UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_______________
FORM
10-Q
x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the
quarterly period ended |
March
31, 2005 |
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the
transition period from _______________________________________
to __________________________________________________
Commission file number |
0-24298 |
MILLER
INDUSTRIES, INC. |
(Exact
Name of Registrant as Specified in Its
Charter) |
Tennessee |
62-1566286 |
(State
or Other Jurisdiction of Incorporation or Organization) |
(I.R.S.
Employer Identification No.) |
|
|
8503
Hilltop Drive
Ooltewah,
Tennessee |
37363 |
(Address
of Principal Executive Offices) |
(Zip
Code) |
(423)
238-4171 |
(Registrant’s Telephone Number, Including
Area Code) |
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.
Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
The
number of shares outstanding of the registrant’s common stock, par value $.01
per share, as of April 29, 2005 was 11,196,876.
|
|
Page
Number |
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PART
I |
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Item
1. |
|
3 |
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3 |
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4 |
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5 |
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6 |
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Item
2. |
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13 |
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Item
4. |
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19 |
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PART
II |
|
20 |
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Item
1. |
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20 |
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Item
6. |
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20 |
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21 |
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
(In
thousands, except share data)
|
|
March
31, 2005 (Unaudited) |
|
December
31, 2004 |
|
ASSETS |
|
|
|
|
|
|
|
CURRENT
ASSETS: |
|
|
|
|
|
|
|
Cash
and temporary investments |
|
$ |
2,661 |
|
$ |
2,812 |
|
Accounts
receivable, net of allowance for doubtful accounts of $1,279 and $1,116 at
March 31, 2005 and December 31, 2004, respectively |
|
|
59,123 |
|
|
49,336 |
|
Inventories,
net |
|
|
42,061 |
|
|
34,994 |
|
Prepaid
expenses and other |
|
|
3,509 |
|
|
1,525 |
|
Current
assets of discontinued operations held for sale |
|
|
4,537 |
|
|
5,728 |
|
Total
current assets |
|
|
111,891 |
|
|
94,395 |
|
PROPERTY,
PLANT, AND EQUIPMENT, net |
|
|
18,247 |
|
|
18,762 |
|
GOODWILL,
net |
|
|
11,619 |
|
|
11,619 |
|
OTHER
ASSETS |
|
|
1,719 |
|
|
1,918 |
|
NONCURRENT
ASSETS OF DISCONTINUED OPERATIONS HELD
FOR SALE |
|
|
1,000 |
|
|
1,128 |
|
|
|
$ |
144,476 |
|
$ |
127,822 |
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
CURRENT
LIABILITIES: |
|
|
|
|
|
|
|
Current
portion of long-term obligations |
|
$ |
6,322 |
|
$ |
2,052 |
|
Accounts
payable |
|
|
46,579 |
|
|
36,224 |
|
Accrued
liabilities and other |
|
|
8,197 |
|
|
5,736 |
|
Current
liabilities of discontinued operations held for sale |
|
|
9,021 |
|
|
10,405 |
|
Total
current liabilities |
|
|
70,119 |
|
|
54,417 |
|
LONG-TERM
OBLIGATIONS,
less current portion |
|
|
23,528 |
|
|
24,345 |
|
NONCURRENT
LIABILITIES OF DISCONTINUED OPERATIONS HELD FOR
SALE |
|
|
1,999 |
|
|
2,275 |
|
COMMITMENTS
AND CONTINGENCIES (Notes
6 and 9) |
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY: |
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; 5,000,000 shares authorized, none issued or
outstanding |
|
|
0 |
|
|
0 |
|
Common
stock, $.01 par value; 100,000,000 shares authorized, 11,196,816 and
11,182,606 outstanding at March 31, 2005 and December 31, 2004,
respectively |
|
|
112 |
|
|
112 |
|
Additional
paid-in capital |
|
|
157,302 |
|
|
157,202 |
|
Accumulated
deficit |
|
|
(110,443 |
) |
|
(112,468 |
) |
Accumulated
other comprehensive income |
|
|
1,859 |
|
|
1,939 |
|
Total
shareholders’ equity |
|
|
48,830 |
|
|
46,785 |
|
|
|
$ |
144,476 |
|
$ |
127,822 |
|
The
accompanying notes are an integral part of these financial
statements.
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(In
thousands, except per share data)
(Unaudited)
|
|
Three
Months Ended
March
31, |
|
|
|
2005 |
|
2004 |
|
NET
SALES: |
|
$ |
76,896 |
|
$ |
46,158 |
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES: |
|
|
|
|
|
|
|
Costs
of Operations |
|
|
67,914 |
|
|
39,370 |
|
Selling,
general and administrative expenses |
|
|
5,506 |
|
|
4,459 |
|
Interest
expense, net |
|
|
1,163 |
|
|
1,044 |
|
Total
costs and expenses |
|
|
74,583 |
|
|
44,873 |
|
INCOME
FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
|
|
2,313 |
|
|
1,285 |
|
INCOME
TAX PROVISION |
|
|
242 |
|
|
185 |
|
INCOME
FROM CONTINUING OPERATIONS |
|
|
2,071 |
|
|
1,100 |
|
DISCONTINUED
OPERATIONS: |
|
|
|
|
|
|
|
Loss
from discontinued operations, before taxes |
|
|
(46 |
) |
|
(488 |
) |
Income
tax provision |
|
|
- |
|
|
- |
|
Loss
from discontinued operations |
|
|
(46 |
) |
|
(488 |
) |
NET
INCOME |
|
$ |
2,025 |
|
$ |
612 |
|
BASIC
INCOME (LOSS) PER COMMON SHARE: |
|
|
|
|
|
|
|
Income
from continuing operations |
|
$ |
0.19 |
|
$ |
0.10 |
|
Loss
from discontinued operations |
|
|
(0.00 |
) |
|
(0.04 |
) |
Basic
income per common share |
|
$ |
0.19 |
|
$ |
0.06 |
|
DILUTED
INCOME (LOSS) PER COMMON SHARE: |
|
|
|
|
|
|
|
Income
from continuing operations |
|
$ |
0.18 |
|
$ |
0.10 |
|
Loss
from discontinued operations |
|
|
(0.00 |
) |
|
(0.04 |
) |
Diluted
income per common share |
|
$ |
0.18 |
|
$ |
0.06 |
|
WEIGHTED
AVERAGE SHARES OUTSTANDING: |
|
|
|
|
|
|
|
Basic |
|
|
11,191 |
|
|
10,696 |
|
Diluted |
|
|
11,415 |
|
|
10,785 |
|
The
accompanying notes are an integral part of these financial
statements.
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
|
|
Three
Months Ended
March
31, |
|
|
|
2005 |
|
2004 |
|
OPERATING
ACTIVITIES: |
|
|
|
|
|
|
|
Net
income |
|
$ |
2,025 |
|
$ |
612 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities |
|
|
|
|
|
|
|
Loss
from discontinued operations |
|
|
46 |
|
|
488 |
|
Depreciation
and amortization |
|
|
794 |
|
|
926 |
|
Amortization
of deferred financing costs |
|
|
133 |
|
|
85 |
|
Provision
for doubtful accounts |
|
|
45 |
|
|
195 |
|
Issuance
of non-employee director shares |
|
|
75 |
|
|
328 |
|
Deferred
income tax provision |
|
|
(13 |
) |
|
- |
|
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(9,761 |
) |
|
3,914 |
|
Inventories |
|
|
(7,043 |
) |
|
(3,382 |
) |
Prepaid
expenses and other |
|
|
(1,968 |
) |
|
(1,560 |
) |
Other
assets |
|
|
- |
|
|
(396 |
) |
Accounts
payable |
|
|
10,268 |
|
|
(8,670 |
) |
Accrued
liabilities and other |
|
|
2,448 |
|
|
2,372 |
|
Net
cash used in operating activities from continuing
operations |
|
|
(2,951 |
) |
|
(5,088 |
) |
Net
cash (used in) provided by operating activities from discontinued
operations |
|
|
(578 |
) |
|
603 |
|
Net
cash used in operating activities |
|
|
(3,529 |
) |
|
(4,485 |
) |
INVESTING
ACTIVITIES |
|
|
|
|
|
|
|
Purchases
of property, plant, and equipment |
|
|
(226 |
) |
|
(63 |
) |
Proceeds
from sale of property, plant and equipment |
|
|
- |
|
|
4 |
|
Proceeds
from sale of business |
|
|
- |
|
|
2,503 |
|
Payments
received on notes receivables |
|
|
57 |
|
|
21 |
|
Net
cash (used in) provided by investing activities from continuing
operations |
|
|
(169 |
) |
|
2,465 |
|
Net
cash provided by investing activities from discontinued
operations |
|
|
77 |
|
|
209 |
|
Net
cash (used in) provided by investing activities |
|
|
(92 |
) |
|
2,674 |
|
FINANCING
ACTIVITIES |
|
|
|
|
|
|
|
Net
borrowings under senior credit facility |
|
|
4,012 |
|
|
851 |
|
Payments
on long-term obligations |
|
|
(569 |
) |
|
(509 |
) |
Additions
to deferred financing costs |
|
|
(38 |
) |
|
(209 |
) |
Termination
of interest rate swap |
|
|
24 |
|
|
24 |
|
Proceeds
from the exercise of stock options |
|
|
25 |
|
|
12 |
|
Net
cash provided by financing activities from continuing
operations |
|
|
3,454 |
|
|
169 |
|
Net
cash used in financing activities from discontinued
operations |
|
|
(342 |
) |
|
(2,139 |
) |
Net
cash provided by (used in) financing activities |
|
|
3,112 |
|
|
(1,970 |
) |
EFFECT
OF EXCHANGE RATE CHANGES ON CASH AND TEMPORARY
INVESTMENTS |
|
|
(100 |
) |
|
(179 |
) |
NET
CHANGE IN CASH AND TEMPORARY INVESTMENTS |
|
|
(609 |
) |
|
(3,960 |
) |
CASH
AND TEMPORARY INVESTMENTS, beginning of period |
|
|
2,812 |
|
|
5,240 |
|
CASH
AND TEMPORARY INVESTMENTS-DISCONTINUED OPERATIONS, beginning of
period |
|
|
574 |
|
|
2,154 |
|
CASH
AND TEMPORARY INVESTMENTS-DISCONTINUED OPERATIONS, end of
period |
|
|
116 |
|
|
480 |
|
CASH
AND TEMPORARY INVESTMENTS, end of period |
|
$ |
2,661 |
|
$ |
2,954 |
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
Debt
conversion |
|
$ |
- |
|
$ |
7,540 |
|
Cash
payments for interest |
|
$ |
1,010 |
|
$ |
936 |
|
Cash
payments for income taxes |
|
$ |
73 |
|
$ |
132 |
|
The
accompanying notes are an integral part of these financial
statements.
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 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 entities 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, as amended,
for the year ended December 31, 2004.
2. DISCONTINUED
OPERATIONS
During
the fourth quarter of the year ended December 31, 2002, the Company’s management
and board of directors made the decision to divest of its remaining towing
services segment, as well as the operations of the distribution group of the
towing and recovery equipment segment. The Company disposed of substantially all
of the assets of its towing services segment in 2003, and as of March 31, 2005
there are miscellaneous assets remaining from previous towing services market
sales. The Company sold all but one distributor location by the end of 2004, and
as of March 31, 2005, the Company has entered into negotiations to sell the
remaining location.
In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets”, the assets of the towing services segment and the
distribution group are considered a “disposal group” and are no longer being
depreciated. All assets and liabilities and results of operations associated
with these assets have been separately presented in the accompanying financial
statements at March 31, 2005 and December 31, 2004. The statements of operations
and related financial statement disclosures for all prior years have been
restated to present the towing services segment and the distribution group as
discontinued operations separate from continuing operations. Results of
operations for the towing services segment and the distribution group reflect
interest expense for debt directly attributed to these businesses, as well as an
allocation of corporate debt based on intercompany balances.
The
operating results for the discontinued operations of the towing services segment
and the distributor group for the three months ended March 31, 2005 and 2004,
were as follows (in thousands):
|
|
Three
Months Ended March 31, 2005 |
|
Three
Months Ended March 31, 2004 |
|
|
|
Dist. |
|
Towing |
|
Total |
|
Dist. |
|
Towing |
|
Total |
|
Net
Sales |
|
$ |
2,456 |
|
$ |
- |
|
$ |
2,456 |
|
$ |
15,009 |
|
$ |
- |
|
$ |
15,009 |
|
Operating
income (loss) |
|
$ |
(62 |
) |
$ |
16 |
|
$ |
(46 |
) |
$ |
(140 |
) |
$ |
(79 |
) |
$ |
(219 |
) |
Loss
from discontinued operations |
|
$ |
(62 |
) |
$ |
16 |
|
$ |
(46 |
) |
$ |
(397 |
) |
$ |
(91 |
) |
$ |
(488 |
) |
The
following assets and liabilities are reclassified as held for sale at March 31,
2005 and December 31, 2004 (in thousands):
|
|
March
31, 2005 |
|
December
31, 2004 |
|
|
|
Dist. |
|
Towing |
|
Total |
|
Dist. |
|
Towing |
|
Total |
|
Cash
and temporary investments |
|
$ |
116 |
|
$ |
- |
|
$ |
116 |
|
$ |
574 |
|
$ |
- |
|
$ |
574 |
|
Accounts
receivable, net |
|
|
1,328 |
|
|
423 |
|
|
1,751 |
|
|
1,444 |
|
|
492 |
|
|
1,936 |
|
Inventories |
|
|
2,619 |
|
|
- |
|
|
2,619 |
|
|
3,144 |
|
|
- |
|
|
3,144 |
|
Prepaid
expenses and other current assets |
|
|
51 |
|
|
- |
|
|
51 |
|
|
74 |
|
|
- |
|
|
74 |
|
Current
assets of discontinued operations held for sale |
|
$ |
4,114 |
|
$ |
423 |
|
$ |
4,537 |
|
$ |
5,236 |
|
$ |
492 |
|
$ |
5,728 |
|
Property,
plant and equipment |
|
$ |
16 |
|
$ |
984 |
|
$ |
1,000 |
|
$ |
16 |
|
$ |
1,112 |
|
$ |
1,128 |
|
Noncurrent
assets of discontinued operations held for sale |
|
$ |
16 |
|
$ |
984 |
|
$ |
1,000 |
|
$ |
16 |
|
$ |
1,112 |
|
$ |
1,128 |
|
Current
portion of long-term debt |
|
$ |
170 |
|
$ |
309 |
|
$ |
479 |
|
$ |
223 |
|
$ |
442 |
|
$ |
665 |
|
Other
Current Liabilities |
|
|
1,461 |
|
|
7,081 |
|
|
8,542 |
|
|
2,569 |
|
|
7,171 |
|
|
9,740 |
|
Current
liabilities of discontinued operations held for sale |
|
$ |
1,631 |
|
$ |
7,390 |
|
$ |
9,021 |
|
$ |
2,792 |
|
$ |
7,613 |
|
$ |
10,405 |
|
Long-term
debt |
|
$ |
1,999 |
|
$ |
- |
|
$ |
1,999 |
|
$ |
2,275 |
|
$ |
- |
|
$ |
2,275 |
|
Noncurrent
liabilities of discontinued operations held for sale |
|
$ |
1,999 |
|
$ |
- |
|
$ |
1,999 |
|
$ |
2,275 |
|
$ |
- |
|
$ |
2,275 |
|
3. BASIC AND
DILUTED INCOME
(LOSS) PER SHARE
Basic income
(loss) per share is computed by dividing income (loss) by the weighted
average number of common shares outstanding. Diluted income (loss) per
share is calculated by dividing income (loss) by the weighted average
number of common and potential dilutive common shares outstanding.
Diluted income per share takes into consideration the assumed conversion of
outstanding stock options resulting in approximately 224,000 and 89,000
potential dilutive common shares for the three months ended March 31, 2005 and
2004, respectively.
4. INVENTORIES
Inventory
costs include materials, labor and factory overhead. Inventories are stated at
the lower of cost or market, determined on a first-in, first-out
basis.
Inventories
for continuing operations at March 31, 2005 and December 31, 2004 consisted of
the following (in thousands):
|
|
March
31,
2005 |
|
December
31,
2004 |
|
Chassis |
|
$ |
3,715 |
|
$ |
2,556 |
|
Raw
Materials |
|
|
16,426 |
|
|
15,667 |
|
Work
in process |
|
|
12,055 |
|
|
10,338 |
|
Finished
goods |
|
|
9,865 |
|
|
6,433 |
|
|
|
$ |
42,061 |
|
$ |
34,994 |
|
5. SPECIAL
CHARGES AND OTHER EXPENSES
The
Company periodically reviews the carrying amount of the long-lived assets and
goodwill in both its continuing and discontinued operations to determine if
those assets may be recoverable based upon the future operating cash flows
expected to be generated by those assets. Based on this evaluation, no charges
were recorded within the towing and recovery equipment segment during the three
months ended March 31, 2005 or 2004.
Management
believes that its long-lived assets are appropriately valued following these
impairment charges.
6. LONG-TERM
OBLIGATIONS
Long-term
obligations consisted of the following for continuing operations at March 31,
2005 and December 31, 2004 (in thousands):
|
|
March
31,
2005 |
|
December
31,
2004 |
|
Outstanding
borrowings under Senior Credit Facility |
|
$ |
23,463 |
|
$ |
19,987 |
|
Outstanding
borrowings under Junior Credit Secured Facility |
|
|
4,246 |
|
|
4,211 |
|
Mortgage,
equipment and other notes payable |
|
|
2,141 |
|
|
2,199 |
|
|
|
|
29,850 |
|
|
26,397 |
|
Less
current portion |
|
|
(6,322 |
) |
|
(2,052 |
) |
|
|
$ |
23,528 |
|
$ |
24,345 |
|
The March
31, 2005 and December 31, 2004 figures do not include $2.2 million and $2.9
million, respectively, outstanding under the Senior Credit Facility relating to
discontinued operations. Obligations under the Senior Credit Facility are
allocated to discontinued operations based on the assets used to determine
borrowing availability for collateral reporting. Certain equipment and
manufacturing facilities are pledged as collateral under the mortgage and
equipment notes payable.
2001
Credit Facility
Senior
Credit Facility. In July
2001, the Company entered into a four year Senior Credit Facility (the “Senior
Credit Facility”) with a syndicate of lenders to replace its existing credit
facility. The Senior Credit Facility has been amended several times. The current
lenders under the Senior Credit Facility are William G. Miller, the Company’s
Chairman of the Board and Co-Chief Executive Officer, and CIT Group/Business
Credit, Inc. (“CIT”), with Mr. Miller’s portion of the loan being subordinated
to that of CIT. The Senior Credit Facility is scheduled to mature in July 2005,
but the Company has been granted an option, exercisable through July 10, 2005,
to extend the maturity date to July 2006. In March 2005, the Company signed a
commitment letter with a financial institution for a new senior credit facility
to replace the existing facility that matures in July 2005. The closing of
the new facility is subject to customary closing conditions, including the
successful completion of the due diligence process and execution of definitive
documentation. The new facility is expected to be in place by June 30,
2005.
As
amended, the Senior Credit Facility consists of an aggregate $32.0 million
credit facility, including a $15.0 million revolving loan, a $5.0 million term
loan and a $12.0 million term loan. The revolving credit facility provides for
separate and distinct loan commitment levels for the Company’s towing and
recovery equipment segment and RoadOne segment, respectively.
Borrowing
availability under the revolving portion of the Senior Credit Facility is based
on a percentage of eligible inventory and accounts receivable (determined on
eligibility criteria set forth in the credit facility) and subject to a maximum
borrowing limitation. Borrowings under the term loans are collateralized by
substantially all of the Company’s domestic property, plants, and equipment. The
Company is required to make monthly amortization payments of $167,000 on the
first term loan, but the amortization payments due on November 1, 2003, December
1, 2003, and January 1, 2004 were deferred until the maturity date. The Senior
Credit Facility bears interest at the prime rate (as defined) plus 2.75%,
subject to the rights of the senior lender agent or a majority of the lenders to
charge a default rate equal to the prime rate (as defined) plus 4.75% during the
continuance of any event of default thereunder.
The
Senior Credit Facility contains requirements relating to maintaining minimum
excess availability at all times and minimum monthly levels of earnings before
income taxes and depreciation and amortization (as defined) based on the most
recently ended trailing three month period. In addition, the Senior Credit
Facility contains restrictions on capital expenditures, incurrence of
indebtedness, mergers and acquisitions, distributions and transfers and sales of
assets. The Senior Credit Facility also contains requirements related to weekly
and monthly collateral reporting.
Junior
Credit Facility. The
Company’s Junior Credit Facility (the “Junior Credit Facility”) is, by its
terms, expressly subordinated only to the Senior Credit Facility, and is secured
by certain specified assets and by a second priority lien and security interest
in substantially all of the Company’s other assets. As amended, the Junior
Credit Facility contains requirements for the maintenance of certain financial
covenants. It also imposes restrictions on capital expenditures, incurrence of
indebtedness, mergers and acquisitions, distributions and transfers and sales of
assets.
Contrarian
Funds, LLC (“Contrarian”) purchased all of the outstanding debt of the Junior
Credit facility in a series of transactions during the second half of 2003. As
part of its purchase, Contrarian also purchased warrants for shares of the
Company’s common stock, which were subsequently exchanged for shares of the
Company’s common stock as described in further detail below and in Note 7. In
November 2003, Harbourside Investments, LLLP (“Harbourside”) purchased 44.286%
of the subordinated debt and warrants from Contrarian. (See Note 7
below).
In
February 2004, Contrarian and Harbourside finalized the conversion of
approximately $7.0 million in subordinated debt for common stock of the Company.
In connection with this purchase and restructuring of the Company’s debt, the
Junior Credit Facility was amended to, among other things, extend its maturity
date and bear interest at an effective blended rate of 14.0%.
In May
2004 the Company completed the sale of 480,000 shares of its common stock at a
price of $9.00 per share to a small group of unaffiliated private investors. The
proceeds of this sale, together with additional borrowings under the Senior
Credit Facility, were used to retire approximately $5.4 million of the principal
amount of the Junior Credit Facility and approximately $350,000 of accrued
interest on such debt owed to Contrarian. The Company’s remaining Junior Credit
Facility obligations consist of approximately $4.2 million in outstanding
principal bearing interest at an annual rate of 9.0%.
In
November 2004, the Junior Credit Facility was again amended to extend its
maturity date to January 1, 2006 and was classified as a current liability at
March 31, 2005.
Interest
Rate Sensitivity. Because
of the amount of obligations outstanding under the Senior and Junior Credit
Facilities and the connection of the interest rate under each Facility
(including the default rates) to the prime rate, an increase in the prime rate
could have a significant effect on the Company’s ability to satisfy its
obligations under the Facilities and increase its interest expense
significantly. Therefore, the Company’s liquidity and access to capital
resources could be further affected by increasing interest rates.
Future
maturities of long-term obligations at March 31, 2005 are as follows (in
thousands):
|
|
Continuing
Operations |
|
Discontinued
Operations |
|
Total |
|
2006 |
|
$ |
6,322 |
|
$ |
479 |
|
$ |
6,801 |
|
2007 |
|
|
21,786 |
|
|
1,999 |
|
|
23,785 |
|
2008 |
|
|
130 |
|
|
- |
|
|
130 |
|
2009 |
|
|
137 |
|
|
- |
|
|
137 |
|
2010 |
|
|
1,475 |
|
|
- |
|
|
1,475 |
|
Thereafter |
|
|
- |
|
|
- |
|
|
- |
|
|
|
$ |
29,850 |
|
$ |
2,478 |
|
$ |
32,328 |
|
7. RELATED
PARTY TRANSACTIONS
Subordinated
Debt and Warrant Conversion
Harbourside
Investments LLLP is a limited liability limited partnership of which several of
the Company’s executive officers and directors are partners. Specifically,
William G. Miller is the general partner of, and controls, Harbourside. Mr.
Miller is the Company’s Chairman of the Board and Co-Chief Executive Officer, as
well as the holder of approximately 16% of the Company’s outstanding common
stock. Mr. Miller, Jeffrey I. Badgley, the Company’s President and Co-Chief
Executive Officer, J. Vincent Mish, the Company’s Executive Vice President and
Chief Financial Officer, and Frank Madonia, the Company’s Executive Vice
President, Secretary and General Counsel, are all limited partners in
Harbourside. In connection with the formation of Harbourside, Mr. Miller made
loans to the other executive officers, the proceeds of which the other executive
officers then contributed to Harbourside. These loans from Mr. Miller to the
other executive officers are secured by pledges of their respective limited
partnership interests to Mr. Miller.
On
November 24, 2003, Harbourside purchased from Contrarian 44.286% of (i) the
Company’s subordinated debt under its Junior Credit Facility and (ii) warrants
to purchase 186,028 shares of the Company’s common stock held by Contrarian.
Contrarian had previously purchased all of the Company’s outstanding
subordinated debt in a series of transactions during the second half of 2003. As
a result of this transaction, Harbourside acquired (x) approximately $6.1
million of the outstanding principal of subordinated debt plus accrued interest
and fees attributable to this outstanding principal and (y) warrants to purchase
an aggregate of 82,382 shares of the Company’s common stock, consisting of
warrants to purchase up to 20,998 shares at an exercise price of $3.48 and
61,384 shares at an exercise price of $3.27. Contrarian retained the remaining
principal outstanding under the Junior Credit Facility, which is approximately
$7.7 million, plus related interest and fees thereon of approximately $1.7
million, and the remaining warrants to purchase 103,646 shares of common
stock.
On
January 14, 2004, the Company entered into an exchange agreement with
Harbourside, pursuant to which it later issued 583,556 shares of the Company’s
common stock upon shareholder approval in exchange for approximately $1.8
million principal amount of, plus approximately $1.3 million of accrued interest
and fees thereon.
Under the
Exchange Agreement, Harbourside retained 70% of the outstanding principal amount
of the subordinated debt that it held and converted the remaining 30% of the
outstanding principal amount of such debt plus all accrued interest and
commitment fees thereunder into shares of the Company’s common stock.
Immediately prior to entering into the Exchange Agreement, Harbourside held
approximately $7.5 million of the Company’s subordinated debt, consisting of
approximately $6.1 million of outstanding principal and approximately $1.3
million of accrued interest and fees. Harbourside continues to hold
approximately $4.3 million principal amount of subordinated debt and converted
approximately $3.2 million of the subordinated debt (30% of $6.1 million
principal amount, plus approximately $1.3 million of accrued interest and fees)
into 548,738 shares of the Company’s common stock. In addition, Harbourside
received 34,818 shares of the Company’s common stock in exchange for the
warrants to purchase 82,382 shares of the Company’s common stock. The Company
paid Harbourside approximately $95,000 in interest expense on the subordinated
holdings during the three months ended March 31, 2005.
As
partners of Harbourside, each of Messrs. Miller, Badgley, Mish and Madonia
indirectly received shares of common stock in exchange for the subordinated debt
and warrants held by Harbourside. As general partner of Harbourside, Mr. Miller
has sole voting power over the shares of common stock that Harbourside received
in the exchange. This transaction was approved by the Special Committee of the
Board, as well as the full Board of Directors with Messrs. Miller and Badgley
abstaining due to their personal interest in the transaction. The transaction
was subsequently approved by the Company’s shareholders at a meeting on February
12, 2004. Other than the exchange, the Company has not engaged in any
transactions with Harbourside. Neither the Company nor Harbourside currently
intend to engage in any other transactions in the future except as may be
related to Harbourside’s continuing ownership of a portion of the subordinated
debt.
Other
than the transactions relating to the subordinated debt and the warrants, which
it purchased without the Company’s involvement, Contrarian has no relationship
with the Company or Harbourside.
Senior
Credit Facility
Simultaneously
with entering into a forbearance agreement on October 31, 2003 with respect to
the Senior Credit Facility, Mr. Miller made a $2.0 million loan to the Company
as a part of the Senior Credit Facility. The loan to the Company and Mr.
Miller’s participation in the Senior Credit Facility were effected by an
amendment to the credit agreement and a participation agreement between Mr.
Miller and the Senior Credit Facility lenders.
On
December 24, 2003, Mr. Miller increased his $2.0 million participation in the
existing Senior Credit Facility by an additional $10.0 million. These funds,
along with additional funds from CIT, were used to satisfy the Company’s
obligations to two of the existing senior lenders with the result being that
CIT, an existing senior lender, and Mr. Miller constituted the senior lenders to
the Company, with CIT holding 62.5% of such loan and Mr. Miller participating in
37.5% of the loan. Mr. Miller’s portion of the loan is subordinated to that of
CIT. The Company paid Mr. Miller approximately $294,000 in interest expense
related to his portion of the senior credit facility during the three months
ended March 31, 2005.
In
conjunction with Mr. Miller’s increased participation, the Senior Credit
Facility was restructured and restated as a $15.0 million revolving facility and
$12.0 million and $5.0 million term loans. The senior lending group, consisting
of CIT and Mr. Miller, earned fees of $850,000 in connection with the
restructuring, including previously unpaid fees of $300,000 for the earlier
forbearance agreement through December 31, 2003 and $550,000 for the
restructuring of the loans described above. Of these fees, 37.5% ($318,750) were
paid to Mr. Miller and the remainder ($531,250) were paid to CIT. In addition,
the Company will pay additional interest at a rate of 1.8% on Mr. Miller’s
portion of the loan, which is in recognition of the fact that Mr. Miller’s
rights to payments and collateral are subordinate to those of CIT. This
transaction was approved by the Special Committee of the Board, as well as the
full Board of Directors with Mr. Miller abstaining due to his personal interest
in the transaction.
8. STOCK-BASED
COMPENSATION
The
Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”. The
Company has adopted the disclosure option of SFAS No. 123, “Accounting for
Stock-Based Compensation”. Accordingly, no compensation cost has been recognized
for stock option grants since the options have exercise prices equal to the
market value of the common stock at the date of grant. For SFAS No. 123
purposes, the fair value of each option grant has been estimated as of the date
of the grant using the Black-Scholes option-pricing model with the following
weighted average assumptions for the grants in the first quarter of 2004:
expected dividend yield of 0%; expected volatility of 43%; risk-free interest
rate of 2.94%; and expected lives of 5.5 years. Using these assumptions, the
fair value of options granted in the three months ended March 31, 2004 was
approximately $1,242,000, which would be amortized as compensation expense over
the vesting period of the options. No options were granted during the three
months ended March 31, 2005.
Had
compensation cost for stock option grants been determined based on the fair
value at the grant dates consistent with the method prescribed by SFAS No. 123,
the Company’s net income and net income per share would have been adjusted to
the pro forma amounts indicated below:
|
|
Three
Months Ended
March
31, |
|
|
|
2005 |
|
2004 |
|
Net
income available to common shareholders, as reported |
|
$ |
2,025 |
|
$ |
612 |
|
Deduct:
Total stock-based employee compensation expense determined under fair
value based method for all awards, net of related tax
effects |
|
|
(84 |
) |
|
(21 |
) |
Net
income available to common shareholders, pro forma |
|
$ |
1,941 |
|
$ |
591 |
|
Income
per common share: |
|
|
|
|
|
|
|
Basic,
as reported |
|
$ |
0.19 |
|
$ |
0.06 |
|
Basic,
pro forma |
|
$ |
0.17 |
|
$ |
0.05 |
|
Diluted,
as reported |
|
$ |
0.18 |
|
$ |
0.06 |
|
Diluted,
pro forma |
|
$ |
0.17 |
|
$ |
0.05 |
|
9. COMMITMENTS
AND 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.
10. INCOME
TAXES
The
Company maintains a full valuation allowance against its net deferred tax asset
from continuing and discontinuing operations. The allowance reflects the
Company’s recognition that continuing tax losses from operations and certain
liquidity matters indicate that it is unclear whether certain future tax
benefits will b realized through future taxable income. The balance of the
valuation allowance was $16.2 million at March 31, 2005 and December 31, 2004,
respectively.
11. COMPREHENSIVE
INCOME
The
Company had comprehensive income of $1.9 million and $1.1 million for the
three months ended March 31, 2005 and 2004, respectively.
12.
GEOGRAPHIC
AND CUSTOMER INFORMATION
Net sales
and long-lived assets (property, plant and equipment and goodwill and intangible
assets) by region was as follows (revenue is attributed to regions based on the
locations of customer) (in thousands):
|
|
For
the Three Months Ended March 31, |
|
|
2005 |
|
2004 |
|
Net
Sales: |
|
|
|
|
|
|
|
North
America |
|
$ |
60,105 |
|
$ |
37,388 |
|
Foreign |
|
|
16,791 |
|
|
8,770 |
|
|
|
$ |
76,896 |
|
$ |
46,158 |
|
Long
Lived Assets: |
|
|
|
|
|
|
|
North
America |
|
$ |
27,469 |
|
$ |
28,026 |
|
Foreign |
|
|
2,614 |
|
|
2,607 |
|
|
|
$ |
30,083 |
|
$ |
30,633 |
|
No single
customer accounted for 10% or more of consolidated net sales for the three
months ended March 31, 2005 and 2004.
13.
RECENT
ACCOUNTING PRONOUNCEMENTS
In
November 2004, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs - an
amendment of ARB No. 43, Chapter 4”. This statement clarifies the accounting for
abnormal amounts of idle facility expense, freight, handling costs and spoilage.
This statement also requires the allocation of fixed production overhead costs
be based on normal production capacity. The provisions of SFAS No. 151 are
effective for inventory costs beginning in January 2006, with adoption permitted
for inventory costs incurred beginning in January 2005. The adoption of this
statement will not have a material impact on the Company’s results of operations
or financial position.
In
December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment”. This
statement requires the determination of the fair value of share-based
compensation at the grant date and the recognition of the related compensation
expense over the period in which the share-based compensation vests. In
compliance with a Securities and Exchange Commission amendment to this
statement, the Company will adopt the new accounting standard effective January
1, 2006. The Company will transition the new guidance using the modified
prospective method. Applying the same assumptions used for the 2005 and 2004 pro
forma disclosure in Note 8 of the Company’s financial statements, the Company
estimates its pretax expense associated with its previous stock option grants to
be approximately $308,000 in each of 2006 and 2007, and $77,000 in
2008.
In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets-an
amendment of APB Opinion No. 29”. SFAS No. 153 addresses the measurement of
exchanges of nonmonetary assets. It eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive assets in paragraph
21(b) of APB Opinion No. 29 “Accounting for Nonmonetary Transactions” and
replaces it with an exception for exchanges that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the
exchange. As required by SFAS No. 153, the Company will adopt this new
accounting standard effective July 1, 2005. The adoption of SFAS No. 153 is not
expected to have a material impact on the Company’s 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.
Overall,
management focuses on a variety of key indicators to monitor our operating and
financial performance. These indicators include measurements of revenue,
operating income, gross margin, income from continuing operations, 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, such as demand for, and price of, our products, our technological
competitiveness, our reputation for providing quality products and reliable
service, competition within our industry, the cost of raw materials (including
steel) and general economic conditions.
During
2004 and the first quarter of 2005, our revenues were positively affected by a
general increase in demand for our products resulting from general economic
improvements. In addition, we commenced the manufacture of 63 heavy-duty towing
and recovery units for the Australian military as part of the largest single
order for towing and recovery equipment in the Company’s history. The first
units under this contract were delivered in late 2004, and the remaining units
are scheduled for production and delivery through 2005. We also began a project
with DataPath, Inc. to assist in the design and engineering of mobile
communications trailers for military application. We completed an initial order
of 25 trailers in 2004, and will begin the manufacture of up to an additional
145 trailers during the first half of 2005. In March 2005, we entered into a new
agreement with DataPath calling for us to manufacture and sell to them all of
their requirements for this type of equipment during the five-year term of the
agreement. Under this new agreement, DataPath has committed to purchase at least
200 units (including the previously disclosed units). As a result of these
projects, as well as the general increase in demand for our products, we have a
strong backlog that we expect to continue in 2005.
We have
been and will continue to be affected by recent large increases in the prices
that we pay for raw materials, particularly steel and components with high steel
content. Like all manufactures, we have experienced shortages in the
availability of steel. Steel costs represent a substantial part of our total
costs of operations, and management expects steel prices to remain at
historically high levels for the foreseeable future. Partially to offset these
increases, we implemented a general price increase, as well as two steel
surcharges in 2004. We also began to develop alternatives to the steel and steel
components that we use in our production process, and have introduced several of
these alternatives to our major component part suppliers. We will continue to
monitor steel prices and availability in order to more favorably position the
Company in this dynamic market.
Management
also continues to focus on reducing the overall debt levels under our senior and
junior credit facilities. In 2004, approximately $7.0 million of subordinated
debt and warrants was exchanged and converted into shares of our common stock.
In addition, during 2004, cash proceeds from the private placement of 480,000
shares of our common stock were used to retire significant portions of our
subordinated debt. While our debt levels have declined significantly over the
past year, our senior credit facility is scheduled to mature in July 2005, and
our junior credit facility matures on January 1, 2006. We have been granted an
option, exercisable through July 10, 2005, to extend the maturity date of our
senior credit facility until July 2006. We signed a commitment letter with a
financial institution in March 2005 for a new senior credit facility to replace
the existing facility. The closing of the new facility is subject to
customary closing conditions, including the successful completion of due
diligence and the execution of definitive documentation. We expect to have
the loan in place by June 30, 2005.
Also
during 2004, we substantially completed our strategic goal of disposing of
towing services businesses and distributor operations. As a result, at March 31,
2005, only miscellaneous assets remained in the RoadOne towing services segment
and only one distributor location remained in our distribution group. As a
result, management has renewed its focus on our core business - the manufacture
of towing and recovery equipment.
Compliance
with New York Stock Exchange Continued Listing Standards
In June
2003, we received notification from the New York Stock Exchange that we were not
in compliance with the NYSE’s continued listing standards because we did not
have sufficient shareholders’ equity or an adequate 30-day average market
capitalization. In response, we implemented a plan for regaining compliance with
the continued listing standards which focused on restructuring our bank
facilities and rationalizing the timing of our debt service, disposing of our
remaining RoadOne and distributor operations, and returning our manufacturing
operations to their historically profitable levels. With the approval by our
shareholders of the conversion of a portion of our subordinated debt into common
stock, we completed the restructuring of our bank facilities. We also disposed
of the remainder of our RoadOne operations and are in the process of disposing
of our remaining distributor location.
In
December 2004, the NYSE notified us that, as a result of our compliance plan, we
had regained compliance with the NYSE’s continued listing standards and had been
approved as a “company in good standing” with the NYSE. As a condition to the
NYSE’s approval, we are subject to a 12-month follow-up period with the NYSE to
ensure continued compliance with the continued listing standards, and will be
subject to the NYSE’s routine monitoring procedures. As of March 31, 2005, our
shareholders’ equity was $48.8 million and our 30-day average market
capitalization was $146.6 million.
Discontinued
Operations
During
2002, management and the board of directors made the decision to divest of our
towing services segment, as well as the operations of the distribution group of
our towing and recovery equipment segment. In accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets”, the assets of
the towing services segment and the distribution group are considered a
“disposal group” and the assets are no longer being depreciated. All assets and
liabilities and results of operations associated with these assets have been
separately presented in the accompanying financial statements. The statements of
operations and related financial statement disclosures for all prior years have
been restated to present the towing services segment and the distribution group
as discontinued operations separate from continuing operations. The analyses
contained herein are of continuing operations, as restated, unless otherwise
noted.
Critical
Accounting Policies
Our
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.
Valuation
of long-lived assets and goodwill
Long-lived
assets and goodwill 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
and goodwill 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.
Upon
adoption of Financial Accounting Standard No. 142, Goodwill and Other Intangible
Assets on January 1, 2002, we ceased to amortize goodwill. In lieu of
amortization, we performed an initial impairment review of goodwill in 2002 and
have continued to perform annual impairment reviews thereafter. For further
detail of our impairment review and related write downs, see Note 5 to our
consolidated financial statements.
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 carrybacks, reversal of deferred tax liabilities, tax
planning and estimates of future taxable income in assessing the need for a
valuation allowance. We currently have a full valuation allowance against our
net deferred tax assets from continuing and discontinuing operations. The
allowance reflects our recognition that continuing tax losses from operations
and certain liquidity matters indicate that it is unclear whether certain future
tax benefits will be realized through future taxable income. Differences between
the effective tax rate and the expected tax rate are due primarily to changes in
deferred tax asset valuation allowances for 2004 and 2002. The balance of the
valuation allowance was $16.2 million at March 31, 2005 and December 31, 2004,
respectively.
Revenues
Under our
accounting policies, sales are recorded when equipment is shipped to independent
distributors or other customers. 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. Revenue from
our owned distributors is recorded at the time equipment is shipped to customers
or services are rendered.
Seasonality
Our
towing and recovery equipment segment has experienced some seasonality in net
sales due in part to decisions by purchasers of towing and recovery equipment to
defer purchases near the end of the chassis model year. The segment’s net sales
have historically been seasonally impacted due in part to weather
conditions.
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. The gains or
losses resulting from such translations are included in shareholders’ equity.
For intercompany debt denominated in a currency other than the functional
currency, the remeasurement into the functional currency is also included in
stockholders’ equity as the amounts are considered to be of a long-term
investment nature.
Results
of Operations-Three Months Ended March 31, 2005 Compared to Three Months Ended
March 31, 2004
Continuing
Operations
Net sales
of continuing operations for the three months ended March 31, 2005, increased
66.5% to $76.9 million from $46.2 million for the comparable period in 2004. The
increase is primarily the result of overall improvements in market conditions,
with increases in demand leading to increases in production levels, and is
attributable to a lesser extent to price increases implemented during 2004.
There were no sales by the towing services segment during the three months ended
March 31, 2005 or 2004 as the remaining towing services entities were sold in
June 2003.
Costs of
continuing operations for the three months ended March 31, 2005, increased 72.3%
to $67.9 million from $39.4 million for the comparable period in 2004. Costs of
operations for the towing and recovery equipment segment increased $28.5 million
from $39.4 million for the three months ended March 31, 2004 to $67.9 million
for the comparable current year period. Costs of continuing operations increased
as a percentage of sales from 85.3% to 88.3%, which is attributed to higher
material costs, particularly for steel and components with high steel content,
and also due to product mix. There were no costs of operations attributable to
the towing services segment during the three months ended March 31, 2005 or 2004
as the remaining towing services entities were sold in June 2003.
Selling,
general, and administrative expenses for the three months ended March 31, 2005,
increased to $5.5 million from $4.5 million for the three months ended March 31,
2004. As a percentage of sales, selling, general, and administrative expenses
decreased to 7.2% for the three months ended March 31, 2005 from 9.7% for the
three months ended March 31, 2004.
The
provision for income taxes for continuing operations for the three months ended
March 31, 2005 reflects the combined effective US federal and state tax rate of
10.5%. The provision for the three months ended March 31, 2004 reflects a
similar effective US federal and state rate, plus additional taxes on foreign
income for the period.
Discontinued
Operations
Net sales
from the distribution group of the discontinued operations decreased $12.5
million to $2.5 million for the three months ended March 31, 2005 from $15.0
million for the three months ended March 31, 2004. Revenues were negatively
impacted by the disposition of seven distribution operations during 2004. There
were no net sales for the towing and recovery services segment during the three
months ended March 31, 2005 and 2004, as a result of all remaining towing
services markets being sold by the end of calendar 2003.
Costs of
sales as a percentage of net sales for the distribution group was 87.1% for the
three months ended March 31, 2005 compared to 93.4% for the three months ended
March 31, 2004. There were no costs of sales for the towing services segment
during the three months ended March 31, 2005 or 2004. As explained above, all
towing services markets were sold by the end of calendar 2003.
Selling,
general and administrative expenses as a percentage of sales was 15.6% for the
distribution group and 0.0% for the towing services segment for the three months
ended March 31, 2005 compared to 7.5% and 0.0%, respectively, for the three
months ended March 31, 2004. Increases in the percentage of sales for the
distribution group were primarily the result of lower administrative expenses
spread over a smaller revenue base, as we continue to sell distribution
locations.
Interest
Expense
Our total
interest expense for continuing and discontinued operations decreased to $1.2
million for the three months ended March 31, 2005 from $1.3 million for the
comparable year-ago period. Interest expense was $1.2 million for continuing
operations and $0.0 million for discontinued operations for the three months
ended March 31, 2005, compared to $1.0 million for continuing operations and
$0.3 million for discontinued operations for the comparable prior year
period.
Liquidity
and Capital Resources
Cash used
in operating activities was $3.5 million for the three months ended March 31,
2005, compared to $4.5 million used in operating activities for the comparable
period of 2004. The cash used in operating activities for the three months ended
March 31, 2005 was primarily due to increases in inventory and accounts
receivable somewhat offset by increases in accounts payable and accrued
liabilities.
Cash used
in investing activities was $0.1 million for the three months ended March 31,
2005, compared to $2.7 million provided by investing activities for the
comparable period in 2004. The cash used in investing activities was primarily
due to purchase of fixed assets.
Cash
provided by financing activities was $3.1 million for the three months ended
March 31, 2005 compared to $2.0 million used in the comparable period in the
prior year. The cash was provided by borrowing under our credit facility to fund
working capital requirements.
Our
primary capital requirements are for working capital, debt service, and capital
expenditures. Since 1996, we have financed our operations and growth from
internally generated funds and debt financing.
Credit
Facilities and Other Obligations
Senior
Credit Facility
In July
2001, we entered into a four year Senior Credit Facility (the “Senior Credit
Facility”) with a syndicate of lenders to replace our existing credit facility.
The Senior Credit Facility has been amended several times. The current lenders
under the Senior Credit Facility are William G. Miller, our Chairman of the
Board and Co-Chief Executive Officer, and CIT Group/Business Credit, Inc.
(“CIT”), with Mr. Miller’s portion of the loan being subordinated to that of
CIT. As discussed in further detail below, the Senior Credit Facility is
scheduled to mature in July 2005, but we have been granted an option,
exercisable through July 10, 2005, to extend the maturity date to July
2006.
As
amended, the Senior Credit Facility consists of an aggregate $32.0 million
credit facility, including a $15.0 million revolving loan, a $5.0 million term
loan and a $12.0 million term loan. The revolving credit facility provides for
separate and distinct loan commitment levels for our towing and recovery
equipment segment and RoadOne segment, respectively.
Borrowing
availability under the revolving portion of the Senior Credit Facility is based
on a percentage of eligible inventory and accounts receivable (determined on
eligibility criteria set forth in the credit facility) and subject to a maximum
borrowing limitation. Borrowings under the term loans are collateralized by
substantially all of our domestic property, plants, and equipment. We are
required to make monthly amortization payments of $167,000 on the first term
loan, but the amortization payments due on November 1, 2003, December 1, 2003,
and January 1, 2004 were deferred until the maturity date. The Senior Credit
Facility bears interest at the prime rate (as defined) plus 2.75%, subject to
the rights of the senior lender agent or a majority of the lenders to charge a
default rate equal to the prime rate (as defined) plus 4.75% during the
continuance of any event of default thereunder.
The
Senior Credit Facility contains requirements relating to maintaining minimum
excess availability at all times and minimum monthly levels of earnings before
income taxes and depreciation and amortization (as defined) based on the most
recently ended trailing three month period. In addition, the Senior Credit
Facility contains restrictions on capital expenditures, incurrence of
indebtedness, mergers and acquisitions, distributions and transfers and sales of
assets. The Senior Credit Facility also contains requirements related to weekly
and monthly collateral reporting.
In March
2005, we signed a commitment letter with a financial institution for a new
senior credit facility to replace the existing facility that matures in July
2005. The closing of the new facility is subject to customary closing
conditions, including the successful completion of the due diligence process and
execution of definitive documentation. The new facility is expected to be in
place by June 30, 2005.
Junior
Credit Facility
Our
Junior Credit Facility (the “Junior Credit Facility”) is, by its terms,
expressly subordinated only to the Senior Credit Facility, and is secured by
certain specified assets and by a second priority lien and security interest in
substantially all of our other assets. As amended, the Junior Credit Facility
contains requirements for the maintenance of certain financial covenants. It
also imposes restriction on capital expenditures, incurrence of indebtedness,
mergers and acquisitions, distributions and transfers and sales of
assets.
Contrarian
Funds, LLC (“Contrarian”) purchased all of the outstanding debt of the Junior
Credit facility in a series of transactions during the second half of 2003. As
part of its purchase, Contrarian also purchased warrants for shares of our
common stock, which were subsequently exchanged for shares of our common stock
as described in further detail below and in Note 7 to our consolidated financial
statements. In November 2003, Harbourside Investments, LLLP (“Harbourside”)
purchased 44.286% of the subordinated debt and warrants from
Contrarian.
In
February 2004, Contrarian and Harbourside finalized the conversion of
approximately $7.0 million in subordinated debt for shares of our common stock.
In connection with this purchase and restructuring of our debt, the Junior
Credit Facility was amended to, among other things, extend its maturity date and
bear interest at an effective blended rate of 14.0%.
In May
2004 we completed the sale of 480,000 shares of our common stock at a price of
$9.00 per share to a small group of unaffiliated private investors. The proceeds
of this sale, together with additional borrowings under the Senior Credit
Facility, were used to retire approximately $5.4 million of the principal amount
of the Junior Credit Facility and approximately $350,000 of accrued interest on
such debt owed to Contrarian. Our remaining Junior Credit Facility obligations
consist of approximately $4.2 million principal amount bearing interest at an
annual rate of 9.0%.
In
November 2004, the Junior Credit Facility was again amended to extend its
maturity date to January 1, 2006 and at March 31, 2005, was classified as a
current liability.
Interest
Rate Sensitivity
Because
of the amount of obligations outstanding under the Senior and Junior Credit
Facilities and the connection of the interest rate under each Facility
(including the default rates) to the prime rate, an increase in the prime rate
could have a significant effect on our ability to satisfy our obligations under
the Facilities and increase our interest expense significantly. Therefore, our
liquidity and access to capital resources could be further affected by
increasing interest rates.
Other
Long-Term Obligations
In
addition to the borrowings under the senior and junior credit facilities
described above, we had approximately $2.4 million of mortgage notes payable,
equipment notes payable and other long-term obligations at March 31, 2005. We
also had approximately $2.1 million in non-cancellable operating lease
obligations, $0.6 million of which relates to truck and building leases of
discontinued operations at that date.
Forward-Looking
Statements
Certain
statements in this Form 10-Q, including but not limited to those contained in
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” may be deemed to be forward-looking statements, as defined in the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are made based on management’s belief as well as assumptions made by,
and information currently available to, management pursuant to “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995. Our actual
results may differ materially from the results anticipated in these
forward-looking statements due to, among other things, the risks referenced
herein and the risk factors set forth under the heading “Risk Factors” in our
Annual Report on Form 10-K, filed on March 14, 2005, and amended on May 2, 2005,
and in particular, the risks associated with the wind down of the towing
services segment and the risks associated with the terms of our substantial
indebtedness. We caution that 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, us.
Within 90
days prior to the filing date of this report, we carried out an evaluation,
under the supervision and with the participation of our management, including
our Co-Chief Executive Officers (Co-CEOs) and Chief Financial Officer (CFO), of
the effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rules 13a14(c) under the Securities Exchange Act of
1934. Based upon this evaluation, our Co-CEOs and CFO have concluded that the
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act are recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and
forms.
There
were no significant changes in our internal controls or in other factors that
could significantly affect internal controls subsequent to the date of this
evaluation.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
We are,
from time to time, a party to litigation arising in the normal course of our
business. Litigation is subject to various inherent uncertainties, and it is
possible that some of these matters could be resolved unfavorably to us, which
could result in substantial damages against us. We have established accruals for
matters that are probable and reasonably estimable and maintain 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 our consolidated financial
position or results of operations.
|
3.1 |
Charter,
as amended, of the Registrant (incorporated by reference to Exhibit 3.1 to
the Registrant’s Annual Report on Form 10-K, filed with the Commission on
April 22, 2002) |
|
3.2 |
Bylaws
of the Registrant (incorporated by reference to Exhibit 3.2 to the
Registrant’s Registration Statement on Form S-1, filed with the Commission
in August 1994) |
|
31.1 |
Certification
Pursuant to Rules 13a-14(a)/15d-14(a) by Co-Chief Executive
Officer* |
|
31.2 |
Certification
Pursuant to Rules 13a-14(a)/15d-14(a) by Co-Chief Executive
Officer* |
|
31.3 |
Certification
Pursuant to Rule 13a-14(a)/15d-14(a) by Chief Financial
Officer* |
|
32.1 |
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code
by Co-Chief Executive Officer* |
|
32.1 |
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code
by Co-Chief Executive Officer* |
|
32.2 |
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code
by Chief Financial Officer* |
______________
* Filed
herewith
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
Executive
Vice President and Chief Financial Officer |
Date: May
10, 2005
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