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, 2000
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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)
Delaware 23-1714658
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 West Oak Ridge Road, Orlando, FL 32809-3803
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(Address of principal executive offices) (Zip Code)
(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 November 6, 2000 there were 8,102,639 shares of the
Registrant's Common Stock, $.10 par value per share, issued and outstanding.
<PAGE>
PART I. FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
9/30/00 9/30/99
------- -------
<S> <C> <C>
Sales $ 7,471 $ 10,188
Cost of Sales 5,312 7,225
------ ------
Gross Profit 2,159 2,963
------ ------
Expenses:
Selling, General & Administrative 2,199 2,024
Independent Research and Development 70 41
--- --
Total Expenses 2,269 2,065
------ ------
Operating (Loss)/Income (110) 898
------ ------
Other Income/(Expense):
Interest Income 37 12
Interest Expense (44) (209)
Other - Net 126 (128)
---- -----
Total Other Income/(Expense) 119 (325)
---- -----
Income Before Income Taxes 9 573
Provision for Income Taxes - -
------- --------
Net Income $ 9 $ 573
======= ========
Income Per Common Share -
Basic and Assuming Dilution:
Net Income Per Common Share-Basic $ 0.00 $ 0.07
======= ========
Net Income Per Common Share-Dilutive $ 0.00 $ 0.07
======= ========
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE>
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
9/30/00 6/30/00
------- ---------
ASSETS
Current Assets:
<S> <C> <C>
Cash $ 490 $ 2,406
Accounts Receivable 5,602 7,359
Cost and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 11,444 10,455
Inventories 2,931 2,559
Prepaid Expenses and Other 584 449
--------- --------
Total Current Assets 21,051 23,228
--------- --------
Property, Plant and Equipment - Net 14,874 15,476
Other Assets 262 531
--------- --------
Total Assets $ 36,187 $39,235
========= ========
</TABLE>
3
<PAGE>
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands Except Share and Per Share Data)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
9/30/00 6/30/00
------- -------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 709 $ 1,438
Accrued Expenses and Other 3,070 3,869
------- -------
Total Current Liabilities 3,779 5,307
Deferred Income Taxes 80 80
Other Long-Term Liabilities 117 159
------- -------
Total Liabilities 3,976 5,546
------- -------
COMMITMENTS AND CONTINGENCIES
Stockholders' Equity:
Preferred Stock, $.10 par; 1,000,000 shares
authorized; none issued and outstanding - -
Common Stock, $.10 par; 20,000,000
shares authorized; issued and outstanding,
8,482,639 and 8,481,067 848 848
Note Receivable from Stockholder (146) (146)
Capital in Excess of Par 25,216 25,211
Retained Earnings 7,700 7,776
Treasury Stock, at cost (342,500 shares) (1,407) -
------ -------
Total Stockholders' Equity 32,211 33,689
------ -------
Total Liabilities & Stockholders' Equity $ 36,187 $ 39,235
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
9/30/00 9/30/99
------- -------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 9 $ 573
Items Not Requiring Cash:
Depreciation 712 972
Amortization 137 66
Gain on Disposal of Equipment (119) -
Changes in Certain Assets and Liabilities:
Accounts Receivable 1,757 (533)
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts (989) 196
Inventories (372) (277)
Prepaid Expenses and Other (3) (2)
Accounts Payable (729) (818)
Accrued Expenses and Other Long-Term Liabilities (837) (1,534)
-------- --------
Net Cash Used In Operating Activities (434) (1,357)
-------- --------
Cash Flows From Investing Activities:
Proceeds from Sales of Assets 120 -
Additions to Property, Plant and Equipment (111) (413)
-------- -------
Net Cash Provided/(Used In) by Investing Activities 9 (413)
-------- -------
Cash Flows From Financing Activities:
Proceeds From Issuance of Common Stock and
Options Exercised 1 5
Purchase of Treasury Stock (1,407) -
Dividends Paid (85) -
Debt Issue Cost for Revolving Credit Facility - (87)
Net Borrowings Under Revolving Credit Facility - 367
-------- -------
Net Cash (Used In)/Provided By Financing Activities (1,491) 285
-------- -------
Net Decrease in Cash (1,916) (1,485)
Cash at Beginning of the Period 2,406 1,485
-------- -------
Cash at End of the Period $ 490 $ -
======== =======
</TABLE>
Continuted....
5
<PAGE>
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Continued)
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
9/30/00 9/30/99
------- -------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year For:
Interest $ 40 $ 143
Supplemental Schedule of Non Cash Financing Activities:
Issuance of Director Equity Compensation $ 4 $ 28
Purchase of Fixed Assets Through Capital Leases $ - $ 284
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying consolidated financial statements are unaudited and
have been prepared by ECC International Corp. (the "Company") pursuant
to the rules and regulations of the Securities and Exchange Commission.
The June 30, 2000 consolidated balance sheet was derived from audited
consolidated 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, comprehensive income and cash flows
for the interim 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, 2000.
The Company has no other Comprehensive Income other than Net Income.
2. Inventories
(In Thousands)
9/30/00 6/30/00
Work in Process $ 433 $ 89
Raw Materials 2,498 2,470
------- ------
Total $ 2,931 $2,559
======= ======
Work in process inventory is valued using the specific identification
cost method, but not in excess of net realizable value. Raw materials
are valued at the lower of average cost or market.
3. Debt
On June 24, 1999, the Company entered into a revolving credit facility
("Credit Facility") with Mellon Bank, N.A. totaling $12.5 million and
expiring on June 24, 2003. Available borrowings are based on a formula
of receivables and property, as defined in the Credit Facility, and
were approximately $6.9 million at September 30, 2000. There was no
outstanding balance under the Credit Facility as of September 30, 2000.
The Credit Facility includes a subjective acceleration clause as well
as a lockbox requirement under the control of the lender, whereby all
collections of trade receivables are used to immediately reduce any
outstanding balance under the Credit Facility.
For the period ended September 30, 2000, the Company was not in
compliance with a financial covenant required under the Credit
Facility. The Company is working with Mellon Bank, N.A. to amend the
Credit Facility and anticipates that any such amendment will result in
the revision of the financial covenants such that the Company will be
in compliance with such revised financial covenants.
7
<PAGE>
4. Non-Recurring Expenses
During fiscal year 1999, the Company implemented various cost reduction
initiatives and changes in management including the relocation of the
corporate headquarters and Instructional System Development Group from
Wayne, Pennsylvania to the Company's principal System Design and
Production Center in Orlando, Florida. The relocation was completed in
September 1998. In addition, as a result of recurring net losses in the
UK operations, the Board of Directors announced, during the first
quarter of fiscal year 1999, the approval of a plan to wind-down and
discontinue the UK operations, which was completed in May 1999. Charges
totaling $3.2 million in 1999 related primarily to employee termination
benefits and lease termination costs. There were no additional charges
during fiscal year 2000 or the first quarter of fiscal year 2001.
The following table sets forth the details and the cumulative activity
in the remaining accrual associated with the wind-down of the UK
operations and relocation of the Wayne Office in the Consolidated
Balance Sheet at June 30, 2000 and September 30, 2000 (in thousands).
Facility
Lease
Obligations
-----------
Balance at 6/30/00 $ 142
Cash Reduction Payments (48)
Non-Cash Activity (3)
-----
Balance at 9/30/00 $ 91
=====
5. Business Segment Information
The Company operates in one segment-training. This segment includes the
design and manufacture of training simulators.
Sales by Class of Customer
(In Thousands)
Three Months Ended
9/30/00 9/30/99
------- -------
U.S. Department of Defense
Direct $2,260 $ 2,002
Subcontract 5,211 8,186
------ -------
Total Sales $7,471 $10,188
====== =======
Export Sales from the U.S. were not material for the three-month
periods ended September 30, 2000 and September 30, 1999. Export sales
do not include Foreign Military Sales through U.S. Government agencies
and prime contractors of $197,000 for the three-month period ended
8
<PAGE>
September 30, 1999. There were no Foreign Military Sales for the
three-month period ended September 30, 2000.
Since a substantial portion of the Company's revenues are attributable
to long-term contracts with various government agencies, any factor
affecting procurement of long-term government contracts such as changes
in government spending, cancellation of weapons programs and delays in
contract awards could have a material impact on the Company's financial
condition and results of operations.
Sales by Geographical Area
All of the Company's Revenues, Operating Income and Long-Lived Assets
are within the United States.
6. Earnings Per Share
Basic earnings per common share is computed by dividing net earnings
available to common stockholders by the weighted-average number of
common shares outstanding during the period. Diluted earnings per share
is computed by dividing net earnings available to common stockholders
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 earnings per share does not assume the exercise of options
that would have an antidilutive effect on earnings per share.
The weighted-average number of common shares outstanding for each
period presented is as follows:
Three-Months Ended
9/30/00 9/30/99
------- -------
Basic 8,379,690 8,412,602
Dilutive 8,437,062 8,465,197
9
<PAGE>
ITEM 2. 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 of 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, 2000, the
Company's principal source of cash was collections on accounts
receivable. The principal uses of these funds were to make vendor
and payroll payments, lease termination and contract novation
payments.
The cash balance decreased since fiscal year end 2000 primarily due
to the repurchase of stock and dividends paid in the first quarter
of fiscal year 2001.
Accounts Receivable decreased in the three-month period ended
September 30, 2000 primarily due to receipts on the Javelin
Multi-Year 1 and F-18 programs.
Cost and Estimated Earnings in Excess of Billings increased in the
three-month period ended September 30, 2000 primarily due to the
timing of billings on the Javelin program.
Inventories increased since fiscal year end 2000 primarily due to
unabsorbed overhead, which will be charged to programs during the
balance of the year.
Prepaid Expense and Other increased primarily due to the payment of
Alternative Minimum Taxes for fiscal year 2000.
Other assets decreased since fiscal year 2000 primarily due to the
amortization of deferred charges.
Accounts Payable decreased since fiscal year end 2000 due to
reductions in material purchases primarily on the Close Combat
Tactical Trainer program for the first quarter of fiscal year 2001.
Accrued expenses decreased since fiscal year end 2000 primarily as a
result of the payment of incentives earned in fiscal year 2000 as
well as Novation and lease termination payments made associated with
the wind down of the UK division. (See Note 4 to the Consolidated
Financial Statements.)
10
<PAGE>
During the remainder of fiscal year 2001, the Company anticipates
spending approximately $300,000 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. Management believes
that cash on hand, funds available under the Credit Facility and the
Company's projected cash flows, including funds generated from
operations, will be sufficient to meet planned capital commitments
and working capital requirements for the foreseeable future.
For the period ended September 30, 2000, the Company was not in
compliance with a financial covenant required under the Credit
Facility. The Company is working with Mellon Bank, N.A. to amend the
Credit Facility and anticipates that any such amendment will result
in the revision of the financial covenants such that the Company
will be in compliance with such revised financial covenants.
b) Material Changes in Results of Operations.
Sales and gross profit decreased $2.7 million and $1.8 million,
respectively, for the three-month period ended September 30, 2000 as
compared to the same period ended September 30, 1999. The reduction
in sales and gross profit is primarily due to the completion of the
Javelin Multi-Year 1 and AGTS contracts. However, gross profit as a
percentage of sales is consistent with the prior year.
Selling, general and administrative expenses increased 9% during the
three-month period ended September 30, 2000, as compared to the same
period ended September 30, 1999. This increase is primarily a result
of increased bid and proposal expenses due to expanded marketing
efforts in the current year.
Interest expense decreased 79% during the three-month period ended
September 30, 2000, as compared to the same period ended September
30, 1999. This decrease is primarily a result of the Company
maintaining a positive cash balance for the first quarter of fiscal
year 2001. Accordingly, there were no borrowings against the Credit
Facility.
Other-Net increased 198% during the three-month period ended
September 30, 2000 as compared to the same period ended September
30, 1999. This change is primarily a result of gains on the sale of
certain fixed assets and translation gains on foreign exchange
transactions.
The Company did not record a tax provision during the first quarter
of fiscal year 2001 as net operating loss carryforwards will be
utilized for current income. The Company has approximately $5.4
million of cumulative Federal net operating loss carryforwards,
which expire in 2013 and 2018. This amount is prior to utilization
against current income.
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
11
<PAGE>
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.
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.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
12
<PAGE>
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, 2000.
b. Reports on Form 8-K
On August 24, 2000 the Company filed a current report on Form 8-K
(Commission File No. 001-8988) to report under Item 5 (Other Events)
that on August 9, 2000, the Board of Directors voted to terminate
the Rights Agreement dated as of August 27, 1996 between the Company
and Mellon Bank, N.A. and to redeem all outstanding rights
thereunder.
13
<PAGE>
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 9, 2000 /s/ Melissa Van Valkenburgh
---------------------------
Melissa Van Valkenburgh
Chief Financial Officer
