MILLER INDUSTRIES INC /TN/
10-Ks and 10-Qs
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
| x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
quarterly period ended
June
30,
2010
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from __________________________________________________
to __________________________________________________
Commission
file number
001-14124
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 |
37363
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Ooltewah,
Tennessee
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(Zip
Code)
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(Address
of principal executive offices)
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(423)
238-4171
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
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 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
number of shares outstanding of the registrant’s common stock, par value $.01
per share, as of July 30, 2010 was 11,681,442.
Index
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PART
I
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FINANCIAL
INFORMATION
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Page
Number
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Item
1.
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Financial
Statements
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||
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Condensed
Consolidated Balance Sheets – June 30, 2010 and December 31,
2009
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2
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||
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Condensed
Consolidated Statements of Income for the Three and Six Months Ended
June 30, 2010 and 2009
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3
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||
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Condensed
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2010 and 2009
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4
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||
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Notes
to Condensed Consolidated Financial Statements
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5
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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9
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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14
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Item
4.
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Controls
and Procedures
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14
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PART
II
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OTHER
INFORMATION
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Item
1.
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Legal
Proceedings
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15
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Item
1A.
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Risk
Factors
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15
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Item
6.
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Exhibits
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15
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SIGNATURES
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16
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FORWARD-LOOKING
STATEMENTS
Certain
statements in this Form 10-Q, including but not limited to statements made in
Part I, Item 2–”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 words, 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. These forward-looking
statements are subject to a number of risks and uncertainties, including,
economic and market conditions; the risks related to the general economic health
of our customers; our customers’ 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 Part II, Item 1A–”Risk Factors” and
those risks discussed in our other filings with the Securities and Exchange
Commission, including those risks discussed under the caption “Risk Factors” in
our Annual Report on Form 10-K for fiscal 2009, which discussion is incorporated
herein by this reference. 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.
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
(In
thousands, except share data)
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June 30,
2010
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December 31,
2009
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|||||||
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(Unaudited)
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||||||||
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ASSETS
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||||||||
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CURRENT
ASSETS:
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||||||||
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Cash
and temporary investments
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$ | 38,767 | $ | 36,160 | ||||
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Accounts
receivable, net of allowance for doubtful accounts of $1,898 and $2,090 at
June 30, 2010 and December 31, 2009,
respectively
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57,463 | 44,673 | ||||||
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Inventories
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33,303 | 36,061 | ||||||
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Prepaid
expenses and other
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2,186 | 2,296 | ||||||
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Current
deferred income taxes
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5,786 | 5,882 | ||||||
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Total
current assets
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137,505 | 125,072 | ||||||
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PROPERTY, PLANT, AND EQUIPMENT,
net
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33,825 | 32,203 | ||||||
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GOODWILL
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11,619 | 11,619 | ||||||
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DEFERRED
INCOME TAXES
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746 | 3,365 | ||||||
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OTHER
ASSETS
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284 | 61 | ||||||
| $ | 183,979 | $ | 172,320 | |||||
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LIABILITIES
AND SHAREHOLDERS’ EQUITY
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||||||||
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CURRENT
LIABILITIES:
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||||||||
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Current
portion of long-term obligations
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$ | 70 | $ | 185 | ||||
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Accounts
payable
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29,785 | 19,139 | ||||||
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Accrued
liabilities and other
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11,981 | 11,501 | ||||||
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Total
current liabilities
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41,836 | 30,825 | ||||||
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LONG-TERM OBLIGATIONS
,
less current portion
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14 | 56 | ||||||
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COMMITMENTS AND CONTINGENCIES
(Notes 5 and 7)
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||||||||
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SHAREHOLDERS’
EQUITY:
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||||||||
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Preferred
stock, $.01 par value; 5,000,000 shares authorized, none issued or
outstanding
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— | — | ||||||
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Common
stock, $.01 par value; 100,000,000 shares authorized, 11,680,692 and
11,627,315 outstanding at June 30, 2010 and December 31, 2009,
respectively
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117 | 116 | ||||||
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Additional
paid-in capital
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162,085 | 161,512 | ||||||
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Accumulated
deficit
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(18,604 | ) | (22,606 | ) | ||||
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Accumulated
other comprehensive income
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(1,469 | ) | 2,417 | |||||
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Total
shareholders’ equity
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142,129 | 141,439 | ||||||
| $ | 183,979 | $ | 172,320 | |||||
The
accompanying notes are an integral part of these financial
statements.
2
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
(In
thousands, except per share data)
(Unaudited)
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Three
Months Ended
June 30,
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Six
Months Ended
June 30,
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|||||||||||||||
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2010
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2009
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2010
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2009
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NET
SALES
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$ | 81,256 | $ | 54,255 | $ | 153,551 | $ | 113,011 | ||||||||
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COSTS
AND EXPENSES:
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||||||||||||||||
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Costs
of operations
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69,234 | 46,190 | 131,700 | 96,543 | ||||||||||||
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Selling,
general and administrative expenses
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6,677 | 5,817 | 13,154 | 12,255 | ||||||||||||
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Interest
expense, net
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76 | 235 | 186 | 560 | ||||||||||||
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Other
expense
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48 | (339 | ) | 90 | (284 | ) | ||||||||||
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Total
costs and expenses
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76,035 | 51,903 | 145,130 | 109,074 | ||||||||||||
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INCOME
BEFORE INCOME TAXES
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5,221 | 2,352 | 8,421 | 3,937 | ||||||||||||
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INCOME
TAX PROVISION
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2,064 | 966 | 3,255 | 1,638 | ||||||||||||
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NET
INCOME
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$ | 3,157 | $ | 1,386 | $ | 5,166 | $ | 2,299 | ||||||||
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BASIC
INCOME PER COMMON SHARE
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$ | 0.27 | $ | 0.12 | $ | 0.44 | $ | 0.20 | ||||||||
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DILUTED
INCOME PER COMMON SHARE
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$ | 0.26 | $ | 0.12 | $ | 0.43 | $ | 0.20 | ||||||||
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WEIGHTED
AVERAGE SHARES OUTSTANDING:
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||||||||||||||||
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Basic
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11,659 | 11,608 | 11,647 | 11,608 | ||||||||||||
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Diluted
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12,181 | 11,855 | 12,141 | 11,768 | ||||||||||||
The
accompanying notes are an integral part of these financial
statements.
3
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
(In
thousands)
(Unaudited)
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Six
Months Ended
June 30
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2010
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2009
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OPERATING
ACTIVITIES:
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Net
income
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$ | 5,166 | $ | 2,299 | ||||
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Adjustments
to reconcile net income to net cash provided by operating
activities:
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Depreciation
and amortization
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1,672 | 1,768 | ||||||
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Amortization
of deferred financing costs
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16 | 28 | ||||||
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Provision
for doubtful accounts
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90 | 340 | ||||||
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Loss
on disposal of equipment
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— | 17 | ||||||
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Stock-based
compensation
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200 | 200 | ||||||
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Issuance
of non-employee director shares
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94 | 75 | ||||||
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Deferred
income tax provision
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2,705 | 366 | ||||||
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Changes
in operating assets and liabilities:
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||||||||
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Accounts
receivable
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(13,787 | ) | 14,799 | |||||
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Inventories
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734 | 6,359 | ||||||
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Prepaid
expenses and other
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62 | (1,023 | ) | |||||
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Other
long-term assets
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(256 | ) | — | |||||
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Accounts
payable
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11,482 | (14,481 | ) | |||||
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Accrued
liabilities and other
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1,099 | 596 | ||||||
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Net
cash flows from operating activities
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9,277 | 11,343 | ||||||
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INVESTING
ACTIVITIES:
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||||||||
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Purchases
of property, plant, and equipment
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(3,594 | ) | (451 | ) | ||||
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Proceeds
from sale of property, plant and equipment
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24 | 1 | ||||||
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Payments
received on notes receivable
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216 | 36 | ||||||
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Net
cash flows from investing activities
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(3,354 | ) | (414 | ) | ||||
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FINANCING
ACTIVITIES:
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||||||||
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Payments
on long-term obligations
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(138 | ) | (3,932 | ) | ||||
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Payments
of cash dividends
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(1,163 | ) | — | |||||
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Proceeds
from stock option exercises
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280 | — | ||||||
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Additions
to deferred financing costs
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(35 | ) | — | |||||
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Net
cash flows from financing activities
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(1,056 | ) | (3,932 | ) | ||||
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EFFECT
OF EXCHANGE RATE CHANGES ON CASH AND TEMPORARY INVESTMENTS
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(2,260 | ) | 948 | |||||
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NET
CHANGE IN CASH AND TEMPORARY INVESTMENTS
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2,607 | 7,945 | ||||||
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CASH
AND TEMPORARY INVESTMENTS, beginning of period
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36,160 | 19,445 | ||||||
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CASH
AND TEMPORARY INVESTMENTS, end of period
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$ | 38,767 | $ | 27,390 | ||||
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SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
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Cash
payments for interest
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$ | 276 | $ | 669 | ||||
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Cash
payments for income taxes, net of refunds
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$ | 630 | $ | 1,518 | ||||
The
accompanying notes are an integral part of these financial
statements.
4
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS
OF PRESENTATION
The
condensed consolidated financial statements of Miller Industries, Inc. and
subsidiaries (the “Company”) included herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and
regulations. Nevertheless, the Company believes that the disclosures
are adequate to make the financial information presented not
misleading. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments, which are
of a normal recurring nature, to present fairly the Company’s financial
position, results of operations and cash flows at the dates and for the periods
presented. Cost of goods sold for interim periods for certain
entities is determined based on estimated gross profit rates. Interim
results of operations are not necessarily indicative of results to be expected
for the fiscal year. These condensed consolidated financial
statements should be read in conjunction with the Company’s Annual Report on
Form 10-K for the year ended December 31, 2009. Certain prior
year amounts have been reclassified to conform to current year presentation,
with no impact on previously reported shareholders’ equity. The
Company evaluated subsequent events through the date the financial statements
were issued.
2. BASIC
AND DILUTED INCOME PER SHARE
Basic
income per share is computed by dividing income by the weighted average number
of common shares outstanding. Diluted income per share is calculated
by dividing income by the weighted average number of common and potential
dilutive common shares outstanding. Diluted income per share takes
into consideration the assumed exercise of outstanding stock options resulting
in approximately 522,000 and 247,000 potential dilutive common shares for the
three months ended June 30, 2010 and 2009, respectively, and 494,000 and
160,000 for the six months ended June 30, 2010 and 2009. For the
three and six months ended June 30, 2010, none of the outstanding stock
options would have been anti-dilutive. Options to purchase
approximately 124,000 shares of common stock were outstanding during the three
and six months ended June 30, 2009, but were not included in the
computation of diluted earnings per share because the effect would have been
anti-dilutive.
3. 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 June 30, 2010 and
December 31, 2009 consisted of the following (in thousands):
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June 30,
2010
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December 31,
2009
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|||||||
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Chassis
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$ | 7,030 | $ | 7,183 | ||||
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Raw
materials
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13,593 | 14,114 | ||||||
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Work
in process
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5,704 | 6,190 | ||||||
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Finished
goods
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6,976 | 8,574 | ||||||
| $ | 33,303 | $ | 36,061 | |||||
5
4. 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.
5. LONG-TERM
OBLIGATIONS
Long-term
obligations consisted of the following at June 30, 2010 and
December 31, 2009 (in thousands):
|
June 30,
2010
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December 31,
2009
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||||||||
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Outstanding
borrowings under Current Credit Facility
|
— | — | |||||||
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Equipment
and other notes payable
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84 | 241 | |||||||
| 84 | 241 | ||||||||
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Less
current portion
|
(70 | ) | (185 | ) | |||||
| $ | 14 | $ | 56 | ||||||
Certain
equipment is pledged as collateral under the Company’s equipment notes
payable.
Future
maturities of long-term obligations at June 30, 2010 (which consist solely
of equipment and other notes payable) are as follows (in
thousands):
|
2011
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$ | 70 | |||
|
2012
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14 | ||||
| $ | 84 | ||||
Credit
Facility and Other Obligations
Current
Credit Facility
On April
6, 2010, the Company entered into a Loan Agreement (the “Current Loan
Agreement”) with First Tennessee Bank National Association for a $20.0 million
unsecured revolving credit facility (the “Current Credit
Facility”). The Current Credit Facility contains customary
representations and warranties, events of default, and financial, affirmative
and negative covenants for loan agreements of this kind. Covenants
under the Current Credit Facility restrict the payment of cash dividends if the
Company would be in violation of the minimum tangible net worth test or the
leverage ratio test in the Current Loan Agreement as a result of the dividends,
among various other restrictions.
In the
absence of a default, all borrowings under the Current Credit Facility bear
interest at the LIBOR Rate plus 1.75% per annum. The Company will pay
a non-usage fee under the Current Loan Agreement at a rate per annum equal to
between 0.15% and 0.35% of the unused amount of the Current Credit Facility,
which fee shall be paid quarterly. The Current Credit Facility is
scheduled to expire on March 31, 2012.
At
June 30, 2010 and December 31, 2009, the Company had no outstanding
borrowings under the Current Credit Facility.
6
Previous
Credit Facility
On April
6, 2010, in connection with the consummation of the Current Credit Facility, the
Company terminated its Credit Agreement (the “Previous Credit Agreement”) with
Wachovia Bank, National Association, which provided for a $27.0 million senior
secured credit facility (the “Previous Credit Facility”). The
Previous Credit Facility, as amended, consisted of a $20.0 million revolving
credit facility (the “Revolver”), and a $7.0 million term loan (the “Term
Loan”). The Previous Credit Facility was secured by substantially all
of the Company’s assets, and contained customary representations and warranties,
events of default and affirmative and negative covenants for secured facilities
of this type. Covenants under the Previous Credit Facility restricted
the payment of cash dividends if a default or event of default under the
Previous Credit Agreement had occurred or would result from the dividends, or if
the Company would be in violation of the consolidated fixed charge coverage
ratio test in the Previous Credit Agreement as a result of the dividends, among
various other restrictions.
In the
absence of a default, all borrowings under the Revolver and Term Loan bore
interest at the LIBOR Market Index Rate plus a margin of between 0.75% to 1.50%
per annum that was subject to adjustment from time to time based upon the
Consolidated Leverage Ratio (as defined in the Previous Credit
Agreement). The Revolver was scheduled to expire on June 17, 2010,
and the Term Loan was scheduled to mature on June 15, 2010.
In June
2009, the Company repaid all outstanding obligations under the Term
Loan. With such payment, all obligations under the Previous Credit
Facility were paid in full.
Interest
Rate Risk
Changes
in interest rates affect the interest paid on indebtedness under the Current
Credit Facility because outstanding amounts of indebtedness under the Current
Credit Facility are subject to variable interest rates. Under the
Current Credit Facility, the non-default rate of interest was equal to the LIBOR
Market Index Rate plus 1.75% per annum (for a rate of interest of 2.10% at
June 30, 2010). Because there were no amounts outstanding under
the Current Credit Facility, a one percent change in the interest rate on our
variable-rate debt would not have a material impact on our financial position,
results of operations or cash flows for the three-month period ended
June 30, 2010.
6. STOCK-BASED
COMPENSATION
Stock
compensation expense for the three months ended June 30, 2010 and 2009 was
$100,000 and $200,000 for the six months ended June 30, 2010 and 2009, and is
included in selling, general and administrative expenses in the accompanying
consolidated statements of income. The Company did not issue any
stock options during the six months ended June 30, 2010. As of
June 30, 2010, the Company had $931,000 of unrecognized compensation
expense related to stock options with $200,000 to be expensed during the
remainder of 2010, $399,000 to be expensed in 2011, and $332,000 to be expensed
in 2012. For additional disclosures related to the Company’s
stock-based compensation refer to Notes 2 and 5 of the Notes to the Consolidated
Financial Statements in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2009.
7. COMMITMENTS
AND CONTINGENCIES
Commitments
The
Company has entered into arrangements with third-party lenders where it has
agreed, in the event of default by a 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 maximum amount of collateral that the Company
could be required to purchase was approximately $12.0 million at June 30,
2010, and $11.3 million at December 31, 2009. However, the
Company’s risk under these arrangements is mitigated by the value of the
products that would be repurchased as part of the transaction. The
Company considered the fair value at inception of its liability under these
arrangements and concluded that the liability associated with these potential
repurchase obligations is not material.
At
June 30, 2010, the Company had commitments of approximately $1.2 million
for construction and acquisition of property, plant and equipment.
7
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.
8. INCOME
TAXES
At
June 30, 2010 and December 31, 2009, the Company had no unrecognized
income tax positions recorded. 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 statement 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 2009 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.
9. SHAREHOLDERS
EQUITY
Comprehensive
Income
The
Company had comprehensive income of $1.3 million and $3.7 million for the three
months ended June 30, 2010 and 2009, respectively, and comprehensive income
of $1.3 and $4.1 million for the six months ended June 30, 2010 and
2009. Components of the Company’s other comprehensive income consist
primarily of foreign currency translation adjustments.
Dividends
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 requirements and the Company’s continued financial
strength, and declared the first such annual cash dividend of $.10 per share of
common stock. The dividend of $1,163,000 was paid on March 25, 2010
to shareholders of record as of March 18, 2010.
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 (revenue is attributed to regions based on the
locations of customers) (in thousands):
|
For
the Three Months Ended June 30,
|
For
the Six Months Ended June 30,
|
||||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
||||||||||||||
|
Net
Sales:
|
|||||||||||||||||
|
North
America
|
$ | 67,719 | $ | 39,625 | $ | 127,098 | $ | 83,425 | |||||||||
|
Foreign
|
13,537 | 14,630 | 26,453 | 29,586 | |||||||||||||
| $ | 81,256 | $ | 54,255 | $ | 153,551 | $ | 113,011 | ||||||||||
|
June 30,
2010
|
December 31,
2009
|
||||||||
|
Long
Lived Assets:
|
|||||||||
|
North
America
|
$ | 42,880 | $ | 40,896 | |||||
|
Foreign
|
2,564 | 2,926 | |||||||
| $ | 45,444 | $ | 43,822 | ||||||
8
The
Company’s largest customer accounted for 16.7% and 21.1% of consolidated net
sales for the three months ended June 30, 2010 and 2009, respectively, and
17.3% and 19.9% for the six months ended June 30, 2010 and 2009. The
Company’s largest customer represented 16.3% and 16.5% of accounts receivable as
of June 30, 2010 and December 31, 2009, respectively.
11. RECENT
ACCOUNTING PRONOUNCEMENTS
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. This
standard added an additional required disclosure relative to the date through
which subsequent events have been evaluated and whether that is the date on
which the financial statements were issued.
In
February 2010, the FASB issued FASB Accounting Standards Update
2010-09,
Subsequent Events:
Amendments to Certain Recognition and Disclosure Requirements
(“ASU
2010-09”), which amends FASB ASC Topic 855,
Subsequent
Events
. The update provides that SEC filers, as defined in ASU
2010-09, are no longer required to disclose the date through which subsequent
events have been evaluated in originally issued and revised financial
statements. The update also requires SEC filers to evaluate
subsequent events through the date the financial statements are issued rather
than the date the financial statements are available to be issued. The Company
adopted ASU 2010-09 upon issuance. This update had no impact on the
Company’s financial position, results of operations or cash
flows. The Company evaluated subsequent events through the date the
financial statements were issued.
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
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. In this Item 2 – “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” the
words “Miller Industries,” “the Company,” “we,” “our,” “ours” and “us” refer to
Miller Industries, Inc. and its subsidiaries or any of them.
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, 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 and 2010 the overall
demand for our products and our resulting revenues continued to be negatively
affected by:
|
●
|
wavering
levels of consumer confidence;
|
9
|
●
|
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 the economic downturn on the towing
and recovery industry and with the cooperation of our employees have continued
in place specific steps implemented in 2009 to reduce our production levels and
lower our 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 overall 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 costs of operations. 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.
During
the second half 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 2011. Through these follow-on orders, along with continued
performance in the government and international marketplace, we were able to
somewhat offset significantly lower demand from our commercial customers which
began in the second half of 2008 and continued through the first two quarters of
2010. 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. For the three months ended June 30,
2010, 16.7% of our consolidated sales were made to the U.S. federal government
through prime contractors.
There
were no borrowings under the current credit facility at June 30,
2010.
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.
10
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.
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 statement 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 debt denominated in a currency
other than the functional currency, is remeasured into the functional
currency. Gains and losses resulting from foreign currency
transactions are included in other income and expense in our consolidated
statement of income.
11
Results
of Operations–Three Months Ended June 30, 2010 Compared to Three Months
Ended June 30, 2009
Net sales
for the three months ended June 30, 2010 increased 49.8% to $81.3 million
from $54.3 million for the comparable period in 2009. This increase
is attributable to increased demand for our domestic products particularly for
completed recovery vehicles containing company-purchased chassis, as well as
higher production of follow-on government orders through prime
contractors. These increases were partially offset by lower foreign
sales.
Costs of
operations for the three months ended June 30, 2010 increased 49.9% to
$69.2 million from $46.2 million for the comparable period in 2009, which was
attributable to the increase in domestic and governmental sales described above.
Overall, costs of operations increased as a percentage of sales from 85.1% to
85.2% primarily due to product mix.
Selling,
general, and administrative expenses for the three months ended June 30,
2010 increased to $6.7 million from $5.8 million for the three months ended
June 30, 2009. The increase was attributable to higher
production due to higher sales levels during the period. As a
percentage of sales, selling, general, and administrative expenses decreased to
8.2% for the three months ended June 30, 2010 from 10.7% for the three
months ended June 30, 2009 due to the fixed nature of certain of these
expenses.
Total
interest expense decreased to $0.1 million for the three months ended
June 30, 2010 from $0.2 million for the comparable year-ago
period. Decreases in interest expense were primarily due to lower
interest on distributor floor plan financing and decreases in interest on
chassis purchases.
Other
income and expense relate to foreign currency transaction gains and
losses. During the three months ended June 30, 2010, the loss
was $48,000 compared to a gain of $0.3 million for the prior year
period.
The
provision for income taxes for the three months ended June 30, 2010 and
2009 reflects a combined effective U.S. federal, state and foreign tax rate of
39.5% and 41.0%, respectively.
Results
of Operations–Six Months Ended June 30, 2010 Compared to Six Months Ended
June 30, 2009
Net sales
for the six months ended June 30, 2010 increased 35.9% to $153.6 million from
$113.0 million for the comparable period in 2009. This increase is
attributable to increased demand for our domestic products particularly for
completed recovery vehicles containing company-purchased chassis, as well as
higher production of follow-on government orders through prime
contractors. These increases were partially offset by lower foreign
sales.
Costs of
operations for the six months ended June 30, 2010 increased 36.4% to $131.7
million from $96.5 million for the comparable period in 2009, which was
attributable to the increase in domestic and governmental sales described above.
Overall, costs of operations increased as a percentage of sales from 85.4% to
85.8% primarily due to product mix.
Selling,
general, and administrative expenses for the six months ended June 30, 2010
increased to $13.2 million from $12.3 million for the six months ended June 30,
2009. The increase was attributable to higher production due to
higher sales levels during the period. As a percentage of sales,
selling, general, and administrative expenses decreased to 8.6% for the six
months ended June 30, 2010 from 10.8% for the six months ended June 30, 2009 due
to the fixed nature of certain of these expenses.
Total
interest expense decreased to $0.2 million for the six months ended June 30,
2010 from $0.5 million for the comparable year-ago period. Decreases
in interest expense were primarily due to lower interest on distributor floor
plan financing and decreases in interest on chassis purchases.
Other
income and expense relate to foreign currency transaction gains and
losses. During the six months ended June 30, 2010, the loss was
$90,000 compared to a gain of $0.3 million for the prior year
period.
12
The
provision for income taxes for the six months ended June 30, 2010 and 2009
reflects a combined effective U.S. federal, state and foreign tax rate of 38.7%
and 41.6%, respectively.
Liquidity
and Capital Resources
Cash
provided by operating activities was $9.3 million for the six months ended
June 30, 2010, compared to $11.3 million for the comparable period in
2009. The cash provided by operating activities for the six months
ended June 30, 2010 reflects the profitability generated in the first two
quarters of 2010 and the utilization of deferred tax
assets. Increases in accounts receivable were offset by increases in
accounts payable.
Cash used
in investing activities was $3.4 million for the six months ended June 30,
2010 compared to $0.4 million for the comparable period in 2009. The
cash used in investing activities was primarily for the purchase of property,
plant and equipment.
Cash used
in financing activities was $1.1 million for the six months ended June 30,
2010, compared to $3.9 million for the comparable period in 2009. The
cash used in financing activities was used to pay cash dividends as well as
repay equipment and other notes payable.
As of
June 30, 2010, we had cash and cash equivalents of $38.8 million, exclusive
of unused availability under our current 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 current credit facility. At June 30, 2010, the
Company had commitments of approximately $1.2 million for construction and
acquisition of property and equipment. We expect our primary sources
of cash to be cash flow from operations and cash and cash equivalents on hand at
June 30, 2010, with borrowings under our current 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 Quarterly Report, as well as financial, business and other
factors, many of which are beyond our control.
Credit
Facilities and Other Obligations
Current
Credit Facility
On April
6, 2010, the Company entered into a Loan Agreement with First Tennessee Bank
National Association for a $20.0 million unsecured revolving credit
facility. The current credit facility contains customary
representations and warranties, events of default, and financial, affirmative
and negative covenants for loan agreements of this kind. Covenants
under the current credit facility restrict the payment of cash dividends if the
Company would be in violation of the minimum tangible net worth test or the
leverage ratio test in the current loan agreement as a result of the dividends,
among various other restrictions.
In the
absence of a default, all borrowings under the current credit facility bear
interest at the LIBOR Rate plus 1.75% per annum. The Company will pay
a non-usage fee under the current loan agreement at a rate per annum equal to
between 0.15% and 0.35% of the unused amount of the current credit facility,
which fee shall be paid quarterly. The current credit facility is
scheduled to expire on March 31, 2012.
At
June 30, 2010 and December 31, 2009, the Company had no outstanding
borrowings under the current credit facility.
Previous
Credit Facility
On April
6, 2010, in connection with the consummation of the current credit facility, the
Company terminated its Credit Agreement with Wachovia Bank, National
Association, which provided for a $27.0 million senior secured credit
facility. The previous credit facility, as amended, consisted of a
$20.0 million revolving credit facility, and a $7.0 million term
loan. The previous credit facility was secured by substantially all
of the Company’s assets, and contained customary representations and warranties,
events of default and affirmative and negative covenants for secured facilities
of this type. Covenants under the previous credit facility restricted
the payment of cash dividends if a default or event of default under the
previous credit agreement had occurred or would result from the dividends, or if
the Company would be in violation of the consolidated fixed charge coverage
ratio test in the previous credit agreement as a result of the dividends, among
various other restrictions.
13
In the
absence of a default, all borrowings under the revolver and term loan bore
interest at the LIBOR Market Index Rate plus a margin of between 0.75% to 1.50%
per annum that was subject to adjustment from time to time based upon the
Consolidated Leverage Ratio (as defined in the previous credit
agreement). The revolver was scheduled to expire on June 17, 2010,
and the term loan was scheduled to mature on June 15, 2010.
In June
2009, the Company repaid all outstanding obligations under the term
loan. With such payment, all obligations under the previous credit
facility were paid in full.
Other
Long-Term Obligations
At
June 30, 2010 we had approximately $0.1 million of equipment notes payable
and other long-term obligations. We also had approximately $1.3
million in non-cancelable operating lease obligations.
|
ITEM
3.
|
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 current
credit facility because the outstanding amounts of indebtedness under our
current credit facility are subject to variable interest rates. Under
our current credit facility, the non-default rate of interest was equal to the
LIBOR Market Index Rate plus 1.75% per annum (for a rate of interest of 2.10% at
June 30, 2010). Because there were no amounts outstanding under
the current 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 quarter ended June 30,
2010.
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 June 30, 2010, we recognized a $3.9 million
decrease in our foreign currency translation adjustment account compared with
December 31, 2009 because of strengthening of the U.S. dollar against certain
foreign currencies. During the three months ended June 30, 2010
and 2009, the impact of foreign currency exchange rate changes on our results of
operations and cash flows was a loss of $48,000 and a gain of $339,000,
respectively. The impact of foreign currency exchange rate changes on
our results of operations and cash flows was a loss of $90,000 and a gain of
$284,000 for the six months ended June 30, 2010 and 2009,
respectively.
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
Within 90
days prior to the filing date of this report, we carried out an evaluation,
under the supervision and with the participation of our management, including
our Co-Chief Executive Officers (Co-CEOs) and Chief Financial Officer (CFO), of
the effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rules 13a14(c) under the Securities Exchange Act of
1934. Based upon this evaluation, our Co-CEOs and CFO have concluded
that the disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in 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.
14
There
were no significant changes in our internal controls or in other factors that
could significantly affect internal controls subsequent to the date of this
evaluation.
|
ITEM
1.
|
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
1A.
|
RISK
FACTORS
|
There
have been no material changes to the Risk Factors included in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2009.
|
ITEM
6.
|
EXHIBITS
|
|
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*
|
* Filed
herewith
15
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, Miller Industries, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
| MILLER INDUSTRIES, INC. | |||
|
|
By:
|
/s/ J. Vincent Mish | |
| J. Vincent Mish | |||
| Executive Vice President and Chief Financial Officer | |||
Date: August
4, 2010
16
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 6. Exhibits