<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
-------------------------------------------------
or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------------- -------------------
Commission File Number: 1-8988
--------------------------------------------------------
ECC International Corp.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-1714658
- - -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
175 Strafford Avenue, Wayne, PA 19087-3377
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 687-2600
- - -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- - -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 twelve 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 at least the past 90 days. [X] Yes [ ] No
As of September 30, 1994, there were 7,592,958 shares of the Registrant's
Common Stock, $.10 par value per share, issued and outstanding.
================================================================================
<PAGE> 2
<TABLE>
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(In Thousands Except Share and Per Share Data)
(Unaudited)
<CAPTION>
Three Months Three Months
Ended Ended
9/30/94 9/30/93
--------- ---------
<S> <C> <C>
Net Sales $ 20,656 $ 15,407
Cost of Sales 14,923 10,738
--------- ---------
Gross Profit 5,733 4,669
--------- ---------
Expenses:
Selling, General & Administrative 3,184 2,756
Systems Development 208 200
--------- ---------
Total Expenses 3,392 2,956
--------- ---------
Operating Income 2,341 1,713
--------- ---------
Other Income (Expense):
Interest Income 49 24
Interest Expense (357) (465)
Other - Net (37) (91)
--------- ---------
Total Other Expense (345) (532)
--------- ---------
Income Before Income Taxes 1,996 1,181
Provision for Income Taxes 660 398
--------- ---------
Net Income $ 1,336 $ 783
--------- ---------
--------- ---------
Earnings Per Common Share and
Common Share Equivalent $ 0.17 $ 0.13
--------- ---------
--------- ---------
Weighted Average Number of Common and
Common Share Equivalents Outstanding 7,877,395 6,178,592
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 3
<TABLE>
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
(Unaudited) (Audited)
9/30/94 6/30/94
----------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 779 $ 2,600
Accounts Receivable 5,923 3,185
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 25,087 22,921
Inventories
Raw Material 4,388 4,407
Work in Process 3,698 4,419
Finished Goods 1,021 1,032
Prepaid Expenses and other 1,462 1,714
------- -------
Total Current Assets 42,358 40,278
Property, Plant and Equipment - Net 23,495 23,117
Other Assets 1,988 1,785
------- -------
Total Assets $67,841 $65,180
------- -------
------- -------
</TABLE>
Continued...
<PAGE> 4
<TABLE>
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands)
<CAPTION>
(Unaudited) (Audited)
9/30/94 6/30/94
----------- ---------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt $ 1,500 $ 750
Accounts Payable 2,890 3,871
Accrued Compensation 2,908 3,222
Advances on Long-Term Contracts 818 85
Accrued Profit Sharing 798 1,264
Other Accrued Expenses 2,277 2,932
------- -------
Total Current Liabilities 11,191 12,124
------- -------
Deferred Income Taxes 1,409 1,635
------- -------
Long-Term Debt 14,120 16,818
------- -------
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.10 par; authorized
20,000,000 shares at 9/30/94 and
6/30/94; reserved for stock options
and other obligations to issue stock,
2,265,115 shares at 9/30/94 and
2,320,688 shares at 6/30/94; issued
and outstanding, 7,592,958 shares
at 9/30/94 and 7,537,385 at 6/30/94 759 754
Preferred stock, $.10 par; authorized
1,000,000 shares at 9/30/94 and at
6/30/94; issued and outstanding none
at 9/30/94 and 6/30/94 -- --
Capital in Excess of Par 20,325 20,203
Stock Subscription Receivable -- (5,012)
Cumulative Translation Adjustment 16 (27)
Retained Earnings 20,424 19,088
------- -------
41,524 35,006
Treasury Stock, at cost,
(50,000 shares at 9/30/94 and 6/30/94) (403) (403)
------- -------
Total Stockholders' Equity 41,121 34,603
------- -------
Total Liabilities & Stockholders' Equity $67,841 $65,180
------- -------
------- -------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 5
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1994 AND 1993
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Three Months
Ended Ended
9/30/94 9/30/93
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 1,336 $ 783
Items Not Requiring Cash:
Depreciation 827 814
Deferred Income Taxes (177) --
Changes in Certain Assets and Liabilities:
Accounts Receivable (2,738) 1,396
Cost and Estimated Earnings in Excess
of Billings on Uncompleted Contracts (2,166) 670
Inventories 751 (819)
Prepaid Expenses and Other 203 312
Accounts Payable (981) (359)
Advances on Long-Term Contracts 733 (1,192)
Accrued Expenses (1,435) 643
------- -------
Net Cash (Used In) Provided By Operating Activities (3,647) 2,248
------- -------
Cash Flows From Investing Activities:
Additions to Property, Plant and Equipment (1,205) (246)
Other (160) (116)
------- -------
Net Cash Used In Investing Activities (1,365) (362)
------- -------
Cash Flows From Financing Activities:
Proceeds From Issuance of Common Stock and Options 5,139 --
New Borrowings under Term Loan 9,000 --
New Borrowings under Revolving Credit Facility, Net 6,620 --
Repayment of Long-Term Debt (17,568) (2,000)
------- -------
Net Cash Provided By (Used In) Financing Activities 3,191 (2,000)
------- -------
Net Decrease in Cash (1,821) (114)
Cash at Beginning of the Period 2,600 988
------- -------
Cash at End of the Period 779 874
------- -------
------- -------
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year For:
Interest $ 358 $ 456
Income Taxes $ 1,156 $ 319
</TABLE>
<PAGE> 6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying statements are unaudited and have been prepared by ECC
pursuant to the rules and regulations of the Securities and Exchange
Commission. The June 30, 1994 balance sheet was derived from audited
financial statements but does not include all disclosures required by
generally accepted accounting principles. In the opinion of management
such consolidated financial statements contain all adjustments, consisting
of only normal recurring adjustments, necessary to present fairly the
consolidated financial position, results of operations and cash flows for
the interim periods presented. The aforementioned consolidated financial
statements have been prepared substantially in conformity with the
accounting principles reflected in the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994.
2. Earnings per share for the three month periods ended September 30, 1994 and
1993 are based on net income divided by the weighted average number of
common share and common share equivalents outstanding.
Common stock equivalents (stock options, warrants and Employee Stock
Purchase Plan) are excluded from the calculation of per share data when
their dilutive effect is not material.
3. ECC has filed claims for additional costs the Company incurred for work
performed on three "build-to-print" Pop-Up-Target contracts for the U.S.
Army, seeking over $3.0 million, based on deficient technical packages
provided to ECC as conceded by the Army. The initial claim was filed in
June 1986 and has been in litigation before the Armed Services Board of
Contract Appeals since June 1989. During FY 1994, the Board issued a
decision awarding the Company minimal damages on its claim. The Company has
appealed the Board's decision to the United States Court of Appeals for the
Federal Circuit. Management, based in-part upon advise of counsel, believes
it will prevail in this appeal.
4. Effective July 1, 1994, the Company conformed its method of accounting for
S,G&A costs on an interim basis to the method used for annual reporting
purposes, that is, charged to operations as incurred. The effect of the
change for the quarter ended September 30, 1994 was to decrease earnings by
$568,000 before taxes or $0.05 per share after taxes. The Company
previously allocated S,G&A costs to contracts utilizing an annualized
estimated rate to absorb such costs on an interim basis.
5. Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 112 "Employers' Accounting for Post
employment Benefits." SFAS No. 112 requires recognition of the cost of
certain benefits paid to former or inactive employees on an accrual basis
and principally affects the Company's accounting for disability benefits.
The impact of adopting SFAS No. 112 was immaterial.
<PAGE> 7
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
a) Material Changes in Financial Condition
---------------------------------------
During the three month period ended September 30, 1994, the Company's
principal sources of cash were proceeds from the new loan facility and the
remaining proceeds from the private equity placement.
These funds were used for the increase in costs and estimated earnings in
excess of billings on uncompleted contracts, additions to property, plant
and equipment and the repayment of the Company's existing debt. In
addition, these funds were used to pay the remaining unfunded portion of the
1994 profit sharing contribution, payroll taxes and trade creditors.
The substantial increase in accounts receivable during the first quarter of
fiscal year 1995 was primarily the result of billings related to the 54
bottle vending machines as well as billings for the U.K. operation for which
payments were received during the second quarter of fiscal year 1995.
The decrease in inventory is primarily the result of continued deliveries
on the 54 bottle vending machines for which inventory levels were
inordinately high at June 30, 1994. The Company had originally planned on
producing 600 machines in June and July and had accordingly scheduled
sufficient material to meet all of June's and part of July's requirements.
However, due to various delays, the Company produced only 204 units in June
and therefore had on hand at June 30, 1994, and inordinate supply of vending
materials.
Advances on long term contracts increased as a result of an advance payment
billed on a contract procured by the U.K. operation during the first quarter
of fiscal year 1995. This advance payment was received during the second
quarter of fiscal year 1995.
The Company entered into a new loan facility with a bank on September 20,
1994 totaling $20 million. The new agreement consists of a $9 million term
loan and an $11 million revolving credit facility. (See Note 6 to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1994). Proceeds from the new loan facility were used to pay the outstanding
balance under the Company's revolving credit facility with its primary
lender on that date. Under the new loan agreement, the Company is required
to make principal payments of $375,000 in the third and fourth quarter of
fiscal year 1995 and quarterly principal payments of $750,000 during fiscal
year 1996.
The Company anticipates spending approximately $5 million on capital
additions for the continued expansion of both the vending and the U.K.
operations as well as for the continued refurbishment of the older areas of
the Orlando facility.
Other than as stated above the Company has no other material commitments for
capital expenditures. Management believes that with funds received from the
recent private equity placement, the new loan facility and its projected
cash flow the Company will have sufficient resources to meet current and
future operating commitments.
<PAGE> 8
b) Material Changes in Results of Operations
-----------------------------------------
Sales increased for the period ended September 30, 1994 compared to the
same period ended September 30, 1993. The increase in Sales is primarily
related to the vending and U.K. operations with a marginal volume decrease
in the domestic operations. The increase in the vending operations is the
result of steady production of the bottle vending machines under a contract
procured during the fourth quarter of fiscal year 1994. The increase in
U.K. operation sales is the result of continued progress under an existing
contract as well as progress on a new $19.5 million contract received during
the first quarter of fiscal year 1995.
Gross Margin as a percentage of sales decreased in the quarter ended
September 30, 1994 versus the quarter ended September 30, 1993. The gross
margin on domestic contracts improved in the quarter ended September 30,
1994 due to the receipt by the Company of several new contracts during late
fiscal year 1994 for copies of trainers and training systems previously
built by ECC and these contracts are yielding higher gross margins than
originally projected. The improved gross margin on these contracts reflects
lower than originally anticipated costs due to increased efficiencies
achieved in producing copies of previously manufactured trainers.
Offsetting the increase in gross margin in the domestic operation is a low
gross margin on the new bottle vending machines resulting from higher
start-up costs than had originally been projected.
The bottle vending machine production line ceased operations during October
to allow for quality control refinements and testing on existing units. The
contractual delivery schedule of the bottle vending machines should not be
affected as production was ahead of schedule. Production of these machines
resumed in November and management expects the bottle vending operation to
attain improved margins in subsequent quarters as efficiencies are gained
and production costs come in line with original projections.
Selling, general and administrative expenses for the quarter ended September
30, 1994 increased compared to the quarter ended September 30, 1993. This
increase is primarily the result of higher marketing incentives, marketing
rep commissions, technical support costs, consultant fees and freight costs
related to the vending division. In addition, selling general and
administrative costs of the U.K. operation increased over the same period
last year. The increase in marketing rep commissions, which is based upon
the amount of bottle vending units sold, reflects the fact that no bottle
vending production occurred during the quarter ended September 30, 1993 and
therefore no commission expense was incurred.
The increase in selling, general, and administrative costs of the U.K.
operation is the result of increased bid and proposal costs and technical
support in response to increased business opportunities.
Interest expense has decreased for the quarter ended September 30, 1994
versus the quarter ended September 30, 1993 as a result of a scheduled July
principal payment on the Company's debt, thereby reducing interest expense
for the quarter. The Company's new loan facility entered into on September
20, 1994 did not significantly impact interest expense for the quarter.
<PAGE> 9
PART II. OTHER INFORMATION
ECC INTERNATIONAL CORP.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
--------
Exhibit 11 - Schedule of Computation of Earnings Per Share
b. Reports on Form 8-K
-------------------
None.
<PAGE> 10
SIGNATURES
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.
ECC INTERNATIONAL CORP.
Date November 10, 1994 /s/ George W. Murphy
----------------------------
George W. Murphy, President
Date November 10, 1994 /s/ Richard F. Thompson
----------------------------
Richard F. Thompson
Vice President, Finance
<PAGE> 1
<TABLE>
Exhibit 11
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Data)
(Unaudited)
<CAPTION>
Three Months Three Months
Ended Ended
September 30 September 30
1994 1993
<S> <C> <C>
Primary
- - -------
Net Income $ 1,336 $ 783
---------- ----------
---------- ----------
Weighted Average Shares Outstanding 7,511,302 6,178,592
Incremental Shares from Assumed
Exercise of Stock Options 366,093 0
---------- ----------
Total Shares 7,877,395 6,178,592
---------- ----------
---------- ----------
Primary Per Share Amounts
- - -------------------------
Net Income $ 0.17 $ 0.13
---------- ----------
---------- ----------
Fully Diluted *
- - ---------------
Net Income $ 1,336 $ 783
---------- ----------
---------- ----------
Weighted Average Shares Outstanding 7,511,302 6,178,592
Incremental Shares from Assumed
Exercise of Stock Options 359,776 0
---------- ----------
Total Shares 7,871,078 6,178,592
---------- ----------
---------- ----------
Fully Diluted Per Share Amounts
- - -------------------------------
Net Income $ 0.17 $ 0.13
---------- ----------
---------- ----------
<FN>
* Fully diluted earnings per share calculation is presented in accordance with
Regulation S-K item 601(b)(11) although not required by footnote 2 to
paragraph 14 of Accounting Principles Board Opinion No. 15 because it
results in dilution of less than 3%.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ECC INTERNATIONAL CORP. FOR THE QUARTER ENDED SEPTEMBER
30,1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000031660
<NAME> ECC INTERNATIONAL CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 779
<SECURITIES> 0
<RECEIVABLES> 5,923
<ALLOWANCES> 0
<INVENTORY> 9,107
<CURRENT-ASSETS> 42,358
<PP&E> 48,361
<DEPRECIATION> 24,866
<TOTAL-ASSETS> 67,841
<CURRENT-LIABILITIES> 11,191
<BONDS> 14,120
<COMMON> 759
0
0
<OTHER-SE> 40,362
<TOTAL-LIABILITY-AND-EQUITY> 67,841
<SALES> 20,656
<TOTAL-REVENUES> 20,656
<CGS> 14,923
<TOTAL-COSTS> 14,923
<OTHER-EXPENSES> 3,392
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 357
<INCOME-PRETAX> 1,996
<INCOME-TAX> 660
<INCOME-CONTINUING> 1,336
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,336
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
