Business Context and Reporting Period
Company: Miller Industries, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2010
Business Overview: The world's largest manufacturer of vehicle towing and recovery equipment, with domestic operations in Tennessee and Pennsylvania, and foreign subsidiaries in France and the United Kingdom. The company operates under brands including Century, Vulcan, and Challenger.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Sep 30, 2010 | 9 Months Ended Sep 30, 2010 | 9 Months Ended Sep 30, 2009 |
|---|---|---|---|
| Net Sales | $73,664 | $227,215 | $170,558 |
| Net Income | $2,924 | $8,090 | $3,999 |
| Diluted EPS | $0.24 | $0.67 | $0.34 |
| Gross Margin % | 15.5% | 14.6% | 14.8% |
| Operating Cash Flow (9mo) | $13,760 (2010) vs $22,131 (2009) | ||
| Cash & Equivalents | $42,962 (Sep 30, 2010) | ||
| Total Debt | $67 (Equipment notes only; Credit Facility unused) |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 28.0% for the quarter and 33.2% for the nine-month period compared to 2009. This was driven by increased demand for domestic products, specifically completed recovery vehicles with company-purchased chassis, and higher production of follow-on government orders.
- Profitability: Net income for the nine months ended September 30, 2010, more than doubled to $8.1 million from $4.0 million in the prior year period.
- Expense Management: Selling, general, and administrative (SG&A) expenses decreased as a percentage of sales (8.7% for 9 months in 2010 vs. 10.7% in 2009) due to the fixed nature of certain costs despite higher sales volumes.
- Interest Expense: Total interest expense decreased significantly (from $0.8 million to $0.2 million for the nine-month period) due to lower interest on distributor floor plan financing and chassis purchases.
- Foreign Currency Impact: The strengthening of the U.S. dollar resulted in a $2.9 million decrease in the foreign currency translation adjustment account and a $0.1 million loss on foreign currency transactions for the nine-month period, compared to a gain of $0.4 million in the prior year.
Guidance, Outlook, and Risks
Management Commentary: Management notes that while demand has not recovered to pre-2008 levels, domestic commercial demand is strengthening. Production hours have been restored, and furloughs eliminated. The company continues to secure follow-on governmental orders expected to continue into the third quarter of 2011.
Liquidity: The company holds $43.0 million in cash and equivalents. It has a $20.0 million unsecured revolving credit facility with First Tennessee Bank (expiring March 31, 2012) with no outstanding borrowings as of September 30, 2010. Management expects cash flow from operations and existing cash to be sufficient for the next several years.
Risks and Contingencies:
- Economic Sensitivity: Revenues are sensitive to general economic conditions, consumer confidence, and the availability of financing for customers (floor plan financing).
- Raw Materials: Costs are heavily influenced by the prices of aluminum, steel, and petroleum-related products.
- Customer Concentration: The largest customer accounted for 22.0% of sales in the quarter and 18.8% for the nine-month period.
- Repurchase Obligations: The company has agreements to repurchase repossessed products from third-party lenders, with a maximum potential collateral amount of approximately $12.7 million.
Investor Verification Checklist
- Government Order Sustainability: Verify the duration and volume of follow-on governmental orders, which currently offset lower commercial demand.
- Raw Material Hedging: Assess the company's strategy for managing volatility in aluminum and steel prices, which constitute a substantial part of operating costs.
- Customer Concentration: Monitor the financial health of the largest customer, representing over 20% of sales.
- Foreign Currency Exposure: Evaluate the impact of a strengthening U.S. dollar on foreign sales and translation adjustments.
- Dividend Policy: Confirm the sustainability of the new annual cash dividend policy ($0.10 per share) against future cash flow projections and credit facility covenants.