<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, 1995
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or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-8988
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ECC International Corp.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-1714658
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
175 Strafford Avenue, Suite 116, Wayne, PA 19087-3377
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(Address of principal executive offices) (Zip Code)
(610) 687-2600
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(Registrant's telephone number, including area code)
Not Applicable
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(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, 1995, there were 7,686,490 shares of the
Registrant's Common Stock, $.10 par value per share, issued and outstanding.
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<PAGE> 2
<TABLE>
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(In Thousands Except Share and Per Share Data)
(Unaudited)
<CAPTION>
Three Months Three Months
Ended Ended
9/30/95 9/30/94
---------- -----------
<S> <C> <C>
Net Sales $ 26,980 $ 20,656
Cost of Sales 20,630 14,923
--------- ---------
Gross Profit 6,350 5,733
--------- ---------
Expenses:
Selling, General & Administrative 3,259 3,184
Systems Development 58 208
--------- ---------
Total Expenses 3,317 3,392
--------- ---------
Operating Income 3,033 2,341
--------- ---------
Other Income (Expense):
Interest Income 63 49
Interest Expense (464) (357)
Other - Net (59) (37)
--------- ---------
Total Other Expense (460) (345)
--------- ---------
Income Before Income Taxes 2,573 1,996
Provision for Income Taxes 886 660
--------- ---------
Net Income $ 1,687 $ 1,336
========= =========
Earnings Per Common Share and
Common Share Equivalents $ 0.21 $ 0.17
========= =========
Weighted Average Number of Common and
Common Share Equivalents Outstanding 7,957,873 7,877,395
</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)
9/30/95 6/30/95
---------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 3,614 $ 3,535
Accounts Receivable, Net 7,886 8,778
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 39,681 39,752
Inventories
Raw Material 7,254 6,897
Work in Process 3,415 1,998
Finished Goods 1,483 1,140
Prepaid Expenses and other 1,609 1,764
------- -------
Total Current Assets 64,942 63,864
Property, Plant and Equipment - Net 24,306 24,007
Other Assets 1,860 1,868
------- -------
Total Assets $91,108 $89,739
======= =======
</TABLE>
Continued...
<PAGE> 4
<TABLE>
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands)
<CAPTION>
(Unaudited) (Audited)
9/30/95 6/30/95
---------- ----------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Temporary Credit Facility $ -- $ 2,534
Current Portion of Long-Term Debt 3,000 3,600
Accounts Payable 11,100 7,197
Accrued Compensation 3,181 4,093
Advances on Long-Term Contracts 1,355 1,395
Accrued Profit Sharing 799 672
Other Accrued Expenses 3,672 3,390
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Total Current Liabilities 23,107 22,881
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Deferred Income Taxes 1,569 1,569
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Long-Term Debt 15,558 16,250
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Commitments and Contingencies
Stockholders' Equity:
Common stock, $.10 par; authorized
20,000,000 shares at 9/30/95 and
6/30/95; reserved for stock options
and other obligations to issue stock,
1,518,462 shares at 9/30/95 and
2,157,528 shares at 6/30/95; issued
and outstanding, 7,686,490 shares
at 9/30/95 and 7,657,846 at 6/30/95 769 766
Preferred stock, $.10 par; authorized
1,000,000 shares at 9/30/95 and at
6/30/95; issued and none outstanding
at 9/30/95 and 6/30/95 -- --
Capital in Excess of Par 21,984 21,822
Retained Earnings 28,093 26,406
Cumulative Translation Adjustment 28 45
-------- -------
Total Stockholders' Equity 50,874 49,039
-------- -------
Total Liabilities & Stockholders' Equity $ 91,108 $89,739
======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 5
<TABLE>
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1994
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Three Months
Ended Ended
9/30/95 9/30/94
------------ -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 1,687 $ 1,336
Items Not Requiring Cash:
Depreciation 945 827
Provision for Doubtful Accounts 20 --
Deferred Income Taxes -- (177)
Changes in Certain Assets and Liabilities:
Accounts Receivable 872 (2,738)
Cost and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 71 (2,166)
Inventories (2,117) 751
Prepaid Expenses and Other 155 203
Accounts Payable 3,903 (981)
Advances on Long-Term Contracts (40) 733
Accrued Expenses (503) (1,435)
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Net Cash Provided By (Used In) Operating Activities 4,993 (3,647)
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Cash Flows From Investing Activities:
Additions to Property, Plant and Equipment (1,244) (1,205)
Other (9) (160)
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Net Cash Used In Investing Activities (1,253) (1,365)
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Cash Flows From Financing Activities:
Proceeds From Issuance of Common Stock, Options
Exercised and Warrants, Including Related Tax Benefit 165 5,139
New Borrowings under Term Loan -- 9,000
Repayments under Term Loan (750) --
New Borrowings under Revolving Credit Facility, Net (3,076) 6,620
Repayments of Long-Term Debt under Revolving Credit
Agreement and Notes Payable -- (17,568)
------- -------
Net Cash (Used In) Provided By Financing Activities (3,661) 3,191
------- -------
Net Decrease in Cash 79 (1,821)
Cash at Beginning of the Period 3,535 2,600
------- -------
Cash at End of the Period 3,614 779
======= =======
Continued...
</TABLE>
<PAGE> 6
<TABLE>
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1994 (Continued)
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Three Months
Ended Ended
9/30/95 9/30/94
------------ -----------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year For:
Interest $ 500 $ 358
Income Taxes $ 861 $ 1,156
</TABLE>
<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, 1995 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 period 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, 1995.
2. Earnings per share for the three month periods ended September 30, 1995
and 1994 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. On October 13, 1995, the Company executed an Amendment to its loan
facility increasing the maximum available credit under the revolving
credit portion of the loan facility from $11.0 million to $15.0 million.
The amendment also increased the sub limit available to the Company's
wholly owned subsidiary, ECC Simulation Limited from $2.0 million to
$4.0 million. The original payment terms and covenants of the loan
facility remain in effect.
<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 three month period ended September 30, 1995, the Company's
principal sources of cash were receipts on accounts receivable and
proceeds from the exercise of stock options. The principal uses of these
and existing funds were to make payments on the term loan and revolving
credit facility and to finance the increase in inventories as well as
acquisitions of property, plant and equipment.
Work in progress inventory increased primarily due to unabsorbed overhead.
Overhead is absorbed based on an annualized projected rate. Management
expects that volume during the remaining fiscal 1996 quarters will
support the currently budgeted overhead rate.
Finished goods inventory increased primarily due to the completion of
vending machines in late September which were not shipped until early
October.
The increase in accounts payable of approximately $3.9 million is primarily
the result of material purchases in the vending operation, as well as, raw
material purchase requirements under one of the Company's major contracts.
On October 13, 1995, the Company executed an Amendment to its loan facility
increasing the maximum available credit under the revolving credit portion
of the loan facility from $11.0 million to $15.0 million. The amendment
also increased the sub limit to the Company's wholly owned subsidiary, ECC
Simulation Limited from $2.0 million to $4.0 million. The original payment
terms and covenants of the loan facility remain in effect. The Company is
required to make quarterly payments of the principal on the term loan in
the amount of $750,000 during fiscal year 1996.
During fiscal year 1996, the Company anticipates spending approximately
$3.5 million to purchase new machinery and equipment; to continue
refurbishment of the older areas of the Orlando facility and to make
leasehold improvements to the leased vending facility.
Other than as stated above, the Company has no other material commitments
for capital expenditures. Management believes that with proceeds from the
revolving credit facility and its projected cash flow the Company will have
sufficient resources to meet current and future operating commitments.
<PAGE> 9
b) Material Changes in Results of Operations
-----------------------------------------
Sales increased for the three month period ended September 30, 1995 as
compared to the same period ended September 30, 1994. The increase in
Sales is the result of increased volume, particularly in the domestic
training operation. The increase in sales volume for the training
operation is primarily the result of continued progress on one large cost
plus incentive fee type contract and one large fixed price type contract as
well as several new smaller contracts which did not exist during the first
quarter of fiscal year 1995. These increases in the domestic training
sales volume were offset by the substantial completion of a large fixed
price type contract during the first quarter of fiscal year 1996. The UK
and vending operations experienced marginal increases in sales volume over
the corresponding quarter in the prior fiscal year.
Gross margin as a percentage of sales decreased in the quarter ended
September 30, 1995 versus the quarter ended September 30, 1994. The
decrease in gross margin is largely the result of the Company's change in
contract mix in the domestic training operation. While the Company has
experienced an increase in volume on its large cost plus type contracts,
these contracts generally yield lower margins than the fixed price type.
In addition, an adjustment was taken to the gross margin of a large fixed
price domestic contract, which was substantially completed during the first
quarter of fiscal year 1996. The gross margin adjustment was primarily the
result of a protracted acceptance schedule which extended far beyond the
Company's original expectations and thus resulted in additional
unanticipated costs incurred. Higher costs than originally anticipated were
also incurred on two contracts of the UK operation due to additional
training requirements identified and overtime incurred necessary to meet
milestone deadlines. These decreases in gross margin were slightly offset
by an improved margin in the bottle vending operation as efficiencies
continue to be achieved and production costs decline.
The vending operation reduced its use of contract labor in late October.
Refinements are being made to the beverage vending machine to permit
dispensing of 20 ounce bottles in order to meet customer requests. Upon
completion of these refinements to the beverage vending machine, management
will increase manpower levels to accommodate anticipated orders of the new
bottle vendor. Refinements to the beverage vending machine are expected to
be completed during the second quarter of fiscal year 1996.
Systems development expense decreased during the first quarter of fiscal
year 1996 versus the corresponding period in fiscal year 1995. The
decrease is the result of the reduction of development costs associated
with the new model frozen/refrigerated vending machine which is now in
production.
Interest expense increased for the quarter ended September 30, 1995 versus
the quarter ended September 30, 1994 due to increased borrowings during
the current quarter as compared to the corresponding quarter in the prior
fiscal year.
<PAGE> 10
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> 11
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, 1995 /s/ George W. Murphy
------------------------ ----------------------------
George W. Murphy, President
Date November 10, 1995 /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
1995 1994
<S> <C> <C>
Primary
- -------
Net Income $ 1,687 $ 1,336
========== ==========
Weighted Average Shares Outstanding 7,686,490 7,511,302
Incremental Shares from Assumed
Exercise of Stock Options 271,383 366,093
---------- ----------
Total Shares 7,957,873 7,877,395
========== ==========
Primary Per Share Amounts
- -------------------------
Net Income $ 0.21 $ 0.17
========== ==========
Fully Diluted *
- -------------
Net Income $ 1,687 $ 1,336
========== ==========
Weighted Average Shares Outstanding 7,686,490 7,511,302
Incremental Shares from Assumed
Exercise of Stock Options 295,715 359,776
---------- ----------
Total Shares 7,982,205 7,871,078
========== ==========
Fully Diluted Per Share Amounts
- -------------------------------
Net Income $ 0.21 $ 0.17
========== ==========
<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
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF ECC INTERNATIONAL CORPORATION FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 3,614
<SECURITIES> 0
<RECEIVABLES> 7,957
<ALLOWANCES> 71
<INVENTORY> 12,152
<CURRENT-ASSETS> 64,942
<PP&E> 52,710
<DEPRECIATION> 28,404
<TOTAL-ASSETS> 91,108
<CURRENT-LIABILITIES> 23,107
<BONDS> 15,558
<COMMON> 769
0
0
<OTHER-SE> 50,105
<TOTAL-LIABILITY-AND-EQUITY> 91,108
<SALES> 26,980
<TOTAL-REVENUES> 26,980
<CGS> 20,630
<TOTAL-COSTS> 20,630
<OTHER-EXPENSES> 3,297
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 464
<INCOME-PRETAX> 2,573
<INCOME-TAX> 886
<INCOME-CONTINUING> 1,687
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,687
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
