<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 December 31, 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
incorporation or organization) Identification No.)
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 December 31, 1994, there were 7,633,389 shares of the
Registrant's Common Stock, $.10 par value per share, issued and outstanding.
<PAGE> 2
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993
(In Thousands Except Share and Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
12/31/94 12/31/93
---------- -----------
<S> <C> <C>
Net Sales $ 43,332 $ 30,224
Cost of Sales 32,187 21,616
--------- ---------
Gross Profit 11,145 8,608
--------- ---------
Expenses:
Selling, General & Administrative 6,188 5,657
Systems Development 681 362
--------- ---------
Total Expenses 6,869 6,019
--------- ---------
Operating Income 4,276 2,589
--------- ---------
Other Income (Expense):
Interest Income 76 42
Interest Expense (673) (905)
Other - Net (32) (141)
--------- ---------
Total Other Expense (629) (1,004)
--------- ---------
Income Before Income Taxes 3,647 1,585
Provision for Income Taxes 1,122 444
--------- ---------
Net Income $ 2,525 $ 1,141
========= =========
Earnings Per Common Share and
Common Share Equivalent $ 0.32 $ 0.18
========= =========
Weighted Average Number of Common and
Common Share Equivalents Outstanding 7,924,471 6,380,879
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 3
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1994 AND 1993
(In Thousands Except Share and Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
12/31/94 12/31/93
----------- ------------
<S> <C> <C>
Net Sales $ 22,676 $ 14,817
Cost of Sales 17,264 10,878
--------- ---------
Gross Profit 5,412 3,939
--------- ---------
Expenses:
Selling, General & Administrative 3,004 2,901
Systems Development 473 162
--------- ---------
Total Expenses 3,477 3,063
--------- ---------
Operating Income 1,935 876
--------- ---------
Other Income (Expense):
Interest Income 27 18
Interest Expense (316) (440)
Other - Net 5 (50)
--------- ---------
Total Other Expense (284) (472)
--------- ---------
Income Before Income Taxes 1,651 404
Provision for Income Taxes 462 46
--------- ---------
Net Income $ 1,189 $ 358
========= =========
Earnings Per Common Share and
Common Share Equivalent $ 0.15 $ 0.05
========= =========
Weighted Average Number of Common and
Common Share Equivalents Outstanding 7,856,795 6,493,549
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 4
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
12/31/94 6/30/94
----------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 3,377 $ 2,600
Accounts Receivable 4,754 3,185
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 30,903 22,921
Inventories
Raw Material 5,419 4,407
Work in Process 2,838 4,419
Finished Goods 1,293 1,032
Prepaid Expenses and Other 1,848 1,714
------- -------
Total Current Assets 50,432 40,278
Property, Plant and Equipment - Net 24,108 23,117
Other Assets 2,216 1,785
------- -------
Total Assets $76,756 $65,180
======= =======
</TABLE>
Continued...
<PAGE> 5
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
12/31/94 6/30/94
----------- -----------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt $ 2,250 $ 750
Accounts Payable 5,035 3,871
Accrued Compensation 3,707 3,222
Advances on Long-Term Contracts 1,422 85
Accrued Profit Sharing 726 1,264
Other Accrued Expenses 2,731 2,932
------- -------
Total Current Liabilities 15,871 12,124
------- -------
Deferred Income Taxes 1,451 1,635
------- -------
Long-Term Debt 16,885 16,818
------- -------
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.10 par; authorized
20,000,000 shares at 12/31/94 and
6/30/94; reserved for stock options
and other obligations to issue stock,
2,305,557 shares at 12/31/94 and
2,320,688 shares at 6/30/94; issued
and outstanding, 7,633,389 shares
at 12/31/94 and 7,537,385 at 6/30/94 763 754
Preferred stock, $.10 par; authorized
1,000,000 shares at 12/31/94 and at
6/30/94; issued and outstanding none
at 12/31/94 and 6/30/94 -- --
Capital in Excess of Par 20,580 20,203
Stock Subscription Receivable -- (5,012)
Cumulative Translation Adjustment (4) (27)
Retained Earnings 21,613 19,088
------- -------
42,952 35,006
Treasury Stock, at cost,
(50,000 shares at 12/31/94 and 6/30/94) (403) (403)
------- -------
Total Stockholders' Equity 42,549 34,603
------- -------
Total Liabilities & Stockholders' Equity $76,756 $65,180
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 6
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1993
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
12/31/94 12/31/93
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 2,525 $ 1,141
Items Not Requiring Cash:
Depreciation 1,674 1,508
Deferred Income Taxes (129) --
Changes in Certain Assets and Liabilities:
Accounts Receivable (1,569) 2,351
Cost and Estimated Earnings in Excess
of Billings on Uncompleted Contracts (7,982) 1,625
Inventories 308 (1,404)
Prepaid Expenses and Other (189) (69)
Accounts Payable 1,164 (1,029)
Advances on Long-Term Contracts 1,337 (1,834)
Accrued Expenses (254) 545
------- -------
Net Cash (Used In) Provided By Operating Activities (3,115) 2,834
------- -------
Cash Flows From Investing Activities:
Additions to Property, Plant and Equipment (2,665) (701)
Other (408) 24
------- -------
Net Cash Used In Investing Activities (3,073) (677)
------- -------
Cash Flows From Financing Activities:
Proceeds From Issuance of Common Stock and Options 5,398 225
New Borrowings under Term Loan 9,000 --
New Borrowings under Revolving Credit Facility, Net 10,135 --
Repayment of Long-Term Debt (17,568) (2,000)
------- -------
Net Cash Provided By (Used In) Financing Activities 6,965 (1,775)
------- -------
Net Increase in Cash 777 382
Cash at Beginning of the Period 2,600 988
------- -------
Cash at End of the Period 3,377 1,370
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year For:
Interest $ 369 $ 876
Income Taxes $ 1,839 $ 719
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 7
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 six and three month periods ended
December 31, 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 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 was 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 appealed the Board's decision to the United States
Court of Appeals for the Federal Circuit, which recently
denied the Company's appeal. Accordingly, the Company took a
one time write off of costs included in inventory amounting to
$994,000 ($634,000 after tax equal to $0.08 per share) in both
the quarter and six month periods ended December 31, 1994.
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 six
and three month periods ending December 31, 1994 was to
decrease earnings before taxes by $732,000 and $164,000
respectively or $0.06 and $0.01 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> 8
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 six month period ended December 31, 1994 the
Company's principal sources of cash were proceeds from the
new loan facility, the exercise of stock options, and the
remaining proceeds from the private equity placement. The
principal uses of these funds were to repay the Company's
previous bank debt and to finance the increase in accounts
receivable, costs and estimated earnings in excess of billings
on uncompleted contracts, additions to property, plant and
equipment and the funding of the Company's Profit Sharing
Plan.
The increase in accounts receivable of $1.6 million was
primarily the result of a large milestone billing by the U.K.
operation and the timing of progress payments of the domestic
operation billed in December and payments received in January
1995.
The substantial increase in cost and estimated earnings on
uncompleted contracts of approximately $8.0 million resulted
as progress continues on contracts received in late fiscal
year 1993 and fiscal year 1994. Typically, new contracts will
continue to have increasing cost and estimated earnings on
uncompleted contracts until deliveries commence. During the
current fiscal year, cost and estimated earnings on
uncompleted contracts will continue to increase although
scheduled deliveries on certain contracts will partially
offset this increase.
The raw material inventory increased $1.0 million primarily
due to the vending operation being in volume production. The
higher production level not only increased the raw material
inventory but also resulted in increased accounts payable.
The work in process inventory decreased primarily due to the
write-off of the Company's Pop-Up-Target claim as disclosed in
Note 3. Also, frozen vending units in process as of June 30,
1994 have been completed. Substantially all of these machines
have been sold as of December 31, 1994.
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 paid the first scheduled
principal payment of $375,000 in the third quarter of fiscal
year 1995.
Advances on long term contracts increased as a result of a
milestone payment billed on a contract of the U.K. operation.
The Company paid during the six month period ended December
31, 1994 both the unfunded portion of the 1994 profit sharing
contribution and the first quarter 1995 profit sharing
contribution.
<PAGE> 9
ECC anticipates spending a total of approximately $5.0 million
on capital additions during fiscal year 1995 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.
Due to the continued growth of the training operation, the Company
signed a lease in January 1995 for 72,520 square feet of space near the
Orlando facility in which both the new frozen food machine and the bottle
vending machine will be produced. The move to this new location will be
accomplished late in the third quarter with no delays in production
anticipated. Included in the $5.0 million of capital additions is the
value of leasehold improvements necessary to ready this new facility for
vending production.
Other than 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.
b) Material Changes in Results of Operations
Sales increased for the six and three month periods ended
December 31, 1994 as compared to the same periods ended
December 31, 1993. The increase in Sales is primarily the
result of increased volume Company wide, particularly in the
vending and U.K. operations. The increase in sales volume for
the vending operation is the result of increases in 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 $19.5
million contract received during the first quarter of fiscal
year 1995.
Gross margin as a percentage of sales decreased for the six
and three month periods ended December 31, 1994 versus the
same periods ended December 31, 1993. The decrease is
primarily due to the write-off of costs associated with the
Company's Pop-Up-Target claim as disclosed in Note 3 and a
decrease in gross margin experienced by the U.K. operation on
one of its existing contracts. In addition, the new bottle
vending machines have experienced a low gross margin resulting
from higher start-up costs than had originally been projected.
The gross margin in the bottle vending operation has improved
modestly during the quarter ended December 31, 1994 and
management believes margins will continue to improve over the
remainder of fiscal year 1995 as efficiencies are gained and
production costs come in line with original projections.
Offsetting the write-off, decrease in the U.K. operations'
margin and the low margin in the bottle vending operation is
an improved margin on domestic contracts. The gross margin on
domestic contracts improved 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.
<PAGE> 10
Selling, general and administrative expenses for the six and
three month periods ended December 31, 1994 increased 9.4% and
3.6%, respectively, as compared to the six and three month
periods ended December 31, 1993. The increase is primarily
the result of marketing rep commissions, technical support
costs, consultant fees and out bound freight costs related to
the vending operation. In addition, selling, general and
administrative costs of the U.K. operation increased over the
same periods 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 six and three month periods ended
December 31, 1993 and, therefore, no commission expense was incurred.
Similarly, the increases in technical support costs, consultant fees and
out bound freight costs reflect that there was limited activity in the
vending operation during the corresponding periods in the prior year.
The increase in selling, general and administrative costs of
the U.K. operation is the result of higher salaries as well as
an increase in accounting and legal fees primarily associated
with the negotiation of the Company's new debt agreement and
building lease.
Systems development expense increased substantially for the
quarter and six month period ended December 31, 1994 versus
the quarter and six month period ended December 31, 1993.
This is a result of development costs associated with the new
model frozen vending machine which is expected to be ready for
mass production during the third quarter of fiscal year 1995.
Interest expense has decreased for the quarter and six month
period ended December 31, 1994 versus the corresponding
periods in the prior year as a result of the Company's new
loan facility which was negotiated under more favorable terms.
<PAGE> 11
PART II. OTHER INFORMATION
ECC INTERNATIONAL CORP.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held
on November 16, 1994, the following proposals were
adopted by the vote specified below:
<TABLE>
<CAPTION>
Broker
Proposal For Against Abstain NonVotes
<S> <C> <C> <C> <C> <C>
1) To elect the Board
of Directors
Julian Demora 5,648,532 2,300 - -
George L. Frye, Jr. 5,648,011 2,821 - -
Max M. Kampelman 5,645,732 5,100 - -
Martin S. Kaplan 5,647,382 3,450 - -
Herbert Krasnow 5,641,807 9,025 - -
Jesse Krasnow 5,646,882 3,950 - -
Thomas E. McGrath 5,650,132 700 - -
George W. Murphy 5,647,206 3,626 - -
2) Ratification of
Coopers & Lybrand
as auditors 5,598,900 31,266 20,666 -
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
a. Exhibits
--------
Exhibit 11 - Schedule of Computation of Earnings Per Share
b. Reports on Form 8-K
-------------------
None.
</TABLE>
<PAGE> 12
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 February 10, 1995 /s/ George W. Murphy
------------------------ ---------------------------------
George W. Murphy, President
Date February 10, 1995 /s/ Richard F. Thompson
------------------------ ---------------------------------
Richard F. Thompson
Vice President, Finance
<PAGE> 1
Exhibit 11
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
December 31 December 31
1994 1993
----------- -----------
<S> <C> <C>
Primary
- - - -------
Net Income $ 2,525 $ 1,141
========== ==========
Weighted Average Shares Outstanding 7,609,346 6,184,887
Incremental Shares from Assumed
Exercise of Stock Options 315,125 195,992
---------- ----------
Total Shares 7,924,471 6,380,879
========== ==========
Primary Per Share Amounts
- - - -------------------------
Net Income $ 0.32 $ 0.18
========== ==========
Fully Diluted *
- - - -------------
Net Income $ 2,525 $ 1,141
========== ==========
Weighted Average Shares Outstanding 7,609,346 6,184,887
Incremental Shares from Assumed
Exercise of Stock Options 302,849 424,379
---------- ----------
Total Shares 7,912,195 6,609,266
========== ==========
Fully Diluted Per Share Amounts
- - - -------------------------------
Net Income $ 0.32 $ 0.17
========== ==========
</TABLE>
* 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%.
<PAGE> 2
Exhibit 11
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
December 31 December 31
1994 1993
----------- -----------
<S> <C> <C>
Primary
- - - -------
Net Income $ 1,189 $ 358
========== ==========
Weighted Average Shares Outstanding 7,554,038 6,187,464
Incremental Shares from Assumed
Exercise of Stock Options 302,757 306,085
---------- ----------
Total Shares 7,856,795 6,493,549
========== ==========
Primary Per Share Amounts
- - - -------------------------
Net Income $ 0.15 $ 0.05
========== ==========
Fully Diluted *
- - - -------------
Net Income $ 1,189 $ 358
========== ==========
Weighted Average Shares Outstanding 7,554,038 6,187,464
Incremental Shares from Assumed
Exercise of Stock Options 307,057 431,377
---------- ----------
Total Shares 7,861,095 6,618,841
========== ==========
Fully Diluted Per Share Amounts
- - - -------------------------------
Net Income $ 0.15 $ 0.05
========== ==========
</TABLE>
* 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> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ECC INTERNATIONAL CORP. FOR THE QUARTER ENDED DECEMBER
31, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 3,377
<SECURITIES> 0
<RECEIVABLES> 4,754
<ALLOWANCES> 0
<INVENTORY> 9,550
<CURRENT-ASSETS> 50,432
<PP&E> 49,821
<DEPRECIATION> 25,713
<TOTAL-ASSETS> 76,756
<CURRENT-LIABILITIES> 15,871
<BONDS> 16,885
<COMMON> 763
0
0
<OTHER-SE> 20,576
<TOTAL-LIABILITY-AND-EQUITY> 76,756
<SALES> 43,332
<TOTAL-REVENUES> 43,332
<CGS> 32,187
<TOTAL-COSTS> 32,187
<OTHER-EXPENSES> 6,869
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 673
<INCOME-PRETAX> 3,647
<INCOME-TAX> 1,122
<INCOME-CONTINUING> 2,525
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,525
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
