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NATIONAL TECHNICAL SYSTEMS INC /CA/ - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) Except for the historical information contained herein, the matters addressed in this Item 2 contain forward-looking statements. These forward-looking statements involve risks and uncertainties, including those described in the Company's Annual Report on Form 10-K, filed with the Security and Exchanges Commission April 30, 2013. Actual results, events and performance may differ materially from those anticipated in the forward looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. See the note at the beginning of this report. General National Technical Systems, Inc. is the leading independent provider of testing and certification services in the United States, serving numerous attractive and growing end markets. During its more than 50 years in the business, the Company has built the dominant testing platform in the country. NTS' expansive geographic presence, experienced sales force, deep client relationships, breadth of capabilities and continuous innovation are unmatched by any competitor, making the Company a unique one-stop resource to meet its clients' demanding and evolving requirements. NTS is accredited by numerous national and international technical organizations which allow the Company to have its test data accepted in most countries. NTS serves customers primarily in the aerospace, defense, telecommunications, automotive, energy, consumer products, commercial and industrial products and medical markets. The Company operates facilities throughout the United States as well as a facility in Vietnam and Germany. The following discussion should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K for the year ended January 31, 2013 and the consolidated quarterly financial statements and notes thereto contained in this report. All information in this report is based upon unaudited operating results of the Company for the three and six month periods ended July 31, 2013 and 2012. Markets Aerospace. NTS offers integrated life cycle product services to the aerospace market, including Civil Aviation. These services include engineering, testing, certification, and supply chain management. From concept development and design, through, certification, production and in-service life, NTS provides support throughout the full life cycle of the aerospace product. These integrated services fill the capability gaps that have developed in the aerospace supply chains after years of large scale integration, outsourcing and globalization. NTS designs, builds, and integrates custom test, measurement, automation and data acquisition and control systems for the aerospace industry. These systems integrate diverse hardware platforms, operating systems and instrumentation standards. Testing services include providing a wide range of test capabilities for space and aircraft vehicles. NTS has extensive capability and expertise in static and fatigue testing, sonic fatigue, vibration, modal, ground vibration, high pressure/high flow air and fluid compatibility. Airborne equipment testing spans the full range of RTCA DO-160 requirements, including static and dynamic, electromagnetic effects (EME, EMI, EMC), electrostatic discharge (ESD), environmental, material and system compatibility, high intensity radiated field (HIRF), direct and indirect lightning effects and highly accelerated life testing (HALT) and highly accelerated stress screening (HASS). NTS' engineering services consist of design and analysis of aerospace structures, systems, components and detailed parts as part of clients' design teams or as a fixed-price work package. Specific capabilities include engineering program management, managed engineering services (on-site management of client engineering teams), design engineering, analysis, test engineering, test system engineering, failure forensics and expert witnessing. NTS provides engineering services that design, develop, test, and integrate pods & payloads for unmanned systems. This group has expanded from airborne platforms into ground, sea (surface and subsurface), and robotic platforms. NTS has conducted test programs for unmanned aerial systems (UAS) components, systems, payloads and completely integrated air vehicles. NTS is actively engaged in a variety of unmanned system test programs, and has performed environmental, vibration and EMI testing on a number of UAS systems. 12 -------------------------------------------------------------------------------- Table of Contents Supply chain and Certification services span a wide range of development, oversight, and registration activities including product inspection, production monitoring and expediting, test witnessing and support, corrective action follow-up, supplier surveillance, sub-tier supplier management, new supplier surveys, systems evaluations and audits (including special processes), development of quality assurance protocols, supplier development and improvement, quality management system audit, certification and registration. Defense. NTS plays an active role in numerous U.S. defense-related programs, performing a wide variety of defense technology research, development, test, and evaluation services for the Department of Defense and other, military and governmental agencies. These services evaluate the weapons, ordnance, munitions, avionics, electronics, hydraulic and pneumatic controls, engines and communication systems that make up the elements of today's modern warfare. The Company's testing platforms for the defense industry include fixed wing aircraft, helicopters, submarines, aircraft carriers and other naval ships, tanks and other tracked vehicles, trucks and road vehicles, command, control and communication systems and missiles and weapons systems. Testing includes associated system and component level tests of structures, hardware, electronics, personal protective equipment, armor, weapons and ammunition. NTS has facilities that are specially constructed to store, handle, and test ordnance, munitions and hazardous materials. Routine testing includes live fire, function, environmental, dynamics, safety, MIL-STD-901 shipboard shock, insensitive munitions (IM), hazard classification, transportation and packaging safety. These tests are done for prototype, developmental, qualification and production/lot acceptance testing. Multiple NTS facilities around the country provide 200 v/m up to 40 GHz EMI/EMC testing of electronic and communications equipment. Custom designed NTS data acquisition systems are capable of collecting data at speeds of 2,000,000 data points per second and digital photography capability of over 160,000 color photos per second. NTS' defense group provides energetic and prototype engineering services, including 2D and 3D CAD modeling; technical data package development and modification; finite element analysis, projectile design and analysis; interior and exterior ballistics analysis, and design and development of custom test hardware and fixtures. Other services include support, procurement and delivery of precision metal parts and explosive loading of prototype hardware. Additional defense services include design, development, fabrication, and fielding of specialized high speed instrumentation and diagnostics for energetics and hazardous materials and ordnance testing. This includes custom sensor suite design, fabrication and deployment, often through specialized test facility design. Telecommunications. NTS provides engineering design, test evaluation and certification services for manufacturers of a broad array of telecommunications networking and storage equipment intended for commercial data centers, central/telecom offices and client premise environments. The Company's services are performed in accordance with domestic and international regulatory standards, the network equipment building systems (NEBS) specifications, as required by the telecommunications industry. Globally, NTS represents the largest network of independent test laboratories (ITL) certified and recognized by most regional bell operating companies' (RBOCs) carriers. The Company is also certified and accredited to support formal witness testing on behalf of the RBOC carriers at approved manufacturer's internal test facilities. Rapid technological change in the telecommunication market, including the wireless telecom industry, is driving demand for engineering design, testing evaluation and certification services for faster and more robust backhaul networking equipment will continue to increase. The Company is well positioned to support this demand, currently providing accredited ITL services at laboratories in California, Massachusetts, New Jersey, Texas and Germany. Automotive. NTS supports the commercial and military vehicle industries with testing, including dynamometer operations on power train components, vibration and shock on mechanical and electrical assemblies, thermal and corrosion exposures on control and monitoring systems, pressure pulsing and burst on fluid handling items and fatigue and ultimate strength on mechanical components. NTS performs testing to support requirements in emerging markets of pure electric vehicles and electric hybrid vehicles. This includes electric motors, integrated motor/transmissions, specialized high speed transmissions, batteries and control/distribution modules. It also performs HALT and HASS analyzes. These tests combine extremes of temperature, rapid temperature change, and multi-axis vibration to rapidly expose design weaknesses and process flaws. NTS is accredited to ISO 17025 through the American Accreditation of Laboratories Association (A2LA). This accreditation allows NTS automotive test reports to be accepted throughout the U.S. and internationally. 13 -------------------------------------------------------------------------------- Table of Contents Energy. NTS offers multi-disciplinary expertise and capabilities to provide smart solutions to complex engineering, and scientific problems in the areas of nuclear energy, renewable energy, energy storage and smart grid. The services provided are: · Technical functional knowledge of engineering fundamentals: mechanical, structural, electrical, reliability, and high technology communication and security software system test and monitoring solutions. · Testing on a variety of smart energy/smart grid products with a focus on the communications functionality and network protocols of smart meters, smart outlets, thermostats/in-home displays and smart appliances. · Supply chain management focusing on assuring product integrity through quality process and product auditing, supplier improvement plans, and management of quality systems. · Multi-disciplinary expertise in global compliance and certification for components, devices, communication products, software/hardware interoperability, and system security vulnerability assessments and validation. · Testing on seismic, environmental, EMI, radiation, equipment qualification, commercial grade dedication, mechanical aging, thermal aging, vacuum testing, leak detection, and high expansion line breaks. Seismic and vibration simulation tests are conducted for a variety of products on single axis, dependent biaxial systems, or independent tri-axial and electro-mechanical shaker tables. · Certification and evaluation services to nuclear utilities and suppliers worldwide. · A full range of products, engineering and testing services under our NUPIC and NIAC audited 10CFR50, Appendix B quality program. Consumer Products. NTS provides engineering design, test evaluation and domestic and international certification services to manufacturers of a broad array of consumer products normally procured for use in a residence, school or recreation environment. This typically includes personal computing, PC peripheral, residential networking and personal wireless devices. These products are subjected to a wide range of electromagnetic compatibility, product safety, reliability, usability and interoperability tests and certifications to assure market compliance, reliability and effective use. The Company has been approved as an exclusive ITL to offer internet TV set-top box multimedia over coax (MoCA) certification. The Company is the exclusive certifications provider for the Sirius/XM radio ready program and holds a number of domestic and international test accreditations throughout its network of commercial laboratories. NTS is an accredited telecommunication certification body (TCB) in North America and an appointed notified body for wireless devices in the European Union. With the increased integration of wireless technology into traditional consumer products, the dramatic population growth, income gains, global macroeconomic shifts and the urbanization in regions throughout Asia, Central and South America and Africa, NTS is well positioned to support the growing market spaces to which manufacturers are seeking to sell. The Company's service offerings offer a 'one-stop-shop' to the consumer product market, ensuring manufacturers a shorter time to market in the fierce 'race to market.' Commercial & Industrial. NTS provides engineering design, test evaluation and domestic and international certification services to manufacturers of a broad array of commercial and industrial products normally procured for light and heavy industrial applications. This covers a wide range of industries from shipbuilding, semiconductor manufacturing equipment, automation, robotics, laboratory and materials handling devices. Various types of commercial grade electronic, hydraulic and pneumatic systems are subjected to electrical, environmental and safety testing to ensure regulatory compliance and safe and reliable use. Special combined mechanical and environmental testing processes, such as (HALT testing), are used to accelerate the effects of aging and wear to allow manufacturers to produce a more reliable product. Once this has been accomplished, similar HASS testing can be used to ensure consistent quality on the production line. Increasingly, these products are incorporating Wireless Local Area Network (WLAN) and Wide Wireless Access Network (WWAN) communication technologies, and the requirement for additional testing and certification. 14 -------------------------------------------------------------------------------- Table of Contents Medical. NTS provides engineering design, testing evaluation and domestic and international certification services to manufacturers of a broad array of medical products typically including non-invasive devices. Services are limited to include electromagnetic compatibility, electrical product safety and quality control/risk analysis consultation. Through various industry partnerships, the Company has affiliations with consultants and notified bodies to support medical approval in North America and throughout the European Union. With the increased integration of wireless communications into traditional medical device products, NTS is also well equipped to support domestic and international testing and approvals. Growth Strategy NTS' growth strategy is to provide significant focus on corporate development activities within the mid-to longer-term time horizon, while continuing to drive efficiencies and market penetration within the shorter-term fiscal planning time horizon. NTS' strategies for continued growth include: · increasing market share through leveraging its geographic reach and providing superior service that distinguishes it from its competition; · investing in human and capital resources to strengthen existing capabilities; · enhancing utilization of resources; · adding new, innovative service offerings to the Company's repertoire; · identify, evaluate and acquire companies that can add significant value upon integration with NTS; and · continue to integrate companies recently acquired. Recent Developments Consolidated revenues for the six months ended July 31, 2013, were $91,203,000, an increase of $421,000 or 0.5% over the same period last year. The majority of this increase came from organic growth particularly in the aerospace market, partially offset by a decrease in the defense market. The increased revenues combined with prudent cost controls resulted in net income for the period of $1,667,000. During the quarter ended July 31, 2013, the Company was involved in discussions with a number of perspective bidders regarding a potential sale transaction. On August 15, 2013, the Company entered into an Agreement and Plan of Merger with Nest Parent, Inc., a Delaware corporation ("Parent"), and Nest Merger Sub, Inc., affiliates of Aurora Capital Group. Upon closing, each outstanding share of Company common stock will be converted into the right to receive an amount in cash equal to $23.00 per share. Assuming the satisfaction of the conditions set forth in the Merger Agreement, the Company expects the transaction to close before the end of 2013. See Note 15 Subsequent Events in the accompanying financial statements for further detail. Costs incurred during the current quarter related to this transaction were $300,000 and are included in general and administrative expenses. With the completion of the implementation of its ERP system, the company centralized many of its support activities and effected a reduction in force. This resulted in restructuring costs of $1,037,000 for the three months ended July 31, 2013 which included severance and other employment related costs of $963,000 and other facility consolidation costs of $74,000. These costs are recorded to restructuring costs on the consolidated statements of operations. On June 27, 2013, the Company paid off the $7,000,000 subordinated note with Mill Road Capital as well as accrued interest of $745,000 and a prepayment penalty of $387,000, using cash generated from operations and draws on the Company's revolving credit line. The prepayment penalty, accretion of the debt discount of $558,000 and expensing of prepaid loan fees of $342,000 were charged to interest expense in the current quarter. On June 26, 2013, the Company sold its 50% interest in XXCAL Japan for $240,000. The loss of $14,000 related to the sale is included in other expense. 15 -------------------------------------------------------------------------------- Table of Contents Unaudited Results of Operations for the Six Months Ended July 31, 2013 Revenues REVENUES Six months ended July 31, 2013 2012 % Change (Dollars in thousands) Total revenues $ 91,203 $ 90,782 0.5 % For the six months ended July 31, 2013, consolidated revenues increased by $421,000 or 0.5% when compared to the same period in fiscal year 2013. Substantially all of this growth was organic (revenues from businesses owned throughout both reporting periods) and was primarily related to an increase in the aerospace market, partially offset by a decrease in the defense market. Gross Profit GROSS PROFIT Six months ended July 31, 2013 2012 % Change (Dollars in thousands) Total $ 27,997 $ 24,131 16.0 % % to total revenues 30.7 % 26.6 % Gross profit for the six months ended July 31, 2013 increased by $3,866,000 or 16.0% when compared to the same period in fiscal year 2013. Several factors contributed to the increase, including price increases, favorable project mix, increased volume, and decreased costs related to the reduction in force. Also, with the centralization of administrative functions which began in the first quarter of the current fiscal year, SG&A expense for the six months ended July 31, 2013 included approximately $1,300,000 of support-related expenses that were classified as cost of sales in the prior fiscal year. Gross profit as a percentage of revenue, or gross margin, increased from 26.6% to 30.7%. Selling, General & Administrative SELLING, GENERAL & ADMINISTRATIVE Six months ended July 31, 2013 2012 % Change (Dollars in thousands) Total $ 21,578 $ 17,079 26.3 % % to total revenues 23.7 % 18.8 % Total selling, general and administrative expenses increased by $4,499,000 or 26.3% for the six months ended July 31, 2013 when compared to the same period in fiscal year 2013. The increase is mainly due to additional share-based compensation expense of $2,419,000 driven by the significant increase in the Company's stock price in this fiscal year, $300,000 in one-time transaction costs and $1,104,000 in additional incentive compensation. Also, with the centralization of administrative functions which began in the first quarter of the current fiscal year, SG&A expense for the first six months of fiscal year 2014 included approximately $1,300,000 of support-related expenses that were classified as cost of sales in the prior fiscal year. Restructuring costs With the completion of the implementation of its ERP system, the Company centralized many of its support activities and effected a reduction in force. This resulted in restructuring costs of $1,037,000 for the six months ended July 31, 2013 which included severance and other employment related costs of $963,000 and other facility consolidation costs of $74,000. 16 -------------------------------------------------------------------------------- Table of Contents Operating Income OPERATING INCOME Six months ended July 31, 2013 2012 % Change (Dollars in thousands) Total $ 5,344 $ 6,916 (22.7 )% % to total revenues 5.9 % 7.6 % Operating income for the six months ended July 31, 2013 decreased by $1,572,000 or 22.7% when compared to the same period in fiscal year 2013, primarily as a result of the increase in SG&A expense and restructuring costs, partially offset by the increase in gross profit. Interest Expense Net interest expense increased by $856,000 to $2,655,000 in the six months ended July 31, 2013 when compared to the same period in fiscal year 2013. The increase was primarily due to prepayment of the Mill Road subordinated note, which included the prepayment penalty of $387,000, accretion of the debt discount of $558,000 and expensing of prepaid loan fees of $342,000, partially offset by lower debt balances in the current year. Other Income Other income was $82,000 for the six months ended July 31, 2013, consisting of various minor transactions. Income Taxes The income tax provision rate for the six months ended July 31, 2013 was 39.8% compared to 41.2% for the same period in the prior year. Management has determined that it is more likely than not that the deferred tax assets will be realized on the basis of offsetting them against the reversal of deferred tax liabilities. The Company analyzes the value of the deferred income tax asset quarterly. Net Income Net income for the six months ended July 31, 2013 was $1,667,000 compared to $3,060,000 for the same period in fiscal year 2013. This decrease was primarily due to higher SG&A expense and restructuring costs, partially offset by higher gross profit and lower income taxes. For the six months ended July 31, 2013, net income attributable to noncontrolling interests was $380,000 compared to $504,000 in the prior year, a decrease of $124,000 or 24.6%. The decrease was due to the Company's purchase of the 49.9% minority interest of Unitek Technical Services, a consolidated subsidiary, on November 8, 2012. Income related to Unitek is no longer included in noncontrolling interests, since the purchase. Net income attributable to NTS for the six months ended July 31, 2013 was $1,287,000 compared to $2,556,000 for the same period in fiscal year 2013. This decrease was primarily due to lower net income, partially offset by the decrease in net income attributable to noncontrolling interests. Adjusted EBITDA EBITDA (earnings before interest, taxes, depreciation and amortization) as adjusted to remove the effect of share based compensation expense, or "adjusted EBITDA", was $13,569,000 for the six months ended July 31, 2013 compared to $12,520,000 in the same period of the prior year. Management uses adjusted EBITDA to evaluate the Company's core operations without reference to the impact of interest and tax payments resulting from its capital structure and tax jurisdictions, or depreciation and amortization which can fluctuate based on acquisition activity. Our senior credit facility also includes covenants related to adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure. The Company calculates adjusted EBITDA by taking net income, and adding back the expenses related to interest, taxes, depreciation, amortization, share based compensation expense and non-cash impairment loss, as each of those elements are calculated in accordance with GAAP. A reconciliation of the Company's adjusted EBITDA to net income for the six months ended July 31, 2013 and 2012 is included in the table below. 17 -------------------------------------------------------------------------------- Table of Contents (Dollars in thousands) Six months ended July 31, 2013 2012 Net Income $ 1,667 $ 3,060 Add Interest 2,655 1,799 Taxes 1,104 2,146 Depreciation 4,136 3,934 Amortization 1,016 1,009 EBITDA 10,578 11,948 Add Share based compensation 2,991 572 Adjusted EBITDA $ 13,569 $ 12,520 Unaudited Results of Operations for the Three Months Ended July 31, 2013 Revenues REVENUES Three months ended July 31, 2013 2012 % Change (Dollars in thousands) Total revenues $ 46,186 $ 47,329 (2.4 )% For the three months ended July 31, 2013, consolidated revenues decreased by $1,143,000 or 2.4% when compared to the same period in fiscal year 2013, primarily due to decreases in the defense and energy markets, partially offset by an increase in the aerospace market. Gross Profit GROSS PROFIT Three months ended July 31, 2013 2012 % Change (Dollars in thousands) Total $ 14,467 $ 12,810 12.9 % % to total revenues 31.3 % 27.1 % Gross profit for the three months ended July 31, 2013 increased by $1,657,000 or 12.9% when compared to the same period in fiscal year 2013. This increase in gross profit was primarily due to price increases, favorable project mix and decreased costs related to the reduction in force. Approximately $600,000 of support-related expenses were included in cost of sales in the second quarter of the prior year, which due to the centralization of administrative functions that began in the first quarter is recorded to SG&A in the current quarter. Gross profit as a percentage of revenue, or gross margin, increased from 27.1% to 31.3%. Selling, General & Administrative SELLING, GENERAL & ADMINISTRATIVE Three months ended July 31, 2013 2012 % Change (Dollars in thousands) Total $ 11,539 $ 8,667 33.1 % % to total revenues 25.0 % 18.3 % 18-------------------------------------------------------------------------------- Table of Contents Total selling, general and administrative expenses increased by $2,872,000 or 33.1% for the three months ended July 31, 2013 when compared to the same period in fiscal year 2013. The increase is mainly due to additional share-based compensation expense of $1,983,000 driven by the significant increase in the Company's stock price in the current quarter, $300,000 in one-time transaction costs and $706,000 in additional incentive compensation. Also, with the centralization of administrative functions which began in the first quarter of the current fiscal year, SG&A expense for the current quarter included approximately $600,000 of support-related expenses that were classified as cost of sales in the prior fiscal year. Restructuring costs With the completion of the implementation of its ERP system, the Company centralized many of its support activities and effected a reduction in force. This resulted in restructuring costs of $1,037,000 for the three months ended July 31, 2013 which included severance and other employment related costs of $963,000 and other facility consolidation costs of $74,000. Operating Income OPERATING INCOME Three months ended July 31, 2013 2012 % Change (Dollars in thousands) Total $ 1,885 $ 4,020 (53.1 )% % to total revenues 4.1 % 8.5 % Operating income for the three months ended July 31, 2013 decreased by $2,135,000 or 53.1% when compared to the same period in fiscal year 2013, primarily as a result of the increase in SG&A expense and restructuring costs, partially offset by the increase in gross profit. Interest Expense Net interest expense increased by $942,000 to $1,864,000 in the three months ended July 31, 2013 when compared to the same period in fiscal year 2013. The increase was primarily due to prepayment of the Mill Road subordinated note, which included the prepayment penalty of $387,000, accretion of the debt discount of $558,000 and expensing of prepaid loan fees of $342,000, partially offset by lower debt balances in the current quarter. Other Income Other income was $68,000 for the three months ended July 31, 2013, consisting of various minor transactions. Income Taxes The income tax provision rate for the three months ended July 31, 2013 was 42.7% compared to 41.5% for the same period in the prior year. Management has determined that it is more likely than not that the deferred tax assets will be realized on the basis of offsetting them against the reversal of deferred tax liabilities. The Company analyzes the value of the deferred income tax asset quarterly. Net Income Net income for the three months ended July 31, 2013 was $51,000 compared to $1,838,000 for the same period in fiscal year 2013. This decrease was primarily due to higher SG&A expense and restructuring costs, partially offset by higher gross margin and lower income taxes. For the three months ended July 31, 2013, net income attributable to noncontrolling interests was $195,000 compared to $236,000 in the prior year, a decrease of $41,000 or 17.4%. The decrease was due to the Company's purchase of the 49.9% minority interest of Unitek Technical Services, a consolidated subsidiary, on November 8, 2012. Income related to Unitek is no longer included in noncontrolling interests, since the purchase. 19 -------------------------------------------------------------------------------- Table of Contents Net loss attributable to NTS for the three months ended July 31, 2013 was $144,000 compared to net income attributable to NTS of $1,602,000 for the same period in fiscal year 2013. This decrease was primarily due to lower net income, partially offset by the decrease in net income attributable to noncontrolling interests. Adjusted EBITDA EBITDA (earnings before interest, taxes, depreciation and amortization) as adjusted to remove the effect of share based compensation expense, or "adjusted EBITDA", was $6,910,000 for the three months ended July 31, 2013 compared to $7,002,000 in the same period of the prior year. Management uses adjusted EBITDA to evaluate the Company's core operations without reference to the impact of interest and tax payments resulting from its capital structure and tax jurisdictions, or depreciation and amortization which can fluctuate based on acquisition activity. Our senior credit facility also includes covenants related to adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure. The Company calculates adjusted EBITDA by taking net income, and adding back the expenses related to interest, taxes, depreciation, amortization, share based compensation expense and non-cash impairment loss, as each of those elements are calculated in accordance with GAAP. A reconciliation of the Company's adjusted EBITDA to net income for the three months ended July 31, 2013 and 2012 is included in the table below. (Dollars in thousands) Three months ended July 31, 2013 2012 Net Income $ 51 $ 1,838 Add Interest 1,864 922 Taxes 38 1,313 Depreciation 2,048 2,003 Amortization 506 506 EBITDA 4,507 6,582 Add Share based compensation 2,403 420 Adjusted EBITDA $ 6,910 $ 7,002 Off Balance Sheet Arrangements None. Liquidity and Capital Resources Liquidity A summary of key balance sheet items affecting liquidity at July 31, 2013 and January 31, 2013 is as follows: |