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, 2000 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) 8503 HILLTOP DRIVE OOLTEWAH, TN 37363 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (423) 238-4171 x238 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 29, 2000 was 46,697,625.
MILLER INDUSTRIES, INC. INDEX PART I. FINANCIAL INFORMATION Page Number ----------- 1. Financial Statements (Unaudited) -------------------------------- Condensed Consolidated Balance Sheets - January 31, 2000 and April 30, 1999 3 Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended January 31, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended January 31, 2000 and 1999 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 1. Legal Proceedings 15 ----------------- Item 6. Exhibits and Reports On Form 8-K 16 -------------------------------- SIGNATURES 17 2
PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) MILLER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) ASSETS <TABLE> <CAPTION> JANUARY 31, APRIL 30, 2000 1999 ----------- ---------- <S> <C> <C> CURRENT ASSETS: Cash and temporary investments $ 9,472 $ 9,331 Accounts receivable, net 83,522 81,109 Inventories 88,404 77,912 Deferred income taxes 4,386 4,244 Prepaid expenses and other 6,661 12,264 --------- --------- Total current assets 192,445 184,860 PROPERTY, PLANT AND EQUIPMENT, NET 92,182 95,984 GOODWILL, NET 104,917 103,292 OTHER ASSETS, NET 7,099 8,344 --------- --------- $ 396,643 $ 392,480 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 2,741 4,170 Accounts payable 37,284 42,783 Accrued liabilities and other 27,069 16,458 --------- --------- Total current liabilities 67,094 63,411 --------- --------- LONG-TERM DEBT, LESS CURRENT PORTION 131,212 133,850 --------- --------- DEFERRED INCOME TAXES 8,316 7,916 --------- --------- COMMITMENTS AND CONTINGENCIES (NOTE 5) SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value, 5,000,000 shares authorized; 0 0 none issued or outstanding Common stock, $.01 par value, 100,000,000 shares authorized; 46,697,625 and 46,679,783 shares issued and outstanding at January 31, 2000 and April 30, 1999, respectively 467 467 Additional paid-in capital 146,464 144,607 Retained earnings 44,127 43,068 Accumulated other comprehensive income (loss) (1,037) (839) --------- --------- Total shareholders' equity 190,021 187,303 --------- --------- $ 396,643 $ 392,480 ========= ========= </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, ------------------------ ------------------------ 2000 1999 2000 1999 -------- -------- -------- -------- <S> <C> <C> <C> <C> NET SALES $146,165 $132,629 $429,239 $384,438 -------- -------- -------- -------- COSTS AND EXPENSES: Costs of operations 121,967 109,480 354,149 312,490 Selling, general, and administrative expenses 19,318 18,706 58,226 53,556 Non-recurring charges -- -- 6,041 -- Interest expense, net 2,965 2,734 8,395 7,002 -------- -------- -------- -------- Total costs and expenses 144,250 130,920 426,811 373,048 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 1,915 1,709 2,428 11,390 INCOME TAX PROVISION 1,149 778 1,369 4,696 -------- -------- -------- -------- NET INCOME $ 766 $ 931 $ 1,059 $ 6,694 ======== ======== ======== ======== NET INCOME PER COMMON SHARE: BASIC $ 0.02 $ 0.02 $ 0.02 $ 0.14 ======== ======== ======== ======== DILUTED $ 0.02 $ 0.02 $ 0.02 $ 0.14 ======== ======== ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING: BASIC 46,692 46,229 46,690 46,354 ======== ======== ======== ======== DILUTED 46,915 47,075 47,054 47,317 ======== ======== ======== ======== See accompanying notes to condensed consolidated financial statements. </TABLE> 4
MILLER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) <TABLE> <CAPTION> NINE MONTHS ENDED JANUARY 31, ----------------------------- 2000 1999 -------- -------- <S> <C> <C> OPERATING ACTIVITIES: Net income $ 1,059 $ 6,694 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 12,921 10,701 Deferred income tax provision 75 170 Gain on sales of property, plant, and equipment (708) (715) Changes in operating assets and liabilities: Accounts receivable (2,425) (11,844) Inventories (10,713) (12,597) Prepaid expenses and other 2,272 248 Accrued liabilities and other 14,127 (1,930) Accounts payable (5,688) 454 Other assets (455) (2,299) -------- -------- Net cash provided by (used in) operating activities 10,465 (11,118) -------- -------- INVESTING ACTIVITIES: Purchases of property, plant, and equipment (6,627) (12,200) Proceeds from sales of property, plant, and equipment 2,820 2,313 Acquisition of businesses, net of cash acquired (2,121) (17,508) Other 70 (136) -------- -------- Net cash used in investing activities (5,858) (27,531) -------- -------- FINANCING ACTIVITIES: Net (repayment) borrowings under line of credit -- 51,000 Payments of long-term obligations (4,472) (6,191) Proceeds from exercise of stock options 73 82 Repurchase of common stock -- (1,868) -------- -------- Net cash (used in) provided by financing activities (4,399) 43,023 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND TEMPORARY INVESTMENTS (67) 124 -------- -------- NET INCREASE IN CASH AND TEMPORARY INVESTMENTS 141 4,498 CASH AND TEMPORARY INVESTMENTS, beginning of period 9,331 7,367 -------- -------- CASH AND TEMPORARY INVESTMENTS, end of period $ 9,472 $ 11,865 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash payments for interest $ 8,356 $ 7,143 ======== ======== Cash payments for income taxes $ 1,069 $ 4,787 ======== ======== See accompanying notes to condensed consolidated financial statements. </TABLE> 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, 1999. 2. Net Income Per Share Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted net income per share is calculated by dividing net income by the weighted average number of common and potential dilutive common shares outstanding. Diluted net income per share takes into consideration the assumed conversion of outstanding stock options resulting in .2 million and .8 million potential dilutive common shares for the three months ended January 31, 2000 and 1999, and .4 million and 1.0 million potential dilutive common shares for the nine months ended January 31, 2000 and 1999, respectively. Per share amounts do not include the assumed conversion of stock options with exercise prices greater than the average share price because to do so would have been antidilutive for the periods presented. 3. Inventories Inventory costs include materials, labor and overhead. Inventories are stated at the lower of cost or market, determined on a first-in, first-out basis. Inventories at January 31, 2000 and April 30, 1999 consisted of the following (in thousands): 6
January 31, April 30, 2000 1999 ---------- --------- Chassis $18,167 $18,340 Raw Materials 18,822 16,348 Work in process 14,380 12,180 Finished goods 37,035 31,044 ------- ------- $88,404 $77,912 ======= ======= 4. Business Combinations During the nine months ended January 31, 2000, the Company purchased three towing service companies for an aggregate purchase price of $2.8 million, which consisted of $2.0 million in cash and $0.8 million in promissory notes. These acquisitions were accounted for using the purchase method of accounting. The accompanying consolidated financial statements reflect the preliminary allocation of purchase price as the purchase price has not been finalized for all transactions. The excess of the aggregate purchase price over the estimated fair value of identifiable net assets acquired was approximately $1.7 million. 5. Legal Matters In February 2000, the Company reached an agreement with the Antitrust Division of the Department of Justice (the Division) in the previously announced investigation of competition in the tow truck industry undertaken by the Division's Civil Task Force. As a result of the agreement, the Company entered into a Stipulation and proposed consent Judgment with the Division, which were filed with the Court simultaneously with the Division's complaint. The complaint focused on the Company's acquisition of Vulcan in 1996 and Chevron in 1997, including the acquisition of their patents. The Company remains convinced that the acquisitions are entirely lawful and that this position would be vindicated in a court of law. However, the Company believes it is in the best interest of its shareholders to conclude this matter rather than extending for an additional lengthy period what has already been a very costly and time consuming exercise. Under the terms of the proposed consent Judgment, the Company will offer non-exclusive royalty-bearing licenses to certain of the Company's key patents to all tow truck and car carrier manufacturers. In connection with offering licenses, the Company will notify the government periodically of companies that have obtained a license. The Company will also have reporting requirements related to future acquisitions of tow truck and car carrier manufacturers. The proposed Judgment was placed on public record for comment and then is subject to Court approval. It is expected that such approval and entry of the Judgment as proposed will occur within the next several months. 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 7
the suits were filed in the United States District Court for the Northern District of Georgia. The remaining suit 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 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 complaints name as the defendants the Company and various of its present and former directors and officers. The plaintiffs in the four actions which involved claims in Federal Court under the Securities Exchange Act of 1934 have consolidated those actions. The Company filed a motion to dismiss in the consolidated case which was granted in part and denied in part. The proposed class was certified by order dated May 27, 1999. The Company filed a motion to dismiss in the Tennessee case which was granted in its entirety. The plaintiffs in that case, with permission from the Court, amended and refiled their complaint, which was dismissed with prejudice by order of the Court dated March 11, 1999. On April 5, 1999 counsel for plaintiffs filed a notice of appeal and that appeal, which has been briefed and argued, currently remains pending. In both these actions, the Company has denied liability and continues to vigorously defend itself. 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. The ultimate disposition of such matters cannot be determined presently, but will not, in the opinion of management, based in part on the advice of legal counsel, have a material adverse effect on the financial position or results of operations of the Company. 6. Stock Repurchase Plan The Company's board of directors approved a share repurchase plan that commenced during fiscal 1998 under which the Company may repurchase up to 2,000,000 shares of common stock from time to time through September 30, 2000. No shares have been repurchased under the plan during fiscal 2000. All shares purchased under the plan during fiscal 1999 (500,000 shares at a cost of $2.3 million) were reissued as consideration for towing services companies acquired prior to January 31, 2000. 7. Comprehensive Income The Company has other comprehensive income and expenses in the form of cumulative translation adjustments which resulted in total comprehensive income of approximately $0.5 million and $1.0 million for the three months ended January 31, 2000 and 1999, respectively; and $0.9 million and $6.9 million for the nine months ended January 31, 2000 and 1999, respectively. 8
8. Segment Information The Company operates in two principal operating segments: (i) towing and recovery equipment and (ii) towing services. The table below presents information about reported segments (in thousands): <TABLE> <CAPTION> Towing and Recovery Towing Equipment Services Eliminations Consolidated --------- -------- ------------ ------------ <S> <C> <C> <C> <C> For the three months ended January 31, 2000 Net sales-external $ 93,730 $ 52,435 $ -- $146,165 Net sales-intersegment -- -- -- -- Operating income (loss) 6,730 (1,850) -- 4,880 Interest expense, net 1,375 1,590 -- 2,965 Income (loss) before income taxes 5,355 (3,440) -- 1,915 For the three months ended January 31, 1999 Net sales-external $ 85,147 $ 47,482 $ -- $132,629 Net sales-intersegment 833 -- (833) -- Operating income (loss) 4,475 13 (45) 4,443 Interest expense, net 1,303 1,431 -- 2,734 Income (loss) before income taxes 3,127 (1,418) -- 1,709 For the nine months ended January 31, 2000 Net sales-external $ 272,943 $ 156,296 $ -- $429,239 Net sales-intersegment -- -- -- -- Operating income (loss) 17,233 (6,410) -- 10,823 Interest expense, net 3,832 4,563 -- 8,395 Income (loss) before income taxes 13,402 (10,974) -- 2,428 For the nine months ended January 31, 1999 Net sales-external $ 249,941 $ 134,497 $ -- $384,438 Net sales-intersegment 4,103 -- (4,103) -- Operating income 14,710 3,844 (162) 18,392 Interest expense, net 3,117 3,885 -- 7,002 Income (loss) before income taxes 11,431 (41) -- 11,390 </TABLE> 9
9. Non-Recurring Charges During the second quarter of fiscal 2000 the Company announced its plan to further rationalize its towing services operations. The Company recorded non-recurring charges in the amount of $6.0 million for costs related to this rationalization. These charges include the cost of early termination of certain employment contracts and facility leases, the loss on the disposal of certain excess equipment, and a casualty loss relating to one of the operations. At January 31, 2000 approximately $0.7 million had been charged against the related reserves. 10. Reclassifications Certain amounts in the prior period financial information have been reclassified to conform to the current presentation. 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 nine months ended January 31, 2000, the Company acquired a total of three towing service companies. RESULTS OF OPERATIONS--THREE MONTHS ENDED JANUARY 31, 2000 COMPARED TO THREE MONTHS ENDED JANUARY 31, 1999 Net sales for the three months ended January 31, 2000, increased 10.2% to $146.2 million from $132.6 million for the comparable period in 1999. Net sales in the towing and recovery equipment segment increased 10.1% from $85.1 million to $93.7 million due primarily to higher unit sales of chassis and wreckers. Sales of new products, including multi-car trailers, also contributed to the increase in sales for this segment. Net sales of the towing services segment increased 10.4% to $52.4 million from $47.5 million due primarily to the revenue contribution of towing services companies acquired subsequent to the third quarter of fiscal 1999 and growth of its program that provides towing services to customers operating fleets nationwide. Costs of operations for the three months ended January 31, 2000, increased 11.4% to $122.0 million from $109.5 million for the comparable period in 1999. Costs of operations of the towing and recovery equipment segment decreased as a percentage of net sales from 85.9% to 84.5% primarily due to improved productivity and efficiency enhancements at its manufacturing facilities. The towing services segment's costs of operations increased from 76.5% to 81.5% as a percentage of net sales. Increases are due to increased labor costs of the towing services operations along with the associated benefits costs, and increased fuel and other vehicle costs. 10
Selling, general and administrative expenses for the three months ended January 31, 2000, increased 3.3% to $19.3 million from $18.7 million for the comparable period in 1999. In the towing and recovery equipment segment, selling, general and administrative expenses decreased slightly as a percentage of sales from 8.9% to 8.3%. As a percentage of sales, selling, general and administrative expenses for the towing services segment decreased to 22.0% from 23.4% primarily due to the increased revenue base and continued cost reduction efforts. Net interest expense increased $0.3 million to $3.0 million for three months ended January 31, 2000 from $2.7 million for the comparable period in 1999 primarily due to higher interest rates on the Company's line of credit. Income taxes are accounted for on a consolidated basis and are not allocated by segment. The effective rate for the provision for income taxes was 60.0% for the three months ended January 31, 2000 and 45.5% for the three months ended January 31, 2000. The difference between the effective tax rate and the statutory tax rate is primarily due to the impact of non-deductible goodwill amortization and state income taxes. RESULTS OF OPERATIONS--NINE MONTHS ENDED JANUARY 31, 2000 COMPARED TO NINE MONTHS ENDED JANUARY 31, 1999 Net sales for the nine months ended January 31, 2000 increased 11.7% to $429.2 million from $384.4 million for the comparable period in 1999. Net sales in the towing and recovery equipment segment increased 9.2% from $249.9 million to $272.9 million due primarily to higher unit sales of chassis and wreckers. Sales of new products, slide axle trailers and multi-car trailers, also contributed to the increase in sales for this segment. Net sales of the towing services segment increased 16.2% to $156.3 million from $134.5 million due primarily to the revenue contribution of towing services companies acquired subsequent to the third quarter of fiscal 1999 and growth of its program that provides towing services to customers operating fleets nationwide. Costs of operations increased 13.3% to $354.1 million for the nine months ended January 31, 2000 from $312.5 million for the comparable period in 1999. Costs of operations of the towing and recovery equipment segment decreased slightly as a percentage of net sales from 85.3% to 84.7%. The towing services segment's costs of operations increased from 73.9% to 78.6% as a percentage of net sales. Increases are due to increased labor costs of the towing services operations along with the associated benefits costs, and increased fuel and other vehicle costs. Selling, general and administrative expenses increased 8.7% to $58.2 million for the nine months ended January 31, 2000 from $53.6 million for the comparable period of 1999. In the towing and recovery equipment segment, selling, general and administrative expenses increased slightly as a percentage of sales from 8.9% to 9.0%. As a percentage of sales, selling, general and administrative expenses for the towing 11
services segment decreased to 21.6% from 23.3% primarily due to the increased revenue base and continued cost reduction efforts. During the second quarter of fiscal 2000, the Company recorded non-recurring charges of $6.0 million for the further rationalization of its towing services operations. See Note 9 to the condensed consolidated financial statements for further discussion. Net interest expense increased $1.4 million to $8.4 million for the nine months ended January 31, 2000 from $7.0 million for the nine months ended January 31, 1999 primarily due to higher interest rates on the Company's line of credit. Income taxes are accounted for on a consolidated basis and are not allocated by segment. The effective rate for the provision for income taxes was 56.3% for the nine months ended January 31, 2000 and 41.2% for the nine months ended January 31, 1999. The difference between the effective tax rate and the statutory tax rate is primarily due to the impact of non-deductible goodwill amortization and state income taxes. 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 provided by operating activities were $10.5 million for the nine months ended January 31, 2000 as compared to $11.1 million used in operations for the comparable period of 1999. The increase in cash flows from operating activities was due primarily to improved working capital balances. Cash used in investing activities was $5.9 million for the nine months ended January 31, 2000 compared to $27.5 million for the comparable period in 1999. The cash used in investing activities was primarily for capital expenditures for equipment, building expansion and acquisitions of businesses. Cash used in financing activities was $4.4 million for the nine months ended January 31, 2000 as compared to $43.0 million provided by financing activities for the comparable period in the prior year. The cash was used primarily to reduce outstanding long-term debt and capital lease obligations. The Company has a revolving credit facility of $175 million ( the "Credit Facility") for working capital and other general corporate purposes. Borrowings under the Credit Facility bear interest at a rate equal to the London Interbank Offered Rate plus a margin of 2.50% or the prime rate plus 1.25%, as elected by the Company. The Credit Facility is collateralized by substantially all of the assets and properties of the Company and its domestic subsidiaries. At January 31, 12
2000, $125 million was outstanding under the Credit Facility. 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, capital expenditures and mergers and acquisitions. On May 1, 1998, the Company entered into an interest rate swap agreement covering the notional amount of $50 million of variable rate debt to fix the interest rate at 5.68% plus the applicable margin. The agreement expires at the end of three years unless cancelled by the bank at the end of two years. As described in Note 4 to condensed consolidated financial statements, the Company has expended approximately $2.8 million for the purchase of towing services companies during the nine months ended January 31, 2000. Capital expenditures remaining for the dispatch system for the towing services segment are expected to be approximately $1.5 million. 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. STRATEGIC AND FINANCIAL ALTERNATIVES STUDY The Company announced in May 1999 that its Board of Directors had concluded its study of potential strategic and financial alternatives for the Company and had ratified its Special Committee's recommendation to investigate and pursue the possibility of separating the Company's RoadOne towing services segment from its towing and recovery equipment segment through a tax-free spinoff which would result in the formation of two public companies. The Company engaged J.C. Bradford & Co. as its financial advisor with respect to these matters. Completing any such separation of the two businesses through a tax-free spinoff transaction would entail the satisfaction of numerous significant conditions which at this time are uncertain. These conditions include, but are not limited to, a satisfactory IRS private letter ruling, an SEC no-action letter, satisfactory banking arrangements, the approval of the Company's shareholders and a final decision to proceed by the Board of Directors. The Company can give no assurance that any such transaction will occur. The final decision to proceed with any such transaction and its timing will depend upon, among other things, improvements in the operating results of the towing services segment. 13
RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, which delayed the effective date of SFAS No. 133 until June 15, 2000. SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The Company has not yet quantified the impact of adopting SFAS No. 133 on its financial statements and has not determined the timing of or method of adoption of SFAS No. 133. However, SFAS No. 133 could increase volatility in earnings and other comprehensive income. YEAR 2000 The Company successfully completed its Year 2000 remediation program during calendar 1999. No significant malfunctions or errors were experienced as a result of the date change from 1999 to 2000. Since January 1, 2000, the Company's information technology (IT) systems and non-IT systems with date sensitive embedded chips have operated without significant Year 2000 problems. Additionally, the Company is not aware of any major Year 2000 failures by key third parties or business partners. Management does not believe that any future failures, should they occur, would have a material adverse effect on the financial position, results of operations and liquidity of the Company. The Company implemented and upgraded Year 2000 compliant applications programs for certain manufacturing facilities prior to December 31, 1999. Additionally, the towing services segment completed its implementation of financial systems on a Year 2000 compliant ERP system in Fiscal 1999. These implementations were not accelerated due to Year 2000 issues, and therefore, their costs are not included in the discussion below. Total remediation costs incurred were approximately $0.3 million. These costs included approximately $0.1 million for modification and replacement of certain date sensitive operating equipment in the towing and recovery equipment segment, and approximately $0.2 million in hardware and software upgrades to its operating systems to ensure Year 2000 compliance in its towing services segment. The total costs were expensed as incurred except for hardware or software replacement costs that were capitalized. All Year 2000 expenses were paid out of the Company's annual budget for information services. 14
PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In February 2000, the Company reached an agreement with the Antitrust Division of the Department of Justice (the Division) in the previously announced investigation of competition in the tow truck industry undertaken by the Division's Civil Task Force. As a result of the agreement, the Company entered into a Stipulation and proposed consent Judgment with the Division, which were filed with the Court simultaneously with the Division's complaint. The complaint focused on the Company's acquisition of Vulcan in 1996 and Chevron in 1997, including the acquisition of their patents. The Company remains convinced that the acquisitions were entirely lawful and that this position would be vindicated in court of law. However, the Company believes it is in the best interest of its shareholders to conclude this matter rather than extending for an additional lengthy period what has already been a very costly and time consuming exercise. Under the terms of the proposed consent Judgment, the Company will offer non-exclusive royalty-bearing licenses to certain of the Company's key patents to all tow truck and car carrier manufacturers. In connection with offering licenses, the Company will notify the government periodically of companies that have obtained a license. The Company will also have reporting requirements related to future acquisitions of tow truck and car carrier manufacturers. The proposed Judgment was placed on public record for comment and then is subject to Court approval. It is expected that such approval and entry of the Judgment as proposed will occur within the next several months. 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. The remaining suit 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 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 complaints name as the defendants the Company and various of its present and former directors and officers. The plaintiffs in the four actions which involved claims in Federal Court under the Securities Exchange Act of 1934 have consolidated those actions. The Company filed a motion to dismiss in the consolidated case which was granted in part and denied in part. The proposed class was certified by order dated May 27, 1999. The Company filed a motion to dismiss in the 15
Tennessee case which was granted in its entirety. The plaintiffs in that case, with permission from the Court, amended and refiled their complaint, which was dismissed with prejudice by order of the Court dated March 11, 1999. On April 5, 1999, counsel for plaintiffs filed a notice of appeal and that appeal, which has been briefed and argued, currently remains pending. In both these actions, the Company has denied liability and continues to vigorously defend itself. 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 No reports on Form 8-K were filed by the Company during the third quarter of the fiscal year.
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 Vice President and Chief Financial Officer Date: March 16, 2000