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.
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.
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.
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.
SOURCE TAT Technologies Ltd