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
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MILTOPE GROUP INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 11-2693062
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3800 Richardson Road South
Hope Hull, AL 36043
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (334) 284-8665
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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 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
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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
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Total current assets 18,887,000 21,452,000
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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
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Total property and equipment 15,747,000 15,878,000
Less accumulated depreciation 9,962,000 10,058,000
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Property and equipment - net 5,785,000 5,820,000
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DEFERRED INCOME TAXES 2,825,000 2,825,000
OTHER ASSETS 488,000 497,000
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TOTAL $27,985,000 $30,594,000
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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
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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
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Total liabilities 18,174,000 21,955,000
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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)
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24,057,000 22,885,000
Less treasury stock at cost 14,246,000 14,246,000
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Total stockholders' equity 9,811,000 8,639,000
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TOTAL $27,985,000 $30,594,000
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See Notes To Condensed Consolidated Financial Statements
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Thirteen Weeks Ended
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March 31, April 1,
2002 2001
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NET SALES $ 9,354,000 $ 9,993,000
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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
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Total 8,078,000 10,091,000
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INCOME (LOSS) FROM OPERATIONS 1,276,000 (98,000)
OTHER INCOME (EXPENSE):
Interest expense (114,000) (257,000)
Interest income 10,000 44,000
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Total (104,000) (213,000)
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INCOME (LOSS) BEFORE INCOME TAXES 1,172,000 (311,000)
INCOME TAXES - -
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NET INCOME (LOSS) $ 1,172,000 $ (311,000)
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BASIC AND DILUTED
NET INCOME (LOSS) PER SHARE $ .20 $ (.05)
WEIGHTED AVERAGE NUMBER OF SHARES =========== ===========
OUTSTANDING 5,871,523 5,871,523
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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
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Net cash provided by operating activities 1,014,000 285,000
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INVESTING ACTIVITIES:
Purchase of property and equipment (181,000) (41,000)
Proceeds from sale of property and equipment - 156,000
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Net cash provided by (used in) investing activities (181,000) 115,000
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FINANCING ACTIVITIES:
Payments of long-term debt (514,000) (680,000)
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Net cash used in financing activities (514,000) (680,000)
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NET INCREASE (DECREASE) IN CASH 319,000 (280,000)
CASH, BEGINNING OF PERIOD 1,120,000 2,711,000
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CASH, END OF PERIOD $ 1,439,000 $ 2,431,000
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash payments made for:
Income taxes $ 29,000 $ -
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Interest $ 51,000 $ 283,000
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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
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Purchased parts and
Subassemblies $ 8,083,000 $ 9,246,000
Work-in-process 3,201,000 2,170,000
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Total $11,284,000 $11,416,000
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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
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General
March 31, 2002 Military/Rugged Commercial Eliminations Corporate Consolidated
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Net sales from external customers $ 6,088,000 $3,266,000 $ 9,354,000
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Segment operating profit (loss) $ 671,000 $ 605,000 $ 1,276,000
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Identifiable assets $14,271,000 $7,284,000 $6,430,000 $27,985,000
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Capital expenditures $ 114,000 $ 67,000 $ 181,000
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Depreciation and amortization $ 219,000 $ 4,000 $ 223,000
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General
April 1, 2001 Military/Rugged Commercial Eliminations Corporate Consolidated
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Net sales from external customers $ 7,264,000 $2,729,000 $ 9,993,000
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Segment operating profit (loss) $ (402,000) $ 311,000 $ (7,000) $ (98,000)
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Identifiable assets $18,808,000 $8,694,000 $7,930,000 $35,432,000
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Capital expenditures $ 29,000 $ 12,000 $ 41,000
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Depreciation and amortization $ 266,000 $ 1,000 $ 7,000 $ 274,000
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General
December 31, 2001 Military/Rugged Commercial Eliminations Corporate Consolidated
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Identifiable assets $17,330,000 $7,094,000 $ 7,000 $6,163,000 $30,594,000
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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
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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
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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
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Thirteen weeks ended March 31, 2002 compared to thirteen weeks ended
April 1, 2001
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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
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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
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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
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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
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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
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None
(b) Reports on Form 8-K
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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
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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