News Release
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| ETC Announces Fourth Quarter and Fiscal 2006 Results |
| Southampton, PA: May 26, 2006 - Environmental Tectonics Corporation (AMEX:ETC) ("ETC" or the "Company") today announced financial results for the fiscal fourth quarter and year ended February 24, 2006.
For the fiscal fourth quarter of fiscal 2006, which ended on February 24, 2006, the Company had a net loss of $2,044,000, or ($0.23) per share (diluted) versus a net loss of $1,419,000 or ($0.18) per share (diluted) for the corresponding period of fiscal 2005. Sales for the fourth quarter of fiscal 2006 were $6,693,000, as compared to $7,365,000 for the fourth quarter of fiscal 2005, a decrease of $672,000, or 9.1%. A $2,006,000 or 30.0% decrease in our domestic operation was partially offset by a $1,410,000or 236.6% increase in the Company's Polish subsidiary, ETC-PZL. Product line reductions in ETC Southampton were evidenced in all products except sterilizers, most notably Aircrew Training Systems (ATS) down $1,128,000 or 30.4%, (revenue for the prior year's corresponding quarter included a significant claim settlement), hyperbaric down $655,000, 66.2%, and entertainment down $261,000 or 92.1%. The increase in ETC-PZL resulted from work under a contract with L-3 Communications for several F-16 aircraft flight simulators and other equipment for the Polish Air Force. Gross profit for the fourth quarter of fiscal 2006 decreased $1,276,000, or 50.6%, representing the sales decrease coupled with a 15.7 percentage point decrease in the rate as a percentage of sales. The gross profit decrease reflected the aforementioned impact of reduced claims sales and corresponding gross profit coupled with an increase in inventory reserves. Notwithstanding the impact of the claim settlement and the additional reserves, gross profit performance from the product lines actually increased in the current period both in dollars and as a percent of revenue representing improved performance in all product lines except hyperbaric and entertainment. Operating loss was $1,410,000 versus a loss of $336,000 for the prior period, reflecting the aforementioned gross margin decrease partially offset by a $192,000 reduction in selling and administrative expenses. For the fiscal year ended February 24, 2006, the Company experienced a net loss of $6,714,000 versus a net loss of $8,113,000 for fiscal 2005. Sales were $25,069,000, a decrease of $2,745,000 or 9.9% from fiscal 2005. The reduction reflected a significant ($7,041,000 or 26.3%) decrease in our domestic operation, ETC, which was only partially offset by a correspondingly significant ($4,417,000 or 577.4%) increase in ETC-PZL. Product line sales in ETC Southampton in the current period were down in all categories except sterilizers versus the prior period. The decrease in ATS sales in our domestic operation ($4,327,000 or 32.6%) reflected completion of a centrifuge device for Malaysia in the prior period and revenue for the aforementioned claim settlement. Hyperbaric was down reflecting a comparison to a prior period which included work on two large chambers destined for a Middle Eastern navy. Entertainment was down $1,168,000 or 85.6%, reflecting reduced sales of the Wild Earth amusement ride. The increase in sterilizers ($1,522,000 or 82.6%) primarily reflected increased sales for mid-size steam units. Geographically, domestic sales were $9,140,000, down $2,858,000, or 23.8%, from fiscal 2005, and represented 36.5% of total sales, down from 43.1% in fiscal 2005; primarily reflecting reduced activity for hyperbaric, entertainment and PTS. U.S. government sales decreased to $2,586,000, as compared to $2,904,000 in fiscal 2005, and represented 10.3% of total sales, down from 10.4% in fiscal 2005. International sales, including those in the Company's foreign subsidiaries, were $13,343,000, up $431,000 or 3.3%, and represented 53.2% of total sales, up from 46.4% in fiscal 2005, primarily reflecting significantly increased sales in ETC-PZL. Gross profit for fiscal 2006 decreased by $826,000 or 13.4% from fiscal 2005 reflecting the sales decrease and a slight (0.9 percentage point) decrease in the gross profit rate as a percent of sales. The dollar decrease primarily resulted from the aforementioned sales reductions in our domestic operation's PTS, Hyperbaric and entertainment product areas coupled with an increase in inventory reserves. The reduction in the rate as a percent of sales primarily reflected reduced margin performance in ETC-PZL and the impact of additional reserves as the margin rates for most product areas in our domestic operation were favorable versus the prior period, most significantly double digit increases in environmental, PTS and simulation. Acting as a partial offset was increased gross profit dollars at a slightly better rate for the sterilizer line. This improvement reflected the aforementioned significant increase in sales primarily for mid-sized steam units. Both PTS and simulation margin performance reflected continued additional product development costs, both to enhance functionality of existing products and to develop product extensions, which negatively impacted gross profit as these costs are primarily charged directly to the cost of sales for specific orders. Selling and administrative expenses decreased $2,825,000, or 22.7%, from fiscal 2005. The major difference during the periods was reduced legal and claim expenses. During fiscal 2005, we incurred significant legal costs and claims expenses to support an international claim which was settled on February 8, 2005. Acting as a partial offset were additional bad debt reserves. As a percentage of sales, selling and administrative expenses were 38.4% in fiscal 2006 compared to 44.8% in fiscal 2005. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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William F. Mitchell, ETC's President and Chairman, stated, "Although profits continued to elude ETC during Fiscal 2006, we did continue the evolution of our products and technologies, especially in the ATS and simulation product areas. "During fiscal 2006 our ATFS-400 flight training centrifuge was accepted by the Royal Malaysian Air Force at a ceremony at the new Subang Air base training facility close to Kuala Lumpur. This device was used by Malaysia to select the first Malaysian cosmonauts, one of which will be chosen to serve as a crewmember on the International Space Station in October 2007. We also began final assembly on our second ATFS-400 which will be used to support research and pilot and space flight training. We were able to expand the functionality of our Gyrolab line as we received significant orders from the Japanese Defense Agency for a GL-4000 and from a Middle Eastern customer for a GL-1500. "Our simulation line continued to expand their influence in the disaster management arena by contracting multiple training exercises for Baltimore/Washington International Airport (BWI) covering several different areas of airport disaster response including a security breach, a terriorism-related hazardous materials (HAZMAT) incident and airplane crash landings. They constructed an Advanced Disaster Management Simulator ADMS-Drive Airport Ground Vehicle Driving Simulator for the Metropolitan Nashville Airport Authority. Locally, they signed a contract with the Pennsylvania Southeast Region Counter-Terrorism Task Force (CTTF) to provide an ADMS-TEAM training system. In December 2005, the Netherlands National Institute for Fire Services and Disaster Management (NIBRA) passed their 10,000th student through the ADMS training course originally developed and installed by ETC. Earlier this year, our next generation 20-station ADMS System passed initial acceptance by the South Korean National Fire Academy. ADMS has also been successfully utilized to conduct training exercise at the National War College in Washington, DC, and the Port of Jacksonville, Florida. "In April of this year our Polish subsidiary, ETC-PZL, completed and delivered three F-16C Aircraft Simulator Cockpits and two Egress Procedure Trainers produced under a contract with L-3 Communications to support the Polish F-16C/D fighter aircraft purchase. ETC-PZL will install the simulators and procedure trainers, conduct control tests, train Polish Air Force personnel and provide maintenance support for all the devices. "Our most exciting initiative in the Company's history is the creation of the National AeroSpace Training and Research Center (NASTAR Center). This center, set to open in January 2007, will offer a complete range of aviation training and research support for military and civil aviation as well as space travel and tourism. The NASTAR Center will house state of the art equipment including the ATFS-400, GYROLAB GL-2000 Advanced Spatial Disorientation Trainer, Hypobaric Chamber and Night Vision and Night Vision Goggle Training System. These products represent 37 years of pioneering development and training solutions for the most rigorous stresses encountered during high performance aircraft flight including the effects of altitude exposure, High G exposure, spatial disorientation and escape from a disabled aircraft." "Having redeemed our long-term bonds in August 2005, the only debt we have on the balance sheet is due to H.F. 'Gerry' Lenfest, our Board member with whom we recently entered into an equity line agreement for up to $15 million in exchange for preferred stock. These funds will be utilized to support general operations and our major initiatives." "Although it has continued to be a difficult year for new contracts, I can assure you that we are doing everything possible to expand our book of business." | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Visit www.etcusa.com to learn more. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 24, 2006.