TAT Technologies Reports Fourth Quarter and Full Year 2010 Results
GEDERA, Israel, March 30, 2011 /PRNewswire-FirstCall/ -- 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 twelve month periods ended December 31, 2010.
TAT announced revenues of $23.8 million and a net loss of $2.9 million for the three months ended December 31, 2010, compared to revenues of $18.4 million with net loss of $1.0 million for the three months ended December 31, 2009.
During the fourth quarter of 2010, revenues were impacted by (i) the contribution of the Parts services operations to First Aviation Services, Inc ("FAvS") (see 'Investment in FAvS' below); (ii) the increase in revenues in the MRO operations, and; (iii) increase in revenues in the OEM of Heat Transfer Products and in the OEM of Electric Motion Systems, both operated in Israel.
Total increase in reported revenues was 30% and excluding the Part services and Propellers MRO operations contributed to FAvS in December 2009, an increase of 46%.
Revenue breakdown by the principal operational segments for the three-month and twelve-month periods ended December 31, 2010 and 2009, respectively, was as follows:
Three Months Ended December 31. 2010 2009 Revenues % of Revenues % of in Total in Total Thousands Revenues Thousands Revenues Unaudited Unaudited Revenues MRO services * $ 11,502 48.3 % $ 8,155 44.4 % OEM of Heat Transfer products 9,021 37.9 % 7,881 42.9 % Parts services ** 446 2.4 % OEM of Electric Motion Systems 4,480 18.8 % 2,510 13.7 % Eliminations (1,186) (5.0)% (631) (3.4)% Total revenues $ 23,817 100.00 % $ 18,361 100.00 % Twelve Months Ended December 31. 2010 2009 Revenues % of Revenues % of in Total in Total Thousands Revenues Thousands Revenues Unaudited Unaudited Revenues MRO services * $ 40,801 51.1 % $ 42,283 50.9 % OEM of Heat Transfer products 29,651 37.2 % 28,617 34.4 % Parts services ** 6,057 7.3 % OEM of Electric Motion Systems 13,046 16.4 % 11,321 13.6 % Eliminations (3,743) (4.7)% (5,187) (6.2)% Total revenues $ 79,755 100.00 % $ 83,091 100.00 %
* Includes MRO services for Propellers only for the three month and twelve month periods of year 2009 in the amount of $1,566 and $9,007 respectively. On December 4, 2009 this business was contributed to FAvS.
** Includes results only for the three month and twelve month periods of year 2009 in the amount of $446 and $6,057, respectively. On December 4, 2009 this operational segment was contributed to FAvS.
For the twelve months ended December 31, 2010, TAT announced revenues of $79.8 million with net loss of $7.2 million compared to revenues of $83.1 million with net income of $1.8 million for the same period ended December 31, 2009. The net loss reported is the result of one time impairment charge of goodwill and intangible assets in TAT's MRO operating segment; (ii) write down of inventories in TAT's MRO operating segment; and (iii) impairment of TAT's investment in FAvS (see further below).
During the twelve months of 2010, revenues were impacted by (i) the contribution of the Parts services operations to FAvS (see 'Investment in FAvS' below); (ii) the increase in revenues in the MRO services operations, excluding the Propellers MRO operations contributed to FAvS (see 'Investment in FAvS' below) and (iii) the increase of revenues in the OEM of Heat Transfer Products and in the OEM of Electric Motion Systems, both operated in Israel.
Total decrease in reported revenues was 4% and excluding the Part services and Propellers MRO operations contributed to FAvS in December 2009, an increase of 17%.
Impairment of goodwill, intangible assets and write down of inventory:
During the quarter ended September 30, 2010, the Company performed its annual impairment test of goodwill. Based on the results of this test, the Company determined that the goodwill included in the MRO Services segment, was impaired by $4.2 million. The impairment was due to a decline in future forecasted sales levels and profitability margins resulting from the weakness in the global aviation industry in general and to a greater extent in the U.S. In addition, the Company recorded a $3.5 million write down of inventory under cost of revenues, and an impairment of $0.48 million related to Intangible assets 'Customer Relations' (all such amounts are before off-set of taxes),
Investment in FAvS:
On December 4, 2009, the transaction between TAT's subsidiary, Piedmont Aviation Component Services LLC ("Piedmont"), and FAvS was consummated. In connection with the transaction, among other things, Piedmont acquired 37% of FAvS common stock and $750,000 of its preferred stock, in exchange for the contribution of Piedmont's parts and propeller businesses. FAvS is a leading supplier of products and services to the aerospace industry worldwide, including the provisioning of aircraft parts and components, and supply chain management services. FAvS also performs overhaul and repair services for wheels, brakes and starter/generators, and builds custom hose assemblies. Simultaneously, FAvS acquired all of the assets of Kelly Aerospace Turbine Rotables ("KATR"), a provider of overhaul and repair services for landing gear, safety equipment, hydraulic and electrical components, brakes and hose assemblies for corporate, regional and military aircraft. Piedmont agreed to provide a one year guaranty of $7 million of the debt incurred by FAvS in connection with the KATR acquisition (see also further on, under 'Liquidity and Capital Resources'). TAT recorded a capital gain of $4.4 for the transaction during 2009 fourth quarter.
During the quarter ended December 31, 2010, the Company performed its impairment test of its investment in FAvS, due to certain indicators suggesting such test. Based on the results of this test the Company determined that its investment in FAvS was impaired by $4.2 million (accordingly the company recorded deferred tax benefit of $1.2 million, decreasing previously recorded deferred tax liability). The impairment was due to a decline in FAvS' profitability margins and future forecasted sales levels.
Dr. Shmuel Fledel, TAT's CEO commented:
"The results of 2010 were significantly impacted by non recurring, one time impairment charges of goodwill and intangible assets and a write down of inventories related to our MRO segment in the US and by the impairment of our 37% interest in FAvS.
Nevertheless, 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 OEM in the aerospace and defense industries, which impact our businesses.
During the quarter we continued to expand our marketing and sales activities and we also continue to work rigorously on improving our production flow and yields and we believe that our efforts will positively impact our financial results in 2011".
TAT TECHNOLOGIES AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands, except share data) December 31, December 31, 2010 2009 ASSETS Current Assets: Cash and cash equivalents $ 27,037 $25,568 Marketable securities 2,533 2,919 Restricted deposit 5,076 5,062 Trade accounts receivable (net of allowance for doubtful accounts of $2,643 and $2,360 at December 31, 2010 and December 31, 2009, respectively) 20,430 15,494 Inventories 32,163 33,620 Other accounts receivable and prepaid expenses 8,245 7,414 Total current assets 95,484 90,077 Investment in affiliate 4,449 8,899 Funds in respect of employee right upon retirement 2,910 2,597 Long-term deferred tax 1,134 220 Property, plant and equipment, net 14,443 14,463 Intangible assets, net 1,950 2,924 Goodwill 1,156 5,311 Total assets $121,526 $124,491 LIABILITIES AND EQUITY Current Liabilities: Current maturities of long-term loans 9,379 1,434 Trade accounts payables 7,679 5,785 Other accounts payable and accrued expenses 7,964 6,110 Total current liabilities 25,022 13,329 LONG-TERM LIABILITIES: -- Long-term loans, net of current maturities 859 7,363 Other accounts payable 109 - Liability in respect of employee rights upon retirement 3,458 3,157 Long-term deferred tax liability 767 3,036 5,193 13,556 EQUITY: Share capital Ordinary shares of NIS 0.9 par value - Authorized: 10,000,000 shares at December 31, 2010 and 2009; Issued and outstanding: 8,815,003 and 8,815,003 shares respectively at December 31, 2010 and 2009 2,790 2,790 Additional paid-in capital 64,439 64, 390 Accumulated other comprehensive loss (414) (944) Treasury stock, at cost, 258,040 shares at December 31, 2010 and 2009, respectively (2,018) (2,018) Retained earnings 23,462 30,648 Total TAT Technologies shareholders' equity 88,259 94,866 Noncontrolling interest 3,052 2,740 Total equity: 91,311 97,606 Total liabilities and equity $121,526 $124,491 TAT TECHNOLOGIES AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited, in thousands, except share and per share data) Three months ended Twelve months ended December 31, December 31 2010 2009 2010 2009 Revenues: MRO services $ 11,502 $ 8,155 $ 40,801 $ 42,283 OEM - Heat Transfer products 9,021 7,881 29,651 28,617 OEM - Electric Motion Systems 4,480 2,510 13,046 11,321 Parts services - 446 - 6,057 Eliminations (1,186) (631) (3,743) (5,187) 23,817 18,361 79,755 83,091 Cost and operating expenses: MRO services 9,195 7,959 32,636 37,900 OEM - Heat Transfer products 6,345 6,183 22,425 19,809 OEM - Electric Motion Systems 3,517 2,386 9,934 8,021 Parts services - 307 - 5,879 Write down of inventory - - 3,500 Eliminations (1,120) (174) (3,807) (4,714) 17,937 16,661 64,688 66,895 Gross Profit 5,880 1,700 15,067 16,196 Research and development costs 192 183 651 680 Selling and marketing expenses 975 927 3,475 3,719 General and administrative expenses 4,103 5,606 12,832 14,375 Impairment of goodwill and intangible assets 4,704 Less: Capital Gain from selling activity (4,400) (4,400) Relocation Expenses - 178 - 604 5,270 2,494 21,662 14,978 Operating income (loss) 610 (794) (6,595) 1,218 Financial expense (311) (645) (1,681) (2,042) Financial income 370 842 1,570 2,191 Other expenses, net (200) (271) (200) - Income (loss) before income taxes 469 (868) (6,906) 1,367 Taxes on income (benefit) (1,578) 201 (4,353) (765) Net income (loss) 2,047 (1,069) (2,553) 2,132 Share in results of affiliated company (679) (32) (310) (32) Impairment of share in affiliated company (4,200) (4,200) Net loss (income) attributable to Non controlling interest (26) 84 (123) (347) Net income(loss) attributable to TAT Technologies shareholders $(2,858) $(1,017) $(7,186) $1,753 Earning per share Basic net income per share $(0.32) $(0.12) $(0.82) $0.22 Diluted net income per share $(0.32) $(0.12) $(0.82) $0.22 Weighted average number of shares - basic 8,815,003 8,699,664 8,815,003 7,893,639 Weighted average number of shares - diluted 8,815,003 8,717,163 8,815,003 7,893,639
On March 11, 2011, Piedmont commenced a court action in the State of Delaware, USA, against FAvS (in which Piedmont holds a 37% equity interest), for breach of an agreement signed on November 9, 2009 between the parties pursuant to which, among other things, FAvS was required to provide Piedmont with year 2010 audited financial statements of FAvS, by March 6, 2011.
Piedmont requested that the court enter an order requiring FAvS to provide Piedmont with FAvS' year 2010 audited financial statements no later than March 28, 2011 (the earliest possible date given the Delaware court's schedule).
On March 16, 2011 the Delaware court entered an order requiring FAvS to provide its audited financial statements for year 2010 by March 28, 2011. FAvS financial statements were timely delivered to Piedmont on March 26, 2011.
A commercial dispute currently exists between Piedmont and FAvS relating to the propeller maintenance business which had been contributed to FAvS by Piedmont, as part of the transaction discussed above.
The commercial dispute began in April 2010, when a customer of the propeller maintenance business requested reimbursement from FAvS for damages to certain propellers. FAvS then sought reimbursement from Piedmont for such amounts. Although Piedmont rejected all of FAvS' claims with regards to Piedmont's responsibility for the claimed damages, the parties reached an agreement pursuant to which Piedmont loaned $700K to FAvS and agreed to bear a portion of the additional cost of replacement propeller blades that FAvS would be responsible for. In exchange FAvS agreed to waive all claims against Piedmont with respect to such customer. After reviewing this issue during the 2010 fourth quarter and thereafter, the company estimated the additional liability it may bear and accordingly wrote off the loan and recorded an expense. The company's management believes that the provision recorded covers its potential cost in connection with this matter.
Additionally, on January 18, 2011, FAvS raised additional claims, alleging it was not provided with full disclosure concerning the maintenance services agreement with the customer and on March 3, 2011, FAvS alleged additional claims regarding the transaction relating to the contribution of Piedmont's Parts and Propellers businesses, including fraudulent misstatement of financial data disclosed during this deal. On March 4, 2011, Piedmont sent its response rejecting for the second time all of FAvS' claims.
As aforementioned, Piedmont denies all of the above claims. To date, it is unclear whether legal proceedings will commence in connection with these claims and what their possible result may be. The company estimates that as of December 31, 2010 the reserved amounts fully cover its responsibilities with regard to this matter, including for any potential legal proceeding.
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.
Contact: Miri Segal-Scharia Yaron Shalem - CFO MS-IR LLC TAT Technologies Ltd. Tel:+1-917-607-8654 Tel: +972-8-862-8500 email@example.com firstname.lastname@example.org
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