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EX-21 - EXHIBIT 21 - MILLER INDUSTRIES INC /TN/t81593_ex21.htm
EX-31.2 - EXHIBIT 31.2 - MILLER INDUSTRIES INC /TN/t81593_ex31-2.htm
EX-23.1 - EXHIBIT 23.1 - MILLER INDUSTRIES INC /TN/t81593_ex23-1.htm
EX-31.3 - EXHIBIT 31.3 - MILLER INDUSTRIES INC /TN/t81593_ex31-3.htm
EX-32.3 - EXHIBIT 32.3 - MILLER INDUSTRIES INC /TN/t81593_ex32-3.htm
EX-32.1 - EXHIBIT 32.1 - MILLER INDUSTRIES INC /TN/t81593_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - MILLER INDUSTRIES INC /TN/t81593_ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - MILLER INDUSTRIES INC /TN/t81593_ex31-1.htm
EX-10.26 - EXHIBIT 10.26 - MILLER INDUSTRIES INC /TN/t81593_ex10-26.htm
EXCEL - IDEA: XBRL DOCUMENT - MILLER INDUSTRIES INC /TN/Financial_Report.xls
EX-10.25 - EXHIBIT 10.25 - MILLER INDUSTRIES INC /TN/t81593_ex10-25.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
     
     
FORM 10-K
 
(Mark One)
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the fiscal year ended
December 31, 2014
 
OR
   
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____________________________ to ____________________________
 
Commission File No.
001-14124
 
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)
 
Securities registered pursuant to Section 12(b) of the Act:
     
Title of Each Class
 
Name of Each Exchange on Which Registered
     
Common Stock, par value $.01 per share
 
New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:
 
None
(Title of Class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes No
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
 
 
Large Accelerated Filer
Accelerated Filer
     
 
Non-accelerated Filer
Smaller Reporting Company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
 
The aggregate market value of the voting stock held by non-affiliates of the registrant (which for purposes hereof are all holders other than executive officers, directors and holders of more than 10% of the registrant’s Common Stock) as of June 30, 2014 (the last business day of the registrant’s most recently completed second fiscal quarter) was $188,535,170 (based on 9,161,087 shares held by non-affiliates at $20.58 per share, the last sale price reported on the New York Stock Exchange on June 30, 2014).
 
At February 27, 2015 there were 11,307,150 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
The information called for by Part III (Items 10, 11, 12, 13 and 14) is incorporated herein by reference to the Registrant’s definitive proxy statement for its 2014 Annual Meeting of Shareholders which is to be filed pursuant to Regulation 14A.
 
 
 

 

 
 
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CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
 
Certain statements in this Annual Report, including but not limited to statements made in Part II–Item 7–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. Our actual results may differ materially from the results anticipated in these forward-looking statements due to, among other things: the cyclical nature of our industry and changes in consumer confidence; economic and market conditions; our customer’s 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; the effects of new regulation relating to conflict minerals; the catastrophic loss of one or 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; a disruption in our information technology systems; an inability to acquire insurance at commercially reasonable rates; and those other risks referenced herein, including those risks referred to in this report, in Part I, Item 1A–Risk Factors” and those risks discussed in our filings with the Securities and Exchange Commission filed after this Annual Report. 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.
 
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ITEM 1.
 
General
 
Miller Industries is The World’s Largest Manufacturer of Towing and Recovery Equipment®, with executive offices in Ooltewah, Tennessee, domestic manufacturing operations in Tennessee and Pennsylvania, and foreign manufacturing operations in France and the United Kingdom.
 
Since 1990, we have developed or acquired several of the most well-recognized brands in the towing and recovery equipment manufacturing industry. Our strategy has been to diversify our line of products and increase our presence in the industry by combining internal growth and development with acquisitions of complementary products.
 
In this Annual Report on Form 10-K, the words “Miller Industries,” “the Company,” “we,” “our,” “ours” and “us” refer to Miller Industries, Inc. and its subsidiaries or any of them.
 
Towing and Recovery Equipment
 
We offer a broad range of towing and recovery equipment products that meet most customer design, capacity and cost requirements. We manufacture the bodies of wreckers and car carriers, which are installed on truck chassis manufactured by third parties. We frequently purchase the truck chassis for resale to our customers. Wreckers generally are used to recover and tow disabled vehicles and other equipment and range in type from the conventional tow truck to large recovery vehicles with rotating hydraulic booms and up to 75-ton lifting capacities. Car carriers are specialized flatbed vehicles with hydraulic tilt mechanisms that enable a towing operator to drive or winch a vehicle onto the bed for transport. Car carriers transport new or disabled vehicles and other equipment and are particularly effective over longer distances. We also manufacture vehicle transport trailers.
 
Our products primarily are sold through independent distributors that serve all 50 states, Canada and Mexico, and other foreign markets including Europe, the Pacific Rim, the Middle East, South America and Africa, and through prime contractors to governmental entities. Additionally, as a result of our ownership of Jige in France and Boniface in the United Kingdom, we have substantial distribution capabilities in Europe. While most of our distributor agreements do not contain exclusivity provisions, management believes that approximately 85% of our independent distributors sell our products on an exclusive basis. In addition to selling our products to towing operators, our independent distributors provide parts and service. We also utilize sales representatives to exclusively market our products and provide expertise and sales assistance to our independent distributors. Management believes the strength of our distribution network and the breadth of our product offerings are two key advantages over our competitors.
 
Product Lines
 
We manufacture a broad line of wrecker, car carrier and trailer bodies to meet a full range of customer design, capacity and cost requirements.
 
Wreckers. Wreckers are generally used to recover and tow disabled vehicles and other equipment and range in type from the conventional tow truck to large recovery vehicles with up to 75-ton lifting capacities. Wreckers are available with specialized features, including underlifts, L-arms, crossbars and scoops, which lift disabled vehicles by the tires or front axle to minimize front end damage to the towed vehicles. Certain heavy duty wrecker models offer rotating booms, which allow heavy duty wreckers to recover vehicles from any angle, and remote control devices for operating wreckers. In addition, certain light duty wreckers are equipped with automatic wheellift hookup devices that allow operators to engage a disabled or unattended vehicle without leaving the cab of the wrecker.
 
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Our wreckers range in capacity from 4 to 75 tons, and are classified as either light duty or heavy duty, with wreckers of 16-ton or greater capacity being classified as heavy duty. Light duty wreckers are used to remove vehicles from accident scenes and vehicles illegally parked, abandoned or disabled, and for general recovery. Heavy duty wreckers are used in towing and recovery applications including overturned tractor trailers, buses, motor homes and other large vehicles.
 
Car Carriers. Car carriers are specialized flat-bed vehicles with hydraulic tilt mechanisms that enable a towing operator to drive or winch a vehicle onto the bed for transport. Car carriers are used to transport new or disabled vehicles and other equipment and are particularly effective for transporting vehicles or other equipment over longer distances. In addition to transporting vehicles, car carriers may also be used for other purposes, including transportation of industrial equipment. Most professional towing operators have car carriers in their fleets to complement their towing capabilities.
 
Transport Trailers. Our multi-vehicle transport trailers are specialized auto transport trailers with upper and lower decks and hydraulic ramps for loading vehicles. These trailers are used for moving multiple vehicles for auto auctions, car dealerships, leasing companies and other similar applications. These trailers are easy to load and transport 6 to 7 vehicles. The vehicles can be secured to transport quickly with ratchet and chain tie-downs that are mounted throughout the frame of the transport. Many professional towing operators have added auto transport trailers to their fleets to add to their service offerings.
 
Brand Names
 
We manufacture and market our wreckers, car carriers and trailers under ten separate brand names. Although certain brands overlap in terms of features, prices and distributors, each brand has its own distinctive image and customer base.
 
Century®. The Century® brand is our “top-of-the-line” brand and represents what management believes to be the broadest product line in the industry. The Century® line was started in 1974 and produces wreckers ranging from 8-ton light duty to 75-ton heavy duty models, and car carriers in lengths from 20 to 30 feet. Management believes that the Century® brand has a reputation as the industry’s leading product innovator.
 
Vulcan®. Our Vulcan® product line includes a range of premium light duty and heavy duty wreckers, ranging from 8-ton light duty to 50-ton heavy duty models, and car carriers. The Vulcan® line is sold through its own independent distribution network.
 
Challenger®. Our Challenger® products compete with the Century® and Vulcan® products and constitute a third premium product line. Challenger® products consist of heavy duty wreckers with capacities ranging from 25 to 75 tons. The Challenger® line was started in 1975 and is known for high performance heavy duty wreckers and aesthetic design.
 
Holmes®. Our Holmes® product line includes mid-priced wreckers with 4 to 16 ton capacities, a 16-ton rotator and a detachable towing unit (DTU). The Holmes® wrecker was first produced in 1916. Historically, the Holmes® name has been the most well-recognized and leading industry brand both domestically and internationally.
 
Champion®. The Champion® brand, which was introduced in 1991, includes car carriers which range in length from 19 to 21 feet. The Champion® product line, which is generally lower-priced, allows us to offer a full line of car carriers at various competitive price points.
 
Chevron™. Our Chevron™ product line is comprised primarily of premium car carriers. Chevron™ produces a range of premium single-car, multi-car and industrial carriers, as well as wreckers ranging from 8-ton to 16-ton models. The Chevron™ line is operated autonomously with its own independent distribution network.
 
Eagle®. Our Eagle® products consist of light duty wreckers with the “Eagle Claw®” hook-up system that allows towing operators to engage a disabled or unattended vehicle without leaving the cab of the tow truck. The “Eagle Claw®” hook-up system was originally developed for the repossession market. Since acquiring Eagle, we have upgraded the quality and features of the Eagle® product line and expanded its recovery capability.
 
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Titan®. Our Titan® product line is comprised of premium multi-vehicle transport trailers which can transport up to 7 vehicles depending on configuration.
 
Jige™. Our Jige™ product line is comprised of a broad line of premium light duty and heavy duty wreckers and car carriers marketed primarily in Europe. Jige™ is a market leader best known for its innovative designs of car carriers and light duty wreckers necessary to operate within the narrow confines of European cities, as well as heavy duty wreckers.
 
Boniface™. Our Boniface™ product line is comprised primarily of premium heavy duty wreckers marketed primarily in Europe. Boniface™ produces heavy duty wreckers specializing in the long underlift technology required to tow modern European tour buses.
 
Product Development and Manufacturing
 
Our Holmes® and Century® brand names are associated with four of the major innovations in the industry: the rapid reverse winch; the tow sling; the hydraulic lifting mechanism; and the underlift with parallel linkage and L arms. Our engineering staff, in consultation with manufacturing personnel, uses computer-aided design and stress analysis systems to test new product designs and to integrate various product improvements. In addition to offering product innovations, we focus on developing or licensing new technology for our products. Research and development costs amounted to approximately $1.9 million, $1.3 million and $1.4 million for 2014, 2013 and 2012, respectively.
 
We manufacture wreckers, car carriers and trailers at seven manufacturing facilities located in the United States, France and the United Kingdom. The manufacturing process for our products consists primarily of cutting and bending sheet steel or aluminum into parts that are welded together to form the wrecker, car carrier body or trailer. In addition, during the past several years, we have also begun to produce wrecker bodies using composites and other non-metallic materials. After the frame is formed, components such as hydraulic cylinders, winches, valves and pumps, which are purchased by us from third-party suppliers, are attached to the frame to form the completed wrecker or car carrier body. The completed body is either installed by us, or shipped by common carrier to a distributor where it is then installed, on a truck chassis. Generally, the wrecker or car carrier bodies are painted and towing operators can select customized colors to coordinate with chassis colors or fleet colors. To the extent final painting is required before delivery, we either complete such painting or contract with independent paint shops for such services.
 
We purchase raw materials and component parts from a number of sources. Although we have no long-term supply contracts, management believes we have good relationships with our primary suppliers. In recent years prices have fluctuated significantly, but we have experienced no significant problems in obtaining adequate supplies of raw materials and component parts to meet the requirements of our production schedules. Management believes that the materials used in the production of our products are available at competitive prices from an adequate number of alternative suppliers. Accordingly, management does not believe that the loss of a single supplier would have a material adverse effect on our business.
 
Sales, Distribution and Marketing
 
The industry categorizes the towing and recovery market into three general product types: light duty wreckers; heavy duty wreckers; and car carriers. The light duty wrecker market consists primarily of professional wrecker operators, repossession towing services, local and national governmental entities and repair shop or salvage company owners. The heavy duty market includes professional wrecker operators serving the needs of commercial vehicle operators as well as governmental entities. The car carrier market has expanded to include equipment rental companies that offer delivery service and professional towing operators who desire to complement their existing towing capabilities. Management estimates that there are approximately 35,000 professional towing operators and many more service station, repair shop and salvage operators comprising the overall towing and recovery market.
 
We have developed a diverse network of independent distributors, consisting of approximately 80 distributors in North America, who serve all 50 states, Canada and Mexico, and numerous distributors that serve other foreign markets. In 2014, no single distributor accounted for more than 10% of our sales. Management believes our broad and diverse network of distributors provides us with the flexibility to adapt to market changes, lessens our dependence on particular distributors and reduces the impact of regional economic factors.
 
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Our sales force services our network of independent distributors and consists of sales representatives whose responsibilities include providing administrative and sales support to the entire base of independent distributors. Sales representatives receive commissions on direct sales based on product type and brand and generally are assigned specific territories in which to promote sales of our products and to maintain customer relationships. To support sales and marketing efforts, we produce demonstrator models that are used by our sales representatives and independent distributors. In addition to providing services to our network of independent distributors, our sales force sells our products to various governmental entities, including the U.S. federal government and foreign governments, through prime contractors.
 
We routinely respond to requests for proposals or bid invitations in consultation with our local distributors. Our products have been selected by the United States General Services Administration as an approved source for certain federal and defense agencies. We intend to continue to pursue government contracting opportunities.
 
The towing and recovery equipment industry places heavy marketing emphasis on product exhibitions at national, regional and international trade shows. In order to focus our marketing efforts and to control marketing costs, we concentrate our efforts on the major trade shows each year, and we work with our network of independent distributors to concentrate on various regional shows.
 
Product Warranties and Insurance
 
We generally offer a 12-month limited manufacturer’s product and service warranty on our wrecker and car carrier products. Our warranty generally provides for repair or replacement of failed parts or components. Warranty service is usually performed by us or an authorized distributor. Management believes that we maintain adequate general liability and product liability insurance.
 
Backlog
 
We produce virtually all of our products to order. Our backlog is based upon customer purchase orders that we believe are firm. The level of backlog at any particular time, however, may not be an appropriate indicator of our future operating performance. Certain purchase orders may be subject to cancellation by the customer upon notification. Given our production and delivery schedules, management generally believes that the current backlog represents less than three months of production.
 
Competition
 
The towing and recovery equipment manufacturing industry is highly competitive for sales to distributors and towing operators. Management believes that competition in this industry focuses on product quality and innovation, reputation, technology, customer service, product availability and price. We compete on the basis of each of these criteria, with an emphasis on product quality and innovation and customer service. Management also believes that a manufacturer’s relationship with distributors is a key component of success in the industry. Accordingly, we have invested substantial resources and management time in building and maintaining strong relationships with distributors. Management also believes that our products are regarded as high quality within their particular price points. Our marketing strategy is to continue to compete primarily on the basis of quality and reputation rather than solely on the basis of price, and to continue to target the growing group of professional towing operators who as end-users recognize the quality of our products.
 
Traditionally, the capital requirements for entry into the towing and recovery manufacturing industry have been relatively low. Management believes a manufacturer’s capital resources and access to technological improvements have become a more integral component of success in recent years. Certain of our competitors may have greater financial and other resources and may provide more attractive dealer and retail customer financing alternatives than we do.
 
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Employees
 
We employed approximately 890 people as of December 31, 2014. None of our employees are covered by a collective bargaining agreement, though our employees in France and the United Kingdom have certain similar rights provided by their respective government’s employment regulations. We consider our employee relations to be good.
 
Intellectual Property Rights
 
Our development of the underlift parallel linkage and L-arms is considered one of the most innovative developments in the wrecker industry. This technology is significant primarily because it allows the damage-free towing of newer aerodynamic vehicles made of lighter weight materials. This technology, particularly the L-arms, is used in a majority of commercial wreckers today. We hold a number of utility and design patents covering other of our products, including the Vulcan “scoop” wheel-retainer and the car carrier anti-tilt device. We have also obtained the rights to use and develop certain technologies owned or patented by others. Management believes that, until the patents on our technology expire, utilization of our patented technology without a license is an infringement of such patents. We have successfully litigated infringement lawsuits in which the validity of our patents on our technology was upheld, and successfully settled other lawsuits,
 
Our trademarks “Century®,” “Holmes®,” “Champion®,” “Challenger®,” “Formula I®,” “Pro Star®,” “Street Runner®,” “Vulcan®,” “Right Approach®” and “Extreme Angle®,” among others, are registered with the United States Patent and Trademark Office. Management believes that our trademarks are well-recognized by dealers, distributors and end-users in their respective markets and are associated with a high level of quality and value.
 
Government Regulations and Environmental Matters
 
Our operations are subject to federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. Management believes that we are in substantial compliance with all applicable federal, state and local provisions relating to the protection of the environment. The costs of complying with environmental protection laws and regulations have not had a material adverse impact on our financial condition or results of operations in the past.
 
We are also subject to the additional diligence and disclosure requirements adopted by the Securities and Exchange Commission (the “SEC”) in 2012 related to certain minerals sourced from the Democratic Republic of Congo or adjoining countries in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The SEC rules impose these obligations with respect to “conflict minerals,” defined as tin, tantalum, tungsten and gold, which are necessary to the functionality of a product manufactured, or contracted to be manufactured, by an SEC reporting company. If any “conflict minerals” that are necessary to the functionality of a product manufactured by an SEC reporting company originated in the Democratic Republic of Congo or an adjoining country, the rules require the issuer to prepare and file a report addressing its efforts to exercise due diligence on the source of such “conflict minerals” and their chain of custody. We are actively working toward complying with the conflict minerals diligence and disclosure obligations required under the Dodd-Frank Act.
 
We are also subject to the Magnuson-Moss Warranty Federal Trade Commission Improvement Act which regulates the description of warranties on products. The description and substance of our warranties are also subject to a variety of federal and state laws and regulations applicable to the manufacturing of vehicle components. Management believes that continued compliance with various government regulations will not materially affect our operations.
 
Executive Officers of the Registrant
 
Information relating to our executive officers as of the end of the period covered by this Annual Report is set forth below. William G. Miller, II is the son of William G. Miller. Other than Messrs. Miller and Miller II, there are no family relationships among the executive officers, directors or nominees for director, nor are there any arrangements or understandings between any of the executive officers and any other persons pursuant to which they were selected as executive officers.
 
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Name
 
Age
 
Position
         
William G. Miller
 
68
 
Chairman of the Board
         
Jeffrey I. Badgley
 
62
 
Co-Chief Executive Officer
         
William G. Miller, II
 
36
 
President and Co-Chief Executive Officer
         
Frank Madonia
 
66
 
Executive Vice President, Secretary and General Counsel
         
J. Vincent Mish
 
64
 
Executive Vice President, Chief Financial Officer and Treasurer
         
Deborah Whitmire
 
49
 
Vice President and Corporate Controller
 
William G. Miller has served as Chairman of the Board since April 1994. Mr. Miller served as our Chief Executive Officer from April 1994 until June 1997, and as our Co-Chief Executive Officer from October 2003 until March 2011. In June 1997, he was named Co-Chief Executive Officer, a title he shared with Jeffrey I. Badgley until November 1997. Mr. Miller also served as our President from April 1994 to June 1996. He served as Chairman of Miller Group, Inc. from August 1990 through May 1994, as its President from August 1990 to March 1993, and as its Chief Executive Officer from March 1993 until May 1994. Prior to 1987, Mr. Miller served in various management positions for Bendix Corporation, Neptune International Corporation, Wheelabrator-Frye, Inc. and The Signal Companies, Inc.
 
Jeffrey I. Badgley has served as our Co-Chief Executive Officer since December 2013, after serving as our Chief Executive Officer from March 2011 until December 2013, our President from June 1996 until March 2011, our Co-Chief Executive Officer from October 2003 until March 2011 and our Chief Executive Officer from November 1997 to October 2003. Mr. Badgley served as a director from 1996 to May 2014 and as Vice Chairman of the Board from March 2011 to May 2014. Mr. Badgley served as our Vice President from 1994 to 1996, and as our Chief Operating Officer from June 1996 to June 1997. In addition, Mr. Badgley has served as President of Miller Industries Towing Equipment Inc. since 1996. Mr. Badgley served as Vice President—Sales of Miller Industries Towing Equipment Inc. from 1988 to 1996. He previously served as Vice President—Sales and Marketing of Challenger Wrecker Corporation from 1982 until joining Miller Industries Towing Equipment Inc.
 
William G. Miller, II has served as a director since May 2014, our Co-Chief Executive Officer since December 2013 and President since March 2011, after serving as a Regional Vice President of Sales of Miller Industries Towing Equipment Inc. from November 2009 to February 2011. Mr. Miller II served as Vice President of Strategic Planning of the Company from October 2007 until November 2009. Mr. Miller II served as Light Duty General Manager from November 2004 to October 2007 and as a Sales Representative of Miller Industries Towing Equipment Inc. from 2002 to 2004.
 
Frank Madonia has served as our Executive Vice President, Secretary and General Counsel since September 1998. From April 1994 to September 1998 Mr. Madonia served as our Vice President, General Counsel and Secretary. Mr. Madonia served as Secretary and General Counsel to Miller Industries Towing Equipment Inc. since its acquisition by Miller Group in 1990. From July 1987 through April 1994, Mr. Madonia served as Vice President, General Counsel and Secretary of Flow Measurement. Prior to 1987, Mr. Madonia served in various legal and management positions for United States Steel Corporation, Neptune International Corporation, Wheelabrator-Frye, Inc. and The Signal Companies, Inc.
 
J. Vincent Mish is a certified public accountant and has served as our Chief Financial Officer and Treasurer since June 1999, a position he also held from April 1994 through September 1996. In December 2002, Mr. Mish was appointed as our Executive Vice President. He also has served as President of the Financial Services Group since September 1996 and as a Vice President of Miller Industries since April 1994. Mr. Mish served as Vice President and Treasurer of Miller Industries Towing Equipment Inc. since its acquisition by Miller Group in 1990. From February 1987 through April 1994, Mr. Mish served as Vice President and Treasurer of Flow Measurement. Mr. Mish worked with Touche Ross & Company (now Deloitte and Touche) for over ten years before serving as Treasurer and Chief Financial Officer of DNE Corporation from 1982 to 1987. Mr. Mish is a member of the American Institute of Certified Public Accountants and the Tennessee and Michigan Certified Public Accountant societies.
 
Deborah Whitmire has served as our Vice President and Corporate Controller since January 2014, after serving as Corporate Controller to Miller Industries Towing Equipment Inc. from March 2005 to January 2014. From April 2000 to March 2005, she also served as Director of Finance – Manufacturing to Miller Industries Towing Equipment Inc. In addition, she served as Controller to Miller Industries Towing Equipment Inc. from October 1997 to April 2000 and Accounting Manager to Miller Industries Towing Equipment Inc. from October 1996 to October 1997.
 
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Available Information
 
Our Internet website address is www.millerind.com. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we file them with, or furnish them to, the Securities and Exchange Commission. Our Corporate Governance Guidelines and Code of Business Conduct and Ethics are also available on our website. Other corporate governance-related documents can be found at our website as well.
 
ITEM 1A.
 
There are many factors that affect our business and the results of our operations, some of which are beyond our control. The following is a description of all known material risks that may cause the actual results of our operations in future periods to differ materially from those currently expected or desired. We encourage you to read this section carefully.
 
Our business is subject to the cyclical nature of our industry and changes in consumer confidence and in economic conditions in general. Adverse changes or continued uncertainty with respect to these factors may lead to a downturn in our business.
 
The towing and recovery industry is cyclical in nature and historically the industry has been affected by changes in consumer confidence and in economic conditions in general. Concerns over the slow economic recovery and continued volatility and disruption in domestic and international capital and credit markets have caused significant erosion in consumer confidence. As a result, the overall demand for our products from our commercial customers has been negatively affected, and the level of future sales of our products is uncertain. A prolonged economic downturn, and slow or negative growth in the domestic and global economy, may continue to have a material adverse effect on our business, financial condition and results of operations for the foreseeable future.
 
Our demand from our customers and towing operators is affected by the availability of capital and access to credit.
 
The ability of our customers and of towing operators to purchase our products is affected by the availability of capital and credit to them. Our independent distributor customers rely on floor plan financing in connection with the purchase of our products, and the availability of that financing on acceptable terms has a direct effect on the volume of their purchases. Additionally, in many cases, a towing operator’s decision to purchase our products from one of our distributors is dependent upon their ability to obtain financing upon acceptable terms. Volatility and disruption in the capital and credit markets, principally in the U.S. and Europe, has decreased the availability of capital to, and credit capacity of, our customers and towing operators. In addition, in the past, certain providers of floor plan financing have exited the market, which made floor plan financing increasingly difficult for our independent distributor customers to secure at those times. This reduced availability of capital and credit has negatively affected the ability and capacity of our customers and of towing operators to purchase towing and related equipment. This, in turn, has negatively impacted sales of our products. If customers are unable to access capital or credit, it could materially and adversely affect our ability to sell our products, and as a result, could negatively affect our business and operating results.
 
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Our dependence upon outside suppliers for our raw materials, including aluminum, steel, petroleum-related products and other purchased component parts, leaves us subject to changes in price and delays in receiving supplies of such materials or parts.
 
We are dependent upon outside suppliers for our raw material needs and other purchased component parts, and although we believe that these suppliers will continue to meet our requirements and specifications, and that alternative sources of supply are available, events beyond our control could have an adverse effect on the cost or availability of raw materials and component parts. Shipment delays, unexpected price increases or changes in payment terms from our suppliers of raw materials or component parts could impact our ability to secure necessary raw materials or component parts, or to secure such materials and parts at favorable prices. To partially offset price increases for raw materials and component parts, we have, from time to time, implemented general price increases and cost surcharges. While we have attempted to pass these increased costs on to our customers, there can be no assurance that we will be able to continue to do so. Additionally, demand for our products could be negatively affected by the unavailability of truck chassis, which are manufactured by third parties and are frequently supplied by us, or are purchased separately by our distributors or by towing operators. Although we believe that sources of our raw materials and component parts will continue to be adequate to meet our requirements and that alternative sources are available, shortages, price increases or delays in shipments of our raw materials and component parts could have a material adverse effect on our financial performance, competitive position and reputation.
 
Overall demand from our customers may be affected by increases in their fuel and insurance costs and changes in weather conditions.
 
In the past, our customers have experienced substantial increases in fuel and other transportation costs, and in the cost of insurance, and while many of these costs have remained stable since 2010, there can be no assurance that these costs will not continue to be volatile, or again increase, for our customers in the future. Additionally, our customers also have, from time to time, been subject to unpredictable and varying weather conditions which could, among other things, impact the cost and availability of fuel and other materials. Any of these factors could negatively affect the ability of our customers to purchase, and their capacity for purchasing, towing and related equipment, and, consequently, have a material negative effect upon our business and operating results.
 
Our international operations are subject to various political, economic and other uncertainties that could adversely affect our business results, including by restrictive taxation or other government regulation and by foreign currency fluctuation.
 
Historically, a significant portion of our net sales and production were outside the United States, primarily in Europe. As a result, our operations are subject to various political, economic and other uncertainties, including risks of restrictive taxation policies, changing political conditions and governmental regulations. Also, a substantial portion of our net sales derived outside the United States, as well as salaries of employees located outside the United States and certain other expenses, are denominated in foreign currencies, including the British pound and the Euro. We are, therefore, subject to risk of financial loss resulting from fluctuations in exchange rates of these currencies against the U.S. dollar.
 
9
 

 

 
Our competitors could impede our ability to attract or retain customers.
 
The towing and recovery equipment manufacturing industry is highly competitive. Capital requirements for entry into the towing and recovery manufacturing industry have been relatively low, which could result in an increase in the number of competitors entering the industry. Competition for sales exists domestically and internationally at the manufacturer, distributor and towing-operator levels and is based primarily on product quality and innovation, reputation, technology, customer service, product availability and price. Competition for sales also comes from the market for used towing and recovery equipment. Certain of our competitors may have substantially greater financial and other resources and may provide more attractive dealer and retail customer financing alternatives than us. If these competitors are able to make it more difficult for us to attract or retain customers, it could have a negative impact on our sales, revenue and financial performance.
 
Our future success depends upon our ability to develop or acquire proprietary products and technology and assertions against us relating to intellectual property rights could harm our business.
 
Historically, we have been able to develop or acquire patented and other proprietary product innovations which have allowed us to produce what management believes to be technologically advanced products relative to most of our competition. However, certain of our patents have expired, and others will expire in the next few years, and as a result, we may not have a continuing competitive advantage through proprietary products and technology. If we are unable to develop or acquire new products and technology in the future, our ability to maintain market share, and, consequently, our revenues and operating results, may be negatively affected.
 
Third parties may claim that our products infringe their patents or other intellectual property rights. If a competitor were to challenge our patents, or assert that our products or processes infringe its patent or other intellectual property rights, we could incur substantial litigation costs, be forced to design around their patents, pay substantial damages or even be forced to cease our operations, any of which could be expensive and/or have an adverse effect on our operating results. Third party infringement claims, regardless of their outcome, would not only consume our financial resources, but also would divert the time and effort of our management and could result in our customers or potential customers deferring or limiting their purchase or use of the affected products or services until resolution of the litigation.
 
We depend upon skilled labor to manufacture our products, and if we experience problems hiring and retaining skilled labor, our business may be negatively affected.
 
The timely manufacture and delivery of our products requires an adequate supply of skilled labor, and the operating costs of our manufacturing facilities can be adversely affected by high turnover in skilled positions. Accordingly, our ability to increase sales, productivity and net earnings will be limited to a degree by our ability to employ the skilled laborers necessary to meet our requirements. We must attract, train and retain skilled employees while controlling related labor costs and maintaining our core values. Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates and increases in healthcare and other insurance costs. There can be no assurance that we will be able to maintain an adequate skilled labor force necessary to efficiently operate our facilities. In addition, while our employees are not currently members of a union, there can be no assurance that the employees at any of our facilities will not choose to become unionized in the future.
 
Our sales to governmental entities through prime contractors are subject to special risks.
 
While no one customer accounted for more than 10% of our consolidated net sales for 2012 and 2013 and 2014, a significant concentration of our consolidated net sales were made to the U.S. federal government through prime contractors in the three prior years. Such sales accounted for 26.8% of our consolidated net sales for 2011. At this time we do not expect to receive any new or follow-on U.S. government-related orders in the near term. Our U.S. and other government business is subject to the following risks, among others: (i) this business is susceptible to changes in government spending, which may reduce future revenues; (ii) most of our contracts with governmental entities through prime contractors are fixed-price contracts, and our actual costs on any of these contracts could exceed our projected costs, (iii) competition for the award of these contracts is intense, and we may not be successful in bidding on future contracts, and (iv) the products we sell to governmental entities are subject to highly technical requirements, and any failure to comply with these requirements could result in unanticipated retrofit costs, delayed acceptance of products, late or reduced payment or cancellation of the contract. We continue to work to secure additional U.S. and other governmental orders, but we cannot predict the success or timing of any such efforts.
 
The effects of new regulations relating to conflict minerals may adversely affect our business.
 
On August 22, 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC adopted new requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by third parties. These requirements will require companies to perform due diligence, and disclose and report whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. We will have to perform due diligence to determine whether such minerals are used in the manufacture of our products. However, the implementation of these new requirements could adversely affect the sourcing, availability and pricing of such minerals if they are found to be used in the manufacture of our products. In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products. The Company’s supply chain is complex, and, as a result, we expect significant difficulty in verifying the origins for all “conflict minerals” used in our products and certifying that our products are “conflict free.” We may face reputational challenges from customers, investors or others if we are unable to verify the origins for all “conflict minerals” used in our products. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free.
 
10
 

 

 
The catastrophic loss of one of our manufacturing facilities could harm our business, financial condition and results of operations.
 
While we manufacture our products in several facilities and maintain insurance covering our facilities, including business interruption insurance, a catastrophic loss of the use of all or a portion of one of our manufacturing facilities due to accident, labor issues, weather conditions, natural disaster, civil unrest or otherwise, whether short or long-term, could materially harm our business, financial condition and results of operations.
 
Environmental and health and safety liabilities and requirements could require us to incur material costs.
 
We are subject to various U.S. and foreign laws and regulations relating to environmental protection and worker health and safety, including those governing discharges of pollutants into the ground, air and water; the generation, handling, use, storage, transportation, treatment and disposal of hazardous substances and waste materials; and the investigation and cleanup of contaminated properties. In certain cases, these regulatory requirements may limit the productive capacity of our operations.
 
Environmental and health-related requirements are complex, subject to change and have tended to become more and more stringent. Future developments could cause us to incur various expenditures and could also subject us to fines or sanctions, obligations to investigate or remediate contamination or restore natural resources, liability for third party property damage or personal injury claims and the imposition of new permitting requirements and/or the modification or revocation of our existing operating permits, among other effects. These and other developments could materially harm our business, financial condition and results of operation.
 
Any loss of the services of our key executives could have a material adverse impact on our operations.
 
Our success is highly dependent on the continued services of our management team. The loss of services of one or more key members of our senior management team could have a material adverse effect on us.
 
A product warranty or product liability claim in excess of our insurance coverage, or an inability to acquire or maintain insurance at commercially reasonable rates, could have a material adverse effect upon our business.
 
We are subject to various claims, including product warranty and product liability claims arising in the ordinary course of business, and may at times be a party to various legal proceedings incidental to our business. We maintain reserves and liability insurance coverage at levels based upon commercial norms and our historical claims experience. If we manufacture poor quality products or receive defective materials, we may incur unforeseen costs in excess of what we have reserved in our financial statements. A successful product warranty, product liability or other claim brought against us in excess of our insurance coverage, or the inability of us to acquire or maintain insurance at commercially reasonable rates, could have a material adverse effect upon our business, operating results and financial condition.
 
A disruption in our information technology (“IT”) systems could adversely impact our business and operations.
 
We rely on the accuracy, capacity and security of our IT systems and our ability to update these systems in response to the changing needs of our business. We have incurred costs and may incur significant additional costs in order to implement security measures that we feel are appropriate to protect our IT systems. Nevertheless, future attacks could result in our systems or data being breached and/or damaged by computer viruses or unauthorized physical or electronic access. Such a breach could result in not only business disruption, but also theft of our intellectual property or trade secrets and/or unauthorized access to controlled data and personal information stored in connection with our human resources function. Any interruption, outage or breach of our IT systems could adversely affect our business operations. To the extent that any data is lost or destroyed or any confidential information is inappropriately disclosed or used, it could adversely affect our competitive position or customer relationships, harm our business and possibly lead to claims, liability, or fines based upon alleged breaches of contract or applicable laws.
 
Our stock price may fluctuate greatly as a result of the general volatility of the stock market.
 
From time to time, there may be significant volatility in the market price for our common stock. Our quarterly operating results, changes in earnings estimated by analysts, if any, changes in general conditions in our industry or the economy or the financial markets or other developments affecting us, including our ability to pay dividends, could cause the market price of our common stock to fluctuate substantially.
 
11
 

 

 
Our charter and bylaws contain anti-takeover provisions that may make it more difficult or expensive to acquire us in the future or may negatively affect our stock price.
 
Our charter and bylaws contain restrictions that may discourage other persons from attempting to acquire control of us, including, without limitation, prohibitions on shareholder action by written consent and advance notice requirements regarding amendments to certain provisions of our charter and bylaws. In addition, our charter authorizes the issuance of up to 5,000,000 shares of preferred stock. The rights and preferences for any series of preferred stock may be set by the board of directors, in its sole discretion and without shareholder approval, and the rights and preferences of any such preferred stock may be superior to those of common stock and thus may adversely affect the rights of holders of common stock.
 
The requirements and restrictions imposed by our current credit facility restrict our ability to operate our business, and failure to comply with these requirements and restrictions could adversely affect our business.
 
Our current credit facility contains customary representations and warranties, events of default, and financial, affirmative and negative covenants for loan agreements of this kind. In addition, covenants under our current credit facility restrict our ability to pay 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. If we fail to comply with the requirements of our current credit facility, such non-compliance would result in an event of default. If not waived by the bank, such event of default would result in the acceleration of any amounts due under the current credit facility, and may permit the bank to foreclose on our assets.
 
None.
 
ITEM 2.
 
We operate four manufacturing facilities in the United States. The facilities are located in Ooltewah (Chattanooga), Tennessee; Hermitage, Pennsylvania; Mercer, Pennsylvania; and Greeneville, Tennessee. The Ooltewah plant, containing approximately 302,000 square feet, produces light and heavy duty wreckers; the Hermitage plant, containing approximately 134,000 square feet, produces car carriers; the Mercer plant, containing approximately 110,000 square feet, produces car carriers and light duty wreckers; and the Greeneville plant, containing approximately 136,000 square feet (plus 40,000 square feet of leased property), produces car carriers, heavy duty wreckers and trailers. We intend to consolidate our two manufacturing properties located in Pennsylvania into a single facility.
 
We also have manufacturing operations at two facilities located in the Lorraine region of France, which have, in the aggregate, approximately 180,000 square feet, and manufacturing operations in Norfolk, England, with approximately 48,000 square feet.
 
 
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.
 
 
Not applicable.
12
 

 

 
 
 
Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters
 
Our common stock is traded on the New York Stock Exchange under the symbol “MLR.” The following table sets forth the quarterly range of high and low sales prices for the common stock for the periods indicated.
             
   
Price Range of Common Stock
 
Period
 
High
   
Low
 
Year Ended December 31, 2013
           
First Quarter
  $ 17.23     $ 14.91  
Second Quarter
    16.93       14.73  
Third Quarter
    17.25       15.30  
Fourth Quarter
    19.16       16.42  
Year Ended December 31, 2014
               
First Quarter
  $ 20.00     $ 16.89  
Second Quarter
    20.67       18.42  
Third Quarter
    21.44       16.86  
Fourth Quarter
    21.36       16.19  
Year Ending December 31, 2015
               
First Quarter (through February 28, 2015)
  $ 22.37     $ 19.50  
 
The approximate number of holders of record and beneficial owners of common stock as of December 31, 2014 was 540 and 2,250 respectively.
 
Prior to March 2010, we had never declared cash dividends on our common stock. On March 8, 2010, our board of directors adopted a dividend policy to consider and pay annual cash dividends subject to our ability to satisfy all applicable statutory and regulatory requirements and our continued financial strength. On May 10, 2011, the Company’s board of directors approved a dividend policy to consider and pay quarterly dividends on its common stock subject to the Company’s ability to satisfy all applicable statutory requirements and the Company’s continued financial strength, replacing the previous policy of paying annual cash dividends. Dividend payments made for 2014, 2013 and 2012 were as follows:
                     
Payment
Record Date
Payment Date
 
Dividend
(per share)
   
Amount
(in thousands)
 
                     
Q1 2012
March 19, 2012
March 26, 2012
 
$
0.13
   
$
1,437
 
Q2 2012
June 18, 2012
June 25, 2012
   
0.13
     
1,439
 
Q3 2012
September 17, 2012
September 24, 2012
   
0.13
     
1,439
 
Q4 2012
December 10, 2012
December 17, 2012
   
0.13
     
1,447
 
Total for 2012
     
$
0.52
   
$
5,762
 
                     
Q1 2013
March 18, 2013
March 24, 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
 
 
13
 

 

 
Any future determination as to the payment of cash dividends will depend upon such factors as earnings, capital requirements, our financial condition, restrictions in financing agreements and other factors deemed relevant by our board of directors. Covenants under our 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 other restrictions.
 
Sales of Unregistered Securities
 
 We did not sell any unregistered securities during the year ended December 31, 2014.
 
Performance Graph
 
The following line graph compares the percentage change in the cumulative shareholder return of our common stock with The New York Stock Exchange Composite Index and the Standard & Poor’s Construction Index over the period of time from December 31, 2009 through December 31, 2014. The respective returns assume reinvestment of dividends paid.
 
(LINE GRAPH)
 
                                                 
   
12/31/09
   
12/31/10
   
12/31/11
   
12/30/12
   
12/30/13
     
12/31/14
 
Miller Industries, Inc.
   
100
     
125
     
139
     
134
     
164
     
183
 
NYSE Composite Index
   
100
     
111
     
104
     
124
     
145
     
151
 
S&P Construction Index
   
100
     
173
     
152
     
176
     
172
     
166
 
 
14
 

 

 
 
The following table presents selected statements of income data and selected balance sheet data on a consolidated basis. We derived the selected historical consolidated financial data from our audited consolidated financial statements and related notes. You should read this data together with Item 7–Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes that are a part of this Annual Report on Form 10 K.
                               
   
Years Ended December 31,
 
   
2014
   
2013
   
2012
   
2011
   
2010
 
   
(In thousands except per share data)
 
Statements of Income Data:
                             
                               
Net Sales
  $ 492,776       404,170     $ 342,663     $ 412,659     $ 306,897  
Costs of operations
    439,791       361,734       302,606       342,557       260,566  
Gross Profit
    52,985       42,436       40,057       70,102       46,331  
Operating Expenses:
                                       
Selling, general, and administrative expenses
    28,496       28,323       27,507       31,407       26,665  
Interest expense, net
    554       369       712       728       305  
Other expense (income)
    437       (119 )     (815 )     (161 )     71  
Total operating expenses
    29,487       28,573       27,404       31,974       27,041  
                                         
Income before income taxes
    23,498       13,863       12,653       38,128       19,290  
Income tax provision
    8,660       5,175       3,531       15,120       7,583  
Net income
    14,838       8,688       9,122       23,008     11,707  
Net loss attributable to noncontrolling interests
    66       542    
–‒
   
–‒
   
–‒
 
Net income attributable to Miller Industries, Inc.
  $ 14,904     $ 9,230     $ 9,122     $ 23,008     $ 11,707  
                                         
Basic income per common share
  $ 1.32       0.82     $ 0.82     $ 1.98     $ 1.00  
Diluted income per common share
  $ 1.31       0.82     $ 0.82     $ 1.92     $ 0.96  
Weighted average shares outstanding:
                                       
Basic
    11,297       11,233       11,068       11,600       11,671  
Diluted
    11,354       11,324       11,258       11,984       12,163  
 
                                         
   
December 31,
   
Balance Sheet Data:
 
2014
   
2013
   
2012
   
2011
    2010  
Working capital
 
$
126,713
     
120,821
   
$
115,178
   
$
109,760
   
$
106,831
 
Total assets
   
262,355
     
226,669
     
202,351
     
211,842
     
199,876
 
Long-term obligations, less current portion
   
--
     
--
     
--
     
--
     
5
 
Common shareholders’ equity
   
168,454
     
161,713
     
157,490
     
152,651
     
150,568
 
 
                                         
   
December 31,
 
Other Data:
 
2014
   
2013
   
2012
   
2011
   
2010
 
Cash dividend per common share
 
$
0.60
   
$
0.56
   
$
0.52
   
$
0.48
   
$
0.10
 
 
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The following discussion of our results of operations and financial condition should be read in conjunction with the Consolidated Financial Statements and Notes thereto. Unless the context indicates otherwise, all dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in thousands.
 
Executive Overview
 
Miller Industries, Inc. is The World’s Largest Manufacturer of 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.
 
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, net income, 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 these 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.
 
As previously announced, our financial results through March 31, 2014 were negatively impacted by the Delavan joint venture. Losses before income taxes that are directly attributable to the Delavan joint venture were approximately $1,300 and $152 (including the loss on deconsolidation of the subsidiary) for 2013 and the first quarter of 2014, respectively. The Company also generated additional indirect losses associated with the Greeneville, Tennessee facility in connection with its manufacturing and supply agreement for the joint venture. Following a review and evaluation of operations related to the Delavan joint venture, the Company made the decision to consider strategic alternatives with regard to the venture. On February 28, 2014, the Company entered into an agreement to sell all of its interest in the Delavan joint venture to its joint venture partner, which closed on March 31, 2014. Our Greeneville facility after that date ceased the manufacturing of Delavan products as of the end of the first quarter of 2014 and so no further losses from the venture are expected.
 
There were no borrowings under our current credit facility at December 31, 2014.
 
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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.
 
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 asset 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 estimates, 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. Goodwill is reviewed for impairment utilizing a qualitative assessment or a two-step process. If we choose to perform a qualitative analysis of goodwill and determine that fair value more likely than not exceeds the carrying value, no further testing is needed. If we choose the two-step approach, 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.
 
17
 

 

 
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 uncertain tax positions exist, we record interest and penalties related to the uncertain tax positions as income tax expense in our consolidated statements 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. Margin percentages 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 transactions denominated in a currency other than the functional currency are remeasured into the functional currency. Gains and losses resulting from foreign currency transactions are included in other income and expense in our consolidated statements of income.
 
Results of Operations
 
The following table sets forth, for the years indicated, the components of the consolidated statements of income expressed as a percentage of net sales.
                   
   
2014
   
2013
   
2012
 
Net Sales
    100.0 %     100.0 %     100.0 %
Costs of operations
    89.3 %     89.5 %     88.3 %
Gross Profit
    10.7 %     10.5 %     11.7 %
Operating Expenses:
                       
Selling, general and administrative
    5.8 %     7.0 %     8.0 %
Interest expense
    0.1 %     0.1 %     0.2 %
Other expense (income)
    0.1 %     0.0 %     (0.2 )%
Total operating expenses
    6.0 %     7.1 %     8.0 %
Income before income taxes
    4.7 %     3.4 %     3.7 %
 
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
 
Net sales were $492,776 for the year ended December 31, 2014, compared to $404,170 for the year ended December 31, 2013, an increase of 21.9%. The increase in revenue was primarily attributable to increased demand levels in our domestic and international markets and corresponding increases in production levels based on recovering economic conditions and improving consumer sentiment.
 
Costs of operations increased 21.6% to $439,791 for the year ended December 31, 2014 from $361,734 for the year ended December 31, 2013, which was attributable to higher sales volumes. Overall, costs of operations as a percentage of net sales decreased slightly from 89.5% for the year ended December 31, 2013 to 89.3% for the year ended December 31, 2014.
 
Selling, general and administrative expenses for the year ended December 31, 2014 increased to $28,496 from $28,323 for the year ended December 31, 2013. The increase in expenses was primarily attributable to higher sales and production levels. As a percentage of net sales, selling, general and administrative expenses decreased to 5.8% for 2014 from 7.0% for 2013 due to the fixed nature of certain of these expenses and continued focus on cost control efforts.
 
Interest expense increased to $554 for the year ended December 31, 2014 from $369 for the year ended December 31, 2013. Increases were primarily due to increases in interest on distributor floor planning and on chassis purchases.
 
18
 

 

 
Other income relates to foreign currency transaction gains and losses. During 2014, the net loss was $437 compared to a net gain of $119 for 2013.
 
The provision for income taxes for the years ended December 31, 2014 and 2013 reflects a combined federal, state and foreign tax rate of 36.9% and 37.3%, respectively.
 
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
 
Net sales were $404,170 for the year ended December 31, 2013, compared to $342,663 for the year ended December 31, 2012, an increase of 18.0%. The increase in net sales was attributable to increased demand levels from our commercial customers and corresponding increases in production levels based on recovering economic conditions and improving consumer sentiment.
 
Costs of operations increased 19.6% to $361,734 for the year ended December 31, 2013 from $302,606 for the year ended December 31, 2012, which was attributable to higher sales volumes. Overall, costs of operations as a percentage of net sales increased from 88.3% for the year ended December 31, 2012 to 89.5% for the year ended December 31, 2013, primarily due to product mix during the quarter consisting of a higher percentage of lower margin chassis sales.
 
Selling, general and administrative expenses for the year ended December 31, 2013 increased to $28,323 from $27,507 for the year ended December 31, 2012. The increase in expenses was primarily attributable to higher sales and production levels. As a percentage of net sales, selling, general and administrative expenses decreased to 7.0% for 2013 from 8.0% for 2012 due to the fixed nature of certain of these expenses.
 
Interest expense decreased to $369 for the year ended December 31, 2013 from $712 for the year ended December 31, 2012. Decreases were primarily due to decreases in interest on distributor floor planning and on chassis purchases.
 
Other income relates to foreign currency transaction gains and losses. During 2013, the net gain was $119 compared to a net gain of $815 for 2012.
 
The provision for income taxes for the years ended December 31, 2013 and 2012 reflects a combined federal, state and foreign tax rate of 37.3% and 27.9%, respectively. Income taxes for 2012 include income tax benefits of approximately $1,361. The benefits resulted primarily from Federal Domestic Production Activity Deductions as well as from Federal Research and Development and other tax credits recognized in the period.
 
Liquidity And Capital Resources
 
Cash provided by operating activities was $9,913 for the year ended December 31, 2014, compared to $1,192 for the year ended December 31, 2013, and $6,109 for the year ended December 31, 2012. The cash provided by operating activities for 2014 is primarily attributed to consolidated net income. Cash provided by operating activities reflects increases in accounts payables and accrued liabilities, offset by increases in other components of working capital including accounts receivable and inventory. Certain components of accounts receivable and accounts payable have extended collection and payment terms.
 
Cash used in investing activities was $5,301 for the year ended December 31, 2014, compared to $2,335 for the years ended December 31, 2013, and $2,836 for the year ended December 31, 2012. The cash used in investing activities for 2014 was primarily for the purchase of property, plant and equipment.
 
Cash used in financing activities was $6,565 for the year ended December 31, 2014, compared to $5,448 for the year ended December 31, 2013, and $4,500 for the year ended December 31, 2012. The cash used in financing activities in 2014 and 2013 and 2012 was primarily to pay cash dividends, partially offset by proceeds from the exercise of stock options.
 
Over the past year, we generally have used available cash flow from operations to pay dividends and to pay for capital expenditures.
 
As of December 31, 2014, we had cash and cash equivalents of $39,597, exclusive of unused availability under our current credit facility. Our primary cash requirements include working capital, capital expenditures and the funding of any declared cash dividends. At December 31, 2014, we had commitments of approximately $2,151 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 December 31, 2014, with borrowings under our current credit facility being available if needed. We expect these sources to be sufficient to satisfy our cash needs during 2015 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 Annual Report, as well as financial, business and other factors, many of which are beyond our control.
 
At December 31, 2014 and 2013, $15,701 and $14,306, respectively, of the Company’s cash and temporary investments were held by foreign subsidiaries and their holdings based in the local currency. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S.
 
19
 

 

The Company intends to consolidate and expand its Pennsylvania manufacturing operations to increase capacity and improve operating efficiencies. The current estimated costs of such project are approximately $22.0 million, which are expected to be incurred during 2015 and 2016. The timing and cost of the project are subject to change.
 
Contractual Obligations
 
The following is a summary of our contractual obligations as of December 31, 2014.
                                 
   
Payment Due By Period (in thousands)
 
Contractual Obligations (1)
 
Total
   
Less than
1 year
   
1-3 years
   
3-5 years
   
More than
5 years
 
Operating Lease Obligations
 
$
1,057
   
$
649
   
$
357
   
$
41
   
$
10
 
Purchase Obligations (2)
   
27,462
     
27,462
     
--
     
--
     
--
 
Commitments for construction and acquisition of plant and equipment
   
2,151
     
2,151
     
--
     
--
     
--
 
Total
 
$
30,670
   
$
30,262
   
$
357
   
$
41
   
$
10
 
 

 
(1)
Amounts do not include potential contingent obligations of $31.5 million under repurchase commitments with third-party lenders in the event of independent distributor customer default.
 
(2)
Purchase obligations represent open purchase orders for raw materials and other components issued in the normal course of business.
 
Credit Facility and Other Obligations
 
Credit Facility
 
On April 6, 2010 we entered into a Loan Agreement with First Tennessee Bank National Association for a $20.0 million unsecured revolving credit facility. On December 21, 2011, the credit facility was renewed and our unsecured revolving credit facility was increased to $25.0 million. On December 30, 2014, the credit facility was further renewed to extend the maturity date to March 31, 2017. 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.
 
Outstanding Borrowings
 
There were no outstanding borrowings under the credit facility as of December 31, 2014 and 2013.
 
Interest Rate Sensitivity
 
Changes in interest rates affect the interest paid on indebtedness under our credit facility because the outstanding amounts of indebtedness under our current credit facility are subject to variable interest rates. Under our credit facility, the non-default rate of interest is equal to the LIBOR Market Index Rate plus 1.50% per annum (for a rate of interest of 1.67% at December 31, 2014). Because there were no amounts outstanding under our credit facility, a one percent change in the interest rate on our variable-rate debt would not have materially impacted our financial position, results of operations or cash flows for the year ended December 31, 2013.
 
Other Long-Term Obligations
 
We had approximately $1,057 in non-cancellable operating lease obligations at December 31, 2014.
 
Recent Accounting Pronouncements
 
Recently Adopted Standards
 
In April 2014, the FASB issued Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (FASB ASU 2014-08). The amendment revises the definition of a discontinued operation to a disposal, sale or held-for-sale component or group of components that represents a strategic shift that will have a major effect on an entity’s operations and financial results. The amendments in this ASU are effective for reporting periods beginning after December 15, 2014 with early adoption permitted in the first quarter of 2014 for calendar year-end companies. We have chosen to early adopt this pronouncement and it became effective for the Company in the first quarter of 2014. The adoption of the provisions of FASB ASU 2014-08 did not have a material impact on the Company’s consolidated financial statements.
 
20
 

 

 
Recently Issued Standards
 
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (FASB ASU 2014-09), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The provisions of FASB ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. We are currently evaluating the impact of the adoption of this ASU on our consolidated financial statements.
In the normal course of our business, we are exposed to market risk from changes in interest rates and foreign currency exchange rates that could impact our results of operations and financial position.
 
Interest Rate Risk
 
Changes in interest rates affect the interest paid on indebtedness under our current credit facility because the outstanding amounts of indebtedness under our current credit facility are subject to variable interest rates. Under our current credit facility, the non-default rate of interest is equal to the LIBOR Market Index Rate plus 1.50% per annum (for a rate of interest of 1.67% at December 31, 2014). Because there were no amounts outstanding under our current credit facility, a one percent change in the interest rate on our variable-rate debt would not have materially impacted our financial position, results of operations or cash flows for the year ended December 31, 2014.
 
Foreign Currency Risk
 
We are subject to risk arising from changes in foreign currency exchange rates related to our international operations in Europe. We manage our exposure to our foreign currency exchange rate risk through our regular operating and financing activities. Additionally, from time to time, we enter into certain forward foreign currency exchange contracts. Because we report in U.S. dollars on a consolidated basis, foreign currency exchange fluctuations could have a translation impact on our financial position. At December 31, 2014, we recognized a $2,212 decrease in our foreign currency translation adjustment account compared with December 31, 2013. During the years ended December 31, 2014, 2013 and 2012, the impact of foreign currency exchange rate changes on our results of operations and cash flows was a $437 loss, $119 gain and $815 gain, respectively.
 
 
The response to this item is included in Part IV, Item 15 of this Report.
 
 
None.
 
21
 

 

 
 
Disclosure Controls and Procedures
 
We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive and chief financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this report. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this Annual Report to ensure that information required to be disclosed in our 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.
 
Management’s Report On Internal Control Over Financial Reporting
 
Management of Miller Industries, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Management, including our principal executive officers and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control—Integrated Framework” (2013). Based on our assessment under those criteria, we concluded that, as of December 31, 2014, we maintained effective internal control over financial reporting.
 
Elliott Davis Decosimo, LLC, the independent registered public accounting firm who audited the Company’s consolidated financial statements included in this report, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014, which appears herein.
 
March 4, 2015
 
22
 

 

 
Report of Independent Registered Public Accounting Firm
 
Board of Directors and Shareholders
Miller Industries, Inc.
Ooltewah, Tennessee
 
We have audited the internal control over financial reporting of Miller Industries, Inc. and subsidiaries as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Miller Industries, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, Miller Industries, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Miller Industries, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014, and our report dated March 4, 2015, expressed an unqualified opinion on those consolidated financial statements.
 
/s/ Elliott Davis Decosimo, LLC
Chattanooga, Tennessee
March 4, 2015
 
23
 

 

 
Changes in Internal Control Over Financial Reporting
 
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
None.
 
24
 

 

 
 
 
The Proxy Statement for our Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission, will contain information relating to our directors and audit committee, compliance with Section 16(a) of the Exchange Act, and our code of ethics applicable to our chief executive, financial and accounting officers, which information is incorporated by reference herein. Information relating to our executive officers is included in Item 1 of this report.
 
 
The Proxy Statement for our Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission, will contain information relating to director and executive officer compensation, which information is incorporated by reference herein.
 
 
The Proxy Statement for our Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission, will contain information relating to security ownership of certain beneficial owners and management, which information is incorporated by reference herein.
 
The Proxy Statement will also contain information relating to our equity compensation plans, which information is incorporated by reference herein.
 
 
The Proxy Statement for our Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission, will contain information relating to certain relationships and related transactions between us and certain of our directors and executive officers, which information is incorporated by reference herein.
 
 
The Proxy Statement for our Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission, will contain information relating to the fees charged and services provided by Elliott Davis Decosimo, LLC and Joseph Decosimo and Company, PLLC, our principal accountants during the last three fiscal years, and our pre-approval policy and procedures for audit and non-audit services, which information is incorporated by reference into this report.
 
25
 

 

 
 
(a)           The following documents are filed as part of this Report:
 
1.           Financial Statements
     
Description
 
Page
Number
in Report
     
Report of Independent Registered Public Accounting Firm
 
F-2
     
Consolidated Balance Sheets as of December 31, 2014 and 2013
 
F-3
     
Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012
 
F-4
     
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012
 
F-5
     
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2014, 2013 and 2012
 
F-6
     
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012
 
F-7
     
Notes to Consolidated Financial Statements
 
F-8
 
2.           Financial Statement Schedules
 
The following Financial Statement Schedule for the Registrant is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements:
Description
 
Page Number
in Report
     
Schedule II - Valuation and Qualifying Accounts
 
S-1
 
All schedules, except those set forth above, have been omitted since the information required is included in the financial statements or notes or have been omitted as not applicable or not required.
 
3.           Exhibits
 
The following exhibits are required to be filed with this Report by Item 601 of Regulation S-K:
                   
 
Description
 
Incorporated
by Reference to
Registration
File Number
 
Form or
Report
 
Date of Report
 
Exhibit
Number in
Report
                   
3.1
Charter, as amended, of the Registrant
 
--
 
Form 10-K
 
December 31, 2001
 
3.1
                   
3.2
Amended and Restated Bylaws of the Registrant
 
--
 
Form 10-Q
 
November 8, 2007
 
3.2
                   
10.1
Form of Noncompetition Agreement between the Registrant and certain officers of the Registrant
 
33-79430
 
S-1
 
August 1994
 
10.28
                   
10.2
Form of Nonexclusive Distributor Agreement
 
33-79430
 
S-1
 
August 1994
 
10.31
 
26
 

 

 
 
Description
 
Incorporated
by Reference to
Registration
File Number
 
Form or
Report
 
Date of Report
 
Exhibit
Number in
Report
                   
10.3
Miller Industries, Inc. Stock Option and Incentive Plan**
 
33-79430
 
S-1
 
August 1994
 
10.1
                   
10.4
Form of Incentive Stock Option Agreement under Miller Industries, Inc. Stock Option and Incentive Plan**
 
33-79430
 
S-1
 
August 1994
 
10.2
                   
10.5
Miller Industries, Inc. Non-Employee Director Stock Option Plan**
 
33-79430
 
S-1
 
August 1994
 
10.4
                   
10.6
Form of Director Stock Option Agreement**
 
33-79430
 
S-1
 
August 1994
 
10.5
                   
10.7
First Amendment to Miller Industries, Inc. Non-Employee Director Stock Option Plan**
 
--
 
Form 10-K
 
April 30, 1995
 
10.38
                   
10.8
Second Amendment to Miller Industries, Inc. Non-Employee Director Stock Option Plan**
 
--
 
Form 10-K
 
April 30, 1996
 
10.39
                   
10.9
Second Amendment to Miller Industries, Inc. Stock Option and Incentive Plan**
 
--
 
Form 10-K
 
April 30, 1996
 
10.40
                   
10.10
Employment Agreement dated as of December 30, 2008 between the Registrant and William G. Miller**
 
--
 
Form 10-Q
 
May 6, 2009
 
10.1
                   
10.11
Form of Indemnification Agreement by and between the Registrant and each of William G. Miller, Jeffrey I. Badgley, A. Russell Chandler, Frank Madonia, J. Vincent Mish, Richard H. Roberts and Theodore H. Ashford **
 
--
 
Form 10-Q
 
September 14, 1998
 
10
                   
10.12
Employment Agreement, dated as of December 30, 2008, between the Registrant and Jeffrey I. Badgley**
 
--
 
Form 10-Q
 
May 6, 2009
 
10.2
                   
10.13
Employment Agreement, dated as of December 30, 2008 between the Registrant and Frank Madonia**
 
--
 
Form 10-Q
 
May 6, 2009
 
10.3
                   
10.14
Employment Agreement, dated as of December 30, 2008 between the Registrant and J. Vincent Mish**
 
--
 
Form 10-Q
 
May 6, 2009
 
10.4
                   
10.15
Agreement between the Registrant and Jeffrey I. Badgley, effective December 30, 2008**
 
--
 
Form 10-Q
 
May 6, 2009
 
10.5
                   
10.16
Agreement between the Registrant and Frank Madonia, effective December 30, 2008**
 
--
 
Form 10-Q
 
May 6, 2009
 
10.6
 
27
 

 

 
 
Description
 
Incorporated
by Reference to
Registration
File Number
 
Form or
Report
 
Date of Report
 
Exhibit
Number in
Report
                   
10.17
Agreement between the Registrant and J. Vincent Mish, effective December 30, 2008**
 
--
 
Form 10-Q
 
May 6, 2009
 
10.7
                   
10.18
Letter Agreement, dated as of November 27, 2013 between the Registrant and William G. Miller, effective as of December 31, 2013, amending the Employment Agreement dated as of December 30, 2008**
     
Form 10-K
 
March 5, 2014
 
10.18
                   
10.19
Letter Agreement, dated as of November 27, 2013 between the Registrant and Jeffrey I. Badgley, effective as of December 31, 2013, amending the Employment Agreement dated as of December 30, 2008 and the Change in Control Agreement effective December 30, 2008**
     
Form 10-K
 
March 5, 2014
 
10.19
                   
10.20
Letter Agreement, dated as of November 27, 2013 between the Registrant and J. Vincent Mish, effective as of December 31, 2013, amending the Employment Agreement dated as of December 30, 2008 and the Change in Control Agreement effective December 30, 2008**
     
Form 10-K
 
March 5, 2014
 
10.20
                   
10.21
Non-Employee Director Stock Plan**
 
--
 
Schedule 14A
 
January 23, 2004
 
Annex A
                   
10.22
Miller Industries, Inc. 2005 Equity Incentive Plan**
 
--
 
Schedule 14A
 
May 2, 2005
 
Annex B
                   
10.23
Agreement, dated April 6, 2010, by and between the Registrant, certain of the Registrant’s wholly-owned subsidiaries, and First Tennessee Bank National Association
 
--
 
Form 8-K
 
April 12, 2010
 
10.2
                   
10.24
Agreement, dated April 6, 2010, by and between the Registrant, certain of the Registrant’s wholly-owned subsidiaries, and First Tennessee Bank National Association
 
--
 
Form 8-K
 
April 12, 2010
 
10.3
                   
10.25
Amended and Restated Loan Agreement, dated December 30, 2014, by and among the Registrant, certain of the Registrant’s wholly-owned subsidiaries, and First Tennessee Bank National Association*
               
                   
10.26
Master Revolving Credit Note dated as of December 30, 2014 from the Registrant payable to First Tennessee Bank National Association*
               
                   
21
Subsidiaries of the Registrant*
               
                   
23.1
Consent of Elliott Davis Decosimo, LLC*
               
                   
24
Power of Attorney (see signature page)*
               
                   
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*
               
                   
32.2
Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code by Co-Chief Executive Officer*
               
                   
32.3
Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code by Chief Financial Officer*
               
 
28
 

 

 
                   
 
Description
 
Incorporated
by Reference to
Registration
File Number
 
Form or
Report
 
Date of Report
 
Exhibit
Number in
Report
                   
101
The following financial information from Miller Industries, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2014 and December 31, 2013, (ii) Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012, (iv) Consolidated Statements of Shareholder’s Equity for the years ended December 31, 2014, 2013 and 2012, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012, and (vi) the Notes to Consolidated Financial Statements.*
               
 

 
*
Filed herewith.
 
**
Management contract or compensatory plan or arrangement.
 
(b)           The Registrant hereby files as exhibits to this Report the exhibits set forth in Item 15(a)3 hereof.
 
I              The Registrant hereby files as financial statement schedules to this Report the financial statement schedules set forth in Item 15(a)2 hereof.
 
29
 

 

(MILLER INDUSTRIES. INC LOGO)
 
INDEX TO FINANCIAL STATEMENTS

 
F-1
 

 

 
 
Board of Directors and Shareholders
Miller Industries, Inc.
Ooltewah, Tennessee
 
We have audited the accompanying consolidated balance sheets of Miller Industries, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule listed in the Index at Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Miller Industries, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 4, 2015 expressed an unqualified opinion on the effectiveness on the Company’s internal control over financial reporting.
 
/s/ Elliott Davis Decosimo, LLC
Chattanooga, Tennessee
March 4, 2015
 
F-2
 

 


MILLER INDUSTRIES, INC. AND SUBSIDIARIES
 
DECEMBER 31, 2014 AND 2013
 
(In thousands, except share data)
                 
   
2014
   
2013
 
ASSETS
               
CURRENT ASSETS:
               
Cash and temporary investments
 
$
39,597
   
$
42,864
 
Accounts receivable, net of allowance for doubtful accounts of $1,850 and $1,714, at December 31, 2014 and 2013, respectively
   
116,498
     
80,821
 
Inventories
   
56,460
     
54,172
 
Prepaid expenses
   
1,792
     
2,190
 
Current deferred income taxes
   
4,083
     
3,888
 
Total current assets
   
218,430
     
183,935
 
PROPERTY, PLANT, AND EQUIPMENT, net
   
32,050
     
30,834
 
GOODWILL
   
11,619
     
11,619
 
OTHER ASSETS
   
256
     
281
 
   
$
262,355
   
$
226,669
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
CURRENT LIABILITIES:
               
Accounts payable
 
$
70,618
   
$
47,388
 
Accrued liabilities
   
21,099
     
15,726
 
Total current liabilities
   
91,717
     
63,114
 
                 
DEFERRED INCOME TAX LIABILITIES
   
2,184
     
1,842
 
COMMITMENTS AND CONTINGENCIES (Notes 3 and 5)
               
                 
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, 11,302,530 and 11,265,679, outstanding at December 31, 2014 and 2013, respectively
   
113
     
113
 
Additional paid-in capital
   
149,917
     
149,608
 
Accumulated surplus
   
19,822
     
11,696
 
Accumulated other comprehensive income (loss)
   
(1,398
)
   
814
 
Total Miller Industries, Inc. shareholders’ equity
   
168,454
     
162,231
 
Noncontrolling interest
   
--
     
(518
)
Total shareholders’ equity
   
168,454
     
161,713
 
   
$
262,355
   
$
226,669
 
 
The accompanying notes are an integral part of these consolidated statements.
 
F-3
 

 


MILLER INDUSTRIES, INC. AND SUBSIDIARIES
 
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
 
(In thousands, except per share data)
                         
   
2014
   
2013
   
2012
 
NET SALES
 
$
492,776
   
$
404,170
   
$
342,663
 
COSTS OF OPERATIONS
   
439,791
     
361,734
     
302,606
 
GROSS PROFIT
   
52,985
     
42,436
     
40,057
 
                         
OPERATING EXPENSES:
                       
Selling, general, and administrative expenses
   
28,496
     
28,323
     
27,507
 
Interest expense, net
   
554
     
369
     
712
 
Other expense (income)
   
437
     
(119
)
   
(815
)
Total operating expenses
   
29,487
     
28,573
     
27,404
 
                         
INCOME BEFORE INCOME TAXES
   
23,498
     
13,863
     
12,653
 
INCOME TAX PROVISION
   
8,660
     
5,175
     
3,531
 
NET INCOME
   
14,838
     
8,688
     
9,122
 
 
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
   
66
     
542
     
--
 
NET INCOME ATTRIBUTABLE TO MILLER INDUSTRIES, INC.
 
$
14,904
   
$
9,230
   
$
9,122
 
                         
BASIC INCOME PER COMMON SHARE
 
$
1.32
   
$
0.82
   
$
0.82
 
                         
DILUTED INCOME PER COMMON SHARE
 
$
1.31
   
$
0.82
   
$
0.82
 
                         
CASH DIVIDENDS DECLARED PER COMMON SHARE
 
$
0.60
   
$
0.56
   
$
0.52
 
                         
WEIGHTED AVERAGE SHARES OUTSTANDING:
                       
Basic
   
11,297
     
11,233
     
11,068
 
Diluted
   
11,354
     
11,324
     
11,258
 
 
The accompanying notes are an integral part of these consolidated statements.
 
F-4
 

 


MILLER INDUSTRIES, INC. AND SUBSIDIARIES
 
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
 
(In thousands)
                         
   
2014
   
2013
   
2012
 
Net income
 
$
14,838
   
$
8,688
   
$
9,122
 
Other comprehensive income:
                       
Foreign currency translation adjustment
   
(2,503
)
   
1,175
     
(207
)
Derivative instrument and hedging activities
   
126
     
(216
)
   
--
 
Reclassifications from accumulated other comprehensive income (loss)
   
165
     
(75
)
   
--
 
Total other comprehensive income (loss)
   
(2,212
)
   
884
     
(207
)
                         
Comprehensive income
   
12,626
     
9,572
     
8,915
 
Net loss attributable to noncontrolling interests
   
66
     
542
     
--
 
Comprehensive income attributable to Miller Industries, Inc.
 
$
12,692
   
$
10,114
   
$
8,915
 
 
The accompanying notes are an integral part of these consolidated statements.
 
F-5
 

 


MILLER INDUSTRIES, INC. AND SUBSIDIARIES
 
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
 
(In thousands, except share data)
                                           
   
Common
Stock
   
Additional
Paid-In
Capital
   
Accumulated
Surplus
(Deficit)
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total Miller
Industries, Inc.
Shareholders’
Equity
   
Noncontrolling Interests
   
Total
 
BALANCE, December 31, 2011
  $ 110     $ 147,004     $ 5,400     $ 137     $ 152,651     $ --     $ 152,651  
Components of comprehensive income:
                                                       
Net income
    --       --       9,122       --       9,122       --       9,122  
Foreign currency translation adjustments
    --       --       --       (207 )     (207 )     --       (207 )
Total comprehensive income
    --       --       9,122       (207 )     8,915       --       8,915  
Issuance of common stock to non-employee directors (4,737)
    --       75       --       --       75       --       75  
Exercise of stock options (153,775)
    2       851       --       --       853       --       853  
Stock-based compensation expense
    --       332       --       --       332       --       332  
Excess tax effect for stock-based compensation
    --       426       --       --       426       --       426  
Dividends paid, $0.52 per share
    --       --       (5,762 )     --       (5,762 )     --       (5,762 )
BALANCE, December 31, 2012
    112       148,688       8,760       (70 )     157,490       --       157,490  
Components of comprehensive income:
                                                       
Net income
    --       --       9,230       --       9,230       (542 )     8,688  
Foreign currency translation adjustments
    --       --       --       1,175       1,175       --       1,175  
Derivative instrument and hedging activities
    --       --       --       (291 )     (291 )     --       (291 )
Total comprehensive income
    --       --       9,230       884       10,114       (542 )     9,572  
Capital Contribution from non
controlling interest holder
    --       --       --       --       --       24       24  
Issuance of common stock to non-employee directors (4,734)
    --       75       --       --       75       --       75  
Exercise of stock options (102,314)
    1       620       --       --       621       --       621  
Excess tax effect for stock-based compensation
    --       225       --       --       225       --       225  
Dividends paid, $0.56 per share
    --       --       (6,294 )     --       (6,294 )     --       (6,294 )
BALANCE, December 31, 2013
    113       149,608       11,696       814       162,231       (518 )     161,713  
Components of comprehensive income:
                                                       
Net income
    --       --       14,904       --       14,904       (66 )     14,838  
Foreign currency translation adjustments
    --       --       --       (2,503 )     (2,503 )     --       (2,503 )
Derivative instrument and hedging activities
    --       --       --       291       291       --       291  
Total comprehensive income
    --       --       14,904       (2,212 )     12,692       (66 )     12,626  
Disposition of noncontrolling interest
    --       --       --       --       --       584       584  
Issuance of common stock to non-employee directors (5,154)
    --       96       --       --       96       --       96  
Exercise of stock options (31,697)
    --       186       --       --       186       --       186  
Excess tax effect for stock-based compensation
    --       27       --       --       27       --       27  
Dividends paid, $0.60 per share
    --       --       (6,778 )     --       (6,778 )     --       (6,778 )
BALANCE, December 31, 2014
  $ 113     $ 149,917     $ 19,822     $ (1,398 )   $ 168,454     $ --     $ 168,454  
 
The accompanying notes are an integral part of these consolidated statements.
 
F-6
 

 


MILLER INDUSTRIES, INC. AND SUBSIDIARIES
 
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
 
(In thousands)
                         
   
2014
   
2013
   
2012
 
OPERATING ACTIVITIES:
                       
Net income
 
$
14,838