MILLER INDUSTRIES INC /TN/
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
____________________
FORM
10-K
(Mark
One)
| x |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
| For the fiscal year ended |
December 31,
2009
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OR
| o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from __________________________________ to
__________________________________
| Commission File No. |
001-14124
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| MILLER INDUSTRIES, INC. |
| (Exact name of registrant as specified in its charter) |
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Tennessee
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62-1566286
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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8503
Hilltop Drive, Ooltewah, Tennessee
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37363
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(Address
of principal executive offices)
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(Zip
Code)
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| (423) 238-4171 |
| (Registrant’s telephone number, including area code) |
Securities
registered pursuant to Section 12(b) of the Act:
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Title of Each
Class
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Name of Each Exchange on
Which Registered
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|||||
| Common Stock, par value $.01 per share | New York Stock Exchange | |||||
Securities
registered pursuant to Section 12(g) of the Act:
| None |
| (Title of Class) |
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
o
Yes
x
No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
o
Yes
x
No
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.
x
Yes
o
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
o
Yes
o
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
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.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act:
| Large Accelerated Filer o | Accelerated Filer x |
| Non-accelerated Filer o | Smaller Reporting Company o |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
o
Yes
x
No.
The
aggregate market value of the voting stock held by non-affiliates of the
registrant (which for purposes hereof are all holders other than executive
officers and directors) as of June 30, 2009 (the last business day of the
registrant’s most recently completed second fiscal quarter) was $96,315,129
(based on 10,944,901 shares held by non-affiliates at $8.80 per share, the last
sale price reported on the New York Stock Exchange on June 30,
2009).
At March
8, 2010 there were 11,634,231 shares of the registrant’s common stock, par value
$0.01 per share, outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The
information called for by Part III (Items 10, 11, 12, 13 and 14) is incorporated
herein by reference to the Registrant’s definitive proxy statement for its 2010
Annual Meeting of Shareholders which is to be filed pursuant to Regulation
14A.
TABLE
OF CONTENTS
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PART
I
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ITEM
1.
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BUSINESS
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1
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ITEM
1A.
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RISK
FACTORS
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7
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ITEM
1B.
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UNRESOLVED
STAFF COMMENTS
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10
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ITEM
2.
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PROPERTIES
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11
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ITEM
3.
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LEGAL
PROCEEDINGS
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11
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ITEM
4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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11
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PART
II
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ITEM
5.
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MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
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12
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ITEM
6.
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SELECTED
FINANCIAL DATA
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14
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ITEM
7.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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15
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ITEM
7A.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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21
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ITEM
8.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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22
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ITEM
9.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
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22
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ITEM
9A.
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CONTROLS
AND PROCEDURES
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22
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ITEM
9B.
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OTHER
INFORMATION
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25
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PART
III
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ITEM
10.
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DIRECTORS,
EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE
GOVERNANCE
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26
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ITEM
11.
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EXECUTIVE
COMPENSATION
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26
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ITEM
12.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
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26
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ITEM
13.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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26
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ITEM
14.
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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26
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PART
IV
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ITEM
15.
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EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
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27
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FINANCIAL
STATEMENTS
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F-1
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FINANCIAL
STATEMENT SCHEDULES
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S-1
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CERTAIN
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
Certain
statements in this Annual Report, including but not limited to statements made
in Part II–Item 7–“Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” may be deemed to be forward-looking statements, as
defined in the Private Securities Litigation Reform Act of
1995. Forward-looking statements can be identified by the use of
words such as “may,” “will,” “should,” “could,” “continue,” “future,”
“potential,” “believe,” “project,” “plan,” “intend,” “seek,” “estimate,”
“predict,” “expect,” “anticipate” and similar expressions, or the negative of
such terms, or other comparable terminology. Forward-looking
statements also include the assumptions underlying or relating to any of the
foregoing statements. Such forward-looking statements are made based
on our management’s beliefs as well as assumptions made by, and information
currently available to, our management. Our actual results may differ
materially from the results anticipated in these forward-looking statements due
to, among other things: economic and market conditions; the risks related to the
general economic health of our customers; our customer’s access to capital and
credit to fund purchases, including the ability of our customers to secure floor
plan financing; the success and timing of existing and additional export and
governmental orders; the cyclical nature of our industry; changes in fuel and
other transportation costs; our dependence on outside suppliers of raw
materials; changes in the cost of aluminum, steel and related raw materials; and
those other risks referenced herein, including those risks referred to in this
report, in Part I, Item 1A–“Risk Factors” and those risks discussed in our
filings with the Securities and Exchange Commission filed after this Annual
Report. Such factors are not exclusive. We do not
undertake to update any forward-looking statement that may be made from time to
time by, or on behalf of, our company.
i
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ITEM
1.
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BUSINESS
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General
Miller
Industries is the world’s largest manufacturer of vehicle towing and recovery
equipment, with executive offices in Ooltewah, Tennessee, domestic manufacturing
operations in Tennessee and Pennsylvania, and foreign manufacturing operations
in France and the United Kingdom.
Since
1990, we have developed or acquired several of the most well-recognized brands
in the towing and recovery equipment manufacturing industry. Our
strategy has been to diversify our line of products and increase our presence in
the industry by combining internal growth and development with acquisitions of
complementary products.
In this
Annual Report on Form 10-K, the words “Miller Industries,” “the Company,” “we,”
“our,” “ours” and “us” refer to Miller Industries, Inc. and its subsidiaries or
any of them.
Towing
and Recovery Equipment
We offer
a broad range of towing and recovery equipment products that meet most customer
design, capacity and cost requirements. We manufacture the bodies of
wreckers and car carriers, which are installed on truck chassis manufactured by
third parties. We frequently purchase the truck chassis for resale to
our customers. Wreckers generally are used to recover and tow
disabled vehicles and other equipment and range in type from the conventional
tow truck to large recovery vehicles with rotating hydraulic booms and 75-ton
lifting capacities. Car carriers are specialized flat bed vehicles
with hydraulic tilt mechanisms that enable a towing operator to drive or winch a
vehicle onto the bed for transport. Car carriers transport new or
disabled vehicles and other equipment and are particularly effective over longer
distances. We also manufacture a line of transport
trailers.
Our
products primarily are sold through independent distributors that serve all 50
states, Canada and Mexico, and other foreign markets including Europe, the
Pacific Rim, the Middle East, South America and Africa, and through prime
contractors to governmental entities. Additionally, as a result of
our ownership of Jige in France and Boniface in the United Kingdom, we have
substantial distribution capabilities in Europe. While most of our
distributor agreements do not contain exclusivity provisions, management
believes that approximately 65% of our independent distributors sell our
products on an exclusive basis. In addition to selling our products
to towing operators, our independent distributors provide parts and
service. We also utilize sales representatives to exclusively market
our products and provide expertise and sales assistance to our independent
distributors. Management believes the strength of our distribution
network and the breadth of our product offerings are two key advantages over our
competitors.
Product
Lines
We
manufacture a broad line of wrecker, car carrier and trailer bodies to meet a
full range of customer design, capacity and cost requirements.
Wreckers.
Wreckers
are generally used to recover and tow disabled vehicles and other equipment and
range in type from the conventional tow truck to large recovery vehicles with
75-ton lifting capacities. Wreckers are available with specialized
features, including underlifts, L-arms and scoops, which lift disabled vehicles
by the tires or front axle to minimize front end damage to the towed
vehicles. Certain heavy duty wrecker models offer rotating booms,
which allow heavy duty wreckers to recover vehicles from any angle, and remote
control devices for operating wreckers. In addition, certain light
duty wreckers are equipped with automatic wheellift hookup devices that allow
operators to engage a disabled or unattended vehicle without leaving the cab of
the wrecker.
1
Our
wreckers range in capacity from 8 to 75 tons, and are classified as either light
duty or heavy duty, with wreckers of 16-ton or greater capacity being classified
as heavy duty. Light duty wreckers are used to remove vehicles from
accident scenes and vehicles illegally parked, abandoned or disabled, and for
general recovery. Heavy duty wreckers are used in towing and recovery
applications including overturned tractor trailers, buses, motor homes and other
large vehicles.
Car Carriers.
Car
carriers are specialized flat-bed vehicles with hydraulic tilt mechanisms that
enable a towing operator to drive or winch a vehicle onto the bed for
transport. Car carriers are used to transport new or disabled
vehicles and other equipment and are particularly effective for transporting
vehicles or other equipment over longer distances. In addition to
transporting vehicles, car carriers may also be used for other purposes,
including transportation of industrial equipment. Many professional towing
operators have added car carriers to their fleets to complement their towing
capabilities.
Transport
Trailers.
Our multi-vehicle transport trailers are specialized
auto transport trailers with upper and lower decks and hydraulic ramps for
loading vehicles. These trailers are used for moving multiple
vehicles for auto auctions, car dealerships, leasing companies and other similar
applications. These trailers are easy to load, transport 6 to 7
vehicles and, with the optional cab rack, can haul up to 8
vehicles. The vehicles can be secured to transport quickly with
ratchet and chain tie-downs that are mounted throughout the frame of the
transport. Many professional towing operators have added auto
transport trailers to their fleets to add to their towing
capabilities. Also, we design, engineer and manufacture special-use
transport and trailer products to be used primarily in military
applications.
Brand
Names
We
manufacture and market our wreckers, car carriers and trailers under ten
separate brand names. Although certain brands overlap in terms of
features, prices and distributors, each brand has its own distinctive image and
customer base.
Century
®
. The
Century brand is our “top-of-the-line” brand and represents what management
believes to be the broadest product line in the industry. The Century
line was started in 1974 and produces wreckers ranging from 8-ton light duty to
75-ton heavy duty models, and car carriers in lengths from 20 to 30
feet. Management believes that the Century brand has a reputation as
the industry’s leading product innovator.
Vulcan
®
.
Our Vulcan
product line includes a range of premium light duty and heavy duty wreckers,
ranging from 8-ton light duty to 50-ton heavy duty models, and car
carriers. The Vulcan line is sold through its own independent
distribution network.
Challenger
®
.
Our Challenger
products compete with the Century and Vulcan products and constitute a third
premium product line. Challenger products consist of heavy duty
wreckers with capacities ranging from 8 to 75 tons. The Challenger
line was started in 1975 and is known for high performance heavy duty wreckers
and aesthetic design.
Holmes
®
. Our
Holmes product line includes mid-priced wreckers with 8 to 16 ton capacities, a
16-ton rotator and a detachable towing unit (DTU). The Holmes wrecker
was first produced in 1916. Historically, the Holmes name has been
the most well-recognized and leading industry brand both domestically and
internationally.
Champion
®
. The
Champion brand, which was introduced in 1991, includes car carriers which range
in length from 19 to 21 feet. The Champion product line, which is
generally lower-priced, allows us to offer a full line of car carriers at
various competitive price points.
Chevron
™. Our
Chevron product line is comprised primarily of premium car
carriers. Chevron produces a range of premium single-car, multi-car
and industrial carriers, as well as wreckers ranging from 8-ton to 16-ton
models. The Chevron line is operated autonomously with its own
independent distribution network.
Eagle
®
. Our
Eagle products consist of light duty wreckers with the “Eagle Claw” hook-up
system that allows towing operators to engage a disabled or unattended vehicle
without leaving the cab of the tow truck. The “Eagle Claw” hook-up
system was originally developed for the repossession market. Since
acquiring Eagle, we have upgraded the quality and features of the Eagle product
line and expanded its recovery capability.
2
Titan
®
. Our
Titan product line is comprised of premium multi-vehicle transport trailers
which can transport up to 8 vehicles depending on configuration.
Jige
™
.
Our Jige product
line is comprised of a broad line of premium light duty and heavy duty wreckers
and car carriers marketed primarily in Europe. Jige is a market
leader best known for its innovative designs of car carriers and light duty
wreckers necessary to operate within the narrow confines of European cities, as
well as heavy duty wreckers.
Boniface
™
.
Our Boniface
product line is comprised primarily of premium heavy duty wreckers marketed
primarily in Europe. Boniface produces heavy duty wreckers
specializing in the long underlift technology required to tow modern European
tour buses.
Product
Development and Manufacturing
Our
Holmes and Century brand names are associated with four of the major innovations
in the industry: the rapid reverse winch; the tow sling; the
hydraulic lifting mechanism; and the underlift with parallel linkage and
L-arms. Our engineering staff, in consultation with manufacturing
personnel, uses computer-aided design and stress analysis systems to test new
product designs and to integrate various product improvements. In
addition to offering product innovations, we focus on developing or licensing
new technology for our products.
We
manufacture wreckers, car carriers and trailers at seven manufacturing
facilities located in the United States, France and the United
Kingdom. The manufacturing process for our products consists
primarily of cutting and bending sheet steel or aluminum into parts that are
welded together to form the wrecker, car carrier body or trailer. In
addition, during the past several years, we have also begun to produce wrecker
bodies using composites and other non-metallic materials. After the
frame is formed, components such as hydraulic cylinders, winches, valves and
pumps, which are purchased by us from third-party suppliers, are attached to the
frame to form the completed wrecker or car carrier body. The
completed body is either installed by us, or shipped by common carrier to a
distributor where it is then installed, on a truck
chassis. Generally, the wrecker or car carrier bodies are painted by
us with a primer coat only, so that towing operators can select customized
colors to coordinate with chassis colors or fleet colors. To the
extent final painting is required before delivery, we generally contract with
independent paint shops for such services.
We
purchase raw materials and component parts from a number of
sources. Although we have no long-term supply contracts, management
believes we have good relationships with our primary suppliers. In
recent years prices have fluctuated significantly, but we have experienced no
significant problems in obtaining adequate supplies of raw materials and
component parts to meet the requirements of our production
schedules. Management believes that the materials used in the
production of our products are available at competitive prices from an adequate
number of alternative suppliers. Accordingly, management does not
believe that the loss of a single supplier would have a material adverse effect
on our business.
Sales,
Distribution and Marketing
Management
categorizes the towing and recovery market into three general product
types: light duty wreckers; heavy duty wreckers; and car
carriers. The light duty wrecker market consists primarily of
professional wrecker operators, repossession towing services, local and national
governmental entities and repair shop or salvage company owners. The
heavy duty market includes professional wrecker operators serving the needs of
commercial vehicle operators as well as governmental entities. The
car carrier market, historically dominated by automobile salvage companies, has
expanded to include equipment rental companies that offer delivery service and
professional towing operators who desire to complement their existing towing
capabilities. Management estimates that there are approximately
30,000 professional towing operators and 80,000 service station, repair shop and
salvage operators comprising the overall towing and recovery
market.
3
We have
developed a diverse network of independent distributors, consisting of
approximately 120 distributors in North America, who serve all 50 states, Canada
and Mexico, and approximately 50 distributors that serve other foreign
markets. In 2009, no single distributor accounted for more than 10%
of our sales. Management believes our broad and diverse network of
distributors provides us with the flexibility to adapt to market changes,
lessens our dependence on particular distributors and reduces the impact of
regional economic factors.
Our sales
force services our network of independent distributors and consists of sales
representatives whose responsibilities include providing administrative and
sales support to the entire base of independent distributors. Sales
representatives receive commissions on direct sales based on product type and
brand and generally are assigned specific territories in which to promote sales
of our products and to maintain customer relationships.
In
addition to providing services to our network of independent distributors, our
sales force sells our products to various governmental entities, including the
U.S. federal government and foreign governments, through prime
contractors. In 2009, 19.4% of our consolidated net sales were made
to the U.S. federal government through prime contractors.
To
support sales and marketing efforts, we produce demonstrator models that are
used by our sales representatives and independent distributors. To
increase exposure to our products, we also serve as the official recovery team
for many automobile racing events, including NASCAR races at Daytona, Talladega,
Richmond, Chicago, Kansas, California, Michigan, Darlington and the Rolex
Daytona 24 Hour Race, among others.
We
routinely respond to requests for proposals or bid invitations in consultation
with our local distributors. Our products have been selected by the
United States General Services Administration as an approved source for certain
federal and defense agencies. We intend to continue to pursue
government contracting opportunities.
The
towing and recovery equipment industry places heavy marketing emphasis on
product exhibitions at national, regional and international trade
shows. In order to focus our marketing efforts and to control
marketing costs, we concentrate our efforts on the major trade shows each year,
and we work with our network of independent distributors to concentrate on
various regional shows.
Product
Warranties and Insurance
We
generally offer a 12-month limited manufacturer’s product and service warranty
on our wrecker and car carrier products. Our warranty generally
provides for repair or replacement of failed parts or
components. Warranty service is usually performed by us or an
authorized distributor. Management believes that we maintain adequate
general liability and product liability insurance.
Backlog
We
produce virtually all of our products to order. Our backlog is based
upon customer purchase orders that we believe are firm. The level of
backlog at any particular time, however, is not an appropriate indicator of our
future operating performance. Certain purchase orders are subject to
cancellation by the customer upon notification. Given our production
and delivery schedules management believes that the current backlog represents
less than three months of production except for follow-on governmental orders
which we expect production to continue until the second half of
2010.
Competition
The
towing and recovery equipment manufacturing industry is highly competitive for
sales to distributors and towing operators. Management believes that
competition in this industry focuses on product quality and innovation,
reputation, technology, customer service, product availability and
price. We compete on the basis of each of these criteria, with an
emphasis on product quality and innovation and customer
service. Management also believes that a manufacturer’s relationship
with distributors is a key component of success in the
industry. Accordingly, we have invested substantial resources and
management time in building and maintaining strong relationships with
distributors. Management also believes that our products are regarded
as high quality within their particular price points. Our marketing
strategy is to continue to compete primarily on the basis of quality and
reputation rather than solely on the basis of price, and to continue to target
the growing group of professional towing operators who as end-users recognize
the quality of our products.
4
Traditionally,
the capital requirements for entry into the towing and recovery manufacturing
industry have been relatively low. Management believes a
manufacturer’s capital resources and access to technological improvements have
become a more integral component of success in recent years. Certain
of our competitors may have greater financial and other resources and may
provide more attractive dealer and retail customer financing alternatives than
we do.
Employees
We
employed approximately 680 people as of December 31, 2009. None of
our employees are covered by a collective bargaining agreement, though our
employees in France and the United Kingdom have certain similar rights provided
by their respective government’s employment regulations. We consider
our employee relations to be good.
Intellectual
Property Rights
Our
development of the underlift parallel linkage and L-arms is considered one of
the most innovative developments in the wrecker industry. This
technology is significant primarily because it allows the damage-free towing of
newer aerodynamic vehicles made of lighter weight materials. This
technology, particularly the L-arms, is used in a majority of commercial
wreckers today. We hold a number of utility and design patents
covering other of our products, including the Vulcan “scoop” wheel-retainer and
the car carrier anti-tilt device. We have also obtained the rights to
use and develop certain technologies owned or patented by
others. Management believes that, until the patents on our technology
expire, utilization of our patented technology without a license is an
infringement of such patents. We have successfully litigated
infringement lawsuits in which the validity of our patents on our technology was
upheld, and successfully settled other lawsuits. Pursuant to the
terms of a consent judgment entered into in 2000 with the Antitrust Division of
the U.S. Department of Justice, we are required to offer non-exclusive
royalty-bearing licenses to certain of our key patents to all tow truck and car
carrier manufacturers.
Our
trademarks “Century,” “Holmes,” “Champion,” “Challenger,” “Formula I,” “Pro
Star,” “Street Runner,” “Vulcan,” “Right Approach” and “Extreme Angle,” among
others, are registered with the United States Patent and Trademark
Office. Management believes that our trademarks are well-recognized
by dealers, distributors and end-users in their respective markets and are
associated with a high level of quality and value.
Government
Regulations and Environmental Matters
Our
operations are subject to federal, state and local laws and regulations relating
to the generation, storage, handling, emission, transportation and discharge of
materials into the environment. Management believes that we are in
substantial compliance with all applicable federal, state and local provisions
relating to the protection of the environment. The costs of complying
with environmental protection laws and regulations has not had a material
adverse impact on our financial condition or results of operations in the past
and is not expected to have a material adverse impact in the
future.
We are
also subject to the Magnuson-Moss Warranty Federal Trade Commission Improvement
Act which regulates the description of warranties on products. The
description and substance of our warranties are also subject to a variety of
federal and state laws and regulations applicable to the manufacturing of
vehicle components. Management believes that continued compliance
with various government regulations will not materially affect our
operations.
5
Executive
Officers of the Registrant
Information
relating to our executive officers as of the end of the period covered by this
Annual Report is set forth below. There are no family relationships
among the executive officers, directors or nominees for director, nor are there
any arrangements or understandings between any of the executive officers and any
other persons pursuant to which they were selected as executive
officers.
|
Name
|
Age
|
Position
|
||
|
William
G. Miller
|
63
|
Chairman
of the Board and Co-Chief Executive Officer
|
||
|
Jeffrey
I. Badgley
|
57
|
President
and Co-Chief Executive Officer
|
||
|
Frank
Madonia
|
61
|
Executive
Vice President, Secretary and General Counsel
|
||
|
J.
Vincent Mish
|
59
|
Executive
Vice President, Chief Financial Officer and
Treasurer
|
William G.
Miller
has served as Chairman of the Board since April 1994 and our
Co-Chief Executive Officer since October 2003. Mr. Miller served as
our Chief Executive Officer from April 1994 until June 1997. In June
1997, he was named Co-Chief Executive Officer, a title he shared with Jeffrey I.
Badgley until November 1997. Mr. Miller also served as our President
from April 1994 to June 1996. He served as Chairman of Miller Group,
Inc. from August 1990 through May 1994, as its President from August 1990 to
March 1993, and as its Chief Executive Officer from March 1993 until May
1994. Prior to 1987, Mr. Miller served in various management
positions for Bendix Corporation, Neptune International Corporation,
Wheelabrator-Frye, Inc. and The Signal Companies, Inc.
Jeffrey I.
Badgley
has
served as our Co-Chief Executive Officer with Mr. Miller since October 2003, as
our President since June 1996 and as a director since January
1996. Mr. Badgley served as our Chief Executive Officer from November
1997 to October 2003. In June 1997, he was named our Co-Chief
Executive Officer, a title he shared with Mr. Miller until November
1997. Mr. Badgley served as our Vice President from 1994 to 1996, and
as our Chief Operating Officer from June 1996 to June 1997. In
addition, Mr. Badgley has served as President of Miller Industries Towing
Equipment Inc. since 1996. Mr. Badgley served as Vice President—Sales
of Miller Industries Towing Equipment Inc. from 1988 to 1996. He
previously served as Vice President—Sales and Marketing of Challenger Wrecker
Corporation from 1982 until joining Miller Industries Towing Equipment
Inc.
Frank
Madonia
has
served as our Executive Vice President, Secretary and General Counsel since
September 1998. From April 1994 to September 1998 Mr. Madonia served
as our Vice President, General Counsel and Secretary. Mr. Madonia
served as Secretary and General Counsel to Miller Industries Towing Equipment
Inc. since its acquisition by Miller Group in 1990. From July 1987
through April 1994, Mr. Madonia served as Vice President, General Counsel and
Secretary of Flow Measurement. Prior to 1987, Mr. Madonia served in
various legal and management positions for United States Steel Corporation,
Neptune International Corporation, Wheelabrator-Frye, Inc. and The Signal
Companies, Inc.
J. Vincent
Mish
is a
certified public accountant and has served as our Chief Financial Officer and
Treasurer since June 1999, a position he also held from April 1994 through
September 1996. In December 2002, Mr. Mish was appointed as our
Executive Vice President. He also has served as President of the
Financial Services Group since September 1996 and as a Vice President of Miller
Industries since April 1994. Mr. Mish served as Vice President and
Treasurer of Miller Industries Towing Equipment Inc. since its acquisition by
Miller Group in 1990. From February 1987 through April 1994, Mr. Mish
served as Vice President and Treasurer of Flow Measurement. Mr. Mish
worked with Touche Ross & Company (now Deloitte and Touche) for over ten
years before serving as Treasurer and Chief Financial Officer of DNE Corporation
from 1982 to 1987. Mr. Mish is a member of the American Institute of
Certified Public Accountants and the Tennessee and Michigan Certified Public
Accountant societies.
Available
Information
Our
Internet website address is www.millerind.com. We make available free
of charge through our website our Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports,
as soon as reasonably practicable after we file them with, or furnish them to,
the Securities and Exchange Commission. Our Corporate Governance
Guidelines and Code of Business Conduct and Ethics are also available on our
website. Other corporate governance-related documents can be found at
our website as well.
6
|
ITEM
1A.
|
RISK
FACTORS
|
There
are many factors that affect our business and the results of our operations,
some of which are beyond our control. The following is a description
of some of the important factors that may cause the actual results of our
operations in future periods to differ materially from those currently expected
or desired. We encourage you to read this section
carefully.
Our
business is subject to the cyclical nature of our industry and changes in
consumer confidence and in economic conditions in general. Adverse
changes or continued uncertainty with respect to these factors may lead to a
downturn in our business.
The
towing and recovery industry is cyclical in nature and historically the industry
has been affected by changes in consumer confidence and in economic conditions
in general. The current global recession and continued volatility and
disruption in domestic and international capital and credit markets have caused
significant erosion in consumer confidence. As a result, the overall
demand for our products has been materially and negatively affected, and the
level of future sales of our products is uncertain. A prolonged
economic downturn, and slow or negative growth in the domestic and global
economy, may continue to have a material adverse effect on our business,
financial condition and results of operations for the foreseeable
future.
Our
demand from our customers and towing operators is affected by the availability
of capital and access to credit.
The
ability of our customers and of towing operators to purchase our products is
affected by the availability of capital and credit to them. Our
customers rely on floor plan financing in connection with the purchase of our
products, and the availability of that financing on acceptable terms has a
direct effect on the volume of their purchases. Additionally, in many
cases, a towing operator’s decision to purchase our products from one of our
distributors is dependent upon their ability to obtain financing upon acceptable
terms. Volatility and disruption in the capital and credit markets,
principally in the U.S. and Europe, has decreased the availability of capital
to, and credit capacity of, our customers and of towing operators. In
addition, at least one provider of floor plan financing has exited the market,
making floor plan financing increasingly difficult for our customers to
secure. This reduced availability of capital and credit has
negatively affected the ability and capacity of our customers and of towing
operators to purchase towing and related equipment. This, in turn,
has negatively impacted sales of our products. If customers are
unable to access capital or credit, it could materially and adversely affect our
ability to sell our products, and as a result, could negatively affect our
business and operating results.
Our
dependence upon outside suppliers for our raw materials, including aluminum,
steel, petroleum-related products and other purchased component
parts, leaves us subject to changes in price and delays in receiving supplies of
such materials or parts.
We are
dependent upon outside suppliers for our raw material needs and other purchased
component parts, and although we believe that these suppliers will continue to
meet our requirements and specifications, and that alternative sources of supply
are available, events beyond our control could have an adverse effect on the
cost or availability of raw materials and component parts. Shipment
delays, unexpected price increases or changes in payment terms from our
suppliers of raw materials or component parts could impact our ability to secure
necessary raw materials or component parts, or to secure such materials and
parts at favorable prices. To partially offset price increases for
raw materials and component parts, we have, from time to time, implemented
general price increases and cost surcharges. While we have attempted
to pass these increased costs on to our customers, there can be no assurance
that we will be able to continue to do so. Additionally, demand for
our products could be negatively affected by the unavailability of truck
chassis, which are manufactured by third parties and are frequently supplied by
us, or are purchased separately by our distributors or by towing
operators. Although we believe that sources of our raw materials and
component parts will continue to be adequate to meet our requirements and that
alternative sources are available, shortages, price increases or delays in
shipments of our raw materials and component parts could have a material adverse
effect on our financial performance, competitive position and
reputation.
7
Overall
demand from our customers may be affected by increases in their fuel and
insurance costs and changes in weather conditions.
In recent
years, our customers have experienced substantial increases in fuel and other
transportation costs, and in the cost of insurance, and while many of these
costs moderated in 2009, there can be no assurance that these costs will not
continue to be volatile, or again increase, for our customers in the
future. Additionally, our customers also have, from time to time,
been subject to unpredictable and varying weather conditions which could, among
other things, impact the cost and availability of fuel and other
materials. Any of these factors could negatively affect the ability
of our customers to purchase, and their capacity for purchasing, towing and
related equipment, and, consequently, have a material negative effect upon our
business and operating results.
Our
international operations are subject to various political, economic and other
uncertainties that could adversely affect our business results, including by
restrictive taxation or other government regulation and by foreign currency
fluctuation.
A
significant portion of our net sales and production in 2009 were outside the
United States, primarily in Europe. As a result, our operations are
subject to various political, economic and other uncertainties, including risks
of restrictive taxation policies, changing political conditions and governmental
regulations. Also, a substantial portion of our net sales derived
outside the United States, as well as salaries of employees located outside the
United States and certain other expenses, are denominated in foreign currencies,
including the British pound and the Euro. We are, therefore, subject
to risk of financial loss resulting from fluctuations in exchange rates of these
currencies against the U.S. dollar.
Our
competitors could impede our ability to attract or retain
customers.
The
towing and recovery equipment manufacturing industry is highly
competitive. Competition for sales exists domestically and
internationally at the manufacturer, distributor and towing-operator levels and
is based primarily on product quality and innovation, reputation, technology,
customer service, product availability and price. Competition for
sales also comes from the market for used towing and recovery
equipment. Certain of our competitors may have substantially greater
financial and other resources and may provide more attractive dealer and retail
customer financing alternatives than us. If these competitors are
able to make it more difficult for us to attract or retain customers, it could
have a negative impact on our sales, revenue and financial
performance.
The
loss of, or a significant reduction in sales to, our largest customer could
adversely affect our results of operations.
For 2009,
19.4% of our consolidated net sales were made to the U.S. federal government
through prime contractors. Prior to 2009, no one customer accounted
for more than 10% of our consolidated net sales in any fiscal
year. The loss of our U.S. government work, in whole or in part, or
the failure to secure follow-on orders from the U.S. government could adversely
affect our results of operations. Our U.S. government business is subject to the
following risks, among others: (i) this business is susceptible to changes in
U.S. government spending, which may reduce future revenues; (ii) most of our
contracts with governmental entities are fixed-price contracts, and our actual
costs on any of these contracts could exceed our projected costs, (iii)
competition for the award of these contracts is intense, and we may not be
successful in bidding on future contracts, and (iv) the products we sell to
governmental entities are subject to highly technical requirements, and any
failure to comply with these requirements could result in unanticipated retrofit
costs, delayed acceptance of products, late or reduced payment or cancellation
of the contract.
8
Our future success depends upon our
ability to develop or acquire proprietary products and
technology
.
Historically,
we have been able to develop or acquire patented and other proprietary product
innovations which have allowed us to produce what management believes to be
technologically advanced products relative to most of our
competition. However, certain of our patents have expired, and others
will expire in the next few years, and as a result, we may not have a continuing
competitive advantage through proprietary products and technology. In
addition, pursuant to the terms of a consent judgment entered into in 2000 with
the Antitrust Division of the U.S. Department of Justice, we are required to
offer non-exclusive royalty-bearing licenses to certain of our key patents to
all wrecker and car carrier manufacturers. If we are unable to
develop or acquire new products and technology in the future, our ability to
maintain market share, and, consequently, our revenues and operating results,
may be negatively affected.
The
requirements and restrictions imposed by our senior credit facility restrict our
ability to operate our business, and failure to comply with these requirements
and restrictions could adversely affect our business.
The terms
of our senior credit facility restrict our ability and our subsidiaries’ ability
to, among other things, incur additional indebtedness, pay dividends or make
certain other restricted payments or investments in certain situations,
consummate certain asset sales, enter into certain transactions with affiliates,
incur liens, or merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of our
or their assets. Our senior credit facility also requires us to meet
certain financial tests, and to comply with certain other reporting, affirmative
and negative covenants.
If we
fail to comply with the requirements of our senior credit facility, such
non-compliance would result in an event of default. If not waived by
the lending group, such event of default would result in the acceleration of the
amount due under the senior credit facility, and may permit our lenders to
foreclose on our assets that secure the senior credit facility.
The
revolver under our senior credit facility is scheduled to expire on June 17,
2010, and the term loan under such facility is scheduled to mature on June 15,
2010. We are currently in negotiations regarding a revolving credit
facility and expect to have such a revolving facility in place prior to the
expiration of the current revolver, but there can be no assurance that we will
be able to do so on acceptable terms or at all.
Our
ability to service our credit arrangements may be affected by fluctuations in
interest rates.
Interest
on our obligations outstanding under our senior credit facility and other credit
arrangements is connected to the LIBOR rate or prime rate. Therefore,
an increase in the LIBOR rate or the prime rate would increase interest expense
and could have an effect on our ability to satisfy our obligations under those
arrangements outstanding at any particular time. Our liquidity and
access to capital resources could be affected by increasing interest
rates.
We
depend upon skilled labor to manufacture our products, and if we experience
problems hiring and retaining skilled labor, our business may be negatively
affected.
The
timely manufacture and delivery of our products requires an adequate supply of
skilled labor, and the operating costs of our manufacturing facilities can be
adversely affected by high turnover in skilled
positions. Accordingly, our ability to increase sales, productivity
and net earnings will be limited to a degree by our ability to employ the
skilled laborers necessary to meet our requirements. There can be no
assurance that we will be able to maintain an adequate skilled labor force
necessary to efficiently operate our facilities. In addition, while
our employees are not currently members of a union, there can be no assurance
that the employees at any of our facilities will not choose to become unionized
in the future.
We
are subject to certain retained liabilities related to the wind down of our
towing services operations.
We sold
or closed all remaining towing services businesses during 2003. As a
result, almost all of our former towing services businesses now operate under
new ownership, and in general the customary operating liabilities of these
businesses were assumed by the new owners. Our subsidiaries that sold
these businesses may be subject to some continuing liabilities with respect to
their pre-sale operations, including, for example, liabilities related to
litigation. Miller Industries, Inc. may be subject to some of such
continuing liabilities by virtue of certain direct contractual parent
guarantees.
9
In
October 2005, our subsidiary, RoadOne, Inc., filed for liquidation under Chapter
7 of the federal bankruptcy laws in the Bankruptcy Court of the Eastern District
of Tennessee and a trustee was appointed. In December 2006, the
trustee’s final report was approved by the United States trustee, and the final
decree was entered on June 19, 2007.
Any
loss of the services of our key executives could have a material adverse impact
on our operations.
Our
success is highly dependent on the continued services of our management
team. The loss of services of one or more key members of our senior
management team could have a material adverse effect on us.
A
product liability claim in excess of our insurance coverage, or an inability to
acquire or maintain insurance at commercially reasonable rates, could have a
material adverse effect upon our business.
We are
subject to various claims, including product liability claims arising in the
ordinary course of business, and may at times be a party to various legal
proceedings incidental to our business. We maintain reserves and
liability insurance coverage at levels based upon commercial norms and our
historical claims experience. A successful product liability or other
claim brought against us in excess of our insurance coverage, or the inability
of us to acquire or maintain insurance at commercially reasonable rates, could
have a material adverse effect upon our business, operating results and
financial condition.
Our
stock price may fluctuate greatly as a result of the general volatility of the
stock market.
From time
to time, there may be significant volatility in the market price for our common
stock. Our quarterly operating results, changes in earnings estimated
by analysts, if any, changes in general conditions in our industry or the
economy or the financial markets or other developments affecting us could cause
the market price of our common stock to fluctuate substantially.
Our
Chairman and Co-Chief Executive Officer and his children own, in total, a
substantial interest in our common stock. They may vote their shares
in ways with which you disagree.
William
G. Miller, our chairman and Co-Chief Executive Officer, beneficially owns
approximately 4.12% of the outstanding shares of our common
stock. Mr. Miller’s adult children, Christopher Charles Miller, Sarah
Louise Miller and William G. Miller, II, beneficially own, in total,
approximately 7.74% of the outstanding shares of our common
stock. Any of these shareholders could vote their shares in ways with
which you do not agree, including in connection with the election of directors
or the approval of a business combination involving the Company. Mr.
Miller does not exercise any voting, investment or other authority with respect
to, and has no pecuniary interest in, the shares of our common stock that are
held by his children, and he expressly disclaims beneficial ownership of such
shares.
Our
charter and bylaws contain anti-takeover provisions that may make it more
difficult or expensive to acquire us in the future or may negatively affect our
stock price.
Our
charter and bylaws contain restrictions that may discourage other persons from
attempting to acquire control of us, including, without limitation, prohibitions
on shareholder action by written consent and advance notice requirements
regarding amendments to certain provisions of our charter and
bylaws. In addition, our charter authorizes the issuance of up to
5,000,000 shares of preferred stock. The rights and preferences for
any series of preferred stock may be set by the board of directors, in its sole
discretion and without shareholder approval, and the rights and preferences of
any such preferred stock may be superior to those of common stock and thus may
adversely affect the rights of holders of common stock.
|
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
10
|
ITEM
2.
|
PROPERTIES
|
We
operate four manufacturing facilities in the United States. The
facilities are located in Ooltewah, Tennessee; Hermitage, Pennsylvania; Mercer,
Pennsylvania; and Greeneville, Tennessee. The Ooltewah plant,
containing approximately 302,000 square feet, produces light and heavy duty
wreckers and trailers; the Hermitage plant, containing approximately 118,000
square feet, produces car carriers; the Mercer plant, containing approximately
110,000 square feet, produces car carriers and light duty wreckers; and the
Greeneville plant, containing approximately 112,000 square feet, produces car
carriers, heavy duty wreckers and trailers.
We also
have manufacturing operations at two facilities located in the Lorraine region
of France, which have, in the aggregate, approximately 180,000 square feet, and
manufacturing operations in Norfolk, England, with approximately 48,000 square
feet.
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
We are,
from time to time, a party to litigation arising in the normal course of our
business. Litigation is subject to various inherent uncertainties,
and it is possible that some of these matters could be resolved unfavorably to
us, which could result in substantial damages against us. We have
established accruals for matters that are probable and reasonably estimable and
maintain product liability and other insurance that management believes to be
adequate. Management believes that any liability that may ultimately
result from the resolution of these matters in excess of available insurance
coverage and accruals will not have a material adverse effect on our
consolidated financial position or results of operations.
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
No
matters were submitted to a vote of our security holders during the last three
months of the period covered by this Annual Report.
11
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Market
Price of and Dividends on the Registrant’s Common Equity and Related Stockholder
Matters
Our
common stock is traded on the New York Stock Exchange under the symbol
“MLR.” The following table sets forth the quarterly range of high and
low sales prices for the common stock for the periods indicated.
|
Price
Range of Common Stock
|
||||||||
|
Period
|
High
|
Low
|
||||||
|
Year
Ended December 31, 2008
|
||||||||
|
First
Quarter
|
$ | 14.15 | $ | 8.92 | ||||
|
Second
Quarter
|
11.93 | 9.58 | ||||||
|
Third
Quarter
|
10.21 | 7.10 | ||||||
|
Fourth
Quarter
|
7.58 | 4.25 | ||||||
|
Year
Ended December 31, 2009
|
||||||||
|
First
Quarter
|
$ | 6.71 | $ | 4.95 | ||||
|
Second
Quarter
|
9.21 | 6.39 | ||||||
|
Third
Quarter
|
11.70 | 7.81 | ||||||
|
Fourth
Quarter
|
11.60 | 9.46 | ||||||
|
Year
Ending December 31, 2010
|
||||||||
|
First
Quarter (through March 8,
2010)
|
$ | 12.90 | $ | 10.85 | ||||
The
approximate number of holders of record and beneficial owners of common stock as
of December 31, 2009 was 552 and 3,000, respectively.
Prior to
March 2010, we had never declared cash dividends on our common
stock. On March 8, 2010, our board of directors adopted a dividend
policy to consider and pay annual cash dividends subject to our ability to
satisfy all applicable statutory and regulatory requirements and our continued
financial strength, and declared the first such annual cash dividend of $0.10
per share payable to shareholders of record as of March 18, 2010. Any
future determination as to the payment of cash dividends will depend upon such
factors as earnings, capital requirements, our financial condition, restrictions
in financing agreements and other factors deemed relevant by our board of
directors.
Covenants under our senior
credit facility restrict the payment of cash dividends if a default or event of
default under our credit agreement has occurred or would result from the payment
of dividends or if we would be in violation of the consolidated fixed charge
coverage ratio test in our credit agreement as a result of the payment of
dividends, among various other restrictions.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
There
were no share repurchases during the fourth quarter of 2009.
Sales
of Unregistered Securities
We did
not sell any unregistered securities during the year ended December 31,
2009.
12
Performance
Graph
The
following line graph compares the percentage change in the cumulative
shareholder return of our common stock with The New York Stock Exchange
Composite Index and the Standard & Poor’s Construction Index over the period
of time from December 31, 2004 through December 31, 2009. The
respective returns assume reinvestment of dividends paid.
|
12/31/04
|
12/30/05
|
12/29/06
|
12/31/07
|
12/31/08
|
12/31/09
|
|||||||||||||||||||
|
Miller
Industries, Inc.
|
100 | 180 | 212 | 121 | 47 | 100 | ||||||||||||||||||
|
NYSE
Composite Index
|
100 | 107 | 126 | 134 | 79 | 99 | ||||||||||||||||||
|
S&P
Construction Index
|
100 | 115 | 124 | 168 | 69 | 113 | ||||||||||||||||||
13
|
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
The
following table presents selected statements of income data and selected balance
sheet data on a consolidated basis. We derived the selected
historical consolidated financial data from our audited consolidated financial
statements and related notes. You should read this data together with
Item 7–“Management’s Discussion and Analysis of Financial Condition and Results
of Operation” and our consolidated financial statements and related notes that
are a part of this Annual Report on Form 10-K.
|
Years
Ended December 31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
(In
thousands except per share data)
|
||||||||||||||||||||
|
Statements
of Income Data:
|
||||||||||||||||||||
|
Net
Sales
|
$ | 237,567 | $ | 270,989 | $ | 400,032 | $ | 409,421 | $ | 351,884 | ||||||||||
|
Costs
and Expenses:
|
||||||||||||||||||||
|
Costs
of operations
|
202,272 | 237,362 | 343,885 | 349,639 | 301,943 | |||||||||||||||
|
Selling,
general, and administrative expenses
|
24,905 | 25,940 | 27,396 | 27,213 | 24,260 | |||||||||||||||
|
Interest
expense
|
883 | 1,241 | 3,392 | 3,518 | 4,012 | |||||||||||||||
|
Other
(Income) Expense
|
(442 | ) | 678 | (291 | ) | (376 | ) | 33 | ||||||||||||
|
Total
costs and expenses
|
227,618 | 265,221 | 374,382 | 379,994 | 330,248 | |||||||||||||||
|
Income
from continuing operations before income taxes
|
9,949 | 5,768 | 25,650 | 29,427 | 21,636 | |||||||||||||||
|
Income
tax provision
|
3,933 | 2,182 | 9,319 | 2,454 | 2,936 | |||||||||||||||
|
Income
from continuing operations
|
6,016 | 3,586 | 16,331 | 26,973 | 18,700 | |||||||||||||||
|
Discontinued
operations:
|
||||||||||||||||||||
|
Gain
(loss) from discontinued operations, net of taxes
|
– | – | – | 126 | (114 | ) | ||||||||||||||
|
Tax
benefit of advances to and investment in certain discontinued
operations
|
– | – | – | (18,244 | ) | – | ||||||||||||||
|
Gain
(loss) from discontinued operations
|
– | – | – | 18,370 | (114 | ) | ||||||||||||||
|
Net
income
|
$ | 6,016 | $ | 3,586 | $ | 16,331 | $ | 45,343 | $ | 18,586 | ||||||||||
|
Basic
net income per common share:
|
||||||||||||||||||||
|
Income
from continuing operations
|
$ | 0.52 | $ | 0.31 | $ | 1.41 | $ | 2.37 | $ | 1.67 | ||||||||||
|
Gain
(loss) from discontinued operations
|
- | – | – | 1.62 | (0.01 | ) | ||||||||||||||
|
Basic
income
|
$ | 0.52 | $ | 0.31 | $ | 1.41 | $ | 3.99 | $ | 1.66 | ||||||||||
|
Diluted
net income per common share:
|
||||||||||||||||||||
|
Income
from continuing operations
|
$ | 0.51 | $ | 0.31 | $ | 1.40 | $ | 2.33 | $ | 1.63 | ||||||||||
|
Gain
(loss) from discontinued operations
|
- | – | – | 1.58 | (0.01 | ) | ||||||||||||||
|
Diluted
income
|
$ | 0.51 | $ | 0.31 | $ | 1.40 | $ | 3.91 | $ | 1.62 | ||||||||||
|
Weighted
average shares outstanding:
|
||||||||||||||||||||
|
Basic
|
11,611 | 11,594 | 11,556 | 11,360 | 11,226 | |||||||||||||||
|
Diluted
|
11,902 | 11,656 | 11,655 | 11,596 | 11,474 | |||||||||||||||
|
December
31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
Balance
Sheet Data:
|
||||||||||||||||||||
|
Working
capital
|
$ | 94,247 | $ | 79,364 | $ | 82,092 | $ | 76,266 | $ | 50,406 | ||||||||||
|
Total
assets
|
172,320 | 174,281 | 189,042 | 197,432 | 144,570 | |||||||||||||||
|
Long-term
obligations, less current portion
|
185 | 2,417 | 4,203 | 10,537 | 16,803 | |||||||||||||||
|
Common
shareholders’ equity
|
141,439 | 131,972 | 132,488 | 113,383 | 64,755 | |||||||||||||||
14
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The
following discussion of our results of operations and financial condition should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto.
Executive
Overview
Miller
Industries, Inc. is the world’s largest manufacturer of vehicle towing and
recovery equipment, with domestic manufacturing subsidiaries in Tennessee and
Pennsylvania, and foreign manufacturing subsidiaries in France and the United
Kingdom. We offer a broad range of equipment to meet our customers’
design, capacity and cost requirements under our Century
®
,
Vulcan
®
,
Challenger
®
,
Holmes
®
,
Champion
®
,
Chevron™, Eagle
®
,
Titan
®
,
Jige™ and Boniface™ brand names.
Our
management focuses on a variety of key indicators to monitor our overall
operating and financial performance. These indicators include
measurements of revenue, operating income, gross margin, income from continuing
operations, earnings per share, capital expenditures and cash flow.
We derive
revenues primarily from product sales made through our network of domestic and
foreign independent distributors. Our revenues are sensitive to a
variety of factors including general economic conditions as well as demand for,
and price of, our products, our technological competitiveness, our reputation
for providing quality products and reliable service, competition within our
industry and the cost of raw materials (including aluminum, steel and
petroleum-related products).
Our
industry is cyclical in nature and over the course of 2009 the overall demand
for our products and our resulting revenues continued to be negatively affected
by:
|
●
|
wavering
levels of consumer confidence;
|
|
●
|
volatility
and disruption in domestic and international capital and credit markets
and the resulting decrease in the availability of financing, including
floor plan financing, for our customers and towing
operators;
|
|
●
|
significant
periodic increases in fuel and insurance costs and their negative effect
on the ability of our customers to purchase towing and related equipment;
and
|
|
●
|
the
overall effects of the global economic
downturn.
|
We remain
concerned about the continuing effects of these factors on the towing and
recovery industry, and with the cooperation of our employees have taken specific
steps to reduce our production levels and lower costs in response to these
uncertainties. These steps included reductions in production hours
through reduced work weeks and furloughs at all facilities and headcount
reductions for certain non-production personnel. In addition, we have
reduced certain administrative expenses. We will continue to monitor
our cost structure to ensure that it remains in line with business
conditions.
In
addition, we have been and will continue to be affected by changes in the prices
that we pay for raw materials, particularly aluminum, steel, petroleum-related
products and other raw materials, which represent a substantial part of our
total cost of operations. Aluminum and steel prices were at
historically high levels for the first three quarters of 2008, but moderated
during the fourth quarter of 2008 and continuing throughout 2009. In
the past, as we have determined necessary, we have implemented price increases
to offset these higher costs. We also developed alternatives to some
of the components used in our production process that incorporate these raw
materials, and our suppliers have implemented these alternatives in the
production of our component parts. We continue to monitor raw
material prices and availability in order to more favorably position the Company
in this dynamic market.
15
During
the second half of 2008, we began to secure follow-on governmental orders
through prime contractors for which we now expect production to continue into
the second half of 2010. Through these follow-on governmental orders,
along with continued performance in the governmental and international
marketplace, we were able to somewhat offset significantly lower demand from our
commercial customers during the second half of 2008 and throughout
2009. We continue to work to fulfill these orders, and to secure
additional export and governmental orders, but we cannot predict the success or
timing of any such orders. In 2009, 19.4% of our consolidated net
sales were made to the U.S. federal government through prime
contractors.
In June
2009, we repaid the remaining balance outstanding under the term loan portion of
our senior credit facility with Wachovia and there were no borrowings under the
revolver portion of such facility at December 31, 2009. Having no
debt outstanding under these facilities represents a significant decrease in our
overall indebtedness from prior periods.
Critical
Accounting Policies
Our
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, which require us
to make estimates. Certain accounting policies are deemed “critical,”
as they require management’s highest degree of judgment, estimates and
assumptions. A discussion of critical accounting policies, the
judgments and uncertainties affecting their application and the likelihood that
materially different amounts would be reported under different conditions or
using different assumptions follows:
Accounts
receivable
We extend
credit to customers in the normal course of business. Collections
from customers are continuously monitored and an allowance for doubtful accounts
is maintained based on historical experience and any specific customer
collection issues. While such bad debt expenses have historically
been within expectations and the allowance established, there can be no
assurance that we will continue to experience the same credit loss rates as in
the past.
Inventory
Inventory
costs include materials, labor and factory overhead. Inventories are stated at
the lower of cost or market (net realizable value), determined on a first-in,
first-out basis. Appropriate consideration is given to obsolescence,
valuation and other factors in determining net realizable
value. Revisions of these estimates could result in the need for
adjustments.
Valuation
of long-lived assets and goodwill
Long-lived
assets and goodwill are reviewed for impairment whenever events or circumstances
indicate that the carrying amount of these assets may not be fully
recoverable. When a determination has been made that the carrying
amount of long-lived assets and goodwill may not be fully recovered, the amount
of impairment is measured by comparing an asset’s estimated fair value to its
carrying value. The determination of fair value is based on projected
future cash flows discounted at a rate determined by management, or if available
independent appraisals or sales price negotiations. The estimation of
fair value includes significant judgment regarding assumptions of revenue,
operating costs, interest rates, property and equipment additions, and industry
competition and general economic and business conditions among other
factors. We believe that these estimates are reasonable, however,
changes in any of these factors could affect these evaluations. Based
on these estimations, we believe that our long-lived assets are appropriately
valued.
Warranty
reserves
We
estimate expense for product warranty claims at the time products are
sold. These estimates are established using historical information
about the nature, frequency, and average cost of warranty claims. We
review trends of warranty claims and take actions to improve product quality and
minimize warranty claims. We believe the warranty reserve is
adequate; however, actual claims incurred could differ from the original
estimates, requiring adjustments to the accrual.
16
Income
taxes
We
recognize deferred tax assets and liabilities based on differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities. Differences between the effective tax rate and the
expected tax rate are due to changes in deferred tax assets. We
consider the need to record a valuation allowance to reduce deferred tax assets
to the amount that is more likely than not to be realized. We
consider tax loss carryforwards, reversal of deferred tax liabilities, tax
planning and estimates of future taxable income in assessing the need for a
valuation allowance. If unrecognized tax positions exist, we record
interest and penalties related to the unrecognized tax positions as income tax
expense in our consolidated statements of income.
Revenues
Under our
accounting policies, revenues are recorded when the risk of ownership for
products has transferred to independent distributors or other customers, which
generally occurs on shipment. From time to time, revenue is
recognized under a bill and hold arrangement. Recognition of revenue
on bill and hold arrangements occurs when risk of ownership has passed to the
customer, a fixed written commitment has been provided by the customer, the
goods are complete and ready for shipment, the goods are segregated from
inventory, no performance obligation remains, and a schedule for delivery has
been established. While we manufacture only the bodies of wreckers,
which are installed on truck chassis manufactured by third parties, we
frequently purchase the truck chassis for resale to our
customers. Sales of company-purchased truck chassis are included in
net sales. Margins are substantially lower on completed recovery
vehicles containing company-purchased chassis because the markup over the cost
of the chassis is nominal.
Foreign
Currency Translation
The
functional currency for our foreign operations is the applicable local
currency. The translation from the applicable foreign currencies to
U.S. dollars is performed for balance sheet accounts using current exchange
rates in effect at the balance sheet date, historical rates for equity and the
weighted average exchange rate during the period for revenue and expense
accounts. Foreign currency translation adjustments are included in
shareholders’ equity. Intercompany transactions denominated in a
currency other than the functional currency are remeasured into the functional
currency. Gains and losses resulting from foreign currency
transactions are included in other income and expense in our consolidated
statements of income.
Results
of Operations
The
following table sets forth, for the years indicated, the components of the
consolidated statements of income expressed as a percentage of net
sales.
|
2009
|
2008
|
2007
|
||||||||||
|
Net
Sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Costs
and expenses:
|
||||||||||||
|
Costs
of operations
|
85.1 | % | 87.6 | % | 86.0 | % | ||||||
|
Selling,
general and administrative
|
10.5 | % | 9.6 | % | 6.9 | % | ||||||
|
Interest
expense
|
0.4 | % | 0.5 | % | 0.9 | % | ||||||
|
Other
(Income) Expense
|
(0.2 | )% | 0.2 | % | (0.1 | )% | ||||||
|
Total
costs and expenses
|
95.8 | % | 97.9 | % | 93.7 | % | ||||||
|
Income
before income taxes
|
4.2 | % | 2.1 | % | 6.3 | % | ||||||
Year
Ended December 31, 2009 Compared to Year Ended December 31, 2008
Net sales
were $237.6 million for the year ended December 31, 2009, compared to $271.0
million for the year ended December 31, 2008, a decrease of
12.3%. This decrease is attributable to decreased demand due to the
factors discussed under Executive Overview above.
17
Costs of
operations decreased 14.8% to $202.3 million for the year ended December 31,
2009 from $237.4 million for the year ended December 31, 2008, which was
attributable to lower overall production levels, including labor hours worked,
in connection with the economic downturn described above. Overall,
costs of operations decreased from 87.6% for the year ended December 31, 2008 to
85.1% for the year ended December 31, 2009 primarily due to product mix as well
as lower costs for raw material, including aluminum, steel and other
petroleum-related products.
Selling,
general and administrative expenses for the year ended December 31, 2009
decreased to $24.9 million from $25.9 million for the year ended December 31,
2008. The decrease is attributable to cost reduction efforts as well
as the impact of lower sales volume. As a percentage of sales,
selling, general and administrative expenses increased to 10.5% for 2009 from
9.6% for 2008 due to the fixed nature of many of these expenses being spread
over a lower sales base.
Interest
expense decreased to $0.9 million for the year ended December 31, 2009 from $1.2
million for the year ended December 31, 2008. Decreases in interest
expense were primarily due to lower debt levels, decreases in interest on
chassis purchases together with interest on distributor floor plan
financing.
Other
income and expense relates to foreign currency transaction gains and
losses. During 2009, the net gain was $0.4 million compared to a net
loss of $0.7 million for 2008. The change relates to the weakening of
the US dollar against most major currencies.
The
provision for income taxes for the years ended December 31, 2009 and 2008
reflects a combined federal, state and foreign tax rate of 39.4% and 37.8%,
respectively.
Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007
Net sales
were $271.0 million for the year ended December 31, 2008, compared to $400.0
million for the year ended December 31, 2007, a decrease of
32.3%. This decrease is attributable to lower production levels in
response to decreased demand due to deteriorating economic conditions and
limited customer access to capital and credit, as well as the absence during the
first half of 2008 of significant follow-on orders under certain governmental
and military orders through prime contractors that were completed in
2007.
Costs of
operations decreased to $237.4 million for the year ended December 31, 2008 from
$343.9 million for the year ended December 31, 2007, which was attributable to
lower overall production levels in 2008 compared to 2007 as described
above. As a percentage of sales, costs of operations increased from
86.0% for the year ended December 31, 2007 to 87.6% for the year ended December
31, 2008 because of product mix as well as volatility of raw material costs,
including aluminum, steel and other petroleum-related products.
Selling,
general and administrative expenses for the year ended December 31, 2008
decreased to $25.9 million from $27.4 million for the year ended December 31,
2007 because of reductions made in our cost structure. As a
percentage of sales, selling, general and administrative expenses increased to
9.6% for 2008 from 6.9% for 2007 due to the fixed nature of many of these
expenses.
Interest
expense decreased to $1.2 million for the year ended December 31, 2008 from $3.4
million for the year ended December 31, 2007. Decreases in interest
expense were primarily due to decreases in interest on chassis purchases
together with interest on distributor floor plan financing as well as declining
interest rates in 2008.
Other
income and expense relates to foreign currency transaction gains and
losses. During 2008, the net loss was $0.7 million compared to a net
gain of $0.3 million for 2007. The change relates to the
strengthening of the US dollar against most major currencies, particularly in
the fourth quarter of 2008.
The
provision for income taxes for the years ended December 31, 2008 and 2007
reflects a combined federal, state and foreign tax rate of 37.8% and 36.3%,
respectively.
18
Liquidity
And Capital Resources
Cash
provided by operating activities was $19.7 million for the year ended December
31, 2009, compared to $4.6 million for the year ended December 31, 2008, and
$28.6 million for the year ended December 31, 2007. The cash provided
by operating activities for 2009 reflects decreases in accounts receivable and
inventory due to lower sales volume offset by decreases in accounts
payable.
Cash used
in investing activities was $0.5 million for the year ended December 31, 2009,
compared to $4.7 million for the year ended December 31, 2008, and $8.1 million
for the year ended December 31, 2007. The cash used in investing
activities for 2009 was primarily for the purchase of property, plant and
equipment.
Cash used
in financing activities was $3.9 million for the year ended December 31, 2009,
compared to $1.7 million for the year ended December 31, 2008, and $6.2 million
for the year ended December 31, 2007. The cash used in financing
activities in 2009 was used to repay the term loan under our senior credit
facility, mortgage notes payable, and other outstanding long-term debt and
capital lease obligations.
Over the
past year, we generally have used available cash flow from operations to reduce
the outstanding balance on our credit facility, to pay down other long-term debt
obligations, and to pay for capital expenditures.
As of
December 31, 2009, we had cash and cash equivalents of $36.2 million, exclusive
of unused availability under our senior credit facility. Our primary
cash requirements include working capital, capital expenditures, the funding of
any declared cash dividends and interest and principal payments on indebtedness,
if any, under our senior credit facility. We expect our primary
sources of cash to be cash flow from operations and cash and cash equivalents on
hand at December 31, 2009, with borrowings under our senior credit facility
being available if needed. We expect these sources to be sufficient
to satisfy our cash needs during 2010 and for the next several
years. However, our ability to satisfy our cash needs will
substantially depend upon a number of factors including our future operating
performance, taking into account the economic and other factors discussed above
and elsewhere in this Annual Report, as well as financial, business and other
factors, many of which are beyond our control.
The
revolver under our senior credit facility is scheduled to expire on June 17,
2010, and the term loan under such facility is scheduled to mature on June 15,
2010. We are currently in negotiations regarding a revolving credit
facility and expect to have such a revolving facility in place prior to the
expiration of the current revolver, but there can be no assurance that we will
be able to do so on acceptable terms or at all.
Contractual
Obligations
The
following is a summary of our contractual obligations as of December 31,
2009.
|
Payment
Due By Period (in thousands)
|
||||||||||||||||||||
|
Contractual
Obligations(1)
|
Total
|
Less
than
1
year
|
1-3
years
|
3-5
years
|
More
than
5
years
|
|||||||||||||||
|
Equipment
Notes Payable (Capital Lease Obligations)
|
$ | 241 | $ | 185 | $ | 56 | $ | – | $ | – | ||||||||||
|
Operating
Lease Obligations
|
1,396 | 588 | 581 | 166 | 61 | |||||||||||||||
|
Purchase
Obligations (2)
|
17,953 | 17,953 | – | – | – | |||||||||||||||
|
Total
|
$ | 19,590 | $ | 18,726 | $ | 637 | $ | 166 | $ | 61 | ||||||||||
|
(1)
|
Amounts
do not include potential contingent obligations of $11.3 million under
repurchase commitments with third-party lenders in the event of customer
default.
|
|
(2)
|
Purchase
obligations represent open purchase orders for raw materials and other
components issued in the normal course of
business.
|
19
Credit
Facilities and Other Obligations
Senior
Credit Facility
We are
party to a Credit Agreement with Wachovia Bank National Association for a $27.0
million senior secured credit facility. The senior credit facility,
as amended, consists of a $20.0 million revolving credit facility, and a $7.0
million term loan. The senior credit facility is secured by
substantially all of our assets, and contains customary representations and
warranties, events of default and affirmative and negative covenants for secured
facilities of this type. Covenants under the senior credit facility
restrict the payment of cash dividends if a default or event of default under
the Credit Agreement has occurred or would result from the payment of dividends
or if the Company would be in violation of the consolidated fixed charge
coverage ratio test in the Credit Agreement as a result of the payment of
dividends, among various other restrictions.
In the
absence of default, all borrowings under the revolver and term loan bear
interest at the LIBOR Market Index Rate plus a margin of between 0.75% to 1.50%
per annum that is subject to adjustment from time to time based upon the
Consolidated Leverage Ratio (as defined in the Credit Agreement). The
revolver is scheduled to expire on June 17, 2010, and the term loan is scheduled
to mature on June 15, 2010.
At
December 31, 2009 and 2008, we had no outstanding borrowings under the
revolving credit facility. In June 2009, we repaid the remaining
outstanding balance under the term loan.
Interest
Rate Sensitivity
Changes
in interest rates affect the interest paid on indebtedness under our senior
credit facility because the outstanding amounts of indebtedness under our senior
credit facility are subject to variable interest rates. Under our
senior credit facility, the non-default rate of interest is equal to the LIBOR
Market Index Rate plus a margin of between 0.75% to 1.50% per annum (for a rate
of interest of 0.98% at December 31, 2009). Because there were
no amounts outstanding under our senior credit facility, a one percent change in
the interest rate on our variable-rate debt would not have materially impacted
our financial position, results of operations or cash flows for the year ended
December 31, 2009.
Outstanding
Borrowings
Outstanding
borrowings under the senior credit facility as of December 31, 2009 and 2008
were as follows (in thousands):
|
2009
|
2008
|
|||||||
|
Revolving
Credit Facility
|
$ | – | $ | – | ||||
|
Term
Loan
|
– | 2,100 | ||||||
|
Total
Outstanding Borrowings
|
$ | – | $ | 2,100 | ||||
Other
Long-Term Obligations
We had
approximately $0.2 million of equipment notes payable and other long-term
obligations at December 31, 2009. In February 2009, approximately
$1.7 million of mortgage notes payable was repaid and the related obligation was
terminated. We also had approximately $1.4 million in non-cancellable
operating lease obligations at December 31, 2009.
20
Recent
Accounting Pronouncements
Recently
Adopted Standards
In December 2007, the FASB issue
d authoritative
guidance under Accounting Standard Codification (ASC) 805. which requires the
acquisition method of accounting to be applied for all business
combinations. The guidance establishes
principles
and requirements for how the acquirer:
(i) recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the
acquiree; (ii) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase; and
(iii) determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. The impact of the Company’s adoption of the
guidance under ASC 805 as of January 1, 2009 was not material; but will impact
any future business combinations of the Company.
In December 2007, the FASB issued authoritative guidance
under ASC 810 requiring all entities to report minority interests in
subsidiaries
as equity in the consolidated
financial statements, and requiring that transactions between entities and
noncontrolling interests be treated as equity. The adoption of the
guidance under ASC 810 as of January 1, 2009 did not have an effect on our
consolidated financial position and results of operations.
Effective
January 1, 2008, the Company adopted authoritative guidance under ASC
820. ASC 820 provides a framework for measuring fair value in
accordance with generally accepted accounting principles, and expands
disclosures regarding fair value measurements and the effect on
earnings. The impact of the Company’s adoption of the provisions of
ASC 820 related to certain “nonfinancial” assets and liabilities as of January
1, 2009 was not material.
In March
2008, the FASB issued authoritative guidance under ASC 815 which requires
expanded disclosure requirements about an entity’s derivative instruments and
hedging activities. The Company adopted this guidance as of January
1, 2009. The adoption of ASC 815 did not have an effect on our
consolidated financial position and results of operations.
In April
2008, the FASB issued authoritative guidance under ASC 350 and ASC 275 that
amends the factors considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset. This
guidance also enhances disclosures related to renewal and extension
assumptions. The guidance is to be applied prospectively for any
intangible assets acquired after December 31, 2008. The adoption of
this guidance did not have a material impact on our financial condition or
results of operations.
In
May 2009, the FASB issued authoritative guidance under ASC
855. This guidance incorporates into authoritative accounting
literature certain guidance that already existed within generally accepted
auditing standards, with the requirements concerning recognition and disclosure
of subsequent events remaining essentially unchanged. This guidance
addresses events which occur after the balance sheet date but before the
issuance of financial statements. Under ASC 855, as under previous
practice, an entity must record the effects of subsequent events that provide
evidence about conditions that existed at the balance sheet date and must
disclose but not record the effects of subsequent events which provide evidence
about conditions that did not exist at the balance sheet date.
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
In the
normal course of our business, we are exposed to market risk from changes in
interest rates and foreign currency exchange rates that could impact our results
of operations and financial position.
Interest
Rate Risk
Changes
in interest rates affect the interest paid on indebtedness under our senior
credit facility because the outstanding amounts of indebtedness under our senior
credit facility are subject to variable interest rates. Under our
credit facility, the non-default rate of interest is equal to the LIBOR Market
Index Rate plus a margin of between 0.75% to 1.50% per annum (for a rate of
interest of 0.98% at December 31, 2009). Because there were no
amounts outstanding under our senior credit facility, a one percent change in
the interest rate on our variable-rate debt would not have materially impacted
our financial position, results of operations or cash flows for the year ended
December 31, 2009.
21
Foreign
Currency Exchange Rate Risk
We are
subject to risk arising from changes in foreign currency exchange rates related
to our international operations in Europe. We manage our exposure to
our foreign currency exchange rate risk through our regular operating and
financing activities, and not through the use of any financial or derivative
instruments, forward contracts or hedging activities. Because we
report in U.S. dollars on a consolidated basis, foreign currency exchange
fluctuations could have a translation impact on our financial
position. At December 31, 2009, we recognized $2.9 million
increase in our foreign currency translation adjustment account compared with
December 31, 2008 because of the weakening of the U.S. dollar against certain
foreign currencies. During the year ended December 31, 2009 and
2008, the impact of foreign currency exchange rate changes on our results of
operations and cash flows was a gain of approximately $0.4 million and loss of
approximately $0.7 million, respectively.
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The
response to this item is included in Part IV, Item 15 of this
Report.
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
|
ITEM
9A.
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
We
carried out an evaluation, under the supervision and with the participation of
our management, including our chief executive and chief financial officers, of
the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as of the end of the period covered by this
report. Based upon this evaluation, our Co-Chief Executive Officers
and our Chief Financial Officer have concluded that the disclosure controls and
procedures were effective as of the end of the period covered by this Annual
Report to ensure that information required to be disclosed in our reports that
we file or submit under the Exchange Act are recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.
Management’s
Report On Internal Control Over Financial Reporting
Management
of Miller Industries, Inc. is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control
over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may be
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management,
including our principal executive officers and principal financial officer,
conducted an evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2009. In making this
assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in “Internal
Control—Integrated Framework.” Based on our assessment under those
criteria, we concluded that, as of December 31, 2009, we maintained effective
internal control over financial reporting.
22
Joseph
Decosimo and Company, PLLC, the independent registered public accounting firm
who audited the Company’s consolidated financial statements included in this
report, has issued an audit report on the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2009, which appears
herein.
March 10,
2010
23
Report
of Independent Registered Public Accounting Firm
Board of
Directors and Shareholders
Miller
Industries, Inc.
Ooltewah,
Tennessee
We have
audited Miller Industries, Inc.’s internal control over
financial reporting as
of December 31, 2009, based on criteria established in
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria)
.
Miller
Industries, Inc.’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Management Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Miller Industries, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on the
COSO criteria.
We have also audited, in accordance with the standards
of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Miller Industries, Inc. and subsidiaries as of
December 31, 2009 and 2008, and the related consolidated statements of income,
shareholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2009, and our report dated
March 10, 2010
, expressed
an unqualified opinion on those consolidated financial
statements.
/s/
Joseph Decosimo and Company, PLLC
Chattanooga,
Tennessee
March 10,
2010
24
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting that occurred
during our most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
|
ITEM
9B.
|
OTHER
INFORMATION
|
At a
meeting held on March 8, 2010, in accordance with our bylaws, our board of
directors increased the number of board members from five to six, effective as
of the first business day of our second quarter 2010 which is April 1,
2010. At the same meeting, our board of directors elected Theodore H.
Ashford III to fill the newly created vacancy, effective as of the first
business day of our second quarter 2010. At this time, Mr. Ashford
has not been appointed to any committees of the board of directors.
There is
no arrangement or understanding between Mr. Ashford and any other persons
pursuant to which Mr. Ashford was selected as a director. On April 1,
2010, Mr. Ashford will receive compensation comprised of (1) a cash payment of
$18,750 and (2) an award under our Non-Employee Director Stock Plan, to be paid
in fully-vested shares of common stock, equal to $18,750 divided by the closing
price of our common stock on April 1, 2010, which is equal to the pro rata
portion of the annual compensation received by each of our other non-employee
directors. Mr. Ashford’s compensation for his services as a director
will be otherwise consistent with that of our other non-employee directors, as
described in our proxy statement, filed with the Securities and Exchange
Commission on April 15, 2009, under the caption “Compensation of Executive
Officers and Directors—Non-Employee Director Compensation for
2008.”
In
addition, when Mr. Ashford’s term as a director is effective, he will enter into
an indemnification agreement in the same form as the agreement between us and
each of the present members of the board of directors (the form of agreement
having been filed as an exhibit to our Form 10-Q, filed with the Securities and
Exchange Commission on September 14, 1998).
There are
no other transactions to which we are or are proposed to be a party and in which
Mr. Ashford has a material interest.
25
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
The
Proxy Statement for our Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission, will contain information relating to our
directors and audit committee, compliance with Section 16(a) of the Exchange
Act, and our code of ethics applicable to our chief executive, financial and
accounting officers, which information is incorporated by reference
herein. Information relating to our executive officers is included in
Item 1 of this report.
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The Proxy
Statement for our Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission, will contain information relating to
director and executive officer compensation, which information is incorporated
by reference herein.
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER
MATTERS
|
The Proxy
Statement for our Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission, will contain information relating to
security ownership of certain beneficial owners and management, which
information is incorporated by reference herein.
The Proxy
Statement will also contain information relating to our equity compensation
plans, which information is incorporated by reference herein.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The Proxy
Statement for our Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission, will contain information relating to certain
relationships and related transactions between us and certain of our directors
and executive officers, which information is incorporated by reference
herein.
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND
SERVICES
|
The Proxy
Statement for our Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission, will contain information relating to the
fees charged and services provided by Joseph Decosimo and Company, PLLC, our
principal accountants during the last three fiscal years, and our pre-approval
policy and procedures for audit and non-audit services, which information is
incorporated by reference into this report.
26
|
ITEM
15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
(a)
The
following documents are filed as part of this Report:
1. Financial
Statements
|
Description
|
Page
Number
in Report |
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
F-3
|
|
|
Consolidated
Statements of Income for the years ended December 31, 2009, 2008 and
2007
|
F-4
|
|
|
Consolidated
Statements of Shareholders’ Equity for the years ended December 31, 2009,
2008 and 2007
|
F-5
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009, 2008 and
2007
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
2. Financial
Statement Schedules
The
following Financial Statement Schedule for the Registrant is filed as part of
this Report and should be read in conjunction with the Consolidated Financial
Statements:
|
Description
|
Page
Number
in Report |
|
|
Schedule
II - Valuation and Qualifying Accounts
|
S-1
|
All
schedules, except those set forth above, have been omitted since the information
required is included in the financial statements or notes or have been omitted
as not applicable or not required.
3. Exhibits
The
following exhibits are required to be filed with this Report by Item 601 of
Regulation S-K:
|
Description
|
Incorporated
by
Reference to Registration File Number |
Form
or
Report |
Date
of Report
|
Exhibit
Number in Report |
||||||
|
3.1
|
Charter,
as amended, of the Registrant
|
–
|
Form
10-K
|
December
31, 2001
|
3.1
|
|||||
|
3.2
|
Amended
and Restated Bylaws of the Registrant
|
–
|
Form
10-Q
|
November
8, 2007
|
3.2
|
|||||
|
10.1
|
Form
of Noncompetition Agreement between the Registrant and certain officers of
the Registrant
|
33-79430
|
S-1
|
August
1994
|
10.28
|
|||||
|
10.2
|
Form
of Nonexclusive Distributor Agreement
|
33-79430
|
S-1
|
August
1994
|
10.31
|
|||||
|
10.3
|
Miller
Industries, Inc. Stock Option and Incentive Plan**
|
33-79430
|
S-1
|
August
1994
|
10.1
|
27
|
Description
|
Incorporated
by
Reference to Registration File Number |
Form
or
Report |
Date
of Report
|
Exhibit
Number in Report |
||||||
|
10.4
|
Form
of Incentive Stock Option Agreement under Miller Industries, Inc. Stock
Option and Incentive Plan**
|
33-79430
|
S-1
|
August
1994
|
10.2
|
|||||
|
10.5
|
Miller
Industries, Inc. Non-Employee Director Stock Option Plan**
|
33-79430
|
S-1
|
August
1994
|
10.4
|
|||||
|
10.6
|
Form
of Director Stock Option Agreement**
|
33-79430
|
S-1
|
August
1994
|
10.5
|
|||||
|
10.7
|
First
Amendment to Miller Industries, Inc. Non-Employee Director Stock Option
Plan**
|
–
|
Form
10-K
|
April
30, 1995
|
10.38
|
|||||
|
10.8
|
Second
Amendment to Miller Industries, Inc. Non-Employee Director Stock Option
Plan**
|
–
|
Form
10-K
|
April
30, 1996
|
10.39
|
|||||
|
10.9
|
Second
Amendment to Miller Industries, Inc. Stock Option and Incentive
Plan**
|
–
|
Form
10-K
|
April
30, 1996
|
10.40
|
|||||
|
10.10
|
Employment
Agreement dated as of December 30, 2008 between the Registrant and William
G. Miller**
|
–
|
Form
10-Q
|
May
6, 2009
|
10.1
|
|||||
|
10.11
|
Form
of Indemnification Agreement dated June 8, 1998 by and between the
Registrant and each of William G. Miller, Jeffrey I. Badgley, A. Russell
Chandler, Paul E. Drack, Frank Madonia, and J. Vincent
Mish
|
–
|
Form
10-Q
|
September
14, 1998
|
10
|
|||||
|
Richard
H. Roberts **
|
||||||||||
|
10.12
|
Employment
Agreement, dated as of December 30, 2008, between the Registrant and
Jeffrey I. Badgley**
|
–
|
Form
10-Q
|
May
6, 2009
|
10.2
|
|||||
|
10.13
|
Employment
Agreement, dated as of December 30, 2008 between the Registrant and Frank
Madonia**
|
–
|
Form
10-Q
|
May
6, 2009
|
10.3
|
|||||
|
10.14
|
Employment
Agreement, dated as of December 30, 2008 between the Registrant and J.
Vincent Mish**
|
–
|
Form
10-Q
|
May
6, 2009
|
10.4
|
|||||
|
10.15
|
Agreement
between the Registrant and Jeffrey I. Badgley, effective December 30,
2008**
|
–
|
Form
10-Q
|
May
6, 2009
|
10.5
|
|||||
|
10.16
|
Agreement
between the Registrant and Frank Madonia, effective December 30,
2008**
|
–
|
Form
10-Q
|
May
6, 2009
|
10.6
|
|||||
|
10.17
|
Agreement
between the Registrant and J. Vincent Mish, effective December 30,
2008**
|
–
|
Form
10-Q
|
May
6, 2009
|
10.7
|
|||||
|
10.18
|
Non-Employee
Director Stock Plan**
|
–
|
Schedule
14A
|
January
23, 2004
|
Annex
A
|
|||||
|
10.19
|
Miller
Industries, Inc. 2005 Equity Incentive Plan**
|
–
|
Schedule
14A
|
May
2, 2005
|
Annex
B
|
|||||
|
10.20
|
Credit
Agreement, dated June 17, 2005, among Wachovia Bank, NA and the
Registrant
|
–
|
Form
8-K
|
June
17, 2005
|
10.1
|
28
|
Description
|
Incorporated
by
Reference to Registration File Number |
Form
or
Report |
Date
of Report
|
Exhibit
Number in Report |
||||||
|
10.21
|
Term
Note, dated June 17, 2005, among Wachovia Bank, NA and the
Registrant
|
–
|
Form
8-K
|
June
17, 2005
|
10.2
|
|||||
|
10.22
|
Revolving
Note, dated June 17, 2005, among Wachovia Bank, NA and the
Registrant
|
–
|
Form
8-K
|
June
17, 2005
|
10.3
|
|||||
|
10.23
|
Intercreditor
Agreement, dated June 17, 2005, among Wachovia Bank, NA, and William G.
Miller
|
–
|
Form
8-K
|
June
17, 2005
|
10.4
|
|||||
|
10.24
|
Security
Agreement, dated June 17, 2005, among Wachovia Bank, NA, and the
Registrant
|
–
|
Form
8-K
|
June
17, 2005
|
10.5
|
|||||
|
10.25
|
Subsidiary
Security Agreement, dated June 17, 2005, among Wachovia Bank, NA, and the
subsidiaries of the Registrant named therein
|
–
|
Form
8-K
|
June
17, 2005
|
10.6
|
|||||
|
10.26
|
Pledge
Agreement, dated June 17, 2005, among Wachovia Bank, NA, and the
Registrant
|
–
|
Form
8-K
|
June
17, 2005
|
10.7
|
|||||
|
10.27
|
Amendment
No. 5 to Amended and Restated Credit Agreement, dated June 17, 2005, among
the Registrant, Miller Industries Towing Equipment, Inc. and William G.
Miller
|
–
|
Form
8-K
|
June
17, 2005
|
10.8
|
|||||
|
10.28
|
Promissory
Note, dated June 17, 2005, among the Registrant, Miller Industries Towing
Equipment, Inc. and William G. Miller
|
–
|
Form
8-K
|
June
17, 2005
|
10.9
|
|||||
|
10.29
|
First
Amendment to Credit Agreement, dated July 11, 2007, among Wachovia Bank,
NA and Registrant
|
–
|
Form
8-K
|
July
16, 2007
|
10.1
|
|||||
|
21
|
Subsidiaries
of the Registrant*
|
|||||||||
|
23.1
|
Consent
of Joseph Decosimo and Company, PLLC*
|
|||||||||
|
24
|
Power
of Attorney (see signature page)*
|
|||||||||
|
31.1
|
Certification
Pursuant to Rules 13a-14(a)/15d-14(a) by Co-Chief Executive
Officer*
|
|||||||||
|
31.2
|
Certification
Pursuant to Rules 13a-14(a)/15d-14(a) by Co-Chief Executive
Officer*
|
|||||||||
|
31.3
|
Certification
Pursuant to Rule 13a-14(a)/15d-14(a) by Chief Financial
Officer*
|
|||||||||
|
32.1
|
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code
by Co-Chief Executive Officer*
|
|||||||||
|
32.2
|
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code
by Co-Chief Executive Officer*
|
29
|
Description
|
Incorporated
by
Reference to Registration File Number |
Form
or
Report |
Date
of Report
|
Exhibit
Number in Report |
||||||
|
32.3
|
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code
by Chief Financial Officer*
|
*
Filed herewith.
** Management
contract or compensatory plan or arrangement.
|
(b)
|
The
Registrant hereby files as exhibits to this Report the exhibits set forth
in Item 15(a)3 hereof.
|
|
(c)
|
The
Registrant hereby files as financial statement schedules to this Report
the financial statement schedules set forth in Item 15(a)2
hereof.
|
30
INDEX
TO FINANCIAL STATEMENTS
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-2
|
|
|
CONSOLIDATED
BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2008
|
F-3
|
|
|
CONSOLIDATED
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND
2007
|
F-4
|
|
|
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2009,
2008 AND 2007
|
F-5
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND
2007
|
F-6
|
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
F-7
|
|
|
SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS
|
S-1
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Shareholders
Miller
Industries, Inc.
Ooltewah,
Tennessee
We have
audited the accompanying consolidated balance sheets of Miller Industries, Inc.
and subsidiaries as of December 31, 2009 and 2008, and the related consolidated
statements of income, shareholders’ equity and cash flows for each of the three
years in the period ended December 31, 2009. Our audits also included
the financial statement schedule listed in the Index at Item
15. These consolidated financial statements and financial statement
schedule are the responsibility of the company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Miller Industries, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, the financial
statement schedule when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of December 31, 2009, based on criteria established in
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated March 10, 2010 expressed an
unqualified opinion on the effectiveness on the Company’s internal control over
financial reporting.
/s/
Joseph Decosimo and Company, PLLC
Chattanooga,
Tennessee
March 10,
2010
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
DECEMBER
31, 2009 AND 2008
(In
thousands, except share data)
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
and temporary investments
|
$ | 36,160 | $ | 19,445 | ||||
|
Accounts
receivable, net of allowance for doubtful accounts of $2,090 and $1,881,
at December 31, 2009 and 2008, respectively
|
44,673 | 52,424 | ||||||
|
Inventories
|
36,061 | 43,107 | ||||||
|
Prepaid
expenses and other
|
2,296 | 1,840 | ||||||
|
Current
deferred income taxes
|
5,882 | 2,440 | ||||||
|
Total
current assets
|
125,072 | 119,256 | ||||||
|
PROPERTY, PLANT, AND EQUIPMENT,
net
|
32,203 | 34,757 | ||||||
|
GOODWILL
|
11,619 | 11,619 | ||||||
|
DEFERRED
INCOME TAXES
|
3,365 | 8,542 | ||||||
|
OTHER
ASSETS
|
61 | 107 | ||||||
| $ | 172,320 | $ | 174,281 | |||||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Current
portion of long-term obligations
|
$ | 185 | $ | 1,849 | ||||
|
Accounts
payable
|
19,139 | 26,710 | ||||||
|
Accrued
liabilities and other
|
11,501 | 11,333 | ||||||
|
Total
current liabilities
|
30,825 | 39,892 | ||||||
|
LONG-TERM OBLIGATIONS
,
less current portion
|
56 | 2,417 | ||||||
|
COMMITMENTS AND CONTINGENCIES
(Notes 3 and 6)
|
||||||||
|
SHAREHOLDERS’
EQUITY
:
|
||||||||
|
Preferred
stock, $.01 par value; 5,000,000 shares authorized, none issued or
outstanding
|
0 | 0 | ||||||
|
Common
stock, $.01 par value; 100,000,000 shares authorized, 11,627,315 and
11,593,798, outstanding at December 31, 2009 and 2008,
respectively
|
116 | 116 | ||||||
|
Additional
paid-in capital
|
161,512 | 160,919 | ||||||
|
Accumulated
deficit
|
(22,606 | ) | (28,622 | ) | ||||
|
Accumulated
other comprehensive income (loss)
|
2,417 | (441 | ) | |||||
|
Total
shareholders’ equity
|
141,439 | 131,972 | ||||||
| $ | 172,320 | $ | 174,281 | |||||
The
accompanying notes are an integral part of these consolidated
statements.
F-3
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In
thousands, except per share data)
|
2009
|
2008
|
2007
|
||||||||||
|
NET
SALES
|
$ | 237,567 | $ | 270,989 | $ | 400,032 | ||||||
|
COSTS
AND EXPENSES
|
||||||||||||
|
Costs
of operations
|
202,272 | 237,362 | 343,885 | |||||||||
|
Selling,
general, and administrative expenses
|
24,905 | 25,940 | 27,396 | |||||||||
|
Interest
expense, net
|
883 | 1,241 | 3,392 | |||||||||
|
Other
(Income) Expense
|
(442 | ) | 678 | (291 | ) | |||||||
|
Total
costs and expenses
|
227,618 | 265,221 | 374,382 | |||||||||
|
INCOME
BEFORE INCOME TAXES
|
9,949 | 5,768 | 25,650 | |||||||||
|
INCOME
TAX PROVISION
|
3,933 | 2,182 | 9,319 | |||||||||
|
NET
INCOME
|
$ | 6,016 | $ | 3,586 | $ | 16,331 | ||||||
|
BASIC
INCOME PER COMMON SHARE
|
$ | 0.52 | $ | 0.31 | $ | 1.41 | ||||||
|
DILUTED
INCOME PER COMMON SHARE
|
$ | 0.51 | $ | 0.31 | $ | 1.40 | ||||||
|
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
||||||||||||
|
Basic
|
11,611 | 11,594 | 11,556 | |||||||||
|
Diluted
|
11,902 | 11,656 | 11,655 | |||||||||
The
accompanying notes are an integral part of these consolidated
statements.
F-4
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In
thousands, except share data)
|
Common
Stock
|
Additional
Paid-In Capital
|
Accumulated
Deficit
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
|
||||||||||||||||
|
BALANCE,
December 31, 2006
|
$ | 115 | $ | 159,702 | $ | (48,539 | ) | $ | 2,105 | $ | 113,383 | |||||||||
|
Components
of comprehensive income:
|
||||||||||||||||||||
|
Net
income
|
– | – | 16,331 | – | 16,331 | |||||||||||||||
|
Foreign
currency translation adjustments
|
– | – | – | 1,775 | 1,775 | |||||||||||||||
|
Total
comprehensive income
|
– | – | 16,331 | 1,775 | 18,106 | |||||||||||||||
|
Issuance
of common stock to non-employee directors (3,150)
|
– | 75 | – | – | 75 | |||||||||||||||
|
Exercise
of stock options (75,065)
|
1 | 615 | – | – | 616 | |||||||||||||||
|
Stock-based
compensation expense
|
– | 308 | – | – | 308 | |||||||||||||||
|
BALANCE,
December 31, 2007
|
116 | 160,700 | (32,208 | ) | 3,880 | 132,488 | ||||||||||||||
|
Components
of comprehensive income:
|
||||||||||||||||||||
|
Net
income
|
– | – | 3,586 | – | 3,586 | |||||||||||||||
|
Foreign
currency translation adjustments
|
– | – | – | (4,321 | ) | (4,321 | ) | |||||||||||||
|
Total
comprehensive income (loss)
|
– | – | 3,586 | (4,321 | ) | (735 | ) | |||||||||||||
|
Issuance
of common stock to non-employee directors (5,409)
|
– | 75 | – | – | 75 | |||||||||||||||
|
Exercise
of stock options (210)
|
– | 1 | – | – | 1 | |||||||||||||||
|
Stock-based
compensation expense
|
– | 143 | – | – | 143 | |||||||||||||||
|
BALANCE,
December 31, 2008
|
116 | 160,919 | (28,622 | ) | (441 | ) | 131,972 | |||||||||||||
|
Components
of comprehensive income:
|
||||||||||||||||||||
|
Net
income
|
– | – | 6,016 | – | 6,016 | |||||||||||||||
|
Foreign
currency translation adjustments
|
– | – | – | 2,858 | 2,858 | |||||||||||||||
|
Total
comprehensive income
|
– | – | 6,016 | 2,858 | 8,874 | |||||||||||||||
|
Issuance
of common stock to non-employee directors (14,562)
|
– | 75 | – | – | 75 | |||||||||||||||
|
Exercise
of stock options (18,955)
|
– | 119 | – | – | 119 | |||||||||||||||
|
Stock-based
compensation expense
|
– | 399 | – | – | 399 | |||||||||||||||
|
BALANCE,
December 31, 2009
|
$ | 116 | $ | 161,512 | $ | (22,606 | ) | $ | 2,417 | $ | 141,439 | |||||||||
The
accompanying notes are an integral part of these consolidated
statements.
F-5
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In
thousands)
|
2009
|
2008
|
2007
|
||||||||||
|
OPERATING
ACTIVITIES:
|
||||||||||||
|
Net
income
|
$ | 6,016 | $ | 3,586 | $ | 16,331 | ||||||
|
Adjustments
to reconcile net income to net cash flows from operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
3,475 | 3,440 | 3,134 | |||||||||
|
Deferred
tax provision
|
1,735 | 672 | 7,716 | |||||||||
|
Amortization
of deferred financing costs
|
39 | 76 | 123 | |||||||||
|
Provision
for doubtful accounts
|
714 | 634 | 312 | |||||||||
|
Stock-based
compensation
|
399 | 143 | 308 | |||||||||
|
Issuance
of non-employee director shares
|
75 | 75 | 75 | |||||||||
|
(Gain)
Loss on disposals of equipment
|
70 | – | (109 | ) | ||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
7,629 | 11,588 | 17,305 | |||||||||
|
Inventories
|
9,239 | (6,827 | ) | 5,156 | ||||||||
|
Prepaid
expenses and other
|
(379 | ) | (114 | ) | 389 | |||||||
|
Accounts
payable
|
(8,882 | ) | (10,776 | ) | (19,673 | ) | ||||||
|
Accrued
liabilities and other
|
(411 | ) | 2,113 | (2,497 | ) | |||||||
|
Net
cash flows from operating activities
|
19,719 | 4,610 | 28,570 | |||||||||
|
INVESTING
ACTIVITIES:
|
||||||||||||
|
Purchases
of property, plant, and equipment
|
(755 | ) | (4,850 | ) | (8,718 | ) | ||||||
|
Proceeds
from sale of equipment
|
1 | 2 | 148 | |||||||||
|
Payments
received on notes receivables
|
212 | 180 | 482 | |||||||||
|
Net
cash flows from investing activities
|
(542 | ) | (4,668 | ) | (8,088 | ) | ||||||
|
FINANCING
ACTIVITIES:
|
||||||||||||
|
Payments
under junior credit facility
|
– | – | (5,000 | ) | ||||||||
|
Payments
on long-term obligations
|
(4,094 | ) | (1,859 | ) | (1,803 | ) | ||||||
|
Borrowings
under long-term obligations
|
46 | 138 | – | |||||||||
|
Additions
to deferred financing costs
|
– | (2 | ) | (42 | ) | |||||||
|
Proceeds
from exercise of stock options
|
119 | 1 | 616 | |||||||||
|
Net
cash flows from financing activities
|
(3,929 | ) | (1,722 | ) | (6,229 | ) | ||||||
|
EFFECT
OF EXCHANGE RATE CHANGES ON CASH AND TEMPORARY INVESTMENTS
|
1,467 | (2,057 | ) | 825 | ||||||||
|
NET
CHANGE IN CASH AND TEMPORARY INVESTMENTS
|
16,715 | (3,837 | ) | 15,078 | ||||||||
|
CASH
AND TEMPORARY INVESTMENTS, beginning of year
|
19,445 | 23,282 | 8,204 | |||||||||
|
CASH
AND TEMPORARY INVESTMENTS, end of year
|
$ | 36,160 | $ | 19,445 | $ | 23,282 | ||||||
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||||||
|
Cash
payments for interest
|
$ | 1,191 | $ | 1,863 | $ | 4,117 | ||||||
|
Cash
payments for income taxes, net of refunds
|
$ | 2,755 | $ | 475 | $ | 2,158 | ||||||
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
||||||||||||
|
Capital
leases
|
$ | – | $ | – | $ | 549 | ||||||
The
accompanying notes are an integral part of these consolidated
statements.
F-6
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
ORGANIZATION
AND NATURE OF OPERATIONS
|
Miller
Industries, Inc. and subsidiaries (“the Company”) is the world’s largest
manufacturer of vehicle towing and recovery equipment. The principal
markets for the Company’s towing and recovery equipment are approximately 120
independent distributors and the users of towing and recovery equipment located
primarily throughout North America, and other customers throughout the
world. The Company’s products are marketed under the brand names of
Century®, Challenger®, Holmes®, Champion®, Eagle®, Titan®, Jige
TM
,
Boniface
TM
,
Vulcan®, and Chevron
TM
. Unless
otherwise specifically stated, all disclosures in the following notes relate
only to the Company’s continuing operations.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Use
of Estimates in the Preparation of Financial Statements
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Consolidation
The
accompanying consolidated financial statements include the accounts of Miller
Industries, Inc. and its subsidiaries. All significant intercompany
transactions and balances have been eliminated.
Cash
and Temporary Investments
Cash and
temporary investments include all cash and cash equivalent investments with
original maturities of three months or less.
Fair
Value of Financial Instruments
The
carrying values of cash and temporary investments, accounts receivable, accounts
payable and accrued liabilities are reasonable estimates of their fair values
because of the short maturity of these financial instruments. The
carrying values of long-term obligations are reasonable estimates of their fair
values based on the rates available for obligations with similar terms and
maturities.
Inventories
Inventory
costs include materials, labor and factory overhead. Inventories are stated at
the lower of cost or market (net realizable value), determined on a first-in,
first-out basis. Appropriate consideration is given to obsolescence,
valuation and other factors in determining net realizable
value. Revisions of these estimates could result in the need for
adjustments. Inventories, net of reserves, at December 31, 2009 and
2008 consisted of the following (in thousands):
|
2009
|
2008
|
|||||||
|
Chassis
|
$ | 7,183 | $ | 6,493 | ||||
|
Raw
materials
|
14,114 | 18,764 | ||||||
|
Work
in process
|
6,190 | 11,526 | ||||||
|
Finished
goods
|
8,574 | 6,324 | ||||||
| $ | 36,061 | $ | 43,107 | |||||
F-7
Property,
Plant, and Equipment
Property,
plant and equipment, which include amounts recorded under capital leases, are
recorded at cost. Depreciation for financial reporting purposes is provided
using the straight-line method over the estimated useful lives of the assets.
Accelerated depreciation methods are used for income tax reporting purposes.
Estimated useful lives range from 20 to 30 years for buildings and improvements
and 5 to 10 years for machinery and equipment, furniture and fixtures, and
software costs. Expenditures for routine maintenance and repairs are charged to
expense as incurred. Internal labor is used in certain capital
projects.
Property,
plant and equipment at December 31, 2009 and 2008 consisted of the following (in
thousands):
|
2009
|
2008
|
|||||||
|
Land
and improvements
|
$ | 4,796 | $ | 4,739 | ||||
|
Buildings
and improvements
|
29,994 | 29,591 | ||||||
|
Machinery
and equipment
|
22,983 | 22,424 | ||||||
|
Furniture
and fixtures
|
7,196 | 6,766 | ||||||
|
Software
costs
|
7,118 | 6,935 | ||||||
| 72,087 | 70,455 | |||||||
|
Less
accumulated depreciation
|
(39,884 | ) | (35,698 | ) | ||||
| $ | 32,203 | $ | 34,757 | |||||
The
Company recognized $3,475,000, $3,440,000 and $3,134,000, in depreciation
expense in 2009, 2008 and 2007, respectively. In 2008, $75,000 of
interest costs were capitalized for construction period interest.
The
Company capitalizes costs related to software development in accordance with
established criteria, and amortizes those costs to expense on a straight-line
basis over five years. System development costs not meeting proper
criteria for capitalization are expensed as incurred.
Basic
and Diluted Income Per Common Share
Basic
income per common share is computed by dividing net income by the weighted
average number of common shares outstanding. Diluted income per
common share is calculated by dividing net income by the weighted average number
of common and potential dilutive common shares outstanding. Diluted
net income per common share takes into consideration the assumed exercise of
outstanding stock options resulting in approximately 291,000, 29,000 and 99,000
potential dilutive common shares in 2009, 2008 and 2007,
respectively. Options to purchase approximately 6,000 and
76,000 shares of common stock were outstanding during 2008 and 2007,
respectively, but were not included in the computation of diluted earnings per
share because the effect would have been anti-dilutive. For 2009,
none of the outstanding stock options would have been
anti-dilutive.
Goodwill
and Long-Lived Assets
The
Company periodically reviews the carrying amount of its long-lived assets and
goodwill to determine if those assets may be recoverable based upon the future
operating cash flows expected to be generated by those
assets. Management believes that its long-lived assets are
appropriately valued.
Patents,
Trademarks and Other Purchased Product Rights
The cost
of acquired patents, trademarks and other purchased product rights is
capitalized and amortized using the straight-line method over various periods
not exceeding 20 years. Total accumulated amortization of these assets was
$1,547,000 at December 31, 2009 and 2008. At December 31, 2009 and
2008, all intangible assets subject to amortization were fully
amortized. As acquisitions and dispositions of intangible assets
occur in the future, the amortization amounts may vary.
F-8
Deferred
Financing Costs
All
deferred financing costs are included in other assets and are amortized using
the straight-line method over the terms of the respective
obligations. Total accumulated amortization of deferred financing
costs at December 31, 2009 and 2008 was $364,000 and $397,000,
respectively. Amortization expense in 2009, 2008 and 2007, was
$39,000, $76,000 and $123,000, respectively, and is included in interest
expense in the accompanying consolidated statements of income. Based
on the current amount of deferred financing costs subject to amortization, the
estimated amortization expense in future years is not significant.
Accrued
Liabilities and Other
Accrued
liabilities and other consisted of the following at December 31, 2009 and 2008
(in thousands):
|
2009
|
2008
|
|||||||
|
Accrued
wages, commissions, bonuses and benefits
|
$ | 4,497 | $ | 3,975 | ||||
|
Accrued
products warranty
|
1,995 | 878 | ||||||
|
Accrued
income taxes
|
1,202 | 1,197 | ||||||
|
Other
|
3,807 | 5,283 | ||||||
| $ | 11,501 | $ | 11,333 | |||||
Income
Taxes
The
Company recognizes as deferred income tax assets and liabilities the future tax
consequences of the differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
bases. The Company considers the need to record a valuation allowance
to reduce deferred tax assets to the amount that is more likely than not to be
realized. Tax loss carryforwards, reversal of deferred tax
liabilities, tax planning and estimates of future taxable income are considered
in assessing the need for a valuation allowance. If unrecognized tax
positions exist, interest and penalties related to unrecognized tax positions
are recorded as income tax expense in the consolidated statements of
income.
Stock-Based
Compensation
Stock
compensation expense was $399,000 for 2009, $143,000 for 2008 and $308,000 for
2007. The stock-based compensation expense is included in selling,
general and administrative expenses in the accompanying consolidated statements
of income.
The fair
value of each option grant has been estimated as of the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 2004: expected dividend yield of 0%;
expected volatility of 43%; risk-free interest rate of 2.94%; and expected life
of 5.5 years. Using these assumptions, the fair value of options
granted in 2004 is approximately $1,242,000, which was amortized as compensation
expense over the vesting period of the options. No options were
granted during 2009 or 2007. The fair value of options granted in
2008 has been estimated as of the date of the grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: expected
dividend yield of 0%; expected volatility of 44%; risk-free interest rate of
1.71%; and expected life of four years. Using these assumptions, the
fair value of options granted in 2008 was $1,596,000, which is being amortized
as compensation expense over the vesting period.
At
December 31, 2009, the Company had $1,130,000 of unrecognized compensation
expense related to stock options, with $399,000 to be expensed in 2010, and 2011
and the remainder of $332,000 to be expensed in 2012. The Company
issued approximately 19,000 and 200 shares of common stock during 2009 and 2008,
respectively, from the exercise of stock options.
F-9
Product
Warranty
The
Company generally provides a one-year limited product and service warranty on
certain of its products. The Company provides for the estimated cost
of this warranty at the time of sale. Warranty expense in 2009, 2008
and 2007, was $2,295,000, $1,995,000 and $1,881,000, respectively.
The table
below provides a summary of the warranty liability for December 31, 2009 and
2008 (in thousands):
|
2009
|
2008
|
|||||||
|
Accrual
at beginning of the year
|
$ | 878 | $ | 864 | ||||
|
Provision
|
2,295 | 1,995 | ||||||
|
Settlement
and Other
|
(1,178 | ) | (1,981 | ) | ||||
|
Accrual
at end of year
|
$ | 1,995 | $ | 878 | ||||
Credit
Risk
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash investments and trade accounts
receivable. The Company places its cash investments with high-quality
financial institutions and limits the amount of credit exposure to any one
institution. The Company’s trade receivables are primarily from
independent distributors of towing and recovery equipment. The
Company monitors its exposure for credit losses and maintains allowances for
anticipated losses. Collections from customers are continuously monitored and an
allowance for doubtful accounts is maintained based on historical experience and
any specific customer collection issues. The Company maintains
security agreements on substantially all of its trade receivables.
Revenue
Recognition
Revenue
is recorded by the Company when the risk of ownership for products has
transferred to the independent distributors or other customers, which is
generally upon shipment. From time to time, revenue is recognized
under a bill and hold arrangement. Recognition of revenue on bill and
hold arrangements occurs when risk of ownership has passed to the customer, a
fixed written commitment has been provided by the customer, the goods are
complete and ready for shipment, the goods are segregated from inventory, no
performance obligation remains, and a schedule for delivery has been
established.
Shipping
and Handling Fees and Cost
The
Company records revenues earned for shipping and handling as revenue, while the
cost of shipping and handling is classified as cost of operations.
Foreign
Currency Translation
The
functional currency for the Company’s foreign operations is the applicable local
currency. The translation from the applicable foreign currencies to
U.S. dollars is performed for balance sheet accounts using current exchange
rates in effect at the balance sheet date, historical rates for equity and the
weighted average exchange rate during the period for revenue and expense
accounts. Foreign currency translation adjustments resulting from
such translations are included in shareholders’ equity. Intercompany
transactions denominated in a currency other than the functional currency are
remeasured into the functional currency. Gains and losses resulting
from foreign currency transactions are included in other income
(expense).
F-10
Recent
Accounting Pronouncements
Recently
Adopted Standards
In
December 2007, the FASB issued
authoritative guidance under
Accounting Standard Codification (ASC) 805. which requires the acquisition
method of accounting to be applied for all business combinations. The
guidance establishes principles and requirements for how the acquirer:
(i) recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the
acquiree; (ii) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase; and
(iii) determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. The impact of the Company’s adoption of the
guidance under ASC 805 as of January 1, 2009 was not material; but will impact
any future business combinations of the Company.
In
December 2007, the FASB issued authoritative guidance under ASC 810 requiring
all entities to report minority interests in subsidiaries as equity in the
consolidated financial statements, and requiring that transactions between
entities and noncontrolling interests be treated as equity. The
adoption of the guidance under ASC 810 as of January 1, 2009 did not have an
effect on our consolidated financial position and results of
operations.
Effective
January 1, 2008, the Company adopted authoritative guidance under ASC
820. ASC 820 provides a framework for measuring fair value in
accordance with generally accepted accounting principles, and expands
disclosures regarding fair value measurements and the effect on
earnings. The impact of the Company’s adoption of the provisions of
ASC 820 related to certain “nonfinancial” assets and liabilities as of January
1, 2009 was not material.
In March
2008, the FASB issued authoritative guidance under ASC 815 which requires
expanded disclosure requirements about an entity’s derivative instruments and
hedging activities. The Company adopted this guidance as of January
1, 2009. The adoption of ASC 815 did not have an effect on our
consolidated financial position and results of operations.
In April
2008, the FASB issued authoritative guidance under ASC 350 and ASC 275 that
amends the factors considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset. This
guidance also enhances disclosures related to renewal and extension
assumptions. The guidance is to be applied prospectively for any
intangible assets acquired after December 31, 2008. The adoption of
this guidance did not have a material impact on our financial condition or
results of operations.
In
May 2009, the FASB issued authoritative guidance under ASC
855. This guidance incorporates into authoritative accounting
literature certain guidance that already existed within generally accepted
auditing standards, with the requirements concerning recognition and disclosure
of subsequent events remaining essentially unchanged. This guidance
addresses events which occur after the balance sheet date but before the
issuance of financial statements. Under ASC 855, as under previous
practice, an entity must record the effects of subsequent events that provide
evidence about conditions that existed at the balance sheet date and must
disclose but not record the effects of subsequent events which provide evidence
about conditions that did not exist at the balance sheet date.
Reclassifications
Certain
prior year amounts have been reclassified to conform to current year
presentation, with no impact on previously reported shareholders’ equity or net
income.
F-11
|
3.
|
LONG-TERM
OBLIGATIONS
|
Long-Term
Obligations
Long-term
obligations consisted of the following at December 31, 2009 and 2008 (in
thousands):
|
2009
|
2008
|
|||||||
|
Outstanding
borrowings under Senior Credit Facility
|
$ | – | $ | 2,100 | ||||
|
Mortgage
notes payable
|
– | 1,665 | ||||||
|
Equipment
notes and capital leases payable, weighted average interest rate of 6.2%,
payable in monthly installments, maturing 2010 to 2011
|
241 | 501 | ||||||
| 241 | 4,266 | |||||||
|
Less
current portion
|
(185 | ) | (1,849 | ) | ||||
| $ | 56 | $ | 2,417 | |||||
Certain
equipment and manufacturing facilities are pledged as collateral under the
mortgage and equipment notes payable.
In
February 2009, approximately $1.7 million mortgage notes payable was repaid and
the related obligation was terminated.
Credit
Facilities
Senior Credit
Facility
. The Company is a party to a Credit Agreement (the
“Senior Credit Agreement”) with Wachovia Bank, National Association, for a $27.0
million senior secured credit facility (the “Senior Credit
Facility”). The Senior Credit Facility, as amended, consists of a
$20.0 million revolving credit facility (the “Revolver”), and a $7.0 million
term loan (the “Term Loan”). The Senior Credit Facility is secured by
substantially all of the Company’s assets, and contains customary
representations and warranties, events of default and affirmative and negative
covenants for secured facilities of this type. Covenants under the
Senior Credit Facility restrict the payment of cash dividends if a default or
event of default under the Senior Credit Agreement has occurred or would result
from the payment of dividends, or if the Company would be in violation of the
consolidated fixed charge coverage ratio test in the Senior Credit Agreement as
a result of the payment of dividends, among various other
restrictions.
In the
absence of a default, all borrowings under the Revolver and Term Loan bear
interest at the LIBOR Market Index Rate plus a margin of between 0.75% to 1.50%
per annum that is subject to adjustment from time to time based upon the
Consolidated Leverage Ratio (as defined in the Senior Credit
Agreement). The Revolver is scheduled to expire on June 17, 2010, and
the Term Loan is scheduled to mature on June 15, 2010. The Company is
currently in negotiations regarding a revolving credit facility and expect to
have such a revolving facility in place prior to the expiration of the Revolver,
but there can be no assurance that the Company will be able to do so on
acceptable terms or at all.
At
December 31, 2009 and 2008, the Company had no outstanding borrowings under
the Revolver. In June 2009, the Company repaid the remaining
outstanding balance under the Term Loan.
Interest Rate
Sensitivity
. Changes in interest rates affect the interest
paid on indebtedness under our credit facility because the outstanding amounts
of indebtedness under our credit facility are subject to variable interest
rates. Under our credit facility, the non-default rate of interest is
equal to the LIBOR Market Index Rate plus a margin of between 0.75% to 1.50% per
annum (for a rate of interest of 0.98% at December 31, 2009). A
one percent change in the interest rate on our variable-rate debt would not have
materially impacted our financial position, results of operations or cash flows
for the year ended December 31, 2009.
F-12
Future
maturities of long-term obligations (including capital lease obligations) at
December 31, 2009 are as follows (in thousands):
|
2010
|
$ | 185 | ||
|
2011
|
49 | |||
|
2012
|
7 | |||
| $ | 241 |
|
4.
|
RELATED
PARTY TRANSACTIONS
|
Termination
of Junior Credit Facility
William
G. Miller was the sole lender under the Company’s former junior credit facility
(the “Junior Credit Facility”). The Company paid Mr. Miller
approximately $228,000 in interest expense on the Junior Credit Facility for
2007. In May 2007, the Company repaid the remaining $5.0 million of
subordinated debt under the Junior Credit Facility. With such
payment, all loans from Mr. Miller to the Company were paid in
full. This payment was approved by the Audit Committee of the
Company’s Board of Directors and by the full Board of Directors with Mr. Miller
abstaining due to his personal interest in the transaction. In July
2007, the Junior Credit Facility was terminated.
|
5.
|
STOCK-BASED
COMPENSATION PLANS
|
In
accordance with the Company’s stock-based compensation plans, the Company may
grant incentive stock options as well as non-qualified and other stock-related
incentives to officers, employees and non-employee directors of the Company.
Options vest ratably over a two to four-year period beginning on the grant date
and expire ten years from the date of grant. Shares available for
granting options at December 31, 2009, 2008 and 2007 were approximately 0.6
million, 0.6 million and 1.2 million, respectively.
F-13
A summary
of the activity of stock options for the years ended December 31, 2009, 2008 and
2007, is presented below (shares in thousands):
|
2009
|
2008
|
2007
|
||||||||||||||||||||||
|
Shares
Under Option
|
Weighted
Average Exercise Price |
Shares
Under Option
|
Weighted
Average Exercise Price |
Shares
Under Option
|
Weighted
Average Exercise Price |
|||||||||||||||||||
|
Outstanding
at Beginning of Period
|
930 | $ | 5.87 | 205 | $ | 15.24 | 304 | $ | 17.39 | |||||||||||||||
|
Granted
|
– | - | 801 | 5.49 | – | – | ||||||||||||||||||
|
Exercised
|
(19 | ) | 6.23 | – | – | (75 | ) | 8.21 | ||||||||||||||||
|
Forfeited
and cancelled
|
(6 | ) | 10.79 | (76 | ) | 27.05 | (24 | ) | 64.74 | |||||||||||||||
|
Outstanding
at End of Period
|
905 | $ | 5.83 | 930 | $ | 5.87 | 205 | $ | 15.24 | |||||||||||||||
|
Options
exercisable at year end
|
304 | $ | 6.50 | 129 | $ | 8.25 | 123 | $ | 19.90 | |||||||||||||||
|
Weighted
average fair value of options granted
|
$ | – | $ | 1.99 | $ | – | ||||||||||||||||||
A summary
of options outstanding under the Company’s stock-based compensation plans at
December 31, 2009 is presented below (shares in thousands):
|
Exercise
Price Range
|
Shares
Under Option |
Weighted
Average
Exercise Price of Options Outstanding |
Weighted
Average Remaining Life |
Options
Exercisable |
Weighted
Average
Exercise Price of Shares Exercisable |
|||||||||||||||||||||||||
| $ | 3.05 | – | $ | 3.37 | 4 | $ | 3.05 | 1.9 | 4 | $ | 3.05 | |||||||||||||||||||
| 5.49 | – | 8.24 | 788 | 5.49 | 8.8 | 187 | 5.49 | |||||||||||||||||||||||
| 8.31 | – | 10.94 | 113 | 8.31 | 9.2 | 113 | 8.31 | |||||||||||||||||||||||
|
Total
|
905 | $ | 5.83 | 8.2 | 304 | $ | 6.50 | |||||||||||||||||||||||
|
6.
|
COMMITMENTS
AND CONTINGENCIES
|
Commitments
The
Company has entered into various operating leases for buildings, office
equipment and trucks. Rental expense under these leases was $1,331,000,
$1,402,000 and $1,687,000 in 2009, 2008 and 2007, respectively.
At
December 31, 2009 future minimum lease payments under non-cancelable operating
leases for the next five years and in the aggregate are as follows (in
thousands):
|
2010
|
$ | 588 | ||
|
2011
|
373 | |||
|
2012
|
208 | |||
|
2013
|
83 | |||
|
2014
|
83 | |||
|
Thereafter
|
61 | |||
| $ | 1,396 |
The
Company has also entered into arrangements with third-party lenders where it has
agreed, in the event of a default by the customer, to repurchase from the
third-party lender Company products repossessed from the
customer. These arrangements are typically subject to a maximum
repurchase amount. The Company’s risk under these arrangements is
mitigated by the value of the products repurchased as part of the
transaction. The maximum amount of collateral the Company could be
required to purchase was approximately $11.3 million and $21.7 million at
December 31, 2009 and 2008, respectively. No repurchases of products
were required during 2009 or 2008.
F-14
Contingencies
The
Company is, from time to time, a party to litigation arising in the normal
course of its business. Litigation is subject to various inherent
uncertainties, and it is possible that some of these matters could be resolved
unfavorably to the Company, which could result in substantial damages against
the Company. The Company has established accruals for matters that
are probable and reasonably estimable and maintains product liability and other
insurance that management believes to be adequate. Management
believes that any liability that may ultimately result from the resolution of
these matters in excess of available insurance coverage and accruals will not
have a material adverse effect on the consolidated financial position or results
of operations of the Company.
7. INCOME
TAXES
Deferred
tax assets and liabilities are determined based on the differences between the
financial and tax basis of existing assets and liabilities using the currently
enacted tax rates in effect for the year in which the differences are expected
to reverse.
The
provision for income taxes on income consisted of the following in 2009, 2008
and 2007, (in thousands):
|
2009
|
2008
|
2007
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | – | $ | – | $ | – | ||||||
|
State
|
235 | 49 | 501 | |||||||||
|
Foreign
|
1,963 | 1,461 | 1,102 | |||||||||
| 2,198 | 1,510 | 1,603 | ||||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
1,444 | 700 | 7,572 | |||||||||
|
State
|
302 | – | – | |||||||||
|
Foreign
|
(11 | ) | (28 | ) | 144 | |||||||
| 1,735 | 672 | 7,716 | ||||||||||
| $ | 3,933 | $ | 2,182 | $ | 9,319 | |||||||
The
principal differences between the federal statutory tax rate and the income tax
expense in 2009, 2008 and 2007:
|
2009
|
2008
|
2007
|
||||||||||
|
Federal
statutory tax rate
|
34.3 | % | 35.0 | % | 34.0 | % | ||||||
|
State
taxes, net of federal tax benefit
|
3.2 | % | 1.4 | % | 1.4 | % | ||||||
|
Excess
of foreign tax over US tax on foreign income
|
0.5 | % | 2.5 | % | 0.4 | % | ||||||
|
Other
|
1.5 | % | (1.1 | )% | 0.5 | % | ||||||
|
Effective
tax rate
|
39.5 | % | 37.8 | % | 36.3 | % | ||||||
F-15
Deferred
income tax assets and liabilities reflect the impact of temporary differences
between the amounts of assets and liabilities for financial reporting and income
tax reporting purposes. Temporary differences and carry forwards which give rise
to deferred tax assets and liabilities at December 31, 2009 and 2008 are as
follows (in thousands):
|
2009
|
2008
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Allowance
for doubtful accounts
|
$ | 147 | $ | 207 | ||||
|
Accruals
and reserves
|
2,130 | 1,831 | ||||||
|
Net
operating loss carryforward
|
7,130 | 9,057 | ||||||
|
Deductible
goodwill and impairment charges
|
64 | 58 | ||||||
|
Other
|
985 | 622 | ||||||
|
Total
deferred tax assets
|
10,456 | 11,775 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Property,
plant, and equipment
|
1,209 | 793 | ||||||
|
Total
deferred tax liabilities
|
1,209 | 793 | ||||||
|
Net
deferred tax asset
|
$ | 9,247 | $ | 10,982 | ||||
As of
December 31, 2009, the Company had federal net operating loss carryforwards of
approximately $20.0 million which will expire between 2019 and
2026. The federal net operating loss carryforwards are comprised
primarily of losses from advances to and investments in certain discontinued
operations resulting from the RoadOne liquidation. In addition, the
Company had an AMT credit carryforward of approximately $0.9 million, that may
be carried forward indefinitely.
As of
December 31, 2009, the Company has state net operating loss carryforwards of
approximately $4.8 million.
At
December 31, 2009 and 2008, the Company had no unrecognized tax
positions. The Company does not expect its unrecognized tax positions
to change significantly in the next twelve months. If unrecognized
tax positions existed, the interest and penalties related to the unrecognized
tax positions would be recorded as income tax expense in the consolidated
statements of income.
The
Company is subject to United States federal income taxes, as well as income
taxes in various states and foreign jurisdictions. The Company’s tax
years 2006 through 2008 remain open to examination for U.S. Federal income
taxes. With few exceptions, the Company is no longer subject to state
or non-U.S. income tax examinations prior to 2006.
|
8.
|
PREFERRED
STOCK
|
The
Company has authorized 5,000,000 shares of undesignated preferred stock which
can be issued in one or more series. The terms, price and conditions of the
preferred shares will be set by the board of directors. No shares have been
issued.
|
9.
|
EMPLOYEE
BENEFIT PLANS
|
The
Company maintains a contributory retirement plan for all full-time employees
with at least 90 days of service. The plan is designed to provide
tax-deferred income to the Company’s employees in accordance with the provisions
of Section 401(k) of the Internal Revenue Code.
The plan
provides that each participant may contribute the maximum allowable under
Internal Revenue Service regulations. For 2007, 2008 and 2009, the
Company matched 50% of the first 5% of participant
contributions. Matching contributions vest over the first five years
of employment. Company contributions to the plan were $314,000,
$430,000 and $535,000 in 2009, 2008 and 2007, respectively.
F-16
10. GEOGRAPHIC
AND CUSTOMER INFORMATION
Net sales
and long-lived assets (property, plant and equipment and goodwill and intangible
assets) by region were as follows (net sales are attributed to regions based on
the locations of customers) (in thousands):
|
2009
|
2008
|
2007
|
||||||||||||||||||||||
|
Net
Sales
|
Long-Lived
Assets
|
Net
Sales
|
Long-Lived
Assets
|
Net
Sales
|
Long-Lived
Assets
|
|||||||||||||||||||
|
North
America
|
$ | 180,722 | $ | 40,896 | $ | 191,355 | $ | 43,472 | $ | 319,195 | $ | 42,430 | ||||||||||||
|
Foreign
|
56,845 | 2,926 | 79,634 | 2,904 | 80,837 | 2,996 | ||||||||||||||||||
| $ | 237,567 | $ | 43,822 | $ | 270,989 | $ | 46,376 | $ | 400,032 | $ | 45,426 | |||||||||||||
The
Company’s largest customer accounted for 19.4% of consolidated sales for
2009. At December 31, 2009 and 2008, the Company’s largest
customer represented 16.5% and 11.5%, respectively, of accounts
receivable. No single customer accounted for 10% or more of
consolidated net sales in 2008 or 2007.
|
11.
|
QUARTERLY
FINANCIAL INFORMATION (UNAUDITED)
|
The
following is a summary of the unaudited quarterly financial information for the
years ended December 31, 2009 and 2008 (in thousands, except per share
data):
|
Net
Sales
|
Operating
Income
|
Net
Income
|
Basic
Income Per Share
|
Diluted
Income Per Share
|
||||||||||||||||
|
2009
|
||||||||||||||||||||
|
First
Quarter
|
$ | 58,756 | $ | 1,965 | $ | 913 | $ | 0.08 | $ | 0.08 | ||||||||||
|
Second
Quarter
|
54,255 | 2,248 | 1,386 | 0.12 | 0.12 | |||||||||||||||
|
Third
Quarter
|
57,547 | 2,898 | 1,700 | 0.15 | 0.14 | |||||||||||||||
|
Fourth
Quarter
|
67,009 | 3,279 | 2,017 | 0.17 | 0.17 | |||||||||||||||
|
Total
|
$ | 237,567 | $ | 10,390 | $ | 6,016 | $ | 0.52 | $ | 0.51 | ||||||||||
|
2008
|
||||||||||||||||||||
|
First
Quarter
|
$ | 67,621 | $ | 1,953 | $ | 927 | $ | 0.08 | $ | 0.08 | ||||||||||
|
Second
Quarter
|
74,715 | 1,924 | 1,046 | 0.09 | 0.09 | |||||||||||||||
|
Third
Quarter
|
66,735 | 1,760 | 917 | 0.08 | 0.08 | |||||||||||||||
|
Fourth
Quarter
|
61,918 | 2,050 | 696 | 0.06 | 0.06 | |||||||||||||||
|
Total
|
$ | 270,989 | $ | 7,687 | $ | 3,586 | $ | 0.31 | $ | 0.31 | ||||||||||
12. SUBSEQUENT
EVENT
On March
8, 2010, the Company’s board of directors adopted a dividend policy to consider
and pay annual cash dividends subject to the Company’s ability to satisfy all
applicable statutory and regulatory requirements and the Company’s continued
financial strength, and declared the first such annual cash dividend of $0.10
per share. The dividend is payable March 25, 2010 to shareholders of
record as of March 18, 2010.
F-17
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE
II –VALUATION AND QUALIFYING ACCOUNTS
|
Balance
at
Beginning of Period |
Charged
to
Expense |
Accounts
Written Off |
Balance
at
End of Period |
|||||||||||||
|
(In
Thousands)
|
||||||||||||||||
|
Year
ended December 31, 2007
|
||||||||||||||||
|
Deduction
from asset accounts:
|
||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 2,488 | 312 | (1,160 | ) | $ | 1,640 | |||||||||
|
Year
ended December 31, 2008
|
||||||||||||||||
|
Deduction
from asset accounts:
|
||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 1,640 | 634 | (393 | ) | $ | 1,881 | |||||||||
|
Year
ended December 31, 2009
|
||||||||||||||||
|
Deduction
from asset accounts:
|
||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 1,881 | 714 | (505 | ) | $ | 2,090 | |||||||||
|
Balance
at
Beginning of Period |
Charged
to
Expense |
Claims
and
Other |
Balance
at
End of Period |
|||||||||||||
|
(In
Thousands)
|
||||||||||||||||
|
Year
ended December 31, 2007
|
||||||||||||||||
|
Product
Warranty Reserve:
|
$ | 839 | 1,881 | (1,856 | ) | $ | 864 | |||||||||
|
Year
ended December 31, 2008
|
||||||||||||||||
|
Product
Warranty Reserve:
|
$ | 864 | 1,995 | (1,981 | ) | $ | 878 | |||||||||
|
Year
ended December 31, 2009
|
||||||||||||||||
|
Product
Warranty Reserve:
|
$ | 878 | 2,295 | (1,178 | ) | $ | 1,995 | |||||||||
S-1
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, on the 10th day of March,
2010.
| MILLER INDUSTRIES, INC. | |||
|
|
By:
|
/s/ Jeffrey I. Badgley | |
| Jeffrey I. Badgley | |||
| President, Co-Chief Executive Officer and Director | |||
Know all
men by these presents, that each person whose signature appears below
constitutes and appoints Jeffrey I. Badgley as attorney-in-fact, with power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact may do or cause
to be done by virtue hereof.
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 in the
capacities indicated on the 10th day of March, 2010.
|
Signature
|
Title
|
||
|
/s/
William G. Miller
|
Chairman
of the Board of Directors and Co-Chief Executive
Officer
|
||
|
William
G. Miller
|
|||
|
/s/
Jeffrey
I. Badgley
|
President,
Co-Chief Executive Officer and Director
|
||
|
Jeffrey
I. Badgley
|
|||
|
/s/
J.
Vincent Mish
|
Executive
Vice President, Treasurer and Chief Financial Officer (Principal Financial
and Accounting Officer)
|
||
|
J.
Vincent Mish
|
|||
| /s/ A. Russell Chandler, III |
Director
|
||
| A. Russell Chandler, III | |||
| /s/ Paul E. Drack |
Director
|
||
| Paul E. Drack | |||
| /s/ Richard H. Roberts |
Director
|
||
| Richard H. Roberts | |||
EXHIBIT
INDEX
|
Exhibit
Number
|
Description
|
|
|
21
|
Subsidiaries
of the Registrant
|
|
|
23.1
|
Consent
of Joseph Decosimo and Company, PLLC
|
|
|
24
|
Power
of Attorney (see signature page)
|
|
|
31.1
|
Certification
Pursuant to Rules 13a-14(a)/15d-14(a) by Co-Chief Executive
Officer
|
|
|
31.2
|
Certification
Pursuant to Rules 13a-14(a)/15d-14(a) by Co-Chief Executive
Officer
|
|
|
31.3
|
Certification
Pursuant to Rules 13a-14(a)/15d-14(a) by Chief Financial
Officer
|
|
|
32.1
|
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code
by Co-Chief Executive Officer
|
|
|
32.2
|
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code
by Co-Chief Executive Officer
|
|
|
32.3
|
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code
by Chief Financial
Officer
|
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules