles applied in these financial statements.
    2. Financial data relating to reportable operating segments:

 

 

Nine months ended
September 30, 201(unaudited)

 

   
 

Commercial

 

 

Mobility 

 

 

Services

 

 

Total

 

                               

Revenues

  70,026   28,695   31,140   129,861

Cost of revenues

    43,824   22,672   29,641   96,137
         

Gross profit

    26,202   6,023   1,499   33,724
         

R&D expenses:

         

Expenses incurred

    12,875   6,368   -   19,243

Less – grants

    546   17   -   563
         
    12,329   6,351   -   18,680
         

Selling and marketing

    12,416   5,485   824   18,725

General and administrative

    6,134   5,020   4,072   15,226

Restructuring costs

    705   281   -   986

Goodwill impairment

    -   20,402   -   20,402
         

Operating loss

    (5,382 )   (31,516 )   (3,397 )   (40,295 )

Financial expenses, net

          (5,850 )

Loss before taxes

          (46,145 )

Taxes on income

          740

Net loss from continuing operations

          (46,885 )

Net loss from discontinued operation

          (200 )

Net loss

          (47,085 )
         

Depreciation and amortization expenses

    3,554   5,503   2,402   11,459

 

 

Nine months ended
September 30, 2014 (unaudited)

 

   
 

Commercial

 

 

Mobility 

 

 

Services 

 

 

Total 

 

                               

Revenues

  97,603   38,972   25,461   162,036

Cost of revenues

    57,667   26,300   20,206   104,173
         

Gross profit

    39,936   12,672   5,255   57,863
         

R&D expenses:

         

Expenses incurred

    14,153   6,678   -   20,831

Less – grants

    1,406   396   -   1,802
         
    12,747   6,282   -   19,029
         

Selling and marketing

    18,458   5,807   1,015   25,280

General and administrative

    5,255   4,097   4,659   14,011
         

Operating income (loss)

    3,476   (3,514 )   (419 )   (457 )

Financial expenses, net

          (1,898 )

Loss before taxes

          (2,355 )

Taxes on income

          783

Net loss from continuing operations

          (3,138 )

Net loss from discontinued operation

          (795 )

Net loss

          (3,933 )
         

Depreciation and amortization expenses

    3,638   6,225   1,763   11,626


b. Revenues by geographic areas:
   
  Following is a summary of revenues by geographic areas. Revenues attributed to geographic areas, based on the location of the end customers, and in accordance with ASC 280, are as follows:

 

 

Nine months ended

 

 

September 30,

 

 

2015

 

 

2014

 

     

 

 

 

 

 

 

 

 

Unaudited

 

                 

Latin America

    $ 59,721   $ 71,841

Asia and Asia Pacific 

    32,678   36,423

United States

    21,669   28,690

Europe

    15,539   11,883

Africa

    254   13,199
     
    $ 129,861   $ 162,036


c. A major customer located in Latin America accounted for 11% of the total consolidated revenues for the nine months ended September 30, 2015. During the nine months ended September 30, 2014 the Group did not have any customer generating revenues exceeding 10% of the Group's total revenues.
   
d. The Group's long-lived assets are located as follows:

 

 

September 30, 

 

 

December 31, 

 

 

2015 

 

 

2014 

 

     

 Unaudited

 

 

 

 

             

Israel

    $ 64,433   $ 66,457

Latin America

    8,982   11,932

United States

    1,861   1,999

Europe

    9,610   9,486

Other

    1,086   1,019
     
    $ 85,972   $ 90,893


v3.3.1.900
SIGNIFICANT ACCOUNTING POLICIES (Policies)
9 Months Ended
Sep. 30, 2015
SIGNIFICANT ACCOUNTING POLICIES [Abstract]  
Principles of consolidation

b. Principles of consolidation:

 

The consolidated financial statements include the accounts of the Company and its subsidiaries, in which the Company has a controlling voting interest and entities consolidated under the variable interest entities ("VIE") provisions of ASC 810, "Consolidation" ("ASC 810"). Inter-company balances and transactions have been eliminated upon consolidation.

 

The Company also applies the provisions of ASC 810 which provides a framework for identifying VIEs and determining when a company should include the assets, liabilities, noncontrolling interests and results of activities of a VIE in its consolidated financial statements.

 

Most of the activity of Gilat Colombia consists of operating subsidized projects for the governmental authority, dirección de conectividad (“DirCon”), which was formerly known as Compartel. The DirCon projects were originally awarded to Gilat's Colombian subsidiaries in 1999 and 2002 and were extended several times. An additional DirCon project that was awarded to Gilat Colombia in 2011 was completed in December 2013. Gilat Colombia was awarded another DirCon project in 2013 which is scheduled to be completed in 2018.

 

As required by the DirCon projects' bid documents, the Group established trusts (the "Trusts") and entered into governing trust agreements (one for each project awarded) (collectively, the "Trust Agreements"). The Trusts were established for the purpose of holding the network equipment, processing payments to subcontractors, and holding the funds received through the subsidies provided by DirCon (each a "Subsidy" and collectively the “Subsidies”) until they are released in accordance with the terms of each Subsidy and paid to the Group. The Trusts are a mechanism to allow the government of Colombia to review the amounts of each Subsidy and verify that such funds are used in accordance with the transaction documents of each project and the terms of the Subsidy. Gilat Colombia generates revenues from the Subsidies as well as from the use of the networks that it operates.

 

The Trusts are considered VIEs and Gilat Colombia is identified as the primary beneficiary of the Trusts.

 

Under ASC 810 the Company performs ongoing reassessments of whether it is the primary beneficiary of a VIE. As the assessment of Company's management is that the Company has the power to direct the activities of a VIE that most significantly impact the VIE's activities ( the responsibility for establishing and operating the networks), and the obligation to absorb losses of the VIE that could potentially be significant to the VIE and the right to receive benefits from the VIE that could potentially be significant to the VIE's economic performance, it was therefore concluded by management that the Company is the primary beneficiary of the Trusts. As such, the Trusts were consolidated in the financial statements of the Company since their inception.

 

As of September 30, 2015 and December 31, 2014, the Trusts' assets amounted to $1,204 and $15,441, respectively. These assets are consolidated within the financial statements of the Company and are classified as "Restricted cash held by trustees".

 

As of September 30, December 31, 2014, the Trusts' liabilities amounted to $2,614 and $12,858, respectively. These liabilities are consolidated within the financial statements of the Company and mainly classified as "Short-term advances from customers, held by trustees".

Impact of recently issued accounting standards

c.  Impact of recently issued accounting standards:

 

In May 2014, FASB and IASB issued ASU 2014-09, "Revenue from Contracts with Customers" (Topic 606), Presentation of new revenue recognition standard that will supersede existing revenue guidance under US GAAP and IFRS, which is effective for annual reporting periods beginning after December 15, 2016. ASU 2014-09 will require the core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today's guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

In July 2015, the FASB affirmed its proposal to defer the effective date of the guidance in ASU 2014-09 for all entities by one year. As a result, if the proposal is formally adopted by the issuance of a new ASU, the new revenue standard (currently discussed in ASU 2014-09) would be effective for the Company for annual reporting periods beginning after December 15, 2017. The FASB also affirmed its proposal to permit all entities to early adopt the guidance in the new revenue standard, but not before annual periods beginning after December 15, 2016. The Company is currently in the process of evaluating the effect the adoption of ASU 2014-09 may have on its consolidated financial statements.



v3.3.1.900
INVENTORIES (Tables)
9 Months Ended
Sep. 30, 2015
INVENTORIES [Abstract]  
Schedule of Inventory
 

September 30,

 

December 31,

 

 

2015

 

2014 

 

 

Unaudited

 

 

 


     

Raw materials, parts and supplies

  $ 8,036     $ 8,130

Work in progress

  7,515     5,477

Finished products

  13,279     11,505
     
  $ 28,830     $ 25,112


v3.3.1.900
DERIVATIVE INSTRUMENTS (Tables)
9 Months Ended
Sep. 30, 2015
DERIVATIVE INSTRUMENTS [Abstract]  
Schedule of net income (loss) related to the effective portion of hedging instruments
 

Nine months ended
September 30,

 

 

2015

 

2014

 

 

 

             

 

 

   Unaudited      

Cost of revenues of products

 

$  (97)   $ (15 )

Cost of revenues of services

 

   (54)     (10 )

Research and development, net 

 

   (282)     (46)

Selling and marketing

 

   (175)     (23 )

General and administrative

 

   (182)     (28 )
         
  $  (788)     $ (123 )


v3.3.1.900
CUSTOMERS, GEOGRAPHIC AND SEGMENTS INFORMATION (Tables)
9 Months Ended
Sep. 30, 2015
CUSTOMERS, GEOGRAPHIC AND SEGMENTS INFORMATION [Abstract]  
Schedule of Financial Data for Reportable Operating Segments
 

Nine months ended
September 30, 201(unaudited)

 

   
 

Commercial

 

 

Mobility 

 

 

Services

 

 

Total

 

                               

Revenues

  70,026   28,695   31,140   129,861

Cost of revenues

    43,824   22,672   29,641   96,137
         

Gross profit

    26,202   6,023   1,499   33,724
         

R&D expenses:

         

Expenses incurred

    12,875   6,368   -   19,243

Less – grants

    546   17   -   563
         
    12,329   6,351   -   18,680
         

Selling and marketing

    12,416   5,485   824   18,725

General and administrative

    6,134   5,020   4,072   15,226

Restructuring costs

    705   281   -   986

Goodwill impairment

    -   20,402   -   20,402
         

Operating loss

    (5,382 )   (31,516 )   (3,397 )   (40,295 )

Financial expenses, net

          (5,850 )

Loss before taxes

          (46,145 )

Taxes on income

          740

Net loss from continuing operations

          (46,885 )

Net loss from discontinued operation

          (200 )

Net loss

          (47,085 )
         

Depreciation and amortization expenses

    3,554   5,503   2,402   11,459

 

 

Nine months ended
September 30, 2014 (unaudited)

 

   
 

Commercial

 

 

Mobility 

 

 

Services 

 

 

Total 

 

                               

Revenues

  97,603   38,972   25,461   162,036

Cost of revenues

    57,667   26,300   20,206   104,173
         

Gross profit

    39,936   12,672   5,255   57,863
         

R&D expenses:

         

Expenses incurred

    14,153   6,678   -   20,831

Less – grants

    1,406   396   -   1,802
         
    12,747   6,282   -   19,029
         

Selling and marketing

    18,458   5,807   1,015   25,280

General and administrative

    5,255   4,097   4,659   14,011
         

Operating income (loss)

    3,476   (3,514 )   (419 )   (457 )

Financial expenses, net

          (1,898 )

Loss before taxes

          (2,355 )

Taxes on income

          783

Net loss from continuing operations

          (3,138 )

Net loss from discontinued operation

          (795 )

Net loss

          (3,933 )
         

Depreciation and amortization expenses

    3,638   6,225   1,763   11,626


Schedule of Revenues by Geographic Area
 

Nine months ended

 

 

September 30,

 

 

2015

 

 

2014

 

     

 

 

 

 

 

 

 

 

Unaudited

 

                 

Latin America

    $ 59,721   $ 71,841

Asia and Asia Pacific 

    32,678   36,423

United States

    21,669   28,690

Europe

    15,539   11,883

Africa

    254   13,199
     
    $ 129,861   $ 162,036
Schedule of Long-Lived Assets by Geographic Area
 

September 30, 

 

 

December 31, 

 

 

2015 

 

 

2014 

 

     

 Unaudited

 

 

 

 

             

Israel

    $ 64,433   $ 66,457

Latin America

    8,982   11,932

United States

    1,861   1,999

Europe

    9,610   9,486

Other

    1,086   1,019
     
    $ 85,972   $ 90,893


v3.3.1.900
GENERAL (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Business Acquisition [Line Items]    
Goodwill impairment losses $ 20,402
Wavestream Corporation [Member]    
Business Acquisition [Line Items]    
Goodwill impairment losses $ 20,402  


v3.3.1.900
SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)
$ in Thousands
Sep. 30, 2015
Dec. 31, 2014
Disclosure Of Accounting Policies [Line Items]    
Restricted cash held by trustees $ 1,204 $ 15,441
Trust liabilities $ 2,614 $ 12,858


v3.3.1.900
INVENTORIES (Schedule of Inventory) (Details) - USD ($)
$ in Thousands
Sep. 30, 2015
Dec. 31, 2014
INVENTORIES [Abstract]    
Raw materials, parts and supplies $ 8,036 $ 8,130
Work in progress 7,515 5,477
Finished products 13,279 11,505
Inventory, Net $ 28,830 $ 25,112


v3.3.1.900
INVENTORIES (Narrative) (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
INVENTORIES [Abstract]    
Inventory write-offs $ 1,423 $ 915


v3.3.1.900
COMMITMENTS AND CONTINGENCIES (Details) - USD ($)
$ in Thousands
9 Months Ended 12 Months Ended
Sep. 30, 2015
Dec. 31, 2014
Dec. 31, 2003
Loss Contingencies [Line Items]      
Accrual for loss contingency $ 5,185 $ 3,441  
Aggregate amount of guarantees 122,434    
Restricted cash collateral 59,735    
Guarantees on employee performance 13,951    
Guarantees on salary and benefit costs 3,033    
Peru [Member]      
Loss Contingencies [Line Items]      
Aggregate amount of guarantees 88,763    
Brazilian Tax Authority [Member]      
Loss Contingencies [Line Items]      
Damages being sought 8,863   $ 4,000
Accrual for loss contingency 2,539 2,689  
Estimated maximum loss from contingency 23,149 12,053  
Amount paid   2,059  
Brazilian Tax Authority [Member] | General and administrative expenses [Member]      
Loss Contingencies [Line Items]      
Reversal amount   619  
Brazilian Tax Authority [Member] | Financial income [Member]      
Loss Contingencies [Line Items]      
Reversal amount   1,811  
Brazilian Tax Authority [Member] | Tax expenses [Member]      
Loss Contingencies [Line Items]      
Reversal amount   315  
Pending And Threatened Litigation [Member]      
Loss Contingencies [Line Items]      
Accrual for loss contingency 2,646 752  
Estimated maximum loss from contingency $ 9,635 $ 2,472  


v3.3.1.900
NET LOSS PER SHARE (Details) - shares
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
NET LOSS PER SHARE [Abstract]    
Anti-dilutive shares 4,343,813 5,703,521


v3.3.1.900
DERIVATIVE INSTRUMENTS (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Derivative Instruments, Gain (Loss) [Line Items]    
Gain (loss) recognized in income related to the effective portion of its hedging instruments $ (788) $ (123)
Financial income related of derivative instruments 1,133 302
Cost of revenues of products [Member]    
Derivative Instruments, Gain (Loss) [Line Items]    
Gain (loss) recognized in income related to the effective portion of its hedging instruments (97) (15)
Cost of revenues of services [Member]    
Derivative Instruments, Gain (Loss) [Line Items]    
Gain (loss) recognized in income related to the effective portion of its hedging instruments (54) (10)
Research and development, net [Member]    
Derivative Instruments, Gain (Loss) [Line Items]    
Gain (loss) recognized in income related to the effective portion of its hedging instruments (282) (46)
Selling and marketing [Member]    
Derivative Instruments, Gain (Loss) [Line Items]    
Gain (loss) recognized in income related to the effective portion of its hedging instruments (175) (23)
General and administrative [Member]    
Derivative Instruments, Gain (Loss) [Line Items]    
Gain (loss) recognized in income related to the effective portion of its hedging instruments $ (182) $ (28)


v3.3.1.900
DISCONTINUED OPERATION: (Details) - USD ($)
$ in Thousands
9 Months Ended
Dec. 02, 2013
Sep. 30, 2015
Sep. 30, 2014
Discontinued Operation [Line Items]      
Loss from discontinued operations   $ (200) $ (795)
Spacenet Inc. [Member]      
Discontinued Operation [Line Items]      
Proceeds from sale of subsidiary $ 16,000    
Loss from sale of subsidiary $ 1,385    
Loss from discontinued operations   $ 200 $ 795


v3.3.1.900
RESTRUCTURING COSTS: (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Restructuring Cost [Line Items]    
Restructuring costs $ 986
Restructuring expenses paid 599  
One-time employee termination benefits [Member]    
Restructuring Cost [Line Items]    
Restructuring costs 202  
Contract termination [Member]    
Restructuring Cost [Line Items]    
Restructuring costs $ 784  


v3.3.1.900
CUSTOMERS, GEOGRAPHIC AND SEGMENTS INFORMATION (Schedule of Financial Data for Reportable Operating Segments) (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Segment Reporting Information [Line Items]    
Revenues $ 129,861 $ 162,036
Cost of revenues 96,137 104,173
Gross Profit 33,724 57,863
R&D expenses:    
Expenses incurred 19,243 20,831
Less - grants 563 1,802
Research and development expenses 18,680 19,029
Selling and marketing expenses 18,725 25,280
General and administrative expenses 15,226 $ 14,011
Restructuring Costs 986
Goodwill impairment losses 20,402
Operating loss (40,295) $ (457)
Financial expenses, net (5,850) (1,898)
Loss before taxes (46,145) (2,355)
Taxes on income 740 783
Net loss from continuing operations (46,885) (3,138)
Net loss from discontinued operation (200) (795)
Net loss (47,085) (3,933)
Depreciation and amortization expenses 11,459 11,626
Commercial [Member]    
Segment Reporting Information [Line Items]    
Revenues 70,026 97,603
Cost of revenues 43,824 57,667
Gross Profit 26,202 39,936
R&D expenses:    
Expenses incurred 12,875 14,153
Less - grants 546 1,406
Research and development expenses 12,329 12,747
Selling and marketing expenses 12,416 18,458
General and administrative expenses 6,134 5,255
Restructuring Costs $ 705  
Goodwill impairment losses  
Operating loss $ (5,382) 3,476
Depreciation and amortization expenses 3,554 3,638
Mobility [Member]    
Segment Reporting Information [Line Items]    
Revenues 28,695 38,972
Cost of revenues 22,672 26,300
Gross Profit 6,023 12,672
R&D expenses:    
Expenses incurred 6,368 6,678
Less - grants 17 396
Research and development expenses 6,351 6,282
Selling and marketing expenses 5,485 5,807
General and administrative expenses 5,020 4,097
Restructuring Costs 281  
Goodwill impairment losses 20,402  
Operating loss (31,516) (3,514)
Depreciation and amortization expenses 5,503 6,225
Services [Member]    
Segment Reporting Information [Line Items]    
Revenues 31,140 25,461
Cost of revenues 29,641 20,206
Gross Profit $ 1,499 $ 5,255
R&D expenses:    
Expenses incurred
Less - grants
Research and development expenses
Selling and marketing expenses $ 824 $ 1,015
General and administrative expenses $ 4,072 4,659
Restructuring Costs  
Goodwill impairment losses  
Operating loss $ (3,397) (419)
Depreciation and amortization expenses $ 2,402 $ 1,763


v3.3.1.900
CUSTOMERS, GEOGRAPHIC AND SEGMENTS INFORMATION (Schedule of Revenue and Long-Lived Assets by Geographic Area) (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Dec. 31, 2014
Revenues from External Customers and Long-Lived Assets [Line Items]      
Revenues $ 129,861 $ 162,036  
Long-lived assets 85,972   $ 90,893
Israel [Member]      
Revenues from External Customers and Long-Lived Assets [Line Items]      
Long-lived assets 64,433   66,457
Latin America [Member]      
Revenues from External Customers and Long-Lived Assets [Line Items]      
Revenues 59,721 71,841  
Long-lived assets $ 8,982   11,932
Latin America [Member] | Revenues [Member]      
Revenues from External Customers and Long-Lived Assets [Line Items]      
Concentration risk percentage 11.00%    
Asia And Asia Pacific [Member]      
Revenues from External Customers and Long-Lived Assets [Line Items]      
Revenues $ 32,678 36,423  
United States [Member]      
Revenues from External Customers and Long-Lived Assets [Line Items]      
Revenues 21,669 28,690  
Long-lived assets 1,861   1,999
Europe [Member]      
Revenues from External Customers and Long-Lived Assets [Line Items]      
Revenues 15,539 11,883  
Long-lived assets 9,610   9,486
Africa [Member]      
Revenues from External Customers and Long-Lived Assets [Line Items]      
Revenues 254 $ 13,199  
Other [Member]      
Revenues from External Customers and Long-Lived Assets [Line Items]      
Long-lived assets $ 1,086   $ 1,019
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