UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended March 31, 2002 Commission File Number 0-13433 - -------------------- MILTOPE GROUP INC. - ---------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 11-2693062 - ------------------------------- -------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 3800 Richardson Road South Hope Hull, AL 36043 - ------------------------------- ---------- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code (334) 284-8665 -------------- 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 12 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. Yes X No ------- ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Outstanding at May 7, 2002: 5,873,273 shares of Common Stock, $.01 par value. PART I - FINANCIAL INFORMATION MILTOPE GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) March 31, December 31, ASSETS 2002 2001 CURRENT ASSETS: ----------- ----------- Cash $ 1,439,000 $ 1,120,000 Accounts receivable 4,485,000 7,188,000 Inventories 11,284,000 11,416,000 Deferred income taxes 1,339,000 1,339,000 Other current assets 340,000 389,000 ----------- ----------- Total current assets 18,887,000 21,452,000 ----------- ----------- PROPERTY AND EQUIPMENT - at cost: Machinery and equipment 7,759,000 7,588,000 Furniture and fixtures 1,592,000 1,588,000 Land, building and improvements 6,396,000 6,702,000 ----------- ----------- Total property and equipment 15,747,000 15,878,000 Less accumulated depreciation 9,962,000 10,058,000 ----------- ----------- Property and equipment - net 5,785,000 5,820,000 ----------- ----------- DEFERRED INCOME TAXES 2,825,000 2,825,000 OTHER ASSETS 488,000 497,000 ----------- ----------- TOTAL $27,985,000 $30,594,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 4,325,000 $ 6,972,000 Accrued expenses 2,169,000 2,783,000 Short-term debt 590,000 640,000 Current maturities of long-term debt 4,373,000 3,845,000 ----------- ----------- Total current liabilities 11,457,000 14,240,000 LONG-TERM DEBT 5,658,000 6,650,000 OTHER LIABILITIES 1,059,000 1,065,000 ----------- ----------- Total liabilities 18,174,000 21,955,000 ----------- ----------- CONTINGENCIES (Note 4) STOCKHOLDERS' EQUITY: Common stock - $.01 par value; 20,000,000 shares authorized; 68,000 68,000 6,811,112 shares outstanding Capital in excess of par value 24,519,000 24,519,000 Accumulated deficit (530,000) (1,702,000) ----------- ----------- 24,057,000 22,885,000 Less treasury stock at cost 14,246,000 14,246,000 ----------- ----------- Total stockholders' equity 9,811,000 8,639,000 ----------- ----------- TOTAL $27,985,000 $30,594,000 =========== =========== See Notes To Condensed Consolidated Financial Statements MILTOPE GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Thirteen Weeks Ended --------------------------- March 31, April 1, 2002 2001 ----------- ----------- NET SALES $ 9,354,000 $ 9,993,000 ----------- ----------- COSTS AND EXPENSES: Cost of sales 6,579,000 8,378,000 Selling, general and administrative 1,186,000 1,554,000 Engineering, research and development 313,000 159,000 ----------- ----------- Total 8,078,000 10,091,000 ----------- ----------- INCOME (LOSS) FROM OPERATIONS 1,276,000 (98,000) OTHER INCOME (EXPENSE): Interest expense (114,000) (257,000) Interest income 10,000 44,000 ----------- ----------- Total (104,000) (213,000) ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES 1,172,000 (311,000) INCOME TAXES - - ----------- ----------- NET INCOME (LOSS) $ 1,172,000 $ (311,000) =========== =========== BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ .20 $ (.05) WEIGHTED AVERAGE NUMBER OF SHARES =========== =========== OUTSTANDING 5,871,523 5,871,523 =========== =========== See Notes To Condensed Consolidated Financial Statements MILTOPE GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THIRTEEN WEEKS ENDED MARCH 31, 2002 AND APRIL 1, 2001 (unaudited) March 31, April 1, 2002 2001 OPERATING ACTIVITIES: ----------- ----------- Net income (loss) $ 1,172,000 $ (311,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 223,000 274,000 Provision for slow-moving and obsolete inventories 300,000 270,000 Provision for doubtful accounts receivable 303,000 3,000 Gain on sale of fixed assets - (6,000) Change in operating assets and liabilities: Accounts receivable 2,400,000 1,207,000 Inventories (168,000) (1,947,000) Other current assets 50,000 56,000 Other assets 1,000 - Accounts payable and accrued expenses (3,267,000) 739,000 ----------- ----------- Net cash provided by operating activities 1,014,000 285,000 ----------- ----------- INVESTING ACTIVITIES: Purchase of property and equipment (181,000) (41,000) Proceeds from sale of property and equipment - 156,000 ----------- ----------- Net cash provided by (used in) investing activities (181,000) 115,000 ----------- ----------- FINANCING ACTIVITIES: Payments of long-term debt (514,000) (680,000) ----------- ----------- Net cash used in financing activities (514,000) (680,000) ----------- ----------- NET INCREASE (DECREASE) IN CASH 319,000 (280,000) CASH, BEGINNING OF PERIOD 1,120,000 2,711,000 ----------- ----------- CASH, END OF PERIOD $ 1,439,000 $ 2,431,000 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash payments made for: Income taxes $ 29,000 $ - =========== =========== Interest $ 51,000 $ 283,000 =========== =========== See Notes To Condensed Consolidated Financial Statements MILTOPE GROUP INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Financial Statements - In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary (consisting of only normal and recurring accruals) to present fairly the financial position of the Company and its subsidiaries as of March 31, 2002 and December 31, 2001 and the results of operations and cash flows for the thirteen weeks ended March 31, 2002 and April 1, 2001. All amounts presented have been rounded to the nearest thousand. The results for the thirteen weeks ended March 31, 2002 and April 1, 2001 are not necessarily indicative of the results for an entire year. It is suggested that these consolidated financial statements be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. Accounting Estimates - The Company's consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Long-Lived Assets - The Company recognizes impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In such cases, the Company would record an impairment loss to reduce long-lived assets to their fair value. Revenue Recognition - The Company generates revenue from its operating segments, commercial and military/rugged. All commercial products are generally priced to the customer on a price per unit basis. The Company recognizes revenue based on the price per unit at the time delivery of the product is made and title, ownership and risk of loss passes to the customer. In the military/rugged segment the Company recognizes revenue from fixed price contracts for products when deliveries are made or work performed and title, ownership and risk of loss passes to the customer. The Company recognizes revenue from cost- plus-fee contracts when work is performed and reimbursable and allowable costs are incurred and estimated fees are earned. Revenue for certain pre-production services pursuant to sales contracts is recognized when the service is performed. Net Income (Loss) Per Share - Basic and diluted earnings per share are computed by dividing the net income (loss) by the weighted average common shares outstanding (basic EPS) or weighted average common shares outstanding assuming dilution (diluted EPS). Based on this computation, there is no difference between basic and diluted net income (loss) per share. Options that could potentially dilute basic net income per share in the future were not included in the computation of diluted net income (loss) per share because to do so would have been anti-dilutive. Anti-dilutive options were 447,795 and 333,512 at March 31, 2002 and April 1, 2001, respectively. Recent Accounting Pronouncements - In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 effective January 1, 2002. The adoption of SAS No. 144 had no impact on the Company's consolidated financial statements. Reclassifications - Certain prior year amounts have been reclassified to conform to the 2002 presentation. 2. Inventories - Net - Inventories consist of the following: March 31, 2002 December 31, 2001 -------------- ----------------- Purchased parts and Subassemblies $ 8,083,000 $ 9,246,000 Work-in-process 3,201,000 2,170,000 ----------- ----------- Total $11,284,000 $11,416,000 =========== =========== Inventories include a reserve for slow-moving and obsolete items of $2,155,000 and $2,480,000 at March 31, 2002 and December 31, 2001, respectively. 3. Income Taxes -No income tax expense has been recognized related to the income from operations for the thirteen weeks ended March 31, 2002 since the Company's income was offset by the utilization of its net operating loss carry forward. No income tax benefit has been recognized related to the operating loss for the thirteen weeks ended April 1, 2001 as the net operating loss carry forwards have been fully reserved with a valuation allowance. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, net of valuation allowances provided, will be realized. The valuation allowances can be adjusted in future periods as the probability of realization of the deferred tax assets change. 4. Contingencies: Litigation - The Company, from time to time, is a party to pending or threatened legal proceedings and arbitration in the ordinary course of business. Based upon information currently available, and in light of legal and other defenses available to the Company, management does not consider liability from any threatened or pending litigation to be material to the consolidated financial statements. Claims - From time to time the Company may have certain of its contracts that may be subject to final negotiation or modification with the customer in the ordinary course of business. Although the ultimate outcome of these negotiations or modifications is unknown at December 31, 2001, the Company believes that any additional costs evolving from these negotiations would not be material to the consolidated financial statements. 5. Segment Information - The Company's reportable segments are organized around its two main products and services segments, Military/Rugged and Commercial. Through its military/rugged segment, the Company is engaged in the design, manufacture and testing of computer and computer peripheral equipment for military and other specialized applications requiring reliable operations in severe land, sea and airborne environments. These products are generally sold by the Company's business development group through the federal government bid process. The Company's commercial segment designs, develops, manufactures and markets commercial computer related products primarily for transportation, telecommunications and in-field maintenance markets. These products are sold through an established network of marketing representatives and Company employed sales people to a broad base of customers both international and domestic. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company's determination of segment operating profit (loss) does not reflect other income (expense) or income taxes. Thirteen Weeks Ended March 31, 2002 and April 1, 2001 - ----------------------------------------------------- General March 31, 2002 Military/Rugged Commercial Eliminations Corporate Consolidated -------------- --------------- ---------- ------------ --------- ------------ Net sales from external customers $ 6,088,000 $3,266,000 $ 9,354,000 =========== ========== =========== Segment operating profit (loss) $ 671,000 $ 605,000 $ 1,276,000 =========== ========== =========== Identifiable assets $14,271,000 $7,284,000 $6,430,000 $27,985,000 =========== ========== ========== =========== Capital expenditures $ 114,000 $ 67,000 $ 181,000 =========== ========== =========== Depreciation and amortization $ 219,000 $ 4,000 $ 223,000 =========== ========== =========== General April 1, 2001 Military/Rugged Commercial Eliminations Corporate Consolidated -------------- --------------- ---------- ------------ --------- ------------ Net sales from external customers $ 7,264,000 $2,729,000 $ 9,993,000 =========== ========== =========== Segment operating profit (loss) $ (402,000) $ 311,000 $ (7,000) $ (98,000) =========== ========== ========== =========== Identifiable assets $18,808,000 $8,694,000 $7,930,000 $35,432,000 =========== ========== ========== =========== Capital expenditures $ 29,000 $ 12,000 $ 41,000 =========== ========== =========== Depreciation and amortization $ 266,000 $ 1,000 $ 7,000 $ 274,000 =========== ========== ========== =========== General December 31, 2001 Military/Rugged Commercial Eliminations Corporate Consolidated -------------- --------------- ---------- ------------ --------- ------------ Identifiable assets $17,330,000 $7,094,000 $ 7,000 $6,163,000 $30,594,000 =========== ========== ========== ========== =========== MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion includes certain forward looking statements which are affected by important factors including, but not limited to, actions of competitors, termination of contracts at the convenience of the United States government, customer funding variations in connection with multi-year contracts and follow-on options that could cause actual results to differ materially from forward looking statements. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - ------------------------------------------------------------------------ The matters and statements made in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. All such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Wherever possible, the Company has identified these forward-looking statements by words such as "anticipates," "may," "believes," "estimates," "projects," "expects" "intends," and words of similar import. In addition to the statements included in this Quarterly Report on Form 10-Q, the Company and its representatives may from time to time make other oral or written forward-looking statements. All forward-looking statements involve certain assumptions, risks and uncertainties that could cause actual results to differ materially from those included in or contemplated by the statements. These assumptions, risks, and uncertainties include, but are not limited to, general business conditions, including the timing or extent of any recovery of the economy, the highly competitive nature of the industry in which the Company operates, the continued involvement of military forces in the war on terrorism, the speed with which consumers regain confidence in the safety of air transportation and other risks and uncertainties. All such forward-looking statements may be affected by inaccurate assumptions or by known or unknown risks and uncertainties, and therefore those statements may turn out to be wrong. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. All forward-looking statements are made as of the date of filing or publication. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Investors are advised, however, to consult any further disclosures the Company makes in future filings with the Securities and Exchange Commission or in any of its press releases. GENERAL - ------- The following discussion and analysis presents certain factors affecting the Company's results of operations for thirteen weeks ended March 31, 2002, as compared to thirteen weeks ended April 1, 2001. RESULTS OF OPERATIONS - --------------------- Thirteen weeks ended March 31, 2002 compared to thirteen weeks ended April 1, 2001 - ----------------------------------------------------------------------- Net sales for the thirteen weeks ended March 31, 2002 (first quarter of 2002) were $9,354,000 compared to net sales for the thirteen weeks ended April 1, 2001 (first quarter of 2001) of $9,993,000. Military sales decreased to $6,088,000 for the first quarter of 2002 from $7,264,000 in the first quarter of 2001 while commercial sales increased to $3,266,000 from $2,729,000 in the first quarters of 2002 and 2001, respectively. The reduction in military sales is primarily attributable to a reduction in the number of SPORT units shipped as that contract nears completion and the shutdown of PGI manufacturing operations in August, 2001. The increase in commercial sales is primarily due to increased activity in airborne data servers and in- flight workstations. The gross margin percentage for the first quarter of 2002 was 29.7% compared with 16.2% for the same period in 2001. The increase is primarily attributable to a more favorable product mix with increased commercial sales, increased higher margin military peripherals sales and a reduction in costs due to the shut down of PGI in August, 2001. Selling, general and administrative expenses for the first quarter of 2002 decreased 23.7% from the first quarter of 2001, to $1,186,000. These expenses as a percent of sales were 12.7% in the first quarter of 2002 compared to 15.6% for the similar period in 2001. The decrease as a percent of sales was primarily due to the collection of an account receivable that had been previously reserved and continued focus on cost controls. Company sponsored engineering, research and development expenses for the first quarter of 2002 increased 96.9% from the first quarter of 2001, to $313,000. These expenses as a percentage of sales were 3.3% in the first quarter of 2002 compared to 1.6% for the similar period in 2001. The increase as a percent of sales is primarily attributable to increased levels of both commercial and military product development coupled with a decrease in sales. Interest expense was $114,000 in the first quarter of 2002 compared to $257,000 for the similar period in 2001. The decrease reflects decreased debt and a reduction in interest rates compared to the prior year. Interest income was $10,000 in the first quarter of 2002 compared to $44,000 for the similar period in 2001. The decrease reflects lower investment balances and lower interest rates compared to the prior year. Net income for the first quarter of 2002 is $1,172,000 with basic and diluted net income per share of $0.20. First quarter of 2001 resulted in a loss of $311,000 with basic and diluted loss per share of $0.05. Both per share calculations are based on a weighted average of 5,871,523 shares of the Company's common stock outstanding. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Working capital approximated $7,430,000 at March 31, 2002 compared to $7,212,000 at December 31, 2001. Accounts receivable decreased approximately $2,703,000 as a result of a lower volume of sales in the first quarter of 2002 and increased collection efforts. Inventory levels remained basically flat. Accounts payable decreased approximately $2,647,000 reflecting the slow down in material purchases associated with the near completion of the SPORT program. Current maturities of long-term debt increased by $528,000 reflecting increased maturing amounts in certain of the Company's debt instruments. Capital expenditures totaled $181,000 for the first quarter of 2002 compared to $41,000 in the first quarter of 2001. The increase in 2002 over 2001 is due to purchases of tooling and test equipment in relation to the MSD five-year rugged laptop computer contract awarded to Miltope in May of 2001 along with efforts to update and protect Miltope's information systems technological infrastructure. The Company expects capital expenditures for the full year 2002 to exceed 2001 as the remaining tooling and set-up expenses for the MSD contract are procured. Depreciation and amortization expense for the first quarter of 2002 totaled $223,000 compared to $274,000 for the first quarter of 2001. Depreciation and amortization expense for the remainder of 2002 is expected to be approximately $775,000. The Company's $15,000,000 revolving credit agreement with its primary lender matured on May 31, 1999 and was converted into a term loan payable in twelve equal quarterly installments commencing August 1999. The payout of this term loan was extended by the bank through February 2004. As of March 31, 2002 the Company was in compliance with all requirements under the term loan. The Company has been funding its operations since 1999 without a revolving credit agreement and expects to be able to do so in the near term; however, additional short-term financing will be obtained as needs arise. The Company's accounts receivable, contract rights and inventories are pledged as collateral to the agreement. RECENT ACCOUNTING PRONOUNCEMENTS - -------------------------------- In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 effective January 1, 2002. The adoption of SAS No. 144 had no impact on the Company's consolidated financial statements. CRITICAL ACCOUNTING POLICIES - ---------------------------- Our Annual Report on Form 10-K for the year ended December 31, 2001 included a list of accounting policies that we believe are critical to the portrayal of the Company's financial position and results of operations. PART II - OTHER INFORMATION - --------------------------- Item 1 - Legal Proceedings The Company, from time to time, is a party to pending or threatened legal proceedings and arbitrations. Based upon information presently available, and in light of legal and other defenses available to the Company, management does not consider liability from any threatened or pending litigation to be material. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits -------- None (b) Reports on Form 8-K ------------------ None Item 7a - Quantitative and Qualitative Disclosures About Market Risk Market risk is the risk of loss arising from adverse changes in market prices and interest rates. The Company is exposed to interest risk inherent in its financial instruments. The Company is not currently subject to foreign currency or commodity price risk. The Company manages its exposure to these market risks through its regular operating and financing activities. The Company has a revolving credit loan and an Industrial Development Authority Bond Issue that are exposed to changes in interest rates during the course of their maturity. Both debt instruments bear interest at current market rates and thus approximate fair market value. The Company manages its interest rate risk by (a) periodically retiring and issuing debt and (b) periodically fixing the interest rate on the London Inter Bank Offered Rate (LIBOR) portion of its revolving credit loan for 30 to 60 days in order to minimize interest rate swings. An increase in interest rates of 1% would affect the Company's variable debt obligations and could potentially reduce future earnings by a maximum of approximately $50,000. 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. MILTOPE GROUP INC. By: /s/ Tom B. Dake ----------------------------------- Tom B. Dake, Vice President Finance and Chief Financial Officer (Principal Accounting Officer) Dated: May 15, 2002