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, 2001 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.)
3800 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 $3,918,407 as of February 8, 2002.
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 8, 2002.
Documents Incorporated by Reference:
The definitive Proxy Statement for the Annual Meeting of Stockholders
to be held April 25, 2002, 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.
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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"), IV Phoenix Group, Inc.
a New York corporation ("PGI") 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 that, 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 ("GUI"), 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 reorganization of GUI in June 1999, the Company became a subsidiary
of GUI, 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 The 1999 Great Universal LLC Trust (the "Trust") was
formed and MIC-USA assigned all ownership interest of GU-LLC to the
Trust. GU-LLC provides, through its operating subsidiaries, integrated
network products and services, consulting engineering, billing systems
applications, teleservices, television and media and specialized
electronics products and services.
Miltope designs, develops, and manufactures 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 is designed and qualified for use as part of in-flight
entertainment, cabin management, and communication systems and is
certified for use aboard virtually every commercial and business jet
platform.
In September 1994, the Company relocated its headquarters from
Melville, New York to Montgomery, Alabama.
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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.
On April 1, 2000, the Company entered into an agreement with GUI,
to acquire GUI's ownership of 90% of the outstanding stock of PGI.
Since GUI, through its controlling interest in the Company, continues
to own a controlling interest in PGI after the acquisition, the
acquisition has been recorded on the Company's books at GUI's
historical cost and accounted for on an "as if pooled basis".
Accordingly, the accompanying financial statements have been restated
on this basis to reflect the inclusion of PGI in prior years.
PGI was founded in 1994 and until August 17, 2001 was engaged in
engineering design and development of small, rugged hand-held computers
utilizing commercial off the shelf ("COTS") technology to provide
application solutions for environments where extremes in temperature,
shock and vibration are commonplace. On August 17, 2001, the Company
moved the manufacturing operations of PGI from facilities in Hauppauge,
New York, to the Company's manufacturing facilities in Hope Hull,
Alabama.
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, which includes the activities of PGI, and the manufacture and
distribution of commercial products conducted by the "Commercial"
segment. 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. During the late 1980's Miltope modified
its focus to the ruggedization of COTS products in lieu of the typical
MIL-SPEC systems previously procured by the Department of Defense
("DOD"). The intent was to take advantage of the accelerated
improvements occurring in the commercial electronics industry by
procuring commercially available products that have been improved to
meet the operational and environmental realities the military faces in
its mission. Miltope's focus on the military markets is on rugged and
militarized versions of computing systems used in ensuring that
tactical and non-tactical mission requirements are met. Expert
engineering skills and techniques are utilized to augment the use of
COTS modules to meet extended temperature, shock, vibration, altitude,
and humidity conditions that are encountered during military missions.
During 1995, Miltope 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
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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 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 DOD 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 more severe environmental and operational
requirements than commercially available substitutes. This
ruggedization technique therefore enhances the state-of-the-art
capabilities of commercial equipment when appropriately re-designed to
withstand military and airborne application requirements.
Production of equipment conforming to these DOD specifications has
required the development over the years by Miltope of proprietary
electronic and electro-mechanical designs and engineering techniques
and specialized manufacturing and testing methods. By these means,
Miltope 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, Miltope has extensive manufacturing equipment, clean rooms
and reliability and environmental testing facilities as well as a
Company wide multi-function computer aided 3D design ("CAD") system and
EMI test lab facilities.
One of Miltope's newer product designs is a Militarized Mass
Storage system providing 288 Giga-Bytes of memory in a tactical,
airborne, compact, military enclosure. This system's interface is
based on high throughput fiber 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
at altitudes exceeding 40,000 feet.
Military/rugged products are sold for use in a broad range of
military programs for the United States Air Force, Army, Navy, Marine
Corps, NATO, and for multiple foreign 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 Boeing Aerospace,
General Dynamics, Lockheed Martin, Motorola, Rockwell-Collins, BAE, BF
Goodrich, Teledyne Controls, Stewart & Stevenson, Sierra Research, CAE,
and ITT Defense Systems.
Miltope believes that it has captured a major portion of the
market for militarized rugged laptop computers. In addition, Miltope
is recognized as a leading supplier of rugged printers, mass storage
systems and related equipment. A key element of Miltope's strategy has
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been to develop and deliver a broad range of high reliability computers
and computer peripherals 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 award of the United States Army's MSD program in
May of 2001.
In June 1996, Miltope was awarded a five-year DOD contract for
SPORT. SPORT has enhanced 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 8, 2002, Miltope has
been issued firm orders valued at approximately $69,000,000 under this
contract. In addition, Miltope has received orders for SPORT equipment
from other defense contractors.
In August 1999, Miltope 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 gives the United
States Army the ability to perform automatic test, diagnostics and
maintenance on diesel engines on all wheeled and tracked vehicle
platforms. This contract is a yearly award over an estimated period of
three years. As of February 8, 2002, Miltope has exceeded the initial
contract estimate of $12,000,000 and has received firm orders of
approximately $25,300,000.
In October 1999, Miltope 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.
As of February 8, 2002, Miltope has exceeded the initial contract
estimate and has received firm orders of approximately $1,000,000.
In December 1999, Miltope 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. As of February 8, 2002, Miltope has exceeded the initial
contract estimate and has received firm orders of approximately
$1,800,000.
In May 2001, Miltope was awarded a five-year DOD contract for the
U.S. Army Maintenance Support Device ("MSD") that is the follow on to
the SPORT contract Miltope was awarded in 1996. The MSD is based on
the Miltope Model TSC - 750 militarized laptop computer. The MSD will
be used in forward areas under extreme weather and handling conditions
by the U.S. Army for on-system diagnostics and maintenance on all U.S.
Army weapons platforms, generators and wheeled and tracked vehicles.
The contract has an estimated value of approximately $120,000,000 over
a five-year period. There can be no assurances this estimate of
purchase requirements will be achieved over the five-year period of the
contract. As of February 8, 2002, Miltope has received firm orders of
approximately $8,000,000 for the initial qualification testing, field
test units and initial production units. Subsequent to February 8,
2002 Miltope has received additional firm orders of approximately
$27,000,000 for delivery of this product in 2002 and early 2003.
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During 2001, Miltope worked extensively with PGI in transitioning
the manufacturing of the SMART-T product line from Hauppauge, New York
to Springfield, Vermont. Miltope is currently producing the SMART-T
Remote Operator Unit ("ROU") and Handheld Terminal Unit ("HTU") for
Raytheon Company in both its Springfield, Vermont facility and its Hope
Hull, Alabama facility under license from PGI. On February 19, 2002,
Miltope received firm delivery orders from Raytheon Company for this
product in the amount of approximately $2,100,000. The SMART-T ROU and
HTU are part of the multi-service, MilStar satellite program for
extremely high frequency, worldwide, tactical data and voice
communications. The system provides the security, mobility and anti-
jamming capability required to defeat the electronic threat and satisfy
critical communications needs.
On March 11, 2002, Miltope received firm delivery orders from the
United States Army Tank Automotive Command in the amount of
approximately $5,000,000 plus options of another $1,000,000 for the
upgrade, manufacture and test of the Mortar Fire Control System
Commander's Interface computer. After the initial re-design, this
product will be produced under license from PGI at Miltope's ISO 9002
certified Hope Hull, Alabama facility. The Commander's Interface
computer provides field level fully integrated, on board digital
processing and control of all Mortar Fire Control System components to
enhance weapon location/orientation, navigational and ballistic
solutions.
Despite the downward trend of military budgets over the past few
years the Company has seen growth in the areas of rugged computers and
peripherals. Additionally, the Company is also seeing growth in market
sectors related to the introduction of commercial rugged electronics
products and components into military applications. The Company
believes that the events of September 11, 2001, have, and will continue
to have, a profound effect on how every company in the United States
does business with the DOD. As the war on terrorism has unfolded and
expanded, overall military spending has increased dramatically and will
continue to increase in the areas of computing and electronics over the
next several years. As this military spending expansion continues, the
Company believes that Miltope will benefit from its continued efforts
to meet military environmental requirements with modified commercial
equipment and components.
Commercial - General
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The commercial segment develops, manufactures and markets
commercial products primarily for transportation, telecommunications
and in-flight maintenance markets. Miltope products comprising this
segment are airborne printers, airborne data servers, airborne
telephony servers, airborne in-flight workstations, airborne
maintenance access terminals, mass storage devices, wireless (802.11)
access modules and other derivatives of rugged hand held Intelr based
systems originally developed for military applications. This segment's
business represented approximately 25% of the Company's 2001 revenues,
approximately 32% of the Company's 2000 revenues and approximately 39%
of the Company's 1999 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
Windows2000, Windows98, Windows NT, Windows CE, Linux, Solaris, and
HP-UX. Miltope also continues to develop and improve various products
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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
2001, 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, Fairchild-Dornier, Qantas
Airways, United Airlines and AMR Eagle. As of February 8, 2002,
Miltope has received firm orders of approximately $2,900,000 for
airborne printer production over the remainder of 2002.
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 8, 2002, Miltope has
received firm orders of approximately $5,900,000 under this agreement.
In March 2000, Miltope entered into an agreement with Tenzing,
Inc. to provide airborne telephony servers for Tenzing's FlightConnect
TM service for use on commercial passenger airlines throughout the
world. As of February 8, 2002, Miltope has received firm orders of
approximately $2,000,000 under this agreement.
In April 2000, Miltope entered into a ten year contract with
Empresa Brasileira De Aeronautica (Embraer) to provide flight deck
printers, beginning in 2002, for use on board their ERJ-170, ERJ-190-
100 and ERJ-190-200 regional and commuter jet aircraft. The estimated
contract value is in excess of $15,000,000 over the ten-year period of
performance ending in 2010. The estimated 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 8, 2002, Miltope has not
yet received any firm orders for deliveries under this contract.
Sales and Significant Customers
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Sales in 2001 attributable to the military/rugged industry segment
were approximately as follows: 64% from large DOD programs (each
accounting for 5% or more of annual sales), 28% from smaller programs
and sales of standard items in Miltope's catalogue, 1% from sales to
foreign governments and defense contractors and 7% 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 2001, sales to the DOD accounted for 63% 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.
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Sales in 2001 attributable to the commercial industry segment
amounted to approximately 25% of the Company's total net sales.
During 2001, 2000 and 1999, the Company recorded sales of $0,
$14,000 and $44,000, respectively to Get.2.Net Corporation and 3C
Communications International, S.A., that are affiliates of the Company.
Government Contracts
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The Company'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. The Company'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, 2001 was $26,000,000, a 10.3% decrease from the
$29,000,000 backlog at December 31, 2000. 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 at December 31, 2001 will be
recognized as revenue by December 31, 2002. The Company also believes
that a substantial part of new delivery orders and contract funding
received in 2002 will be recognized as revenue in the same year due to
shorter lead times. Current backlog as of March 22, 2002, is
approximately $53,000,000.
Backlog for the commercial industry segment was approximately 25%
of the total backlog at December 31, 2001 and approximately 16% of the
total backlog at December 31, 2000.
Backlog does not include un-funded portions of multi-year
contracts.
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.
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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 enhancements to
bring the technology up to military and rugged requirements.
Engineering design techniques and expertise are leveraged across
all product lines enabling rapid development and improved time to
market. Management believes approximately 1% to 5% of net sales for
engineering, research and development expenditures should adequately
support the Company's business.
Engineering, research and development expenditures in 2001, 2000,
and 1999 were approximately $1,159,000, $659,000 and $1,445,000,
respectively.
The Company'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. The Company'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, 2001, the Company employed 154 full-time personnel
at Miltope and 2 full time personnel at PGI. 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 $450,000, $2,600,000 and $3,900,000 in 2001,
2000 and 1999, respectively. The Company recorded foreign sales in its
commercial industry segment of approximately $2,400,000, $1,800,000 and
$3,000,000 in 2001, 2000 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.
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Miscellaneous
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Neither of the Company's two industry segments is subject to
seasonal business fluctuations.
In August of 2001, the Company was recognized for its quality
initiatives and was awarded ISO 9002 certification for all the
Company's facilities by the Certification Body of TUV MANAGEMENT
SERVICE.
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ITEM 2. PROPERTIES
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The Company owns a 90,000 square foot manufacturing and
administrative facility located on 25 leased acres in Hope Hull
(Montgomery), Alabama ("Hope Hull").
In addition, the Company owns a 25,000 square foot clean room,
assembly and test facility in Springfield, Vermont.
The Company leases a 9,175 square foot engineering and
administrative facility in Boulder, Colorado.
The Company through IV Phoenix Group, Inc., its 90% owned
subsidiary, leases less than 1,000 square feet of administrative
offices in Hauppauge, New York.
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. On April 23,
2000, the Company sold its facility in Troy, Alabama to an unrelated
third party for a sales price of $900,000 with a $25,000 gain being
recognized in the quarter ended June 25, 2000. The proceeds of the
sale were used to reduce the Industrial Revenue Authority Bonds.
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
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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.
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PART II
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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, 2000 have been:
Calendar Year 2001 Low High
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First Quarter..................$ 5/8 $1-1/4
Second Quarter................. 51/64 2-3/16
Third Quarter..................1-13/32 2-13/64
Fourth Quarter.................1-31/64 2-7/8
Calendar Year 2000 Low High
------------------ ------- ------
First Quarter..................$ 3/4 $5-7/8
Second Quarter................. 1-7/8 3-7/8
Third Quarter.................. 1-3/8 2-3/8
Fourth Quarter................. 9/16 2-1/8
Holders of Common Stock
- -----------------------
As of February 8, 2002, there were approximately 2,158
shareholders of record and beneficial owners of the Company's Common
Stock.
Dividend Policy
- ---------------
No dividends were declared or paid in 2001, 2000 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.
-12-
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, 2001 that 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,
2001 2000 1999 1998 1997
Income statement data: ------- ------- ------- ------- -------
- ----------------------
Net sales $45,249 $40,730 $36,238 $35,509 $45,904
Gross profit 5,841 8,023 4,744 6,962 10,251
Loss before income taxes (2,277) (1,431) (7,804) (4,284) (415)
Net income (loss) (2,277) (1,431) (7,804) (3,008) 1,644
Basic and dilutednet income
(loss) per share (.39) (.24) (1.33) (.51) .28
Cash dividends declared per share - - - - -
Weighted average shares outstanding 5,872 5,872 5,872 5,872 5,870
Balance sheet data:
- -------------------
Working capital $ 6,210 $ 9,859 $10,386 $18,828 $18,031
Total assets 30,551 35,615 36,869 43,359 42,785
Long-term debt 6,650 9,654 13,986 15,123 11,374
Stockholders' 8,639 10,916 10,006 17,810 20,672
equity
-13-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-----------------------------------------------------------
The financial and business analysis below provides information
that the Company believes is relevant to an assessment and
understanding of the Company's consolidated financial condition,
changes in financial condition, and results of operations. This
financial and business analysis should be read in conjunction with the
consolidated financial statements and related notes.
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995
- ----------------------------------------------------------------------
The matters and statements made in this Annual Report on Form 10-K
constitute forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934. All such statements are made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Wherever possible, the Company has
identified these forward-looking statements by words such as
"anticipates," "may," "believes," "estimates," "projects," "expects"
"intends," and words of similar import. In addition to the statements
included in this Annual Report on Form 10-K, the Company and its
representatives may from time to time make other oral or written
forward-looking statements. All forward-looking statements involve
certain assumptions, risks and uncertainties that could cause actual
results to differ materially from those included in or contemplated by
the statements. These assumptions, risks, and uncertainties include,
but are not limited to, general business conditions, including the
timing or extent of any recovery of the economy, the highly competitive
nature of the industry in which the Company operates, the continued
involvement of military forces in the war on terrorism, the speed with
which consumers regain confidence in the safety of air transportation
and other risks and uncertainties. All such forward-looking statements
may be affected by inaccurate assumptions or by known or unknown risks
and uncertainties, and therefore those statements may turn out to be
wrong. Consequently, no forward-looking statement can be guaranteed.
Actual future results may vary materially.
All forward-looking statements are made as of the date of filing
or publication. We undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information,
future events or otherwise. Investors are advised, however, to consult
any further disclosures the Company makes in future filings with the
Securities and Exchange Commission or in any of its press releases.
Overview
- --------
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 segment can be further differentiated between the
activities of Miltope Corporation and those of its 90% owned
subsidiary, IV Phoenix Group, Inc.
Prior to September 11, 2001, this entire segment had been impacted
in recent years by reduced government spending and defense
appropriations. The militarized product area had been especially
subject to defense budget cuts. 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. As the
-14-
Army has pushed for further digitization of the battlefield, the
Company has pressed forward its initiatives in the tactical and
tactical supports areas. Budget constraints have forced the various
services to upgrade rather than replace. This has meant incremental
sales in the Company's mass memory and disk product lines.
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, mass storage devices, and derivatives of rugged hand-held
Intel based computers originally developed for military applications.
Results of Operations
- ---------------------
Consolidated
- ------------
The Company reported a consolidated net loss of approximately
$2,277,000 in 2001 compared to net losses of approximately $1,431,000
in 2000 and $7,804,000 in 1999. The basic and diluted net loss per
share was $.39 in 2001 compared to basic and diluted net losses per
share of $.24 in 2000 and $1.33 in 1999.
Sales in 2001 totaled approximately $45,249,000, an increase of
approximately $4,519,000, or 11.1%, from 2000. This change is
attributable to continued increases in SPORT units shipped and
increases in military printers partially offset by decreases in PGI's
total sales. Sales in 2000 totaled approximately $40,730,000, an
increase of approximately $4,492,000, or 12.4% from 1999. This change
was attributable to increases in SPORT units shipped and increases in
other airborne products that were partially offset by decreases in
PGI's total sales.
Gross profit, as a percent of sales, was 12.9% in 2001, 19.7% in
2000, and 13.1% in 1999. The decrease in 2001 from 2000 is largely due
to unforeseen expenditures required to complete several PGI initial-
award contracts. The increase in 2000 from 1999 is primarily
attributable to improvements in material costs and reductions in
overhead costs due to increased sales volume.
Selling, general and administrative expenses, as a percentage of
sales, were 13.7% in 2001, 18.6% in 2000, and 27.2% in 1999. The
decrease in 2001 as a percentage of sales was attributable to the
effect of planned reductions in administrative and marketing costs at
both Miltope and PGI. The decrease in 2000 as a percentage of sales
was attributable to increased sales coupled with planned reductions in
administrative and marketing costs.
Engineering, research and development expenses, as a percentage of
sales, was 2.6% in 2001, 1.6% in 2000, and 4.0% in 1999. The increase
in 2001 is attributable to efforts expended in relation to the new five-
year rugged laptop computer contract awarded to Miltope in May of 2001.
The continued decrease in 2000 was attributable to an overall increase
in customer funded research programs.
Interest expense-net decreased 39.6% in 2001 compared to 2000 due
to a $3,288,000 reduction in total debt and a decrease in interest
rates. The 3.6% decrease in 2000 compared to 1999 was attributable to
a $2,468,000 reduction in total debt partially offset by an increase in
interest rates from the prior year.
-15-
Miltope Corporation
- -------------------
Effective August 17, 2001, all manufacturing operations of PGI, an
operating division that is part of the military/rugged segment, were
shut down. Miltope has contracted with PGI to continue production of
selective PGI products in Miltope's facilities on a license fee basis.
All significant costs to close these manufacturing operations have been
included in the financial results of the thirteen and thirty-nine week
periods ended September 31, 2001. The Company believes any future
costs associated with this shutdown of PGI operations will not be
significant.
The following is a discussion of Miltope's (net of PGI) operating
results net of any intercompany activity with PGI.
Miltope (net of Eliminations)
(Amounts in thousands)
- ------------------------------------------------------------------------------------------------
Percentage Change
-----------------
2001 2000 1999 2001 vs 2000 2000 vs 1999
------- ------- ------- ------------ ------------
Net Sales $42,671 $36,811 $27,515 15.9% 33.8%
Cost of Sales 33,872 28,915 23,449 17.1% 23.3%
------- ------- -------
Profit Margin 8,799 7,896 4,066 11.4% 94.2%
------- ------- -------
Selling, G&A 4,979 5,735 7,238 (13.2)% (20.8)%
Engineering, R&D 1,120 541 1,245 107.0% (56.5)%
------- ------- -------
Income (loss) from Operations 2,700 1,620 (4,417) 66.7% 136.7%
Interest Expense - net 615 1,146 1,184 (46.3)% (3.2)%
------- ------- -------
Net Income (Loss) Before Income Taxes 2,085 474 (5,601) 339.9% 108.5%
Income Taxes - - - - -
------- ------- -------
Net Income (Loss) $ 2,085 $ 474 $(5,601) 339.9% 108.5%
======= ======= =======
Miltope reported net income of approximately $2,085,000 in 2001
compared to $474,000 in 2000 and to a net loss of approximately
$5,601,000 in 1999. The basic and diluted net income per share was
$.40 in 2001 compared to $.08 in 2000 and diluted net loss per share of
$.95 in 1999.
Sales for 2001 totaled approximately $42,671,000, an increase of
approximately $5,860,000, or 15.9%, from 2000. This change was
attributable to increases in SPORT related sales and increased military
and airborne printer sales. Sales for 2000 totaled approximately
$36,811,000, an increase of approximately $9,296,000, or 33.8%, from
1999. This change was attributable to increases in SPORT related sales
and airborne data server products.
Gross profit, as a percent of sales, was 20.6% in 2001, 21.5% in
2000, and 14.8% in 1999. The decrease in 2001 from 2000 was primarily
attributable to the cost of transitioning PGI products to Miltope
production facilities. The increase in 2000 from 1999 was primarily
attributable to a more favorable product mix and continued improvement
in material and overhead costs.
Selling, general and administrative expenses, as a percentage of
sales, were 11.7% in 2001, 15.6% in 2000, and 26.3% in 1999. The
decrease in 2001 as a percentage of sales was attributable to increased
sales coupled with continued reductions in administrative and marketing
costs. The decrease in 2000 as a percentage of sales was attributable
to increased sales coupled with planned reductions in administrative
and marketing costs.
-16-
Engineering, research and development expenses, as a percentage of
sales, was 2.6% in 2001, 1.5% in 2000, and 4.5% in 1999. The increase
in 2001 was primarily attributable to efforts expended in relation to
the new five-year rugged laptop computer contract awarded to Miltope in
May of 2001. The decrease in 2000 was attributable to the year-long
emphasis by company management on reducing cost in all areas of the
company coupled with increased levels of customer funded research
programs.
Interest expense, net of interest income, decreased 46.3% in 2001
compared to 2000 due to a decrease in total debt, decreased interest
rates, and increased interest income. Interest expense, net of
interest income, decreased 3.2% in 2000 compared to 1999 due to a
$2,018,000 decrease in total debt partially offset by an increase in
interest rates.
Liquidity and Capital Resources
- -------------------------------
The following is a breakdown of significant balance sheet
categories between Miltope and PGI:
Miltope PGI Consolidated
------- --- ------------
(Amounts in thousands) (Amounts in thousands) (Amounts in thousands)
---------------------- ---------------------- ----------------------
2001 2000 2001 2000 2001 2000
-------- ------- ------- ------- ------- -------
Cash and equivalents $ 901 $ 2,181 $ 219 $ 530 $ 1,120 $ 2,711
Receivables, net 6,339 7,457 849 476 7,188 7,933
Inventories & other current assets 12,872 12,233 272 1,978 13,144 14,211
-------- ------- ------- ------- ------- -------
Total current assets $20,112 $21,871 $ 1,340 $ 2,984 $21,452 $24,855
======== ======= ======= ======= ======= =======
Payables and other current $ 8,481 $ 5,581 $ 2,276 $ 4,486 $10,757 $10,067
liabilities
Short-term debt - - 640 800 640 800
Current portion of long-term debt 3,841 4,096 4 33 3,845 4,129
-------- ------- ------- ------- ------- -------
Total current liabilities $12,322 $ 9,677 $ 2,920$ 5,319 $15,242 $14,996
======== ======= ======= ======= ======= =======
Consolidated working capital at December 31, 2001 totaled
approximately $6,210,000, a decrease of approximately $3,649,000 from
December 31, 2000. Accounts receivable decreased approximately
$745,000 as a result of a lower volume of sales in the last quarter of
2001 as compared to the last quarter of 2000. Inventories decreased
approximately $1,461,000 as a result of continued management focus on
increasing inventory turns by closely monitoring sales levels and the
associative inventory levels required to meet those sales levels.
Current maturities of long-term debt decreased by approximately
$284,000 reflecting more favorable repayment terms on certain of the
Company's debt instruments.
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. This
balance was converted into a term loan payable in twelve equal
quarterly installments beginning August 31, 1999.
-17-
Cash provided by operating activities was approximately
$2,079,000 in 2001, $3,101,000 in 2000 and $2,512,000 in 1999. The
decrease in cash provided by operating activities in 2001 compared to
2000 and 1999 is primarily the result of cash expended due to the
shutdown of PGI operations during 2001 and the increase in cost over
revenue associated with the completion of certain PGI subcontracts .
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 coupled with the
proceeds from the offering of taxable revenue bonds (the "Bonds") by
the Alabama State Industrial Development Authority that was completed
on 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, Alabama facility and a security interest in the equipment
located at such facility.
The Company has net operating loss carryforwards for federal
income tax purposes of approximately $17,300,000 that expire as
follows: $6,800,000 in 2009, $1,290,000 in 2010, $2,460,000 in 2018,
$3,500,000 in 2019, $1,400,000 in 2020, and $1,850,000 in 2001. At
December 31, 2001, the Company has a valuation allowance of $3,659,000
against the 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.
Capital expenditures totaled $247,000 in 2001, $175,000 in 2000
and $750,000 in 1999. The increase in 2001 over 2000 was due to the
need for new manufacturing equipment for production and testing in
relation to the MSD five-year rugged laptop computer contract awarded
to Miltope in May of 2001. The decrease in 2000 expenditures from 1999
was due to a reduction in business development demonstration equipment
needs. The Company expects capital expenditures for 2002 to exceed the
2001 level by less than $1,000,000 because of tooling and set-up
expenses required for the new MSD contract awarded in 2001.
Depreciation and amortization expense for 2001 totaled $1,035,000
compared to $1,360,000 in 2000 and $1,613,000 for 1999. For 2002,
depreciation and amortization expense is expected to be approximately
$1,000,000.
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 any future lines of credit that the Company may
negotiate.
Contractual Obligations - (dollars in thousands)
- ------------------------------------------------
The Company's obligations to make future payments under
contracts as of December 31,2001 are summarized in the following table:
Contractual Obligations Total Less than 1 year 1-3 years 4-5 years Over 5 years
- -------------------------- ------- ---------------- --------- --------- ------------
Long-term debt $10,370 $ 3,802 $ 4,799 $ 1,085 $ 685
Capital lease obligations 125 43 82 - -
Operating leases 3,396 300 298 188 2,610
------- ------- ------- ------- -------
Total contractual obligations $13,891 $ 4,145 $ 5,179 $ 1,273 $ 3,295
======= ======= ======= ======= =======
-18-
Recent Accounting Pronouncements
- --------------------------------
In August 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposition of Long-lived Assets," which is effective
for fiscal years beginning after December 15, 2001. The Company is
currently evaluating SFAS No. 144 and has not yet determined its impact
on the Company's consolidated financial statements.
Statement of Financial Account Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, is
effective for all fiscal years beginning after June 15, 2000. SFAS
133, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. Under SFAS
133, certain contracts that were not formerly considered derivatives
may now meet the definition of a derivative. The Company adopted SFAS
133 effective January 1, 2001. The adoption of SFAS 133 did not have a
material impact on the financial position, results of operations, or
cash flows of the Company.
Critical Accounting Policies
- ----------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires the appropriate
application of certain accounting policies, many of which require us to
make estimates and assumptions about future events and their impact on
amounts reported in our financial statements and related notes. Since
future events and their impact cannot be determined with certainty, the
actual results will inevitably differ from our estimates. Such
differences could be material to the financial statements.
We believe application of accounting policies and the estimates
inherently required therein, are reasonable. These accounting policies
and estimates are constantly reevaluated, and adjustments are made when
facts and circumstances dictate a change. Our accounting policies are
more fully described in Note 1 to the financial statements, presented
elsewhere in this report on Form 10-K. We have identified certain
critical accounting policies that are described below.
Inventories-Provision for Slow Moving and Obsolescence - The Company
has various components in its inventory that relate to discontinued
products and warranty replacement parts and repairs. The Company
identifies slow moving or obsolete inventories and estimates
appropriate loss provisions related thereto. On an on-going basis the
Company evaluates its estimates of loss provisions by using various
reports and analysis to focus on inventory throughput trends, inventory
composition and inventory utilization over discrete periods of time.
Additionally, the Company tracks projected parts usage to parts on hand
inventory to minimize risk of overstocks.
Deferred Taxes - The Company records a valuation allowance to reduce
its deferred tax assets to the amount that it believes is more likely
than not to be realized. While the Company has considered future
taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event the
-19-
Company was to determine that it would not be able to realize all or
part of its net deferred tax assets in the future, an adjustment to the
deferred tax assets would be charged to income in the period such
determination was made. Likewise, should the Company determine that it
would be able to realize its deferred tax assets in the future in
excess of its net recorded amount, an adjustment to the deferred tax
assets would increase income in the period such determination was made.
Impairment of Long-lived Assets - In accordance with Statement of
Financial Accounting Standards ("SFAS") No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," the Company recognizes impairment losses on long-lived
assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amounts. In such cases, the Company
would record an impairment loss to reduce long-lived assets to their
fair value.
Effects of Inflation
- --------------------
Inflation has not had a significant impact on the Company's
results of operations.
Outlook for the Company
- -----------------------
The Company believes that the events of September 11, 2001,
have, and will continue to have, a profound effect on how every company
in the United States does business. As the war on terrorism has
unfolded and expanded, overall military spending has increased
dramatically and will continue to increase in the areas of computing
and electronics over the next several years. As this military spending
expansion continues, the Company believes that Miltope will benefit
from its continued efforts to meet military environmental requirements
with modified commercial equipment and components. The Company
believes the level of growth in revenue in the Company's commercial
airborne products market will remain low over the next twelve to
eighteen month period. Despite this belief, the Company continues to
focus appropriate resources in the development of products for the
airborne market as potential applications arise. The Company believes
that its results will be favorably affected in the future with
continued growth in the military coupled with the expected longer-term
recovery in its commercial airborne products markets.
-20-
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 (from 6.75% to 7.45.%) would
affect the Company's variable debt obligations and could potentially
reduce future earnings by approximately $42,000.
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.
-21-
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 2002
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, 2001.
Item 11. Executive Compensation.
-----------------------
The information called for by this item is incorporated by
reference from the Company's definitive Proxy Statement for its 2002
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, 2001.
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 2002
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, 2001.
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 2002
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, 2001.
-22-
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
Independent Auditors' Report of Other Auditors F-3
Consolidated Balance Sheets as of December 31,
2001 and 2000 F-4
Consolidated Statements of Operations for the Years
Ended December 31, 2001, 2000 and 1999 F-5
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 2001, 2000 and 1999 F-6
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2001, 2000 and 1999 F-7
Notes to Consolidated Financial Statements F-8
2. Financial Statement Schedule
The following financial statement schedule
for the years ended December 31, 2001, 2000, and
1999 is included in Part IV of this report on the
indicated page:
Schedule II Valuation and Qualifying Accounts and Reserves F-20
All other Schedules are omitted because of
the absence of conditions under which they are
required or because the required information is
provided in the financial statements or notes
hereto.
Independent Auditors' Consent F-21
Independent Auditors' Consent of Other Auditors F-22
3. Exhibits 23
(b) There have been no reports on Form 8-K filed during the last
quarter of the period
ended December 31, 2001.
-23-
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)].
-24-
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
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)].
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)].
-25-
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
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)].
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(j) Purchase and Sale Agreement, dated April 19, 1994,
between Collier Management Group, Inc. and
Miltope Corporation, with respect to 3800 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)].
-26-
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)].
-27-
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)].
-28-
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
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)].
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. 0-13433)].
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. 0-13433)].
-29-
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
10(q)(G) Stock Option Agreement, dated April 20, 2000,
between the Registrant and William L. Dickinson.
[Incorporated by reference to Exhibit 10(q)(G) to the
Registrants Form 10-K filed with the Commission on
April 4, 2001 (File No. 0-13433)].
*10(q)(H) Stock Option Agreement, dated April 19, 2001,
between the Registrant and William L. Dickinson.
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)].
10(u)(A) Stock Option Agreement, dated April 20, 2000,
between the Registrant and Jerry Tuttle.
[Incorporated by reference to Exhibit 10(u)(A) to the
Registrants Form 10-K filed with the Commission on
April 4, 2001 (File No. 0-13433)].
*10(u)(B) Stock Option Agreement, dated April 19, 2001,
between the Registrant and Jerry Tuttle.
10(v) Stock Option Agreement dated January 15, 1999
between the Registrant and Thomas R. Dickinson.
[Incorporated by reference to Exhibit 10(v) to the
Registrant's Form 10-K filed with the Commission
on March 31, 2000 (File No. 0-13433)].
10(v)(A) Stock Option Agreement dated May 4, 2000, between
the Registrant and Thomas R. Dickinson.
[Incorporated by reference to Exhibit 10(v) to the
Registrant's Form 10-K filed with the Commission
on April 4, 2001 (File No. 0-13433)].
*10(v)(B) Stock Option Agreement dated November 20, 2001,
between the Registrant and Thomas R. Dickinson.
_________
*Filed herewith
-30-
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
10(w) Stock Option Agreement, dated April 20, 2000,
between the Registrant and Lawrence P. Farrell.
[Incorporated by reference to Exhibit 10(w) to the
Registrants Form 10-K filed with the Commission on
April 4, 2001 (File No. 0-13433)].
*10(w)(A) Stock Option Agreement, dated April 19, 2001,
between the Registrant and Lawrence P. Farrell.
10(x) Stock Option Agreement dated June 25, 1999,
between the Registrant and Tom B. Dake.
[Incorporated by reference to Exhibit 10(x) to the
Registrant's Form 10-K filed with the Commission
on March 31, 2000 (File No. 0-13433)].
10(x)(A) Stock Option Agreement dated May 4, 2000,
between the Registrant and Tom B. Dake.
[Incorporated by reference to Exhibit 10(x)(A) to the
Registrant's Form 10-K filed with the Commission
on April 4, 2001 (File No. 0-13433)].
*10(x)(B) Stock Option Agreement dated November 20, 2000,
between the Registrant and Tom B. Dake.
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, 2002,
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 of their
report dated February 8, 2002 (March 6, 2002 as to the
waiver letter described in Note 5) appearing in this
Annual Report on Form 10-K for the year ended
December 31, 2001.
_________
*Filed herewith
-31-
THIS PAGE INTENTIONALLY LEFT BLANK
-32-
MILTOPE GROUP INC. AND SUBSIDIARIES
-----------------------------------
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------
Page
----
Independent Auditors' Report F-2
Independent Auditors' Report of Other Auditors F-3
Consolidated Balance Sheets as of December 31, 2001
and 2000 F-4
Consolidated Statements of Operations for the
Years Ended December 31, 2001, 2000 and 1999 F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2001, 2000 and 1999 F-6
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2001, 2000 and 1999 F-7
Notes to Consolidated Financial Statements F-8
The following financial statement schedule for the years ended
December 31, 2001, 2000, and 1999 is included in Part IV of this report
on the indicated page:
Schedule II Valuation and Qualifying Accounts and Reserves F-20
All other Schedules are omitted because of the absence of
conditions under which they are required or because the required
information is provided in the financial statements or notes hereto.
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 subsidiaries (a majority-owned subsidiary of Great
Universal Incorporated) as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity,
and cash flows for each of the three years in the period ended December
31, 2001. Our audits also included the consolidated financial
statement schedule listed in the index at Item 8. These financial
statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement
schedule based on our audits. The consolidated financial statements
give retroactive effect to the acquisition of IV Phoenix Group, Inc.,
(PGI) by Miltope Group, Inc. from Great Universal Incorporated, which
has been accounted for on an "as if pooled" basis as described in Note
2 to the consolidated financial statements. We did not audit the
statements of operations, stockholders' equity, or cash flows of PGI
for the year ended December 31, 1999, which statements reflect total
revenues of $8,721,000. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for PGI for 1999, is
based solely on the report of such other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 and the
report of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of the other
auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Miltope Group Inc. and subsidiaries at December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ Deloitte & Touche LLP
- -------------------------
Birmingham, Alabama
February 8, 2002 (March 6, 2002 as to the waiver
letter described in Note 5)
F-2
INDEPENDENT AUDITORS' REPORT OF OTHER AUDITORS
- ----------------------------------------------
To IV Phoenix Group, Inc.:
We have audited the accompanying balance sheet of IV Phoenix Group,
Inc. (a New York Corporation) as of December 31, 1999, and the related
statements of operations and accumulated deficit and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IV Phoenix
Group, Inc. as of December 31, 1999, and the results of its operations
and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
New York, New York
March 30, 2001
F-3
MILTOPE GROUP INC. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
- --------------------------------------------------------------------------------
ASSETS 2001 2000
- ------ ----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,120,000 $ 2,711,000
Accounts receivable 7,188,000 7,933,000
Inventories 11,416,000 12,877,000
Deferred income taxes 1,339,000 952,000
Other current assets 389,000 382,000
----------- -----------
Total current assets 21,452,000 24,855,000
----------- -----------
PROPERTY AND EQUIPMENT - at cost:
Machinery and equipment 7,588,000 8,911,000
Furniture and fixtures 1,588,000 1,628,000
Land, buildings and improvements 6,702,000 6,732,000
----------- -----------
Total property and equipment 15,878,000 17,271,000
Less accumulated depreciation and amortization 10,058,000 10,679,000
----------- -----------
Property and equipment - net 5,820,000 6,592,000
----------- -----------
DEFERRED INCOME TAXES 2,825,000 3,212,000
OTHER ASSETS 454,000 956,000
----------- -----------
TOTAL $30,551,000 $35,615,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 6,972,000 $ 5,533,000
Accrued expenses 3,785,000 4,534,000
Short-term debt 640,000 800,000
Current maturities of long-term debt 3,845,000 4,129,000
----------- -----------
Total current liabilities 15,242,000 14,996,000
LONG-TERM DEBT 6,650,000 9,654,000
OTHER LIABILITIES 20,000 49,000
----------- -----------
Total liabilities 21,912,000 24,699,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value; 20,000,000 shares
authorized; 6,811,112 shares outstanding 68,000 68,000
Capital-in-excess of par value 24,519,000 24,519,000
Retained earnings (deficit) (1,702,000) 575,000
----------- -----------
22,885,000 25,162,000
Less treasury stock, at cost 14,246,000 14,246,000
----------- -----------
Total stockholders' equity 8,639,000 10,916,000
----------- -----------
TOTAL $30,551,000 $35,615,000
=========== ===========
See notes to consolidated financial statements.
F-4
MILTOPE GROUP INC. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
- ----------------------------------------------------------------------------------------
2001 2000 1999
----------- ----------- -----------
NET SALES $45,249,000 $40,730,000 $36,238,000
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 39,408,000 32,707,000 31,494,000
Selling, general and administrative 6,224,000 7,578,000 9,840,000
Engineering, research and development 1,159,000 659,000 1,445,000
----------- ----------- -----------
Total 46,791,000 40,944,000 42,779,000
----------- ----------- -----------
LOSS FROM OPERATIONS (1,542,000) (214,000) (6,541,000)
INTEREST EXPENSE - net 735,000 1,217,000 1,263,000
----------- ----------- -----------
LOSS BEFORE INCOME TAXES (2,277,000) (1,431,000) (7,804,000)
INCOME TAXES - - -
----------- ----------- -----------
NET LOSS $(2,277,000) $(1,431,000) $(7,804,000)
=========== =========== ===========
BASIC AND DILUTED NET
LOSS PER SHARE $ (.39) $ (.24) $ (1.33)
=========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 5,871,523 5,871,523 5,871,523
=========== =========== ===========
See notes to consolidated financial statements.
F-5
MILTOPE GROUP INC. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
- -------------------------------------------------------------------------------------------------------------------------
Common Stock
------------ Capital-in- Retained
Par Excess of Earnings Treasury Stock
Shares Value Par Value (Deficit) Shares Cost
------ ------ ----------- -------- ------ -----------
Balance, January 1, 1999 6,811,112 $ 68,000 $22,178,000 $ 9,810,000 939,589 $14,246,000
Net loss - - - (7,804,000) - -
--------- --------- ----------- ----------- ------- -----------
Balance, December 31, 1999 6,811,112 68,000 22,178,000 2,006,000 939,589 14,246,000
Pre-acquisition conversion of
PGI related-party debt to equity 2,341,000
Net loss - - - (1,431,000) - -
--------- --------- ----------- ----------- ------- -----------
Balance, December 31, 2000 6,811,112 68,000 24,519,000 575,000 939,589 14,246,000
Net loss - - - (2,277,000) - -
--------- --------- ----------- ----------- ------- -----------
Balance, December 31, 2001 6,811,112 $ 68,000 $24,519,000 $(1,702,000) 939,589 $14,246,000
========= ========= =========== =========== ======= ===========
See notes to consolidated financial statements.
F-6
MILTOPE GROUP INC. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
- -------------------------------------------------------------------------------------------------------
2001 2000 1999
OPERATING ACTIVITIES: ----------- ----------- -----------
Net loss $(2,277,000) $(1,431,000) $(7,804,000)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,035,000 1,360,000 1,613,000
Provision for slow-moving and obsolete inventories 1,583,000 1,319,000 1,289,000
Provision for doubtful accounts receivable 345,000 182,000 551,000
Provision for asset impairment - - 281,000
Gain (loss) on sale of fixed assets 36,000 (22,000) -
Change in assets and liabilities provided (used) cash:
Accounts receivable 400,000 (3,638,000) 3,179,000
Inventories (123,000) 1,164,000 3,505,000
Other current assets (7,000) 30,000 (344,000)
Other assets 398,000 409,000 (386,000)
Accounts payable and accrued expenses 689,000 3,728,000 223,000
Other liabilities - - 405,000
----------- ----------- -----------
Net cash provided by operating activities 2,079,000 3,101,000 2,512,000
----------- ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures (247,000) (175,000) (750,000)
Proceeds from sale of property and equipment 166,000 900,000 -
----------- ----------- -----------
Net cash provided by (used in) investing activities (81,000) 725,000 (750,000)
----------- ----------- -----------
FINANCING ACTIVITIES:
Borrowings on long-term debt -- -- 10,009,000
Payments on long-term debt (3,589,000) (3,552,000) (9,632,000)
----------- ----------- -----------
Net cash provided by (used in) financing activities (3,589,000) (3,552,000) 377,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,591,000) 274,000 2,139,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,711,000 2,437,000 298,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,120,000 $ 2,711,000 $ 2,437,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments made for:
Income taxes $ 12,000 $ - $ 2,000
=========== =========== ===========
Interest $ 735,000 $ 980,000 $ 1,227,000
=========== =========== ===========
Equipment acquired under capital lease obligations $ 141,000 $ - $ -
=========== =========== ===========
See notes to consolidated financial statements.
F-7
MILTOPE GROUP INC. AND SUBSIDIARIES
- -----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
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"), IV Phoenix Group,
Inc. ("PGI"), and Miltope Business Products, Inc. ("MBP"). 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 ("GUI"). All amounts presented have been rounded to
the nearest thousand.
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 accounting principles
generally accepted in the United States of America which requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Fair Value of Financial Instruments - The carrying value of the
Company's cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses and short-term debt 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 maturities of three months or less to be
cash equivalents.
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.
Inventories - Inventories are stated at the lower of cost (first-
in, first-out) or market. Inventoried costs include direct
materials, direct labor, engineering and manufacturing overhead,
contract specific tooling, and other related costs.
Long-Lived Assets - In accordance with Statement of Financial
Accounting Standards ("SFAS") No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," the Company recognizes impairment losses on long-
lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. In
such cases, the Company would record an impairment loss to reduce
long-lived assets to their fair value.
F-8
Revenue Recognition - The Company generates revenue from its
operating segments, commercial and military/rugged. All commercial
products are generally priced to the customer on a price per unit
basis. The Company recognizes revenue based on the price per unit
at the time delivery of the product is made and title, ownership
and risk of loss passes to the customer. In the military/rugged
segment the Company recognizes revenue from fixed price contracts
for products when deliveries are made or work performed and title,
ownership and risk of loss passes to the customer. The Company
recognizes revenue from cost-plus-fee contracts when work is
performed and reimbursable and allowable costs are incurred and
estimated fees are earned. Revenue for certain pre-production
services pursuant to sales contracts is recognized when the service
is performed.
Engineering, Research and Development - Engineering, research and
development expenditures not made in connection with sales
contracts are charged to expense as incurred.
Product Warranties - The Company provides limited warranties of
anywhere from 90 days to 5 years based on the product sold. A
liability is provided for estimated future warranty costs based
upon management's assessment of historical experience and current
trends.
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 Loss Per Share - Basic and diluted net loss per share are
computed by dividing net 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
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 loss per share because to do so would have been anti-
dilutive. Anti-dilutive options were 447,795, 333,512 and 312,858
for 2001, 2000 and 1999, respectively.
Recent Accounting Pronouncements - Statement of Financial Account
Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities, is effective for all fiscal years beginning
after June 15, 2000. SFAS 133, as amended, establishes accounting
and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for
hedging activities. Under SFAS 133, certain contracts that were
not formerly considered derivatives may now meet the definition of
a derivative. The Company adopted SFAS 133 effective January 1,
2001. The adoption of SFAS 133 did not have a material impact on
the financial position, results of operations, or cash flows of the
Company.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposition of Long-lived Assets," which is effective
for fiscal years beginning after December 15, 2001. The Company is
currently evaluating SFAS No. 144 and has not yet determined its
impact on the Company's consolidated financial statements.
F-9
2. ACQUISITION OF PGI BY MILTOPE GROUP, INC.
-----------------------------------------
On April 1, 2000, the Company entered into an agreement with GUI to
acquire GUI's ownership of 90% of the outstanding stock of IV
Phoenix Group, Inc. ("PGI") by the Company. Since GUI, through its
controlling interest in the Company, continues to own a controlling
interest in PGI after the acquisition, the acquisition has been
recorded on the Company's books at GUI's historical cost and
accounted for on an "as if pooled basis". All material
transactions between the Company and PGI have been eliminated.
Revenues and net income (loss) for the separate companies and the
combined amounts presented in the consolidated financial statements
are as follows:
Revenues (net of eliminations): 2001 2000 1999
----------- ----------- -----------
Miltope $42,671,000 $36,811,000 $27,517,000
PGI 2,578,000 3,919,000 8,721,000
----------- ----------- -----------
Combined 45,249,000 40,730,000 36,238,000
=========== =========== ===========
Net income (loss):
Miltope 2,085,000 474,000 (5,601,000)
PGI (4,362,000) (1,905,000) (2,203,000)
----------- ----------- -----------
Combined $(2,277,000) $(1,431,000) $(7,804,000)
=========== =========== ===========
3. ACCOUNTS RECEIVABLE
-------------------
Accounts receivable consist of the following: 2001 2000
----------- -----------
Amounts receivable from the
United States Government $ 3,124,000 $ 1,727,000
Amounts receivable from other customers 4,379,000 6,776,000
Allowance for doubtful accounts (315,000) (570,000)
----------- -----------
Total $ 7,188,000 $ 7,933,000
=========== ===========
4. INVENTORIES
-----------
Inventories consist of the following: 2001 2000
----------- -----------
Purchased parts and subassemblies $ 9,246,000 $ 9,911,000
Work-in-process 2,170,000 2,966,000
----------- -----------
Total $11,416,000 $12,877,000
=========== ===========
Inventories include a reserve for slow-moving and obsolete
items of $2,480,000, and $1,913,000 at December 31, 2001, and 2000,
respectively.
F-10
5. LONG-TERM DEBT
--------------
Long-term debt consists of the following: 2001 2000
----------- -----------
Term loan $ 6,350,000 $ 8,975,000
Industrial Development Authority
Revenue Bonds 3,135,000 3,515,000
Capital Leases 125,000 -
Other debt 885,000 1,293,000
----------- -----------
Total 10,495,000 13,783,000
Less current maturities 3,845,000 4,129,000
----------- -----------
Total $ 6,650,000 $ 9,654,000
=========== ===========
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 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
(effective rate was 4.75% and 9.50% at December 31, 2001 and 2000,
respectively), or at a rate equaling the London Inter Bank Offered
Rate plus 2.0% (effective rate was 4.14% and 8.82% at December 31,
2001 and 2000, respectively). 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 $420,000 and $600,000 from
December 2002 through December 2008. 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,
Alabama facility and a security interest in the equipment located
at such facility. Property and equipment with a carrying value of
$4,567,000 and $4,991,000 at December 31, 2001 and 2000,
respectively, are pledged as collateral. Letter of credit
commitment fees paid during 2001 and 2000 were $40,000 and $45,000,
respectively. The agreement with the Industrial Development
Authority bears interest at a variable market rate that ranged from
1.90% to 6.51% during 2001, and from 6.15% to 7.01% during 2000,
and was 1.93% and 6.64% at December 31, 2001 and 2000,
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 term loan
agreement permits the Company to pay annual dividends of up to 50%
of the prior year's net income. At December 31, 2001, the Company
was in default of the financial covenant related to cash flows and
current maturities of long term debt which is measured annually.
The Company obtained a letter dated March 6, 2002 from the primary
lender waiving the violation as of December 31, 2001.
Other notes are due in aggregate monthly installments of $35,000
including variable interest based on the U.S. Treasury Rate (5.88%
and 7.25% at December 31, 2001 and 2000, respectively).
Interest expense of $735,000, $1,217,000, and $1,263,000 for 2001,
2000, and 1999, respectively is presented net of interest income of
$138,000, $150,000, and $40,000 for 2001, 2000, and 1999,
respectively.
F-11
The aggregate maturities of current and long-term debt subsequent
to December 31, 2001, reflecting the revision by the primary lender
are presented below.
Year Ending December 31,
2002 $ 3,845,000
2003 3,779,000
2004 1,101,000
2005 525,000
2006 560,000
Thereafter 685,000
-----------
Total $10,495,000
===========
The fair value of long-term debt approximated the carrying value as
of December 31, 2001 and 2000, as all instruments are at variable
interest rates.
6. INCOME TAXES
------------
The deferred tax assets and liabilities at December 31, 2001 and
2000 are comprised of the following:
2001
-------------------------------------------
Deferred
Deferred Tax
Tax Assets Liabilities Total
Current : ----------- ----------- -----------
Inventories $ 1,484,000 $ - $ 1,484,000
Non-deductible accrual 330,000 - 330,000
Prepaid expenses - (42,000) (42,000)
----------- --------- -----------
Total current 1,814,000 (42,000) 1,772,000
Valuation allowance (433,000) - (433,000)
----------- --------- -----------
Net current 1,381,000 (42,000) 1,339,000
----------- --------- -----------
Long-term:
Net operating loss
carryforward 5,818,000 - 5,818,000
Alternative minimum tax
credit carryforward 240,000 - 240,000
Other 1,000 (8,000) (7,000)
----------- --------- -----------
Total long-term 6,059,000 (8,000) 6,051,000
Valuation allowance (3,226,000) - (3,226,000)
----------- --------- -----------
Net long-term 2,833,000 (8,000) 2,825,000
----------- --------- -----------
Net $ 4,214,000 $ (50,000) $ 4,164,000
=========== ========= ===========
F-12
2000
-------------------------------------------
Deferred
Deferred Tax
Tax Assets Liabilities Total
Current : ----------- ----------- -----------
Inventories $ 1,202,000 $ - $ 1,202,000
Non-deductible accrual 506,000 - 506,000
Deferred revenue 538,000 - 538,000
Prepaid expenses - (37,000) (37,000)
----------- ---------- -----------
Total current 2,246,000 (37,000) 2,209,000
Valuation allowance (1,257,000) - (1,257,000)
----------- ---------- -----------
Net current 989,000 (37,000) 952,000
----------- ---------- -----------
Long-term:
Net operating loss
carryforward 4,698,000 - 4,698,000
Alternative minimum tax
credit carryforward 240,000 - 240,000
Other 2,000 (81,000) (79,000)
----------- ---------- -----------
Total long-term 4,940,000 (81,000) 4,859,000
Valuation allowance (1,647,000) - (1,647,000)
----------- ---------- -----------
Net long-term 3,293,000 (81,000) 3,212,000
----------- ---------- -----------
Net $ 4,282,000 $ (118,000) $ 4,164,000
=========== ========== ===========
At December 31, 2001, the Company has established a valuation
allowance of $3,659,000 against the net deferred income tax assets.
Although realization is not assured, management believes it is more
likely than not that the recorded deferred tax asset, net of the
valuation allowance, will be realized. The valuation allowance can
be adjusted in future periods as the probability of realization of
the net operating loss carryforward asset changes.
The Company has net operating loss carryforwards for federal income
tax purposes at December 31, 2001 of approximately $17,300,000 that
expire as follows: $6,800,000 in 2009, $1,290,000 in 2010, $2,460,000
in 2018, $3,500,000 in 2019, $1,400,000 in 2020 and $1,850,000 in
2021. The Company also has approximately $240,000 of alternative
minimum tax credit carryforwards available to offset future federal
income taxes.
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:
2001 2000 1999
----------- ---------- -----------
Amount at federal statutory rate $ (725,000) $ (487,000) $(2,603,000)
Increases (reductions) due to:
State taxes - net of federal
income tax benefit (36,000) (78,000) (261,000)
Change in valuation allowance 755,000 490,000 2,861,000
Goodwill 3,000 50,000 -
Other 3,000 25,000 3,000
---------- ---------- -----------
Total $ - $ - $ -
========== ========== ===========
F-13
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 $80,000 and $81,000 in 2001 and 2000, respectively.
The Company made no contributions for 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 recorded a bonus provision of $350,000
and $300,000 for 2001 and 2000, respectively and none for 1999.
8. STOCK OPTIONS
-------------
The Company has a Stock Option and Performance Award Plan ("SOPA")
under which 500,000 shares of common stock are 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. They 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, 2001,
2000 and 1999 and changes during the year ended on those dates is
presented below:
2001 2000 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
beginning of year 333,512 $2.17 312,858 $2.20 297,245 $3.14
Granted
Price = fair value 60,500 $1.66 $1.56 37,000 $1.53 $1.45 161,500 $1.41 $0.99
Price < fair value 62,283 $0.72 $0.74 19,254 $2.34 $2.77
Exercised -- -- --
Canceled (8,500) $1.71 (35,600) $1.89 (145,887) $3.24
------- ------- --------
Outstanding at end
of year 447,795 $1.91 333,512 $2.17 312,858 $2.20
======= ======= =======
Options
exercisable at
December 31:
Director options 128,295 $1.52 66,012 $2.27 46,758 $2.25
Employee options 156,500 $2.53 107,500 $2.86 64,050 $3.61
------- ------- -------
Total 284,795 $2.07 173,512 $2.64 110,808 $3.04
======= ======= =======
F-14
The following table summarizes information about stock options
outstanding at December 31, 2001:
Options Outstanding Options Exercisable
------------------------------------------------- ------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Life Exercise Price Outstanding Exercise Price
------------------------------------------------- ------------------------------
Range of Exercise Prices
$0.72 -- $4.46 430,795 7.51 $1.77 267,795 $1.86
$5.50 -- $5.50 17,000 1.72 $5.50 17,000 $5.50
------- -------
447,795 7.29 $1.91 284,795 $2.07
======= =======
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, the Company's net loss and
basic and diluted net loss per share would approximate the pro forma
amounts below.
2001 2000 1999
Net loss: ----------- ----------- -----------
As reported $(2,277,000) $(1,431,000) $(7,804,000)
Pro forma $(2,403,000) $(1,556,000) $(7,869,000)
Basic and diluted net
loss per share:
As reported $ (0.39) $ (0.24) $ (1.33)
Pro forma $ (0.41) $ (0.26) $ (1.34)
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.
F-15
For purposes of SFAS 123, the weighted average fair value of the
options granted during 2001, 2000 and 1999 is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following assumptions:
2001 2000 1999
------- ------- -------
Expected life (years) 10.0 10.0 10.0
Risk-free interest rate 5.00% 5.71% 5.62%
Dividend rate 0% 0% 0%
Expected volatility 111.42% 106.63% 57.18%
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, 2001 are as follows:
Year Ending December 31,
------------------------
2002 $ 300,000
2003 196,000
2004 102,000
2005 103,000
2006 85,000
Thereafter 2,610,000
----------
Total $3,396,000
==========
Aggregate rental expense under operating leases amounted to
$413,000, $428,000, and $483,000, in 2001, 2000 and 1999,
respectively.
The Company leases excess office space at its Hope Hull facility
to a non-related tenant on a year-to-year basis. This lease will
expire at the end of 2002. Future minimum lease receipts expected
for 2002 are $100,000.
Aggregate rental income under operating leases amounted to
$126,000, $187,000, and $143,000, in 2001, 2000 and 1999,
respectively. Rental income from related parties was $32,000,
$96,000, and $143,000 in 2001, 2000, and 1999, respectively. All
leases to related parties expired without renewal at December 31,
2001.
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 consolidated financial
statements.
F-16
Claims - From time to time the Company may have certain of its
contracts that may be subject to final negotiation or modification
with the customer in the ordinary course of business. Although the
ultimate outcome of these negotiations or modifications is unknown
at December 31, 2001, the Company believes that any additional
costs evolving from these negotiations would not be material to the
consolidated financial statements.
10. SEGMENT INFORMATION
-------------------
The Company's reportable segments are organized around its two main
products and services segments, Military/Rugged and Commercial.
Through its military/rugged segment, the Company is engaged in the
design, manufacture and testing of computer and computer peripheral
equipment for military and other specialized applications requiring
reliable operations in severe land, sea and airborne environments.
These products are generally sold by the Company's business
development group through the federal government bid process. IV
Phoenix Group ("PGI") is an operating segment of the Company which
has been aggregated within the Military/Rugged segment for
financial reporting purposes. 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 salespeople 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
2001 Military/Rugged Commercial Eliminations Corporate Consolidated
---- --------------- ----------- ------------ ----------- ------------
Net sales from external customers $34,314,000 $11,156,000 $ (221,000) $45,249,000
=========== =========== =========== ===========
Segment operating income (loss) $(2,927,000) $ 1,392,000 $ (7,000) $(1,542,000)
=========== =========== =========== ===========
Identifiable assets $17,330,000 $ 7,094,000 $ 7,000 $ 6,120,000 $30,551,000
=========== =========== =========== =========== ===========
Capital expenditures $ 178,000 $ 69,000 $ 247,000
=========== =========== ===========
Depreciation and amortization $ 943,000 $ 85,000 $ 7,000 $ 1,035,000
=========== =========== =========== ===========
General
2000 Military/Rugged Commercial Eliminations Corporate Consolidated
---- --------------- ----------- ------------ ----------- ------------
Net sales from external customers $28,011,000 $12,972,000 $ (253,000) $40,730,000
=========== =========== =========== ===========
Segment operating income (loss) $(1,379,000) $ 1,311,000 $ (146,000) $ (214,000)
=========== =========== =========== ===========
Identifiable assets $18,675,000 $ 8,727,000 $ 7,000 $ 8,206,000 $35,615,000
=========== =========== =========== =========== ===========
Capital expenditures $ 112,000 $ 63,000 $ 175,000
=========== =========== ===========
Depreciation and amortization $ 883,000 $ 330,000 $ 147,000 $ 1,360,000
=========== =========== =========== ===========
F-17
General
1999 Military/Rugged Commercial Eliminations Corporate Consolidated
---- --------------- ----------- ------------ ----------- ------------
Net sales from external customers $25,230,000 $14,048,000 $(3,040,000) $36,238,000
=========== =========== =========== ===========
Segment operating loss $(5,566,000) $ (828,000) $ (147,000) $(6,541,000)
=========== =========== =========== ===========
Identifiable assets $21,755,000 $ 6,558,000 $ 154,000 $ 8,402,000 $36,869,000
=========== =========== =========== ============ ===========
Capital expenditures $ 434,000 $ 316,000 $ 750,000
=========== =========== ===========
Depreciation and amortization $ 1,027,000 $ 440,000 $ 146,000 $ 1,613,000
=========== =========== =========== ===========
In 2001, 2000 and 1999, foreign sales accounted for 1%, 9%, and 2%,
respectively, of the military/rugged segment net sales and 21%,
14%, and 21%, respectively, of the commercial segment net sales.
During 2001, 2000 and 1999, the United States Government accounted
for 63%, 52%, and 42% of consolidated net sales of the Company,
respectively.
11.UNAUDITED QUARTERLY FINANCIAL DATA
----------------------------------
Summarized unaudited quarterly financial data for the years ended
December 31, 2001 and 2000 is as follows:
Thirteen Weeks Ended
-----------------------------------------------------------
April 1, July 1, September 30, December 31,
2001 2001 2001 2001
----------- ----------- ------------- -----------
Net sales $ 9,993,000 $11,387,000 $12,551,000 $11,318,000
=========== =========== =========== ===========
Gross profit $ 1,615,000 $ 1,589,000 $ 1,440,000 $ 1,197,000
=========== =========== =========== ===========
Net loss $ (311,000) $ (433,000) $ (443,000) $(1,090,000)
=========== =========== =========== ===========
Basic and diluted net loss
per share $(.05) $(.08) $(.08) $(.18)
===== ===== ===== =====
Thirteen Weeks Ended
----------------------------------------------------------
March 26, June 25, September 24, December 31,
2000 2000 2000 2000
----------- ----------- ------------ ------------
Net sales $ 7,727,000 $10,725,000 $ 9,385,000 $12,893,000
=========== =========== =========== ===========
Gross profit $ 2,136,000 $ 2,088,000 $ 1,617,000 $ 2,182,000
=========== =========== =========== ===========
Net loss $ (227,000) $ (238,000) $ (619,000) $ (347,000)
=========== =========== =========== ===========
Basic and diluted net loss
per share $(.04) $(.04) $(.10) $(.06)
===== ===== ===== =====
F-18
12.RELATED PARTY TRANSACTIONS
--------------------------
During 2001, the Company recorded no sales to entities that are
affiliated through certain common ownership. Sales to those
entities in 2000 and 1999 were $14,000 and $44,000, respectively.
There were no receivables on those sales at December 31, 2001 or
2000. During 2001 and 2000, the Company received consulting and
management services from a company affiliated through common
ownership. Fees for such services in the amount of $91,000 and
$72,000, respectively, are included in selling, general and
administrative expenses and $1,040,000 of the cumulative amounts
expensed for such fees are included in accrued expenses at December
31, 2001.
F-19
Schedule II
-----------
Miltope Group, Inc. and Subsidiaries
Valuation and Qualifying Accounts and Reserves
For the Years Ended December 31, 2001, 2000, and 1999
- ---------------------------------------------------------------------------------------------
Additions
Balance at Charged to
Description Beginning Costs and Balance at
of Period Expenses Deductions End of Period
- ---------------------------------------------------------------------------------------------
2001
----
Accrued Warranty Costs $ 230,000 $ 883,000 $ 572,000 $ 541,000
Accrued Obsolescence 1,913,000 1,582,000 1,015,000 2,480,000
Doubtful Receivables 570,000 345,000 600,000 315,000
2000
----
Accrued Warranty Costs $ 125,000 $ 697,000 $ $592,000 $ 230,000
Accrued Obsolescence 710,000 1,319,000 116,000 1,913,000
Doubtful Receivables 546,000 182,000 158,000 570,000
1999
----
Accrued Warranty Costs $ 151,000 $ 807,000 $ 833,000 $ 125,000
Accrued Obsolescence 1,602,000 1,289,000 2,181,000 710,000
Doubtful Receivables 38,000 551,000 43,000 546,000
F-20
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 of our report dated February 8, 2002 (March 6,
2002 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, 2001.
/s/Deloitte & Touche LLP
- ------------------------
Birmingham, Alabama
March 29, 2002
F-21
INDEPENDENT AUDITORS' CONSENT OF OTHER AUDITORS
As independent public accountants, we hereby consent to the
incorporation of our report dated March 30, 2001 on the financial
statements of IV Phoenix Group Inc. included in Miltope Group Inc's.
Form 10-K for the year ended December 31, 2001 into the Company's
previously filed Registration Statements File No. 2-97977,
No. 33-8245, No. 33-78744 and No. 33-65233. It should be noted that
we have not audited any financial statements of IV Phoenix Group, Inc.
subsequent to December 31, 1999, or performed any audit procedures
subsequent to the date of our report.
ARTHUR ANDERSEN LLP
New York, New York
March 29, 2002
F-22
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 26, 2002 /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 26, 2002 /s/ Thomas R. Dickinson
------------------------------
Thomas R. Dickinson
President and Chief Executive
Officer (Principal Executive
Officer)
March 26, 2002 /s/ Tom B. Dake
------------------------------
Tom B. Dake
Vice President and Chief
Financial Officer
(Principal Accounting Officer)
March 26, 2002 /s/ Teddy G. Allen
-----------------------------
Teddy G. Allen
Chairman of the Board of
Directors
March 26, 2002 /s/ William L. Dickinson
-----------------------------
William L. Dickinson
Director
March 26, 2002 /s/ William Mustard
-----------------------------
William Mustard
Director
March 26, 2002 /s/ Henry Guy
-----------------------------
Henry Guy
Director
March 26, 2002 /s/ Jan H. Stenbeck
-----------------------------
Jan H. Stenbeck
Director
March 26, 2002 /s/ Jerry O. Tuttle
-----------------------------
Jerry O. Tuttle
Director