TAT Technologies Reports Year 2011 Third Quarter Results
GEDERA, Israel, November 29, 2011 /PRNewswire/ --
TAT Technologies Ltd. (NASDAQ: TATT), a leading provider of services and products to the commercial and military aerospace and ground defense industries, reported today its results for the three month and nine month periods ended September 30, 2011.
Financial Highlights:
TAT announced revenues of $20.7 million and a net loss of $3.3 million for the three months ended September 30, 2011, compared to revenues of $18.9 million with net loss of $5.1 million for the three months ended September 30, 2010 - an increase of 9.4% in revenues. The net loss reported for 2011 third quarter is the result of a non-recurring $5.76 million write down of inventories and impairment charges of long lived assets, $5.46 of which were in TAT's MRO Services for Aviation Components operating segment. Excluding these non-recurring charges net profit for 2011 third quarter was $0.4 million.
During the Third quarter of 2011, revenues were impacted by (i) the increase in revenues in the OEM of Heat Management Solutions segment; (ii) the increase in revenues in the Heat Transfer Services and Products segment; (iii) the increase in revenues in the MRO Services for Aviation Components segment; (iv) partially offset by the decrease in revenues in the OEM of Electric Motion Systems segment.
Revenue breakdown by the principal operational segments for the three-month and nine month periods ended September 30, 2011 and 2010, respectively, was as follows:
Three Months Ended September 30,
% of
Change
Between
2011 2010 Periods
Revenues % of Revenues % of
in Total in Total
Thousands Revenues Thousands Revenues
unaudited Unaudited
Revenues
OEM of Heat
Management
Solutions $ 7,619 36.8 % $ 6,437 34.0 % 18.4 %
Heat
Transfer
Services and
Products * 6,892 33.3 % 6,388 33.8 % 7.9 %
MRO services
for Aviation
Components * 5,019 24.2 % 4,091 21.6 % 22.7 %
OEM of
Electric
Motion
Systems 2,027 9.8 % 2,949 15.6 % (31.3) %
Eliminations (847) (4.1) % (943) (5.0) % (10.2) %
Total
revenues $ 20,710 100.0 % $ 18,922 100.0 % 9.4 %
Nine Months Ended September 30,
% of
Change
Between
2011 2010 Periods
Revenues % of Revenues % of
in Total in Total
Thousands Revenues Thousands Revenues
unaudited Unaudited
Revenues
OEM of Heat
Management
Solutions $ 21,596 34.8 % $ 20,630 36.9 % 4.7 %
Heat
Transfer
Services and
Products * 19,965 32.2 % 17,597 31.5 % 13.5 %
MRO services
for Aviation
Components * 14,803 23.9 % 11,701 20.9 % 26.5 %
OEM of
Electric
Motion
Systems 8,555 13.8 % 8,566 15.3 % (0.1) %
Eliminations (2,912) (4.7) % (2,556) (4.6) % 13.9 %
Total
revenues $ 62,007 100.0 % $ 55,938 100.0 % 10.8 %
* As of January 1, 2011, TAT began reporting its operations based on four operating segments, after dividing its MRO Services operating segment into two separate segments: Heat Transfer Services and Products and MRO services for Aviation Components. Accordingly, the revenues and costs reported for the three months and nine months periods ended September 30, 2010 for MRO Services operating segment were divided between these two new operating segments. Additionally, the operating segment name of 'OEM of Heat Transfer Products' was changed to 'OEM of Heat Management Solutions'.
For the nine months ended September 30, 2011, TAT announced revenues of $62 million with net loss of $1.1 million compared to revenues of $56 million with net loss of $4.3 million for the nine months ended September 30, 2010 - an increase of 10.8% in revenues. The net loss reported in 2011 third quarter is the result of a non-recurring write down of inventories and impairment charges of long lived assets recorded in the third quarter of 2011. Excluding these non-recurring charges net profit for the period was $2.5 million (see further below under "write down of inventory and impairment of intangible assets").
During the nine months ended September 30, 2011, revenues were impacted by (i) the increase in revenues in the Heat Transfer Services and Products segment; (ii) the increase in revenues in the MRO Services for Aviation Components segment; and (iii) the increase in revenues in the OEM of Heat Management Solutions segment. Revenues in the OEM of Electric Motion Systems segment for the nine months ended September 30, 2011 were similar to the nine months ended September 30, 2010 however gradually during 2011 this segment experienced a gradual decrease in revenues due to weakness in the relevant markets.
Write down of inventory and impairment charges of long lived assets:
During the quarter ended September 30, 2011, the Company recorded a write down of inventory in the amount of $2.5 million (before off-set of taxes) under cost of revenues, attributable to inventory of the MRO for Aviation Components operating segment. The write down was due to management's estimation of the continued decline in future forecasted sales levels and profitability margins in certain product lines in this operating segment resulting from the weakness in these areas of business.
Although revenues in the MRO for Aviation Components operating segment have increased in the three and nine month periods of year 2011 compared to year 2010, profit margines were lower than anticipated. Accordinglly, the Company reviewed the MRO for Aviation Components' long lived assets for impairment by estimating the fair value of this segment's operations and the fair value of its specific long lived assets, and comparing those values to the carrying value of the assets. The Company concluded, based on this valuation, that certain fixed assets and intangible asset amount to $1.9 million and $1.1 million, respectively at its MRO for Aviation Components operating segment were impaired and that the intangible asset 'Customer Relations' at its OEM of Electric Motion Systems operating segment amount to $0.3 million was impaired. Accordingly, the Company recorded a $3.3 (before off-set of taxes) million impairment charge during the quarter ended September 30, 2011 to reflect the fair value of those long lived assets.
Dr. Shmuel Fledel, TAT's CEO commented:
"The results of the third quarter were impacted by nonrecurring, write down of inventories and impairment charges of long lived assets. Excluding these charges, the third quarter of 2011 shows the continuation of TAT's improving trend in our dominant operating segments - the OEM of Heat Management Solutions and Heat Transfer Services and Products where during the quarter we increased our revenues and improved our margins, compared to the same period in 2010. The third quarter also shows improved results in our MRO for Aviation Components operating segment where we successfully increased our revenues while significantly reducing operating loss on a 'Year to Date' basis. These improvements are attributable to the efforts we made during 2010 and 2011 in expanding our marketing and sales activities as well as in working rigorously to improve our production flow and yields.
During the second and the third quarters we experienced a decrease in revenues and margins in the OEM of Electric Motion Systems compared to the same periods in 2010, resulting from growing weakness in this segment, although on a 'Year to Date' basis, revenues were stable compared with the same period in 2010.
We are encouraged by global trends of increased traffic reported by airlines and we believe we are witnessing a steady recovery in the demand for MRO services, as well as positive indications from OEMs in the aerospace and defense industries, which impact our businesses.
We continue to focus on our core capabilities while expanding our business offerings worldwide.
We believe that our efforts along with continuing improvement in the global aviation industry, will sustain the improved trend line of our performance in 2011".
TAT TECHNOLOGIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data)
September September
30, 30,
2011 2010
ASSETS
Current Assets:
Cash and cash equivalents $ 28,452 $ 28,278
Marketable securities 2,469 2,711
Restricted deposit 4,485 5,071
Trade accounts receivable (net of
allowance for doubtful accounts of
$2,447 and $ 2,643 as of September
30, 2011 and 2010, respectively) 17,180 16,485
Inventories 33,436 31,739
Other accounts receivable and prepaid
expenses 7,814 8,415
Total current assets 93,836 92,699
Investment in affiliate 5,139 9,267
Funds in respect of employee right
upon retirement 2,879 2,751
Long-term deferred tax 2,094 1,160
Property, plant and equipment, net 12,745 14,036
Intangible assets, net - 2,116
Goodwill 1,073 1,087
Total assets $117,766 $123,116
LIABILITIES AND EQUITY
Current Liabilities:
Current maturities of long-term loans 6,371 4,535
Trade accounts payables 6,465 6,913
Other accounts payable and accrued
expenses 5,656 6,173
Total current liabilities 18,492 17,621
Long-Term Liabilities:
Long-term loans, net of current
maturities 5,240 6,413
Other accounts payable 115 31
Liability in respect of employee
rights upon retirement 3,481 3,317
Long-term deferred tax liability 1,011 1,987
Total long-term liabilities: 9,847 11,748
EQUITY:
Share capital
Ordinary shares of NIS 0.9 par value
- Authorized:
10,000,000 shares at September 30,
2011 and 2010; Issued and
outstanding: 9,073,043 and 8,815,003
shares, respectively at September 30,
2011 and 2010 2,790 2,790
Additional paid-in capital 64,460 64,429
Accumulated other comprehensive loss (768) (694)
Treasury stock, at cost, 258,040
shares at September 30, 2011 and 2010 (2,018) (2,018)
Retained earnings 22,110 26,319
Total TAT Technologies shareholders'
equity 86,574 90,826
Noncontrolling interest 2,853 2,921
Total equity: 89,427 93,747
Total liabilities and equity $117,766 $123,116
TAT TECHNOLOGIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except share and per share data)
Three months ended Nine months ended
September 30, September 30,
2011 2010 2011 2010
Revenues:
OEM of Heat
Management Solutions $ 7,619 $ 6,437 $ 21,596 $ 20,630
Heat Transfer
Services and
Products * 6,892 6,388 19,965 17,597
MRO services for
Aviation Components
* 5,019 4,091 14,803 11,701
OEM of Electric
Motion Systems 2,027 2,949 8,555 8,566
Eliminations (847) (943) (2,912) (2,556)
20,710 18,922 62,007 55,938
Cost and operating
expenses:
OEM of Heat
Management Solutions 5,724 5,309 16,390 16,079
Heat Transfer
Services and
Products 4,871 4,675 14,372 12,684
MRO services for
Aviation Components 4,769 3,937 12,909 11,458
OEM of Electric
Motion Systems 1,735 2,252 6,864 6,418
Write down of
inventory and
impairment charges
of long lived assets 5,763 3,500 5,763 3,500
Eliminations (815) (908) (2,757) (2,688)
22,047 18,765 53,541 47,451
Gross Profit (loss) (1,337) 157 8,466 8,487
Research and
development costs 180 132 643 459
Selling and
marketing expenses 715 834 2,481 2,500
General and
administrative
expenses 2,985 2,754 8,010 8,029
Other income (125) - (125) -
Impairment of
goodwill and
intangible assets - 4,704 - 4,704
3,755 8,424 11,009 15,692
Operating loss (5,092) (8,267) (2,543) (7,205)
Financial expense (929) (283) (1,573) (1,370)
Financial income 552 544 1,527 1,200
Loss before income
taxes (5,469) (8,006) (2,589) (7,375)
Income taxes (1,948) (2,977) (679) (2,775)
Net loss (3,521) (5,029) (1,910) (4,600)
Gain from dilution
of interests in
affiliated company - - 240 -
Share in results of
affiliated company 167 (50) 450 369
less: Net income
(loss) attributable
to noncontrolling
interest 70 (6) 73 (97)
Net loss
attributable to
controlling interest $(3,284) $(5,085) $(1,147) $(4,328)
Earning per share
Basic net loss per
share attributable
to controlling
interest $(0.37) $(0.58) $(0.13) $(0.49)
Diluted net loss per
share attributable
to controlling
interest $(0.37) $(0.58) $(0.13) $(0.49)
Weighted average
number of shares -
basic 8,815,003 8,815,003 8,815,003 8,815,003
Weighted average
number of shares -
diluted 8,815,003 8,815,003 8,815,003 8,817,226
* As of January 1, 2011, TAT began reporting its operations based on four operating segments, after dividing its MRO Services operating segment into two separate segments: Heat Transfer Services and Products and MRO services for Aviation Components. Accordingly, the revenues and costs reported for the three months and nine months ended September 30, 2010 for MRO Services operating segment were divided between these two new operating segments. Additionally, the operating segment name of 'OEM of Heat Transfer Products' was changed to 'OEM of Heat Management Solutions'.
Operating Segments
TAT operates under four segments: (i) Original Equipment Manufacturing or "OEM" of Heat Management Solutions (ii) Heat Transfer Services and Products (iii) Maintenance, Repair and Overhaul or "MRO" services for Aviation Components and (iv) OEM of Electric Motion Systems. Until December 31, 2010, TAT operated under three segments. As of January 1, 2011, TAT began reporting its operations based on four operating segments, after dividing its MRO Services operating segment into two separate segments: Heat Transfer Services and Products; and MRO services for Aviation Components. Accordingly, the revenues and costs reported for the three months and nine months ended September 30, 2010 for MRO Services operating segment were divided between these two new operating segments. Additionally, the operating segment name of 'OEM of Heat Transfer Products' was changed to 'OEM of Heat Management Solutions'.
OEM of Heat Management Solutions primarily includes the design, development, manufacture and sale of (i) a broad range of heat transfer components (such as heat exchangers, pre-coolers and oil/fuel hydraulic coolers) used in mechanical and electronic systems on-board commercial, military and business aircraft; (ii) environmental control and cooling systems on board aircraft and for ground applications; and (iii) a variety of other electronic and mechanical aircraft accessories and systems such as pumps, valves, power systems and turbines.
Heat Transfer Services and Products primarily includes the maintenance, repair and overhaul of heat transfer equipment and in a lesser extent, the manufacturing of certain heat transfer products. TAT's Limco subsidiary operates an FAA certified repair station, which provides heat transfer MRO services and products for airlines, air cargo carriers, maintenance service centers and the military.
MRO services for Aviation Components primarily includes the maintenance, repair and overhaul of APUs, landing gear and other aircraft components. TAT's Piedmont subsidiary operates an FAA certified repair station, which provides aircraft component MRO services for airlines, air cargo carriers, maintenance service centers and the military.
OEM of Electric Motion Systems primarily includes the design, development, manufacture and sale of a broad range of electrical motor applications for airborne and ground systems.
Settlement Agreement With First Aviation Services, Inc.
In order to settle the commercial dispute that existed between TAT's subsidiary, Piedmont and FAvS, on June 30, 2011 Piedmont and FAvS entered into a Settlement Agreement and Release (the "Settlement Agreement"). Pursuant to the Settlement Agreement, each party fully released the other party and acknowledged that the settlement was a compromise of disputed claims and was not to be construed as an admission of liability or wrongdoing. In addition, each party agreed not to disparage the other and Piedmont paid an aggregate of $700,000 to FAvS (which amount had been fully reserved during 2010).
Simultaneously with the execution of the Settlement Agreement, Mr. Aaron Hollander, the Chief Executive Officer and controlling stockholder of FAvS, purchased 3,322,259 shares of Class A Common Stock of FAvS at a price of $0.903 per share (for an aggregate amount of $3 million) which was higher than FAvS book value recorded in Piedmont's books, while diluting Piedmont's interest in FAvS from 36.6% to 30.3%. In addition, Piedmont agreed to extend its guarantee for the bank debt incurred by FavS to fund the AeTR transaction, as described above.
The Stockholders Agreement entered into in 2009 between Piedmont and Mr. Hollander was also amended to delete the reciprocal drag along rights and to provide that Piedmont may designate one member to the Board of Directors of FAvS (rather than the two members provided in the original agreement). Finally, the Rights Agreement entered into in 2009 between Piedmont and FAvS was amended so that Piedmont's right to approve certain material corporate actions by FAvS has been limited to the right to approve contracts or agreements with affiliates of FAvS. The amendment also provided that the approval of Piedmont would not be required if FAvS seeks to raise additional capital from Mr. Hollander as long as the consideration that was paid by Mr. Hollander was not less than the consideration that would have been paid by a third-party in an arms-length transaction and would have been a fair, equitable and reasonable consideration under the circumstances.
In connection with the Settlement Agreement and the dilution in Piedmont's interest in FAvS, the Company recorded, at June 30, 2011, a gain in the amount of $0.24 million related to the $3 million capital investment in FAvS by Mr. Hollander which was at a higher share price than recorded at Piedmont books. Accordingly, the Company did not revaluate its remaining interest in FAvS as such capital investment was made by a related party, hence was not necessarily an indication for fair value.
Market Maker for TAT shares traded in Tel Aviv Stock Exchange
On August 15, 2011, TAT entered into a Market Making agreement for its shares traded on the Tel Aviv Stock Exchange (TASE) with Harel Finance Trade & Securities Ltd. for the purpose of improving liquidity of TAT shares. The agreement is for a 12 month period, subject for TASE's approval. The agreement will be automatically extended in 12 month periods, unless otherwise terminated by either of the parties giving 30 days notice or in accordance with certain regulatory circumstances. TAT will pay an immaterial fee in connection with the said agreement.
Seasonality
None
Subsequent Event
Grant of Options
On November 24, 2011, TAT's Board of Directors approved the grant of an aggregate of 400,000 options to purchase Ordinary shares of the Company to senior executives and certain members of the Board of Directors, at an exercise price of $6.50 per share. Half of the options will vest over a three years period, on a straight line basis, and half of the options will vest over a three years period provided that TAT's shareholders' equity in any of the four years following the grant date will exceed $95 million. The Option grant is subject to the approval of the Company's stockholders.
New Employment Agreement With Limco's Subsidiary President
Effective December 1, 2011, the Company's Limco subsidiary entered into a new employment agreement with Mr. Paul Hall, Limco's president. Pursuant to the agreement, Hall will be entitled to an annual salary of $225,000. Hall will be eligible to participate in a bonus plan if and when such a plan is adopted by the Company, and if such bonus plan is adopted, the maximum bonus for meeting target will not be less than 25% of his annual salary. Hall will be eligible for a special bonus of $100,000 if in 2013, Limco has sales of at least $40 million and EBITDA of at least 12% (before transfer pricing adjustments). The agreement has a term of 3 years subject to early termination upon any of the following: (a). Limco can terminate for cause (fraud, conviction, gross negligence, breach, etc.) immediately; (b). Limco can terminate without cause upon 90 days prior written notice; (c). Hall can terminate upon 30 days prior written notice.
* * * * *
TAT's executive offices are located in the Re'em Industrial Park, Neta Boulevard, Bnei Ayish, Gedera 70750, Israel, and TAT's telephone number is +972-8-862-8500.
For more information of TAT Technologies, please visit our web-site: http://www.tat-technologies.com
Safe Harbor for Forward-Looking Statements
This press release contains forward-looking statements which include, without limitation, statements regarding possible or assumed future operation results. These statements are hereby identified as "forward-looking statements" for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause our results to differ materially from management's current expectations. Actual results and performance can also be influenced by other risks that we face in running our operations including, but are not limited to, general business conditions in the airline industry, changes in demand for our services and products, the timing and amount or cancellation of orders, the price and continuity of supply of component parts used in our operations, and other risks detailed from time to time in the company's filings with the Securities Exchange Commission, including, its annual report on form 20-F and its periodic reports on form 6-K. These documents contain and identify other important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. Stockholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any forward-looking statement.
Yaron Shalem - CFO
TAT Technologies Ltd.
Tel: +972-8-862-8500
[email protected]
.
SOURCE TAT Technologies Ltd
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