Certain statements
in this Quarterly Report on Form 10-Q, including but not limited to statements made in Part I, Item 2–“Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” statements made with respect to future operating
results, expectations of future customer orders and the availability of resources necessary for our business may be deemed to be
forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can
be identified by the use of words such as “may,” “will,” “should,” “could,” “continue,”
“future,” “potential,” “believe,” “project,” “plan,” “intend,”
“seek,” “estimate,” “predict,” “expect,” “anticipate” and similar expressions,
or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying
or relating to any of the foregoing statements. Such forward-looking statements are made based on our management’s beliefs
as well as assumptions made by, and information currently available to, our management. These forward-looking statements are subject
to a number of risks and uncertainties, including, the cyclical nature of our industry and changes in consumer confidence; economic
and market conditions; our customers’ access to capital and credit to fund purchases, including the ability of our customers
to secure floor plan financing; our dependence on outside suppliers of raw materials; changes in the cost of aluminum, steel and
related raw materials; changes in fuel and other transportation costs, insurance costs and weather conditions; changes in government
regulation; foreign currency fluctuation; competitors could impede our ability to attract or retain customers; our ability to develop
or acquire proprietary products and technology; assertions against us relating to intellectual property rights; problems hiring
or retaining skilled labor; a disruption in our information technology systems; the effects of new regulation relating to conflict
minerals; the catastrophic loss of one of our manufacturing facilities; environmental and health and safety liabilities and requirements;
loss of the services of our key executives; product warranty or product liability claims in excess of our insurance coverage; an
inability to acquire insurance at commercially reasonable rates; and those other risks referenced herein, including those risks
referred to in Part II, Item 1A–“Risk Factors” and those risks discussed in our other filings with the Securities
and Exchange Commission, including those risks discussed under the caption “Risk Factors” in our Annual Report on Form
10-K for fiscal 2015, which discussion is incorporated herein by this reference. Such factors are not exclusive. We do not undertake
to update any forward-looking statement that may be made from time to time by, or on behalf of, our company.
|
ITEM 1.
|
FINANCIAL STATEMENTS
|
MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
|
March 31,
2016
(Unaudited)
|
|
|
December 31,
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and temporary investments
|
|
$
|
33,346
|
|
|
$
|
38,449
|
|
Accounts receivable, net of allowance for doubtful accounts of $1,906 and $1,864 at
March 31, 2016 and December 31, 2015, respectively
|
|
|
128,317
|
|
|
|
109,170
|
|
Inventories
|
|
|
71,421
|
|
|
|
66,232
|
|
Prepaid expenses
|
|
|
3,385
|
|
|
|
1,689
|
|
Current deferred income taxes
|
|
|
3,754
|
|
|
|
3,725
|
|
Total current assets
|
|
|
240,223
|
|
|
|
219,265
|
|
PROPERTY, PLANT, AND EQUIPMENT,
net
|
|
|
44,115
|
|
|
|
39,475
|
|
GOODWILL
|
|
|
11,619
|
|
|
|
11,619
|
|
OTHER ASSETS
|
|
|
505
|
|
|
|
496
|
|
|
|
$
|
296,462
|
|
|
$
|
270,855
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
88,203
|
|
|
$
|
73,405
|
|
Accrued liabilities
|
|
|
20,312
|
|
|
|
21,089
|
|
Total current liabilities
|
|
|
108,515
|
|
|
|
94,494
|
|
LONG TERM OBLIGATIONS
|
|
|
10,000
|
|
|
|
—
|
|
DEFERRED INCOME TAX LIABILITIES
|
|
|
2,499
|
|
|
|
2,499
|
|
COMMITMENTS AND CONTINGENCIES
(Notes 6 and 8)
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
Common stock, $.01 par value; 100,000,000 shares authorized, 11,345,560 and 11,341,150, outstanding at March 31, 2016 and December 31, 2015, respectively
|
|
|
113
|
|
|
|
113
|
|
Additional paid-in capital
|
|
|
150,401
|
|
|
|
150,305
|
|
Retained earnings
|
|
|
29,976
|
|
|
|
28,545
|
|
Accumulated other comprehensive income (loss)
|
|
|
(5,042
|
)
|
|
|
(5,101
|
)
|
Total Shareholders’ equity
|
|
|
175,448
|
|
|
|
173,862
|
|
|
|
$
|
296,462
|
|
|
$
|
270,855
|
|
The accompanying notes are an integral part
of these financial statements.
MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
|
|
Three Months
Ended
March 31
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
NET SALES
|
|
$
|
148,815
|
|
|
$
|
126,788
|
|
COSTS OF OPERATIONS
|
|
|
135,845
|
|
|
|
114,836
|
|
GROSS PROFIT
|
|
|
12,970
|
|
|
|
11,952
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
8,010
|
|
|
|
7,440
|
|
Interest expense, net
|
|
|
198
|
|
|
|
163
|
|
Other (income) expense, net
|
|
|
(341
|
)
|
|
|
56
|
|
Total operating expenses
|
|
|
7,867
|
|
|
|
7,659
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
5,103
|
|
|
|
4,293
|
|
INCOME TAX PROVISION
|
|
|
1,743
|
|
|
|
1,229
|
|
NET INCOME
|
|
$
|
3,360
|
|
|
$
|
3,064
|
|
|
|
|
|
|
|
|
|
|
BASIC INCOME PER COMMON SHARE
|
|
$
|
0.30
|
|
|
$
|
0.27
|
|
DILUTED INCOME PER COMMON SHARE
|
|
$
|
0.30
|
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
CASH DIVIDENDS DECLARED PER COMMON SHARE
|
|
$
|
0.17
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,345
|
|
|
|
11,315
|
|
Diluted
|
|
|
11,373
|
|
|
|
11,367
|
|
The accompanying notes are an integral part
of these financial statements.
MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
|
Three Months Ended
March 31
|
|
|
|
2016
|
|
|
2015
|
|
net income
|
|
$
|
3,360
|
|
|
$
|
3,064
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
59
|
|
|
|
(2,068
|
)
|
Total other comprehensive income (loss)
|
|
|
59
|
|
|
|
(2,068
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
3,419
|
|
|
$
|
996
|
|
The accompanying notes are an integral part
of these financial statements.
MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In thousands)
(Unaudited)
|
|
Three Months Ended
March 31
|
|
|
|
2016
|
|
|
2015
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,360
|
|
|
$
|
3,064
|
|
Adjustments to reconcile net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,103
|
|
|
|
1,032
|
|
Provision for doubtful accounts
|
|
|
43
|
|
|
|
52
|
|
Excess tax benefit from stock-based compensation
|
|
|
—
|
|
|
|
(101
|
)
|
Issuance of non-employee director shares
|
|
|
96
|
|
|
|
96
|
|
Deferred income tax provision
|
|
|
(23
|
)
|
|
|
(19
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(19,735
|
)
|
|
|
(272
|
)
|
Inventories
|
|
|
(5,362
|
)
|
|
|
(6,071
|
)
|
Prepaid expenses
|
|
|
(1,712
|
)
|
|
|
(2,629
|
)
|
Other assets
|
|
|
(10
|
)
|
|
|
(306
|
)
|
Accounts payable
|
|
|
14,400
|
|
|
|
9,878
|
|
Accrued liabilities
|
|
|
149
|
|
|
|
(1,667
|
)
|
Net cash flows from (used in) operating activities
|
|
|
(7,691
|
)
|
|
|
3,057
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(5,749
|
)
|
|
|
(1,416
|
)
|
Payments received on notes receivable
|
|
|
—
|
|
|
|
1
|
|
Net cash flows from (used in) investing activities
|
|
|
(5,749
|
)
|
|
|
(1,415
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net borrowings under credit facility
|
|
|
10,000
|
|
|
|
—
|
|
Payments of cash dividends
|
|
|
(1,929
|
)
|
|
|
(1,809
|
)
|
Proceeds from stock option exercises
|
|
|
—
|
|
|
|
85
|
|
Excess tax benefit from stock-based compensation
|
|
|
—
|
|
|
|
101
|
|
Net cash flows from (used in) financing activities
|
|
|
8,071
|
|
|
|
(1,623
|
)
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND TEMPORARY INVESTMENTS
|
|
|
266
|
|
|
|
(1,311
|
)
|
NET CHANGE IN CASH AND TEMPORARY INVESTMENTS
|
|
|
(5,103
|
)
|
|
|
(1,292
|
)
|
CASH AND TEMPORARY INVESTMENTS, beginning of period
|
|
|
38,449
|
|
|
|
39,597
|
|
CASH AND TEMPORARY INVESTMENTS, end of period
|
|
$
|
33,346
|
|
|
$
|
38,305
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
$
|
336
|
|
|
$
|
328
|
|
Cash payments for income taxes, net of refunds
|
|
$
|
1,817
|
|
|
$
|
1,649
|
|
The accompanying notes are an integral part
of these financial statements.
MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
(in thousands, except share data and
except as otherwise noted)
The condensed consolidated financial statements
of Miller Industries, Inc. and subsidiaries (the “Company”) included herein have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations. Nevertheless, the Company believes that the disclosures
are adequate to make the financial information presented not misleading. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, to present fairly
the Company’s financial position, results of operations and cash flows at the dates and for the periods presented. Cost of
goods sold for interim periods for certain entities is determined based on estimated gross profit rates. Interim results of operations
are not necessarily indicative of results to be expected for the fiscal year.
These condensed consolidated financial
statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
The condensed consolidated financial statements include accounts of certain subsidiaries whose fiscal closing dates differ from
December 31
st
by 31 days (or less) to facilitate timely reporting. Certain prior year amounts have been reclassified
to conform to current year presentation, with no impact on previously reported shareholders’ equity. The Company evaluated
subsequent events through the date the financial statements were issued.
|
2.
|
BASIC AND DILUTED INCOME PER SHARE
|
Basic income per share is computed by dividing
net income by the weighted average number of common shares outstanding. Diluted income per share is calculated by dividing net
income by the weighted average number of common and potential dilutive common shares outstanding. Diluted income per share takes
into consideration the assumed exercise of outstanding stock options resulting in approximately 28,000 and 52,000 potential dilutive
common shares for the three months ended March 31, 2016 and 2015, respectively. For the three months ended March 31, 2016 and 2015,
none of the outstanding stock options would have been anti-dilutive.
Inventory costs include materials, labor
and factory overhead. Inventories are stated at the lower of cost or market (net realizable value), determined on a first-in, first-out
basis. Appropriate consideration is given to obsolescence, valuation and other factors in determining net realizable value. Revisions
of these estimates could result in the need for adjustments. Inventories, net of reserves, at March 31, 2016 and December 31, 2015
consisted of the following:
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Chassis
|
|
$
|
7,720
|
|
|
$
|
8,048
|
|
Raw materials
|
|
|
30,413
|
|
|
|
28,328
|
|
Work in process
|
|
|
12,457
|
|
|
|
10,850
|
|
Finished goods
|
|
|
20,831
|
|
|
|
19,006
|
|
|
|
$
|
71,421
|
|
|
$
|
66,232
|
|
|
|
|
|
|
|
|
|
|
The Company periodically reviews the carrying
amount of its long-lived assets to determine if those assets may be recoverable based upon the future operating cash flows expected
to be generated by those assets. Management believes that its long-lived assets are appropriately valued.
Goodwill consists of the excess of cost
of acquired entities over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed. Goodwill is
not amortized. However, the Company evaluates the carrying value of goodwill for impairment at least annually or if an event or
circumstance occurs that would indicate that the carrying amount had been impaired. The Company reviews goodwill for impairment
utilizing a qualitative assessment or a two-step process. If we choose to perform a qualitative analysis of goodwill and determine
that the fair value more likely than not exceeds the carrying value, no further testing is needed. If we choose the two-step approach
or if qualitative analysis determines the carrying value more likely than not exceeds fair value, the first step identifies potential
impairment by comparing the fair value of the reporting unit with its carrying value. If the fair value exceeds the carrying value
the second step is not necessary. If the carrying value is more than the fair value, the second step of testing is performed to
compare the fair value of the goodwill with its carrying value. An impairment loss would be recognized to the extent that the carrying
value of the goodwill exceeds its fair value.
Credit Facility and Other Long-Term Obligations
Credit Facility
On April 6, 2010 we entered into a Loan
Agreement with First Tennessee Bank National Association for a $20,000 unsecured revolving credit facility. On December 21, 2011,
the credit facility was renewed and our unsecured revolving credit facility was increased to $25,000. On December 30, 2014, the
credit facility was further renewed to extend the maturity date to March 31, 2017. On June 11, 2015, the credit facility was further
renewed to extend the maturity date to March 31, 2018 and our unsecured revolving credit facility was increased to $30,000 to give
the Company greater flexibility to finance current capital expenditure projects. The current credit facility contains customary
representations and warranties, events of default, and financial, affirmative and negative covenants for loan agreements of this
kind. Covenants under the current credit facility restrict the payment of cash dividends if the Company would be in violation of
the minimum tangible net worth test or the leverage ratio test in the current loan agreement as a result of the dividend, among
various restrictions.
In the absence of a default, all borrowings
under the current credit facility bear interest at the LIBOR Rate plus 1.50% per annum. The Company will pay a non-usage fee under
the current loan agreement at a rate per annum equal to between 0.15% and 0.35% of the unused amount of the current credit facility,
which fee shall be paid quarterly.
At March 31, 2016 and December 31, 2015,
the Company had $10,000 and $0 outstanding borrowings under the credit facility, respectively.
Interest Rate Risk
Changes in interest rates affect the interest
paid on indebtedness under the credit facility because outstanding amounts of indebtedness under the credit facility are subject
to variable interest rates. Under the credit facility, the non-default rate of interest was equal to the LIBOR Market Index Rate
plus 1.50% per annum (for a rate of interest of 1.93% at March 31, 2016). At the borrowing level under the credit facility at March
31, 2016, a one percent change in the interest rate on our variable-rate debt would not have a material impact on our financial
position, results of operations or cash flows for the three-month period ended March 31, 2016.
Other Long-Term Obligations
At March 31, 2016, the Company had approximately $1,416 in non-cancelable
operating lease obligations.
|
7.
|
STOCK-BASED COMPENSATION
|
The Company did not issue any stock options
during the three months ended March 31, 2016. For additional disclosures related to the Company’s stock-based compensation
refer to Notes 2 and 4 of the Notes to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2015.
During the three months ended March 31,
2016 and 2015, no options were exercised in 2016 and 15,500 shares of common stock at a weighted-average exercise price of $5.49
were exercised in 2015, respectively.
|
8.
|
COMMITMENTS AND CONTINGENCIES
|
Commitments
The Company has entered into arrangements
with third-party lenders where it has agreed, in the event of default by a customer, to repurchase from the third-party lender
Company products repossessed from the customer. These arrangements are typically subject to a maximum repurchase amount. The maximum
amount of collateral that the Company could be required to purchase was approximately $39,281 at March 31, 2016, and $38,334 at
December 31, 2015. However, the Company’s risk under these arrangements is mitigated by the value of the products that would
be repurchased as part of the transaction. The Company considered the fair value at inception of its liability under these arrangements
and concluded that the liability associated with these potential repurchase obligations is not material and not probable at March
31, 2016.
At March 31, 2016, the Company had commitments
of approximately $13,549 for construction and acquisition of property, plant and equipment. The Company is in the process of consolidating
and expanding its Pennsylvania manufacturing operations to increase capacity and improve operating efficiencies. The plan includes
consolidating primary manufacturing operations at one location while plans for the remaining plant location continue to be evaluated.
The current estimated costs of this project are approximately $23,712, including machinery and equipment, buildings and improvements
and land. Approximately $11,972 of these costs were incurred as of March 31, 2016 and are included in property, plant and equipment,
net on the consolidated balance sheets. The remainder of these costs is expected to be incurred during 2016. The timing and costs
of the project are subject to change. We do not anticipate any employee severance costs or any material relocation expense associated
with the consolidation since the two existing facilities are very close to each other.
The Company also recently began several
capital projects involving machinery and equipment and building improvements at its Ooltewah, Tennessee and Greeneville, Tennessee
facilities that it estimates will cost in total approximately $15,233 through the end of 2016. Approximately $1,270 of these costs
were incurred as of March 31, 2016.
Contingencies
The Company is, from time to time, a party
to litigation arising in the normal course of its business. Litigation is subject to various inherent uncertainties, and it is
possible that some of these matters could be resolved unfavorably to the Company, which could result in substantial damages against
the Company. The Company has established accruals for matters that are probable and reasonably estimable and maintains product
liability and other insurance that management believes to be adequate. Management believes that any liability that may ultimately
result from the resolution of these matters in excess of available insurance coverage and accruals will not have a material adverse
effect on the consolidated financial position or results of operations of the Company.
At March 31, 2016 and December 31, 2015,
the Company had no unrecognized income tax positions recorded. The Company does not expect its unrecognized tax positions to change
significantly in the next twelve months. If unrecognized tax positions existed, the interest and penalties related to the unrecognized
tax positions would be recorded as income tax expense in the condensed consolidated statements of income.
The Company is subject to United States
federal income taxes, as well as income taxes in various states and foreign jurisdictions. The Company’s tax years 2012 through
2014 remain open to examination for U.S. federal income taxes. With few exceptions, the Company is no longer subject to state or
non-U.S. income tax examinations prior to 2012.
Dividends
The Company has paid consecutive quarterly
cash dividends since May 2011. Dividend payments made for 2016, 2015, 2014 and 2013 were as follows:
Payment
|
|
Record Date
|
|
Payment Date
|
|
Dividend
(per share)
|
|
|
Amount
|
|
Q1 2013
|
|
March 18, 2013
|
|
March 25, 2013
|
|
$
|
0.14
|
|
|
$
|
1,569
|
|
Q2 2013
|
|
June 17, 2013
|
|
June 24, 2013
|
|
|
0.14
|
|
|
|
1,573
|
|
Q3 2013
|
|
September 16, 2013
|
|
September 23, 2013
|
|
|
0.14
|
|
|
|
1,575
|
|
Q4 2013
|
|
December 9, 2013
|
|
December 16, 2013
|
|
|
0.14
|
|
|
|
1,577
|
|
Total for 2013
|
|
|
|
|
|
$
|
0.56
|
|
|
$
|
6,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 2014
|
|
March 17, 2014
|
|
March 24, 2014
|
|
$
|
0.15
|
|
|
$
|
1,692
|
|
Q2 2014
|
|
June 16, 2014
|
|
June 23, 2014
|
|
|
0.15
|
|
|
|
1,695
|
|
Q3 2014
|
|
September 15, 2014
|
|
September 22, 2014
|
|
|
0.15
|
|
|
|
1,696
|
|
Q4 2014
|
|
December 8, 2014
|
|
December 15, 2014
|
|
|
0.15
|
|
|
|
1,695
|
|
Total for 2014
|
|
|
|
|
|
$
|
0.60
|
|
|
$
|
6,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 2015
|
|
March 20, 2015
|
|
March 23, 2015
|
|
$
|
0.16
|
|
|
$
|
1,809
|
|
Q2 2015
|
|
June 15, 2015
|
|
June 19, 2015
|
|
|
0.16
|
|
|
|
1,814
|
|
Q3 2015
|
|
September 14, 2015
|
|
September 21, 2015
|
|
|
0.16
|
|
|
|
1,815
|
|
Q4 2015
|
|
December 7, 2015
|
|
December 11, 2015
|
|
|
0.16
|
|
|
|
1,815
|
|
Total for 2015
|
|
|
|
|
|
$
|
0.64
|
|
|
$
|
7,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 2016
|
|
March 21, 2016
|
|
March 28, 2016
|
|
$
|
0.17
|
|
|
$
|
1,929
|
|
Total for 2016
|
|
|
|
|
|
$
|
0.17
|
|
|
$
|
1,929
|
|
On May 2, 2016, the Company’s Board
of Directors declared a quarterly cash dividend of $0.17 per share. The dividend is payable June 20, 2016 to shareholders of
record as of June 13, 2016.
|
11.
|
GEOGRAPHIC INFORMATION
|
Net sales and long-lived assets (property,
plant and equipment and goodwill and intangible assets) by region were as follows (revenue is attributed to regions based on the
locations of customers):
|
|
|
|
|
|
For the Three Months Ended
March 31
|
|
|
|
2016
|
|
|
2015
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
133,620
|
|
|
$
|
108,450
|
|
Foreign
|
|
|
15,195
|
|
|
|
18,338
|
|
|
|
$
|
148,815
|
|
|
$
|
126,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Long Lived Assets:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
53,166
|
|
|
$
|
48,589
|
|
Foreign
|
|
|
2,568
|
|
|
|
2,505
|
|
|
|
$
|
55,734
|
|
|
$
|
51,094
|
|
|
|
|
|
|
|
|
|
|
No single customer accounted for 10% or
more of consolidated net sales for the three months ended March 31, 2016 and 2015.
|
13.
|
OTHER (INCOME) EXPENSE
|
Other (income) expense for the three months
ended March 31, 2016 consisted of a foreign currency transaction gain of $341. For the three months ended March 31, 2015, other
(income) expense consisted of a foreign currency transaction loss of $56.
|
14.
|
Fair Value of
Financial Instruments
|
For assets and liabilities measured at
fair value on a recurring and nonrecurring basis, a three-level hierarchy of measurements based upon observable and unobservable
inputs is used to arrive at fair value. Observable inputs are developed based on market data obtained from independent sources,
while unobservable inputs reflect our assumptions about valuation based on the best information available in the circumstances.
Depending on the inputs, we classify each fair value measurement as follows:
Level 1—based upon quoted prices for
identical
instruments in active markets,
Level 2—based upon quoted prices for
similar
instruments,
prices for identical or similar instruments in markets that are not active, or model-derived valuations, all of whose significant
inputs are observable, and
Level 3—based upon one or more significant unobservable
inputs.
The carrying values of cash and temporary
investments, accounts receivable, accounts payable and accrued liabilities are reasonable estimates of their fair values because
of the short maturity of these financial instruments.
The fair value of derivative assets and
liabilities are measured assuming that the unit of account is an individual derivative transaction and that each derivative could
be sold or transferred on a stand-alone basis. We classify within Level 2 our forward foreign currency exchange contracts based
upon quoted prices for similar instruments that are actively traded. For more information regarding derivatives, see Note 15,
Derivative
Financial Instruments
.
|
15.
|
Derivative
Financial Instruments
|
The Company periodically enters into foreign
currency exchange contracts designed to mitigate the impact of foreign currency risk. At March 31, 2016 and December 31, 2015,
the Company had no outstanding foreign currency exchange contracts.
|
16.
|
RECENT ACCOUNTING PRONOUNCEMENTS
|
Recently Issued Standards
In May 2014, the Financial Accounting Standards Board (“FASB”)
issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that
an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration
the entity receives or expects to receive. The guidance will be effective for the Company for reporting periods beginning after
December 15, 2017. The Company does not expect these amendments to have a material effect on its consolidated financial statements.
In July 2015, the FASB issued amendments to the Inventory topic
of the Accounting Standards Codification to require inventory to be measured at the lower of cost and net realizable value. Other
than the change in the subsequent measurement guidance from the lower of cost or market to the lower of cost and net realizable
value for inventory, there are no other substantive changes to the guidance on measurement of inventory. The amendments will be
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption
permitted. The Company does not expect these amendments to have a material effect on its consolidated financial statements.
In November 2015, the FASB amended the Income Taxes topic of
the Accounting Standards Codification to simplify the presentation of deferred income taxes by requiring that deferred tax liabilities
and assets be classified as noncurrent in a classified statement of financial position. The amendments will be effective for financial
statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early
adoption permitted as of the beginning of an interim or annual reporting period. The Company will apply the guidance retrospectively.
The Company does not expect these amendments to have a material effect on its consolidated financial statements.
The FASB's new leases standard Accounting Standard Update (“ASU”)
2016-02 Leases (Topic 842) was issued on February 25, 2016 and is intended to improve financial reporting about leasing transactions.
The standard affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing
equipment. The standard will require organizations that lease assets referred to as “Lessees” to recognize on the balance
sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures
designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases.
These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded
in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with
lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and
cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However,
unlike current GAAP which requires only capital leases to be recognized on the balance sheet the new standard will require both
types of leases (i.e. operating and capital) to be recognized on the balance sheet. The FASB lessee accounting model will continue
to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases
are accounted for under existing GAAP. The operating lease will be accounted for in a manner similar to operating leases under
existing GAAP, except that lessees will recognize a lease liability and a lease asset for all of those leases.
The standard will be effective for financial statements issued
for annual periods, and interim periods within these annual periods, beginning December 15, 2018, with early adoption permitted.
See Note 5 for the Company’s current lease commitments. The Company is currently in the process of evaluating the impact
that this new leasing standard will have on its financial statements.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
Executive Overview
Miller Industries, Inc. is The World’s
Largest Manufacturer of Vehicle Towing and Recovery Equipment
®
, with domestic manufacturing subsidiaries in Tennessee
and Pennsylvania, and foreign manufacturing subsidiaries in France and the United Kingdom. We offer a broad range of equipment
to meet our customers’ design, capacity and cost requirements under our Century
®
, Vulcan
®
,
Challenger
®
, Holmes
®
, Champion
®
, Chevron™, Eagle
®
, Titan
®
,
Jige™ and Boniface™ brand names. In this Item 2 – “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” the words “Miller Industries,” “the Company,” “we,”
“our,” “ours” and “us” refer to Miller Industries, Inc. and its subsidiaries or any of them.
Our management focuses on a variety of
key indicators to monitor our overall operating and financial performance. These indicators include measurements of revenue, operating
income, gross margin, earnings per share, capital expenditures and cash flow.
We derive revenues primarily from product
sales made through our network of domestic and foreign independent distributors. Our revenues are sensitive to a variety of factors
including general economic conditions as well as demand for, and price of, our products, our technological competitiveness, our
reputation for providing quality products and reliable service, competition within our industry, and the cost of raw materials
(including aluminum, steel and petroleum-related products).
Our industry is cyclical in nature. In
recent years, the overall demand for our products and resulting revenues have been positively affected by recovering economic conditions
and improving consumer sentiment. However, historically, the overall demand for our products and our resulting revenues have at
times been negatively affected by:
|
•
|
wavering levels of consumer confidence;
|
|
•
|
volatility and disruption in domestic and international capital and credit markets and the resulting decrease in the availability
of financing, including floor plan financing, for our customers and towing operators;
|
|
•
|
significant periodic increases in fuel and insurance costs and their negative effect on the ability of our customers to purchase
towing and related equipment; and
|
|
•
|
the overall effects of the global economic downturn.
|
We remain concerned about the continuing
effects of these factors on the towing and recovery industry, and we continue to monitor our overall cost structure to see that
it remains in line with business conditions.
In addition, we have been and will continue
to be affected by changes in the prices that we pay for raw materials, particularly aluminum, steel, petroleum-related products
and other raw materials, which represent a substantial part of our total cost of operations. In the past, as we have determined
necessary, we have implemented price increases to offset higher costs. We also developed alternatives to some of the components
used in our production process that incorporate these raw materials, and our suppliers have implemented these alternatives in the
production of our component parts. We continue to monitor raw material prices and availability in order to more favorably position
the Company in this dynamic market.
At March 31, 2016 and December 31, 2015,
the Company had $10,000 and $0 outstanding borrowings under the credit facility, respectively.
Critical Accounting Policies
Our condensed consolidated financial statements
are prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make
estimates. Certain accounting policies are deemed “critical,” as they require management’s highest degree of
judgment, estimates and assumptions. A discussion of critical accounting policies, the judgments and uncertainties affecting their
application and the likelihood that materially different amounts would be reported under different conditions or using different
assumptions follows:
Accounts receivable
We extend credit to customers in the normal
course of business. Collections from customers are continuously monitored and an allowance for doubtful accounts is maintained
based on historical experience and any specific customer collection issues. While such bad debt expenses have historically been
within expectations and the allowance established, there can be no assurance that we will continue to experience the same credit
loss rates as in the past.
Inventory
Inventory costs include materials, labor
and factory overhead. Inventories are stated at the lower of cost or market (net realizable value), determined on a first-in, first-out
basis. Appropriate consideration is given to obsolescence, valuation and other factors in determining net realizable value. Revisions
of these estimates could result in the need for adjustments.
Long-lived assets
Long-lived assets are reviewed for impairment
whenever events or circumstances indicate that the carrying amount of these assets may not be fully recoverable. When a determination
has been made that the carrying amount of long-lived assets may not be fully recovered, the amount of impairment is measured by
comparing an asset’s estimated fair value to its carrying value. The determination of fair value is based on projected future
cash flows discounted at a rate determined by management or, if available, independent appraisals or sales price negotiations.
The estimation of fair value includes significant judgment regarding assumptions of revenue, operating costs, interest rates, property
and equipment additions, and industry competition and general economic and business conditions among other factors. We believe
that these estimates are reasonable, however, changes in any of these factors could affect these evaluations. Based on these estimations,
we believe that our long-lived assets are appropriately valued.
Goodwill
Goodwill is tested for impairment annually
or if an event or circumstance occurs that would more likely than not reduce the fair value of the reporting unit below the carrying
amount. We review goodwill for impairment utilizing a qualitative assessment or a two-step approach. If we choose to perform a
qualitative analysis of goodwill and determine that the fair value more likely than not exceeds the carrying value, no further
testing is needed. If we choose the two-step approach or if qualitative analysis determines the carrying value more likely than
not exceeds fair value, the first step identifies potential impairment by comparing the fair value of the reporting unit with its
carrying value. If the fair value exceeds the carrying value the second step is not necessary. If the carrying value is more than
the fair value, the second step of testing is performed to compare the fair value of the goodwill with its carrying value. An impairment
loss would be recognized to the extent that the carrying value of the goodwill exceeds its fair value. We cannot predict the occurrence
of certain events or changes in circumstances that might adversely affect the carrying value of goodwill. Such events might include,
but are not limited to, the impact of the economic environment or a material change in a relationship with significant customers.
Warranty reserves
We estimate expense for product warranty
claims at the time products are sold. These estimates are established using historical information about the nature, frequency,
and average cost of warranty claims. We review trends of warranty claims and take actions to improve product quality and minimize
warranty claims. We believe the warranty reserve is adequate; however, actual claims incurred could differ from the original estimates,
requiring adjustments to the accrual.
Income taxes
We recognize deferred tax assets and liabilities
based on differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We consider
the need to record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.
We consider tax loss carryforwards, reversal of deferred tax liabilities, tax planning and estimates of future taxable income in
assessing the need for a valuation allowance. If unrecognized tax positions exist, we record interest and penalties related to
the unrecognized tax positions as income tax expense in our condensed consolidated statement of income.
Revenues
Under our accounting policies, revenues
are recorded when the risk of ownership for products has transferred to independent distributors or other customers, which generally
occurs on shipment. From time to time, revenue is recognized under a bill and hold arrangement. Recognition of revenue on bill
and hold arrangements occurs when risk of ownership has passed to the customer, a fixed written commitment has been provided by
the customer, the goods are complete and ready for shipment, the goods are segregated from inventory, no performance obligation
remains, and a schedule for delivery has been established. While we manufacture only the bodies of wreckers, which are installed
on truck chassis manufactured by third parties, we frequently purchase the truck chassis for resale to our customers. Sales of
company-purchased truck chassis are included in net sales. Margins are substantially lower on completed recovery vehicles containing
company-purchased chassis because the markup over the cost of the chassis is nominal.
Foreign Currency Translation
The functional currency for our foreign
operations is the applicable local currency. The translation from the applicable foreign currencies to U.S. dollars is performed
for balance sheet accounts using current exchange rates in effect at the balance sheet date, historical rates for equity and the
weighted average exchange rate during the period for revenue and expense accounts. Foreign currency translation adjustments are
included in shareholders’ equity. Intercompany debt denominated in a currency other than the functional currency is remeasured
into the functional currency. Gains and losses resulting from foreign currency transactions are included in other income and expense
in our condensed consolidated statements of income.
Results of Operations–Three Months Ended March 31,
2016 Compared to Three Months Ended March 31, 2015
Net sales for the three months ended March
31, 2016 increased 17.4% to $148,815 from $126,788 for the comparable period in 2015. The increase in revenue was primarily attributable
to increased demand levels in our domestic markets and corresponding increases in production levels based on recovering economic
conditions and improving consumer sentiment.
Costs of operations for the three months
ended March 31, 2016 increased 18.3% to $135,845 from $114,836 for the comparable period in 2015, which was attributable to the
increased demand levels and increased production. Overall, costs of operations increased slightly as a percentage of sales from
90.6% to 91.3%.
Selling, general, and administrative expenses
for the three months ended March 31, 2016 increased to $8,010 from $7,440 for the three months ended March 31, 2015. As a percentage
of sales, selling, general, and administrative expenses decreased to 5.4% for the three months ended March 31, 2016 from 5.9% for
the three months ended March 31, 2015 due to the fixed nature of certain of these expenses. Additionally, decreases in selling,
general and administrative expenses as a percentage of sales resulted from lower sales-related expenses due to product mix during
the quarter, as well as our continued focus on cost control.
Total interest expense increased to $198
from $163 for the three months ended March 31, 2016 as compared to the prior year period. Increases in interest expense were primarily
due to increases in interest on distributor floor planning and on chassis purchases and borrowings under the credit facility.
Other (income) expense relates to foreign
currency transaction gains and losses. For the three months ended March 31, 2016, other (income) expense was a net gain of $341,
compared to a net loss of $56 for the three months ended March 31, 2015.
The provision for income taxes for the
three months ended March 31, 2016 and 2015 reflects a combined effective U.S. federal, state and foreign tax rate of 34.2% and
28.6%, respectively. The lower effective tax rate in the three month period ended March 31, 2015 resulted primarily from the lower
corporate tax rates on the earnings of the European subsidiaries.
Liquidity and Capital Resources
Cash used by operating activities was $7,693
for the three months ended March 31, 2016, compared to cash provided by operating activities of $3,057 for the comparable period
in 2015. The cash provided by operating activities for the 2016 period was primarily attributable to consolidated net income. Cash
used by operating activities reflects increases in accounts receivable due to increases in net sales as well as increases in inventory
offset by increases in other components of working capital, including accounts payable. Certain components of accounts receivable
and accounts payable have extended collection and payment terms.
Cash used in investing activities was $5,749
for the three months ended March 31, 2016 compared to $1,415 for the comparable period in 2015. The cash used in investing activities
for the 2016 period was primarily for the purchase of property, plant and equipment relating to the capital projects described
below.
Cash provided by financing activities was
$8,071 for the three months ended March 31, 2016, compared to cash used in financing activities of $1,623 for the comparable period
in 2015. The cash provided by financing activities for the 2016 period resulted from borrowings on the credit facility of $10,000
offset by the cash used to pay dividends for the 2016 period of $1,929.
As of March 31, 2016, we had cash and cash
equivalents of $33,346, exclusive of unused availability under our credit facility. Our primary cash requirements include working
capital, capital expenditures, the funding of any declared cash dividends and principal payments on indebtedness, if any, under
our credit facility. At March 31, 2016, the Company had commitments of approximately $13,549 for construction and acquisition of
property and equipment. We expect our primary sources of cash to be cash flow from operations and cash and cash equivalents on
hand at March 31, 2016, with borrowings under our credit facility being available if needed. We expect these sources to be sufficient
to satisfy our cash needs during 2016 and for the next several years. However, our ability to satisfy our cash needs will substantially
depend upon a number of factors including our future operating performance, taking into account the economic and other factors
discussed above and elsewhere in this Quarterly Report, as well as financial, business and other factors, many of which are beyond
our control.
As of March 31, 2016 and December 31, 2015,
$21,180 and $18,145, respectively, of the Company’s cash and temporary investments were held by foreign subsidiaries and
their holdings are generally based in the local currency. Amounts held by foreign subsidiaries are generally subject to U.S. income
taxation on repatriation to the U.S.
The Company is in the process of consolidating
and expanding its Pennsylvania manufacturing operations to increase capacity and improve operating efficiencies. The plan includes
consolidating primary manufacturing operations at one location while plans for the remaining plant location continue to be evaluated.
The current estimated costs of this project are approximately $23,712, including machinery and equipment, buildings and improvements
and land. Approximately $11,972 of these costs were incurred as of March 31, 2016 and are included in property, plant and equipment,
net on the consolidated balance sheets. The remainder of these costs is expected to be incurred during 2016. The timing and costs
of the project are subject to change. We do not anticipate any employee severance costs or any material relocation expense associated
with the consolidation since the two existing facilities are very close to each other.
The Company also recently began several
capital projects involving machinery and equipment and building improvements at its Ooltewah, Tennessee and Greeneville, Tennessee
facilities that it estimates will cost in total approximately $15,233 through the end of 2016. Approximately $1,270 of these costs
were incurred as of March 31, 2016.
Credit Facilities and Other Obligations
Credit Facility
On April 6, 2010 we entered into a Loan
Agreement with First Tennessee Bank National Association for a $20,000 unsecured revolving credit facility. On December 21, 2011,
the credit facility was renewed and our unsecured revolving credit facility was increased to $25,000. On December 30, 2014, the
credit facility was further renewed to extend the maturity date to March 31, 2017. On June 11, 2015, the credit facility was further
renewed to extend the maturity date to March 31, 2018 and our unsecured revolving credit facility was increased to $30,000 to give
the Company greater flexibility to finance current capital expenditure projects. The current credit facility contains customary
representations and warranties, events of default, and financial, affirmative and negative covenants for loan agreements of this
kind. Covenants under the current credit facility restrict the payment of cash dividends if the Company would be in violation of
the minimum tangible net worth test or the leverage ratio test in the current loan agreement as a result of the dividends, among
various other restrictions.
In the absence of a default, all borrowings
under the credit facility bear interest at the LIBOR Rate plus 1.50% per annum. The Company will pay a non-usage fee under the
current loan agreement at a rate per annum equal to between 0.15% and 0.35% of the unused amount of the credit facility, which
fee shall be paid quarterly.
At March 31, 2016 and December 31, 2015,
the Company had $10,000 and $0 outstanding borrowings under the credit facility, respectively.
Other Long-Term Obligations
At March 31, 2016, we had approximately
$1,416 in non-cancelable operating lease obligations.