-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q4rVJgZY6e0B9fkwN1TLtef3H1Tq5Evub5xTz1anQceemlD8b4OipUPpHhqxLuQV njdcmOlHlSex5uebskxwSA== 0001141218-02-000104.txt : 20020612 0001141218-02-000104.hdr.sgml : 20020612 20020611192125 ACCESSION NUMBER: 0001141218-02-000104 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020430 FILED AS OF DATE: 20020612 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL TECHNICAL SYSTEMS INC /CA/ CENTRAL INDEX KEY: 0000110536 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 954134955 STATE OF INCORPORATION: CA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16438 FILM NUMBER: 02676798 BUSINESS ADDRESS: STREET 1: 24007 VENTURA BLVD CITY: CALABASAS STATE: CA ZIP: 91302 BUSINESS PHONE: 8185910776 MAIL ADDRESS: STREET 1: 24007 VENTURA BLVD CITY: CALABASAS STATE: CA ZIP: 91302 FORMER COMPANY: FORMER CONFORMED NAME: LINCOLN FUND INC DATE OF NAME CHANGE: 19760315 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL TECHNICAL SERVICES INC DATE OF NAME CHANGE: 19810712 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL TECHNICAL SYSTEMS /DE/ DATE OF NAME CHANGE: 19880218 10-Q 1 nts4300210q.txt NTS QUARTERLY REPORT ON FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- (mark one) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended April 30, 2002 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transition period from ________________ to _________________ 0-16438 (Commission File Number) NATIONAL TECHNICAL SYSTEMS, INC. ------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 95-4134955 ------------------------ --------------------- (State of Incorporation) (IRS Employer Identification number) 24007 Ventura Boulevard, Suite 200, Calabasas, California --------------------------------------------------------------------------- (Address of registrant's principal executive office) (818) 591-0776 91302 ------------------------------- ---------- (Registrant's telephone number) (Zip code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [x] NO [ ] The number of shares of common stock, no par value, outstanding as of June 3, 2002 was 8,661,040. NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES Index PART I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements: Condensed Consolidated Balance Sheets as of April 30, 2002 (unaudited) and January 31, 2002 3 Unaudited Condensed Consolidated Statements of Income For the Three Months Ended April 30, 2002 and 2001 4 Unaudited Condensed Consolidated Statements of Cash Flows For the Three Months Ended April 30, 2002 and 2001 5 Notes to the Unaudited Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION & SIGNATURE Item 6. Exhibits and Reports on Form 8-K 15 2 PART I - FINANCIAL ITEM 1. FINANCIAL STATEMENTS NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets
April 30, January 31, 2002 2002 ASSETS (unaudited) ------ ---------------------------- CURRENT ASSETS: Cash $ 5,121,000 $ 3,783,000 Accounts receivable, less allowance for doubtful accounts of $1,169,000 at April 30, 2002 and $1,099,000 at January 31, 2002 16,058,000 17,092,000 Income taxes receivable 247,000 183,000 Inventories 1,264,000 1,552,000 Deferred tax assets 1,272,000 1,158,000 Prepaid expenses 1,229,000 1,032,000 ---------------------------- Total current assets 25,191,000 24,800,000 Property, plant and equipment, at cost 73,832,000 73,108,000 Less: accumulated depreciation (45,973,000) (44,819,000) ---------------------------- Net property, plant and equipment 27,859,000 28,289,000 Property held for sale 544,000 544,000 Goodwill 870,000 870,000 Other assets 2,496,000 2,278,000 ---------------------------- TOTAL ASSETS $ 56,960,000 $ 56,781,000 ============================ LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 2,843,000 $ 3,276,000 Accrued expenses 3,161,000 2,829,000 Deferred income 1,303,000 497,000 Current installments of long-term debt 1,416,000 1,444,000 ---------------------------- Total current liabilities 8,723,000 8,046,000 Long-term debt, excluding current installments 17,569,000 18,657,000 Deferred income taxes 3,983,000 3,682,000 Deferred compensation 804,000 783,000 Minority interest 131,000 136,000 Commitments and contingencies SHAREHOLDERS' EQUITY: Common stock, no par value. Authorized, 20,000,000 shares; issued and outstanding, 8,662,000 as of April 30, 2002 and 8,667,000 as of January 31, 2002 12,510,000 12,517,000 Retained earnings 13,291,000 13,011,000 Accumulated other comprehensive income (51,000) (51,000) ---------------------------- Total shareholders' equity 25,750,000 25,477,000 ---------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 56,960,000 $ 56,781,000 ============================
See accompanying notes 3 NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Income for the Three Months Ended April 30, 2002 and 2001 2002 2001 ---------------------------- Net revenues $ 19,268,000 $ 19,376,000 Cost of sales 14,529,000 14,548,000 ---------------------------- Gross profit 4,739,000 4,828,000 Selling, general and administrative expense 3,936,000 4,073,000 ---------------------------- Operating income 803,000 755,000 Other expense: Interest expense, net (321,000) (502,000) Other (2,000) (27,000) ---------------------------- Total other expense (323,000) (529,000) Income before income taxes and minority interest 480,000 226,000 Income taxes 205,000 92,000 ---------------------------- Income before minority interest 275,000 134,000 Minority interest 5,000 - ---------------------------- Net income $ 280,000 $ 134,000 ============================ Net income per common share: Basic $ 0.03 $ 0.02 ============================ Diluted $ 0.03 $ 0.02 ============================ Weighted average common shares outstanding 8,667,000 8,503,000 Dilutive effect of stock options - 27,000 ---------------------------- Weighted average common shares outstanding, assuming dilution 8,667,000 8,530,000 ============================ See accompanying notes 4 NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2002 and 2001
2002 2001 -------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income from continuing operations $ 280,000 $ 134,000 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 1,154,000 1,152,000 Provisions for losses on receivables 70,000 (7,000) Undistributed earnings of affiliate (5,000) - Deferred income taxes 187,000 91,000 Changes in assets and liabilities: Accounts receivable 964,000 989,000 Inventories 288,000 138,000 Income taxes receivable (64,000) 452,000 Prepaid expenses (197,000) (266,000) Other assets and goodwill (180,000) 185,000 Accounts payable (433,000) (1,582,000) Accrued expenses 332,000 44,000 Deferred income 806,000 (149,000) Deferred compensation 21,000 (31,000) -------------------------- Net cash provided by operating activities 3,223,000 1,150,000 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (724,000) (938,000) Investment in life insurance (38,000) (32,000) -------------------------- Net cash used for investing activities (762,000) (970,000) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from current and long-term debt 114,000 245,000 Repayments of current and long-term debt (1,230,000) (1,326,000) Common stock repurchase (7,000) (63,000) -------------------------- Net cash used by financing activities (1,123,000) (1,144,000) -------------------------- Effect of exchange rate changes on cash and cash equivalents - (8,000) -------------------------- Net increase (decrease) in cash 1,338,000 (972,000) Beginning cash balance 3,783,000 3,344,000 -------------------------- ENDING CASH BALANCE $ 5,121,000 $ 2,372,000 ==========================
See accompanying notes 5 NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES Notes to the Unaudited Condensed Consolidated Financial Statements 1. Basis of Presentation In accordance with instructions to Form 10-Q, the accompanying consolidated financial statements and footnotes of National Technical Systems, Inc. (NTS or the Company) have been condensed and, therefore, do not contain all disclosures required by generally accepted accounting principles. These statements should not be construed as representing pro rata results of the Company's fiscal year and should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K for the year ended January 31, 2002. The statements presented as of and for the three months ended April 30, 2002 and 2001 are unaudited. In management's opinion, all adjustments have been made to present fairly the results of such unaudited interim periods. All such adjustments are of a normal recurring nature. The consolidated financial statements include the accounts of the Company and its wholly owned and financially controlled subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform with the current year presentation. 2. Income Taxes Income taxes for the interim periods are computed using the effective tax rates estimated to be applicable for the full fiscal year. 3. Comprehensive Income Accumulated other comprehensive income on the Company's Condensed Consolidated Balance Sheets consists of cumulative equity adjustments from foreign currency translation. During the three months ended April 30, 2002 and 2001, total comprehensive income was $280,000 and $126,000, respectively. The reported amount for total comprehensive income differs from net income for the three months ended April 30, 2001 due to foreign currency translation adjustments. There was no foreign currency translation adjustment for the three months ended April 30, 2002. The tax effect related to foreign currency translation adjustments is immaterial and has not been recognized as part of comprehensive income or in accumulated other comprehensive income. 4. Inventories Inventories consist of accumulated costs applicable to uncompleted contracts and are stated at actual cost which is not in excess of estimated net realizable value. 5. Interest and Taxes Cash paid for interest and taxes for the three months ended April 30, 2002 was $371,000 and $85,000, respectively. Cash paid for interest and taxes for the three months ended April 30, 2001 was $494,000 and $55,000, respectively. 6 6. Minority Interest Minority interest in the Company's NQA, Inc. subsidiary is a result of 50% of the stock of NQA, Inc. being issued to National Quality Assurance, Ltd. Effective with fiscal 2002, profits and losses are allocated 51% to NTS, and 49% to National Quality Assurance, Ltd. In fiscal 2001, profits and losses were allocated 61% to NTS, and 39% to National Quality Assurance, Ltd. 7. Stock Repurchase On February 6, 2001, the Company's Board of Directors authorized the repurchase of shares in the Company's common stock in open market purchases. During fiscal year 2002, the Company repurchased 88,700 shares leaving a balance of 36,300 available for repurchase subject to the Company's covenants with its new banks, which permit the use in fiscal 2003 of an additional maximum amount equal to 75% of the Company's net profit for fiscal year 2002. As of April 30, 2002, the Company had purchased an additional 5,000 shares at an average price of $1.38. 8. Goodwill: Adoption of Statements 141 and 142 In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets apart from goodwill. Under SFAS No. 142, goodwill and intangible assets that have indefinite useful lives will no longer be amortized but will be tested at least annually for impairment. The goodwill test for impairment consists of a two-step process that begins with an estimation of the fair value of the reporting unit. The first step of the test is a screen for potential impairment and the second step measures the amount of impairment, if any. SFAS No. 142 requires an entity to complete the first step of the transitional goodwill impairment test within six months of adopting the Statement. The Company adopted SFAS No. 142 in the first quarter of fiscal 2003. In accordance with SFAS No. 142, the Company identified two reporting units, the Engineering and Evaluation unit and the Technical Staffing unit, which constitute components of its business that include goodwill. The Company completed the first step of the transitional goodwill impairment test as of February 1, 2002 and has determined that the fair value of each of the reporting units exceeded the reporting unit's carrying amount, and no impairment was indicated. 7 The following table provides the Company's net income and net income per share had the non-amortization provisions of SFAS No. 142 been adopted for all periods presented:
Three Months Ended April 30, ----------------------- 2002 2001 ----------------------- Net income, as reported $ 280,000 $ 134,000 Add back: Goodwill amortization - 37,000 Related income tax effect - (15,000) ----------------------- Adjusted net income $ 280,000 $ 156,000 ======================= Net income per share: Basic and diluted net income per common share, as reported $ 0.03 $ 0.02 Add back: Goodwill amortization, net of related income tax effect - - ----------------------- Adjusted basic and diluted net income per common share $ 0.03 $ 0.02 ======================= Amortization of goodwill for the full fiscal year 2002 was $133,000 before income taxes.
9. Long-Lived Assets: Adoption of Statement 144 In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001. SFAS 144 supersedes FASB Statement No. 121, "Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions relating to the disposal of a segment of a business of Accounting Principles Board Opinion No. 30. The Company has adopted SFAS 144 beginning in the first quarter of fiscal year 2003. The adoption had no impact on the Company's consolidated financial position or results of operations. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for the historical information contained herein, the matters addressed in this Item 2 contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use of forward-looking words such as "may", "will", "expect", "anticipate", "intend", "estimate", "continue", "behave" and similar words. Financial information contained herein, to the extent it is predictive of financial condition and results of operations that would have occurred on the basis of certain stated assumptions, may also be characterized as forward-looking statements. Although forward-looking statements are based on assumptions made, and information believed by management to be reasonable, no assurance can be given that such statements will prove to be correct. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated. GENERAL - ------- The Company is a diversified services organization that supplies technical services and solutions to a variety of industries including aerospace, defense, automotive, nuclear, electronics, computers and telecommunications. Through its wide range of testing facilities, staffing solutions and certification services, the Company provides its customers a market channel to sell their products globally and enhance their overall competitiveness. NTS is accredited by numerous national and international technical organizations which allows the Company to have its test data accepted in most countries. The Company operates in two segments: "Engineering & Evaluation" and "Technical Staffing". The business of the Company is conducted by a number of operating units, each with its own organization. Each segment is under the direction of its own executive and operational management team. The Engineering & Evaluation segment is one of the largest independent conformity assessment and management system registration organizations in the U.S., with facilities throughout the country and Japan, serving a large variety of high technology industries, including aerospace, defense, automotive, nuclear, electronics, computers and telecommunications. This segment provides highly trained technical personnel for product certification, product safety testing and product evaluation to allow clients to sell their products in world markets. In addition, it performs management registration and certification services to ISO related standards The Technical Staffing segment provides a variety of staffing and workforce management services and solutions, including contract services, temporary and full time placements to meet its clients' information technology ("IT"), information systems ("IS") and software engineering needs. The Company supplies professionals in support of customers who need help-desk analysts and managers, relational database administrators and developers, application and systems programmers, configuration and project managers, and multiple levels of system operations personnel. 9 The following discussion should be read in conjunction with the consolidated quarterly financial statements and notes thereto. All information is based upon operating results of the Company for the three months ended April 30. RESULTS OF OPERATIONS - --------------------- REVENUES Three months ended April 30, 2002 % Change 2001 (Dollars in thousands) ----------------------------- Engineering & Evaluation $ 13,756 0.7% $ 13,665 Technical Staffing 5,512 (3.5)% 5,711 --------- --------- Total revenues $ 19,268 (0.6)% $ 19,376 ========= ========= For the three months ended April 30, 2002, consolidated revenues decreased by $108,000 or 0.6% when compared to the same period in fiscal 2002. Engineering & Evaluation: - ------------------------- For the three months ended April 30, 2002, Engineering & Evaluation revenues increased by $91,000 or 0.7% when compared to the same period in fiscal 2002, primarily due to increased revenues in the aerospace, defense, nuclear energy electronic and automotive markets, partially offset by decreases in revenues in the computer testing and telecommunications markets due to the continued weakness in the technology sector across the U.S. economy. In addition, revenues were affected by the shut down of the Largo, Florida facility during the fourth quarter of last year. Technical Staffing: - ------------------- For the three months ended April 30, 2002, revenues in Technical Staffing decreased by $199,000 or 3.5% when compared to the same period in fiscal 2002, primarily due to the continuing recession, which has negatively impacted growth in the staffing industry, as many companies have ceased efforts to increase their work force. This decrease, however, shows a significant improvement from the $1,697,000 year-over-year decline experienced during the fourth quarter of last fiscal year. Sequentially, revenues in Technical Staffing increased from $4,935,000 in the fourth quarter of fiscal 2002 to $5,512,000 in this quarter. GROSS PROFIT Three months ended April 30, 2002 %Change 2001 (Dollars in thousands) ---------------------------- Engineering & Evaluation $ 3,615 3.6% $ 3,488 % to segment revenue 26.3% 25.5% Technical Staffing 1,124 (16.1)% 1,340 % to segment revenue 20.4% 23.5% --------- --------- Total $ 4,739 (1.8)% $ 4,828 ========= ========= % to segment revenue 24.6% 24.9% Total gross profit for the three months ended April 30, 2002 decreased by $89,000 or 1.8% when compared to the same period in fiscal 2002. 10 Engineering & Evaluation: - ------------------------ For the three months ended April 30, 2002, gross profit for the Engineering & Evaluation Group increased by $127,000 or 3.6% when compared to the same period in fiscal 2002, primarily as a result of the implementation of cost cutting measures and the increase in revenues. The gross profit increase was partially offset by higher depreciation, utility costs, insurance, workers compensation and other employee benefits. Technical Staffing: - ------------------- For the three months ended April 30, 2002, gross profit decreased by $216,000 or 16.1% in the Technical Staffing Group when compared to the same period in fiscal 2002. This decrease was primarily due to the decrease in revenues and lower margins due to customer mix. This decrease however is an improvement from the $461,000 year-over-year decline experienced during the fourth quarter of last year. Sequentially, gross profit in Technical Staffing increased from $986,000 in the fourth quarter of fiscal 2002 to $1,124,000 in this quarter. SELLING, GENERAL & ADMINISTRATIVE Three months ended April 30, 2002 % Change 2001 (Dollars in thousands) ---------------------------- Engineering & Evaluation $ 2,947 3.3% $ 2,854 % to segment revenue 21.4% 20.9% Technical Staffing 989 (18.9)% 1,219 % to segment revenue 17.9% 21.3% --------- --------- Total $ 3,936 (3.4)% $ 4,073 ========= ========= % to segment revenue 20.4% 21.0% Total selling, general and administrative expenses decreased $137,000 or 3.4% for the three months ended April 30, 2002 when compared to the same period in fiscal 2002. Engineering & Evaluation: - ------------------------ For the three months ended April 30, 2002, selling, general and administrative expenses increased by $93,000 or 3.3% when compared to the same period in fiscal 2002, primarily due to training and consulting costs related to a number of major initiatives undertaken by the Company to streamline internal processes, restructure the sales organization and improve the Company's technological capabilities. Technical Staffing: - ------------------ For the three months ended April 30, 2002, selling, general and administrative expenses decreased by $230,000 or 3.4% when compared to the same period in fiscal 2002, primarily due to the continued efforts by management to improve efficiencies and control costs in all aspects of its business. 11 OPERATING INCOME Three months ended April 30, 2002 % Change 2001 (Dollars in thousands) -------------------------- Engineering & Evaluation $ 668 5.4% $ 634 % to segment revenue 4.9% 4.6% Technical Staffing 135 11.6% 121 % to segment revenue 2.4% 2.1% --------- --------- Total $ 803 6.4% $ 755 ========= ========= % to segment revenue 4.2% 3.9% Operating income for the three months ended April 30, 2002 increased by $48,000 or 6.4% when compared to fiscal 2002. For the three months ended April 30, 2002, operating income in the Engineering & Evaluation Group increased by $34,000 or 5.4% when compared to the same period in fiscal 2002, as a result of the increase in gross profit, partially offset by a slight increase in selling, general and administrative expenses discussed above. For the three months ended April 30, 2002, operating income in the Technical Staffing Group increased by $14,000 or 11.6% when compared to the same period in fiscal 2002, as a result of the decrease in selling, general and administrative expenses discussed above. INTEREST EXPENSE Net interest expense decreased by $181,000 in the three months ended April 30, 2002 when compared to the same period in fiscal 2002. This decrease was principally due to lower average debt balances for the three months ended April 30, 2002 and lower interest rate levels when compared to the same period last year. INCOME TAXES The income tax provision rate of 42.7% for the three months ended April 30, 2002 reflects a rate in excess of the U.S. federal statutory rate primarily due to the inclusion of state income taxes. This rate is based on the estimated provision accrual for fiscal year ending January 31, 2003. Management has determined that it is more likely than not that the deferred tax asset will be realized on the basis of offsetting it against deferred tax liabilities. It is the Company's intention to assess the need for a valuation account by evaluating the realizability of the deferred tax asset quarterly, based upon projected future taxable income of the Company. NET INCOME The increase in net income for the three months ended April 30, 2002, compared to the same period in fiscal 2002, was primarily due to the lower interest expense and lower selling, general and administrative expenses in the Technical Staffing segment, partially offset by slightly lower gross profit. 12 BUSINESS ENVIRONMENT Engineering & Evaluation: - ------------------------- The Company's basic service is to provide product certification, product safety testing and product evaluation to ensure its clients' products meet established specifications or standards. In recent years, domestic and worldwide political and economic developments have significantly affected the markets for defense and advanced technology systems. Homeland security and defeating terrorism are among the Department of Defense's main initiatives. Budget increases are projected for operational readiness spending as well as research and development spending. The Company is well positioned to service the needs of the suppliers to the Department of Defense by testing their products with its current locations and certification, registration and testing capability. The Company is also anticipating a rebound in the technology sector served by the Company towards the end of calendar year 2002. The Company anticipates that its growth in fiscal year 2003 will be derived primarily from the functional certification and test activity in the aerospace and defense industries Technical Staffing: - ------------------- The Company provides a variety of staffing and workforce management services and solutions, including contract, contract-to-hire and full time placements to meet its clients' needs. One of the strategies for growth is to leverage off our Engineering & Evaluation clients and provide technical and engineering personnel as a complete package to the certification, registration and test services we currently provide. The goal is to align NTS as a complete solution to the clients' product development needs which will include consultants and technical experts provided by our staffing division. Notwithstanding the foregoing, and because of factors affecting the Company's operating results, past financial performance should not be considered to be a reliable indicator of future performance. LIQUIDITY AND CAPITAL RESOURCES For the three months ended April 30, 2002, cash provided by operations increased by $2,073,000 when compared to the same period in fiscal 2001. This increase was primarily due to the reductions in payments in accounts payable compared to the same period fiscal 2002 and an increase in deferred income. Net cash used in investing activities in the three-month period ended April 30, 2002 decreased by $208,000 over the same period in fiscal 2001, primarily due to the decrease in capital purchases during the three-month period ended April 30, 2002. 13 In the three-month period ended April 30, 2002, net cash used by financing activities decreased by $21,000 over the same period in fiscal 2001. Net cash used by financing activities consisted of debt reduction on lines of credit and short term and long term debt of $1,230,000 in the aggregate and repurchase of common stock of $7,000, partially offset by increases in proceeds from loans of $114,000. The Company had a credit agreement with United California Bank (formerly Sanwa Bank California), as agent, and Mellon Bank, which included (1) a $10,000,000 revolving line of credit at an interest rate equal to the agent bank's reference rate expiring November 1, 2002 and (2) a $6,500,000 term loan at an interest rate of 8.31% expiring in January 2003. In September 2001, the line of Credit was reduced to $9,700,000. On November 21, 2001, the Company replaced the outstanding debt to United California Bank and Mellon Bank with a $16,000,000 reducing revolving line of credit with Comerica Bank California and First Bank, expiring on July 30, 2003. Comerica, as the agent Bank, is sharing 60% of the line with First Bank, as the participant Bank, sharing 40% of the line. The revolving line of credit will be reduced by $1,500,000 on July 30, 2002 and by $1,750,000 each year thereafter. If during any fiscal year, the Company's net income equals or exceeds $2,000,000, there will be no reduction in the revolving line of credit. The interest rate is at the agent bank's prime rate, with an option for the Company to convert to loans at the Libor rate plus 250 basis points for 30, 60, 90, 180 or 365 days, with minimum advances of $1,000,000. The Company paid a 0.5% commitment fee of the total line amount, or $80,000, which was capitalized and is being amortized as additional interest expense over twelve months. The Company will also pay an additional 0.25% of the commitment amount annually and a 0.25% fee for any unused line of credit. The outstanding balance on the revolving line of credit at April 30, 2002 was $11,322,000. This balance is reflected in the accompanying consolidated balance sheets as long-term. This agreement is subject to certain covenants, which require the maintenance of certain working capital, debt-to-equity, earnings-to-expense and cash flow ratios. The Company was in full compliance with all of the covenants with its banks as of April 30, 2002. The Company has additional equipment line of credit agreements (at interest rates of 6.02 % to 10.25%) to finance various test equipment with terms of 60 months for each equipment schedule. The outstanding balance at April 30, 2002 was $3,561,000. The balance at April 30, 2002 of other notes payable collateralized by land and building, was $3,294,000. 14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (none) (b) Form 8-K During the quarter ended April 30, 2002 the registrant did not file a current report on Form 8-K. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NATIONAL TECHNICAL SYSTEMS, INC. Date: June 10, 2002 By: /s/ Lloyd Blonder ----------------------- --------------------------- Lloyd Blonder Senior Vice President Chief Financial Officer (Signing on behalf of the registrant and as principal financial officer) 15 -----END PRIVACY-ENHANCED MESSAGE-----