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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996 Commission File Number 0-13433
MILTOPE GROUP INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 11-2693062
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
500 Richardson Road South, Hope Hull, Alabama 36043
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (334) 284-8665
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, par value $.01 each
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days . Yes X No
---- ----
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 $7,423,886 as of February 21,
1997.
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: 5,867,148 as of February 21, 1997.
Documents Incorporated by Reference:
The definitive Proxy Statement for the Annual Meeting of Stockholders
to be held June 10, 1997, 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 in whole or in part for Part III, Items 10,
11, 12 and 13, of the December 31, 1996 Form 10-K.
ITEM 1. BUSINESS
General
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Miltope Group Inc. (the "Company"), a Delaware corporation
incorporated in March 1984, is the parent company of Miltope
Corporation, an Alabama corporation ("Miltope"), and Miltope Business
Products, Inc., a New York corporation ("MBP"). Miltope was originally
incorporated as a New York corporation in 1975 to acquire the assets
and business of the Military Equipment Division of Potter Instrument
Company, Inc. and until June 1984 was a wholly owned subsidiary of
Stonebrook Group Inc. (formerly Stenbeck Reassurance Co. Inc.) ("SGI").
In June 1984, all of the outstanding stock of the Company was issued to
SGI in exchange for all of the outstanding stock of Miltope. SGI is a
privately held corporation which, since 1975, has supported the
formation and funding of companies engaged in the development and
manufacture of electronic hardware for defense and communications
applications and in communications services. In January 1985,
shareholders of the Company (including SGI) sold 700,000 shares of the
Company's Common Stock in an initial public offering. In November
1985, the Company sold an additional 1,000,000 shares of its Common
Stock to the public. As of December 30, 1994, Miltope merged with and
into a newly formed Alabama corporation, which succeeded to all of the
New York corporation's assets and liabilities. On January 1, 1995,
Innova International Corporation, a Delaware corporation ("IIC"),
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. IIC provides, through its operating subsidiaries,
integrated network products and services. IIC is a subsidiary of Great
Universal American Industries Inc., a Delaware corporation which is
engaged in network integration services and the provision of satellite
television programming.
Miltope is engaged in the design, development, manufacture and
testing of computers and computer peripheral equipment for military,
rugged and other specialized applications requiring reliable operations
in severe land, sea and airborne environments for both military and
commercial customers. Miltope's product lines include a broad range of
computer printers, disk memory products, magnetic tape drives, hand
held terminals, transportable microcomputers and electronically
erasable programmable read only memory ("EEPROM") together with
subsystems incorporating these products. Miltope also delivers a
complete line of ruggedized SUN and Hewlett-Packard RISC workstations
and related peripherals. Miltope believes that it is the largest
independent producer ("non-OEM"; not an original equipment
manufacturer) of such militarized and ruggedized computer and
peripheral equipment in the United States.
In September 1994, the Company relocated its headquarters from
Melville, New York to Montgomery, Alabama.
On January 12, 1995, the Company completed a $6,100,000 industrial
revenue bond offering by the Alabama State Industrial Development
Authority ("SIDA"), the proceeds of which were used to improve, equip
and furnish the new Montgomery facility and to pay the $3,375,000
principal amount of bank indebtedness which was used in part in the
acquisition of such facility.
On January 1, 1996, the Company consolidated the operations of
MBP and Miltope Corporation. The Company's two industry segments are
maintained through product line accountability.
[FN]
2
Segment Information
- -------------------
The Company's business is divided into two industry segments,
consisting of the manufacture of militarized and rugged equipment
primarily for military applications conducted by the "Military/Rugged"
segment, and the manufacture and distribution of commercial products
conducted by the "Commercial" segment (formerly MBP). Financial
information regarding the Company's industry segments is included in
Note 10 to the Notes to Consolidated Financial Statements located in
Item 8 of this Form 10-K.
Description of Business
- -----------------------
Military/Rugged - General
- -------------------------
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 computer printers, disk memory products, magnetic tape drives,
hand held terminals, transportable microcomputers and EEPROM solid
state memories, together with subsystems incorporating these products.
The Company believes that it is the largest independent producer (non-
OEM) of such militarized and ruggedized computers and peripheral
equipment in the United States. In 1988, the Company introduced a
complete line of ruggedized Hewlett Packard Company computers and
related peripherals. The equipment is being used for the United States
Army's Tactical Command and Control System/Common Hardware Software
Program ("ATCCS/CHS") under a contract awarded to the Company in August
1988, as well as to other customers for related applications.
During 1995, the Company introduced a new family of ruggedized
computer products consisting of hand held Intel based computers and
portable SUN and Hewlett-Packard RISC workstations and related
peripherals. These new products are reconfigurable and scaleable for
specific applications and employ commercial "off the shelf" technology.
The hand held Intel based computers are being used for the United
States Army's Soldiers' Portable On-system Repair Tools ("SPORT") under
a contract awarded to the Company in June 1996, as well as by other
customers for related applications. The portable SUN and Hewlett-
Packard RISC workstations are being proposed for a variety of military
applications.
Substantially all of the military/rugged segment sales consist of
militarized and ruggedized products. "Militarized" equipment is
designed and built, with respect to each component and the whole, to
conform to stringent United States Department of Defense ("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. "Ruggedized" equipment is
designed and manufactured to less demanding specifications and may
include commercially available devices which are suitably modified for
these applications.
[FN]
3
Production of equipment conforming to these DOD specifications has
required the development over the years by the Company of proprietary
electronic and electro-mechanical designs and engineering techniques
and specialized manufacturing and testing methods. By these means, the
Company has developed a broad range of proprietary components which
meet these specifications and are otherwise unavailable in the
commercial market. To support its engineering, manufacturing and
testing activities, the Company has extensive manufacturing equipment,
clean rooms and reliability and environmental testing facilities as
well as a multi-function computer aided design ("CAD") system and an
EMI test lab.
Military/rugged products are sold for use in a broad range of
military programs for the United States Air Force, Army, Navy and
Marine Corps, for NATO, for the Australian, British, Canadian, French,
German, Israeli, Italian, Spanish and Norwegian armed forces and for
the armed forces of other countries. Miltope's militarized and
ruggedized 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 EDS, Raytheon E-Systems
Inc., Northrop Grumman Corporation, GTE Corp., General Dynamics, Hughes
Defense Communications, Litton Data Systems, Lockheed Martin, Marconi
Radar Control Systems Limited, McDonnell Douglas Corp., Motorola Inc.,
Rockwell International, Loral Federal Systems, Teledyne Controls,
Thompson CSF, CAE Inc., ITT Defense Systems, TRW, Inc., and
Westinghouse Electric.
Miltope believes that it has captured a major portion of the
market for militarized printers, magnetic tape systems and disk memory
products. In addition, Miltope is recognized as a leading supplier of
rugged computers and related equipment. A key element of Miltope's
strategy has been to develop and deliver a broad range of high
reliability peripheral components and systems on a cost effective and
timely basis. The breadth of Miltope's product offerings enables
system integrators to avoid the risks normally encountered when
procuring peripherals from multiple suppliers and to 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 ruggedized, reconfigurable 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.
Miltope has been performing under a nine year DOD contract which
runs until August 1997 in connection with the ATCCS/CHS Program. The
purpose of the ATCCS/CHS Program is to integrate most of the aspects of
land combat through the common automation of mission command and
control areas. To date, Miltope has been issued firm orders valued at
approximately $288,000,000 under this contract. In addition, the
Company has received orders for ATCCS/CHS equipment for other defense
contractors and foreign governments.
In June 1996, Miltope was awarded a five year DOD contract for
Soldiers' Portable On-system Repair Tools (SPORT). SPORT will enhance
the U.S. Army's capability to diagnose and repair weapon systems and
electronically display technical manuals. To date, Miltope has been
issued firm orders valued at approximately $5,187,000 under this
contract. In addition, the Company has received orders for SPORT
equipment for other defense contractors.
[FN]
4
Commercial - General
- --------------------
The commercial segment develops, manufactures and markets
commercial products primarily for transportation, telecommunications
and in-field maintenance markets. Its products are airborne cockpit
printers, airline ticket and boarding pass printers, ruggedized
Internet terminals, mass storage devices, and derivatives of ruggedized
hand held Intel based computers and portable RISC workstations
originally developed for military applications. This segment's
business represented approximately 33% of the Company's 1996 revenues,
approximately 15% of the Company's 1995 revenues and approximately 12%
of the Company's 1994 revenues.
Sales and Significant Customers
- -------------------------------
Sales in 1996 attributable to the military industry segment were
approximately as follows: 52% from large DOD programs (each accounting
for 2% or more of annual sales), 26% from smaller programs and sales of
standard items in Miltope's catalogue, 15% 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 1996, sales to the DOD accounted for 54% of net sales of the
Company. Sales to United Airlines accounted for 18% of net sales. No
other customer accounted for more than 10% of net sales.
The Company has experienced large fluctuations from year to year
in the percentage of sales represented by particular customers due to
product cycles and customer requirements. The Company believes its
customers and the industry are moving to shorter lead times due to
compressed technology cycles and changes in procurement strategies.
Sales in 1996 attributable to the commercial industry segment
amounted to approximately 33% of the Company's total net sales.
Government Contracts
- --------------------
Miltope's business is subject to various statutes, regulations and
provisions governing defense contracts including the Truth in
Negotiations Act, which provides for the examination by the U.S.
government of cost records to determine whether accurate pricing
information was disclosed in connection with government contracts.
Contracts with the U.S. government as well as with U.S. government
prime contractors are typically at a fixed price with a delivery cycle
of 4 to 12 months, with contracts under a particular program being
subject to further funding and negotiation. Miltope's defense
contracts contain customary provisions permitting termination at any
time at the convenience of the customer and providing for payment for
work-in-progress should the contract be canceled.
Backlog
- -------
Backlog for both the military and commercial industry segments at
December 31, 1996 was $17,400,000, a 1.2% increase from the $17,200,000
backlog at December 31, 1995.
Backlog includes only customer signed delivery orders from current
contracts and funded portions of multi-year contracts. The Company
believes that substantially all of the backlog will be recognized as
revenue by December 31, 1997. The Company also believes that a
substantial part of new delivery orders and contract fundings received
in 1997 will be recognized as revenue in the same year due to shorter
lead times.
[FN]
5
Backlog for the commercial industry segment was approximately 47%
of the total backlog at December 31, 1996 and approximately 26% of the
total backlog at December 1995.
Backlog does not include unfunded portions of multi-year
contracts. Unfunded portions of multi-year contracts totaled
$15,000,000 and $101,700,000 at December 31, 1995 and 1996,
respectively.
Competition
- -----------
Both of the Company's industry segments face intense competition
in markets for certain of their products. Competition comes from
independent producers as well as prime contractors. Some of these
competitors have greater resources than the Company. Competition is
based on such factors as price, technological capability, quality,
reliability and timely delivery.
The Company's competitive position in its industry segments has
been based upon the experience of its technical personnel in their
respective specialized fields of computer and peripheral product
design; its broad range of products; its ability to design and
manufacture its products to meet customers' specifications; its
specialized manufacturing and testing facilities; its long association
with many of its customers and its managerial and marketing expertise
in dealing with commercial customers, prime contractors and the DOD.
The Company believes that once a particular supplier's computer and/or
peripheral products have been selected for incorporation in a military
or commercial program, further competition by other vendors during the
life cycle of that program is limited.
Engineering, Research and Development
- -------------------------------------
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
which can be used to enhance product performance and direct requests by
customers and the DOD. In certain cases the Company has licensed
technology from commercial manufacturers for subsequent militarization
and ruggedization. Management believes that a budget of approximately
3% to 5% of net sales for engineering, research and development
expenditures should adequately support the growth of the Company's
business.
Engineering, research and development expenditures in 1994, 1995
and 1996 were approximately $4,300,000, $3,900,000 and $1,600,000,
respectively.
Miltope's funded research and development efforts for its
military/rugged segment include projects to enhance its mass storage
devices, printers, computer workstations and portable/hand held
computers. Miltope's funded research efforts for its commercial
segment include projects to enhance its airline products, airborne
cockpit printers, mass storage devices and Internet terminals for
commercial markets.
[FN]
6
Employees
- ---------
At December 31, 1996, the Company employed 264 full-time
personnel. None of the Company's employees are represented by a labor
union and the Company has experienced no work stoppages. The Company
believes that relations with its employees are excellent.
Export Sales
- ------------
The Company recorded foreign sales in its military/rugged industry
segment of approximately $11,160,000, $12,846,000 and $4,532,000 in
1994, 1995 and 1996, respectively. The Company recorded foreign sales
in its commercial industry segment in 1994, 1995 and 1996 of
approximately $940,000, $257,000 and $1,350,000 respectively. Neither
of the Company's industry segments is dependent upon the Company's
foreign sales.
Source of Supply
- ----------------
The Company utilized multiple suppliers for most materials and
components. In order to minimize the risk of delay in delivering
finished systems, components are sometimes procured according to the
projected need for such components under annual purchasing agreements.
Miscellaneous
- -------------
Neither of the Company's two industry segments is subject to
seasonal business fluctuations.
ITEM 2. PROPERTIES
The Company owns a 90,000 square foot building located on 25 acres
in Hope Hull (Montgomery), Alabama.
In addition, the Company owns a 60,000 square foot assembly and
test facility in Troy, Alabama and a 25,000 square foot clean room,
assembly and test facility in Springfield, Vermont.
The Company leases a 2,100 square foot facility in Boulder,
Colorado.
The Company also leases various sales offices in the United States
and England.
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
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this
Report, no matters were submitted to a vote of security holders through
the solicitation of proxies or otherwise.
[FN]
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Market Information
- ------------------
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. 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, 1995 have been:
Calendar Year 1995 High Low
First Quarter $4-7/8 $3-1/2
Second Quarter 4-3/8 2-3/4
Third Quarter 3-7/8 3
Fourth Quarter 3-7/8 2-1/2
Calendar Year 1996
First Quarter $2-7/8 $2-1/16
Second Quarter 8 1-5/8
Third Quarter 4-5/8 2-1/2
Fourth Quarter 4-1/8 2-5/8
Holders of Common Stock
- -----------------------
As of February 21, 1997, there were approximately 1,150
shareholders of record and beneficial owners of the Company's Common
Stock.
8
Dividend Policy
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No dividends were paid in 1995 or 1996. The Company does not
presently anticipate paying cash dividends on its Common Stock.
However, the Board of Directors of the Company will review this policy
from time to time in light of its earnings, capital requirements and
financial condition and other relevant factors, including applicable
debt agreement limitations. The Company's bank loan agreement permits
the Company to pay annual dividends of up to 50% of the prior year's
net income.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected consolidated financial data
of the Company for the five years ended December 31, 1996 which should
be read in conjunction with the consolidated financial statements of
the Company and the notes thereto:
(All amounts in thousands, except per share data)
Year Ended December 31,
1992 1993 1994 1995 1996
Income Statement
Data:
Net sales $114,401 $84,320 $75,569 $65,708 $45,513
Gross profit 28,392 21,232 5,680 13,372 11,077
Income (loss) 6,610 (1,381) (18,885) (984) 1,770
before income taxes
Net income (loss) 4,187 (856) (15,460) (984) 2,170
Net income (loss) .71 (.15) (2.65) (.17) .37
per share
Cash dividends per share - - - - -
Average shares outstanding 5,857 5,825 5,834 5,853 5,867
Balance Sheet Data:
Working capital $35,769 $31,460 $19,398 $18,896 $17,999
Total assets 58,859 62,587 53,162 41,440 36,332
Long-term debt 11,231 7,872 17,551 16,953 11,340
Stockholders' equity 32,863 32,033 17,230 15,913 17,858
In 1994, the Company changed its method of accounting for certain
inventories to the actual-cost-incurred method from the last-in, first-
out (LIFO) cost method. The results of operations for the years ended
December 31, 1992 and December 31, 1993 have been adjusted to reflect
this change.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Business Environment
- --------------------
The following discussion includes certain forward looking
statements which are affected by important factors including, but not
limited to, actions of competitors, termination of contracts at the
convenience of the United States government, customer funding
variations in connection with multi-year contracts and follow-on
options that could cause actual results to differ materially from
forward looking statements.
The Company's primary business segment provides specialized
computers and related peripheral equipment to the United States and
foreign military defense departments. Equipment in this segment takes
two primary forms. The first of these is fully militarized products,
usually designed especially for a particular mission area with
demanding environmental and quality requirements. The second of these
is rugged products, usually based on a commercial baseline product, but
adapted by the Company to meet environmental and quality specifications
that exceed the requirements for commercial products.
This entire segment has been impacted in recent years by reduced
government spending and defense appropriations. The militarized
product area has been especially subject to defense budget cuts. The
military continues to reduce funding for the development and limited
production quantities of highly customized systems and products. The
long design cycle for these programs creates an intangible cost in the
form of rapid technological obsolescence. Some military programs that
would have sought militarized equipment some years ago have modified
the requirements to reflect a need for rugged or commercial products.
This trend has tended to benefit sales of the Company's rugged product
line. Even in the rugged product area, however, defense cuts have
taken a toll. Competition in this area has become more keen in recent
years, as many government contractors pursue fewer military programs.
Through its commercial segment, the Company develops, manufactures
and markets commercial products primarily for transportation,
telecommunications and in-field maintenance markets. Its products are
airborne cockpit printers, airline ticket and boarding pass printers,
ruggedized Internet terminals, mass storage devices, and derivatives of
ruggedized hand held Intel based computers and portable RISC
workstations originally developed for military applications. Sales in
this commercial segment increased by 53% in 1996 primarily due to
increased sales in airborne cockpit printers, airline ticket and
boarding pass printers, and the introduction of the Company's new
ruggedized Internet terminal.
The Company has completed its restructuring by significantly
reducing costs and streamlining processes to suit current market
conditions. Due to these efforts, the Company is positioned to
move forward and continue its development of a broad offering of low
cost, rugged, commercial based products that are customized to meet
specific needs for both DOD and commercial niche markets.
Results of Operations
- ---------------------
The Company reported income from operations of $2.8 million
compared to $.4 million in 1995 and a loss from operations of $17.6
million (including a relocation and restructuring charge in the amount
of $9.1 million and special charges totaling $10 million) in 1994. The
net income per common share was $.37 compared to a net loss of $.17 per
share in 1995 and a net loss of $2.65 per share in 1994.
[FN]
10
In 1994, the Company made the decision to restructure and relocate
the Company resulting in special charges which significantly impacted
1994 operating results. The Company incurred a pre-tax charge of $9.1
million to cover costs associated with severance and related human
resource programs, employee relocation, the transfer of assets and the
operational impact due to the transition. The transition was completed
during 1995. Additional special charges in the amount of $10 million
were recorded in 1994 to reflect inventory obsolescence and other costs
related to discontinued product lines, end of life contract costs and
additional costs on long-term contracts. The special charges were
principally non-cash in nature and included $4.9 million applicable to
discontinued products and inventory obsolescence, $2.2 million related
to end of life contracts and $2.9 million for additional costs on long-
term contracts.
Sales for 1996 totaled $45.5 million, a decrease of $20.2 million,
or 30.7%, from 1995. This change was attributable to a reduction in
military sales of $25.4 million partially offset by an increase in
commercial sales in the amount of $5.2 million. Sales in 1995 totaled
$65.7 million, a decrease of $9.9 million, or 13.1% from 1994. This
change was attributable to a reduction in military sales of $10.9
million partially offset by an increase in commercial sales in the
amount of $1.0 million.
Gross profit, as a percent of sales, was 20.7% (exclusive of
special charges) in 1994, 20.4% in 1995 and 24.3% in 1996. The
improvement in 1996, as compared to 1994 and 1995, was attributable to
improved materials handling and purchasing, and streamlined
manufacturing processes.
Selling, general and administrative expenses, as a percentage of
sales, was 13.0% in 1994, 13.9% in 1995 and 14.5% in 1996. The increase
in 1995 was principally due to severance costs related to a
reorganization which took place in the second quarter of 1995 and an
emphasis on increased marketing and business development efforts. The
increase in 1996 was principally due to a continued emphasis on
increased marketing and business development efforts.
Engineering, research and development expenses, as a percentage of
sales, was 5.7% in 1994, 5.9% in 1995 and 3.6% in 1996. The decrease
in 1996 was attributable to an increased amount of research and
development funded by contracts and improved efficiencies in research
and development processes.
Liquidity and Capital Resources
- -------------------------------
Working capital at December 31, 1996 totaled $18.0 million, a
decrease of $.9 million from December 31, 1995. Accounts receivable
and inventory declined by $2.1 million reflecting improved working
capital management. Accounts payable decreased $.5 million due to the
Company paying vendors on a more current basis. Accrued expenses
decreased $.5 million due to decreased accrued interest and decreased
accrued liabilities related to long-term contracts. In 1993, the
Company acquired certain assets of Mag-Tek, Inc. Current maturities of
long-term debt decreased $.3 million due to the settlement and payment
of all debt related to this acquisition.
The Company entered into a revolving credit facility in July 1994
for an amount not to exceed $15 million and is subject to extension for
additional one year periods. In June 1996, it was extended for an
additional one year period expiring May 31, 1998. As of December 31,
1996, the Company had approximately $9.0 million available under such
facility.
[FN]
11
Cash provided by (used in) operating activities was $(2.0 million)
in 1994, $(.3 million) in 1995 and $5.4 million in 1996. The increase
in cash provided by operating activities in 1996 compared to 1995 is
primarily the result of an increase in net income and decreases in
inventory and other assets, partially offset by decreases in accounts
payable and accrued expenses. The decrease in cash used in operating
activities in 1995 compared to 1994 is primarily a result of decreases
in accounts receivable and inventories and collection of an income tax
receivable partially offset by the payment in 1995 of accounts payable
that were used in 1994 to fund the purchase of a new headquarters
facility and related costs prior to receiving industrial revenue bond
financing, and the payment in 1995 of remaining relocation charges
accrued in 1994.
In April 1994, the Company purchased a new headquarters facility
and related capital equipment located in Montgomery, Alabama. The
purchase was financed through a bank term loan and the proceeds of the
offering of taxable revenue bonds (the "Bonds") by the Alabama State
Industrial Development Authority which was completed January 12, 1995
(the "SIDA Offering"). Repayment of the Bonds is secured by an
irrevocable letter of credit issued by Regions Bank (formerly First
Alabama Bank) in an amount up to $5.7 million which in turn is secured
by a mortgage on the Montgomery and Troy, Alabama facilities and a
security interest in the equipment located at such facilities.
The Company has a net operating loss carry forward for Federal
income tax purposes of approximately $7.0 million and $1.2 million
which will expire in 2009 and 2010, respectively, if not utilized. In
prior years, the Company recorded a deferred tax asset valuation
allowance for net operating loss carryforwards of which realization was
uncertain. During 1996, the Company reduced the valuation allowance to
reflect the deferred tax assets utilized to reduce current income taxes
and to recognize a deferred tax asset of $465,000 at December 31, 1996.
This reduction in the valuation allowance was attributable to the award
of significant multi-year government and commercial contracts during
1996 and the result of improved cost controls. Due to these events,
realization of certain deferred tax assets became, in the opinion of
management, more likely than not. Additional benefits related to the
net deferred tax asset could be recognized in future periods if the
probability of realization increases.
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 existing
bank loan arrangements.
Effects of Inflation
- --------------------
Inflation has not had a significant impact on the Company's
results of operations.
[FN]
12
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.
[FN]
13
PART III
The information called for by Part III (Items 10, 11, 12 and 13)
of this Report is hereby incorporated by reference from the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934 in connection with the election of
directors at the 1997 Annual Meeting of Stockholders of the Company,
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, 1996.
[FN]
14
[/FN]
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report Page
----
1. Consolidated Financial Statements:
Table of Contents to Consolidated Financial Statements F-1
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31,1995
and 1996 F-3
Consolidated Statements of Operations for the Years
Ended December 31, 1994, 1995 and 1996 F-4
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1994, 1995 and 1996 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994, 1995 and 1996 F-6
Notes to Consolidated Financial Statements for the
Years Ended December 31, 1994, 1995 and 1996 F-7
Independent Auditors' Consent F-22
2. All schedules are omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.
3. Exhibits 16
15
Exhibit Page
Number Description of Exhibit Number
- ------ ----------------------
3(a) Certificate of Incorporation of the Registrant, as
amended to date [Incorporated by reference to
Exhibit 3(a) to the Registrant's Registration
Statement on Form S-1 filed with the Commission on
September 6, 1984 (Registration No. 2-93134)]
3(b) By-laws of the Registrant, as currently in effect
[Incorporated by reference to Exhibit 3(b) to the
Registrant's Form 10-K filed with the Commission
on March 31, 1987 (File No. 0-13433)].
3(c) Specimen share certificate for the Common Stock of
the Registrant [Incorporated by reference to Exhibit
4(b) to Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 filed with the
Commission on January 8, 1985 (Registration No.
2-93134)].
10(a)(A) 1985 Key Employee Stock Option Plan adopted by
the Board of Directors of the Registrant on July 1,
1985 [Incorporated by reference to Exhibit 10(a) to
the Registrant's Registration Statement on Form S-1
filed with the Commission on October 22, 1985
(Registration No. 33-1042)].
10(a)(B) Form of 1985 Key Employee Stock Option
Agreement, dated as of July 1, 1985, between the
Registrant and certain key employees of the
Registrant [Incorporated by reference to Exhibit
10(b) to the Registrant's Registration Statement on
Form S-1 filed with the Commission on October 22,
1985 (Registration No. 33-1042)].
10(b)(A) Incentive Stock Option Plan adopted by the Board of
Directors of the Registrant on June 1, 1984 and
approved by Stonebrook Group Inc. (formerly
Stenbeck Reassurance Co. Inc.) on June 1, 1984, as
amended by the Board of Directors of the Registrant
on May 6, 1985 [Incorporated by reference to
Exhibit 10(c) to the Registrant's Registration
Statement on form S-1 filed with the Commission on
October 22, 1985 (Registration No. 33-1042)].
[FN]
16
[/FN]
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
10(b)(B) Form of Incentive Stock Option Agreement, dated as
of June 1, 1984, between the Registrant and certain
key employees of the Registrant [Incorporated by
reference to Exhibit 10(e) to the Registrant's
Registration Statement on Form S-1 filed with the
Commission on October 22, 1985 (Registration No.
33-1042)].
10(c)(A) Management Stock Option Plan adopted by the Board
of Directors of the Registrant on June 1, 1984 and
approved by Stonebrook Group Inc. on June 1, 1984,
as amended by the Board of Directors of the
Registrant on May 6, 1985 [Incorporated by reference
to Exhibit 10(f) to the Registrant's Registration
Statement on Form S-1 filed with the Commission on
October 22, 1985 (Registration No. 33-1042)].
10(c)(B) Form of Management Stock Option Agreement, dated
as of June 1, 1984, between the Registrant and
certain management employees of the Registrant
[Incorporated by reference to Exhibit 10(d) to the
Registrant's Registration Statement on Form S-1 filed
with the Commission on September 6, 1984
(Registration No. 2-93134)].
10(d) Miltope Corporation Cash Bonus Plan, as amended,
effective January 1, 1984 [Incorporated by reference
to Exhibit 10(e) to the Registrant's Registration
Statement on Form S-1 filed with the Commission on
September 6 , 1984 (Registration No. 2-93134)].
10(e)(A) Miltope Corporation Pay Conversion Plan (as
amended 1984) [Incorporated by reference to Exhibit
10(i)(A) to the Registrant's Form 10-K filed with the
Commission on March 31, 1987 (File No. 0-13433)].
10(e)(B) Amendment No. 1, dated as of January 1, 1984, to
the Miltope Corporation Pay Conversion Plan
[Incorporated by reference to Exhibit 10(i)(B) to the
Registrant's Form 10-K filed with the Commission
on March 31, 1987 (File No. 0-13433)].
[FN]
17
[/FN]
Exhibit Page
Number Description of Exhibit Number
- ------- ----------------------
10(e)(C) Amendment No. 2, dated as of January 1, 1987, to
the Miltope Corporation Pay Conversion Plan
[Incorporated by reference to Exhibit 10(h)(C) to the
Registrant's Form 10-K filed with the Commission on
March 31, 1989 (File No. 0-13433)].
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(g)(A) Real Estate Sales Contract, dated July 18, 1984,
between the City of Troy, Alabama and Miltope
Corporation [Incorporated by reference to Exhibit
10(o) to the Registrant's Registration Statement on
Form S-1 filed with the Commission on September 6,
1984 (Registration No. 2-93134)].
10(g)(B) Lease Agreement, dated November 1, 1985, between
the Industrial Development Board of the City of
Troy, Alabama and Miltope Corporation
[Incorporated by reference to Exhibit 10(s)(B) to the
Registrant's Form 10-K filed with the Commission
on March 31, 1986 (File No. 0-13433)].
[FN]
18
[/FN]
Exhibit Page
Number Description of Exhibit Number
- ------- ----------------------
10(h) Agreement of Sale, dated July 15, 1994, between
Miltope Corporation and Marc Beige, with respect
to the sale of 1770 Walt Whitman Road, Melville,
New York [Incorporated by reference to Exhibit 10(l)
to the Registrant's Form 10-K filed with the
Commission on March 31, 1995 (File No. 0-13433)].
10(i) Agreement of Lease, dated as of August 10, 1994,
between Melville Associates, L.P. and Miltope
Corporation [Incorporated by reference to Exhibit 10(m)
to the Registrant's Form 10-K filed with the
Commission on March 31, 1995 (File No. 0-13433)].
10(j) Purchase and Sale Agreement, dated April 19, 1994,
between Collier Management Group, Inc. and
Miltope Corporation, with respect to 500 Richardson
Road South, Hope Hull, Alabama [Incorporated by
reference to Exhibit 10(n) to the Registrant's Form 10-K
filed with the Commission on March 31, 1995
(File No. 0-13433)].
10(k)(A)(1)Loan Agreement, dated July 27, 1994, among First
Alabama Bank, as lender, and Miltope Corporation
and Miltope Business Products, Inc., as borrowers
[Incorporated by reference to Exhibit 10(o)(A)(1)
to the Registrant's Form 10-K filed with the
Commission on March 31, 1995 (File No. 0-13433)].
10(k)(A)(2)Amendment to Loan Agreement, dated as of October
3, 1994, among First Alabama Bank, Miltope
Corporation and Miltope Business Products, Inc.
[Incorporated by reference to Exhibit 10(o)(A)(2)
to the Registrant's Form 10-K filed with the
Commission on March 31, 1995 (File No. 0-13433)].
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)].
[FN]
19
[/FN]
Exhibit Page
Number Description of Exhibit Number
- ------- ----------------------
*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.
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)].
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)].
[FN]
- -----------------
* Filed herewith. 20
[/FN]
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
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) Remarketing Agreement, dated January 1, 1995,
among Miltope Corporation, the State Industrial
Development Authority and Merchant Capital,
L.L.C. [Incorporated by reference to Exhibit 10(q)(E)
to the Registrant's Form 10-K filed with the Commission
on March 31, 1995 (File No. 0-13433)].
10(m)(F) Real Estate Mortgage and Security Agreement, dated
as of January 1, 1995, from Miltope Corporation in
favor of First Alabama Bank [Incorporated by
reference to Exhibit 10(q)(F) to the Registrant's
Form 10-K filed with the Commission on
March 31, 1995 (File No. 0-13433)].
10(n) License Agreement, dated as of December 31, 1983,
between Stonebrook Group Inc. and Miltope
Corporation [Incorporated by reference to Exhibit
10(w) to the Registrant's Registration Statement on
Form S-1 filed with the Commission on September 6,
1984 (Registration No. 2-93134)].
[FN]
21
[/FN]
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
10(o) Letter Agreement, dated December 31, 1983, among
Miltope Corporation, Stonebrook Group Inc. and
Millidyne Inc. [Incorporated by reference to Exhibit
10(x) to the Registrant's Registration Statement on
Form S-1 filed with the Commission on September 6,
1984 (Registration No. 2-93134)].
10(p)(A) Stock Option Agreement, dated as of August 14,
1986, between the Registrant and Jon L. Boyes
[Incorporated by reference to Exhibit 10(v) to the
Registrant's Form 10-K filed with the Commission
on March 31, 1987 (File No. 0-13433)].
10(p)(B) Stock Option Agreement, dated as of September 7,
1988, between the Registrant and Jon L. Boyes
[Incorporated by reference to Exhibit 10(t)(B) to the
Registrant's Form 10-K filed with the Commission
on March 31, 1989 (File No. 0-13433)].
10(p)(C) Stock Option Agreement, dated as of March 30,
1990, between the Registrant and Jon L. Boyes
[Incorporated by reference to Exhibit 10(r)(C) to the
Registrant's Form 10-K filed with the Commission
on March 27, 1991 (File No. 0-13433)].
10(p)(D) Stock Option Agreement, dated as of June 14, 1990,
between the Registrant and Jon L. Boyes
[Incorporated by reference to Exhibit 10(r)(D) to the
Registrant's Form 10-K filed with the Commission
on March 27, 1991 (File No. 0-13443)].
10(p)(E) Stock Option Agreement, dated as of June 13, 1991,
between the Registrant and Jon L. Boyes
[Incorporated by reference to Exhibit 10(p)(E) to the
Registrant's Form 10-K filed with the Commission
on March 27, 1992 (File No. 0-13433)].
10(p)(F) Stock Option Agreement, dated as of June 8, 1992,
between the Registrant and Jon L. Boyes
[Incorporated by reference to Exhibit 10(p)(F) to the
Registrant's Form 10-K filed with the Commission
on March 25, 1993 (File No. 0-13433)].
[FN]
22
[/FN]
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
10(p)(G) Stock Option Agreement, dated as of June 25, 1993,
between the Registrant and Jon L. Boyes.
[Incorporated by reference to Exhibit 10(p)(G) to the
Registrant's Form 10-K filed with the Commission
on March 31, 1994 (File No. 0-13433)].
10(p)(H) Stock Option Agreement, dated as of June 3, 1994,
between the Registrant and Jon L. Boyes
[Incorporated by reference to Exhibit 10(t)(H) 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.
10(r)(A) Stock Option Agreement, dated as of September 7,
1988, between the Registrant and Alvin E. Nashman
[Incorporated by reference to Exhibit 10(t)(D) to the
Registrant's Form 10-K filed with the Commission
on March 31, 1989 (File No. 0-13433)].
[FN]
- -----------------
* Filed herewith. 23
[/FN]
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
10(r)(B) Stock Option Agreement, dated as of March 30,
1990, between the Registrant and Alvin E.
Nashman [Incorporated by reference to Exhibit
10(t)(B) to the Registrant's Form 10-K filed
with the Commission on March 27, 1991 (File No.
0-13433)].
10(r)(C) Stock Option Agreement, dated as of June 14, 1990,
between the Registrant and Alvin E. Nashman
[Incorporated by reference to Exhibit 10(t)(B) to the
Registrant's Form 10-K filed with the Commission
on March 27, 1991 (File No. 0-13433)].
10(r)(D) Stock Option Agreement, dated as of June 13, 1991,
between the Registrant and Alvin E. Nashman
[Incorporated by reference to Exhibit 10(r)(D) to the
Registrant's Form 10-K filed with the Commission
on March 27, 1992 (File No. 0-13433)].
10(r)(E) Stock Option Agreement, dated as of June 8, 1992,
between the Registrant and Alvin E. Nashman
[Incorporated by reference to Exhibit 10(r)(E) to the
Registrant's Form 10-K filed with the Commission
on March 25, 1993 (File No. 0-13433)].
10(r)(F) Stock Option Agreement, dated as of June 25, 1993,
between the Registrant and Alvin E. Nashman.
[Incorporated by reference to Exhibit 10(r)(F) to the
Registrant's Form 10-K filed with the Commission
on March 31, 1994 (File No. 0-13443)].
10(r)(G) Stock Option Agreement, dated as of June 3, 1994,
between the Registrant and Alvin E. Nashman
[Incorporated by reference to Exhibit 10(w)(G) to
the Registrant's Form 10-K filed with the Commission
on March 31, 1995 (File No. 0-13433)].
10(r)(H) Stock Option Agreement, dated as of June 5, 1995,
between the Registrant and Alvin E. Nashman.
[Incorporated by reference to Exhibit 10(s)(H) to the
Registrant's Form 10-K filed with the Commission
on March 29, 1996 (File No. 0-13433)].
[FN]
24
[/FN]
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
*10(r)(I) Stock Option Agreement, dated as of June 11, 1996
between the Registrant and Alvin E. Nashman.
10(s) Stock Option Agreement, dated as of August 7, 1995,
between the Registrant and George K. Webster.
[Incorporated by reference to Exhibit 10(t) to the
Registrant's Form 10-K filed with the Commission
on March 29, 1996 (File No. 0-13433)].
10(t) Stock Option Agreement, dated as of November 8, 1995,
between the Registrant and James E. Matthews.
[Incorporated by reference to Exhibit 10(u) to the
Registrant's Form 10-K filed with the Commission
on March 29, 1996 (File No. 0-13433)].
10(u) Representative Agreement, dated as of October 1,
1994, between Miltope Corporation and Pandolfi
Group, Inc. [Incorporated by reference to Exhibit 10(x)
to the Registrant's Form 10-K filed with the Commission
on March 31, 1995 (File No. 0-13433)].
10(v) Settlement and Release Agreement, dated November 1, 1995,
by and among the Registrant, Miltope Corporation, Miltope
Business Products, Inc., Pandolfi Group, Inc. and Richard
Pandolfi. [Incorporated by reference to Exhibit 10(w)
to the Registrant's Form 10-K filed with the Commission
on March 29, 1996 (File No. 0-13433)].
10(w)(A) Asset Purchase Agreement, dated as of December
23, 1992, between Miltope Business Products, Inc.
and Mag-Tek, Inc. [Incorporated by reference to
Exhibit 10(x)(A) to the Registrant's Form 10-K filed
with the Commission on March 25, 1993 (File No. 0-13433)].
10(w)(B) Guaranty of the Registrant, dated as of December 23,
1992, pursuant to Asset Purchase Agreement, dated
as of December 23, 1992, between Miltope Business
Products, Inc. and Mag-Tek, Inc. [Incorporated by
reference to Exhibit 10(x)(B) to the Registrant's
Form 10-K filed with the Commission on March 25,
1993 (File No. 0-13433)].
[FN]
- ------------------
* Filed herewith. 25
[/FN]
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
10(w)(C) Supply Agreement, dated as of January 5, 1993,
between Miltope Business Products, Inc. and
Mag-Tek, Inc. [Incorporated by reference to Exhibit
10(x)(C) to the Registrant's Form 10-K filed with the
Commission on March 25, 1993 (File No. 0-13433)].
10(w)(D) Escrow Agreement, dated as of January 5, 1993,
among Miltope Business Products, Inc., Mag-Tek,
Inc. and First Interstate Bank of California, as
Escrow Agent [Incorporated by reference to Exhibit
10(x)(D) to the Registrant's Form 10-K filed with the
Commission on March 25, 1993 (File No. 0-13433)].
10(w)(E) Marketing Agreement, dated as of January 5, 1993,
between Miltope Business Products, Inc. and
Mag-Tek, Inc. [Incorporated by reference to Exhibit
10(x)(E) to the Registrant's Form 10-K filed with the
Commission on March 25, 1993 (File No. 0-13433)].
10(w)(F) Noncompetition Agreement, dated as of January 5,
1993, between Miltope Business Products, Inc. and
Mag-Tek, Inc. [Incorporated by reference to Exhibit
10(x)(F) to the Registrant's Form 10-K filed with the
Commission on March 25, 1993 (File No. 0-13433)].
10(x) Employment Agreement, dated November 8, 1995,
between the Registrant and James E. Matthews.
[Incorporated by reference to Exhibit 10(y) to the
Registrant's Form 10-K filed with the Commission
on March 25, 1993 (File No. 0-13433)].
*10(y) Renegotiation Agreement, dated August 23, 1996,
between the Registrant and Mag-Tek, Inc.
18 Letter re 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.
[FN]
- ------------------
* Filed herewith. 26
[/FN]
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
*23 Independent Auditors' Consent, dated March 26, 1997
to the incorporation by reference in Registration
Statements No. 2-97977, No. 33-8245,
No. 33-78744 and No. 33-65233 on Form S-8 and
No. 33-33752 on Form S-3 of their report dated
February 21, 1997 appearing in this Annual Report on
Form 10-K for the year ended December 31, 1996
*27 Financial Data Schedule
[FN]
- -------------------
* Filed herewith. 27
[/FN]
MILTOPE GROUP INC. AND SUBSIDIARIES
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1995
and 1996 F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1994, 1995 and 1996 F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1994, 1995 and 1996 F-5
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1994, 1995 and 1996 F-6
Notes to Consolidated Financial Statements for the
Years Ended December 31, 1994, 1995 and 1996 F-7
All supplemental schedules are omitted because they are not applicable
or the required information is shown in the consolidated financial
statements or notes thereto.
[FN]
F-1
[/FN]
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of Miltope Group Inc.:
We have audited the accompanying consolidated balance sheets of Miltope
Group Inc. and its subsidiaries as of December 31, 1995 and 1996, and
the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Miltope Group Inc.
and subsidiaries at December 31, 1995 and 1996, and the results of
their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Birmingham, Alabama
February 21, 1997
[FN]
F-2
[/FN]
MILTOPE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
ASSETS Notes 1995 1996
----- ---------- -----------
CURRENT ASSETS:
Cash $ 301,000 $ 128,000
Accounts receivable 2,5 10,417,000 10,890,000
Inventories 3,5 16,432,000 13,836,000
Advances and other 6 256,000 279,000
----------- -----------
Total current assets 27,406,000 25,133,000
----------- -----------
PROPERTY AND EQUIPMENT - at cost: 1,5
Machinery and equipment 7,467,000 7,322,000
Furniture and fixtures 1,467,000 1,475,000
Land, buildings and improvements 7,108,000 7,537,000
----------- -----------
Total property and equipment 16,042,000 16,334,000
Less accumulated depreciation 5,313,000 6,765,000
----------- -----------
Property and equipment - net 10,729,000 9,569,000
----------- -----------
OTHER ASSETS 1,4,5,6 3,305,000 1,630,000
----------- -----------
TOTAL $41,440,000 $36,332,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,956,000 $ 5,426,000
Accrued expenses 6 1,958,000 1,468,000
Current maturities of long-term debt 5 528,000 240,000
Deferred income taxes 1,6 68,000 -
----------- -----------
Total current liabilities 8,510,000 7,134,000
LONG-TERM DEBT 5 16,953,000 11,340,000
DEFERRED INCOME TAXES 1,6 64,000 -
----------- -----------
Total Liabilities 25,527,000 18,474,000
----------- -----------
COMMITMENTS 9
STOCKHOLDERS' EQUITY: 1,5,8
Common stock - $.01 par value;
20,000,000 shares authorized;
6,806,737 shares outstanding
at December 31, 1995 and 1996 68,000 68,000
Capital-in-excess of par value 20,253,000 20,253,000
Retained earnings 9,613,000 11,783,000
Net unrealized appreciation on
investment available for sale,
net of deferred income tax
liability of $132,000 at
December 31, 1995 1,4 225,000 -
----------- -----------
30,159,000 32,104,000
Less treasury stock 14,246,000 14,246,000
----------- -----------
Total stockholders' equity 15,913,000 17,858,000
----------- -----------
TOTAL $41,440,000 $36,332,000
=========== ===========
See notes to consolidated financial statements.
F-3
MILTOPE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Notes 1994 1995 1996
NET SALES 1,10,13 $75,569,000 $65,708,000 $45,513,000
COSTS AND EXPENSES:
Cost of sales 3 69,889,000 52,336,000 34,436,000
Selling, general and administrative 9,834,000 9,135,000 6,601,000
Engineering, research and
development 1 4,314,000 3,860,000 1,630,000
Relocation and restructuring
charge 12 9,100,000 - -
Total 93,137,000 65,331,000 42,667,000
INCOME (LOSS) FROM OPERATIONS (17,568,000) 377,000 2,846,000
INTEREST EXPENSE - net 4 1,317,000 1,361,000 1,076,000
INCOME (LOSS) BEFORE INCOME
TAXES (18,885,000) (984,000) 1,770,000
INCOME TAX BENEFIT 1,6 (3,425,000) - (400,000)
NET INCOME (LOSS) $(15,460,000) $ (984,000) $ 2,170,000
NET INCOME (LOSS) PER
COMMON SHARE 1 $(2.65) $(.17) $.37
See notes to consolidated financial statements.
F-4
MILTOPE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Net
Unrealized
Common Stock Appreciation Treasury Stock
------------ Capital-in- on Investment
Par Excess of Retained Available
Shares Value Par Value Earnings for Sale Shares Cost
--------- -------- ------------ ------------ ------------- ------ -----------
Balance, January 1, 1994 6,773,737 $ 68,000 $ 20,154,000 $ 26,057,000 $ - 939,589 $14,246,000
Change in unrealized
appreciation on investment
available for sale - - - - 657,000 - -
Net loss - - - (15,460,000) - - -
Balance, December 31, 1994 6,773,737 68,000 20,154,000 10,597,000 657,000 939,589 14,246,000
Exercise of stock options 33,000 - 99,000 - - - -
Change in unrealized appreciation
on investment available for sale - - - - (432,000) - -
Net loss - - - (984,000) - - -
Balance, December 31, 1995 6,806,737 68,000 20,253,000 9,613,000 225,000 939,589 14,246,000
Change in unrealized appreciation
on investment available for sale - - - - (225,000) - -
Net income - - - 2,170,000 - - -
Balance, December 31, 1996 6,806,737 $ 68,000 $ 20,253,000 $ 11,783,000 $ - 939,589 $14,246,000
See notes to consolidated financial statements.
F-5
MILTOPE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1994 1995 1996
------------ ------------ ----------
OPERATING ACTIVITIES:
Net income (loss) $(15,460,000) $ (984,000) $2,170,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,572,000 1,701,000 1,737,000
Provision for slow-moving and obsolete inventories 2,160,000 883,000 879,000
Provision for doubtful accounts receivable 90,000 100,000 201,000
Gain on sale of investment available for sale (472,000) (678,000) (522,000)
(Gain) loss on sale of fixed assets (133,000) 420,000 33,000
Deferred income taxes (1,137,000) - (465,000)
Write-down of property, equipment and inventory - 168,000 -
Change in operating assets and liabilities:
Accounts receivable 3,739,000 4,106,000 (674,000)
Inventories 6,038,000 2,282,000 1,717,000
Income tax receivable (1,237,000) 2,524,000 -
Advances and other (74,000) 72,000 59,000
Other assets (920,000) (782,000) 1,287,000
Deferred costs - (256,000) -
Accounts payable and accrued expenses 3,879,000 (9,851,000) (1,022,000)
----------- ----------- -----------
Cash (used in) provided by operating activities (1,955,000) (295,000) 5,400,000
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (6,054,000) (716,000) (625,000)
Proceeds from sale of property and equipment 5,662,000 22,000 4,000
Proceeds from sale of investment available for sale 473,000 680,000 524,000
----------- ----------- -----------
Cash (used in) provided by investing activities 81,000 (14,000) (97,000)
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from (payments of) revolving credit loan - net 2,482,000 (3,003,000) (4,305,000)
Payments of other long-term debt (231,000) (22,000) (1,171,000)
Payments of short-term debt - (3,375,000) -
Borrowing of long-term debt - 6,100,000 -
Exercise of stock options - 99,000 -
Cash (used in) provided by financing activities 2,251,000 (201,000) (5,476,000)
---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 377,000 (510,000) (173,000)
CASH, BEGINNING OF YEAR 434,000 811,000 301,000
----------- ----------- -----------
CASH, END OF YEAR $ 811,000 $ 301,000 $ 128,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE:
Payments made (received) for:
Income taxes $(1,131,000) $(2,802,000) $ -
=========== =========== ===========
Interest $ 1,079,000 $ 1,596,000 $1,279,000
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Reduction of liability associated with acquisition $ - $ - $ 425,000
=========== =========== ===========
Change in unrealized appreciation on investment
available for sale $ 657,000 $ (432,000) $ (225,000)
=========== =========== ===========
See notes to consolidated financial statements
F-6
MILTOPE GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING
AND FINANCIAL REPORTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of Miltope Group Inc. and its wholly-owned
subsidiaries, Miltope Corporation ("Miltope"), Miltope Business
Products, Inc. ("MBP") and Miltope's wholly-owned subsidiary,
International Miltope, Ltd., a Foreign Sales Corporation ("FSC").
These companies are collectively referred to as the "Company". All
material inter-company transactions have been eliminated.
Nature of Operations - The Company through its two industry segments,
military/rugged and commercial is engaged in the development of
computers and peripheral equipment for rugged and other specialized
applications for military and commercial customers, domestic and
international.
Accounting Estimates - The Company's consolidated financial statements
are prepared in conformity with generally accepted accounting
principles which require management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Fair Value of Financial Instruments - The carrying value of the
Company's accounts receivable, accounts payable and accrued expenses
approximates fair value because of the short-term maturity of those
instruments. Additional information regarding the fair value of other
financial instruments is disclosed in Note 5.
Investment Available for Sale - During 1994, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115"). SFAS 115 requires a positive intent and ability to hold
debt securities to maturity as a precondition for reporting those
securities at amortized cost. Securities not meeting the condition
are considered either available for sale or trading, as defined, and
reported at fair value. The investment owned by the Company is
considered available for sale. Gains and losses on the disposition of
the investment available for sale are computed under the specific
identification method. Unrealized gains and losses, net of tax,
related to the investment available for sale are reported as a
separate component of stockholders' equity. The Company did not hold
any trading investments or securities deemed to be held to maturity
throughout 1995 or 1996.
[FN]
F-7
[/FN]
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.
Intangible Assets - Intangible assets include a noncompete agreement
and purchased technology with an aggregate carrying value of $695,000
and $301,000 at December 31, 1995 and 1996, respectively, which are
being amortized over a six to seven-year period on a straight-line
basis. The accumulated amortization as of December 31, 1995 and 1996
is $605,000 and $811,000 respectively. The Company periodically
reviews intangible assets to assess recoverability, and impairments
would be recognized in operating results if a permanent diminution
were to occur.
Progress Billings - In accordance with the terms of certain sales
contracts, a portion of the costs incurred as of the end of specified
periods may be billed to the applicable customers even though the
contracted units have not been delivered. In accordance with trade
practice, such progress payments are not recorded as revenue until the
related units are shipped. The amounts of paid progress billings for
which the related units have not been shipped are applied against the
carrying value of inventories held for the contracts (see Note 3).
Revenue Recognition - Sales and related cost of sales are generally
recognized under the unit-of-delivery method of accounting. A
significant multi-year contract is accounted for under the percentage-
of-completion method of accounting. Income is recognized under the
percentage-of-completion method using the cost-to-cost method after
considering management's estimates of costs to complete utilizing all
available information. Sales under cost reimbursable type contracts
are recorded as work is performed. Provisions for estimated losses on
contracts in progress are recorded in the period in which the loss is
determined. Revisions in profit estimates are reflected in the period
in which the facts that require revision are known. Amounts
representing contract change orders or claims are included in sales
only when they can be reasonably estimated and realization is
probable.
Engineering, Research and Development - Engineering, research and
development expenditures not made in connection with sales contracts
are charged to expense as incurred.
Income Taxes - The Company recognizes deferred tax assets and
liabilities for the expected future tax consequences of events that
have been included in the Company's consolidated financial statements
or tax returns. Deferred tax assets and liabilities are determined
based on the differences between the financial accounting and tax
bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse (see Note
6).
Net Income (Loss) Per Common Share - Net income (loss) per common
share is based on the weighted average number of shares outstanding
during the year. The weighted average number of shares used in
computing net income (loss) per common share was 5,834,000 in 1994,
5,853,000 in 1995 and 5,867,000 in 1996.
Reclassifications - Certain prior years amounts have been reclassified
to conform with the 1996 presentation.
[FN]
F-8
[/FN]
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
1995 1996
------------ -----------
Amounts receivable from the
United States Government $ 2,775,000 $ 4,646,000
Unbilled receivables on
contracts in progress 1,655,000 228,000
Amounts receivable
from other customers 6,388,000 6,266,000
Allowance for doubtful accounts (401,000) (250,000)
------------ -----------
Total $10,417,000 $10,890,000
Unbilled receivables relate principally to certain long-term contracts
accounted for on the percentage-of-completion basis. Receivables on
the contracts are billed upon shipment of deliverables to the
customers.
3. INVENTORIES
Inventories consist of the following:
1995 1996
Purchased parts and subassemblies $13,737,000 $10,002,000
Work-in-process 2,695,000 3,955,000
----------- -----------
16,432,000 13,957,000
Less progress billings received - 121,000
----------- -----------
Total $16,432,000 $13,836,000
=========== ===========
Inventories, other than inventoried costs related to long-term
contracts, are stated at the lower of cost (principally first-in,
first-out) or market. Inventoried costs related to long-term
contracts (included in purchased parts and subassemblies and work-in-
progress) are stated at actual costs, including engineering and
manufacturing overheads, contract specific tooling, and other related
non-recurring costs incurred to date, reduced by amounts identified
with revenue recognized on units delivered or progress completed.
Inventoried costs related to long-term contracts are reduced by
charging any amounts in excess of estimated realizable value to cost
of sales. Inventories include an allowance for slow-moving and
obsolete items of $2,000,000, $2,700,000 and $3,599,000 at December
31, 1994, 1995 and 1996, respectively. The Company wrote-off
$1,400,000, $183,000 and $20,000 of slow-moving and obsolete inventory
during 1994, 1995 and 1996, respectively.
[FN]
F-9
[/FN]
4. OTHER ASSETS
The Company has an investment in M-Systems Flash Disk Pioneers, Ltd.
("M-Systems"), a company based in Israel. The Company is a major
customer of M-Systems. The fair market value of the Company's
investment in M-Systems stock on December 31, 1995 was $357,000 and
was included in other assets and as a separate component of
stockholders' equity (net of deferred income taxes) on the
accompanying consolidated balance sheets. During 1995 and 1996, the
Company sold 160,850 and 92,014 shares of M-Systems stock at a gain of
$678,000 and $522,000, respectively. In 1996, the Company exercised
its option to purchase an additional 153,242 shares of M-Systems stock
at a price of $231,000. Since there were certain restrictions
concerning the sale of this stock at December 31, 1996, it is carried
at cost in other assets on the accompanying consolidated balance
sheet.
The Company made loans to a related entity of which the chairman of
such entity is a member of the Company's board of directors and,
through other shareholdings, is affiliated with the majority
shareholder of the Company. The loans bear interest at .75% above the
prime lending rate (such prime lending rate being 8.75% at December
31, 1995). Interest income recognized on these loans was $43,000,
$46,000 and $37,000 during 1994, 1995 and 1996, respectively, and is
reflected as a reduction of interest expense in the accompanying
consolidated statements of operations. The maximum amount loaned during
the years ended December 31, 1995 and 1996 was $500,000. At December 31,
1995, this loan of $500,000 is reflected within other assets on the
accompanying consolidated balance sheets. The fair value of this loan
approximated its carrying value at December 31, 1995 as it bears interest
at a variable rate. During 1996, all loans to the related entity and
accrued interest were repaid to the Company.
5. LONG-TERM DEBT
Long-term debt consists of the following:
1995 1996
Revolving credit loan $10,304,000 $ 6,000,000
Present value of minimum royalty
payments 1,077,000 -
Industrial Development Authority
Revenue Bonds 6,100,000 5,580,000
----------- -----------
Total 17,481,000 11,580,000
Less current maturities 528,000 240,000
----------- -----------
Total $16,953,000 $11,340,000
=========== ===========
A $15 million revolving credit agreement, at the Company's option,
bears interest at the bank's reference rate (8.75% and 8.25% at
December 31, 1995 and 1996, respectively), or at a rate equaling the
London Inter Bank Offered Rate (6.02% and 5.56% at December 31, 1995
and 1996, respectively) plus 2.0%. If for any day the total amount
advanced, regardless of the interest rate option, exceeds $10 million,
an additional .25% is added to the interest rate. The revolving
credit facility is scheduled to mature on May 31, 1998, at which time
the outstanding amount would be converted into a term loan payable in
twelve equal quarterly installments. However, at the request of the
Company, the bank may extend the revolving credit agreement for
successive one year periods based upon a review of the previous year-
[FN]
F-10
[/FN]
end audited consolidated financial statements. The Company's accounts
receivable, contract rights and inventories are pledged as collateral
to the agreement.
In 1993, the Company acquired certain assets of Mag-Tek, Inc., a
manufacturer of magnetic stripe products. The consideration included
aggregate discounted minimum royalty payments of approximately $1.1
million. In August 1996, the Company and Mag-Tek, Inc. entered into
an agreement to terminate the minimum royalty payment provisions of
the related asset purchase agreement. In connection with this, the
remaining long-term debt of $425,000 and intangible assets of the same
amount were written off.
Principal payments for the Industrial Development Authority Revenue
Bonds (the "Bonds") range between $240,000 and $670,000 through
December, 2009. Repayment of the Bonds is secured by an irrevocable
letter of credit issued by Regions Bank in an amount up to $5.7
million which in turn is secured by a mortgage on the Montgomery and
Troy, Alabama facilities and a security interest in the equipment
located at such facilities. Letter of credit commitment fees paid
during 1995 and 1996 were $76,000 and $78,000, respectively. Property
and equipment with a carrying value of $7,744,000 and $8,052,000 at
December 31, 1995 and 1996, respectively, are pledged as collateral.
The agreement with the Industrial Development Authority bears interest
at a variable market rate which ranged from 5.30% to 5.88% during
1996, and was 5.88% at December 31, 1996.
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. On December 31, 1995 and 1996, there were no violations
of credit agreement provisions. The Company's bank loan agreement
permits the Company to pay annual dividends of up to 50% of the prior
year's net income.
The aggregate maturities of current and long-term debt subsequent to
December 31, 1996 are as follows:
Year Ending December 31,
---------------------------
1997 $ 240,000
1998 1,770,000
1999 2,310,000
2000 2,345,000
2001 880,000
Thereafter 4,035,000
-----------
Total $11,580,000
===========
The fair value of long-term debt approximated the carrying value as of
December 31, 1995 and 1996, as all instruments are at variable
interest rates.
[FN]
F-11
[/FN]
6. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
1994 1995 1996
----------- ----------- ---------
Current:
Federal $(2,450,000) $ - $ 65,000
State 162,000 - -
Deferred (1,137,000) - (465,000)
----------- ----------- ---------
Total $(3,425,000) $ - $(400,000)
=========== =========== =========
F-12
The significant components of the deferred income tax benefit are as
follows:
1994 1995 1996
----------- ---------- ---------
Deferred tax benefit (exclusive of
the effects of other components
listed below) $(4,377,000) $ (341,000) $ (593,000)
Utilization of operating loss
carryforward - - 1,185,000
Increase (decrease) in valuation
allowance 3,240,000 341,000 (1,057,000)
----------- ---------- ----------
Total $(1,137,000) $ - $ (465,000)
=========== ========== ==========
The deferred tax assets and liabilities at December 31, 1995 and 1996
are comprised of the following:
1995
Deferred
Deferred Tax
Current: Tax Assets Liabilities Total
---------- ----------- ----------
Inventory $ - $ (114,000) $ (114,000)
Non-deductible accruals 205,000 - 205,000
---------- ---------- ----------
Total current 205,000 (114,000) 91,000
Valuation allowance (159,000) - (159,000)
---------- ---------- ----------
Net current 46,000 (114,000) (68,000)
---------- ---------- ----------
Long-term:
Reserves 297,000 - 297,000
Net operating loss
carryforward 3,962,000 - 3,962,000
Alternative minimum tax
credit carryforward 163,000 - 163,000
Accelerated depreciation - (932,000) (932,000)
Unrealized appreciation on
investment available for sale - (132,000) (132,000)
---------- ----------- ----------
Total long-term 4,422,000 (1,064,000) 3,358,000
Valuation allowance (3,422,000) - (3,422,000)
---------- ----------- ----------
Net long-term 1,000,000 (1,064,000) (64,000)
---------- ----------- ----------
Net $1,046,000 $(1,178,000) $ (132,000)
========== =========== ===========
F-13
1996
Deferred
Deferred Tax
Current: Tax Assets Liabilities Total
---------- ----------- ----------
Inventory $ 106,000 $ - $ 106,000
Non-deductible accruals 168,000 - 168,000
---------- ----------- ----------
Total current 274,000 - 274,000
Valuation allowance (192,000) - (192,000)
---------- ----------- ----------
Net current 82,000 - 82,000
---------- ----------- ----------
Long-term:
Reserves 329,000 - 329,000
Net operating loss
carryforward 2,777,000 - 2,777,000
Alternative minimum tax
credit carryforward 228,000 - 228,000
Accelerated depreciation - (619,000) (619,000)
---------- ----------- ----------
Total long-term 3,334,000 (619,000) 2,715,000
Valuation allowance (2,332,000) - (2,332,000)
---------- ----------- ----------
Net long-term 1,002,000 (619,000) 383,000
---------- ----------- ----------
Net $1,084,000 $ (619,000) $ 465,000
========== =========== ==========
At December 31, 1995 and 1996, a valuation allowance of $3,581,000 and
$2,524,000 has been established against the net deferred income tax
assets. During 1996, the Company reduced the valuation allowance to
reflect the deferred tax assets utilized to reduce current income
taxes and to recognize a deferred tax asset of $465,000 at December
31, 1996. This reduction in the valuation allowance was attributable
to the award of significant multi-year government and commercial
contracts during 1996 and the result of improved cost controls. Due
to these events, realization of certain deferred assets became, in the
opinion of management, more likely than not. The valuation allowance
can be adjusted in future periods as the probability of realization of
the net deferred income tax asset increases.
During 1996, the Company utilized approximately $3,300,000 of net
operating loss carryforwards to offset income tax expense. The
Company has net operating loss carryforwards for federal income tax
purposes at December 31, 1996 of approximately $7,000,000 and
$1,200,000, which will expire in 2009 and 2010, respectively, if not
utilized. The Company also has approximately $228,000 of alternative
minimum tax credit carryforwards available to offset future federal
income taxes.
[FN]
F-14
[/FN]
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:
1994 1995 1996
----------- ---------- -----------
Amount at Federal statutory rate $(6,421,000) $ (335,000) $ 602,000
Increases (reductions) due to:
State taxes - net of Federal
income tax benefit 132,000 (34,000) 47,000
Change in state tax rates (283,000) - -
Effects of operating loss
carryforward and change
in valuation allowance 3,240,000 341,000 (1,057,000)
Other (93,000) 28,000 8,000
----------- ---------- -----------
Total $(3,425,000) $ - $ (400,000)
=========== ========== ===========
7. EMPLOYEE BENEFIT PLANS
Cash Bonus Plan - The Company has a bonus plan which provides for
employee participation in earnings. All permanent, full-time
employees (excluding certain executives) are eligible. The bonus plan
provides for quarterly contributions of up to 8% of a defined base.
All eligible employees participate in the bonus plan based upon
respective salary levels and years of service. The Company's bonus
provision for 1994 was $185,000. The Company did not award a bonus
for 1995 or 1996.
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
$270,000 and $35,000 in 1994 and 1996, respectively. The Company
made no contributions for 1995.
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. No bonus
provision was made for 1994 or 1995. The Company's bonus provision
for 1996 was $261,000.
[FN]
F-15
[/FN]
8. STOCK OPTIONS
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. FASB Statement No. 123 "Accounting for
Stock-Based Compensation" (SFAS 123) was issued by the FASB in 1995
and, if fully adopted, changes the methods for recognition of cost on
plans similar to those of the Company. Adoption of SFAS 123 is
optional; however, pro forma disclosures as if the Company adopted the
cost recognition requirements under SFAS 123 in 1996 are presented
below.
The Company had an Incentive Stock Option Plan ("ISO"), a Management
Stock Option Plan ("MSO") and a Key Employee Stock Option Plan
("KSO"). The ISO, MSO and KSO Plans expired in 1994 and 1995. In
addition, on April 11, 1995, the Company adopted the 1995 Stock
Option and Performance Award Plan ("SOPA") which was approved by the
Company's stockholders on June 5, 1995. Under the ISO, MSO, KSO and
SOPA plans, 376,780, 187,700, 150,000 and 500,000 shares of common
stock, respectively, were reserved for issuance under options to be
granted for periods not to exceed ten years at an exercise price not
less than the fair market value of the shares at the date of grant.
Such options are not exercisable until one year from the date of
grant, then are exercisable at a cumulative rate of 25% in each of the
first four years subsequent to the applicable grant. Options for
112,390 shares, 29,000 shares and 62,250 shares were exercisable at
December 31, 1994, 1995 and 1996, respectively at a weighted average
exercise price of $10.39, $6.95, and $4.33, respectively.
Under a separate plan, 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. Compensation expense related to such options is insignificant.
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. Options for 85,164 shares, 95,085 shares and
65,979 shares were exercisable at December 31, 1994, 1995 and 1996,
respectively at a weighted average exercise price of $3.86, $3.61, and
$3.64, respectively.
A summary of the status of the Company's stock options as of December
31, 1996, 1995 and 1994 and changes during the year ended on those
dates is presented below:
Options For Weighted Average
Shares Exercise Price
------------ ----------------
Outstanding -
December 31, 1993 359,512 $8.00
Granted 41,917 $3.24
Canceled (103,125) $10.59
--------------------------------------------------------
Outstanding -
December 31, 1994 298,304 $6.43
Granted 150,278 $3.16
Canceled (168,497) $7.78
-------------------------------------------------------
Outstanding -
December 31, 1995 280,085 $3.87
Granted 49,222 $3.08
Canceled (45,828) $4.88
-------------------------------------------------------
Outstanding-
December 31, 1996 283,479 $3.57
F-16
In addition, options to purchase 33,000 shares were exercised during
1995 at an exercise price of $3.00 per share. These options were
originally granted independently of the aforementioned stock option
plans. There are no other options granted independently of the
aforementioned stock option plans.
Had SFAS 123 been fully adopted and compensation costs recognized
for the SOPA and outside directors' plan, the Company's pro forma net
income (loss) for 1995 and 1996 would have been $(1,034,000) and
$2,058,000 respectively, and earnings (loss) per share for 1995 and
1996 would have been $(.18) and $.35 respectively. Because the SFAS
123 method of accounting has not been applied to options granted prior
to January 1, 1995, the resulting pro \forma compensation cost may not
be representative of that to be expected in future years.
For purposes of SFAS 123, the weighted average fair value of the
options granted during 1995 and 1996 is estimated as $2.09 and $2.28,
respectively, on the date of grant using the Black-Scholes option-
pricing model with the following assumptions: divided yield of 0%,
volatility of 60.0%, risk-free interest rate of 6.31% and an expected
life of 10 years.
9. LEASING ARRANGEMENTS
The Company is obligated under several non-cancelable operating leases
covering office facilities and equipment. 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, 1996 are
as follows:
Year Ending December 31,
------------------------
1997 $184,000
1998 82,000
1999 46,000
--------
Total $312,000
========
Aggregate rental expense under operating leases amounted to $749,000,
$688,000 and $376,000 in 1994, 1995 and 1996, respectively.
The Company leases office space at its Hope Hull facility to tenants
on a year-to-year basis, as well as under a multi-year lease with an
entity affiliated through certain common ownership, where future
minimum lease receipts at December 31, 1996 are as follows:
[FN]
F-17
[/FN]
Year Ending December 31,
------------------------
1997 $ 95,000
1998 95,000
1999 95,000
2000 55,000
--------
Total $340,000
========
Aggregate rental income under operating leases amounted to $146,000 in
1996.
[FN]
F-18
[/FN]
10.SEGMENT INFORMATION
The Company operates in two industry segments. Information about the
Company's industry segments is as follows:
1994 Military/Rugged Commercial Elimination Consolidated
--------------- ---------- ----------- ------------
Sales to unaffiliated customers $ 66,882,000 $ 8,687,000 $ 75,569,000
Intersegment sales 8,976,000 38,000 $(9,014,000)
------------ ----------- ----------- ------------
Net sales $ 75,858,000 $ 8,725,000 $(9,014,000) $ 75,569,000
============ =========== =========== ============
Loss from operations $(13,287,000) $(4,546,000) $ 265,000 $(17,568,000)
============ =========== ===========
Interest expense - net 1,317,000
------------
Loss before income taxes $(18,885,000)
============
Identifiable assets $46,201,000 $ 6,846,000 $ 115,000 $ 53,162,000
=========== =========== =========== ============
Capital expenditures $ 5,972,000 $ 82,000 $ 6,054,000
=========== =========== ============
Depreciation and amortization $ 896,000 $ 676,000 $ 1,572,000
=========== =========== ============
1995 Military/Rugged Commercial Eliminations Consolidated
--------------- ---------- ------------ ------------
Sales to unaffiliated customers $55,975,000 $ 9,733,000 $ 65,708,000
Intersegment sales 9,247,000 46,000 $(9,293,000)
----------- ----------- ----------- ------------
Net sales $65,222,000 $ 9,779,000 $(9,293,000) $ 65,708,000
=========== =========== =========== ============
Income (loss) from operations $ 3,164,000 $(2,557,000) $ (230,000) $ 377,000
=========== =========== ===========
Interest expense - net 1,361,000
------------
Loss before income taxes $ (984,000)
============
Identifiable assets $35,710,000 $ 5,845,000 $ (115,000) $ 41,440,000
=========== =========== =========== ============
Capital expenditures $ 563,000 $ 153,000 $ 716,000
=========== =========== ============
Depreciation and amortization $ 1,024,000 $ 677,000 $ 1,701,000
=========== =========== ============
1996 Military/Rugged Commercial Eliminations Consolidated
--------------- ---------- ------------ ------------
Sales to unaffiliated customers $30,618,000 $14,895,000 - $45,513,000
Intersegment sales - - $ - -
----------- ----------- ------------ -----------
Net sales $30,618,000 $14,895,000 $ - $45,513,000
=========== =========== ============ ===========
Income from operations $ 1,088,000 $ 1,643,000 $ 115,000 $ 2,846,000
=========== =========== ============
Interest expense - net 1,076,000
-----------
Income before income taxes $ 1,770,000
===========
Identifiable assets $26,518,000 $ 9,814,000 $ - $36,332,000
=========== =========== ============ ===========
Capital expenditures $ 420,000 $ 205,000 $ 625,000
=========== =========== ============ ===========
Depreciation and amortization $ 1,086,000 $ 651,000 $ 1,737,000
=========== =========== ===========
F-19
In 1994, 1995 and 1996, foreign sales accounted for 17%, 23% and 15%,
respectively, of the military/rugged segment net sales and 11%, 3% and
9%, respectively, of the commercial segment net sales.
During 1994, 1995 and 1996, the United States Government accounted for
57%, 63% and 54% of consolidated net sales of the Company,
respectively. During 1996, one customer accounted for 18% of
consolidated net sales of the Company. No other customer accounted
for more than 10% of consolidated net sales of the Company for 1994,
1995 and 1996.
11.UNAUDITED QUARTERLY FINANCIAL DATA
Summarized unaudited quarterly financial data for the years ended
December 31, 1995 and 1996 is as follows:
Thirteen Weeks Ended
--------------------------------------------------------
March 31, July 1, October 1, December 31,
1995 1995 1995 1995
----------- ----------- ----------- ------------
Net Sales $16,199,000 $21,063,000 $18,226,000 $10,220,000
=========== =========== =========== ===========
Gross Profit $ 2,546,000 $ 4,662,000 $ 3,611,000 $ 2,553,000
=========== =========== =========== ===========
Net Income (Loss) $(1,332,000) $ 193,000 $ 618,000 $ (463,000)
=========== =========== ============ ===========
Net Income (Loss)
Per Common Share $(.23) $.03 $.11 $(.08)
===== ==== ==== =====
Thirteen Weeks Ended
--------------------------------------------------------
March 31, June 30, September 29, December 31,
1996 1996 1996 1996
----------- ----------- ----------- ------------
Net Sales $ 9,950,000 $11,137,000 $12,059,000 $12,367,000
=========== =========== =========== ===========
Gross Profit $ 2,660,000 $ 2,445,000 $ 3,012,000 $ 2,960,000
=========== =========== =========== ===========
Net Income $ 117,000 $ 526,000 $ 543,000 $ 984,000
=========== =========== =========== ===========
Net Income
Per Common Share $.02 $.09 $.09 $.17
==== ==== ==== ====
F-20
12.RELOCATION AND RESTRUCTURING
In 1994, the Company relocated and restructured substantially all of
the manufacturing, engineering and administrative functions located in
Melville, New York to Alabama and Vermont. A pre-tax charge of $9.1
million was recorded during fiscal 1994 to cover the costs associated
with the relocation and restructuring, which include the following:
Severance and related
human resource programs $1,080,000
Employee relocation 3,151,000
Transfer of assets to Alabama
and Vermont 2,326,000
Production inefficiencies 2,543,000
----------
Total $9,100,000
==========
At December 31, 1995 and 1996 there is substantially no remaining
liability on the accompanying consolidated balance sheets, as the
relocation is complete.
13. RELATED PARTY TRANSACTIONS
Effective January 1, 1995, Innova International Corporation acquired
62.8%, subject to adjustment in certain circumstances, of the
outstanding common stock of the Company pursuant to certain share
exchange transactions with Stonebrook Group, Inc. and Stuvik AB.
During 1996, the Company recorded sales of $1,140,000 to 3C
Communications International S.A., an entity affiliated through
certain common ownership. At December 31, 1996, accounts receivable
on such sales was $659,000.
[FN]
F-21
[/FN]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 2-97977, No. 33-8245, No. 33-78744 and No. 33-65233 of Miltope
Group Inc. on Forms S-8 and No. 33-33752 of Miltope Group Inc. on Form
S-3 of our report dated February 21, 1997 appearing in this Annual
Report on Form 10-K of Miltope Group Inc. for the year ended December
31, 1996.
/S/ Deloitte & Touche LLP
- -------------------------
Birmingham, Alabama
March 26, 1997
[FN]
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 24, 1997 /s/ George K. Webster
-----------------------------
George K. Webster
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 24, 1997 /s/ George K. Webster
-----------------------------
George K. Webster
President and Chief Executive
Officer (Principal Executive
Officer)
March 24, 1997 /s/ James E. Matthews
-----------------------------
James E. Matthews
Vice President, Finance(Principal
Accounting and Financial Officer)
March 24, 1997 /s/ Teddy G. Allen
-----------------------------
Teddy G. Allen
Director
March 24, 1997 /s/ Alvin E. Nashman
-----------------------------
Alvin E. Nashman
Director
March 24, 1997
-----------------------------
Jan H. Stenbeck
Director
March 24, 1997 /s/ William Mustard
-----------------------------
William Mustard
Director
March 24, 1997 /s/ John Cusick
-----------------------------
John Cusick
Director
March 24, 1997 /s/ Franklin Miller
-----------------------------
Franklin Miller
Director
March 24, 1997 /s/ William L. Dickinson
-----------------------------
William L. Dickinson
Director