ENVIRONMENTAL TECTONICS CORPORATION
ANNOUNCES SECOND QUARTER FISCAL 2005 RESULTS
Southampton, PA: October 13, 2004 - ENVIRONMENTAL TECTONICS CORPORATION ("THE
COMPANY") (AMEX: ETC) today announced financial results for the second quarter
of fiscal 2005.
For the second quarter of fiscal 2005, which ended on August 27, 2004,
the Company had a net loss of $1,984,000, or ($.26) per share (diluted), versus
a net loss of $622,000 or ($.09) per share (diluted) for the second quarter of
fiscal 2004. Sales for the second quarter of fiscal 2005 were $6,523,000, as
compared to $4,752,000 for the second quarter of fiscal 2004, an increase of
$1,771,000 or 37.3%, reflecting sales increases in all product lines except
sterilizers. The most significant increases occurred in the entertainment and
environmental areas. Entertainment experienced significant quarter-over-quarter
growth as new products were introduced to the market while the environmental
group benefited from increased domestic sales for automotive testing and
heating, ventilation and air conditioning (HVAC) applications.
Geographically, domestic sales for the second quarter of fiscal 2005
were $3,304,000, up $1,547,000 or 88.1% from the second quarter of fiscal 2004,
as all product lines except sterilizers and Aircrew Training Systems (ATS)
showed significant growth. Domestic sales represented 50.7% of the Company's
total sales for the second quarter of fiscal 2005, up from 37.0% for the second
quarter of fiscal 2004. U.S. Government sales for the second quarter of fiscal
2005 were $619,000 as compared to $330,000 in the second quarter of fiscal 2004.
International sales for the second quarter of fiscal 2005, including those made
by the Company's foreign subsidiaries, were $2,600,000, a decrease of $65,000 or
2.4% from international sales for the second quarter of fiscal 2004, and
represented 39.8% of total sales for the second quarter of fiscal 2005 as
compared to 56.1% for the second quarter of fiscal 2004.
Gross profit for the second quarter of fiscal 2005 was $1,021,000, as
compared to $1,786,000 for the second quarter of fiscal 2004, a decrease of
$765,000 or 42.8%. This decrease resulted from a 21.9 percentage point decrease
in the gross profit rate as a percent of sales partially offset by an increase
in sales volume. The quarter-to-quarter reduction resulted primarily from a
significantly reduced gross margin rate in the Pilot Training Systems group of
ATS, which comprised 41.0% of total sales for the second quarter of fiscal 2005.
This reduction reflected a budget cost increase for additional testing and an
extended installation period for a Southeast Asia centrifuge project and a sale
of a gyro to the Czech Republic at a cost in excess of sales value. The gyro
cost included additional new product development effort which was not covered by
customer payments.
Selling and Administrative Expenses for the second quarter of fiscal
2005 were up $890,000 from the second quarter of fiscal 2004 primarily
reflecting significantly higher costs associated with litigation and the
Company's ongoing contract claims activities.
SELECTED FINANCIAL DATA
(UNAUDITED)
(THOUSANDS, EXCEPT SHARE AND
PER SHARE INFORMATION)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
AUG. 27, 2004 AUG. 29, 2003 AUG. 27, 2004 AUG. 29, 2003
----------------- ----------------- ----------------- -----------------
Sales $6,523 $ 4,752 $12,698 $10,882
Gross profit $1,021 $ 1,786 $2,015 $ 4,073
Operating (loss)/income $(2,392) $ (395) $(4,037) $ 125
Pre-tax loss $(2,819) $ (862) $(4,893) $ (729)
Minority interest $ - $ 2 $(2) $ 6
Net loss $(1,984) $ (622) $(3,445) $ (552)
LOSS PER SHARE
Net loss applicable
to common shareholders $(1,984) $ (622) $ (3,445) $ (552)
Basic $(0.26) $(0.09) $ (0.45) $ (0.08)
Average shares 7,641,000 7,157,000 7,590,000 7,157,000
Diluted $(0.26) $(0.09) $ (0.45) $ (0.08)
Average shares 7,641,000 7,157,000 7,590,000 7,157,000
William F. Mitchell, ETC's President and Chairman, stated, "Although
our sales are up from the prior period, the volume and mix of sales has made it
very difficult for ETC to generate profits. The high cost of developing new
technology and applications in our ATS business, the difficult and costly
logistics of environmental projects in China, and the requirement to enhance our
objects and interactivity in our virtual reality software-based simulation
products are all factors that have placed pressure on our operating results.
"Economic conditions in both the domestic and international aeromedical
and flight training markets continue to be depressed. Although our quote log and
proposal effort has remained strong and we are currently in negotiations for two
major international contracts, signing the projects has remained a very
difficult task. However, there were some bright spots in the current quarter.
Our environmental business continued to be strong, especially domestically where
we have been successful in expanding our automotive testing chamber projects. In
the past year we opened a sales office in Detroit and significantly strengthened
our sales and installation staff for this group. In the entertainment field, we
have booked almost $1.9 million in orders this fiscal year and expect a strong
flow in the near term.
"It is difficult to underestimate the continuing worldwide effects of
the September 11, 2001 disaster on our aeromedical and pilot training business.
In addition to ongoing budget constraints and other global economic factors, we
now have to contend with anti-Western sentiment which has been used very
effectively by our competition.
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"Another difficulty which has impacted our ability to book new work has
been the negative effect on our reputation in the aeromedical field stemming
from a recent international centrifuge project which was resolved earlier this
year. Recent newspaper articles have misstated the facts surrounding the project
and its technology and the aeromedical field is a tight-knit group who share
information on projects throughout the world.
"We have taken a series of steps in reaction to world conditions. We
have instituted staffing and operating cost cutbacks while strengthening our
sales force. We have increased our volume in our environmental and entertainment
businesses and in our Polish subsidiary. We have aggressively reviewed all new
proposals with an eye to closely evaluating all risk factors and adjusted our
pricing accordingly. And we have instituted strict spending controls on all
outside attorney invoicing to ensure a tight focus on the important elements of
ongoing litigation.
"Next to our people, ETC's main asset continues to be our intellectual
property. This includes proprietary technologies, processes, manufacturing
techniques and software. Intellectual property rights is one of the major issues
in the current Disney litigation. While the current cost of staying ahead of the
technology curve is high, this strategy will ensure that ETC remains in its
unique position in our core business."
ETC designs, develops, installs and maintains aircrew training systems,
public entertainment systems, process simulation systems (sterilization and
environmental), clinical hyperbaric systems, environmental testing and
simulation systems, and related products for domestic and international
customers.
This press release may include forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E
of the Securities Exchange Act of 1934. We have based these forward-looking
statements on our current expectations and projections about future events.
These forward-looking statements are subject to known and unknown risks,
uncertainties and assumptions about the Company that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any other future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may",
"will", "should", "could", "would", "expect", "plan", "anticipate", "believe",
"estimate", "continue", or the negative of such terms or similar expressions.
Factors that might cause or contribute to such a discrepancy include, but are
not limited to, contract cancellations, failure to obtain new contracts,
political unrest in customer countries, unfavorable results in litigation,
general economic conditions, and those issues identified from time to time in
our Securities and Exchange Commission filings and other public documents,
including, without limitation, our Annual Report on Form 10-K for the fiscal
year ended February 27, 2004.
Contact: Duane D. Deaner, CFO TEL: 215-355-9100 (ext. 1203) FAX: 215-357-4000
ETC - INTERNET HOME PAGE: http://www.etcusa.com
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