Back to GetFilings.com
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 October 31, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For transition period from ________________ to _________________
0-16438
(Commission File Number)
NATIONAL TECHNICAL SYSTEMS, INC.
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-4134955
---------------------- ----------------------
(State of Incorporation) (IRS Employer
Identification number)
24007 Ventura Boulevard, Suite 200, Calabasas, California
---------------------------------------------------------
(Address of registrant's principal executive office)
(818) 591-0776 91302
----------------------------- ---------
(Registrant's telephone number) (Zip 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 the past 90 days.
YES [x] NO [ ]
The number of shares of common stock, no par value, outstanding as of
December 10, 2002 was 8,656,540.
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
October 31, 2002 (unaudited) and January 31, 2002 3
Unaudited Condensed Consolidated Statements of Income
For the Nine Months Ended October 31, 2002 and 2001 4
Unaudited Condensed Consolidated Statements of Operations
For the Three Months Ended October 31, 2002 and 2001 5
Unaudited Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended October 31, 2002 and 2001 6
Notes to the Unaudited Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION & SIGNATURE
Item 6. Exhibits and Reports on Form 8-K 18
2
PART I - FINANCIAL
ITEM 1. FINANCIAL STATEMENTS
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
October 31, January 31,
2002 2002
ASSETS (unaudited)
-----------------------------------
CURRENT ASSETS:
Cash $ 2,729,000 $ 3,783,000
Accounts receivable, less allowance for doubtful accounts
of $1,221,000 at October 31, 2002 and $1,099,000 at January 31, 2002 18,304,000 17,092,000
Income taxes receivable 402,000 183,000
Inventories 2,076,000 1,552,000
Deferred tax assets 1,016,000 1,158,000
Prepaid expenses 1,542,000 1,032,000
-----------------------------------
Total current assets 26,069,000 24,800,000
Property, plant and equipment, at cost 77,204,000 73,108,000
Less: accumulated depreciation (48,257,000) (44,819,000)
-----------------------------------
Net property, plant and equipment 28,947,000 28,289,000
Property held for sale - 544,000
Goodwill 870,000 870,000
Other assets 2,510,000 2,278,000
-----------------------------------
TOTAL ASSETS $ 58,396,000 $ 56,781,000
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 3,680,000 $ 3,276,000
Accrued expenses 3,470,000 2,829,000
Deferred income 436,000 497,000
Current installments of long-term debt 1,286,000 1,444,000
-----------------------------------
Total current liabilities 8,872,000 8,046,000
Long-term debt, excluding current installments 18,264,000 18,657,000
Deferred income taxes 4,131,000 3,682,000
Deferred compensation 856,000 783,000
Minority interest 120,000 136,000
SHAREHOLDERS' EQUITY:
Common stock, no par value. Authorized, 20,000,000 shares; issued and
outstanding, 8,657,000 as of October 31, 2002 and 8,667,000 as of January 31, 2002 12,498,000 12,517,000
Retained earnings 13,706,000 13,011,000
Accumulated other comprehensive income (51,000) (51,000)
-----------------------------------
Total shareholders' equity 26,153,000 25,477,000
-----------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 58,396,000 $ 56,781,000
===================================
See accompanying notes.
3
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Income
for Nine Months Ended October 31, 2002 and 2001
2002 2001
----------------------------------------
Net revenues $ 58,858,000 $ 56,496,000
Cost of sales 45,078,000 43,185,000
----------------------------------------
Gross profit 13,780,000 13,311,000
Selling, general and administrative expense 11,705,000 11,950,000
----------------------------------------
Operating income 2,075,000 1,361,000
Other income (expense):
Interest expense, net (925,000) (1,411,000)
Other 50,000 81,000
----------------------------------------
Total other expense (875,000) (1,330,000)
Income before income taxes and minority interest 1,200,000 31,000
Income taxes 521,000 13,000
----------------------------------------
Income before minority interest 679,000 18,000
Minority interest 16,000 -
----------------------------------------
Net income $ 695,000 $ 18,000
========================================
Net income per common share:
Basic $ $ 0.08 $ 0.00
========================================
Diluted $ $ 0.08 $ 0.00
========================================
Weighted average common shares outstanding 8,661,000 8,463,000
Dilutive effect of stock options 21,000 17,000
Weighted average common shares outstanding, ----------------------------------------
assuming dilution 8,682,000 8,480,000
========================================
See accompanying notes.
4
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
for Three Months Ended October 31, 2002 and 2001
2002 2001
----------------------------------------
Net revenues $ 21,180,000 $ 18,003,000
Cost of sales 16,660,000 14,102,000
----------------------------------------
Gross profit 4,520,000 3,901,000
Selling, general and administrative expense 4,024,000 3,766,000
----------------------------------------
Operating income 496,000 135,000
Other income (expense):
Interest expense, net (296,000) (450,000)
Other 15,000 72,000
----------------------------------------
Total other expense (281,000) (378,000)
Income (loss) before income taxes and minority interest 215,000 (243,000)
Income taxes 102,000 (96,000)
----------------------------------------
Income (loss) before minority interest 113,000 (147,000)
Minority interest 21,000 -
----------------------------------------
Net income (loss) $ 134,000 $ (147,000)
========================================
Net income (loss) per common share:
Basic $ 0.02 $ (0.02)
========================================
Diluted $ 0.02 $ (0.02)
========================================
Weighted average common shares outstanding 8,657,000 8,435,000
Dilutive effect of stock options 51,000 -
Weighted average common shares outstanding, ----------------------------------------
assuming dilution 8,708,000 8,435,000
========================================
See accompanying notes.
5
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended October 31, 2002 and 2001
2002 2001
---------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 695,000 $ 18,000
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 3,438,000 3,551,000
Provisions for losses on receivables 122,000 (7,000)
Undistributed earnings of affiliate (16,000) -
Deferred income taxes 591,000 12,000
Changes in assets and liabilities:
Accounts receivable (1,334,000) 3,913,000
Inventories (524,000) 422,000
Income taxes receivable (219,000) 242,000
Prepaid expenses (510,000) (716,000)
Other assets and goodwill (110,000) 298,000
Accounts payable 404,000 (1,736,000)
Accrued expenses 641,000 (348,000)
Deferred income (61,000) 591,000
Deferred compensation 73,000 25,000
---------------------------------
Net cash provided by operating activities 3,190,000 6,265,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,596,000) (2,321,000)
Investment in life insurance (122,000) (142,000)
Cash paid for acquisition (1,500,000) -
Sale of property 544,000 -
---------------------------------
Net cash used for investing activities (3,674,000) (2,463,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from current and long-term debt 2,729,000 2,568,000
Repayments of current and long-term debt (3,280,000) (5,179,000)
Common stock repurchase (19,000) (172,000)
---------------------------------
Net cash used by financing activities (570,000) (2,783,000)
---------------------------------
Effect of exchange rate changes on cash and cash equivalents - 8,000
---------------------------------
Net increase (decrease) in cash (1,054,000) 1,027,000
Beginning cash balance 3,783,000 3,344,000
---------------------------------
ENDING CASH BALANCE $ 2,729,000 $ 4,371,000
=================================
See accompanying notes
6
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
In accordance with instructions to Form 10-Q, the accompanying
consolidated financial statements and footnotes of National Technical
Systems, Inc. (NTS or the Company) have been condensed and, therefore, do
not contain all disclosures required by generally accepted accounting
principles. These statements should not be construed as representing pro
rata results of the Company's fiscal year and should be read in
conjunction with the financial statements and notes thereto included in
the Company's Form 10-K for the year ended January 31, 2002.
The statements presented as of and for the three and nine months ended
October 31, 2002 and 2001 are unaudited. In Management's opinion, all
adjustments have been made to present fairly the results of such unaudited
interim periods. All such adjustments are of a normal recurring nature.
The consolidated financial statements include the accounts of the Company
and its wholly owned and financially controlled subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain prior year amounts have been reclassified to
conform with the current year presentation.
2. Income Taxes
Income taxes for the interim periods are computed using the effective tax
rates estimated to be applicable for the full fiscal year.
3. Comprehensive Income
Accumulated other comprehensive income on the Company's Condensed
Consolidated Balance Sheets consists of cumulative equity adjustments from
foreign currency translation. During the nine and three months ending
October 31, 2002 comprehensive income was $695,000 and $134,000
respectively, which was equal to net income as there were no foreign
currency translation adjustments for such periods. During the nine and
three months ending October 31, 2001 comprehensive income (loss) was
$26,000 and ($130,000) respectively. The tax effect related to the foreign
currency translation adjustments is immaterial and has not been recognized
as part of comprehensive income or in accumulated other comprehensive
income.
4. Inventories
Inventories consist of accumulated costs applicable to uncompleted
contracts and are stated at actual cost which is not in excess of
estimated net realizable value.
5. Interest and Taxes
Cash paid for interest and taxes for the nine months ended October 31,
2002 was $1,897,000 and $111,000, respectively. Cash paid for interest and
taxes for the nine months ended October 31, 2001 was $1,383,000 and
$114,000 respectively.
6. Minority Interest
Minority interest in the Company's NQA, Inc. subsidiary is a result of 50%
of the stock of NQA, Inc. being issued to National Quality Assurance, Ltd.
Effective with fiscal 2002, profits and losses are allocated 51% to NTS,
and 49% to National Quality Assurance, Ltd. In fiscal 2001, profits and
losses were allocated 61% to NTS, and 39% to National Quality Assurance,
Ltd.
7
7. Stock Repurchase
On February 6, 2001, the Company's Board of Directors authorized the
repurchase of shares in the Company's common stock in open market
purchases. During fiscal year 2002, the Company repurchased 88,700 shares.
The Company's covenants with its new banks permit the use in fiscal 2003
of an additional maximum amount equal to 75% of the Company's net profit
for fiscal year 2002. As of October 31, 2002, the Company had purchased an
additional 10,700 shares at an average price of $1.73.
8. Earnings per share
Basic and diluted net income per common share is presented in conformity
with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share"(FAS 128) for all periods presented. In accordance with FAS 128,
basic earnings per share have been computed using the weighted average
number of shares of common stock outstanding during the year. Basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities.
9. Goodwill: Adoption of Statements 141 and 142
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
requires business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting, and broadens the
criteria for recording intangible assets apart from goodwill. Under SFAS
No. 142, goodwill and intangible assets that have indefinite useful lives
will no longer be amortized but will be tested at least annually for
impairment. The goodwill test for impairment consists of a two-step
process that begins with an estimation of the fair value of the reporting
unit. The first step of the test is a screen for potential impairment and
the second step measures the amount of impairment, if any. SFAS No. 142
requires an entity to complete the first step of the transitional goodwill
impairment test within six months of adopting the Statement. The first
step of the transitional goodwill impairment test includes a comparison of
the fair value of each reporting unit that has associated goodwill with
the carrying value of the reporting unit. The Company adopted SFAS No. 142
in the first quarter of fiscal 2003. In accordance with SFAS No. 142, the
Company identified two reporting units, the Engineering and Evaluation
unit and the Technical Staffing unit, which constitute components of its
business that include goodwill. The Company completed the first step of
the transitional goodwill impairment test as of February 1, 2002 and has
determined that the fair value of each of the reporting units exceeded the
reporting unit's carrying amount, and no impairment was indicated. There
have been no indications of any impairments through October 31, 2002.
As of October 31, 2002 and January 31, 2002, the Company had the following acquired intangible assets:
October 31, 2002 January 31, 2002
------------------------------------------- ------------------------------------------
Gross Net Estimated Gross Net Estimated
Carrying Accum. Carrying Useful Carrying Accum. Carrying Useful
Amount Amort. Amount Life Amount Amort. Amount Life
Intangible assets subject
to amortization:
Covenant not to compete 79,000 1,000 78,000 3 years - - -
============================== ================================
Intangible assets not
subject to amortization:
Goodwill 1,667,000 797,000 870,000 1,667,000 797,000 870,000
============================== ================================
8
Amortization expense for Intangible assets subject to amortization was
$1,100 and $0 for the three months ended October 31, 2002 and 2001
respectively, and $1,100 and $0 for the nine months ended October 31, 2002
and 2001, respectively.
The following table provides the Company's net income and net income per
share had the non-amortization provisions of SFAS No. 142 been adopted for
all periods presented:
October 31, October 31,
---------------------- ----------------------
2002 2001 2002 2001
---------------------- ----------------------
Net income, as reported $ 134,000 $(147,000) $ 695,000 $ 18,000
Add back: Goodwill amortization - 33,000 - 102,000
Related income tax effect - (15,000) - (43,000)
---------------------- ----------------------
Adjusted net income $ 134,000 $(129,000) $ 695,000 $ 77,000
====================== ======================
Net income per share:
Basic and diluted net income per common share,
as reported $ 0.02 $ (0.02) $ 0.08 $ 0.00
Add back: Goodwill amortization, net of related
income tax effect - - - 0.01
---------------------- ----------------------
Adjusted basic and diluted net income per common share $ 0.02 $ (0.02) $ 0.08 $ 0.01
====================== ======================
Amortization of goodwill for the full fiscal year 2002 was $133,000 before
income taxes.
10. Long-Lived Assets: Adoption of Statement 144
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which is effective for
fiscal years beginning after December 15, 2001. SFAS 144 supersedes FASB
Statement No. 121, "Accounting for the Impairment or Disposal of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
accounting and reporting provisions relating to the disposal of a segment
of a business of Accounting Principles Board Opinion No. 30. The Company
has adopted SFAS 144 beginning in the first quarter of fiscal year 2003.
The adoption had no impact on the Company's consolidated financial
position or results of operations.
11. On October 14, 2002, XXCAL, Inc., a wholly-owned subsidiary of Registrant
("XXCAL"), acquired substantially all of the U.S. assets and business of
the Information Technology Staffing Division of TRS Staffing Solutions
("TRS"), a New Hampshire corporation and wholly-owned subsidiary of Fluor
Corporation for a total purchase price of $1,579,000 consisting of the sum
of $1,500,000 paid in cash to several subsidiaries of Fluor Corporation
and $79,000 consisting of transaction related costs. $1,500,000 of the
initial purchase price of $1,579,000 has been allocated to fixed assets
consisting of furniture and equipment based on an initial estimate of the
respective fair values as of the date of acquisition and the remaining
balance of $79,000 was allocated to a covenant not to compete. The
acquired business has six offices serving approximately 50 customers with
more than 330 IT professionals. The results of operations of the acquired
business are included in the accompanying consolidated statement of
operations from October 14, 2002. By making this acquisition, the Company
intends to expand its presence and increase its opportunities in the
staffing industry.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters
addressed in this Item 2 contain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Such statements can be
identified by the use of forward-looking words such as "may", "will", "expect",
"anticipate", "intend", "estimate", "continue", "behave" and similar words.
Financial information contained herein, to the extent it is predictive of
financial condition and results of operations that would have occurred on the
basis of certain stated assumptions, may also be characterized as
forward-looking statements. Although forward-looking statements are based on
assumptions made, and information believed by management to be reasonable, no
assurance can be given that such statements will prove to be correct. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties occur, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated.
GENERAL
- -------
The Company is a diversified business-to-business services organization
that supplies technical services and solutions to a variety of industries
including aerospace, defense, automotive, nuclear, electronics, computers and
telecommunications. Through its wide range of testing facilities, staffing
solutions and certification services, the Company provides its customers a
market channel to sell their products globally and enhance their overall
competitiveness. NTS is accredited by numerous national and international
technical organizations which allows the Company to have its test data accepted
in most countries.
The Company operates in two segments: "Engineering & Evaluation" and
"Technical Staffing". The business of the Company is conducted by a number of
operating units, each with its own organization. Each segment is under the
direction of its own executive and operational management team.
The Engineering & Evaluation segment is one of the largest independent
conformity assessment and management system registration organizations in the
U.S., with facilities throughout the country, and Japan, serving a large variety
of high technology industries, including aerospace, defense, automotive,
nuclear, electronics, computers and telecommunications. This segment provides
highly trained technical personnel for product certification, product safety
testing and product evaluation to allow clients to sell their products in world
markets. In addition, it performs management registration and certification
services to ISO related standards.
The Technical Staffing segment provides a variety of staffing and
workforce management services and solutions, including contract services,
temporary and full time placements to meet its clients' information technology
("IT") and engineering service needs. The Company supplies professionals in
support of customers who need help-desk analysts and managers, relational
database administrators and developers, application and systems programmers,
configuration and project managers, engineering personnel and multiple levels of
system operations personnel.
10
The following discussion should be read in conjunction with the
consolidated quarterly financial statements and notes thereto. All information
is based upon operating results of National Technical Systems, Inc. for the nine
months ended October 31, 2002.
RESULTS OF OPERATIONS
- ---------------------
REVENUES
Nine months ended October 31, 2002 % Change 2001
-------------------------------------------
(Dollars in thousands)
Engineering & Evaluation $ 41,274 1.3% $ 40,751
Technical Staffing 17,584 11.7% 15,745
------------ ------------------
Total revenues $ 58,858 4.2% $ 56,496
============ ==================
For the nine months ended October 31, 2002, consolidated revenues increased by
$2,362,000 or 4.2% when compared to the same period in fiscal 2002.
Engineering & Evaluation:
- -------------------------
For the nine months ended October 31, 2002, Engineering and Evaluation revenues
increased by $523,000 or 1.3% when compared to the same period in fiscal 2002,
primarily due to an increase in the Company's traditional testing business and
revenues derived from the newly established Independent Test Laboratory (ITL)
program, offset by a decrease in business in the technology sector which
affected revenues in the computer testing and telecommunications markets.
Revenues were also affected by the shut down of the Largo, Florida facility
during the fourth quarter of the last fiscal year and the negative effect on
revenues caused by the new highway adjacent to our Santa Clarita facility as a
portion of the Company's land was taken by Eminent Domain for the new highway.
Technical Staffing:
- -------------------
For the nine months ended October 31, 2002, revenues in Technical Staffing
increased by $1,839,000 or 11.7% when compared to the same period in fiscal
2002, due to the acquisition of the ongoing information technology staffing and
engineering business of TRS Staffing Solutions which was effective on October
14, 2002.
GROSS PROFIT
Nine months ended October 31, 2002 % Change 2001
-------------------------------------------
(Dollars in thousands)
Engineering & Evaluation $ 10,490 8.8% $ 9,645
% to segment revenue 25.4% 23.7%
Technical Staffing 3,290 (10.3)% 3,666
% to segment revenue 18.7% 23.3%
------------- -----------------
Total $ 13,780 3.5% $ 13,311
============= =================
% to total revenue 23.4% 23.6%
Total gross profit for the nine months ended October 31, 2002 increased by
$469,000 or 3.5% when compared to the same period in fiscal 2002.
Engineering & Evaluation:
- -------------------------
For the nine months ended October 31, 2002, gross profit for the Engineering &
Evaluation Group increased by $845,000 or 8.8% when compared to the same period
in fiscal 2002, primarily as a result of the increase in the Company's
traditional testing business and decreased costs as a result of streamlining
internal processes.
Technical Staffing:
- -------------------
For the nine months ended October 31, 2002, gross profit decreased by $376,000
or (10.3%) in the Technical Staffing Group when compared to the same period in
fiscal 2002. This decrease was primarily due to the competitive pricing
pressures in the staffing industry, which is forcing the company to lower its
prices in order to retain its existing customers and attract new customers.
Additionally, revenues from the newly acquired business have slightly lower
gross margin than the existing business.
11
SELLING, GENERAL & ADMINISTRATIVE
Nine months ended October 31, 2002 % Change 2001
-------------------------------------------
(Dollars in thousands)
Engineering & Evaluation $ 8,760 3.8% $ 8,441
% to segment revenue 21.2% 20.7%
Technical Staffing 2,945 (16.1)% 3,509
% to segment revenue 16.7% 22.3%
------------ ------------------
Total $ 11,705 (2.1)% $ 11,950
============ ==================
% to total revenue 19.9% 21.2%
Total selling, general and administrative expenses decreased 245,000 or (2.1%)
for the nine months ended October 31, 2002 when compared to the same period in
fiscal 2002.
Engineering & Evaluation:
- -------------------------
For the nine months ended October 31, 2002, selling, general and administrative
expenses increased by $319,000 or 3.8% when compared to the same period in
fiscal 2002, primarily due to training and consulting costs related to a number
of major initiatives undertaken by the Company to streamline internal processes,
restructure the sales organization and improve its technological capabilities.
Technical Staffing:
- -------------------
For the nine months ended October 31, 2002, selling, general and administrative
expenses decreased by $564,000 or (16.1%) when compared to the same period in
fiscal 2002, primarily due to the continued efforts by management to improve
efficiencies and control costs in all aspects of the Company's business. This
decrease was offset by additional expenses related to the acquisition which was
effective on October 14, 2002.
OPERATING INCOME
Nine months ended October 31, 2002 % Change 2001
------------------------------------------
(Dollars in thousands)
Engineering & Evaluation $ 1,730 43.7% $ 1,204
% to segment revenue 4.2% 3.0%
Technical Staffing 345 119.7% 157
% to segment revenue 2.0% 1.0%
------------ -----------------
Total $ 2,075 52.5% $ 1,361
============ =================
% to total revenue 3.5% 2.4%
Operating income for the nine months ended October 31, 2002 increased by
$714,000 or 52.5% when compared to fiscal 2002.
For the nine months ended October 31, 2002, operating income in the Engineering
& Evaluation Group increased by $526,000 or 43.7% when compared to the same
period in fiscal 2002, as a result of the increase in gross profit, partially
offset by a slight increase in selling, general and administrative expenses
discussed above.
For the nine months ended October 31, 2002, operating income in the Technical
Staffing Group increased by $188,000 or 119.7% when compared to the same period
in fiscal 2002, as a result of the decrease in selling and general and
administrative expenses discussed above, partially offset by the decrease in
gross profit discussed above.
12
INTEREST EXPENSE
Net interest expense decreased by $486,000 in the nine months ended October 31,
2002 when compared to the same period in fiscal 2002. This decrease was
principally due to lower average debt balances for the nine months ended October
31, 2002 and lower interest rate levels when compared to the same period last
year.
INCOME TAXES
The income tax provisional rate of 43.4% for the nine months ended October 31,
2002 reflects a rate in excess of the U.S. federal statutory rate primarily due
to the inclusion of state income taxes. This rate is based on the estimated
provision accrual for fiscal year ending January 31, 2003. Management has
determined that it is more likely than not that the deferred tax asset will be
realized on the basis of offsetting it against deferred tax liabilities. It is
the Company's intention to assess the need for a valuation account by evaluating
the realizability of the deferred tax asset quarterly based upon projected
future taxable income of the Company.
NET INCOME
The increase in net income for the nine months ended October 31, 2002, compared
to the same period in fiscal 2002, was primarily due to the higher gross profit,
lower selling and administrative expenses and lower interest expense.
The following information is based upon results for National Technical Systems,
Inc. for the three months ended October 31.
RESULTS OF OPERATIONS
- ---------------------
REVENUES
Three months ended October 31, 2002 % Change 2001
------------------------------------------
(Dollars in thousands)
Engineering & Evaluation $ 14,257 9.3% $ 13,045
Technical Staffing 6,923 39.6% 4,958
------------ -----------------
Total revenues $ 21,180 17.6% $ 18,003
============ =================
For the three months ended October 31, 2002, consolidated revenues increased by
$3,177,000 or 17.6% when compared to the same period in fiscal 2002.
Engineering & Evaluation:
- -------------------------
For the three months ended October 31, 2002, Engineering and Evaluation revenues
increased by $1,212,000 or 9.3% when compared to the same period in fiscal 2002,
primarily due to an increase in the Company's traditional testing business and
revenues derived from the newly established Independent Test Laboratory (ITL)
program.
Technical Staffing:
- -------------------
For the three months ended October 31, 2002, revenues in Technical Staffing
increased by $1,965,000 or 39.6% when compared to the same period in fiscal
2002, due to the acquisition of the ongoing information technology staffing and
engineering business of TRS Staffing Solutions, which was effective on October
14, 2002.
13
GROSS PROFIT
Three months ended October 31, 2002 % Change 2001
------------------------------------------
(Dollars in thousands)
Engineering & Evaluation $ 3,365 20.6% $ 2,791
% to segment revenue 23.6% 21.4%
Technical Staffing 1,155 4.1% 1,110
% to segment revenue 16.7% 22.4%
------------ -----------------
Total $ 4,520 15.9% $ 3,901
============ =================
% to total revenue 21.3% 21.7%
Total gross profit for the three months ended October 31, 2002 increased by
$619,000 or 15.9% when compared to the same period in fiscal 2002.
Engineering & Evaluation:
- -------------------------
For the three months ended October 31, 2002, gross profit for the Engineering &
Evaluation Group increased by $574,000 or 20.6% when compared to the same period
in fiscal 2002, primarily as a result of the increase in revenues discussed
above and streamlining internal processes.
Technical Staffing:
- -------------------
For the three months ended October 31, 2002, gross profit increased by $45,000
or 4.1% in the Technical Staffing Group when compared to the same period in
fiscal 2002 primarily due to the increase in revenues discussed above, largely
offset by slightly lower margins from high-volume accounts and the newly
acquired business.
SELLING, GENERAL & ADMINISTRATIVE
Three months ended October 31, 2002 % Change 2001
------------------------------------------
(Dollars in thousands)
Engineering & Evaluation $ 2,950 9.3% $ 2,698
% to segment revenue 20.7% 20.7%
Technical Staffing 1,074 0.6% 1,068
% to segment revenue 15.5% 21.5%
------------ -----------------
Total $ 4,024 6.9% $ 3,766
============ =================
% to total revenue 19.0% 20.9%
Total selling, general and administrative expenses increased $258,000 or 6.9%
for the three months ended October 31, 2002 when compared to the same period in
fiscal 2002.
Engineering & Evaluation:
- -------------------------
For the three months ended October 31, 2002, selling, general and administrative
expenses increased by $252,000 or 9.3% when compared to the same period in
fiscal 2002, primarily due to the Company's continued efforts to enhance its
sales and marketing programs to generate new business.
Technical Staffing:
- -------------------
For the three months ended October 31, 2002, selling, general and administrative
expenses increased by $6,000 or 0.6% when compared to the same period in fiscal
2002, primarily due to the additional expense from the newly acquired business
discussed above. However, this increase was largely offset by cost reduction
efforts and improved efficiencies that are helping reduce overall costs.
14
OPERATING INCOME
Three months ended October 31, 2002 % Change 2001
------------------------------------------
(Dollars in thousands)
Engineering & Evaluation $ 415 346.2% $ 93
% to segment revenue 2.9% 0.7%
Technical Staffing 81 92.9% 42
% to segment revenue 1.2% 0.8%
------------ -----------------
Total $ 496 267.4% $ 135
============ =================
% to total revenue 2.3% 0.7%
Operating income for the three months ended October 31, 2002 increased by
$361,000 or 267.4% when compared to fiscal 2002.
For the three months ended October 31, 2002, operating income in the Engineering
& Evaluation Group increased by $322,000 or 346.2% when compared to the same
period in fiscal 2002, as a result of the increase in gross profit partially
offset by the increase in selling and general and administrative expenses
discussed above.
For the three months ended October 31, 2002, operating income in the Technical
Staffing Group increased by $39,000 or 92.9% when compared to the same period in
fiscal 2002, primarily as a result of the increase gross profit partially offset
by a slight increase in selling and general and administrative expenses.
INTEREST EXPENSE
Net interest expense decreased by $154,000 in the three months ended October 31,
2002 when compared to the same period in fiscal 2002. This decrease was
principally due to lower average debt balances for the three months ended
October 31, 2002 and lower interest rate levels when compared to the same period
last year.
INCOME TAXES
The income tax provisional rate of 47.4% for the three months ended October 31,
2002 reflects a rate in excess of the U.S. federal statutory rate primarily due
to the inclusion of state income taxes. This rate is based on the estimated
provision accrual for fiscal year ending January 31, 2003. Management has
determined that it is more likely than not that the deferred tax asset will be
realized on the basis of offsetting it against deferred tax liabilities. It is
the Company's intention to assess the need for a valuation account by evaluating
the realizability of the deferred tax asset quarterly based upon projected
future taxable income of the Company.
NET INCOME
The increase in net income for the three months ended October 31, 2002, compared
to the same period in fiscal 2002, was primarily due to the higher gross profit
and lower interest expense, partially offset by higher selling and
administrative expenses.
BUSINESS ENVIRONMENT
Engineering & Evaluation:
- -------------------------
The Company's basic service is to provide product certification, product safety
testing and product evaluation to ensure its clients' products meet established
specifications or standards. In recent years, domestic and worldwide political
and economic developments have significantly affected the markets for defense
and advanced technology systems. Homeland security and defeating terrorism are
among the Department of Defense's main initiatives. Budget increases are
projected for operational readiness spending as well as research and development
spending.
15
The Company has realized a significant increase in sales at its
military/aerospace facilities since the September 11, 2001 catastrophe. The
Company's Santa Clarita facility, its largest military/aerospace facility, has,
however, experienced a decline in sales during this period, following
construction of a public highway immediately adjacent to the Santa Clarita
facility. The highway, which overlooks the Santa Clarita facility, has
heightened the concerns of customers who require testing of sensitive programs
and has caused certain customers to stop using the facility for those programs.
A portion of the highway was built on real property taken from the Company by
eminent domain. NTS is seeking, through the legal process, appropriate
compensation for the taking of the Company's property. If sufficient
compensation is awarded, NTS will utilize same to implement mitigating measures
which NTS hopes will enable the Company to continue operations at this facility
using most of its capabilities. In an effort to maintain the economic viability
of the facility, several new capabilities have been added which include fuel
cell testing, upgraded acoustical testing, clean environment satellite testing
and installation of a high-pressure air system.
Growth for the balance of the year will be dependent on overall economic
conditions and the increases in research and development spending in the
aerospace, defense and telecommunication industries.
Technical Staffing:
- -------------------
The Company provides a variety of staffing and workforce management services and
solutions, including contract, contract-to-hire and full time placements to
meet its clients' needs. One of the strategies for growth is to extend the
offering of the Company's services to its Engineering & Evaluation clients and
provide technical and engineering personnel as a complete suite of
certification, registration and test services. The goal is to offer a complete
solution to the clients' product development needs, which will include
consultants and technical experts provided by the staffing segment.
Notwithstanding the foregoing, and because of factors affecting the Company's
operating results, past financial performance should not be considered to be a
reliable indicator of future performance.
16
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended October 31, 2002, cash provided by operations
decreased by $3,075,000 when compared to the same period in fiscal 2002. This
decrease was primarily due to an increase in accounts receivables and
inventories, and a decrease in deferred income, partially offset by increases in
net income and decreases in accrued expenses.
Net cash used in investing activities in the nine-month period ended October 31,
2002 increased by $1,211,000 when compared to the same period in fiscal 2002,
primarily due to cash paid for an acquisition, partially offset by the sale of
property, during the nine-month period ended October 31, 2002.
In the nine-month period ended October 31, 2002, net cash used by financing
activities decreased by $2,213,000 over the same period in fiscal 2002. Net cash
used by financing activities consisted of the repayment of lines of credit and
short term and long term debt of $3,280,000 and repurchase of common stock of
$19,000, partially offset by proceeds from lines of credit and term loans of
$2,729,000.
The Company had a credit agreement with United California Bank (formerly Sanwa
Bank California), as agent, and Mellon Bank, which included (1) a $10,000,000
revolving line of credit at an interest rate equal to the agent bank's reference
rate expiring November 1, 2002 and (2) a $6,500,000 term loan at an interest
rate of 8.31% expiring in January 2003. In September 2001, the line of Credit
was reduced to $9,700,000. On November 21, 2001, the Company replaced the
outstanding debt to United California Bank and Mellon Bank with a $16,000,000
reducing revolving line of credit with Comerica Bank California and First Bank,
expiring on August 1, 2004. On November 25, 2002, the Company amended the
revolving line of credit with Comerica Bank California and First Bank increasing
it to $20,000,000. Comerica Bank California, as the agent Bank, is sharing 60%
of the line with First Bank, as the participant Bank, sharing 40% of the line.
The revolving line of credit will be reduced by $1,750,000 on August 1, 2003 and
each year thereafter. If during any fiscal year, the Company's net income equals
or exceeds $2,000,000, there will be no required reduction in the revolving line
of credit. The interest rate is at the agent bank's prime rate, with an option
for the Company to convert to loans at the Libor rate plus 250 basis points for
30, 60, 90, 180 or 365 days, with minimum advances of $1,000,000. The Company
paid a 0.5% commitment fee of the total line amount and is paying an additional
0.25% of the commitment amount annually and a 0.25% fee for any unused line of
credit. The outstanding balance on the revolving line of credit at October 31,
2002 was $12,702,000. This balance is reflected in the accompanying consolidated
balance sheets as long-term. This agreement is subject to certain covenants,
which require the maintenance of certain working capital, debt-to-equity,
earnings-to-expense and cash flow ratios. The Company was in full compliance
with all of the covenants with its banks as of October 31, 2002.
The Company has additional equipment line of credit agreements (at interest
rates of 6.02 % to 10.25%) to finance various test equipment with terms of 60
months for each equipment schedule. The outstanding balance at October 31, 2002
was $2,887,000.
At October 31, 2002, the balance of other notes payable collateralized by land
and building was $3,444,000, and the balance of unsecured notes was $517,000.
17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.16 - Amendment number two to revolving credit agreement
between NTS and Comerica Bank effective November 25, 2002.
99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Form 8-K
During the quarter ended October 31, 2002 the registrant did not
file a current report on Form 8-K.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL TECHNICAL SYSTEMS, INC.
Date: December 12, 2002 By: /s/ Lloyd Blonder
------------------- --------------------------------
Lloyd Blonder
Senior Vice President
Chief Financial Officer
(Signing on behalf of the
registrant and as principal
financial officer)
18
CERTIFICATION
I, Jack Lin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of National Technical
Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
/s/ Jack Lin
-----------------------
Jack Lin
Chief Executive Officer
December 12, 2002
19
CERTIFICATION
I, Lloyd Blonder, certify that:
1. I have reviewed this quarterly report on Form 10-Q of National Technical
Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
/s/ Lloyd Blonder
------------------------
Lloyd Blonder
Chief Financial Officer
December 12, 2002
20
Exhibit 10.16
AMENDMENT NUMBER TWO TO REVOLVING CREDIT AGREEMENT
This AMENDMENT NUMBER TWO TO REVOLVING CREDIT AGREEMENT (this
"Amendment"), dated as of November 25, 2002, is entered into among NATIONAL
TECHNICAL SYSTEMS, INC., a California corporation ("Parent"), NTS TECHNICAL
SYSTEMS, a California corporation, dba National Technical Systems ("NTS"),
XXCAL, INC., a California corporation ("XXCAL"), APPROVED ENGINEERING TEST
LABORATORIES, INC., a California corporation ("AETL"), ETCR, INC., a California
corporation ("ETCR"), ACTON ENVIRONMENTAL TESTING CORPORATION, a Massachusetts
corporation ("Acton"), and one or more Subsidiaries of Parent, whether now
existing or hereafter acquired or formed, which become party to the Agreement
(as defined below) by executing an Addendum in the form of Exhibit 1 of the
Agreement (NTS, XXCAL, AETL, ATCR, Acton and such other Subsidiaries are
sometimes individually referred to herein as a "Subsidiary Borrower" and
collectively referred to herein as "Subsidiary Borrowers", and Subsidiary
Borrowers and Parent are sometimes individually referred to herein as a
"Borrower" and collectively referred to herein as "Borrowers"), the financial
institutions from time to time parties hereto as Lenders, whether by execution
hereof or an Assignment and Acceptance in accordance with Section 11.5(c) of the
Agreement, and Comerica Bank - California, in its capacity as contractual
representative for itself and the other Lenders ("Agent"), with reference to the
following facts:
A. Borrowers, Agent and Lenders previously entered into that certain
Revolving Credit Agreement, dated as of November 21, 2001, as amended by that
certain Amendment Number One to Revolving Credit Agreement, dated as of July 17,
2002 (as amended, the "Agreement");
B. Borrowers, Agent and Lenders desire to amend the Agreement in
accordance with the terms of this Amendment.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
hereby agree as follows:
Defined Terms. All initially capitalized terms used but not defined herein
shall have the meanings assigned to such terms in the Agreement.
Amendments to Section 1.1. The definition of "Total Credit" set forth in
Section 1.1 of the Agreement is hereby amended in its entirety as follows:
"Total Credit" means, initially, Twenty Million Dollars
($20,000,000), as may be reduced from time to time pursuant to Section 2.14, and
also reduced by One Million Seven Hundred Fifty Thousand Dollars ($1,750,000)
effective August 1, 2003 and each year thereafter, if the Consolidated Adjusted
Net Income for the most recent fiscal year is less than Two Million Dollars
($2,000,000)."
Amendments to Section 2.15(c). Section 2.15(c) is hereby amended in its
entirety as follows:
"(c) Borrowers shall pay to Agent for the ratable account of the
Lenders an annual facility fee (the "Facility Fee") in an amount equal to the
result of (i) the Total Credit as in effect on November 30 of the current year
multiplied by (ii) one quarter of one percent (0.25%); provided, however, if the
Revolving Loans Maturity Date shall occur within 12 months of November 30 of the
current year, then Borrowers shall pay a Facility Fee in an amount equal to the
result of (i) the Total Credit as in effect on November 30 of the current year
multiplied by (ii) one quarter of one percent (0.25%) multiplied by the result
of (x) the number of months (or fractions thereof) from November 30 of the
current year through and including the Revolving Loans Maturity Date divided by
(y) 12. The Facility Fee shall be fully earned and non-refundable, and shall be
due and payable on November 30 of each year."
21
Amendments to Section 7.15(c). Section 7.15(c) is hereby amended in its
entirety as follows:
"(c) the Quick Ratio, measured as of the end of each month, at any
time to be less than 0.85:1.0." Replacement of Schedule 1.1C. Schedule 1.1C of
the Agreement is hereby amended in its entirety and replaced with the Schedule
1.1C attached hereto and incorporated hereby.
Conditions Precedent to Effectiveness of Amendment. The effectiveness of
this Amendment is subject to and contingent upon the fulfillment of each and
every one of the following conditions:
Agent shall have received, for the pro rata account of Lenders, a
line increase fee equal to $13,750,
Agent shall have received this Amendment, duly executed by
Borrowers, Lenders and Agent;
No Event of Default, Unmatured Event of Default or Material Adverse
Effect shall have occurred; and
All of the representations and warranties set forth herein, in the
Loan Documents and in the Agreement shall be true, complete and accurate in all
respects as of the date hereof (except for representations and warranties which
are expressly stated to be true and correct as of the Closing Date).
Representations and Warranties. In order to induce Agent and Lenders to
enter into this Amendment, each Borrower hereby represents and warrants to Agent
and Lenders that:
No Event of Default or Unmatured Event of Default is continuing;
All of the representations and warranties set forth in the Agreement
and the Loan Documents are true, complete and accurate in all respects (except
for representations and warranties which are expressly stated to be true and
correct as of the Closing Date); and
This Amendment has been duly executed and delivered by Borrowers,
and after giving effect to this Amendment, the Agreement and the Loan Documents
continue to constitute the legal, valid and binding agreements and obligations
of Borrowers, enforceable in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency, and similar laws and
equitable principles affecting the enforcement of creditors' rights generally.
Counterparts; Telefacsimile Execution. This Amendment may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Amendment. Delivery of an executed counterpart of this Amendment by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Amendment. Any party delivering an executed counterpart of
this Amendment by telefacsimile also shall deliver a manually executed
counterpart of this Amendment but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Amendment.
Integration. The Agreement as amended by this Amendment constitutes the
entire agreement and understanding between the parties hereto with respect to
the subject matter hereof and thereof, and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof and thereof.
Reaffirmation of the Agreement. The Agreement as amended hereby and the
other Loan Documents remain in full force and effect.
[Remainder of page intentionally left blank.]
22
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Amendment as of the date first hereinabove written.
NATIONAL TECHNICAL SYSTEMS, INC.
By /s/ Lloyd Blonder
----------------------------------------------------------------
Lloyd Blonder, Senior Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
NTS TECHNICAL SYSTEMS dba
NATIONAL TECHNICAL SYSTEMS
By /s/ Lloyd Blonder
----------------------------------------------------------------
Lloyd Blonder, Senior Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
XXCAL, INC.
By /s/ Lloyd Blonder
----------------------------------------------------------------
Lloyd Blonder, Vice President, Treasurer and Assistant Secretary
APPROVED ENGINEERING TEST LABORATORIES, INC.
By /s/ Lloyd Blonder
----------------------------------------------------------------
Lloyd Blonder, Vice President, Treasurer and Assistant Secretary
ETCR, INC.
By /s/ Lloyd Blonder
----------------------------------------------------------------
Lloyd Blonder, Vice President, Treasurer and Assistant Secretary
ACTON ENVIRONMENTAL TESTING CORPORATION
By /s/ Lloyd Blonder
----------------------------------------------------------------
Lloyd Blonder, Vice President, Treasurer and Assistant Secretary
23
COMERICA BANK-CALIFORNIA, in its capacities as Agent, Issuing
Lender and a Lender
By /s/ Jason D. Brown
----------------------------------------------------------------
Jason D. Brown, Vice President
FIRST BANK & TRUST, in its capacity as a Lender
By
----------------------------------------
Name
-------------------------------------
Title
-------------------------------------
24
Schedule 1.1C
-------------
Schedule of Commitments
- --------------------------------------------------------------------------------
Revolving Loan Lender Revolving Credit Commitment Revolving Credit
Commitment Percentage
- --------------------------------------------------------------------------------
Comerica $12,000,000(1) 60%
First Bank & Trust $8,000,000(2) 40%
- --------------------------------------------------------------------------------
- --------
(1) As may be reduced from time to time pursuant to Section 2.14, and also
reduced by $1,050,000 effective August 1, 2003 and each year thereafter, if the
Consolidated Net Income for the most recent fiscal year is less than Two Million
Dollars ($2,000,000).
(2) As may be reduced from time to time pursuant to Section 2.14, and also
reduced by $700,000 effective August 1, 2003 and each year thereafter, if the
Consolidated Net Income for the most recent fiscal year is less than Two Million
Dollars ($2,000,000).
25
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of NATIONAL TECHNICAL SYSTEMS, INC. (the
"Company") on Form 10-Q for the period ending October 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Jack
Lin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Jack Lin
-----------------------
Jack Lin
Chief Executive Officer
December 12, 2002
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of NATIONAL TECHNICAL SYSTEMS, INC (the
"Company") on Form 10-Q for the period ending October 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Lloyd
Blonder, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Lloyd Blonder
------------------------
Lloyd Blonder
Chief Financial Officer
December 12, 2002
26