FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 25,2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No. 1-10655
ENVIRONMENTAL TECTONICS CORPORATION
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1714256
-------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization Identification No.)
COUNTY LINE INDUSTRIAL PARK
SOUTHAMPTON, PENNSYLVANIA 18966
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(215) 355-9100
----------------------------------------------------
(Registrant's telephone number, including area code)
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 at least the past 90 days.
Yes x No
------- -------
The number of shares outstanding of the registrant's common stock as of
July 9, 2001 is: 7,141,864
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Environmental Tectonics Corporation
Consolidated Income Statements
(unaudited)
Three months ended:
---------------------------
May 25, May 26,
2001 2000
------------ ------------
(thousands, except share and
per share information)
Net Sales $ 8,340 $ 7,157
Cost of goods sold 5,647 3,802
------- -------
Gross profit 2,693 3,355
------- -------
Operating expenses:
Selling and administrative 2,076 1,658
Research and development 168 175
------- -------
2,244 1,833
------- -------
Operating income 449 1,522
------- -------
Other expenses:
Interest expense 258 192
Other, net 33 (21)
------- -------
291 171
------- -------
Income before income taxes 158 1,351
Provision for/(benefit from)
income taxes (61) 467
------- -------
Income before minority interest 219 884
Income (loss) attributable to
minority interest (5) 2
------- --------
Net income $ 224 $ 882
======= ========
Per share information:
Income available to common
shareholders $ 224 $ 882
Income per share: basic $ 0.03 $ 0.13
Income per share: diluted $ 0.03 $ 0.12
Number of shares: basic 7,139,000 7,035,000
Number of shares: diluted 7,557,000 7,534,000
The accompanying notes are an integral part of
the consolidated financial statements.
2
Environmental Tectonics Corporation
Consolidated Balance Sheets
May 25, February 23,
2001 2001
-------------------------
unaudited
---------
(amounts in thousands,
except share information)
Assets
Current assets:
Cash and cash equivalents $ 572 $ 851
Cash equivalents restricted for letters of credit 196 544
Accounts receivable, net 16,482 16,776
Costs and estimated earnings in excess of billings on
uncompleted long-term contracts 11,254 9,595
Inventories 5,554 4,624
Deferred tax asset 615 615
Prepaid expenses and other current assets 752 423
------- -------
35,425 33,428
Property, plant and equipment, at cost, net of accumulated depreci-
ation of $8,789 at May 25, 2001 and $8,635 at Feb. 23, 2001 5,657 5,337
Software development costs, net of accumulated amortization of
$5,784 at May 25, 2001 and $5,670 at February 23, 2001 1,200 1,191
Other assets 743 749
------- -------
Total assets $43,025 $40,705
======= =======
Liabilities and Stockholders' Equity
Liabilities
Current liabilities:
Current portion of long-term obligations $ 290 $ 643
Accounts payable - trade 2,344 1,929
Billings in excess of costs and estimated earnings on
uncompleted long-term contracts 353 1,712
Customer deposits 2,116 1,443
Accrued income taxes 626 754
Accrued liabilities 1,927 1,877
------- -------
Total current liabilities 7,656 8,358
------- -------
Long-term debt, less current portion:
Credit facility payable to banks 10,478 7,564
Long-Term Bonds, net 4,920 5,195
Other 16 19
------- -------
15,414 12,778
Deferred income taxes 674 674
------- -------
Total liabilities 23,744 21,810
------- -------
Minority interest 94 99
Stockholders' Equity
Common stock; $.05 par value; 20,000,000 shares authorized;
7,138,796 and 7,110,546 issued and outstanding at
May 25, 2001 and February 23, 2001, respectively 358 355
Capital contributed in excess of par value of common stock 6,682 6,514
Accumulated other comprehensive income (230) (226)
Retained earnings 12,377 12,153
------- -------
Total stockholders' equity 19,187 18,796
------- -------
Total liabilities and stockholders' equity $43,025 $40,705
======= =======
The accompanying notes are an integral part of
the consolidated financial statements.
3
Environmental Tectonics Corporation
Consolidated Statements of Cash Flows
(unaudited)
Three months ended
May 25, May 26,
2001 2000
------- -------
(amounts in thousands)
Cash flows from operating activities:
Net income $ 224 $ 882
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 307 336
Provision for losses on accounts receivable and inventories 27 (167)
Minority interest 5 3
Changes in operating assets and liabilities:
Accounts receivable 294 (67)
Costs and estimated earnings in excess of billings on
uncompleted long-term contracts (1,659) (1,225)
Inventories (957) (1,293)
Prepaid expenses and other assets (329) (141)
Other assets 47 (23)
Accounts payable 415 (572)
Billings in excess of costs and estimated earnings on
uncompleted long-term contracts (1,359) (1,250)
Customer deposits 673 -
Accrued income taxes (128) 446
Other accrued liabilities 32 (371)
Payments under settlement agreements - (30)
------- -------
Net cash used in operating activities (2,408) (3,472)
------- -------
Cash flows from investing activities:
Acquisition of equipment (474) (293)
Capitalized software development costs (123) (50)
Purchase of subsidiary, net - 195
------ -------
Net cash used in investing activities (597) (148)
Cash flows from financing activities:
Net borrowings(payments)under credit facility 2,914 (1,523)
Proceeds from long-term bonds - 5,470
Deferred financing costs (80) (175)
Decrease/(Increase) in cash equivalents, restricted 348 (1,210)
Proceeds from issuance of common stock/warrants 171 598
Capital leases/other (631) (12)
------- -------
Net cash provided by financing activities 2,722 3,148
------- -------
Effect of exchange rate changes on cash 4 6
------- --------
Net decrease in cash and cash equivalents (279) (466)
Cash and cash equivalents at beginning of period 851 1,725
------- --------
Cash and cash equivalents at end of period $ 572 $ 1,259
======= ========
Supplemental schedule of cash flow information:
Interest paid 234 141
Income taxes paid 193 36
The accompanying notes are an integral part of
the consolidated financial statements.
4
Environmental Tectonics Corporation
Notes to Consolidated Financial Statements
(amounts in dollars, except where noted and
share and per share information)
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Environmental Tectonics Corporation ("ETC" or the "Company"), its wholly-owned
subsidiaries ETC International Corporation, Entertainment Technology
Corporation, and ETC Europe, and its majority-owned subsidiary ETC-PZL Aerospace
Industries, Ltd. ("ETC-PZL").
The accompanying consolidated financial statements have been prepared by
Environmental Tectonics Corporation, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and reflect all
adjustments which, in the opinion of management, are necessary for a fair
statement of the results for the interim periods presented. All such adjustments
are of a normal recurring nature.
Certain information in footnote disclosures normally included in financial
statements prepared in conformity with accounting principles generally accepted
in the United States of America has been condensed or omitted pursuant to such
rules and regulations and the financial results for the period presented may not
be indicative of the full year's results, although the Company believes the
disclosures are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended February 23, 2001. Certain reclassifications have been made to
the 2000 financial statements to conform to the 2001 presentation.
2. Earnings per Share
Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted average common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised and converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. The following table
demonstrates the components of basic and diluted earnings per share for the
three month periods ended May 25, 2001 and May 26, 2000.
5
(amounts in thousands, except
share and per share information)
Three months ended:
------------------------------
May 25, May 26,
2001 2000
----------- ----------
Net income $224 $882
Income available to common
stockholders $224 $882
========= =========
Basic earnings per share:
Weighted average shares 7,139,000 7,035,000
Per share amount $0.03 $0.13
========= =========
Diluted earnings per share:
Weighted average shares 7,139,000 7,035,000
Effect of dilutive securities:
Stock options 104,000 181,000
Stock warrants 314,000 318,000
--------- ---------
7,557,000 7,534,000
Per share amount $0.03 $0.12
========= =========
3. Accounts Receivable
The components of accounts receivable are as follows:
May 25, February 23,
2000 2001
-------- ------------
(amounts in thousands)
U.S. Government receivables billed and unbilled contract costs
subject to negotiation $ 6,366 $ 5,707
U.S. commercial receivables billed 2,537 2,484
International receivables billed and unbilled contract costs
subject to negotiation 7,949 8,955
------- -------
16,852 17,146
Less allowance for doubtful accounts (370) (370)
------- --------
$16,482 $ 16,776
======= ========
U.S. Government receivables billed and unbilled contract costs subject to
negotiation:
Unbilled contract costs subject to negotiation primarily represent claims
made or to be made against the U.S. Government under a contract for a
centrifuge. These costs were recorded beginning in fiscal year 1994, including
$1,148,000 recorded during the three months ended May 26, 2000. The Company has
recorded claims, amounting to $3,898,000 to the extent of contract costs
incurred, and accounts receivable of $1,649,000 representing the balance due
under the contract. Claim costs have been incurred in connection with U.S.
Government caused delays, errors in specifications and designs, and other
unanticipated causes and may not be received in full during
6
fiscal 2002. In conformity with accounting principles generally accepted in the
United States of America, revenue recorded by the Company from a claim does not
exceed the incurred contract costs related to the claim. The Company currently
has approximately $12,000,000 in claims filed with the U.S. Government
(including the aforementioned recorded claim and accounts receivable balances),
which are subject to negotiation and audit by the U.S. Government. The U.S.
Government has responded to the claims with either denials or deemed denials
that the Company has appealed. In May 2000, the Company and the U.S. Government
had reached an agreement in principle which would have included resolution of
all U.S. Navy claims on a global basis and contracted additional work on the
centrifuge. In July 2000, the Company received notice that the Navy, citing an
inability to obtain the prerequisite approvals and thus the necessary funding to
effect the settlement, was rescinding the agreement.
International receivables and unbilled contract costs subject to negotiation:
International receivables billed include $929,000 related to a certain
contract with the Royal Thai Air Force.
In October 1993, the Company was notified by the Royal Thai Air Force
("RTAF") that the RTAF was terminating a certain $4,600,000 simulator contract
with the Company. Although the Company had performed in excess of 90% of the
contract, the RTAF alleged a failure to completely perform. In connection with
this termination, the RTAF made a call on a $229,000 performance bond, as well
as a draw on an approximately $1,100,000 advance payment letter of credit. Work
under this contract had stopped while under arbitration, but on October 1, 1996,
the Thai Trade Arbitration Counsel rendered its decision under which the
contract was reinstated in full and the Company was given a period of nine
months to complete the remainder of the work. Except as noted in the award, the
rights and obligations of the parties remained as per the original contract
including the potential invoking of penalties or termination of the contract for
delay. On December 22, 1997, the Company successfully performed acceptance
testing and the unit passed with no discrepancy reports. Although the contract
was not completed in the time allotted, the Company has requested an extension
on the completion time due to various extenuating circumstances, including
allowable "force majeure" events, one of which was a delay in obtaining an
export license to ship parts required to complete the trainers. The balance due
on the contract is still under review and at this point the Company is not able
to determine what, if any, impact the extended completion period will have upon
the receipt of final payment. However, the
7
Company recently received notification that the RTAF Directorate of Finance had
received approval from the Ministry of Finance to release the performance bond
portion of the balance. The Company continues to pursue collection.
Unbilled contract costs subject to negotiation represent claims made or to
be made against an international customer for two contracts covering 1996 to the
present. Claims receivables and corresponding revenue aggregating $5,539,000
have been recorded, including $441,000 in the current quarter. Claim costs have
been incurred in connection with customer caused delays, errors in
specifications and designs, other out-of-scope items and exchange losses and may
not be received in full during fiscal 2002. In conformity with accounting
principles generally accepted in the United States of America, revenue recorded
by the Company from a claim does not exceed the incurred contract costs related
to the claim. The Company has submitted a claim for one of the contracts to the
customer and has also submitted to the customer requests for equitable contract
price adjustments on the other contract. The Company predicts it will have to
ultimately begin legal proceedings in the United Kingdom against the customer.
As a related item, during the third quarter of fiscal 2000, the aforementioned
international customer, citing failure to deliver product within contract terms,
assessed liquidated damages totalling approximately $1,600,000 on two contracts
currently in progress. The Company disputes the basis for these liquidated
damages and plans to contest them vigorously. However, following generally
accepted accounting principles, the Company has reduced contract values and
corresponding revenue recognition by approximately $1,600,000.
4. Inventories
Inventories are valued at the lower of cost or market using the first in,
first out (FIFO) method and consist of the following (net of reserves):
May 25, February 23,
2001 2001
------------ ------------
(amounts in thousands)
Raw materials $ 392 $ 359
Work in Process 5,162 4,265
------ ------
$5,554 $4,624
5. Stockholders' Equity
The components of stockholders' equity at May 25, 2001, and February 23,
2001 were as follows:
8
(amounts in thousands, except share information)
Common Stock Accumulated
------------------ Additional other comp. Retained
Shares Amount Capital income Earnings Total
--------- ------ ---------- -------- -------- --------
Balance, February 23,
2001 7,110,546 $355 $6,514 $(226) $12,153 $18,796
Net income for the three
month period ended
May 25, 2001 - - - - 224 224
Other comprehensive loss - - - (4) - (4)
-------- ----- ------ ------- ------- -----
Total comprehensive income - - - (4) - 220
Shares issued in con-
nection with employee
stock option plans 28,250 3 168 - - 171
--------- ----- ------ ------- -------- -----
Balance at May 25,
2001 7,138,796 $358 $6,682 $(230) $12,377 $19,187
========= ==== ====== ===== ======= =======
6. Business Segment Presentation:
The Company primarily manufactures under contract various types of
high-technology equipment, which it has designed and developed. The Company
considers its business activities to be divided into two segments: Aircrew
Training Systems (ATS) and Industrial Simulation. The ATS business segment
produces devices which create and monitor the physiological effects of motion,
including spatial disorientation and centrifugal forces for the medical,
training, research and entertainment markets. The Industrial Group produces
chambers that create environments that are used for sterilization, research, and
medical applications. The following segment information reflects the accrual
basis of accounting:
Industrial
ATS Group Total
---------- ---------- ----------
(amounts in thousands)
Three months ended
May 25, 2001
-------------------
Net Sales $5,545 $2,795 $8,340
Interest Expense 214 44 258
Deprec. And Amort. 220 87 307
Operating Income/(loss) (49) 693 644
Income Tax Prov/(benefit) 108 (124) (16)
Identifiable Assets 28,575 5,915 34,490
Expend. For Seg. Assets
9
Industrial
ATS Group Total
---------- ---------- ----------
(amounts in thousands)
Three months ended
May 26,2000
-------------------
Net Sales $5,776 $1,381 $ 7,157
Interest Expense 119 33 152
Deprec. And Amort. 242 94 336
Operating Income 1,977 (259) 1,718
Income Tax Prov. 650 (102) 548
Identifiable Assets 21,992 5,116 27,108
Expend. For Seg. Assets 182 42 224
Reconciliation to 2001 2000
consolidated amounts ------ ------
Segment operating income $ 644 $1,718
Less interest expense (258) (152)
Less income taxes (16) (548)
----- -----
Total profit for segments $ 370 $1,018
Corporate home off. exps. (185) (196)
Interest and other exps. (33) ( 19)
Income tax benefit 77 81
Minority interest (5) 2
----- ------
Net income $ 224 $ 882
===== ======
Segment operating income (loss) consists of net sales less applicable costs and
expenses related to those revenues. Unallocated general corporate expenses and
other miscellaneous fees have been excluded from total profit for segments.
General corporate expenses are primarily central administrative office expenses
including executive salaries, stockholders expenses and legal and accounting
fees. Other miscellaneous expenses include banking and letter of credit fees.
Property, plant and equipment are not identified with specific business segments
as these are common resources shared by all segments.
Approximately 48% of sales totaling $4,028,000 in the first quarter of fiscal
2002 were made to one domestic customer in the ATS segment. Approximately 31% of
sales totaling $2,237,000 in the first quarter of fiscal 2001 were made to two
international and one domestic customers in the ATS segment.
Included in the segment information for the first quarter of fiscal 2002 are
export sales of $2,834,000, none of which when aggregated by geographic area
exceeded 10% of total sales for the quarter. Sales to the US government and its
agencies aggregated $786,000 for the period.
10
Included in the segment information for the first quarter of fiscal 2001 are
export sales of $3,246,000. Of this amount, there are sales to or relating to
government accounts in Great Britain of $995,000. Sales to the US government and
its agencies aggregate $1,462,000 for the period.
7. Acquisitions
On September 9, 2000, the company purchased the assets of the "Pro-Pilot"
flight simulation game for $400,000 cash. The Company plans to develop a next
generation "Pro-Pilot 2000"tm game which will be marketed through the internet.
Also, this software can be integrated into the Company's General Aviation
Trainer product for commercial application.
On September 27, 2000, the Company purchased an additional 30% ownership
interest in ETC-PZL for $300,000 cash. With this purchase, the Company's
ownership interest increases to 95%. Also, in April 2001, the Company paid off
the $350,000 note issued with the original purchase of ETC-PZL in April 1998.
8. Recent Accounting Pronouncements
In January 2001, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity." SFAS No. 133 requires the recognition of all
derivative financial instruments as either assets or liabilities in the
Consolidated Balance Sheet, and the periodic adjustment of those instruments to
fair value. The classification of gains and losses resulting from changes in the
fair value of derivatives is dependent on the intended use of the derivative and
its resulting designation. Adjustments to reflect changes in fair values of
derivatives that are not considered highly effective hedges are reflected in
earnings. Adjustments to reflect changes in fair values of derivatives that are
considered highly effective hedges are either reflected in earnings and largely
offset by corresponding adjustments related to the fair values of the hedged
items, or reflected in other comprehensive income until the hedged transaction
matures and the entire transaction is recognized in earnings. The change in fair
value of the ineffective portion of a hedge is immediately recognized in
earnings. SFAS No. 133 is effective for all periods beginning after June 15,
1999. This effective date was later deferred to all periods beginning after June
15, 2000 by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement Number 133." The
adoption of SFAS No. 133 had no impact on the Company's consolidated financial
position or results of operations.
On June 29,2001, the Financial Accounting Standards Board (FASB) approved
for issuance Statement of Financial Accounting
11
Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and
Intangible Assets. Major provisions of these Statements are as follows: all
business combinations initiated after June 30, 2001 must use the purchase method
of accounting; the pooling of interest method of accounting is prohibited except
for transactions initiated before July 1,2001; intangible assets acquired in a
business combination must be recorded separately from goodwill if they arise
from contractual or other legal rights or are separable from the acquired entity
and can be sold, transferred, licensed, rented or exchanged, either individually
or as part of a related contract, asset or liability; goodwill and intangible
assets with indefinite lives are not amortized but are tested for impairment
annually, except in certain circumstances, and whenever there is an impairment
indicator; all acquired goodwill must be assigned to reporting units for
purposes of impairment testing and segment reporting; effective January 1, 2002,
goodwill will no longer be subject to amortization. Although it is still
reviewing the provisions of these Statements, management's preliminary
assessment is that these Statements will not have a material impact on the
Company's financial position or results of operations.
12
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
(amounts in dollars, except where noted
and share and per share amounts)
Results of Operations
Forward Looking Statements
Except for historical information, this report may be deemed to contain
"forward-looking" statements. The Company desires to avail itself of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") and is including this cautionary statement for the express purpose of
availing itself of the protection afforded by the act.
These forward-looking statements include statements with respect to the
Company's vision, mission, strategies, goals, beliefs, plans, objectives,
expectations, anticipations, estimates, intentions, financial condition, results
of operations, future performance and business of the Company, including but not
limited to, (I) projections of revenues, costs of raw materials, income or loss,
earnings or loss per share, capital expenditures, growth prospects, dividends,
the effect of currency fluctuations, capital structure and other financial
items, (ii)statements of plans and objectives of the Company or its management
or Board of Directors, including the introduction of new products, or estimates
or predictions of actions by customers, suppliers, competitors or regulating
authorities, (iii) statements of future economic performance, (iv)statements of
assumptions and other statements about the Company or its business, and
(v)statements preceded by, followed by or that include the words "may", "could",
"should", "pro-forma", "looking forward", "would", "believe", "expect",
"anticipate", "estimate", "intend", "plan", or similar expressions. These
forward-looking statements involve risks and uncertainties, which are subject to
change based on various important factors (some of which, in whole or in part,
are beyond the Company's control). The following factors, among others, could
cause the Company's financial performance to differ materially from the goals,
plans, objectives, intentions and expectations expressed in such forward-looking
statements: (1) the strength of the United States and global economies in
general and the strength of the regional and local economies in which the
Company conducts operations; (2) the effects of, and changes in, U.S. and
foreign governmental trade, monetary and fiscal policies and laws; (3) the
impact of domestic or foreign military or political conflicts and turmoil; (4)
the timely development of competitive new products and services by the Company
and the acceptance of such products and services by customers; (5) the
willingness of customers to substitute competitors' products and
13
services and vice versa; (6) the impact on operations of changes in U.S. and
governmental laws and public policy, including environmental regulations; (7)
the level of export sales impacted by export controls, changes in legal and
regulatory requirements; policy changes affecting the markets, changes in tax
laws and tariffs, exchange rate fluctuations, political and economic
instability, and accounts receivable collection; (8) technological changes;(9)
regulatory or judicial proceedings; (10) the impact of any current or future
litigation involving the Company; and (11) the success of the Company at
managing the risks involved in the foregoing.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
Three months ended May 25, 2001 compared to May 26, 2000.
The Company had net income of $224,000, or $.03 per share (diluted), versus
net income of $882,000 or $.12 per share (diluted), for the corresponding first
quarter of fiscal 2000. Sales for the quarter were $8,340,000, an increase of
$1,183,000 or 16.5%, over the corresponding prior period. Increases were
evidenced in most product areas, most significantly in Entertainment products,
which increased $2,787,000 or 224.5%. Providing a partial offset were decreased
total International sales for Aircrew Training Systems, which were down
$1,578,000 or 52.7%. Overall, domestic sales were up $2,141,000, or 87.4% from
the prior period, and represented 55.0% of the Company's total sales, up from
34.2% a year ago. Government sales decreased $676,000 or 46.2%, primarily
reflecting the booking in the prior period of $1,148,000 of government claims
revenue. International sales were down $283,000 or 8.7%, and represented 35.5%
of total sales, down from 38.9% in the prior period.
Gross profit dollars were down $662,000 from the prior period, as the
higher sales level was completely offset by a 14.7 percentage point drop in the
rate as a percent of sales to 32.2%. Contributing to the gross margin decrease
were reduced gross margins for ATS products and exchange losses of $405,000
booked on two contracts which are denominated in foreign currencies. Acting as a
partial offset was additional gross margin on the significantly increased
Entertainment sales.
Selling and administrative expenses increased $418,000 or 25.2%. This
increase reflected additional expenditures for commissions, claim costs and
salaries and benefits.
14
Research and development expenses were within $7,000 of the prior period
reflecting continued product development primarily in the Company's Turkish
Branch.
Interest and other fees were up $120,000 or 70.2% reflecting increased
borrowings albeit at a lower rate.
The Company's tax provision for the current quarter reflected an average
rate of 30% and a $100,000 research tax credit. The prior period rate
approximated the statutory rate of 35%.
Liquidity and Capital Resources
During the three-month period ended May 25,2001, the Company used
$2,408,000 for operating activities. This was primarily a result of an increase
in costs and estimated earnings in excess of billings on uncompleted long-term
contracts, an increase in inventories, and a decrease in billings in excess of
costs and estimated earnings on uncompleted long-term contracts. Versus last
year's corresponding period, net cash used in operating activities reflected a
decrease of $1,064,000.
Investment activities consisted of purchases for capital equipment and
capitalized software.
Financing activities consisted of bank borrowings and cash from a decrease
in restricted cash equivalents and the issuance of stock partially offset by a
mandatory repayment of $275,000 on long term bonds and the payment of a $350,000
note related to the original purchase of ETC-PZL. On May 21,2001, the Company
signed an amendment to its revolving credit agreement which modified the Funds
Flow Ratio loan covenants for the three fiscal quarters through November 23,
2001.
The Company's sales backlog at May 25, 2001, and February 23, 2001, for
work to be performed and revenue to be recognized under written agreements after
such dates was approximately $34,456,000 and $40,439,000 respectively. In
addition, the Company's training and maintenance contracts backlog at May 25,
2001, and February 23,2001, for work to be performed and revenue to be
recognized after that date under written agreements was approximately $1,501,000
and $1,347,000 respectively.
--------------------------
15
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
none
Item 2. Changes in Securities
The constituent instruments defining the rights of the holders of any class
of securities were not modified nor were the rights evidenced by any class of
registered securities materially limited or qualified during the period covered
by this report.
Item 3. Defaults Upon Senior Securities
No defaults occurred during the period covered in this report.
Item 4. Submission of Matters to Vote of Security Holders
none
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
None
16
Signatures
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: July 16, 2001 ENVIRONMENTAL TECTONICS CORPORATION
(Registrant)
By: /s/Duane Deaner
--------------------------------
Duane Deaner,
Chief Financial Officer
(authorized officer and
principal financial officer)
17
EXHIBIT INDEX
3.1 Articles of Incorporation (Incorporated herein by reference to Exhibit 3.1
to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended
February 28, 1997).
3.2 Bylaws (Incorporated herein by reference to Exhibit 3(ii) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
February 25, 1994).
18