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EXHIBIT 99.1
For Immediate Release
ETC Announces Financial Restructuring to Improve Earnings and Cash Flow
Southampton, PA, September 28, 2012: Environmental Tectonics Corporation ("ETC" or the "Company") (OTCQB: ETCC) today announced a financial restructuring, made possible by continued positive results and a strengthening balance sheet, to reduce its annual net cash payments for dividends and interest by approximately $1.5 million per year. The restructuring also reduces the number of participating preferred shares in the amount equivalent to 5,032,091 shares of Common Stock, or nearly 25% of the total outstanding common and participating shares, and is expected to have a positive impact on the Company’s earnings.
As part of this restructuring, the Company’s revolving line of credit with PNC Bank was reduced from $20 million to $15 million, while the term of the revolving line was extended twenty eight months to October 31, 2015. PNC Bank also provided a five-year term loan of $15 million. ETC used $10 million of the proceeds from the term loan to repurchase and retire 10,000 shares of 10% Preferred Stock, which was convertible to 5,032,091 shares of Common Stock. The revolving line of credit will no longer be guaranteed by H.F. Lenfest, one of the Company’s Directors and largest shareholder, and will instead be secured by substantially all of the Company’s assets. Mr. Lenfest will provide a guarantee on the new $15 million term-loan for a period of thirty months, after which his guarantee will be removed.
Following the close of the transaction, the dividends on the remaining Series E Preferred Stock will be reduced from ten percent (10%) to four percent (4%), subject to shareholder approval.
"Today's announcement represents a major accomplishment for ETC," said William F. Mitchell, Sr., ETC’s President and CEO. "This financial restructuring, including the repurchase and retirement of the Preferred Stock, is an indication of ETC’s growing financial strength over the last few years. This restructuring benefits our common shareholders by increasing income attributable to them and by significantly reducing the dilutive effect of the Preferred Stock being retired. We are very grateful for the support we have received from Mr. Lenfest over the last decade, and for his sharing of our vision for ETC’s technologies. Without Mr. Lenfest’s support it is unlikely that ETC would now be the leader it is in motion-based flight simulation. Once we complete our restructuring, we believe we will be in an excellent position to leverage the strength of the ETC brand, our deep customer relationships, and reputation for industry leading products to take advantage of improving market conditions and global growth opportunities."
About ETC
ETC designs, manufactures and sells software driven products and services used to recreate and monitor the physiological effects of motion on humans and equipment and to control, modify, simulate and measure environmental conditions. These products include aircrew training systems (aeromedical, tactical combat and general), disaster management training systems, sterilizers (steam and gas), environmental testing products and hyperbaric chambers and other products and services that involve similar manufacturing techniques and engineering technologies. ETC’s unique ability to offer complete systems, designed and produced to high technical standards, sets it apart from its competition. ETC is headquartered in Southampton, PA. For more information about ETC, visit http://www.etcusa.com/.
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Forward-looking Statements
Discussions of some of the matters contained in this press release may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, and, as such, may involve risks and uncertainties. ETC based these forward-looking statements on its current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about ETC and its subsidiaries that may cause actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. Accordingly, ETC cautions you not to place undue reliance on the forward-looking statements in this press release.
These forward-looking statements include statements with respect to the Company’s expectations, anticipations, and intentions, including, but not limited to, (i) projections of revenues, income, or loss, (ii) statements made about the benefits of the financial restructuring, future market conditions, and growth opportunities, and (iii) statements preceded by, followed by, or, that include, terminology such as ‘may,’ ‘will,’ ‘should,’ ‘expect,’ ‘plan,’ ‘anticipate,’ ‘believe,’ ‘estimate,’ ‘future,’ ‘predict,’ ‘potential,’ ‘intend,’ or ‘continue,’ and similar expressions. These forward-looking statements involve risks and uncertainties that are subject to change based on various important factors. Some of these risks and uncertainties, in whole or in part, are beyond the Company’s control. Shareholders are urged to carefully review these risks and the risks discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended February 24, 2012 under the caption ‘Item 1A. Risk Factors’ prior to making an investment in the Company’s Common Stock. The Company cautions that the foregoing list of factors that could affect forward-looking statements by ETC is not exclusive. Except as required by federal securities law, 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.
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Contact:
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Bob Laurent, CFO
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Phone:
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215-355-9100 (Ext. 1550)
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E-mail:
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rlaurent@etcusa.com
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- Financial Statements Follow -
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Pro Forma Financial Statements
Following are a pro forma summary of results for fiscal 2012 and fiscal 2013 first quarter, and a pro forma balance sheet as of May 25, 2012. The pro forma results for fiscal 2012 and fiscal 2013 Q1 are presented as though the refinancing and stock purchase transactions took place on February 26, 2011. The pro forma balance sheet is presented as though the transactions occurred on May 25, 2012.
Table A
ENVIRONMENTAL TECTONICS CORPORATION
SUMMARY TABLE OF RESULTS
(amounts in thousands, except per share information)
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Fiscal 2012
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Fiscal 2013 Q1
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As reported
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Pro forma
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As reported
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Pro forma
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Net sales
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$ | 66,294 | $ | 66,294 | $ | 16,070 | $ | 16,070 | ||||||||
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Cost of goods sold
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42,763 | 42,763 | 9,622 | 9,622 | ||||||||||||
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Gross profit
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$ | 23,531 | $ | 23,531 | $ | 6,448 | $ | 6,448 | ||||||||
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Gross profit margin %
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35.5 | % | 35.5 | % | 40.1 | % | 40.1 | % | ||||||||
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Selling and marketing expenses
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5,481 | 5,481 | 1,340 | 1,340 | ||||||||||||
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General and administrative expenses
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8,513 | 8,513 | 1,883 | 1,883 | ||||||||||||
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Research and development expenses
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1,400 | 1,400 | 310 | 310 | ||||||||||||
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Operating expenses
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15,394 | 15,394 | 3,533 | 3,533 | ||||||||||||
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Operating income
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$ | 8,137 | $ | 8,137 | $ | 2,915 | $ | 2,915 | ||||||||
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Operating margin %
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12.3 | % | 12.3 | % | 18.1 | % | 18.1 | % | ||||||||
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Interest expense, net
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734 | 954 | 214 | 269 | ||||||||||||
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Other (income) expense, net
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(85 | ) | (85 | ) | (3 | ) | (3 | ) | ||||||||
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Income before income taxes
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$ | 7,488 | $ | 7,268 | $ | 2,704 | $ | 2,649 | ||||||||
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Pre-tax income margin %
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11.3 | % | 11.0 | % | 16.8 | % | 16.5 | % | ||||||||
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Provision for income taxes
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2,620 | 2,543 | 1,014 | 993 | ||||||||||||
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Net income
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$ | 4,868 | $ | 4,725 | $ | 1,690 | $ | 1,656 | ||||||||
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Expense (income) attributable to non-controlling interest
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5 | 5 | 5 | 5 | ||||||||||||
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Net income attributable to ETC
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$ | 4,873 | $ | 4,730 | $ | 1,695 | $ | 1,661 | ||||||||
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Preferred Stock dividend
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(2,208 | ) | (484 | ) | (552 | ) | (121 | ) | ||||||||
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Income applicable to common and participating shareholders
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$ | 2,665 | $ | 4,246 | $ | 1,143 | $ | 1,540 | ||||||||
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Basic earnings per common and participating share:
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Distributed earnings per share:
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Common
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$ | - | $ | - | $ | - | $ | - | ||||||||
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Preferred
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$ | 0.20 | $ | 0.08 | $ | 0.05 | $ | 0.02 | ||||||||
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Undistributed earnings per share:
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Common
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$ | 0.13 | $ | 0.28 | $ | 0.06 | $ | 0.10 | ||||||||
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Preferred
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$ | 0.13 | $ | 0.28 | $ | 0.06 | $ | 0.10 | ||||||||
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Diluted earnings per share
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$ | 0.13 | $ | 0.27 | $ | 0.06 | $ | 0.10 | ||||||||
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Total basic weighted average common and participating shares
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20,209 | 15,177 | 20,231 | 15,199 | ||||||||||||
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Total diluted weighted average shares
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20,497 | 15,465 | 20,381 | 15,349 | ||||||||||||
The pro forma results reflect increased interest expense related to the new financing, offset in part, by lower fees paid on collateral and reduced taxes. They also reflect lower dividends as a result of fewer participating preferred shares outstanding and a reduction of dividends from 10% to 4% on the remaining participating preferred shares outstanding.
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Table B
ENVIRONMENTAL TECTONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share information)
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May 25,
2012
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May 25,
2012
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(As reported)
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(Pro forma)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$ | 3,344 | $ | 3,344 | ||||
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Restricted cash
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6,158 | 6,158 | ||||||
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Accounts receivable, net
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6,124 | 6,124 | ||||||
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Costs and estimated earnings in excess of billings on uncompleted long-term contracts
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23,247 | 23,247 | ||||||
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Inventories, net
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5,517 | 5,517 | ||||||
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Deferred tax assets, current
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4,206 | 4,206 | ||||||
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Prepaid expenses and other current assets
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1,121 | 1,121 | ||||||
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Total current assets
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49,717 | 49,717 | ||||||
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Property, plant, and equipment, net
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14,967 | 14,967 | ||||||
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Capitalized software development costs, net
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609 | 609 | ||||||
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Deferred tax assets, non-current, net
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3,194 | 3,194 | ||||||
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Other assets
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14 | 14 | ||||||
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Total assets
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$ | 68,501 | $ | 68,501 | ||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current liabilities:
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Current portion of long-term debt obligations
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$ | 108 | $ | 3,108 | ||||
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Accounts payable, trade
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5,151 | 5,151 | ||||||
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Billings in excess of costs and estimated earnings on uncompleted long-term contracts
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3,399 | 3,399 | ||||||
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Customer deposits
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4,526 | 4,526 | ||||||
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Accrued taxes
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394 | 394 | ||||||
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Accrued interest and dividends
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997 | 647 | ||||||
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Other accrued liabilities
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3,630 | 3,630 | ||||||
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Total current liabilities
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18,205 | 20,855 | ||||||
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Long-term debt obligations, less current portion:
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Credit facility payable to bank
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18,141 | 13,491 | ||||||
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Other long-term debt
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- | 12,000 | ||||||
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Total long-term debt obligations, less current portion
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18,141 | 25,491 | ||||||
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Total liabilities
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36,346 | 46,346 | ||||||
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Commitments and contingencies
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Shareholders’ equity:
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Cumulative convertible participating Preferred Stock, Series D, $0.05 par value, 11,000 shares authorized; 386 and 0 shares outstanding as reported and pro forma, respectively
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386 | - | ||||||
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Cumulative convertible participating Preferred Stock, Series E, $0.05 par value, 25,000 shares authorized; 21,741 and 12,127 shares outstanding as reported and pro forma, respectively
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21,741 | 12,127 | ||||||
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Common Stock, $0.05 par value, 50,000,000 shares authorized; 9,142,296 shares issued and outstanding as reported and pro forma
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457 | 457 | ||||||
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Additional paid-in capital
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9,884 | 9,884 | ||||||
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Accumulated other comprehensive loss
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(349 | ) | (349 | ) | ||||
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Retained earnings
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- | - | ||||||
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Total shareholders’ equity before non-controlling interest
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32,119 | 22,119 | ||||||
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Non-controlling interest
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36 | 36 | ||||||
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Total shareholders’ equity
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32,155 | 22,155 | ||||||
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Total liabilities and shareholders’ equity
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$ | 68,501 | $ | 68,501 | ||||
Pro forma balance sheet adjustments include (a) reduced borrowings under revolving credit facility by $5 million, (b) increasing debt ($3 million current and $12 million long-term) to reflect the new term loan, and (c) a reduction of Preferred Stock by $10 million.
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