Miller Industries, Inc. — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing also reports unaudited fourth-quarter results. Miller Industries manufactures towing and recovery equipment, including wreckers, car carriers and transport trailers, sold through a broad distributor network.
Financial performance
| Metric | FY 2013 | FY 2012 | Change / context |
|---|---|---|---|
| Net sales | $404.2 million | $342.7 million | Up 18.0% |
| Gross profit | $42.4 million | $40.1 million | Gross margin declined to 10.5% from 11.7% |
| Operating income | $14.1 million | $12.6 million | Up from the quarterly-results totals |
| Net income attributable to Miller Industries | $9.2 million | $9.1 million | Basic and diluted EPS were $0.82 in both years |
| Cash from operating activities | $1.2 million | $6.1 million | Lower, principally reflecting increases in receivables and inventory |
| Cash and cash equivalents | $42.9 million | $48.6 million | At year-end |
| Working capital | $120.8 million | $115.2 million | At year-end |
| Credit-facility borrowings | None | None | $25 million revolving facility; maturity extended to March 31, 2016 |
Consolidated net income was $8.7 million in 2013, compared with $9.1 million in 2012; the 2013 result included a $542,000 net loss attributable to noncontrolling interests, so income attributable to Miller Industries was $9.2 million. Capital expenditures were $2.4 million. Cash dividends paid were $6.3 million, or $0.56 per share, versus $5.8 million, or $0.52 per share, in 2012.
Fourth quarter: Net sales were $108.3 million versus $82.4 million a year earlier; operating income was $3.6 million versus $2.8 million; net income attributable to Miller Industries was $2.4 million versus $1.7 million. EPS was $0.21 in both periods.
Material changes and management commentary
- Management attributed annual sales growth to stronger commercial-customer demand, improving economic conditions and higher production. Sales remained below 2011’s $412.7 million, when government-related orders were substantial.
- Gross margin fell as a greater share of sales consisted of lower-margin completed vehicles with purchased truck chassis. SG&A declined as a percentage of sales to 7.0% from 8.0%, reflecting fixed-cost leverage; interest expense also decreased.
- Cash from operations fell sharply year over year. Accounts receivable rose to $80.8 million from $59.1 million, and inventory to $54.2 million from $45.0 million.
- The Delavan Automotive joint venture generated approximately $1.3 million of pretax losses in 2013, plus indirect losses related to the Greeneville facility. On February 28, 2014, the Company agreed to sell its interest to its partner, with closing expected March 31, 2014. Management anticipated about $0.5 million of additional Delavan losses in first-quarter 2014 and planned to wind down production at Greeneville.
- Management said cash on hand and expected operating cash flow should meet requirements through 2014 and for the next several years, while noting that performance depends on economic and other factors. The board declared a $0.15-per-share dividend payable in March 2014.
Risks, contingencies and unusual items
- Demand is cyclical and depends in part on customer access to credit and distributor floor-plan financing. The filing cites economic conditions, fuel and insurance costs, weather, competition and demand for used equipment as additional influences.
- Raw-material and component costs, including steel and aluminum, supplier availability, truck-chassis supply, skilled labor, foreign-exchange movements and international conditions may affect results.
- The Company reported potential repurchase commitments of approximately $31.9 million if distributor customers default on third-party financing. No repurchases were required in 2013 or 2012; collateral value mitigates the exposure.
- Government sales face spending, fixed-price contract, bidding and technical-compliance risks. The Company said it did not expect new or follow-on U.S. government-related orders in the near term.
- Other disclosed risks include product warranty and liability claims, environmental and safety obligations, intellectual-property disputes, conflict-minerals compliance, facility interruption and credit-facility covenants. Management stated that ordinary-course litigation beyond insurance and accruals was not expected to materially affect results.
- The 2013 effective tax rate was 37.3%, compared with 27.9% in 2012; 2012 included approximately $1.36 million of tax benefits from deductions and credits.
Important facts for investors to verify
- Whether the Delavan sale closed as expected and what final sale proceeds, wind-down costs and related facility impacts were recorded.
- Whether the large receivables and inventory increases convert to cash, and whether operating cash flow recovers after its 2013 decline.
- Whether sales growth is sustained and margins improve, particularly given lower-margin chassis sales and the absence of anticipated near-term government orders.
- The status and actual exposure under the $31.9 million distributor repurchase commitments, as well as compliance with credit-facility covenants and dividend restrictions.
- The filing reports effective disclosure controls and internal control over financial reporting, with an unqualified audit opinion; investors should review subsequent filings for any changes.