SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
MILLER INDUSTRIES, INC.
Tennessee
62-1566286
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
8503 Hilltop Drive
Ooltewah, Tennessee
37363
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (423) 238-4171
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, 2001 was 9,341,436.
INDEX
PART I.
FINANCIAL INFORMATION
Page Number
Item 1.
October 31, 2001 and April 30, 2001
3
for the Three and Six Months Ended October 31, 2001 and 2000
4
for the Six Months Ended October 31, 2001 and 2000
5
Statements
6
Item 2.
Condition and Results of Operations
12
PART II.
OTHER INFORMATION
16
Item 4.
Submission of Matters to a Vote of Security Holders
Item 6.
SIGNATURES
17
2
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
MILLER INDUSTRIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)(Unaudited)
ASSETS
October 31,2001
April 30,2001
CURRENT ASSETS:
Cash and temporary investments
$
8,781
6,627
Accounts receivable, net
73,602
75,104
Inventories
63,614
67,835
Deferred income taxes
5,361
5,371
Prepaid expenses and other
9,215
12,010
Total current assets
160,573
166,947
PROPERTY, PLANT, AND EQUIPMENT, net
54,761
58,564
GOODWILL, net
45,954
46,736
OTHER ASSETS, net
10,870
9,040
272,158
281,287
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt
6,221
7,213
Accounts payable
44,721
43,064
Accrued liabilities and other
21,659
25,356
Total current liabilities
72,601
75,633
LONG-TERM DEBT, less current portion
95,412
99,121
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued or outstanding
0
Common stock, $.01 par value, 100,000,000 shares authorized; 9,341,436 shares issued and outstanding at October 31, 2001 and April 30, 2001
93
Additional paid-in capital
145,088
Accumulated deficit
(39,037)
(36,509)
Accumulated other comprehensive loss
(1,999)
(2,139)
Total shareholders' equity
104,145
106,533
See accompanying notes to condensed consolidated financial statements.
MILLER INDUSTRIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)(Unaudited)
Three Months EndedOctober 31,
Six Months EndedOctober 31,
2001
2000
NET SALES:
Towing and Recovery Equipment
76,624
82,100
153,859
159,656
Towing Services
38,298
47,580
78,009
97,176
114,922
129,680
231,868
256,832
COSTS AND EXPENSES:
Costs of operations:
67,518
71,498
135,952
138,678
32,289
39,625
65,290
80,766
99,807
111,123
201,242
219,444
Selling, general, and administrative expenses
12,802
16,652
26,880
34,689
Interest expense, net
2,202
4,663
5,994
8,629
Total costs and expenses
114,811
132,438
234,116
262,762
INCOME (LOSS) BEFORE INCOME TAXES
111
(2,758)
(2,248)
(5,930)
INCOME TAX PROVISION (BENEFIT)
90
(927)
280
(2,006)
NET INCOME (LOSS)
21
(1,831)
(2,528)
(3,924)
Basic
0.00
(0.20)
(0.27)
(0.42)
Diluted
9,341
9,342
MILLER INDUSTRIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)(Unaudited)
Six Months Ended October 31,
OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
6,559
6,806
Deferred income tax provision
14
119
Gain on disposals of property, plant, and equipment
(12)
(371)
Gain on disposal of other long-term asset
(357)
Changes in operating assets and liabilities:
Accounts receivable
408
14,496
4,364
215
1,072
(2,631)
Other assets
71
(1,021)
1,784
(8,521)
Accrued liabilities
(946)
3,738
Net cash provided by operating activities
10,786
8,549
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment
(2,155)
(1,791)
Proceeds from sale of property, plant, and equipment
658
2,417
Proceeds from sale of other long-term asset
3,371
Proceeds from sale of businesses
1,077
Acquisition of businesses, net of cash acquired
(71)
Proceeds from payments of notes receivable
160
212
Net cash (used in) provided by investingactivities
(260)
4,138
FINANCING ACTIVITIES:
Net borrowings under new credit facility
83,600
Borrowings under subordinated credit facility
14,000
Net payments under former credit facility
(100,000)
(7,000)
Repayment of long-term obligations
(2,688)
(1,700)
Additions to deferred financing costs
(3,209)
Proceeds from exercise of stock options
Net cash used in financing activities
(8,297)
(8,694)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND TEMPORARY INVESTMENTS
(75)
(262)
NET INCREASE IN CASH AND TEMPORARY INVESTMENTS
2,154
3,731
CASH AND TEMPORARY INVESTMENTS, beginning of period
5,990
CASH AND TEMPORARY INVESTMENTS, end of period
9,721
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest
4,597
8,730
Cash payments for income taxes
383
349
MILLER INDUSTRIES, INC. AND SUBSIDIARIESNOTES 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 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 entit ies in the towing and recovery equipment segment 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 April 30, 2001.
On September 25, 2001, the Company announced that its Board of Directors had approved a change in the Company’s fiscal year from April 30 to December 31, effective December 31, 2001. The Company will file with the Securities and Exchange Commission a Form 10-K report for the eight-month period ended December 31, 2001 in March 2002 to effect the change.
2.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted net income (loss) per share is calculated by dividing net income (loss) 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 1,000 potential dilutive common shares for the three months ended October 31, 2001. Diluted net loss per share for the three months ended October 30, 2000 and six months ended October 31, 2001 and 2000 does not assume exercise of any stock options as the effect would be anti-dilutive.
3.
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, 2001 and April 30, 2001 consisted of the following (in thousands):
Chassis
9,139
8,650
Raw Materials
13,715
14,133
Work in process
10,178
10,544
Finished goods
30,582
34,508
4.
Special Charges and Disposition of Towing Services Assets
During the second quarter of fiscal 2000, the Company announced plans to rationalize its towing services operations. The Company recorded pretax special charges of $6,041,000 for costs related to the rationalization. These charges include approximately $4,589,000 for the cost of early termination of certain employment contracts, approximately $857,000 for the cost of early termination of facility leases and $595,000 for losses on the disposal of certain excess equipment and other property-related charges. At October 31, 2001, execution of the rationalization plan was complete and approximately $4,856,000 had been charged against the related reserves. The remaining reserve will be utilized as payments are made under the terms of employment termination agreements.
The Company periodically reviews the carrying amount of the long-lived assets and goodwill in both its towing services and towing equipment businesses to determine if those assets may be recoverable based upon the future operating cash flows expected to be generated by those assets. As a result of such review during the fourth quarter of fiscal 2000, the Company concluded that the carrying value of such assets in certain towing services markets and certain assets within the Company’s towing and recovery equipment segment were not fully recoverable.
An impairment charge of $50,542,000 was recorded in the fourth quarter of 2000 to write-down the goodwill in certain towing services markets to its estimated fair value. Additionally, charges of $18,576,000 were recorded to write-down the carrying value of certain fixed assets (primarily property and equipment) in related markets to estimated fair value. The Company determined fair value for these assets on a market by market basis taking into consideration various factors affecting the valuation in each market.
The Company also reviewed the carrying values of goodwill associated with certain investments within its towing and recovery equipment segment. This evaluation indicated that the recorded amounts of goodwill for certain of these investments were not fully recoverable. An impairment charge of $4,967,000 was recorded to reduce the carrying amount of goodwill to estimated fair value. The Company also recorded $2,770,000 of additional costs related to the write-down of the carrying value of other long-lived assets of its towing and recovery equipment segment in the fourth quarter of fiscal 2000.
7
During the six months ended October 31, 2001, the Company continued efforts to reduce expenses in the towing services segment. As part of these efforts, the Company disposed of assets in two underperforming market, as well as certain assets in other markets. Total proceeds from these sales were approximately $1,447,000. No significant gains or losses were realized upon the sale of these assets. The Company continues to investigate financial alternatives with respect to the overall towing services segment in order to enhance shareholder value.
5.
Long-Term Obligations
In July 2001, the Company entered into a new four year senior credit facility (the "Credit Facility") with a syndicate of lenders to replace the existing credit facility. As part of this agreement, the existing credit facility was reduced with proceeds from the Credit Facility and amended to provide for a $14.0 million subordinated secured facility. The Credit Facility consists of a $102.0 million revolving credit facility and an $8.0 million term loan. At October 31, 2001, $97.1 million was outstanding under these obligations.
Availability under the revolving Credit Facility is based on a formula of eligible accounts receivable, inventory and fleet vehicles. Borrowings under the term loan are secured by the Company’s property, plant, and equipment. The Company is required to make monthly amortization payments on the term loan of $167,000. The Credit Facility bears interest at the option of the Company at either the rate of LIBOR plus 2.75% or prime rate (as defined) plus 0.75% on the revolving portion and LIBOR plus 3.0% or prime rate (as defined) plus 1.0% on the term portion.
The Credit Facility matures in July 2005 and is secured by substantially all the assets of the Company. The Credit Facility contains requirements related to maintaining minimum excess availability at all times and minimum quarterly levels of earnings before income taxes, depreciation and amortization (as defined) and a minimum quarterly fixed charge coverage ratio (as defined). In addition, the Credit Facility contains restrictions on capital expenditures, incurrence of indebtedness, mergers and acquisitions, distributions and transfers and sales of assets. The Credit Facility also contains requirements related to weekly and monthly collateral reporting.
The subordinated secured facility is by its terms expressly subordinated only to the Credit Facility. The subordinated secured facility matures in July 2003 and bears interest at 6.0% over the prime rate. The Company is required to make quarterly amortization payments on the subordinated secured facility of $875,000 beginning not later than May 2002 provided that certain conditions are met, including satisfying a fixed charge coverage ratio test and a minimum availability limit. The subordinated secured facility is secured by certain specified assets of the Company and by a second priority lien and security interest in substantially all other assets of the Company. The subordinated secured facility contains requirements for certain fees to be paid at six month intervals beginning in January 2002 based on the outstanding balance of the subordinated secured facility at the time. The subordinated secured facility also contains provisions for the issuance of warrants for up to 0.5% of the outstanding shares of the Company’s common stock in July 2002 and up to an additional 1.5% in July, 2003. The number of warrants which may be issued would be reduced pro rata as the balance of the subordinated secured facility is reduced.
8
The subordinated secured credit facility contains, among other restrictions, requirements for the maintenance of certain financial covenants and imposes restrictions on capital expenditures, incurrence of indebtedness, mergers and acquisitions, distributions and transfers and sales of assets.
6.
Litigation
The Company is a party to litigation arising in the normal course of its business. The ultimate disposition of such matters cannot be determined presently, but, in the opinion of management, based in part on the advice of legal counsel, will not have a material adverse effect on the financial position or results of operations of the Company.
8.
Comprehensive Income
The Company has other comprehensive income (loss) in the form of cumulative translation adjustments which resulted in total other comprehensive income (loss) of approximately $273,000 and $(496,000) for the three months ended October 31, 2001 and 2000, respectively; and $140,000 and $(615,000) for the six months ended October 31, 2001 and 2000.
9
10
10.
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 for the three and six months ended October 31, 2001 and 2000 (in thousands):
Towing andRecoveryEquipment
TowingServices
Eliminations
Consolidated
For the three months ended October 31, 2001
Net sales-external
-
Net sales-internal
74
(74)
Operating income (loss)
2,526
(251)
38
2,313
1,421
781
Income (loss) before income taxes
1,105
(1,032)
Total assets
251,012
91,890
(70,744)
For the three months ended October 31, 2000
3,253
(1,348)
1,905
2,420
2,243
833
(3,591)
261,852
101,749
(57,882)
305,719
For the six months ended October 31, 2001
415
(415)
4,353
(648)
41
3,746
2,975
3,019
1,378
(3,667)
For the six months ended October 31, 2000
5,713
(3,014)
2,699
3,873
4,119
7,992
1,203
(7,133)
11
11.
Reclassifications
Certain amounts in the prior period financial information have been reclassified to conform to the current presentation.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Recent Developments
Towing Services Initiatives
During the six months ended October 31, 2001, the Company continued its efforts to reduce expenses in the towing services segment. As part of these efforts, the Company disposed of assets in two underperforming markets, as well as assets in certain other markets for proceeds of approximately $1,447,000. No significant gains or losses were realized upon the sale of these assets. The Company continues to investigate all financial alternatives with respect to the overall towing services segment in order to enhance shareholder value.
Change in Fiscal Year
On September 25, 2001, the Company announced that its Board of Directors had approved a change in the Company’s fiscal year, from April 30 to December 31, effective December 31, 2001. The Company will file with the Securities and Exchange Commission a Form 10-K report for the eight month period ended December 31, 2001 in March 2002 to effect the change. The change to a December 31 fiscal year will enable the Company to report results on a conventional calendar basis beginning in 2002.
Results of Operations--Three Months Ended October 31, 2001 Compared to Three Months Ended October 31, 2000
Net sales for the three months ended October 31, 2001, decreased 11.4% to $114.9 million from $129.7 million for the comparable period in 2000. Net sales in the towing and recovery equipment segment decreased 6.7% from $82.1 million to $76.6 million as demand for the Company’s towing and recovery equipment continued to be negatively impacted by the cost pressures facing its customers. Net sales in the towing services segment decreased 19.5% from $47.6 million to $38.3 million primarily due to the disposition of twelve underperforming markets during the fiscal year ended April 30, 2001 and during the current fiscal year.
Costs of operations for the three months ended October 31, 2001, decreased 10.2% to $99.8 from $111.1 million for the comparable period in 2000. Costs of operations of the towing and recovery equipment segment increased as a percentage of net sales from 87.1% to 88.1%. The increase as a percentage of net sales was primarily due to declines in sales volume as discussed above. In the towing services segment, costs of operations as a percentage of net sales increased from 83.3% to 84.3% primarily due to an increase in labor costs.
Selling, general, and administrative expenses for the three months ended October 31, 2001, decreased 23.1% to $12.8 million from $16.7 million for the comparable period of 2000. The decrease was due primarily to the continued cost reduction efforts implemented in prior fiscal years.
Net interest expense decreased $2.5 million to $2.2 million for the three months ended October 31, 2001 from $4.7 million for the three months ended October 31, 2000, primarily due to lower interest rates on the Company’s line of credit, which was refinanced in July 2001.
Income taxes are accounted for on a consolidated basis and are not allocated by segment. Tax expenses for the quarter relate primarily to income taxes of foreign subsidiaries. The effective rate of the provision for (benefit from) income taxes was 81.1% for the three months ended October 31, 2001 and (33.6)% for the three months ended October 31, 2000.
Results of Operations--Six Months Ended October 31, 2001 Compared to Six Months Ended October 31, 2000
Net sales for the six months ended October 31, 2001, decreased 9.7% to $231.9 million from $256.8 million for the comparable period in 2000. Net sales in the towing and recovery equipment segment decreased 3.6% from $159.7 million to $153.9 million as demand for the Company’s towing and recovery equipment continued to be negatively impacted by the cost pressures facing its customers. Net sales in the towing services segment decreased 19.7% from $97.2 million to $78.0 million primarily due to the disposition of twelve underperforming markets during the fiscal year ended April 30, 2001and the six months ended October 31, 2001.
Costs of operations for the six months ended October 31, 2001, decreased 8.3% to $201.2 from $219.4 million for the comparable period in 2000. Costs of operations of the towing and recovery equipment segment increased as a percentage of net sales from 86.9% to 88.4%. The increase as a percentage of net sales was primarily due to declines in sales volume as discussed above. In the towing services segment, costs of operations as a percentage of net sales increased slightly from 83.1% to 83.7% primarily due to an increase in labor costs.
Selling, general, and administrative expenses for the six months ended October 31, 2001, decreased 22.5% to $26.9 million from $34.7 million for the comparable period of 2000. The decrease was due primarily to the continued cost reduction efforts implemented in prior fiscal years.
Net interest expense decreased $2.6 million to $6.0 million for the six months ended October 31, 2001 from $8.6 million for the six months ended October 31, 2000, primarily due to lower interest rates on the Company’s line of credit, which was refinanced in July 2001.
Income taxes are accounted for on a consolidated basis and are not allocated by segment. Tax expenses for the six months ended October 31, 2001 relate primarily to income taxes of foreign subsidiaries. The effective rate of the provision for (benefit from) income taxes was not meaningful for the six months ended October 31, 2001 and (33.8)% for the six months ended October 31, 2000.
As of October 31, 2001, the Company had net deferred tax assets of $10.9 million, including an income tax benefit of $0.6 million for the six months then ended. Management's assessment is that the character and nature of future taxable income may not allow the company to realize the certain tax benefits of net operating losses and tax credits within the prescribed carryforward period. Accordingly, a valuation allowance of $0.6 million has been recorded as of and for the six months ended October 31, 2001.
13
Liquidity and Capital Resources
Cash provided by operating activities was $10.8 million for the six months ended October 31, 2001 compared to $8.5 million for the comparable period of 2000. The cash provided by operating activities for the six months ended October 31, 2001 was primarily the result of decreases in inventory.
Cash used in investing activities was $0.3 million for the six months ended October 31, 2001 compared to $4.1 million provided by investing activities for the comparable period in 2000. The cash used in investing activities was primarily for the purchase of equipment in the towing services segment.
Cash used in financing activities was $8.2 million for the six months ended October 31, 2001 and $8.7 million for the comparable period in the prior year. The cash was used primarily to reduce borrowing under Company's credit facilities and other outstanding long-term debt and capital lease obligations.
Availability under the Credit Facility is based on a formula of eligible accounts receivable, inventory and fleet vehicles. Borrowings under the term loan are secured by the Company’s property, plant, and equipment. The Company is required to make monthly amortization payments on the term loan of $167,000. The Credit Facility bears interest at the option of the Company at either the rate of LIBOR plus 2.75% or prime rate (as defined) plus 0.75% on the revolving portion and LIBOR plus 3.0% or prime rate (as defined) plus 1.00% on the term portion.
The subordinated secured facility is by its terms expressly subordinated only to the Credit Facility. The subordinated secured credit facility matures in July 2003 and bears interest at 6.0% over the prime rate. The Company is required to make quarterly amortization payments on the subordinated secured facility of $875,000 beginning not later than May 2002 provided that certain conditions are met, including satisfying a fixed charge coverage ratio test and a minimum availability limit. The subordinated secured facility is secured by certain specified assets of the Company and by a second priority lien and security interest in substantially all other assets of the Company. The subordinated secured facility contains requirements for certain fees to be paid at six month intervals beginning in January 2002 based on the outstanding balance of the subordinated secured facility at the time. The subordinated secured facility also contains provisio ns for the issuance of warrants for up to 0.5% of the outstanding shares of the Company’s common stock in July 2002 and up to an additional 1.5% in July 2003. The number of warrants which may be issued would be reduced pro rata as the balance of the subordinated secured facility is reduced.
In connection with the Credit Facility, during the quarter ended October 31, 2001, the Company put in place derivative transactions that have no material impact on financial position or results of operations.
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. 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.
15
PART II. OTHER INFORMATION
Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Votes cast for or withheld regarding the election of five (5) Directors for a term of one (1) year were as follows:
FOR
Jeffrey I. Badgley
38,168,107
1,025,521
A. Russell Chandler III
38,172,434
1,021,194
Paul A. Drack
38,167,934
1,025,694
William G. Miller
38,163,514
1,030,114
Richard H. Roberts
38,170,824
1,022,804
Votes cast for or against and the number of abstentions regarding the proposal to amend Article Eight of the Charter of the Company to authorize a reverse split of the shares of the Company Common Stock at a ratio of one-for-five were as follows:
For
36,849,631
Against
2,293,324
Abstained
50,673
Exhibits and Reports on Form 8-K
(a)
Exhibits. – None
(b)
Reports on Form 8-K – The Registrant filed a report on Form 8-K on October 4, 2001 under Item 5 and Item 8.
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.
By: /s/ J. Vincent Mish
J. Vincent Mish
Vice President and
Chief Financial Officer
Date: December 17, 2001