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Environmental Tectonics Corporation Announces Third Quarter and Year To Date Fiscal 2009 Results
Date:1/14/2009

SOUTHAMPTON, Pa., Jan. 14 /PRNewswire-FirstCall/ -- Environmental Tectonics Corporation (Amex: ETC) ("ETC" or the "Company") today announced financial results for the third quarter and the first nine months of fiscal 2009 which ended on November 28, 2008.

Thirteen weeks ended November 28, 2008 compared to thirteen weeks ended November 23, 2007:

The Company had a net loss of $113,000, or $0.04 per share (basic and diluted), during the third quarter of fiscal 2009 compared to a net loss of $2,098,000, or $0.26 per share (basic and diluted), for the third quarter of fiscal 2008, representing a decrease in net loss of $1,985,000. This decrease in net loss is attributed to a significant increase in sales and corresponding gross profit coupled with reduced selling, general and administrative expenses. Acting as partial offsets were higher research and development expenses and slightly higher interest expense.

Sales for the third quarter of fiscal 2009 were $8,706,000 as compared to $6,701,000 for the third quarter of fiscal 2008, an increase of $2,005,000, 29.9%. A significant increase in international sales completely offset decreases in domestic and government sales. Product line wise, all product areas showed improvement except sterilizers, environmental and service/spares.

Domestic sales in the third quarter of fiscal 2009 were $2,702,000 as compared to $4,575,000 in the third quarter of fiscal 2008, a decrease of $1,873,000 or 40.9%, primarily reflecting significant decreases in environmental, sterilizers and service/spares. These three product areas were down a combined $2,005,000. Environmental in the prior period benefited from significant work under an automotive contract for conditioned air supply (CAS) units. Higher sterilizer performance in the prior period reflected multiple contracts for both small military and large steam sterilizers. Service/spares in the prior period benefited from higher installation work (consistent with the higher sterilizers' production) and significant spares sales. Domestic sales represented 31.1% of the Company's total sales in the third quarter of fiscal 2009, as compared to 68.3% for the third quarter of fiscal 2008. U.S. Government sales in the third quarter of fiscal 2009 were $367,000 as compared to $443,000 in the third quarter of fiscal 2008 and represented 4.2% of total sales in the third quarter of fiscal 2009 versus 6.6% for the third quarter of fiscal 2008.

International sales, which includes the Company's foreign subsidiaries, for the third quarter of fiscal 2009 were $5,637,000 as compared to $1,683,000 in the third quarter of fiscal 2008, an increase of $3,954,000 or 234.9%, and represented 64.7% of total sales, as compared to 25.1% in the third quarter of fiscal 2008. The current reporting period benefited from significant percentage of completion ("POC") revenue recognition in ETC Southampton for three major ongoing pilot training services (PTS) contracts in the Middle East coupled with an almost five-fold increase in sales in ETC-PZL.

Gross profit for the third quarter of fiscal 2009 was $2,957,000 as compared to $1,267,000 in the third quarter of fiscal 2008, an increase of $1,690,000 or 133.4%. This increase reflected the aforementioned increased sales level and corresponding gross profit coupled with an improvement in the gross profit rate as a percent of revenue to 34.0% compared to 18.9% in the prior period. The improved gross profit percentage was primarily the result of an improved product mix which included significant sales of higher margin pilot training equipment. Most product and geographic categories generated higher gross profit rates.

Selling and administrative expenses for the third quarter of fiscal 2009 were $2,434,000 as compared to $2,830,000 in the third quarter of fiscal 2008, a decrease of $396,000 or 14.0%. Reduced legal and bid and proposal expenses (down a combined total of $641,000) were partially offset by increased commissions (up $423,000) on a higher level of commissionable sales. As a percentage of sales, selling and administrative expenses were 28.0% in the current period compared to 41.6% in the third quarter of fiscal 2008.

Research and development expenses, which are charged to operations as incurred, were $247,000 for the third quarter of fiscal 2009 as compared to $64,000 in the prior period, primarily for work performed in the Company's Turkish subsidiary. The prior period benefited from higher grant awards from the Turkish government.

Interest expense for the third quarter of fiscal 2009 was $417,000 as compared to $406,000 for the third quarter of fiscal 2008, representing a slight increase of $11,000 or 2.7%.

Other income/expense, net, was a net income of $27,000 for the third quarter of fiscal 2009 versus a net expense of $61,000 for the third quarter of fiscal 2008, an increase in income of $88,000. The prior period included a significant local license charge related to an ATS contract in Turkey.

Thirty nine weeks ended November 28, 2008 compared to thirty nine weeks ended November 23, 2007

The Company had a net loss of $3,197,000, or $0.43 per share (basic and diluted), during the first nine months of fiscal 2009 compared to a net loss of $10,793,000, or $1.24 per share (basic and diluted), for the first nine months of fiscal 2008, representing a decrease in net loss of $7,596,000, 70.4%. This decrease in net loss resulted from significant improvements at the sales and gross profit levels which was partially offset by higher selling, general and administrative expenses, research and development expenses and interest charges. Additionally, the prior period included claims costs of $3,639,000 associated with a settlement with the U.S. Government under a contract for submarine rescue chambers. Overall, sales were up 79.2% and gross profit was up 168.2%.

Sales for the first nine months of fiscal 2009 were $27,405,000 as compared to $15,295,000 for the first nine months of fiscal 2008, an increase of $12,110,000 or 79.2%, reflecting significant increases in all geographic areas and most product areas. Volume wise, combined ATS government and international sales, which includes those in the Company's foreign subsidiaries, showed the most improvement, up $8,312,000, 182.8%. Overall, only two product areas evidenced sales decreases, sterilizers and service/spares, which were down a combined $310,000, 5.9%.

Overall, domestic sales in the first nine months of fiscal 2009 were $12,348,000 as compared to $9,416,000 in the first nine months of fiscal 2008, an increase of $2,932,000 or 31.1%, primarily reflecting increases in the hyperbaric (up $1,773,000, 116.4%), environmental (up $958,000, 33.9%) and simulation (up $430,000, 1,195.1%) product areas. Domestic sales represented 45.1% of the Company's total sales in the first nine months of fiscal 2009, down from 61.6% for the first nine months of fiscal 2008. U.S. Government sales in the first nine months of fiscal 2009 were $1,742,000 as compared to $1,090,000 in the first nine months of fiscal 2008 and represented 6.4% of total sales in the first nine months of fiscal 2009 versus 7.1% for the first nine months of fiscal 2008.

International sales, which includes those in the Company's foreign subsidiaries, were $13,315,000 as compared to $4,789,000 in the first nine months of fiscal 2008, an increase of $8,526,000 or 178.0%, and represented 48.5% of total sales, as compared to 31.3% in the first nine months of fiscal 2008. Only two product areas evidenced sales decreases, sterilizers and service/spares, which were down a combined $312,000, 73.4%.

Gross profit for the first nine months of fiscal 2009 was $7,494,000 as compared to $2,794,000 in the first nine months of fiscal 2008, an increase of $4,700,000 or 168.2%. This increase reflected the aforementioned increased sales level and corresponding gross profit coupled with an improvement in the gross profit rate as a percent of revenue to 27.4% compared to 18.3% in the prior period. The improved gross profit percentage was primarily the result of an improved product mix which included significant sales of higher margin pilot training equipment. Most product and geographic categories generated higher gross profit rates.

Selling and administrative expenses for the first nine months of fiscal 2009 were $8,502,000 as compared to $8,353,000 in the first nine months of fiscal 2008, an increase of $149,000 or 1.8%. Higher commissions on the higher sales levels and increased accounting fees were partially offset by lower legal costs. As a percentage of sales, selling and administrative expenses were 31.0% for the first nine months of fiscal 2009 compared to 54.6% in the first nine months of fiscal 2008.

Claims settlement costs in the first nine months of fiscal 2008 consisted of a write off of contract accounts receivables of $89,000 and a reserve for a tentative payment to the Government of $3,550,000.

Research and development expenses, which are charged to operations as incurred, were $946,000 for the first nine months of fiscal 2009 compared to $355,000 for the first nine months of fiscal 2008. The prior period benefited from the receipt of monies under a NASA grant and higher grant awards from the Turkish government.

Interest expense for the first nine months of fiscal 2009 was $1,287,000 as compared to $1,146,000 for the first nine months of fiscal 2008, representing an increase of $141,000 or 12.3%. The increase reflected higher interest expense on additional borrowing.

Other income/expense, net, was a net income of $38,000 for the first nine months of fiscal 2009 versus a net expense of $102,000 for the first nine months of fiscal 2008, an increase in income of $140,000. The prior period included a significant local license charge related to an ATS contract in Turkey.

                                          Summary Table of Results
                              Thirteen       Thirteen
                            weeks ended    weeks ended  Variance     Variance
                             November 28,  November 23,
                                2008           2007        $            %
                             (amounts in thousands)    Favorable (Unfavorable)
    Sales:
         Domestic              $2,702        $4,575    ($1,873)      (40.9%)
         US Government            367           443        (76)      (17.2%)
         International          5,637         1,683      3,954       234.9%

         Total Sales            8,706         6,701      2,005        29.9%

     Gross Profit               2,957         1,267      1,690       133.4%
     Selling, general and
      administrative            2,434         2,830        396        14.0%
     Research and development     247            64       (183)     (285.9%)
     Operating profit (loss)      276        (1,627)     1,903       117.0%
     Interest expense, net        417           406        (11)       (2.7%)
     Other expense, net           (27)           61         88       144.3%
     Income taxes                   0             0          0
     Minority interest             (1)            4          5       125.0%

     Net loss                   ($113)      ($2,098)    $1,985        94.6%
     Net loss per common share ($0.04)       ($0.26)     $0.22        84.6%

                                          Summary Table of Results
                             Thirty-nine   Thirty-nine
                            weeks ended    weeks ended  Variance     Variance
                             November 28,  November 23,
                                2008           2007        $            %
                             (amounts in thousands)    Favorable (Unfavorable)

     Sales:
         Domestic             $12,348        $9,416     $2,932        31.1%
         US Government          1,742         1,090        652        59.8%
         International         13,315         4,789      8,526       178.0%

         Total Sales           27,405        15,295     12,110        79.2%

     Gross Profit               7,494         2,794      4,700       168.2%
     Selling, general and
      administrative            8,502         8,353       (149)       (1.8%)
     Claim settlement costs         0         3,639      3,639       100.0%
     Research and development     946           355       (591)     (166.5%)
     Impairment expense             0             0          0
     Operating loss            (1,954)       (9,553)     7,599        79.5%
     Interest expense, net      1,287         1,146       (141)      (12.3%)
     Other expense, net           (38)          102        140       137.3%
     Income taxes                   0             0          0
     Minority interest             (6)           (8)        (2)       25.0%

     Net loss                 ($3,197)     ($10,793)    $7,596        70.4%
     Net loss per common share ($0.43)       ($1.24)     $0.81        65.3%

William F. Mitchell, ETC's President and Chairman, stated, "The financial results for the third quarter and year to date fiscal 2009 are very encouraging. They reflect a major shift to sales of sophisticated pilot training simulators in the international markets which was furthered by some significant increases in our domestic product lines, most notable our hyperbaric line which was up over 100%. ETC has also been generating higher gross profits while keeping our selling, general and administrative expenses in line.

"Although our cash balance dropped through the nine months, we did manage to generate positive cash from our operating activities. However, we expect to need additional cash to continue growing and operating our business. To that end, we are currently in negotiations with our major lender, H.F. Lenfest, and our bank, to provide additional funding.

"Given the extremely difficult economic global situation, our growth this fiscal year is remarkable."

The reader is referred to the Company's Quarterly Report on Form 10-Q for the period ended November 28, 2008 for additional information on the Company's financial results.

ETC designs, develops, installs and maintains aircrew training systems (aeromedical, tactical combat and general), disaster management training systems and services, entertainment products, sterilizers (steam and gas), environmental testing products, hyperbaric chambers and related products for domestic and international customers.

This press release includes 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, as amended. These forward-looking statements are based on ETC's current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about ETC's 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.

These forward-looking statements include statements with respect to the Company's vision, mission, strategies, goals, beliefs, plans, objectives, expectations, anticipations, estimates, intentions, financial condition, results of operations, future performance and business of the company, including but not limited to, (i) potential additional funding by Lenfest, (ii) the potential delisting of the Company's common stock from the American Stock Exchange as a result of the Company's failure to comply with the AMEX listing standards, (iii) projections of revenues, costs of materials, income or loss, earnings or loss per share, capital expenditures, growth prospects, dividends, capital structure, other financial items and the effects of currency fluctuations, (iv) statements of our plans and objectives of the Company or its management or Board of Directors, including the introduction of new products, or estimates or predictions of actions of customers, suppliers, competitors or regulatory authorities, (v) statements of future economic performance, (vi) statements of assumptions and other statements about the Company or its business, (vii) statements made about the possible outcomes of litigation involving the Company; (viii) statements regarding the Company's ability to obtain financing to support its operations and other expenses, and (ix) statements preceded by, followed by or that include the words, "may," "could," "should," "looking forward," "would," "believe," "expect," "anticipate," "estimate," "intend," "plan," or the negative of such terms or similar expressions. These forward-looking statements involve risks and uncertainties which 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. Factors that might cause or contribute to such a material difference include, but are not limited to, those discussed in the Company's Annual Report on Form 10 K for the fiscal year ended February 29, 2008, in the section entitled "Risks Particular to Our Business." Shareholders are urged to review these risks carefully prior to making an investment in the Company's common stock.

The Company cautions that the foregoing list of important factors 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.

    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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SOURCE Environmental Tectonics Corporation
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