TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
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ITEM 5. |
MARKET FOR THE REGISTRANT’S COMMON EQUITY
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ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
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ITEM 7A. |
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ITEM 8. |
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ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH
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ITEM 10. |
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ITEM 11. |
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ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS |
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ITEM 15. |
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS |
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FINANCIAL STATEMENTS |
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FINANCIAL STATEMENT SCHEDULE |
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ITEM 1. |
BUSINESS |
GENERAL
Miller Industries, Inc. is the world’s largest manufacturer of vehicle towing and recovery equipment, with executive offices in Ooltewah, Tennessee and Atlanta, Georgia and manufacturing operations in Tennessee, Pennsylvania, France and England.
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 market share in the industry through a combination of internal growth and development and acquisitions of complementary businesses.
In February 1997, we formed our towing services division, RoadOne, to offer a broad range of towing and transportation services. We subsequently disposed of all towing services operations. In addition, we have made the decision to sell our distribution group. As a result of these decisions, both the towing services segment and the distribution group have been classified as discontinued operations.
As of December 31, 2003, we had sold or closed all of our RoadOne terminals and one distributor location. We have sold three distributors since December 31, 2003 and five distributors remain to be sold.
INCLUSION OF 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. Such forward-looking statements are made based on our management’s belief as well as assumptions made by, and information currently available to, our management pursuant to “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from the results anticipated in these forward-looking statements due to, among other things, factors set forth below under the heading “Risk Factors,” and in particular, the risks associated with the wind down of the towing services segment and the risks associated with the terms of our substantial indebtedness. 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.
RISK FACTORS
We have a high level of indebtedness and certain requirements that we must comply with under our credit facilities that may affect the growth and profitability of our business.
As of January 31, 2004 our debt included approximately $30.9 million under our senior credit facility and $12.9 million under our junior credit facility. This amount includes approximately $3.2 million under our junior credit facility that was later converted into common stock upon the completion of the exchange described under the heading “Related Party Transactions”.
As a consequence of our level of indebtedness, a substantial portion of our cash flow from operations as well as from sales of our distributorships must be dedicated to debt service requirements. The terms of our outstanding indebtedness 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 comply with certain other reporting, affirmative and negative covenants. We have experienced difficulties meeting these financial tests in the past and may continue to do so in the future. In addition,
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our substantial indebtedness may make us more vulnerable to general adverse economic and industry conditions. Our credit facilities are collateralized by liens on all of our assets. The liens give the lenders the right to foreclose on our assets under certain defined events of default and such foreclosure could allow the lenders to gain control of our operations.
Our former independent auditors included a “going concern” explanatory paragraph in their report on our financial statements for the year ended December 31, 2002 as a result of our condition of being in default of certain covenants under our junior and senior credit facilities and as a result of our junior credit facility maturing in 2003. Our junior credit facility has since been restructured and we have entered into an amendment with the junior lenders whereby the debt under the junior credit facility will not be due until July 31, 2005.
If we were to fail to comply with the requirements under the credit facilities, such non-compliance would result in an event of default, which if not waived by the lending groups would result in the acceleration of the amounts due under the respective credit facility as well as other remedies. Under these circumstances, we could be required to find alternative funding sources, or to sell assets. There is no assurance that we would be able to obtain any such refinancing or that we would be able to sell assets on terms that are acceptable to us or at all. If we were to be unsuccessful in our efforts to refinance the credit facility, we might be required to seek bankruptcy court or other protection from our creditors. For more information regarding the impact of our substantial indebtedness on our liquidity, see “Management’s Discussion and Analysis of Financial Conditions and Results of Operations – Liquidity and Capital Resources,” and Notes 2 and 8 to our Consolidated Financial Statements for the year ended December 31, 2003.
The wind down of our towing services division may divert the attention of our management from our core manufacturing business and we still have retained certain liabilities related to the towing services division.
We sold all of our towing services businesses in a relatively short period of time during fiscal 2003. The net cash proceeds from these sales exceeded the RoadOne revolving commitment under the senior credit facility associated with the sold operations, as well as other associated liabilities. Almost all of these businesses will continue to operate under new ownership and in general their customary operating liabilities will be assumed by the new owners. We nevertheless will be subject to some continuing liabilities with respect to the pre-sale operations of these businesses, including, for example, liabilities related to litigation, certain trade payables, parent guarantees, workers compensation and other insurance, surety bonds, and real estate. It is possible that the sale proceeds and the remaining assets of the towing services segment will not be sufficient to satisfy such liabilities. We may also be subject to inefficiencies, management distractions, additional expenses and uncertainties resulting from the rapid wind down of the infrastructure that was developed to provide administrative support to over 100 towing service locations. Although we believe that we can manage the wind down effectively, there can be no assurance that such will be the case. Even if we are able to manage the wind down effectively, it may nevertheless have an adverse impact on our operating results.
In addition, we have experienced difficulty in maintaining our insurance and surety bond coverage primarily as a result of disruption in these markets resulting from the events of September 11, 2001, general economic conditions and our operating results.
We have experienced certain difficulties and unexpected expenses, and may continue to do so, related to entering into new lines of business.
Historically, our expertise has been in the manufacture of towing and recovery equipment and we had no prior operating experience in other lines of business prior to 1997. Commencing during fiscal 1997, we entered three new lines of business through the acquisition of towing and recovery equipment distributors and towing services companies, and the establishment of our Financial Services Group. Our operation of these businesses has been subject to all of the risks inherent in the establishment of a new business enterprise. Such acquisitions presented the additional risk that newly-acquired businesses could be viewed as being in competition with our other customers. Although the new businesses are closely related to our towing and recovery equipment manufacturing business, we experienced difficulties and unexpected
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expenses establishing and operating these new businesses, and may continue to experience such difficulties and expenses as we wind down the towing services segment and the distribution group.
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, insurance costs, and economic conditions in general. Accordingly, a downturn in the economy could have a material adverse effect on our operations, as has been the case during the current general economic downturn. The industry is also 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 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, therefore, are subject to price increases and delays in receiving supplies of such materials and component parts. There can be no assurance that we will be able to pass any price increase on to our customers. Although we believe that sources of our materials and component parts will continue to be adequate to meet our requirements and that alternative sources are available, events beyond our control could have an adverse effect on the cost or availability of such materials and component parts. Additionally, demand for our products could be negatively affected by the unavailability of truck chassis, which are manufactured by third parties and are typically purchased separately by our distributors or by towing operators and are sometimes supplied by us.
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. We may also face significant competition from large competitors as we enter other new lines of business, including financial services.
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 expire in 2004 at which time 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.
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 production of our wreckers and car carriers requires an adequate supply of skilled labor. In addition, the operating costs of each manufacturing facility 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. The United Auto Workers Union filed a representation petition with the National Labor Relations Board for the employees at our Ooltewah, Tennessee
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manufacturing plant. A vote was held on such union representation on April 11, 2002. The employees of the Ooltewah manufacturing plant voted against joining the United Auto Workers Union. There can be no assurance that the employees at the Ooltewah manufacturing plant or other of our employees may not choose to become unionized in the future.
If our common stock was delisted from the New York Stock Exchange the market for our common stock may be substantially less active and it may impair the ability of our shareholders to buy and sell our common stock.
To remain listed on the New York Stock Exchange, the average closing price of our stock must not drop below $1.00 per share for 30 days or more. Our common stock price was below $1.00 per share for an extended period during 2001 and the common stock was in danger of being delisted. A one-for-five reverse stock split was effected on October 1, 2001, and the price of the common stock has not been below $2.10 since that time. We received notification from the New York Stock Exchange on June 26, 2003 that, based on market information and information in our recent public filings, we were not in compliance with the New York Stock Exchange’s continued listing standards. The New York Stock Exchange requires shareholders’ equity of not less than $50.0 million and a 30-day average market capitalization of $50.0 million. Our shareholders’ equity was $28.0 million as of December 31, 2003. As of March 1, 2004, we had a 30-day average market capitalization of $96.6 million.
We have compiled a three-pronged plan for regaining compliance with the continued listing standards. Our plan is to restructure our bank facilities and rationalize the timing of our debt service, dispose of our remaining RoadOne and distributor operations within the time period specified and focus all of our resources, manpower as well as financial, on returning the manufacturing operations to their historically profitable levels. In September 2003, we were notified that the New York Stock Exchange accepted our plan to regain compliance with the New York Stock Exchange continued listing standards related to shareholders’ equity and market capitalization within an eighteen month timeframe. With the approval by shareholders of the conversion of a portion of our subordinated debt into our common stock, we have completed the restructuring of our facilities. We have also disposed of the remainder of our RoadOne operations and are in the process of disposing of our distributors. During this timeframe, we will be subject to quarterly monitoring for compliance by the New York Stock Exchange.
If our common stock were to be delisted from the New York Stock Exchange, it is likely that the trading market for our common stock would be substantially less active, and the ability of shareholders to buy and sell shares of our common stock would be materially impaired. In addition, the delisting of our stock could adversely affect our ability to enter into future equity financing transactions. In the event that our stock is delisted from the New York Stock Exchange, we would pursue listing on an alternative national securities exchange or association.
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 insurance at commercially reasonable rates could have a material adverse effect upon our business.
We are subject to various claims, including automobile and 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 insurance at commercially reasonable rates could have a material adverse effect upon our business, operating results and financial condition.
A continued increase in insurance and fuel costs will have a material effect upon our business.
As a result of the events of September 11, 2001 and other general economic factors, we have experienced a substantial increase in our insurance costs and have experienced fluctuations in fuel and other transportation costs. Our
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customers have also experienced reduced availability of credit for purchasing equipment. There can be no assurance that these costs will not continue to increase for us. Such increases have had, and may continue to have, a material effect upon our business and operating results.
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 sock. Our quarterly operating results, changes in earnings estimated by analysts, 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 20% of the outstanding shares of 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 respecting 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.
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. 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 70-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 are sold primarily through independent distributors that serve all 50 states, Canada and Mexico, and other foreign markets including Europe, the Pacific Rim and the Middle East. 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, the distributors provide parts and service. We also have independent sales representatives that exclusively market our products and provide expertise and sales assistance to distributors. Management believes the strength of our distribution network and the breadth of our product offerings are two key advantages over our competitors.
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Product Line
We manufacture a broad line of wrecker, car carrier and trailer bodies to meet a full range of customer design, capacity and cost requirements. The products are marketed under the Century, Vulcan, Challenger, Holmes, Champion, Chevron, Eagle, Titan, Jige, and Boniface brand names.
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 70-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 patented “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 70 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 vehicles.
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.
Multi-Vehicle Transport Trailers. Multi-vehicle transport trailers are specialized auto transport trailers with upper and lower decks and hydraulic ramps for loading vehicles. The trailers are used for moving multiple vehicles for auto auctions, car dealerships, leasing companies, and other similar applications. The 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 the 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.
Brand Names
We manufacture and market our wreckers, car carriers and trailers under ten separate brand names. Although certain of the 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 the 8-ton light duty to the 70-ton heavy duty models and car carriers in lengths from 17½ to 26 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 operated autonomously with 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 26 feet. The Challenger line was started in 1975 and is known for high performance heavy duty wreckers and aesthetic design.
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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. The Holmes name has been the most well-recognized and leading industry brand both domestically and internationally through most of this century.
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 that focuses on the salvage industry.
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, which was patented in 1984, 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.
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.
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.
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.
Manufacturing Process
We manufacture wreckers, car carriers and trailers at six manufacturing facilities located in the United States, France and England. 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
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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.
Towing and Recovery Equipment Sales and Distribution
Company-owned Distributors
During 2002, our board of directors and management made the decision to sell our distributors. Our distribution group as of December 31, 2003 owned eight towing and recovery equipment distributors located in California, Colorado, Florida, Illinois, Indiana and British Columbia and Ontario, Canada and had sold one distributor. We intend to sell all of our distributors as quickly as possible. 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.
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 is dominated by 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 distribution network, consists of sales representatives whose responsibilities include providing administrative and sales support to the entire distributor base. 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.
We have developed a diverse customer base consisting of approximately 175 distributors in North America, who serve all 50 states, Canada and Mexico, and approximately 50 distributors that serve other foreign markets. During the year ended December 31, 2003, no single distributor accounted for more than 5% of our sales. Management believes our broad and diverse customer base 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 distributors. To increase exposure to our products, we also have served as the official recovery team for many automobile racing events, including the Daytona, Talladega, Atlanta and Darlington NASCAR races, the Grand Prix in Miami, the Suzuka in Japan, the IMSA ‘‘24 Hours at Daytona,’’ Molson Indy, 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 have reduced our participation in regional trade shows and now concentrate our efforts on five of the major trade shows each year. We work with our distributor network to concentrate on various regional shows.
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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 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 the towing and recovery equipment industry is a function of 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.
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. Accordingly, management believes that our ownership of patents on certain of the industry’s leading technologies has given us a competitive advantage. 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.
Employees
As of December 31, 2003, we employed approximately 950 people in our towing and recovery equipment manufacturing and distribution operations. None of our employees are covered by a collective bargaining agreement, though our employees in France and England have certain similar rights provided by their respective government’s employment regulations. We consider our employee relations to be good.
TOWING SERVICES – ROADONE
In February 1997, we formed our towing services division, RoadOne, to build a national towing services network. During April 2000, we announced plans to accelerate our efforts to aggressively reduce expenses in the towing services segment at the corporate level, as well as in the field. During the quarter ended June 30, 2002, our management and board of directors approved a plan to dispose of certain identified assets, which primarily consisted of underperforming markets of the towing services segment. In October 2002, we made the decision to sell all remaining towing services operations. As of December 31, 2003 all of the towing services markets had either been sold or closed.
In accordance with SFAS No. 144, we began reporting the entire towing services segment as discontinued operations as of the beginning of the fourth quarter of 2002. Accordingly, the depreciation of fixed assets ceased on
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October 1, 2002. As of such date, all assets, liabilities, and results of operations are separately presented as discontinued operations and all prior period financial information is presented to conform with this treatment.
Employees
As of December 31, 2003, the few RoadOne employees that remained had been transferred to our towing and recovery equipment operations.
PATENTS AND TRADEMARKS
The development of the underlift parallel linkage and L-arms in 1982 is considered one of the most innovative developments in the wrecker industry in the last 25 years. This technology is significant primarily because it allows the damage-free towing of newer aerodynamic vehicles made of lighter weight materials. Patents for this technology were granted to an operating subsidiary in 1987 and 1989. These patents expire in mid-year 2004. This technology, particularly the L-arms, is used in a majority of the commercial wreckers today. Management believes that utilization of such devices without a license is an infringement of our patents. We have successfully litigated infringement lawsuits in which the validity of our patents on this technology was upheld, and successfully settled other lawsuits. We also hold a number of other utility and design patents covering other products, 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. 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,’’ ‘‘RoadOne,’’ “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.
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.
The Financial Services Group is subject to regulation under various federal, state and local laws which limit the interest rates, fees and other charges that may be charged by it or prescribe certain other terms of the financing documents that it enters into with its customers. Management believes that the additional administrative costs of complying with these regulations will not materially affect our operations.
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ITEM 2. |
PROPERTIES |
We operate four manufacturing facilities in the United States. The facilities are located in (1) Ooltewah, Tennessee, (2) Hermitage, Pennsylvania, (3) Mercer, Pennsylvania, and (4) Greeneville, Tennessee. The Ooltewah plant, containing approximately 242,000 square feet, produces light and heavy duty wreckers; the Hermitage plant, containing approximately 95,000 square feet, produces car carriers; the Mercer plant, which was acquired in December 1997, containing approximately 110,000 square feet, produces car carriers and light duty wreckers; and the Greeneville plant, containing approximately 112,000 square feet, primarily produces car carriers and trailers.
We operate two foreign manufacturing facilities located in the Lorraine region of France, which contain, in the aggregate, approximately 180,000 square feet, and one in Norfolk, England, which contains approximately 30,000 square feet.
We believe that our existing manufacturing facilities will allow us to meet anticipated demand for our products.
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ITEM 3. |
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.
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ITEM 4. |
No matters were submitted to a vote of security holders of the Registrant during the last three months of the period covered by this Annual Report.
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ITEM 5. |
MARKET FOR 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 fiscal years ending December 31, 2002 and 2003.
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High |
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Low |
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Fiscal Year Ended December 31, 2003 |
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First Quarter |
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$ |
3.54 |
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$ |
3.13 |
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|
|
Second Quarter |
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$ |
3.98 |
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$ |
2.94 |
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|
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Third Quarter |
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$ |
4.71 |
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$ |
3.03 |
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|
|
Fourth Quarter |
|
$ |
7.80 |
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$ |
4.05 |
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|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31, 2002 |
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|
|
|
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|
|
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|
First Quarter |
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$ |
4.20 |
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$ |
2.30 |
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|
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Second Quarter |
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$ |
3.95 |
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$ |
3.02 |
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Third Quarter |
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$ |
4.18 |
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$ |
2.31 |
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|
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Fourth Quarter |
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$ |
3.65 |
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$ |
2.60 |
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As of March 22, 2004, our high and low sales price per share during the first quarter of 2004 were $10.80 and $7.35, respectively.
The approximate number of holders of record and beneficial owners of common stock as of December 31, 2003 was 1,859 and 10,000, respectively.
The Company has never declared cash dividends on the Common Stock. The Company intends to retain its earnings and does 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, the Company’s financial condition, restrictions in financing agreements and other factors deemed relevant by the Board of Directors. The payment of dividends by the Company is restricted by its revolving credit facility.
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ITEM 6. |
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, 2003, 2002 and April 30, 2001 and the eight months ended December 31, 2001 from our audited consolidated financial statements and related notes. We derived the selected historical consolidated financial data for the years ended April 30, 2000 and 1999 from our unaudited 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.
MILLER INDUSTRIES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In thousands except per share data)
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Years Ended |
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Eight Months Ended |
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Years Ended April 30, |
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2003 |
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2002 |
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2001 |
|
2001 |
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2000 |
|
1999 |
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Statements of Income Data (1): |
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|
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Net sales: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Towing and recovery equipment |
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$ |
192,043 |
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$ |
203,059 |
|
|
$ |
142,445 |
|
|
$ |
212,885 |
|
$ |
261,907 |
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$ |
231,691 |
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|
|
Towing services |
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|
13,953 |
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|
28,444 |
|
|
|
19,892 |
|
|
|
31,992 |
|
|
31,183 |
|
|
23,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205,996 |
|
|
231,503 |
|
|
|
162,337 |
|
|
|
244,877 |
|
|
293,090 |
|
|
254,837 |
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|
|
Costs and expenses: |
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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Costs of operations: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towing and recovery equipment |
|
|
168,390 |
|
|
174,516 |
|
|
|
122,753 |
|
|
|
181,517 |
|
|
220,602 |
|
|
193,855 |
|
|
|
Towing services |
|
|
10,618 |
|
|
22,539 |
|
|
|
15,250 |
|
|
|
23,321 |
|
|
22,345 |
|
|
17,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179,008 |
|
|
197,055 |
|
|
|
138,003 |
|
|
|
204,838 |
|
|
242,947 |
|
|
211,176 |
|
|
|
Selling, general, and administrative expenses |
|
|
17,411 |
|
|
19,540 |
|
|
|
14,353 |
|
|
|
23,925 |
|
|
26,333 |
|
|
25,444 |
|
|
|
Special charges (2) |
|
|
682 |
|
|
- |
|
|
|
6,376 |
|
|
|
- |
|
|
2,770 |
|
|
- |
|
|
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Interest expense, net |
|
|
5,609 |
|
|
4,617 |
|
|
|
1,055 |
|
|
|
2,137 |
|
|
6,036 |
|
|
4,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total costs and expenses |
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