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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 September 28, 2003 Commission File Number 0-13433
________________________ ______________________________
MILTOPE GROUP INC.
_______________________________________________________________________
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-2693062
- --------------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization)
Identification No.)
3800 Richardson Road South
Hope Hull, AL 36043
- -------------------------------- ----------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (334) 284-8665
--------------
Not Applicable
________________________________________________________________________
Former name, former address and former fiscal year, if changed since
last report
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act). Yes___ No _X_
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, 2003: 5,962,623 shares of Common
Stock, $.01 par value.
PART I - FINANCIAL INFORMATION
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
September 28, December 31,
ASSETS 2003 2002
CURRENT ASSETS:
Cash $ 151,000 $ 589,000
Accounts receivable, net of allowance of $113,000 8,704,000 7,799,000
(2003) and $344,000 (2002)
Inventories 15,746,000 11,527,000
Deferred income taxes 1,666,000 1,816,000
Other current assets 447,000 371,000
----------- -----------
Total current assets 26,714,000 22,102,000
----------- -----------
PROPERTY AND EQUIPMENT - at cost:
Machinery and equipment 8,029,000 7,625,000
Furniture and fixtures 1,511,000 1,526,000
Land, building and improvements 6,060,000 6,246,000
----------- -----------
Total property and equipment 15,600,000 15,397,000
Less accumulated depreciation 10,084,000 9,659,000
----------- -----------
Property and equipment - net 5,516,000 5,738,000
----------- -----------
DEFERRED INCOME TAXES 3,844,000 5,126,000
OTHER ASSETS 394,000 437,000
----------- -----------
TOTAL $36,468,000 $33,403,000
=========== ===========
LIABILITIES AND STOCKHOLDERS'EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,843,000 $7,573,000
Accrued expenses 2,356,000 2,061,000
Short-term debt 290,000 515,000
Current maturities of long-term debt 1,175,000 1,781,000
----------- -----------
Total current liabilities 12,664,000 11,930,000
LONG-TERM DEBT 7,002,000 7,216,000
OTHER LIABILITIES 645,000 945,000
----------- -----------
Total liabilities 20,311,000 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 4,798,000 2,858,000
----------- -----------
29,385,000 27,445,000
Less treasury stock at cost, 848,489
and 932,203 shares at September 28,2003
and December 31,2002, respectively 13,228,000 14,133,000
----------- -----------
Total stockholders' equity 16,157,000 13,312,000
----------- -----------
TOTAL $36,468,000 $33,403,000
=========== ===========
See Notes To Condensed Consolidated Financial Statements
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Thirteen Weeks Ended
---------------------------
September 28, September 29,
2003 2002
------------ ------------
NET SALES $17,195,000 $12,784,000
----------- -----------
COSTS AND EXPENSES:
Cost of sales 12,978,000 10,485,000
Selling, general and administrative 2,184,000 1,550,000
Engineering, research and development 158,000 240,000
----------- -----------
Total 15,320,000 12,275,000
----------- -----------
INCOME FROM OPERATIONS 1,875,000 509,000
OTHER INCOME (EXPENSE):
Interest expense (75,000) (188,000)
Interest income 5,000 5,000
----------- -----------
Total (70,000) (183,000)
----------- -----------
INCOME BEFORE INCOME TAXES 1,805,000 326,000
INCOME TAXES 661,000 -
----------- -----------
NET INCOME $ 1,144,000 $ 326,000
=========== ===========
NET INCOME PER SHARE
BASIC $ 0.19 $ 0.06
=========== ===========
DILUTED $ 0.18 $ 0.05
WEIGHTED AVERAGE NUMBER OF =========== ===========
SHARES OUTSTANDING:
BASIC 5,928,321 5,878,207
=========== ===========
DILUTED 6,193,773 6,020,293
=========== ===========
See Notes To Condensed Consolidated Financial Statements
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Thirty-Nine Weeks Ended
-----------------------------
September 28, September 29,
2003 2002
------------- -------------
NET SALES $50,796,000 $33,191,000
----------- -----------
COSTS AND EXPENSES:
Cost of sales 39,477,000 25,971,000
Selling, general and administrative 6,427,000 4,000,000
Engineering, research and development 386,000 819,000
----------- -----------
Total 46,290,000 30,790,000
----------- -----------
INCOME FROM OPERATIONS 4,506,000 2,401,000
OTHER INCOME (EXPENSE):
Interest expense (286,000) (447,000)
Interest income 6,000 21,000
----------- -----------
Total (280,000) (426,000)
----------- -----------
INCOME BEFORE INCOME TAXES 4,226,000 1,975,000
INCOME TAXES 1,561,000 -
----------- -----------
NET INCOME $ 2,665,000 $ 1,975,000
=========== ===========
NET INCOME PER SHARE:
BASIC $ .45 $ .34
=========== ===========
DILUTED $ .43 $ .33
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
BASIC 5,900,881 5,874,671
=========== ===========
DILUTED 6,133,212 6,000,677
=========== ===========
See Notes To Condensed Consolidated Financial Statements
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 2003 AND SEPTEMBER 29,
2002
(unaudited)
September 28, September 29,
2003 2002
------------- -------------
OPERATING ACTIVITIES:
Net income $ 2,665,000 $ 1,975,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 672,000 705,000
Provision for slow-moving and obsolete inventories 458,000 850,000
Provision for (recovery of) doubtful accounts receivable (123,000) 353,000
Deferred income taxes 1,431,000 -
(Gain) loss on sale of property and equipment (5,000) 15,000
Change in operating assets and liabilities:
Accounts receivable (782,000) (2,810,000)
Inventories (4,677,000) (2,209,000)
Other current assets (75,000) (65,000)
Other assets (2,000) 217,000
Accounts payable and accrued expenses 1,287,000 3,151,000
----------- -----------
Net cash provided by operating activities 849,000 2,182,000
----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment (423,000) (954,000)
----------- -----------
Net cash used in investing activities (423,000) (954,000)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 180,000 10,000
Net proceeds from line of credit 7,471,000 -
Payments of long-term debt (8,515,000) (1,386,000)
----------- -----------
Net cash used in financing activities (864,000) (1,376,000)
----------- -----------
NET DECREASE IN CASH (438,000) (148,000)
CASH, BEGINNING OF PERIOD 589,000 1,120,000
----------- -----------
CASH, END OF PERIOD $ 151,000 $ 972,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash payments made for:
Income taxes $ 227,000 $ 244,000
=========== ===========
Interest $ 320,000 $ 400,000
=========== ===========
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 28, 2003 and December 31,
2002 and the results of operations and cash flows for the thirteen and
thirty-nine weeks ended September 28, 2003 and September 29, 2002. All
amounts presented have been rounded to the nearest thousand.
The results for the thirteen and thirty-nine weeks ended September 28,
2003 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 Statement of Financial
Accounting Standards ("SFAS") 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, the Company reviews its long-lived
assets and identifiable intangibles 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 September 28, 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 for the year ended December 31, 2002. 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:
Thirteen Weeks Ended
----------------------------
September 28, September 29,
2003 2002
------------- -------------
Net income, as reported: $ 1,144,000 $ 326,000
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects (57,000) (56,000)
----------- ----------
Pro forma net income $ 1,087,000 $ 270,000
=========== ==========
Basic net income per share:
As reported $ 0.19 $ 0.06
Pro forma $ 0.18 $ 0.05
Diluted net income per share:
As reported $ 0.18 $ 0.05
Pro forma $ 0.18 $ 0.04
Thirty-Nine Weeks Ended
----------------------------
September 28, September 29,
2003 2002
------------- -------------
Net income, as reported: $ 2,665,000 $ 1,975,000
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for
all awards, net of related tax effects (90,000) (130,000)
------------- -----------
Pro forma net income $ 2,575,000 $ 1,845,000
=========== ===========
Basic net income per share:
As reported $ 0.45 $ 0.34
Pro forma $ 0.44 $ 0.31
Diluted net income per share:
As reported $ 0.43 $ 0.33
Pro forma $ 0.42 $ 0.31
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:
September 28, September 29,
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 and thirty-nine weeks ending September 28, 2003 and September
29, 2002, as detailed below:
Thirteen Weeks Ended Thirty-nine Weeks Ended
--------------------------- ---------------------------
September 28, September 29, September 28, September 29,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Weighted average common
shares outstanding - basic 5,928,321 5,878,207 5,900,881 5,874,671
Dilutive effect of stock options 265,452 142,086 232,331 126,006
--------- --------- --------- ---------
Weighted average common
shares outstanding - diluted 6,193,773 6,020,293 6,133,212 6,000,677
========= ========= ========= =========
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 week
periods ended September 28, 2003 and September 29, 2002 were 3,361 and
35,952, respectively. Anti-dilutive options for the thirty-nine weeks
ended September 28, 2003 and September 29, 2002 were 14,393 and
197,952, respectively.
2. Inventories - Net - Inventories consist of the following:
September 28, 2003 December 31, 2002
------------------ -----------------
Purchased parts and
Subassemblies $14,000,000 $ 8,578,000
Work-in-process 1,746,000 2,949,000
----------- -----------
Total $15,746,000 $11,527,000
=========== ===========
Inventories include a reserve for slow-moving and obsolete items of
$1,045,000 and $1,971,000 at September 28, 2003 and December 31, 2002,
respectively.
3. Income Taxes - The Company recognized tax expense at the estimated
effective statutory rate for the thirteen and thirty-nine week period
ended September 28, 2003. However, the Company does not have an income
tax 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
was recorded for the thirteen and thirty-nine weeks ended September 29,
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 September
28, 2003, 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 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 September 28, 2003 and September 29, 2002
- --------------------------------------------------------------
General
September 28, 2003 Military/Rugged Commercial Eliminations Corporate Consolidated
--------------------- --------------- ----------- ------------ ----------- ------------
Net sales from external customers $15,200,000 $ 1,995,000 $17,195,000
=========== =========== ===========
Segment operating income $ 1,556,000 $ 319,000 $ 1,875,000
=========== =========== ===========
Other income (expense) $ - $ - $ - $ (70,000) $( 70,000)
=========== =========== ============= ========== ===========
Income (loss) before income taxes $ 1,556,000 $ 319,000 $ - $ (70,000) $ 1,805,000
=========== =========== ============= ========== ===========
Identifiable assets $22,969,000 $ 6,997,000 $6,502,000 $36,468,000
=========== =========== ========== ===========
Capital expenditures $ 99,000 $ 13,000 $ 112,000
=========== =========== ===========
Depreciation and amortization $ 216,000 $ 12,000 $ 228,000
=========== =========== ===========
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
=========== =========== =========== ===========
Thirty-nine Weeks Ended September 28, 2003 and September 29, 2002
- -----------------------------------------------------------------
General
September 28, 2003 Military/Rugged Commercial Eliminations Corporate Consolidated
--------------------- --------------- ----------- ------------ ----------- ------------
Net sales from external customers $45,086,000 $ 5,710,000 $ - $50,796,000
=========== =========== =========== ===========
Segment operating income $ 3,475,000 $ 1,031,000 $ - $ 4,506,000
=========== =========== =========== ===========
Other income (expense) $ - $ - $ - $ (280,000) $ (280,000)
=========== ========== =========== ========== ===========
Income (loss) before income taxes $ 3,475,000 $ 1,031,000 $ - $ (280,000) $ 4,226,000
=========== ========== =========== ========== ===========
Identifiable assets $22,969,000 $ 6,997,000 $6,502,000 $36,468,000
=========== ========== =========== ========== ===========
Capital expenditures $ 374,000 $ 49,000 $ - $ 423,000
=========== =========== =========== ===========
Depreciation and amortization $ 637,000 $ 35,000 $ - $ 672,000
=========== =========== =========== ===========
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
December 31, 2002 Military/Rugged Commercial Eliminations Corporate Consolidated
--------------------- --------------- ----------- ------------ ----------- ------------
Identifiable assets $20,240,000 $ 4,824,000 $ - $8,339,000 $33,403,000
=========== =========== =========== ========== ===========
5. Subsequent Event - On October 21, 2003, the Company entered into
an Agreement and Plan of Merger with Vision Technologies Kinetics, Inc.
("VTK"). As a result of the merger, the Company will be a wholly-owned
subsidiary of VTK. Completion of the merger is subject to a number of
terms and conditions, including the receipt of all required regulatory
approvals and approval by a majority of the stockholders of the Company
at a special meeting of the stockholders to be held in the future.
Pursuant to the terms of the Merger Agreement, upon the closing of the
merger, each holder of the Company's common stock will receive, in
exchange for each such share, $5.78, without interest thereon, and one
contingent value right ("CVR"). Each CVR represents the non-
transferable right to receive a pro rata share of 50% of the net
proceeds, if any, from the Company's lawsuit against DRS Technologies
Inc. and other parties, after adjustments for taxes. The Company will
retain the remaining 50% of the net proceeds from the lawsuit. In
addition, $700,000 has been reserved by VTK to fund certain costs and
expenses associated with the lawsuit.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
- -----------------------------------------------------------------------
The matters discussed in this news release that are not historical
facts are "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 and the Company
intends that such forward looking statements be subject to the safe
harbors created thereby. The Company warns that caution should be taken
in relying upon any forward looking statements contained herein, as
they involve a number of risks and uncertainties that may cause the
actual results of the Company to be materially different from any
future results expressed or implied by such forward looking statements.
Examples of such risks and uncertainties include, but are not limited
to, the ability of the Company to enter into definitive agreements for
the sale of the Company, the ability of the Company and any potential
buyer to consummate the sale of the Company, future demand for the
Company's products and services, general economic conditions, 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, and other risks and
uncertainties. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Company does not undertake any
obligation to update or revise any forward looking statement made by it
or on its behalf, whether as a result of new information, future events
or otherwise
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 and
thirty-nine weeks ended September 28, 2003, as compared to the thirteen
and thirty-nine weeks ended September 29, 2002.
RESULTS OF OPERATIONS
- ---------------------
Thirteen weeks ended September 28, 2003 compared to thirteen weeks
ended September 29, 2002
- ------------------------------------------------------------------
Net sales for the thirteen weeks ended September 28, 2003 (third
quarter of 2003) were $17,195,000 compared to net sales for the
thirteen weeks ended September 29, 2002 (third quarter of 2002) of
$12,784,000. Military sales increased in the third quarter of 2003 to
$15,200,000 as compared to $11,584,000 in the third quarter of 2002.
Commercial sales increased in the third quarter of 2003 to $1,995,000
from $1,266,000 in the third quarter of 2002. The 31.2% increase in
military sales year to year was primarily the result of $3,662,000 in
revenue attributable to increased sales of tactical computers for the
SMART T program with Raytheon and the CONFIRE program with both
Honeywell Corporation and the U.S. Army's Picatinny Arsenal. Both of
these programs utilize computers that were originally designed by one
of the Company's subsidiaries but have been subsequently redesigned by
Miltope Corporation to conform to the environmental requirements of the
respective programs. These sales accounted for $462,000 in the third
quarter of 2002. The 57.6% increase in commercial sales was directly
attributable to resurgence in the airline industry.
The gross margin percentage for the third quarter of 2003 was
24.5% compared to 18.0% for the same period in 2002. This increase is
largely due to increased efficiencies at the higher MSD production
levels.
Selling, general and administrative expenses for the third quarter
of 2003 increased 40.9% from the third quarter of 2002, to $2,184,000.
These expenses as a percent of sales were 12.7% in the third quarter of
2003 compared to 12.1% for the similar period in 2002. The increase as
a percent of sales is primarily attributable to increased legal
expenses related to the litigation described in Note 4 to the condensed
consolidated financial statements. These associative legal expenses
were in the amount of $690,000 in the third quarter of 2003 as compared
to $332,000 in the third quarter of 2002.
Company funded engineering, research and development expenses for
the third quarter of 2003 decreased to $158,000 from $240,000 in the
third quarter of 2002. These expenses as a percent of sales were 0.9%
in the third quarter of 2003 and 1.9% 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. Income or loss from these customer funded development programs is
included in the gross margin for each period.
Interest expense was $75,000 in the third quarter of 2003 compared
to $188,000 for the similar period in 2002. This decrease is a result
of a decreased level of debt due to lower working capital requirements
in the first quarter of 2003 offset partially by a higher variable cost
of debt under the terms of the Company's new credit agreement entered
into in January 2003.
The Company had interest income of $5,000 in both the third
quarter of 2003 and 2002.
The Company recognized tax expense at the estimated effective
statutory rate for the thirteen-week period ended September 28, 2003.
However, the Company does not have an income tax 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 was recorded for the
thirteen weeks ended September 29, 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 third quarter of 2003 was
$1,144,000 compared to net income of $326,000 in the third quarter of
2002. The basic net income per share was $0.19 for the third quarter
of 2003 based on the weighted average of 5,928,321 shares outstanding.
The diluted net income per share was $0.18 based on a diluted weighted
average of 6,193,773 shares outstanding. 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.
Thirty-nine weeks ended September 28, 2003 compared to thirty-nine
weeks ended September 29, 2002
- -----------------------------------------------------------------------
Net sales for the twenty-nine weeks ended September 29, 2003 were
$50,796,000 compared to net sales for the thirty-nine weeks ended
September 28, 2002 of $33,191,000. Military sales increased in the
first nine months of 2003 to $45,086,000 as compared to $25,776,000 in
the nine months of 2002. Commercial sales decreased in the first nine
months of 2003 to $5,710,000 from $7,481,000 in the first nine months
of 2002. The 74.9% increase in military sales year to year was
primarily the result of $32,696,000 in revenue attributable to the full
ramped up production level of the TSC-750 under the MSD IDIQ contract
partially offset by the loss of $10,836,000 in revenue attributable to
the SPORT program, a five-year hand-held computer contract completed in
June 2002. The Company also benefited from increased sales of tactical
computers for the SMART T program with Raytheon and the CONFIRE program
with both Honeywell Corporation and the U.S Army's Picatinny Arsenal.
Both of these programs utilize computers that were originally designed
by one of the Company's subsidiaries but have been subsequently
redesigned by Miltope Corporation to conform to the environmental
requirements of the respective programs. These sales accounted for
$8,159,000 for the thirty-nine week period ended September 28, 2003 as
compared to $2,120,000 for the thirty-nine week period ended September
29, 2002. The 23.7% 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 nine months of 2003 was
22.3% compared to 21.8% for the same period in 2002. This increase is
largely due to increased efficiencies at the higher MSD production
levels.
Selling, general and administrative expenses for the first nine
months of 2003 increased 60.7% from the first nine months of 2002, to
$6,427,000. These expenses as a percent of sales were 12.7% in the
first nine months of 2003 compared to 12.1% for the similar period in
2002. The increase as a percent of sales is primarily attributable to
increased legal expenses related to the litigation described in Note 4
to the condensed consolidated financial statements. These associative
legal expenses were in the amount of $2,052,000 for the thirty-nine
week period ended September 28, 2003 as compared to $661,000 for the
thirty-nine week period ended September 29, 2002.
Company funded engineering, research and development expenses for
the first nine months of 2003 decreased to $386,000 from $819,000 in
the first nine months of 2002. These expenses as a percent of sales
were 0.8% in the first nine months of 2003 and 2.5% 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. Income or loss from these customer funded
development programs is included in the gross margin for each period.
Interest expense was $286,000 in the first nine months of 2003
compared to $447,000 for the similar period in 2002. This decrease is
a result of a decreased level of debt due to lower working capital
requirements in the first nine months of 2003 offset partially by a
higher variable cost of debt under the terms of the Company's new
credit agreement entered into in January 2003.
The Company had interest income in the first nine months of 2003
of $6,000 compared to $21,000 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 thirty-nine week period ended September 28,
2003. However, the Company does not have an income tax 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 was recorded for
the thirty-nine weeks ended September 29, 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 nine months of 2003 was
$2,665,000 compared to net income of $1,975,000 in the first nine
months of 2002. The basic net income per share was $0.45 for the first
nine months of 2003 based on the weighted average of 5,900,881 shares
outstanding. The diluted net income per share was $0.43 based on a
diluted weighted average of 6,133,212 shares outstanding. The basic
net income per share was $0.34 for the first nine months of 2002 based
on the 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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital was $14,050,000 at September 28, 2003 compared to
$10,172,000 at December 31, 2002. Accounts receivable increased
$905,000 as a result of higher levels of military sales in September
than December. Inventory levels increased $4,219,000 compared to
December 31, 2002 balances reflecting a build-up of components and sub-
assemblies for products to be shipped in the 4th quarter of 2003.
Accounts payable increased $1,270,000 reflecting an increase in
inventory purchases at the end of the 3rd quarter. Current maturities
of long-term debt decreased $606,000 reflecting the amortization of the
remaining $1 million due to the former lender.
Capital expenditures totaled $423,000 for the first nine months of
2003 compared to $954,000 in the first nine months of 2002. The
decrease in 2003 from 2002 is due to the purchase of tooling and test
equipment in 2002 in relation to the MSD contract. The Company expects
capital expenditures for the full year 2003 to be approximately
$500,000. Depreciation and amortization expense for the first nine
months of 2003 totaled $672,000 compared to $705,000 for the first nine
months of 2002. Depreciation and amortization expense for the
remainder of 2003 is expected to be approximately $225,000.
In January of 2003, the Company entered into a new credit
agreement 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 ending
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.
On October 21, 2003, the Company entered into an Agreement and
Plan of Merger with Vision Technologies Kinetics, Inc. ("VTK"). As a
result of the merger, the Company will be a wholly-owned subsidiary of
VTK. Completion of the merger is subject to a number of terms and
conditions, including the receipt of all required regulatory approvals
and approval by a majority of the stockholders of the Company at a
special meeting of the stockholders to be held in the future. Pursuant
to the terms of the Merger Agreement, upon the closing of the merger,
each holder of the Company's common stock will receive, in exchange for
each such share, $5.78, without interest thereon, and one contingent
value right ("CVR"). Each CVR represents the non-transferable right to
receive a pro rata share of 50% of the net proceeds, if any, from the
Company's lawsuit against DRS Technologies Inc. and other parties,
after adjustments for taxes. The Company will retain the remaining 50%
of the net proceeds from the lawsuit. In addition, $700,000 has been
reserved by VTK to fund certain costs and expenses associated with the
lawsuit.
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. The financial statements
referred to above reflect all adjustments required by Statement 144 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 net earnings by a maximum of approximately
$33,000 per year.
Item 4. Controls and Procedures
- --------------------------------
Evaluation of Disclosure Controls and Procedures
------------------------------------------------
As of the end of the period covered by this report on Form 10-Q,
the Company carried out an evaluation, under the supervision and with
the participation of the Company's management, including the Chief
Executive Officer, Mr. Thomas R. Dickinson, and the Chief Financial
Officer, Mr. Tom B. Dake, of the effectiveness of the Company's
disclosure controls and procedures as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e). Based upon that evaluation, Mr. Dickinson and Mr.
Dake have concluded that the Company's disclosure controls and
procedures are functioning effectively to provide reasonable assurance
that information the Company is required to disclose in the reports it
files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules
and forms of the Securities and Exchange Commission. These disclosure
controls and procedures include, without limitation, controls and
procedures designed to provide reasonable assurance that information
the Company is required to disclose in such reports is accumulated and
communicated to Company management, including the chief executive
officer and the chief financial officer, as appropriate to allow timely
decisions regarding required disclosure.
Change in Internal Controls
There have been no significant changes in the Company's internal
controls over financial reporting or in other factors that have
materially affected or is reasonable likely to materially affect
internal controls since the date of Mr. Dickinson's and Mr. Dake's most
recent reviews of the Company's internal control systems. The design
of any system of internal controls and procedures is based upon certain
assumptions about the likelihood of future events. There can be no
assurance that any design will succeed in achieving its stated goal
under all potential future conditions, regardless of how remote.
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 4 - Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on July
18, 2003 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 2004 Annual Meeting of Shareholders.
For Against Abstain
--------- ------- -------
William L. Dickinson 5,702,957 -0- 21,645
Henry Guy 5,670,257 -0- 54,345
Jerry O. Tuttle 5,702,957 -0- 21,645
Ronald V. Hite 5,702,957 -0- 21,645
David E. Marcus 5,702,957 -0- 21,645
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
--------
31.1 Certification of Chief Executive Officer, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer, pursuant
to Section 302 of the Sarbabes-Oxley Act of 2002
99.1 Certification of Principal Financial Officer,
pursuant of 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Principal Executive Officer,
pursuant of 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
-------------------
A Form 8-K was filed August 22, 2003 reporting under Item 12
the Registrant's press release announcing financial results for the
quarter ended June 29, 2003.
A Form 8-K was filed October 14, 2003 reporting under Item 5
the Registrant's press release announcing a non-binding agreement in
principle to be acquired.
A Form 8-K was filed October 24, 2003 reporting under Item 5
an Agreement and Plan of Merger with Vision Technologies Kinetics, Inc.
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 11, 2003