Miller Industries, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. Unless noted otherwise, financial amounts below are in millions of dollars. The filing also reports quarterly results; it is an annual report, not a standalone Q4 filing.
Business context
Miller Industries manufactures towing and recovery equipment, including wreckers, car carriers and transport trailers. Products are sold primarily through independent distributors. The company operates manufacturing facilities in the United States, France and the United Kingdom.
Financial performance and liquidity
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Net sales | $540.966 | $492.776 | +9.8% |
| Gross profit | $57.613 | $52.985 | +8.7% |
| Gross margin | 10.6% | 10.7% | Down 0.1 percentage point |
| Operating income | $26.122 | $24.489 | +6.7% |
| Income before taxes | $24.863 | $23.498 | +5.8% |
| Net income attributable to Miller Industries | $15.976 | $14.904 | +7.2% |
| Diluted earnings per share | $1.41 | $1.31 | +$0.10 |
| Cash provided by operating activities | $20.059 | $9.913 | +$10.146 |
| Cash and temporary investments at year-end | $38.449 | $39.597 | -$1.148 |
| Working capital at year-end | $124.771 | $126.713 | -$1.942 |
- Costs of operations rose 9.9%, slightly faster than sales; selling, general and administrative expense increased to $31.491 million but remained 5.8% of sales. Interest expense increased to $0.919 million, principally due to distributor floor-plan financing and chassis purchases.
- Investing activities used $11.899 million, primarily for property, plant and equipment. Financing activities used $6.961 million, mainly for dividends. The annual dividend rose to $0.64 per share from $0.60; the board declared a further $0.17 per-share dividend in March 2016.
- Current assets were $219.265 million and current liabilities $94.494 million at year-end. No borrowings were outstanding under the $30 million revolving facility at December 31, 2015; $10 million was drawn by February 29, 2016. The facility matures March 31, 2018.
- Stockholders’ equity was $173.862 million. Foreign-currency translation reduced accumulated other comprehensive income by $3.703 million in 2015. Foreign-currency transaction losses were $0.340 million.
Changes and quarterly performance
Management attributed annual sales growth to higher domestic and international demand and production as economic conditions and consumer sentiment improved. Net sales increased 21.9% in 2014, following 2013, so the reported growth rate moderated in 2015. Annual gross margin edged down, while operating income and attributable net income increased.
In Q4 2015, sales were $136.436 million versus $147.778 million in Q4 2014. Operating income was $6.445 million versus $9.434 million, and net income attributable to Miller Industries was $3.878 million versus $5.657 million. Quarterly diluted EPS was $0.34 versus $0.50.
Operating cash flow improved substantially from 2014. The company cited lower accounts receivable and higher accounts payable and accrued liabilities as sources of 2015 operating cash, partly offset by inventory growth. Inventory increased to $66.232 million from $56.460 million.
Outlook, risks and unusual items
- Outlook: No specific revenue or earnings guidance is provided. Management expected cash, operating cash flow and available credit to meet cash needs in 2016 and for the next several years, subject to business and economic conditions.
- Capital projects: Pennsylvania manufacturing consolidation and expansion was estimated at $22.7 million total, with $9.011 million incurred by year-end and the remainder expected in 2016. Additional projects at Tennessee facilities were estimated at $15 million through the end of 2016, with about $0.1 million incurred by year-end. Costs and timing could change.
- Commitments and contingencies: Contractual obligations totaled $42.374 million, including $13.945 million of plant and equipment commitments. Separately, distributor-default repurchase commitments to third-party lenders could reach $38.334 million; no repurchases were required in 2015 or 2014. The company says the equipment’s value mitigates this exposure.
- Warranty: Warranty expense rose to $3.076 million from $1.958 million; the year-end warranty accrual increased to $3.140 million from $2.622 million.
- Key risks: Industry cyclicality and customer access to credit; volatile raw-material, fuel and transport costs and supplier availability; foreign exchange and international-market exposure; competition; skilled-labor availability; intellectual-property claims; IT-system disruption; government-contract requirements; product liability and warranty claims; and facility, environmental and regulatory risks. Credit-facility covenants may also constrain dividends.
- Prior-period item: The company sold its interest in the Delavan joint venture in March 2014. The venture generated direct pretax losses of approximately $1.3 million in 2013 and $0.152 million in Q1 2014; no further venture losses were incurred after its sale.
- Controls and audit: Management and the independent auditor concluded internal control over financial reporting was effective as of December 31, 2015. The auditor issued an unqualified opinion on the consolidated financial statements.
Important facts for investors to verify
- Review the full statements and notes for working-capital drivers, especially the inventory increase and extended customer collection and supplier payment terms.
- Track quarterly sales and margins: Q4 sales, operating income and attributable net income were below the prior-year quarter despite full-year growth.
- Assess execution, total cost and funding needs for the Pennsylvania and Tennessee capital projects, including the remaining 2016 commitments.
- Evaluate exposure under the $38.334 million distributor repurchase commitments and the effect of credit-facility covenants on borrowing and dividends.
- Monitor warranty claims and reserves, foreign-exchange effects, customer financing availability, and raw-material and chassis supply conditions.
- Confirm post-year-end borrowing and dividend developments; the filing reports a $10 million facility draw by February 29, 2016 and a $0.17 per-share dividend declared March 7, 2016.