Business context and reporting period
Miller Industries, Inc. manufactures towing and vehicle recovery equipment, including wreckers, car carriers and transport trailers. This Form 10-K covers the fiscal year ended December 31, 2011; it also reports fourth-quarter results. The company sells through distributors and government prime contractors, and operates manufacturing facilities in the United States, France and the United Kingdom.
Financial performance and position
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $412.7 million | $306.9 million |
| Operating income | $38.7 million | $19.7 million |
| Net income | $23.0 million | $11.7 million |
| Diluted EPS | $1.92 | $0.96 |
| Cash from operations | $28.3 million | $17.5 million |
| Capital expenditures | $4.0 million | $5.3 million |
- Revenue rose 34.5%; net income nearly doubled. Gross margin, calculated as revenue less costs of operations, was approximately 17.0%, up from 15.2%. Operating margin was approximately 9.4%, versus 6.4%; net margin was approximately 5.6%, versus 3.8%.
- Fourth-quarter revenue was $109.4 million, operating income $8.2 million and net income $4.9 million; diluted EPS was $0.43. In fourth-quarter 2010, these were $79.7 million, $6.1 million, $3.6 million and $0.29, respectively.
- Cash and temporary investments were $50.2 million at year-end; working capital was $109.8 million and the current ratio approximately 2.9. No credit-facility borrowings were outstanding; equipment obligations were $5,000. The unsecured revolving facility was increased to $25 million and expires March 31, 2014.
- Cash used in financing was $21.5 million, mainly reflecting $20 million of share repurchases and $5.5 million of dividends. The company repurchased 1,184,200 shares under its completed $20 million program and declared $0.48 per share in dividends for 2011.
Material changes, outlook and risks
- Management attributed most of 2011’s sales growth to government-related orders, alongside stronger commercial demand. Government sales through prime contractors were 26.8% of revenue, up from 18.5% in 2010. Commercial demand improved but remained below pre-2008 levels.
- Production on the follow-on government orders was completed in the fourth quarter of 2011. Management did not expect further follow-on government orders in the near term, although it continued pursuing domestic and foreign government opportunities. It gave no specific earnings or revenue guidance, but expected available cash, operating cash flow and credit availability to meet cash needs in 2012 and for the next several years, subject to business conditions.
- Management cited continued economic uncertainty, customer access to credit and floor-plan financing, industry cyclicality, raw-material costs and supply, fuel and insurance costs, competition, foreign-exchange exposure, and skilled-labor availability as risks. A single government-related customer represented 26.8% of sales in 2011, compared with 18.5% in 2010; government contracts may face spending, bidding, fixed-price cost and technical-compliance risks.
- Potential customer-default repurchase commitments were up to $18.1 million at year-end, compared with $13.2 million in 2010; no repurchases were required in either year. The company also disclosed ordinary-course litigation, with accruals for probable, estimable matters; management did not expect excess liabilities to materially affect results or financial position.
- Warranty expense increased to $3.9 million from $2.4 million, and the warranty liability rose to $5.3 million from $2.7 million. Contractual obligations totaled $19.4 million, principally $17.8 million of normal-course purchase orders due within one year.
- The annual financial-statement audit and internal-control audit received unqualified opinions; management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- How much future revenue and earnings depend on government awards after completion of the follow-on orders, and the timing of any replacement orders.
- Whether commercial demand, customer financing access and margins can remain strong as government-related sales change.
- The growth in warranty costs and reserves, and the potential cash exposure from $18.1 million of repurchase commitments.
- Whether working-capital needs, dividends and buybacks remain supportable through operating cash flow and within credit-facility covenants.
- How supplier pricing and availability, currency movements and customer concentration affect subsequent-period results.