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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 June 30, 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
- --------------------------------- -------------------
(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
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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 latest practicable date.
Outstanding at July 26, 2002: 5,878,034 shares of Common Stock, $.01
par value.
PART I - FINANCIAL INFORMATION
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited - numbers rounded to thousands)
June 30, December 31,
ASSETS 2002 2001
----------- -----------
CURRENT ASSETS:
Cash $ 236,000 $ 1,120,000
Accounts receivable 8,429,000 7,188,000
Inventories 11,690,000 11,416,000
Deferred income taxes 945,000 1,339,000
Other current assets 313,000 389,000
----------- -----------
Total current assets 21,613,000 21,452,000
----------- -----------
PROPERTY AND EQUIPMENT - at cost:
Machinery and equipment 8,406,000 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 16,394,000 15,878,000
Less accumulated depreciation 10,191,000 10,058,000
----------- -----------
Property and equipment - net 6,203,000 5,820,000
----------- -----------
DEFERRED INCOME TAXES 3,219,000 2,825,000
OTHER ASSETS 263,000 497,000
----------- -----------
TOTAL $31,298,000 $30,594,000
=========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,176,000 $ 6,972,000
Accrued expenses 2,614,000 2,783,000
Short-term debt 540,000 640,000
Current maturities of long-term debt 4,441,000 3,845,000
----------- -----------
Total current liabilities 14,771,000 14,240,000
LONG-TERM DEBT 5,228,000 6,650,000
OTHER LIABILITIES 1,002,000 1,065,000
----------- -----------
Total liabilities 21,001,000 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 (143,000) (1,702,000)
----------- -----------
24,444,000 22,885,000
Less treasury stock at cost 14,147,000 14,246,000
----------- -----------
Total stockholders'equity 10,297,000 8,639,000
----------- -----------
TOTAL $31,298,000 $30,594,000
=========== ===========
See Notes To Condensed Consolidated Financial Statements
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited - numbers rounded to thousands)
Thirteen Weeks Ended
-------------------------
June 30, July 1,
2002 2001
----------- -----------
NET SALES $11,053,000 $11,387,000
COSTS AND EXPENSES:
Cost of sales 8,907,000 9,798,000
Selling, general and administrative 1,264,000 1,477,000
Engineering, research and development 266,000 356,000
----------- -----------
Total 10,437,000 11,631,000
----------- -----------
INCOME (LOSS) FROM OPERATIONS 616,000 (244,000)
OTHER INCOME (EXPENSE):
Interest expense (145,000) (224,000)
Interest income 6,000 35,000
----------- -----------
Total (139,000) (189,000)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 477,000 (433,000)
INCOME TAXES - -
----------- -----------
NET INCOME (LOSS) $ 477,000 $ (433,000)
=========== ===========
BASIC AND DILUTED NET INCOME
(LOSS) PER SHARE $ .08 $ (.08)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
BASIC 5,875,077 5,871,523
=========== ===========
DILUTED 6,027,084 5,871,523
=========== ===========
See Notes To Condensed Consolidated Financial Statements
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited - numbers rounded to thousands)
Twenty-Six Weeks Ended
-------------------------
June 30, July 1,
2002 2001
----------- -----------
NET SALES $20,407,000 $21,380,000
----------- -----------
COSTS AND EXPENSES:
Cost of sales 15,486,000 18,176,000
Selling, general and administrative 2,450,000 3,031,000
Engineering, research and development 579,000 515,000
----------- -----------
Total 18,515,000 21,722,000
INCOME (LOSS) FROM OPERATIONS 1,892,000 (342,000)
OTHER INCOME (EXPENSE):
Interest expense (259,000) (481,000)
Interest income 16,000 79,000
----------- -----------
Total (243,000) (402,000)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 1,649,000 (744,000)
INCOME TAXES - -
----------- -----------
NET INCOME (LOSS) $ 1,649,000 $ (744,000)
=========== ===========
NET INCOME (LOSS) PER SHARE:
BASIC $ .28 $ (.13)
=========== ===========
DILUTED $ .28 $ (.13)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
BASIC 5,874,149 5,871,523
=========== ===========
DILUTED 5,989,674 5,871,523
=========== ===========
See Notes To Condensed Financial Statements
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 30, 2002 AND JULY 1, 2001
(unaudited - numbers rounded to thousands)
June 30, July 1,
2002 2001
OPERATING ACTIVITIES: ----------- -----------
Net income (loss) $ 1,649,000 $ (744,000)
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depreciation and amortization 459,000 526,000
Provision for slow-moving and obsolete inventories 600,000 520,000
Provision for doubtful accounts receivable 345,000 10,000
Gain on sale of property and equipment - (5,000)
Changes in operating assets and liabilities:
Accounts receivable (1,586,000) 1,684,000
Inventories (874,000) (586,000)
Other current assets 76,000 72,000
Other assets 219,000 9,000
Accounts payable and accrued expenses (28,000) (1,464,000)
----------- -----------
Net cash provided by operating activities 860,000 22,000
----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment (827,000) (76,000)
Proceeds from sale of property and equipment - 156,000
----------- -----------
Net cash provided by (used in) investing activities (827,000) 80,000
----------- -----------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 9,000 -
Payments of long-term debt (926,000) (1,615,000)
----------- -----------
Net cash used in financing activities (917,000) (1,615,000)
----------- -----------
NET DECREASE IN CASH (884,000) (1,513,000)
CASH, BEGINNING OF PERIOD 1,120,000 2,711,000
----------- -----------
CASH, END OF PERIOD $ 236,000 $ 1,198,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash payments made for:
Income taxes $ 173,000 $ 87,000
=========== ===========
Interest $ 294,000 $ 522,000
=========== ===========
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 June 30, 2002 and December 31, 2001
and the results of operations and cash flows for the thirteen and
twenty-six weeks ended June 30, 2002 and July 1, 2001. All amounts
presented have been rounded to the nearest thousand.
The results for the thirteen and twenty-six weeks ended June 30, 2002
and July 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, except for goodwill and other intangibles which are
evaluated under SFAS No. 142, 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 twenty-six weeks ending June 30, 2002, as detailed below:
Thirteen Weeks Ended Twenty-six Weeks Ended
--------------------- ----------------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
--------- --------- --------- ---------
Weighted average
common shares outstanding - basic 5,875,077 5,871,523 5,874,149 5,871,523
Dilutive effect of stock options 152,007 - 115,525 -
--------- --------- --------- ---------
Weighted average common
shares outstanding - diluted 6,027,084 5,871,523 5,989,674 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 twenty-six weeks ending July 1, 2001. Anti-
dilutive options were 80,952 and 395,795 at June 30, 2002 and July 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 SFAS No. 144 had no impact on the Company's
consolidated financial statements.
Reclassifications - Certain prior years amounts have been
reclassified to conform to the 2002 presentation.
2. Inventories - Net - Inventories consist of the following:
June 30, 2002 December 31, 2001
------------- -----------------
Purchased parts and
subassemblies $ 8,481,000 $ 9,246,000
Work-in-process 3,209,000 2,170,000
----------- -----------
Total $11,690,000 $11,416,000
=========== ===========
Inventories include a reserve for slow-moving and obsolete items of
$1,814,000 and $2,480,000 at June 30, 2002 and December 31, 2001,
respectively.
3. Income Taxes - No income tax expense has been recognized related
to the income from operations for the twenty-six weeks ended June 30,
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 twenty-six weeks ended
July 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 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 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 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 June 30, 2002 and July 1, 2001
- ---------------------------------------------------
General
June 30, 2002 Military/Rugged Commercial Eliminations Corporate Consolidated
------------- --------------- ----------- ------------ ----------- ------------
Net sales from external customers $ 8,104,000 $ 2,949,000 $ - $11,053,000
=========== =========== ============ ===========
Segment operating income (loss) $(1,041,000) $ 1,657,000 $ - $ 616,000
=========== =========== ============ ===========
Identifiable assets $18,139,000 $ 8,183,000 $ - $ 4,976,000 $31,298,000
=========== =========== ============ =========== ===========
Capital expenditures $ 477,000 $ 169,000 $ - $ 646,000
=========== =========== ============ ===========
Depreciation and amortization $ 226,000 $ 10,000 $ - $ 236,000
=========== =========== ============ ===========
General
July 1, 2001 Military/Rugged Commercial Eliminations Corporate Consolidated
------------- --------------- ----------- ------------ ----------- ------------
Net sales from external customers $ 8,796,000 $ 2,687,000 $ (96,000) $11,387,000
=========== =========== ============ ===========
Segment operating loss $ (235,000) $ (9,000) $ - $ (244,000)
=========== =========== ============ ===========
Identifiable assets $18,651,000 $ 6,547,000 $ - $ 6,596,000 $31,794,000
=========== =========== ============ =========== ===========
Capital expenditures $ 27,000 $ 8,000 $ - $ 35,000
=========== =========== ============ ===========
Depreciation and amortization $ 251,000 $ 1,000 $ - $ 252,000
=========== =========== ============ ===========
Twenty-Six Weeks Ended June 30, 2002 and July 1, 2001
- -----------------------------------------------------
General
June 30, 2002 Military/Rugged Commercial Eliminations Corporate Consolidated
------------- --------------- ----------- ------------ ----------- ------------
Net sales from external customers $14,192,000 $ 6,215,000 $ - $20,407,000
=========== =========== ============ ===========
Segment operating income (loss) $ (370,000) $ 2,262,000 $ - $ 1,892,000
=========== =========== ============ ===========
Identifiable assets $18,139,000 $ 8,183,000 $ - $ 4,976,000 $31,298,000
=========== =========== ============ =========== ===========
Capital expenditures $ 591,000 $ 236,000 $ - $ 827,000
=========== =========== ============ ===========
Depreciation and amortization $ 445,000 $ 14,000 $ - $ 459,000
=========== =========== ============ ===========
General
July 1, 2001 Military/Rugged Commercial Eliminations Corporate Consolidated
------------- --------------- ----------- ------------ ----------- ------------
Net sales from external customers $16,060,000 $ 5,416,000 $ (96,000) $21,380,000
=========== =========== ============ ===========
Segment operating income (loss) $ (637,000) $ 302,000 $ (7,000) $ (342,000)
=========== =========== ============ ===========
Identifiable assets $18,651,000 $ 6,547,000 $ - $ 6,596,000 $31,794,000
=========== =========== ============ =========== ===========
Capital expenditures $ 56,000 $ 20,000 $ - $ 76,000
=========== =========== ============ ===========
Depreciation and amortization $ 517,000 $ 2,000 $ 7,000 $ 526,000
=========== =========== ============ ===========
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
=========== =========== ============ =========== ===========
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 the thirteen weeks
and twenty-six weeks ended June 30, 2002, as compared to the thirteen
weeks and twenty-six weeks ended July 1, 2001.
RESULTS OF OPERATIONS
Thirteen weeks ended June 30, 2002 compared to thirteen weeks ended
July 1, 2001
- -----------------------------------------------------------------------
Net sales for the thirteen weeks ended June 30, 2002 (second
quarter of 2002) were $11,053,000 compared to net sales for the
thirteen weeks ended July 1, 2001 (second quarter of 2001) of
$11,387,000. Military sales decreased in the second quarter of 2002 to
$8,104,000 as compared to $8,796,000 in the second quarter of 2001.
Commercial sales increased in the second quarter of 2002 to $2,949,000
from $2,687,000 in the second quarter of 2001. The 7.8% reduction in
military sales year to year was primarily the result of the reduction
in SPORT program shipments due to the ending of that program, partially
offset by the start up in production shipments of the Maintenance
Support Device ("MSD") and completion and shipment of first article
units of the Commander's Interface Unit for the US Army. The 9.7%
increase in commercial sales is directly attributable to increased
sales of in-flight telephony servers in second quarter of 2002 as
compared to the second quarter of 2001.
The gross margin percentage for the second quarter of 2002 was
19.4% compared to 14.0% for the same period in 2001. This increase is
largely due to the elimination of certain manufacturing costs related
to IV Phoenix Group, Inc. ("PGI"). These cost savings were partially
offset in the second quarter by expensing of certain initial pre-
production costs incurred on two significant programs. These pre-
production costs were approximately $675,000 for the MSD program and
approximately $489,000 for the Commander's Interface Unit program.
Selling, general and administrative expenses for the second
quarter of 2002 decreased 14.4% from the second quarter of 2001, to
$1,264,000. These expenses as a percent of sales were 11.4% in the
second quarter of 2002 compared to 13.0% 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.
Company sponsored engineering, research and development expenses
for the second quarter of 2002 decreased 25.3% from the second quarter
of 2001 to $266,000. These expenses as a percent of sales were 2.4% in
the second quarter of 2002 compared to 3.1% for the similar period in
2001. The decrease is primarily attributable to the elimination of
engineering expenses related to PGI.
Interest expense was $145,000 in the second quarter of 2002
compared to $224,000 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 $6,000 in the second quarter of 2002 compared
to $35,000 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 second quarter of 2002 was
$477,000 compared to a consolidated net loss of $433,000 in the second
quarter of 2001. The basic and diluted net income per share was $0.08
for the second quarter of 2002 based on primary and fully diluted
weighted average of 5,875,077 and 6,027,084 shares outstanding,
respectively. 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.
Twenty-six weeks ended June 30, 2002 compared to twenty-six weeks ended
July 1, 2001
- -----------------------------------------------------------------------
Net sales for the first half of 2002 were $20,407,000 compared to
net sales for the first half of 2001 of $21,380,000. The decrease in
sales was primarily attributable to the completion of the 5 year SPORT
program prior to ramp up of the replacement MSD program into full
production and the shutdown of PGI in August of 2001.
The gross margin percent for the first half of 2002 was 24.1%
compared to 15.0% for the same period in 2001. This increase is largely
due to the elimination of certain manufacturing costs related to PGI as
well as improved product mix versus the same period of 2001. These cost
savings were partially offset in the second quarter by expensing of
certain initial pre-production costs incurred on two significant
programs. These pre-production costs were approximately $675,000 for
the MSD program and approximately $489,000 for the Commander's
Interface Unit program.
Selling, general and administrative expenses for the first half of
2002 decreased 19.2% from the first half of 2001, to $2,450,000. These
expenses as a percent of sales were 12.0% in the first half of 2002
compared to 14.2% 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 half of 2002 increased 12.4% from the first half of 2001,
to $579,000. These expenses as a percent of sales were 2.8% in the
first half of 2002 compared to 2.4% for the first half 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 $259,000 in the first half of 2002 compared
to $481,000 for the similar period in 2001. The decrease reflects
decreased debt and reduced interest rates as compared to the prior
year.
Interest income was $16,000 in the first half of 2002 compared to
$79,000 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 half of 2002 was
$1,649,000 compared to a consolidated net loss of $744,000 in the first
half of 2001. The basic net income per share was $0.28 for the second
half of 2002 based on weighted average of 5,874,149 shares outstanding.
The diluted net income per share was $0.28 based on a diluted weighted
average of 5,989,674 shares outstanding. The basic and diluted net
loss per share was $0.13 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 $6,842,000 at June 30, 2002 compared to
$7,212,000 at December 31, 2001. Accounts receivable increased
$1,241,000 as a result of increased sales in June of 2002 versus sales
in December of 2001. Inventory levels increased $274,000 compared to
December 31, 2001 balances as a result of the delay in ramping the MSD
program into full production. Accounts payable increased $204,000
reflecting higher levels of inventory during the quarter. Current
maturities of long-term debt increased $596,000 reflecting the current
status on certain of the Company's debt instruments.
Capital expenditures totaled $827,000 for the first half of 2002
compared to $76,000 in the first half 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 exceed
2001 as the remaining tooling and test equipment needed for the MSD
contract are procured. Depreciation and amortization expense for the
first half of 2002 totaled $459,000 compared to $526,000 for the first
half of 2001. Depreciation and amortization expense for the remainder
of 2002 is expected to be approximately $550,000.
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 June 30, 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 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
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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 4 - Submission of Matters to a Vote of Security Hlders
The Annual Meeting of Shareholders of the Company was held on
April 25, 2002 at which the following matters were brought before and
voted upon by the shareholders.
1. The election of the following to the Board of Directors to
serve until the 2003 Annual Meeting of Shareholders.
For Against Abstain
--------- ------- -------
Teddy G. Allen 5,592,919 - 0- 22,305
William L. Dickinson 5,592,919 - 0- 22,305
William Mustard 5,592,919 - 0- 22,305
Jan H. Stenbeck 5,592,919 - 0- 22,305
Henry Guy 5,592,919 - 0- 22,305
Jerry O. Tuttle 5,592,919 - 0- 22,305
Item 5 - Other Information
The Company has utilized the "exceptional and limited
circumstances" provision, in accordance with Marketplace Rule
4350(d)(2)(B), to appoint a non-independent director, Henry Guy, to its
audit committee. On May 17, 2002, Miltope received notification from
NASDAQ that the Company was in compliance with the above referenced
Rules.
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
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 $52,000.
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: August 12, 2002