TAT Technologies Reports Year 2012 Second Quarter Results

GEDERA, Israel, August 23, 2012 /PRNewswire/ --

TAT Technologies Ltd. (NASDAQ: TATT - News), 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 six month periods ended June 30, 2012.

Financial Highlights:

TAT announced revenues of $22.1 million with a net loss of $4.2 million for the three months ended June 30, 2012, compared to revenues of $19.9 million with a net income of $0.6 million for the three months ended June 30, 2011 - an increase of 11.2% in revenues. The net loss reported for 2012 second quarter is the result of a $1.0 million impairment charge of goodwill in TAT's OEM for Electric Motion Systems operating segment and a $3.3 million impairment charge with respect to TAT's investment in First Aviation Services Inc. ("FAvS", see further below). Excluding the impairment charges net profit for 2012 second quarter was $0.1million.

During the Second quarter of 2012, revenues were impacted by the increase in revenues in all significant operating segments - the OEM of Heat Management Solutions segment; the Heat Transfer Services and Products segment and the MRO Services for Aviation Components segment; while revenues in the OEM of Electric Motion Systems decreased due to growing weakness in the relevant defense markets. This decrease is a continuation of the decrease in revenues this segment had experienced during 2011.

Revenue breakdown by operating segments for the three month and six month periods ended June 30, 2012 and 2011, respectively, was as follows:

                             Three Months Ended June 30,
                                                                     % of
                                                                    Change
                                                                    Between
                           2012                     2011            Periods
                  Revenues        % of     Revenues        % of
                     in          Total        in          Total
                  Thousands     Revenues   Thousands     Revenues
                        Unaudited                Unaudited
    Revenues
    OEM of Heat
    Management
    Solutions       $ 7,036        31.8%     $ 6,337        31.8%     11.0%
    Heat
    Transfer
    Services and
    Products          7,104        32.1%       6,606        33.2%      7.5%
    MRO services
    for Aviation
    Components        5,636        25.5%       4,985        25.1%     13.1%
    OEM of
    Electric
    Motion
    Systems           2,677        12.1%       2,958        14.9%    (9.5)%
    Eliminations      (326)       (1.5)%       (992)       (5.0)%   (67.1)%
    Total
    revenues       $ 22,127       100.0%    $ 19,894       100.0%     11.2%


                              Six Months Ended June 30,
                                                                     % of
                                                                    Change
                                                                    Between
                           2012                     2011            Periods
                  Revenues        % of     Revenues        % of
                     in          Total        in          Total
                  Thousands     Revenues   Thousands     Revenues
                        Unaudited                Unaudited
    Revenues
    OEM of Heat
    Management
    Solutions      $ 14,720        34.4%    $ 13,977        33.8%      5.3%
    Heat
    Transfer
    Services and
    Products         13,887        32.4%      13,073        31.7%      6.2%
    MRO services
    for Aviation
    Components       10,639        24.9%       9,784        23.7%      8.7%
    OEM of
    Electric
    Motion
    Systems           4,479        10.5%       6,528        15.8%   (31.4)%
    Eliminations      (921)       (2.2)%     (2,065)       (5.0)%   (55.4)%
    Total
    revenues       $ 42,804       100.0%    $ 41,297       100.0%      3.6%


For the six months ended June 30, 2012, TAT announced revenues of $42.8 million with a net loss of $3.6 million compared to revenues of $41.3 million with a net income of $2.1 million for the six months ended June 30, 2011 - an increase of 3.6% in revenues. The net loss reported for the six month period ended June 30, 2012 is the result of the above mentioned $1.0 million impairment charge of goodwill in TAT's OEM for Electric Motion Systems operating segment and the $3.3 million impairment charge with respect to TAT's investment in FAvS (see further below). Excluding the impairment charges net profit for 2012 period was $0.7million.

During the six months ended June 30, 2012, revenues were impacted by the increase in revenues in all our significant operating segments - the OEM of Heat Management Solutions segment, the Heat Transfer Services and Products segment and the MRO Services for Aviation Components segment; while revenues in the OEM of Electric Motion Systems significantly decreased due to growing weakness in the relevant defense markets. As mentioned above, this decrease is a continuation of the decrease in revenues this segment had experienced during 2011.

Impairment of goodwill:

While the Company performs its annual impairment test in September each year, or more frequently when events and circumstances indicate that impairment may have occurred, during the quarter ended June 30, 2012, management believed that there were indicators of impairment of goodwill in its OEM of Electric Motion System operating segment as of June 30, 2012, primarily due to a decline in future forecasted sales levels and profitability margins resulting from the continued weakness in the defense industry. Accordingly, the Company performed an impairment test of goodwill for this operating segment, with the assistance of a third party valuation. Based on the results of this test, the Company determined that the entire balance of goodwill included in this operating segment was impaired and recorded an impairment charge of $1.0 million.

Investment in FAvS:

In June, 2012, FAvS entered into a transaction with its controlling stockholder, Aaron Hollander ("Hollander"), pursuant to which FAvS borrowed $3 million from Hollander, secured by a third lien on the assets of FAvS. The loan bears interest at 10% and in addition Hollander was issued warrants to purchase shares of Class A Common Stock of FAvS, representing 15% of FAvS post-exercise shareholders' equity, at an exercise price of $7.00 per share.

Pursuant to the terms and conditions of the transaction, management believed that there were indicators of impairment with respect to TAT's investment in FAvS. Accordingly, the Company performed an impairment test of its investment in FAvS, with the assistance of a third party valuation. Based on the results of this test the Company determined that its investment in FAvS was impaired by $3.3 million. The impairment was due to a decline in FAvS' profitability margins and future forecasted sales levels.

Mr. Itsik Maaravi, TAT's CEO commented:  

"The results of 2012 second quarter reflect the continuation of the improving trend, Quarter over Quarter and from the previous quarter, in our most significant operating segments - the OEM of Heat Management Solutions and Heat Transfer Services and Products, as well as in our MRO for Aviation Components operating segment.  In each of these segments we continued to increase revenues and gross margins compared to the second quarter of 2011 and the first half of 2011. These improvements are attributable to the increase in our marketing and sales activities during 2010 and 2011 as well as to our rigorous and continuing activity to improve our production flow and yields.

We are encouraged by our ability to maintaining a steady growth in our key businesses in the current business environment where increasing fuel costs are offsetting the positive impact of growing aerospace traffic, thereby reducing airlines' profitability. We are also encouraged by positive indications from commercial OEMs in the aerospace industry, 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 continued improvement in the global aviation industry, will sustain the improved trend line of our performance further in 2012.

During the second quarter the weakness in the defense markets which are mostly relevant to the OEM of Electric Motion Systems operating segment continued to grow, and accordingly the revenues in this segment have decreased compared to the same period in 2011. This decrease is a continuation of the decrease in revenues this segment had experienced during 2011.

We are continuing to preserve a strong balance sheet with limited liabilities, strong working capital and sufficient financial assets to support the growth of our operations".


TAT TECHNOLOGIES AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share data)

                                              June 30,   June 30,
                                                2012       2011
                     ASSETS
    Current Assets:
    Cash and cash equivalents                  $ 14,158   $ 27,872
    Short-term bank deposits                     10,000          -
    Marketable securities at fair value           1,900      2,563
    Short-term restricted deposits                3,206      5,086
    Trade accounts receivable (net of
    allowance for doubtful accounts of $436
    and $ 2,436 as of June 30, 2012 and 2011,
    respectively)                                20,111     17,951
    Other accounts receivable and prepaid
    expenses                                      5,207      7,198
    Inventories, net                             31,711     35,377
 
    Total current assets                         86,293     96,047
 
    Long-term assets:
    Investment in affiliated company              1,668      4,972
    Funds in respect of employee right upon
    retirement                                    2,965      3,070
    Long-term deferred tax                        2,787      1,006
    Property, plant and equipment, net           12,141     14,825
    Intangible assets, net                            -      1,601
    Goodwill, net                                     -      1,166
 
    Total Long-term assets                       19,561     26,640
 
    Total assets                              $ 105,854  $ 122,687
 
             LIABILITIES AND EQUITY
 
    Current Liabilities:
    Current maturities of long-term loans         3,731     10,298
    Trade accounts payables                       6,649      6,581
    Other accounts payable and accrued
    expenses                                      6,021      6,609
 
    Total current liabilities                    16,401     23,488
 
    Long-term liabilities:
    Long-term loans, net of current
    maturities                                    1,883        737
    Other accounts payable                           85        121
    Liability in respect of employee rights
    upon retirement                               3,540      3,742
    Long-term deferred tax liability              1,344        880
 
    Total long-term liabilities                   6,852      5,480
 
    EQUITY:
    Share capital
    Ordinary shares of NIS 0.9 par value -
    Authorized: 10,000,000 shares at June 30,
    2012 and 2011; Issued: 9,073,043 shares
    at June 30, 2012 and 2011; Outstanding:
    8,810,366 and 8,815,003 shares at June
    30, 2012 and 2011, respectively               2,790      2,790
    Additional paid-in capital                   64,402     64,455
    Treasury stock, at cost, 262,677 and
    258,040 shares at June 30 2012and 2011,
    respectively                                (2,038)    (2,018)
    Accumulated other comprehensive loss        (1,218)       (77)
    Retained earnings                            16,116     25,397
    Total TAT Technologies shareholders'
    equity                                       80,052     90,547
    Non controlling interest                      2,549      3,172
 
    Total equity:                                82,601     93,719
 
    Total liabilities and equity              $ 105,854  $ 122,687
 


TAT TECHNOLOGIES AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands, except share and per share data)

                                  Three months ended       Six months ended
                                       June 30,                June 30,
                                  2012         2011       2012         2011
 
    Revenues:
    OEM of Heat Management
    Solutions                     $ 7,036      $ 6,337   $ 14,720     $ 13,977
    Heat Transfer Services and
    Product                         7,104        6,606     13,887       13,073
    MRO services for Aviation
    Components                      5,636        4,985     10,639        9,784
    OEM of Electric Motion
    Systems                         2,677        2,958      4,479        6,528
    Eliminations                    (326)        (992)      (921)      (2,065)
                                   22,127       19,894     42,804       41,297
 
    Cost and operating
    expenses:
    OEM of Heat Management
    Solutions                       5,404        5,275     10,990       10,666
    Heat Transfer Services and
    Products                        5,020        4,803     10,049        9,501
    MRO services for Aviation
    Components                      4,163        4,073      8,537        8,140
    OEM of Electric Motion
    Systems                         2,288        2,642      3,999        5,129
    Eliminations                    (454)        (992)    (1,051)      (1,942)
                                   16,421       15,801     32,524       31,494
    Gross Profit                    5,706        4,093     10,280        9,803
 
    Research and development,
    net                               501          198        675          463
    Selling and marketing
    expenses                          924          885      1,813        1,766
    General and administrative
    expenses                        2,755        2,555      5,750        5,025
    Other expenses (income)           (4)            -         10            -
    Impairment of goodwill      1,015                -      1,015            -
                                    5,191        3,638      9,263        7,254
    Operating income                  515          455      1,017        2,549
 
    Financial expense               (811)        (336)    (1,094)        (644)
    Financial income                  428          458        970          975
    Gain from dilution of
    interests in affiliated
    company                             -          240          -          240
 
    Income before income taxes        132          817        893        3,120
 
    Taxes on income                 1,063          489      1,331        1,269
 
    Net income (loss) after
    income taxes                    (931)          328      (438)        1,851
 
    Share in results of
    affiliated company and
    impairment of share in
    affiliated company            (3,312)          197    (3,352)          283
 
    Net income (loss)             (4,243)          525    (3,790)        2,134
 
    Net loss attributable to
    Non controlling interest           44          110        174            3
 
    Net income (loss)
    attributable to TAT
    Technologies shareholders   $ (4,199)        $ 635  $ (3,616)      $ 2,137
 
    Earning per share
    Basic and diluted net
    income per share
    attributable to controlling
    interest                     $ (0.48)       $ 0.07   $ (0.41)       $ 0.24
 
    Weighted average number of
    shares - basic and diluted  8,815,003    8,815,003  8,815,003    8,815,003


Management's Discussion and Analysis of Financial Condition and Results of Operations Background

TAT operates under four operating 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.

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 motors and motion applications for airborne and ground systems.

Grant of options

Following the approval of TAT's Audit committee and Board of Directors, on November 24, 2011, on June 28, 2012, the Company's shareholders approved a plan (the "Plan") to grant up to 380,000 options ("Options") to purchase Ordinary shares, 0.9 NIS par value, of the Company to senior executives and certain members of the Board of Directors, at an exercise price of $6.5 per share. The Options will vest over a three-year period (one-third each year), but the vesting of 50% of the Options shall be subject, in addition, to certain minimum shareholders' equity during a period of 4 years after the grant date. On August 21, 2012, pursuant to Plan, TAT's Board of Directors approved the grant of 330,000 Options.

Seasonality

In the OEM industry in general and in TAT's OEM businesses in particular, the majority of customers operate based on annual budgets and tend to utilize during the fiscal fourth quarter the remaining balance of any un-used budgets. This trend is more typical with customers from the defense industry. Accordingly, TAT is more likely to generate increased revenues in the OEM businesses (such as TAT's OEM of Heat Management Solutions and OEM of Electric Motion Systems) during the fiscal fourth quarter. The aviation industry is known for its highest traffic in the third quarter, primarily attributable to summer vacations. As a result, during the fiscal third quarter, airlines tend to postpone, to the extent possible, maintenance and repair of their aircraft to minimize aircraft grounding. Accordingly, TAT is more likely to notice decreased revenues in the MRO businesses (such as TAT's MRO for Aviation Components and Heat Transfer Services and Products) during the fiscal third quarter with recovery during subsequent quarters.  

Subsequent Event

None

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
yarons@tat-technologies.com

SOURCE TAT Technologies Ltd




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