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 September 29, 2002 Commission File Number 0-13433
- ------------------------
MILTOPE GROUP INC
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(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
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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 October 24, 2002: 5,878,909 shares of Common
Stock, $.01 par value.
Part I
FINANCIAL INFORMATION
Item 1 - Financial Statements
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
September 29, December 31,
2002 2001
------------ -----------
CURRENT ASSETS:
Cash $ 972,000 $ 1,120,000
Accounts receivable, net of allowance of
$621,000 (2002) and $315,000 (2001) 9,645,000 7,188,000
Inventories 12,775,000 11,416,000
Deferred income taxes 945,000 1,339,000
Other current assets 455,000 389,000
----------- -----------
Total current assets 24,792,000 21,452,000
----------- -----------
PROPERTY AND EQUIPMENT - at cost:
Machinery and equipment 8,517,000 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 16,505,000 15,878,000
Less accumulated depreciation 10,428,000 10,058,000
----------- -----------
Property and equipment - net 6,077,000 5,820,000
----------- -----------
DEFERRED INCOME TAXES 3,219,000 2,825,000
OTHER ASSETS 270,000 497,000
----------- -----------
TOTAL $34,358,000 $30,594,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $11,183,000 $ 6,972,000
Accrued expenses 1,954,000 2,783,000
Short-term debt 540,000 640,000
Current maturities of long-term debt 3,813,000 3,845,000
----------- -----------
Total current liabilities 17,490,000 14,240,000
LONG-TERM DEBT 5,397,000 6,650,000
OTHER LIABILITIES 846,000 1,065,000
----------- -----------
Total liabilities 23,733,000 21,955,000
----------- -----------
CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value;
20,000,000 shares authorized;
6,811,112 shares outstanding 68,000 68,000
Capital in excess of par value 24,519,000 24,519,000
Retained earnings (accumulated deficit) 171,000 (1,702,000)
----------- -----------
24,758,000 22,885,000
Less treasury stock at cost 14,133,000 14,246,000
----------- -----------
Total stockholders' equity 10,625,000 8,639,000
----------- -----------
TOTAL $34,358,000 $30,594,000
----------- -----------
----------- -----------
See Notes To Condensed Condolidated Financial Statements
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Thirteen Weeks Ended
----------------------------
September 29, September 30,
2002 2001
------------- -------------
NET SALES $12,784,000 $12,551,000
----------- -----------
COSTS AND EXPENSES:
Cost of sales 10,485,000 11,111,000
Selling, general and administrative 1,550,000 1,458,000
Engineering, research and development 240,000 239,000
----------- -----------
Total 12,275,000 12,808,000
----------- -----------
INCOME (LOSS) FROM OPERATIONS 509,000 (257,000)
OTHER INCOME (EXPENSE):
Interest expense (188,000) (210,000)
Interest income 5,000 24,000
----------- -----------
Total (183,000) (186,000)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 326,000 (443,000)
INCOME TAX BENEFIT - -
----------- -----------
NET INCOME (LOSS) $ 326,000 $ (443,000)
=========== ===========
NET INCOME (LOSS) PER SHARE
BASIC $ 0.06 $ (0.08)
=========== ===========
DILUTED $ 0.05 $ (0.08)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
BASIC 5,878,207 5,871,523
=========== ===========
DILUTED 6,020,293 5,871,523
=========== ===========
See Notes to Condensed Consolidated Financial Statements
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Thirty-Nine Weeks Ended
---------------------------
September 29, September 30,
2002 2001
------------ -------------
NET SALES $33,191,000 $33,931,000
----------- -----------
COSTS AND EXPENSES:
Cost of sales 25,971,000 29,287,000
Selling, general and administrative 4,000,000 4,489,000
Engineering, research and development 819,000 754,000
----------- -----------
Total 30,790,000 34,530,000
----------- -----------
INCOME (LOSS) FROM OPERATIONS 2,401,000 (599,000)
OTHER INCOME (EXPENSE):
Interest expense (447,000) (691,000)
Interest income 21,000 103,000
----------- -----------
Total (426,000) (588,000)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 1,975,000 (1,187,000)
INCOME TAX BENEFIT - -
----------- -----------
NET INCOME (LOSS) $ 1,975,000 $(1,187,000)
=========== ===========
BASIC AND DILUTED
NET INCOME (LOSS) PER SHARE:
BASIC $ .34 $ (.20)
=========== ===========
DILUTED $ .33 $ (.20)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
BASIC 5,874,671 5,871,523
=========== ===========
DILUTED 6,000,677 5,871,523
=========== ===========
See Notes To Condensed Consolidated Statements
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2002 AND SEPTEMBER 30, 2001
(unaudited)
September 29, September 30,
2002 2001
OPERATING ACTIVITIES: ------------ ------------
Net income (loss) $ 1,975,000 $(1,187,000)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 705,000 762,000
Provision for slow-moving and obsolete inventories 850,000 1,270,000
Provision for doubtful accounts receivable 353,000 51,000
Loss on disposal of property and equipment 15,000 36,000
Change in operating assets and liabilities provided (used) cash:
Accounts receivable (2,810,000) 100,000
Inventories (2,209,000) 652,000
Other current assets (65,000) (91,000)
Other assets 217,000 16,000
Accounts payable and accrued expenses 3,151,000 (810,000)
----------- -----------
Cash provided by operating activities 2,182,000 799,000
----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment (954,000) (147,000)
Sale of property and equipment - 166,000
----------- -----------
Cash provided by (used in) investing activities (954,000) 19,000
----------- -----------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 10,000 -
Payments of long-term debt (1,386,000) (2,636,000)
----------- -----------
Cash used in financing activities (1,376,000) (2,636,000)
----------- -----------
NET DECREASE IN CASH (148,000) (1,818,000)
CASH, BEGINNING OF PERIOD 1,120,000 2,711,000
----------- -----------
CASH, END OF PERIOD $ 972,000 $ 893,000
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash payments made for:
Income taxes $ 244,000 $ 27,000
=========== ============
Interest $ 400,000 $ 699,000
=========== ============
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 September 29, 2002 and December 31,
2001 and the results of operations and cash flows for the thirteen and
thirty-nine weeks ended Septmeber 29, 2002 and September 30, 2001. All
amounts presented have been rounded to the nearest thousand.
The results for the thirteen and thirty-nine weeks ended September 29,
2002 and September 30, 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). Options that could
potentially dilute basic net income per share in the future were
included in the computation of diluted net income per share for the
thirteen and thirty-nine weeks ending September 29, 2002, as detailed
below:
Thirteen Weeks Ended Thirty-nine Weeks Ended
---------------------------- ----------------------------
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Weighted average common
shares outstanding - basic 5,878,207 5,871,523 5,874,671 5,871,523
Dilutive effect of stock options 142,086 - 126,006 -
--------- --------- --------- ---------
Weighted average common
shares outstanding - diluted 6,020,293 5,871,523 6,000,677 5,871,523
========= ========= ========= =========
During a loss period, the assumed exercise of outstanding stock
options has an anti-dilutive effect. As a result, the comparable
options are not included in the weighted average shares outstanding of
5,871,523 used in the calculation of basic and diluted net loss per
share for the thirteen and thirty-nine weeks ending September 30, 2001.
Anti-dilutive options were 197,952 and 395,795 at September 29, 2002
and September 30, 2001, respectively.
SFAS No. 130, "Reporting Comprehensive Income," established
standards for reporting and display of comprehensive income and its
components in financial statements. For the three and nine month
periods ended September 29, 2002 and September 30, 2001, comprehensive
income was the same as net income.
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 SFAS No. 144 had no impact on the Company's
consolidated financial statements.
In June 2001, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which is effective for
any exit or disposal activities initiated after 12/31/02. SFAS 146
requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred rather
than at the time a company commits to an exit plan. SFAS 146 also
establishes that the liability should initially be measured and
recorded at fair value.
Reclassifications - Certain prior years amounts have been
reclassified to conform to the 2002 presentation.
2. Inventories - Net - Inventories consist of the following:
September, 2002 December 31, 2001
-------------- ----------------
Purchased parts and
subassemblies $ 8,778,000 $ 9,246,000
Work-in-process 3,997,000 2,170,000
----------- -----------
Total $12,775,000 $11,416,000
=========== ===========
Inventories include a reserve for slow-moving and obsolete items of
$1,739,000 and $2,480,000 at September 29, 2002 and December 31, 2001,
respectively.
3. Income Taxes - No income tax expense has been recognized related
to the income from operations for the thirty-nine weeks ended September
29, 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 thirty-nine weeks
ended September 30, 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 allowance 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 any potential 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 September
29, 2002, 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 or loss is calculated using actual segment
gross margin after direct costs and allocating general corporate
expenses pro rata based on sales of each segment to the total sales.
The Company's determination of segment operating profit (loss) does not
reflect other income (expense) or income taxes.
Thirteen Weeks Ended September 29, 2002 and September 30, 2001
- --------------------------------------------------------------
General
September 29, 2002 Military/Rugged Commercial Eliminations Corporate Consolidated
------------------ --------------- ---------- ------------ --------- ------------
Net sales from external customers $11,584,000 $1,266,000 $ (66,000) $12,784,000
=========== ========== ============ ===========
Segment operating income $ 469,000 $ 40,000 $ - $ 509,000
=========== ========== ============ ===========
Identifiable assets $21,856,000 $6,641,000 $ - $5,861,000 $34,358,000
=========== ========== ============ ========== ===========
Capital expenditures $ 114,000 $ 13,000 $ - $ 127,000
=========== ========== ============ ===========
Depreciation and amortization $ 236,000 $ 10,000 $ - $ 246,000
=========== ========== ============ ===========
General
September 30, 2001 Military/Rugged Commercial Eliminations Corporate Consolidated
------------------ --------------- ---------- ------------ --------- ------------
Net sales from external customers $ 9,981,000 $2,691,000 $(121,000) $12,551,000
=========== ========== ============ ===========
Segment operating income (loss) $(1,015,000) $ 758,000 $ - $ (257,000)
=========== ========== ============ ===========
Identifiable assets $17,574,000 $6,970,000 $ - $6,438,000 $30,982,000
=========== ========== ============ ========== ===========
Capital expenditures $ 55,000 $ 16,000 $ - $ 71,000
=========== ========== ============ ===========
Depreciation and amortization $ 235,000 $ 1,000 $ - $ 236,000
=========== ========== ============ ===========
Thirty-Nine Weeks Ended September 29, 2002 and September 30, 2001
- -----------------------------------------------------------------
General
September 29, 2002 Military/Rugged Commercial Eliminations Corporate Consolidated
------------------ --------------- ---------- ------------ --------- ------------
Net sales from external customers $25,776,000 $7,481,000 $(66,000) $33,191,000
=========== ========== ============ ===========
Segment operating income $ 99,000 $2,302,000 $ - $ 2,401,000
=========== ========== ============ ===========
Identifiable assets $21,856,000 $6,641,000 $ - $5,861,000 $34,358,000
=========== ========== ============ ========== ===========
Capital expenditures $ 705,000 $ 249,000 $ - $ 954,000
=========== ========== ============ ===========
Depreciation and amortization $ 681,000 $ 24,000 $ - $ 705,000
=========== ========== ============ ===========
General
September 30, 2001 Military/Rugged Commercial Eliminations Corporate Consolidated
------------------ --------------- ---------- ------------ --------- ------------
Net sales from external customers $26,041,000 $8,107,000 $(217,000) $33,931,000
=========== ========== ============ ===========
Segment operating income (loss) $(1,652,000) $1,060,000 $( 7,000) $ (599,000)
=========== ========== ============ ===========
Identifiable assets $17,574,000 $6,970,000 $ - $6,438,000 $30,982,000
=========== ========== ============ ========== ===========
Capital expenditures $ 111,000 $ 36,000 $ - $ 147,000
=========== ========== ============ ===========
Depreciation and amortization $ 752,000 $ 3,000 $ 7,000 $ 762,000
=========== ========== ============ ===========
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
=========== ========== ============ ========== ===========
6. Closing of Production Facility - On August 31, 2002, the Company's
25,000 square foot clean room, assembly and test facility in Springfield,
Vermont was shutdown. Manufacturing of those productlines was
transferred to the Company's Hope Hull, Alabama facility. Expenses of
$300,000 incurred and paid during the quarter included severance,
relocation expenses, and some minor remodeling of the Hope Hull facility
to accommodate the additional activity.
Item 2. 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 state-
ments. 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 the thirteen weeks
and thirty-nine weeks ended September 29, 2002, as compared to the
thirteen weeks and thirty-nine weeks ended September 30, 2001.
RESULTS OF OPERATIONS
- --------------------=
Thirteen weeks ended September 29, 2002 compared to thirteen weeks
ended September 30, 2001
- -----------------------------------------------------------------------
Net sales for the thirteen weeks ended September 29, 2002 (third
quarter of 2002) were $12,784,000 compared to net sales for the
thirteen weeks ended September 30, 2001 (third quarter of 2001) of
$12,551,000. Military sales increased in the third quarter of 2002 to
$11,584,000 as compared to $9,981,000 in the third quarter of 2001.
Commercial sales decreased in the third quarter of 2002 to $1,266,000
from $2,691,000 in the third quarter of 2001. The 16.1% increase in
military sales year to year was primarily the result of $9,352,000
attributable to the ramping up of production of the Maintenance Support
Device ("MSD"), which is the five-year rugged laptop computer contract
awarded to Miltope in May of 2001, partially offset by the loss of
$8,028,000 in revenue attributable the completion of the SPORT program,
a five-year hand-held computer contract completed in June 2002. The
53.0% decrease in commercial sales is directly attributable to
decreased orders from the commercial airline industry.
The gross margin percentage for the third quarter of 2002 was
18.0% compared to 11.5% for the same period in 2001. This increase is
largely due to the elimination of approximately $770,000 in negative
gross margin related to IV Phoenix Group, Inc. ("PGI"), a subsidiary of
the Company which was closed in August 2001. These cost savings were
partially offset in the third quarter by expensing of approximately
$300,000 of costs associated with the closing of the Company's
Springfield, Vermont production facility and the transfer of those
production activities to the Hope Hull, Alabama facility, and $333,000
of amortization of costs associated with the start-up of the new MSD
contract.
Selling, general and administrative expenses for the third quarter
of 2002 increased 6.3% from the third quarter of 2001, to $1,550,000.
These expenses as a percent of sales were 12.1% in the third quarter of
2002 compared to 11.6% for the similar period in 2001. The increase as
a percent of sales is primarily attributable to increased legal
expenses in the third quarter.
Company sponsored engineering, research and development expenses
for the third quarter of 2002 remained almost constant from the third
quarter of 2001 at $240,000. These expenses as a percent of sales were
1.9% in the third quarter of 2002 and 2001.
Interest expense was $188,000 in the third quarter of 2002
compared to $210,000 for the similar period in 2001. The decrease is a
result of decreased debt balances and reduced interest rates compared
to the prior year.
Interest income was $5,000 in the third quarter of 2002 compared
to $24,000 for the similar period in 2001. The decrease reflects lower
investment balances and lower interest rates compared to the prior
year.
The consolidated net income for the third quarter of 2002 was
$326,000 compared to a consolidated net loss of $443,000 in the third
quarter of 2001. The basic net income per share was $0.06 for the
third quarter of 2002 based on the weighted average of 5,878,207 shares
outstanding. The diluted net income per share was $0.05 based on a
diluted weighted average of 6,020,293 shares outstanding. The basic
and diluted net loss per share was $0.08 for the similar period in 2001
based on a weighted average of 5,871,523 shares of the Company's common
stock outstanding.
Thirty-nine weeks ended September 29, 2002 compared to thirty-nine
weeks ended September 30, 2001
- -----------------------------------------------------------------------
Net sales for the first nine months of 2002 were $33,191,000
compared to net sales for the first nine months of 2001 of $33,931,000.
The decrease in sales was primarily attributable to the loss of
$20,744,000 in revenue attributable to the completion of the five year
SPORT program partially offset by a $20,206,000 increase in revenue
attributable to the ramp up of the replacement MSD program into full
production.
The gross margin percent for the first nine months of 2002 was
21.8% compared to 13.7% for the same period in 2001. This increase is
largely due to the elimination of $1,500,000 in negative gross margin
related to PGI as well as improved product mix versus the same period
of 2001. These cost savings were partially offset in the third quarter
by the expensing of $300,000 of costs related to the closing of the
Company's Springfield, Vermont production facility and the transfer of
those production activities to the Hope Hull, Alabama facility, and
$333,000 of amortization of costs associated with the start-up of the
new MSD contract.
Selling, general and administrative expenses for the first nine
months of 2002 decreased 10.9% from the first nine months of 2001, to
$4,000,000. These expenses as a percent of sales were 12.0% in the
first nine months of 2002 compared to 13.2% for the similar period in
2001. The decrease as a percent of sales is primarily attributable to
the elimination of certain selling, general and administrative expenses
related to PGI and continued focus on cost improvement in all areas of
the Company.
Company sponsored engineering, research and development expenses
for the first nine months of 2002 increased 8.6% from the first nine
months of 2001, to $819,000. These expenses as a percent of sales were
2.5% in the first nine months of 2002 compared to 2.2% for the first
nine months of 2001. The increase in Company funded engineering cost
is primarily attributable to continued development in the airborne
commercial sector partially offset by the elimination of engineering
expenses related to PGI.
Interest expense was $447,000 in the first nine months of 2002
compared to $691,000 for the similar period in 2001. The decrease
reflects decreased debt and reduced interest rates as compared to the
prior year.
Interest income was $21,000 in the first nine months of 2002
compared to $103,000 for the similar period in 2001. The decrease
reflects lower investment balances and lower interest rates compared to
the prior year.
The consolidated net income for the first nine months of 2002 was
$1,975,000 compared to a consolidated net loss of $1,187,000 in the
first nine months of 2001. The basic net income per share was $0.34
for the first nine months of 2002 based on weighted average of
5,874,671 shares outstanding. The diluted net income per share was
$0.33 based on a diluted weighted average of 6,000,677 shares
outstanding. The basic and diluted net loss per share was $0.20 for
the similar period in 2001 based on a weighted average of 5,871,523
shares of the Company's common stock outstanding.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital was $7,302,000 at September 29, 2002 compared to
$7,212,000 at December 31, 2001. Accounts receivable increased
$2,457,000 as a result of increased sales in September of 2002 versus
sales in December of 2001. Inventory levels increased $1,359,000
compared to December 31, 2001 balances as a result of the delay in
ramping the MSD program into full production. Accounts payable
increased $4,211,000 reflecting higher levels of inventory during the
quarter. Current maturities of long-term debt decreased $32,000
reflecting the current status on certain of the Company's debt
instruments.
Capital expenditures totaled $954,000 for the first nine months of
2002 compared to $147,000 in the first nine months of 2001. The
increase in 2002 over 2001 is due to capitalization of tooling and test
equipment in relation to the MSD five-year rugged laptop computer
contract awarded to Miltope in May of 2001 coupled with expenditures
made to update and secure Miltope's information systems technological
infrastructure. The Company expects capital expenditures for the full
year 2002 to be approximately $1,000,000. Depreciation and
amortization expense for the first nine months of 2002 totaled $705,000
compared to $762,000 for the first nine months of 2001. Depreciation
and amortization expense for the remainder of 2002 is expected to be
approximately $225,000.
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
of 1999. The payout of this term loan was extended by the bank through
February 2004. As of September 29, 2002 the Company was in compliance
with all requirements under this term loan. The Company has been
funding short-term cash needs through operations since 1999 without a
revolving credit agreement and expects to continue doing so for the
near term. The Company will seek additional short-term financing as
these needs develop. 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 SFAS No. 144
had no impact on the Company's consolidated financial statements.
In June 2001, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which is effective for
any exit or disposal activities initiated after 12/31/02. SFAS 146
requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred rather
than at the time a company commits to an exit plan. SFAS 146 also
establishes that the liability should initially be measured and
recorded at fair value.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires the appropriate
application of certain accounting policies, many of which require us to
make estimates and assumptions about future events and their impact on
amounts reported in our financial statements and related notes. Since
future events and their impact cannot be determined with certainty, the
actual results will inevitably differ from our estimates. Such
differences could be material to the financial statements.
We believe application of accounting policies and the estimates
inherently required therein, are reasonable. These accounting policies
and estimates are constantly reevaluated, and adjustments are made when
facts and circumstances dictate a change. Our accounting policies are
more fully described in Note 1 to the financial statements, presented
elsewhere in this report on Form 10-Q. We have identified certain
critical accounting policies that are described below.
Inventories-Provision for Slow Moving and Obsolescence - The Company
has various components in its inventory that relate to discontinued
products and warranty replacement parts and repairs. The Company
identifies slow moving or obsolete inventories and estimates
appropriate loss provisions related thereto. On an on-going basis the
Company evaluates its estimates of loss provisions by using various
reports and analysis to focus on inventory throughput trends, inventory
composition and inventory utilization over discrete periods of time.
Additionally, the Company tracks projected parts usage to parts on hand
inventory to minimize risk of overstocks.
Deferred Taxes - The Company records a valuation allowance to reduce
its deferred tax assets to the amount that it believes is more likely
than not to be realized. While the Company has considered future
taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event the
Company was to determine that it would not be able to realize all or
part of its net deferred tax assets in the future, an adjustment to the
deferred tax assets would be charged to income in the period such
determination was made. Likewise, should the Company determine that it
would be able to realize its deferred tax assets in the future in
excess of its net recorded amount, an adjustment to the deferred tax
assets would increase income in the period such determination was made.
Impairment of Long-lived Assets - In accordance with Statement of
Financial Accounting Standards ("SFAS") No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," 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.
Item 3. 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 $97,000 per year.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's President/Chief Executive Officer and it's Chief
Financial Officer have reviewed the Company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 ( c) and 15d-14 (
c)), within 90 days of the filing of this report, and have determined
such disclosure controls and procedures to be effective in alerting
them to material information relating to the Company that may be
required to be included in the Company's periodic filings.
Change in Internal Controls
Since the date of the review, there have been no significant
changes in the Company's internal controls or in other factors that
could significantly affect these controls.
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
--------
99.1 Certification of Principal Financial Officer
99.2 Certification of Principal Executive Officer
(b) Reports on Form 8-K
-------------------
None
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: November 13, 2002
CERTIFICATIONS
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Thomas R. Dickinson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Miltope
Group, Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements and other
financial information included in the quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of the date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in the quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
the quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 13, 2002 /s/Thomas R. Dickinson
--------------------------------------
President and Chief Executive Officer
CERTIFICATIONS
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
I, Tom B. Dake, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Miltope
Group, Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements and other
financial information included in the quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of the date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in the quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
the quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 13, 2002 /s/Tom B. Dake
------------------------------------------
Vice-President and Chief Financial Officer