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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
March 30, 2003 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
------
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act). Yes No X
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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 1, 2003: 5,884,909 shares of Common Stock,
$.01 par value.
PART I - FINANCIAL INFORMATION
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
March 30, December 31,
ASSETS 2003 2002
CURRENT ASSETS:
Cash $ 155,000 $ 589,000
Accounts receivable, net 8,066,000 7,799,000
Inventories 12,010,000 11,527,000
Deferred income taxes 1,516,000 1,816,000
Other current assets 365,000 371,000
----------- -------------
Total current assets 22,112,000 22,102,000
----------- -------------
PROPERTY AND EQUIPMENT - at cost:
Machinery and equipment 7,801,000 7,625,000
Furniture and fixtures 1,520,000 1,526,000
Land, building and improvements 6,093,000 6,246,000
----------- -------------
Total property and equipment 15,414,000 15,397,000
Less accumulated depreciation 9,667,000 9,659,000
----------- -------------
Property and equipment -net 5,747,000 5,738,000
----------- -------------
DEFERRED INCOME TAXES 5,126,000 5,126,000
OTHER ASSETS 432,000 437,000
----------- -------------
TOTAL $33,417,000 $ 33,403,000
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 6,323,000 $ 7,573,000
Accrued expenses 2,362,000 2,061,000
Short-term debt 490,000 515,000
Current maturities of long-term debt 1,498,000 1,781,000
----------- -------------
Total current liabilities 10,673,000 11,930,000
LONG-TERM DEBT 7,982,000 7,216,000
OTHER LIABILITIES 945,000 945,000
----------- -------------
Total liabilities 19,600,000 20,091,000
----------- -------------
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 3,363,000 2,858,000
----------- -------------
27,950,000 27,445,000
Less treasury stock at cost 14,133,000 14,133,000
----------- -------------
Total stockholders' equity 13,817,000 13,312,000
----------- -------------
TOTAL $33,417,000 $ 33,403,000
=========== =============
See Notes to Condensed Consolidated Financial Statements
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Thirteen Weeks Ended
----------------------
March 30, March 31,
2003 2002
------------ -----------
NET SALES $ 15,811,000 $ 9,354,000
------------ -----------
COSTS AND EXPENSES:
Cost of sales 12,677,000 6,579,000
Selling, general and administrative 2,105,000 1,186,000
Engineering, research and development 108,000 313,000
------------ -----------
Total 14,890,000 8,078,000
------------ -----------
INCOME FROM OPERATIONS 921,000 1,276,000
OTHER INCOME (EXPENSE):
Interest expense (116,000) (114,000)
Interest income - 10,000
------------ -----------
Total (116,000) (104,000)
------------ -----------
INCOME BEFORE INCOME TAXES 805,000 1,172,000
INCOME TAXES 300,000 -
------------ -----------
NET INCOME $ 505,000 $ 1,172,000
============ ===========
NET INCOME PER SHARE
BASIC $ 0.09 $ 0.20
============ ===========
DILUTED $ 0.08 $ 0.20
============ ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
BASIC 5,879,179 5,871,523
============ ===========
DILUTED 6,102,766 5,871,523
============ ===========
See Notes To Condensed Consolidated Financial Statements
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED MARCH 30, 2003 AND MARCH 31, 2002
(unaudited)
March 30, March 31,
2003 2002
---------- -----------
OPERATING ACTIVITIES:
Net income $ 505,000 $ 1,172,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 226,000 223,000
Provision for slow-moving and obsolete inventories 150,000 300,000
Provision for doubtful accounts receivable 8,000 303,000
Deferred income taxes 300,000 -
Change in operating assets and liabilities:
Accounts receivable (275,000) 2,400,000
Inventories (633,000) (168,000)
Other current assets 6,000 50,000
Other assets (2,000) 1,000
Accounts payable and accrued expenses (949,000) (3,267,000)
---------- -----------
Net cash provided by (used in) operating activities (664,000) 1,014,000
---------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment (228,000) (181,000)
---------- -----------
Net cash used in investing activities (228,000) (181,000)
---------- -----------
FINANCING ACTIVITIES:
Proceeds from line of credit 5,519,000 -
Payments of long-term debt (5,061,000) (514,000)
---------- -----------
Net cash provided by (used in) financing activities 458,000 (514,000)
---------- -----------
NET INCREASE (DECREASE) IN CASH (434,000) 319,000
CASH, BEGINNING OF PERIOD 589,000 1,120,000
---------- -----------
CASH, END OF PERIOD 155,000 1,439,000
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW
INFORMATION:
Cash payments made for:
Income taxes $ 83,000 $ 29,000
========== ===========
Interest $ 66,000 $ 51,000
========== ===========
See Notes To Condensed Consolidated Financial Statements
MILTOPE GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Financial Statements - In the opinion of management, the
accompanying unaudited condensed consolidated financial statements
contain all adjustments necessary (consisting of only normal and
recurring accruals) to present fairly the financial position of the
Company and its subsidiaries as of March 30, 2003 and December 31, 2002
and the results of operations and cash flows for the thirteen weeks
ended March 30, 2003 and March 31, 2002. All amounts presented have
been rounded to the nearest thousand.
The results for the thirteen weeks ended March 30, 2003 and March 31,
2002 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, 2002.
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 - In accordance with SFAS 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, the Company reviews
its long-lived assets and identifiable intangibles, excluding goodwill,
for impairment when events or changes in circumstances indicate that
the carrying amount of these assets may not be recoverable based on
estimates of future undiscounted cash flows without interest charges.
An impairment loss is recognized only if the carrying amount of the
asset is not recoverable and is measured as the difference between the
carrying amount and the fair value of the asset. Assets held for
disposal, if any, are carried at the lower of carrying amount or fair
value, less estimated cost to sell such assets.
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.
Stock Based Compensation - At March 30, 2003, the Company has two
stock based compensation plans which are described more fully in Note 8
to the Company's Financial Statements presented in the Annual Report on
Form 10-K. The Company accounts for those plans under the recognition
and measurement principles of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and Related
Interpretations. No stock-based employee compensation cost is
reflected in net income, as this amount is insignificant. The
following table illustrates the effect on net income and net income per
share if the Company had applied the fair value recognition provisions
of SFAS Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation:
March 30, March 31,
2003 2002
---------- -----------
Net income (loss), as reported: $ 505,000 $ 1,172,000
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (25,000) (19,000)
---------- -----------
Pro forma net income $ 480,000 1,153,000
========== ===========
Basic net income (loss) per share:
As reported $ 0.09 $ 0.20
Pro forma $ 0.08 $ 0.20
Diluted net income (loss) per share:
As reported $ 0.08 $0.20
Pro forma $ 0.08 $0.20
For purposes of SFAS 123, the weighted average fair value of the
options granted during 2003 and 2002 is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions:
March 30, March 31,
2003 2002
---------- ---------
Expected life (years) 10.0 10.0
Risk-free interest rate 5.51% 5.00%
Dividend rate 0% 0%
Expected volatility 99.16% 111.42%
Net Income Per Share - Basic and diluted earnings per share are
computed by dividing the net income 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 weeks ending March 30, 2003, as detailed below:
Thirteen Weeks Ended
----------------------
March 30, March 31,
2003 2002
--------- ----------
Weighted average common
shares outstanding - basic 5,879,179 5,871,523
Dilutive effect of stock options 223,587 -
--------- ----------
Weighted average common
shares outstanding - diluted 6,102,766 5,871,523
========= =========
All options that would have an anti-dilutive effect on net income
per share if exercised were excluded from the computation of diluted
net income per share. Anti-dilutive options for the thirteen weeks
ended March 30, 2003 and March 31, 2002 were 31,393 and 447,795,
respectively.
2. Inventories - Net - Inventories consist of the following:
March 30, December 31,
2003 2002
----------- ------------
Purchased parts and
Subassemblies $ 9,382,000 $ 8,578,000
Work-in-process 2,628,000 2,949,000
----------- -----------
Total $12,010,000 $11,527,000
=========== ===========
Inventories include a reserve for slow-moving and obsolete items of
$1,055,000 and $1,971,000 at March 30, 2003 and December 31, 2002,
respectively.
3. Income Taxes - The Company recognized tax expense at the estimated
effective statutory rate for the thirteen week period ended March 30,
2003. However, the Company does not have a tax payment liability due
to the use of a portion of the net operating loss carry-forward the
Company has available to it. No income tax expense has been recorded
for the thirteen weeks ended March 31, 2002 since the Company's income
was offset by the utilization of its net operating loss carryforward.
A valuation allowance which had fully reserved the deferred tax assets
was reversed during the fourth quarter of 2002.
4. Contingencies:
Litigation - As noted in the Company's Form 10K for the year ended
December 31, 2002, the Company is a claimant in a lawsuit in the U.S.
District Court, Eastern District of New York against former officers,
directors, and employees of PGI and against two competitors of Miltope
and PGI. The complaint alleges damages based on breach of fiduciary
duties by the former officers and directors, theft of trade secrets,
violations of the Lanham Act, conspiracy to commit these violations and
other claims. The corporate defendants answered the complaint, denied
the claims against them but have not filed any counterclaims. The
individual defendants who were former officers and directors of Miltope
and PGI have filed counterclaims. The Company believes that such
litigation and claims will be resolved without a material effect on the
Company's financial position, results of operations, or cash flows.
In addition, 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 March 30,
2003, the Company believes that any additional costs evolving from
these negotiations w ould 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 in the Company's Annual Report on Form
10-K. The Company's determination of segment operating profit (loss)
does not reflect other income (expense) or income taxes.
Thirteen Weeks Ended March 30, 2003 and March 31, 2002
General
March 30, 2003 Military/Rugged Commercial Eliminaions Corporate Consolidated
- --------------------------------- --------------- ---------- ----------- ---------- ------------
C>
Net sales from external customers $ 13,905,000 $1,906,000 $15,811,000
Segment operating income $ 531,000 $ 390,000 $ 921,000
Other income (expense) $ - $ - $ - $ (116,000) $ (116,000)
Income (loss)before income taxes $ 531,000 $ 390,000 $ - $ (116,000) $ 805,000
Identifiable assets $ 20,219,000 $5,604,000 $7,594,000 $33,417,000
Capital expenditures $ 200,000 $ 28,000 $ 228,000
Depreciation and amortization $ 214,000 $ 12,000 $ 226,000
General
March 31, 2002 Military/Rugged Commercial Eliminaions Corporate Consolidated
- --------------------------------- --------------- ---------- ----------- ---------- ------------
Net sales from external customers $ 6,088,000 $3,266,000 $ 9,354,000
Segment operating income $ 671,000 $ 605,000 $ 1,276,000
Other income (expense) $ - $ - $ - $ (104,000) $( 104,000)
Income (loss) before income taxes $ 671,000 $ 605,000 $ - $ (104,000) $ 1,172,000
Identifiable assets $ 14,271,000 $7,284,000 $6,430,000 $27,985,000
Capital expenditures $ 114,000 $ 67,000 $ 181,000
Depreciation and amortization $ 219,000 $ 4,000 $ 223,000
General
December 31, 2002 Military/Rugged Commercial Eliminaions Corporate Consolidated
- --------------------------------- --------------- ---------- ----------- ---------- ------------
Identifiable assets $ 20,240,000 $4,824,000 $ - $8,339,000 $33,403,000
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 such
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
ended March 30, 2003, as compared to the thirteen weeks ended March 31,
2002.
RESULTS OF OPERATIONS
Thirteen weeks ended March 30, 2003 compared to thirteen weeks ended
March 31, 2002
Net sales for the thirteen weeks ended March 30, 2003 (first
quarter of 2003) were $15,811,000 compared to net sales for the
thirteen weeks ended March 31, 2002 (first quarter of 2002) of
$9,354,000. Military sales increased in the first quarter of 2003 to
$13,905,000 as compared to $6,088,000 in the first quarter of 2002.
Commercial sales decreased in the first quarter of 2003 to $1,906,000
from $3,266,000 in the first quarter of 2002. The 128.4% increase in
military sales year to year was primarily the result of $9,571,000 in
revenue attributable to the full ramped up production level of the TSC-
750 under the Maintenance Support Device ("MSD") contract partially
offset by the loss of $4,768,000 in revenue attributable to the SPORT
program, a five-year hand-held computer contract completed in June
2002. The 41.6% decrease in commercial sales is directly attributable
to decreased orders from the commercial airline industry primarily
caused by the current uncertainty plaguing that industry segment.
The gross margin percentage for the first quarter of 2003 was
19.8% compared to 29.7% for the same period in 2002. This decrease is
largely due to a shift in product mix from the higher margin revenue
generated by the commercial airborne products to the lower margin
revenue generated by the MSD contract products.
Selling, general and administrative expenses for the first quarter
of 2003 increased 77.5% from the first quarter of 2002, to $2,105,000.
These expenses as a percent of sales were 13.3% in the first quarter of
2003 compared to 12.7% for the similar period in 2002. The increase as
a percent of sales is primarily attributable to increased legal
expenses in the first quarter of 2003 related to the litigation
described in Note 4.
Company funded engineering, research and development expenses for
the first quarter of 2003 decreased to $108,000 from $313,000 in the
first quarter of 2002. These expenses as a percent of sales were 0.7%
in the first quarter of 2003 and 3.3% in 2002. The decrease is
primarily attributable to an increase in customer funded development
projects which utilized engineering resources that would have been used
on Company funded development projects. Most of the customer funded
development projects continue to generate revenue and therefore all
costs associated with these revenues are included in the Cost of Sales
line.
Interest expense was $116,000 in the first quarter of 2003
compared to $114,000 for the similar period in 2002. This increase is
a result of a higher variable cost of debt under the terms of the
Company's new credit agreement entered into in January 2003 and an
increased level of debt due to working capital requirements in the
first quarter of 2003.
The Company had no interest income in the first quarter of 2003
compared to $10,000 for the similar period in 2002, as a result of the
terms of the new credit agreement.
The Company recognized tax expense at the estimated effective
statutory rate for the thirteen week period ended March 30, 2003.
However, the Company does not have a tax payment liability due to the
use of a portion of the net operating loss carry-forward the Company
has available to it. No income tax expense has been recorded for the
thirteen weeks ended March 31, 2002 since the Company's income was
offset by the utilization of its net operating loss carryforward. A
valuation allowance which had fully reserved the deferred tax assets
was reversed during the fourth quarter of 2002.
The consolidated net income for the first quarter of 2003 was
$505,000 compared to net income of $1,172,000 in the first quarter of
2002. The basic net income per share was $0.09 for the first quarter
of 2003 based on the weighted average of 5,879,179 shares outstanding.
The diluted net income per share was $0.08 based on a diluted weighted
average of 6,102,766 shares outstanding. The basic and diluted net
income per share was $0.20 for the similar period in 2002 based on a
weighted average of 5,871,523 shares of the Company's common stock
outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $11,439,000 at March 31, 2003 compared to
$10,172,000 at December 31, 2002. Accounts receivable increased
$267,000 as a result of increased sales in March of 2003 versus sales
in December of 2002. Inventory levels increased $483,000 compared to
December 31, 2002 balances as the Company prepared for increased
production demands in the 2nd quarter of 2003. Accounts payable
decreased $1,250,000 as the Company utilizes its increased cash
availability to improve payment terms. Current maturities of long-term
debt decreased $283,000 reflecting the current status on certain of the
Company's debt instruments.
Capital expenditures totaled $228,000 for the first three months
of 2003 compared to $181,000 in the first three months of 2002. The
increase in 2003 over 2002 is due to continued upgrades in the
technological infrastructure of the Company. The Company expects
capital expenditures for the full year 2003 to be approximately
$450,000. Depreciation and amortization expense for the first three
months of 2003 totaled $226,000 compared to $223,000 for the first
three months of 2002. Depreciation and amortization expense for the
remainder of 2003 is expected to be approximately $650,000.
In January of 2003, the Company entered into a new creditagreement
with Citizen's Business Credit ("Citizen's") that will provide up to
$8,000,000 of financing under a revolving line of credit over
an initial three-year period. The initial proceeds of this line of
credit were used to pay down $4,700,000 of the $5,700,000 balance due
under the existing credit facility provided by its former primary
lender. The Company entered into an agreement with its former primary
lender to amortize the remaining $1,000,000 balance of the existing
line of credit over the next twelve months. The Company anticipates
that this new line of credit and cash generated internally will
provide adequate funding to meet its cash flow needs for the year ended
December 31, 2003. The agreement includes various provisions requiring
the maintenance of certain financial ratios and certain other
limitations. The Company's accounts receivable, contract rights and
inventories are pledged as collateral to the agreement.
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.
In 2002, the Company eliminated the valuation allowance against its
deferred tax assets.
Impairment of Long-lived Assets - The Company, using its best estimates
based on reasonable and supportable assumptions and projections,
reviews for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, and goodwill and certain
intangible assets in accordance with Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets. The financial
statements referred to above reflect all adjustments required by
Statements 144 and 142 as of December 31, 2002.
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. A 10% increase in interest rates (from 4.8% to
5.3%) would affect the Company's variable debt obligations and could
potentially reduce future earnings by a maximum of approximately
$50,000 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
As noted in the Company's Form 10K for the year ending December 31,
2002, the Company is a claimant in a lawsuit in the U.S. District
Court, Eastern District of New York against former officers, directors,
and employees of PGI and against two competitors of Miltope and PGI.
The complaint alleges damages based on breach of fiduciary duties by
the former officers and directors, theft of trade secrets, violations
of the Lanham Act, conspiracy to commit these violations and other
claims. The corporate defendants answered the complaint, denied the
claims against them but have not filed any counterclaims. The
individual defendants who were former officers and directors of Miltope
and PGI have filed counterclaims. The Company believes that such
litigation and claims will be resolved without a material effect on the
Company's financial position or results of operations.
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: May 14, 2003