TAT Technologies Ltd. — FY2011 Form 20-F
Reporting period: Fiscal year ended December 31, 2011; audited consolidated U.S. GAAP financial statements, reported in U.S. dollars. This is an annual filing, not a standalone fourth-quarter filing. The company supplies aerospace and defense products and services through four segments: heat-management OEM, electric-motion OEM, heat-transfer services and products, and aviation-component MRO.
Financial performance
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $85.4 million | $79.8 million |
| Gross profit / margin | $13.4 million / 15.7% | $15.1 million / 18.9% |
| Operating income (loss) | $(1.6) million | $(6.6) million |
| Net income (loss) attributable to TAT shareholders | $(1.0) million; $(0.12) per share | $(7.4) million; $(0.84) per share |
| Cash from operating activities | $0.7 million | $3.0 million |
| Capital expenditures | $3.3 million | $2.9 million |
| Cash and cash equivalents | $26.2 million | $27.0 million |
| Total assets | $115.3 million | $121.4 million |
| Total equity | $89.2 million | $91.1 million |
At year-end, marketable securities were $1.9 million and restricted cash was $3.3 million, bringing reported financial assets to approximately $31.4 million. Current liabilities were $16.8 million; current assets less current liabilities calculate to $70.8 million, although the filing’s selected financial data reports working capital of $73.1 million. Total reported bank loans and short-term credit were approximately $9.3 million, including $4.9 million classified as current and $4.4 million of long-term loans. A U.S. subsidiary had a $10 million revolving facility, of which $4.34 million was drawn; the company reported compliance with applicable covenants.
Changes versus comparable periods
- Revenue increased 7.1%. Heat Transfer Services and Products revenue grew 12.8% to $27.6 million, Aviation Components MRO grew 23.4% to $20.1 million, and Heat Management Solutions OEM increased 1.2% to $30.0 million. Electric Motion Systems OEM declined 10.6% to $11.7 million, which management attributed to weakness in relevant markets.
- Gross margin fell to 15.7% from 18.9%, including $5.8 million of inventory write-down and long-lived-asset impairment charges recorded in cost of revenues. Excluding these charges, management reported operating income of $4.2 million for 2011 versus $1.6 million for 2010; these are adjusted figures, not GAAP operating income.
- Operating and net losses narrowed from 2010. The prior year included $3.5 million of inventory write-downs, $4.7 million of goodwill and intangible-asset impairment, and a $4.5 million loss and impairment related to the FAvS investment.
- Quarterly revenue was $23.4 million in Q4 2011 versus $23.8 million in Q4 2010. Q4 2011 attributable net income was $0.12 million, compared with a $3.06 million loss in Q4 2010. Q3 2011 included $5.76 million of inventory and long-lived-asset charges and an attributable net loss of $3.28 million.
Outlook, risks and notable items
- Management expected 2012 U.S. revenue to benefit from higher airline traffic, gradual recovery in MRO demand, and positive aerospace and defense OEM indications. No quantitative revenue or earnings guidance was provided.
- Year-end backlog was approximately $55.4 million, of which $35.8 million was expected to be delivered by December 31, 2012. Backlog was $52.3 million a year earlier.
- Management said available cash and expected operating cash flow should cover requirements for at least 12 months. It also expected aerospace-industry recovery to support an upward revenue trend.
- Risks include aerospace-sector cyclicality and intense competition; dependence on key customers and limited suppliers; fixed-price contract cost overruns; government and export approvals; regulatory certifications; foreign-exchange exposure; and political, economic, and operating risks associated with Israel. Five customers collectively accounted for about 21.3% of revenue in 2011; no single customer represented 10% or more.
- Piedmont settled its dispute with FAvS in 2011 for $0.7 million and extended a guarantee of FAvS debt through June 2013. The remaining guarantee was $5.8 million at year-end, secured in part by $2.9 million of restricted cash. TAT held a 30.02% interest in FAvS.
- A factoring company claim against TAT, Bental, and others sought NIS 6.151 million (approximately $1.62 million). TAT denied liability and recorded no provision, stating that loss was not probable. The filing also describes a possible controlling-shareholder-related proposal for TAT to acquire metal businesses; negotiations and any transaction remained uncertain and subject to approvals.
- The board declared a $2.5 million cash dividend in April 2012, payable in May; it was subsequent to the 2011 reporting period. Management assessed disclosure controls and internal control over financial reporting as effective at December 31, 2011.
Important facts for investors to verify
- Reconcile the filing’s $73.1 million selected-data working-capital figure with the $70.8 million derived from the balance sheet.
- Track whether the MRO and Electric Motion Systems segments recover margins and avoid further inventory or asset impairments.
- Confirm cash conversion and liquidity against the company’s low FY2011 operating cash flow, debt repayments, facility availability, and restricted-cash requirements.
- Monitor the $5.8 million FAvS guarantee, FAvS performance and valuation, and the status of the disputed factoring claim.
- Assess delivery timing and conversion of the $55.4 million backlog, customer concentration, and whether management’s 2012 recovery expectations materialize.