Miller Industries, Inc. — Q1 2013 Form 10-Q
Business and period: The company manufactures towing and vehicle recovery equipment, selling through domestic and international distributors. This filing covers the three months ended March 31, 2013; comparisons are with Q1 2012 unless noted. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Net sales | $84.95 million | $94.96 million | Down 10.5% |
| Gross profit / margin | $8.63 million / 10.2% | $10.88 million / 11.5% | Margin down about 1.3 percentage points |
| Income before taxes | $1.89 million | $3.33 million | Down 43.2% |
| Net income attributable to Miller Industries | $1.33 million | $2.01 million | Down 33.9% |
| Diluted earnings per share | $0.12 | $0.18 | Down $0.06 |
| Cash from (used in) operations | $0.67 million | $(11.29) million | Improved |
SG&A was $6.70 million, or 7.9% of sales, versus $7.00 million, or 7.4%. Interest expense was $0.07 million versus $0.22 million. The company reported a $0.02 million foreign-currency transaction gain, compared with a $0.34 million loss. The effective tax rate was 36.2%, versus 39.6%.
Balance sheet, liquidity, and cash flows
- At March 31, cash and temporary investments were $47.43 million; current assets were $168.46 million and current liabilities were $52.85 million. Working capital was approximately $115.62 million.
- No borrowings were outstanding under the $25 million unsecured revolving credit facility, which matures March 31, 2015. The filing reports no other outstanding debt; the facility rate was 1.70% at quarter-end. Noncancelable operating lease obligations were approximately $1.16 million.
- Operating cash flow was $0.67 million, as net income and higher payables and accrued liabilities were partly offset by increases in receivables and inventory. Investing used $0.81 million, primarily for capital expenditures; financing used $1.04 million, primarily for dividends.
- Cash declined $1.16 million during the quarter to $47.43 million. Capital spending commitments were approximately $0.77 million.
Material changes and management commentary
- Management attributed lower sales to weaker European sales and lower chassis sales, partly due to chassis availability. Costs of operations fell less quickly than revenue; management said the higher proportion of lower-margin chassis sales pressured the gross margin.
- North American sales were $72.61 million versus $78.85 million; foreign sales were $12.34 million versus $16.11 million.
- Management said it expects cash on hand, operating cash flow, and available credit to meet cash needs during 2013 and for the next several years, subject to operating performance and economic and other factors. No revenue or earnings guidance was provided.
- The board declared a $0.14 per-share quarterly dividend on May 6, payable June 24, 2013 to holders of record June 17. Q1 dividends declared were $0.14 per share, compared with $0.13 a year earlier; cash dividends paid were $1.57 million.
Risks, contingencies, and unusual items
- Management identified cyclical industry demand, slow economic recovery, customer access to credit and floor-plan financing, fuel and transportation costs, and the availability and prices of steel, aluminum, and other raw materials as key business risks. Chassis supply constraints affected the quarter.
- Foreign exchange movements affect results and reported equity. The company had forward currency contracts, including cash-flow hedges; a $0.34 million hedge gain was recorded in other comprehensive income. The filing reports $6.4 million of notional undesignated contracts offset by corresponding contracts and $12.61 million of cash-flow hedge contracts.
- Customer-financing arrangements could require repurchase of repossessed products, up to a maximum of approximately $24.39 million at quarter-end. Management said the collateral mitigates the exposure and the associated liability was not material.
- The company is involved in ordinary-course litigation; management believes any exposure beyond accruals and insurance would not materially affect financial position or results. No material change to the risks in the 2012 Form 10-K was reported.
- Consolidated net income was $1.21 million, while net income attributable to Miller Industries was $1.33 million because the noncontrolling interest incurred a $0.12 million loss.
Important facts for investors to verify
- Whether European demand and chassis availability improve, and how sales mix affects gross margins.
- Whether receivables and inventory growth, alongside the increase in payables, supports sustainable operating cash flow.
- Dividend capacity relative to earnings, cash generation, and credit-facility covenant restrictions.
- Potential exposure under customer repurchase commitments and foreign-currency contracts.