<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, 1999
-------------------------------------------------
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
--------------------------------------------------------
ECC INTERNATIONAL CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-1714658
- --------------------------------- ---------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2001 West Oak Ridge Road, Orlando, FL 32809-3803
- ---------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
(407) 859-7410
- --------------------------------------------------------------------------------
(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 the past 90 days.
[X] Yes [ ] No
As of February 7, 2000, there were 8,449,869 shares of the Registrant's
Common Stock, $.10 par value per share, issued and outstanding.
<PAGE> 2
PART I. FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
12/31/99 12/31/98
---------- ----------
<S> <C> <C>
Net Sales $ 21,246 $ 24,379
Cost of Sales 14,615 18,466
-------- --------
Gross Profit 6,631 5,913
-------- --------
Expenses:
Selling, General & Administrative 4,342 5,879
Independent Research and Development 150 570
Non-Recurring Expenses -- 1,872
-------- --------
Total Expenses 4,492 8,321
-------- --------
Operating Income/(Loss) 2,139 (2,408)
-------- --------
Other Income/(Expense):
Interest Income 24 120
Interest Expense (440) (586)
Other - Net (92) 215
-------- --------
Total Other Expense (508) (251)
-------- --------
Income/(Loss) Before Income Taxes 1,631 (2,659)
Benefit for Income Taxes -- (423)
-------- --------
Net Income/(Loss) $ 1,631 $ (2,236)
======== ========
Income/(Loss) Per Common Share - Basic and
Assuming Dilution:
Net Income/(Loss) Per Common Share-Basic $ 0.19 $ (0.27)
======== ========
Net Income/(Loss) Per Common Share-Dilutive $ 0.19 $ (0.27)
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 3
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
12/31/99 12/31/98
------------ ------------
<S> <C> <C>
Net Sales $ 11,058 $ 13,968
Cost of Sales 7,390 10,479
-------- --------
Gross Profit 3,668 3,489
-------- --------
Expenses:
Selling, General & Administrative 2,318 2,818
Independent Research and Development 109 50
Non-Recurring Expenses -- 706
-------- --------
Total Expenses 2,427 3,574
-------- --------
Operating Income/(Loss) 1,241 (85)
-------- --------
Other Income/(Expense):
Interest Income 12 45
Interest Expense (231) (342)
Other - Net 36 111
-------- --------
Total Other Expense (183) (186)
-------- --------
Income/(Loss) Before Income Taxes 1,058 (271)
Provision/(Benefit) for Income Taxes -- 181
-------- --------
Net Income/(Loss) $ 1,058 $ (452)
======== ========
Income/(Loss) Per Common Share - Basic and
Assuming Dilution:
Net Income/(Loss) Per Common Share-Basic $ 0.13 $ (0.05)
======== ========
Net Income/(Loss) Per Common Share-Dilutive $ 0.12 $ (0.05)
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 4
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
12/31/99 12/31/98
--------- ----------
<S> <C> <C>
Net Income/(Loss) $ 1,631 $ (2,236)
Other Comprehensive Expense:
Foreign Currency Translation Adjustments -- (147)
------- --------
Total Comprehensive Income/(Loss) $ 1,631 $ (2,383)
======= ========
</TABLE>
See accompanying notes to the consolidated financial statements
4
<PAGE> 5
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
12/31/99 12/31/98
--------- ------------
<S> <C> <C>
Net Income/(Loss) $ 1,058 $ (452)
Other Comprehensive Expense:
Foreign Currency Translation Adjustments -- (22)
------- ------
Total Comprehensive Income/(Loss) $ 1,058 $ (474)
======= ======
</TABLE>
See accompanying notes to the consolidated financial statements
5
<PAGE> 6
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
12/31/99 6/30/99
----------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ -- $ 1,485
Accounts Receivable 4,701 4,738
Cost and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 16,896 18,494
Inventories 4,146 4,311
Prepaid Expenses and Other 583 755
-------- --------
Total Current Assets 26,326 29,783
Property, Plant and Equipment - Net 17,320 18,273
Other Assets 763 657
-------- --------
Total Assets $ 44,409 $ 48,713
======== ========
</TABLE>
Continued...
6
<PAGE> 7
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands Except Share and Per Share Data)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
12/31/99 6/30/99
---------- --------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt $ 4,279 $ 6,424
Accounts Payable 1,213 2,917
Accrued Expenses and Other 6,184 7,379
-------- --------
Total Current Liabilities 11,676 16,720
Deferred Income Taxes 507 507
Other Long-Term Liabilities 389 1,399
-------- --------
Total Liabilities 12,572 18,626
-------- --------
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,
8,449,869 shares at 12/31/99 and
8,412,165 at 6/30/99 845 841
Note Receivable from Stockholder (146) (146)
Capital in Excess of Par 25,120 25,005
Retained Earnings 6,018 4,387
-------- --------
Total Stockholders' Equity 31,837 30,087
-------- --------
Total Liabilities & Stockholders' Equity $ 44,409 $ 48,713
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
7
<PAGE> 8
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
12/31/99 12/31/98
---------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income/(Loss) $ 1,631 $ (2,236)
Items Not Requiring Cash:
Depreciation 1,994 2,095
Amortization 171 --
Loss/(Gain) on Disposal of Equipment 5 (311)
Changes in Certain Assets and Liabilities:
Accounts Receivable 37 568
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 1,598 4,193
Inventories 165 221
Prepaid Expenses and Other (18) (537)
Accounts Payable (1,704) (376)
Advances on Long-Term Contracts -- (2,930)
Accrued Expenses and Other Long-Term Liabilities (2,407) 171
------- --------
Net Cash Provided by Operating Activities 1,472 858
------- --------
Cash Flows From Investing Activities:
Proceeds from Sales of Assets -- 501
Additions to Property, Plant and Equipment (792) (1,521)
Other -- 1,332
------- --------
Net Cash (Used In)/Provided by Investing Activities (792) 312
------- --------
Cash Flows From Financing Activities:
Proceeds From Issuance of Common Stock and
Options Exercised 67 1
Financing Charges Incurred on Revolving Credit Facility (87)
Net Repayments Under Revolving Credit Facility (2,145) (1,280)
------- --------
Net Cash Used In Financing Activities (2,165) (1,279)
------- --------
Net Decrease in Cash (1,485) (109)
Cash at Beginning of the Period 1,485 4,830
------- --------
Cash at End of the Period $ -- $ 4,721
======= ========
</TABLE>
Continued...
8
<PAGE> 9
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998 (Continued)
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
12/31/99 12/31/98
--------- ----------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year For:
Interest $ 377 $ 552
Supplemental Schedule of Non Cash Financing Activities:
Issuance of Director Equity Compensation $ 52 $ 23
Purchase of Fixed Assets Through Capital Leases $ 254 $ --
Extended Payment Terms in Connection with
Novation Agreement $ -- $ 4,552
</TABLE>
See accompanying notes to the consolidated financial statements.
9
<PAGE> 10
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying 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, 1999
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,
comprehensive income and cash flows for the interim periods 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, 1999.
2. The new revolving credit facility requires all cash receipts to be applied
directly to the debt resulting in a zero cash balance at December 31,
1999.
3. Inventories
(In Thousands)
12/31/99 6/30/99
-------- -------
Work in Process $ 744 $ 1,180
Raw Materials 3,402 3,131
------- -------
Total $ 4,146 $ 4,311
======= =======
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.
4. Debt
On June 24, 1999, the Company entered into a revolving credit facility
with a bank totaling $12.5 million and expiring on June 24, 2003.
Available borrowings above the current outstanding balance, which are
based on a formula of receivables and property, as defined in the
revolving credit facility, were approximately $4.4 million at December 31,
1999.
The revolving 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 the
balance of the revolving credit facility. As such, the outstanding balance
of approximately $4.3 million at December 31, 1999 is included in the
Current Portion of Long-Term Debt on the Consolidated Balance Sheet.
10
<PAGE> 11
5. 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. These initiatives
resulted in non-recurring charges of approximately $1.2 million and $1.9
million during the three-month and the six-month periods ended December
31, 1998, respectively. These charges relate primarily to employee
termination benefits and lease termination costs. There were no
additional charges during the first six months of fiscal year 2000.
The following table sets forth the details and the cumulative activity in
the various accruals associated with the wind-down of the UK operations
and relocation of the Wayne Office in the Consolidated Balance Sheet at
June 30, 1999 and December 31, 1999.
<TABLE>
<CAPTION>
(In Thousands)
Cash Reduction Non-Cash
6/30/99 Payments Activity 12/31/99
------- -------------- -------- --------
<S> <C> <C> <C> <C>
Severance $ 36 $ (36) $ -- $ --
Facility Lease Obligations 567 (386) 21 202
Other 16 (16) -- --
----- ----- ----- -----
Total $ 619 $(438) $ 21 $ 202
===== ===== ===== =====
</TABLE>
6. 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
<TABLE>
<CAPTION>
(In Thousands)
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
12/31/99 12/31/98 12/31/99 12/31/98
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
U.S. Department of Defense
Direct $ 3,262 $ 1,873 $ 1,260 $ 1,352
Subcontract 17,984 16,752 9,798 9,247
-------- -------- -------- --------
Total U.S. Department of Defense 21,246 18,625 11,058 10,599
-------- -------- -------- --------
Foreign Governments -- 4,713 -- 2,977
Foreign Commercial -- 1,041 -- 392
-------- -------- -------- --------
Total Foreign -- 5,754 -- 3,369
-------- -------- -------- --------
Total Sales $ 21,246 $ 24,379 $ 11,058 $ 13,968
======== ======== ======== ========
</TABLE>
11
<PAGE> 12
Export Sales from the U.S. were not material for the three-month and
six-month periods ended December 31, 1999, compared to $3,369,000 and
$5,754,000 for the three-month and six-month periods ended December 31,
1998, respectively. Export sales do not include Foreign Military Sales
through U.S. Government agencies and prime contractors of $219,000 and
$416,000 for the three-month and six-month periods ended December 31,
1999, respectively and $342,000 and $795,000 for the three-month and
six-month periods ended December 31, 1998, respectively.
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 Geographic Area
<TABLE>
<CAPTION>
(In Thousands)
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
12/31/99 12/31/98 12/31/99 12/31/98
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
United States $ 21,246 $ 18,625 $ 11,058 $ 10,599
Europe & Middle East -- 5,754 -- 3,369
-------- -------- -------- --------
Consolidated $ 21,246 $ 24,379 $ 11,058 $ 13,968
======== ======== ======== ========
Operating Income/(Loss)
United States $ 2,139 $ (1,432) $ 1,241 $ 280
Europe & Middle East -- (976) -- (365)
-------- -------- -------- --------
Consolidated $ 2,139 $ (2,408) $ 1,241 $ (85)
======== ======== ======== ========
Long-Lived Assets
United States $ 17,320 $ 20,018
Europe & Middle East -- 212
-------- --------
Consolidated $ 17,320 $ 20,230
======== ========
</TABLE>
7. Earnings Per Share
Basic earnings/(loss) per common share is computed by dividing net
earnings/(loss) available to common shareholders by the weighted-average
number of common shares outstanding during the period. Diluted
earnings/(loss) per share is computed by dividing net earnings/(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 earnings/(loss) per share does not assume the
exercise of options that would have an antidilutive effect on
earnings/(loss) per share.
12
<PAGE> 13
The weighted-average number of common shares outstanding for each period
presented is as follows:
<TABLE>
<CAPTION>
Six-Months Six-Months Three-Months Three-Months
Ended Ended Ended Ended
12/31/99 12/31/98 12/31/99 12/31/98
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Basic 8,418,345 8,346,269 8,424,088 8,346,610
Dilutive 8,470,330 8,346,269 8,472,827 8,346,610
</TABLE>
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 six-month period ended December 31, 1999, the Company's
principal sources of cash were borrowings under the revolving credit
facility and collections on accounts receivable, which are applied
directly toward the revolving credit facility balance. (See Note 2 to the
Consolidated Financial Statements.) The principal uses of these funds were
to make vendor and payroll payments, lease termination and contract
novation payments, as well as investments in capital assets.
The cash balance decreased since fiscal 1999 year end due to the new
revolving credit facility arrangement where all cash receipts are applied
directly to pay down the outstanding loan balance (see Note 2 to the
Consolidated Financial Statements.)
Cost and Estimated Earnings in Excess of Billings on Uncompleted Contracts
decreased since fiscal 1999 year end primarily due to significant billings
on the Javelin and F-18 programs, which were collected prior to the end of
the quarter.
Accounts Payable decreased since fiscal 1999 year end primarily due to
a reduction in payment cycles supported by the revolving credit facility.
Accrued expenses decreased since fiscal 1999 year end primarily as a
result of reduced accruals for salary and vacation expenses and lease
termination payments made associated with the wind down of the UK
division (see Note 5 to the Consolidated Financial Statements.)
13
<PAGE> 14
Current Portion of Long-Term Debt decreased since fiscal 1999 year end
primarily due to significant cash receipts on the Javelin and F-18 E&F
programs that were applied directly to pay down the outstanding loan
balance.
Other Long-Term Liabilities decreased since fiscal 1999 year end due to
payments on UK contract novations and lease terminations associated with
the wind down of the UK operations.
During the remainder of fiscal year 2000, the Company anticipates spending
approximately $500,000 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 with the
funds available under its new revolving credit facility and its projected
cash flow, the Company will have sufficient resources to meet planned
operating commitments for the foreseeable future.
b) MATERIAL CHANGES IN RESULTS OF OPERATIONS.
Net sales decreased $2.9 million and $3.1 million for the three-month and
six-month periods ended December 31, 1999, respectively, compared to the
same periods ended December 31, 1998; UK sales volume declined by $5.8
million and $3.4 million as a result of the UK operations wind-down while
domestic volume increased by $2.6 million and $.4 million for the
three-month and six-month periods ended December 31, 1999, respectively.
Overall gross profit as a percentage of net sales increased to 33 percent
and 31 percent for the three-month and six-month periods ended December
31, 1999, respectively, as compared to 25 percent and 24 percent for the
same periods ended December 31, 1998. The increase is primarily a result
of improved levels of gross margin on ongoing programs including Javelin,
CCTT and AGTS, partially off-set by increased costs on the EST and UK
Airtours programs. In addition, the Company's cost reduction initiatives
during fiscal year 1999 and the first six months of fiscal year 2000 have
reduced overhead costs, thus improving gross margins.
Selling, general and administrative expense decreased 18 and 26 percent
during the three-month and six-month periods ended December 31, 1999,
respectively, as compared to the same periods ended December 31, 1998.
This decrease is primarily a result of cost reduction initiatives during
fiscal year 1999, particularly in the areas of executive salaries, legal
fees and outside marketing representatives.
Independent Research and Development expense decreased 74 percent during
the six-month period ended December 31, 1999 as compared to the same
period ended December 31, 1998 due to the timing of planned developments
in fiscal year 2000. In the three-month period ended December 31, 1999,
IR&D expense increased 118 percent over the three-month period ended
December 31,1998. This increase was primarily due to the discontinuation
of certain vendor parts for which in-house development was needed for
redesign. The Company anticipates spending approximately $800,000 on IR&D
during the remainder of fiscal year 2000.
14
<PAGE> 15
Non-Recurring Expenses decreased 100 percent during the three-month and
six-month periods ended December 31, 1999 as compared to the same periods
ended December 31, 1998. This decrease is primarily a result of the wind
down of the UK operations and the relocation of the corporate
headquarters, both of which were completed in fiscal year 1999. No
additional charges are anticipated in fiscal year 2000 (see note 5 to the
Consolidated Financial statements.)
Interest Expense decreased 33 percent and 25 percent during the
three-month and six-month periods ended December 31, 1999, respectively,
as compared to the same periods ended December 31, 1998. This decrease is
primarily due to payments made on the previous credit facility, which
resulted in lower outstanding balances in fiscal year 2000 as compared to
fiscal year 1999.
Other-Net decreased during the three-month and six-month periods ended
December 31, 1999 as compared to the same periods ended December 31, 1998.
The decrease is primarily a result of translation losses on foreign
exchange transactions.
The Company did not record a tax provision during the first two quarters
of fiscal year 2000 as Net Operating Loss Carryforwards will be utilized
for current income. The Company has approximately $12.3 million of
cumulative Federal net operating loss carryforwards, which expire in the
years 2013 and 2018.
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.
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.
15
<PAGE> 16
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
The Company, like other businesses, faced the Year 2000 Issue, (also known
as the Y2K 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.
The Company initially addressed the Year 2000 Issue in 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. In addition, the
Company worked with its prime contractors to identify Year 2000 problems
that could affect the integration of the Company's product with those of
prime contractors.
All Company network operating systems and substantially all operating
systems on individual workstations were updated to comply with Year 2000
requirements. Also, the Company instituted a policy to accept only Year
2000 compliant software and has an ongoing program to confirm that all new
software programs are compliant with Year 2000 requirements. Further, the
Company replaced all central core components of its network and all
satellite switching cabinets with Year 2000 compliant Lucent Technologies
Cajun 550 series switch routers. Although there can be no assurance that
the Company identified and corrected all Year 2000 problems found in its
computer applications, the Company has seen no indication of Year 2000
problems to date. Further, the Company believes that it has in place a
comprehensive program to identify and correct any such problems should
they occur.
The Company reviewed its building and utility systems (heat, light,
phones, etc.) to ensure that all of the systems in this area were Year
2000 ready. While the Company has no reason to believe that its utility
suppliers will not continue to provide services, 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.
The Company is satisfied that its customer base is aware of the Year 2000
issue and has worked to ensure that there are no problems associated with
the Year 2000. The Company is aware of this because all major customers
asked the Company for its Year 2000 status. In the process, they revealed
their Year 2000 plans and stated that they were actively engaged in
solving any potential problems.
16
<PAGE> 17
The Company also commenced a program to determine the Year 2000 compliance
efforts of its equipment and material suppliers. More than half of the
suppliers warranted their ability to provide supplies in the Year 2000,
and the remainder presented a plan to have their company compliant by the
end of calendar year 1999. The program to determine the Year 2000
compliance effort of the Company's equipment and material suppliers is
ongoing and the Company's efforts with respect to specific problems
identified will depend in part upon its assessment of the risk that any
such problems may cause the shutdown of a supplier's plant or its
operations. 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 developed contingency plans in the event of a Year 2000
failure caused by a supplier or third party. In some cases, especially
with respect to its utility vendors, alternative suppliers may not be
available. The Company made arrangements to have key personnel
continuously on-site during the transition form 1999 to 2000 to react
immediately to any unforeseen failure. No failures were observed during
the transition from 1999 to 2000.
The Company believes the cost of Year 2000 compliance for its information
and productions systems has not and will not exceed $25,000 and,
therefore, is not material to its consolidated results of operations and
financial position.
Although the Company believes that it successfully avoided any significant
disruption from the Year 2000 issue relating to the century rollover, it
will continue to monitor all critical systems for the appearance of
delayed complications or disruptions, problems relating to the leap year
and problems encountered through suppliers, customers and other third
parties with whom the Company deals. Although these and other
unanticipated Year 2000 issues could have an adverse effect on the results
of operations or financial condition of the Company, it is not possible to
anticipate the extent of impact at this time.
The foregoing shall be considered a Year 2000 readiness disclosure to the
maximum extent allowed under the Year 2000 Information and Readiness
Disclosure Act.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
17
<PAGE> 18
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 December 10, 1999,
the following proposals were adopted by the vote specified below:
<TABLE>
<CAPTION>
Votes Votes Broker
Proposal For Against Abstain NonVotes
<S> <C> <C> <C>
(1) To elect the Board of Directors
Bruce A. Beda 7,687,775 154,500 -- 169,866
Julian Demora 7,838,740 3,535 -- 18,901
James C. Garrett 7,841,374 901 -- 16,267
James R. Henderson 7,834,429 7,846 -- 23,212
Jesse Krasnow 7,657,765 184,510 -- 199,876
Warren Lichtenstein 7,827,606 14,669 -- 30,035
Thomas E. McGrath 7,564,265 278,010 -- 293,376
Merrill A. McPeak 7,786,607 55,668 -- 71,034
(2) To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent certified public accountants for the
fiscal year ending June 30, 2000.
7,820,983 31,855 17,536 544,391
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
Exhibit 27.1 - Financial Data Schedule for the six-month
period ended December 31, 1999.
b. REPORTS ON FORM 8-K
Not applicable.
18
<PAGE> 19
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 14, 2000 /s/ Melissa Van Valkenburgh
----------------------------- -----------------------------------
Melissa Van Valkenburgh
Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 21,597
<ALLOWANCES> 0
<INVENTORY> 4,146
<CURRENT-ASSETS> 26,326
<PP&E> 52,276
<DEPRECIATION> 34,956
<TOTAL-ASSETS> 44,409
<CURRENT-LIABILITIES> 11,676
<BONDS> 0
0
0
<COMMON> 845
<OTHER-SE> 30,992
<TOTAL-LIABILITY-AND-EQUITY> 44,409
<SALES> 11,058
<TOTAL-REVENUES> 11,058
<CGS> 7,390
<TOTAL-COSTS> 7,390
<OTHER-EXPENSES> 1,241
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231
<INCOME-PRETAX> 1,058
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,058
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,058
<EPS-BASIC> .13
<EPS-DILUTED> .12
</TABLE>
