<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 March 31, 2000
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 of (I.R.S. Employer Identification No.)
incorporation or organization)
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 May 10, 2000 there were 8,455,779 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
NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
3/31/00 3/31/99
----------- -----------
<S> <C> <C>
Net Sales $ 31,134 $ 34,432
Cost of Sales 20,573 25,169
-------- --------
Gross Profit 10,561 9,263
-------- --------
Expenses:
Selling, General & Administrative 6,677 8,394
Independent Research and Development 286 705
Non-Recurring Expenses -- 3,160
-------- --------
Total Expenses 6,963 12,259
-------- --------
Operating Income/(Loss) 3,598 (2,996)
-------- --------
Other Income/(Expense):
Interest Income 29 275
Interest Expense (597) (844)
Other - Net (88) 182
-------- --------
Total Other Expense (656) (387)
-------- --------
Income/(Loss) Before Income Taxes 2,942 (3,383)
Benefit for Income Taxes -- (213)
-------- --------
Net Income/(Loss) $ 2,942 $ (3,170)
======== ========
Income/(Loss) Per Common Share -
Basic and Assuming Dilution:
Net Income/(Loss) Per Common Share-Basic $ 0.35 $ (0.38)
======== ========
Net Income/(Loss) Per Common Share-Dilutive $ 0.35 $ (0.38)
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 3
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
3/31/00 3/31/99
------------ ------------
<S> <C> <C>
Net Sales $ 9,888 $ 10,053
Cost of Sales 5,958 6,703
-------- --------
Gross Profit 3,930 3,350
-------- --------
Expenses:
Selling, General & Administrative 2,334 2,515
Independent Research and Development 137 135
Non-Recurring Expenses -- 1,288
-------- --------
Total Expenses 2,471 3,938
-------- --------
Operating Income/(Loss) 1,459 (588)
-------- --------
Other Income/(Expense):
Interest Income 5 155
Interest Expense (158) (258)
Other - Net 4 (33)
-------- --------
Total Other Expense (149) (136)
-------- --------
Income/(Loss) Before Income Taxes 1,310 (724)
Provision for Income Taxes -- 210
-------- --------
Net Income/(Loss) $ 1,310 $ (934)
======== ========
Income/(Loss) Per Common Share
Basic and Assuming Dilution:
Net Income/(Loss) Per Common Share-Basic $ 0.16 $ (0.11)
======== ========
Net Income/(Loss) Per Common Share-Dilutive $ 0.15 $ (0.11)
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 4
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
3/31/00 3/31/99
----------- -----------
<S> <C> <C>
Net Income/(Loss) $ 2,942 $(3,170)
Other Comprehensive Income:
Foreign Currency Translation Adjustments -- 247
------- -------
Total Comprehensive Income/(Loss) $ 2,942 $(2,923)
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 5
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
3/31/00 3/31/99
------------ ------------
<S> <C> <C>
Net Income/(Loss) $ 1,310 $ (934)
Other Comprehensive Income:
Foreign Currency Translation Adjustments -- 394
------- ------
Total Comprehensive Income/(Loss) $ 1,310 $ (540)
======= ======
</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)
3/31/00 6/30/99
----------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ -- $ 1,485
Accounts Receivable 9,124 4,738
Cost and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 15,997 18,494
Inventories 3,360 4,311
Prepaid Expenses and Other 727 755
------- -------
Total Current Assets 29,208 29,783
Property, Plant and Equipment - Net 16,460 18,273
Other Assets 653 657
------- -------
Total Assets $46,321 $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)
3/31/00 6/30/99
-------- --------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt $ 5,881 $ 6,424
Accounts Payable 685 2,917
Accrued Expenses and Other 6,081 7,379
-------- --------
Total Current Liabilities 12,647 16,720
Deferred Income Taxes 507 507
Other Long-Term Liabilities -- 1,399
-------- --------
Total Liabilities 13,154 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,
8,455,179 shares at 3/31/00 and
8,412,165 at 6/30/99 845 841
Note Receivable from Stockholder (146) (146)
Capital in Excess of Par 25,139 25,005
Retained Earnings 7,329 4,387
-------- --------
Total Stockholders' Equity 33,167 30,087
-------- --------
Total Liabilities & Stockholders' Equity $ 46,321 $ 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 NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
3/31/00 3/31/99
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income/(Loss) $ 2,942 $(3,170)
Items Not Requiring Cash:
Depreciation 2,979 3,257
Amortization 311
Loss/(Gain) on Disposal of Equipment 5 (337)
Changes in Certain Assets and Liabilities:
Accounts Receivable (4,386) 5,369
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 2,497 1,293
Inventories 951 (354)
Prepaid Expenses and Other (279) 3,779
Accounts Payable (2,232) (856)
Advances on Long-Term Contracts -- (3,277)
Accrued Expenses and Other Long-Term Liabilities (2,793) 299
------- -------
Net Cash Provided by Operating Activities (5) 6,003
------- -------
Cash Flows From Investing Activities:
Proceeds from Sales of Assets -- 529
Additions to Property, Plant and Equipment (917) (1,722)
Other -- 1,613
------- -------
Net Cash (Used In)/Provided by Investing Activities (917) 420
------- -------
Cash Flows From Financing Activities:
Proceeds From Issuance of Common Stock and
Options Exercised 67 56
Financing Charges Incurred on Revolving Credit
Facility (87)
Net Repayments Under Revolving Credit Facility (543) (3,985)
------- -------
Net Cash Used In Financing Activities (563) (3,929)
------- -------
Net (Decrease)/Increase in Cash (1,485) 2,494
Cash at Beginning of the Period 1,485 4,830
------- -------
Cash at End of the Period $ -- $ 7,324
======= =======
</TABLE>
Continued...
8
<PAGE> 9
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999 (Continued)
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
3/31/00 3/31/99
----------- -----------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year For:
Interest $ 555 $ 830
Supplemental Schedule of Non Cash Financing Activities:
Issuance of Director Equity Compensation $ 71 $ 43
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
March 31, 2000.
3. Inventories
(In Thousands)
3/31/00 6/30/99
------- -------
Work in Process $ 307 $1,180
Raw Materials 3,053 3,131
------ ------
Total $3,360 $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 $3.8 million at March 31,
2000.
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 $5.9 million at March 31, 2000 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 $1.3
million and $3.2 million during the three-month and the nine-month
periods ended March 31, 1999, respectively. These charges relate
primarily to employee termination benefits and lease termination costs.
There were no additional charges during the first nine 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 March 31, 2000.
<TABLE>
<CAPTION>
(In Thousands)
Cash Reduction Non-Cash
6/30/99 Payments Activity 3/31/00
----- -------------- ----- -----
<S> <C> <C> <C> <C>
Severance $ 36 $ (36) $ -- $ --
Facility Lease Obligations 567 (386) 19 200
Other 16 (16) -- --
----- ----- ----- -----
Total $ 619 $(438) $ 19 $ 200
===== ===== ===== =====
</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)
Nine Months Three Months
Ended Ended
-------------------------- --------------------------
3/31/00 3/31/99 3/31/00 3/31/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Department of Defense
Direct $ 4,075 $ 4,323 $ 813 $ 2,449
Subcontract 27,059 23,446 9,075 6,695
------- ------- ------- -------
Total U.S. Department of Defense 31,134 27,769 9,888 9,144
------- ------- ------- -------
Foreign Governments -- 5,126 -- 413
Foreign Commercial -- 1,537 -- 496
------- ------- ------- -------
Total Foreign -- 6,663 -- 909
------- ------- ------- -------
Total Sales $31,134 $34,432 $ 9,888 $10,053
======= ======= ======= =======
</TABLE>
11
<PAGE> 12
Export Sales from the U.S. were not material for the three-month and
nine-month periods ended March 31, 2000, compared to $909,444 and
$6,663,419 for the same periods ended March 31, 1999, respectively.
Export sales do not include Foreign Military Sales through U.S.
Government agencies and prime contractors of $416,000 for the
nine-month period ended March 31, 2000 and $39,000 and $834,000 for the
three-month and nine-month periods ended March 31, 1999, 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)
Nine Months Three Months
Ended Ended
---------------------------- ----------------------------
3/31/00 3/31/99 3/31/00 3/31/99
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
United States $ 31,134 $ 27,769 $ 9,888 $ 9,144
Europe & Middle East -- 6,663 -- 909
-------- -------- -------- --------
Consolidated $ 31,134 $ 34,432 $ 9,888 $ 10,053
======== ======== ======== ========
Operating Income/(Loss)
United States $ 3,598 $ (989) $ 1,459 $ 442
Europe & Middle East -- (2,007) -- (1,030)
-------- -------- -------- --------
Consolidated $ 3,598 $ (2,996) $ 1,459 $ (588)
======== ======== ======== ========
Long-Lived Assets
United States $ 16,460 $ 19,225
Europe & Middle East -- 42
-------- --------
Consolidated $ 16,460 $ 19,267
======== ========
</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>
Nine-Months Nine-Months Three-Months Three-Months
Ended Ended Ended Ended
3/31/00 3/31/99 3/31/00 3/31/99
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Basic 8,428,796 8,350,805 8,449,888 8,372,128
Dilutive 8,479,979 8,350,805 8,499,917 8,372,128
</TABLE>
13
<PAGE> 14
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 nine-month period ended March 31, 2000, 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 year end 1999 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.)
Accounts Receivable Trade increased and Cost and Estimated Earnings in
Excess of Billings on Uncompleted Contracts decreased since fiscal year
end 1999 primarily due to significant billings on the Javelin and F-18
programs.
Inventories decreased since fiscal year end 1999 primarily due to Work
in Process inventory that was completed, as well as an increase in
inventory reserve of $315,000 due to excess and obsolete inventory.
Accounts Payable decreased since fiscal year end 1999 primarily due to
a reduction in payment cycles supported by the revolving credit
facility.
Accrued expenses decreased since fiscal year end 1999 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.)
Current Portion of Long-Term Debt decreased since fiscal year end 1999
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.
14
<PAGE> 15
Other Long-Term Liabilities decreased since fiscal year end 1999 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 $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 with the
funds available under its new revolving credit facility and its
projected cash flows, the Company will have sufficient resources to
meet planned operating commitments for the foreseeable future.
b) MATERIAL CHANGES IN RESULTS OF OPERATIONS.
Domestic sales volume increased by $0.7 million and $3.4 million for
the three-month and nine-month periods ended March 31, 2000,
respectively. UK sales volume decreased by $0.9 million and $6.7
million as a result of the UK operation wind-down. Net sales decreased
$0.2 million and $3.3 million for the three-month and nine-month
periods ended March 31, 2000, respectively, compared to the same
periods ended March 31, 1999.
Overall gross profit as a percentage of net sales increased to 40
percent and 34 percent for the three-month and nine-month periods ended
March 31, 2000, respectively, as compared to 33 percent and 27 percent
for the same periods ended March 31, 1999. This increase is primarily a
result of improved levels of gross margin on programs including
Javelin, Close Combat Tactical Trainer and UK Combined Arms Tactical
Trainer, partially off-set by increased costs on the Engagement Skills
Trainer and UK Airtours programs. Also, gross margin on the F-18
program improved as a result of favorable contract modifications. In
addition, the Company's cost reduction initiatives during fiscal year
1999 and the first nine months of fiscal year 2000 have reduced
overhead costs, thus improving gross margins.
Selling, general and administrative expense decreased 7 and 20 percent
during the three-month and nine-month periods ended March 31, 2000,
respectively, as compared to the same periods ended March 31, 1999.
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 59 percent
during the nine-month period ended March 31, 2000 as compared to the
same period ended March 31, 1999 due to the timing of planned
developments in fiscal year 2000 and a reduction in planned
expenditures. The Company anticipates spending approximately $300,000
on IR&D during the remainder of fiscal year 2000.
Non-Recurring Expenses decreased 100 percent during the three-month and
nine-month periods ended March 31, 2000 as compared to the same periods
ended March 31, 1999. 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.)
15
<PAGE> 16
Interest Expense decreased 39 percent and 29 percent during the
three-month and nine-month periods ended March 31, 2000, respectively,
as compared to the same periods ended March 31, 1999. This decrease is
primarily due to lower outstanding balances on the credit facility in
fiscal year 2000 as compared to fiscal year 1999.
Interest Income decreased 97 percent and 89 percent during the
three-month and nine-month periods ending March 31, 2000,
respectively, as compared to the same periods ended March 31, 1999.
This decrease is primarily the result of the decrease in the cash
balances due to the terms of the revolving credit facility agreement.
(See Note 2 to the Consolidated Financial Statements.)
Other-Net increased during the three-month period and decreased during
the nine-month period ended March 31, 2000 as compared to the same
periods ended March 31, 1999. These changes are primarily a result of
translation losses on foreign exchange transactions.
The Company did not record a tax provision during the first
three-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. 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 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.
16
<PAGE> 17
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 believes the cost of Year 2000 compliance for its
information and productions systems has not been 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 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27.1 - Financial Data Schedule for the nine-month
period ended March 31, 2000.
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 May 15, 2000 /s/ Melissa Van Valkenburgh
----------------------------
Melissa Van Valkenburgh
Chief Financial Officer
19
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