ETC Announces Fiscal 2015 Third Quarter Results

For Immediate Release

SOUTHAMPTON, PA, USA, January 30, 2015 - Environmental Tectonics Corporation (OTC Pink: ETCC) ("ETC" or the "Company") today reported its financial results for its fiscal 2015 third quarter ended November 28, 2015 (the "2015 third quarter") and the thirty-nine week period ended November 28, 2014 (the "2015 first three quarters").

Fiscal 2015 Third Quarter Results of Operations

Net (Loss) Income Attributable to ETC

Net loss attributable to ETC was $1.7 million, or $0.12 diluted loss per share, in the 2015 third quarter, compared to $136 thousand of net income attributable to ETC during the 2014 third quarter, equating to $0.00 diluted earnings per share. The $1.9 million variance reflects a decrease in income before income taxes of $3.2 million due to a $2.7 million decrease in gross profit, resulting from a combination of both lower net sales and lower gross profit margin percentage, as well as a $0.5 million increase in operating expenses. The $3.2 million decrease in income before income taxes was offset, in part, by a $1.3 million variance between the income tax benefit recorded in the 2015 third quarter and the income tax expense recorded in the 2014 third quarter.

Net Sales

Net sales in the 2015 third quarter were $7.8 million, a decrease of $4.5 million, or 36.5%, compared to 2014 third quarter net sales of $12.3 million. The reduction reflects decreased ATS and Environmental sales to the U.S. Government and decreased International sales in general, offset in part, by increased Domestic sales, especially within the Simulation business unit. Given the current progress made on U.S. Government contracts in the Company`s sales backlog, and increased International sales activity, the Company anticipates the concentration of sales to the U.S. Government will continue to lessen in fiscal 2015.

Gross Profit

Gross profit for the 2015 third quarter was $0.9 million compared to $3.6 million in the 2014 third quarter, a decrease of $2.7 million, or 74.5%. The significant decrease in gross profit was a combination of both lower net sales and lower gross profit margin percentage due to inefficiencies as a result of additional work required on several contracts, for which we are currently pursuing recovery. On April 24, 2014, we reached a favorable settlement agreement on the first of these recoveries that partially offset the effects of the additional work. Further, the Company is now in the testing phase with one of these contracts, and will shortly be in testing phase on another. Gross profit margin as a percentage of net sales decreased to 11.5% for the 2015 third quarter compared to 28.8% for the 2014 third quarter.

Operating Expenses

Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2015 third quarter were $3.5 million, an increase of $0.5 million, or 17.8%, compared to $3.0 million for the 2014 third quarter. The increase is the combined result of a one-time commission paid on a large International ILS contract, expenses related to the recently announced management transition, and a non-cash expense related to a change in the Company`s vacation policy.

Interest Expense, Net

Interest expense, net, for the 2015 third quarter was $180 thousand compared to $224 thousand in the 2014 third quarter, a decrease of $44 thousand, or 19.6%, due primarily to a lower level of bank borrowing.

Fiscal 2015 First Three Quarters Results of Operations

Net (Loss) Income Attributable to ETC

Net loss attributable to ETC was $2.9 million, or $0.21 diluted loss per share, in the 2015 first three quarters, compared to $0.3 million of net income attributable to ETC during the 2014 first three quarters, equating to $0.00 diluted earnings per share. The $3.2 million variance reflects a decrease in income before income taxes of $5.4 million due primarily to a $5.3 million decrease in gross profit, resulting from a combination of both lower net sales and lower gross profit margin percentage, as well as a $0.2 million increase in operating expenses. The $5.4 million decrease in income before income taxes was offset, in part, by a $2.2 million variance between the income tax benefit recorded in the 2015 first three quarters and the income tax expense recorded in the 2014 first three quarters.

Net Sales

Net sales in the 2015 first three quarters were $28.0 million, a decrease of $8.6 million, or 23.6%, compared to 2014 first three quarters net sales of $36.6 million. The reduction reflects decreased ATS sales to the U.S. Government and International customers, decreased sales of monoplace chambers to both Domestic and International customers, and decreased sales of Sterilization Systems to International customers, offset in part, by increased sales of Sterilization Systems and Environmental Testing and Simulation Systems to Domestic customers. Given the current progress made on U.S. Government contracts in the Company`s sales backlog, and increased International sales activity, the Company anticipates the concentration of sales to the U.S. Government will continue to lessen in fiscal 2015.

Gross Profit

Gross profit for the 2015 first three quarters was $5.7 million compared to $11.0 million in the 2014 first three quarters, a decrease of $5.3 million, or 48.3%. The significant decrease in gross profit was a combination of both lower net sales and lower gross profit margin percentage due to inefficiencies as a result of additional work required on several contracts, for which we are currently pursuing recovery. On April 24, 2014, we reached a favorable settlement agreement on the first of these recoveries that partially offset the effects of the additional work. Further, the Company is now in the testing phase with one of these contracts, and will shortly be in testing phase on another. Gross profit margin as a percentage of net sales decreased to 20.2% for the 2015 first three quarters compared to 29.9% for the 2014 first three quarters.

Operating Expenses

Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2015 first three quarters were $9.7 million, an increase of $0.2 million, or 1.9%, compared to $9.5 million for the 2014 first three quarters. The increase is the combined result of an increase in commissions expense as the concentration of net sales shifts from Government to International and an increase in legal fees associated primarily with the aforementioned recovery effort, offset in part, by an on-going effort to reduce non-revenue generating expenses.

Interest Expense, Net

Interest expense, net, for the 2015 first three quarters was $477 thousand compared to $590 thousand in the 2014 first three quarters, a decrease of $113 thousand, or 19.2%, due primarily to a lower level of bank borrowing.

Cash Flows from Operating, Investing, and Financing Activities

During the 2015 first three quarters, as a result of a decrease in accounts receivable and costs and estimated earnings in excess of billings on uncompleted long-term percentage of completion ("POC") contracts, the Company generated $1.7 million of cash from operating activities compared to $3.9 million of cash used in operating activities during the 2014 first three quarters. Under POC revenue recognition, these accounts represent the timing differences of spending on production activities versus the collecting of customer payments.

Cash used for investing activities primarily relates to funds used for capital expenditures of equipment and software development. The Company`s investing activities used $1.1 million in both the 2015 first three quarters and the 2014 first three quarters.

The Company`s financing activities used $0.5 million of cash in the 2015 first three quarters, which primarily reflected payments on the Term Loan and repayments under the Company`s various lines of credit, and was offset, in part, by a decrease in restricted cash. In the 2014 first three quarters, net cash provided by financing activities totaled $3.4 million, primarily from borrowings under the Company`s various lines of credit and a decrease in restricted cash, offset in part, by payments on the Term Loan.

About ETC

ETC was incorporated in 1969 in Pennsylvania. For over four decades, we have provided our customers with products, service, and support. Innovation, continuous technological improvement and enhancement, and product quality are core values that are critical to our success. We are a significant supplier and innovator in the following product areas: (i) software driven products and services used to create and monitor the physiological effects of flight, including high performance jet tactical flight simulation, upset recovery and spatial disorientation, and both suborbital and orbital commercial human spaceflight; collectively, Aircrew Training Systems ("ATS"); (ii) altitude (hypobaric) chambers; (iii) Advanced Disaster Management Simulators ("ADMS"); (iv) steam and gas (ethylene oxide) sterilizers; (v) environmental testing and simulation devices; and (vi) hyperbaric (100% oxygen) chambers for one person (monoplace chambers).

We operate in two primary business segments, Aerospace Solutions ("Aerospace") and Commercial/ Industrial Systems ("CIS"). Aerospace encompasses the design, manufacture, and sale of: (i) Aircrew Training Systems; (ii) altitude (hypobaric) chambers; (iii) hyperbaric chambers for multiple persons (multiplace chambers); and (iv) ADMS, as well as Integrated Logistics Support ("ILS) for customers who purchase these products or similar products manufactured by other parties. These products and services provide customers with an offering of comprehensive solutions for improved readiness and reduced operational costs. Sales of our Aerospace products are made principally to U.S. and foreign government agencies. CIS encompasses the design, manufacture, and sale of: (i) steam and gas (ethylene oxide) sterilizers; (ii) environmental testing and simulation devices; and (iii) hyperbaric (100% oxygen) chambers for one person (monoplace chambers), as well as parts and service support for customers who purchase these products or similar products manufactured by other parties. Sales of our CIS products are made principally to the healthcare, pharmaceutical, and automotive industries.

We presently have two operating subsidiaries. ETC-PZL Aerospace Industries Sp. z o.o. ("ETC-PZL"), our 95%-owned subsidiary in Warsaw, Poland, manufactures certain simulators and provides software to support products manufactured domestically within our Aerospace segment. Environmental Tectonics Corporation (Europe) Limited ("ETC-Europe"), our 99% owned subsidiary, functions as a sales office in the United Kingdom.

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

This news release contains forward-looking statements, which are based on management`s expectations and are subject to uncertainties and changes in circumstances. Words and expressions reflecting something other than historical fact are intended to identify forward-looking statements, and these statements may include terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "future", "predict", "potential", "intend", or "continue", and similar expressions. We base our forward-looking statements on our current expectations and projections about future events or future financial performance. Our forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about ETC and its subsidiaries that may cause actual results to be materially different from any future results implied by these forward-looking statements. We caution you not to place undue reliance on these forward-looking statements.

Contact:	Mark Prudenti, CFO
Phone:	(215) 355-9100 x1531
E-mail:	mprudenti@etcusa.com

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- Financial Tables Follow -

Table A
ENVIRONMENTAL TECTONICS CORPORATION
SUMMARY TABLE OF RESULTS
(in thousands, except per share information)
	Thirteen weeks ended		Thirteen weeks ended			Variance
	28-Nov-14			29-Nov-13		$		%
Net sales	$ 7,845			$ 12,346		$ (4,501)		-36.5
Cost of goods sold	6,939			8,789		(1,850)		-21.0
Gross profit	$ 906			$ 3,557		$ (2,651)		-74.5
Gross profit margin %	11.5%			28.8%		-17.3%		-60.1%
Operating expenses	3,480			2,955		525		17.8
Operating (loss) income	$ (2,574)			$ 602		$ (3,176)		-527.6
Operating margin %	-32.8%			4.9%		-37.7%		-769.4%
Interest expense, net	180			224		(44)		-19.6
Other expense, net	112			91		21		23.1
(Loss) income before income taxes	$ (2,866)			$ 287		$ (3,153)		-1098.6
Pre-tax income margin %	-36.5%			2.3%		-38.8%		-1687.0%
Income tax (benefit) provision	(1,161)			119		(1,280)		-1075.6
Net (loss) income	$ (1,705)			$ 168		$ (1,873)		-1114.9
Income attributable to non-controlling interest	(37)			(32)		(5)		15.6
Net (loss) income attributable to ETC	$ (1,742)			$ 136		$ (1,878)		-1380.9
Preferred Stock dividends	(121)			(121)		-		0.0
(Loss) income attributable to common and participating shareholders	$ (1,863)			$ 15		$ (1,878)		-12520.0
Per share information:
Basic earnings (loss) per common and participating share:
Distributed earnings per share:
Common	$ -			$ -		$ -
Preferred	$ 0.02			$ 0.02		$ -		0.0
Undistributed (loss) earnings per share:
Common	$ (0.12)			$ -		$ (0.12)
Preferred	$ (0.12)			$ -		$ (0.12)
Diluted (loss) earnings per share	$ (0.12)			$ -		$ (0.12)
Total basic weighted average common and participating shares	15,248			15,248
Total diluted weighted average shares	15,540			15,465

Table B
ENVIRONMENTAL TECTONICS CORPORATION
SUMMARY TABLE OF RESULTS
(in thousands, except per share information)
	Thirty-nine weeks ended		Forty weeks ended			Variance
	28-Nov-14			29-Nov-13		$		%
Net sales	$ 27,986			$ 36,632		$ (8,646)		-23.6
Cost of goods sold	22,320			25,674		(3,354)		-13.1
Gross profit	$ 5,666			$ 10,958		$ (5,292)		-48.3
Gross profit margin %	20.2%			29.9%		-9.7%		-32.4%
Operating expenses	9,692			9,509		183		1.9
Operating (loss) income	$ (4,026)			$ 1,449		$ (5,475)		-377.8
Operating margin %	-14.4%			4.0%		-18.4%		-460.0%
Interest expense, net	477			590		(113)		-19.2
Other expense, net	286			273		13		4.8
(Loss) income before income taxes	$ (4,789)			$ 586		$ (5,375)		-917.2
Pre-tax income margin %	-17.1%			1.6%		-18.7%		-1168.8%
Income tax (benefit) provision	(1,940)			242		(2,182)		-901.7
Net (loss) income	$ (2,849)			$ 344		$ (3,193)		-928.2
Income attributable to non-controlling interest	(29)			(37)		8		-21.6
Net (loss) income attributable to ETC	$ (2,878)			$ 307		$ (3,185)		-1037.5
Preferred Stock dividends	(363)			(372)		9		-2.4
(Loss) income attributable to common and participating shareholders	$ (3,241)			$ (65)		$ (3,176)		-4886.2
Per share information:
Basic earnings (loss) per common and participating share:
Distributed earnings per share:
Common	$ -			$ -		$ -
Preferred	$ 0.06			$ 0.06		$ -		0.0
Undistributed (loss) earnings per share:
Common	$ (0.21)			$ -		$ (0.21)
Preferred	$ (0.21)			$ -		$ (0.21)
Diluted (loss) earnings per share	$ (0.21)			$ -		$ (0.21)
Total basic weighted average common and participating shares	15,248			15,245
Total diluted weighted average shares	15,518			15,476

Table C

ENVIRONMENTAL TECTONICS CORPORATION
OTHER SELECTED FINANCIAL HIGHLIGHTS
(amounts in thousands)
	Thirteen weeks ended				Thirty-nine weeks ended		Forty weeks ended
	28-Nov-14		29-Nov-13		28-Nov-14			29-Nov-13
EBITDA	$ (2,232)		$ 965		$ (2,943)			$ 2,525
	As of
	28-Nov-14		28-Feb-14
Working capital	$ 18,905		$ 26,536
Total shareholders` equity	$ 21,212		$ 24,326

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This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.

The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: ETC via GlobeNewswire
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