<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, 1998
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ___________________
Commission File Number: 001-8988
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ECC International Corp.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 23-1714658
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(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
2001 West Oak Ridge Road, Orlando, FL 32809-3803
- ------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(407) 859-7410
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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 the past 90 days.
[X] Yes [ ] No
As of September 30, 1998, there were 8,329,409 shares of the Registrant's
Common Stock, $.10 par value per share, issued and outstanding.
<PAGE> 2
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
9/30/98 9/30/97
------------ ------------
<S> <C> <C>
Net Sales $ 10,411 $ 12,156
Cost of Sales 7,987 9,658
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Gross Profit 2,424 2,498
-------- --------
Expenses:
Selling, General & Administrative 3,061 2,912
Systems Development 520 683
Non-Recurring Expenses 1,166 --
-------- --------
Total Expenses 4,747 3,595
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Operating Loss (2,323) (1,097)
-------- --------
Other Income (Expense):
Interest Income 75 83
Interest Expense (244) (390)
Other - Net 104 (67)
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Total Other Expense (65) (374)
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Loss Before Income Taxes (2,388) (1,471)
(Benefit)/Provision for Income Taxes (604) 360
-------- --------
Net Loss $ (1,784) $ (1,111)
======== ========
Loss Per Common
Share - Basic and
Assuming Dilution:
Net Loss Per Common Share $ (0.21) $ (0.14)
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 3
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
9/30/98 9/30/97
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<S> <C> <C>
Net Loss $(1,784) $(1,111)
Other Comprehensive Income (Expense):
Foreign Currency Translation Adjustments (125) 78
------- -------
Total Comprehensive Income $(1,909) $(1,033)
======= ========
</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)
9/30/98 6/30/98
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ASSETS
Current Assets:
Cash $ 3,742 $ 4,830
Accounts Receivable, Net 6,690 8,097
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 16,469 16,391
Inventories
Raw Material 4,249 4,149
Work in Process 1,160 1,053
Prepaid Expenses and Other 7,438 6,868
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Total Current Assets 39,748 41,388
Property, Plant and Equipment - Net 20,729 20,994
Other Assets 1,563 1,976
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Total Assets $62,040 $64,358
======= =======
</TABLE>
Continued...
<PAGE> 5
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands Except Share and Per Share Data)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
9/30/98 6/30/98
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<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt $11,192 $11,132
Accounts Payable 5,397 6,263
Advances on Long-Term Contracts 4,207 4,683
Accrued Expenses 8,775 7,925
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Total Current Liabilities 29,571 30,003
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Deferred Income Taxes 918 918
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Commitments and Contingencies
Stockholders' Equity:
Common stock, $.10 par; authorized
20,000,000 shares at 9/30/98 and
6/30/98; issued and outstanding,
8,329,409 shares at 9/30/98 and
8,318,058 at 6/30/98 833 832
Preferred stock, $.10 par; authorized
1,000,000 shares at 9/30/98 and at
6/30/98; none issued and outstanding
at 9/30/98 and 6/30/98 -- --
Note Receivable from Stockholder (146) (146)
Capital in Excess of Par 24,826 24,804
Retained Earnings 6,149 7,933
Cumulative Translation Adjustment (111) 14
------- -------
Total Stockholders' Equity 31,551 33,437
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Total Liabilities & Stockholders' Equity $62,040 $64,358
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 6
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
9/30/98 9/30/97
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<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(1,784) $(1,111)
Items Not Requiring Cash:
Depreciation 1,014 1,128
Changes in Certain Assets and Liabilities:
Accounts Receivable 1,407 (764)
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts (78) 3,819
Inventories (207) (315)
Prepaid Expenses and Other (570) (272)
Accounts Payable (866) 324
Advances on Long-Term Contracts (476) 168
Accrued Expenses 873 528
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Net Cash (Used In)/Provided By
Operating Activities (687) 3,505
------- -------
Cash Flows From Investing Activities:
Additions to Property, Plant and Equipment (749) (778)
Other 348 87
------- -------
Net Cash Used In Investing Activities (401) (691)
------- -------
Cash Flows From Financing Activities:
Proceeds From Issuance of Common Stock, Options
Exercised and Warrants, Including Related
Tax Benefit -- 2
Repayments under Term Loan -- (2,250)
Borrowings under Revolving Credit Facility, Net -- (142)
------- -------
Net Cash Used In Financing Activities -- (2,390)
------- -------
Net (Decrease)/Increase in Cash (1,088) 424
Cash at Beginning of the Period 4,830 3,888
------- -------
Cash at End of the Period $ 3,742 $ 4,312
======= =======
</TABLE>
Continued...
See accompanying notes to the consolidated financial statements.
<PAGE> 7
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997 (Continued)
In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
9/30/98 9/30/97
------------ -----------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year For:
Interest $248 $393
Supplemental Schedule of Non Cash
Financing Activities:
Issuance of Director Equity Compensatio $ 23 $ --
Issuance of Employee Stock Incentives $ -- $421
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 8
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, 1998 consolidated 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
the accompanying unaudited 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. These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1998.
2. For the three months ended September 30, 1997 certain items were restated on
the Company's consolidated statements of operations and consolidated
statements of cash flows to conform to the presentation in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1998.
In the fourth quarter of fiscal year 1998, the Company changed its method of
accounting for precontract costs from deferring costs incurred for specific
anticipated contracts and including those costs in contract sales and costs
when the contract award was assured to expensing the costs as incurred in
accordance with Statement of Position 98-5 "Reporting on the Cost of
Start-Up Activities." The retro-active effect of the change on the three
month period ended September 30, 1997 was to increase net loss by $118,000
($0.02 per share).
3. Basic loss per common share is computed by dividing net loss available to
common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted loss per share is computed by
dividing net loss available to common shareholders by the weighted-average
number of common shares outstanding during the period adjusted for the
number of shares that would have been outstanding if the dilutive potential
common shares had been issued. The diluted loss per share does not assume
the exercise of options that would have an antidilutive effect on loss per
share.
The weighted-average number of common shares outstanding for the basic and
diluted per share calculations are identical since the assumed exercise of
all outstanding options would be antidilutive.
The weighted-average number of common shares outstanding for each period
presented is as follows:
<TABLE>
<CAPTION>
9/30/98 9/30/97
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<S> <C> <C>
Three-months ended 8,329,589 8,119,883
</TABLE>
4. The Company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company
has suffered substantial losses in recent fiscal years and for the three
months ended September 30, 1998. In addition, the Company is experiencing
difficulty generating sufficient cash flow to meet its obligations and
sustain operations and has not yet obtained a new credit facility to replace
its current loan facility, of which the balance of $10.4 million (after
payments discussed below) is due January 11, 1999. These factors raise
substantial doubt about the Company's ability to continue as a going
concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The Company did
not comply with the minimum fixed charge coverage ratio covenant at
September 30, 1998 and June 30, 1998, and was unable to obtain waivers from
its bank lender for these violations under its revolving credit agreement.
On October 1, 1998, the Company entered into a forbearance agreement with
the bank, which extended the expiration date of the revolving credit
agreement from October 1, 1998 to January 11, 1999, and reduced the
availability of credit from $13.0 million to $11.4 million. The forbearance
agreement also provides for the maintenance of minimum cash balances, fixed
charge coverage ratio and current ratio as well as maximum debt to equity
ratio through the expiration date. The forbearance agreement terminates on
November 30, 1998, if the Company does not obtain a letter of commitment
from a financial institution providing for repayment in full of the
obligations under the revolving credit agreement.
The Company is currently in the process of seeking alternative sources of
financing and anticipates obtaining the financing by November 30, 1998.
There can be no assurance, however, that the Company will obtain such
financing.
Pursuant to the terms of the forbearance agreement, the Company made a
$300,000 payment on the loan facility in October 1998. Additionally, during
November 1998, the Company used proceeds from the sale of certain real
estate assets to reduce the loan facility by an additional $500,000.
5. The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS No. 130), in the quarter ended
September 30, 1998. SFAS No. 130 establishes standards for reporting
comprehensive income and its components, classified by their nature, in a
full set of annual financial statements. The components of other
comprehensive income for the Company have generally only included foreign
currency translation adjustments.
6. Non-Recurring Expenses
During the three-month period ended September 30, 1998, the Board of
Directors announced the approval of a plan to wind down and discontinue the
operations of the UK subsidiary by March 1999. In addition, the Company
announced the relocation of its corporate headquarters staff and
Instructional Systems Development Group from Wayne, Pennsylvania to the
Company's principal Systems Design and Production Center in Orlando,
Florida. The relocation was completed on September 30, 1998. As a result of
the efforts to wind down the UK operation and the relocation of the
corporate headquarters, the Company recorded non-recurring charges of
approximately $1.2 million during the three-month period ended September
30, 1998. These charges primarily relate to employee termination benefits.
Management expects to record additional charges, principally relating to
employee termination benefits, during the remainder of fiscal year 1999 of
$1.3 million. Management continues to evaluate options with respect to the
leased facilities in the U.K. including subletting the facilities or
terminating the leases. Any resulting charge will be determined after the
evaluation is complete.
<PAGE> 9
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act if 1933, as amended. For this
purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects," and similar expressions are intended to identify forward-looking
statements. There are a number of factors that could cause the Company's
actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those
set forth below under the caption "Certain Factors That May Affect Future
Operating Results.
a) MATERIAL CHANGES IN FINANCIAL CONDITION
During the three-month period ended September 30, 1998, the Company's
principal sources of cash were billings and receipts on accounts receivable
and costs and estimated earnings in excess of billings on uncompleted
contracts. The principal uses of these funds were to make vendor payments
and fund improvements to the Orlando facility.
Accounts Receivable decreased due to the receipt of payments on the
Company's domestic training contracts including the CCTT LRIP, Javelin
multi-year and Saudi Vigs programs.
Work in process inventory increased primarily due to unabsorbed overhead.
Overhead is absorbed on an annualized projected rate. Management expects
that volume during the remaining fiscal 1999 quarters will support the
currently budgeted overhead rate.
Prepaid Expenses and Other increased primarily due to the federal tax
benefit recorded for the federal net operating loss realized during the
three-month period ended September 30, 1998.
Other Assets decreased primarily as a result of the receipt of cash
surrender value on certain executive insurance policies.
Advances on long-term contracts decreased primarily as a result of the
liquidation of advance payments for work performed on contracts in the UK
division.
Accrued expenses increased primarily as a result of accruals recorded for
non-recurring expenses associated with the relocation of the corporate
headquarters and wind down of the UK division. (See Note 6 to the Unaudited
Consolidated Financial Statements).
The Company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company
has suffered substantial losses in recent fiscal years and for the three
months ended September 30, 1998. In addition, the Company is experiencing
difficulty generating sufficient cash flow to meet its obligations and
sustain operations and has not yet obtained a new credit facility to replace
its current loan facility, of which the balance of $10.4 million (after
payments discussed below) is due January 11, 1999. These factors raise
substantial doubt about the Company's ability to continue as a going
concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The Company did
not comply with the minimum fixed charge coverage ratio covenant at
September 30, 1998 and June 30, 1998, and was unable to obtain waivers from
its bank lender for these violations under its revolving credit agreement.
On October 1, 1998, the Company entered into a forbearance agreement with
the bank, which extended the expiration date of the revolving credit
agreement from October 1, 1998 to January 11, 1999, and reduced the
availability of credit from $13.0 million to $11.4 million. The forbearance
agreement also provides for the maintenance of minimum cash balances, fixed
charge coverage ratio and current ratio as well as maximum debt to equity
ratio through the expiration date. The forbearance agreement terminates on
November 30, 1998, if the Company does not obtain a letter of commitment
from a financial institution providing for repayment in full of the
obligations under the revolving credit agreement.
The Company is currently in the process of seeking alternative sources of
financing and anticipates obtaining the financing by November 30, 1998.
There can be no assurance, however, that the Company will obtain such
financing.
Pursuant to the terms of the forbearance agreement, the Company made a
$300,000 payment on the Loan Facility in October 1998.
Additionally, during November 1998, the Company used proceeds from the sale
of certain real estate assets to reduce the Loan Facility by an additional
$500,000. During the remainder of fiscal year 1999, the Company anticipates
spending approximately $1.0 million for new machinery and equipment and to
continue to refurbish the Orlando facility.
Other than as stated above, the Company currently has no other material
commitments for capital expenditures.
b.) Material Changes in Results of Operations.
Net sales decreased for the three-month period ended September 30, 1998 as
compared to the same period ended September 30,1997. The decrease in net
sales is primarily the result of the completion of several training division
contracts. This decrease in net sales was partially offset by sales
generated from recently awarded contracts including: Javelin multi-year;
CCTT LRIP; a Saudi Vigs contract; as well as several additions to other
ongoing contracts.
Net sales in the UK subsidiary also decreased for the three-month period
ended September 30,1998 as compared to the same period ended September 30,
1997. This decrease was a result of reduced activity on its two major
contracts as they are expected to be completed during the first half of
fiscal year 1999. There have been no substantial new business awards in the
UK operation since the third quarter of fiscal year 1998. The Company
expects to complete the wind down of the UK operation by March 1999.
Overall gross margin as a percentage of net sales increased for the
three-month period ended September 30, 1998 versus the same period ended
September 30, 1997. Domestic training contract gross margin levels improved
as a result of the completion of many large "cost plus" type contracts which
have historically had lower gross margins than the "fixed price" type. In
addition, the Company's cost reduction initiatives during fiscal year 1998
and the first quarter of fiscal year 1999 have reduced overhead costs, thus
improving gross margins. In addition, gross margins in the UK operation have
improved over the corresponding period in the prior fiscal year as a result
of the accrual for loss contracts recorded at June 30, 1998.
Selling, general and administrative expense increased primarily as a result
of increases in the domestic operations costs partially offset by cost
cutting initiatives in the UK operation. The increase in domestic selling,
general and administrative costs is primarily the result of increased
utilization of consulting services related to marketing, outplacement and
executive search services as well as bid and proposal expenditures as the
Company seeks new business awards.
Systems development expense decreased during the three-month period ended
September 30, 1998 as compared to the same period ended September 30, 1997.
The decrease primarily is a result of cost cutting initiatives. These
initiatives are expected to continue through out fiscal year 1999.
During the three-month period ended September 30, 1998, the Board of
Directors announced the approval of a plan to wind down and discontinue the
operations of the UK subsidiary by March 1999. In addition, the Company
announced the relocation of its corporate headquarters staff and
Instructional Systems Development Group from Wayne, Pennsylvania to the
Company's principal Systems Design and Production Center in Orlando,
Florida. The relocation was completed on September 30, 1998. As a result of
the efforts to wind down the UK operation and the relocation of the
corporate headquarters, the Company recorded non-recurring charges of
approximately $1.2 million during the three-month period ended September 30,
1998. These charges primarily relate to employee termination benefits.
Management expects to record additional charges, principally relating to
employee termination benefits, during the remainder of fiscal year 1999 of
$1.3 million. Management continues to evaluate options with respect to the
leased facilities in the U.K. including subletting the facilities or
terminating the leases. Any resulting charge will be determined after the
evaluation is complete.
Interest expense decreased for the three-month period ended September 30,
1998 versus the corresponding period in the previous fiscal year. The
decrease was primarily the result of a reduction in the Company's revolving
credit facility.
Other, net increased primarily as a result of gains on foreign exchange
transactions in the UK subsidiary.
<PAGE> 10
c) CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS.
The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Quarterly Report on Form 10-Q and presented elsewhere by management
from time to time. All forward-looking statements included in this document
are based on information available to the Company on the date hereof, and
the Company assumes no obligation to update any such forward-looking
statements.
A number of uncertainties exist that could affect the Company's future
operating results, including, without limitation, general economic
conditions, changes in government spending, cancellation of weapons
programs, delays in contract awards, delays in the acceptance process of
contract deliverables, the Company's continued ability to develop and
introduce products, the introduction of new products by competitors, pricing
practices of competitors, the cost and availability of parts and the
Company's ability to control costs.
The Company has entered into a forbearance agreement with its bank lenders
which extended the expiration of its revolving credit agreement from October
1, 1998 to January 11, 1999 and provides for the maintenance of minimum cash
balances as well as other restrictive covenants through the expiration date.
The forbearance agreement terminates on November 30, 1998, if the Company
does not obtain a letter of commitment from a financial institution
providing for repayment in full of the obligations under the revolving
credit agreement. There can be no assurance that the Company will be
successful in generating the necessary cash flow or obtaining such
financing.
To date, a substantial portion of the Company's revenues have been
attributable to long-term contracts with various government agencies. As a
result, any factor adversely affecting procurement of long-term government
contracts could have a material adverse effect on the Company's financial
condition and results of operations.
Because of these and other factors, past financial performance should not be
considered an indication of future performance. The Company's future
quarterly operating results may vary significantly. Investors should not use
historical trends to anticipate future results and should be aware that the
trading price of the Company's Common Stock may be subject to wide
fluctuations in response to quarterly variations in operating results and
other factors, including those discussed above.
YEAR 2000 ISSUE
The "Year 2000" problem relates to computer systems that have time and
date-sensitive programs that were designed to read years beginning with
"19", but may not properly recognize the year 2000. If a computer system or
software application used by the Company or a third party dealing with the
Company fails because of the inability of the system or application to
properly read the year "2000" the results could conceivably have a material
adverse effect on the Company if not adequately remedied by the Company, its
suppliers and customers, on a timely basis.
The Company has formally addressed the Year 2000 issue since November 1997
when a Year 2000 Compliance Program was initiated. A complete evaluation was
made on all internal systems, including voice mail, automated badge entry,
e-mail, payroll, accounting, facilities and products.
For its information technology, the Company currently utilizes a network of
Unix and Windows NT platforms, which provide company-wide access to all of
the Company's business application programs. Employees access the network
application software through individual PC's (about 400), all of which are
compliant. Substantially all operating systems related to the Company's
network have been updated to comply with Year 2000 requirements.
Periodically, new application programs and updated versions of existing
programs are added to the system. The Company has an ongoing program to
confirm that all such added software programs are compliant. The Company
will perform a final re-verification test of all systems in the second
quarter of calendar year 1999 to allow time for any unexpected remediation
that may need to occur. Although there can be no assurance that the Company
will identify and correct every Year 2000 problem found in its computer
applications, the Company believes that it has in place a comprehensive
program to identify and correct any such problems.
The Company has reviewed its building and utility systems (heat, light,
phones, etc.) for the impact of Year 2000. Almost all of the systems in this
area are Year 2000 ready. The Meridian Voice Mail system is not yet
compliant, but the Company is in the process of purchasing an upgrade, which
is compliant. While, the Company has no reason to believe that its utility
suppliers will not meet their required Year 2000 compliance targets, there
can be no assurance that these suppliers will in fact meet the Company's
requirements. The failure of any such supplier to fully remediate its
systems for Year 2000 compliance could cause a partial shutdown of the
Company's plant, which could impact the Company's ability to meet its
obligations to supply products to its customers.
<PAGE> 11
The Company is satisfied that its customer base is aware of the Year 2000
issue and is proactively working to ensure that there are no problems
associated with the Year 2000. The Company is aware of this because all
major customers have asked the Company for its Year 2000 status. In
addition, the Company is working with its prime contractors to identify Year
2000 problems that may affect the integration of the Company's product with
those of the prime contractor. The Company will work with its prime
contractors to remediate any problems as they are identified.
The Company has also commenced a program to determine the Year 2000
compliance efforts of its equipment and material suppliers. The Company has
sent requests to all of its significant suppliers regarding their Year 2000
compliance, requesting that they warrant their ability to provide services
and supplies in the Year 2000. Half of the suppliers have warranted their
ability to provide supplies in the Year 2000, and the remainder have
presented a plan to have their company compliant by the end of calendar year
1999. This program will be ongoing and the Company's efforts with respect to
specific problems identified will depend in part upon its assessment of the
risks involved. Unfortunately, the Company cannot fully control the conduct
of its suppliers, and there can be no guarantee that Year 2000 problems
originating with a supplier will not occur. The Company has not yet
developed contingency plans in the event of a Year 2000 failure caused by a
supplier or third party, but would intend to do so if a specific problem is
identified through the programs described above. In some cases, especially
with respect to its utility vendors, alternative suppliers may not be
available.
The Company believes that the cost of Year 2000 compliance for its
information and production systems has not and will not be material to its
consolidated results of operations and financial position.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
<PAGE> 12
PART II. OTHER INFORMATION
ECC INTERNATIONAL CORP.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
Exhibit 27.1 - Financial Data Schedule for the three-month period
ended September 30, 1998.
b. REPORTS ON FORM 8-K
On August 28, 1998, the Company filed a Current Report on Form 8-K,
dated August 27, 1998, to report under Item 5 (Other Events) that
the Company had reduced its work force by 5% and that the Board of
Directors had approved a plan to wind down and discontinue the
operations of ECC Simulation Limited. No financial statements were
required to be filed with such report.
<PAGE> 13
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 16, 1998 /s/ James C. Garrett
----------------- -------------------------------
James C. Garrett
President and
Chief Executive Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000031660
<NAME> ECC INTERNATIONAL CORP.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
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