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 28, 1999 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 May 12, 1999: 5,871,523 shares of Common Stock,
$.01 par value.
<PAGE>
PART I - FINANCIAL INFORMATION
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
March 28, December 31,
1999 1998
ASSETS ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 249,000 $ 57,000
Accounts receivable 6,536,000 6,792,000
Inventories 18,905,000 17,867,000
Deferred income taxes 829,000 829,000
Other current assets 290,000 278,000
----------- -----------
Total current assets 26,809,000 25,823,000
----------- -----------
PROPERTY AND EQUIPMENT - at cost:
Machinery and equipment 7,710,000 7,689,000
Furniture and fixtures 1,574,000 1,594,000
Land, building and improvements 8,109,000 8,101,000
----------- -----------
Total property and equipment 17,393,000 17,384,000
Less accumulated depreciation 8,919,000 8,549,000
----------- -----------
Property and equipment - net 8,474,000 8,835,000
----------- -----------
DEFERRED INCOME TAXES 3,335,000 3,335,000
OTHER ASSETS 1,073,000 945,000
----------- -----------
TOTAL $39,691,000 $38,938,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 3,820,000 $ 4,462,000
Accrued expenses 1,077,000 1,012,000
Current maturities of long-term debt 319,000 310,000
----------- -----------
Total current liabilities 5,216,000 5,784,000
LONG-TERM DEBT 16,652,000 15,035,000
----------- -----------
Total liabilities 21,868,000 20,819,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value;
20,000,000 shares authorized;
6,811,112 shares outstanding at
March 28, 1999 and December 31,
1998 68,000 68,000
Capital in excess of par value 20,264,000 20,264,000
Retained earnings 11,737,000 12,033,000
----------- -----------
32,069,000 32,365,000
Less treasury stock at cost 14,246,000 14,246,000
----------- -----------
Total stockholders' equity 17,823,000 18,119,000
----------- -----------
TOTAL $39,691,000 $38,938,000
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
Thirteen Weeks Ended
------------------------------
<S> <C> <C>
March 28, March 29,
1999 1998
---------- ----------
NET SALES $7,381,000 $7,444,000
---------- ----------
COSTS AND EXPENSES:
Cost of sales 5,837,000 5,506,000
Selling, general and administrative 1,351,000 1,376,000
Engineering, research and development 181,000 467,000
---------- ----------
Total 7,369,000 7,349,000
---------- ----------
INCOME FROM OPERATIONS 12,000 95,000
INTEREST EXPENSE - net 306,000 166,000
---------- ----------
LOSS BEFORE INCOME TAXES $ (294,000) $ (71,000)
INCOME TAX BENEFIT - 26,000
---------- ----------
NET LOSS $ (294,000) $ (45,000)
========== ==========
BASIC AND DILUTED
NET LOSS PER SHARE $ (.05) $ (.01)
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 5,871,523 5,871,523
========== ==========
</TABLE>
<PAGE>
MILTOPE GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED MARCH 28, 1999 AND MARCH 29, 1998
(unaudited)
<TABLE>
March 28, March 29,
1999 1998
OPERATING ACTIVITIES: ----------- -----------
<S> <C> <C>
Net loss $ (294,000) $ (45,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 400,000 367,000
Provision for slow-moving and obsolete inventories 100,000 6,000
Provision for doubtful accounts receivable 3,000 5,000
Deferred income taxes - (26,000)
Loss on sale of fixed assets 3,000 -
Change in operating assets and liabilities:
Accountsreceivable 253,000 4,193,000
Inventories (1,138,000) (1,088,000)
Other current assets (12,000) (26,000)
Other assets (134,000) (52,000)
Accounts payable and accrued expenses (578,000) (1,083,000)
----------- -----------
Cash provided by (used in) operating activities (1,397,000) 2,251,000
----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment (36,000) (146,000)
----------- -----------
Cash used in investing activities (36,000) (146,000)
----------- -----------
FINANCING ACTIVITIES:
Proceeds (payments) from revolving credit loan - net 1,703,000 (2,363,000)
Payments of other long-term debt (78,000) (68,000)
----------- -----------
Cash provided by (used in) financing activities 1,625,000 (2,431,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH 192,000 (326,000)
CASH, BEGINNING OF PERIOD 57,000 443,000
----------- -----------
CASH, END OF PERIOD $ 249,000 $ 117,000
SUPPLEMENTAL DISCLOSURE: =========== ===========
Cash payments made for:
Income taxes $ - $ 67,000
=========== ===========
Interest $ 269,000 $ 163,000
=========== ===========
</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 March 28, 1999 and December 31, 1998
and the results of operations and cash flows for the thirteen weeks
ended March 28, 1999 and March 29, 1998.
The results for the thirteen weeks ended March 28, 1999 and March 29,
1998 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, 1998.
2. Inventories - Net
Inventories consist of the following:
<TABLE>
March 28, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Purchased parts and
subassemblies $12,281,000 $12,874,000
Work-in-process 6,624,000 4,993,000
----------- -----------
Total $18,905,000 $17,867,000
=========== ===========
</TABLE>
3. Income Taxes - A deferred tax asset of $108,000 related to
the net operating loss in the thirteen weeks ended March 28, 1999 has
been fully reserved with a valuation allowance as management estimates
that it is more likely than not, that the deferred tax asset will not
be realized in future periods. Additional deferred tax assets could be
recognized in future periods if the probability of realization
increases.
4. Segment Information - On December 31, 1998, the Company adopted
SFAS 131, Disclosure about Segments of an Enterprise and Related
Information. SFAS 131 established standards for reporting information
about segments in annual financial statements and requires selected
information about segments in interim financial reports issued to
stockholders. It also established standards for related disclosures
about products and services, and geographic areas. Segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision-maker in deciding how to allocate resources and in
assessing performance.
Under this standard, the Company's reportable segments are
organized around its two main products and services segments,
Military/Rugged and Commercial. Through its military/rugged segment,
the Company is engaged in the design, manufacture and testing of
computer and computer peripheral equipment for military and other
specialized applications requiring reliable operations in severe land,
sea and airborne environments. These products are generally sold by
the Company's business development group through the federal government
bid process. The Company's commercial segment designs, develops,
manufactures and markets commercial computer related products primarily
for transportation, telecommunications and in-field maintenance
markets. These products are sold through an established network of
marketing representatives and Company employed sales people to a broad
base of customers both international and domestic. The accounting
policies of the segments are the same as those described in the summary
of significant accounting policies. The Company's determination of
segment operating profit (loss) does not reflect other income (expense)
or income taxes.
<TABLE> General
March 29, 1998 Military/Rugged Commercial Eliminations Corporate Consolidated
-------------- --------------- ---------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Net sales from external customers $ 5,009,000 $2,435,000 $ - $ 7,444,000
============ ========== ============ ===========
Segment operating profit (loss) $ (82,000) $ 177,000 $ - $ 95,000
============ ========== ============ ===========
Identifiable assets $ 22,548,000 $8,459,000 $ - $3,883,000 $34,890,000
============ ========== ============ ========== ===========
Capital expenditures $ 98,000 $ 48,000 $ 146,000
============ ========== ===========
Depreciation and amortization $ 233,000 $ 134,000 $ 367,000
============ ========== ===========
</TABLE>
<TABLE>
General
March 28, 1999 Military/Rugged Commercial Eliminations Corporate Consolidated
-------------- --------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Net sales from external customers $ 3,718,000 $3,663,000 $ - $ 7,381,000
============ ========== ============ ===========
Segment operating profit (loss) $ (314,000) $ 326,000 $ - $ 12,000
============ ========== ============ ===========
Identifiable assets $ 25,200,000 $8,715,000 $ - $ 5,776,000 $39,691,000
============ ========== ============ =========== ===========
Capital expenditures $ 18,000 $ 18,000 $ 36,000
============ ========== ===========
Depreciation and amortization $ 256,000 $ 144,000 $ 400,000
============ ========== ===========
</TABLE>
<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 thirteen weeks ended
March 28, 1999, as compared to thirteen weeks ended March 29, 1998.
RESULTS OF OPERATIONS
- ---------------------
Thirteen weeks ended March 28, 1999 compared to thirteen weeks ended
March 29, 1998
- -----------------------------------------------------------------------
Net sales for the thirteen weeks ended March 28, 1999 (first
quarter of 1999) were $7,381,000 compared to net sales for the thirteen
weeks ended March 29, 1998 (first quarter of 1998) of $7,444,000. The
decrease in sales was primarily the result of temporary delays in
contract manufacturing shipments due to customer inspection of shipped
products and subsequent delays in the release of additional shipments.
The gross margin percentage for the first quarter of 1999 was
20.9% as compared with 26.0% for the same period in 1998. The decrease
is attributable to lower sales volume and a less favorable product mix
in the first quarter of 1999.
Selling, general and administrative expenses for the first quarter
of 1999 decreased 1.8% from the first quarter of 1998, to $1,351,000.
These expenses as a percent of sales were 18.3% in the first quarter of
1999 compared to 18.5% for the similar period in 1998. The decrease
as a percent of sales was primarily attributable to lower than
anticipated business development costs in the first quarter of 1999.
Company sponsored engineering, research and development expenses
for the first quarter of 1999 decreased 61.2% from the first quarter of
1998, to $181,000. These expenses as a percentage of sales were 2.5%
in the first quarter of 1999 compared to 6.3% for the similar period in
1998. The decrease is attributable to the timing of certain research
and development project expenses that will be realized in the third and
fourth quarters of 1999.
Interest expense, net of interest income, was $306,000 in the
first quarter of 1999 compared to $166,000 for the similar period in
1998. The increase reflects increased debt compared to the prior year.
Net loss for the first quarter of 1999 increased from the first
quarter of 1998 to a loss of $294,000. The basic and diluted loss per
share was $0.05 for the first quarter of 1999 as compared to the basic
and diluted loss per share of $0.01 for the similar period in 1998
based on a weighted average of 5,871,523 shares of the Company's common
stock outstanding for the first quarter of 1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital approximated $21,593,000 at March 28, 1999
compared to $20,039,000 at December 31, 1998. Accounts receivable
decreased approximately $256,000 as a result of decreased sales.
Inventories increased approximately $1,038,000 primarily as a result of
the SPORT contract. Accounts payable decreased approximately $642,000
reflecting normal payment terms and the lower sales volume. Accrued
expenses increased approximately $65,000 as a result of increased
employee related accrued liabilities.
A $15,000,000 revolving credit agreement, at the Company's option,
bears interest at the bank's reference rate (8.0% and 7.75% at March
28, 1999 and December 31, 1998, respectively), or at a rate equaling
the London Inter Bank Offered Rate (5.22% and 5.31% at March 28, 1999
and December 31, 1998, 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, if not renewed, the outstanding amount would be converted
into a term loan payable in twelve equal quarterly installments
beginning August 31, 2000. The bank may extend the revolving credit
agreement for successive one year periods. The Company's accounts
receivable, contract rights and inventories are pledged as collateral
to the agreement.
YEAR 2000 ISSUES
- ----------------
Year 2000 Compliance
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 that identifies the
programs and infrastructure that could be affected by Year 2000 issues
and has implemented a plan to resolve those problems identified, on a
timely basis. The plan requires a considerable amount of internal
resources devoted by the Company to resolve the pertinent issues.
Additionally, the Company may have to recruit and retain external
resources to assist with the actual implementation, testing and
monitoring of the plan. As of March 28, 1999, the Company does not
expect the ongoing resource cost of the Year 2000 project to have a
material adverse effect on the Company's financial condition and
results of operations for the fiscal years ending December 31, 1999 and
beyond. The Company currently estimates the total cost of its Year
2000 project will not exceed $250,000 over the life of the project.
Costs associated with employees working on the Year 2000 project will
be expensed as incurred. Hardware and software purchases related to
this project will be capitalized where appropriate. The Company does
not anticipate additional 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 maintains a material business relationship.
Management of the Company believes it has an effective program in
place that will resolve the Year 2000 issues affecting it and that this
program is progressing normally and will be completed on a timely
basis. Despite management's beliefs and the Company's progress made on
the Year 2000 issues as of March 28, 1999, 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 from those customers. As part of its Year 2000 project, the
Company will solicit written assurances from its customers and
suppliers that each will be prepared for the Year 2000 issue. The
Company will perform periodic audits and tests of third party systems
throughout the life of the project for Year 2000 compliance. However,
there can be no certainty of total compliance from any or all of the
third parties the Company deals with on a daily basis.
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 monitored continuously 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
Item 7a - Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss arising from adverse changes in
market prices and interest rates. The Company is exposed to interest
risk inherent in its financial instruments. The Company is not
currently subject to foreign currency or commodity price risk. The
Company manages its exposure to these market risks through its regular
operating and financing activities.
The Company has a revolving credit loan and an Industrial
Development Authority Bond Issue that are exposed to changes in
interest rates during the course of their maturity. Both debt
instruments bear interest at current market rates and thus approximate
fair market value. The Company manages its interest rate risk by (a)
periodically retiring and issuing debt and (b) periodically fixing the
interest rate on the London Inter Bank Offered Rate (LIBOR) portion of
its revolving credit loan for 30 to 60 days in order to minimize
interest rate swings. A 10% increase in interest rates would affect
the Company's variable debt obligations and could potentially reduce
future earnings by a maximum of approximately $114,000.
<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/ Thomas R. Dickinson
-------------------------------------
Thomas R. Dickinson,
President and Chief Executive Officer
(Principle Executive Officer)
Dated: May 12, 1999
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-28-1999
<CASH> 249,000
<SECURITIES> 0
<RECEIVABLES> 6,536,000
<ALLOWANCES> 0
<INVENTORY> 18,905,000
<CURRENT-ASSETS> 26,809,000
<PP&E> 17,393,000
<DEPRECIATION> 8,919,000
<TOTAL-ASSETS> 39,691,000
<CURRENT-LIABILITIES> 5,216,000
<BONDS> 0
0
0
<COMMON> 68,000
<OTHER-SE> 17,755,000
<TOTAL-LIABILITY-AND-EQUITY> 39,691,000
<SALES> 7,381,000
<TOTAL-REVENUES> 7,381,000
<CGS> 5,837,000
<TOTAL-COSTS> 7,369,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 306,000
<INCOME-PRETAX> (294,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (294,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (294,000)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
