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 October 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) 3220 Pointe Parkway, Suite 100 Norcross, Georgia 30092 ------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (770) 446-6778 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 November 30, 1997 was 44,541,797.
MILLER INDUSTRIES, INC. INDEX PART I. FINANCIAL INFORMATION Page Number Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - October 31, 1997 and April 30, 1997 3 Condensed Consolidated Statements of Income for the Three Months and Six Months Ended October 31, 1997 and 1996 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended October 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 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities Recent Sales of Unregistered Securities 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 2
MILLER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) <TABLE> <CAPTION> ASSETS October 31, April 30, 1997 1997 (Unaudited) ----------- ---------- <S> <C> <C> CURRENT ASSETS: Cash and temporary investments $ 2,287 $ 8,508 Accounts receivable, net 47,737 49,844 Inventories 63,176 60,574 Deferred income taxes 4,951 4,541 Prepaid expenses and other 3,637 1,885 --------- -------- Total current assets 121,788 125,352 PROPERTY, PLANT AND EQUIPMENT, net 62,507 49,171 GOODWILL, net 53,532 36,916 OTHER ASSETS, net 7,901 3,858 --------- -------- $ 245,728 $ 215,297 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 6,531 $ 4,479 Accounts payable 25,810 38,548 Accrued liabilities and other 21,571 20,345 --------- --------- Total current liabilities 53,912 63,372 --------- --------- LONG-TERM DEBT, less current portion 32,619 11,282 --------- --------- DEFERRED INCOME TAXES 1,878 1,860 --------- --------- 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; 44,469,564 and 42,480,202 shares issued and outstanding at October 31, 1997 and April 30, 1997, respectively 445 425 Additional paid-in capital 122,035 110,773 Retained earnings 35,273 28,027 Cumulative translation adjustment (434) (442) ---------- --------- Total shareholders' equity 157,319 138,783 --------- --------- $ 245,728 $ 215,297 ========= ========= </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 Six Months Ended October 31, October 31, -------------------- ---------------------- 1997 1996 1997 1996 --------- -------- ---------- --------- <S> <C> <C> <C> <C> NET SALES $ 94,727 $ 74,061 $ 180,080 $ 135,024 --------- --------- ---------- --------- COSTS AND EXPENSES: Costs of operations 76,221 61,436 143,450 111,756 Selling, general, and administrative expenses 10,269 7,087 20,469 13,090 Restructuring costs 4,100 -- 4,100 -- Interest expense, net 429 117 700 257 --------- --------- ---------- --------- Total costs and expenses 91,019 68,640 168,719 125,103 --------- --------- ---------- --------- INCOME BEFORE INCOME TAXES 3,708 5,421 11,361 9,921 PROVISION FOR INCOME TAXES 1,410 1,905 4,265 3,548 --------- --------- ---------- --------- NET INCOME $ 2,298 $ 3,516 $ 7,096 $ 6,373 ========= ========= ========== ========= NET INCOME PER SHARE $ .05 $ .09 $ .15 $ .16 ========= ========= ========== ========= WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 45,868 40,561 45,988 39,485 ========= ========= ========== ========= </TABLE> See accompanying notes to condensed consolidated financial statements. 4
MILLER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) <TABLE> <CAPTION> Six Months Ended October 31, ---------------------------- 1997 1996 ----------- ------------- <S> <C> <C> OPERATING ACTIVITIES: Net income $ 7,096 $ 6,373 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 3,724 1,331 Deferred income tax provision 715 69 Gain on sales of property, plant, and equipment (662) -- Changes in operating assets and liabilities: Accounts receivable 1,190 (5,609) Inventories (459) (6,191) Prepaid expenses and other (1,477) 38 Accrued liabilities and other (3,133) 171 Accounts payable (14,615) (2,998) Other assets (2,543) (2,862) ---------- ----------- Net cash used in operating activities (10,164) (9,678) INVESTING ACTIVITIES: Purchases of property, plant, and equipment (9,705) (1,059) Proceeds from sales of property, plant, and equipment 1,058 346 Acquisition of businesses, net of cash acquired (5,320) -- Proceeds from sale of finance receivables 3,861 -- Funding of finance receivables (1,067) -- Other 384 695 ---------- ----------- Net cash used in investing activities (10,789) (18) ---------- ----------- FINANCING ACTIVITIES: Net borrowings (payments) under line of credit 24,722 (292) Repayment of long-term debt (10,775) (1,637) Proceeds from exercise of stock options 785 112 Distributions to former shareholders of acquired companies -- (419) ---------- ----------- Net cash provided by (used in) financing 14,732 (2,236) activities ---------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND TEMPORARY INVESTMENTS -- -- NET DECREASE IN CASH AND TEMPORARY INVESTMENTS (6,221) (11,932) CASH AND TEMPORARY INVESTMENTS, beginning of period 8,508 25,108 ---------- ----------- CASH AND TEMPORARY INVESTMENTS, end of period $ 2,287 $ 13,176 ========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash payments for interest $ 861 $ 191 ========== =========== Cash payments for income taxes $ 5,598 $ 1,865 ========== =========== </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, 1997. 2. Net Income Per Share Net income per share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding. 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 October 31, 1997 and April 30, 1997 consisted of the following (in thousands): October 31, April 30, 1997 1997 ------------ ----------- Chassis $ 11,202 $ 18,837 Raw Materials 14,983 16,257 Work in process 6,877 7,843 Finished goods 30,114 17,637 $ 63,176 $ 60,574 6
4. Business Combinations In May 1997, the Company acquired all the outstanding common stock of three towing equipment distributors with historical revenues of approximately $13 million annually. The consideration for these transactions consisted of approximately 44,000 shares of common stock and approximately $.9 million in cash. Additionally, throughout the six months ended October 31, 1997, the Company purchased all the outstanding common stock of 15 towing service companies through the issuance of approximately 1,038,000 shares of common stock and cash payments of approximately $5.6 million. These acquisitions were accounted for using the purchase method of accounting. The pro forma impact of these acquisitions on net income and earnings per share was not significant for the periods presented herein. In May 1997, the Company issued approximately 151,000 shares of its common stock in exchange for all the outstanding common stock of one additional towing equipment distributor with historical revenues of approximately $13 million annually. During the six months ended October 31, 1997, the Company issued approximately 536,000 shares of its common stock in exchange for all the outstanding shares of 6 additional towing service companies. These mergers have been accounted for as poolings of interests. 5. Legal Matters During September, October and November 1997, five lawsuits were filed by certain persons who seek to represent a class of shareholders who purchased shares of the Company's common stock during the period from either October 15 or November 6, 1996 to September 11, 1997. Four of the suits were filed in the United States District Court for the Northern District of Georgia, and the remaining one was filed in the Chancery Court of Hamilton County, Tennessee. In general, the individual plaintiffs in all of the cases allege that they were induced to purchase shares of the Company's common stock on the basis of allegedly actionable misrepresentations or omissions about the Company and its business and, as a result were thereby damaged. Four of the complaints assert claims under Sections 10(b) and 20 of the Securities Act of 1934. The remaining complaint asserts claims under Tennessee Code Sections 48-2-121 and 122. The complaints name as the defendants the Company and various of its present and former directors and officers. The plaintiffs in three of the actions which involved claims in Federal Court under the Securities Exchange Act of 1934 have stated their intention to consolidate those actions. Motions to dismiss have been or soon will be filed in each of the cases. The Company denies liability and intends to vigorously defend these actions. In addition to the shareholder litigation described above, 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. 7
6. Restructuring Costs In September 1997, the Company announced its intention to further consolidate its domestic wrecker production at its Ooltewah, Tennessee facility. The consolidation entailed the closure of the Olive Branch, Mississippi facility with the relocation of wrecker production to Ooltewah. Substantially all equipment relocation and production consolidation was completed by December 1997. In the second quarter of fiscal 1998, the Company recorded a pretax restructuring charge of $4.1 million to provide for the plant closing and consolidation of manufacturing operations. Of the $4.1 million restructuring charge, approximately $0.5 million related to workforce reductions of approximately 150 employees and associated costs. Also, $1.9 million of asset valuation losses relating to a plant sale and machinery and equipment writedowns is included in the restructuring charge. The balance of the charge covers lease terminations, property holding costs, and other shutdown related costs. At October 31, 1997, charges against the related reserves were not significant. The carrying value of the Olive Branch, Mississippi manufacturing facility is $1.5 million and is classified as "Other Assets" in the balance sheet. The Company's operating earnings for the portion of the remainder of the fiscal year may be further adversely impacted by any inventory losses, any operating losses which may occur during the consolidation period, and costs incurred to relocate employees and equipment to other facilities. These additional costs are not included in the one-time charge above but are not expected to have a material impact on net income and net income per share. 7. Subsequent Events Subsequent to the end of the quarter, the Company has closed three additional acquisitions of towing service companies with aggregate annual historical revenues of approximately $1.8 million. The consideration for these transactions consists of approximately 70,000 shares of Company common stock and $.4 million in cash as well as the assumption of certain indebtedness. In addition, the Company has executed letters of intent to acquire 19 additional towing service companies. On December 11, 1997, the Company announced the acquisition of Chevron, Inc. for approximately $10 million in cash and the assumption of approximately $3.8 million in indebtedness in exchange for all its outstanding shares of stock. Chevron is a manufacturer of towing and recovery equipment with annual revenues of approximately $23 million. 8. Reclassifications Certain amounts in the prior period financial information have been reclassified to conform to the current presentation. 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENT DEVELOPMENTS As more fully discussed in Note 4 to condensed consolidated financial statements, during the six months ended October 31, 1997, the Company acquired a total of 21 towing service companies and four towing equipment distributors. Subsequent to the end of the quarter and as more fully discussed in Note 7 to condensed consolidated financial statements, the Company has closed three additional acquisitions of towing service companies and has executed letters of intent to acquire 19 additional towing service companies. Additionally, as more fully discussed in Note 7, subsequent to the end of the quarter, the Company announced the acquisition of Chevron, Inc., a manufacturer of towing and recovery equipment. As more fully discussed in Note 6 to condensed consolidated financial statements, in September 1997, the Company announced its intention to further consolidate its domestic wrecker production at its Ooltewah, Tennessee facility. The consolidation entailed the closure of the Olive Branch, Mississippi facility with the relocation of wrecker production to Ooltewah. The consolidation resulted in a one-time pretax charge of $4.1 million in the second quarter. RESULTS OF OPERATIONS--THREE MONTHS ENDED OCTOBER 31, 1997 COMPARED TO THREE MONTHS ENDED OCTOBER 31, 1996 Net sales for the three months ended October 31, 1997, increased 27.9% to $94.7 million from $74.1 million for the comparable period in 1996. The increase in net sales was primarily the result of higher sales from the manufacturing operations and the inclusion since the acquisition dates during the quarter ended October 31, 1997 of sales from the towing services companies acquired via purchase transactions. Costs of operations for the three months ended October 31, 1997, increased 24.1% to $76.2 million from $61.4 million for the comparable period in 1996. Costs of operations as a percentage of net sales decreased to 80.5% from 83.0%. This reduction was primarily a result of the Company's towing services division, which generally has a lower level of operating costs than the manufacturing and distribution divisions, accounting for a higher proportion of revenues in the quarter ended October 31, 1997. Selling, general and administrative expenses for the three months ended October 31, 1997, increased 44.9% to $10.3 million from $7.1 million for the comparable period in 1996. As a percentage of sales, selling, general and administrative expenses increased from 9.6% to 10.8%. The increase was primarily a result of the Company's towing services division, which generally has a higher level of selling, general and administrative costs as a percentage of sales than the manufacturing and distribution divisions. During the second quarter of fiscal 1998, the Company recorded a one-time pretax charge of $4.1 million for the Olive Branch, Mississippi facility closure and consolidation of manufacturing operations. 9
Net interest expense increased $0.3 million to $0.4 million for three months ended October 31, 1997 from $0.1 million for the comparable period in 1996 primarily due to increased borrowings under the Company's line of credit to fund working capital needs and additional acquisitions of towing service companies. RESULTS OF OPERATIONS SIX MONTHS ENDED OCTOBER 31, 1997 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 1996 Net sales for the six months ended October 31, 1997 increased 33.4% to $180.1 million from $135.0 million for the comparable period in 1996. The increase in net sales was primarily due to the result of higher sales from the manufacturing operations and the inclusion since the acquisition dates during the six months ended October 31, 1997 of sales from the distribution and towing services companies acquired via purchase transactions. Costs of operations increased 28.4% to $143.5 million for the six months ended October 31, 1997 from $111.8 million for the comparable period in 1996. Cost of operations as a percentage of net sales decreased from 82.8% to 79.7%. This net decrease is attributed to the Company's towing services division, which generally has a lower level of operating costs than the manufacturing and distribution division, accounting for a higher portion of revenues for the six months ended October 31, 1997. Selling, general and administrative expenses increased 56.4% to $20.5 million for the six months ended October 31, 1997 from $13.1 million for the comparable period of 1996. As a percentage of net sales, selling, general and administrative expenses increased from 9.7% to 11.4%. The increase related primarily to the Company's towing services division, which generally has a higher level of selling, general and administrative costs as a percentage of net sales than the manufacturing and distribution divisions. During the second quarter of fiscal 1998, the Company recorded a one-time pretax charge of $4.1 million for the Olive Branch, Mississippi facility closure and consolidation of manufacturing operations. Net interest expense increased $0.4 million to $0.7 million for the six months ended October 31, 1997 from $0.3 million for the six months ended October 31, 1996 primarily due to increased borrowings under the Company's line of credit to fund working capital needs and additional acquisitions of distributors and towing service companies. 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 1996 and November 1996. Cash flows used in operating activities were $10.2 million for the six months ended October 31, 1997 as compared to $9.7 million used in operations for the comparable period of 1996. The increase in cash flows used in operating activities was primarily to fund working capital needed to support the growth of the businesses. 10
Cash used in investing activities was $10.8 million for the six months ended October 31, 1997 compared to $18,000 for the comparable period in 1996. The cash used in investing activities was primarily for capital expenditures and equipment and acquisitions of businesses. Cash provided by financing activities was $14.7 million for the six months ended October 31, 1997 as compared to $2.2 million used in financing activities for the comparable period in the prior year. The cash was provided primarily by borrowing under the Company's line of credit to fund working capital and acquisitions. At October 31, 1997, the Company had a $50 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 .8%. At October 31, 1997, $24.7 million was outstanding under the Credit Facility. In December 1997, the Company increased its borrowing capacity under the Credit Facility from $50 million to $60 million. The Credit Facility imposes restrictions on the Company with respect to the maintenance of certain financial ratios, the incurrence of indebtedness, the sale of assets, mergers, capital expenditures, and the payment of dividends. The Company is currently increasing the capacity of its plant in Ooltewah, Tennessee. In January 1997 the Company purchased a car carrier manufacturing facility in Greeneville, Tennessee and is currently increasing its capacity. Capital expenditures remaining for these expansions and additional equipment are expected to be approximately $2.0 million. As described in Note 4 to condensed consolidated financial statements, the Company has expended approximately $6.5 million for the purchase of companies for the six months ended October 31, 1997. Excluding the capital commitments set forth above, the Company has no other pending material commitments. The Company believes that cash on hand, cash flows from operations and available credit funding 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. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which establishes new standards for computing and presenting earnings per share ("EPS"). SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. Early adoption is not permitted and upon initial application, all prior period EPS data is required to be restated. The adoption of SFAS No. 128 will not have a material effect on the Company's EPS amounts. 11
PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS During September, October and November 1997, five lawsuits were filed by certain persons who seek to represent a class of shareholders who purchased shares of the Company's common stock during the period from either October 15 or November 6, 1996 to September 11, 1997. Four of the suits were filed in the United States District Court for the Northern District of Georgia, and the remaining one was filed in the Chancery Court of Hamilton County, Tennessee. The individual plaintiffs consist of Stephen Clark; Karen Stauffer and Julie F. Dugo IRA; Erich R. Swett; John M Constantine III; and Manuel Vela. In general, the individual plaintiffs in all of the cases allege that they were induced to purchase shares of the Company's common stock on the basis of allegedly actionable misrepresentations or omissions about the Company and its business and, as result were thereby damaged. Four of the complaints assert claims under Sections 10(b) and 20 of the Securities Act of 1934. The remaining complaint asserts claims under Tennessee Code Sections 48-2-121 and 122. The complaints name as the defendants the Company and various of its present and former directors and officers. The plaintiffs in three of the actions which involved claims in Federal Court under the Securities Exchange Act of 1934 have stated their intention to consolidate those actions. Motions to dismiss have been or soon will be filed in each of the cases. The Company denies liability and intends to vigorously defend these actions. ITEM 2. CHANGES IN SECURITIES RECENT SALES OF UNREGISTERED SECURITIES During the fiscal quarter ended October 31, 1997, the Company issued 114,981 shares of its Common Stock, par value $.01 per share, that were not registered under the Securities Act. The shares, in combination with cash, were issued as consideration in the acquisition of 3 towing service companies and were issued to 5 individuals. The market price on the date of issuance ranged from $14.625 per share to $18.25 per share. The Company has filed a registration statement under the Securities Act registering the resales of these shares so that such shares may be offered and sold from time to time on the New York Stock Exchange or in privately negotiated transactions. The sales of the above securities are exempt from registration under the Securities Act pursuant to Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering. 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 - The Company filed a Current Report on Form 8-K on September 26, 1997 under Item 5 of Form 8-K. 12
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: December 15, 1997