UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
þ
|
|
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for
the quarterly period ended September 30, 2008
|
|
|
|
o
|
|
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for
the transition period from ____to ___
|
Commission file number: 001-33604
LIMCO-PIEDMONT INC.
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
Delaware
|
|
73-1160278
|
(State or Other Jurisdiction of
|
|
(I.R.S. Employer
|
Incorporation or Organization)
|
|
Identification No.)
|
5304 South Lawton Ave.
Tulsa, Oklahoma, 74107
(Address of Principal Executive Offices)
(918) 445-4300
(Registrants Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer
o
|
|
Accelerated filer
o
|
|
Non-accelerated filer
þ
(Do not check if a smaller reporting company)
|
|
Smaller reporting company
o
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
þ
As of November 3, 2008 the Registrant had 13,205,000 shares outstanding.
LIMCO-PIEDMONT INC. AND SUBSIDIARIES
INDEX
Forward-Looking Statements
The following discussion of our financial condition and results of operations reflects our
current views with respect to future events and financial results and should be read in conjunction
with the financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q.
In addition to historical information, this Quarterly Report on Form 10-Q contains statements
relating to our future results (including certain projections and business trends) that are
forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of
1934, as amended (the
2
Exchange Act), and are subject to the safe harbor created by those
sections. Words such as anticipate, expect, intend, plan, believe, seek, outlook and
estimate as well as similar words and phrases signify forward-looking statements. Our
forward-looking statements are not guarantees of future results and conditions and important
factors, risks and uncertainties may cause our actual results to differ materially from those
expressed in our forward-looking statements. Factors that might cause such differences include, but
are not limited to, those discussed in the section entitled Risk Factors set forth in Item 1A and
elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the
Securities and Exchange Commission (SEC), and those detailed from time to time in our other
filings with the SEC. We undertake no obligation to update publicly any forward-looking statements
for any reason, even if new information becomes available or other events occur in the future.
3
LIMCO-PIEDMONT INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,459
|
|
|
$
|
5,039
|
|
Short-term investments
|
|
|
21,110
|
|
|
|
28,806
|
|
Accounts receivable (net of allowance for
doubtful accounts of $170 and $140 at
September 30, 2008 and December 31, 2007,
respectively)
|
|
|
12,275
|
|
|
|
9,328
|
|
Inventories
|
|
|
18,926
|
|
|
|
16,391
|
|
Other accounts receivable and prepaid expenses
|
|
|
1,346
|
|
|
|
1,481
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
63,116
|
|
|
|
61,045
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
6,030
|
|
|
|
5,169
|
|
Intangible assets, net
|
|
|
1,437
|
|
|
|
1,709
|
|
Goodwill
|
|
|
4,780
|
|
|
|
4,780
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
75,363
|
|
|
$
|
72,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payables
|
|
$
|
4,994
|
|
|
$
|
5,084
|
|
Parent company payables
|
|
|
1,468
|
|
|
|
1,762
|
|
Other accounts payable and accrued expenses
|
|
|
2,287
|
|
|
|
1,568
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
8,749
|
|
|
|
8,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities:
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
415
|
|
|
|
404
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
9,164
|
|
|
|
8,818
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 25,000 shares
authorized, 13,205 shares issued and
outstanding at September 30, 2008 and
December 31, 2007
|
|
|
132
|
|
|
|
132
|
|
Additional paid-in capital
|
|
|
49,206
|
|
|
|
49,004
|
|
Retained earnings
|
|
|
17,314
|
|
|
|
14,749
|
|
Accumulated other comprehensive loss
|
|
|
(453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
66,199
|
|
|
|
63,885
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
75,363
|
|
|
$
|
72,703
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
4
LIMCO-PIEDMONT INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MRO services
|
|
$
|
14,054
|
|
|
$
|
12,831
|
|
|
$
|
40,264
|
|
|
$
|
37,877
|
|
Parts services
|
|
|
4,773
|
|
|
|
3,813
|
|
|
|
13,360
|
|
|
|
17,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
18,827
|
|
|
|
16,644
|
|
|
|
53,624
|
|
|
|
54,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MRO services
|
|
|
11,099
|
|
|
|
9,342
|
|
|
|
31,877
|
|
|
|
26,219
|
|
Parts services
|
|
|
3,676
|
|
|
|
3,083
|
|
|
|
10,570
|
|
|
|
13,897
|
|
Selling and marketing
|
|
|
715
|
|
|
|
673
|
|
|
|
2,141
|
|
|
|
1,975
|
|
General and administrative
|
|
|
1,909
|
|
|
|
1,552
|
|
|
|
5,264
|
|
|
|
5,391
|
|
Amortization of intangibles
|
|
|
54
|
|
|
|
119
|
|
|
|
272
|
|
|
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,374
|
|
|
|
1,875
|
|
|
|
3,500
|
|
|
|
7,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
298
|
|
|
|
271
|
|
|
|
756
|
|
|
|
542
|
|
Interest and
other expense
|
|
|
(40
|
)
|
|
|
(178
|
)
|
|
|
(101
|
)
|
|
|
(719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
258
|
|
|
|
93
|
|
|
|
655
|
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
1,632
|
|
|
|
1,968
|
|
|
|
4,155
|
|
|
|
6,885
|
|
Provision for income taxes
|
|
|
675
|
|
|
|
538
|
|
|
|
1,590
|
|
|
|
2,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
957
|
|
|
$
|
1,430
|
|
|
$
|
2,565
|
|
|
$
|
4,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.07
|
|
|
$
|
0.12
|
|
|
$
|
0.19
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.07
|
|
|
$
|
0.12
|
|
|
$
|
0.19
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares outstanding
|
|
|
13,205
|
|
|
|
12,406
|
|
|
|
13,205
|
|
|
|
9,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding
|
|
|
13,205
|
|
|
|
12,437
|
|
|
|
13,205
|
|
|
|
9,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
5
LIMCO-PIEDMONT INC. AND SUBSIDIARIES
UNAUDITED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Income
|
|
|
Equity
|
|
Balance at January 1, 2008
|
|
|
13,205
|
|
|
$
|
132
|
|
|
$
|
49,004
|
|
|
$
|
14,749
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
63,885
|
|
|
Net income for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,565
|
|
|
|
|
|
|
|
2,565
|
|
|
|
2,565
|
|
Other comprehensive
loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(453
|
)
|
|
|
(453
|
)
|
|
|
(453
|
)
|
|
Share based compensation
|
|
|
|
|
|
|
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30,
2008
|
|
|
13,205
|
|
|
$
|
132
|
|
|
$
|
49,206
|
|
|
$
|
17,314
|
|
|
$
|
(453
|
)
|
|
$
|
2,112
|
|
|
$
|
66,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
.
6
LIMCO-PIEDMONT INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,565
|
|
|
$
|
4,405
|
|
Adjustment to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
935
|
|
|
|
796
|
|
Share based compensation expenses
|
|
|
202
|
|
|
|
170
|
|
Changes in allowance for doubtful accounts
|
|
|
30
|
|
|
|
(142
|
)
|
Changes in certain operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(2,977
|
)
|
|
|
(2,122
|
)
|
Decrease in other accounts receivable and prepaid expenses
|
|
|
409
|
|
|
|
13
|
|
Increase in inventories
|
|
|
(2,535
|
)
|
|
|
(1,769
|
)
|
Accounts payable and other accrued expenses
|
|
|
629
|
|
|
|
(2,328
|
)
|
Decrease in Parent company account
|
|
|
(294
|
)
|
|
|
(1,219
|
)
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(1,036
|
)
|
|
|
(2,196
|
)
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Net sales of investments and other assets
|
|
|
6,980
|
|
|
|
|
|
Purchase of investments and other assets
|
|
|
|
|
|
|
(30,928
|
)
|
Purchases of property and equipment
|
|
|
(1,524
|
)
|
|
|
(1,381
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
5,456
|
|
|
|
(32,309
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, initial public
offering, net of $294,000 capitalized IPO costs
|
|
|
|
|
|
|
41,502
|
|
Repayment of short-term bank credit
|
|
|
|
|
|
|
(4,000
|
)
|
Repayment of long-term loan
|
|
|
|
|
|
|
(4,000
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
33,502
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
4,420
|
|
|
|
(1,003
|
)
|
Cash and cash equivalents at the beginning of period
|
|
|
5,039
|
|
|
|
4,309
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
9,459
|
|
|
$
|
3,306
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for :
|
|
|
|
|
|
|
|
|
Income Taxes
|
|
$
|
1,784
|
|
|
|
719
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
$
|
|
|
|
|
2,480
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
7
LIMCO-PIEDMONT INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLDIATED FINANCIAL SATEMENTS
Note 1 General
a. Limco-Piedmont Inc. (the Company), a Delaware corporation, is a majority-owned
subsidiary, 62%, of TAT Technologies Ltd. (the Parent). The Company is principally engaged in:
|
|
|
The repair and overhaul of heat transfer components, auxiliary power units
(APUs), propellers, landing gear and pneumatic ducting.
|
|
|
|
|
Inventory management and parts services for commercial, regional and charter
airlines and business aircraft owners.
|
The Companys primary operations are located in Tulsa, Oklahoma and Kernersville, North
Carolina. The principal markets of the Company are Europe, the United States and Asia. The
Company sells its products mainly to the aircraft industry.
b. Unaudited Interim Results:
The accompanying condensed consolidated financial statements of Limco-Piedmont Inc.
and subsidiaries (the Company) presented herein have been prepared by the Company and are
unaudited. They do not include all the notes in our annual financial statements and,
therefore, should be read in conjunction with the consolidated financial statements and
notes thereto in our Annual Report 10K filed with the Securities and Exchange Commission
dated March 21, 2008, In the opinion of the Companys management, the accompanying
unaudited condensed financial statements reflect all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the Companys financial
position, results of operations and cash flows for all periods presented. The results of
operations for the three and nine month periods ended September 30, 2008 are not
necessarily indicative of the results to be expected for the year ending December 31, 2008
or any other interim period or for any other future year.
Preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Note 2 Short-Term Investments
Short-term investments are accounted for in accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investment in Debt and Equity Securities.
Management determines the classification of its investments in marketable debt and equity
securities at the time of purchase and reevaluates such determinations as of each balance sheet
date. As of September 30, 2008, all marketable securities covered by SFAS No. 115, were designated
as available-for-sale. Securities available-for-sale are carried at fair value, with the unrealized
gains and losses, net of income taxes, reported as a separate component of shareholders equity
classified as other comprehensive income. Realized gains and losses and declines in market value
judged to be other than temporary, of which there were none for the period ended September 30, 2008
or September 30, 2007, are included in other income. The unrealized loss of $453,000 relates to
short-term investments. Interest and dividends are also included in other income. Our short-term
investments consist of auction rate tax-exempt securities and corporate and government bonds
8
with maturities with one to four years. The Companys investments in corporate and government
bonds, have maturities past one year, however, the Company classifies these investments as
available-for-sale and therefore has classified them as short-term securities. Should management
determine that these securities were to be held longer than one year then they would be classified
as long-term securities.
Auction rate securities are variable rate debt securities. While the underlying security has a
long-term nominal maturity, the interest rate is reset through auctions that are typically held
every 7, 28, or 35 days. The securities trade at par and are callable at par on any interest
payment date at the option of the issuer. Interest is paid at the end of each auction period. We
classify these securities as short-term because we intend to liquidate them as the need for working
capital arises in the ordinary course of business and we are able to liquidate them or roll them
over to the next reset period. During the first three months of the year the Company determined to
liquidate its holdings of variable rate debt securities and in January and February 2008 it sold
approximately 90% of its auction rate tax-exempt securities portfolio at par and reinvested the
proceeds in high-grade corporate debt, governmental debt instruments and money market funds. The
remaining balance of $2.96 million will be sold as the market allows.
In September 2007, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS 157. Among
other requirements, SFAS 157 defines fair value and establishes a framework for measuring fair
value and also expands disclosure about the use of fair value to measure assets and liabilities.
SFAS 157 is effective beginning the first fiscal year that begins after November 15, 2007. The
Company adopted SFAS 157 during the first quarter of 2008. Although the adoption of SFAS 157 did
not materially impact our financial condition, results of operations, or cash flows, we are now
required to provide additional disclosures as part of our financial statements.
SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted
prices in active markets; Level 2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in
which little or no market data exists, therefore requiring an entity to develop its own
assumptions.
As of September 30, 2008, the Company held certain assets that are required to be measured at
fair value on a recurring basis, including money market funds and available-for-sale securities.
The Companys available-for-sale securities include auction-rate securities which consist of
municipal bonds with an auction reset feature whose underlying assets are state municipal bonds
which are substantially backed by the federal government. As a result of failed auctions, these
securities are currently illiquid through the normal auction process and quoted market prices and
other observable market data are not available or diminished. Accordingly, these investments were
valued using pricing models based on the net present value of estimated future cash flows as of
September 30, 2008. These securities were also compared, when possible, to other observable market
data with similar characteristics to the securities held by the Company.
9
The Companys financial assets measured at fair value on a recurring basis subject to the
disclosure requirements of SFAS 157 at September 30, 2008, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
Quoted Prices in Active
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for Identical
|
|
|
Significant Other
|
|
|
Significant Unobservable
|
|
|
|
|
|
|
|
Assets
(Level 1)
|
|
|
Observable Inputs
(Level 2)
|
|
|
Inputs
(Level 3)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market funds
|
|
$
|
8,627
|
|
|
$
|
|
|
$
|
|
|
|
|
$
|
8,627
|
|
Auction-rate securities
|
|
|
|
|
|
|
2,855
|
|
|
|
|
|
|
|
2,855
|
|
Municipal bonds
|
|
|
18,255
|
|
|
|
|
|
|
|
|
|
|
|
18,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,882
|
|
|
$
|
2,855
|
|
$
|
|
|
|
|
$
|
29,737
|
|
|
|
|
Note 3 Inventories
Inventories are composed of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
|
December 31, 2007
|
|
|
|
(in thousands)
|
|
Raw material
|
|
$
|
5,841
|
|
|
$
|
4,733
|
|
Work in process
|
|
|
5,583
|
|
|
|
4,796
|
|
Spare parts assemblies
|
|
|
7,502
|
|
|
|
6,862
|
|
|
|
|
|
|
|
|
|
|
$
|
18,926
|
|
|
$
|
16,391
|
|
|
|
|
|
|
|
|
Inventories are shown net of allowances for obsolescence of $548,000 and $299,059 at September 30,
2008, and December 31, 2007, respectively.
Note 4 Related Parties
a. Transactions with related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(in thousands)
|
|
Purchases
|
|
$
|
972
|
|
|
$
|
1,380
|
|
|
$
|
3,950
|
|
|
$
|
3,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Historically, the Company has purchased a majority of its cores for heat exchangers from its
Parent. In January 2007, the Company entered into a manufacturing agreement in which it is required
to purchase all cores required for its heat exchangers from its Parent through January 31, 2017.
Heat exchangers not manufactured by the Parent may be purchased from other vendors, including
Hamilton Sundstrand.
Parent company payables as of September 30, 2008 and December 31, 2007 were $1,468,000 and
$1,762,000 respectively. Purchases from the Parent include cores and related products and insurance
costs. Parent company payables are unsecured and provide for no interest payments and are
generally paid within 60 days.
Note 5- Net Income Per Share
The consolidated statements of income present basic and diluted net income per share. Basic net
income per share is computed by dividing net income by the weighted-average number of common shares
outstanding during the period. Diluted earning per share considers the potential effect of dilution
on basic earning per share assuming potentially dilutive securities that meet certain criteria,
such as stock options, were outstanding since issuance. The treasury stock method is used to
determine the dilutive effect of potentially dilutive securities. There are 327,750 options
outstanding that were anti-dilutive at September 30, 2008 and there are no warrants outstanding as
of September 30, 2008.
The following table reconciles basic shares outstanding to diluted shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Weighted average number of basic shares outstanding
|
|
|
13,205
|
|
|
|
12,406
|
|
|
|
13,205
|
|
|
|
9,673
|
|
Dilutive effect of stock options
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of diluted shares
outstanding
|
|
|
13,205
|
|
|
|
12,437
|
|
|
|
13,205
|
|
|
|
9,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 Employee Share Based Compensation
The Company entered into a share based compensation agreement with its former CEO during August
2005. The compensation agreement is made up of 45,000 Phantom Stock options and other stock
options to be issued upon the completion of an IPO by the Company.
The Phantom Stock options had an exercise price of $6.37. At the date of exercise, the former CEO
received a cash payment for the difference between the exercise price and the average price of the
Parents stock price for the 60 days preceding the exercise date. At September 30, 2007, the
Company recorded compensation expense of $320,511 related to the Phantom Stock Options. All of the
Phantom Stock Options were exercised by December 31, 2007.
Effective as of July 19, 2007, the date of our initial public offering, the Company established an
incentive compensation plan, or the 2007 plan, under which it may issue options to purchase up to
600,000 shares of its common stock. The options vest in three equal annual installments, except for
66,000 options that vest in four equal semi-annual installments. Options generally expire five to
ten years from date of grant.
11
Compensation expense attributable to outstanding stock options was $72,000 and $202,000 for the
three and nine months ended September 30, 2008, respectively. As of September 30, 2008, the total
unrecognized compensation cost related to non-vested stock awards was $1.1 million and the weighted
average period over which the cost is expected to be recognized is approximately 2.8 years.
A summary of our stock option plan as of September 30, 2008, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
Weighted average
|
|
|
|
|
|
|
Exercise
|
|
|
Aggregate intrinsic
|
|
|
contractual life
|
|
|
|
Options
|
|
|
price
|
|
|
values
|
|
|
remaining in years
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Outstanding at January 1, 2008
|
|
|
404
|
|
|
$
|
11.00
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
60
|
|
|
$
|
5.88
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
136
|
|
|
$
|
11.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2008
|
|
|
328
|
|
|
$
|
10.06
|
|
|
$
|
|
|
|
|
4.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2008
|
|
|
165
|
|
|
$
|
11.00
|
|
|
$
|
|
|
|
|
4.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expected to vest at
September 30, 2008
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The intrinsic value of a stock option is the amount by which the market value
of the underlying stock on September 30, 2008 exceeds the strike price of the option.
|
The weighted average grant date fair value of the stock options granted during the nine months
ended September 30, 2008 was $2.63. There were 15,000 stock options granted during the three
months ended September 30, 2008. These options had a weighted average grant date fair value of
$1.90.
The fair value of each option grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
September 30, 2008
|
|
Weighted average expected stock price volatility
|
|
|
56 %
|
|
Weighted average expected option life (in years)
|
|
|
3.50
|
|
Average risk free interest rate
|
|
|
2.87 %
|
|
|
The Company uses the Black-Scholes option pricing model to determine the weighted average fair
value of options. The volatility factor used in the Black-Scholes option pricing model is based on
historical stock price fluctuations. The current forfeiture rate is based on a reasonable estimate
by management. Expected dividend yield is based upon the Companys historical and projected
dividend activity and the risk free interest rate is based upon US Treasury rates appropriate for
the expected term of the options. The expected term is based on estimates regarding projected
employee stock option exercise behavior.
Note 7 Segment Reporting
|
a.
|
|
The Company manages its business on a basis of two reportable segments since the
acquisition of Piedmont on July 6, 2005. The Companys reportable segments are as
follows:
|
12
|
|
|
The maintenance, repair and overhaul (MRO) segment focuses on
remanufacture, overhaul and repair of heat transfer equipment and other
aircraft components and of repair of APUs, propellers and landing gears.
|
|
|
|
|
Parts segment (part of Piedmonts business) focuses on sales of parts of
APUs, propellers and landing gears.
|
The Company evaluates segment performance based on revenue and operating income. The
operating income reported in our segments excludes corporate and other unallocated amounts.
Although such amounts are excluded from the business segment results, they are included in
reported consolidated earnings. Corporate and unallocated amounts include executive level
expenses and expenses related to our accounting and finance, human resources and
information technology departments.
b. Operational segments
:
The following financial information is the information that management uses for analyzing
the results. The figures are presented in consolidated method as presented to management.
The following financial information is a summary of the operating income of each
operational segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2008
|
|
|
|
MRO
|
|
|
Parts
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Revenue
|
|
$
|
40,264
|
|
|
$
|
13,360
|
|
|
$
|
|
|
|
$
|
53,624
|
|
MRO services cost
|
|
|
31,877
|
|
|
|
|
|
|
|
|
|
|
|
31,877
|
|
Part services cost
|
|
|
|
|
|
|
10,570
|
|
|
|
|
|
|
|
10,570
|
|
Selling and marketing
|
|
|
1,368
|
|
|
|
773
|
|
|
|
|
|
|
|
2,141
|
|
General and administrative
|
|
|
2,530
|
|
|
|
483
|
|
|
|
2,251
|
|
|
|
5,264
|
|
Amortization of intangibles
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
$
|
4,217
|
|
|
$
|
1,534
|
|
|
|
($2,251
|
)
|
|
$
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2007
|
|
|
|
MRO
|
|
|
Parts
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Revenue
|
|
$
|
37,877
|
|
|
$
|
17,022
|
|
|
$
|
|
|
|
$
|
54,899
|
|
MRO services cost
|
|
|
26,219
|
|
|
|
|
|
|
|
|
|
|
|
26,219
|
|
Part services cost
|
|
|
|
|
|
|
13,897
|
|
|
|
|
|
|
|
13,897
|
|
Selling and marketing
|
|
|
1,575
|
|
|
|
400
|
|
|
|
|
|
|
|
1,975
|
|
General and administrative
|
|
|
801
|
|
|
|
273
|
|
|
|
4,317
|
|
|
|
5,391
|
|
Amortization of intangibles
|
|
|
355
|
|
|
|
|
|
|
|
|
|
|
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
$
|
8,927
|
|
|
$
|
2,452
|
|
|
$
|
(4,317
|
)
|
|
$
|
7,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2008
|
|
|
|
MRO
|
|
|
Parts
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Revenue
|
|
$
|
14,054
|
|
|
$
|
4,773
|
|
|
$
|
|
|
|
$
|
18,827
|
|
MRO services cost
|
|
|
11,099
|
|
|
|
|
|
|
|
|
|
|
|
11,099
|
|
Part services cost
|
|
|
|
|
|
|
3,676
|
|
|
|
|
|
|
|
3,676
|
|
Selling and marketing
|
|
|
489
|
|
|
|
226
|
|
|
|
|
|
|
|
715
|
|
General and administrative
|
|
|
1,014
|
|
|
|
85
|
|
|
|
810
|
|
|
|
1,909
|
|
Amortization of intangibles
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
$
|
1,398
|
|
|
$
|
786
|
|
|
$
|
(810
|
)
|
|
$
|
1,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2007
|
|
|
|
MRO
|
|
|
Parts
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Revenue
|
|
$
|
12,831
|
|
|
$
|
3,813
|
|
|
$
|
|
|
|
$
|
16,644
|
|
MRO services cost
|
|
|
9,342
|
|
|
|
|
|
|
|
|
|
|
|
9,342
|
|
Part services cost
|
|
|
|
|
|
|
3,083
|
|
|
|
|
|
|
|
3,083
|
|
Selling and marketing
|
|
|
558
|
|
|
|
115
|
|
|
|
|
|
|
|
673
|
|
General and administrative
|
|
|
198
|
|
|
|
102
|
|
|
|
1,252
|
|
|
|
1,552
|
|
Amortization of intangibles
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
$
|
2,614
|
|
|
$
|
513
|
|
|
$
|
(1,252
|
)
|
|
$
|
1,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following presents long-lived assets as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
|
|
MRO
|
|
|
Parts
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Total assets
|
|
$
|
34,046
|
|
|
$
|
11,349
|
|
|
$
|
29,968
|
|
|
$
|
75,363
|
|
Property, plant and equipment, net
|
|
|
6,030
|
|
|
|
|
|
|
|
|
|
|
|
6,030
|
|
Goodwill
|
|
|
4,780
|
|
|
|
|
|
|
|
|
|
|
|
4,780
|
|
Intangibles, net
|
|
|
1,437
|
|
|
|
|
|
|
|
|
|
|
|
1,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
MRO
|
|
|
Parts
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Total assets
|
|
$
|
33,299
|
|
|
$
|
3,522
|
|
|
$
|
35,882
|
|
|
$
|
72,703
|
|
Property, plant and equipment
|
|
|
5,169
|
|
|
|
|
|
|
|
|
|
|
|
5,169
|
|
Goodwill
|
|
|
4,780
|
|
|
|
|
|
|
|
|
|
|
|
4,780
|
|
Intangibles, net
|
|
|
1,709
|
|
|
|
|
|
|
|
|
|
|
|
1,709
|
|
14
The following presents cashflows of long-lived assets as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
|
|
MRO
|
|
|
Parts
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Capital investments
|
|
|
1,524
|
|
|
|
|
|
|
|
|
|
|
|
1,524
|
|
Depreciation and amortization
|
|
|
935
|
|
|
|
|
|
|
|
|
|
|
|
935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
MRO
|
|
|
Parts
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Capital investments
|
|
|
2,884
|
|
|
|
15
|
|
|
|
|
|
|
|
2,899
|
|
Depreciation and amortization
|
|
|
1,123
|
|
|
|
2
|
|
|
|
|
|
|
|
1,125
|
|
Note 8 Recently Issued Accounting Standards
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115 (SFAS No. 159). SFAS
No. 159 establishes a fair value option permitting entities to elect the option to measure eligible
financial instruments and certain other items at fair value on specified election dates.
Unrealized gains and losses on items for which the fair value option has been elected will be
reported in earnings. The fair value option may be applied on an instrument-by-instrument basis,
with a few exceptions, is irrevocable and is applied only to entire instruments and not to portions
of instruments. SFAS No. 159 is effective for annual periods beginning after November 15, 2007 and
for certain provisions for annual periods beginning after November 15, 2008, and should not be
applied retrospectively to fiscal years beginning prior to the effective date. On the adoption
date, an entity may elect the fair value option for eligible items existing at that date and the
adjustment for the initial remeasurement of those items to fair value should be reported as a
cumulative effect adjustment to the opening balance of retained earnings. This statement
became applicable to the Company as of the year beginning January 1, 2008, and the Company did not
elect to apply SFAS 159 to its financial assets and liabilities. Therefore the adoption of SFAS
159 has had no impact on the Companys financial position or results of operations.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)). SFAS
141(R) expands the definition of transactions and events that qualify as business combinations;
requires that the acquired assets and liabilities, including contingencies, be recorded at the fair
value determined on the acquisition date and changes thereafter reflected in revenue, not goodwill;
changes the recognition timing for restructuring costs; and requires acquisition costs to be
expensed as incurred. Adoption of SFAS 141(R) is required for annual periods beginning after
December 15, 2008. Early adoption and retroactive application of SFAS 141(R) to fiscal years
preceding the effective date are not permitted. The adoption of SFAS
141(R) is not expected to have a
material impact on our Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in Consolidated Financial
Statements (SFAS 160). SFAS 160 re-characterizes minority interests in consolidated subsidiaries
as non-controlling interests and requires the classification of minority interests as a component
of equity. Under
SFAS 160, a change in control will be measured at fair value, with any gain or loss recognized in
earnings. The effective date for SFAS 160 is for annual periods beginning on or after December 15,
2008. Early adoption and retroactive application of SFAS 160 to fiscal years preceding the
effective date are not permitted. The adoption of SFAS 160 is not expected to have a material
impact on our Consolidated Financial Statements.
In March 2008, the FASB issued SFAS No. 161 (SFAS 161), Disclosures about Derivative Instruments
and Hedging Activities, as an amendment to SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS 161 requires that objectives for using derivative instruments be disclosed
in terms of underlying risk and accounting designation. The fair value of derivative instruments
and their gains and
15
losses will need to be presented in tabular format in order to present a more
complete picture of the effects of using derivative instruments. SFAS 161 is effective for
financial statements issued for fiscal years beginning after November 15, 2008. The adoption of
SFAS 161 is not expected to have a material impact on our Consolidated Financial Statements.
Note 9 Impairment of Long Lived Assets
The Company reviews long-lived assets, including intangible assets and goodwill, for impairment
annually or more frequently if changes in circumstances or the occurrence of events suggest the
remaining value may not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to
be generated by the assets. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets exceeds the fair
value of the assets. As of September 30, 2008 the Company has experienced a significant drop in
market capitalization. The Company has evaluated this change and feels at the current time that
the entire MRO market is down due to the general decline of the stock market and the economic
pressures related to fuel costs in the aerospace market place and that this is not a significant
drop of real value to the Company since MRO sales continue to increase for the Company. Management
reviews its goodwill and intangibles each year for impairment.
Note 10 Income Tax
On a quarterly basis, we estimate what our effective tax rate will be for the full fiscal year
and record a quarterly income tax provision based on the anticipated rate. As the year progresses,
we refine our estimate based on the facts and circumstances by each tax jurisdiction. The
effective tax rates for the quarters ended September 30, 2008
and 2007 were 41% and 27%,
respectively. The year to date effective tax rates for the three quarters ended September 30, 2008
and September 30, 2007 were 38% and 36%, respectively. The increase in the tax rate from 2007 is
primarily due to the timing/realization of federal research and
experimentation credits. The Company does not believe that it will be
eligible for these credits in 2008.
As
of December 31, 2007 the Company had $248,000 of unrecognized
tax benefits. At September 30, 2008 we had $143,000 of net uncertain tax benefit positions that would
reduce our effective income tax rate if recognized. The reduction in
the reserve related to the results of a federal tax audit for our
2005 and 2006 tax years. The remaining reserve relates to our
2007 and 2008 tax years and any interest and penalties that may
result from these tax years.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Background
Prior to our initial public offering on July 18, 2007, we operated as a wholly-owned
subsidiary of TAT Technologies. We were incorporated in Delaware on February 28, 2007 as a
successor to Limco-Airepair, Inc., which was incorporated as an Oklahoma corporation in 1995 upon
the merger of three aerospace companies that had been acquired by TAT Technologies from 1992
through 1995. Prior to the consolidation of Limco-Airepair, Inc. into our company, the Company
transferred all of its assets and liabilities associated with its Oklahoma operations to our
wholly-owned subsidiary, Limco-Airepair Inc., a newly formed Delaware corporation.
Prior to our acquisition of Piedmont in July 2005, our business was focused on providing MRO
services for heat transfer components. With the acquisition of Piedmont, we expanded the scope of
our MRO services to also include APUs, propellers and landing gear and added our parts services
business.
Our consolidated financial statements have been prepared on the historical cost basis and
present our financial position, results of operations and cash flows as derived from TAT
Technologies historical financial statements. TAT Technologies had historically provided us with
certain services including general and administrative services for employee benefit programs,
insurance, legal, treasury and tax compliance. Currently, TAT Technologies provides only certain insurance coverages that are then reimbursed
by the Company. The financial information included in our financial statements does not
necessarily reflect what our financial position and results of operations would have been had we
operated as a stand-alone entity during the periods covered, and may not be indicative of our
future operations or financial position.
Overview
We provide maintenance, repair and overhaul, or MRO, services and parts supply services to the
aerospace industry. Our four FAA certified repair stations provide aircraft component MRO services
for airlines, air cargo carriers, maintenance service centers and the military. We specialize in
MRO services for components of aircraft, such as heat transfer components, auxiliary power units,
or APUs, propellers, landing
16
gear and pneumatic ducting. In conjunction with our MRO services we
are also an original equipment manufacturer, or OEM, of heat transfer equipment for airplane
manufacturers and other selected related products. Our parts services division offers inventory
management and parts services for commercial, regional and charter airlines and business aircraft
owners.
MRO Services
We provide services for the components segment of the MRO services market. Our MRO services
segment includes the repair and overhaul of heat transfer components, APUs, propellers, landing
gear and pneumatic ducting, among other components. Generally, manufacturer specifications,
government regulations and military maintenance regimens require that aircraft components undergo
MRO servicing at regular intervals or as necessary. Aircraft components typically require MRO
services, including repairs and installation of replacement units, after three to five years of
service or sooner if required. Aircraft manufacturers typically provide warranties on new aircraft
and their components and subsystems, which may range from one to five years depending on the
bargaining power of the purchaser. Warranty claims are generally the responsibility of the OEM
during the warranty period. Our business opportunity usually begins upon the conclusion of the
warranty period for these components and subsystems.
We are licensed by Hamilton Sundstrand, a leading provider of aerospace products, to provide
MRO services for all of its air-to-air heat transfer products and by Honeywell Aerospace, or
Honeywell, a leading manufacturer of aerospace products and an aerospace services provider, to
provide MRO services for three of its APU models. Our repair stations are certified by the FAA and
the European Aviation Safety Agency, or EASA. In conjunction with our MRO services, we also
manufacture heat transfer equipment used in commercial, regional, business and military aircraft,
complete environmental control systems and cooling systems for electronics.
Parts Services
Our parts services division provides a number of services for commercial, regional and charter
airlines and business aircraft owners, including inventory management and parts services. We
presently assist several of these customers with their parts procurement needs by using our
knowledge of the aircraft component industry to quickly acquire necessary aircraft components in a
cost-effective manner. We have a knowledgeable and experienced staff of customer service
representatives and offer our customers 24 hour service and same day shipping. We currently supply
parts to approximately 500 commercial, regional and charter airlines and business aircraft owners.
17
Our management believes that our revenues and sources of revenues are among the key
performance indicators for our business. Our revenues from our two principal lines of business for
the three and nine months ended September 30, 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
|
(Revenues in thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MRO Services
|
|
$
|
14,054
|
|
|
|
74.6
|
%
|
|
$
|
12,831
|
|
|
|
77.1
|
%
|
|
$
|
40,264
|
|
|
|
75.1
|
%
|
|
$
|
37,877
|
|
|
|
69.0
|
%
|
Parts services
|
|
|
4,773
|
|
|
|
25.4
|
%
|
|
|
3,813
|
|
|
|
22.9
|
%
|
|
|
13,360
|
|
|
|
24.9
|
%
|
|
|
17,022
|
|
|
|
31.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
18,827
|
|
|
|
100.0
|
%
|
|
$
|
16,644
|
|
|
|
100.0
|
%
|
|
$
|
53,624
|
|
|
|
100.0
|
%
|
|
$
|
54,899
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reflects the geographic breakdown of our revenues for each of the three
month and nine month periods ended September 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
|
% of Total
|
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
|
(Revenues in thousands)
|
|
North America
|
|
$
|
13,179
|
|
|
|
70.0
|
%
|
|
$
|
10,290
|
|
|
|
61.8
|
%
|
|
$
|
37,464
|
|
|
|
69.9
|
%
|
|
$
|
38,580
|
|
|
|
70.3
|
%
|
Europe
|
|
|
3,845
|
|
|
|
20.4
|
%
|
|
|
4,608
|
|
|
|
27.7
|
%
|
|
|
10,524
|
|
|
|
19.6
|
%
|
|
|
11,540
|
|
|
|
21.0
|
%
|
Asia
|
|
|
650
|
|
|
|
3.5
|
%
|
|
|
694
|
|
|
|
4.2
|
%
|
|
|
2,428
|
|
|
|
4.5
|
%
|
|
|
1,636
|
|
|
|
3.0
|
%
|
Other
|
|
|
1,153
|
|
|
|
6.1
|
%
|
|
|
1,052
|
|
|
|
6.3
|
%
|
|
|
3,208
|
|
|
|
6.0
|
%
|
|
|
3,143
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,827
|
|
|
|
100.0
|
%
|
|
$
|
16,644
|
|
|
|
100.0
|
%
|
|
$
|
53,624
|
|
|
|
100.0
|
%
|
|
$
|
54,899
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Our cost of revenues for MRO services consists of component and material costs, direct labor
costs, shipping expenses, overhead related to manufacturing and depreciation of manufacturing
equipment. Our cost of revenues for parts services consists primarily of the cost of the parts and
shipping expenses. Our gross margin is affected by the proportion of our revenues generated from
MRO services (including the sale of OEM products) and parts services.
Selling and marketing expenses consist primarily of commission payments, compensation and
related expenses of our sales teams, attendance at trade shows and advertising expenses and related
costs.
18
General and administrative expenses consist of compensation and related expenses for
executive, finance, legal and administrative personnel, professional fees and other general
corporate expenses and related costs for facilities and equipment.
Critical Accounting Policies
The preparation of the financial statements in accordance with generally accepted accounting
principles in the United States, or GAAP, requires us to make estimates and assumptions that affect
the reported amounts of assets, liabilities, sales, costs and expenses and related disclosures.
Though we evaluate our estimates and assumptions on an ongoing basis, our actual results may differ
from these estimates. For a more detailed discussion of our critical accounting policies we refer
you to our 10K for the year ended December 31, 2007 and filed with the Securities and Exchange
Commission.
Results of Operations
The following table sets forth our statements of operations as a percentage of revenues for
the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MRO services
|
|
|
74.6
|
%
|
|
|
77.1
|
%
|
|
|
75.1
|
%
|
|
|
69.0
|
%
|
Parts services
|
|
|
25.4
|
%
|
|
|
22.9
|
%
|
|
|
24.9
|
%
|
|
|
31.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs and operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MRO services
|
|
|
59.0
|
%
|
|
|
56.1
|
%
|
|
|
59.4
|
%
|
|
|
47.8
|
%
|
Parts services
|
|
|
19.5
|
%
|
|
|
18.5
|
%
|
|
|
19.7
|
%
|
|
|
25.3
|
%
|
Selling and marketing
|
|
|
3.8
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
3.6
|
%
|
General and administrative
|
|
|
10.1
|
%
|
|
|
9.4
|
%
|
|
|
9.8
|
%
|
|
|
9.8
|
%
|
Amortization of intangibles
|
|
|
0.3
|
%
|
|
|
0.7
|
%
|
|
|
0.5
|
%
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
7.3
|
%
|
|
|
11.3
|
%
|
|
|
6.6
|
%
|
|
|
12.9
|
%
|
Other income (expense), net
|
|
|
1.4
|
%
|
|
|
0.5
|
%
|
|
|
1.2
|
%
|
|
|
-0.3
|
%
|
Income taxes
|
|
|
3.6
|
%
|
|
|
2.8
|
%
|
|
|
3.0
|
%
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
5.1
|
%
|
|
|
9.0
|
%
|
|
|
4.8
|
%
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to revenues and the sources of our revenues, our management team views our gross
profit margin and the level of inventory compared to revenues as the key performance indicators in
assessing our companys financial condition and results of operations. Our management team believes
that the upward trend in our MRO revenues is reflective of an industry-wide increase in demand for
MRO services, and we currently expect that this trend will continue for the foreseeable future.
While our management team believes that demand for parts services will also continue to grow, this
segment is subject to a high degree of volatility because of the potential impact of large one time
parts purchases.
19
Three Months Ended September 30, 2008 Compared to the Three Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
Revenues
|
|
September 30, 2008
|
|
|
September 30, 2007
|
|
|
|
(in thousands)
|
|
MRO services
|
|
$
|
14,054
|
|
|
$
|
12,831
|
|
|
Parts services
|
|
|
4,773
|
|
|
|
3,813
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
18,827
|
|
|
$
|
16,644
|
|
|
|
|
|
|
|
|
Revenues.
Total revenues increased by $2.2 million, to $18.8 million for the three months
ended September 30, 2008 from $16.6 million for the three months ended September 30, 2007. The
increase in revenues was primarily attributable to steady MRO growth and moderate parts sales for
the quarter.
MRO Revenues. Revenues from MRO services increased by $1.3 million, to $14.1 million for the
three months ended September 30, 2008 from $12.8 million for the three months ended September 30,
2007. The organic growth in MRO services revenues for the three months ended September 30, 2008, is
a result of increased sales to historical customers and, to a lesser degree, sales to new
customers.
Parts Services. Parts services revenues increased by $960,000, to $4.8 million for the three
months ended September 30, 2008 from $3.8 million for the three months ended September 30, 2007.
This increase in sales is attributable to the sporadic sales environment for parts, as well as the
parts contracts that are in place.
|
|
|
|
|
|
|
|
|
Costs of revenues and operating expenses
|
|
September 30, 2008
|
|
|
September 30, 2007
|
|
|
|
(in thousands)
|
|
MRO services
|
|
$
|
11,099
|
|
|
$
|
9,342
|
|
Parts services
|
|
|
3,676
|
|
|
|
3,083
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
14,775
|
|
|
|
12,425
|
|
Selling and marketing
|
|
|
715
|
|
|
|
673
|
|
|
|
|
|
|
|
|
|
|
General and Administrative
|
|
|
1,909
|
|
|
|
1,552
|
|
Amortization of intangibles
|
|
|
54
|
|
|
|
119
|
|
|
|
|
|
|
Total operating costs
|
|
$
|
17,453
|
|
|
$
|
14,769
|
|
|
|
|
|
|
Operating income
|
|
$
|
1,374
|
|
|
$
|
1,875
|
|
Cost of revenues.
Cost of revenues increased by $2.4 million, to $14.8 million for the three
months ended September 30, 2008 from $12.4 million for the three months ended September 30, 2007.
Contributing to the increase in cost of revenues for MRO services was an increase in sales volume,
raw material costs, labor costs and a $250,000 increase in the companys reserve for inventory.
This reserve is related to the current economic climate and certain slow moving inventory. Cost of
revenues for parts services increased by $593,000 to $3.7 million for the three months ended
September 30, 2008 from $3.1 million for the three months ended September 30, 2007, principally as
a result of higher volumes during the three months ended September, 30, 2008.
Selling and marketing expenses
. Selling and marketing expenses increased by $42,000 to
$715,000 for the three months ended September 30, 2008 from $673,000 for the three months ended
September 30, 2007. The increase in selling and marketing
expenses is primarily attributable to commissions paid on increased
MRO revenues.
20
General and administrative expenses.
General and administrative expenses increased by
$357,000 to $1.9 million for the three months ended September 30, 2008 from $1.6 million for the
three months ended September 30, 2007. The increase in general and administrative expenses is
primarily attributable to tax audit expenses of $60,000 and merger
and acquisition pursuit expenses of
$313,000 offset by the lack of phantom stock expense during this period as compared to last year.
Non-cash compensation expense was $72,000 and included in general and administrative expenses
during the third quarter of 2008 compared to $170,000 in the third quarter of 2007.
Operating income
. Our operating income decreased by $501,000 thousand, to $1.4 million for
the three months ended September 30, 2008 from $1.9 million for the three months ended September
30, 2007. The decrease is attributable primarily to higher cost of sales and increased general and
administrative costs for the quarter.
|
|
|
|
|
|
|
|
|
Other income and expense
|
|
September 30, 2008
|
|
September 30, 2007
|
|
|
(in thousands)
|
Interest income
|
|
$
|
298
|
|
|
$
|
271
|
|
Interest and other expense
|
|
|
(40
|
)
|
|
|
(178
|
)
|
Provision for income taxes
|
|
|
675
|
|
|
|
538
|
|
Net Income
|
|
$
|
957
|
|
|
$
|
1,430
|
|
Interest
income.
Interest income increased by $27,000 to $298,000 for the three months ended
September 30, 2008 from $271,000 for the three months ended September 30, 2007, principally as a
result of an increase in the amount of funds held in interest bearing accounts and short term
investments following our initial public offering. We expect that our interest income for the
remainder of 2008 will remain that same as a result of the investment of a significant portion of
the proceeds of our initial public offering in short term investments.
Interest and other expense.
Interest and other expense was $40,000 for the three months
ended September 30, 2008 compared to $178,000 for the three months ended September 30, 2007. The
decrease in interest expense reflects our repayment of our outstanding indebtedness with a portion
of the proceeds of our initial public offering during 2007, offset by bank fees during 2008.
Income taxes.
Income taxes increased by $137,000, to $675,000 for the three months ended
September 30, 2008 from $538,000 for the three months ended September 30, 2007. The increase in
income tax expense is primarily attributable to additional permanent
tax differences and no tax research and development credit during the
three months ended September 30, 2008. The law allowing such credits for 2008 and 2009 was enacted on October 2, 2008, and the impact of
the 2008 credits will be recognized in our fourth quarter of 2008.
Nine Months Ended September 30, 2008 Compared to the Nine Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
Revenues
|
|
September 30, 2008
|
|
|
September 30, 2007
|
|
|
|
(in thousands)
|
|
MRO services
|
|
$
|
40,264
|
|
|
$
|
37,877
|
|
Parts services
|
|
|
13,360
|
|
|
|
17,022
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
53,624
|
|
|
$
|
54,899
|
|
Revenues.
Total revenues decreased by $1.3 million, to $53.6 million for the nine months
ended September 30, 2008 from $54.9 million for the nine months ended September 30, 2007. The
decrease in revenues was primarily attributable to a one-time parts sale to Viva Aerobus for $2.7 million
offset by growth in our MRO revenues and slower than anticipated parts sales.
21
Revenues from MRO services increased by $2.4 million, to $40.3 million for the nine months
ended September 30, 2008 from $37.9 million for the nine months ended September 30, 2007. The
organic growth in MRO services revenues for the nine months ended September 30, 2008, is a result
of increased sales to historical customers and, to a lesser degree, sales to new customers.
Parts services revenues decreased by $3.7 million, to $13.3 million for the nine months ended
September 30, 2008 from $17.0 million for the nine months ended September 30, 2007. The decrease in
parts sales is primarily attributable to a one-time purchase of $2.7 million during the first three
months of 2007 by Viva Aerobus, a Mexican airline and decreased purchases by existing customers.
|
|
|
|
|
|
|
|
|
Costs of Revenues and operating expenses
|
|
September 30, 2008
|
|
|
September 30, 2007
|
|
|
|
(in thousands)
|
|
MRO services
|
|
$
|
31,877
|
|
|
$
|
26,219
|
|
Parts services
|
|
|
10,570
|
|
|
|
13,897
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
42,447
|
|
|
|
40,116
|
|
Selling and marketing
|
|
|
2,141
|
|
|
|
1,975
|
|
|
|
|
|
|
|
|
|
|
General and Administrative
|
|
|
5,264
|
|
|
|
5,391
|
|
Amortization of intangibles
|
|
|
272
|
|
|
|
355
|
|
|
|
|
|
|
Total operating costs
|
|
$
|
50,124
|
|
|
$
|
47,837
|
|
|
|
|
|
|
Operating income
|
|
$
|
3,500
|
|
|
$
|
7,062
|
|
Cost of revenues.
Cost of revenues for MRO and Parts Services increased by $2.3 million, to
$42.4 million for the nine months ended September 30, 2008 from $40.1 million for the nine months
ended September 30, 2007. Contributing to the increase in cost of revenues for MRO services was the
increase in MRO sales, higher wages paid to our plant workers, an increase in our inventory reserve
of $250,000 related to the current economic climate and slow moving inventory. Cost of revenues
for parts services decreased by $3.3 million, to $10.6 million for the nine months ended September
30, 2008 from $13.9 million for the nine months ended September 30, 2007, principally as a result
of our decreased parts revenues and the one time sale to Viva Mexico during the first nine months
of 2007.
Selling and marketing expenses
. Selling and marketing expenses increased by $166,000 to $2.1
million for the nine months ended September 30, 2008 from $2.0 million for the nine months ended
September 30, 2007. The increase in selling and marketing
expenses is primarily attributable to increased commissions paid on
MRO revenues.
General and administrative expenses.
General and administrative expenses decreased by
$127,000, to $5.3 million for the nine months ended September 30, 2008 from $5.4 million for the
nine months ended September 30, 2007. The decrease in general and administrative expenses is
primarily attributable to a phantom stock expense for the Companys former CEO, that was recorded
during the nine months ended September 30, 2007 offset by tax
audit expenses of $60,000 and merger and
acquisition pursuit expenses of $313,000 during the period ended September 30, 2008. Non-cash
stock based compensation expense of $202,000 was included in general and administrative expenses
compared to $170,000 in the first nine months of 2007.
Operating income
. Our operating income decreased by $3.6 million, to $3.5 million for the
nine months ended September 30, 2008 from $7.1 million for the nine months ended September 30,
2007. The decrease is attributable primarily to lower sales revenues from parts due to a one-time
sale during the first quarter of 2007 and the other factors described above.
22
|
|
|
|
|
|
|
|
|
Other income and expense
|
|
September 30, 2008
|
|
September 30, 2007
|
|
|
(in thousands)
|
Interest income
|
|
$
|
756
|
|
|
$
|
542
|
|
Interest and other expense
|
|
$
|
(101
|
)
|
|
$
|
(719
|
)
|
Provision for income taxes
|
|
$
|
1,590
|
|
|
$
|
2,480
|
|
Net Income
|
|
$
|
2,565
|
|
|
$
|
4,405
|
|
Interest income.
Interest income increased by $214,000 to $756,000 for the nine months ended
September 30, 2008 from $542,000 for the nine months ended September 30, 2007, principally as a
result of these funds being held in investment accounts for the full nine months compared to a
relatively short period of time for the period ended September 30, 2007. We expect that our
interest income for the remainder of 2008 will remain the same as a result of the investment of a
significant portion of the proceeds of our initial public offering in short term investments.
Interest and other expense.
Interest and other expense was $101,000 for the nine months
ended September 30, 2008 compared to $719,000 for the nine months ended September 30, 2007. The
decrease in interest expense reflects our repayment of our outstanding indebtedness with a portion
of the proceeds of our initial public offering during 2007, offset by out bank processing fees
during both 2007 and 2008.
Income taxes.
Income taxes decreased by $890,000 thousand to $1.6 million for the nine
months ended September 30, 2008 from $2.5 million for the nine months ended September 30, 2007. The
decrease in income tax expense is primarily attributable to our lowered operating income and our
short-term tax free investments during this time, offset by a higher effective tax rate in 2008.
Liquidity and Capital Resources
As of September 30, 2008, we had cash and cash equivalents of $9.5 million, and short-term
investments of $21.1 million, consisting primarily of government and corporate bonds and auction
rate tax exempt securities. Our total working capital was approximately $54.3 million. Our
liquidity position resulted from the July 23, 2007, sale of 4,205,000 shares of common stock in our
initial public offering from which we received net proceeds of approximately $42 million.
Cash Flows
The following table summarizes our cash flows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(1,036
|
)
|
|
$
|
(2,196
|
)
|
Net cash provided by (used in) investing activities
|
|
|
5,456
|
|
|
|
(32,309
|
)
|
Net cash provided by (used in) financing activities
|
|
|
|
|
|
|
33,502
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
4,420
|
|
|
|
(1,003
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
5,039
|
|
|
|
4,309
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
9,459
|
|
|
$
|
3,306
|
|
|
|
|
|
|
|
|
23
Net cash used in operating activities was $1.0 million for the nine months ended September 30,
2008. This amount was primarily attributable to a $2.5 million increase in inventories required to
support the increase in MRO revenues and the ramp up for a new parts contract, a $3 million
increase in accounts receivable, a $294,000 decrease in amounts
payable to TAT Technologies for the
purchase of heat transfer components offset in part by $2.6 million in net income, a $628,000
increase in accounts payable and $935,000 of depreciation and amortization expense.
Net cash provided by investing activities was $5.5 million for the nine months ended September
30, 2008. We sold approximately $7.0 million in corporate and municipal bonds and auction rate
securities that were reinvested in money markets. We invested
$1.5 million for the purchase of property
and equipment, including test facilities for our APUs.
Net cash provided by financing activities was zero for the nine months ended September 30,
2008.
The following table summarizes our minimum contractual obligations and commercial commitments
as of September 30, 2008 and the effect we expect them to have on our liquidity and cash flow in
future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less
|
|
|
|
|
|
|
|
|
|
More
|
|
|
|
|
|
|
than
|
|
1-3
|
|
3-5
|
|
than 5
|
|
|
Total
|
|
Year
|
|
Years
|
|
Years
|
|
Years
|
|
|
(in thousands)
|
Operating lease
obligations
|
|
$
|
713
|
|
|
$
|
173
|
|
|
$
|
354
|
|
|
$
|
186
|
|
|
$
|
|
|
Deferred tax liability
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,128
|
|
|
$
|
173
|
|
|
$
|
354
|
|
|
$
|
186
|
|
|
$
|
415
|
|
As of September 30, 2008, our principal commitments consisted of obligations outstanding under
operating leases and our deferred tax liability. All of our long-term debt was repaid during 2007
with a portion of the proceeds of our initial public offering. We currently do not have significant
capital spending or purchase commitments. In the last three years, we have experienced substantial
increases in our expenditures as a result of the growth in our operations and personnel. We
anticipate that our cash resources will be used primarily to fund our operating activities, as well
as for capital expenditures and acquisitions.
Over the next 12 months, we expect cash flows from our operating activities, along with our
existing cash and cash equivalents and marketable securities, to be sufficient to fund our
operations. We intend to assess the need for a long-term line of credit, but do not believe that
the current lack of an external source of long-term liquidity will have a material adverse effect
on our business or results of operations.
24
Our future capital requirements will depend on many factors, including our rate of revenue
growth, the expansion of our selling and marketing activities, costs associated with expansion into
new markets, and the timing of the introduction of new products and services.
Seasonality
We believe that the growth of our business over the last two years has masked a historical
seasonal trend in the MRO services sector. Historically, we have seen many airlines decrease their
maintenance requirements in the peak air travel summer months and increase their maintenance
requirements in the winter months when air travel is not as great.
Off-balance sheet arrangements
As of September 30, 2008, we had no off-balance sheet arrangements as defined in Item
303(a)(4) of the SECs Regulation S-K.
Recent Accounting Pronouncements
For a discussion of applicable new accounting pronouncements see Note 8 to our Unaudited
Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Risks
Our exposure to foreign exchange risk primarily relates to our sales to offshore clients. We
do not believe that we currently have any significant direct foreign exchange risk since such sales
are denominated in dollars.
Investment Risk
We repaid our outstanding debt of $8 million as of September 30, 2007 that was due to our bank
and parent company with a portion of the proceeds of our initial public offering. We invested the
remaining net proceeds of the offering in corporate and government bonds and auction rate
securities that are tax exempt. Our results of operations and cash flows will be subject to
fluctuations due to changes in the interest rates applicable to our investments. We do not
presently intend to use interest rate derivative instruments to manage our exposure to interest
rate changes.
Item 4. Controls and Procedures
Our management, including our co-chief executive officers and chief financial officer,
evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act
Rule 13a-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q. Based
upon that evaluation, our co-chief executive officers and chief financial officer have concluded
that, as of such date, our disclosure controls and procedures were effective to ensure that
information required to be disclosed by our company in reports that we file under the Exchange Act
is recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms and that such information was made known to them by
others within the company, as appropriate to allow timely decisions regarding required disclosure.
25
All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective may not prevent or detect misstatements
and can provide only reasonable assurance with respect to financial statement preparation and
presentation. Also, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Changes in Internal Controls over Financial Reporting
There were no changes to our internal controls over financial reporting that occurred during
the period covered by this quarterly report on Form 10-Q that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial reporting.
26
PART II OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments to the legal proceedings disclosed under Part I, Item 3,
Legal Proceedings in our Annual Report on Form 10-K for the year ended December 31, 2007.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed under Part I, Item 1A, Risk
Factors in our Annual Report on Form 10-K for the year ended December 31, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We sold 4,205,000 of our shares of common stock in our initial public offering on July 19,
2007. The aggregate offering price of the shares sold was $46.3 million. The total expenses of
the offering were approximately $4.8 million. None of such expenses were paid directly or
indirectly to directors, officers, or persons owning 10% or more of any class of equity securities
of our company or to our affiliates. The net public offering proceeds to us, after deducting the
total expenses were approximately $41.5 million. Such proceeds have been used to repay
approximately $4.0 million in debt owed to TAT Technologies and $4.0 million in debt owed to Bank
Leumi USA, and $2.2 million was used for the purchase of capital equipment and inventory. The
remaining proceeds have been invested in cash, cash equivalents and short- term investments. As of
September 30, 2008, we had $9.5 million in cash and cash equivalents and $21.1 million in
short-term investments.
For more information on the use of proceeds from our initial public offering, see Liquidity
and Capital Resources and notes to our financial statements included in this report on Form 10-Q.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits
(a) Exhibits
|
|
|
31.1
|
|
Certification by Co-Chief Executive Officers Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification by Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification by Co-Chief Executive Officers Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Certification by Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
27
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
LIMCO-PIEDMONT INC.
(Registrant)
|
|
|
/s/ Robert Koch
|
|
|
Co-Chief Executive Officer
|
|
|
|
|
|
|
|
/s/ Udi Netivi
|
|
|
Co-Chief Executive Officer
|
|
|
|
|
|
/s/Carla Covey
|
|
|
Chief Financial Officer
|
|
Date:
November 7, 2008
28
Limco -Piedmont Inc. (MM) (NASDAQ:LIMC)
Historical Stock Chart
Von Sep 2024 bis Okt 2024
Limco -Piedmont Inc. (MM) (NASDAQ:LIMC)
Historical Stock Chart
Von Okt 2023 bis Okt 2024