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FORM 10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission File Number 0-13433
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MILTOPE GROUP INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 11-2693062
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
500 Richardson Road South, Hope Hull, Alabama 36043
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (334) 284-8665
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, par value $.01 each
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days . Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant
held by non-affiliates (which excludes voting shares held by officers
and directors of the registrant) was $3,173,731 as of February 18,
2000.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock: Common Shares with a par value
of $.01 each: 5,871,523 as of February 18, 2000.
Documents Incorporated by Reference:
The definitive Proxy Statement for the Annual Meeting of Stockholders
to be held April 20, 2000, to be filed with the Commission not later
than 120 days after the close of the Registrant's fiscal year, has been
incorporated by reference for Part III, Items 10, 11, 12 and 13, to
this annual report on Form 10-K.
ITEM 1. BUSINESS
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General
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Miltope Group Inc. (the "Company"), a Delaware corporation
incorporated in March 1984, is the parent company of Miltope
Corporation, an Alabama corporation ("Miltope"), and Miltope Business
Products, Inc., a New York corporation ("MBP"). Miltope was originally
incorporated as a New York corporation in 1975 to acquire the assets
and business of the Military Equipment Division of Potter Instrument
Company, Inc. and until June 1984 was a wholly owned subsidiary of
Stonebrook Group Inc. (formerly Stenbeck Reassurance Co. Inc.) ("SGI").
In June 1984, all of the outstanding stock of the Company was issued to
SGI in exchange for all of the outstanding stock of Miltope. SGI is a
privately held corporation which, since 1975, has supported the
formation and funding of companies engaged in the development and
manufacture of electronic hardware for defense and communications
applications and in communications services. In January 1985,
shareholders of the Company (including SGI) sold 700,000 shares of the
Company's Common Stock in an initial public offering. In November
1985, the Company sold an additional 1,000,000 shares of its Common
Stock to the public. As of December 30, 1994, Miltope merged with and
into a newly formed Alabama corporation, which succeeded to all of the
New York corporation's assets and liabilities. On January 1, 1995,
XSource Corporation (formerly Innova International Corporation), a
Delaware corporation ("XSource"), acquired 62.8% of the outstanding
shares of Common Stock of the Company pursuant to certain share
exchange transactions with SGI, which at such time was a holder of
55.6% of the outstanding shares of common stock of the Company, and
Stuvik AB, a Swedish corporation and, at such time, a holder of
approximately 7.2% of the outstanding shares of Company common stock.
Prior to June of 1999, XSource Corporation was a subsidiary of Great
Universal Incorporated, a Delaware corporation and a wholly-owned
subsidiary of MIC-USA Inc., ("MIC-USA"), a Delaware corporation and a
wholly-owned subsidiary of Millicom International Cellular S.A. ("MIC").
In connection with the June 1999 reorganization, the Company became a
subsidiary of Great Universal Incorporated, which became a wholly-owned
subsidiary of Great Universal LLC, a Delaware limited liability company
("GU-LLC"), whose sole member from the date of reorganization until
December 31, 1999 was MIC-USA. On December 31, 1999 MIC-USA formed the
1999 Great Universal LLC Trust (the "Trust") and assigned all
ownership interest of GU-LLC to the Trust. GU-LLC provides, through
its operating subsidiaries, integrated network products and services.
GU-LLC is engaged in the teleservices, television and media and
specialized electronics industries.
Miltope Corporation designs, develops, and manufacturers computers
and computer peripheral equipment for military, industrial and
commercial applications where reliable operation of the equipment in
challenging environments is imperative. The systems provided are
qualified for use in airborne, shipboard, and ground based
applications. Miltope's product lines include a broad range of
computers, computer workstations, servers, printers, disk cartridges,
and mass storage systems. Miltope continues to increase its presence in
the military arena including United States Air Force avionics and
ground based systems as well as United States Army system diagnostics.
Miltope's equipment that is designed and qualified for use as part of
in-flight entertainment, cabin management, and communication systems is
certified for use aboard virtually all commercial and business jet
platforms.
In September 1994, the Company relocated its headquarters from
Melville, New York to Montgomery, Alabama.
On January 12, 1995, the Company completed a $6,100,000 industrial
revenue bond offering by the Alabama State Industrial Development
Authority ("SIDA"), the proceeds of which were used to improve, equip
and furnish the new Montgomery facility and to pay the $3,375,000
principal amount of bank indebtedness that was used in part in the
acquisition of such facility.
Segment Information
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The Company's business is divided into two industry segments,
consisting of the manufacture of militarized and rugged equipment
primarily for military applications conducted by the "Military/Rugged"
segment, and the manufacture and distribution of commercial products
conducted by the "Commercial" segment (formerly MBP). Financial
information regarding the Company's industry segments is included in
Note 10 to the Notes to Consolidated Financial Statements located in
Item 8 of this Form 10-K.
Description of Business
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Military/Rugged - General
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The military/rugged segment is engaged in the design, development,
manufacture and testing of computer and computer peripheral equipment
for military, rugged and other specialized applications requiring
reliable operations in severe land, sea and airborne environments for
military customers. Military/rugged product lines include a broad
range of computers, computer workstations, servers, printers, disk
cartridges, and mass storage. In 1988, the Company introduced a
complete line of rugged Hewlett Packard Company computers and related
peripherals specifically designed for use in the United States Army's
Tactical Command and Control System/Common Hardware Software Program
("ATCCS/CHS") under a contract awarded to the Company in August 1988,
as well as to other customers for related applications. Miltope's
focus on the military markets is on rugged and militarized versions of
computing systems used in ensuring that tactical mission requirements
are met. Expert engineering skills and techniques are utilized to
augment the use of commercial off the shelf ("COTS") modules to meet
extended temperature, shock, vibration, altitude, and humidity
conditions that are encountered during military missions.
During 1995, the Company introduced a new family of rugged
computer products consisting of hand held Intel based computers and
related peripherals. These new products are re-configurable and
scaleable for specific applications and employ COTS technology. The
hand held Intel based computers are being used for the United States
Army's Soldiers' Portable On-system Repair Tools ("SPORT") under an
ongoing contract awarded to the Company in June 1996, as well as by
other customers for related applications. Under this contract, Miltope
is providing a rugged handheld computing and diagnostic system used on
every US Army weapon system such as the Abrams Main Battle Tank, the
Bradley Fighting Vehicle, and the Apache Longbow attack helicopter.
Several long-term contracts are in place with the United States
Government supporting the Department of Defense ("DOD") digitization
and communication plan. The United States Air Force procures a
militarized portable computer and printer suite used for processing and
recording data collected through the Military Satellite and
Communications ("MILSATCOM") equipment. Both the SPORT and MILSATCOM
equipment have been continually improved to include leading edge
technology through product enhancements and technical refreshment.
Substantially all of the military/rugged segment sales consist
of militarized and rugged products. Militarized equipment is designed
and built, with respect to each component and the whole, to conform to
stringent United States Department of Defense specifications developed
for severe land, sea and airborne operating environments. These
specifications define equipment operating parameters including
atmosphere, temperature and humidity conditions, permitted levels of
shock and vibration, susceptibility to electro-magnetic interference
("EMI"), EMI emission levels, and detection and hardening for nuclear
survivability. Rugged equipment is designed and manufactured to less
demanding specifications and may include commercially available devices
which are suitably modified for these applications.
Production of equipment conforming to these DOD specifications has
required the development over the years by the Company of proprietary
electronic and electro-mechanical designs and engineering techniques
and specialized manufacturing and testing methods. By these means, the
Company has developed a broad range of proprietary components that meet
these specifications and are otherwise unavailable in the commercial
market. To support its' engineering, manufacturing and testing
activities, the Company has extensive manufacturing equipment, clean
rooms and reliability and environmental testing facilities as well as a
multi-function computer aided design ("CAD") system and an EMI test
lab.
Miltope's latest product design is a Militarized Mass Storage
system providing 144 GigaBytes of memory in a tactical, airborne,
compact, military enclosure. This system's interface is based on high
throughput fibre channel technology typically found on the most complex
computing systems. This equipment is utilized to record mission data on
United States Air Force reconnaissance aircraft.
Military/rugged products are sold for use in a broad range of
military programs for the United States Air Force, Army, Navy and
Marine Corps, for NATO, for the Australian, British, Canadian, French,
German, Israeli, Italian, Spanish and Norwegian armed forces and for
the armed forces of other countries. Miltope's militarized and rugged
computers and peripheral products are compatible with most standard
military computers and are sold to the DOD and many prime DOD systems
contractors and integrators, including Bath Iron Works, Boeing
Aerospace, EDS, Raytheon E-Systems Inc., Northrop Grumman Corporation,
GTE Corp., General Dynamics, Hughes Defense Communications, Lockheed
Martin, Marconi Radar Control Systems Limited, McDonnell Douglas
Corp., Motorola Inc., Teledyne Controls, CAE Inc., and ITT Defense
Systems.
Miltope believes that it has captured a major portion of the
market for militarized printers and disk memory products. In addition,
Miltope is recognized as a leading supplier of rugged computers and
related equipment. A key element of Miltope's strategy has been to
develop and deliver a broad range of high reliability peripheral
components and systems on a cost effective and timely basis. The
breadth of Miltope's product offerings enables system integrators to
avoid the risks normally encountered when procuring peripherals from
multiple suppliers and to also achieve significant price advantages.
Miltope's ability to meet the diverse requirements of its customers has
resulted in substantial recurring business. Also, as defense budgets
have been reduced, an emphasis on commercially adaptable electronics
and the requirement for smaller, less expensive and more portable
systems has occurred. Miltope believes its new
product family of rugged, re-configurable portable and handheld
computing devices will serve this growing market niche well as
evidenced by the DOD's award to Miltope of the SPORT Program in June
1996, the award of the Hanscom Air Force Base MILSATCOM program in
November 1998 and the selection in November 1998 by IV Phoenix Group,
Inc. to manufacture the Condor/Applique~ rugged computer for initial
test trials.
In June 1996, Miltope was awarded a five year DOD contract for
Soldiers' Portable On-system Repair Tools (SPORT). SPORT will enhance
the U.S. Army's capability to diagnose and repair weapon systems and
electronically display technical manuals. Production deliveries under
this contract began in September 1997. The contract has an estimated
value of approximately $81,000,000 over a five year period. There can
be no assurances this estimate of purchase requirements will be
achieved. As of February 18, 2000, Miltope has been issued firm orders
valued at approximately $41,000,000 under this contract. In addition,
the Company has received orders for SPORT equipment from other defense
contractors.
In November 1998, the Company was selected to deliver its TIC-2000
computer and other peripherals to the Electronic Systems Center at
Hanscom Air Force Base. The TIC-2000 is a newly developed rugged,
portable Intel based workstation that will be integrated into the
United States Air Force's Military Satellite Communication network.
The estimated value of the contract is $3,000,000 over a two year
period. There can be no assurances this estimate of purchase
requirements will be achieved. As of February 18, 2000, Miltope has
received firm orders of approximately $2,500,000.
In November 1998, the Company was selected by IV Phoenix Group
Inc. to manufacture the Condor APPLIQUE' rugged computer for TRW. This
computer will be used in the United States Army's Force XXI Battle
Command, Brigade and Below Program. This program will be the principal
digital command and control system for the Army at the brigade level
and below and will provide enhanced situational awareness across the
battle space. The estimated value of the contract is $2,800,000 over a
two year period. As of February 18, 2000, Miltope has received firm
orders of approximately $2,800,000.
In August 1999, the Company was selected by the United States
Army's Test Measurement and Diagnostic Equipment Program Office to
perform the integration of the Internal Combustion Engine ("ICE")
hardware and software with SPORT. Miltope currently serves as the
prime contractor for the SPORT computer. This integration program will
give the United States Army the ability to perform automatic test,
diagnostics and maintenanceon diesel engines on all wheeled and tracked
vehicle platforms. This contract is a yearly award over an estimated
period of three years. Were the Company to be selected for all three
years of the contract, the estimated value of this contract would be
$12,000,000 over that period. There can be no assurances this
estimate of purchase requirements will be achieved nor that the Company
will be selected for any follow on delivery orders. As of
February 18, 2000, Miltope has received firm orders of approximately
$4,100,000.
In October 1999, the Company was selected by the Federal Aviation
Administration ("FAA"), as a supplier of in-flight workstations to be
utilized in a variety of in-flight and ground based applications. The
estimated value of this contract is $800,000 over a two year period.
There can be no assurances that these levels of estimated purchase
requirements will be achieved. As of February 18, 2000, Miltope has
received firm orders of approximately $400,000.
In December 1999, the Company was selected by Raytheon Optical
Systems to supply several 144 Gigabyte Mass Storage Units with state of
the art Fiber Channel interface. These systems will be used in
reconnaissance systems aboard aircraft of the United States Air Force.
The estimated value of the contract is in excess of $1,500,000 over a
three year period. There can be no assurances that these levels of
estimated purchase requirements will be achieved. As of February 18,
2000, the Company has received firm orders of approximately $600,000.
Commercial - General
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The commercial segment develops, manufactures and markets
commercial products primarily for transportation, telecommunications
and in-field maintenance markets. Its products are airborne printers,
airline ticket and boarding pass printers, rugged public access
Internet terminals, mass storage devices, and derivatives of rugged
hand held Intel based computers and portable RISC workstations
originally developed for military applications. This segment's
business represented approximately 46% of the Company's 1999 revenues,
approximately 45% of the Company's 1998 revenues and approximately 48%
of the Company's 1997 revenues.
Growth in the commercial sector has continued at Miltope through
partnerships with providers of avionics, in-flight entertainment,
communication, and the customization of commercial and private
aircraft. For over fifteen years, Miltope has been providing thermal
printers for use in flight deck and cabin installations. Miltope holds
a significant domestic market share for all airborne flight deck
printing requirements. Continual internal research and development
investment in the development of airborne products for the rapidly
expanding in-flight entertainment market has proven successful for
Miltope. Miltope equipment is currently being utilized as integral
components in multiple in-flight systems. Miltope's capabilities
include full system integration and application development that
provides customers with a complete system solution. Systems are
designed, qualified, and delivered utilizing operating systems such as
Windows98, Windows NT, Linux, Solaris, and HP-UX. The Company also
continues to develop and improve various products such as telephony and
internet servers, Redundant Arrayed Independent Disks ("RAID") storage
systems, controller terminals and workstations, and sealed disk drives
for a variety of applications related to in-flight entertainment,
communication, and avionics systems.
Miltope's airborne printer products are sold to a broad base of
airframe manufacturers and commercial airline companies worldwide for
use in flight deck and cabin workstation information systems. During
1999, customers for the airborne printer line of products included
Boeing, B/E Aerospace, British Airways, Continental Airlines, Delta
Airlines, KLM, Lufthansa, Matsushita Avionics Systems, Teledyne
Controls, American Airlines, Itochu, Embraer, Transavia, Qantas
Airways, Ltd.,United Airlines and AMR Eagle, Inc.. Miltope has received
firm orders during 1999 of approximately $5,600,000 for airborne
printer products.
In December 1996, Miltope was awarded a contract for the
manufacture of rugged hard drives for use in Sony Trans Com Inc.'s
Audio Video on Demand In-Flight Entertainment System ("P@ssport TM")
to be sold to airline customers around the world. The estimated
contract value is $10,200,000 over a five year period. The contract
value is based on the customer's best estimate of purchase requirements
during the contract period. There can be no assurances this estimate
of purchase requirements will be achieved. As of February 18, 2000,
Miltope has received firm orders of approximately $2,300,000 from this
customer for this product.
In December 1997, Miltope entered into a strategic agreement with
Honeywell, Inc. Business and Commuter Aviation Systems, to provide
Portable Maintenance Access Terminals ("PMAT") for use in business jets
and commuter aircraft around the world as an option on Honeywell's
integrated avionics systems. As of February 18, 2000, Miltope has
received firm orders of approximately $3,200,000 for this product from
this customer.
Sales and Significant Customers
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Sales in 1999 attributable to the military industry segment were
approximately as follows: 65% from large DOD programs (each accounting
for 5% or more of annual sales), 3% from smaller programs and sales of
standard items in Miltope's catalogue, 24% from sales to foreign
governments and defense contractors and 8% from spare parts sales.
Sales to any one large DOD program have varied substantially from year
to year due to product cycles and DOD requirements.
In 1999, sales to the DOD accounted for 40% of net sales of the
Company. No other customer accounted for more than 10% of net sales.
The Company has experienced large fluctuations from year to year
in the percentage of sales represented by particular customers due to
product cycles and customer requirements. The Company believes its
customers and the industry are moving to shorter lead times due to
compressed technology cycles and changes in procurement strategies.
Sales in 1999 attributable to the commercial industry segment
amounted to approximately 46% of the Company's total net sales.
During 1998 and 1999, the Company recorded sales of $261,000 and
$0, respectively, to 3C Communications International, S.A., an entity
affiliated through certain common ownership. During 1998 and 1999, the
Company recorded sales of $2,186,000 and $2,382,000, respectively to IV
Phoenix Group, Incorporated and Get 2 Net that are affiliates of the
Company through certain common ownership.
Government Contracts
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Miltope's business is subject to various statutes, regulations and
provisions governing defense contracts including the Truth in
Negotiations Act, which provides for the examination by the U.S.
government of cost records to determine whether accurate pricing
information was disclosed in connection with government contracts.
Contracts with the U.S. government as well as with U.S. government
prime contractors are typically at a fixed price with a delivery cycle
of 4 to 12 months, with contracts under any particular program being
subject to further funding and negotiation. Miltope's defense
contracts contain customary provisions permitting termination at any
time at the convenience of the customer and providing for payment for
work-in-progress should the contract be canceled.
Backlog
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Backlog for both the military and commercial industry segments at
December 31, 1999 was $12,782,000, a 42% decrease from the $21,991,000
backlog at December 31, 1998. On January 19, 2000, Miltope received a
delivery order under the SPORT contract for $13,500,000 that is not
included in the backlog figures as of December 31, 1999. Had this order
been timely received prior to December 31, 1999, the backlog at
December 31, 1999, would have been a 19.5% increase over the backlog at
December 31, 1998 that included the 1999 SPORT delivery order. As of
February 18, 2000 total backlog was approximately $26,000,000. Backlog
includes only customer signed delivery orders from current contracts
and funded portions of multi-year contracts. The Company believes that
substantially all of the backlog will be recognized as revenue by
December 31, 2000. The Company also believes that a substantial part
of new delivery orders and contract fundings received in 2000 will be
recognized as revenue in the same year due to shorter lead times.
Backlog for the commercial industry segment was approximately 60%
of the total backlog at December 31, 1999 and approximately 31% of the
total backlog at December 31, 1998.
Backlog does not include unfunded portions of multi-year
contracts. Unfunded portions of multi-year contracts totaled
approximately $40,000,000 and $87,000,000 at December 31, 1999 and
December 31, 1998, respectively.
Competition
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Both of the Company's industry segments face intense competition
in markets for certain of their products. Competition comes from
independent producers as well as prime contractors. Some of these
competitors have greater resources than the Company. Competition is
based on such factors as price, technological capability, quality,
reliability and timely delivery.
The Company's competitive position in its industry segments has
been based upon the experience of its technical personnel in their
respective specialized fields of computer and peripheral product
design; its broad range of products; its ability to design and
manufacture its products to meet customers' specifications; its
specialized manufacturing and testing facilities; its long association
with many of its customers and its managerial and marketing expertise
in dealing with commercial customers, prime contractors and the DOD.
The Company believes that once a particular supplier's computer and/or
peripheral products have been selected for incorporation in a military
or commercial program, further competition by other vendors during the
life cycle of that program is limited.
Engineering, Research and Development
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The Company believes that success within the industry depends in
large part upon its ability to develop and apply new technology to
modify, enhance and expand its existing line of proprietary products.
The funding of these activities is primarily internal through Company
sponsored research and development. Product development activities
are generally the result of the need to respond to the anticipated
requirements of future programs, the introduction of new technology
that can be used to enhance product performance and direct requests by
customers and the DOD. In certain cases the Company has licensed
technology from commercial manufacturers for subsequent militarization
and ruggedization.
Engineering design techniques and expertise are leveraged across
all product lines enabling rapid development and improved time to
market. Management believes approximately 3% to 5% of net sales for
engineering, research and development expenditures should adequately
support the Company's business.
Engineering, research and development expenditures in 1997, 1998
and 1999 were approximately $1,700,000, $1,900,000 and $1,250,000,
respectively.
Miltope's funded research and development efforts for its
military/rugged segment include projects to enhance its mass storage
devices, printers, computer workstations and portable/hand held
computers. Miltope's funded research efforts for its commercial
segment include projects to enhance its airline in-flight cabin
management and entertainment products, airborne printers and mass
storage devices.
Employees
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At December 31, 1999, the Company employed 163 full-time
personnel. None of the Company's employees are represented by a labor
union and the Company has experienced no work stoppages. The Company
believes that relations with its employees are excellent.
Export Sales
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The Company recorded foreign sales in its military/rugged industry
segment of approximately $1,111,000, $221,000 and $258,000 in 1997,
1998 and 1999, respectively. The Company recorded foreign sales in its
commercial industry segment of approximately $11,657,000, $847,000 and
$3,000,000 in 1997, 1998 and 1999, respectively.
Source of Supply
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The Company utilized multiple suppliers for most materials and
components. In order to minimize the risk of delay in delivering
finished systems, components are sometimes procured according to the
projected need for such components under annual purchasing agreements.
Miscellaneous
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Neither of the Company's two industry segments is subject to
seasonal business fluctuations.
ITEM 2. PROPERTIES
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The Company owns a 90,000 square foot building located on 25 acres
in Hope Hull (Montgomery), Alabama ("Hope Hull").
In addition, the Company owns a 60,000 square foot assembly and
test facility in Troy, Alabama ("Troy") and a 25,000 square foot clean
room, assembly and test facility in Springfield, Vermont.
The Company leases a 9,175 square foot facility in Boulder,
Colorado.
The Company also leases various sales offices in the United
States.
During 1999, the Company consolidated its Troy manufacturing
facility with its Hope Hull facility as a planned measure to reduce
cost redundancy and maximize production efficiency. The Company has
determined that the net book value of the Troy facility exceeds the
estimated fair market value of the facility as of December 31,
1999.This impairment, in the amount of approximately $281,000, has been
recognized in the financial statements of the Company for the year
ended December 31,1999.
The Company owns substantially all of the machinery and equipment
used in these facilities. The Company believes that these facilities
are well maintained and are adequate to meet its needs in the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
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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 liability from any threatened or pending litigation to be
material to the financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
During the fourth quarter of the fiscal year covered by this
Report, no matters were submitted to a vote of security holders through
the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
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Market Information
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The Company's Common Stock has been traded in the over-the-counter
market under the NASDAQ symbol "MILT" since its initial public offering
on January 23, 1985 and has been trading on the NASDAQ National Market
since June 4, 1985. On March 24, 1999, the Company began trading on
the NASDAQ Small Cap Market. The high and low closing sale prices for
the Common Stock in the over-the-counter market reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions. The quarterly high and low
selling prices (the last daily sale price) of the Common Stock since
January 1, 1998 have been:
Calendar Year 1998 High Low
------------------ -------- ---------
First Quarter $ 3-7/16 $ 3
Second Quarter 3-1/2 2-3/8
Third Quarter 2-5/8 1-11/32
Fourth Quarter 1-7/8 7/8
Calendar Year 1999
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First Quarter $ 2 $ 1-3/16
Second Quarter 1-5/8 1-1/32
Third Quarter 1-1/2 13/16
Fourth Quarter 1-1/16 11/16
Holders of Common Stock
- -----------------------
As of February 18, 2000, there were approximately 869 shareholders
of record and beneficial owners of the Company's Common Stock.
Dividend Policy
- ---------------
No dividends were paid in 1998 or 1999. The Company does not
presently anticipate paying cash dividends on its Common Stock.
However, the Board of Directors of the Company will review this policy
from time to time in light of its earnings, capital requirements and
financial condition and other relevant factors, including applicable
debt agreement limitations. The Company's bank loan agreement permits
the Company to pay annual dividends of up to 50% of the prior year's
net income.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following is a summary of selected consolidated financial data
of the Company for the five years ended December 31, 1999 which should
be read in conjunction with the consolidated financial statements of
the Company and the notes thereto:
(All amounts in thousands, except per share data)
Year ended December 31,
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1995 1996 1997 1998 1999
Income statement data: -------- -------- -------- -------- --------
- ----------------------
Net sales $ 65,708 $ 45,513 $ 40,372 $ 26,444 $ 30,223
Gross profit 13,372 11,077 9,803 4,921 4,065
Income (loss) before income taxes (984) 1,770 1,211 (4,297) (5,601)
Net income (loss) (984) 2,170 3,271 (3,021) (5,601)
Basic and diluted net income
(loss) per share (.17) .37 .56 (.51) (.95)
Cash dividends per share - - - - -
Weighted average shares outstanding 5,853 5,867 5,870 5,872 5,872
Balance sheet data:
- -------------------
Working capital $ 18,896 $ 17,999 $ 19,652 $ 18,039 $ 13,488
Total assets 41,440 36,332 38,449 38,938 33,352
Long-term debt 16,953 11,340 11,251 13,035 13,927
Stockholders' equity 15,913 17,858 21,140 18,119 12,518
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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Business Environment
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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.
The Company's military/rugged business segment provides
specialized computers and related peripheral equipment to the United
States and foreign military defense departments. Equipment in this
segment takes two primary forms. The first of these is fully
militarized products, usually designed especially for a particular
mission area with demanding environmental and quality requirements.
The second of these is rugged products, usually based on a commercial
baseline product, but adapted by the Company to meet environmental and
quality specifications that exceed the requirements for commercial
products.
This entire segment has been impacted in recent years by reduced
government spending and defense appropriations. The militarized
product area has been especially subject to defense budget cuts. The
military continues to reduce funding for the development and limited
production quantities of highly customized systems and products. The
long design cycle for these programs creates an intangible cost in the
form of rapid technological obsolescence. Some military programs that
would have sought militarized equipment some years ago have modified
the requirements to reflect a need for rugged or commercial products.
This trend has tended to benefit sales of the Company's rugged product
line. Even in the rugged product area, however, defense cuts have
taken a toll. Competition in this area has become keen in recent
years, as many government contractors pursue fewer military programs.
Through its commercial segment, the Company develops, manufactures
and markets commercial products primarily for transportation,
telecommunications and in-field maintenance markets. Its products are
airborne printers, in-flight cabin management and entertainment
products, rugged public access Internet terminals, mass storage
devices, and derivatives of rugged hand held Intel based computers
originally developed for military applications.
Results of Operations
- ---------------------
The Company reported a net loss of approximately $5,600,000 in
1999 compared to a net loss of approximately $3,000,000 in 1998 and net
income of approximately $3,300,000 in 1997. The basic and diluted net
loss per share was $.95 in 1999 compared to basic and diluted net loss
per share of $.51 in 1998 and a basic and diluted net income per share
of $.56 in 1997.
Sales for 1999 totaled approximately $30,200,000, an increase of
approximately $3,800,000, or 14.4%, from 1998. This change was
attributable to an increase in sales of SPORT units and increases in
airborne printers and contract sales. Sales in 1998 totaled
approximately $26,400,000, a decrease of approximately $14,000,000, or
34.7% from 1997. This change was attributable to a reduction in
military sales of approximately $6,200,000 and a decrease in commercial
sales of approximately $7,700,000.
Gross profit, as a percent of sales, was 13.4% in 1999, 18.6% in
1998 and 24.3% in 1997. The decrease in 1999 from 1998 was primarily
attributable to increased competition in various airborne printer
products and contractually defined decreases in the sales price of
SPORT partially offset by improved margins in various commercial
airborne server applications. .
Selling, general and administrative expenses, as a percentage of
sales, were 23.9% in 1999, 24.7% in 1998 and 15.2% in 1997. The
decrease in 1999 as a percentage of sales was attributable to increased
sales coupled with planned reductions in administrative and marketing
costs partially offset by increased management services fees from a
company affiliated by certain common ownership. The increases in 1997
and 1998 were principally due to expenses related to employee and
severance costs and continued emphasis on increased marketing and
business development efforts.
Engineering, research and development expenses, as a percentage of
sales, was 4.1% in 1999, 7.1% in 1998 and 4.2% in 1997. The decrease
in 1999 as a percent of sales was primarily attributable to increased
sales volume and an emphasis on shared development expenses between
customers and the Company. The increase in 1998 as a percent of sales
primarily was 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.
Liquidity and Capital Resources
- -------------------------------
Working capital at December 31, 1999 totaled approximately
$13,500,000, a decrease of approximately $4,550,000 from December 31,
1998. Accounts receivable decreased approximately $3,300,000 as a
result of lower sales in the fourth quarter of 1999 versus the fourth
quarter of 1998 and expedited government payments in the fourth quarter
of 1999 due to Year 2000 issues. Inventories decreased approximately
$3,900,000 primarily as a result of improvements in matching sales
requirements to appropriate levels of inventory. Current deferred
income taxes decreased approximately $300,000 as a result of recording
a deferred tax valuation allowance. Accounts payable decreased
approximately $1,900,000 reflecting decreases in inventories and
improved payment cycles. Accrued expenses increased approximately
$1,100,000 as a result of the recognition of an overpayment made by the
federal government in 1999 relative to the SPORT program. Subsequent to
December 31, 1999 a repayment period of three years for this
overpayment was negotiated with the federal government.
The Company entered into a revolving credit facility in July 1994
for an amount not to exceed $15,000,000. The Company's $15,000,000
revolving credit agreement with its primary lender matured on May 31,
1999 with an outstanding balance of approximately $12,000,000 and was
converted into a term loan payable in twelve equal quarterly
installments commencing August 31, 1999. The Company is currently in
negotiation with several lenders for a replacement line of credit while
it continues to make principal and interest payments on this term loan.
Cash provided by (used in) operating activities was approximately
$2,100,000 in 1999, approximately $(3,600,000) in 1998 and
approximately $1,300,000 in 1997. The increase in cash provided by
operating activities in 1999 as compared to 1998 is primarily the
result of improved working capital management most notably in the areas
of accounts receivable and inventories. The decrease in cash used in
operating activities in 1998 compared to 1997 is primarily the result
of the net loss and increases in inventories and other assets and
decreases in accounts payable and accrued expenses partially offset by
a decrease in accounts receivable.
In April 1994, the Company purchased a new headquarters facility
and related capital equipment located in Montgomery, Alabama. The
purchase was financed through a bank term loan and the proceeds of the
offering of taxable revenue bonds (the "Bonds") by the Alabama State
Industrial Development Authority which was completed January 12, 1995
(the "SIDA Offering"). Repayment of the Bonds is secured by an
irrevocable letter of credit issued by Regions Bank in an amount up to
$5,700,000 that in turn is secured by a mortgage on the Montgomery and
Troy, Alabama facilities and a security interest in the equipment
located at such facilities.
The Company has net operating loss carryforwards for federal
income tax purposes of approximately $13,300,000 that expire as
follows: $5,880,000 in 2009, $1,290,000 in 2010, $2,460,000 in 2018 and
$3,730,000 in 2019. At December 31, 1999, the Company has a valuation
allowance of $2,162,000 against the net deferred tax assets. Although
realization is not assured, management believes it is more likely than
not that the recorded deferred tax asset, net of valuation allowance
provided, will be realized. The valuation allowance can be adjusted in
future periods as the probability of realization of the deferred tax
asset changes.
The Company believes that its working capital and capital
requirement needs for its current lines of business and new product
development will be met by its cash flow from operations and the
proceeds from a new line of credit that is currently being negotiated.
Effects of Inflation
- --------------------
Inflation has not had a significant impact on the Company's
results of operations.
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 an ongoing Year 2000 project that identifies the
programs and infrastructure that could be affected by any Year 2000
issues subsequent to December 31, 1999 and has implemented a plan to
resolve those problems identified, on a timely basis. The plan has
required a considerable amount of internal resources devoted by the
Company to resolve the pertinent issues. As of December 31, 1999, the
ongoing resource cost of the Year 2000 project has not had a material
adverse effect on the Company's financial condition and results of
operations for fiscal years beginning after December 31, 1999. The
Company currently estimates the total cost of its Year 2000 project
has not exceeded $250,000 over the life of the project. Costs
associated with employees working on the Year 2000 project have been
expensed as incurred. Hardware and software purchases related to this
project have been 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 has resolved the Year 2000 issues affecting it and that this
program has progressed normally and has been completed on a timely
basis. Despite management's beliefs and the Company's progress made on
the Year 2000 issues as of December 31, 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 has solicited 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. As of February 18, 2000, the Company has
experienced no significant detrimental effects or system
disruptions from the Year 2000 issue but will continue to
implement those procedures as it deems necessary to ensure
continued integrity of its programs and infrastructure relative to
the Year 2000 issue.
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 term 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 $95,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
See Table of Contents to Consolidated Financial Statements on Page
F-1.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
----------------------------------------------------
During the twenty-four months prior to the date of the financial
statements contained herein, no Form 8-K reporting a change of
accountants has been filed which included a reported disagreement on
any matter of accounting principles or practices or financial statement
disclosure.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
The information called for by this item is incorporated by
reference from the Company's definitive Proxy Statement for its 2000
annual meeting under the captions "Proposal No.1 - Election of
Directors", "Board of Directors and Committees" and "Section 16(a)
Beneficial Ownership Reporting Compliance" which definitive Proxy
Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the Company's fiscal year ended
December 31, 1999.
Item 11. Executive Compensation.
-----------------------
The information called for by this item is incorporated by
reference from the Company's definitive Proxy Statement for its 2000
annual meeting under the captions "Compensation of Executive Officers
and Directors" and "Compensation of Directors" which definitive Proxy
Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the Company's fiscal year ended
December 31, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
----------------------------------------------------
The information called for by this item is incorporated by
reference from the Company's definitive Proxy Statement for its 2000
annual meeting under the captions "Security Ownership of Certain
Beneficial Owners" and "Ownership of Common Stock by Directors,
Nominees and Officers" which definitive Proxy Statement will be filed
with the Securities and Exchange Commission not later than 120 days
after the end of the Company's fiscal year ended December 31, 1999.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
The information called for by this item is incorporated by
reference from the Company's definitive Proxy Statement for its 2000
annual meeting under the captions "Certain Relationships and Related
Transactions" which definitive Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after the
end of the Company's fiscal year ended December 31, 1999.
PART IV
- -------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) The following documents are filed as part of this Report Page
------
1. Consolidated Financial Statements:
Table of Contents to Consolidated Financial Statements F-1
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31,
1998 and 1999 F-3
Consolidated Statements of Operations for the Years
Ended December 31, 1997, 1998 and 1999 F-4
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1997, 1998 and 1999 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1998 and 1999 F-6
Notes to Consolidated Financial Statements F-7
Independent Auditors' Consent F-20
2. All schedules are omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.
3. Exhibits 23
(b) There have been no reports on Form 8-K filed during the last
quarter of the period ended December 31, 1999
Intentionally Left Blank
Exhibit Page
Number Description of Exhibit Number
- ------- --------------------------------------------------- ------
3(a) Certificate of Incorporation of the Registrant, as
amended to date [Incorporated by reference to
Exhibit 3(a) to the Registrant's Registration
Statement on Form S-1 filed with the Commission on
September 6, 1984 (Registration No. 2-93134)]
3(b) By-laws of the Registrant, as currently in effect
[Incorporated by reference to Exhibit 3(b) to the
Registrant's Form 10-K filed with the Commission
on March 31, 1987 (File No. 0-13433)].
3(c) Specimen share certificate for the Common Stock of
the Registrant [Incorporated by reference to Exhibit
4(b) to Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 filed with the
Commission on January 8, 1985 (Registration No.
2-93134)].
10(a)(A) 1985 Key Employee Stock Option Plan adopted by
the Board of Directors of the Registrant on July 1,
1985 [Incorporated by reference to Exhibit 10(a) to
the Registrant's Registration Statement on Form S-1
filed with the Commission on October 22, 1985
(Registration No.33-1042)].
10(a)(B) Form of 1985 Key Employee Stock Option
Agreement, dated as of July 1, 1985, between the
Registrant and certain key employees of the
Registrant [Incorporated by reference to Exhibit
10(b) to the Registrant's Registration Statement on
Form S-1 filed with the Commission on October 22,
1985 (Registration No. 33-1042)].
10(b)(A) Incentive Stock Option Plan adopted by the Board of
Directors of the Registrant on June 1, 1984 and
approved by Stonebrook Group Inc. (formerly
Stenbeck Reassurance Co. Inc.) on June 1, 1984, as
amended by the Board of Directors of the Registrant
on May 6, 1985 [Incorporated by reference to
Exhibit 10(c) to the Registrant's Registration
Statement on form S-1 filed with the Commission on
October 22, 1985 (Registration No. 33-1042)].
Exhibit Page
Number Description of Exhibit Number
- -------- ---------------------- ------
10(b)(B) Form of Incentive Stock Option Agreement, dated as
of June 1, 1984, between the Registrant and certain
key employees of the Registrant [Incorporated by
reference to Exhibit 10(e) to the Registrant's
Registration Statement on Form S-1 filed with the
Commission on October 22, 1985 (Registration No.
33-1042)].
10(c)(A) Management Stock Option Plan adopted by the Board
of Directors of the Registrant on June 1, 1984 and
approved by Stonebrook Group Inc. on June 1, 1984,
as amended by the Board of Directors of the
Registrant on May 6, 1985 [Incorporated by reference
to Exhibit 10(f) to the Registrant's Registration
Statement on Form S-1 filed with the Commission on
October 22, 1985 (Registration No. 33-1042)].
10(c)(B) Form of Management Stock Option Agreement, dated
as of June 1, 1984, between the Registrant and
certain management employees of the Registrant
[Incorporated by reference to Exhibit 10(d) to the
Registrant's Registration Statement on Form S-1 filed
with the Commission on September 6, 1984
(Registration No. 2-93134)].
10(d) Miltope Corporation Cash Bonus Plan, as amended,
effective January 1, 1984 [Incorporated by reference
to Exhibit 10(e) to the Registrant's Registration
Statement on Form S-1 filed with the Commission on
September 6 , 1984 (Registration No. 2-93134)].
10(f)(A) 1995 Stock Option and Performance Award Plan
adopted by the Board of Directors of the Registrant
on April 11, 1995 and approved by the stockholders
of the Registrant on June 5, 1995 [Incorporated
by reference to Exhibit 4(a)(1) to the Registrant's
Registration Statement on Form S-8 filed with the
Commission on December 21, 1995 (File No. 33-65233)].
10(f)(B) Form of Non-Qualified Stock Option Agreement under
the 1995 Stock Option and Performance Award Plan
[Incorporated by reference to Exhibit 4(a)(2) to the
Registrant's Registration Statement on Form S-8 filed
with the Commission on December 21, 1995
(File No. 33-65233)].
Exhibit Page
Number Description of Exhibit Number
- -------- ---------------------- ------
10(f)(C) Form of Incentive Stock Option Agreement under the
1995 Stock Option and Performance Award Plan
[Incorporated by reference to Exhibit 4(a)(3) to the
Registrant's Registration Statement on Form S-8 filed
with the Commission on December 21, 1995
(File No. 33-65233)].
10(g)(A) Real Estate Sales Contract, dated July 18, 1984,
between the City of Troy, Alabama and Miltope
Corporation [Incorporated by reference to Exhibit
10(o) to the Registrant's Registration Statement on
Form S-1 filed with the Commission on September 6,
1984 (Registration No. 2-93134)].
10(g)(B) Lease Agreement, dated November 1, 1985, between
the Industrial Development Board of the City of
Troy, Alabama and Miltope Corporation
[Incorporated by reference to Exhibit 10(s)(B) to the
Registrant's Form 10-K filed with the Commission
on March 31, 1986 (File No. 0-13433)].
10(j) Purchase and Sale Agreement, dated April 19, 1994,
between Collier Management Group, Inc. and
Miltope Corporation, with respect to 500 Richardson
Road South, Hope Hull, Alabama [Incorporated by
reference to Exhibit 10(n) to the Registrant's Form 10-K
filed with the Commission on March 31, 1995
(File No. 0-13433)].
10(k)(A)(1)Loan Agreement, dated July 27, 1994, among First
Alabama Bank, as lender, and Miltope Corporation
and Miltope Business Products, Inc., as borrowers
[Incorporated by reference to Exhibit 10(o)(A)(1)
to the Registrant's Form 10-K filed with the
Commission on March 31, 1995 (File No. 0-13433)].
10(k)(A)(2)Amendment to Loan Agreement, dated as of October
3, 1994, among First Alabama Bank, Miltope
Corporation and Miltope Business Products, Inc.
[Incorporated by reference to Exhibit 10(o)(A)(2)
to the Registrant's Form 10-K filed with the
Commission on March 31, 1995 (File No. 0-13433)].
Exhibit Page
Number Description of Exhibit Number
- -------- ---------------------- ------
10(k)(A)(3) Amendment to Loan Agreement and Related
Documents, dated February 3, 1995, among First
Alabama Bank, Miltope Corporation and Miltope
Business Products, Inc. [Incorporated by reference
to Exhibit 10(o)(A)(3) to the Registrant's Form 10-K
filed with the Commission on March 31, 1995
(File No. 0-13433)].
10(k)(A)(4) Amendments to Loan Agreement and Related
Documents, dated February 6, 1997, among Regions
Bank (formerly First Alabama Bank), Miltope
Corporation and Miltope Business Products, Inc.
[Incorporated by reference to Exhibit 10(k)(A)(4) to
the Registrant's Form 10-K filed with the Commission
on March 26, 1997 (File No. 0-13433)].
10(k)(A)(5) Amendments to Loan Agreement and Related
Documents, dated December 1, 1997, among Regions
Bank (formerly First Alabama Bank), Miltope
Corporation and Miltope Business Products, Inc.
[Incorporated by reference to Exhibit 10(K)(A)(5) to
the Registrant's Form 10-K filed with the Commission
on March 23, 1998 (File No. 0-13433)].
10(k)(B) Guaranty Agreement, dated July 27, 1994, by the
Registrant to First Alabama Bank [Incorporated by
reference to Exhibit 10(o)(B) to the Registrant's
Form 10-K filed with the Commission on March 31, 1995
(File No. 0-13433)].
10(k)(C) Security Agreement, dated July 27, 1994, among
Miltope Corporation, Miltope Business Products, Inc.
and First Alabama Bank [Incorporated by
reference to Exhibit 10(o)(C) to the Registrant's
Form 10-K filed with the Commission on March 31, 1995
(File No. 0-13433)].
10(l)(A) Term Loan Agreement, dated October 13, 1994,
between First Alabama Bank, as lender, and Miltope
Corporation, as borrower [Incorporated by
reference to Exhibit 10(p)(A) to the Registrant's
Form 10-K filed with the Commission on March 31, 1995
(File No. 0-13433)].
Exhibit Page
Number Description of Exhibit Number
- -------- ---------------------- ------
10(l)(B) Real Estate Mortgage and Security Agreement, dated
October 13, 1994, by Miltope Corporation in favor
of First Alabama Bank [Incorporated by reference to
Exhibit 10(p)(B) to the Registrant's Form 10-K
filed with the Commission on March 31, 1995
(File No. 0-13433)].
10(m)(A) Loan Agreement, dated January 1, 1995, between the
State Industrial Development Authority and Miltope
Corporation [Incorporated by reference to Exhibit 10(q)(A)
to the Registrant's Form 10-K filed with the Commission
on March 31, 1995 (File No. 0-13433)].
10(m)(B) Credit Agreement, dated January 1, 1995, between
Miltope Corporation and First Alabama Bank
[Incorporated by reference to Exhibit 10(q)(B) to the
Registrant's Form 10-K filed with the Commission
on March 31, 1995 (File No. 0-13433)].
10(m)(C) Guaranty Agreement, dated January 1, 1995, by the
Registrant to First Alabama Bank [Incorporated by
reference to Exhibit 10(o)(C) to the Registrant's
Form 10-K filed with the Commission on
March 31, 1995 (File No. 0-13433)].
10(m)(D) Bond Purchase Agreement, dated January 11, 1995,
among Miltope Corporation, the State Industrial
Development Authority and Merchant Capital,
L.L.C. [Incorporated by reference to Exhibit 10(q)(D)
to the Registrant's Form 10-K filed with the Commission
on March 31, 1995 (File No. 0-13433)].
10(m)(E) Re-marketing Agreement, dated January 1, 1995,
among Miltope Corporation, the State Industrial
Development Authority and Merchant Capital,
L.L.C. [Incorporated by reference to Exhibit 10(q)(E)
to the Registrant's Form 10-K filed with the Commission
on March 31, 1995 (File No. 0-13433)].
10(m)(F) Real Estate Mortgage and Security Agreement, dated
as of January 1, 1995, from Miltope Corporation in
favor of First Alabama Bank [Incorporated by
reference to Exhibit 10(q)(F) to the Registrant's
Form 10-K filed with the Commission on
March 31, 1995 (File No. 0-13433)].
Exhibit Page
Number Description of Exhibit Number
- -------- ---------------------- ------
10(q)(A) Stock Option Agreement, dated as of June 25, 1993,
between the Registrant and William L. Dickinson.
[Incorporated by reference to Exhibit 10(q) to the
Registrant's Form 10-K filed with the Commission
on March 31, 1994 (File No. 0-13433)].
10(q)(B) Stock Option Agreement, dated as of June 3, 1994,
between the Registrant and William L. Dickinson
[Incorporated by reference to Exhibit 10(u)(B) to
the Registrant's Form 10-K filed with the Commission
on March 31, 1995 (File No. 0-13433)].
10(q)(C) Stock Option Agreement, dated as of June 5, 1995,
between the Registrant and William L. Dickinson.
[Incorporated by reference to Exhibit 10(r)(C) to the
Registrant's Form 10-K filed with the Commission
on March 29, 1996 (File No. 0-13433)].
10(q)(D) Stock Option Agreement, dated as of June 11, 1996,
between the Registrant and William L. Dickinson.
[Incorporated by reference to Exhibit 10(q)(D) to the
Registrant's Form 10-K filed with the Commission
on March 26,1997 (File No. 0-13433)].
10(q)(E) Stock Option Agreement, dated as of September 11, 1997,
between the Registrant and William L. Dickinson.
[Incorporated by reference to Exhibit 10(q)(E) to the
Registrants Form 10-K filed with the Commission on
March 23, 1998 (File No. 0-13411)].
10(q)(F) Stock Option Agreement, dated September 17, 1998,
between the Registrant and William L.Dickinson.
[Incorporated by reference to Exhibit 10(q)(F) to the
Registrants Form 10-K filed with the Commission on
March 31, 1999 (File No. 0-13411)].
10(u) Stock Option Agreement, dated September 17, 1998,
between the Registrant and Jerry Tuttle.
[Incorporated by reference to Exhibit 10(u) to the
Registrant's Form 10-K filed with the Commission
on March 31, 1999 (File No. 0-13433)].
Exhibit Page
Number Description of Exhibit Number
- -------- ---------------------- ------
*10(v) Stock Option Agreement dated January 15, 1999
between the Registrant and Thomas R. Dickinson.
10(w)(A) Asset Purchase Agreement, dated as of December
23, 1992, between Miltope Business Products, Inc.
and Mag-Tek, Inc. [Incorporated by reference to
Exhibit 10(x)(A) to the Registrant's Form 10-K filed
with the Commission on March 25, 1993 (File No. 0-13433)].
10(w)(B) Guaranty of the Registrant, dated as of December 23,
1992, pursuant to Asset Purchase Agreement, dated
as of December 23, 1992, between Miltope Business
Products, Inc. and Mag-Tek, Inc. [Incorporated by
reference to Exhibit 10(x)(B) to the Registrant's
Form 10-K filed with the Commission on
March 25, 1993 (File No. 0-13433)].
10(w)(C) Supply Agreement, dated as of January 5, 1993,
between Miltope Business Products, Inc. and
Mag-Tek, Inc. [Incorporated by reference to Exhibit
10(x)(C) to the Registrant's Form 10-K filed with the
Commission on March 25, 1993 (File No. 0-13433)].
10(w)(D) Escrow Agreement, dated as of January 5, 1993,
among Miltope Business Products, Inc., Mag-Tek,
Inc. and First Interstate Bank of California, as
Escrow Agent [Incorporated by reference to Exhibit
10(x)(D) to the Registrant's Form 10-K filed with the
Commission on March 25, 1993 (File No. 0-13433)].
10(w)(E) Marketing Agreement, dated as of January 5, 1993,
between Miltope Business Products, Inc. and
Mag-Tek, Inc. [Incorporated by reference to Exhibit
10(x)(E) to the Registrant's Form 10-K filed with the
Commission on March 25, 1993 (File No. 0-13433)].
10(w)(F) Noncompetition Agreement, dated as of January 5,
1993, between Miltope Business Products, Inc. and
Mag-Tek, Inc. [Incorporated by reference to Exhibit
10(x)(F) to the Registrant's Form 10-K filed with the
Commission on March 25, 1993 (File No. 0-13433)].
*10(x) Stock Option Agreement dated June 25, 1999,
between the Registrant and Tom B. Dake.
- --------------
* Filed herewith
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
10(y) Renegotiation Agreement, dated August 23, 1996,
between the Registrant and Mag-Tek, Inc.
[Incorporated by reference to Exhibit 10(y) to the
Registrant's Form 10-K filed with the Commission
on March 26, 1997 (File No. 0-13433)].
18 Letter regarding change in accounting principle, dated May
13, 1994 [Incorporated by reference to Exhibit 18 to
the Registrant's Form 10-Q filed with the
Commission on May 16, 1994 (File No. 0-13433)].
*21 Subsidiaries of the Registrant.
*23 Independent Auditors' Consent, dated March 29, 2000,
to the incorporation by reference in Registration
Statements No. 2-97977, No. 33-8245,
No. 33-78744 and No. 33-65233 on Form S-8 and
No. 33-33752 on Form S-3 of their report dated
February 18, 2000 (March 28,2000 as to the waiver
Letter described in Note 5) appearing in this Annual
Report on Form 10-K for the year ended
December 31, 1999.
*27 Financial Data Schedule
- -----------
* Filed herewith
THIS PAGE INTENTIONALLY LEFT BLANK
MILTOPE GROUP INC. AND SUBSIDIARIES
-----------------------------------
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------
Page
------
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1998
and 1999 F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1997, 1998 and 1999 F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1998 and 1999 F-5
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997, 1998 and 1999 F-6
Notes to Consolidated Financial Statements F-7
All supplemental schedules are omitted because they are not applicable
or the required information is shown in the consolidated financial
statements or notes thereto.
F-1
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Stockholders and Board of Directors
of Miltope Group Inc.:
We have audited the accompanying consolidated balance sheets of Miltope
Group Inc. and its subsidiaries as of December 31, 1998 and 1999, and
the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Miltope Group Inc.
and its subsidiaries at December 31, 1998 and 1999, and the results of
their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
Birmingham, Alabama
February 18, 2000 (March 28, 2000 as to the waiver
letter described in Note 5)
F-2
MILTOPE GROUP INC. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
- -----------------------------------------------------------------------------
ASSETS 1998 1999
- ------ ----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 57,000 $ 1,874,000
Accounts receivable 6,792,000 3,540,000
Inventories 17,867,000 13,949,000
Deferred income taxes 829,000 535,000
Other current assets 278,000 497,000
----------- -----------
Total current assets 25,823,000 20,395,000
=========== ===========
PROPERTY AND EQUIPMENT - at cost:
Machinery and equipment 7,689,000 8,016,000
Furniture and fixtures 1,594,000 1,575,000
Land, buildings and improvements 8,101,000 8,138,000
----------- -----------
Total property and equipment 17,384,000 17,729,000
Less accumulated depreciation and amortization 8,549,000 9,731,000
----------- -----------
Property and equipment - net 8,835,000 7,998,000
----------- -----------
DEFERRED INCOME TAXES 3,335,000 3,629,000
OTHER ASSETS 945,000 1,330,000
----------- -----------
TOTAL $38,938,000 $33,352,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,462,000 $ 2,595,000
Accrued expenses 1,012,000 2,092,000
Current maturities of long-term debt 2,310,000 2,220,000
----------- -----------
Total current liabilities 7,784,000 6,907,000
LONG-TERM DEBT 13,035,000 13,522,000
OTHER LIABILITIES - 405,000
----------- -----------
Total liabilities 20,819,000 20,834,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value; 20,000,000 shares
authorized; 6,811,112 shares outstanding
at December 31, 1998 and 1999 68,000 68,000
Capital-in-excess of par value 20,264,000 20,264,000
Retained earnings 12,033,000 6,432,000
----------- -----------
32,365,000 26,764,000
Less treasury stock, at cost 14,246,000 14,246,000
----------- -----------
Total stockholders' equity 18,119,000 12,518,000
----------- -----------
TOTAL $38,938,000 $33,352,000
=========== ===========
See notes to consolidated financial statements.
F-3
MILTOPE GROUP INC. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
- -------------------------------------------------------------------------------
1997 1998 1999
----------- ----------- -----------
NET SALES $40,372,000 $26,444,000 $30,233,000
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 30,569,000 21,523,000 26,168,000
Selling, general and administrative 6,137,000 6,532,000 7,237,000
Engineering, research and development 1,705,000 1,884,000 1,245,000
----------- ----------- -----------
Total 38,411,000 29,939,000 34,650,000
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 1,961,000 (3,495,000) (4,417,000)
INTEREST EXPENSE - net 750,000 802,000 1,184,000
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 1,211,000 (4,297,000) (5,601,000)
INCOME TAX BENEFIT (2,060,000) (1,276,000) -
----------- ------------ -----------
NET INCOME (LOSS) $ 3,271,000 $ (3,021,000) $(5,601,000)
=========== ============ ===========
BASIC AND DILUTED NET
INCOME (LOSS) PER SHARE $ .56 $ (.51) $ (.95)
=========== ============ ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 5,870,083 5,871,523 5,871,523
=========== ============ ===========
See notes to consolidated financial statements.
F-4
MILTOPE GROUP INC. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
- ---------------------------------------------------------------------------------------------------------
Common Stock Capital-in-
Par Excess of Retained Treasury Stock
Shares Value Par Value Earnings Shares Cost
--------- -------- ------------ ------------ ------- ------------
Balance, January 1, 1997 6,806,737 $ 68,000 $ 20,253,000 $ 11,783,000 939,589 $ 14,246,000
Exercise of stock options 4,375 - 11,000 - - -
Net income - - - 3,271,000 - -
--------- -------- ------------ ------------ ------- ------------
Balance, December 31, 1997 6,811,112 68,000 20,264,000 15,054,000 939,589 14,246,000
Net loss - - - (3,021,000) - -
--------- -------- ------------ ------------ ------- ------------
Balance, December 31, 1998 6,811,112 68,000 20,264,000 12,033,000 939,589 14,246,000
Net loss - - - (5,601,000) - -
--------- -------- ------------ ------------ ------- ------------
Balance, December 31, 1999 6,811,112 $ 68,000 $ 20,264,000 $ 6,432,000 939,589 $ 14,246,000
========= ======== ============ ============ ======= ============
See notes to consolidated financial statements.
F-5
MILTOPE GROUP INC. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
- ------------------------------------------------------------------------------------------------------------
1997 1998 1999
OPERATING ACTIVITIES: ----------- ----------- -----------
Net income (loss) $ 3,271,000 $(3,021,000) $(5,601,000)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,670,000 1,506,000 1,230,000
Provision for slow-moving and obsolete inventories 485,000 1,050,000 1,070,000
Provision for doubtful accounts receivable 95,000 5,000 12,000
Provision for asset impairment 432,000 - 281,000
Gain on sale of investment available for sale (566,000) - -
Gain on sale of fixed assets - (4,000) -
Deferred income taxes (2,120,000) (1,579,000) -
Change in assets and liabilities provided (used) cash:
Accounts receivable 819,000 3,180,000 3,240,000
Inventories (1,497,000) (4,214,000) 2,848,000
Other current assets (45,000) (36,000) (219,000)
Other assets (146,000) (127,000) (403,000)
Accounts payable and accrued expenses (1,106,000) (314,000) (786,000)
Other liabilities - - 405,000
----------- ----------- -----------
Net cash provided by (used in) operating activities 1,292,000 (3,554,000) 2,077,000
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (1,725,000) (704,000) (657,000)
Proceeds from sale of property and equipment - 48,000 -
Proceeds from sale of investment available for sale 798,000 - -
----------- ----------- -----------
Net cash used in investing activities (927,000) (656,000) (657,000)
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from revolving credit loan - net 179,000 4,090,000 704,000
Payments of other long-term debt (240,000) (266,000) (307,000)
Exercise of stock options 11,000 - -
----------- ----------- -----------
Net cash provided by (used in) financing activities (50,000) 3,824,000 397,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 315,000 (386,000) 1,817,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 128,000 443,000 57,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 443,000 $ 57,000 $ 1,874,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE:
Cash payments made for:
Income taxes $ 76,000 $ 67,000 $ -
=========== =========== ===========
Interest $ 821,000 $ 789,000 $ 1,161,000
=========== =========== ===========
See notes to consolidated financial statements.
F-6
MILTOPE GROUP INC. AND SUBSIDIARIES
- -----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
- -----------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING
AND FINANCIAL REPORTING POLICIES
---------------------------------
Principles of Consolidation - The consolidated financial statements
include the accounts of Miltope Group Inc. and its wholly-owned
subsidiaries, Miltope Corporation ("Miltope"), Miltope Business
Products, Inc. ("MBP") and Miltope's wholly-owned subsidiary,
International Miltope, Ltd., a Foreign Sales Corporation ("FSC").
These companies are collectively referred to as the "Company". All
material intercompany transactions have been eliminated. The
Company is a majority-owned subsidiary of Great Universal
Incorporated.
Nature of Operations - The Company through its two industry
segments, military/rugged and commercial, is engaged in the
development of computers and peripheral equipment for rugged and
other specialized applications for military and commercial
customers, domestic and international.
Accounting Estimates - The Company's consolidated financial
statements are prepared in conformity with generally accepted
accounting principles 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.
Fair Value of Financial Instruments - The carrying value of the
Company's accounts receivable, accounts payable and accrued
expenses approximates fair value because of the short-term maturity
of those instruments. Additional information regarding the fair
value of other financial instruments is disclosed in Note 5.
Cash Equivalents - The Company considers all highly-liquid
investments with original maturitie s of three months or less to be
cash equivalents.
Investment Available for Sale - Gains and losses on the disposition
of investments available for sale are computed under the specific
identification method.
Depreciation and Amortization - Depreciation of machinery,
equipment, furniture and fixtures is computed on the straight-line
method over the estimated useful lives of the related assets
ranging from 3 to 10 years. Depreciation of buildings and
improvements is computed on the straight-line method over an
estimated useful life of 30 years. Amortization of leasehold
improvements is computed on the straight-line method over the
lesser of the estimated useful life of the improvement or the
remaining term of the lease.
Revenue Recognition - Multi-year contracts are accounted for under
the percentage-of-completion method of accounting. The amount of
revenue recognized is the portion of total contract price that the
cost expended to date bears to the anticipated total cost, based on
current estimates of costs at completion. The contract price
includes all amounts currently under contract, including approved
F-7
contract changes and claims that can be reasonably estimated and
realization is probable. Estimated losses on contracts are
recorded in the period they are identified. Revisions in profit
estimates are reflected in the period in which the facts that
require revision are known. Sales and cost of sales for all other
products are recognized as deliveries are made.
Engineering, Research and Development - Engineering, research and
development expenditures not made in connection with sales
contracts are charged to expense as incurred.
Income Taxes - The Company recognizes deferred tax assets and
liabilities for the expected future tax consequences of events that
have been included in the Company's consolidated financial
statements or tax returns. Deferred tax assets and liabilities are
determined based on the differences between the financial
accounting and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are
expected to reverse.
Net Income (Loss) Per Share - Basic and diluted earnings per share
are computed by dividing net income (loss) by the weighted average
common shares outstanding (basic EPS) or weighted average common
shares outstanding assuming dilution (diluted EPS). Based on this
computation, there is no difference between basic and diluted net
income (loss) per share. Options that could potentially dilute
basic net income per share in the future were not included in the
computation of diluted net income per share because to do so would
have been anti-dilutive. Anti-dilutive options were 285,717,
297,245 and 312,858 for 1997, 1998 and 1999, respectively.
Recent Accounting Pronouncements - In June 1998, the Financial
Accounting Standards Board, ("FASB"), issued Statement of
Financial Accounting Standard ("SFAS") 133, Accounting for
Derivative Instruments and Hedging Activities. It requires that an
entity recognize all derivative financial instruments (including
derivatives embedded in other transactions) as either assets or
liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133 , as amended, is
required to be adopted for years beginning after June 15, 2000.
The Company is currently evaluating SFAS 133 and has not yet
determined its impact on the Company's consolidated financial
statements.
Reclassifications - Certain prior years amounts have been
reclassified to conform with the 1999 presentation.
F-8
2. ACCOUNTS RECEIVABLE
-------------------
Accounts receivable consist of the following:
1998 1999
----------- -----------
Amounts receivable from the
United States Government $ 2,849,000 $ 641,000
Amounts receivable from other customers 3,974,000 2,944,000
Allowance for doubtful accounts (31,000) (45,000)
----------- -----------
Total $ 6,792,000 $ 3,540,000
=========== ===========
3. INVENTORIES
-----------
Inventories consist of the following:
1998 1999
----------- -----------
Purchased parts and subassemblies $12,874,000 $ 9,659,000
Work-in-process 4,993,000 4,290,000
----------- -----------
Total $17,867,000 $13,949,000
=========== ===========
Inventories, other than inventoried costs related to long-term
contracts, are stated at the lower of cost (principally first-in,
first-out) or market. Inventoried costs related to long-term
contracts (included in purchased parts and subassemblies and work-
in-progress) are stated at actual costs, including engineering and
manufacturing overheads, contract specific tooling, and other
related non-recurring costs incurred to date, reduced by amounts
identified with revenue recognized on units delivered or progress
completed. Inventoried costs related to long-term contracts are
reduced by charging any amounts in excess of estimated realizable
value to cost of sales. Inventories include amounts relating to
contracts and programs having production cycles longer than one
year and a portion thereof will not be realized within one year.
Inventories include an allowance for slow-moving and obsolete items
of $1,242,000, $1,383,000 and $665,000 at December 31, 1997, 1998
and 1999, respectively.
4. OTHER ASSETS
------------
The Company owned an investment in M-Systems Flash Disk Pioneers,
Ltd. ("M-Systems"), a company based in Israel. During 1997, the
Company sold 153,242 shares of M-Systems stock at a gain of
$566,000.
In 1993, the Company acquired certain assets of Mag-Tek, Inc., a
manufacturer of magnetic stripe products. The consideration
included aggregate discounted minimum royalty payments of
approximately $1,100,000. In August 1996, the Company and Mag-Tek,
Inc. entered into an agreement to terminate the minimum royalty
payment provisions of the related asset purchase contract. In
connection with this agreement, the remaining long-term debt of
$425,000 was written off and intangible assets were reduced by the
same amount. In 1997, the Company recognized a $432,000 impairment
in the value of all remaining Mag-Tek, Inc. assets including
inventory, equipment and intangible assets.
F-9
5. LONG-TERM DEBT
--------------
Long-term debt consists of the following:
1998 1999
------------ ------------
Term loan $ 10,271,000 $ 10,975,000
Industrial Development Authority
Revenue Bonds 5,074,000 4,767,000
------------ ------------
Total 15,345,000 15,742,000
Less current maturities 2,310,000 2,220,000
------------ ------------
Total $ 13,035,000 $ 13,522,000
============ ============
The Company's $15,000,000 revolving credit agreement with its
primary lender matured on May 31, 1999 and was converted into a
term loan payable in twelve equal quarterly installments commencing
August 31, 1999. The Company is currently in negotiation with
several lenders for a replacement line of credit. The balance
remaining on the revolving agreement at May 31,1999 that was
subsequently converted into a term loan was approximately
$12,000,000. The $12,000,000 term loan, at the Company's option,
bears interest at the bank's reference rate (7.75% and 8.75% at
December 31, 1998 and 1999, respectively), or at a rate equaling the
London Inter Bank Offered Rate (5.31% and 6.42% at December 31, 1998
and 1999, respectively) plus 2.0%. The Company's accounts receivable,
contract rights and inventories are pledged as collateral to the
agreement.
Principal payments for the Industrial Development Authority Revenue
Bonds (the "Bonds") range between $345,000 and $670,000 from
December 2000 through December 2009. Repayment of the Bonds is
secured by an irrevocable letter of credit in an amount up to
$5,700,000 that in turn is secured by a mortgage on the Montgomery
and Troy, Alabama facilities and a security interest in the
equipment located at such facilities. Letter of credit commitment
fees paid during 1998 and 1999 were $64,000 and $60,000,
respectively. Property and equipment with a carrying value of
$7,281,000 and $6,584,000 at December 31, 1998 and 1999,
respectively, are pledged as collateral. The agreement with the
Industrial Development Authority bears interest at a variable
market rate that ranged from 4.97% to 6.57% during 1999, and was
5.62% and 6.25% at December 31, 1998 and 1999, respectively.
The credit agreements referenced above include various provisions
requiring the maintenance of certain financial ratios and
limitations on (i) transactions with affiliates, (ii) other debt
and guarantees, (iii) investment in, and advances to, other
entities, and (iv) payment of dividends. The Company's bank loan
agreement permits the Company to pay annual dividends of up to 50%
of the prior year's net income. At December 31, 1999, the Company
was in default of certain financial ratio requirements related to
minimum net worth and cash flows measured annually and to total
liabilities and tangible net worth measured quarterly. In addition,
the Company is in arrears on its November 1999 principal payment of
$975,000. The Company obtained a letter dated March 28, 2000, from
the primary lender waiving all violations as of December 31, 1999;
revising the ratio requirement for total liabilities to tangible net
worth for the measurement dates in 2000; and revising the principal
payment requirements for 2000 to a total of $1,875,000.
The aggregate maturities of current and long-term debt subsequent
to December 31, 1999, reflecting the revision by the primary lender
are presented below.
F-10
Year Ending December 31,
------------------------
2000 $ 2,220,000
2001 3,880,000
2002 4,420,000
2003 2,055,000
2004 490,000
Thereafter 2,677,000
-----------
Total $15,742,000
===========
The fair value of long-term debt approximated the carrying value as
of December 31, 1998 and 1999, as all instruments are at variable
interest rates.
6. INCOME TAXES
------------
The provision (benefit) for income taxes consists of the following:
1997 1998 1999
------------ ----------- -----------
Current:
Federal $ 9,000 $ 303,000 -
State 51,000 - -
Deferred (2,120,000) (1,579,000) -
----------- ----------- -----------
Total $(2,060,000) $(1,276,000) $ -
=========== =========== ===========
The deferred tax assets and liabilities at December 31, 1998 and
1999 are comprised of the following:
1998
-----------------------------------------
Deferred
Deferred Tax
Tax Assets Liabilities Total
----------- ----------- ----------
Current:
Inventories $ 722,000 $ - $ 722,000
Non-deductible accruals 107,000 - 107,000
----------- ---------- ----------
Total current 829,000 - 829,000
----------- ---------- ----------
Long-term:
Intangible assets 3,000 - 3,000
Net operating loss
carryforward 3,422,000 - 3,422,000
Alternative minimum tax
credit carryforward 240,000 - 240,000
Accelerated depreciation - (330,000) (330,000)
----------- ---------- ----------
Total long-term 3,665,000 (330,000) 3,335,000
----------- ---------- ----------
Net $ 4,494,000 $ (330,000) $4,164,000
=========== ========== ==========
F-11
1999
-----------------------------------------
Deferred
Deferred Tax
Tax Assets Liabilities Total
----------- ----------- ----------
Current :
Inventories $ 729,000 $ - $ 729,000
Non-deductible accrual 109,000 - 109,000
Prepaid expenses - (19,000) (19,000)
----------- ---------- ----------
Total current 838,000 (19,000) 819,000
Valuation allowance (284,000) - (284,000)
----------- ---------- ----------
Net current 554,000 (19,000) 535,000
----------- ---------- ----------
Long-term:
Intangible assets 2,000 2,000
Net operating loss
carryforward 4,754,000 4,754,000
Government obligations 611,000 611,000
Alternative minimum tax
credit carryforward 240,000 240,000
Accelerated depreciation - (100,000) (100,000)
----------- ---------- ----------
Total long-term 5,607,000 (100,000) 5,507,000
Valuation allowance (1,878,000) (1,878,000)
----------- ---------- ----------
Net long-term 3,729,000 (100,000) 3,629,000
----------- ---------- ----------
Net $ 4,283,000 $ (119,000) $ 4,164,000
=========== =========== ===========
At December 31, 1999, the Company established a valuation allowance
of $2,162,000 against the net deferred tax assets. Although
realization is not assured , management believes it is more likely
than not that the recorded deferred tax asset, net of valuation
allowance provided, will be realized. The valuation allowance can
be adjusted in future periods as the probability of realization of
the deferred tax asset changes.
The Company has net operating loss carryforwards for federal income
tax purposes at
December 31, 1999 of approximately $13,360,000 that expire as
follows: $5,880,000 in 2009, $1,290,000 in 2010, $2,460,000 in 2018
and $3,730,000 in 2019. The Company also has approximately $240,000
of alternative minimum tax credit carryforwards available to offset
future federal income taxes.
F-12
The Company's benefit for income taxes differs from the amount
computed using the federal statutory tax rate as a result of the
following items:
1997 1998 1999
------------ ------------ ------------
Amount at federal statutory rate $ 412,000 $ (1,461,000) $ (1,904,000)
Increases (reductions) due to:
State taxes - net of federal
income tax benefit 38,000 (119,000) (261,000)
Change in valuation allowance (2,524,000) - 2,162,000
Adjustment to estimated income
tax accruals - 207,000 -
Other 14,000 97,000 3,000
------------ ------------ ------------
Total $ (2,060,000) $ (1,276,000) $ -
============ ============ ============
7. EMPLOYEE BENEFIT PLANS
----------------------
Savings Plan - The Company has a profit-sharing/401(k) retirement
plan (the "Plan") which covers substantially all employees.
Company contributions are discretionary and are determined annually
based on profits. The Plan allows for an employee pay conversion
feature whereby each eligible employee may contribute up to 15% of
their total pay. The Company's provision pursuant to the Plan
amounted to $91,000 in 1997. The Company made no contributions for
1998 or 1999.
Performance Based Bonus Plan - The Company has a bonus plan that
provides for additional compensation to certain executive officers.
The bonus is payable upon the attainment of certain
financial targets that are approved by the Board of Directors, and
is calculated as a specified percentage of the officer's current
base salary. The Company's bonus provision for 1997 was $132,000.
No bonus provision was made for 1998 or 1999.
F-13
8. STOCK OPTIONS
-------------
The Company has an Incentive Stock Option Plan ("ISO"), a
Management Stock Option Plan ("MSO") and a Key Employee Stock
Option Plan ("KSO"). The ISO, MSO and KSO Plans were cancelled in
1994 and 1995. In addition, on April 11, 1995, the Company adopted
the 1995 Stock Option and Performance Award Plan ("SOPA") which was
approved by the Company's stockholders on June 5, 1995. Under the
ISO, MSO, KSO and SOPA plans, 376,780, 187,700, 150,000 and 500,000
shares of common stock, respectively, were reserved for issuance
under options to be granted for periods not to exceed ten years at
an exercise price not less than the fair market value of the shares
at the date of grant, then are exercisable at a cumulative rate of
25% in each of the first four years subsequent to the applicable
grant.
Under separate plans, certain of the Company's outside directors
have been granted options to purchase shares of common stock at
exercise prices of 85% of the fair market value of such shares at
date of grant. Such options are exercisable at any time during the
term of ten years as long as the recipient is a director or within
one year after termination of service.
A summary of the Company's stock options as of December 31, 1997,
1998 and 1999 and changes during the year ended on those dates is
presented below:
1997 1998 1999
-------------------------------- -------------------------------- ---------------------------------
Weighted Weighted Weighted
Weighted Average Weighted Average Weighted Average
Options Average Fair Value Options Average Fair Value Options Average Fair Value
for Exercise at Grant for Exercise at Grant for Exercise at Grant
Shares Price Date Shares Price Date Shares Price Date
------- --------- ---------- ------- -------- ---------- ------- -------- ----------
Outstanding at
beginning of year 283,479 $3.57 285,717 $3.56 297,245 $3.14
Granted
Price = fair value 18,600 $3.71 $2.60 83,000 $2.93 $1.99 161,500 $1.41 $0.99
Price < fair value 9,118 $3.29 $2.82 23,528 $1.28 $1.05
Exercised (4,375) $2.48
Canceled (21,105) $3.94 (95,000) $3.73 (145, 887) $3.24
------- ------- ---------
Outstanding at end
of year 285,717 $3.56 297,245 $3.14 312,858 $2.20
======= ======= =======
Options exercisable
at December 31:
Director options 74,117 $3.44 97,645 $2.92 46,758 $2.25
Employee options 105,500 $3.93 77,150 $3.61 64,050 $3.61
------- ------- -------
Total 179,617 $3.73 174,795 $3.22 110,808 $3.04
======= ======= =======
F-14
The following table summarizes information about stock options
outstanding at December 31, 1999:
Options Outstanding Options Exercisable
--------------------------------------------------- ------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Life Exercise Price Outstanding Exercies Price
--------------------------------------------------- ------------------------------
Range of Exercise Prices
$1.25 $4.46 295,858 8.36 $ 2.01 93,808 $ 2.59
$5.50 $5.50 17,000 3.72 $ 5.50 17,000 $ 5.50
------- -------
312,858 8.11 $ 2.20 110,808 $ 3.04
======= =======
The Company applied Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations in accounting for its employee and director plans.
Compensation expense related to these plans under this methodology
is insignificant. Had compensation cost been determined based on
the fair value at the grant date for awards under these plans
consistent with the methodology prescribed under SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS 123), the Company's
net income (loss) and basic and diluted net income (loss) per share
would approximate the pro forma amounts below.
1997 1998 1999
----------- ------------ ------------
Net income (loss):
As reported $ 3,271,000 $ (3,021,000) $ (5,601,000)
Pro forma $ 3,173,000 $ (3,102,000) $ (5,666,000)
Basic and diluted net income (loss) per share:
As reported $ 0.56 $ (0.51) $ (.95)
Pro forma $ 0.54 $ (0.53) $ (.97)
Because the SFAS 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected
in future years.
For purposes of SFAS 123, the weighted average fair value of the
options granted during 1997, 1998 and 1999 is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following assumptions:
1997 1998 1999
-------- -------- --------
Expected life (years) 10.0 10.0 10.0
Risk-free interest rate 5.74% 5.87% 5.62%
Dividend rate 0% 0% 0%
Expected volatility 52.30% 49.96% 57.18%
F-15
9. COMMITMENTS AND CONTINGENCIES
-----------------------------
Leasing Arrangements - The Company is obligated under several non-
cancelable operating leases covering land, office facilities and
equipment. The corporate headquarters resides upon land under a
lease which provides for minimum rentals through 2086. Minimum
rentals are subject to increases based on the annual consumer price
index. Future minimum lease payments under all operating leases
with an initial or remaining non-cancelable lease term of more than
one year at December 31, 1999 are as follows:
Year Ending December 31,
------------------------
2000 $ 297,000
2001 219,000
2002 200,000
2003 163,000
2004 57,000
Thereafter 2,673,000
-----------
Total $ 3,609,000
===========
Aggregate rental expense under operating leases amounted to
$237,000, $282,000 and $353,000 in 1997, 1998 and 1999,
respectively.
The Company leases office space at its Hope Hull facility to
tenants on a year-to-year basis, as well as under a multi-year
lease with entities affiliated through certain common ownership,
where future minimum lease receipts at December 31, 1999 are as
follows:
Year Ending December 31,
------------------------
2000 $ 160,000
2001 100,000
2002 100,000
---------
Total $ 360,000
=========
Aggregate rental income under operating leases amounted to $219,000
$162,000 and $143,000 in 1997, 1998 and 1999, respectively. Rental
income from related parties was $118,000 in 1997, $149,000 in 1998
and $143,000 in 1999.
Litigation - The Company, from time to time, is a party to pending
or threatened legal proceedings and arbitration in the ordinary
course of business. Based upon information currently available,
and in light of legal and other defenses available to the Company,
management does not consider liability from any threatened or
pending litigation to be material to the financial statements.
Claims - From time to time the Company has certain of its
contracts that may be subject to final negotiation or modification
with the customer in the ordinary course of business. Although the
ultimate outcome of these negotiations or modifications is unknown
at December 31, 1999, the Company believes that additional costs
evolving from these negotiations will not be material.
F-16
10. SEGMENT INFORMATION
-------------------
The Company's reportable segments are presented in accordance with
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.
General
1997 Military/Rugged Commercial Eliminations Corporate Consolidated
----- --------------- ------------ ------------ ------------ ------------
Net sales from external customers $ 20,853,000 $ 19,519,000 $ - $ 40,372,000
============ ============ ============ ============
Segment operating profit $ 412,000 $ 1,549,000 $ - $ 1,961,000
============ ============ ============ ============
Identifiable assets $ 22,037,000 $ 12,301,000 $ - $ 4,111,000 $ 38,449,000
============ ============ ============ =========== ============
Capital expenditures $ 8 91,000 $ 834,000 $ 1,725,000
============ ============ ============
Depreciation and amortization $ 1,052,000 $ 618,000 $ 1,670,000
============ ============ ============
General
1998 Military/Rugged Commercial Eliminations Corporate Consolidated
------ --------------- ------------ ------------ ------------ ------------
Net sales from external customers $ 14,768,000 $ 11,676,000 $ - $ 26,444,000
============ ============ ============ ============
Segment operating loss $ (3,280,000) $ (215,000) $ - $ (3,495,000)
============ ============ ============ ============
Identifiable assets $ 25,184,000 $ 8,311,000 $ - $ 5,443,000 $ 38,938,000
============ ============ ============ =========== ============
Capital expenditures $ 389,000 $ 315,000 $ 704,000
============ ============ ============
Depreciation and amortization $ 958,000 $ 548,000 $ 1,506,000
============ ============ ============
F-17
General
1999 Military/Rugged Commercial Eliminations Corporate Consolidated
------ --------------- ------------ ------------ ------------ ------------
Net sales from external customers $ 16,185,000 $ 14,048,000 $ - $ 30,233,000
============ ============ ============ ============
Segment operating loss $ (2,631,000) $ (1,786,000) $ - $ (4,417,000)
============ ============ ============ ============
Identifiable assets $ 19,147,000 $ 6,559,000 $ - $ 7,646,000 $ 33,352,000
============ ============ ============ =========== ============
Capital expenditures $ 341,000 $ 316,000 $ 657,000
============ ============ ============
Depreciation and amortization $ 790,000 $ 440,000 $ 1,230,000
============ ============ ============
In 1997, 1998 and 1999, foreign sales accounted for 5%, 2% and 2%
respectively, of the military/rugged segment net sales and 60%, 7%
and 21%, respectively, of the commercial segment net sales.
During 1997, 1998 and 1999, the United States Government accounted
for 39%, 51% and 51% of consolidated net sales of the Company,
respectively.
11. UNAUDITED QUARTERLY FINANCIAL DATA
----------------------------------
Summarized unaudited quarterly financial data for the years ended
December 31, 1998 and 1999 is as follows:
Thirteen Weeks Ended
------------------------------------------------------------
March 29, June 28, September 27, December 31,
1998 1998 1998 1998
------------ ----------- ------------ -----------
Net Sales $ 7,444,000 $ 5,939,000 $ 5,409,000 $ 7,652,000
=========== =========== =========== ===========
Gross Profit $ 1,938,000 $ 1,056,000 $ 725,000 $ 1,202,000
=========== =========== =========== ===========
Net Loss $ (45,000) $(1,251,000) $ (903,000) $ (822,000)
=========== =========== =========== ===========
Basic and diluted net loss
per share $ (.01) $ (.21) $ (.15) $ (.14)
==== ==== ==== ====
Thirteen Weeks Ended
------------------------------------------------------------
March 28, June 27, September 26, December 31,
1999 1999 1999 1999
------------ ----------- ----------- -----------
Net Sales $ 7,381,000 $ 7,242,000 $ 8,305,000 $ 7,305,000
=========== =========== =========== ===========
Gross Profit $ 1,544,000 $ 453,000 $ 1,234,000 $ 834,000
=========== =========== =========== ===========
Net Loss $ (294,000) $(2,230,000) $(1,343,000) $(1,734,000)
=========== =========== =========== ===========
Basic and diluted net loss
per share $ (.05) $ (.38) $ (.23) $ (.29)
==== ==== ==== ====
F-18
12.RELATED PARTY TRANSACTIONS
--------------------------
During 1997, 1998, and 1999, the Company recorded sales of
$10,640,000, $2,186,000 and $2,382,000, respectively, to entities
which are affiliated through certain common ownership. At December
31, 1998 and 1999, accounts receivable on such sales were
$1,079,000 and $1,350,000, respectively. During 1999, the Company
received consulting and management services from a company
affiliated through common ownership. Fees for such services of
$628,000 are included in selling, general and administrative
expenses and $598,000 of this amount expensed is included in
accrued expenses at December 31, 1999.
F-19
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 2-97977, No. 33-8245, No. 33-78744 and No. 33-65233 of Miltope Group
Inc. on Forms S-8 and No. 33-33752 of Miltope Group Inc. on Form S-3 of
our report dated February 18, 2000 (March 28, 2000 as to the waiver
letter described in Note 5) appearing in this Annual Report on Form 10-K
of Miltope Group Inc. for the year ended December 31, 1999.
/s/Deloitte & Touche LLP
- ------------------------
Birmingham, Alabama
March 29, 2000
F-20
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
March 29, 2000 /s/ Thomas R. Dickinson
-----------------------
Thomas R. Dickinson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
March 29, 2000 /s/ Thomas R. Dickinson
-----------------------
Thomas R. Dickinson
President and Chief Executive
Officer (Principal Executive Officer)
March 29, 2000 /s/ Teddy G. Allen
------------------------
Teddy G. Allen
Chairman of the Board of
Directors
March 29, 2000
William L. Dickinson
Director
March 29, 2000
Lawrence P. Farrell, Jr.
Director
March 29, 2000 /s/ William Mustard
-------------------
William Mustard
Director
March 29, 2000 /s Teri Spencer
-------------------
Teri Spencer
Director
March 29, 2000
Jan H. Stenbeck
Director
March 29, 2000 /s/ Jerry O. Tuttle
--------------------
Jerry O. Tuttle
Director