SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 1997 Commission File No. 0-24298 MILLER INDUSTRIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Tennessee 62-1566286 - ----------------------------------------------------------------------- State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 900 Circle 75 Parkway Atlanta, Georgia 30339 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (770) 988-0797 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO __ The number of shares outstanding of the registrant's Common Stock, $.01 par value, as of February 28, 1997 was 38,753,868.
MILLER INDUSTRIES, INC. INDEX PART I. FINANCIAL INFORMATION Page Number Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - January 31, 1997 and April 30, 1996 3 Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended January 31, 1997 and 1996 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended January 31, 1997 and 1996 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 13 2
MILLER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED balance sheets (In thousands, except share data) <TABLE> <CAPTION> ASSETS January 31, April 30, 1997 1996 ----------- --------- (Unaudited) <S> <C> <C> CURRENT ASSETS: Cash and temporary cash investments $ 17,002 $ 24,592 Accounts receivable, net 41,612 31,750 Inventories 52,151 32,428 Deferred income taxes 1,536 1,338 Prepaid expenses and other 1,321 1,095 ---------- --------- Total current assets 113,622 91,203 ---------- --------- PROPERTY, PLANT AND EQUIPMENT, net 19,925 16,555 ---------- --------- GOODWILL, net 6,791 5,071 ---------- --------- PATENTS, TRADEMARKS AND OTHER PURCHASED PRODUCT RIGHTS, net 1,196 926 FINANCE AND LEASE RECEIVABLES, net 17,567 0 OTHER ASSETS 488 250 ---------- --------- Total assets $ 159,589 $ 114,005 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 4,030 $ 1,101 Line of credit 1,152 1,143 Accounts payable 29,524 27,427 Accrued liabilities 9,084 9,636 ---------- --------- Total current liabilities 43,790 39,307 ---------- --------- LONG-TERM DEBT, less current portion 5,608 5,865 ---------- --------- DEFERRED INCOME TAXES 1,020 870 ---------- --------- STOCKHOLDERS' EQUITY (Note 2): 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; 38,127,565 and 35,772,783 shares issued and outstanding, respectively 381 358 Additional paid-in capital 86,257 54,739 Retained earnings 22,533 12,866 ---------- --------- Total stockholders' equity 109,171 67,963 ---------- --------- Total liabilities and stockholders' equity $ 159,589 $ 114,005 ========== ========= </TABLE> See accompanying notes to condensed consolidated financial statements. 3
MILLER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended January 31, January 31, ------------------------- -------------------------- 1997 1996 1997 1996 --------- --------- --------- ---------- <S> <C> <C> <C> <C> NET SALES $ 67,851 $ 42,082 $ 179,498 $ 117,939 COST OF SALES 56,675 34,757 149,833 98,261 --------- --------- --------- --------- GROSS PROFIT 11,176 7,325 29,665 19,678 OPERATING EXPENSES: Selling 2,797 1,959 8,330 5,665 General and administrative 2,552 1,637 6,439 4,574 --------- --------- --------- --------- INCOME FROM OPERATIONS 5,827 3,729 14,896 9,439 INTEREST INCOME (EXPENSE), net 205 (98) 476 (306) --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 6,032 3,631 15,372 9,133 PROVISION FOR INCOME TAXES 2,201 1,329 5,705 3,323 --------- --------- --------- --------- NET INCOME $ 3,831 $ 2,302 $ 9,667 $ 5,810 ========= ========= ========= ========= NET INCOME PER COMMON SHARE $ 0.09 $ 0.07 $ 0.25 $ 0.19 --------- --------- --------- --------- WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 40,793 31,622 39,138 31,236 ========= ========= ========= ========= </TABLE> See accompanying notes to condensed consolidated financial statements. 4
MILLER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) <TABLE> <CAPTION> NINE MONTHS ENDED JANUARY 31, ----------------------------- 1997 1996 <S> <C> <C> OPERATING ACTIVITIES: Net Income $ 9,667 $ 5,810 --------- ------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,101 632 Deferred income tax provision 150 (183) Changes in operating assets and liabilities: Accounts receivable (8,220) (4,555) Inventories (14,029) (4,488) Prepaid expenses and other (129) 235 Accrued liabilities (184) 409 Accounts payable (978) 2,624 Other assets 265 141 --------- ------- Total adjustments (22,024) (5,185) --------- ------- Net cash provided by (used in) operating activities (12,357) 625 INVESTING ACTIVITIES: Purchase of S.A. Jige lohr wreckers, net of cash acquired (2,705) Purchases of property, plant and equipment (3,145) (2,511) Investment in finance and lease receivables (17,567) --------- ------- Net cash used in investing activities (20,712) (5,216) --------- ------- FINANCING ACTIVITIES: Proceeds from sale of stock 28,659 30,966 Borrowing under lines of credit 3,745 Repayment of long-term debt (3,603) (764) Proceeds from exercise of stock options 423 --------- ------- Net cash provided by (used in) financing activities 25,479 33,947 --------- ------- NET INCREASE (DECREASE) IN CASH (7,590) 29,356 CASH, beginning of period 24,592 2,999 --------- ------- CASH, end of period $ 17,002 $32,355 ========= ======= SUPPLEMENTAL NONCASH INVESTING ACTIVITIES: Capital stock issued for acquisitions accounted for using the purchase method of accounting $ (2,300) Fair value of assets acquired 11,772 Liabilities assumed $ (9,472) ======== </TABLE> See accompanying notes to condensed consolidated financial statements. 5
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 generally accepted accounting principles 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. 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 April 30, 1996. 2. Common Stock All share numbers, share prices, and per share amounts have been restated to reflect the 3-for-2 stock split which occurred on April 12, 1996, the 2-for-1 stock split which occurred on September 30, 1996 and the 3- for-2 stock split which occurred on December 30, 1996. On November 6, 1996 the Company completed a public offering of 1,943,028 shares of previously unissued common stock at $24.25 per share. The net proceeds are being used to fund capital expenditures including expansion of manufacturing capacity, fund the Company's financial services group, finance future acquisitions and for general corporate purposes including working capital. 3. Inventories Inventory costs include materials, labor and factory overhead. Inventories are stated at the lower of cost or market, determined on a first-in, first-out basis. Inventories at January 31, 1997 and April 30, 1996 consisted of the following (in thousands): 6
<TABLE> <CAPTION> January 31, April 30, 1997 1996 ----------- ----------- <S> <C> <C> <C> Chassis $ 19,730 $ 7,188 Raw Materials 12,299 11,505 Work in process 8,297 7,155 Finished goods 11,825 6,580 --------- ---------- $ 52,151 $ 32,428 ========= ========== </TABLE> 4. Finance and Lease Receivables The Company provides finance and lease contracts for the sale of chassis and towing recovery units by its distributors to certain end users of its equipment. Finance and lease receivables, as shown on the accompanying condensed consolidated financial statements, represent payments receivable less unearned interest. 5. Net Income Per Common Share Net income per common share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding. 6. Business Combinations In July 1996 the Company issued approximately 297,000 shares of its common stock in exchange for all of the outstanding common stock of two towing equipment distributors with historical revenues of approximately $17 million annually. In September 1996 the Company issued approximately 761,000 shares of its common stock in exchange for all of the outstanding common stock of Vulcan International, Inc. ("Vulcan"). Vulcan is a manufacturer of towing and recovery equipment with historical revenues of $22 million annually. These three entities are collectively referred to as the "Pooled Entities". These mergers have been accounted for as poolings of interests and, accordingly, the Company's financial statements have been restated to include the accounts and operations of the Pooled Entities for the periods presented herein. Expenses related to these mergers are included in general and administrative operating expenses. Results of operations of the Company and the Pooled Entities for the periods presented herein are as follows: 7
<TABLE> <CAPTION> Three Months Ended Nine Months Ended January 31, January 31, --------------------- -------------------- 1997 1996 1997 1996 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net Sales: Company $ 55,007 $ 29,277 $ 139,384 $ 87,124 Pooled Entities 16,552 13,578 48,451 32,816 Adjustment-Elimination of intercompany sales (3,708) (773) (8,329) (2,001) ------------ ----------- ---------- ---------- Combined 67,851 42,082 179,498 117,939 ============ =========== ========== ========== Net Income: Company 3,214 2,038 8,249 5,243 Pooled Entities 617 264 1,418 567 ------------ ----------- ---------- ---------- Combined $ 3,831 $ 2,302 $ 9,667 $ 5,810 ============ =========== ========== ========== </TABLE> In August and September 1996 the Company issued approximately 267,000 shares of its common stock in exchange for all the outstanding common stock of two additional towing equipment distributors with historical revenues of approximately $23 million annually. These two acquisitions were accounted for using the purchase method of accounting. The proforma impact of these acquisitions on net income and earnings per share was not significant for the periods presented herein. 7. Legal Matters In August 1996, the Company was paid a judgment in a patent infringement suit in which the jury found that the defendant manufacturer and distributor of towing equipment willfully infringed both the Company's underlift parallel linkage and L- arm patents. The judgment, in the amount of approximately $1.8 million, included enhanced damages for willfulness and pre- and post-judgment interest and a broad permanent injunction against future infringement by the defendants. Defendants were not granted a license to use the Company's L-arm technology. In November 1996 the Company received a verdict in its patent infringement suit against Chevron, Inc., a manufacturer of towing and recovery equipment. The jury awarded damages in the amount of $310,000. The Company is considering filing motions for prejudgment interest, as well as an appeal for a new trial on damages. Subsequent to the end of the quarter, in February 1997 the Company entered into a settlement agreement in its patent infringement lawsuit against a manufacturer of add-on wheel lifts for older wreckers. The settlement agreement calls for the 8
defendants to enter into a judgment admitting their infringement and a permanent injunction against further unauthorized making, using or selling product that infringes the Company's L-arm patent. The defendants paid to the Company $300,000 in cash and recanted their long-time industry claim that they invented the patented technology prior to the Company. The impact of these payments net of expenses associated with these lawsuits and related patent infringement litigation was not significant to net income for the nine months ended January 31, 1997. The Company is, from time to time, a party to litigation arising in the normal course of its business. Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the financial position or results of operations of the Company. 8. Subsequent Events Subsequent to the end of the quarter, the Company has closed 17 and is scheduled to close one additional acquisition of towing service companies with aggregate annual historical revenues of approximately $56 million. The consideration for these transactions consists of approximately 2.8 million shares of Company common stock and $5.6 million in cash as well as the assumption of certain indebtedness. In addition, the Company entered into letters of intent to acquire 16 additional towing service companies. Also subsequent to the end of the quarter, the Company closed the acquisitions of two towing equipment distribution companies with annual historical revenues of approximately $22 million in exchange for approximately 128,000 shares of Company common stock. 9. Reclassifications Certain amounts in the prior period financial information have been reclassified to conform to the current presentation. 9
Item 2. Management's Discussion and Analysis of Financial ------------------------------------------------- Condition and Results of Operations ----------------------------------- Except for historical information contained herein, the matters set forth in this Report are forward-looking statements. Such forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from any such statement, including the risks and uncertainties discussed in the Company's Prospectus dated November 6, 1996, under the caption "Risk Factors," which discussion is incorporated herein by this reference. RECENT DEVELOPMENTS As more fully discussed in Note 6 to condensed consolidated financial statements, in July 1996 the Company acquired two towing equipment distributors and, in September 1996 acquired Vulcan Equipment Company, a manufacturer of towing and recovery equipment. These transactions have been accounted for as poolings of interests and, accordingly, the Company's consolidated financial statements have been restated to include the accounts and operations of these acquired companies for the periods presented herein. Also, as more fully discussed in Note 6 to condensed consolidated financial statements, in August and September 1996 the Company acquired two additional towing equipment distributors which were accounted for using the purchase method of accounting. As more fully discussed in Note 2 to condensed consolidated financial statements, in November 1996 the Company completed a public offering of 1,943,028 shares of previously unissued common stock. Subsequent to the end of the quarter and as more fully discussed in Note 8 to condensed consolidated financial statements, the Company has closed 17 and is scheduled to close one additional acquisition of towing service companies and entered into letters of intent to acquire 16 additional towing service companies, and closed the acquisition of two towing equipment distribution companies. RESULTS OF OPERATIONS--THREE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THREE MONTHS ENDED JANUARY 31, 1996 Net sales for the three months ended January 31, 1997, increased 61.2% to $67.9 million from $42.1 million for the comparable period in 1996. The increase in net sales was primarily the result of higher unit sales volume, an increase in units sold with the truck chassis included, and sales from the two European manufacturing operations acquired in January and April 1996 and the two towing equipment distributors acquired in August and September 1996, collectively the "1996 Acquisitions". Net sales from truck chassis sold by the domestic manufacturing operations to third parties were $21.0 million for the three months ended January 31, 1997 and $10.9 million for the comparable period in 1996. The growth in unit 10
sales volume was a result of continued market growth and market share gains. Gross profit for the three months ended January 31, 1997, increased 52.6% to $11.2 million from $7.3 million for the comparable period in 1996. Gross profit as a percentage of net sales decreased to 16.5% from 17.4%. This net decrease in gross profit margin resulted primarily from a significant increase in chassis sales which carry a nominal profit margin partially offset by the positive impact of production efficiencies associated with the higher sales level and the price increase implemented in the third quarter of last year. Selling expenses for the three months ended January 31, 1997, increased 42.8% to $2.8 million from $2.0 million for the comparable period of 1996. The increase in selling expenses was due primarily to higher commission expenses resulting from increased sales and from the impact of the 1996 Acquisitions. General and administrative expenses for the three months ended January 31, 1997 increased 55.9% to $2.6 million from $1.6 million for 1996 primarily due to incremental resources added to support the Company's growth and the impact of the 1996 Acquisitions. Overall, operating expenses as a percentage of net sales decreased to 7.9% in the 1997 period from 8.6% in the 1996 period. Interest income (expense), net improved to a net interest income of $0.2 million for the three months ended January 31, 1997 from a net interest expense of $0.1 million for the comparable period of 1996 as a result of debt repayment and investment of the proceeds of the public offerings in January and November 1996. Results of Operations--Nine Months Ended January 31, 1997 Compared to Nine Months Ended January 31, 1996 Net sales for the nine months ended January 31, 1997 increased 52.2% to $179.5 million from $117.9 million for the comparable period in 1996. The increase in net sales was primarily due to higher unit sales volume and an increase in units sold together with truck chassis. The growth in unit sales volume was a result of continued market growth, market share gains and the 1996 Acquisitions. Gross profit increased 50.8% to $29.7 million for the nine months ended January 31, 1997 from $19.7 million for the comparable period in 1996. Gross profit as a percentage of net sales decreased nominally to 16.5% from 16.7%. Increases in gross profit as a percentage of net sales as a result of the positive impact of production efficiencies associated with a higher sales level were offset by a significant increase in chassis sales which carry a nominal profit margin. Selling expenses increased 47.0% to $8.3 million for the nine months ended January 31, 1997 from $5.7 million for the comparable period of 1996. The increase in selling expenses was due primarily to higher commission expenses resulting from increased sales and the impact of the 1996 Acquisitions. General and administrative expenses for the nine months ended January 31, 1997 increased 40.8% to $6.4 million from $4.6 million for 1996 primarily due to incremental resources added to support the Company's growth and the impact of the 1996 11
Acquisitions. Overall, operating expenses as a percentage of net sales decreased to 8.2% in the 1997 period from 8.7% in the 1996 period. Interest income (expense), net improved to a net interest income of $0.5 million for the nine months ended January 31, 1997 from a net interest expense of $0.4 million for the comparable period of 1996 as a result of debt repayment and investment of the proceeds of the public offerings in January and November 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital requirements are for working capital, debt service and capital expenditures. The Company has financed its operations and growth from internally generated funds and debt financing and, since August 1994, in part from the proceeds from its initial public offering and its subsequent public offerings completed in January and November 1996. Cash flows used in operating activities were $12.4 million for the nine month period ended January 31, 1997 as compared to $ .6 million provided by operations for the comparable period of 1996. The decrease in cash flows from operations was primarily the result of timing of disbursements to trade creditors and increases in accounts receivable and inventory levels resulting from the continuing growth in sales. Cash used in investing activities was $20.7 million for the nine month period ended January 31, 1997 compared to $5.2 million for the comparable period in 1996. The cash used in investing activities was primarily for capital expenditures and equipment purchases in both periods, for the acquisition of finance and lease receivables for the nine months ended January 31, 1997, and for the acquisition of Jige Lohr Wreckers for the nine months ended January 31, 1996. Cash provided by financing activities was $25.5 million for the nine month period ended January 31, 1997 and $33.9 million for the comparable period in the prior year. The cash was provided primarily by the issuance of common stock offset by cash used to repay long-term debt in both nine month periods. The Company has a $25 million unsecured revolving credit facility with NationsBank of Tennessee, N.A. (the "Credit Facility"). Borrowings under the Credit Facility bear interest at a rate equal to the 30-day LIBOR plus .85%. At January 31, 1997, no amounts were outstanding under the Credit Facility. The Credit Facility imposes restrictions on the Company with respect to the maintenance of certain financial ratios and specified tangible net worth, the sale of assets, mergers, and the payment of dividends. 12
The Company has recently expanded its Hermitage, Pennsylvania facility and is currently increasing the capacity of its plants in Ooltewah, Tennessee and Olive Branch, Mississippi. The Company recently purchased a car carrier manufacturing facility in Greeneville, Tennessee. Capital expenditures remaining for these expansions and additional equipment are expected to be approximately $1.5 million. As described in Note 8 to condensed consolidated financial statements, the Company has expended approximately $5.6 million for the purchase of companies. Excluding the capital commitments set forth above, the Company has no other material capital commitments. The Company believes that cash on hand, cash flows from operations and unused borrowing capacity under the Credit Facility will be sufficient to fund its operating needs, capital expenditures and debt service requirements for the next fiscal year. Management continually evaluates potential strategic acquisitions. Although the Company believes that its financial resources will enable it to consider potential acquisitions, additional debt or equity financing may be necessary. No assurance in this regard can be given, however, since future cash flows and the availability of financing will depend on a number of factors, including prevailing economic conditions and financial, business and other factors beyond the Company's control. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. Exhibit 27 - Financial Data Schedule (For SEC use only) (b) Reports on Form 8-K - Current report on Form 8-K filed on November 1, 1996. 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/ Adam L. Dunayer Adam L. Dunayer Vice President and Chief Financial Officer Date: March 17, 1997 13