TAT Technologies Reports Year 2011 Second Quarter Results

Aug 16, 2011, 06:41 ET from TAT Technologies Ltd

GEDERA, Israel, August 16, 2011 /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, 2011.

Financial Highlights:

TAT announced revenues of $19.9 million and a net income of $0.64 million for the three months ended June 30, 2011, compared to revenues of $18.6 million with net income of $0.02 million for the three months ended June 30, 2010 an increase of 6.7% in revenues and of 3,342% in net income.

During the Second 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 period ended June 30, 2011 and 2010, respectively, was as follows:

                               Three Months Ended June 30.
                            2011                      2010             % of 
                   Revenues       % of       Revenues       % of      Change
                      in         Total          in         Total     Between
                  Thousands     Revenues    Thousands     Revenues   Periods
                         Unaudited                 Unaudited
    Revenues
    OEM of Heat
    Management
    Solutions      $  6,337       31.8 %     $  5,293       28.3 %    19.7 %
    Heat
    Transfer
    Services and
    Products *        6,606       33.2 %        6,039       32.4 %     9.4 %
    MRO services
    of Aviation
    Components *      4,985       25.1 %        3,826       20.5 %    30.3 %
    OEM of
    Electric
    Motion
    Systems           2,958       14.9 %        3,672       19.7 %  (19.4) %
    Eliminations       (992)        (5)%         (181)      (0.9)%   447.9 %
      Total
      revenues     $ 19,894     100.00 %     $ 18,649     100.00 %     6.7 %
                                Six Months Ended June 30.
                            2011                      2010             % of
                   Revenues       % of       Revenues       % of      Change
                      in         Total          in         Total     Between
                  Thousands     Revenues    Thousands     Revenues   Periods
                         Unaudited                 Unaudited
    Revenues
    OEM of Heat
    Management
    Solutions      $ 13,977       33.8 %     $ 14,193       38.3 %    (1.5)%
    Heat
    Transfer
    Services and
    Products *       13,073       31.7 %       11,209       30.3 %    16.6 %
    MRO services
    of Aviation
    Components *      9,784       23.7 %        7,610       20.5 %    28.6 %
    OEM of
    Electric
    Motion
    Systems           6,528       15.8 %        5,617       15.2 %    16.2 %
    Eliminations     (2,065)        (5)%       (1,613)      (4.3)%    28.0 %
    Total
    revenues       $ 41,297     100.00 %     $ 37,016     100.00 %    11.6 %

* 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 six months periods ended June 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.

Dr. Shmuel Fledel, TAT's CEO, commented:  

"The second quarter of year 2011 is the continuation of TAT's consistent improvement trend in our dominant operating segments - the OEM of Heat Management Solutions, Heat Transfer Services and Products, and MRO Services of Aviation Components, during which we increased our revenues and improved our margins, compared to the same period in 2010.  This improvement is attributable to the efforts we made during the year 2010 in expanding our marketing and sales activities as well as in working rigorously to improve our production flow and yields. During the second quarter we also experienced a decrease in revenues and margins in the OEM of Electric Motion Systems compared to the same period in 2010, resulting from growing weakness in this segment, however on a 'Year to Date' basis, revenues were improved significantly compared to 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)

 

                                             June 30,  June 30,
                                                2011      2010
                  ASSETS
    Current Assets:
      Cash and cash equivalents             $ 27,872  $ 26,735
      Marketable securities                    2,563     3,454
      Restricted deposit                       5,086     5,068
      Trade accounts receivable (net of
      allowance for doubtful accounts of
      $2,436 and $ 2,453 as of June 30,
      2011 and June 30, 2010, respectively)   17,951    16,390
      Inventories                             35,377    34,995
      Other accounts receivable and prepaid
      expenses                                 7,198     6,673

        Total current assets                  96,047    93,315

    Investment in affiliate                    4,972     9,319
    Funds in respect of employee right
    upon retirement                            3,070     2,551
    Long-term deferred tax                     1,006       162
    Property, plant and equipment, net        14,825    14,123
    Intangible assets, net                     1,601     2,615
    Goodwill                                   1,166     5,251

        Total assets                        $122,687  $127,336

            LIABILITIES AND EQUITY

    Current Liabilities:
      Current maturities of long-term loans   10,298     3,136
      Trade accounts payables                  6,581     7,032
      Other accounts payable and accrued
      expenses                                 6,609     5,912

        Total current liabilities             23,488    16,080

    Long-Term Liabilities:

      Long-term loans, net of current
      maturities                                 737     7,186
      Other accounts payable                     121         -
      Liability in respect of employee
      rights upon retirement                   3,742     3,125
      Long-term deferred tax liability           880     2,737

        Total long-term liabilities:           5,480    13,048

    EQUITY:
      Share capital
      Ordinary shares of NIS 0.9 par value
      - Authorized: 10,000,000 shares at
      June 30, 2011 and 2010; Issued and
      outstanding: 9,073,043 and 8,815,003
      shares respectively at June 30, 2011
      and 2010                                 2,790     2,790
      Additional paid-in capital              64,455    64,420
      Accumulated other comprehensive loss       (77)   (1,149)
      Treasury stock, at cost, 258,040
      shares at June 30, 2011 and 2010        (2,018)   (2,018)
      Retained earnings                       25,397    31,405
      Total TAT Technologies shareholders'
      equity                                  90,547    95,448
      Noncontrolling interest                  3,172     2,760

      Total equity:                           93,719    98,208

        Total liabilities and equity        $122,687  $127,336

                        TAT TECHNOLOGIES AND 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,
                                  2011         2010       2011         2010

    Revenues:
    OEM of Heat Management
    Solutions                   $ 6,337      $ 5,293   $ 13,977     $ 14,193
    Heat Transfer Services
    and Products *                6,606        6,039     13,073       11,209
    MRO services for Aviation
    Components *                  4,985        3,826      9,784        7,610
    OEM of Electric Motion
    Systems                       2,958        3,672      6,528        5,617
    Eliminations                   (992)        (181)    (2,065)      (1,613)
                                 19,894       18,649     41,297       37,016

    Cost and operating
    expenses:
    OEM of Heat Management
    Solutions                     5,275        4,809     10,666       10,770
    Heat Transfer Services
    and Products                  4,803        3,921      9,501        8,010
    MRO services for Aviation
    Components                    4,073        3,567      8,140        7,520
    OEM of Electric Motion
    Systems                       2,642        2,638      5,129        4,166
    Eliminations                   (992)        (578)    (1,942)      (1,780)
                                 15,801       14,357     31,494       28,686
    Gross Profit                  4,093        4,292      9,803        8,330

    Research and development
    costs                           198          186        463          327
    Selling and marketing
    expenses                        885          960      1,766        1,666
    General and
    administrative expenses       2,555        2,684      5,025        5,275
                                  3,638        3,830      7,254        7,268
    Operating income                455          462      2,549        1,062

    Financial expense              (336)        (699)      (644)      (1,087)
    Financial income                458          315        975          656

    Income before income
    taxes                           577           78      2,880          631

    Income taxes                    489          176      1,269          202

    Net income (loss)                88          (98)     1,611          429
    Gain from dilution of
    interests in affiliated
    company                         240            -        240            -
    Share in results of
    affiliated company              197          213        283          419
    less: Net loss (income)
    attributable to
    noncontrolling interest       (110)           96         (3)          91
    Net income attributable
    to controlling interest        $635          $19     $2,137         $757

    Basic net income per
    share attributable to
    controlling interest          $0.07        $0.01      $0.24        $0.09
    Diluted net income per
    share attributable to
    controlling interest          $0.07        $0.01      $0.24        $0.09

    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    8,816,668

* 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 six months ended June 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) OEM of Electric Motion Systems (iii) Heat Transfer Services and Products and (iv) Maintenance, Repair and Overhaul or “MRO” services of Aviation Components. 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 six months ended June 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.

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.

Heat Transfer Services and Products 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 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.

Entry into Consulting Agreement with Avi Ortal In April 2011, Avi Ortal, the Chief Executive Officer of the Company’s subsidiary, Limco-Piedmont, Inc., advised TAT’s Board of his intention to terminate his employment on July 31, 2011.  On May 18, 2011, Mr. Ortal entered into a Consulting Agreement with TAT, effective for a period of eight  months following the termination of his employment, to provide part-time consulting services to TAT with respect to its U.S. based subsidiaries. 

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 year 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 $.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, as of 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.

Subsequent Event

On August 15, 2011, TAT's and Bental's boards of directors approved the grant of a loan, from Bental to TAT, in the total amount of approximately $ 0.7 million to be repaid in whole at the end of a 24 month period. The principal amount shall bear interest in accordance with the terms to be agreed between Bental and the lending bank (Back To Back) or any other terms to be agreed between Bental and TAT, which will be repaid on a quarterly basis. The principal amount may be repayable at any time at TAT sole discretion and can be offset against any amounts due to TAT from Bental. The loan is subject to the approval of Bental's shareholders' general meeting.  ??

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.

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.

For more information of TAT Technologies, please visit our web-site:  http://www.tat-technologies.com

Yaron Shalem - CFO TAT Technologies Ltd. Tel: +972-8-862-8500 yarons@tat-technologies.com

SOURCE TAT Technologies Ltd