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 27, 1998 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.)
500 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 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 November 10, 1998: 5,871,523 shares of Common
Stock, $.01 par value.
<PAGE)
<TABLE>
PART I - FINANCIAL INFORMATION
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
September 27, December 31,
1998 1997
-------------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 136,000 $ 443,000
Accounts receivable 5,293,000 9,977,000
Inventories 17,144,000 14,703,000
Deferred income taxes 345,000 345,000
Other current assets 221,000 242,000
----------- -----------
Total current assets 23,139,000 25,710,000
PROPERTY AND EQUIPMENT - at cost: ----------- -----------
Machinery and equipment 7,387,000 7,177,000
Furniture and fixtures 1,582,000 1,561,000
Land, building and improvements 8,101,000 8,021,000
----------- -----------
Total property and equipment 17,070,000 16,759,000
Less accumulated depreciation 8,242,000 7,101,000
----------- -----------
Property and equipment - net 8,828,000 9,658,000
----------- -----------
DEFERRED INCOME TAXES 3,516,000 2,240,000
OTHER ASSETS 930,000 841,000
----------- -----------
TOTAL $36,413,000 $38,449,000
=========== ===========
LIABILITIES AND STOCKHOLDERS'EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,593,000 $ 4,437,000
Accrued expenses 774,000 1,351,000
Current maturities of long-term debt 300,000 270,000
----------- -----------
Total current liabilities 3,667,000 6,058,000
LONG-TERM DEBT 13,805,000 11,251,000
----------- -----------
Total liabilities 17,472,000 17,309,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value;
20,000,000 shares authorized;
6,811,112 shares outstanding at
September 27, 1998 and
December 31, 1997 68,000 68,000
Capital in excess of par value 20,264,000 20,264,000
Retained earnings 12,855,000 15,054,000
----------- -----------
33,187,000 35,386,000
Less treasury stock at cost 14,246,000 14,246,000
----------- -----------
Total stockholders' equity 18,941,000 21,140,000
----------- -----------
TOTAL $36,413,000 $38,449,000
=========== ===========
See Notes To Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Thirty-Nine Weeks Ended
-------------------------------
September 27, September 28,
1998 1997
------------- -------------
<S> <C> <C>
NET SALES $ 18,792,000 $ 29,360,000
------------ ------------
COSTS AND EXPENSES:
Cost of sales 15,072,000 22,354,000
Selling, general and administrative 5,036,000 4,562,000
Engineering, research and development 1,578,000 944,000
------------ ------------
Total 21,686,000 27,860,000
------------ ------------
INCOME (LOSS) FROM OPERATIONS (2,894,000) 1,500,000
INTEREST EXPENSE - net 581,000 578,000
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (3,475,000) 922,000
INCOME TAX BENEFIT 1,276,000 600,000
------------ ------------
NET INCOME (LOSS) $ (2,199,000) $ 1,522,000
============ ============
BASIC AND DILUTED
NET INCOME (LOSS) PER SHARE $ (.37) $ .26
WEIGHTED AVERAGE SHARES ============ ============
OUTSTANDING 5,872,000 5,872,000
============ ============
</TABLE>
See Notes To Condensed Consolidated Financial Statements
<PAGE>
<TABLE>
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Thirteen Weeks Ended
--------------------------------
September 27, September 28,
1998 1997
------------- -------------
<S> <C> <C>
NET SALES $ 5,409,000 $ 8,326,000
------------ ------------
COSTS AND EXPENSES:
Cost of sales 4,684,000 6,161,000
Selling, general and administrative 1,489,000 1,354,000
Engineering, research and development 434,000 516,000
------------ ------------
Total 6,607,000 8,031,000
------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,198,000) 295,000
INTEREST EXPENSE - net 235,000 190,000
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,433,000) 105,000
INCOME TAX BENEFIT 530,000 600,000
------------ ------------
NET INCOME (LOSS) $ (903,000) $ 705,000
============ ============
BASIC AND DILUTED
NET INCOME (LOSS) PER SHARE $ (.15) $ .12
============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 5,872,000 5,872,000
============ ============
</TABLE>
See Notes To Condensed Consolidated Financial Statements
<PAGE>
<TABLE>
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997
(unaudited)
September 27, September 28,
1998 1997
OPERATING ACTIVITIES: ------------- -------------
<S> <C> <C>
Net income (loss) $ (2,199,000) $ 1,522,000
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,194,000 1,212,000
Provision for slow-moving and obsolete inventories 656,000 485,000
Provision for doubtful accounts receivable 5,000 85,000
Gain on sale of investment available for sale - (313,000)
Deferred income taxes (1,276,000) -
Write-down of fixed assets (36,000) -
Change in operating assets and liabilities:
Accounts receivable 4,678,000 2,585,000
Inventories (3,097,000) (1,595,000)
Other current assets 21,000 (416,000)
Other assets (106,000) (310,000)
Accounts payable and accrued expenses (2,421,000) (1,970,000)
------------ ------------
Cash provided by (used in) operating activities (2,581,000) 1,285,000
INVESTING ACTIVITIES: ------------ ------------
Purchase of property and equipment (310,000) (1,353,000)
Proceeds from sale of investment available for sale - 410,000
------------ ------------
Cash used in investing activities (310,000) (943,000)
FINANCING ACTIVITIES: ------------ ------------
Proceeds (payments) from revolving credit loan - net 2,786,000 (201,000)
Payments of other long-term debt (202,000) (180,000)
Exercise of stock options - 11,000
------------ ------------
Cash provided by (used in) financing activities 2,584,000 (370,000)
------------ ------------
NET DECREASE IN CASH (307,000) (28,000)
CASH, BEGINNING OF PERIOD 443,000 128,000
----------- ------------
CASH, END OF PERIOD $ 136,000 $ 100,000
=========== ============
SUPPLEMENTAL DISCLOSURE:
Cash payments made for:
Income taxes $ 67,000 $ 11,000
=========== ============
Interest $ 544,000 $ 608,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING =========== ============
AND FINANCING ACTIVITIES
Change in unrealized appreciation on investment available
for sale $ - $ 489,000
=========== ============
</TABLE>
See Notes To Condensed Consolidated Financial Statements
<PAGE>
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 27, 1998 and December 31,
1997 and the results of operations and cash flows for the thirty-nine
and thirteen weeks ended September 27, 1998 and September 28, 1997.
The results for the thirty-nine weeks ended September 27, 1998 and
September 28, 1997 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, 1997.
Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 130 Reporting
Comprehensive Income. The statement requires the addition of
comprehensive income and its components in the Company's annual
financial statements. Other comprehensive income (loss) includes
unrealized investment gains and losses, which are not included in
income under current accounting principles. Total comprehensive income
(loss) for the quarters ended September 27, 1998 and September 28, 1997
were:
<TABLE>
September 27, 1998 September 28, 1997
------------------ ------------------
<S> <C> <C>
Net Income (loss) $ (2,199,000) $ 1,522,000
Other Comprehensive Income - 308,000
------------ -----------
Total Comprehensive Income (loss) $ (2,199,000) $ 1,830,000
============ ===========
</TABLE>
2. Inventories - Net
Inventories consist of the following:
<TABLE>
September 27, 1998 December 31, 1997
------------------ -----------------
<C> <C> <C>
Purchased parts and
Subassemblies $ 11,520,000 $ 10,019,000
Work-in-process 5,624,000 4,684,000
------------ ------------
Total $ 17,144,000 $ 14,703,000
============ ============
</TABLE>
3. Income Taxes - The income tax benefit in 1998 is calculated
using the estimated year end effective tax rate for 1998. The income
tax provision in the third quarter of 1997 was completely offset by the
utilization of the Company's net operating loss carryforward.
<PAGE>
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.
GENERAL
- -------
The following discussion and analysis presents certain factors
affecting the Company's results of operations for the thirteen weeks
and thirty-nine weeks ended September 27, 1998, as compared to the
thirteen weeks and thirty-nine weeks ended September 28, 1997.
RESULTS OF OPERATIONS
- ---------------------
Thirteen weeks ended September 27, 1998 compared to thirteen weeks
ended September 28, 1997
- ------------------------------------------------------------------------
Net sales for the thirteen weeks ended September 27, 1998 (third
quarter of 1998) were $5,409,000 compared to net sales for the thirteen
weeks ended September 28, 1997 (third quarter of 1997) of $8,326,000.
The decrease in sales was primarily attributable to a decline in
military sector sales and a decline in Internet terminal sales. The
Company recently received follow-on delivery orders from the US Army
valued at $2.0 million for the SPORT program. The Company's management
anticipates delivery of these orders in fourth quarter 1998 and receipt
of additional orders for this program during the remainder of the
contract period through year 2001.
The gross margin percentage for the third quarter of 1998 was
13.4% as compared with 26.0% for the same period in 1997. The decrease
is attributable to lower sales volume and a less favorable product mix.
Selling, general and administrative expenses for the third quarter
of 1998 increased 10.0% from the third quarter of 1997, to $1,489,000.
These expenses as a percent of sales were 27.5% in the third quarter of
1998 compared to 16.3% for the similar period in 1997. The increase as
a percent of sales was attributable to lower sales volume and increased
expenses related to employee severance and restructure costs incurred
as a result of streamlining actions taken to improve the Company's long
term competitiveness.
Company sponsored engineering, research and development expenses
for the third quarter of 1998 decreased 15.9% from the third quarter of
1997, to $434,000. These expenses as a percentage of sales were 8.0%
in the third quarter of 1998 compared to 6.2% for the similar period in
1997. The increase as a percent of sales was attributable to lower
sales volume.
Interest expense, net of interest income, was $235,000 in the
third quarter of 1998 compared to $190,000 for the similar period in
1997. The increase reflects increased debt compared to the prior year.
Net loss for the third quarter of 1998 was $903,000 compared to
net income of $705,000 in the third quarter of 1997. The basic and
diluted net loss per share was $0.15 for the third quarter of 1998
compared to the basic and diluted net income per share of $0.12 for the
similar period in 1997 based on a weighted average of 5,872,000 shares
of the Company's common stock outstanding for the third quarter of 1998
and 1997. The decrease in earnings was primarily attributable to
increased expenses and decreased sales.
<PAGE>
Thirty-nine weeks ended September 27, 1998 compared to thirty-nine
weeks ended September 28, 1997
- -----------------------------------------------------------------------
Net sales for the thirty-nine weeks ended September 27, 1998
(first nine months of 1998) were $18,792,000 compared to net sales for
the thirty-nine weeks ended September 28, 1997 (first nine months of
1997) of $29,360,000. The decrease in sales was primarily attributable
to a decline in military sector sales and a decline in Internet
terminal sales. The Company recently received follow-on delivery orders
from the US Army valued at $2.0 million for the SPORT program. The
Company's management anticipates delivery of these orders in fourth
quarter 1998 and receipt of additional orders for this program during
the remainder of the contract period through year 2001.
The gross margin percentage for the first nine months of 1998 was
19.8% as compared with 23.9% for the same period in 1997. The decrease
is attributable to lower sales volume and a less favorable product mix.
Selling, general and administrative expenses for the first nine
months of 1998 increased 10.4% from the first nine months of 1997, to
$5,036,000. These expenses as a percent of sales were 26.8% in the
first nine months of 1998 compared to 15.5% for the similar period in
1997. The increase as a percent of sales was attributable to lower
sales volume and increased expenses related to employee severance and
restructure costs incurred as a result of streamlining actions taken to
improve the Company's long term competitiveness.
Company sponsored engineering, research and development expenses
for the first nine months of 1998 increased 67.2% from the first nine
months of 1997 to $1,578,000. These expenses as a percentage of sales
were 8.4% in the first nine months of 1998 compared to 3.2% for the
similar period in 1997. The increase as a percent of sales is
primarily attributable to lower sales volume, increased expenses
related to employee severance and restructure costs and increased
amounts of research and development for in-flight entertainment and
cabin workstation products.
Interest expense, net of interest income, was $581,000 for the
first nine months of 1998 compared to $578,000 for the similar period
in 1997. The increase reflects increased debt compared to the same
period of the prior year.
Net loss for the first nine months of 1998 was $2,199,000 compared
to net income of $1,522,000 in the first nine months of 1997. The
basic and diluted net loss per share was $0.37 for the first nine
months of 1998 as compared to the basic and diluted net income per
share of $0.26 for the similar period in 1997 based on a weighted
average of 5,872,000 shares of the Company's common stock outstanding
for the first nine months of 1998 and 1997. The decrease in earnings
was primarily attributable to increased expenses and decreased sales.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital approximated $19,472,000 at September 27, 1998
compared to $19,652,000 at December 31, 1997. Accounts receivable
decreased approximately $4,684,000 as a result of decreased sales.
Inventories increased approximately $2,441,000 primarily as a result of
the SPORT contract. Accounts payable decreased approximately
$1,844,000 reflecting normal payment terms and the lower sales volume.
Accrued expenses decreased approximately $577,000 as a result of
decreased employee related accrued liabilities.
A $15 million revolving credit agreement, at the Company's option,
bears interest at the bank's reference rate (8.50% at September 27,
1998 and December 31, 1997), or at a rate equaling the London Inter
Bank Offered Rate (5.39% and 5.81% at September 27, 1998 and December
31, 1997, respectively) plus 2.0%. If for any day the total amount
advanced, regardless of the interest rate option, exceeds $10 million,
an additional .25% is added to the interest rate. The revolving credit
facility is scheduled to mature on May 31, 1999, at which time the
outstanding amount would be converted into a term loan payable in
twelve equal quarterly installments. However, at the request of the
Company, the bank may extend the revolving credit agreement for
successive one-year periods based upon a review of the previous year-
end audited consolidated financial statements. The Company's accounts
receivable, contract rights and inventories are pledged as collateral
to the agreement.
YEAR 2000 ISSUES
- ----------------
Year 2000 Issue
As has been widely publicized, many computer and digital storage
systems express dates using only the last two digits of the year and
will thus require remediation or replacement to accommodate the year
2000 and beyond in order to avoid malfunction and resulting widespread
business disruption.
The Company has underway a Year 2000 project to identify the programs
and infrastructure that could be affected by Year 2000 issues and is
implementing a plan to resolve those problems identified, on a timely
basis. The plan will require the Company to devote a considerable
amount of internal resources and hire external resources to assist with
the implementation and monitoring of the plan. The Company currently
estimates that the total cost of its Year 2000 project will not exceed
$225,000 over the life of the project and should not cause a materially
adverse effect on the Company's financial condition and results of
operations. The time spent by employees of the Company on the Year 2000
project has been and will be expensed as incurred with hardware
replacements being capitalized where appropriate. The Company does not
anticipate any other significant costs as a result of the Year 2000
issue.
The Year 2000 project includes all management information systems which
support ongoing business functions, other systems with computer based
controls such as telecommunications, building environmental and
security management and all suppliers and customers with which the
Company has a material business relationship .
Management of the Company believes it has an effective program in place
to resolve the Year 2000 Issue on a timely basis. However, it is not
possible to anticipate all possible future outcomes, especially when
third parties are involved. In the event certain third parties are not
able to resolve their own Year 2000 issues, there could be
circumstances in which the Company would be unable to receive customer
orders, manufacture, test and ship products, invoice customers or
collect payments. As part of its Year 2000 project, the Company will
solicit written assurances from its customers and suppliers that they
will be prepared for the Year 2000 issue. Additionally, the Company
will audit and test third party systems for Year 2000 compliance on a
periodic basis throughout the project life. However, there can be no
certainty of total compliance from any or all of the third parties the
Company deals with.
The Company has not yet seen the need for any widespread contingency
plans to be developed for the Year 2000 issue, but this will be
continuously monitored as the Company gains more information about the
compliance programs of its suppliers and customers. Additionally, some
risks of the Year 2000 issue are beyond the control of the Company and
its suppliers and customers. The Company does not believe it can
develop a contingency plan that will totally shield the Company from an
economic ripple effect throughout the entire economy should others fail
to resolve their own Year 2000 problems.
The costs of the Company's Year 2000 project and the timeliness of the
completion of the project are based on management's best estimates, and
reflect assumptions regarding the availability and cost of personnel
trained in this area, the compliance plans of third parties and other
uncertainties. However, due to the complexity and pervasiveness of the
Year 2000 issue and in particular the uncertainty of third party
compliance programs, there can be no assurances given that these
estimates will be achieved, and actual results could differ materially
from those anticipated.
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings
The Company, from time to time, is a party to pending or
threatened legal proceedings and arbitrations. Based upon
information presently available, and in light of legal and other
defenses available to the Company, management does not consider
liability from any threatened or pending litigation to be
material.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
--------
27. Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None
<PAGE>
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/ James E. Matthews
------------------------------------
James E. Matthews,
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS
AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-27-1998
<CASH> 136,000
<SECURITIES> 0
<RECEIVABLES> 5,293,000
<ALLOWANCES> 0
<INVENTORY> 17,144,000
<CURRENT-ASSETS> 23,139,000
<PP&E> 17,070,000
<DEPRECIATION> 8,242,000
<TOTAL-ASSETS> 36,413,000
<CURRENT-LIABILITIES> 3,667,000
<BONDS> 0
0
0
<COMMON> 68,000
<OTHER-SE> 18,873,000
<TOTAL-LIABILITY-AND-EQUITY> 36,413,000
<SALES> 18,792,000
<TOTAL-REVENUES> 18,792,000
<CGS> 15,072,000
<TOTAL-COSTS> 21,686,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 581,000
<INCOME-PRETAX> (3,475,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,199,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,199,000)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
