Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. ENVIRONMENTAL TECTONICS CORP (33113) 10-Q published on Jan 07, 2013 at 9:46 am
Reporting Period: Nov 22, 2012
Effective September 28, 2012, ETC and PNC Bank entered into a Loan Agreement, which included ETC executing a Term Loan Note and the Line of Credit Note (as defined below). As set forth in the Loan Agreement, the Company’s Line of Credit was reduced from $20,000 to $15,000; however, the term of the Line of Credit was extended twenty-eight (28) months, from June 30, 2013 to October 31, 2015. PNC Bank also provided to the Company a Term Loan of $15,000. The Company used $10,000 of the proceeds from the Term Loan to repurchase and retire 10,000 shares of the Series D and Series E Preferred Stock owned by Lenfest, at the stated price of $1,000 per share (as described in more detail below under the heading “Preferred Stock Repurchase Agreement”). The remaining $5,000 was used to repay indebtedness currently outstanding to PNC Bank and to pay Lenfest $417 of interest due under the Lenfest Pledge, in cash, in lieu of Series D Preferred Stock.
The Line of Credit is no longer guaranteed by Lenfest. Instead both the Line of Credit and the Term Loan are secured by substantially all of the Company’s assets, including a mortgage on the Company’s headquarters in Southampton, Pennsylvania.
Borrowings under the Line of Credit will be available for working capital and other general business purposes and for issuances of letters of credit. Amounts borrowed under the Line of Credit may be borrowed, repaid, and re-borrowed from time to time until October 31, 2015. The Company’s obligation to repay the advances under the Line of Credit is set forth in the Amended and Restated Committed Line of Credit Note (the “Line of Credit Note”). At the Company’s option, the interest rate on the Line of Credit Note will be based on either (i) the PNC Base Rate (currently 3.00%) plus a margin of -0.25% to 0.25% depending on the Company’s Operating Leverage Ratio (currently 0.25%) or (ii) the PNC LIBOR rate (currently 2.9610%) plus a margin of 2.25% to 2.75% depending on the Operating Leverage Ratio (currently 2.75%). The Company will also be obligated to pay a fee of 0.25% for unused but available funds under the Line of Credit. As of November 23, 2012, the Company’s availability under the Line of Credit was $1,237. This reflected cash borrowing under the Line of Credit of $12,985 and outstanding letters of credit of approximately $778.
On September 28, 2012, upon the execution of the Preferred Stock Repurchase and Financial Restructuring Agreement described above, the following prior agreements between ETC and Lenfest were terminated: (i) Secured Credit Facility and Warrant Purchase Agreement between the Company and Lenfest, dated as of April 24, 2009; (ii) the Security Agreement, dated February 18, 2009, by the Company in favor of Lenfest; (iii) the Security Agreement, dated April 24, 2009, among the Company, Entertainment Technology Corporation, a Pennsylvania corporation and a wholly-owned subsidiary of the Company (“ETC Entertainment”), and Lenfest; (iv) the Guaranty, dated April 24, 2009, by ETC Entertainment in favor of Lenfest; and (v) the Amended and Restated Open-End Mortgage and Security Agreement, dated April 24, 2009, by the Company in favor of Lenfest. These Agreements were entered into as part of, or directly related to, the “2009 Lenfest Financing Transaction". As part of the 2012 Financial Restructuring, the $10,000 in marketable securities associated with the Lenfest Pledge has been returned to Lenfest and the Lenfest Pledge has been terminated.
We recognize any differences between the variable interest rate payments and the fixed interest rate settlements from our swap counterparty as an adjustment to interest expense over the life of the swap. We have designated the swap as a cash flow hedge and we record the changes in the estimated fair value of the swap to accumulated other comprehensive loss. If our interest rate swap became ineffective, we would immediately recognize the change in the estimated fair value of our swap in earnings. Since inception, we have not recognized any gains or losses on these swaps through income and there has been no effect on income from hedge ineffectiveness.
Failure of our swap counterparty would result in the loss of any potential benefit to us under our swap contracts. In this case, we would still be obligated to pay the variable interest payments underlying the Term Loan. Additionally, failure of our swap counterparty would not eliminate our obligation to continue to make payments under our existing swap contract if we continue to be in a net pay position.
Net income attributable to ETC was $1.2 million, or $0.05 diluted earnings per share, in the 2013 third quarter, compared to $0.8 million or $0.01 diluted earnings per share, during the 2012 third quarter, representing an increase of $0.4 million, or 45.6% in dollars and 400.0% based on diluted earnings per share. The increase in net income attributable to ETC reflects an increase in income before income taxes of $462 thousand, a result of an $838 thousand increase in gross profit, which was offset by a $187 thousand increase in operating expenses, a $124 thousand increase in interest expense, a $65 thousand increase in other expense, and a $78 increase in the provision for income taxes. The significant increase in diluted earnings per share was due in part to increased income and also to reduced shares outstanding following the repurchase of 386 shares of Series D Preferred Stock, representing all of the Company’s issued and outstanding shares of Series D Preferred Stock, and 9,614 shares of Series E Preferred Stock, representing a significant portion of the Company’s issued and outstanding Series E Preferred Stock.