20 Annual Report
20
TO OUR SHAREHOLDERS
April 16, 2021
The global COVID-19 pandemic provided several challenges for our Company, but it
also created opportunities for our business to learn and grow. We believe our
organization did so by rising to the occasion during 2020 and we are now better
positioned to deliver for our shareholders in 2021 and beyond. 2020 had a meaningful
impact on our customers, suppliers, and employees as we navigated through the global
COVID-19 pandemic. That being said, Miller Industries continued to operate as an
essential business throughout the year and we are incredibly proud of the perseverance of
our employees as they continued to deliver the critical tools to keep America’s roadways
clear throughout the pandemic.
While COVID-19 significantly impacted our performance during the year, we remained
focused on the aspects of the business within our control. We were able to identify and
successfully mitigate operating expenses in our business, which led to a modest gross
margin expansion despite the decline in our top-line sales. Further, our strong financial
position allowed us to continue investing in our business as evidenced by the repurposing
of our Greeneville, Tennessee facility to mitigate future supplier constraints as well as the
completion of phase one of our enterprise software system upgrades.
In addition to the operational improvements we made during the year, we also took
significant measures to strengthen our balance sheet. We preemptively drew $25 million
from our existing credit facility in the first quarter to bolster our liquidity position at the
onset of the pandemic. By the end of our third quarter, we fully repaid those obligations
and eliminated all long-term debt obligations from our balance sheet. As we move into
2021, we are well positioned to continue investing in the business and to capture growth
opportunities as we emerge from this crisis.
Despite the challenging environment and its material impact on our business, we
remained committed to returning capital to shareholders with the declaration of our 41st
consecutive quarterly dividend, which includes payments of $0.72 per share during each
of the last four years.
As we enter 2021, the lingering effects of the pandemic will continue to weigh on our
business in the near term. However, we are confident that we will begin to see the
benefits of the operational improvements and cost reductions we implemented during
2020. As America continues to heal, Miller Industries is well positioned to capitalize on
future growth opportunities in the new year.
In closing, we would like to extend our sincerest thanks to our employees, customers,
suppliers, and shareholders for their ongoing support of Miller Industries as we work to
build on our industry-leading product portfolio and best-in-class customer service.
Jeffrey I. Badgley
William G. Miller, II
Co-Chief Executive Officer Co-Chief Executive Officer
Deborah L. Whitmire
Chief Financial Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(cid:1409) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
(cid:1407) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No.
001-14124
MILLER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Tennessee
(State or other jurisdiction of incorporation or organization)
8503 Hilltop Drive, Ooltewah, Tennessee
(Address of principal executive offices)
62-1566286
(I.R.S. Employer Identification No.)
37363
(Zip Code)
(423) 238-4171
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share
MLR
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
None
(Title of Class)
(cid:133) Yes (cid:95) No
(cid:133) Yes (cid:95) 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.
(cid:95) Yes (cid:133) No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
(cid:95) Yes (cid:133) No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer (cid:133)
Non-accelerated Filer (cid:133)
Accelerated Filer (cid:1409)
Smaller Reporting Company (cid:1407)
Emerging Growth Company (cid:1407)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:31)
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. (cid:95)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
(cid:1407) Yes (cid:95) 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, directors and
holders of more than 10% of the registrant’s Common Stock) as of June 30, 2020 (the last business day of the registrant’s most recently completed second fiscal quarter) was $287,430,630
(based on 9,655,043 shares held by non-affiliates at $29.77 per share, the last sale price reported on the New York Stock Exchange on June 30, 2020).
At February 26, 2021 there were 11,410,728 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 2021 Annual
Meeting of Shareholders which is to be filed pursuant to Regulation 14A.
ITEM 1.
ITEM 1A.
ITEM 1B
ITEM 2.
ITEM 3.
ITEM 4.
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
TABLE OF CONTENTS
PART I
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
ITEM 9A.
ITEM 9B.
CONTROLS AND PROCEDURES
OTHER INFORMATION
PART III
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTING FEES AND SERVICES
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
FORM OF 10-K SUMMARY
PART IV
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
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21
30
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CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K, including but not limited to statements made in Part II–Item 7–
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” statements made with respect to future operating
results, expectations of future customer orders and the availability of resources necessary for our business 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 based on our management’s beliefs 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:
(cid:120)
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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the overall impact of the COVID-19 pandemic on the Company’s revenues, results of operations and financial condition;
the duration and severity of the COVID-19 pandemic, including actions that may be taken by government authorities and others to
address or otherwise mitigate the impact of the COVID-19 pandemic;
the cyclical nature of our industry and changes in consumer confidence;
economic and market conditions, including the negative impacts of the COVID-19 pandemic on global economies and the
Company’s customers, suppliers and employees;
our dependence upon outside suppliers for our raw materials, including aluminum, steel, and petroleum-related products as well as
other purchased component parts;
changes in price and availability (including as a result of the imposition of additional tariffs and the impact of COVID-19 pandemic)
of aluminum, steel, petroleum-related products and purchased component parts;
delays in receiving supplies of such materials or parts, including as a result of the impact of the COVID-19 pandemic;
our customers’ access to capital and credit to fund purchases;
operational challenges caused by increased sales volumes in recent years, prior to the COVID-19 pandemic;
various political, economic and other uncertainties relating to our international operations, including restrictive taxation and foreign
currency fluctuation;
special risks from our sales to U.S. and other governmental entities through prime contractors;
our ability to secure new government orders;
changes in fuel and other transportation costs, insurance costs and weather conditions;
changes in government regulations;
failure to comply with domestic and foreign anti-corruption laws;
competition in our industry and our ability to attract or retain customers;
our ability to develop or acquire proprietary products and technology;
1
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assertions against us relating to intellectual property rights;
problems hiring or retaining skilled labor;
a disruption in, or breach in security of, our information technology systems or any violation of data protection laws;
changes in the tax regimes and related government policies and regulations in the countries in which we operate;
the effects of regulations relating to conflict minerals;
the catastrophic loss of one of our manufacturing facilities;
environmental and health and safety liabilities and requirements;
loss of the services of our key executives;
product warranty or product liability claims in excess of our insurance coverage;
potential recalls of components or parts manufactured for us by suppliers or potential recalls of defective products;
an inability to acquire insurance at commercially reasonable rates;
and those other risks referenced herein, including those risks referred to in this report, in Part I, Item 1A–“Risk Factors” and those
risks discussed in our filings with the Securities and Exchange Commission 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, the Company.
2
ITEM 1. BUSINESS
General
PART I
Miller Industries is The World’s Largest Manufacturer of 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.
In 1990, we began developing or acquiring 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 through internal
growth and development, while remaining open to opportunities for acquisitions of complementary products.
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 or any of them.
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 integration with our towing and recovery equipment and 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 up to 100-ton lifting capacities. Car carriers are specialized flatbed 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. We also manufacture vehicle transport trailers.
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, the Middle East, South America and Africa, and through prime contractors to governmental
entities. Additionally, as a result of our ownership of Jige International S.A. in France and Boniface Engineering, Ltd. in the United Kingdom,
we have substantial distribution capabilities in Europe. While most of our distributor agreements do not generally contain exclusivity
provisions, management believes that more than 85% of our independent distributors do not offer products of any other towing and recovery
equipment manufacturer, which we believe is a testament to their loyalty to our brands. In addition to selling our products to towing operators,
our independent distributors provide them with parts and service. We also utilize sales representatives to inform prospective end-users about
our current product lines in an effort to drive sales to independent distributors. Management believes the strength of our distribution network
and the breadth and quality 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 up to 100-ton lifting capacities. Wreckers are available with specialized features,
including underlifts, L-arms, crossbars 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 remote control devices for recovery equipment. In addition, certain light-duty wreckers are equipped with automatic wheel-
lift hookup devices that allow operators to engage a disabled or unattended vehicle without leaving the cab of the wrecker.
Our wreckers range in capacity from 4 to 100 tons, and are classified as either light-duty or 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 towing and recovery applications including
overturned tractor trailers, buses, motor homes and other large vehicles.
3
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. Most professional towing operators have car carriers in 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 and transport 6 to 7 vehicles. The vehicles can be secured to transport
quickly with ratchet and chain tie-downs that are mounted throughout the frame of the transport trailer. Many professional towing operators
have added auto transport trailers to their fleets to add to their service offerings.
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 100-ton heavy-duty
models, and car carriers in lengths from 20 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-duty and heavy-duty wreckers, ranging from 8-ton light-duty
to 75-ton heavy-duty models, and car carriers.
Challenger®. Our Challenger® products compete with the Century® and Vulcan® products and constitute a third premium product
line. Challenger® products consist of heavy-duty wreckers with capacities ranging from 25 to 75 tons. 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 4 to 16-ton capacities, a 16-ton rotator and a detachable
towing unit (DTU). 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 19 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.
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, as well as wreckers ranging from 8-ton to 16-ton models.
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.
Titan®. Our Titan® product line is comprised of premium multi-vehicle transport trailers which can transport up to 7 vehicles
depending on configuration.
Jige™. Our Jige™ product line is comprised of a broad line of premium light-duty 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-duty wreckers
necessary to operate within the narrow confines of European cities, as well as heavy-duty wreckers.
Boniface™. Our Boniface™ product line is comprised predominantly of premium heavy-duty wreckers marketed primarily in
Europe. Boniface™ produces heavy-duty wreckers specializing in the long underlift technology required to tow modern European tour
buses.
4
Product Development and Manufacturing
Product Innovation and Manufacturing Process Improvements
We have a long history of innovation in our products and manufacturing processes based on advanced technologies. 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 department currently consists of over 50
engineers who, in consultation with manufacturing personnel, use sophisticated computer-aided design and stress analysis systems to test
new product designs and to integrate various product improvements. In addition to licensing new technologies, we have a continuing
emphasis on research and development to achieve product innovations. We opened our free-standing research and development (R&D)
facility in Chattanooga, Tennessee in 2019, where we are pursuing various innovations in our products and improvements in our
manufacturing processes, some of which are intended to enhance the safety of our employees and reduce the environmental impact of both
our manufacturing processes and the products we manufacture. These efforts led to our newest product, the M100, which was introduced in
the fall of 2019 and that we believe to be the world’s largest tow truck.
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. In addition, during the past several years, we have also begun to produce
wrecker bodies using composites and other non-metallic materials, which reduces the overall vehicle weight and increases fuel efficiency.
After the frame is formed, components such as hydraulic cylinders, winches, valves and pumps, which are purchased by us from third-party
suppliers, are 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, and
towing operators can select customized colors to coordinate with chassis colors or customer fleet colors. To the extent final painting is
required before delivery, we either complete such painting or contract with independent paint shops for such services.
Expansion and Modernization of Domestic Production Facilities
All of our domestic facilities have undergone substantial expansion and modernization projects during the period 2016 to 2020, as
we have invested over $97 million on property, plant and equipment over this five-year period, including approximately $25 million on our
Pennsylvania consolidation and expansion project and approximately $29 million on building and equipment improvements at our two
Tennessee locations. These projects not only increased our production capacity, but also included installing sophisticated robotics and
implementing other advanced technologies to optimize our manufacturing processes, enhance the safety of our employees and reduce our
environmental impact.
Reducing the Environmental Impacts of our Domestic Production Facilities
We strive to conduct our operations in a manner that protects our employees, to comply with all applicable laws and regulations,
and to reduce the environmental impacts of our manufacturing operations. The modernization projects at all our domestic facilities in the
last few years included many environmentally-friendly upgrades, such as the installation of air filtration equipment that removes airborne
contaminants like smoke, dust, pollen and dander to improve the air quality at our production facilities. As part of these projects, we also
transitioned from oil-based primers to water-based primers in our domestic painting operations, to reduce volatile organic compounds (VOC)
emissions into the environment and make our workplace safer for our employees. At the same time, we upgraded the lighting at all of our
domestic production facilities to LED lighting, which has the benefit of reducing electric consumption while also increasing visibility for
our employees. In addition, we are currently in the process of acquiring a nitrogen generator, which would have the effect of minimizing the
environmental impacts of transporting nitrogen gas to our domestic facilities. We continue to look for new ways to promote sustainable and
environmentally friendly practices at our production facilities to reduce energy-usage, increase recycling and decrease waste.
Company Suppliers
We purchase raw materials and component parts from several sources. Although we have no long-term supply contracts,
management believes we have good relationships with our primary suppliers. In recent years prices have fluctuated significantly, but 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
5
a material adverse effect on our business. We are continuing to closely monitor the COVID-19 pandemic and the further impacts it may have
on the Company’s supply chain and operations.
Sales, Distribution and Marketing
The industry 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,
local and national governmental entities and repair shop or salvage company owners. The heavy-duty market includes professional wrecker
operators serving the needs of commercial vehicle operators as well as governmental entities. The car carrier market has expanded to include
equipment rental companies that offer delivery service and professional towing operators who desire to complement their existing towing
capabilities.
We sell our products to a diverse network of independent distributors, consisting of approximately 80 distributors in North America,
who serve all 50 states, Canada and Mexico, and numerous distributors that serve other foreign markets. These distributors then sell our
products to the end-users. In 2020, 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.
Our distributor network has been stable for many years, with a large majority of our distributors having been engaged to sell our
products for more than 10 years, and many for more than 25 years. We believe this distributor loyalty results primarily from our high quality
and innovative products and our emphasis on customer service. These long-standing relations give our distributors a deep knowledge of our
products and our corporate culture, allowing them to effectively promote our products to end-users. While we do not impose exclusivity
requirements on our distributors, we believe that more than 85% of our independent distributors do not offer products of any other towing
and recovery equipment manufacturer, which we believe is a testament to their loyalty to our brands.
We engage sales representatives who provide sales support to our entire network 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. To support sales and marketing efforts, we produce demonstrator models that are
used by our sales representatives and independent distributors. In addition to providing services to our network of independent distributors,
our sales representatives sell our products to various governmental entities, including the U.S. federal government and foreign governments,
through prime contractors.
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 federal, state and local government and foreign government contracting opportunities.
The towing and recovery equipment industry places heavy marketing emphasis on product exhibitions at national, regional and
international trade shows. To focus our marketing efforts and to control marketing costs, we concentrate our efforts on the major trade shows
each year, and we work with our network of independent distributors to concentrate on various regional shows. Although attendance at trade
shows has been suspended during the current pandemic, we expect to resume our active participation in these shows when conditions allow.
Product Warranties and Insurance
We generally 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. Our independent distributor customers regularly perform
any needed warranty repair work themselves, rather than shipping products back to us, and then invoice us for the cost of the parts and labor.
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, may not be an appropriate indicator of our future operating performance. Certain
purchase orders may be subject to cancellation by the customer upon notification. Given our production and delivery schedules, management
believes that the current backlog represents approximately five months of production.
6
Competition
The towing and recovery equipment manufacturing industry is highly competitive for sales to distributors and towing operators.
Management believes that competition in our 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.
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.
Human Capital
We employed approximately 1,280 people as of December 31, 2020. Part-time employees represent less than 2% of our total
employees. 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.
Our company culture is based on treating others the way we would like to be treated and we strive to foster a work environment
that is inclusive, fair and engaged. In addition, our Code of Business Conduct and Ethics is intended to reinforce our core values of respect,
integrity, collaboration, innovation, trust, and excellence throughout our operations.
Employee Development/Training
We provide training programs that address skills shortages in our workforce, foster career development, and encourage proper use
of technology and resources. These include our Welding School that teaches employees how to read blueprints, interpret weld symbols, and
learn welding technique. In addition, Miller University One and Two were created to develop high potential employees for future leadership
roles in the company, and provide change management, decision making, and problem-solving skills to future leaders of our Company. We
have also established a tuition reimbursement program for continuing education, including undergraduate and graduate degrees or
certifications and licenses relevant to the business.
Competitive Pay and Employee Benefits
We invest in our employees through high-quality benefits and various health and wellness initiatives, competitive compensation
packages and fair compensation practices. For example, we periodically perform compensation studies to ensure competitive pay rates for
our employees. In addition, we provide a variety of benefits including but not limited to comprehensive medical coverage, short and long
term disability, life insurance, wellness screening, dental coverage, paid time off incentive programs, an employee assistance program, access
to telehealth services, and a U.S. 401(k) plan with a Company match.
Occupational Health and Safety
We seek to provide a healthy and safe workplace. The modernization projects at all our domestic facilities in the last few years
included many advanced health and safety features, such as the installation of air filtration equipment that removes airborne contaminants
like smoke, dust, pollen and dander to improve the air quality at our production facilities. As part of these projects and upgrades, we also
transitioned from oil-based primers to water-based primers in our domestic painting operations to reduce total volatile organic compounds
emissions and make our workplace safer for our employees. We also upgraded the lighting at our facilities to LED lighting, which has the
benefit of reducing electric consumption while also increasing visibility for our employees. We have established a safety committee to
implement and monitor our various safety programs. We are continually striving to better our workplace safety record and our five-year
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trend on workplace accidents reflects substantial improvement in this area. We are committed to fostering a diverse workforce and an
inclusive environment.
The ongoing COVID-19 pandemic has led to unique challenges, and we are striving to ensure the health, safety and general well-
being of our employees. We have made and continue to make what we believe to be appropriate modifications to our operations because of
COVID-19 to allow us to protect our employees while operating all our facilities consistent with applicable governmental guidelines and
orders. We have been rotating our workforce every four days, and have designated periods of non-production time for sanitation efforts, and
have adjusted work schedules to maximize our capacity while adhering to recommended precautions such as social distancing, and have
established and implemented remote work provisions where possible. We have also instituted travel restrictions according to recommended
guidelines. As part of our ongoing safety measures, we may also decide to temporarily suspend operations to clean and disinfect areas within
our facilities, as needed to protect our employees. We enacted such limited suspensions from time to time at certain of our domestic facilities
during 2020.
Employee Engagement
The Company’s management team promotes an “open door” environment in which all feedback and suggestions are welcome. We
have invested substantial time and resources in recent years to optimize the engagement, productivity and safety of our workforce, which
we believe is the foundation upon which we can maintain our competitive advantages in product quality and customer service. For example,
we hired an employee engagement specialist who is dedicated to communicating with our employees. We also actively monitor the
satisfaction and engagement of our workforce, including through periodic employee surveys conducted by third-party experts.
Intellectual Property Rights
Our development of the underlift parallel linkage and L-arms was at the time considered one of the most innovative developments
in the wrecker industry. This technology continues to be significant primarily because it allows the damage-free towing of aerodynamic
vehicles made of lighter weight materials. This technology, particularly the L-arms, is still used in a majority of commercial wreckers today.
Our patents on the L-arm have expired, but we hold a number of utility and design patents for our products. We have also obtained the rights
to use and develop certain technologies owned or patented by others. Management believes that, during the life of our patents on our
technology, utilizing our patented technology without a license would be an infringement of such patents.
Our trademarks “M®” (stylized), “Miller Industries®” (with stylized “M”), “Century®,” “Holmes®,” “Champion®,” “Challenger®,”
“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
We strive to manufacture our products in a way that minimizes environmental impact and maximizes worker health and safety. 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
have not had a material adverse impact on our financial condition or results of operations in the past.
We act as a subcontractor for certain U.S. and other government programs. As a result, we are subject to extensive regulations and
requirements of the U.S. and other government agencies and entities that govern these programs, including with respect to the award,
administration and performance of contracts under such programs.
We are also subject to various federal, state and non-U.S. laws and regulations related to privacy, data protection and cybersecurity,
including the European Union's General Data Protection Regulation ("GDPR"), which became effective in May 2018. In addition,
California’s Consumer Privacy Act came into effect on January 1, 2020, and enforcement began on July 1, 2020. Many other states are also
attempting to enact privacy laws that may impact us in the future.
We are also subject to the additional diligence and disclosure requirements adopted by the Securities and Exchange Commission
(the “SEC”) related to certain minerals sourced from the Democratic Republic of Congo or adjoining countries in connection with the Dodd-
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Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The SEC rules impose these obligations with respect to
“conflict minerals,” defined as tin, tantalum, tungsten and gold, which are necessary to the functionality of a product manufactured, or
contracted to be manufactured, by an SEC reporting company. If any “conflict minerals” that are necessary to the functionality of a product
manufactured by an SEC reporting company originated in the Democratic Republic of Congo or an adjoining country, the rules require the
issuer to prepare and file a report addressing its efforts to exercise due diligence on the source of such “conflict minerals” and their chain of
custody. In addition to the SEC regulation, the European Union adopted new requirements for European Union importers of conflict minerals,
which went into effect on January 1, 2021, and that may impact and increase the cost of our conflict minerals compliance program.
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, state and foreign 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.
Information About Our Executive Officers
Information relating to our executive officers as of February 28, 2021 is set forth below. William G. Miller, II is the son of William
G. Miller. Other than Messrs. Miller and Miller II, 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.
Name
Age
Position
William G. Miller
Jeffrey I. Badgley
William G. Miller, II
Frank Madonia
Deborah L. Whitmire
Josias W. Reyneke
74
68
42
72
55
64
Chairman of the Board
Co-Chief Executive Officer
President and Co-Chief Executive Officer
Executive Vice President, Secretary and General Counsel
Executive Vice President, Chief Financial Officer and Treasurer
Chief Information Officer
William G. Miller has served as Chairman of the Board since April 1994. Mr. Miller served as President and Chief Executive Officer
from 1994 to 1996 and as Chief Executive Officer from 1996 to 1997. Mr. Miller also served as Co-Chief Executive Officer from
October 2003 to March 2011. Mr. Miller served as Chairman and President of Miller Group from 1990 to 1993 and as Chairman and CEO
of Miller Group from 1993 to 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 since December 2013. Prior to serving as Co-Chief Executive
officer, Mr. Badgley served in various executive positions, including Vice President (1994 – 1996), President (1996 – 2011), Chief Executive
Officer (1997 – 2003; 2011 – 2013), and Co-Chief Executive Officer (2003 – 2011). In addition, Mr. Badgley served as a director from 1996
to 2014 and as Vice Chairman of the Board from 2011 to 2014. Mr. Badgley also served as Vice President to Miller Industries Towing
Equipment Inc. from 1988 to 1996 and has been their President since 1996.
William G. Miller, II has served as a director since May 2014, our Co-Chief Executive Officer since December 2013 and President
since March 2011, after serving as a Regional Vice President of Sales of Miller Industries Towing Equipment Inc. from November 2009 to
February 2011. Mr. Miller II served as Vice President of Strategic Planning of the Company from October 2007 until November 2009.
Mr. Miller II served as Light-Duty General Manager from November 2004 to October 2007 and as a Sales Representative of Miller Industries
Towing Equipment Inc. from 2002 to 2004.
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
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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.
Deborah L. Whitmire has served as a director since February 2020, our Executive Vice President, Chief Financial Officer and
Treasurer since January 2017, after serving as our Vice President and Corporate Controller from January 2014 to December 2016 and
Corporate Controller to Miller Industries Towing Equipment Inc. from March 2005 to January 2014. From April 2000 to March 2005, she
also served as Director of Finance – Manufacturing to Miller Industries Towing Equipment Inc. In addition, she served as Controller to
Miller Industries Towing Equipment Inc. from October 1997 to April 2000 and Accounting Manager to Miller Industries Towing
Equipment Inc. from October 1996 to October 1997.
Josias W. Reyneke has served as our Chief Information Officer since January 2017, after serving as our Vice President of Operations
to Miller Industries Towing Equipment Inc. from July 2011 to December 2016. From 2002 to 2011, Mr. Reyneke served as Director of
Management Information Systems and Materials of Miller Industries Towing Equipment Inc. Mr. Reyneke joined Miller Industries Towing
Equipment Inc. as a consultant in 1997 to assist with the implementation of an enterprise resource planning system and was subsequently
offered the position of Director of Management Information Systems in 1998, a position he held until 2002. Prior to 1998, Mr. Reyneke also
served in various management positions for SE Technologies, Wheels of Africa and Toyota South Africa.
Available Information
We file annual, quarterly and current reports and other information with the SEC. The SEC maintains a website at www.sec.gov
that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
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. Information contained on our website is
not part of this Annual Report on Form 10-K or our other filings with the SEC.
Our Corporate Governance Guidelines, Code of Business Conduct and Ethics and the charters of the Audit, Compensation and
Nominating Committees of the Board of Directors are also available on our website.
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 all known material risks 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.
Risks Relating to Our Operations
The continuing COVID-19 pandemic may adversely affect our revenues, results of operations and financial condition.
The U.S. and other countries are experiencing outbreaks of COVID-19, which is continuing to spread to areas where we, our
customers, our suppliers and our end users do business. The outbreak has resulted in governments around the world implementing at times
stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel
restrictions, business curtailments, school closures, and other measures. We are considered a critical infrastructure industry, as defined by
the U.S. Department of Homeland Security, and were thus exempt from state and local business closure orders that were previously in effect
in states where we have manufacturing facilities. However, as the pandemic continues, business closure orders may be implemented or
reinstated in states or localities that experience a rebound or surge in COVID-19 cases, including as a result of new variants of the virus that
may be more transmissible or virulent, and those orders may not include the same exemptions. Other organizations, businesses and
individuals are taking additional steps to avoid or reduce infection, including limiting travel and staying home from work. These measures
taken to curb the spread of COVID-19 are disrupting normal business operations both in and outside of affected areas, including our business
operations.
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We have made and continue to make what we believe to be appropriate modifications to our operations because of COVID-19 to
allow us to protect our employees while operating all our facilities consistent with applicable governmental guidelines and orders. We
continue to monitor government recommendations impacting our operations and may need to enact further precautionary measures to help
minimize the risk of our employees being exposed to COVID-19, which could have a further adverse impact on our plant production levels.
As part of our ongoing safety measures, we may also decide to temporarily suspend operations to clean and disinfect areas within our
facilities, as needed to protect our employees, which may have an adverse impact on our plant productivity. We enacted such limited
suspensions from time to time at certain of our domestic facilities during 2020.
The businesses of towing and recovery equipment operators have been disrupted and they have limited and may continue to limit
spending as a result of COVID-19, which could negatively impact their willingness to purchase new equipment from us or our independent
distributors, and ultimately adversely affect our revenues. We have seen order cancellations and softening of demand, which could worsen
depending on the duration, spread, and severity of the pandemic. The cancellation of major industry shows and events has also reduced our
ability to meet with existing and potential new customers to market our products.
Additionally, global economic disruptions such as the COVID-19 pandemic could negatively impact our supply chain and cause
delays in the delivery of chassis, raw materials, components and other supplies that we need to manufacture our products. During the COVID-
19 pandemic, we have had material curtailments of new chassis deliveries due to shutdowns and production slowdowns at our suppliers’
facilities. During the second quarter, most of these facilities were operating at a reduced capacity, but by the end of the third quarter were
operating at levels sufficient to meet our requirements. However, these decreased production levels could recur, and if so, could cause
substantial decreases to our revenues and results of operations.
The COVID-19 pandemic had a material adverse impact on our financial results and business operations in the second, third and
fourth quarters of 2020, and economic and health conditions in the United States and across most of the globe continue to change
dramatically from day to day as a result of the COVID-19 pandemic. The future impact of the COVID-19 pandemic on our operations is
unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the
duration of the outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, the emergence of new
strains of the virus and any future resurgences of COVID-19 or variant strains, the timing of our chassis and other suppliers resuming
normal shipment levels, the effect of the pandemic on spending levels of towing and recovery equipment operators, and any additional
preventative and protective actions that governments, or we or other businesses, may direct, which may result in an extended period of
continued business disruption and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but
should be anticipated to have a material adverse impact on our business, financial condition and results of operations. Even after
the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic
recession or depression, or to a general reduction in miles driven on roadways due to a decrease in travel.
Our business is subject to the cyclical nature of our industry and changes in consumer confidence and in economic conditions in
general, including the negative impacts of the COVID-19 pandemic on global economies. Adverse changes or continued uncertainty
with respect to these factors may lead to a downturn in our business.
The towing and recovery industry is cyclical in nature. In recent years, the overall demand for our products and resulting revenues
have been positively affected by recovering economic conditions and improving consumer sentiment. However, historically, the overall
demand for our products and our resulting revenues have at times been negatively affected by wavering levels of consumer confidence,
volatility and disruption in domestic and international capital and credit markets and the resulting decrease in the availability of financing
for our customers and towing operators and the overall effects of global economic conditions. We remain concerned about the potential
effects of these factors on the towing and recovery industry, and we continue to monitor our overall cost structure to see that it remains in
line with business conditions. A prolonged economic downturn, including as a result of the continuing COVID-19 pandemic, political unrest,
terrorist acts, military conflict and any other disease outbreaks, and slow or negative growth in the domestic and global economy, could have
a material adverse effect on our business, financial condition and results of operations for the foreseeable future.
Our dependence upon outside suppliers for our raw materials, including aluminum, steel, petroleum-related products and other
purchased component parts, leaves us subject to changes in price and availability (including as a result of the imposition of additional
tariffs and the impact of the COVID-19 pandemic) 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 events beyond our
control could have an adverse effect on the cost or availability of raw materials and component parts. Steel, aluminum, fuel and other
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commodity prices have historically experienced high volatility depending on market conditions and global demand. 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. In addition, government actions related to tariffs on imports
and trade policies have impacted, and have the potential to further impact, pricing of raw materials, such as steel and aluminum. For example,
in 2018 the United States government imposed import tariffs and restrictions on imports for steel products and aluminum products. The
Company uses a substantial amount of imported steel and aluminum in its products and experienced increases in costs for these materials as
a result of the tariffs and import quotas. To partially offset price increases for raw materials and component parts, we have, from time to
time, implemented general price increases and cost surcharges. While we have attempted to pass these increased costs (including as a result
of tariffs and import quotas) on to our customers, there can be no assurance that we will be able to continue to do so. Any further price
increases for these or any other materials that we use would require a long lead time to implement while the higher material costs would be
felt much sooner. In the future, if we experience increased prices or shortages for key materials that are essential to our manufacturing
operations, such as steel and aluminum (including as a result of tariffs or import quotas), there is a substantial risk that the Company’s
financial performance and competitive position could be materially adversely impacted.
Demand for our products also could be negatively affected by supply delays of truck chassis and other component parts used in our
products. Our third party suppliers’ ability to supply us with truck chassis and component parts is limited by their available capacity to
manufacture the component parts we require. We have experienced supply delays and limitations for component parts from time to time as
a result of the continuing COVID-19 pandemic, and, prior to the COVID-19 pandemic, as our production levels had substantially increased
over the last several years prior to the start of the pandemic. If these delays recur, continue or worsen, our customers may reduce their
purchase levels with us and/or seek alternative solutions to meet their demand. At this time, 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. However, 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.
Demand from our customers and towing operators is affected by the availability of capital and access to credit.
The ability of our customers and of towing operators to purchase our products is affected by the availability of capital and credit to
them. Our independent distributor customers rely on floor plan financing in connection with the purchase of our products, and the availability
of that financing on acceptable terms has a direct effect on the volume of their purchases. Additionally, in many cases, a towing operator’s
decision to purchase our products from one of our distributors is dependent upon their ability to obtain financing upon acceptable terms.
Volatility and disruption in the capital and credit markets, principally in the U.S. and Europe, in the past has decreased the availability of
capital to, and credit capacity of, our customers and towing operators. In addition, in the past, certain providers of floor plan financing have
exited the market, which made floor plan financing increasingly difficult for our independent distributor customers to secure at those times.
This reduced availability of capital and credit has negatively affected the ability and capacity of our customers and of towing operators to
purchase towing and related equipment. This, in turn, has negatively impacted sales of our products. If customers are unable to access capital
or credit, it could materially and adversely affect our ability to sell our products, and as a result, could negatively affect our business and
operating results.
Operational challenges caused by our increased sales volumes in recent years prior to the COVID-19 pandemic could result in material
delays, increased costs and loss of business opportunities, which could negatively impact our operating results and financial condition.
Substantially increased sales of our products over the five years prior to the COVID-19 pandemic have caused a variety of operating
challenges, including supply chain constraints and production capacity limitations. The recent major additions and renovations to all our
domestic production facilities have allowed us to effectively address these challenges, but they have nevertheless caused increased
production costs and delayed deliveries to customers in some instances. These factors could in the future result in delay or termination of
orders, the loss of sales and a negative impact on our reputation with our customers, all of which could materially adversely affect our
business, financial condition and results of operations. In addition, our recent major additions and renovations to all our domestic facilities
may not achieve our intended objectives of lowering costs, improving manufacturing efficiencies in an environmentally conscious way and
increasing productivity, which could adversely affect our operating results and financial condition.
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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.
Historically, a portion of our net sales occur outside the United States, primarily in Europe. In addition, we have manufacturing
operations at two facilities located in the Lorraine region of France and manufacturing operations in Norfolk, England. 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 and trade policies. This includes the uncertainty surrounding the United Kingdom’s exit from the
European Union, commonly referred to as “Brexit,” on European and worldwide economic conditions, and on our international sales. The
United Kingdom formally left the European Union on January 31, 2020. In December 2020, the United Kingdom and the European Union
agreed on a trade and cooperation agreement which is being applied provisionally until it is formally ratified by the European Union
parliament. The trade and cooperation agreement covers the general objectives and framework of the relationship between the United
Kingdom and the European Union, including as it relates to trade, transport, visas, judicial, law enforcement and security matters, and
provides for continued participation in community programs and mechanisms for dispute resolution. Notably, under the trade and cooperation
agreement, United Kingdom service suppliers no longer benefit from automatic access to the entire European Union single market, United
Kingdom goods no longer benefit from the free movement of goods and there is no longer the free movement of people between the United
Kingdom and the European Union. In addition, there remain uncertainties surrounding Brexit and the new relationship between the United
Kingdom and the European Union that will continue to be developed and defined. Brexit could adversely affect European or worldwide
political, regulatory, economic or market conditions and could contribute to instability in political institutions and regulatory agencies.
In addition, a 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 the British pound sterling and the euro. We are, therefore,
subject to risk of financial loss resulting from fluctuations in exchange rates of these currencies against the U.S. dollar. Brexit has caused,
and may continue to result in, significant volatility in global stock markets and currency exchange rate fluctuations of the U.S. dollar relative
to other foreign currencies in which we conduct business, including both the British pound sterling and the euro.
In addition, political unrest, terrorist acts, military conflict and disease outbreaks, including the COVID-19 pandemic, have
increased the risks of doing business abroad in general. We are continuing to monitor the COVID-19 pandemic and the further impacts it
may have on the Company’s supply chain and operations.
Our sales to U.S. and other governmental entities through prime contractors are subject to special risks.
We act as a subcontractor for certain U.S. and other government programs. As a result, we are subject to extensive regulations and
requirements of the U.S. and other government agencies and entities that govern these programs, including with respect to the award,
administration and performance of contracts under such programs. Our U.S. and other government business is subject to the following risks,
among others: (i) this business is susceptible to changes in government spending, which may reduce future revenues; (ii) most of our
contracts with governmental entities through prime contractors are fixed-price contracts, and our actual costs on any of these contracts could
exceed our projected costs, (iii) competition for the award of these contracts is intense, and we may not be successful in bidding on future
contracts, and (iv) the products we sell to governmental entities are subject to highly technical requirements, and any failure to comply with
these requirements could result in unanticipated retrofit costs, delayed acceptance of products, late or reduced payment or cancellation of
the contract. Our inability to address any of the foregoing concerns could seriously harm our business, financial condition and results of
operations.
We continue to be focused on efforts to secure new government orders to replace existing government projects as they are
completed. Our inability to replace sales generated from government orders as they are completed would result in lower sales and have an
adverse effect on our business, results of operations and financial condition.
Overall demand from our customers may be affected by increases in their fuel and insurance costs and changes in weather conditions.
In the past, our customers have experienced substantial increases in fuel and other transportation costs, and in the cost of insurance.
Our customers also have, from time to time, been subject to unpredictable and varying weather conditions which could, among other things,
impact the cost and availability of fuel and other materials. Any of these factors could negatively affect our customers’ capacity for
purchasing towing and related equipment, and, consequently, have a material negative effect upon our business and operating results.
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Our competitors could impede our ability to attract or retain customers.
The towing and recovery equipment manufacturing industry is highly competitive. Capital requirements for entry into the towing
and recovery manufacturing industry have been relatively low, which could result in an increase in the number of competitors entering the
industry. Competition for sales exists domestically and internationally at the manufacturer, distributor and towing-operator levels and is
based primarily on product quality and innovation, reputation, technology, customer service, product availability and price. Competition for
sales also comes from 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. If these competitors
are able to make it more difficult for us to attract or retain customers, it could have a negative impact on our sales, revenue and financial
performance.
We depend upon skilled labor to manufacture our products, and 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.
We must attract, train and retain skilled employees while controlling related labor costs and maintaining our core values, including safety
standards. Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates and increases in
healthcare and other insurance costs. 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, while our employees are not currently members of a union, there can be no assurance that the
employees at any of our facilities will not choose to become unionized in the future.
The catastrophic loss of one of our manufacturing facilities could harm our business, financial condition and results of operations.
While we manufacture our products in several facilities and maintain insurance covering our facilities, including business
interruption insurance to mitigate losses resulting from any production interruption or shutdown caused by an insured loss, a catastrophic
loss of the use of all or a portion of any one of our manufacturing facilities due to accident, labor issues, weather conditions, natural disaster,
civil unrest, terrorist acts, military conflict and disease outbreaks (including the COVID-19 pandemic), or otherwise, whether short or long-
term, could materially harm our business, financial condition and results of operations. Any recovery under our insurance policies may not
offset the lost sales or increased costs that may be experienced during the disruption of operations.
Risks Related to Legal, Regulatory and Compliance Matters
Failure to comply with domestic and foreign anti-corruption laws could have an adverse effect on our business.
Our international operations require us to comply with a number of U.S. and international laws and regulations, including those
involving anti-bribery and anti-corruption. Failure to comply with the Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act, and
other foreign anti-bribery laws could have an adverse effect on our business. Violations of these laws, or allegations of such violations, could
result in our incurring significant fees and having fines and criminal sanctions imposed on us or our employees, and could adversely impact
our business with government entities.
Our future success depends upon our ability to develop or acquire proprietary products and technology and assertions against us
relating to intellectual property rights could harm our business.
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. While we are continuing
to develop new technology and apply for patents, if we are unable to develop or acquire new products and technology in the future, our
ability to maintain market share, and, consequently, our revenues and operating results, may be negatively affected.
Third parties may claim that our products infringe their patents or other intellectual property rights. If a competitor were to challenge
our patents, or assert that our products or processes infringe its patent or other intellectual property rights, we could incur substantial litigation
costs, be forced to design around their patents, pay substantial damages or even be forced to cease our operations, any of which could be
expensive and/or have an adverse effect on our operating results. Third party infringement claims, regardless of their outcome, would not
14
only consume our financial resources, but also would divert the time and effort of our management and could result in our customers or
potential customers deferring or limiting their purchase or use of the affected products or services until resolution of the litigation.
Changes in the tax regimes and related government policies and regulations in the countries in which we operate could adversely affect
our results and our effective tax rate.
As a result of our international operations, we are subject to various taxes in both U.S. and non-U.S. jurisdictions. Due to economic
and political conditions, tax laws, regulations and rates in these various jurisdictions may be subject to significant change. Our future effective
income tax rate could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation
of deferred tax assets or changes in tax laws or their interpretation. Changes to long-standing tax principles in the countries in which we
operate could adversely affect our effective tax rate or result in higher cash tax liabilities. Increases in our effective tax rate or tax liabilities
could have a material adverse effect on us.
The effects of regulations relating to conflict minerals may adversely affect our business.
In 2012, the SEC adopted rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act to improve transparency
and accountability concerning the supply of certain minerals, known as “conflict minerals”, originating from the Democratic Republic of
Congo and adjoining countries. These rules could adversely affect the sourcing, availability and pricing of such minerals if they are found
to be used in the manufacture of our products, as the number of suppliers who provide conflict-free minerals may be limited. In addition, we
have incurred and expect to incur additional costs to comply with the disclosure requirements, including costs related to determining the
source of any of the relevant minerals and metals used in our products. In addition to the SEC regulation, the European Union adopted new
requirements for European Union importers of conflict minerals, which went into effect on January 1, 2021, and that may impact and increase
the cost of our conflict minerals compliance program. The Company’s supply chain is complex. As a result, we have encountered and
continue to expect significant difficulty in determining the country of origin or the source and chain of custody for all “conflict minerals”
used in our products and disclosing that our products are “conflict free” (meaning that they do not contain “conflict minerals” that directly
or indirectly finance or benefit armed groups in the Democratic Republic of the Congo or an adjoining country). We may face reputational
challenges from customers, investors or others if we are unable to verify the origins for all “conflict minerals” used in our products. In such
event, we may also face difficulties in satisfying customers who may require that all of the components of our products be certified as conflict
mineral free.
Environmental and health and safety liabilities and requirements could require us to incur material costs.
We are subject to various U.S. and foreign laws and regulations relating to environmental protection and worker health and safety,
including those governing discharges of pollutants into the ground, air and water; the generation, handling, use, storage, transportation,
treatment and disposal of hazardous substances and waste materials; and the investigation and cleanup of contaminated properties. In certain
cases, these regulatory requirements may limit the productive capacity of our operations.
Environmental and health-related requirements are complex, subject to change and have tended to become more and more stringent.
Future developments could cause us to incur various expenditures and could also subject us to fines or sanctions, obligations to investigate
or remediate contamination or restore natural resources, liability for third party property damage or personal injury claims and the imposition
of new permitting requirements and/or the modification or revocation of our existing operating permits, among other effects. These and other
developments could materially harm our business, financial condition and results of operation.
A product warranty or 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 warranty 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. If we manufacture poor quality products or receive defective
materials, we may incur unforeseen costs in excess of what we have reserved in our financial statements. A successful product warranty,
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. In
addition, we are subject to potential recalls of components or parts manufactured by suppliers which we purchase and incorporate into our
towing and recovery equipment products, as well as potential recalls of our products from customers to cure manufacturing defects or in the
15
event of a failure to comply with applicable regulatory standards or customers’ order specifications. Moreover, the adverse publicity that
may result from a product liability claim, perceived or actual defect with our products or a product recall could have a material adverse effect
on our ability to market our products successfully.
Risks Related to Our Common Stock
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, including our ability to pay dividends, could cause the market price of our common stock to fluctuate
substantially.
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.
Risks Related to Indebtedness and Liquidity
Our credit facility could restrict our ability to operate our business and failure to comply with its terms could adversely affect our
business; our obligations to repurchase products from third-party lenders to our distributors could adversely impact our future
revenues and financial condition.
Our credit facility contains customary representations and warranties, events of default, and financial, affirmative and negative
covenants for loan agreements of this kind. In addition, covenants under our current credit facility restrict our ability to pay cash dividends
if the Company would be in violation of the minimum tangible net worth test or the leverage ratio test in the current loan agreement as a
result of the dividend, among various restrictions. We have been in compliance with these covenants throughout 2020 and anticipate that we
will continue to be in compliance during 2021. If we fail to comply with the requirements of our current credit facility, such non-compliance
would result in an event of default. If not waived by the bank, such event of default would result in the acceleration of any amounts due
under the current credit facility.
We also have certain obligations to repurchase our products repossessed by third-party lenders if our distributors should default in
their obligations to those lenders. Such repurchases could result in reduced net revenue in future periods as we resell such products and, if
we are unable to sell the products, could adversely impact our financial condition.
We cannot assure you that we will continue to declare dividends on our common stock.
Our board of directors approved a dividend policy in 2011 to consider and pay quarterly dividends on our common stock subject to
our ability to satisfy all applicable statutory requirements and our continued financial strength. While we currently intend to pay a quarterly
dividend on shares of our common stock, to the extent that we have sufficient funds available for such purpose, the declaration, amount and
payment of any future dividends on shares of common stock will be at the sole discretion of our board of directors and we may reduce or
discontinue entirely the payment of such dividends at any time. Our board of directors may take into account general and economic
conditions, our financial condition and operating results, capital requirements, restrictions in financing agreements and such other factors as
they may deem relevant from time to time.
16
General Risk Factors
A disruption in, or breach in security of, our information technology ("IT") systems or any violation of data protection laws could
adversely impact our business and operations.
We rely on the accuracy, capacity and security of our IT systems and our ability to update these systems in response to the changing
needs of our business. We use our IT systems to collect and store confidential and sensitive data, including information about our business,
our customers, our suppliers and our employees. We rely on IT systems to protect this information and to keep financial records, process
orders, manage inventory, coordinate shipments to customers, and operate other critical functions. Our IT systems may be disrupted or fail
for a number of reasons, including natural disasters, such as fires; power loss; software “bugs”, hardware defects or human error or
malfeasance; or security breaches caused by hacking, computer viruses, malware, ransomware or other cyber-attacks.
As technology continues to evolve, we anticipate that we will collect and store even more data in the future and that our systems
will increasingly use remote communication features that are susceptible to both willful and unintentional security breaches. We have
incurred costs and expect to incur significant additional costs in order to implement security measures that we feel are appropriate to protect
our IT systems. Despite these efforts, future attacks could result in our systems or data being breached and/or damaged by computer viruses
or unauthorized physical or electronic access. Such a breach could result in theft of our intellectual property or trade secrets and/or
unauthorized access to controlled data and personal information stored in connection with our human resources function. In the event of a
breach in security that allows third parties access to personal information, we are subject to a variety of ever-changing laws on a global basis
that may require us to provide notification to the data owners, and that may subject us to lawsuits, fines and other means of regulatory
enforcement or harm employee morale.
Any disruption, outage or breach of our IT systems could result in interruption of our business operations, damage to our
reputation and a loss of confidence in our security measures, all of which could adversely affect our business. In addition, if our systems
are improperly implemented, breached, damaged or cease to function properly, we may have to make significant investments to fix or
replace them. To the extent that any data is lost or destroyed or any confidential information is inappropriately disclosed or used, it could
adversely affect our competitive position or customer relationships, harm our business and possibly lead to significant claims, liability, or
fines based upon alleged breaches of contract or applicable laws. Regulators globally are also imposing greater monetary fines for privacy
violations. For example, in 2016, the European Union adopted a new law governing data practices and privacy called the General Data
Protection Regulation (“GDPR”), which became effective in May 2018. The law establishes new requirements regarding the handling of
personal data, and non-compliance with the GDPR may result in monetary penalties of up to 4% of worldwide revenue. The GDPR and
other changes in laws or regulations associated with the enhanced protection of certain types of sensitive data, such as healthcare data or
other personal information, could increase our cost of providing our products and services.
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We operate four manufacturing facilities in the United States. The facilities are located in Ooltewah (Chattanooga), Tennessee;
Hermitage, Pennsylvania; and two in Greeneville, Tennessee. The Ooltewah plant, containing approximately 309,000 square feet, produces
light and heavy-duty wreckers; the Hermitage plant, containing approximately 279,000 square feet, produces car carriers; and the Greeneville
plants, containing an aggregate of approximately 210,000 square feet, produces car carriers, heavy-duty wreckers and trailers. We opened
our free-standing R&D facility in Chattanooga in 2019, containing an aggregate of approximately 34,000 square feet, where we are pursuing
various innovations in our products and manufacturing processes.
17
Since 2015, the Company has modernized and expanded all of its domestic facilities. For a discussion of these capital projects, see
“Executive Overview” in Item 7–“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Annual
Report on Form 10-K.
We also have two manufacturing facilities and one storage facility located in the Lorraine region of France, which have, in the
aggregate, approximately 205,000 square feet, and manufacturing operations in Norfolk, England, with approximately 48,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
18
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
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.” As of February 26, 2021, there were
approximately 407 registered holders of record of our common stock. The number of record holders does not include persons who held our
common stock in nominee or “street name” accounts through brokers.
The Company has paid consecutive quarterly cash dividends since May 2011. For more information on dividends, see Note 7 to
our Consolidated Financial Statements. 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. Covenants under our current credit facility restrict the payment of cash dividends if the Company would be in violation of the
minimum tangible net worth test or the leverage ratio test in the current loan agreement as a result of the dividend, among various other
restrictions.
Sales of Unregistered Securities
We did not sell any unregistered securities during the year ended December 31, 2020.
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 Construction Machinery & Heavy Trucks Index over the period of time
from December 31, 2015 through December 31, 2020. The respective returns assume reinvestment of dividends paid.
19
Miller Industries, Inc.
NYSE Composite Index
S&P Construction Machinery & Heavy Trucks Index
ITEM 6. SELECTED FINANCIAL DATA
12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020
175
143
235
118
126
203
170
137
199
124
112
176
121
109
141
100
100
100
This item is no longer required as we have elected to early adopt the changes to Item 301 of Regulation S-K contained in SEC
Release No. 33-10890.
20
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. Unless the context indicates otherwise, all dollar amounts in this Management’s Discussion and
Analysis of Financial Condition and Results of Operations are in thousands.
Executive Overview
Miller Industries, Inc. is The World’s Largest Manufacturer of 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. In this Item 7 – “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” the words “Miller Industries,” “the Company,” “we,” “our,” “ours” and “us” refer to
Miller Industries, Inc. and its subsidiaries or any of them.
Our management focuses on a variety of key indicators to monitor our overall operating and financial performance. These indicators
include measurements of revenue, operating income, gross margin, net income, 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 including general economic conditions as well as demand for, and price of, our products, our
technological competitiveness, our reputation for providing quality products and reliable service, competition within our industry, and the
cost and availability of raw materials (including aluminum, steel and petroleum-related products) and component parts.
Our history of innovation in the towing and recovery industry has been an important factor behind our growth over the last decade
and we believe that our continued emphasis on research and development will be a key factor in our future growth. Our domestic plant
expansion and modernization projects have installed sophisticated robotics and implemented other advanced technologies to optimize our
manufacturing processes.
We opened our free-standing R&D facility in Chattanooga in 2019, where we pursue various innovations in our products and
manufacturing processes, some of which are intended to enhance the safety of our employees and reduce our environmental impact. Our
latest new product, the M100, which we believe to be the world’s largest tow truck, was introduced in the fall of 2019.
All of our domestic facilities have undergone substantial expansion and modernization projects during the period 2016 to 2020, as
we have invested over $97,000 on property, plant and equipment over this five-year period, including approximately $25,000 on our
Pennsylvania consolidation and expansion project and approximately $29,000 on building and equipment improvements at our two
Tennessee locations. These projects not only increased our production capacity, but also included installing sophisticated robotics and
implementing other advanced technologies to optimize our manufacturing process.
Our industry is cyclical in nature. Until the onset of the COVID-19 pandemic, the overall demand for our products and resulting
revenues in recent years have been positively affected by favorable economic conditions, such as lower fuel prices, and positive consumer
sentiment in our industry. However, historically, the overall demand for our products and our resulting revenues have at times been negatively
affected by:
(cid:120) wavering levels of consumer confidence;
(cid:120)
(cid:120)
volatility and disruption in domestic and international capital and credit markets and the resulting decrease in the availability
of financing, including floor plan financing, for our customers and towing operators;
significant periodic increases in fuel and insurance costs and their negative effect on the ability of our customers to purchase
towing and related equipment; and
(cid:120)
the overall effects of global, political, economic and health conditions.
21
We remain concerned about the continuing effects of these factors on the towing and recovery industry, and we continue to monitor
our overall cost structure to see that it remains in line with business conditions.
In addition, we have been and will continue to be affected by changes in the prices that we pay for raw materials, particularly
aluminum, steel, petroleum-related products and other raw materials, which represent a substantial part of our total cost of operations. Prices
in raw materials can be affected by tariffs and quantitative restrictions, such as those that were imposed by the U.S. government in 2018.
Historically, we have implemented price increases on our products to offset price increases in the raw materials that we use. We also
developed alternatives to some of the components used in our production process that incorporate these raw materials, and our suppliers
have implemented these alternatives 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.
As of December 31, 2020 and 2019, respectively, the Company owed $0 and $4,998 under its primary credit facility.
Recent Developments
In the first half of the first quarter of 2021, we experienced significant delays in deliveries to our distributors caused by changes we
made to our legacy business processes during the implementation of our new enterprise software system as well as supply chain and weather
related disruptions. The business process changes during the first half of the quarter had a significant impact on deliveries, particularly of
higher margin products. Continued implementation of the software system is not expected to have this level of impact on our manufacturing
processes, as they were due primarily to the initial data conversion and deployment of a newly created information framework. This
framework is the foundation of our migration to a multi-tenant cloud environment which includes global ERP, human capital management,
data analytics and artificial intelligence. As first mentioned in our third quarter 2019 Form 10-Q, this migration and upgrade will be done in
three phases over three years and this implementation marks the successful completion of phase one of this long-term investment in our
future. We expect to substantially improve our administrative efficiency and customer service levels as the full capabilities of our new
software system are rolled out.
The supply chain disruptions we experienced were due primarily to continued impacts from COVID-19. In addition, extreme
weather conditions across parts of the U.S and tightening availability of freight trucks caused delays in delivering products to our facilities
as well as to our customers. These factors along with our new software system implementation caused substantial downward pressures on
our revenues, margins and earnings during the first half of the first quarter of 2021. The business process improvements critical to developing
our new software system are now essentially operational, allowing our delivery schedule to return to meeting current customer demand. The
supply chain issues have been greatly reduced as of this filing but could recur. Based on our strong backlog and the current status of our
process improvements, we believe we have the opportunity to substantially improve our operating results in 2021 beyond the first quarter.
Impact of COVID-19
The spread of the COVID-19 virus during the year ended December 31, 2020 has caused an economic downturn on a global scale,
as well as significant volatility in the financial markets. We are considered a critical infrastructure industry, as defined by the U.S. Department
of Homeland Security. During the month of March 2020, we enacted limited shutdowns of all of our domestic facilities to make appropriate
modifications to our operations because of COVID-19, which allowed us to continue to serve our customers, while taking precautions to
provide a safe work environment for our employees and customers. Since that time and through the present, we have been rotating our
workforce every four days, and have designated periods of non-production time for sanitation efforts, and have adjusted work schedules to
maximize our capacity while adhering to recommended precautions such as social distancing, and have established and implemented work
from home provisions where possible. As part of our ongoing safety measures, we temporarily suspend operations from time to time to clean
and disinfect areas within our facilities. We enacted such limited suspensions from time to time at certain of our domestic facilities during
2020. Our international operations have also been affected by various comparable requirements of governmental agencies and safety related
operational adjustments. These safety modifications continue to have an adverse impact on our plant productivity, although the impact has
been less severe as we have become more accustomed to working under them. We are unable to predict when we may be able to safely relax
these new operating measures that were adopted as a result of the COVID-19 pandemic.
In March 2020, we drew $25,000 on our existing credit facility for working capital needs and as a precautionary measure to ensure
future short-term cash flow requirements were met during the heightened uncertainty resulting from the COVID-19 pandemic. However,
during the year we repaid the balance in full, as our cash position was stronger than anticipated. At December 31, 2020, we had cash and
cash equivalents of $57,521, which were substantially unchanged at February 26, 2021. Although our cash position is strong, we continue
22
to consider other steps that could be implemented to conserve liquidity in these uncertain times, including possible delays of certain capital
expenditures. We have not taken any loans or grants under the Coronavirus Aid, Relief, and Economic Security Act, also referred to as the
CARES Act, or other governmental programs, and have no plans to do so.
While we have experienced no material disruptions in our supply of parts, components and materials due to the COVID-19
pandemic, we have had material curtailments of new chassis deliveries due to shutdowns and production slowdowns at our suppliers’
facilities during the second and third quarters of 2020. During the second quarter, most of these facilities were operating at a reduced capacity,
but returned to operating at levels sufficient to meet our requirements by the end of the third quarter. We also have experienced reductions
in orders for our products since the beginning of the pandemic, although demand has steadily improved since the second quarter. This
depressed demand along with the decreases in deliveries of chassis caused us to temporarily shut our domestic plants in Pennsylvania and
Greeneville, Tennessee for several weeks at the end of the second quarter and for the first few weeks of the third quarter. Our international
plants also were adversely impacted and experienced shutdowns during the second quarter. While all of our plants have now reopened, the
possibility of new shutdowns of one or more of our facilities due to the COVID-19 pandemic remains. This decrease in our production
levels, coupled with our health and safety-related adjustments to operations, materially negatively impacted our revenues during the year,
but also served to strengthen our current backlog of orders. Our revenues recovered substantially from the second quarter levels. However,
the impacts of chassis delivery curtailments and the somewhat softened demand from towing equipment operators are still uncertain, and we
are continuing to monitor these factors to determine how they might impact our future production.
The impact of the COVID-19 pandemic continues to unfold and certain states and localities continue to experience surges in
COVID-19 cases from time to time. The extent of the pandemic’s effect on our operational and financial performance will depend in large
part on future developments, which cannot be predicted with confidence at this time. Future developments include the duration, scope and
severity of the pandemic, including as a result of the emergence of new strains of the virus and any future resurgences of COVID-19 or
variant strains, the actions taken to contain or mitigate its impact, the impact on governmental programs and budgets, the development of
treatments or vaccines, the demand for new equipment from towing equipment operators, and the resumption of widespread economic
activity. We are continuing to monitor orders from our customers for COVID-19 pandemic related changes. While we know that COVID-
19 related changes to our operating processes have and will continue to impact our production levels for so long as they are in place, due to
the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any confidence the likely impact
of the continuing COVID-19 pandemic on our future operations. Even after the COVID-19 pandemic has subsided, we may experience
materially adverse impacts to our business due to any resulting economic recession or depression, or to a general reduction in miles driven
on roadways due to a decrease in travel.
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, estimations 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.
Inventory
Inventory costs include materials, labor and factory overhead. Inventories are stated at the lower of cost or net realizable value,
determined on a first-in, first-out basis. Appropriate consideration is given to obsolescence, valuation and other factors in determining net
realizable value. Revisions of these estimates could result in the need for adjustments.
23
Long-Lived Assets
Long-lived assets 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 asset 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 estimates, we
believe that our long-lived assets are appropriately valued.
Goodwill
Goodwill is tested for impairment annually or if an event or circumstance occurs that would more likely than not reduce the fair
value of the reporting unit below the carrying amount. Goodwill is reviewed for impairment utilizing a qualitative assessment and, if
necessary, a quantitative assessment. If we perform a qualitative analysis of goodwill and determine that fair value more likely than not
exceeds the carrying value of the reporting unit, no further testing is needed. Alternatively, if we elect to utilize a quantitative assessment,
an impairment loss would be recognized to the extent that the carrying value of the reporting unit exceeds its fair value, not to exceed the
carrying value of the goodwill. We cannot predict the occurrence of certain events or changes in circumstances that might adversely affect
the carrying value of goodwill. Such events might include, but are not limited to, the impact of the economic environment or a material
change in a relationship with significant customers.
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
Our income tax expense, deferred tax assets and liabilities for unrecognized tax benefits reflect management’s best assessment of
estimated current and future taxes to be paid. We are subject to income taxes in both the United States and foreign jurisdictions. Significant
judgments and estimates are required in determining the consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts
in the financial statements, which will result in deductible or taxable amounts in the future. In evaluating our ability to recover our deferred
tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. The assumptions
about future taxable income require significant judgment and are consistent with the plans and estimates we use to manage the underlying
businesses.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in
multiple jurisdictions. Accounting Standards Codification (“ASC”) 740 states that a tax benefit from an uncertain tax position may be
recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals
or litigation process, on the basis of the technical merits.
We (1) record unrecognized tax benefits as liabilities in accordance with ASC 740 and (2) adjust these liabilities when our judgment
changes because of the evaluation of new information not previously available to us. Because of the complexity of some of these
uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax
benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information
is available.
24
Revenues
Under our accounting policies, revenues are recognized when obligations under the terms of a contract with a customer are satisfied.
Generally, this occurs upon shipment, which is when control has transferred to independent distributors or other customers. From time to
time, revenue is recognized under a bill and hold arrangement. Recognition of revenue on bill and hold arrangements occurs when control
transfers to the customer. Our policy requires the reason for the bill and hold arrangement to be substantive, and the product to be separately
identified as belonging to the customer, ready for physical transfer, and unavailable to be used or directed to another customer.
Revenue is measured as the amount of consideration expected to be received in exchange for the transfer of products. Sales and
other taxes collected concurrent with revenue-producing activities are excluded from revenue. Warranty related costs are recognized as an
expense at the time products are sold. Depending on the terms of the arrangement, for certain contracts the Company may defer the
recognition of a portion of the consideration received because a future obligation has not yet been satisfied, such as an extended service
contract. An observable stand-alone selling price for separate performance obligations or a cost plus margin approach is utilized when one
is not available.
While we manufacture only the bodies of wreckers and car carriers, which are installed on truck chassis manufactured by third
parties, we frequently purchase truck chassis for resale to our customers. Sales of company-purchased truck chassis are included in net sales.
Margin percentages are substantially lower on completed recovery vehicles containing company-purchased chassis.
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. Foreign currency translation
adjustments are included in shareholders’ equity. Intercompany transactions denominated in a currency other than the functional currency
are remeasured into the functional currency. Gains and losses resulting from foreign currency transactions are included in other (income)
expense, net in our consolidated statements of income.
Results of Operations
The following table sets forth, for the years indicated, the components of the consolidated statements of income expressed as
a percentage of net sales.
Net Sales
Costs of operations
Gross Profit
Operating Expenses:
Selling, general and administrative
Non-operating (income) expenses
Interest expense, net
Other (income) expense, net
Total expenses, net
Income before income taxes
2020
100.0 %
88.0 %
12.0 %
2019
100.0 %
88.2 %
11.8 %
2018
100.0 %
88.3 %
11.7 %
6.1 %
5.3 %
5.6 %
0.2 %
(0.1)%
6.2 %
5.8 %
0.3 %
— %
5.6 %
6.2 %
0.3 %
(0.1) %
5.8 %
5.9 %
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Net sales were $651,286 for the year ended December 31, 2020, compared to $818,166 for the year ended December 31, 2019, a
decrease of 20.4%. The decrease in our revenue stream was largely attributable to chassis supply chain issues, shutdown periods due to soft
demand, and health and safety-related adjustments to operations, all attributable to impacts of the COVID-19 pandemic. Net domestic sales
decreased during the period from $697,002 to $556,540, and net foreign sales decreased from $121,164 to $94,746 during the same period.
Net sales in the fourth quarter were $178,337, which reflected continued recovery from the pandemic impacted level of $128,529 in the
second quarter of the year.
25
Costs of operations decreased 20.6% to $572,928 for the year ended December 31, 2020 from $721,678 for the year ended
December 31, 2019. Overall, costs of operations as a percentage of net sales decreased from 88.2% for the year ended December 31, 2019
to 88.0% for the year ended December 31, 2020, primarily due to differences in product mix.
Selling, general and administrative expenses for the year ended December 31, 2020 decreased to $39,714 from $43,394 for the year
ended December 31, 2019, primarily due to decreases in travel related expenses and other professional fees. As a percentage of net sales,
selling, general and administrative expenses increased to 6.1% for 2020 from 5.3% for 2019, primarily due to fixed period costs relative to
reduced sales levels.
Interest expense, net decreased to $1,215 for the year ended December 31, 2020 from $2,378 for the year ended December 31,
2019. Decreases in interest expense, net were primarily due to decreases in interest on distributor floor plan activity, decreases in interest on
the credit facility, and decreases in interest to chassis suppliers.
When the Company has transactions that are denominated in a currency other than its functional currency, the Company is exposed
to foreign currency transaction risk and must record gains and losses through other (income) expense when the related balance sheet items
are remeasured in the functional currency of the Company. Other (income) expense, net is composed primarily of these foreign currency
exchange gains and losses, with the remainder being composed of gains and losses on disposals of equipment. The Company experienced a
net foreign currency exchange gain of $685 for 2020 compared to a net exchange loss of $274 for 2019.
The provision for income taxes for the years ended December 31, 2020 and 2019 reflects a combined federal, state and foreign tax
rate of 21.7% and 22.4%, respectively, which corresponds to a tax provision of $8,267 for 2020 as compared to $11,274 for 2019. Our tax
rate in 2020 compares favorably to 2019 primarily due to increases in R&D tax credit estimates for 2020. For more information on the
effective tax rate, see Note 6 to our Consolidated Financial Statements.
During the fourth quarter of 2020, despite the unique challenges of the continuing COVID-19 pandemic, the Company experienced
strengthening demand and increased operations at its domestic production facilities in comparison to the prior two quarters due to a steadying
supply chain, more normalized operations and the absence of domestic shutdowns, which led to improved revenues during the period. In
addition, the Company continued to experience reduced selling, general and administrative costs due to reduced travel and accrued expense
adjustments for cancelled trade shows and various other marketing events. For these reasons, net income for the fourth quarter substantially
exceeded that from the previous three quarters of the year.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
For a comparison of the 2019 to 2018 reporting periods, see Part II, Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations - “Results of Operations - Year Ended December 31, 2019 Compared to Year Ended December 31,
2018” of our Annual Report on Form 10-K filed on March 4, 2020 for the fiscal year ended December 31, 2019.
Liquidity and Capital Resources
Cash provided by operating activities during 2020 was $60,709, compared to $35,132 provided during 2019. Cash provided by
operating activities is generally attributable to the receipt of payments from our customers as settlement of their contractual obligation once
we have fulfilled all performance obligations related to our contracts with them. These cash receipts are netted with payments for purchases
of inventory, payments for materials used in manufacturing, and other payments that are necessary in the ordinary course of our operations,
such as those for utilities and taxes. Our decreased revenue stream during the 2020 caused less cash to be used for purposes of new production
while receivables from higher sales levels of the prior year continued to flow in, resulting in substantially greater cash provided by operating
activities during the year. During 2020, we have largely used available cash flow from operations to pay for capital expenditures, to pay
dividends and to repay the debt balance under our credit facility. Cash from operations in 2019 was favorably impacted by increases in
revenue growth resulting from our incremental increases in production capacities and favorable changes in inventory levels.
Cash used in investing activities during 2020 was $17,224, compared to $17,063 used during 2019. The cash used in investing
activities for 2020 and 2019 was primarily for the purchase of property, plant and equipment, including a significant equipment upgrade
project at our Greeneville, Tennessee location.
26
Cash used in financing activities during 2020 was $13,631, compared to $18,597 used during 2019. The cash used in financing
activities in 2020 was primarily attributable to dividend payments of $8,212, net payments on the credit facility of $4,998, net payments on
our French subsidiary’s loan of $400, and an immaterial amount of payments on finance lease obligations. The cash used in financing
activities in 2019 was primarily attributable to net payments on the credit facility of $10,002, dividend payments of $8,208, net payments
on our French subsidiary’s loan of $367, and an immaterial amount of payments on finance lease obligations.
As of December 31, 2020, we had cash and cash equivalents of $57,521. Our primary cash requirements include working capital,
capital expenditures, the funding of any declared cash dividends and principal and interest payments on indebtedness. At December 31,
2020, we had commitments of approximately $7,068 for the acquisition of property and equipment, which includes $1,736 on a fabrication
equipment upgrade project at our Greeneville, Tennessee location. As of December 31, 2020, we also had commitments of $5,266 in software
license fees. We expect our primary sources of cash to be cash flow from operations and cash and cash equivalents on hand at December 31,
2020, with borrowings under our credit facility being available as needed. We expect these sources to be sufficient to satisfy our cash needs
during 2021 and for the next several years. However, our ability to satisfy our cash needs will substantially depend upon a number of factors
including our future operating performance, taking into account the economic, regulatory and other factors discussed above and elsewhere
in this Annual Report, as well as financial, business and other factors, many of which are beyond our control.
At December 31, 2020 and 2019, $22,787 and $18,103, respectively, of the Company’s cash and temporary investments were held
by foreign subsidiaries based in the local currency. We do not currently have plans to repatriate undistributed foreign earnings to the United
States and have not determined any timeline or amount for any such future distributions.
During 2019, in addition to investments in manufacturing equipment technology, the Company purchased a facility in Chattanooga
to be used in research and development and various other activities. During 2020, the Company took advantage of temporary shutdown
periods and engaged in a project to significantly upgrade fabrication equipment at its Greeneville, Tennessee location.
For a discussion of the 2019 reporting period, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations - “Liquidity and Capital Resources” of our Annual Report on Form 10-K filed on March 4, 2020 for the fiscal
year ended December 31, 2019.
Contractual Obligations
The following is a summary of our contractual obligations as of December 31, 2020.
Contractual Obligations (1)(2)
Operating and Finance Lease Obligations
Purchase Obligations (2)
Revolving Credit Facility
Other Long-term Obligations
Software License Fees
Capital Projects (3)
Total
Total
$ 1,613 $
34,316
—
—
5,266
7,068
$ 48,263 $
Payment Due By Period (in thousands)
Less than
1 year
1-3 years
3-5 years
428 $
34,316
—
—
2,008
7,068
660 $
—
—
—
2,172
—
43,820 $ 2,832 $ 1,532 $
446 $
—
—
—
1,086
—
More than
5 years
79
—
—
—
—
—
79
(1) Amounts do not include potential contingent obligations of $56,822 under repurchase commitments with third-party lenders in the event
of independent distributor customer default.
(2) Purchase obligations represent open purchase orders for raw materials and other components issued in the normal course of business.
(3) Represents commitments to various capital projects and equipment acquisitions.
27
Credit Facility and Other Obligations
Credit Facility
On December 21, 2020, we amended and restated our loan agreement with First Horizon Bank (formerly known as First Tennessee
Bank National Association), which governs our existing $50,000 unsecured revolving credit facility, to (i) renew and extend the maturity
date from May 31, 2022 to May 31, 2027 and make certain other conforming changes, (ii) amend the tangible net worth covenant to increase
the minimum required compliance level thereunder from $160,000 to $190,000 (the Company’s tangible net worth at December 31, 2020
was approximately $271,000), and (iii) allow for the sale and leaseback of certain equipment. The credit facility contains customary
representations and warranties, events of default, and financial, affirmative and negative covenants for loan agreements of this kind.
Covenants under the credit facility restrict the payment of cash dividends if the Company would be in violation of the minimum tangible net
worth test or the leverage ratio test in the current loan agreement as a result of the dividend, among various restrictions. We have been in
compliance with these covenants throughout 2019 and 2020. In the absence of a default, all borrowings under the credit facility bear interest
at the LIBOR Rate plus 1.00% or 1.25% per annum. The Company will pay a non-usage fee under the current loan agreement at a rate per
annum equal to between 0.15% and 0.35% of the unused amount of the credit facility, which fee is paid quarterly.
Outstanding Borrowings
As of December 31, 2020, the Company had no borrowings outstanding under the credit facility. The Company continued to collect
on accounts receivable while less cash was used on working capital expenditures during the period of lower demand resulting from the
COVID-19 pandemic, thus increasing cash available for payments on the credit facility. As of December 31, 2019, the Company owed
$4,998 under the credit facility.
Our French subsidiary, Jige International S.A., had an agreement with Banque Européenne du Crédit Mutuel for an unsecured fixed
rate loan which matured at September 30, 2020. At December 31, 2019, the Company had $368 in outstanding borrowings under the loan
agreement, all of which was classified as short-term obligations on the consolidated balance sheets.
Changes in interest rates affect the interest paid on indebtedness under our credit facility because the outstanding amounts of
indebtedness under our current credit facility are subject to variable interest rates. Under our credit facility, the non-default rate of interest
is equal to the LIBOR Market Index Rate plus 1.00% or 1.25% per annum, depending on our leverage ratio, for a rate of interest of 1.14%
at December 31, 2020. A one percent change in the interest rate on our variable-rate debt would not have materially impacted our financial
position, results of operations or cash flows for the year ended December 31, 2020.
Other Long-Term Obligations
Prior to applying a discount rate to our lease liabilities, we had approximately $1,575 in non-cancellable operating lease obligations
and $38 in non-cancellable finance lease obligations at December 31, 2020. Leases with original contractual terms less than one year were
excluded from non-cancellable lease obligations.
We are in the process of implementing an enterprise software solution which we expect to substantially improve our administrative
efficiency and customer service levels. We have $5,266 in remaining contractual payments under our agreement with the software provider,
which extends through 2025.
Recent Accounting Pronouncements
Recently Issued Standards
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) 2019-12
Income Taxes (Topic 740), which among other things will require the Company to recognize franchise tax that is partially based on income
as an income-based tax. The update will be effective for financial statements issued for annual periods, and interim periods within these
annual periods, beginning after December 15, 2020, with early adoption permitted. The Company plans to apply the amendments in the
update on a modified retrospective basis. The adoption of this update will not have a material impact on the Company’s consolidated
financial statements and related disclosures.
28
Recently Adopted Standards
During the first quarter of 2020, the Company adopted ASU 2018-15 Intangibles – Goodwill and Other – Internal-Use Software
(Subtopic 350-40). The purpose of the standard is to align the requirements for capitalizing implementation costs incurred in cloud computing
arrangements that are service contracts with the requirements for capitalizing implementation costs incurred to develop or obtain internal-
use software. The Company applied the amendments in the update prospectively to all implementation costs incurred after the date of the
adoption. The adoption of this update did not have a material impact on the Company’s consolidated financial statements or related
disclosures.
29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of our business, we are exposed to market risk from changes in interest rates and foreign currency exchange
rates that could impact our results of operations and financial position. Unless the context indicates otherwise, all dollar amounts in this
“Item 7A. Quantitative and Qualitative Disclosures About Market Risk” are in thousands.
Interest Rate Risk
Changes in interest rates affect the interest paid on indebtedness under our current credit facility because the outstanding amounts
of indebtedness under our current credit facility are subject to variable interest rates. Under our current credit facility, the non-default rate
of interest is equal to the LIBOR Market Index Rate plus 1.00% or 1.25% per annum, depending on our leverage ratio, for a rate of interest
of 1.14% at December 31, 2020. A one percent change in the interest rate on our variable-rate debt would not have materially impacted our
financial position, results of operations or cash flows for the year ended December 31, 2020.
Foreign Currency Risk
We are subject to risk arising from changes in foreign currency exchange rates related to our international operations in Europe.
We manage our exposure to our foreign currency exchange rate risk through our regular operating and financing activities. Additionally,
from time to time, we enter into certain forward foreign currency exchange contracts.
During the years ended December 31, 2020, 2019, and 2018 the impact of foreign currency exchange rate changes on our results
of operations and cash flows was a net foreign currency exchange gain of $685, loss of $274, and loss of $97, respectively.
Because we report in U.S. dollars on a consolidated basis, foreign currency exchange fluctuations could have a translation impact
on our financial position. During 2020, we recognized a $2,714 increase in our foreign currency translation adjustment account because of
the weakening of the U.S. dollar against certain foreign currencies, primarily the euro, compared to a decrease of $693 during 2019 and a
decrease of $965 during 2018.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included in Part IV, Item 15 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
30
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 Co-Chief
Executive Officers and our Chief Financial Officer, 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.
Changes in Internal Control over Financial Reporting
There were no significant 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
Management’s Report on Internal Control over Financial Reporting
Management 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 consolidated financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America. The 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 consolidated financial statements in accordance with U.S. 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 consolidated 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 be inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020.
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” (2013). Based on our assessment under those criteria, we concluded that, as of
December 31, 2020, we maintained effective internal control over financial reporting.
Elliott Davis, LLC, the independent registered public accounting firm who audited the Company’s consolidated financial statements
included in this report, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2020, which appears herein.
March 3, 2021
31
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Miller Industries, Inc.:
Opinion on the Internal Control Over Financial Reporting
We have audited Miller Industries, Inc.’s and its subsidiaries (the Company) internal control over financial reporting as of December 31,
2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2020, based on the criteria established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income,
shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes to the
consolidated financial statements and financial statement schedule listed in the index at Item 15, of the Company and our report dated
March 3, 2021, expressed an unqualified opinion.
Basis for Opinion
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 in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are
a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Elliott Davis, LLC
Chattanooga, Tennessee
March 3, 2021
32
ITEM 9B. OTHER INFORMATION
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The Proxy Statement for our Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A not later than 120 days after the end of our 2020 fiscal year, will contain information relating to our directors and audit
committee, compliance with Section 16(a) of the Exchange Act (if there are any applicable delinquencies to report), and our code of ethics
applicable to our chief executive, financial and accounting officers, which information is incorporated by reference herein. Information
relating to our executive officers is included in Part I, Item 1 of this report.
ITEM 11. EXECUTIVE COMPENSATION
The Proxy Statement for our Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A not later than 120 days after the end of our 2020 fiscal year, will contain our compensation committee report, information
relating to director and executive officer compensation and information relating to compensation committee interlocks and insider
participation, each of which is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The Proxy Statement for our Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A not later than 120 days after the end of our 2020 fiscal year, 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The Proxy Statement for our Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A not later than 120 days after the end of our 2020 fiscal year, 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 ACCOUNTING FEES AND SERVICES
The Proxy Statement for our Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A not later than 120 days after the end of our 2020 fiscal year, will contain information relating to the fees charged and
services provided by Elliott Davis, LLC, our principal accountants, and our pre-approval policy and procedures for audit and non-audit
services, which information is incorporated by reference into this report.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this Report:
1.
Financial Statements
33
Description
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
2.
Financial Statement Schedules
Page
Number
in Report
F-2
F-4
F-5
F-6
F-7
F-8
F-9
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
Schedule II - Valuation and Qualifying Accounts
Page
Number
in Report
F-21
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
3.2
Charter, as amended, of the Registrant
Second Amended and Restated Bylaws of the
Registrant
4.1
Description of the Registrant’s Securities
—
—
—
Form 10-K
April 22, 2002
Form 10-K
March 6, 2019
3.1
3.2
Form 10-K
March 4, 2020
4.1
10.1
Form of Noncompetition Agreement between the
Registrant and certain officers of the Registrant
33-79430
S-1
August 1994
10.28
10.2
Form of Indemnification Agreement by and
—
Form 10-Q
between the Registrant and each of Theodore H.
Ashford, III, Jeffrey I. Badgley, A. Russell
September 14,
1998
10
34
Description
Chandler, III, Frank Madonia, William G. Miller,
William G. Miller, II, Josias W. Reyneke, Leigh
Walton, Deborah L. Whitmire, and Richard H.
Roberts **
10.3
Miller Industries, Inc. 2005 Equity Incentive
Plan**
10.4
2013 Non-Employee Director Stock Plan**
10.5
Amendment No. 1 to Miller Industries, Inc. 2013
Non-Employee Director Stock Plan**
10.6
Miller Industries, Inc. 2016 Stock Incentive Plan
**
10.7
Amended and Restated Loan Agreement, dated as
of December 21, 2020, by and among the
Registrant, certain of the Registrant’s wholly-
owned subsidiaries, and First Horizon Bank
Incorporated
by Reference
to Registration
File Number
Form or
Report
Date of Report
Exhibit
Number in
Report
—
—
—
—
—
Schedule
14A
Schedule
14A
May 2, 2005
Annex B
April 22, 2013
Annex A
Form 8-K
March 15, 2017
10.1
Schedule
14A
Form 8-K
April 19, 2017 Appendix
A
10.1
10.2
December 23,
2020
December 23,
2020
10.8
Amended and Restated Master Revolving Credit
—
Form 8-K
Note dated as of December 21, 2020 issued by the
Registrant to First Horizon Bank
21
Subsidiaries of the Registrant*
23.1
Consent of Elliott Davis, LLC*
24
Power of Attorney (see signature page)(cid:13)
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
32.2
Certification Pursuant to Section 1350 of Chapter
63 of Title 18 of United States Code by Co-Chief
Executive Officer±
Certification Pursuant to Section 1350 of Chapter
63 of Title 18 of United States Code by Co-Chief
Executive Officer±
35
Incorporated
by Reference
to Registration
File Number
Form or
Report
Date of Report
Exhibit
Number in
Report
Description
32.3
Certification Pursuant to Section 1350 of Chapter
63 of Title 18 of United States Code by Chief
Financial Officer±
101.INS
Inline XBRL Instance Document – the instance
document does not appear in the Interactive Data
File because its XBRL tags are embedded within
the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema
Document
101.CAL
Inline XBRL Taxonomy Extension Calculation
Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition
Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label
Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation
Linkbase Document
104
The cover page from the Company’s Annual
Report on Form 10-K for the year ended
December 31, 2020, has been formatted in Inline
XBRL
* Filed herewith.
± Exhibit is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subjected to
the liabilities of that Section. This exhibit shall not be incorporated by reference into any given registration statement or other
document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a
filing.
** 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) The Registrant hereby files as financial statement schedules to this Report the financial statement schedules set forth in Item 15(a)2
hereof.
ITEM 16. FORM 10-K SUMMARY
None.
36
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2020 AND 2019
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2020,
2019 AND 2018
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2020,
2019 AND 2018
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SCHEDULE II –VALUATION AND QUALIFYING ACCOUNTS
F-2
F-4
F-5
F-6
F-7
F-8
F-9
F-21
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Miller Industries, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Miller Industries, Inc. and its subsidiaries (the “Company”) as of
December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 2020, and the related notes to the consolidated financial statements and financial
statement schedule listed in the index at Item 15 (collectively, the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted
in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 3,
2021, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that
was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to
the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Income Taxes
Critical Audit Matter Description
As described in Note 6 to the consolidated financial statements, the Company operates in many different geographic locations, including
several foreign, state and local tax jurisdictions. Establishing its deferred income tax assets and liabilities and its provision for income taxes
requires management to make assumptions and judgments regarding the application of complex tax laws and regulations as well as projected
future operating results, eligible carry forward periods, and tax planning opportunities. Deferred tax assets and liabilities are measured and
recorded using current enacted tax rates, which management expects will apply to taxable income in the years in which those temporary
differences are recovered or settled. Management also evaluates the need for valuation allowances to reduce the deferred tax assets to
realizable amounts. The Company recorded a provision for income taxes of $8.3 million for the year ended December 31, 2020 and net
F-2
deferred income tax liabilities of $4.1 million as of December 31, 2020. As of December 31, 2020, management has determined that it is
more likely than not that all of the Company’s deferred tax assets are realizable against expected future taxable income.
The principal considerations for our determination that performing procedures relating to income taxes is a critical audit matter are the
significant judgment and estimation by management when assessing current enacted tax laws and published tax guidance as it relates to
determining the provision for income taxes as well as in assessing the realizability of its deferred income tax assets, specifically related to
evaluating positive and negative evidence regarding past and future events, including operating results. This resulted in significant audit
effort, judgment, and subjectivity in performing procedures and evaluating audit evidence relating to income taxes. The audit effort involved
the use of professionals with specialized skill and knowledge to assist in performing procedures and evaluating the audit evidence obtained
from these procedures.
How the Critical Audit Matter Was Addressed in the Audit
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing the effectiveness of controls relating to income taxes, including
management’s controls over the application of current enacted tax laws and published tax guidance and their impact to the current year
provision, the establishment of deferred tax assets and liabilities, and the evaluation of the realizability of deferred tax assets. These
procedures included (i) testing the provision for income taxes and the application of current enacted tax laws and published tax guidance,
including the effective tax rate reconciliation, return to provision adjustments, and permanent and temporary differences, (ii) testing the
underlying data used in establishing and measuring deferred tax assets and liabilities, and (iii) evaluating management’s assessment of the
realizability of deferred tax assets by evaluating factors used in management’s assessment of positive and negative evidence regarding past
and future events, including operating results and the related expected utilization of deferred tax assets. Professionals with specialized skill
and knowledge were used to assist in the evaluation of the calculations, including application of relevant tax laws and published tax guidance.
We have served as the Company’s auditor since 2003.
/s/ Elliott Davis, LLC
Chattanooga, Tennessee
March 3, 2021
F-3
MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2020 AND 2019
(In thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash and temporary investments
Accounts receivable, net of allowance for doubtful accounts of $1,295 and $1,106 at
December 31, 2020 and December 31, 2019, respectively
Inventories, net
Prepaid expenses
Total current assets
NONCURRENT ASSETS:
Property, plant and equipment, net
Right-of-use assets - operating leases
Goodwill
Other assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued liabilities
Current portion of operating lease obligation
Current portion of finance lease obligation
Short-term obligations
Total current liabilities
NONCURRENT LIABILITIES
Long-term obligations
Noncurrent portion of operating lease obligation
Noncurrent portion of finance lease obligation
Deferred income tax liabilities
Total liabilities
COMMITMENTS AND CONTINGENCIES (Note 5)
2020
2019
$
57,521
$
26,072
$
$
$
$
141,642
83,939
3,167
286,269
98,620
1,468
11,619
434
398,410
85,534
24,773
354
21
—
110,682
—
1,116
15
4,144
115,957
168,619
87,965
4,796
287,452
90,735
1,640
11,619
521
391,967
95,750
27,813
330
21
368
124,282
4,998
1,307
37
3,416
134,040
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 5,000,000 shares authorized, none issued or outstanding
Common stock, $0.01 par value; 100,000,000 shares authorized, 11,405,468 and 11,400,102,
outstanding at December 31, 2020 and December 31, 2019, respectively
Additional paid-in capital
Accumulated surplus
Accumulated other comprehensive loss
Total shareholders’ equity
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
—
—
114
151,249
133,879
(2,789)
282,453
398,410
$
114
151,055
112,261
(5,503)
257,927
391,967
$
The accompanying notes are an integral part of these consolidated statements.
F-4
MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
(In thousands, except per share data)
NET SALES
COSTS OF OPERATIONS
GROSS PROFIT
OPERATING EXPENSES:
Selling, general and administrative expenses
NON-OPERATING (INCOME) EXPENSES:
Interest expense, net
Other (income) expense, net
Total expense, net
INCOME BEFORE INCOME TAXES
INCOME TAX PROVISION
NET INCOME
BASIC INCOME PER COMMON SHARE
DILUTED INCOME PER COMMON SHARE
2020
2019
2018
$
651,286 $
572,928
78,358
818,166 $
721,678
96,488
711,706
628,370
83,336
39,714
43,394
39,542
1,215
(668)
40,261
2,378
331
46,103
1,878
253
41,673
38,097
8,267
29,830 $
50,385
11,274
39,111 $
41,663
7,917
33,746
2.62 $
2.62 $
3.43 $
3.43 $
2.96
2.96
$
$
$
CASH DIVIDENDS DECLARED PER COMMON SHARE
$
0.72 $
0.72 $
0.72
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic
Diluted
11,405
11,405
11,400
11,400
11,388
11,393
The accompanying notes are an integral part of these consolidated statements.
F-5
MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
(In thousands)
NET INCOME
OTHER COMPREHENSIVE LOSS:
Foreign currency translation adjustment
Total other comprehensive loss
2020
29,830 $
2019
39,111 $
2018
33,746
$
2,714
2,714
(693)
(693)
(965)
(965)
COMPREHENSIVE INCOME
$
32,544 $
38,418 $
32,781
The accompanying notes are an integral part of these consolidated statements.
F-6
MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
(In thousands, except share data)
BALANCE, January 1, 2018
Prior period accounting reclassification
Components of comprehensive income:
Net income
Foreign currency translation adjustments
Total comprehensive income
Issuance of common stock to non-employee directors (5,814)
Exercise of stock options (10,250)
Dividends paid, $0.72 per share
BALANCE, December 31, 2018
Cumulative effect adjustment for adoption of ASU 2016-02
BALANCE, January 1, 2019
Components of comprehensive income:
Net income
Foreign currency translation adjustments
Total comprehensive income
Issuance of common stock to non-employee directors (5,556)
Dividends paid, $0.72 per share
BALANCE, December 31, 2019
Components of comprehensive income:
Net income
Foreign currency translation adjustments
Total comprehensive income
Issuance of common stock to non-employee directors (5,366)
Dividends paid, $0.72 per share
BALANCE, December 31, 2020
Common
Stock
Additional
Paid-In
Capital
Accumulated Comprehensive
Surplus
Accumulated
Other
$ 114 $ 150,699 $ 55,256 $
—
552
—
Total
Loss
(3,293) $ 202,776
—
(552)
—
—
—
—
—
—
114
—
114
—
—
—
—
—
114
—
—
—
150
56
—
150,905
—
150,905
33,746
—
34,298
—
—
(8,200)
81,354
4
81,358
—
—
—
150
—
151,055
39,111
—
39,111
—
(8,208)
112,261
—
—
—
—
—
—
—
—
194
—
$ 114 $ 151,249 $ 133,879 $
29,830
—
29,830
—
(8,212)
—
(965)
(1,517)
—
—
—
(4,810)
—
(4,810)
33,746
(965)
32,781
150
56
(8,200)
227,563
4
227,567
—
(693)
(693)
—
—
(5,503)
39,111
(693)
38,418
150
(8,208)
257,927
—
2,714
2,714
—
—
29,830
2,714
32,544
194
(8,212)
(2,789) $ 282,453
The accompanying notes are an integral part of these consolidated statements.
F-7
MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
(In thousands)
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization
(Gain) loss on disposal of property, plant and equipment
Provision for doubtful accounts
Issuance of non-employee director shares
Deferred tax provision
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses
Other assets
Accounts payable
Accrued liabilities
Net cash flows from operating activities
INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Net cash flows from investing activities
FINANCING ACTIVITIES:
Net proceeds (payments) under credit facility
Payments of cash dividends
Net proceeds (payments) on other long-term obligations
Finance lease obligation payments
Proceeds from exercise of stock options
Net cash flows from financing activities
2020
2019
2018
$
29,830 $
39,111 $
33,746
9,598
17
195
194
752
27,375
5,466
1,652
321
(10,881)
(3,810)
60,709
(17,500)
276
(17,224)
(4,998)
(8,212)
(400)
(21)
—
(13,631)
9,127
(21)
15
150
1,708
(19,605)
5,453
(1,529)
609
(2,165)
2,279
35,132
(17,391)
328
(17,063)
(10,002)
(8,208)
(367)
(20)
—
(18,597)
7,745
156
214
150
568
(19,353)
(23,865)
989
60
19,425
2,062
21,897
(13,342)
141
(13,201)
5,000
(8,200)
56
—
179
(2,965)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND TEMPORARY
INVESTMENTS
NET CHANGE IN CASH AND TEMPORARY INVESTMENTS
CASH AND TEMPORARY INVESTMENTS, beginning of period
CASH AND TEMPORARY INVESTMENTS, end of period
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest
Cash payments for income taxes, net of refunds
1,595
31,449
26,072
57,521 $
(437)
(965)
27,037
26,072 $
(589)
5,142
21,895
27,037
2,052 $
6,721 $
3,249 $
10,067 $
2,437
7,457
$
$
$
The accompanying notes are an integral part of these consolidated statements.
F-8
MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and except as otherwise noted)
1.
ORGANIZATION AND NATURE OF OPERATIONS
Miller Industries, Inc. and subsidiaries (the “Company”) is The World’s Largest Manufacturer of Towing and Recovery
Equipment.® The principal markets for the Company’s towing and recovery equipment are approximately 80 independent distributors and
the 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®, Titan®, JigeTM,
BonifaceTM, Vulcan®, and ChevronTM.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. 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.
To facilitate timely reporting, the consolidated financial statements include accounts of certain subsidiaries whose fiscal closing
dates differ from December 31st by 31 days (or less).
Cash and Temporary Investments
Cash and temporary investments include all cash and cash equivalent investments with original maturities of three months or less.
Accounts Receivable
Receivables are stated at their estimated collectible amounts and consist of amounts billed and currently due from customers. The
Company extends 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. Data by each major
customer is regularly reviewed to evaluate the adequacy of the allowance for doubtful accounts and actual write-offs are charged against the
allowance.
Inventories
Inventory costs include materials, labor and factory overhead. Inventories are stated at the lower of cost or net realizable value,
determined on a first-in, first-out basis. Appropriate consideration is given to obsolescence, valuation and other factors in determining net
F-9
realizable value. Revisions of these estimates could result in the need for adjustments. Inventories, net of reserves, at December 31, 2020
and 2019 consisted of the following:
Chassis
Raw materials
Work in process
Finished goods
Property, Plant and Equipment
December 31,
2020
December 31,
2019
$
$
6,859 $
36,161
16,282
24,637
83,939 $
6,561
39,444
16,520
25,440
87,965
Property, plant and equipment are recorded at cost, less accumulated depreciation. 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. Fully depreciated assets are retained in property, plant and equipment and
accumulated depreciation until they are removed from service. When assets are retired or otherwise disposed of, the related costs and
accumulated depreciation are removed from the consolidated balance sheets and any resulting gain or loss from disposition is recorded as
other (income) expense, net in the consolidated statements of income in the period realized.
Property, plant and equipment at December 31, 2020 and 2019 consisted of the following:
Land and improvements
Buildings and improvements
Machinery and equipment
Furniture and fixtures
Software costs
Less accumulated depreciation
2020
13,960
83,320
53,787
11,163
6,327
168,557
(69,937)
98,620
$
$
2019
13,953
73,121
50,235
9,172
6,033
152,514
(61,779)
90,735
$
$
The Company recognized $9,598, $9,127 and $7,745, in depreciation and amortization expense in 2020, 2019 and 2018,
respectively.
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 income per common share takes into consideration the assumed exercise of
outstanding stock options resulting in approximately 5,000 potential dilutive common shares in the year ended December 31, 2018. The
Company had no outstanding stock options and no potential dilutive common shares for the years ended December 31, 2020 and 2019. For
the year ended December 31, 2018 none of the outstanding stock options would have been anti-dilutive.
F-10
Long-Lived Assets
The Company periodically reviews the carrying amount of its long-lived assets to determine if those assets may not be recoverable
based upon the future operating cash flows expected to be generated by those assets. Management believes that its long-lived assets are
appropriately valued.
Goodwill
Goodwill consists of the excess of cost of acquired entities over the sum of the amounts assigned to identifiable assets acquired less
liabilities assumed. Goodwill is not amortized. However, the Company evaluates the carrying value of goodwill for impairment at least
annually or if an event or circumstance occurs that would indicate that the carrying amount had been impaired. Goodwill is reviewed for
impairment utilizing a qualitative assessment and, if necessary, a quantitative assessment. If we perform a qualitative analysis of goodwill
and determine that fair value more likely than not exceeds the carrying value of the reporting unit, no further testing is needed. Alternatively,
if we elect to utilize a quantitative assessment, an impairment loss would be recognized to the extent that the carrying value of the reporting
unit exceeds its fair value, not to exceed the carrying value of the goodwill.
Accrued Liabilities
Accrued liabilities consisted of the following at December 31, 2020 and 2019:
Accrued wages, commissions, bonuses and benefits
Accrued products warranty
Accrued taxes
Other
Income Taxes
2020
10,510
3,373
2,164
8,726
24,773
$
$
2019
12,382
3,859
2,079
9,493
27,813
$
$
The Company’s income tax expense, deferred tax assets and liabilities and liabilities for unrecognized tax benefits reflect
management’s best assessment of estimated current and future taxes to be paid. The Company is subject to income taxes in both the United
States and foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense.
The Company recognizes as deferred income tax assets and liabilities the future tax consequences of the differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company considers the need to
record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. Tax loss carryforwards,
reversal of deferred tax liabilities, tax planning and estimates of future taxable income are considered in assessing the need for a valuation
allowance.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) the
Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the
positions and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount
of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes
interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements
of income. Accrued interest and penalties are included within the related tax liability line in the accompanying consolidated balance sheets.
Stock-Based Compensation
Stock compensation expense was $194, $150, and $150 for the years ended December 31, 2020, 2019 and 2018, respectively.
No options were granted during 2020, 2019, or 2018. The fair value of options granted in 2008 has been estimated as of the date of
the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected dividend yield of 0%;
expected volatility of 44%; risk-free interest rate of 1.71%; and expected life of four years. Using these assumptions, the fair value of options
granted in 2008 was $1,596, which was amortized as compensation expense over the vesting period.
F-11
The Company issued 10,250 shares of common stock during 2018 from the exercise of stock options. The Company issued no
shares from the exercise of stock options during the years ended December 31, 2020 and 2019.
Product Warranty
The Company generally 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. These estimates are established using historical information about the nature,
frequency, and average cost of warranty claims. Warranty expense in 2020, 2019 and 2018, was $2,915, $2,483 and $3,793, respectively.
The table below provides a summary of the warranty liability for December 31, 2020 and 2019:
Accrual at beginning of the year
Provision
Settlement and Other
Accrual at end of year
Credit Risk
2020
2019
3,859
2,915
(3,401)
3,373
$
$
3,752
2,483
(2,376)
3,859
$
$
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. In addition, the
Company limits the amount of credit exposure through the use of accounts and funds backed by the U.S. Government and its agencies. Trade
accounts receivable are generally diversified due to the number of entities comprising the Company’s customer base and their dispersion
across many geographic regions and by frequent monitoring of the creditworthiness of the customers to whom the credit is granted in the
normal course of business. There were no customers with a trade account receivable balance greater than 10% at December 31, 2020 or
2019.
Revenue Recognition
Revenue is recognized when obligations under the terms of a contract with a customer are satisfied. Except for certain extended
service contracts on a small percentage of units sold, the Company’s performance obligations are satisfied, and sales revenue is recognized
when products are shipped from the Company’s facilities. From time to time, revenue is recognized under a bill and hold arrangement.
Recognition of revenue on bill and hold arrangements occurs when control transfers to the customer. Our policy requires the reason for the
bill and hold arrangement to be substantive, and the product to be separately identified as belonging to the customer, ready for physical
transfer, and unavailable to be used or directed to another customer.
Revenue is measured as the amount of consideration expected to be received in exchange for the transfer of products. Sales and
other taxes collected concurrent with revenue-producing activities are excluded from revenue. Warranty related costs are recognized as an
expense at the time products are sold and a reserve is established. Depending on the terms of the arrangement, for certain contracts the
Company may defer the recognition of a portion of the consideration received because a future obligation has not yet been satisfied, such as
an extended service contract. An observable price is used to determine the stand-alone selling price for separate performance obligations or
a cost plus margin approach is utilized when one is not available.
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 operations.
Research and Development
Research and development costs are expensed as incurred and included in cost of operations and to a lesser extent in selling, general
and administrative expenses. Research and development costs amounted to $4,718, $3,702 and $3,127 for 2020, 2019 and 2018, respectively.
F-12
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. Foreign currency
translation adjustments resulting from such translations are included in shareholders’ equity. Intercompany transactions denominated in a
currency other than the functional currency are remeasured into the functional currency. Gains and losses resulting from foreign currency
transactions are included in other (income) expense, net in our consolidated statements of income.
Recent Accounting Pronouncements
Recently Issued Standards
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) 2019-12
Income Taxes (Topic 740), which among other things will require the Company to recognize franchise tax that is partially based on income
as an income-based tax. The update will be effective for financial statements issued for annual periods, and interim periods within these
annual periods, beginning after December 15, 2020, with early adoption permitted. The Company plans to apply the amendments in the
update on a modified retrospective basis. The adoption of this update will not have a material impact on the Company’s consolidated
financial statements and related disclosures.
Recently Adopted Standards
During the first quarter of 2020, the Company adopted ASU 2018-15 Intangibles – Goodwill and Other – Internal-Use Software
(Subtopic 350-40). The purpose of the standard is to align the requirements for capitalizing implementation costs incurred in cloud computing
arrangements that are service contracts with the requirements for capitalizing implementation costs incurred to develop or obtain internal-
use software. The Company applied the amendments in the update prospectively to all implementation costs incurred after the date of the
adoption. The adoption of this update did not have a material impact on the Company’s consolidated financial statements or related
disclosures.
3.
LONG-TERM OBLIGATIONS
Long-Term Obligations
On December 21, 2020, we amended and restated our loan agreement with First Horizon Bank, which governs our existing $50,000
unsecured revolving credit facility, to (i) renew and extend the maturity date to May 31, 2027 and make certain other conforming changes,
(ii) amend the tangible net worth covenant to increase the minimum required compliance level thereunder from $160,000 to $190,000 (the
Company’s tangible net worth at December 31, 2020 was approximately $271,000), and (iii) allow for the sale and leaseback of certain
equipment. The credit facility contains customary representations and warranties, events of default, and financial, affirmative and negative
covenants for loan agreements of this kind. Covenants under the credit facility restrict the payment of cash dividends if the Company would
be in violation of the minimum tangible net worth test or the leverage ratio test in the current loan agreement as a result of the dividend,
among various restrictions. We have been in compliance with these covenants throughout 2019 and 2020. In the absence of a default, all
borrowings under the credit facility bear interest at the LIBOR Rate plus 1.00% or 1.25% per annum. The Company will pay a non-usage
fee under the current loan agreement at a rate per annum equal to between 0.15% and 0.35% of the unused amount of the credit facility,
which fee is paid quarterly. Interest expense on the credit facility was $235, $684, and $512 for the years ended December 31, 2020, 2019,
and 2018, respectively.
The Company had no outstanding borrowings under the credit facility at December 31, 2020 and $4,998 in outstanding borrowings
under the credit facility at December 31, 2019.
Our French subsidiary, Jige International S.A., had an agreement with Banque Européenne du Crédit Mutuel for an unsecured fixed
rate loan which matured at September 30, 2020. At December 31, 2019, the Company had $368 in outstanding borrowings under the loan
agreement, all of which was classified as short-term obligations on the consolidated balance sheets. These borrowings were used primarily
for the purchase of land and routine repairs to the operating facilities in France.
F-13
Interest Rate Sensitivity. Changes in interest rates affect the interest paid on indebtedness under our credit facility because the
outstanding amounts of indebtedness under our credit facility are subject to variable interest rates. Under our credit facility, the non-default
rate of interest is equal to the LIBOR Market Index Rate plus 1.00% or 1.25% per annum, depending on the leverage ratio (for a rate of
interest of 1.14% at December 31, 2020). A one percent change in the interest rate on our variable-rate debt would not have materially
impacted our financial position, results of operations or cash flows for the year ended December 31, 2020.
4.
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. At the Annual Meeting
of Shareholders of the Company held on May 26, 2017, the Company’s shareholders voted to approve the Miller Industries, Inc. 2016 Stock
Incentive Plan, pursuant to which 800,000 shares of common stock are available for issuance pursuant to awards granted under the plan. No
awards may be granted under the Company’s 2016 Stock Incentive Plan on or after August 1, 2026. Shares available for granting options at
each of the years ended December 31, 2020, 2019 and 2018 were 800,000.
No options were granted during the years ended December 31, 2020 and 2019. A summary of the activity of stock options for
the year ended December 31, 2018 is presented below (shares in thousands):
Outstanding at Beginning of Period
Granted
Exercised
Forfeited and cancelled
Outstanding at End of Period
Options exercisable at year end
5.
COMMITMENTS AND CONTINGENCIES
Leasing Activities
2018
Weighted
Average
Exercise
Price
Shares
Under
Option
11
—
(10)
(1)
—
—
$
$
$
5.49
—
5.49
5
—
—
The Company leases certain equipment and facilities under long-term non-cancellable operating and finance lease agreements. The leases
expire at various dates through 2026. Certain of the lease agreements contain renewal options. For those leases that have renewal options,
the Company included these renewal periods in the lease term if the Company determined it was reasonably certain to exercise the renewal
option. Lease payments during such renewal periods were also considered in the calculation of right-of-use assets and lease obligations.
Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s
obligation to make lease payments arising from the lease. Lease obligations are recognized at the commencement date based on the present
value of lease payments over the lease term. Right-of-use assets are recognized at the commencement date as the initial measurement of the
lease liability, plus payments made prior to lease commencement and any initial direct costs. As most of the Company’s leases do not provide
an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in
determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease when it
is reasonably certain that the Company will exercise that option. Expense is recognized on a straight-line basis over the lease term for
operating leases. For finance leases, expense is recognized as the expense from straight-line amortization of the right-of-use asset plus the
periodic interest expense from the lease obligation. Short-term leases have a lease term of twelve months or less. The Company recognizes
short-term leases on a straight-line basis and does not record a related right-of-use asset or lease obligation for such contracts.
F-14
Right-of-use assets related to finance leases are included as a component of property, plant and equipment, net on the consolidated balance
sheets and had the following values at December 31, 2020 and December 31, 2019.
Finance lease right-of-use assets
Accumulated amortization
Finance lease right-of-use assets, net
2020
2019
78 $
(42)
36 $
78
(21)
57
$
$
A maturity analysis of the undiscounted cash flows of operating and finance lease obligations is as follows:
(cid:3)
Remaining lease payments to be paid during the year ended December 31,
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less Imputed Interest
Lease obligation at December 31, 2020
(cid:3)
(cid:3)
$
(cid:3)
Operating Lease
Obligation
Finance Lease
Obligation
(cid:3)
(cid:3)
(cid:3)
(cid:3)
$
405 (cid:3) $
(cid:3)(cid:3)
360 (cid:3)
(cid:3)(cid:3)
285 (cid:3)
(cid:3)(cid:3)
229 (cid:3)
217 (cid:3)
(cid:3)(cid:3)
79 (cid:3)
(cid:3)
1,575 (cid:3)
(cid:3)
(105) (cid:3)
1,470 (cid:3) $
23
15
—
—
—
—
38
(2)
36
The lease cost and certain other information during the years ended December 31, 2020 and 2019 are as follows:
Lease Cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease obligation
Total finance lease cost
Total operating lease cost
Short-term lease cost
Total lease cost
Other Information
Cash paid for amounts included in the measurement of lease obligation:
Operating cash flows from operating leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for new finance lease obligations
Right-of-use assets obtained in exchange for new operating lease obligations
$
$
$
2020
2019
21 $
2
23
399
558
980 $
397 $
21
—
123
21
2
23
585
1,231
1,839
582
20
—
265
The weighted average remaining lease term for operating leases and finance leases at December 31, 2020 was 4.6 years and 1.9 years,
respectively. The weighted average discount rate for operating leases and finance leases at December 31, 2020 was 3.2% and 4.0%,
respectively. The Company’s subsidiary in the United Kingdom leased facilities used for manufacturing and office space from a related
party with related lease costs during the year ended December 31, 2020, 2019, and 2018 of $211, $223, and $219, respectively. The
Company’s French subsidiary leased a fleet of vehicles from a related party with related lease costs during the year ended December 31, 2020,
2019, and 2018 of $114, $109, and $116, respectively.
F-15
Contingencies
The Company has entered into arrangements with third-party lenders where it has agreed, in the event of default by a distributor
within the independent distributor network, to repurchase from the third-party lender company products repossessed from the independent
distributor customer. These arrangements are typically subject to a maximum repurchase amount. The maximum amount of collateral that
the Company could be required to purchase was approximately $56,822 and $73,958 at December 31, 2020 and 2019, respectively, as
distributors decreased activity of floor plan financing. The Company’s risk under these arrangements is mitigated by the value of the products
that would be repurchased as part of the transaction. The Company considered the fair value at inception of its liability under these
arrangements and concluded that the liability associated with these potential repurchase obligations was not probable and thus not material
at December 31, 2020 or 2019. No repurchases of products were required during 2020 or 2019.
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.
6.
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.
Income before income taxes includes the following components:
United States
Foreign
Total
2020
31,183 $
6,914
38,097 $
2019
41,220 $
9,165
50,385 $
2018
34,220
7,443
41,663
$
$
The provision for income taxes on income consisted of the following for the years ended December 31, 2020, 2019 and 2018:
Current:
Federal
Federal – Deemed Repatriation
State
Foreign
Deferred:
Federal
State
Foreign
2020
2019
2018
$
$
5,099 $
—
96
2,344
7,539
734
9
(15)
728
8,267 $
6,422 $
—
53
3,083
9,558
1,599
17
100
1,716
11,274 $
5,480
(477)
(380)
2,719
7,342
571
(55)
59
575
7,917
F-16
The principal differences between the federal statutory tax rate and the income tax expense during the years ended December 31,
2020, 2019 and 2018 are as follows:
Federal statutory tax rate
State taxes, net of federal tax benefit
Excess of foreign tax over US tax on foreign income
Deemed repatriation tax
Domestic tax deductions and credits
Foreign Derived Intangible Income deduction
Other
Effective tax rate
2020
2019
2018
21.0 %
0.2 %
2.3 %
— %
(1.0)%
(0.8)%
— %
21.7 %
21.0 %
0.1 %
2.5 %
— %
(0.4) %
(1.1) %
0.3 %
22.4 %
21.0 %
(0.8)%
2.9 %
(1.1)%
(0.4)%
(1.3)%
(1.3)%
19.0 %
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.
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, 2020 and 2019 are as follows:
Deferred tax assets:
Allowance for doubtful accounts
Accruals and reserves
Other
Total deferred tax assets
Deferred tax liabilities:
Property, plant, and equipment
Other
Total deferred tax liabilities
Valuation Allowance
Net deferred tax asset/(liability)
2020
2019
$
$
250
1,768
218
2,236
6,375
5
6,380
—
(4,144)
$
$
212
1,902
399
2,513
5,926
3
5,929
—
(3,416)
Deferred tax assets represent the future tax benefit of future deductible differences and, if it is more likely than not that a tax asset
will not be realized, a valuation allowance is required to reduce the recorded deferred tax assets to net realizable value. The Company has
evaluated positive and negative evidence to assess the realizability of its deferred taxes. Based on the evidence, the Company believes it is
more likely than not that its deferred tax assets will be realizable. Accordingly, the Company has not included a valuation allowance against
its deferred tax assets at this time.
We do not currently have plans to repatriate undistributed foreign earnings to the United States and have not determined any timeline
or amount for any such future distributions.
As of December 31, 2020 and 2019, the Company had no federal net operating loss carryforwards, and no significant state net
operating loss carryforwards.
Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a position
will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine
the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater
than 50% likely of being recognized. At December 31, 2020 and 2019, the Company reported no unrecongnized tax benefits in the
consolidated balance sheets and no activity relating to unrecognized tax positions were recognized in the consolidated statements of income.
F-17
The Company is subject to United States federal income taxes, as well as income taxes in various states and foreign jurisdictions.
The Company’s 2017 and later tax years remain open to examination by the tax authorities. With few exceptions, as of December 31, 2020,
the Company is no longer subject to U.S. federal, state or non-U.S. income tax examinations prior to 2017.
7.
SHAREHOLDERS EQUITY
Common Stock
The Company is authorized to issue up to 100,000,000 shares of common stock with a par value of one cent per share.
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of undesignated preferred stock with a par value of one cent per share
and 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 of preferred stock have been issued.
Dividends
The Company has paid consecutive quarterly cash dividends since May 2011. Dividend payments made for 2020, 2019 and 2018
were as follows:
Payment
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Total for 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Total for 2019
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Total for 2020
Record Date
Payment Date
(per share) Amount
Dividend
March 19, 2018
June 11, 2018
March 26, 2018
June 18, 2018
$
September 10, 2018 September 17, 2018
December 3, 2018 December 10, 2018
March 18, 2019
June 10, 2019
March 25, 2019
June 17, 2019
$
$
September 9, 2019 September 16, 2019
December 9, 2019 December 16, 2019
March 16, 2020
June 8, 2020
March 23, 2020
June 15, 2020
$
$
September 7, 2020 September 14, 2020
December 7, 2020 December 14, 2020
$
0.18 $ 2,049
2,049
0.18
2,051
0.18
2,051
0.18
0.72 $ 8,200
0.18 $ 2,052
2,051
0.18
2,053
0.18
0.18
2,052
0.72 $ 8,208
0.18 $ 2,053
2,053
0.18
2,053
0.18
0.18
2,053
0.72 $ 8,212
8.
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.
The plan provides that each participant may contribute the maximum allowable under Internal Revenue Service regulations. For
2020, 2019 and 2018, the Company matched 50% of the first 5% of participant contributions. Matching contributions vest over the first
five years of employment. Company contributions to the plan were $1,021, $1,030 and $917 in 2020, 2019 and 2018, respectively.
F-18
9.
REVENUE AND LONG-LIVED ASSETS
Substantially all of our revenue is generated from sales of towing equipment. As such, disaggregation of revenue by product line
would not provide useful information because all product lines have substantially similar characteristics. However, revenue streams are
tracked by the geographic location of customers. Net sales and long-lived assets (property, plant and equipment, operating lease right-of-use
assets, and goodwill) by region were as follows. Net sales are attributed to regions based on the locations of customers:
2020
2019
2018
North America
Foreign
(cid:3)
Long-
Lived
Assets
Net Sales
$ 556,540 $ 106,323 $ 697,002 $ 97,650 $ 574,806 $ 90,036
Long-
Lived
Assets
Long-
Lived
Assets
Net Sales
Net Sales
94,746
5,384
121,164
6,344
136,900
4,433
$ 651,286 $ 111,707 $ 818,166 $ 103,994 $ 711,706 $ 94,469
Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date.
The contract assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to performance
obligations to be satisfied in the future. As of December 31, 2020 and December 31, 2019, contract liability balances were $272 and $324,
respectively, and are included in accrued liabilities on the accompanying consolidated balance sheets. During the years ended December 31,
2020, 2019, and 2018, the Company increased contract liabilities by $0, $310, and $1,391, respectively. However, during the years ended
December 31, 2020, 2019, and 2018, respectively, the Company settled $52, $361 and $1,214 of this liability with a contract credit in lieu
of satisfaction of these obligations. The Company did not have any contract assets at December 31, 2020 or 2019. Terms on account
receivables vary and are based on specific terms agreed upon with each customer. Write-offs of accounts receivable were not material during
the years ended December 31, 2020, 2019, or 2018.
10.
CUSTOMER INFORMATION
No single customer accounted for 10% or more of consolidated net sales for 2020, 2019 and 2018.
11.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information for the years ended December 31, 2020 and 2019:
2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Operating
Net Sales
Income
Net
Income
Cash
Dividends
Diluted
Basic
Income Income Per Declared
Per Share
Share
Per Share
$ 176,054 $ 7,564 $ 5,431 $ 0.48 $
128,529
168,366
178,337
7,660
8,612
14,808
5,826
6,553
12,020
0.51
0.57
1.05
0.48 $ 0.18
0.18
0.51
0.18
0.57
0.18
1.05
$ 197,213 $ 12,382 $ 8,660 $ 0.76 $
222,346
195,467
203,140
14,245
11,293
15,174
10,683
8,076
11,692
0.94
0.71
1.03
0.76 $ 0.18
0.18
0.94
0.18
0.71
0.18
1.03
F-19
12.
SUBSEQUENT EVENTS
On March 1, 2021, the Company’s board of directors declared a quarterly cash dividend of $0.18 per share. The dividend is payable
March 22, 2021 to shareholders of record as of March 15, 2021.
F-20
MILLER INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II –VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Year Ended December 31, 2018
Deduction from asset accounts:
Allowance for doubtful accounts
Year Ended December 31, 2019
Deduction from asset accounts:
Allowance for doubtful accounts
Year Ended December 31, 2020
Deduction from asset accounts:
Allowance for doubtful accounts
Balance at
Beginning
of Period
Accounts Balance at
Charged to
Expense
Written
Off
End of
Period
$
1,038
214
(140) $
1,112
$
1,112
15
(21) $
1,106
$
1,106
195
(6) $
1,295
F-21
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 3rd day of March, 2021.
SIGNATURES
MILLER INDUSTRIES, INC.
By: /s/ Jeffrey I. Badgley
Jeffrey I. Badgley
Co-Chief Executive Officer
Know all men by these presents, that each person whose signature appears below constitutes and appoints Jeffrey I. Badgley,
William G. Miller, II and Frank Madonia, and each or any one of them, as attorney-in-fact and agent, with full 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 attorneys-
in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully 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 3rd day of March, 2021.
Signature
Title
/s/ William G. Miller
William G. Miller
/s/ Jeffrey I. Badgley
Jeffrey I. Badgley
/s/ William G. Miller, II
William G. Miller, II
/s/ Deborah L. Whitmire
Deborah L. Whitmire
/s/ Theodore H. Ashford, III
Theodore H. Ashford, III
/s/ A. Russell Chandler, III
A. Russell Chandler, III
/s/ Richard H. Roberts
Richard H. Roberts
/s/ Leigh Walton
Leigh Walton
Chairman of the Board of Directors
Co-Chief Executive Officer
President, Co-Chief Executive Officer and Director
Executive Vice President, Chief Financial Officer, Treasurer and
Director (Principal Financial and Accounting Officer)
Director
Director
Director
Director
S-1
SUBSIDIARIES
Name of Entity
APACO, Inc.
Boniface Engineering, Ltd.
Champion Carrier Corporation
Jige International S.A.
Miller/Greeneville, Inc.
Miller Financial Services Group, Inc.
Miller Industries International, Inc.
Miller Industries Towing Equipment Inc.
Exhibit 21
Jurisdiction of
Incorporation
Delaware
United Kingdom
Delaware
France
Tennessee
Delaware
Tennessee
Delaware
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement on Form S-8 (File No. 333-127481);
(2) Registration Statement on Form S-8 (File No. 333-188898); and
(3) Registration Statement on Form S-8 (File No. 333-219288).
of Miller Industries, Inc. and subsidiaries of our reports dated March 3, 2021, relating to our audits of the consolidated
financial statements, the financial statement schedule and effectiveness of internal control over financial reporting, which
appear in the Annual Report on Form 10-K of Miller Industries, Inc. and subsidiaries for the year ended December 31,
2020.
/s/ Elliott Davis, LLC
Chattanooga, Tennessee
March 3, 2021
Exhibit 31.1
I, Jeffrey I. Badgley, certify that:
1. I have reviewed this annual report on Form 10-K of Miller Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 3, 2021
/s/ Jeffrey I. Badgley
Jeffrey I. Badgley
Co-Chief Executive Officer
Exhibit 31.2
I, William G. Miller, II, certify that:
1. I have reviewed this annual report on Form 10-K of Miller Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 3, 2021
/s/ William G. Miller, II
William G. Miller, II
President and Co-Chief Executive Officer
Exhibit 31.3
I, Deborah L. Whitmire, certify that:
1. I have reviewed this annual report on Form 10-K of Miller Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 3, 2021
/s/ Deborah L. Whitmire
Deborah L. Whitmire
Executive Vice President, Chief Financial Officer and
Treasurer
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Annual Report of Miller Industries, Inc. (the “Company”) on Form 10-K for the period
ended December 31, 2020 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey
I. Badgley, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350 as adopted by § 906 of the
Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: March 3, 2021
/s/ Jeffrey I. Badgley
Jeffrey I. Badgley
Co-Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Annual Report of Miller Industries, Inc. (the “Company”) on Form 10-K for the period
ended December 31, 2020 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William
G. Miller, II, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350 as adopted by § 906 of
the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: March 3, 2021
/s/ William G. Miller, II
William G. Miller, II
President and Co-Chief Executive Officer
Exhibit 32.3
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Annual Report of Miller Industries, Inc. (the “Company”) on Form 10-K for the period
ended December 31, 2020 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I,
Deborah L. Whitmire, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
§ 1350 as adopted by § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: March 3, 2021
/s/ Deborah L. Whitmire
Deborah L. Whitmire
Executive Vice President, Chief Financial Officer and
Treasurer
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