MILLER INDUSTRIES INC /TN/ - Annual Report: 2006 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the
fiscal year ended December
31, 2006
OR
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the
transition period from ______________
to ______________
Commission
File No. 0-24298
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MILLER
INDUSTRIES, INC.
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(Exact
name of registrant as specified in its
charter)
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Tennessee
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62-1566286
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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8503
Hilltop Drive, Ooltewah, Tennessee
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37363
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(Address
of principal executive offices)
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(Zip
Code)
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(423)
238-4171
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(Registrant’s
telephone number, including area
code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title
of Each Class
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Name
of Each Exchange on Which Registered
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Common
Stock, par value $.01 per share
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
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None
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(Title
of
Class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
o Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
o Yes x No
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
x Yes o No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein and will not be contained, to the best
of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act (Check
one):
Large
Accelerated o Filer Accelerated
Filer x Non-accelerated
Filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
o Yes x No
The
aggregate market value of the voting stock held by non-affiliates of the
registrant (which for purposes hereof are all holders other than executive
officers and directors) as of June 30, 2006 (the last business day of the
registrant’s most recently completed second fiscal quarter) was $198,050,148
(based on 9,567,640 shares held by non-affiliates at $20.70 per share, the
last
sale price reported on the New York Stock Exchange on June 30,
2006).
At
March
9, 2007 there were 11,516,014 shares
of
the registrant’s common stock, par value $0.01 per share,
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The
information called for by Part III (Items 10, 11, 12, 13 and 14) is incorporated
herein by reference to the Registrant’s definitive proxy statement for its 2007
Annual Meeting of Shareholders which is to be filed pursuant to Regulation
14A.
TABLE
OF CONTENTS
PART
I
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10
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11
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11
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11
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PART
II
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14
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16
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24
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25
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25
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25
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27
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PART
III
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28
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28
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28
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28
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PART
IV
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29
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F-1
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S-1
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CERTAIN
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
Certain
statements in this Annual Report, including but not limited to Item
7-“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” may be deemed to be forward-looking statements, as defined in the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
can
be identified by the use of words such as “may,” “will,” “should,” “could,”
“continue,” “future,” “potential,” “believe,” “project,” “plan,” “intend,”
“seek,” “estimate,” “predict”, “expect”, “anticipate” and similar expressions,
or the negative of such terms, or other comparable terminology. Forward-looking
statements also include the assumptions underlying or relating to any of the
foregoing statements. Such forward-looking statements are made pursuant to
the
“safe harbor” provisions of the Private Securities Litigation Reform Act of 1995
based on our management’s belief as well as assumptions made by, and information
currently available to, our management. Our actual results may differ materially
from the results anticipated in these forward-looking statements due to, among
other things, the factors set forth below under the caption “Risk Factors” and
those otherwise described from time to time in our Securities and Exchange
Commission reports filed after this Annual Report. Such factors are not
exclusive. We do not undertake to update any forward-looking statement that
may
be made from time to time by, or on behalf of, our company.
i
PART
I
General
Miller
Industries is the world’s largest manufacturer of vehicle towing and recovery
equipment, with executive offices in Ooltewah, Tennessee, domestic manufacturing
operations in Tennessee and Pennsylvania, and foreign manufacturing operations
in France and the United Kingdom.
Since
1990, we have developed or acquired several of the most well-recognized brands
in the towing and recovery equipment manufacturing industry. Our strategy has
been to diversify our line of products and increase our presence in the industry
by combining internal growth and development with acquisitions of complementary
businesses.
In
this
Annual Report on Form 10-K, the words “Miller Industries,” “the Company,” “we,”
“our,” “ours,” and “us” refer to Miller Industries, Inc., and its
subsidiaries.
Towing
and Recovery Equipment
We
offer
a broad range of towing and recovery equipment products that meet most customer
design, capacity and cost requirements. We manufacture the bodies of wreckers
and car carriers, which are installed on truck chassis manufactured by third
parties. We frequently purchase the truck chassis for resale to our customers.
Wreckers generally are used to recover and tow disabled vehicles and other
equipment and range in type from the conventional tow truck to large recovery
vehicles with rotating hydraulic booms and 75-ton lifting capacities. Car
carriers are specialized flat bed vehicles with hydraulic tilt mechanisms that
enable a towing operator to drive or winch a vehicle onto the bed for transport.
Car carriers transport new or disabled vehicles and other equipment and are
particularly effective over longer distances.
Our
products primarily are sold through independent distributors that serve all
50
states, Canada and Mexico, and other foreign markets including Europe, the
Pacific Rim and the Middle East. Additionally, as a result of our ownership
of
Jige in France and Boniface in the United Kingdom, we have substantial
distribution capabilities in Europe. While most of our distributor agreements
do
not contain exclusivity provisions, management believes that approximately
65%
of our independent distributors sell our products on an exclusive basis. In
addition to selling our products to towing operators, our independent
distributors provide parts and service. We also utilize sales representatives
to
exclusively market our products and provide expertise and sales assistance
to
our independent distributors. Management believes the strength of our
distribution network and the breadth of our product offerings are two key
advantages over our competitors.
Product
Lines
We
manufacture a broad line of wrecker, car carrier and trailer bodies to meet
a
full range of customer design, capacity and cost requirements.
Wreckers.
Wreckers
are generally used to recover and tow disabled vehicles and other equipment
and
range in type from the conventional tow truck to large recovery vehicles with
75-ton lifting capacities. Wreckers are available with specialized features,
including underlifts, L-arms and scoops, which lift disabled vehicles by the
tires or front axle to minimize front end damage to the towed vehicles. Certain
heavy duty wrecker models offer rotating booms, which allow heavy duty wreckers
to recover vehicles from any angle, and proprietary remote control devices
for
operating wreckers. In addition, certain light duty wreckers are equipped with
the “Express” automatic wheellift hookup device that allow operators to engage a
disabled or unattended vehicle without leaving the cab of the
wrecker.
Our
wreckers range in capacity from 8 to 75 tons, and are characterized as light
duty and heavy duty, with wreckers of 16-ton or greater capacity being
classified as heavy duty. Light duty wreckers are used to remove vehicles from
accident scenes and vehicles illegally parked, abandoned or disabled, and for
general recovery. Heavy duty wreckers are used in commercial towing and recovery
applications including overturned tractor trailers, buses, motor homes and
other
large vehicles.
1
Car
Carriers.
Car
carriers are specialized flat-bed vehicles with hydraulic tilt mechanisms that
enable a towing operator to drive or winch a vehicle onto the bed for transport.
Car carriers are used to transport new or disabled vehicles and other equipment
and are particularly effective for transporting vehicles or other equipment
over
longer distances. In addition to transporting vehicles, car carriers may also
be
used for other purposes, including transportation of industrial equipment.
In
recent years, professional towing operators have added car carriers to their
fleets to complement their towing capabilities.
Transport
Trailers.
Our
multi-vehicle transport trailers are specialized auto transport trailers with
upper and lower decks and hydraulic ramps for loading vehicles. These trailers
are used for moving multiple vehicles for auto auctions, car dealerships,
leasing companies, and other similar applications. These trailers are easy
to
load with 6 to 7 vehicles, and with the optional cab rack, can haul up to 8
vehicles. The vehicles can be secured to transport quickly with ratchet and
chain tie-downs that are mounted throughout the frame of the transport. In
recent years, professional towing operators have added auto transport trailers
to their fleets to add to their towing capabilities. Also, we have begun to
design, engineer and manufacture special-use transport and trailer products
to
be used primarily in military applications.
Brand
Names
We
manufacture and market our wreckers, car carriers and trailers under ten
separate brand names. Although certain brands overlap in terms of features,
prices and distributors, each brand has its own distinctive image and customer
base.
Century®.
The
Century brand is our “top-of-the-line” brand and represents what management
believes to be the broadest product line in the industry. The Century line
was
started in 1974 and produces wreckers ranging from 8-ton light duty to 75-ton
heavy duty models, and car carriers in lengths from 17½ to 30 feet. Management
believes that the Century brand has a reputation as the industry’s leading
product innovator.
Vulcan®.
Our
Vulcan product line includes a range of premium light and heavy duty wreckers,
car carriers and other towing and recovery equipment. The Vulcan line is sold
through its own independent distribution network.
Challenger®.
Our
Challenger products compete with the Century and Vulcan products and constitute
a third premium product line. Challenger products consist of light to heavy
duty
wreckers with capacities ranging from 8 to 70 tons, and car carriers with
lengths ranging from 17½ to 21 feet. The Challenger line was started in 1975 and
is known for high performance heavy duty wreckers and aesthetic
design.
Holmes®.
Our
Holmes product line includes mid-priced wreckers with 8 to 16 ton capacities
and
car carriers in 17½ to 21 foot lengths. The Holmes wrecker was first produced in
1916. Historically, the Holmes name has been the most well-recognized and
leading industry brand both domestically and internationally.
Champion®.
The
Champion brand, which was introduced in 1991, includes car carriers which range
in length from 17½ to 21 feet. The Champion product line, which is generally
lower-priced, allows us to offer a full line of car carriers at various
competitive price points. In 1993, the Champion line was expanded to include
a
line of economy tow trucks with integrated boom and underlift.
Chevron™.
Our
Chevron product line is comprised primarily of premium car carriers. Chevron
produces a range of premium single-car, multi-car and industrial carriers,
light
duty wreckers and other towing and recovery equipment. The Chevron line is
operated autonomously with its own independent distribution
network.
Eagle®.
Our
Eagle products consist of light duty wreckers with the “Eagle Claw” hook-up
system that allows towing operators to engage a disabled or unattended vehicle
without leaving the cab of the tow truck. The “Eagle Claw” hook-up system was
originally developed for the repossession market. Since acquiring Eagle, we
have
upgraded the quality and features of the Eagle product line and expanded its
recovery capability.
2
Titan®.
Our
Titan product line is comprised of premium multi-vehicle transport trailers
which can transport up to 8 vehicles depending on configuration.
Jige™.
Our Jige
product line is comprised of a broad line of light and heavy duty wreckers
and
car carriers marketed primarily in Europe. Jige is a market leader best known
for its innovative designs of car carriers and light wreckers necessary to
operate within the narrow confines of European cities, as well as large
wreckers.
Boniface™.
Our
Boniface product line is comprised primarily of heavy duty wreckers marketed
primarily in Europe. Boniface produces a wide range of heavy duty wreckers
specializing in the long underlift technology required to tow modern European
tour buses.
Product
Development and Manufacturing
Our
Holmes and Century brand names are associated with four of the major innovations
in the industry: the rapid reverse winch; the tow sling; the hydraulic lifting
mechanism; and the underlift with parallel linkage and L-arms. Our engineering
staff, in consultation with manufacturing personnel, uses computer-aided design
and stress analysis systems to test new product designs and to integrate various
product improvements. In addition to offering product innovations, we focus
on
developing or licensing new technology for our products.
We
manufacture wreckers, car carriers and trailers at six manufacturing facilities
located in the United States, France and the United Kingdom. The manufacturing
process for our products consists primarily of cutting and bending sheet steel
or aluminum into parts that are welded together to form the wrecker, car carrier
body or trailer. Components such as hydraulic cylinders, winches, valves and
pumps, which are purchased by us from third-party suppliers, are then attached
to the frame to form the completed wrecker or car carrier body. The completed
body is either installed by us or shipped by common carrier to a distributor
where it is then installed on a truck chassis. Generally, the wrecker or car
carrier bodies are painted by us with a primer coat only, so that towing
operators can select customized colors to coordinate with chassis colors or
fleet colors. To the extent final painting is required before delivery, we
contract with independent paint shops for such services.
We
purchase raw materials and component parts from a number of sources. Although
we
have no long-term supply contracts, management believes we have good
relationships with our primary suppliers. We have experienced no significant
problems in obtaining adequate supplies of raw materials and component parts
to
meet the requirements of our production schedules. Management believes that
the
materials used in the production of our products are available at competitive
prices from an adequate number of alternative suppliers. Accordingly, management
does not believe that the loss of a single supplier would have a material
adverse effect on our business.
Sales,
Distribution and Marketing of Towing and Recovery
Equipment
Independent
Distributors and Sales
Management
categorizes the towing and recovery market into three general product types:
light duty wreckers; heavy duty wreckers; and car carriers. The light duty
wrecker market consists primarily of professional wrecker operators,
repossession towing services, municipal and federal governmental agencies,
and
repair shop or salvage company owners. The heavy duty market includes
professional wrecker operators serving the needs of commercial vehicle
operators. The car carrier market, historically dominated by automobile salvage
companies, has expanded to include equipment rental companies that offer
delivery service and professional towing operators who desire to complement
their existing towing capabilities. Management estimates that there are
approximately 30,000 professional towing operators and 80,000 service station,
repair shop and salvage operators comprising the overall towing and recovery
market.
Our
sales
force, which services our network of independent distributors, consists of
sales
representatives whose responsibilities include providing administrative and
sales support to the entire base of independent distributors. Sales
representatives receive commissions on direct sales based on product type and
brand and generally are assigned specific territories in which to promote sales
of our products and to maintain customer relationships.
3
We
have
developed a diverse network of independent distributors, consisting of
approximately 120 distributors in North America, who serve all 50 states, Canada
and Mexico, and approximately 50 distributors that serve other foreign markets.
In 2006, no single distributor accounted for more than 10% of our sales.
Management believes our broad and diverse network of distributors provides
us
with the flexibility to adapt to market changes, lessens our dependence on
particular distributors and reduces the impact of regional economic
factors.
To
support sales and marketing efforts, we produce demonstrator models that are
used by our sales representatives and independent distributors. To increase
exposure to our products, we also have served as the official recovery team
for
many automobile racing events, including Daytona, Talladega, Richmond, Chicago,
Kansas, California, Michigan and Darlington NASCAR races, Rolex Daytona 24
Hour
Race, the Brickyard, and the Indy 500 races, among others.
We
routinely respond to requests for proposals or bid invitations in consultation
with our local distributors. Our products have been selected by the United
States General Services Administration as an approved source for certain federal
and defense agencies. We intend to continue to pursue government contracting
opportunities.
The
towing and recovery equipment industry places heavy marketing emphasis on
product exhibitions at national and regional trade shows. In order to focus
our
marketing efforts and to control marketing costs, we concentrate our efforts
on
five of the major trade shows each year. We work with our network of independent
distributors to concentrate on various regional shows.
Disposition
of Company-Owned Distributors
During
2002, our board of directors and management made the decision to sell our
distribution group, and by the end of 2005, we had sold all of our towing and
recovery distributor locations. All assets, liabilities and results of
operations of the distribution group are now presented separately as
discontinued operations and all prior period financial information is presented
to conform to this treatment.
Product
Warranties and Insurance
We
offer
a 12-month limited manufacturer’s product and service warranty on our wrecker
and car carrier products. Our warranty generally provides for repair or
replacement of failed parts or components. Warranty service is usually performed
by us or an authorized distributor. Management believes that we maintain
adequate general liability and product liability insurance.
Backlog
We
produce virtually all of our products to order. Our backlog is based upon
customer purchase orders that we believe are firm. The level of backlog at
any
particular time, however, is not an appropriate indicator of our future
operating performance. Certain purchase orders are subject to cancellation
by
the customer upon notification. Given our production and delivery schedules
management believes that the current average backlog represents less than three
months of production.
Competition
The
towing and recovery equipment manufacturing industry is highly competitive
for
sales to distributors and towing operators. Management believes that competition
in this industry focuses on product quality and innovation, reputation,
technology, customer service, product availability and price. We compete on
the
basis of each of these criteria, with an emphasis on product quality and
innovation and customer service. Management also believes that a manufacturer’s
relationship with distributors is a key component of success in the industry.
Accordingly, we have invested substantial resources and management time in
building and maintaining strong relationships with distributors. Management
also
believes that our products are regarded as high quality within their particular
price points. Our marketing strategy is to continue to compete primarily on
the
basis of quality and reputation rather than solely on the basis of price, and
to
continue to target the growing group of professional towing operators who as
end-users recognize the quality of our products.
4
Traditionally,
the capital requirements for entry into the towing and recovery manufacturing
industry have been relatively low. Management believes a manufacturer’s capital
resources and access to technological improvements have become a more integral
component of success in recent years. Certain of our competitors may have
greater financial and other resources and may provide more attractive dealer
and
retail customer financing alternatives than we do.
Towing
Services - RoadOne
In
1997
we formed RoadOne, Inc. to build a national towing services network. However,
in
2002 we made the decision to sell our towing services operations. As of December
31, 2003, all of the towing services operations had either been sold or closed,
and as of December 31, 2006, there were no assets remaining from previous towing
services market sales.
In
October 2005, RoadOne, Inc. filed for liquidation under Chapter 7 of the federal
bankruptcy laws in the Bankruptcy Court of the Eastern District of Tennessee
and
a trustee was appointed. In December 2006, the trustee’s final report was
approved by the United States trustee, and we are awaiting receipt of the final
decree from the court. As a result of the bankruptcy proceedings, RoadOne,
Inc.
was deconsolidated from our financial statements as of December 31, 2006. The
deconsolidation resulted in a pre-tax, non-cash gain of $126,000.
Employees
We
employed approximately 1,000 people as of December 31, 2006. None of our
employees are covered by a collective bargaining agreement, though our employees
in France and the United Kingdom have certain similar rights provided by their
respective government’s employment regulations. We consider our employee
relations to be good.
Intellectual
Property Rights
Our
development of the underlift parallel linkage and L-arms is considered one
of
the most innovative developments in the wrecker industry. This technology is
significant primarily because it allows the damage-free towing of newer
aerodynamic vehicles made of lighter weight materials. This technology,
particularly the L-arms, is used in a majority of the commercial wreckers today.
We hold a number of utility and design patents covering other of our products,
including the Vulcan “scoop” wheel-retainer and the car carrier anti-tilt
device. We have also obtained the rights to use and develop certain technologies
owned or patented by others. Management
believes that, until the patents on our technology expire, utilization of our
patented technology without a license is an infringement of such
patents.
We have
successfully litigated infringement lawsuits in which the validity of our
patents on our technology was upheld, and successfully settled other lawsuits.
Pursuant to the terms of a consent judgment entered into in 2000 with the
Antitrust Division of the U.S. Department of Justice, we are required to offer
non-exclusive royalty-bearing licenses to certain of our key patents to all
tow
truck and car carrier manufacturers.
Our
trademarks “Century,” “Holmes,” “Champion,” “Challenger,” “Formula I,” “Eagle
Claw Self-Loading Wheellift,” “Pro Star,” “Street Runner,” “Vulcan,” “Right
Approach” and “Extreme Angle,” among others, are registered with the United
States Patent and Trademark Office. Management believes that our trademarks
are
well-recognized by dealers, distributors and end-users in their respective
markets and are associated with a high level of quality and value.
Government
Regulations and Environmental Matters
Our
operations are subject to federal, state and local laws and regulations relating
to the generation, storage, handling, emission, transportation and discharge
of
materials into the environment. Management believes that we are in substantial
compliance with all applicable federal, state and local provisions relating
to
the protection of the environment. The costs of complying with environmental
protection laws and regulations has not had a material adverse impact on our
financial condition or results of operations in the past and is not expected
to
have a material adverse impact in the future.
5
We
are
also subject to the Magnuson-Moss Warranty Federal Trade Commission Improvement
Act which regulates the description of warranties on products. The description
and substance of our warranties are also subject to a variety of federal and
state laws and regulations applicable to the manufacturing of vehicle
components. Management believes that continued compliance with various
government regulations will not materially affect our operations.
Executive
Officers of the Registrant
Information
relating to our executive officers as of the end of the period covered by this
Annual Report is set forth below. There are no family relationships among the
executive officers, directors or nominees for director, nor are there any
arrangements or understandings between any of the executive officers and any
other persons pursuant to which they were selected as executive
officers.
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Name
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Age
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Position
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William
G. Miller
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60
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Chairman
of the Board and Co-Chief Executive Officer
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Jeffrey
I. Badgley
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54
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President
and Co-Chief Executive Officer
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Frank
Madonia
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58
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Executive
Vice President, Secretary and General Counsel
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J.
Vincent Mish
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56
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Executive
Vice President, Chief Financial Officer and President of Financial
Services Group
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William
G. Miller
has
served as Chairman of the Board since April 1994 and our Co-Chief Executive
Officer since October 2003. From January 2002 to August 2002, Mr. Miller served
as the Chief Executive Officer of Team Sports Entertainment, Inc. Mr. Miller
served as our Chief Executive Officer from April 1994 until June 1997. In June
1997, he was named Co-Chief Executive Officer, a title he shared with Jeffrey
I.
Badgley until November 1997. Mr. Miller also served as our President from April
1994 to June 1996. He served as Chairman of Miller Group, Inc., from August
1990
through May 1994, as its President from August 1990 to March 1993, and as its
Chief Executive Officer from March 1993 until May 1994. Prior to 1987, Mr.
Miller served in various management positions for Bendix Corporation, Neptune
International Corporation, Wheelabrator-Frye, Inc. and The Signal Companies,
Inc.
Jeffrey
I. Badgley has
served as our Co-Chief Executive Officer with William G. Miller since October
2003, as our President since June 1996 and as a director since January 1996.
Mr.
Badgley served as our Chief Executive Officer from November 1997 to October
2003. In June 1997, he was named our Co-Chief Executive Officer, a title he
shared with Mr. Miller until November 1997. Mr. Badgley served as our Vice
President from 1994 to 1996, and as our Chief Operating Officer from June 1996
to June 1997. In addition, Mr. Badgley has served as President of Miller
Industries Towing Equipment Inc. since 1996. Mr. Badgley served as Vice
President—Sales of Miller Industries Towing Equipment, Inc. from 1988 to 1996.
He previously served as Vice President—Sales and Marketing of Challenger Wrecker
Corporation, from 1982 until joining Miller Industries Towing Equipment
Inc.
Frank
Madonia has
served as our Executive Vice President, Secretary and General Counsel since
September 1998. From April 1994 to September 1998 Mr. Madonia served as our
Vice
President, General Counsel and Secretary. Mr. Madonia served as Secretary and
General Counsel to Miller Industries Towing Equipment, Inc. since its
acquisition by Miller Group in 1990. From July 1987 through April 1994, Mr.
Madonia served as Vice President, General Counsel and Secretary of Flow
Measurement. Prior to 1987, Mr. Madonia served in various legal and management
positions for United States Steel Corporation, Neptune International
Corporation, Wheelabrator-Frye, Inc., and The Signal Companies,
Inc.
6
J.
Vincent Mish is
a
certified public accountant and has served as our Chief Financial Officer and
Treasurer since June 1999, a position he also held from April 1994 through
September 1996. In December 2002, Mr. Mish was appointed as our Executive Vice
President. He also has served as President of the Financial Services Group
since
September 1996 and as a Vice President of Miller Industries since April 1994.
Mr. Mish served as Vice President and Treasurer of Miller Industries Towing
Equipment, Inc. since its acquisition by Miller Group in 1990. From February
1987 through April 1994, Mr. Mish served as Vice President and Treasurer of
Flow
Measurement. Mr. Mish worked with Touche Ross & Company (now Deloitte and
Touche) for over ten years before serving as Treasurer and Chief Financial
Officer of DNE Corporation from 1982 to 1987. Mr. Mish is a member of the
American Institute of Certified Public Accountants and the Tennessee and
Michigan Certified Public Accountant societies.
Available
Information
Our
Internet website address is www.millerind.com. We make available free of charge
through our website our Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, and amendments to those reports, as soon
as reasonably practicable after we file them with, or furnish them to, the
Securities and Exchange Commission. Our Corporate Governance Guidelines and
Code
of Business Conduct and Ethics are also available on our website and are
available in print to any shareholder who mails a request to: Corporate
Secretary, Miller Industries, Inc., 8503 Hilltop Drive, Ooltewah, Tennessee
37363. Other corporate governance-related documents can be found at our website
as well.
| ITEM 1A. |
RISK
FACTORS
|
There
are many factors that affect our business and the results of our operations,
some of which are beyond our control. The following is a description of some
of
the important factors that may cause the actual results of our operations in
future periods to differ materially from those currently expected or desired.
We
encourage you to read this section carefully.
Our
business is subject to the cyclical nature of our industry, general economic
conditions and weather. Adverse changes with respect to any of these factors
may
lead to a downturn in our business.
The
towing and recovery industry is cyclical in nature and has been affected
historically by high interest rates, fuel costs, insurance costs, and economic
conditions in general. Accordingly, an increase in interest rates, fuel costs
or
insurance costs, or a downturn in the economy, could have a material adverse
effect on our operations. The industry also is influenced by consumer confidence
and general credit availability, and by weather conditions, none of which is
within our control.
Our
dependence upon outside suppliers for our raw materials, including aluminum
and
steel, and other purchased component parts, leaves us subject to price increases
and delays in receiving supplies of such materials or
parts.
We
are
dependent upon outside suppliers for our raw material needs and other purchased
component parts, and although we believe that these suppliers will continue
to
meet our requirements and specifications, and that alternative sources of supply
are available, events beyond our control could have an adverse effect on the
cost or availability of raw materials and component parts. Shipment delays,
unexpected price increases or changes in payment terms from our suppliers of
raw
materials or component parts could impact our ability to secure necessary raw
materials or component parts, or to secure such materials and parts at favorable
prices. For example, recent increases in demand for aluminum and steel, as
well
as disruptions in the supply of raw materials, has resulted in substantially
higher prices for aluminum, steel and related raw materials. Partially to offset
these increases, we have, from time to time, implemented general price increases
and cost surcharges. While we have attempted to pass these increased costs
on to
our customers, there can be no assurance that we will be able to continue to
do
so. Additionally, demand for our products could be negatively affected by the
unavailability of truck chassis, which are manufactured by third parties and
are
frequently supplied by us, or are purchased separately by our distributors
or by
towing operators. Although we believe that sources of our raw materials and
component parts will continue to be adequate to meet our requirements and that
alternative sources are available, shortages, price increases or delays in
shipments of our raw materials and component parts could have a material adverse
effect on our financial performance, competitive position and
reputation.
7
Our
competitors could impede our ability to attract new customers, or attract
current customers away from us.
The
towing and recovery equipment manufacturing industry is highly competitive.
Competition for sales exists at both the distributor and towing-operator levels
and is based primarily on product quality and innovation, reputation,
technology, customer service, product availability and price. In addition,
sales
of our products are affected by the market for used towing and recovery
equipment. Certain of our competitors may have substantially greater financial
and other resources and may provide more attractive dealer and retail customer
financing alternatives than us.
Our
future success depends upon our ability to develop proprietary products and
technology.
Historically,
we have been able to develop or acquire patented and other proprietary product
innovations which have allowed us to produce what management believes to be
technologically advanced products relative to most of our competition. Certain
of our patents have expired, and others will expire in the next few years,
and
as a result, we may not have a continuing competitive advantage through
proprietary products and technology. In addition, pursuant to the terms of
a
consent judgment entered into in 2000 with the Antitrust Division of the U.S.
Department of Justice, we are required to offer non-exclusive royalty-bearing
licenses to certain of our key patents to all wrecker and car carrier
manufacturers. Our historical market position has been a result, in part, of
our
continuous efforts to develop new products. Our future success and ability
to
maintain market share will depend, to an extent, on new product
development.
Continued
increases in our customers’ fuel costs, and the reduced availability of credit
for our customers, will have a material effect upon our
business.
In
recent
years, our customers have experienced substantial increases in fuel and other
transportation costs. There can be no assurance that fuel and transportation
costs will not continue to increase for our customers in the future.
Additionally, our customers have, from time to time, experienced reduced
availability of credit, which negatively affects their ability to, and capacity
for, purchasing equipment. These increases in fuel and transportation costs,
and
these reductions in the availability of credit, have had, and may continue
to
have, a negative effect on our customers, and a material effect upon our
business and operating results.
Our
international operations are subject to various political, economic and other
uncertainties that could adversely affect our business results, including by
restrictive taxation or other government regulation and by foreign currency
fluctuation.
A
significant portion of our net sales and production in 2006 were outside the
United States, primarily in Europe. As a result, our operations are subject
to
various political, economic and other uncertainties, including risks of
restrictive taxation policies, changing political conditions and governmental
regulations. Also, a substantial portion of our net sales derived outside the
United States, as well as salaries of employees located outside the United
States and certain other expenses, are denominated in foreign currencies,
including British pounds and the Euro. We are subject to risk of financial
loss
resulting from fluctuations in exchange rates of these currencies against the
U.S. dollar.
Projects
to modernize and expand our manufacturing facilities, such as the ongoing
projects at our Ooltewah, Tennessee and Hermitage, Pennsylvania manufacturing
facilities, could adversely affect production at those
facilities.
In
2006
we began projects to modernize and expand our Ooltewah, Tennessee and Hermitage,
Pennsylvania manufacturing facilities. In addition, we continue to evaluate
the
need for similar projects at our other existing manufacturing facilities to
allow us to better meet anticipated demand for our products. Although we have
implemented a plan to minimize the impact of these modernization activities
on
our current production, construction delays and related problems could arise
as
a result of our expansion efforts. Construction or other related problems at
any
one of our facilities could result in manufacturing delays, and could otherwise
adversely affect our ability to operate these facilities at full manufacturing
capacity.
8
The
need to service our indebtedness may affect the growth and profitability of
our
business.
As
of
January 31, 2007, our debt included approximately $4.6 million under our senior
credit facility and $5.0 million under our junior credit facility. A portion
of
our cash flow from operations has been and will continue to be dedicated to
service our debt. Using cash in this manner may affect our ability to grow
our
business and to take advantage of opportunities for growth. In addition,
indebtedness may make us more vulnerable to general adverse economic and
industry conditions.
The
requirements and restrictions imposed by our credit facilities restrict our
ability to operate our business, and failure to comply with these requirements
and restrictions could adversely affect our business.
The
terms
of our senior credit facility and our junior credit facility restrict our
ability and our subsidiaries’ ability to, among other things, incur additional
indebtedness, pay dividends or make certain other restricted payments or
investments in certain situations, consummate certain asset sales, enter into
certain transactions with affiliates, incur liens, or merge or consolidate
with
any other person or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of our or their assets. Our credit facilities also
require us to meet certain financial tests, and to comply with certain other
reporting, affirmative and negative covenants.
If
we
fail to comply with the requirements of either of our credit facilities, such
non-compliance would result in an event of default. If not waived by the lending
groups, such event of default would result in the acceleration of the amounts
due under the respective credit facility, and may permit our lenders to
foreclose on our assets that secure the credit facilities.
Our
ability to service our credit facilities may be affected by fluctuations in
interest rates.
Because
of the amount of obligations outstanding under our credit facilities and the
connection of the interest rate under such facility (including the default
rates) to the LIBOR rate, an increase in the LIBOR rate could have an effect
on
our ability to satisfy our obligations under the credit facilities and increase
our interest expense. Therefore, our liquidity and access to capital resources
could be further affected by increasing interest rates.
We
depend upon skilled labor to manufacture our products. If we experience problems
hiring and retaining skilled labor, our business may be negatively
affected.
The
timely manufacture and delivery of our products requires an adequate supply
of
skilled labor, and the operating costs of our manufacturing facilities can
be
adversely affected by high turnover in skilled positions. Accordingly, our
ability to increase sales, productivity and net earnings will be limited to
a
degree by our ability to employ the skilled laborers necessary to meet our
requirements. There can be no assurance that we will be able to maintain an
adequate skilled labor force necessary to efficiently operate our facilities.
In
addition, in connection with a representation petition filed by the United
Auto
Workers Union with the National Labor Relations Board, a vote was held on union
representation for employees at our Ooltewah, Tennessee manufacturing plant
in
2002. These employees voted against joining the United Auto Workers Union,
but
the vote was subsequently overturned by the National Labor Relations Board.
Thereafter, a new vote was scheduled for February 2005, but this vote was
cancelled at the request of the United Auto Workers Union. While our employees
are not currently members of a union, there can be no assurance that the
employees at our Ooltewah manufacturing plant, or any other of our employees,
may not choose to become unionized in the future.
We
are subject to certain retained liabilities related to the wind down of our
towing services operations.
We
sold
or closed all remaining towing services businesses during 2003. As a result,
almost all of our former towing services businesses now operate under new
ownership, and in general the customary operating liabilities of these
businesses were assumed by the new owners. Our subsidiaries that sold these
businesses are subject to some continuing liabilities with respect to their
pre-sale operations, including, for example, liabilities related to litigation,
certain trade payables, workers compensation and other insurance, surety bonds,
and real estate, and Miller Industries, Inc. is subject to some of such
continuing liabilities by virtue of certain direct parent
guarantees.
9
In
October 2005, our subsidiary, RoadOne, Inc., filed for liquidation under Chapter
7 of the federal bankruptcy laws in the Bankruptcy Court of the Eastern District
of Tennessee and a trustee was appointed. In December 2006, the trustee’s final
report was approved by the United States trustee, and we are awaiting receipt
of
the final decree from the court.
Any
loss of the services of our key executives could have a material adverse impact
on our operations.
Our
success is highly dependent on the continued services of our management team.
The loss of services of one or more key members of our senior management team
could have a material adverse effect on us.
A
product liability claim in excess of our insurance coverage, or an inability
to
acquire or maintain insurance at commercially reasonable rates, could have
a
material adverse effect upon our business.
We
are
subject to various claims, including product liability claims arising in the
ordinary course of business, and may at times be a party to various legal
proceedings incidental to our business. We maintain reserves and liability
insurance coverage at levels based upon commercial norms and our historical
claims experience. A successful product liability or other claim brought against
us in excess of our insurance coverage, or the inability of us to acquire or
maintain insurance at commercially reasonable rates, could have a material
adverse effect upon our business, operating results and financial
condition.
Our
stock price may fluctuate greatly as a result of the general volatility of
the
stock market.
From
time
to time, there may be significant volatility in the market price for our common
stock. Our quarterly operating results, changes in earnings estimated by
analysts, if any, changes in general conditions in our industry or the economy
or the financial markets or other developments affecting us could cause the
market price of the common stock to fluctuate substantially. In addition, in
recent years the stock market has experienced significant price and volume
fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons unrelated to their operating
performance.
Our
Chairman and Co-Chief Executive Officer owns a substantial interest in our
common stock. He may vote his shares in ways with which you
disagree.
William
G. Miller, our chairman, beneficially owns approximately 12.1% of the
outstanding shares of our common stock. Accordingly, Mr. Miller has the ability
to exert significant influence over our business affairs, including the ability
to influence the election of directors and the result of voting on all matters
requiring shareholder approval.
Our
charter and bylaws contain anti-takeover provisions that may make it more
difficult or expensive to acquire us in the future or may negatively affect
our
stock price.
Our
charter and bylaws contain restrictions that may discourage other persons from
attempting to acquire control of us, including, without limitation, prohibitions
on shareholder action by written consent and advance notice requirements
regarding amendments to certain provisions of our charter and bylaws. In
addition, our charter authorizes the issuance of up to 5,000,000 shares of
preferred stock. The rights and preferences for any series of preferred stock
may be set by the board of directors, in its sole discretion and without
shareholder approval, and the rights and preferences of any such preferred
stock
may be superior to those of common stock and thus may adversely affect the
rights of holders of common stock.
None.
10
|
PROPERTIES
|
We
operate four manufacturing facilities in the United States. The facilities
are
located in Ooltewah, Tennessee; Hermitage, Pennsylvania; Mercer, Pennsylvania;
and Greeneville, Tennessee. The Ooltewah plant, containing approximately 302,000
square feet, produces light and heavy duty wreckers and trailers; the Hermitage
plant, containing approximately 118,000 square feet, produces car carriers;
the
Mercer plant, containing approximately 110,000 square feet, produces car
carriers and light duty wreckers; and the Greeneville plant, containing
approximately 112,000 square feet, produces car carriers, heavy duty wreckers
and trailers.
We
also
have manufacturing operations at two facilities located in the Lorraine region
of France, which have, in the aggregate, approximately 180,000 square feet,
and
manufacturing operations in Norfolk, England, with approximately 48,000 square
feet.
In
2006
we began projects to modernize and expand our Ooltewah, Tennessee and Hermitage,
Pennsylvania manufacturing facilities as a result of increases in demand for
our
products. The cost of these projects is anticipated to be approximately $14.0
million. In addition, we are considering modernization and expansion projects
at
our other manufacturing facilities as necessary to allow us to continue to
meet
anticipated demand for our products.
We
are,
from time to time, a party to litigation arising in the normal course of our
business. Litigation is subject to various inherent uncertainties, and it is
possible that some of these matters could be resolved unfavorably to us, which
could result in substantial damages against us. We have established accruals
for
matters that are probable and reasonably estimable and maintain product
liability and other insurance that management believes to be adequate.
Management believes that any liability that may ultimately result from the
resolution of these matters in excess of available insurance coverage and
accruals will not have a material adverse effect on our consolidated financial
position or results of operations.
No
matters were submitted to a vote of our security holders during the last three
months of the period covered by this Annual Report.
11
PART
II
Market
Price of and Dividends on the Registrant’s Common Equity and Related Stockholder
Matters
Our
common stock is traded on the New York Stock Exchange under the symbol “MLR.”
The following table sets forth the quarterly range of high and low sales prices
for the common stock for the periods indicated.
|
Price
Range of Common Stock
|
|||||||
|
Period
|
High
|
Low
|
|||||
|
Year
Ended December 31, 2005
|
|||||||
|
First
Quarter
|
$
|
13.80
|
$
|
11.14
|
|||
|
Second
Quarter
|
13.02
|
9.90
|
|||||
|
Third
Quarter
|
22.59
|
12.30
|
|||||
|
Fourth
Quarter
|
21.50
|
16.35
|
|||||
|
Year
Ended December 31, 2006
|
|||||||
|
First
Quarter
|
$
|
26.13
|
$
|
19.72
|
|||
|
Second
Quarter
|
29.31
|
17.60
|
|||||
|
Third
Quarter
|
21.50
|
16.61
|
|||||
|
Fourth
Quarter
|
24.71
|
17.95
|
|||||
|
Year
Ending December 31, 2007
|
|||||||
|
First
Quarter (through March 9, 2007)
|
$
|
24.18
|
$
|
21.60
|
|||
The
approximate number of holders of record and beneficial owners of common stock
as
of December 31, 2006 was 1,646 and 10,000, respectively.
We
have
never declared cash dividends on our common stock. We intend to retain our
earnings and do not anticipate paying cash dividends in the foreseeable future.
Any future determination as to the payment of cash dividends will depend upon
such factors as earnings, capital requirements, our financial condition,
restrictions in financing agreements and other factors deemed relevant by our
Board of Directors. The payment of dividends by us is restricted by our
revolving credit facility.
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
During
2006, holders of options to purchase our common stock delivered 7,133 shares
to
exercise stock options. There were no other share repurchases during 2006,
and
there were no share repurchases during 2005.
Sales
of Unregistered Securities
We
did
not sell any unregistered securities during the year ended December 31,
2006.
Performance
Graph
The
following line graph compares the percentage change in the cumulative
shareholder return of our common stock with The New York Stock Exchange
Composite Index and the Standard & Poor’s Composite Index over the period of
time from December 31, 2001 through December 31, 2006. The respective returns
assume reinvestment of dividends paid.
12
|
12/31/01
|
12/31/02
|
12/31/03
|
12/31/04
|
12/30/05
|
12/29/06
|
||||||||||||||
|
Miller
Industries, Inc.
|
100
|
|
|
102
|
|
|
126
|
|
|
356
|
|
|
640
|
|
|
757
|
|||
|
NYSE
Composite Index(1)
|
100
|
|
|
80
|
|
|
104
|
|
|
116
|
|
|
124
|
|
|
147
|
|||
|
S&P
Construction Index(2)
|
100
|
|
|
84
|
|
|
144
|
|
|
174
|
|
|
200
|
|
|
215
|
|||
|
(1)
|
The
New York Stock Exchange revised the NYSE Composite Index as of December
31, 2002. The change recalibrated the base year as
December 31, 2002.
|
|
(2)
|
For
the year ended December 31, 2002, Standard & Poors transferred the
Heavy Duty Trucks and Parts index, the index previously used by the
Company, to the S&P 500 - Construction and Farm Machinery and Heavy
Trucks Index. As a result, the Company has elected to use the S&P 500
- Construction and Farm Machinery and Heavy Trucks index in the above
comparison.
|
13
| ITEM 6. |
SELECTED
FINANCIAL DATA
|
The
following table presents selected statement of operations data and selected
balance sheet data on a consolidated basis. We derived the selected historical
consolidated financial data for the years ended December 31, 2006, 2005, 2004,
2003 and 2002 from our audited consolidated financial statements and related
notes. You should read this data together with Item 7-“Management’s
Discussion and Analysis of Financial Condition and Results of Operation” and our
consolidated financial statements and related notes that are a part of this
Annual Report on Form 10-K.
|
Years
Ended December 31,
|
||||||||||||||||
|
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
|
(In
thousands except per share data)
|
||||||||||||||||
|
Statements
of Income Data (1):
|
||||||||||||||||
|
Net
Sales:
|
||||||||||||||||
|
Towing
and recovery equipment
|
$
|
409,421
|
$
|
351,884
|
$
|
236,308
|
$
|
192,043
|
$
|
203,059
|
||||||
|
Towing
services
|
—
|
—
|
—
|
13,953
|
28,444
|
|||||||||||
|
|
409,421
|
351,884
|
236,308
|
205,996
|
231,503
|
|||||||||||
|
Costs
and expenses:
|
||||||||||||||||
|
Costs
of operations:
|
||||||||||||||||
|
Towing
and recovery equipment
|
349,639
|
301,943
|
205,021
|
168,390
|
174,516
|
|||||||||||
|
Towing
services
|
—
|
—
|
—
|
10,618
|
22,539
|
|||||||||||
|
349,639
|
301,943
|
205,021
|
179,008
|
197,055
|
||||||||||||
|
Selling,
general, and administrative expenses
|
26,837
|
24,293
|
18,904
|
17,411
|
19,540
|
|||||||||||
|
Special
charges (2)
|
—
|
—
|
—
|
682
|
—
|
|||||||||||
|
Interest
expense
|
3,518
|
4,012
|
4,657
|
5,609
|
4,617
|
|||||||||||
|
Total
costs and expenses
|
379,994
|
330,248
|
228,582
|
202,710
|
221,212
|
|||||||||||
|
Income
from continuing operations before income taxes
|
29,427
|
21,636
|
7,726
|
3,286
|
10,291
|
|||||||||||
|
Income
tax provision
|
2,454
|
2,936
|
740
|
1,216
|
7,208
|
|||||||||||
|
Income
from continuing operations
|
26,973
|
18,700
|
6,986
|
2,070
|
3,083
|
|||||||||||
|
Discontinued
operations:
|
||||||||||||||||
|
Gain
(loss) from discontinued operations, net of taxes
|
126
|
(114
|
)
|
(1,511
|
)
|
(16,223
|
)
|
(26,965
|
)
|
|||||||
|
Tax
benefit of advances to and investment in certain discontinued
operations
|
(18,244
|
)
|
—
|
—
|
—
|
—
|
||||||||||
|
Gain
(loss) from discontinued operations
|
18,370
|
(114
|
)
|
(1,511
|
)
|
(16,223
|
)
|
(26,965
|
)
|
|||||||
|
Net
income (loss) before cumulative effect of change in accounting
principle
|
45,343
|
18,586
|
5,475
|
(14,153
|
)
|
(23,882
|
)
|
|||||||||
|
Cumulative
effect of change in accounting principle
|
—
|
—
|
—
|
—
|
(21,812
|
)
|
||||||||||
|
Net
income (loss)
|
$
|
45,343
|
$
|
18,586
|
$
|
5,475
|
$
|
(14,153
|
)
|
$
|
(45,694
|
)
|
||||
|
Basic
net income (loss) per common share:
|
||||||||||||||||
|
Income
from continuing operations
|
$
|
2.37
|
$
|
1.67
|
$
|
0.64
|
$
|
0.22
|
$
|
0.34
|
||||||
|
Gain
(loss) from discontinued operations
|
1.62
|
(0.01
|
)
|
(0.14
|
)
|
(1.74
|
)
|
(2.89
|
)
|
|||||||
|
Cumulative
effect of change in accounting principle
|
—
|
—
|
—
|
—
|
(2.34
|
)
|
||||||||||
|
Basic
income (loss)
|
$
|
3.99
|
$
|
1.66
|
$
|
0.50
|
$
|
(1.52
|
)
|
$
|
(4.89
|
)
|
||||
|
Diluted
net income (loss) per common share:
|
||||||||||||||||
|
Income
from continuing operations
|
$
|
2.33
|
$
|
1.63
|
$
|
0.64
|
$
|
0.22
|
$
|
0.34
|
||||||
|
Gain
(loss) from discontinued operations
|
1.58
|
(0.01
|
)
|
(0.14
|
)
|
(1.74
|
)
|
(2.89
|
)
|
|||||||
|
Cumulative
effect of change in accounting principle
|
—
|
—
|
—
|
—
|
(2.34
|
)
|
||||||||||
|
Diluted
income (loss)
|
$
|
3.91
|
$
|
1.62
|
$
|
0.50
|
$
|
(1.52
|
)
|
$
|
(4.89
|
)
|
||||
|
Weighted
average shares outstanding:
|
||||||||||||||||
|
Basic
|
11,360
|
11,226
|
10,860
|
9,342
|
9,341
|
|||||||||||
|
Diluted
|
11,596
|
11,474
|
10,982
|
9,342
|
9,341
|
|||||||||||
14
|
December
31,
|
||||||||||||||||
|
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
|
(In
thousands except per share data)
|
||||||||||||||||
|
Balance
Sheet Data (at period end):
|
||||||||||||||||
|
Working
capital (deficit)
|
$
|
76,266
|
$
|
50,406
|
$
|
39,978
|
$
|
31,136
|
$
|
(10,174
|
)
|
|||||
|
Total
assets
|
197,432
|
144,570
|
127,822
|
131,818
|
162,177
|
|||||||||||
|
Long-term
obligations, less current portion
|
10,537
|
16,803
|
24,345
|
29,927
|
1,214
|
|||||||||||
|
Common
shareholders’
equity
|
113,383
|
64,755
|
46,785
|
27,997
|
39,697
|
|||||||||||
| (1) |
The
results of operations and loss on disposal associated with certain
towing
services operations, which were sold in June 2003, have been reclassified
from discontinued to continuing operations for all periods presented
because of our significant continuing involvement in the operations
of the
disposal components through a consulting agreement and our ongoing
interest in the cash flows of the operations of the disposal components
through a long-term licensing
agreement.
|
| (2) |
Special
charges and other net operating expenses include a loss on the sale
of
operations of $682 for the year ended December 31, 2003 for continuing
operations. We recorded asset impairments and special charges for
discontinued operations of $4,905 and $11,828 for the years ended
December
31, 2003 and 2002. Special charges and asset impairments related
to
discontinued operations are included in Loss from Discontinued
Operations.
|
15
| ITEM 7. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
The
following discussion of our results of operations and financial condition should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto.
Executive
Overview
Miller
Industries is the world’s largest manufacturer of vehicle towing and recovery
equipment, with domestic manufacturing subsidiaries in Tennessee and
Pennsylvania, and foreign manufacturing subsidiaries in France and the United
Kingdom. We offer a broad range of equipment to meet our customers’ design,
capacity and cost requirements under our Century®,
Vulcan®,
Challenger®,
Holmes®,
Champion®,
Chevron™, Eagle®,
Titan®,
Jige™
and Boniface™ brand names.
Overall,
management focuses on a variety of key indicators to monitor our operating
and
financial performance. These indicators include measurements of revenue,
operating income, gross margin, income from continuing operations, earnings
per
share, capital expenditures and cash flow.
We
derive
revenues primarily from product sales made through our network of domestic
and
foreign independent distributors. Our revenues are sensitive to a variety of
factors, such as demand for, and price of, our products, our technological
competitiveness, our reputation for providing quality products and reliable
service, competition within our industry, the cost of raw materials (including
aluminum, steel and petroleum-related products) and general economic
conditions.
During
2006, our revenues continued to be positively affected by strong overall demand
for our products resulting from general economic improvements. In addition,
we
continued the manufacture of heavy-duty towing and recovery units for several
military and governmental orders. While we continue to increase production
of
our commercial lines, the timing and receipt of additional military orders
as
well as the timing of deliveries of chassis and other wrecker components could
have short-term effects on the timing of production and revenue in
2007.
We
have
been and will continue to be affected by increases in the prices that we pay
for
raw materials, particularly aluminum, steel, petroleum-related products and
other raw materials. Raw material costs represent a substantial part of our
total costs of operations, and management expects aluminum and steel prices
to
remain at historically high levels for the foreseeable future. As we determined
necessary, we implemented price increases to offset these higher costs. We
also
began to develop alternatives to the components used in our production process
that incorporate these raw materials. We have shared several of these
alternatives with our major component part suppliers, some of whom have begun
to
implement them in the production of our component parts. We continue to monitor
raw material prices and availability in order to more favorably position the
company in this dynamic market.
In
June
2005, we entered into a new $27.0 million senior credit facility with Wachovia
Bank, National Association, and we amended our junior credit facility with
William G. Miller, our Chairman and Co-Chief Executive Officer, by, among other
things, adding an additional loan. During 2006, we repaid $5 million of
subordinated debt under our junior credit facility using additional borrowings
under the revolving portion of our senior credit facility. Total senior and
junior debt at December 31, 2006 was $9.9 million, which represents a
significant decrease in our overall indebtedness from prior
periods.
During
2006, we reversed our deferred tax valuation allowance. As a result of our
positive earnings, the favorable projected earnings outlook as well as the
improvements in overall financial position, we determined that it is more likely
than not that the deferred tax asset will be realized. Additionally, we
recognized a tax benefit related to losses from advances to and investments
in
certain discontinued operations.
We
are
currently modernizing and expanding our manufacturing facilities in Ooltewah,
Tennessee and Hermitage, Pennsylvania and expect these projects to continue
through 2007. In addition, we are considering modernization and expansion
projects at our other manufacturing facilities as necessary to allow us to
continue to meet anticipated demand for our products. We believe these
modernization and expansion efforts will position us to more effectively face
the challenges of the global marketplace in the future.
16
Discontinued
Operations
During
2002, management and the board of directors made the decision to divest our
towing services segment, as well as the operations of the distribution group
of
our towing and recovery equipment segment. All assets and liabilities and
results of operations associated with these assets have been separately
presented in the accompanying financial statements as discontinued operations
separate from continuing operations. The analyses contained herein are of
continuing operations unless otherwise noted.
In
general, the customary operating liabilities of these disposed businesses were
assumed by the new owners. Our subsidiaries that sold these businesses may
nevertheless be subject to some continuing liabilities with respect to their
pre-sale operations, including, for example, liabilities related to litigation,
certain trade payables, workers compensation and other insurance, surety bonds,
and real estate. Except in the case of direct guarantees, these are not
obligations of Miller Industries, Inc., and Miller Industries, Inc. would expect
to take whatever steps it deems appropriate to protect itself from any such
liabilities.
In
October 2005, RoadOne, Inc. filed for liquidation under Chapter 7 of the federal
bankruptcy laws in the Bankruptcy Court of the Eastern District of Tennessee
and
a trustee was appointed. In December 2006, the trustee’s final report was
approved by the United States trustee, and we are awaiting receipt of the final
decree from the court. As a result of the bankruptcy proceedings, RoadOne,
Inc.
was deconsolidated from our consolidated financial statements as of December
31,
2006. The deconsolidation resulted in a pre-tax, non-cash gain of
$126,000.
Critical
Accounting Policies
Our
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, which require
us
to make estimates. Certain accounting policies are deemed “critical,” as they
require management’s highest degree of judgment, estimates and assumptions. A
discussion of critical accounting policies, the judgments and uncertainties
affecting their application and the likelihood that materially different amounts
would be reported under different conditions or using different assumptions
follows:
Accounts
receivable
We
extend
credit to customers in the normal course of business. Collections from customers
are continuously monitored and an allowance for doubtful accounts is maintained
based on historical experience and any specific customer collection issues.
While such bad debt expenses have historically been within expectations and
the
allowance established, there can be no assurance that we will continue to
experience the same credit loss rates as in the past.
Valuation
of long-lived assets and goodwill
Long-lived
assets and goodwill are reviewed for impairment whenever events or circumstances
indicate that the carrying amount of these assets may not be fully recoverable.
When a determination has been made that the carrying amount of long-lived assets
and goodwill may not be fully recovered, the amount of impairment is measured
by
comparing an asset’s estimated fair value to its carrying value. The
determination of fair value is based on projected future cash flows discounted
at a rate determined by management, or if available independent appraisals
or
sales price negotiations. The estimation of fair value includes significant
judgment regarding assumptions of revenue, operating costs, interest rates,
property and equipment additions; and industry competition and general economic
and business conditions among other factors. We believe that these estimates
are
reasonable; however, changes in any of these factors could affect these
evaluations. Based on these estimations, we believe that our long-lived assets
are appropriately valued.
17
Warranty
Reserves
We
estimate expense for product warranty claims at the time products are sold.
These estimates are established using historical information about the nature,
frequency, and average cost of warranty claims. We review trends of warranty
claims and take actions to improve product quality and minimize warranty claims.
We believe the warranty reserve is adequate; however, actual claims incurred
could differ from the original estimates, requiring adjustments to the
accrual.
Income
taxes
We
recognize deferred tax assets and liabilities based on differences between
the
financial statement carrying amounts and the tax bases of assets and
liabilities. Differences between the effective tax rate and the expected tax
rate are due primarily to losses from advances to and investments in certain
discontinued operations and changes in deferred tax asset valuation allowances.
We consider the need to record a valuation allowance to reduce deferred tax
assets to the amount that is more likely than not to be realized. We consider
tax loss carryforwards, reversal of deferred tax liabilities, tax planning
and
estimates of future taxable income in assessing the need for a valuation
allowance. The balance of our valuation allowance was $8.8 million at December
31, 2005.
In
2006,
we reversed our deferred tax valuation allowance. As a result of our positive
earnings, our favorable projected earnings outlook as well as the improvements
in our overall financial position, we determined that it is more likely than
not
that the deferred tax asset will be realized. The Company recognized a net
deferred tax asset of $19.7 million as of December 31, 2006, which
includes the $8.8 million recognized as a result of the reversal of the
valuation allowance.
Revenues
Under
our
accounting policies, revenue is recorded when the risk of ownership for products
has transferred to independent distributors or other customers, which is
generally upon shipment. While we manufacture only the bodies of wreckers,
which
are installed on truck chassis manufactured by third parties, we frequently
purchase the truck chassis for resale to our customers. Sales of
company-purchased truck chassis are included in net sales. Margins are
substantially lower on completed recovery vehicles containing company-purchased
chassis because the markup over the cost of the chassis is nominal.
Seasonality
We
have
experienced some seasonality in net sales due in part to decisions by purchasers
of towing and recovery equipment to defer purchases near the end of the chassis
model year. Our net sales have historically been seasonally impacted due in
part
to weather conditions.
Foreign
Currency Translation
The
functional currency for our foreign operations is the applicable local currency.
The translation from the applicable foreign currencies to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect
at
the balance sheet date, historical rates for equity and the weighted average
exchange rate during the period for revenue and expense accounts. The gains
or
losses resulting from such translations are included in shareholders’ equity.
For intercompany debt denominated in a currency other than the functional
currency, the remeasurement into the functional currency is also included in
shareholders’ equity as the amounts are considered to be of a long-term
investment nature.
Results
of Operations
The
following table sets forth, for the years indicated, the components of the
consolidated statements of operations expressed as a percentage of net
sales.
18
|
2006
|
2005
|
2004
|
||||||||
|
Continuing
Operations:
|
||||||||||
|
Net
Sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||
|
Costs
and expenses:
|
||||||||||
|
Costs
of operations
|
85.4
|
%
|
85.8
|
%
|
86.8
|
%
|
||||
|
Selling,
general and administrative
|
6.6
|
%
|
6.9
|
%
|
8.0
|
%
|
||||
|
Interest
expense
|
0.8
|
%
|
1.1
|
%
|
2.0
|
%
|
||||
|
Total
costs and expenses
|
92.8
|
%
|
93.8
|
%
|
96.8
|
%
|
||||
|
Income
before income taxes
|
7.2
|
%
|
6.2
|
%
|
3.2
|
%
|
||||
|
Discontinued
Operations:
|
||||||||||
|
Net
Sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||
|
Costs
and expenses:
|
||||||||||
|
Costs
of operations
|
93.0
|
%
|
90.3
|
%
|
92.5
|
%
|
||||
|
Selling,
general and administrative
|
8.6
|
%
|
10.9
|
%
|
9.5
|
%
|
||||
|
Gain
on deconsolidation
|
(32.7
|
)%
|
0.0
|
%
|
0.0
|
%
|
||||
|
Interest
expense
|
0.0
|
%
|
0.0
|
%
|
1.6
|
%
|
||||
|
Total
costs and expenses
|
68.9
|
%
|
101.2
|
%
|
103.6
|
%
|
||||
|
Income
(loss) before income taxes
|
31.1
|
%
|
(1.2
|
)%
|
(3.6
|
)%
|
||||
Year
Ended December 31, 2006 Compared to Year Ended December 31,
2005
Continuing
Operations
Net
sales
were $409.4 million for the year ended December 31, 2006, compared to $351.9
million for the year ended December 31, 2005, an increase of 16.3%. This
increase was attributable to continuing overall improvements in market
conditions with increases in demand leading to increases in production
levels.
Cost
of
operations increased to $349.6 million for the year ended December 31, 2006
from
$301.9 million for the year ended December 31, 2005. As a percentage of sales,
cost of operations decreased slightly from 85.8% for the year ended December
31,
2005 to 85.4% for the year ended December 31, 2006 due to increases in
productivity as demand for our products increased, offset by product
mix.
Selling,
general and administrative expense for the year ended December 31, 2006
increased to $26.8 million from $24.3 million for the year ended December 31,
2005. Approximately 12.0% of the increase is attributable to increased expenses
related to our stock-based compensation, with the remainder being attributable
to other personnel-related expense and other expenses associated with higher
sales volume. As a percentage of sales, selling, general and administrative
expense decreased to 6.6% for the year ended December 31, 2006 from 6.9% for
the
year ended December 31, 2005.
During
2006, we concluded that the valuation allowance on the deferred tax assets
established in prior years was no longer necessary given our sustained income
and growth through the year and the favorable projected earnings outlook. In
2006, we reversed the deferred tax valuation allowance. The provision for income
taxes for the years ended December 31, 2006 and 2005 reflects a combined
federal, state and foreign tax rate of 8.3% and 13.6%,
respectively.
Discontinued
Operations
Net
sales
for the distribution group of the discontinued operations decreased to $385,000
for the year ended December 31, 2006 from $11.5 million for the year ended
December 31, 2005. We sold all the remaining distributor locations in December
2005.
Cost
of
operations as a percentage of net sales for the distribution group were 93.0%
for the year ended December 31, 2006 compared to 90.3% for the year ended
December 31, 2005.
19
Selling,
general and administrative expenses as a percentage of sales for the
distribution group were 8.6% for the year ended December 31, 2006 compared
to
10.9% for the year ended December 31, 2005.
The
results of operation for the discontinued operations includes the recognition
of
a pre-tax, non-cash gain on deconsolidation of discontinued operations upon
the
RoadOne, Inc. liquidation from bankruptcy and the recognition of a deferred
tax
asset related to deductible losses from excess tax basis of advances to and
investments in certain discontinued operations.
Interest
Expense
Our
total
interest expense for continuing operations decreased to $3.5 million for the
year ended December 31, 2006 from $4.0 million for the year ended December
31,
2005. Decreases in interest expense were primarily due to decreases in overall
debt levels. No interest expense was incurred for discontinued operations for
2006 or 2005.
Year
Ended December 31, 2005 Compared to Year Ended December 31,
2004
Continuing
Operations
Net
sales
were $351.9 million for the year ended December 31, 2005 compared to $236.3
million for the year ended December 31, 2004. The increase is primarily the
result of overall improvements in market conditions, with increases in demand
leading to increases in production levels, production and delivery of units
under contract with the Australian military and production of mobile
communication trailers for DataPath. To a lesser extent, this increase is also
attributable to price increases that we implemented throughout 2004 and
2005.
Costs
of
operations as a percentage of net sales decreased to 85.8% for the year ended
December 31, 2005 from 86.8% for the year ended December 31, 2004 due to
increases in productivity as demand for our products increased.
Selling,
general, and administrative expenses decreased as a percentage of net sales
from
8.0% for the year ended December 31, 2004 to 6.9% for the year ended December
31, 2005, due to the fixed nature of certain of these expenses spread over
the
higher sales volume.
The
effective rate for the provision for income taxes was 13.6% for the year ended
December 31, 2005 compared to 9.6% for the year ended December 31, 2004. The
increase in the effective tax rate primarily reflects additional taxes on
foreign income for the period.
Discontinued
Operations
Net
sales
from the distribution group decreased to $11.5 million for the year ended
December 31, 2005 compared to $37.8 million for the year ended December 31,
2004. Revenues were negatively impacted by the disposal of all distributor
locations by the end of 2005. The towing services segment had no net sales
during the years ended December 31, 2005 and 2004, because all towing services
operations were sold during 2003.
Cost
of
sales as a percentage of net sales for the distribution group was 90.3% for
the
year ended December 31, 2005 compared to 92.5% for the year ended December
31,
2004. There were no costs of sales for the towing services segment during the
years ended December 31, 2005 and 2004. As explained above, we sold all our
remaining towing services markets by the end of calendar 2003.
Selling,
general, and administrative expenses as a percentage of sales was 10.9% for
the
distribution group and 0.0% for the towing services segment for the year ended
December 31, 2005 compared to 9.3% and 0.0%, respectively for the year ended
December 31, 2004. Increases in the percentage of sales for the distribution
group were primarily the result of lower administrative expenses spread over
a
smaller revenue base, as we continued to sell the remaining distribution
location.
The
effective rate for the provision for income taxes for discontinued operations
was 0.0% for the year ended December 31, 2005, compared to 10.2% for the year
ended December 31, 2004.
20
Interest
Expense
Our
total
interest expense for continuing and discontinued operations decreased to $4.0
million for the year ended December 31, 2005 from $5.3 million for the
comparable year-ago period. Interest expense was $4.0 million for continuing
operations and $0.0 million for discontinued operations for the year ended
December 31, 2005, compared to $4.7 million for continuing operations and $0.6
million for discontinued operations for the year ended December 31, 2004.
Decreases in interest expense were due to overall decreases in debt levels,
as
well as lower interest rates on our new senior credit facility.
Liquidity
And Capital Resources
Cash
provided by operating activities was $18.1 million for the year ended December
31, 2006, compared to $13.4 million for the year ended December 31, 2005, and
$5.7 million used in operating activities for the year ended December 31, 2004.
The cash provided by operating activities for 2006 reflects increases in
profitability partially offset by increases in accounts receivable and inventory
directly related to our revenue increases and increases in accounts payable
to
support increased productivity.
Cash
used
in investing activities was $11.8 million for the year ended December 31, 2006,
compared to $0.2 million provided by investing activities for the year ended
December 31, 2005, and $3.9 million for the year ended December 31, 2004. The
cash used in investing activities for 2006 was primarily for the purchase of
property, plant and equipment.
Cash
used
in financing activities was $5.0 million for the year ended December 31, 2006,
compared to $10.2 million for the year ended December 31, 2005, and $2.5 million
for the year ended December 31, 2004. The cash used in financing activities
in
2006 paid down our credit facilities and repaid other outstanding long-term
debt
and capital lease obligations.
Over
the
past year, we
generally have used available cash flow to reduce the outstanding balance on
our
credit facilities, to pay down other long-term debt obligations, and to pay
for
capital expenditures related to our plant modernization. In addition, our
working capital requirements have been and will continue to be significant
in
connection with the increase in our manufacturing output to meet recent
increases in demand for our products.
We
are
currently expanding our existing manufacturing facilities in Ooltewah, Tennessee
and Hermitage, Pennsylvania as a result of recent increases in demand for our
products. The cost of these projects is anticipated to be approximately $14.0
million. At December 31, 2006, we had commitments of approximately $2.8 million
for construction and acquisition of property and equipment. We expect to fund
these projects from cash flows and unused availability under our senior credit
facility.
Additionally,
in 2006 we repaid $5.0 million of subordinated debt under our junior credit
facility using additional borrowings under the revolving portion of our senior
credit facility.
As
of
December 31, 2006, we had cash and cash equivalents of $8.2 million, exclusive
of unused availability under our credit facilities. Our primary cash
requirements include working capital, capital expenditures and interest and
principal payments on indebtedness under our credit facilities. We expect our
primary sources of cash to be cash flow from operations, cash and cash
equivalents on hand at December 31, 2006 and borrowings from unused availability
under our credit facilities. We expect these sources to be sufficient to satisfy
our cash needs during 2007.
21
Contractual
Obligations
The
following is a summary of our contractual obligations as of December 31,
2006.
|
Payment
Due By Period (in thousands)
|
||||||||||||||||
|
Contractual
Obligations(1)
|
Total
|
Less
than
1
year
|
1-3
years
|
3-5
years
|
More
than
5
years
|
|||||||||||
|
Outstanding
Borrowings Under Senior Credit Facility
|
$
|
4,900
|
$
|
1,400
|
$
|
2,800
|
$
|
700
|
$
|
—
|
||||||
|
Outstanding
Borrowings Under Junior Credit Facility
|
5,000
|
—
|
5,000
|
—
|
—
|
|||||||||||
|
Mortgage
Notes Payable
|
1,844
|
60
|
1,784
|
—
|
—
|
|||||||||||
|
Equipment
Notes Payable (Capital Lease Obligations)
|
416
|
162
|
231
|
23
|
—
|
|||||||||||
|
Operating
Lease Obligations
|
2,984
|
1,011
|
1,069
|
520
|
384
|
|||||||||||
|
Purchase
Obligations (2)
|
36,406
|
36,406
|
—
|
—
|
—
|
|||||||||||
|
Commitments
for construction and acquisition of plant and equipment
|
2,810
|
2,810
|
—
|
—
|
—
|
|||||||||||
|
Total
|
$
|
54,360
|
$
|
41,849
|
$
|
10,884
|
$
|
1,243
|
$
|
384
|
||||||
| (1) |
Amounts
do not include potential contingent obligations of $27.5 million
under
repurchase commitments with third-party lenders in the event of customer
default.
|
| (2) |
Purchase
obligations represent open purchase orders for raw materials and
other
components issued in the normal course of
business.
|
Credit
Facilities and Other Obligations
Senior
Credit Facility
On
June
17, 2005, we entered into a Credit Agreement with Wachovia Bank, National
Association, for a $27.0 million senior secured credit facility. Proceeds from
this senior credit facility were used to repay The CIT Group/Business Credit,
Inc. and William
G. Miller, our Chairman of the Board and Co-Chief Executive Officer,
under
our former senior credit facility. As a result, effective June 17, 2005, our
former senior credit facility was satisfied and terminated, and Mr. Miller
no
longer holds any of our senior debt.
The
senior credit facility consists of a $20.0 million revolving credit facility,
and a $7.0 million term loan. In the absence of a default, all new borrowings
under the revolving credit facility bear interest at the LIBOR Market Index
Rate
(as defined in the Credit Agreement) plus a margin of between 1.75% to 2.50%
per
annum that is subject to adjustment from time to time based upon the
Consolidated Leverage Ratio (as defined in the Credit Agreement), and the term
loan bears interest at a 30-day adjusted LIBOR rate plus a margin of between
1.75% to 2.50% per annum that is subject to adjustment based upon the
Consolidated Leverage Ratio. The revolving credit facility expires on June
15,
2008, and the term loan matures on June 15, 2010. The senior credit facility
is
secured by substantially all of our assets, and contains
customary representations and warranties, events of default and affirmative
and
negative covenants for secured facilities of this type.
Junior
Credit Facility
On
May
31, 2005, Harbourside Investments, LLLP, a limited liability limited partnership
of which several of our executive officers and directors were partners, and
which was the lender under our junior credit facility, was dissolved, and in
connection therewith, Mr. Miller, as successor lender agent to Harbourside,
became the sole lender under our junior credit facility. Our junior credit
facility is, by its terms, expressly subordinated only to our senior credit
facility, and is secured by a second priority lien and security interest in
substantially all of our other assets. Our junior credit facility contains
requirements for the maintenance of certain financial covenants, and also
imposes restrictions on capital expenditures, incurrence of indebtedness,
mergers and acquisitions, distributions and transfers and sales of
assets.
22
The
junior credit facility matures on September 17, 2008, and contains certain
representations and warranties, and covenants and events of default consistent
with the representations and warranties, covenants and events of default in
the
Credit Agreement for our senior credit facility. In the absence of a default,
all of the term loans outstanding under the junior credit facility bear interest
at a rate of 9.0% per annum.
Former
Senior Credit Facility
Our
former senior credit facility with CIT and Mr. Miller, which was terminated
in
June 2005, consisted of an aggregate $32.0 million credit facility, including
a
$15.0 million revolving loan, a $5.0 million term loan and a $12.0 million
term
loan. Borrowings under the term loans were collateralized by substantially
all
of our domestic property, plants, and equipment. The former senior credit
facility bore interest at the prime rate (as defined) plus 2.75%.
Interest
Rate Sensitivity
Because
of the amount of obligations outstanding under the senior credit facility and
the connection of the interest rate under such facility (including the default
rates) to the LIBOR rate, an increase in the LIBOR rate could have an effect
on
our ability to satisfy our obligations under this facility and increase our
interest expense. Therefore, our liquidity and access to capital resources
could
be further affected by increasing interest rates.
Outstanding
Borrowings
Outstanding
borrowings under the senior and junior credit facilities as of December 31,
2006
and 2005 were as follows (in thousands):
|
2006
|
2005
|
||||||
|
Senior
Credit Facility
|
|||||||
|
Revolving
Credit Facility
|
$
|
—
|
$
|
—
|
|||
|
Term
Loan
|
4,900
|
6,300
|
|||||
|
Total
|
4,900
|
6,300
|
|||||
|
Junior
Credit Facility
|
5,000
|
10,000
|
|||||
|
Total
Outstanding Borrowings
|
$
|
9,900
|
$
|
16,300
|
|||
The
substantial reductions in our overall indebtedness reflected above were
primarily due to our improved operating cash flow resulting from increased
sales
levels and overall profitability.
Other
Long-Term Obligations
In
addition to the borrowings under the senior and junior credit facilities
described above, we had approximately $2.3 million of mortgage notes payable,
equipment notes payable and other long-term obligations at December 31, 2006.
We
also had approximately $2.9 million in non-cancellable operating lease
obligations.
Recent
Accounting Pronouncements
23
In
December 2004, the FASB issued FASB Staff Position No. 109-1, “Application of
FASB Statement No. 109 (SFAS No. 109), Accounting for Income Taxes, to the
Tax
Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004” (FSP 109-1). FSP 109-1 clarifies that the manufacturer’s
deduction provided for under the American Jobs Creation Act of 2004 (AJCA)
should be accounted for as a special deduction in accordance with SFAS No.
109
and not as a tax rate reduction. As we are currently utilizing net operating
loss carryover to reduce taxable income, no benefit for the domestic
manufacturing deduction has been provided in our financial
statements.
Effective
July 1, 2005, we adopted SFAS No. 153, “Exchanges of Nonmonetary Assets-an
amendment of APB Opinion No. 29”. SFAS No. 153 addresses the measurement of
exchanges of nonmonetary assets. It eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive assets in paragraph
21(b) of APB Opinion No. 29 “Accounting for Nonmonetary Transactions” and
replaces it with an exception for exchanges that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the
exchange. The adoption of SFAS No. 153 did not have a material impact on our
financial statements.
In
May
2005, the FASB issued SFAS No. 154. “Accounting Changes and Error Corrections”
(“SFAS No. 154”), which replaces Accounting Principles Board (“APB”) No. 20
“Accounting Changes”, and SFAS No. 3. “Reporting Accounting Changes in Interim
Financial Statements”. SFAS No. 154 changes the requirements for the accounting
for and reporting of a change in accounting principle. The statement applies
to
all voluntary changes in accounting principle as well as changes required by
an
accounting pronouncement. SFAS No. 154 requires retrospective application to
prior periods’ financial statements of a voluntary change in accounting
principle unless it is impracticable to determine the period-specific effects
or
the cumulative effect of the change. The statement was effective for accounting
changes and correction of errors made after January 1, 2006, and did not have
a
material impact on our financial statements.
In
June
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
clarifies the accounting for uncertainty in income taxes by prescribing a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. The interpretation also gives guidance on derecognition,
classification, interest and penalties, accounting in interim periods, and
disclosure. FIN 48 is effective for fiscal years beginning after December 31,
2006. We are in the process of evaluating the impact that FIN 48 will have
on
the Company’s financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
No. 157”). SFAS No. 157 provides a framework for measuring fair value in
accordance with generally accepted accounting principles, and expands
disclosures regarding fair value measurements and the effect on earnings. SFAS
No. 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. We
are
in the process of evaluating the impact SFAS No. 157 will have on the Company’s
financial statements.
In
September 2006, the U.S. Securities and Exchange Commission (“SEC”) released
Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements,” (“SAB No. 108”), which provides interpretive guidance on the SEC’s
views regarding the process of quantifying the materiality of financial
statement misstatements. SAB No. 108 is effective for years ending after
November 15, 2006. The application of SAB No. 108 did not have a
material effect on the Company’s results of operations or financial
position.
| ITEM 7A. |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
We
believe that our exposures to market risks are immaterial. We hold no market
risk sensitive instruments for trading purposes. At present, we do not employ
any derivative financial instruments, other financial instruments, or derivative
commodity instruments to hedge any market risk, and we have no plans to do
so in
the future. To the extent we have borrowings outstanding under our credit
facilities, we are exposed to interest rate risk because of the variable
interest rate under the facility.
24
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA
|
The
response to this item is included in Part IV, Item 15 of this
Report.
None.
| ITEM 9A. |
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
We
carried out an evaluation, under the supervision and with the participation
of
our management, including our chief executive and chief financial officers,
of
the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as of the end of the period covered by this report. Based
upon this evaluation, our Co-Chief Executive Officers and our Chief Financial
Officer have concluded that the disclosure controls and procedures were
effective as of the end of the period covered by this Annual Report to ensure
that information required to be disclosed in our reports that we file or submit
under the Exchange Act are recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms.
Management’s
Report On Internal Control Over Financial Reporting
Management
of Miller Industries, Inc. is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may be
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management,
including our principal executive officers and principal financial officer,
conducted an evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2006. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in “Internal Control—Integrated
Framework”. Based on our assessment under those criteria, we concluded that, as
of December 31, 2006, we maintained effective internal control over financial
reporting.
Joseph
Decosimo and Company, PLLC, the independent registered public accounting firm
who also audited our consolidated financial statements included in this report,
has issued an attestation report on management’s assessment of internal control
over financial reporting, which attestation report appears herein.
March
12,
2007
25
Attestation
Report of Registered Public Accounting Firm
Report
of Independent Registered Public Accounting Firm
Board
of
Directors and Shareholders
Miller
Industries, Inc.
Ooltewah,
Tennessee
We
have
audited management’s assessment, included in the accompanying “Management’s
Report on Internal Control Over Financial Reporting,” that Miller Industries,
Inc. and subsidiaries (Company) maintained effective internal control
over financial
reporting as of December 31, 2006, based on criteria established in
Internal Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the
COSO criteria).
The Company’s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion
on
management’s assessment and an opinion on the effectiveness of the Company’s
internal control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, management’s assessment that Miller Industries, Inc. and subsidiaries
maintained effective internal control over financial reporting as of December
31, 2006, is fairly stated, in all material respects, based on the COSO
criteria. Also in our opinion, Miller Industries, Inc. and subsidiaries
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2006, based on the COSO criteria.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets as of December
31, 2006 and 2005, and the related consolidated statements of operations,
shareholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2006, of Miller Industries, Inc. and subsidiaries and our
report dated March
12,
2007,
expressed an
unqualified opinion on those consolidated financial statements.
/s/
Joseph Decosimo and Company, PLLC
Chattanooga,
Tennessee
March
12,
2007
26
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting that occurred
during our most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
| ITEM 9B. |
OTHER
INFORMATION
|
None.
27
PART
III
| ITEM 11. |
EXECUTIVE
COMPENSATION
|
The
Proxy
Statement for our Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission, will contain information relating to
director and executive officer compensation, which information is incorporated
by reference herein.
The
Proxy
Statement for our Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission, will contain information relating to
security ownership of certain beneficial owners and management, which
information is incorporated by reference herein.
The
Proxy
Statement will also contain information relating to our equity compensation
plans, which information is incorporated by reference herein.
The
Proxy
Statement for our Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission, will contain information relating to certain
relationships and related transactions between us and certain of our directors
and executive officers, which information is incorporated by reference
herein.
| ITEM 14. |
PRINCIPAL
ACCOUNTANT FEES AND
SERVICES
|
The
Proxy
Statement for our Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission, will contain information relating to the
fees charged and services provided by Joseph Decosimo and Company, PLLC, our
principal accountants during the last three fiscal years, and our pre-approval
policy and procedures for audit and non-audit services, which information is
incorporated by reference into this report.
28
PART
IV
| (a) |
The
following documents are filed as part of this
Report:
|
| 1. |
Financial
Statements
|
|
Description
|
Page
Number
in
Report
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated
Balance Sheets as of December 31, 2006 and 2005
|
F-3
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2006, 2005
and
2004
|
F-4
|
|
|
Consolidated
Statements of Shareholders’ Equity for the years ended December 31, 2006,
2005 and 2004
|
F-5
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2006, 2005
and
2004
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
| 2. |
Financial
Statement Schedules
|
The
following Financial Statement Schedule for the Registrant is filed as part
of
this Report and should be read in conjunction with the Consolidated Financial
Statements:
|
Description
|
Page
Number
in
Report
|
|
|
Schedule
II - Valuation and Qualifying Accounts
|
S-1
|
All
schedules, except those set forth above, have been omitted since the information
required is included in the financial statements or notes or have been omitted
as not applicable or not required.
| 3. |
Exhibits
|
The
following exhibits are required to be filed with this Report by Item 601 of
Regulation S-K:
|
Description
|
Incorporated
by
Reference
to
Registration
File
Number
|
Form
or
Report
|
Date
of
Report
|
Exhibit
Number
in
Report
|
|||||
|
3.1
|
Charter,
as amended, of the Registrant
|
—
|
10-K
|
December
31, 2001
|
3.1
|
||||
|
3.2
|
Bylaws
of the Registrant
|
33-79430
|
S-1
|
August
1994
|
3.2
|
||||
|
10.1
|
Settlement
Letter dated April 27, 1994 between Miller Group, Inc. and the Management
Group
|
33-79430
|
S-1
|
August
1994
|
10.7
|
||||
|
10.2
|
Participants
Agreement dated as of April 30, 1994 between the Registrant, Century
Holdings, Inc., Century Wrecker Corporation, William G. Miller and
certain
former shareholders of Miller Group, Inc.
|
33-79430
|
S-1
|
August
1994
|
10.11
|
29
|
Description
|
Incorporated
by
Reference
to
Registration
File
Number
|
Form
or
Report
|
Date
of
Report
|
Exhibit
Number
in
Report
|
|||||
|
10.3
|
Form
of Noncompetition Agreement between the Registrant and certain officers
of
the Registrant
|
33-79430
|
S-1
|
August
1994
|
10.28
|
||||
|
10.4
|
Form
of Nonexclusive Distributor Agreement
|
33-79430
|
S-1
|
August
1994
|
10.31
|
||||
|
10.5
|
Miller
Industries, Inc. Stock Option and Incentive Plan**
|
33-79430
|
S-1
|
August
1994
|
10.1
|
||||
|
10.6
|
Form
of Incentive Stock Option Agreement under Miller Industries, Inc.
Stock
Option and Incentive Plan**
|
33-79430
|
S-1
|
August
1994
|
10.2
|
||||
|
10.7
|
Miller
Industries, Inc. Non-Employee Director Stock Option Plan**
|
33-79430
|
S-1
|
August
1994
|
10.4
|
||||
|
10.8
|
Form
of Director Stock Option Agreement**
|
33-79430
|
S-1
|
August
1994
|
10.5
|
||||
|
10.9
|
Employment
Agreement dated October 14, 1993 between Century Wrecker Corporation
and
Jeffrey I. Badgley**
|
33-79430
|
S-1
|
August
1994
|
10.29
|
||||
|
10.10
|
First
Amendment to Employment Agreement between Century Wrecker Corporation
and
Jeffrey I. Badgley**
|
33-79430
|
S-1
|
August
1994
|
10.33
|
||||
|
10.11
|
Form
of Employment Agreement between Registrant and each of Messrs. Madonia
and
Mish**
|
—
|
Form
10-K
|
April
30, 1995
|
10.37
|
||||
|
10.12
|
First
Amendment to Miller Industries, Inc. Non-Employee Director Stock
Option
Plan**
|
—
|
Form
10-K
|
April
30, 1995
|
10.38
|
||||
|
10.13
|
Second
Amendment to Miller Industries, Inc. Non-Employee Director Stock
Option
Plan**
|
—
|
Form
10-K
|
April
30, 1996
|
10.39
|
||||
|
10.14
|
Second
Amendment to Miller Industries, Inc. Stock Option and Incentive
Plan**
|
—
|
Form
10-K
|
April
30, 1996
|
10.40
|
||||
|
10.15
|
Employment
Agreement dated July 8, 1997 between the Registrant and William G.
Miller**
|
—
|
Form
10-Q/A
|
July
31, 1997
|
10
|
||||
|
10.16
|
Guaranty
Agreement Among NationsBank of Tennessee, N.A. and certain subsidiaries
of
Registrant dated January 30, 1998
|
—
|
Form
10-K
|
April
30, 1998
|
10.37
|
||||
|
10.17
|
Stock
Pledge Agreement Between NationsBank of Tennessee, N.A. and the Registrant
dated January 30, 1998
|
—
|
Form
10-K
|
April
30, 1998
|
10.38
|
||||
|
10.18
|
Stock
Pledge Agreement Between NationsBank of Tennessee, N.A. and the certain
subsidiaries of the Registrant dated January 30, 1998
|
—
|
Form
10-K
|
April
30, 1998
|
10.39
|
30
|
Description
|
Incorporated
by
Reference
to
Registration
File
Number
|
Form
or
Report
|
Date
of
Report
|
Exhibit
Number
in
Report
|
|||||
|
10.19
|
Form
of Indemnification Agreement dated June 8, 1998 by and between the
Registrant and each of William G. Miller, Jeffrey I. Badgley, A.
Russell
Chandler, Paul E. Drack, Frank Madonia, J. Vincent Mish, Richard
H.
Roberts, and Daniel N. Sebastian**
|
—
|
Form
10-Q
|
September
14, 1998
|
10
|
||||
|
10.20
|
Employment
Agreement between the Registrant and Jeffrey I. Badgley, dated September
11, 1998**
|
—
|
Form
10-Q
|
December
15, 1998
|
10.1
|
||||
|
10.21
|
Employment
Agreement between the Registrant and Frank Madonia, dated September
11,
1998**
|
—
|
Form
10-Q
|
December
15, 1998
|
10.3
|
||||
|
10.22
|
Agreement
between the Registrant and Jeffrey I. Badgley, dated September 11,
1998**
|
—
|
Form
10-Q
|
December
15, 1998
|
10.4
|
||||
|
10.23
|
Agreement
between the Registrant and Frank Madonia, dated September 11,
1998**
|
—
|
Form
10-Q
|
December
15, 1998
|
10.6
|
||||
|
10.24
|
Amended
and Restated Credit Agreement among the Registrant, its subsidiary
and
Bank of America, N.A. dated July 23, 2001
|
—
|
Form
10-K
|
April
30, 2001
|
10.7
|
||||
|
10.25
|
First
Amendment to the Amended and Restated Credit Agreement among the
Registrant, its subsidiary and Bank of America, N.A. dated July 23,
2001
|
—
|
Form
10-K
|
December
31, 2001
|
10.82
|
||||
|
10.26
|
Amended
and Restated Intercreditor and Subordination Agreement by and among
The
CIT Group/Business Credit, Inc. and Bank of America, N.A.
|
—
|
Form
10-K
|
December
31, 2001
|
10.83
|
||||
|
10.27
|
Participation
Agreement by and among the Company and its Subsidiaries, CIT
Group/Business Credit and Bank of America, N.A. and William G. Miller
dated October 31, 2003
|
—
|
Form
10-Q
|
September
30, 2003
|
10.3
|
||||
|
10.28
|
Modification
of First Amendment to the Amended and Restated Intercreditor and
Subordination Agreement by and among CIT Group, Inc., Bank of America,
N.A., and Contrarian Funds, LLC dated December 24, 2003
|
—
|
Form
8-K
|
January
20, 2004
|
10.3
|
||||
|
10.29
|
Second
Amendment to the Amended and Restated Intercreditor and Subordination
Agreement by and between CIT Group, Inc. and Contrarian Funds, LLC,
dated
December 24, 2003
|
—
|
Form
8-K
|
January
20, 2004
|
10.4
|
||||
|
10.30
|
Amended
and Restated Participation Agreement by and among the Registrant,
CIT and
William G. Miller, dated December 24, 2003
|
—
|
Form
8-K
|
January
20, 2004
|
10.5
|
||||
|
10.31
|
Amendment
No. 3 to Amended and Restated Credit Agreement by and among the
Registrant, Contrarian Funds, LLC and Harbourside Investments, LLLP,
dated
as of January 14, 2004
|
—
|
Form
8-K
|
January
20, 2004
|
10.6
|
||||
|
10.32
|
Exchange
Agreement by and between the Registrant and Contrarian Funds, LLC,
dated
as of January 14, 2004
|
—
|
Form
8-K
|
January
20, 2004
|
10.7
|
31
|
Description
|
Incorporated
by
Reference
to
Registration
File
Number
|
Form
or
Report
|
Date
of
Report
|
Exhibit
Number
in
Report
|
|||||
|
10.33
|
Exchange
Agreement by and between the Registrant and Harbourside Investments,
LLLP,
dated as of January 14, 2004
|
—
|
Form
8-K
|
January
20, 2004
|
10.8
|
||||
|
10.34
|
Registration
Rights Agreement by and among the Registrant, Harbourside Investments,
LLLP and Contrarian Funds, LLC, dated January 20, 2004
|
—
|
Form
8-K
|
January
20, 2004
|
10.9
|
||||
|
10.35
|
Consent
and Tenth Amendment to Credit Agreement by and between the Registrant
and
The CIT Group/Business Credit, Inc., dated November 22,
2004
|
—
|
Form
10-K
|
December
31, 2004
|
10.100
|
||||
|
10.36
|
Amendment
No. 4 to Amended and Restated Credit Agreement by and among the
Registrant, Miller Industries Towing Equipment, Inc., Harbourside
Investments, LLLP and certain guarantors set forth on the signature
pages
thereto, dated November 5, 2004
|
—
|
Form
10-K
|
December
31, 2004
|
10.101
|
||||
|
10.37
|
Non-Employee
Director Stock Plan**
|
—
|
Schedule
14A
|
January
23, 2004
|
Annex
A
|
||||
|
10.38
|
Miller
Industries, Inc. 2005 Equity Incentive Plan**
|
—
|
Schedule
14A
|
May
2, 2005
|
Annex
B
|
||||
|
10.39
|
Credit
Agreement, dated June 17, 2005, among Wachovia Bank, NA and the
Registrant
|
—
|
Form
8-K
|
June
17, 2005
|
10.1
|
||||
|
10.40
|
Term
Note, dated June 17, 2005, among Wachovia Bank, NA and the
Registrant
|
—
|
Form
8-K
|
June
17, 2005
|
10.2
|
||||
|
10.41
|
Revolving
Note, dated June 17, 2005, among Wachovia Bank, NA and the
Registrant
|
—
|
Form
8-K
|
June
17, 2005
|
10.3
|
||||
|
10.42
|
Intercreditor
Agreement, dated June 17, 2005, among Wachovia Bank, NA, and William
G.
Miller
|
—
|
Form
8-K
|
June
17, 2005
|
10.4
|
||||
|
10.43
|
Security
Agreement, dated June 17, 2005, among Wachovia Bank, NA, and the
Registrant
|
—
|
Form
8-K
|
June
17, 2005
|
10.5
|
||||
|
10.44
|
Subsidiary
Security Agreement, dated June 17, 2005, among Wachovia Bank, NA,
and the
subsidiaries of the Registrant named therein
|
—
|
Form
8-K
|
June
17, 2005
|
10.6
|
||||
|
10.45
|
Pledge
Agreement, dated June 17, 2005, among Wachovia Bank, NA, and the
Registrant
|
—
|
Form
8-K
|
June
17, 2005
|
10.7
|
||||
|
10.46
|
Amendment
No. 5 to Amended and Restated Credit Agreement, dated June 17, 2005,
among
the Registrant, Miller Industries Towing Equipment, Inc. and William
G.
Miller
|
—
|
Form
8-K
|
June
17, 2005
|
10.8
|
||||
|
10.47
|
Promissory
Note, dated June 17, 2005, among the Registrant, Miller Industries
Towing
Equipment, Inc. and William G. Miller
|
—
|
Form
8-K
|
June
17, 2005
|
10.9
|
32
|
Description
|
Incorporated
by
Reference
to
Registration
File
Number
|
Form
or
Report
|
Date
ofReport
|
Exhibit
Number
in
Report
|
|||||
|
21
|
Subsidiaries
of the Registrant*
|
||||||||
|
23.1
|
Consent
of Joseph Decosimo and Company, PLLC*
|
||||||||
|
24
|
Power
of Attorney (see signature page)*
|
||||||||
|
31.1
|
Certification
Pursuant to Rules 13a-14(a)/15d-14(a) by Co-Chief Executive
Officer*
|
||||||||
|
31.2
|
Certification
Pursuant to Rules 13a-14(a)/15d-14(a) by Co-Chief Executive
Officer*
|
||||||||
|
31.3
|
Certification
Pursuant to Rule 13a-14(a)/15d-14(a) by Chief Financial
Officer*
|
||||||||
|
32.1
|
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of United States
Code
by Co-Chief Executive Officer*
|
||||||||
|
32.2
|
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of United States
Code
by Co-Chief Executive Officer*
|
||||||||
|
32.3
|
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of United States
Code
by Chief Financial Officer*
|
|
*
|
Filed
herewith.
|
| ** |
Management
contract or compensatory plan or
arrangement.
|
|
(b)
|
The
Registrant hereby files as exhibits to this Report the exhibits set
forth
in Item 15(a)3 hereof.
|
|
(c)
|
33
|
F-2
|
||
|
F-3
|
||
|
F-4
|
||
|
F-5
|
||
|
F-6
|
||
|
F-7
|
||
|
S-1
|
Board
of
Directors and Shareholders
Miller
Industries, Inc.
Ooltewah,
Tennessee
We
have
audited the accompanying consolidated balance sheets of Miller Industries,
Inc.
and subsidiaries as of December 31, 2006 and 2005, and the related consolidated
statements of operations, shareholders’ equity and cash flows for each of the
three years in the period ended December 31, 2006. These consolidated financial
statements and financial statement schedule are the responsibility of the
company’s management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on
our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Miller Industries, Inc.
and
subsidiaries as of December 31, 2006 and 2005, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2006, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, the financial statement
schedule when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Miller
Industries, Inc. and subsidiaries’ internal
control over financial reporting as of December 31, 2006, based on criteria
established in
Internal Control—Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
and
our report dated March 12, 2007 expressed an unqualified opinion on management’s
assessment of the effectiveness of Miller
Industries, Inc. and subsidiaries’ internal
control over financial reporting and an unqualified opinion on the effectiveness
of Miller
Industries, Inc. and subsidiaries’ internal
control over financial reporting.
/s/
Joseph Decosimo and Company, PLLC
Chattanooga,
Tennessee
March
12,
2007
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
DECEMBER
31, 2006 AND 2005
(In
thousands, except share data)
|
2006
|
2005
|
||||||
|
ASSETS
|
|||||||
|
CURRENT
ASSETS:
|
|||||||
|
Cash
and temporary investments
|
$
|
8,204
|
$
|
6,147
|
|||
|
Accounts
receivable, net of allowance for doubtful accounts of $2,488 and
$1,834,
at December 31, 2006 and 2005, respectively
|
84,186
|
65,792
|
|||||
|
Inventories
|
43,155
|
38,318
|
|||||
|
Prepaid
expenses and other
|
2,079
|
739
|
|||||
|
Current
deferred income taxes
|
12,154
|
—
|
|||||
|
Current
assets of discontinued operations held for sale
|
—
|
2,422
|
|||||
|
Total
current assets
|
149,778
|
113,418
|
|||||
|
PROPERTY,
PLANT, AND EQUIPMENT, net
|
27,527
|
17,443
|
|||||
|
GOODWILL
|
11,619
|
11,619
|
|||||
|
DEFERRED
INCOME TAXES
|
7,586
|
—
|
|||||
|
OTHER
ASSETS
|
922
|
1,443
|
|||||
|
NONCURRENT
ASSETS OF DISCONTINUED OPERATIONS HELD
FOR SALE
|
—
|
647
|
|||||
|
$
|
197,432
|
$
|
144,570
|
||||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
|
CURRENT
LIABILITIES:
|
|||||||
|
Current
portion of long-term obligations
|
$
|
1,623
|
$
|
1,595
|
|||
|
Accounts
payable
|
58,620
|
45,352
|
|||||
|
Accrued
liabilities and other
|
13,269
|
9,821
|
|||||
|
Current
liabilities of discontinued operations held for sale
|
—
|
6,244
|
|||||
|
Total
current liabilities
|
73,512
|
63,012
|
|||||
|
LONG-TERM
OBLIGATIONS,
less current portion
|
10,537
|
16,803
|
|||||
|
COMMITMENTS
AND CONTINGENCIES (Notes
3 and 6)
|
|||||||
|
SHAREHOLDERS’
EQUITY:
|
|||||||
|
Preferred
stock, $.01 par value; 5,000,000 shares authorized, none issued or
outstanding
|
0
|
0
|
|||||
|
Common
stock, $.01 par value; 100,000,000 shares authorized, 11,509,964
and
11,297,474, outstanding at December 31, 2006 and 2005,
respectively
|
115
|
113
|
|||||
|
Additional
paid-in capital
|
159,702
|
157,996
|
|||||
|
Accumulated
deficit
|
(48,539
|
)
|
(93,882
|
)
|
|||
|
Accumulated
other comprehensive income
|
2,105
|
528
|
|||||
|
Total
shareholders’ equity
|
113,383
|
64,755
|
|||||
|
$
|
197,432
|
$
|
144,570
|
||||
The
accompanying notes are an integral part of these consolidated
statements.
F-3
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(In
thousands, except per share data)
|
2006
|
2005
|
2004
|
||||||||
|
NET
SALES
|
$
|
409,421
|
$
|
351,884
|
$
|
236,308
|
||||
|
COSTS
AND EXPENSES
|
||||||||||
|
Costs
of operations
|
349,639
|
301,943
|
205,021
|
|||||||
|
Selling,
general, and administrative expenses
|
26,837
|
24,293
|
18,904
|
|||||||
|
Interest
expense, net
|
3,518
|
4,012
|
4,657
|
|||||||
|
Total
costs and expenses
|
379,994
|
330,248
|
228,582
|
|||||||
|
INCOME
FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
29,427
|
21,636
|
7,726
|
|||||||
|
INCOME
TAX PROVISION
|
2,454
|
2,936
|
740
|
|||||||
|
INCOME
FROM CONTINUING OPERATIONS
|
26,973
|
18,700
|
6,986
|
|||||||
|
DISCONTINUED
OPERATIONS
|
||||||||||
|
Gain
(loss) from discontinued operations, net of taxes
|
126
|
(114
|
)
|
(1,511
|
)
|
|||||
|
Tax
benefit of advances to and investment in certain discontinued
operations
|
(18,244
|
)
|
—
|
—
|
||||||
|
Gain
(loss) from discontinued operations
|
18,370
|
(114
|
)
|
(1,511
|
)
|
|||||
|
NET
INCOME
|
$
|
45,343
|
$
|
18,586
|
$
|
5,475
|
||||
|
BASIC
INCOME (LOSS) PER COMMON SHARE:
|
||||||||||
|
Income
from continuing operations
|
$
|
2.37
|
$
|
1.67
|
$
|
0.64
|
||||
|
Gain
(loss) from discontinued operations
|
1.62
|
(0.01
|
)
|
(0.14
|
)
|
|||||
|
Basic
income
|
$
|
3.99
|
$
|
1.66
|
$
|
0.50
|
||||
|
DILUTED
INCOME (LOSS) PER COMMON SHARE:
|
||||||||||
|
Income
from continuing operations
|
$
|
2.33
|
$
|
1.63
|
$
|
0.64
|
||||
|
Gain
(loss) from discontinued operations
|
1.58
|
(0.01
|
)
|
(0.14
|
)
|
|||||
|
Diluted
income
|
$
|
3.91
|
$
|
1.62
|
$
|
0.50
|
||||
|
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
||||||||||
|
Basic
|
11,360
|
11,226
|
10,860
|
|||||||
|
Diluted
|
11,596
|
11,474
|
10,982
|
|||||||
The
accompanying notes are an integral part of these consolidated
statements.
F-4
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(In
thousands, except share data)
|
Common
Stock
|
Additional
Paid-In Capital
|
Accumulated
Deficit
|
Accumulated
Other
Comprehensive
Income
|
Total
|
||||||||||||
|
BALANCE,
December 31, 2003
|
$
|
93
|
$
|
145,090
|
$
|
(117,943
|
)
|
$
|
757
|
$
|
27,997
|
|||||
|
Net
income
|
—
|
—
|
5,475
|
—
|
5,475
|
|||||||||||
|
Other
comprehensive, net of tax:
|
||||||||||||||||
|
Foreign
currency translation adjustments
|
—
|
—
|
—
|
1,085
|
1,085
|
|||||||||||
|
Unrealized
gain on financial instruments
|
—
|
—
|
—
|
97
|
97
|
|||||||||||
|
Comprehensive
income
|
—
|
—
|
5,475
|
1,182
|
6,657
|
|||||||||||
|
Issuance
of common stock for conversion and exchange of subordinated debt
and
warrants (1,317,700)
|
13
|
7,527
|
—
|
—
|
7,540
|
|||||||||||
|
Issuance
of common stock to unaffiliated private investors
(480,000)
|
5
|
4,230
|
—
|
—
|
4,235
|
|||||||||||
|
Issuance
of common stock to non-employee directors (33,966)
|
1
|
328
|
—
|
—
|
329
|
|||||||||||
|
Exercise
of stock options (8,782)
|
—
|
27
|
—
|
—
|
27
|
|||||||||||
|
BALANCE,
December 31, 2004
|
112
|
157,202
|
(112,468
|
)
|
1,939
|
46,785
|
||||||||||
|
Net
income
|
—
|
—
|
18,586
|
—
|
18,586
|
|||||||||||
|
Other
comprehensive, net of tax:
|
||||||||||||||||
|
Foreign
currency translation adjustments
|
—
|
—
|
—
|
(1,468
|
)
|
(1,468
|
)
|
|||||||||
|
Unrealized
gain on financial instruments
|
—
|
—
|
—
|
57
|
57
|
|||||||||||
|
Comprehensive
income (loss)
|
—
|
—
|
18,586
|
(1,411
|
)
|
17,175
|
||||||||||
|
Issuance
of common stock to non-employee directors (6,672)
|
—
|
75
|
—
|
—
|
75
|
|||||||||||
|
Exercise
of stock options (108,296)
|
1
|
719
|
—
|
—
|
720
|
|||||||||||
|
BALANCE,
December 31, 2005
|
113
|
157,996
|
(93,882
|
)
|
528
|
64,755
|
||||||||||
|
Net
income
|
—
|
—
|
45,343
|
—
|
45,343
|
|||||||||||
|
Other
comprehensive, net of tax:
|
||||||||||||||||
|
Foreign
currency translation adjustments
|
—
|
—
|
—
|
1,577
|
1,577
|
|||||||||||
|
Comprehensive
income
|
—
|
—
|
45,343
|
1,577
|
46,920
|
|||||||||||
|
Issuance
of common stock to non-employee directors (3,768)
|
—
|
75
|
—
|
—
|
75
|
|||||||||||
|
Exercise
of stock options (208,722)
|
2
|
1,323
|
—
|
—
|
1,325
|
|||||||||||
|
Stock-based
compensation expense
|
—
|
308
|
—
|
—
|
308
|
|||||||||||
|
BALANCE,
December 31, 2006
|
$
|
115
|
$
|
159,702
|
$
|
(48,539
|
)
|
$
|
2,105
|
$
|
113,383
|
|||||
The
accompanying notes are an integral part of these consolidated
statements.
F-5
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(In
thousands)
|
2006
|
2005
|
2004
|
||||||||
|
OPERATING
ACTIVITIES:
|
||||||||||
|
Net
income
|
$
|
45,343
|
$
|
18,586
|
$
|
5,475
|
||||
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
||||||||||
|
(Gain)
loss from discontinued operations
|
(126
|
)
|
114
|
1,511
|
||||||
|
Tax
benefit of advances to and investments in discontinued
operations
|
(18,244 |
)
|
—
|
—
|
||||||
|
Depreciation
and amortization
|
2,721
|
2,900
|
3,232
|
|||||||
|
Deferred
tax benefit
|
(1,331
|
)
|
—
|
—
|
||||||
|
Amortization
of deferred financing costs
|
123
|
340
|
798
|
|||||||
|
Provision
for doubtful accounts
|
1,065
|
827
|
567
|
|||||||
|
Stock-based
compensation
|
308
|
—
|
—
|
|||||||
|
Issuance
of non-employee director shares
|
75
|
75
|
329
|
|||||||
|
Loss
on disposals of property, plant, and equipment
|
—
|
—
|
10
|
|||||||
|
Changes
in operating assets and liabilities:
|
||||||||||
|
Accounts
receivable
|
(18,898
|
)
|
(17,667
|
)
|
(11,199
|
)
|
||||
|
Inventories
|
(3,496
|
)
|
(4,579
|
)
|
(7,288
|
)
|
||||
|
Prepaid
expenses and other
|
(1,390
|
)
|
839
|
285
|
||||||
|
Other
assets
|
(16
|
)
|
(12
|
)
|
(864
|
)
|
||||
|
Accounts
payable
|
12,090
|
9,952
|
1,271
|
|||||||
|
Accrued
liabilities and other
|
(343
|
)
|
4,210
|
1,501
|
||||||
|
Net
cash provided by (used in) operating activities from continuing
operations
|
17,881
|
15,585
|
(4,372
|
)
|
||||||
|
Net
cash provided by (used in) operating activities from discontinued
operations
|
247
|
(2,225
|
)
|
(1,341
|
)
|
|||||
|
Net
cash provided by (used in) operating activities
|
18,128
|
13,360
|
(5,713
|
)
|
||||||
|
INVESTING
ACTIVITIES:
|
||||||||||
|
Purchases
of property, plant, and equipment
|
(12,564
|
)
|
(1,425
|
)
|
(695
|
)
|
||||
|
Proceeds
from sale of property, plant, and equipment
|
98
|
—
|
15
|
|||||||
|
Payments
received on notes receivables
|
604
|
227
|
122
|
|||||||
|
Net
cash used in investing activities from continuing
operations
|
(11,862
|
)
|
(1,198
|
)
|
(558
|
)
|
||||
|
Net
cash provided by investing activities from discontinued
operations
|
25
|
1,421
|
4,454
|
|||||||
|
Net
cash (used in) provided by investing activities
|
(11,837
|
)
|
223
|
3,896
|
||||||
|
FINANCING
ACTIVITIES:
|
||||||||||
|
Net
borrowings under senior credit facility
|
—
|
6,300
|
—
|
|||||||
|
(Payments)
borrowings under junior credit facility
|
(5,000
|
)
|
5,707
|
—
|
||||||
|
Payments
on long-term obligations
|
(1,603
|
)
|
(1,223
|
)
|
(3,542
|
)
|
||||
|
Net
(payments) borrowings under former credit facility
|
—
|
(18,903
|
)
|
3,093
|
||||||
|
Borrowings
under long-term obligations
|
329
|
—
|
2,039
|
|||||||
|
Additions
to deferred financing costs
|
(5
|
)
|
(389
|
)
|
(522
|
)
|
||||
|
Termination
of interest rate swap
|
—
|
57
|
96
|
|||||||
|
Proceeds
from issuance of common stock
|
—
|
—
|
4,235
|
|||||||
|
Proceeds
from exercise of stock options
|
1,325
|
720
|
27
|
|||||||
|
Net
cash (used in) provided by financing activities from continuing
operations
|
(4,954
|
)
|
(7,731
|
)
|
5,426
|
|||||
|
Net
cash used in financing activities from discontinued
operations
|
—
|
(2,511
|
)
|
(7,910
|
)
|
|||||
|
Net
cash used in financing activities
|
(4,954
|
)
|
(10,242
|
)
|
(2,484
|
)
|
||||
|
EFFECT
OF EXCHANGE RATE CHANGES ON CASH AND TEMPORARY
INVESTMENTS
|
697
|
(557
|
)
|
293
|
||||||
|
NET
CHANGE IN CASH AND TEMPORARY INVESTMENTS
|
2,034
|
2,784
|
(4,008
|
)
|
||||||
|
CASH
AND TEMPORARY INVESTMENTS, beginning of year
|
6,147
|
2,812
|
5,240
|
|||||||
|
CASH
AND TEMPORARY INVESTMENTS-DISCONTINUED OPERATIONS, beginning of
year
|
23
|
574
|
2,154
|
|||||||
|
CASH
AND TEMPORARY INVESTMENTS-DISCONTINUED OPERATIONS, end of
year
|
—
|
23
|
574
|
|||||||
|
CASH
AND TEMPORARY INVESTMENTS, end of year
|
$
|
8,204
|
$
|
6,147
|
$
|
2,812
|
||||
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||||
|
Debt
conversion
|
$
|
—
|
$
|
—
|
$
|
7,540
|
||||
|
Cash
payments for interest
|
$
|
3,897
|
$
|
3,875
|
$
|
4,173
|
||||
|
Cash
payments for income taxes
|
$
|
3,477
|
$
|
865
|
$
|
815
|
||||
The
accompanying notes are an integral part of these consolidated
statements.
F-6
MILLER
INDUSTRIES,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
ORGANIZATION
AND NATURE OF OPERATIONS
|
Miller
Industries, Inc. and subsidiaries (“the Company”) is the world’s largest
manufacturer of vehicle towing and recovery equipment. The principal markets
for
the Company’s towing and recovery equipment are approximately 120 independent
distributors and users of towing and recovery equipment located primarily
throughout North America and other customers throughout the world. The Company’s
products are marketed under the brand names of Century, Challenger, Holmes,
Champion, Eagle, Jige, Boniface, Vulcan, and Chevron. As further described
in
Note 11, in 2002, the Company’s management and board of directors made the
decision to divest the remainder of its towing services segment, as well as
the
operations of the distribution group of the towing and recovery equipment
segment. At December 31, 2006, the Company had completed this process. Unless
otherwise specifically stated, all disclosures in the following notes relate
only to the Company’s continuing operations.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
Use
of Estimates in the Preparation of Financial Statements
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Consolidation
The
accompanying consolidated financial statements include the accounts of Miller
Industries, Inc. and its subsidiaries. All significant intercompany transactions
and balances have been eliminated.
Cash
and Temporary Investments
Cash
and
temporary investments include all cash and cash equivalent investments with
original maturities of three months or less.
Fair
Value of Financial Instruments
The
carrying values of cash and temporary investments, accounts receivable, accounts
payable, and accrued liabilities are reasonable estimates of their fair values
because of the short maturity of these financial instruments. The carrying
values of long-term obligations are reasonable estimates of their fair values
based on the rates available for obligations with similar terms and
maturities.
Inventories
Inventory
costs include materials, labor, and factory overhead. Inventories are stated
at
the lower of cost or market, determined on a first-in, first-out basis.
Inventories at December 31, 2006 and 2005 consisted of the following (in
thousands):
|
2006
|
2005
|
||||||
|
Chassis
|
$
|
3,596
|
$
|
2,346
|
|||
|
Raw
materials
|
18,767
|
16,654
|
|||||
|
Work
in process
|
12,566
|
10,989
|
|||||
|
Finished
goods
|
8,226
|
8,329
|
|||||
|
$
|
43,155
|
$
|
38,318
|
||||
F-7
Property,
Plant, and Equipment
Property,
plant, and equipment are recorded at cost. Depreciation for financial reporting
purposes is provided using the straight-line method over the estimated useful
lives of the assets. Accelerated depreciation methods are used for income tax
reporting purposes. Estimated useful lives range from 20 to 30 years for
buildings and improvements and 5 to 10 years for machinery and equipment,
furniture and fixtures, and software costs. Expenditures for routine maintenance
and repairs are charged to expense as incurred. Internal labor is used in
certain capital projects.
Property,
plant, and equipment at December 31, 2006 and 2005 consisted of the following
(in thousands):
|
2006
|
2005
|
||||||
|
Land
and improvements
|
$
|
3,247
|
$
|
1,768
|
|||
|
Buildings
and improvements
|
24,389
|
19,298
|
|||||
|
Machinery
and equipment
|
15,476
|
12,427
|
|||||
|
Furniture
and fixtures
|
5,393
|
5,157
|
|||||
|
Software
costs
|
6,695
|
6,420
|
|||||
|
Construction
in progress
|
2,228
|
—
|
|||||
|
57,428
|
45,070
|
||||||
|
Less
accumulated depreciation
|
(29,901
|
)
|
(27,627
|
)
|
|||
|
$
|
27,527
|
$
|
17,443
|
||||
The
Company recognized $2,608,000, $2,760,000 and $3,092,000, in depreciation
expense in 2006, 2005 and 2004, respectively. In 2006, $200,000 of interest
costs were capitalized for construction period interest. No interest was
capitalized in 2005.
The
Company capitalizes costs related to software development in accordance with
established criteria, and amortizes those costs to expense on a straight-line
basis over five years. System development costs not meeting proper criteria
for
capitalization are expensed as incurred.
Basic
and Diluted Income Per Common Share
Basic
income per common share is computed by dividing net income by the weighted
average number of common shares outstanding. Diluted income per common share
is
calculated by dividing net income by the weighted average number of common
and
potential dilutive common shares outstanding. Diluted net income per common
share takes into consideration the assumed exercise of outstanding stock options
resulting in approximately 236,000, 248,000 and 122,000, potential dilutive
common shares in 2006, 2005 and 2004, respectively. Options to purchase
approximately 55,000, 151,000 and 310,000 shares of common stock were
outstanding during 2006, 2005 and 2004, respectively, but were not included
in
the computation of diluted earnings per share because the effect would have
been
anti-dilutive.
Goodwill
and Long-Lived Assets
The
Company accounts for goodwill in accordance with SFAS No. 141 “Business
Combinations” and SFAS No. 142 “Goodwill and Other Intangible Assets,” and as
such has ceased amortizing goodwill. In lieu of amortization the Company
performs an annual impairment review of goodwill.
In
accordance with SFAS No. 144, “Accounting for the Impairment of Long-Lived
Assets”, management evaluates the carrying value of long-lived assets when
significant adverse changes in economic value of these assets requires an
analysis, including property and equipment and other intangible assets. Under
SFAS No. 144, a long-lived asset is considered impaired when its fair value
is
less than its carrying value. In that event, a loss is calculated based on
the
amount the carrying value exceeds the fair value which is estimated based on
future cash flows.
F-8
Patents,
Trademarks, and Other Purchased Product Rights
The
cost
of acquired patents, trademarks, and other purchased product rights is
capitalized and amortized using the straight-line method over various periods
not exceeding 20 years. Total accumulated amortization of these assets was
$1,547,000
and $1,434,000
at December 31, 2006 and 2005, respectively. Amortization expense in 2006,
2005
and 2004 was $113,000,
$140,000
and $140,000, respectively. At
December 31, 2006,
all
intangible assets subject to amortization are fully amortized.
As
acquisitions and dispositions of intangible assets occur in the future, the
amortization amounts may vary.
Deferred
Financing Costs
All
deferred financing costs are included in other assets and are amortized using
the straight-line method over the terms of the respective obligations. Total
accumulated amortization of deferred financing costs at December 31, 2006 and
2005 was $197,000
and $75,000,
respectively. Amortization expense in 2006, 2005 and 2004, was $123,000,
$340,000
and $798,000, respectively,
and is included in interest expense in the accompanying consolidated statements
of operations. Based on the current amount of deferred financing costs subject
to amortization, the estimated amortization expense in future years is as
follows: 2007 – $123,000;
2008 – $68,000; 2009 – $13,000; thereafter – $0.
Accrued
Liabilities and Other
Accrued
liabilities and other consisted of the following at December 31, 2006 and 2005
(in thousands):
|
2006
|
2005
|
||||||
|
Accrued
wages, commissions, bonuses, and benefits
|
$
|
4,414
|
$
|
4,153
|
|||
|
Accrued
income taxes
|
1,560
|
1,407
|
|||||
|
Other
|
7,295
|
4,261
|
|||||
|
$
|
13,269
|
$
|
9,821
|
||||
Stock-Based
Compensation
Effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 123R, “Share-Based Payment” using the modified prospective
transition method. This statement requires the determination of the fair-value
of stock-based compensation at the grant date and the recognition of the related
expense over the period in which the stock-based compensation vests. During
2006, the Company recorded $308,000 in compensation expense related to its
stock-based compensation. The stock-based compensation expense is included
in
selling, general and administrative expenses in the accompanying consolidated
statements of operations.
Prior
to
the adoption of SFAS No. 123R, the Company accounted for stock-based
compensation in accordance with Accounting Principles Bulletin (APB) No.
25,
“Accounting for Stock Issued to Employees.” Under the provisions of APB No. 25,
no compensation expense is recorded when the terms of the grant are fixed
and
the option exercise prices are equal to the market value of the common stock
on
the date of the grant. Disclosure-only provisions of SFAS No. 123 “Accounting
for Stock-Based Compensation” were adopted. For SFAS No. 123 purposes, the fair
value of each option grant has been estimated as of the date of grant using
the
Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 2004: expected dividend yield of 0%; expected
volatility of 43%; risk-free interest rate of 2.94%; and expected life of
5.5
years. Using these assumptions, the fair value of options granted in 2004
is
approximately $1,242,000, which would be amortized as compensation expense
over
the vesting period of the options. No options were granted during 2006 or
2005.
Had compensation costs been accounted for based on the fair value at the
grant
dates consistent with SFAS No. 123, the Company’s prior year net income and net
income per share would have been adjusted to the pro forma amounts indicated
below:
F-9
|
2005
|
2004
|
||||||
|
(in
thousands, except per share data)
|
|||||||
|
Net
income available to common stockholders, as reported
|
$
|
18,586
|
$
|
5,475
|
|||
|
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards, net of related tax
effects
|
(347
|
)
|
(262
|
)
|
|||
|
Net
income available to common stockholders, pro forma
|
$
|
18,239
|
$
|
5,213
|
|||
|
Income
per common share:
|
|||||||
|
Basic,
as reported
|
$
|
1.66
|
$
|
0.50
|
|||
|
Basic,
pro forma
|
$
|
1.62
|
$
|
0.48
|
|||
|
Diluted,
as reported
|
$
|
1.62
|
$
|
0.50
|
|||
|
Diluted,
pro forma
|
$
|
1.59
|
$
|
0.48
|
|||
At
December 31, 2006, the Company had $385,000 of unrecognized compensation expense
related to stock options, with $308,000 and $77,000 to be expensed in 2007
and
2008, respectively. The Company issued approximately 209,000 shares of common
stock during 2006 from the exercise of stock options.
Product
Warranty
The
Company provides a one-year limited product and service warranty on certain
of
its products. The Company provides for the estimated cost of this warranty
at
the time of sale. Warranty expense in 2006, 2005 and 2004, was $1,716,000,
$1,744,000 and $1,520,000, respectively.
The
table
below provides a summary of the warranty liability for December 31, 2006 and
2005 (in thousands):
|
2006
|
2005
|
||||||
|
Accrual
at beginning of the year
|
$
|
801
|
$
|
665
|
|||
|
Provision
|
1,716
|
1,744
|
|||||
|
Settlement
|
(1,678
|
)
|
(1,608
|
)
|
|||
|
Accrual
at end of year
|
$
|
839
|
$
|
801
|
|||
Credit
Risk
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash investments and trade accounts
receivable. The Company places its cash investments with high-quality financial
institutions and limits the amount of credit exposure to any one institution.
The Company’s trade receivables are primarily from independent distributors of
towing and recovery equipment. The Company monitors its exposure for credit
losses and maintains allowances for anticipated losses. The Company maintains
security agreements on substantially all of its trade receivables.
Revenue
Recognition
Revenue
is recorded by the Company when the risk of ownership for products has
transferred to the independent distributors or other customers, which is
generally upon shipment.
Shipping
and Handling Fees and Cost
The
Company records revenues earned for shipping and handling as revenue, while
the
cost of shipping and handling is classified as cost of operation.
F-10
Foreign
Currency Translation
The
functional currency for the Company’s foreign operations is the applicable local
currency. The translation from the applicable foreign currencies to U.S. dollars
is performed for balance sheet accounts using current exchange rates in effect
at the balance sheet date, historical rates for equity and the weighted average
exchange rate during the period for revenue and expense accounts. The gains
or
losses resulting from such translations are included in shareholders’ equity.
For intercompany debt denominated in a currency other than the functional
currency, the remeasurement into the functional currency is also included in
shareholders’ equity as the amounts are considered to be of a long-term
investment nature.
Recent
Accounting Pronouncements
In
November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No.
151 “Inventory Costs - an amendment of ARB No. 43, Chapter 4”. This statement
clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling costs and spoilage. This statement also requires the allocation of
fixed production overhead costs be based on normal production capacity. The
provisions of SFAS No. 151 are effective for inventory costs beginning in
January 2006. The adoption of this statement did not have a material impact
on
the Company’s results of operations or financial position.
In
December 2004, the FASB issued FASB Staff Position No. 109-1, “Application of
FASB Statement No. 109 (SFAS No. 109), Accounting for Income Taxes, to the
Tax
Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004” (FSP 109-1). FSP 109-1 clarifies that the manufacturer’s
deduction provided for under the American Jobs Creation Act of 2004 (AJCA)
should be accounted for as a special deduction in accordance with SFAS No.
109
and not as a tax rate reduction. As the Company is currently utilizing net
operating loss carryover to reduce taxable income, no benefit for the domestic
manufacturing deduction has been provided in the financial
statements.
Effective
July 1, 2005, the Company adopted SFAS No. 153, “Exchanges of Nonmonetary
Assets-an amendment of APB Opinion No. 29”. SFAS No. 153 addresses the
measurement of exchanges of nonmonetary assets. It eliminates the exception
from
fair value measurement for nonmonetary exchanges of similar productive assets
in
paragraph 21(b) of APB Opinion No. 29 “Accounting for Nonmonetary Transactions”
and replaces it with an exception for exchanges that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the
exchange. The adoption of SFAS No. 153 did not have a material impact on the
Company’s financial statements.
In
May
2005, the FASB issued SFAS No. 154. “Accounting Changes and Error Corrections”
(“SFAS No. 154”), which replaces Accounting Principles Board (“APB”) No. 20
“Accounting Changes”, and SFAS No. 3. “Reporting Accounting Changes in Interim
Financial Statements”. SFAS No. 154 changes the requirements for the accounting
for and reporting of a change in accounting principle. The statement applies
to
all voluntary changes in accounting principle as well as changes required by
an
accounting pronouncement. SFAS No. 154 requires retrospective application to
prior periods’ financial statements of a voluntary change in accounting
principle unless it is impracticable to determine the period-specific effects
or
the cumulative effect of the change. The statement was effective for accounting
changes and correction of errors made after January 1, 2006, and did not have
a
material impact on the Company’s financial statements.
In
June
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
clarifies the accounting for uncertainty in income taxes by prescribing a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. The interpretation also gives guidance on derecognition,
classification, interest and penalties, accounting in interim periods, and
disclosure. FIN 48 is effective for fiscal years beginning after December 31,
2006. We are in the process of evaluating the impact that FIN 48 will have
on
the Company’s financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
No. 157”). SFAS No. 157 provides a framework for measuring fair value in
accordance with generally accepted accounting principles, and expands
disclosures regarding fair value measurements and the effect on earnings. SFAS
No. 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. We
are
in the process of evaluating the impact SFAS No. 157 will have on the Company’s
financial statements.
F-11
In
September 2006, the U.S. Securities and Exchange Commission (“SEC”) released
Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements,” (“SAB No. 108”), which provides interpretive guidance on the SEC’s
views regarding the process of quantifying the materiality of financial
statement misstatements. SAB No. 108 is effective for years ending after
November 15, 2006. The application of SAB No. 108 did not have a
material effect on the Company’s results of operations or financial
position.
Reclassifications
Certain
prior year amounts have been reclassified to conform to current year
presentation, with no impact on previously reported shareholders’ equity or net
income.
|
3.
|
LONG-TERM
OBLIGATIONS
|
Long-Term
Obligations
Long-term
obligations consisted of the following at December 31, 2006 and 2005 (in
thousands):
|
2006
|
2005
|
||||||
|
Outstanding
borrowings under Senior Credit Facility
|
$
|
4,900
|
$
|
6,300
|
|||
|
Outstanding
borrowings under Junior Credit Facility
|
5,000
|
10,000
|
|||||
|
Mortgage
notes payable, weighted average interest rate of 8.25%, payable in
monthly
installments, maturing in 2009
|
1,844
|
1,901
|
|||||
|
Equipment
notes payable, weighted average interest rate of 8.49%, payable in
monthly
installments, maturing 2007 to 2011
|
416
|
187
|
|||||
|
Other
notes payable, maturing in 2006
|
—
|
10
|
|||||
|
12,160
|
18,398
|
||||||
|
Less
current portion
|
(1,623
|
)
|
(1,595
|
)
|
|||
|
$
|
10,537
|
$
|
16,803
|
||||
Certain
equipment and manufacturing facilities are pledged as collateral under the
mortgage and equipment notes payable.
Credit
Facilities
Senior
Credit Facility.
On June
17, 2005, the Company entered into a Credit Agreement (the “Senior Credit
Agreement”) with Wachovia Bank, National Association, for a $27.0 million senior
secured credit facility (the “Senior Credit Facility”). Proceeds from the Senior
Credit Facility were used to repay The CIT Group/Business Credit, Inc. (“CIT”)
and William G. Miller, the Company’s Chairman of the Board and Co-Chief
Executive Officer, under the Company’s former senior credit facility. As a
result, effective June 17, 2005, the Company’s former senior credit facility was
satisfied and terminated, and Mr. Miller no longer holds any of the Company’s
senior debt.
The
Senior Credit Facility consists of a $20.0 million revolving credit facility
(the “Revolver”), and a $7.0 million term loan (the “Term Loan”). At December
31, 2006 and 2005, the Company had no borrowing outstanding under the revolving
credit facility. In the absence of a default, all borrowings under the Revolver
bear interest at the LIBOR Market Index Rate (as defined in the Senior Credit
Agreement) plus a margin of between 1.75% to 2.50% per annum that is subject
to
adjustment from time to time based upon the Consolidated Leverage Ratio (as
defined in the Senior Credit Agreement), and the Term Loan bears interest at
a
30-day adjusted LIBOR rate plus a margin of between 1.75% to 2.50% per annum
that is subject to adjustment from time to time based upon the Consolidated
Leverage Ratio. The Revolver expires on June 15, 2008, and the Term Loan matures
on June 15, 2010. The Senior Credit Facility is secured by substantially all
of
the Company’s assets, and contains customary representations and warranties,
events of default and affirmative and negative covenants for secured facilities
of this type.
F-12
Junior
Credit Facility.
William
G. Miller is the sole lender under the Company’s Junior Credit Facility. The
Company’s Junior Credit Facility is, by its terms, expressly subordinated only
to the Senior Credit Facility, and is secured by a second priority lien and
security interest in substantially all of the Company’s other assets. The Junior
Credit Facility matures on September 17, 2008, and contains certain
representations and warranties, and covenants and events of default consistent
with the representations and warranties, covenants and events of default in
the
Senior Credit Agreement. In the absence of a default, all of the term loans
outstanding under the Junior Credit Facility bear interest at a rate of 9.0%
per
annum.
In
May
2006, the Company repaid $5.0 million of the subordinated debt under the Junior
Credit Facility using additional borrowings under the Senior Credit Facility
Revolver.
Interest
Rate Sensitivity.
Because
of the amount of obligations outstanding under the Senior Credit Facility and
the connection of the interest rate under the Senior Credit Facility (including
the default rates) to the LIBOR rate, an increase in the LIBOR rate could have
an effect on the Company’s ability to satisfy its obligations under the
Senior Credit Facility and increase its interest expense. Therefore, the
Company’s liquidity and access to capital resources could be further affected by
increasing interest rates.
Future
maturities of long-term obligations at December 31, 2006 are as follows (in
thousands):
|
2007
|
$
|
1,623
|
||
|
2008
|
6,593
|
|||
|
2009
|
3,222
|
|||
|
2010
|
715
|
|||
|
2011
|
7
|
|||
|
$
|
12,160
|
|
4.
|
RELATED
PARTY TRANSACTIONS
|
Credit
Facilities
Former
Senior Credit Facility.
Under
the Company’s former senior credit facility, which was structured as a $15.0
million revolving facility and $12.0 million and $5.0 million term loans, CIT
and William G. Miller constituted the senior lenders to the Company, with CIT
holding 62.5% of such loan and Mr. Miller participating in 37.5% of the loan.
Mr. Miller’s portion of the loan was subordinated to that of CIT. The Company
paid Mr. Miller approximately $664,000 and $949,000 in interest expense related
to his portion of the former senior credit facility during 2005 and 2004,
respectively.
Senior
Credit Facility.
On June
17, 2005, the Company entered into the Senior Credit Agreement with Wachovia
Bank, National Association, for the Senior Credit Facility (as described in
Note
3). Proceeds from the Senior Credit Facility were used to repay CIT and Mr.
Miller under the Company’s former senior credit facility, with CIT receiving
$14.1 million and Mr. Miller receiving $12.0 million. As a result, effective
June 17, 2005, the Company’s former senior credit facility was satisfied and
terminated, and Mr. Miller no longer holds any of the Company’s senior debt.
This transaction was approved by the Audit Committee of the Company’s Board of
Directors, as well as the full Board of Directors with Mr. Miller abstaining
due
to his personal interest in the transaction.
Amendments
to Junior Credit Facility.
On May
31, 2005, Harbourside Investments, LLLP, a limited liability limited partnership
of which several of the Company’s executive officers and directors were
partners, and which was the former lender under the Company’s Junior Credit
Facility, was dissolved, and in connection therewith, Mr. Miller, as successor
lender agent to Harbourside, became the sole lender under the Junior Credit
Facility. On June 17, 2005, the Company and Mr. Miller amended the Junior Credit
Facility to provide for a new term loan, made by Mr. Miller as sole lender
and
successor lender agent, in the principal amount of approximately $5.7 million.
As a result, on June 17, 2005, the total outstanding principal amount of term
loans under the Junior Credit Facility was $10.0 million. This transaction
was
approved by the Audit Committee of the Company’s Board of Directors, as well as
the full Board of Directors with Mr. Miller abstaining due to his personal
interest in the transaction. In 2005, the Company paid Harbourside $211,000
in
interest on the Junior Credit Facility prior to its dissolution and $274,000
in
2004. Additionally, Mr. Miller received approximately $684,000 and $415,000
in
interest expense on the Junior Credit Facility for 2006 and 2005, respectively.
Approximately $39,000 and $77,000 is included in accrued liabilities for unpaid
interest on the Junior Credit Facility at December 31, 2006 and 2005,
respectively.
F-13
In
May
2006, the Company repaid $5.0 million of subordinated debt under the Junior
Credit Facility. This payment was approved by the Audit Committee of the
Company’s Board of Directors and by the full Board of Directors with Mr. Miller
abstaining due to his personal interest in the transaction.
DataPath,
Inc.
In
October 2004, the Company began a project with DataPath, Inc (“DataPath”), a
provider of satellite communications, to assist in the design and engineering
of
mobile communication trailers for military applications. DataPath is a company
in which Mr. Miller and one of the Company’s directors held a minority interest
and on whose board they also served. In May 2005, the Company entered into
a new
agreement with DataPath calling for the Company to manufacture and sell to
them
all of their requirements for this type of equipment during the five-year term
of the agreement. As of June 30, 2006, Mr. Miller and the Company’s other
director resigned from DataPath’s board, and had reduced their collective
interest in DataPath to less than 4% of its total shares outstanding. Total
revenue to the Company from these related party transactions for the six months
ended June 30, 2006 was $5,649,000, and $23,727,000 and $861,000 for the years
ended December 31, 2005 and 2004, respectively. At December 31, 2005,
approximately $2,311,000 was included in accounts receivable for amounts due
from DataPath. The Company continues to conduct business with DataPath as part
of its normal course of operations.
|
5.
|
STOCK-BASED
COMPENSATION PLANS
|
In
accordance with the Company’s stock-based compensation plans, the Company may
grant incentive stock options as well as non-qualified and other stock-related
incentives to officers, employees, and non-employee directors of the Company.
Options vest ratably over a two to four-year period beginning on the grant
date
and expire ten years from the date of grant. Shares available for granting
options at December 31, 2006, 2005 and 2004 were approximately 1.1 million,
0.9
million and 0.6 million, respectively.
A
summary
of the activity of stock options for the years ended December 31, 2006, 2005
and
2004, is presented below (shares in thousands):
|
2006
|
2005
|
2004
|
|||||||||||||||||
|
Shares
Under
Option
|
Weighted
Average
Exercise
Price
|
Shares
Under
Option
|
Weighted
Average
Exercise
Price
|
Shares
Under
Option
|
Weighted
Average
Exercise
Price
|
||||||||||||||
|
Outstanding
at Beginning of Period
|
574
|
$
|
15.92
|
805
|
$
|
15.46
|
745
|
$
|
19.90
|
||||||||||
|
Granted
|
—
|
—
|
—
|
—
|
340
|
8.31
|
|||||||||||||
|
Exercised
|
(216
|
)
|
6.90
|
(108
|
)
|
6.67
|
(9
|
)
|
3.15
|
||||||||||
|
Forfeited
and cancelled
|
(54
|
)
|
43.60
|
(123
|
)
|
20.96
|
(271
|
)
|
17.99
|
||||||||||
|
Outstanding
at End of Period
|
304
|
$
|
17.39
|
574
|
$
|
15.92
|
805
|
$
|
15.46
|
||||||||||
|
Options
exercisable at year end
|
138
|
$
|
28.39
|
321
|
$
|
21.90
|
455
|
$
|
21.12
|
||||||||||
|
Weighted
average fair value of options granted
|
$
|
—
|
$
|
—
|
$
|
3.65
|
|||||||||||||
F-14
A
summary
of options outstanding under the Company’s stock-based compensation plans at
December 31, 2006 is presented below (shares in thousands):
|
Exercise
Price Range
|
Shares
Under
Option
|
Weighted
Average
Exercise
Price of
Options
Outstanding
|
Weighted
Average
Remaining
Life
|
Options
Exercisable
|
Weighted
Average
Exercise
Price of
Shares
Exercisable
|
|||||||||||||||
| $ |
3.05
|
-
|
$ |
3.37
|
6
|
$
|
3.05
|
4.9
|
6
|
$
|
3.05
|
|||||||||
|
8.31
|
10.94
|
199
|
8.40
|
7.1
|
33
|
8.87
|
||||||||||||||
|
20.63
|
22.50
|
42
|
20.63
|
1.7
|
42
|
20.63
|
||||||||||||||
|
32.50
|
35.31
|
35
|
35.29
|
1.5
|
35
|
35.29
|
||||||||||||||
|
49.06
|
73.13
|
20
|
69.27
|
0.4
|
20
|
69.27
|
||||||||||||||
|
75.63
|
78.75
|
2
|
77.19
|
0.4
|
2
|
77.19
|
||||||||||||||
|
Total
|
304
|
$
|
17.39
|
5.2
|
138
|
$
|
28.39
|
|||||||||||||
|
6.
|
COMMITMENTS
AND CONTINGENCIES
|
Commitments
The
Company has entered into various operating leases for buildings, office
equipment, and trucks. Rental expense under these leases for continuing
operations was $1,572,000, $1,308,000 and $850,000 in 2006, 2005 and 2004,
respectively. Rental expense under these leases for discontinued operations
was
$2,000, $221,000 and $551,000 in 2006, 2005 and 2004, respectively.
At
December 31, 2006 future minimum lease payments under non-cancelable operating
leases for the next five years and in the aggregate are as follows (in
thousands):
|
2007
|
$
|
1,011
|
||
|
2008
|
655
|
|||
|
2009
|
414
|
|||
|
2010
|
352
|
|||
|
2011
|
168
|
|||
|
Thereafter
|
384
|
|||
|
$
|
2,984
|
The
Company has also entered into arrangements with third-party lenders where it
has
agreed, in the event of a default by the customer, to repurchase from the
third-party lender Company products repossessed from the customer. These
arrangements are typically subject to a maximum repurchase amount. The Company’s
risk under these arrangements is mitigated by the value of the products
repurchased as part of the transaction. The maximum amount of collateral the
Company could be required to purchase was approximately $27.5 million and $18.4
million at December 31, 2006 and 2005, respectively.
At
December 31, 2006, the Company had commitments of $2.8 million for the
construction and acquisition of property and equipment related to the
modernization of the domestic manufacturing facilities.
Contingencies
The
Company is, from time to time, a party to litigation arising in the normal
course of its business. Litigation is subject to various inherent uncertainties,
and it is possible that some of these matters could be resolved unfavorably
to
the Company, which could result in substantial damages against the Company.
The
Company has established accruals for matters that are probable and reasonably
estimable and maintains product liability and other insurance that management
believes to be adequate. Management believes that any liability that may
ultimately result from the resolution of these matters in excess of available
insurance coverage and accruals will not have a material adverse effect on
the
consolidated financial position or results of operations of the
Company.
F-15
|
7.
|
INCOME
TAXES
|
Deferred
tax assets and liabilities are determined based on the differences between
the
financial and tax basis of existing assets and liabilities using the currently
enacted tax rates in effect for the year in which the differences are expected
to reverse.
The
provision for income taxes on income consisted of the following in 2006, 2005
and 2004, (in thousands):
|
2006
|
2005
|
2004
|
||||||||
|
Current:
|
||||||||||
|
Federal
|
$
|
—
|
$
|
423
|
$
|
—
|
||||
|
State
|
1,426
|
1,647
|
317
|
|||||||
|
Foreign
|
2,359
|
866
|
423
|
|||||||
|
3,785
|
2,936
|
740
|
||||||||
|
Deferred:
|
||||||||||
|
Federal
|
6,003
|
—
|
—
|
|||||||
|
State
|
1,479
|
—
|
—
|
|||||||
|
Change
in valuation allowance
|
(8,813
|
)
|
—
|
—
|
||||||
|
(1,331
|
)
|
—
|
—
|
|||||||
|
$
|
2,454
|
$
|
2,936
|
$
|
740
|
|||||
The
principal differences between the federal statutory tax rate and the income
tax
expense in 2006, 2005 and 2004:
|
2006
|
2005
|
2004
|
||||||||
|
Federal
statutory tax rate
|
35.0
|
%
|
34.0
|
%
|
34.0
|
%
|
||||
|
State
taxes, net of federal tax benefit
|
3.2
|
%
|
7.6
|
%
|
4.0
|
%
|
||||
|
Change
in deferred tax asset valuation allowance
|
(29.9
|
)%
|
(30.6
|
%)
|
(34.0
|
%)
|
||||
|
Excess
of foreign tax over US tax on foreign income
|
1.3
|
%
|
0.6
|
%
|
4.9
|
%
|
||||
|
Other
|
(1.3
|
)%
|
2.0
|
%
|
0.7
|
%
|
||||
|
Effective
tax rate
|
8.3
|
%
|
13.6
|
%
|
9.6
|
%
|
||||
Deferred
income tax assets and liabilities reflect the impact of temporary differences
between the amounts of assets and liabilities for financial reporting and
income
tax reporting purposes. Temporary differences and carry forwards which give
rise
to deferred tax assets and liabilities at December 31, 2006 and 2005 are
as
follows (in thousands):
F-16
|
2006
|
2005
|
||||||
|
Deferred
tax assets:
|
|||||||
|
Allowance
for doubtful accounts
|
$
|
80
|
$
|
51
|
|||
|
Accruals
and reserves
|
3,162
|
2,160
|
|||||
|
Net
operating loss carryforward
|
16,697
|
5,484
|
|||||
|
Deductible
goodwill and impairment charges
|
52
|
58
|
|||||
|
Other
|
362
|
628
|
|||||
|
Total
deferred tax assets
|
20,353
|
8,381
|
|||||
|
Less
valuation allowance
|
—
|
(7,638
|
)
|
||||
|
Net
deferred tax asset
|
20,353
|
743
|
|||||
|
Deferred
tax liabilities:
|
|||||||
|
Property,
plant, and equipment
|
613
|
743
|
|||||
|
Total
deferred tax liabilities
|
613
|
743
|
|||||
|
Net
deferred tax asset
|
$
|
19,740
|
$
|
—
|
|||
Included
in the Company’s noncurrent assets of discontinued operations at December 31,
2005 is a net noncurrent deferred tax asset of $1.2 million relating primarily
to tax deductible goodwill and reserves that are not deductible for tax purposes
until paid. The discontinued operations of the Company had no noncurrent
deferred tax liabilities at December 31, 2005. The net deferred tax assets
of
the discontinued operations of $1.2 million had a full valuation allowance
reflected against them.
As
of
December 31, 2006, the Company had federal net operating loss carryforwards
of
approximately $44.6 million which will expire between 2012 and 2026. The federal
net operating loss carryforwards are comprised primarily of losses from advances
to and investments in certain discontinued operations resulting from the RoadOne
liquidation. See Note 11 for further discussion. In addition, the Company had
charitable contributions of $0.3 million that may be carried forward, and an
AMT
credit carryforward of approximately $0.2 million, that may be carried forward
indefinitely.
In
2005
and 2004, the Company had maintained a valuation allowance reflecting the
Company’s recognition that cumulative losses in recent years indicated that
it was unclear whether certain future tax benefits would be realized
as a result of future taxable income. At December 31, 2005 and 2004, the Company
recorded a full valuation allowance against its net deferred tax asset from
continuing and discontinuing operations totaling approximately $8.8 million
and
$16.2 million, respectively. During 2006, the Company concluded that the
valuation allowance on the deferred tax asset was no longer necessary given
the
Company’s sustained income and growth throughout the year and the favorable
projected earnings outlook. A tax benefit of $8.8 million was recognized in
2006
as a result of the reversal of the valuation allowance.
As
of
December 31, 2006, the Company has state net operating loss carryforwards of
approximately $24.1 million.
|
8.
|
PREFERRED
STOCK
|
The
Company has authorized 5,000,000 shares of undesignated preferred stock which
can be issued in one or more series. The terms, price, and conditions of the
preferred shares will be set by the board of directors. No shares have been
issued.
|
9.
|
EMPLOYEE
BENEFIT PLANS
|
The
Company maintains a contributory retirement plan for all full-time employees
with at least 90 days of service. The plan is designed to provide tax-deferred
income to the Company’s employees in accordance with the provisions of Section
401 (k) of the Internal Revenue Code.
F-17
The
plan
provides that each participant may contribute up to 15% of his or her salary.
For 2005, the Company matched 33.33% of the first 3% of participant
contributions and for 2006 matched 50.00% of the first 4% of participant
contributions. Matching contributions vest over the first five years of
employment. Company contributions to the plans were not significant in 2006,
2005 and 2004.
| 10. |
GEOGRAPHIC
AND CUSTOMER INFORMATION
|
Net
sales
and long-lived assets (property, plant and equipment and goodwill and intangible
assets) by region was as follows (revenue is attributed to regions based on
the
locations of customers) (in thousands):
|
2006
|
2005
|
2004
|
|||||||||||||||||
|
Net
Sales
|
Long-Lived
Assets
|
Net
Sales
|
Long-Lived
Assets
|
Net
Sales
|
Long-Lived
Assets
|
||||||||||||||
|
North
America
|
$
|
333,300
|
$
|
36,455
|
$
|
283,226
|
$
|
26,665
|
$
|
196,902
|
$
|
28,026
|
|||||||
|
Foreign
|
76,121
|
2,691
|
68,658
|
2,509
|
39,406
|
2,607
|
|||||||||||||
|
$
|
409,421
|
$
|
39,146
|
$
|
351,884
|
$
|
29,174
|
$
|
236,308
|
$
|
30,633
|
||||||||
No
single
customer accounted for 10% or more of consolidated net sales in 2006, 2005
or
2004.
|
11.
|
DISCONTINUED
OPERATIONS
|
In
2002,
the Company’s management and board of directors made the decision to divest of
its remaining towing services segment, as well as the operations of the
distribution group of the towing and recovery equipment segment. In accordance
with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets,” the assets for the towing services segment and the distribution group
were considered a “disposal group” and were no longer being depreciated. All
assets and liabilities and results of operations associated with these assets
were separately presented in the Company’s financial statements at December 31,
2005, and 2004 as discontinued operations separate from continuing operations.
Results of operations for the towing services segment and the distribution
group
reflect interest expense for debt directly attributing to these businesses,
as
well as an allocation of corporate debt.
In
October 2005, the Company’s subsidiary, RoadOne, Inc., filed for liquidation
under Chapter 7 of the federal bankruptcy laws in the Bankruptcy Court of the
Eastern District of Tennessee and a trustee was appointed. In December 2006,
the
trustee’s final report was approved by the United States trustee, and the
parties are awaiting receipt of the final decree from the court. Upon RoadOne,
Inc.’s liquidation from bankruptcy, we recognized a pre-tax, non-cash gain on
deconsolidation of RoadOne, Inc. in the amount of $126,000. In
addition, a tax benefit of $18,244,000 was recognized in 2006 related to
deductible losses from excess tax basis of advances to and investments in
certain discontinued operations.
The
operating results for the discontinued operations of the towing services segment
and the distributor group for the years ended December 31, 2006, 2005 and 2004
were as follows (in thousands):
|
2006
|
2005
|
2004
|
||||||||||||||||||||||||||
|
Dist.
|
Towing
|
Total
|
Dist.
|
Towing
|
Total
|
Dist.
|
Towing
|
Total
|
||||||||||||||||||||
|
Net
Sales
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
11,460
|
$
|
—
|
$
|
11,460
|
$
|
37,810
|
$
|
—
|
$
|
37,810
|
||||||||||
|
Operating
income (loss)
|
—
|
—
|
—
|
(134
|
)
|
16
|
(118
|
)
|
(659
|
)
|
(111
|
)
|
(770
|
)
|
||||||||||||||
|
Income
(loss) before taxes
|
—
|
126
|
126
|
(114
|
)
|
—
|
(114
|
)
|
(1,244
|
)
|
(127
|
)
|
(1,371
|
)
|
||||||||||||||
|
Net
income (loss) from discontinued operations
|
$
|
—
|
$
|
18,370
|
$
|
18,370
|
(114
|
)
|
—
|
(114
|
)
|
(1,276
|
)
|
(235
|
)
|
(1,511
|
)
|
|||||||||||
F-18
Upon
deconsolidation of RoadOne, Inc., the Company had no discontinued assets
or
liabilities on the balance sheet at December 31, 2006. The following assets
and
liabilities are classified as held for sale at December 31, 2005 (in
thousands):
|
2005
|
||||||||||
|
Dist.
|
Towing
|
Total
|
||||||||
|
Cash
and temporary investments
|
$
|
23
|
$
|
—
|
$
|
23
|
||||
|
Accounts
receivable, net
|
1,774
|
401
|
2,175
|
|||||||
|
Inventories
|
187
|
—
|
187
|
|||||||
|
Prepaid
expenses and other current assets
|
37
|
—
|
37
|
|||||||
|
Current
assets of discontinued operations held for sale
|
$
|
2,021
|
$
|
401
|
$
|
2,422
|
||||
|
Property,
plant and equipment
|
$
|
—
|
$
|
647
|
$
|
647
|
||||
|
Noncurrent
assets of discontinued operations held for sale
|
$
|
—
|
$
|
647
|
$
|
647
|
||||
|
Current
portion of long-term debt
|
$
|
—
|
$
|
—
|
$
|
—
|
||||
|
Other
current liabilities
|
273
|
5,971
|
6,244
|
|||||||
|
Current
liabilities of discontinued operations held for sale
|
$
|
273
|
$
|
5,971
|
$
|
6,244
|
||||
|
Long-term
debt
|
$
|
—
|
$
|
—
|
$
|
—
|
||||
|
Noncurrent
liabilities of discontinued operations held for sale
|
$
|
—
|
$
|
—
|
$
|
—
|
||||
|
12.
|
QUARTERLY
FINANCIAL INFORMATION
(UNAUDITED)
|
The
following is a summary of the unaudited quarterly financial information for
the
years ended December 31, 2006 and 2005 (in thousands, except per share
data):
|
Net
Sales
|
Operating
Income
|
Gain
(Loss) From Discontinued Operations
|
Net
Income(1)
|
Basic
Income Per Share
|
Diluted
Income Per Share
|
||||||||||||||
|
2006
|
|||||||||||||||||||
|
First
Quarter
|
$
|
93,436
|
$
|
7,561
|
$
|
—
|
$
|
5,883
|
$
|
0.52
|
$
|
0.51
|
|||||||
|
Second
Quarter
|
91,923
|
7,461
|
—
|
5,542
|
0.49
|
0.48
|
|||||||||||||
|
Third
Quarter
|
107,364
|
8,504
|
—
|
6,686
|
0.59
|
0.58
|
|||||||||||||
|
Fourth
Quarter
|
116,699
|
9,420
|
18,370
|
27,232
|
2.39
|
2.34
|
|||||||||||||
|
Total
|
$
|
409,421
|
$
|
32,945
|
$
|
18,370
|
$
|
45,343
|
$
|
3.99
|
$
|
3.91
|
|||||||
|
2005
|
|||||||||||||||||||
|
First
Quarter
|
$
|
76,896
|
$
|
3,476
|
$
|
(46
|
)
|
$
|
2,025
|
$
|
0.19
|
$
|
0.18
|
||||||
|
Second
Quarter
|
92,938
|
7,302
|
(34
|
)
|
5,165
|
0.46
|
0.45
|
||||||||||||
|
Third
Quarter
|
89,480
|
7,214
|
(30
|
)
|
5,422
|
0.49
|
0.47
|
||||||||||||
|
Fourth
Quarter
|
92,570
|
7,656
|
(4
|
)
|
5,974
|
0.52
|
0.52
|
||||||||||||
|
Total
|
$
|
351,884
|
$
|
25,648
|
$
|
(114
|
)
|
$
|
18,586
|
$
|
1.66
|
$
|
1.62
|
||||||
| (1) |
Net
income for the fourth quarter of 2006 was effected by the recognition
of a
deferred tax asset as described in Note
7.
|
F-19
MILLER
INDUSTRIES, INC. AND SUBSIDIARIES
|
Balance
at
Beginning
of
Period
|
Charged
to
Expenses
|
Accounts
Written
Off
|
Balance
at
End
of
Period
|
||||||||||
|
(In
Thousands)
|
|||||||||||||
|
Year
ended December 31, 2004:
|
|||||||||||||
|
Deduction
from asset accounts:
|
|||||||||||||
|
Allowance
for doubtful accounts
|
$
|
1,062
|
567
|
(513
|
)
|
$
|
1,116
|
||||||
|
Year
ended December 31, 2005
|
|||||||||||||
|
Deduction
from asset accounts:
|
|||||||||||||
|
Allowance
for doubtful accounts
|
$
|
1,116
|
827
|
(109
|
)
|
$
|
1,834
|
||||||
|
Year
ended December 31, 2006
|
|||||||||||||
|
Deduction
from asset accounts:
|
|||||||||||||
|
Allowance
for doubtful accounts
|
$
|
1,834
|
1,065
|
(411
|
)
|
$
|
2,488
|
||||||
|
Balance
at
Beginning
of
Period
|
Charged
to
Expense
|
Claims
|
Balance
at
End
of Period
|
||||||||||
|
(In
Thousands)
|
|||||||||||||
|
Year
ended December 31, 2004:
|
|||||||||||||
|
Product
Warranty Reserve:
|
$
|
639
|
1,520
|
(1,494
|
)
|
$
|
665
|
||||||
|
Year
ended December 31, 2005:
|
|||||||||||||
|
Product
Warranty Reserve:
|
$
|
665
|
1,744
|
(1,608
|
)
|
$
|
801
|
||||||
|
Year
ended December 31, 2006:
|
|||||||||||||
|
Product
Warranty Reserve:
|
$
|
801
|
1,716
|
(1,678
|
)
|
$
|
839
|
||||||
S-1
|
Balance
at
Beginning
of
Period
|
Additions
(Reductions)
|
Balance
at
End
of Period
|
||||||||
|
(In
Thousands)
|
||||||||||
|
Year
ended December 31, 2004:
|
||||||||||
|
Deferred
Tax Valuation Allowance:
|
$
|
13,299
|
2,889
|
$
|
16,188
|
|||||
|
Year
ended December 31, 2005:
|
||||||||||
|
Deferred
Tax Valuation Allowance:
|
$
|
16,188
|
(7,375
|
)
|
$
|
8,813
|
||||
|
Year
ended December 31, 2006:
|
||||||||||
|
Deferred
Tax Valuation Allowance:
|
$
|
8,813
|
(8,813
|
)
|
$
|
0
|
||||
| Note: |
The
Allowance for Doubtful Accounts and Product Warranty Reserve tables
above
reflect activity for continuing operations for the years ended December
31, 2006, 2005 and 2004. The Deferred Tax Valuation Allowance table
reflects consolidated operations for all periods
presented.
|
S-2
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of
1934, the Registrant has duly caused this Report to be signed on its behalf
by
the undersigned, thereunto duly authorized, on the 14th
day of
March, 2007.
| MILLER INDUSTRIES, INC. | ||
| |
|
|
| By: | /s/ Jeffrey I. Badgley | |
|
Jeffrey
I. Badgley
President,
Co-Chief Executive Officer and
Director
|
||
Know
all
men by these presents, that each person whose signature appears below
constitutes and appoints Jeffrey I. Badgley as attorney-in-fact, with power
of
substitution, for him in any and all capacities, to sign any amendments to
this
Report on Form 10-K, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact may do or
cause
to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has
been
signed below by the following persons on behalf of the Registrant in the
capacities indicated on the 14th day
of
March, 2007.
|
Signature
|
Title
|
|
|
/s/
William G. Miller
|
Chairman
of the Board of Directors and Co-Chief
|
|
|
William
G. Miller
|
Executive Officer | |
|
/s/
Jeffrey I. Badgley
|
President,
Co-Chief Executive Officer and Director
|
|
| Jeffrey I. Badgley | ||
|
/s/
J. Vincent Mish
|
Executive
Vice President, Treasurer and Chief Financial Officer
|
|
|
J.
Vincent Mish
|
(Principal
Financial and Accounting Officer)
|
|
|
/s/
A. Russell Chandler, III
|
Director
|
|
|
A.
Russell Chandler, III
|
||
|
/s/
Paul E. Drack
|
Director
|
|
|
Paul
E. Drack
|
||
|
/s/
Richard H. Roberts
|
Director
|
|
|
Richard
H. Roberts
|
EXHIBIT
INDEX
|
Exhibit
Number
|
Description
|
|
|
21
|
Subsidiaries
of the Registrant
|
|
|
23.1
|
Consent
of Joseph Decosimo and Company, PLLC
|
|
|
24
|
Power
of Attorney (see signature page)
|
|
|
31.1
|
Certification
Pursuant to Rules 13a-14(a)/15d-14(a) by Co-Chief Executive
Officer
|
|
|
31.2
|
Certification
Pursuant to Rules 13a-14(a)/15d-14(a) by Co-Chief Executive
Officer
|
|
|
31.3
|
Certification
Pursuant to Rules 13a-14(a)/15d-14(a) by Chief Financial
Officer
|
|
|
32.1
|
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of United States
Code
by Co-Chief Executive Officer
|
|
|
32.2
|
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of United States
Code
by Co-Chief Executive Officer
|
|
|
32.3
|
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of United States
Code
by Chief Financial Officer
|