Miller Industries, Inc. — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. This is an annual filing; fourth-quarter figures are unaudited. Miller Industries manufactures towing and recovery equipment, including wreckers, car carriers and transport trailers, for customers in North America and international markets.
Financial performance
| Metric | 2012 | 2011 |
|---|---|---|
| Net sales | $342.7 million | $412.7 million |
| Operating income | $12.6 million | $38.7 million |
| Net income | $9.1 million | $23.0 million |
| Diluted EPS | $0.82 | $1.92 |
| Cash from operating activities | $6.1 million | $28.3 million |
| Capital expenditures | $2.9 million | $4.0 million |
| Cash dividends per share | $0.52 | $0.48 |
- Sales fell 17.0%; operating income declined about 67.6% and net income about 60.4% year over year.
- Costs of operations were 88.3% of sales, versus 83.0% in 2011. Gross margin, calculated as sales less costs of operations, was approximately 11.7%, compared with 17.0%. Net margin was approximately 2.7%, versus 5.6%.
- Fourth-quarter 2012 sales were $82.4 million and net income was $1.7 million, compared with $109.4 million and $4.9 million, respectively, in fourth-quarter 2011. Quarterly operating income was $2.8 million versus $8.2 million.
- At year-end, cash was $48.6 million, working capital was $115.2 million, and shareholders’ equity was $157.5 million. There were no borrowings under the $25 million revolving credit facility; it matures March 31, 2015.
Material changes and management commentary
- The principal reason for the revenue decline was the absence of 2011 follow-on government-related orders. A prime-contractor customer represented 26.8% of 2011 sales; no customer represented 10% or more in 2012. Management did not expect additional follow-on U.S. government-related orders in the near term.
- Commercial customer activity increased, partially offsetting lost government sales. Costs of operations declined in dollars but rose as a percentage of sales, mainly because the sales mix included a higher proportion of lower-margin chassis sales. SG&A fell to $27.5 million from $31.4 million, but increased as a percentage of sales.
- Operating cash flow fell substantially from 2011, reflecting lower earnings and changes in working capital. Cash use included $2.8 million for investing activities and $4.5 million for financing activities, principally dividends.
- The 2012 effective tax rate was 27.9%, down from 39.7%; the company cited approximately $1.4 million of tax benefits, mainly domestic production activity, research and development, and other credits.
- Management said cash on hand, expected operating cash flow and the available credit facility should be sufficient for cash needs during 2013 and the next several years, while noting that performance depends on economic and other factors outside its control. No specific revenue or earnings guidance was provided.
- Delavan Automotive LLC was formed in December 2012 to sell larger-capacity automobile transport trailers in the United States and Canada; production was expected to begin in 2013. The board declared a $0.14-per-share quarterly dividend in March 2013.
Liquidity, obligations and risks
- Current assets were $158.3 million and current liabilities were $43.1 million at year-end. The reported working-capital balance was $115.2 million.
- Contractual obligations totaled $25.1 million, predominantly purchase orders due within one year. Separately, distributor financing repurchase commitments could require purchases of repossessed products up to approximately $22.0 million; no repurchases were required in 2012 or 2011, and collateral value mitigates the exposure.
- Key risks include the cyclical industry and customer access to credit or floor-plan financing; potential reductions in government spending and fixed-price contract cost overruns; steel, aluminum and component availability and prices; chassis supply; competition; foreign currency and international-market exposure; and product liability, skilled-labor and patent risks.
- Litigation arises in the ordinary course of business; management stated that amounts beyond accruals and insurance were not expected to materially affect financial position or results. Management and the auditor reported effective internal control over financial reporting; the financial statements received an unqualified audit opinion.
Important facts for investors to verify
- Whether commercial demand can offset the loss of government-related orders, and the timing and economics of remaining government backlog.
- Whether margins recover from the 2012 product mix and whether chassis sales continue to weigh on profitability.
- How operating cash flow and working capital evolve, and whether cash resources remain adequate while funding dividends and capital spending.
- The scale and terms of distributor repurchase commitments, potential claims, and compliance with credit-facility covenants and dividend restrictions.
- The contribution, investment requirements and execution risks associated with Delavan’s planned trailer production.