Miller Industries, Inc. — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. Miller Industries manufactures towing and recovery equipment. Unless noted, financial amounts below are in millions of dollars.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Net sales | $87.3 | $97.6 | $182.3 | $206.5 |
| Gross profit (sales less costs of operations) | $10.6 | $17.5 | $21.4 | $38.2 |
| Gross margin | 12.1% | 17.9% | 11.8% | 18.5% |
| Net income | $2.5 | $5.8 | $4.6 | $13.2 |
| Diluted EPS | $0.23 | $0.47 | $0.40 | $1.08 |
- Sales fell 10.5% in Q2 and 11.7% year to date. Net income declined approximately 56% and 66%, respectively.
- Management attributed lower sales primarily to the absence of prior-year follow-on government orders, partly offset by stronger commercial activity. Lower-margin chassis sales made up a higher share of the mix, pressuring gross margin.
- SG&A was $7.2 million in Q2 and $14.2 million year to date, down from $7.7 million and $15.8 million. Net interest expense was $0.2 million in Q2 and $0.4 million year to date. Other income was $1.0 million in Q2 and $0.7 million year to date, largely related to foreign-currency transaction gains.
- Cash dividends declared were $0.13 per share in Q2, versus $0.12 a year earlier.
Liquidity, cash flow and debt
- Cash and temporary investments were $40.8 million at June 30, down from $50.2 million at December 31, 2011. Current assets were $163.3 million and current liabilities $51.8 million.
- Six-month operating cash flow was negative $4.8 million, compared with positive $9.0 million in 2011. The filing cites lower earnings, higher receivables and prepaid expenses, and lower payables and accrued liabilities. Capital expenditures were $1.3 million; operating cash flow less capital expenditures was negative approximately $6.0 million.
- Investing cash flow was negative $1.3 million; financing cash flow was negative $2.4 million, primarily reflecting dividends. The exchange-rate effect on cash was negative $0.9 million.
- The company reported no borrowings under its $25 million unsecured revolving credit facility and no long-term obligations at quarter-end. The facility expires March 31, 2014; borrowings carry LIBOR plus 1.50%. Management expects available cash and operating cash flow, with the facility as backup, to meet cash needs in 2012 and for the next several years.
Outlook, risks and notable items
- Management said commercial demand had picked up somewhat through Q2 but remained below pre-2008 levels. It did not expect additional follow-on government orders in the near term; securing future government orders is uncertain. No numerical earnings or revenue guidance was provided.
- Key risks identified include economic and customer-credit conditions, availability of customer floor-plan financing, industry cyclicality, fuel and transportation costs, raw-material prices and availability, and timing and success of export and government orders.
- Potential customer-default repurchase commitments had a maximum amount of $24.8 million at June 30, compared with $18.1 million at year-end; management said the value of repossessed products mitigates exposure and the related liability was not material. Capital expenditure commitments were approximately $1.1 million.
- The company had $6.3 million notional of forward euro-to-dollar contracts maturing in Q4 2013; these are not designated as hedges. Foreign-currency translation reduced accumulated other comprehensive income by $1.3 million during the first half.
- Management reported ordinary-course litigation, with accruals for probable and estimable matters and insurance it considers adequate; it did not expect any excess liability to materially harm financial position or results. No material changes to the prior annual report’s risk factors were reported.
Investor facts to verify
- How much of future sales can replace completed government orders, and whether commercial demand continues to improve.
- Whether product mix and chassis-related sales continue to weigh on gross margins.
- Receivables, working-capital movements and operating cash flow, given first-half cash use despite positive earnings.
- Exposure under the increased customer-product repurchase commitments and customers’ access to financing.
- Foreign-exchange impacts and the performance and exposure of outstanding currency contracts.