SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2000
Commission File No. 0-24298
MILLER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1566286
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8503 HILLTOP DRIVE
OOLTEWAH, TN 37363
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 238-4171 x238
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.
YES /X/ NO / /
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, as of February 29, 2000 was 46,697,625.
<PAGE>
MILLER INDUSTRIES, INC.
INDEX
PART I. FINANCIAL INFORMATION Page Number
-----------
1. Financial Statements (Unaudited)
--------------------------------
Condensed Consolidated Balance Sheets -
January 31, 2000 and April 30, 1999 3
Condensed Consolidated Statements of Income
for the Three Months and Nine Months Ended
January 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended January 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations 10
-----------------------------------
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
-----------------
Item 6. Exhibits and Reports On Form 8-K 16
--------------------------------
SIGNATURES 17
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
2000 1999
----------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary investments $ 9,472 $ 9,331
Accounts receivable, net 83,522 81,109
Inventories 88,404 77,912
Deferred income taxes 4,386 4,244
Prepaid expenses and other 6,661 12,264
--------- ---------
Total current assets 192,445 184,860
PROPERTY, PLANT AND EQUIPMENT, NET 92,182 95,984
GOODWILL, NET 104,917 103,292
OTHER ASSETS, NET 7,099 8,344
--------- ---------
$ 396,643 $ 392,480
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,741 4,170
Accounts payable 37,284 42,783
Accrued liabilities and other 27,069 16,458
--------- ---------
Total current liabilities 67,094 63,411
--------- ---------
LONG-TERM DEBT, LESS CURRENT PORTION 131,212 133,850
--------- ---------
DEFERRED INCOME TAXES 8,316 7,916
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized; 0 0
none issued or outstanding
Common stock, $.01 par value, 100,000,000 shares
authorized; 46,697,625 and 46,679,783 shares issued
and outstanding at January 31, 2000 and April 30,
1999, respectively
467 467
Additional paid-in capital 146,464 144,607
Retained earnings 44,127 43,068
Accumulated other comprehensive income (loss) (1,037) (839)
--------- ---------
Total shareholders' equity 190,021 187,303
--------- ---------
$ 396,643 $ 392,480
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
------------------------ ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $146,165 $132,629 $429,239 $384,438
-------- -------- -------- --------
COSTS AND EXPENSES:
Costs of operations 121,967 109,480 354,149 312,490
Selling, general, and administrative expenses 19,318 18,706 58,226 53,556
Non-recurring charges -- -- 6,041 --
Interest expense, net 2,965 2,734 8,395 7,002
-------- -------- -------- --------
Total costs and expenses 144,250 130,920 426,811 373,048
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 1,915 1,709 2,428 11,390
INCOME TAX PROVISION 1,149 778 1,369 4,696
-------- -------- -------- --------
NET INCOME $ 766 $ 931 $ 1,059 $ 6,694
======== ======== ======== ========
NET INCOME PER COMMON SHARE:
BASIC $ 0.02 $ 0.02 $ 0.02 $ 0.14
======== ======== ======== ========
DILUTED $ 0.02 $ 0.02 $ 0.02 $ 0.14
======== ======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
BASIC 46,692 46,229 46,690 46,354
======== ======== ======== ========
DILUTED 46,915 47,075 47,054 47,317
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
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MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JANUARY 31,
-----------------------------
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,059 $ 6,694
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 12,921 10,701
Deferred income tax provision 75 170
Gain on sales of property, plant, and equipment (708) (715)
Changes in operating assets and liabilities:
Accounts receivable (2,425) (11,844)
Inventories (10,713) (12,597)
Prepaid expenses and other 2,272 248
Accrued liabilities and other 14,127 (1,930)
Accounts payable (5,688) 454
Other assets (455) (2,299)
-------- --------
Net cash provided by (used in) operating
activities 10,465 (11,118)
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (6,627) (12,200)
Proceeds from sales of property, plant, and equipment 2,820 2,313
Acquisition of businesses, net of cash acquired (2,121) (17,508)
Other 70 (136)
-------- --------
Net cash used in investing activities (5,858) (27,531)
-------- --------
FINANCING ACTIVITIES:
Net (repayment) borrowings under line of credit -- 51,000
Payments of long-term obligations (4,472) (6,191)
Proceeds from exercise of stock options 73 82
Repurchase of common stock -- (1,868)
-------- --------
Net cash (used in) provided by financing activities (4,399) 43,023
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND TEMPORARY
INVESTMENTS (67) 124
-------- --------
NET INCREASE IN CASH AND TEMPORARY
INVESTMENTS 141 4,498
CASH AND TEMPORARY INVESTMENTS, beginning of
period 9,331 7,367
-------- --------
CASH AND TEMPORARY INVESTMENTS, end of period $ 9,472 $ 11,865
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash payments for interest $ 8,356 $ 7,143
======== ========
Cash payments for income taxes $ 1,069 $ 4,787
======== ========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
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MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The condensed consolidated financial statements of Miller Industries,
Inc. and subsidiaries (the "Company") included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations.
Nevertheless, the Company believes that the disclosures are adequate to
make the financial information presented not misleading. In the opinion
of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments, which are of a normal
recurring nature, to present fairly the Company's financial position,
results of operations and cash flows at the dates and for the periods
presented. Interim results of operations are not necessarily indicative
of results to be expected for the fiscal year. These condensed
consolidated financial statements should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended April 30,
1999.
2. Net Income Per Share
Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted net
income per share is calculated by dividing net income by the weighted
average number of common and potential dilutive common shares
outstanding. Diluted net income per share takes into consideration the
assumed conversion of outstanding stock options resulting in .2 million
and .8 million potential dilutive common shares for the three months
ended January 31, 2000 and 1999, and .4 million and 1.0 million
potential dilutive common shares for the nine months ended January 31,
2000 and 1999, respectively. Per share amounts do not include the
assumed conversion of stock options with exercise prices greater than
the average share price because to do so would have been antidilutive
for the periods presented.
3. Inventories
Inventory costs include materials, labor and overhead. Inventories are
stated at the lower of cost or market, determined on a first-in,
first-out basis. Inventories at January 31, 2000 and April 30, 1999
consisted of the following (in thousands):
6
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January 31, April 30,
2000 1999
---------- ---------
Chassis $18,167 $18,340
Raw Materials 18,822 16,348
Work in process 14,380 12,180
Finished goods 37,035 31,044
------- -------
$88,404 $77,912
======= =======
4. Business Combinations
During the nine months ended January 31, 2000, the Company purchased
three towing service companies for an aggregate purchase price of $2.8
million, which consisted of $2.0 million in cash and $0.8 million in
promissory notes. These acquisitions were accounted for using the
purchase method of accounting. The accompanying consolidated financial
statements reflect the preliminary allocation of purchase price as the
purchase price has not been finalized for all transactions. The excess
of the aggregate purchase price over the estimated fair value of
identifiable net assets acquired was approximately $1.7 million.
5. Legal Matters
In February 2000, the Company reached an agreement with the Antitrust
Division of the Department of Justice (the Division) in the previously
announced investigation of competition in the tow truck industry
undertaken by the Division's Civil Task Force. As a result of the
agreement, the Company entered into a Stipulation and proposed consent
Judgment with the Division, which were filed with the Court
simultaneously with the Division's complaint. The complaint focused on
the Company's acquisition of Vulcan in 1996 and Chevron in 1997,
including the acquisition of their patents. The Company remains
convinced that the acquisitions are entirely lawful and that this
position would be vindicated in a court of law. However, the Company
believes it is in the best interest of its shareholders to conclude
this matter rather than extending for an additional lengthy period what
has already been a very costly and time consuming exercise. Under the
terms of the proposed consent Judgment, the Company will offer
non-exclusive royalty-bearing licenses to certain of the Company's key
patents to all tow truck and car carrier manufacturers. In connection
with offering licenses, the Company will notify the government
periodically of companies that have obtained a license. The Company
will also have reporting requirements related to future acquisitions of
tow truck and car carrier manufacturers. The proposed Judgment was
placed on public record for comment and then is subject to Court
approval. It is expected that such approval and entry of the Judgment
as proposed will occur within the next several months.
During September, October and November 1997, five lawsuits were filed
by certain persons who seek to represent a class of shareholders who
purchased shares of the Company's common stock during the period from
either October 15 or November 6, 1996 to September 11, 1997. Four of
7
<PAGE>
the suits were filed in the United States District Court for the
Northern District of Georgia. The remaining suit was filed in the
Chancery Court of Hamilton County, Tennessee. In general, the
individual plaintiffs in all of the cases allege that they were induced
to purchase the Company's common stock on the basis of allegedly
actionable misrepresentations or omissions about the Company and its
business and, as a result, were thereby damaged. Four of the complaints
assert claims under Sections 10(b) and 20 of the Securities Act of
1934. The complaints name as the defendants the Company and various of
its present and former directors and officers. The plaintiffs in the
four actions which involved claims in Federal Court under the
Securities Exchange Act of 1934 have consolidated those actions. The
Company filed a motion to dismiss in the consolidated case which was
granted in part and denied in part. The proposed class was certified by
order dated May 27, 1999. The Company filed a motion to dismiss in the
Tennessee case which was granted in its entirety. The plaintiffs in
that case, with permission from the Court, amended and refiled their
complaint, which was dismissed with prejudice by order of the Court
dated March 11, 1999. On April 5, 1999 counsel for plaintiffs filed a
notice of appeal and that appeal, which has been briefed and argued,
currently remains pending. In both these actions, the Company has
denied liability and continues to vigorously defend itself.
In addition to the shareholder litigation described above, the Company
is, from time to time, a party to litigation arising in the normal
course of its business. The ultimate disposition of such matters cannot
be determined presently, but will not, in the opinion of management,
based in part on the advice of legal counsel, have a material adverse
effect on the financial position or results of operations of the
Company.
6. Stock Repurchase Plan
The Company's board of directors approved a share repurchase plan that
commenced during fiscal 1998 under which the Company may repurchase up
to 2,000,000 shares of common stock from time to time through
September 30, 2000. No shares have been repurchased under the plan
during fiscal 2000. All shares purchased under the plan during fiscal
1999 (500,000 shares at a cost of $2.3 million) were reissued as
consideration for towing services companies acquired prior to January
31, 2000.
7. Comprehensive Income
The Company has other comprehensive income and expenses in the form of
cumulative translation adjustments which resulted in total
comprehensive income of approximately $0.5 million and $1.0 million for
the three months ended January 31, 2000 and 1999, respectively; and
$0.9 million and $6.9 million for the nine months ended January 31,
2000 and 1999, respectively.
8
<PAGE>
8. Segment Information
The Company operates in two principal operating segments: (i) towing
and recovery equipment and (ii) towing services. The table below
presents information about reported segments (in thousands):
<TABLE>
<CAPTION>
Towing and
Recovery Towing
Equipment Services Eliminations Consolidated
--------- -------- ------------ ------------
<S> <C> <C> <C> <C>
For the three months ended
January 31, 2000
Net sales-external $ 93,730 $ 52,435 $ -- $146,165
Net sales-intersegment -- -- -- --
Operating income (loss) 6,730 (1,850) -- 4,880
Interest expense, net 1,375 1,590 -- 2,965
Income (loss) before income taxes 5,355 (3,440) -- 1,915
For the three months ended
January 31, 1999
Net sales-external $ 85,147 $ 47,482 $ -- $132,629
Net sales-intersegment 833 -- (833) --
Operating income (loss) 4,475 13 (45) 4,443
Interest expense, net 1,303 1,431 -- 2,734
Income (loss) before income taxes 3,127 (1,418) -- 1,709
For the nine months ended
January 31, 2000
Net sales-external $ 272,943 $ 156,296 $ -- $429,239
Net sales-intersegment -- -- -- --
Operating income (loss) 17,233 (6,410) -- 10,823
Interest expense, net 3,832 4,563 -- 8,395
Income (loss) before income taxes 13,402 (10,974) -- 2,428
For the nine months ended
January 31, 1999
Net sales-external $ 249,941 $ 134,497 $ -- $384,438
Net sales-intersegment 4,103 -- (4,103) --
Operating income 14,710 3,844 (162) 18,392
Interest expense, net 3,117 3,885 -- 7,002
Income (loss) before income taxes 11,431 (41) -- 11,390
</TABLE>
9
<PAGE>
9. Non-Recurring Charges
During the second quarter of fiscal 2000 the Company announced its plan
to further rationalize its towing services operations. The Company
recorded non-recurring charges in the amount of $6.0 million for costs
related to this rationalization. These charges include the cost of
early termination of certain employment contracts and facility leases,
the loss on the disposal of certain excess equipment, and a casualty
loss relating to one of the operations. At January 31, 2000
approximately $0.7 million had been charged against the related
reserves.
10. Reclassifications
Certain amounts in the prior period financial information have been
reclassified to conform to the current presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
RECENT DEVELOPMENTS
As more fully discussed in Note 4 to condensed consolidated financial
statements, during the nine months ended January 31, 2000, the Company
acquired a total of three towing service companies.
RESULTS OF OPERATIONS--THREE MONTHS ENDED JANUARY 31, 2000 COMPARED TO
THREE MONTHS ENDED JANUARY 31, 1999
Net sales for the three months ended January 31, 2000, increased 10.2%
to $146.2 million from $132.6 million for the comparable period in
1999. Net sales in the towing and recovery equipment segment increased
10.1% from $85.1 million to $93.7 million due primarily to higher unit
sales of chassis and wreckers. Sales of new products, including
multi-car trailers, also contributed to the increase in sales for this
segment. Net sales of the towing services segment increased 10.4% to
$52.4 million from $47.5 million due primarily to the revenue
contribution of towing services companies acquired subsequent to the
third quarter of fiscal 1999 and growth of its program that provides
towing services to customers operating fleets nationwide.
Costs of operations for the three months ended January 31, 2000,
increased 11.4% to $122.0 million from $109.5 million for the
comparable period in 1999. Costs of operations of the towing and
recovery equipment segment decreased as a percentage of net sales from
85.9% to 84.5% primarily due to improved productivity and efficiency
enhancements at its manufacturing facilities. The towing services
segment's costs of operations increased from 76.5% to 81.5% as a
percentage of net sales. Increases are due to increased labor costs of
the towing services operations along with the associated benefits
costs, and increased fuel and other vehicle costs.
10
<PAGE>
Selling, general and administrative expenses for the three months ended
January 31, 2000, increased 3.3% to $19.3 million from $18.7 million
for the comparable period in 1999. In the towing and recovery equipment
segment, selling, general and administrative expenses decreased
slightly as a percentage of sales from 8.9% to 8.3%. As a percentage of
sales, selling, general and administrative expenses for the towing
services segment decreased to 22.0% from 23.4% primarily due to the
increased revenue base and continued cost reduction efforts.
Net interest expense increased $0.3 million to $3.0 million for three
months ended January 31, 2000 from $2.7 million for the comparable
period in 1999 primarily due to higher interest rates on the Company's
line of credit.
Income taxes are accounted for on a consolidated basis and are not
allocated by segment. The effective rate for the provision for income
taxes was 60.0% for the three months ended January 31, 2000 and 45.5%
for the three months ended January 31, 2000. The difference between the
effective tax rate and the statutory tax rate is primarily due to the
impact of non-deductible goodwill amortization and state income taxes.
RESULTS OF OPERATIONS--NINE MONTHS ENDED JANUARY 31, 2000 COMPARED TO
NINE MONTHS ENDED JANUARY 31, 1999
Net sales for the nine months ended January 31, 2000 increased 11.7% to
$429.2 million from $384.4 million for the comparable period in 1999.
Net sales in the towing and recovery equipment segment increased 9.2%
from $249.9 million to $272.9 million due primarily to higher unit
sales of chassis and wreckers. Sales of new products, slide axle
trailers and multi-car trailers, also contributed to the increase in
sales for this segment. Net sales of the towing services segment
increased 16.2% to $156.3 million from $134.5 million due primarily to
the revenue contribution of towing services companies acquired
subsequent to the third quarter of fiscal 1999 and growth of its
program that provides towing services to customers operating fleets
nationwide.
Costs of operations increased 13.3% to $354.1 million for the nine
months ended January 31, 2000 from $312.5 million for the comparable
period in 1999. Costs of operations of the towing and recovery
equipment segment decreased slightly as a percentage of net sales from
85.3% to 84.7%. The towing services segment's costs of operations
increased from 73.9% to 78.6% as a percentage of net sales. Increases
are due to increased labor costs of the towing services operations
along with the associated benefits costs, and increased fuel and other
vehicle costs.
Selling, general and administrative expenses increased 8.7% to $58.2
million for the nine months ended January 31, 2000 from $53.6 million
for the comparable period of 1999. In the towing and recovery equipment
segment, selling, general and administrative expenses increased
slightly as a percentage of sales from 8.9% to 9.0%. As a percentage of
sales, selling, general and administrative expenses for the towing
11
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services segment decreased to 21.6% from 23.3% primarily due to the
increased revenue base and continued cost reduction efforts.
During the second quarter of fiscal 2000, the Company recorded
non-recurring charges of $6.0 million for the further rationalization
of its towing services operations. See Note 9 to the condensed
consolidated financial statements for further discussion.
Net interest expense increased $1.4 million to $8.4 million for the
nine months ended January 31, 2000 from $7.0 million for the nine
months ended January 31, 1999 primarily due to higher interest rates on
the Company's line of credit.
Income taxes are accounted for on a consolidated basis and are not
allocated by segment. The effective rate for the provision for income
taxes was 56.3% for the nine months ended January 31, 2000 and 41.2%
for the nine months ended January 31, 1999. The difference between the
effective tax rate and the statutory tax rate is primarily due to the
impact of non-deductible goodwill amortization and state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for working capital,
debt service and capital expenditures. The Company has financed its
operations and growth from internally generated funds and debt
financing and, since August 1994, in part from the proceeds from its
initial public offering and its subsequent public offerings completed
in January 1996 and November 1996.
Cash flows provided by operating activities were $10.5 million for the
nine months ended January 31, 2000 as compared to $11.1 million used in
operations for the comparable period of 1999. The increase in cash
flows from operating activities was due primarily to improved working
capital balances.
Cash used in investing activities was $5.9 million for the nine months
ended January 31, 2000 compared to $27.5 million for the comparable
period in 1999. The cash used in investing activities was primarily for
capital expenditures for equipment, building expansion and acquisitions
of businesses.
Cash used in financing activities was $4.4 million for the nine months
ended January 31, 2000 as compared to $43.0 million provided by
financing activities for the comparable period in the prior year. The
cash was used primarily to reduce outstanding long-term debt and
capital lease obligations.
The Company has a revolving credit facility of $175 million ( the
"Credit Facility") for working capital and other general corporate
purposes. Borrowings under the Credit Facility bear interest at a rate
equal to the London Interbank Offered Rate plus a margin of 2.50% or
the prime rate plus 1.25%, as elected by the Company. The Credit
Facility is collateralized by substantially all of the assets and
properties of the Company and its domestic subsidiaries. At January 31,
12
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2000, $125 million was outstanding under the Credit Facility. The
Credit Facility imposes restrictions on the Company with respect to the
maintenance of certain financial ratios, the incurrence of
indebtedness, the sale of assets, capital expenditures and mergers and
acquisitions. On May 1, 1998, the Company entered into an interest rate
swap agreement covering the notional amount of $50 million of variable
rate debt to fix the interest rate at 5.68% plus the applicable margin.
The agreement expires at the end of three years unless cancelled by the
bank at the end of two years.
As described in Note 4 to condensed consolidated financial statements,
the Company has expended approximately $2.8 million for the purchase of
towing services companies during the nine months ended January 31,
2000. Capital expenditures remaining for the dispatch system for the
towing services segment are expected to be approximately $1.5 million.
Excluding the capital commitments set forth above, the Company has no
other material capital commitments. The Company believes that cash on
hand, cash flows from operations and unused borrowing capacity under
the Credit Facility will be sufficient to fund its operating needs,
capital expenditures and debt service requirements for the next fiscal
year. Management continually evaluates potential strategic
acquisitions. Although the Company believes that its financial
resources will enable it to consider potential acquisitions, additional
debt or equity financing may be necessary. No assurance in this regard
can be given, however, since future cash flows and the availability of
financing will depend on a number of factors, including prevailing
economic conditions and financial, business and other factors beyond
the Company's control.
STRATEGIC AND FINANCIAL ALTERNATIVES STUDY
The Company announced in May 1999 that its Board of Directors had
concluded its study of potential strategic and financial alternatives
for the Company and had ratified its Special Committee's recommendation
to investigate and pursue the possibility of separating the Company's
RoadOne towing services segment from its towing and recovery equipment
segment through a tax-free spinoff which would result in the formation
of two public companies. The Company engaged J.C. Bradford & Co. as its
financial advisor with respect to these matters.
Completing any such separation of the two businesses through a tax-free
spinoff transaction would entail the satisfaction of numerous
significant conditions which at this time are uncertain. These
conditions include, but are not limited to, a satisfactory IRS private
letter ruling, an SEC no-action letter, satisfactory banking
arrangements, the approval of the Company's shareholders and a final
decision to proceed by the Board of Directors. The Company can give no
assurance that any such transaction will occur. The final decision to
proceed with any such transaction and its timing will depend upon,
among other things, improvements in the operating results of the towing
services segment.
13
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RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities," effective for
fiscal years beginning after June 15, 1999. In June 1999, the FASB
issued SFAS No. 137, which delayed the effective date of SFAS No. 133
until June 15, 2000. SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair
value. SFAS No. 133 requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
The Company has not yet quantified the impact of adopting SFAS No. 133
on its financial statements and has not determined the timing of or
method of adoption of SFAS No. 133. However, SFAS No. 133 could
increase volatility in earnings and other comprehensive income.
YEAR 2000
The Company successfully completed its Year 2000 remediation program
during calendar 1999. No significant malfunctions or errors were
experienced as a result of the date change from 1999 to 2000. Since
January 1, 2000, the Company's information technology (IT) systems and
non-IT systems with date sensitive embedded chips have operated without
significant Year 2000 problems. Additionally, the Company is not aware
of any major Year 2000 failures by key third parties or business
partners. Management does not believe that any future failures, should
they occur, would have a material adverse effect on the financial
position, results of operations and liquidity of the Company.
The Company implemented and upgraded Year 2000 compliant applications
programs for certain manufacturing facilities prior to December 31,
1999. Additionally, the towing services segment completed its
implementation of financial systems on a Year 2000 compliant ERP system
in Fiscal 1999. These implementations were not accelerated due to Year
2000 issues, and therefore, their costs are not included in the
discussion below.
Total remediation costs incurred were approximately $0.3 million. These
costs included approximately $0.1 million for modification and
replacement of certain date sensitive operating equipment in the towing
and recovery equipment segment, and approximately $0.2 million in
hardware and software upgrades to its operating systems to ensure Year
2000 compliance in its towing services segment. The total costs were
expensed as incurred except for hardware or software replacement costs
that were capitalized. All Year 2000 expenses were paid out of the
Company's annual budget for information services.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February 2000, the Company reached an agreement with the Antitrust
Division of the Department of Justice (the Division) in the previously
announced investigation of competition in the tow truck industry
undertaken by the Division's Civil Task Force. As a result of the
agreement, the Company entered into a Stipulation and proposed consent
Judgment with the Division, which were filed with the Court
simultaneously with the Division's complaint. The complaint focused on
the Company's acquisition of Vulcan in 1996 and Chevron in 1997,
including the acquisition of their patents. The Company remains
convinced that the acquisitions were entirely lawful and that this
position would be vindicated in court of law. However, the Company
believes it is in the best interest of its shareholders to conclude
this matter rather than extending for an additional lengthy period what
has already been a very costly and time consuming exercise. Under the
terms of the proposed consent Judgment, the Company will offer
non-exclusive royalty-bearing licenses to certain of the Company's key
patents to all tow truck and car carrier manufacturers. In connection
with offering licenses, the Company will notify the government
periodically of companies that have obtained a license. The Company
will also have reporting requirements related to future acquisitions of
tow truck and car carrier manufacturers. The proposed Judgment was
placed on public record for comment and then is subject to Court
approval. It is expected that such approval and entry of the Judgment
as proposed will occur within the next several months.
During September, October and November 1997, five lawsuits were filed
by certain persons who seek to represent a class of shareholders who
purchased shares of the Company's common stock during the period from
either October 15 or November 6, 1996 to September 11, 1997. Four of
the suits were filed in the United States District Court for the
Northern District of Georgia. The remaining suit was filed in the
Chancery Court of Hamilton County, Tennessee. In general, the
individual plaintiffs in all of the cases allege that they were induced
to purchase the Company's common stock on the basis of allegedly
actionable misrepresentations or omissions about the Company and its
business and, as a result, were thereby damaged. Four of the complaints
assert claims under Sections 10(b) and 20 of the Securities Act of
1934. The complaints name as the defendants the Company and various of
its present and former directors and officers. The plaintiffs in the
four actions which involved claims in Federal Court under the
Securities Exchange Act of 1934 have consolidated those actions. The
Company filed a motion to dismiss in the consolidated case which was
granted in part and denied in part. The proposed class was certified by
order dated May 27, 1999. The Company filed a motion to dismiss in the
15
<PAGE>
Tennessee case which was granted in its entirety. The plaintiffs in
that case, with permission from the Court, amended and refiled their
complaint, which was dismissed with prejudice by order of the Court
dated March 11, 1999. On April 5, 1999, counsel for plaintiffs filed a
notice of appeal and that appeal, which has been briefed and argued,
currently remains pending. In both these actions, the Company has
denied liability and continues to vigorously defend itself.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 27 - Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by
the Company during the third quarter of the fiscal year.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Miller Industries, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MILLER INDUSTRIES, INC.
By: /s/ J. Vincent Mish
J. Vincent Mish
Vice President and
Chief Financial Officer
Date: March 16, 2000
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