UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________.
Commission file No. 0-14651
MILLER BUILDING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3228778
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
58120 County Road 3 South
Elkhart, Indiana 46517
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 295-1214
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. (x) Yes ( ) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (x)
Aggregate market value of voting stock held by nonaffiliates of the registrant,
based on the closing price of the stock as reported by the National Association
of Securities Dealers' Automated Quotation Systems, on August 30, 1996:
$15,795,901.
As of August 30, 1996, the Registrant had 3,102,963 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into this Annual Report on
Form 10-K:
Portions of Registrant's Proxy Statement for its 1996 Annual Meeting of
Stockholders (the "Proxy Statement"), which will be filed with the
Securities and Exchange Commission no later than 120 days after the end of
the Registrant's fiscal year, are incorporated into Part III.
PART I
ITEM 1. BUSINESS
The Company
Miller Building Systems, Inc. ("Miller") is the parent of Miller
Structures, Inc. ("Structures") and Miller Telecom Services, Inc. ("Telecom").
All operations of Miller are conducted through its two wholly-owned
subsidiaries which design, manufacture, and market factory-built buildings.
Miller originally was organized as an Indiana corporation in November 1982
under the name of "Graylyon Corp." and then merged, effective April 1983, into
a Delaware corporation named "Gray Lyon Company". In November 1986, the
Company amended its Certificate of Incorporation to change its name to "Modular
Technology, Inc." In November 1988, the Company again amended its Certificate
of Incorporation to change its name to "Miller Building Systems, Inc." All
references to Miller herein refer to Miller Building Systems, Inc., a Delaware
corporation, and its predecessor Indiana corporation.
Miller maintains its Executive Offices at 58120 County Road 3 South,
Elkhart, Indiana 46517; telephone number (219) 295-1214. The Executive Office
is Miller's principal operating office from which it manages and coordinates
the activities of Structures and Telecom.
STRUCTURES
Structures is headquartered in Elkhart, Indiana and operates all
administrative, sales, and production from that location. The Structures
office controls manufacturing facilities in Bennington, Vermont; Elkhart,
Indiana; Leola, Pennsylvania; Sioux Falls, South Dakota and Patterson,
California.
Structures - Modular and Mobile Office Buildings
Products
The buildings produced by Structures are generally movable or relocatable
and are composed of either single or multiple units often referred to as
modular units. Individual units are either 8, 10, 12, or 14 feet in width and
up to 80 feet in length. These individual units can be combined into
buildings varying in size from several hundred to several thousand square feet.
Although most buildings are one story, they can be built to be two or three
stories high depending on user requirements.
The factory-built buildings produced by Structures meet the specialized
needs of users, which include architectural and engineering firms, churches,
construction companies, correctional or prison authorities, educational and
financial institutions, libraries, medical and dental facilities, military
installations, post offices, real estate firms, restaurants and retail
businesses. The cost of the building varies depending on its application or
its specifications and may, in certain instances, be less expensive than a
comparable conventional site-built building. Structures' cost portion of a
completed building does not include transportation, site preparation,
foundation and other installation work which is the responsibility of the user
and is often provided and charged to the user by Structures' customer. In
addition to all the aforementioned costs, the price charged to the user by
Structures' customer will reflect a "mark-up" which is determined by
Structures' customer and not by Structures.
Buildings or units (modules) of buildings produced by Structures are
usually built on a steel frame. Attached to the frame, customarily, is a
chassis with wheels and axles. This chassis will either become a permanent
portion of the building, permitting it to be easily transported to another
site, or be removed at the building installation site. The chassis facilitates
the transportation of the individual units over the highways from Structures'
factory to either its customer's facilities or the user's installation site.
The floor, roof and walls of any building are constructed of conventional
building materials, primarily wood or comparable materials. The building or
module is fabricated in a process similar to conventional site-built
construction with appropriate variations. Structures also produces building
utilizing non-combustible materials. For these types of buildings, the floor
is made of concrete. The wall studs and roof frame are made of steel and other
components. The buildings utilize various other non-combustible materials.
Interiors and exteriors of the buildings are completed to customer
specifications. Finished buildings or modules include required electrical
wiring, plumbing, heating and air conditioning, and floor coverings. Exteriors
are constructed of wood, aluminum or other specified exterior materials such as
brick facing, etc.
Buildings produced by Structures are designed and engineered before
production. Detailed plans and other documentation prepared by Structures are
submitted to its customers and users as well as to various regulatory agencies
for approval prior to commencement of construction. Structures maintains its
own engineering and design staff which is capable of handling virtually all
types of building orders. On occasion, however, Structures may retain the
services of outside engineering and design firms.
Marketing
Structures does not sell its buildings directly to ultimate users of the
buildings. Structures' customers do not represent Structures on an exclusive
basis. Structures competes for customer orders based on price, quality, timely
delivery, engineering capability and general reputation for reliability.
Structures sells its products to approximately 75 customers. Customers may be
national, regional or local in nature. Customers will sell, rent or lease the
buildings purchased from Structures to the users. Structures believes a
significant portion of its product is either rented or leased by the users from
its customers.
Structures' sales staff calls on prospective customers in addition to
maintaining continuing contact with existing customers. The sales staff
assists its customers and their prospective customers in developing building
specifications in order to facilitate the preparation by Structures of a
quotation. The sales staff, in conjunction with the engineering staff,
maintains ongoing contact with the customer base.
Certain customers maintain rental fleets of standardized units such as
construction-site buildings or buildings for general office space requirements.
These buildings are generally rented or leased for a specific requirement, and
when the requirement has been satisfied, the buildings are returned to
Structures' customer for re-renting or leasing to other users. Other buildings
are produced to a specific user's requirements and Structures' customer will
either lease it to its customer or sell it outright. As a result of
transportation costs, the effective distribution range of buildings produced by
Structures is limited to an area within 400-600 miles from each manufacturing
facility.
Structures believes that the various leasing plans offered to the users by
its customers are a significant benefit of factory-built buildings over similar
conventional site-built buildings. Other significant benefits to the customer
are the speed with which a factory-built building can be made available for use
compared to on-site construction and the ability to relocate the building to
another site if the customer's utilization requirements change.
Certain companies within the industry served by Structures, including some
who are customers of Structures, have their own manufacturing facilities to
provide all or a portion of their building requirements. Structures does not
believe there is any specific identifiable industry trend or direction of its
customers having their own captive manufacturing capabilities. Certain
customers have acquired or started their own manufacturing facilities and other
customers have closed or reduced their manufacturing capability. Structures
believes that its customers are best served by having the flexibility of
outside product sources and avoiding the possible inefficiencies of captive
manufacturing facilities.
Structures is highly dependent on a limited number of customers, the loss
of which could have a material adverse effect on the operations of Miller.
For the fiscal years ended June 29, 1996 and July 1, 1995, the following
customer represented 10% or more of net sales of Miller: Transport
International Pool, Inc. d/b/a GE Capital Modular Space, a division of General
Electric Capital Corporation ("GE Capital"), represented 13% and 23%
respectively. An expanding customer base at Structures and the increased sales
volume at Telecom, coupled with a decline in sales from GE Capital, caused the
decrease in percentage of net sales from fiscal 1995.
Competition
Competition in the factory-built building industry is intense and
Structures competes with a number of entities, some of which may have greater
financial resources than Miller and Structures. To the extent that factory-
built buildings become more widely accepted as an alternative to conventional
on-site construction, competition from local contractors and manufacturers of
other pre-engineered building systems may increase. In addition to competition
from firms designing and constructing on-site buildings, Structures competes
with numerous factory-built building manufacturers that operate in particular
geographical regions.
Structures competes for orders from its customers primarily on the basis
of price, quality, timely delivery, engineering capability and reliability.
Structures believes that the principal basis on which it competes with on-site
construction is the combination of the timeliness of factory versus on-site
construction, the cost of its products relative to on-site construction, the
quality and appearance of its buildings, its ability to design and engineer
buildings to meet unique customer requirements (including local and state
regulatory compliance), and reliability in terms of completion time. The
manufacturing efficiencies and generally lower wage rates of factory
construction, even with the added transportation expense, in many instances
result in the cost of factory-built buildings being equal to or lower than the
cost of on-site construction of comparable quality. Quality, reliability and
the ability to comply with regulatory requirements in a large number of states
and localities depend upon the engineering and manufacturing expertise of the
management and staff of Structures. The relative importance of these factors
varies from customer to customer. Most of Structures' orders are awarded by
its customers on the basis of competitive bidding.
TELECOM
Telecom is located in Elkhart, Indiana and operates all administrative,
sales and manufacturing activities from that location. Telecom manufactures
specialized buildings which utilize modular construction techniques.
Products
Telecom manufactures modular factory-built buildings using pre-cast
concrete, steel, wood or fiberglass construction. Each building is custom-
built to the end users specifications and is typically finished to include
electrical, grounding, sensing alarm, mechanical and air conditioning systems.
The pre-cast concrete technology available through Telecom allows for
vandal-proof and environmental protection necessary for the telecommunication
industry. Telecom produces single and multiple module buildings with modules
ranging in size from 8' x 10' to modules as large as 14' x 30'. Telecom has
provided buildings, when assembled, consisting of a single module of 80 square
feet to multiple module buildings ranging up to 1,440 square feet. Multiple
story technology is currently being developed by Telecom. Telecom can provide
building transportation and complete site installation of the building and
equipment, if required by the customer specifications. Opportunities in pre-
cast concrete also exist for the containment of hazardous material in
specialized shelters and in correctional facilities requiring pre-cast modular
cells. Thelatter product can be provided to existing customers of Structures.
Telecom has complemented the traditional pre-cast concrete technology
with a lightweight concrete/steel building which will reduce the overall
building weight by 40%. A Com-Lock series of buildings has been developed
which allows speedy installation of interlocking steel and foam panels for
difficult site placement, such as rooftops, mountaintop, or inside an existing
building. A recently developed exportable Containerized Shelter, transforms a
standard 20' and 40' steel shipping container into a virtually indestructible
completely outfitted telecommunication shelter. Also, mobile shelters have
been developed which meet the challenge of light weight, portable shelters for
emergency communications, starter or test sites, temporary facilities or for
special events broadcasting.
Marketing
Telecom participates in an expanding market for telecommunication shelters
which service the cellular and personal communication industries. Telecom
expects the growth in these markets to continue. Telecom sells its product
directly to the end users of the buildings, which have been principally
telecommunication and utility companies, military bases and municipalities.
Telecom competes for orders by providing a quotation developed from
specifications received from the potential customer. While price is often a
key factor in the potential customer's purchase decision, other factors may
also apply, including delivery time, quality and prior experience with a
certain manufacturer. Several customers have designated Telecom as their
nationwide supplier. Telecom is prepared, if necessary, to provide a potential
customer a bid or performance bond to ensure Telecom's performance.
The potential shipping radius of these type of buildings is not as restrictive
as that of Modular and Mobile Office buildings; however, Telecom has
concentrated its marketing efforts in geographic areas where, Telecom
believes, it has a freight advantage over a significant portion of its
competitors.
Competition
Telecom competes with a number of national and regional firms. Some of
these competitor companies may have greater financial strength or capabilities
than Miller and Telecom; however, Telecom believes Miller's financial
strength, engineering capabilities and experience in producing other types of
factory-built structures are key elements in providing a competitive advantage
to Telecom.
General
(Applicable to all of Miller's principal markets)
Backlog
The backlog of orders by market at August 31, 1996 and 1995 was as follows:
1996 1995
Structures $11,488,000 $4,791,000
Telecom 2,847,000 1,895,000
Backlog is broadly defined as firm order commitments not yet produced into
a final building product. The backlog at Structures has more than doubled
from last year as the result of strong business activity, particularly in the
East and Northwest. The backlog will provide full production into our second
fiscal quarter, however, management believes it is to early to determine
whether this current business activity will extend to the second half of fiscal
1997.
Telecom's backlog increased 33% as this subsidiary has become a competitive
force in the telecommunication shelter industry. The management of Telecom
believes that their backlogs will continue to increase with the ongoing
development of their customer bases.
Regulation
Customers of Miller's factory-built buildings, or Miller's subsidiaries if
they complete the on-site work, are generally required to obtain building
installation permits from applicable governmental agencies. In certain cases,
however, conditional use permits may be obtained in lieu of building
installation permits. Conditional use permits usually are granted for a stated
period and may be renewable. Buildings completed by Miller's subsidiaries are
manufactured and installed in accordance with applicable building codes set
forth by the applicable state or local regulatory agencies.
State building code regulations applicable to factory-built buildings vary
from state to state. Many states have adopted codes that apply to the design
and manufacture of factory-built buildings, such as those manufactured by
Miller's subsidiaries, even if the units are manufactured outside the state
and delivered to a site within that state's boundaries. Generally, obtaining
state approvals is the responsibility of the manufacturer. Some states require
certain customers to be licensed in order to sell or lease factory-built
buildings. Additionally, certain states require a contractor's license from
customers for the construction of the foundation, building installation, and
other on-site work when this work is completed by the customer.
On occasion, Miller's subsidiaries have experienced regulatory delays in
obtaining the various required building plan approvals. In addition to some of
its customers, Miller's subsidiaries actively seek assistance from various
regulatory agencies in order to facilitate the approval process and reduce the
regulatory delays.
Raw Materials
Raw materials for products of Miller's subsidiaries are readily available
from multiple sources and the subsidiaries have not experienced any difficulty
in obtaining materials on a timely basis and in adequate quality and quantity.
Miller's subsidiaries, in certain instances, have entered into national
purchase arrangements with various suppliers. The benefit to Miller's
subsidiaries of these type of arrangements is often lower material costs and a
higher level of service and commitment.
Patents and Trademarks
Miller has a patent for non-combustible modular buildings.
Seasonality
Historically, Miller's subsidiaries have experienced greater sales during
the first and fourth fiscal quarters with lesser sales during the second and
third fiscal quarters. This reflects the seasonality of sales for products
used in various applications, including classrooms and other educational
buildings, and also the impact of weather on general construction related
activities. See unaudited interim financial information contained in Note H of
Notes to Consolidated Financial Statements.
Employees
As of August 31, 1996, Miller and its subsidiaries had approximately 370
employees of which approximately 285 were direct production employees.
Engineering and Design
Miller's subsidiaries engage in extensive engineering and design work to
meet customers' requirements, as well as to prepare bid proposals for new
projects. Engineering and design functions include structural, electrical, and
mechanical design and specifications work.
ITEM 2. PROPERTIES
The principal office and production facilities of Miller and its
subsidiaries consist of the following:
Approximate Square Footage
Location Total Production Office Owned or Leased
Elkhart, IN 77,500 61,500 16,000 Owned (1)
Elkhart, IN 54,800 50,600 4,200 Owned (2)
Leola, PA 61,900 58,900 3,000 Owned
Sioux Falls, SD 36,100 34,200 1,900 Leased (3)
Patterson, CA 44,600 41,400 3,200 Owned
Bennington, VT 28,900 27,000 1,900 Owned
_________________ _______ _______ ______
Total approximate
square footage 303,800 273,600 30,200
(1) Structures' administrative, sales, engineering and manufacturing facility.
The Executive offices of Miller are also at this location.
(2) Telecom administrative, sales and manufacturing facility.
(3) Leased until April 15, 1998 with a two-year renewal option.
ITEM 3. LEGAL PROCEEDINGS
Neither Miller, Structures, nor Telecom is subject to any material
pending litigation other than ordinary routine litigation incidental to the
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS
Steven F. Graver (age 44) has been a Director of Miller since April
1991 and was elected Chairman of the Board of Directors on August 11, 1994.
Effective July 1, 1995, Graver, Bokhof & Goodwin ("GraverBokhof") became
Graver, Bokhof, Goodwin & Sullivan ("GBGS"). GBGS is a subsidiary of the
Optimum Group which has over $800 million in assets under management. Mr.
Graver is President and Chief Portfolio Manager of the Optimum Group. In July
1991, GraverReich & Company ("GraverReich"), merged with GraverBokhof, an
investment management firm, and Mr. Graver became a General Partner of
GraverBokhof. From December 1986 until July 1991, Mr. Graver was the President
and Chief Executive Officer, and Executive Vice President from February 1981
until November 1986, of GraverReich.
Edward C. Craig (age 61) became the Chief Executive Officer of Miller
and Vice Chairman of the Board of Directors of Miller effective on July 3,
1994. Mr. Craig was elected President of Miller on August 11, 1994. From July
1991 until April 1994, Mr. Craig was President and Chief Executive Officer of
IBG, a mobular housing company. From April 1986 to July 1991, Mr. Craig was
President of Ryland Building Systems, a division of Ryland Homes, Inc. Mr.
Craig is a Director of Regional Building Systems.
Thomas J. Martini (age 48) became the Vice President of Finance of
Miller in July 1994. Mr. Martini was elected Secretary and Treasurer of Miller
on April 28, 1992 and has been the Chief Financial Officer of Miller since
February 1991.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Miller's Common Stock is quoted on the National Association of
Securities Dealers' Automated Quotation (NASDAQ) system under the ticker symbol
"MTIK". The following table sets forth the quarterly range of high and low
quotations for these securities as reported on the NASDAQ National Market
System for the two most recent fiscal years.
Fiscal 1996 Fiscal 1995
High Low High Low
1st Quarter 3 1/4 2 1/4 4 3
2nd Quarter 3 1/2 2 4 3
3rd Quarter 5 3 4 1/4 3 1/4
4th Quarter 6 4 1/4 4 2
As of August 30, 1996, Miller estimates there were approximately 1,600
stockholders of Miller's Common Stock. Of this total, approximately 250 were
stockholders of record and shares for approximately 1,350 stockholders were
held in street name. Harris Trust & Savings Bank, Chicago, is Miller's
Transfer Agent and Registrar.
Miller did not pay cash dividends on its Common Stock in fiscal 1996,
fiscal 1995, or fiscal 1994 as the Board of Directors ceased the payment of
dividends in the third fiscal quarter of 1993. Miller does not intend to pay
cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the notes thereto
included elsewhere herein.
Years Ended
June 29, July 1, July 2, June 30, June 30,
1996 1995 1994 1993 1992
(In thousands, except per share data)
Net sales $37,858 $41,455 $38,569 $40,623 $40,757
Net income (loss) 486(A) 320(A) 312(A) (2,014)(A) (224)
Net income (loss)
per share .16 .10 .10 (.61) (.06)
Cash dividends per
share - - - .075 .10
Total assets 16,920 16,522 15,308 16,411 17,954
Long-term debt, less
current maturities 1,270 1,385 110 210 302
(A) Miller's operating results for fiscal years 1996, 1995, 1994 and 1993 were
adversely impacted by nonrecurring items of $358,180, $361,123, $159,252
and $2,345,363, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Fiscal 1996 Compared to Fiscal 1995
Net sales decreased $3.6 million or approximately 9% in fiscal 1996
from the corresponding period in fiscal 1995. Structures reported a $6.1
million, or approximately a 19% decrease in net sales during fiscal 1996. All
Structures' plants, except Sioux Falls, South Dakota which remained flat,
experienced net sales declines. The markets that Structures serves were very
soft especially in the second and third fiscal quarters. With a $5.5 million
increase in its net sales during fiscal 1996, Telecom more than doubled in net
sales from the previous year. Telecom has become a competitive force in the
telecommunication shelter industry. There were no net sales at the closed
Residential division of Structures during fiscal 1996, compared to $3.0 million
in fiscal 1995.
Miller's gross profit during the 1996 fiscal year approximated 18% of
net sales compared to approximately 15% of net sales in fiscal 1995. During
fiscal 1996, net sales from Telecom were nearly a third of Miller's total net
sales. The telecommunication business provides a higher gross profit than the
modular units produced by Structures, which caused the increase in gross profit
during the current fiscal year. Miller expects the expansion of the
telecommunication shelter business to continue during the next fiscal year.
Selling, general and administrative expenses increased $.5 million in
fiscal 1996. These expenses were 15% of net sales in fiscal 1996 compared to
12% of net sales in fiscal 1995. The increase in administrative expense was
primarily the result of higher payroll and other administrative expenses
related to the growth of Telecom.
During fiscal 1996, Miller recorded nonrecurring items of $358,180.
These nonrecurring items consisted primarily of $256,792 of costs associated
with the terminated acquisition of Whitley Manufacturing Company, Inc., $76,613
in additional costs associated with the closed Residential division and $15,703
in warranty costs at the closed PME operations.
The decrease in interest expense in fiscal 1996 compared to fiscal
1995 of $2,688 was primarily the result of a $28,442 decrease in interest paid
on the revolving line of credit related to lower debt outstanding, partially
offset by a $25,687 increase in interest expense for the industrial revenue
bond which was outstanding for the full fiscal year during 1996.
During fiscal 1996, Miller recorded an income tax provision of
$334,000 or 41% of pre-tax profit compared to an income tax provision of
$189,000 or 37% of pre-tax profit in fiscal 1995. The increase in the current
year's effective tax rate is attributable to increased state income taxes which
result from the expansion and profitability of the Telecom subsidiary.
Fiscal 1995 Compared to Fiscal 1994
Net sales increased $2.9 million or approximately 7% in fiscal 1995
from the corresponding amount in fiscal 1994. Structures reported a $3.4
million or approximately an 11% increase in net sales. Net sales in the
Eastern plants of Structures increased $4.4 million or approximately 20%, while
net sales in the West decreased $1.0 million or approximately 14%. All
Structures' Eastern plants experienced net sales growth as the economy in these
markets remained strong. The decline in net sales in the West was the result
of continued sluggishness in the California economy. Telecom recorded a $1.0
million or approximately 23% increase in net sales, as this subsidiary
continued to build its reputation and customer base. Net sales at the closed
Residential division of Structures was virtually unchanged.
Miller's gross profit during the 1995 fiscal year approximated 15% of
net sales compared to approximately 12% of net sales in fiscal 1994. During
fiscal 1995 Miller was able to shift a portion of the sales from the low end
fleet business to the more profitable technical and specific use applications.
Selling, general and administrative expenses increased $.7 million in
fiscal 1995. These expenses were 12% of net sales in fiscal 1995 compared to
11% of net sales in fiscal 1994. The increase in administrative expenses was
primarily the result of higher payroll and other administrative expenses
related to the growth at both Structures and Telecom.
During the year, Miller recorded nonrecurring items of $361,123. These
nonrecurring items consisted primarily of a $265,514 charge which resulted from
the final resolution of disputed warranty issues with a customer, a charge of
$186,198 for exit costs associated with the closing of the Residential
division, and the reversal of $90,589 of certain restructuring charges recorded
in fiscal 1993. The earlier than anticipated exit from the lease at the
Fontana plant, a favorable arbitration settlement and the reversal of warranty
reserves at the closed PME operations, partially offset by additional interest
expense for an IRS audit, were the principal causes for the reversal of
restructuring costs.
The increase in interest expense in fiscal 1995 compared to fiscal
1994 of $42,808 was the result of a $55,349 increase in interest expense for
the industrial revenue bond issued to finance the plant expansion at Telecom.
Lower debt outstanding on the revolving line of credit was the principal cause
for a $12,541 offsetting decrease in interest expense.
During fiscal 1995 Miller recorded an income tax provision of
$189,000 or 37% of pre-tax profit. In fiscal 1994, Miller recorded an income
tax credit of $66,000. A provision of $91,000 or 37% of the pre-tax profit was
offset by a Reversal of $157,000 for a provision of federal and state income
taxes related to an Internal Revenue Service audit settled favorably by Miller.
Liquidity and Capital Resources
Miller's working capital as of June 29, 1996 was $5,942,053 compared
to $5,254,456 as of July 1, 1995. The working capital ratio as of June 29,
1996 and July 1, 1995 was 2.2 and 2.0 to 1, respectively.
During fiscal 1996, operations provided cash flows of $378,193
consisting primarily of net income and certain noncash charges offset by
increases in receivables and refundable income taxes and payments of accrued
nonrecurring items. Miller utilized cash of $289,799 in investing activities,
consisting primarily of purchases of plant and equipment. Miller utilized cash
of $224,925 in the reduction of long-term debt.
An unsecured revolving credit agreement with a bank makes available
advances up to $5,000,000 through November 30, 1996. There was $1,500,000
outstanding on the revolving credit line at June 29, 1996 and $1,550,000 at
July 1, 1995.
Miller believes it has adequate resources available to fund the
continuation of its internal growth during the coming fiscal year. The
unsecured revolving credit line assures that resources will be available for
future growth.
Impact of Inflation
Inflation has not had an identifiable effect on Miller's operating
margins during the last three fiscal years. Product selling prices are quoted
reflecting current material prices and other related costs and expenses.
Accordingly, any impact of inflation is reflected in the product selling
prices.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of Part II is incorporated herein
by reference to the Consolidated Financial Statements filed with this report;
see Item 14 of Part IV.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors
Information with respect to the Directors of Miller is set forth in
the Election of Directors section of the Proxy Statement to be filed pursuant to
Regulation 14A and is incorporated herein by reference.
(b) Executive Officers
Information regarding the Executive Officers of Miller is set forth in
Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth in the Compensation
of Executive Officers section of the Proxy Statement to be filed pursuant to
Regulation 14A and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth in the Ownership of
Miller Building Systems, Inc. Common Stock section of the Proxy Statement to be
filed pursuant to Regulation 14A and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth in the Certain
Relationships and Related Transactions section of the Proxy Statement to be
filed pursuant to Regulation 14A and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Consolidated Financial Statements of Miller Building Systems,
Inc. and Subsidiaries
Report of Independent Accountants . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets as of June 29, 1996 and July 1, 1995. . F-2
Consolidated Statements of Income for the years ended June 29,1996,
July 1, 1995 and July 2,1994. . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity for the years
ended June 29, 1996, July 1, 1995 and July 2, 1994. . . . . . . . . F-4
Consolidated Statements of Cash Flows for the years ended
June 29, 1996, July 1, 1995 and July 2, 1994. . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements. . . . . . . . . . . . . F-6
(2) Financial Statement Schedule
II - Valuation and Qualifying Accounts. . . . . . . . . . . . . . F-15
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
(3) See Index to Exhibits
(b) Reports on Form 8-K filed:
No reports on Form 8-K were filed by the registrant in the last
quarter of the 1996 fiscal year.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MILLER BUILDING SYSTEMS, INC.
September 16, 1996 \Edward C. Craig
Edward C. Craig
President and Chief
Executive Officer
(Principal Executive Officer)
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 and in the capacities and on the dates indicated.
Signature Title Date
\Edward C. Craig President, Chief September 16, 1996
Edward C. Craig Executive Officer
and Director
(Principal Executive
Officer)
\Thomas J. Martini Secretary and September 16, 1996
Thomas J. Martini Treasurer (Principal
Financial and
Accounting Officer)
\Ronald L. Chez Director September 16, 1996
Ronald L. Chez
\David E. Downen Director September 16, 1996
David E. Downen
\Steven F. Graver Director September 16, 1996
Steven F. Graver
\William P. Hall Director September 16, 1996
William P. Hall
\Myron C. Noble Director September 16, 1996
Myron C. Noble
\David H. Padden Director September 16, 1996
David H. Padden
\Jeffrey C. Rubenstein Director September 16, 1996
Jeffrey C. Rubenstein
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Miller Building Systems, Inc.:
We have audited the consolidated financial statements and the financial
statement schedule of Miller Building Systems, Inc. and subsidiaries listed in
Item 14(a) of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Miller Buildings
Systems, Inc. and subsidiaries as of June 29, 1996 and July 1, 1995, and the
consolidated results of their operations and their cash flows for the years
ended June 29, 1996, July 1, 1995 and July 2, 1994, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the financial information required to be included therein.
COOPERS & LYBRAND L.L.P.
South Bend, Indiana
August 6, 1996, except as to the information
presented in Note I for which the date is
August 12, 1996
F-1
MILLER BUILDING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 29, July 1,
1996 1995
ASSETS
CURRENT ASSETS
Cash and temporary cash investments $ 165,329 $ 351,860
Receivables, less allowance for doubtful
receivables of $54,000 in 1996 and
$59,000 in 1995 6,749,230 5,960,110
Refundable income taxes 241,158 -
Inventories:
Raw materials 2,875,527 2,945,366
Work in process 612,016 441,366
Finished goods 53,457 146,887
3,541,000 3,533,619
Deferred income taxes 252,000 320,000
Other current assets 83,087 126,752
TOTAL CURRENT ASSETS 11,031,804 10,292,341
PROPERTY, PLANT AND EQUIPMENT
Land 835,421 847,336
Buildings and leasehold improvements 5,497,359 5,357,144
Machinery and equipment 4,068,357 3,906,285
10,401,137 10,110,765
Less, Accumulated depreciation
and amortization 4,627,438 4,083,640
PROPERTY, PLANT AND EQUIPMENT, NET 5,773,699 6,027,125
OTHER ASSETS 114,855 202,166
TOTAL ASSETS $16,920,358 $16,521,632
The accompanying notes are a part of the consolidated financial statements.
F-2
June 29, July 1,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 1,500,000 $ 1,550,000
Current maturities of long-term debt 115,000 224,925
Accounts payable 2,291,448 2,074,510
Accrued income taxes 79,438 89,827
Accrued expenses and other 974,698 904,766
Accrued nonrecurring items 129,167 193,857
TOTAL CURRENT LIABILITIES 5,089,751 5,037,885
LONG-TERM DEBT, less current maturities 1,270,000 1,385,000
DEFERRED INCOME TAXES 136,000 134,000
OTHER 20,019 45,782
TOTAL LIABILITIES 6,515,770 6,602,667
COMMITMENTS AND CONTINGENCIES - Notes C and G
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, issued
4,023,548 shares 40,235 40,235
Additional paid-in capital 11,454,903 11,454,903
Retained earnings 2,048,824 1,563,201
13,543,962 13,058,339
Less, Treasury stock, at cost 3,139,374 3,139,374
TOTAL STOCKHOLDERS' EQUITY 10,404,588 9,918,965
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $16,920,358 $16,521,632
F-2
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MILLER BUILDING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended
June 29, July 1, July 2,
1996 1995 1994
Net sales $37,857,968 $41,454,500 $38,568,812
Costs and expenses:
Cost of products sold 31,002,433 35,373,322 33,791,773
Selling, general and
administrative 5,558,322 5,018,490 4,362,530
Nonrecurring items 358,180 361,123 159,252
Provision for doubtful receivables 1,287 67,528 120,220
(Gain) loss on sale of property
and equipment (12,323) 3,379 (183,910)
Interest expense 132,145 134,833 92,025
Interest income ( 1,699) (13,087) (18,938)
INCOME BEFORE
INCOME TAX (CREDIT) 819,623 508,912 245,860
Income tax (credit) 334,000 189,000 (66,000)
NET INCOME $ 485,623 $ 319,912 $ 311,860
Earnings per share of common stock:
Primary $ .16 $ .10 $ .10
Fully diluted $ .15 $ .10 $ .10
Weighted average number of shares of common
stock and common stock equivalents:
Primary 3,128,693 3,130,207 3,197,421
Fully diluted 3,290,453 3,130,207 3,197,421
The accompanying notes are a part of the consolidated financial statements.
F-3
MILLER BUILDING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Issued
(Authorized - Additional Total
7,500,000 shares) Paid-In Retained Treasury Stock Stockholders'
Shares Amount Capital Earnings Shares Amount Equity
BALANCE, JULY 1, 1993 4,023,548 $40,235 $11,454,903 $ 938,574 774,470 $(2,681,591) $ 9,752,121
Treasury stock acquired - - - - 90,500 (274,179) (274,179)
Net income - - - 311,860 - - 311,860
BALANCE, JULY 2, 1994 4,023,548 40,235 11,454,903 1,250,434 864,970 (2,955,770) 9,789,802
Treasury stock acquired - - - - 80,000 (260,000) (260,000)
Treasury stock sold - - - (2,572) (15,385) 52,573 50,001
Exercise of stock options using
treasury stock - - - (4,573) (7,000) 23,823 19,250
Net income - - - 319,912 - - 319,912
BALANCE, JULY 1, 1995 4,023,548 40,235 11,454,903 1,563,201 922,585 (3,139,374) 9,918,965
Net income - - - 485,623 - - 485,623
BALANCE, JUNE 29, 1996 4,023,548 $40,235 $11,454,903 $2,048,824 922,585 $(3,139,374) $10,404,588
The accompanying notes are a part of the consolidated financial statements.
F-4
MILLER BUILDING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
June 29, July 1, July 2,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 485,623 $ 319,912 $ 311,860
Adjustments to reconcile net income
to net cash provided by operating
activities:
Nonrecurring items 358,180 361,123 159,252
Depreciation and amortization 632,277 612,359 574,243
Amortization of other assets 10,582 17,886 1,944
Deferred income taxes 70,000 67,000 (44,000)
(Gain) loss on sale of property
and equipment (12,323) 3,379 (183,910)
Changes in certain assets and
liabilities:
Receivables (789,120) 226,710 (528,709)
Refundable income taxes (241,158) - 684,000
Inventories (7,381) (161,215) 20,835
Other current assets 43,665 274,074 (138,791)
Accounts payable 216,938 (1,128,428) 297,474
Accrued income taxes (10,389) (50,715) (145,394)
Accrued expenses and other 69,932 224,021 18,735
Accrued nonrecurring items (448,633) (699,771) (456,033)
Net cash provided by
operating activities 378,193 66,335 571,506
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property
and equipment 28,998 51,268 1,155,412
Purchase of property, plant
and equipment (395,526) (1,934,432) (394,918)
Unexpended industrial revenue
bond proceeds 76,729 (76,729) -
Net cash provided by (used in)
investing activities (289,799) (1,959,893) 760,494
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 10,440,000 19,838,000 18,772,000
Reduction of short-term borrowings (10,490,000) (18,813,000) (19,649,000)
Proceeds from long-term debt - 1,500,000 -
Bond issuance costs - (120,436) -
Payments of long-term debt (224,925) (100,481) (91,849)
Purchase of treasury stock - (260,000) (274,179)
Proceeds from sale of treasury stock - 50,001 -
Proceeds from exercise of
stock options - 19,250 -
Net cash provided by (used in)
financing activities (274,925) 2,113,334 (1,243,028)
Increase (decrease) in cash and
temporary cash investments (186,531) 219,776 88,972
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of year 351,860 132,084 43,112
End of year $ 165,329 $ 351,860 $ 132,084
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 127,246 $ 113,167 $ 87,664
Income taxes (net of refunds) 515,547 172,715 (560,606)
The accompanying notes are a part of the consolidated financial statements.
F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 29, 1996, July 1, 1995 and July 2, 1994
Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Miller Building Systems, Inc. is the parent of Miller Structures, Inc.
and Miller Telecom Services, Inc. (individually and collectively
referred to herein as "Miller"). Established in 1982, Miller designs,
manufactures and markets factory-built buildings.
The following is a summary of the significant accounting policies used
in the preparation of the accompanying consolidated financial
statements.
Principles of Consolidation - The consolidated financial statements
include the accounts of Miller Building Systems, Inc. and its two
subsidiaries, both of which are wholly owned.
Fiscal Year - Miller's fiscal year is a 52 or 53 week period ending on
the Saturday closest to June 30.
Revenue Recognition - Miller generally recognizes revenues from the
sales of its products upon the completion of manufacturing and the
transfer of title.
Inventories - Inventories are stated at the lower of cost or market,
with cost determined under the first-in, first-out method.
Property, Plant and Equipment - Property, plant and equipment are
carried at cost less accumulated depreciation and amortization.
Depreciation and amortization of plant and equipment are computed using
the straight-line method over the estimated useful lives of the assets.
Costs of purchased software and, under certain conditions, internal
software development costs are capitalized and are amortized using the
straight-line method over sixty months. As of June 29, 1996 and July 1,
1995, capitalized software costs, included with machinery and equipment,
(and the related accumulated amortization) aggregated $233,025 (47,334),
and $199,007 ($8,251), respectively.
Bond Issuance Costs - Bond issuance costs aggregating $120,436, which
related to issuance of the industrial revenue bond, are being amortized
using the straight-line method over the term of the bond.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
for the years ended June 29, 1996, July 1, 1995 and July 2, 1994
Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued.
Income Taxes - Deferred income taxes are determined using the liability
method.
Employee Benefit Plan - Miller maintains a simplified 401(k) savings
plan (the "Plan") for eligible participating employees of Miller. The
Plan is a defined contribution plan under which employees may
voluntarily contribute a percentage of their compensation. The Plan
allows Miller to make discretionary matching contributions before the
end of the Plan's calendar year-end. During the years ended June 29,
1996, July 1, 1995 and July 2, 1994, Miller expensed $22,560, $17,237
and $17,017 respectively, under this Plan.
Earnings Per Share - Per share amounts are based upon the weighted
average number of common shares outstanding and common equivalent shares
(dilutive stock options) assumed outstanding during each period.
Consolidated Statements of Cash Flows - Miller considers all highly
liquid investments purchased with an original maturity of three months
or less to be temporary cash investments for purposes of the
consolidated statements of cash flows.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments - The carrying amounts of cash and
temporary cash investments, receivables, short-term borrowings and
accounts payable approximated their fair value as of June 29, 1996
because of the relatively short maturities of these instruments. The
carrying amount of long-term debt, including current maturities,
approximated fair value as of June 29, 1996 based upon terms and
conditions currently available to Miller in comparison to the terms and
conditions of the outstanding long-term debt.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
for the years ended June 29, 1996, July 1, 1995 and July 2, 1994
Note B: NONRECURRING ITEMS.
Nonrecurring items consist of the following:
Years Ended
June 29, July 1, July 2,
1996 1995 1994
Costs associated with
terminated acquisition $256,792 $ - $ -
Settled warranty issues - 265,514 -
Residential exit costs 76,613 186,198 -
Severance agreement - - 264,150
Other nonrecurring
charges (credits) 24,775 (90,589) (104,898)
$358,180 $361,123 $ 159,252
During the fiscal year ended June 29, 1996, Miller recorded a pre-tax
charge of $256,792 related to costs associated with the terminated
acquisition of Whitley Manufacturing Company, Inc. In addition, during
fiscal 1996, Miller recorded $76,613 of additional exit costs associated
with the closing of its Residential Division.
During the fiscal year ended July 1, 1995, Miller recorded a pre-tax
charge of $265,514 which resulted from the final resolution of disputed
warranty issues with a customer. Also, Miller recorded a pre-tax charge
of $186,198 for exit costs associated with the closing of its residential
division, which manufactured factory-built modular residential housing.
During the fourth quarter of fiscal year ended July 2, 1994, Miller
recorded a severance agreement with a former officer which consisted of
seventeen months compensation and certain benefits. The agreement was
payable monthly through December 31, 1995.
At June 29, 1996, $20,019 ($45,782 at July 1, 1995) of the accrual for
liabilities and costs associated with the nonrecurring items is reflected
as a long-term liability and the remaining accrual is classified as a
current liability.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
for the years ended June 29, 1996, July 1, 1995 and July 2, 1994
Note C: DEBT.
Short-term borrowings
Miller maintains an unsecured revolving line of credit with a bank. The
loan agreement makes available up to $5 million through November 30,
1996. Interest is payable monthly at prime or a margin over the London
Interbank Offering Rate, depending on the pricing option selected by
Miller. At June 29, 1996 and July 1, 1995, the weighted average interest
rate on outstanding borrowings was 8.25% and 8.68%, respectively. As of
June 29, 1996 and July 1, 1995, outstanding borrowings under the loan
agreement aggregated $1,500,000 and $1,550,000, respectively. The loan
agreement contains, among other provisions, certain covenants including:
maintenance of a required current ratio, tangible net worth and
liabilities to tangible net worth ratio.
Long-term debt
Long-term debt consists of the following:
June 29, July 1,
1996 1995
Industrial revenue bond, variable rate
(3.55% at June 29, 1996), payable
in annual installments of $115,000,
with an installment of $120,000
at final maturity in November 2007 $1,385,000 $1,500,000
Obligation payable to a former officer - 109,925
Total 1,385,000 1,609,925
Less, Current maturities 115,000 224,925
Long-term debt $1,270,000 $1,385,000
Aggregate annual maturities of long-term debt are $115,000 for each of
the next five years.
In connection with the industrial revenue bond obligation, Miller
obtained, as a credit enhancement for the bondholders, an irrevocable
letter of credit in favor of the bond trustee. Miller, at its
discretion, can convert the industrial revenue bond from a variable rate
to a fixed rate. The fixed rate would be determined contemporaneously
with the decision to convert. Miller may redeem the bonds at any time in
increments of $100,000. In the event the bonds have been converted to a
fixed rate, such redemtion is at a premium determined by the number of
years from conversion to original maturity.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
for the years ended June 29, 1996, July 1, 1995 and July 2, 1994
Note D: STOCKHOLDERS' EQUITY.
On June 30, 1994, the Board of Directors adopted the Miller Building
Systems, Inc. 1994 Stock Option Plan (the "1994 Plan") under which
300,000 shares of common stock were reserved for future grant. The 1994
Plan expires June 30, 2004. On August 26, 1991, the Board of Directors
adopted the Miller Building Systems, Inc. 1991 Stock Option Plan (the
"1991 Plan") under which 250,000 shares of common stock were reserved for
future grant. The 1991 Plan expires August 26, 2001. The 1994 Plan and
1991 Plan provide that options can be granted by Miller at a price not
less than 100% of fair market value (or 110% of fair market value if the
optionee owns 10% or more of Miller's common stock). The term of an
option granted under the 1994 Plan and 1991 Plan cannot exceed ten years,
and options are either exercisable upon grant or contain a specific
vesting schedule, except in the event of a change of control, as defined,
at which time all outstanding options become fully exercisable by the
optionee.
Changes in options are summarized as follows:
Number Per Share
Of Shares Option Price
Outstanding at July 1, 1993 201,500 $2.50 - $4.63
Canceled (41,500) 3.00 - 4.25
Outstanding at July 2, 1994 160,000 2.50 - 4.63
Granted 329,000 3.25 - 6.00
Exercised (7,000) 2.75
Canceled (88,000) 2.75 - 4.63
Outstanding at July 1, 1995 394,000 2.50 - 6.00
Granted 215,000 4.00 - 6.13
Cancelled (126,000) 3.25 - 6.00
Outstanding at June 29, 1996 483,000 $2.50 - $6.13
Exercisable at June 29, 1996 241,200
In October 1995, Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-based Compensation," was issued. This
Statement requires the fair value of stock options and other stock-based
compensation issued to employees to either be included as compensation
expense in the statement of income, or the pro forma effect on net income
and earnings per share of such compensation expense to be disclosed in
the notes to the financial statements. Miller expects to adopt SFAS
No. 123 on a disclosure basis only, and the disclosure requirements are
effective for fiscal years beginning after December 15, 1995. As such,
implementation of SFAF No. 123 is not expected to impact Miller's
consolidated balance sheet or statement of income.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
for the years ended June 29, 1996, July 1, 1995 and July 2, 1994
Note D: STOCKHOLDERS EQUITY, Continued
The Company has an employee stock purchase plan under which a total of
500,000 shares of the Company's common stock are reserved for purchase by
full-time employees through payroll deductions at a price equal to 85% of
the fair market value on the purchase date. Certain restrictions in the
plan limit the amount of payroll deductions and the amount of ownership
in the Company an employee may acquire under the plan. As of June 29,
1996, the Company has not implemented the employee stock purchase plan.
Note E: INCOME TAXES.
The provision (credit) for income taxes is summarized as follows:
Years Ended
June 29, July 1, July 2,
1996 1995 1994
Current:
Federal $185,000 $ 72,000 $(18,000)
State 79,000 50,000 (4,000)
264,000 122,000 (22,000)
Deferred tax (credit) 70,000 67,000 (44,000)
Total $334,000 $189,000 $(66,000)
The provision (credit) for income taxes included in the consolidated
statements of income differs from that computed by applying the federal
statutory tax rate (34%) to income before income tax as follows:
Years Ended
June 29, July 1, July 2,
1996 1995 1994
Computed federal income
tax $279,000 $173,000 $ 83,600
Increase (decrease)
resulting from:
Federal income taxes
reversed for Internal
Revenue Service examination - - (120,400)
State income taxes, net
of federal income tax
impact 59,000 33,000 (2,600)
Other, net ( 4,000) (17,000) (26,600)
Total $334,000 $189,000 $ (66,000)
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
for the years ended June 29, 1996, July 1, 1995 and July 2, 1994
Note E: INCOME TAXES, Continued.
Deferred income taxes reflect the estimated future net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes. The components of the net deferred tax asset and
liabilities at June 29, 1996 and July 1, 1995 are as follows:
June 29, July 1,
1996 1995
Current deferred tax asset:
Inventories $ 138,000 $ 140,000
Accrued warranty 33,000 59,000
Accrued nonrecurring items 53,000 76,000
Allowance for doubtful
receivables 22,000 24,000
Other 6,000 21,000
Total $ 252,000 $ 320,000
Long-term deferred tax asset (liability):
Property, plant and equipment $(144,000) $(149,000)
Accrued nonrecurring items 8,000 15,000
Total $(136,000) $(134,000)
Note F: MAJOR CUSTOMERS.
Miller's primary business involves the design and manufacture of factory-
built buildings. Miller sells its commercial modular and mobile office
products to independent customers who, in turn, sell or lease to the end
users. The telecommunication products are sold directly to the end user.
One customer individually accounted for 13% of net sales in fiscal 1996,
23% of net sales in fiscal 1995 and 21% of net sales in fiscal 1994. At
June 29, 1996, 16% of receivables are concentrated with one customer and
40% concentrated in five other customers. At July 1, 1995, 15% of
receivables was concentrated with one customer and 37% was concentrated
with five other customers.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
for the years ended June 29, 1996, July 1, 1995 and July 2, 1994
Note G: COMMITMENTS AND CONTINGENCIES.
Lease Commitments
Miller leases certain real estate under a noncancellable operating lease
expiring April 1998. The lease may be extended at Miller's option.
Miller generally is responsible for utilities, taxes and insurance on the
leased facility. Future minimum lease payments under this noncancellable
lease are as follows: 1997 - $50,404 and 1998 - $43,237.
Rental expense under all operating leases aggregated $70,691, $159,225
and $179,620 for the years ended June 29, 1996, July 1, 1995 and July 2,
1994, respectively.
Self-Insurance
Miller is self-insured for the portion of its employee health care costs
not covered by insurance. Miller is liable for medical claims up to
$40,000 per eligible employee annually, and aggregate annual claims up to
approximately $658,000. The aggregate annual deductible is determined by
the number of eligible covered employees during the year and the coverage
they elect. Miller accrues for the estimated losses occurring from both
asserted and unasserted claims. The estimate of the liability for
unasserted claims arising from incurred, but not reported, claims is
based on analysis of historical claims data.
Note H: UNAUDITED INTERIM FINANCIAL INFORMATION.
Presented below is certain selected unaudited quarterly financial
information for the years ended June 29, 1996 and July 1, 1995:
Earnings
Net Gross Net Income (Loss)
Sales Profit (Loss) Per Share
1996:
Fourth $11,945,282 $2,373,716 $ 393,701 $ .12
Third 8,170,244 1,338,187 (180,265) (.06)
Second 7,670,294 1,275,392 19,001 .01
First 10,072,148 1,868,240 253,186 .08
$37,857,968 $6,855,535 $ 485,623 $ .16
1995:
Fourth $11,298,949 $1,899,047 $ 263,885 $ .08
Third 9,225,932 1,131,982 (370,960) (.12)
Second 9,691,497 1,440,865 118,817 .04
First 11,238,122 1,609,284 308,170 .10
Total $41,454,500 $6,081,178 $ 319,912 $ .10
The sum of quarterly earnings (loss) per share for the four quarters may
not equal annual earnings per share due to changes in the average common
equivalent shares.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Concluded
for the years ended June 29, 1996, July 1, 1995 and July 2, 1994
Note I: SUBSEQUENT EVENTS.
On August 12, 1996, Miller entered into a ten-year lease agreement with
the Board of County Commissioners of Coffey County, Kansas to lease a
155,000 square foot manufacturing facility. The lease agreement provides
for payments of $2,500 per month with an option to purchase the building
at the end of the lease for a balloon payment of $250,000. The balloon
payment can be reduced if certain full-time employee levels are attained
during the term of the lease. In connection with the lease agreement,
Miller entered into an agreement with the current tenant of the property,
whereby Miller agreed to pay the tenant $800,000, in two equal
installments, to vacate the leased premises. Miller paid the tenant
$400,000 on August 12, 1996, and will pay the remaining $400,000 after
the tenant vacates the leased premises, which is scheduled to be on or
before November 1, 1996. Miller intends to use its existing line of
credit for the cash to pay the tenant.
The lease agreement will be accounted for as a capitalized lease
obligation whereby Miller will reflect the leased property under the
capitalized lease and the related obligations on its balance sheet. If
the lease agreement and related agreement with the current tenant had
been consummated on June 29, 1996, Miller's consolidated balance sheet
at that date would have reflected land and building under capital lease
of $1,029,000, the $800,000 obligation to the current tenant and a
$229,000 capital lease obligation, discounted using a 9% incremental
borrowing rate.
F-14
MILLER BUILDING SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C Col. D Col. E
Additions Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
Year ended June 29, 1996:
Allowance for
doubtful
receivables $ 59,024 $ 1,287 $ - $ 6,706 (A) $ 53,605
Year ended July 1, 1995:
Allowance for
doubtful
receivables $120,220 $ 67,528 $ - $128,724 (A) $ 59,024
Year ended July 2, 1994:
Allowance for
doubtful
receivables $ 49,361 $120,220 $ - $ 49,361 (A) $120,220
Property held
for sale $153,259 $ - $ - $153,259 (B) $ -
(A) Uncollectible accounts written off.
(B) Valuation allowance originally established in fiscal year 1993 to reflect
"Property held for sale" at its net realizable value was utilized when
the property was disposed of in fiscal year 1994.
F-15
MILLER BUILDING SYSTEMS, INC., AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
10.57 Employment agreement between Registrant and Edward C. Craig, dated
February 29, 1996 (I)
10.58 Lease agreement between the Board of County Commissioners of Coffey
County, Kansas dated August 12, 1996 with respect to property
located in Burlington, Kansas
10.59 Agreement between Registrant and American Quality Manufacturing,
Inc. dated July 25, 1996, to vacate the leased property located in
Burlington, Kansas
10.60 Lease agreement between Toboll Property Limited Partnership and
Miller Structures, Inc. dated May 21, 1996, with respect to the
lease of land in Sioux Falls, South Dakota
11 Statement regarding computation of per share earnings
23.3 Consent of Independent Accountants
The exhibits listed below are filed as part of this report and incorporated by
reference as indicated.
3.1 Certificate of Incorporation, as amended (a)
3.2 By-Laws, as amended (a) (c) (e) (h) (j) (k) (m)
4.1 Specimen Common Stock Certificate (d)
4.2 Certificate of Incorporation, Articles Fourth, Eighth, and Tenth;
By-Laws, Articles II, VII, and IX (a)
10.11 Lease Agreement between Sioux Falls Structures, Inc. (now known as
Miller Structures, Inc.), a South Dakota corporation, and Toboll
Corporation dated April 15, 1985 with respect to property located
in Sioux Falls, South Dakota (a) and Amendments thereto dated
February 3, 1988 and December 31, 1989 (g)
10.14 Lease between Miller Structures, Inc.), a California corporation,
and C&W dated as of March 20, 1985 with respect to property located
in Fontana, California (a)
10.44 Employment Agreement between Registrant and John M. Davis, dated
March 16, 1990 and effective as of February 1, 1990 (f) (I)
10.47 Agreement between Registrant and Frederick H. Goldberger, dated May
6, 1991, which replaces an employment agreement dated April 26,
1988 and amendments thereto which was to expire on June 30, 1995
(i)
10.48 1991 Stock Option Plan adopted by the Registrant's stockholders on
October 30, 1991 and Form of Option Agreement (l)
10.49 Miller Building Systems, Inc. 401(k) Plan (n)
10.50 Letter to Frederick H. Goldberger, dated April 28, 1993, declaring
the non-competition covenant, of the Agreement of May 6, 1991, to
have no value (n)
10.51 First amendment to employment agreement between Registrant and John
M. Davis, dated March 16, 1994 (p) (I)
10.52 Commercial Lease and Option to Purchase between Miller Structures,
Inc., and Indiana corporation, and Malcolm O. Koons dated March 2,
1993 with respect to property located at Elkhart, Indiana (p)
10.53 1994 Stock Option Plan adopted by the Registrant's stockholders on
October 25, 1994 and For of Option Agreement (o)
10.54 Agreement between Registrant and Ronald L. Chez, dated September 9,
1994 (q) (I)
10.55 Agreement to Terminate Lease between Miller Structures, Inc., an
Indiana corporation, and Malcolm O. Koons dated June 12, 1995 with
respect to property located at Elkhart, Indiana (q)
10.56 Employment agreement between Registrant and Edward C. Craig, dated
July 1, 1994 (q) (I)
21.1 Subsidiaries of the Registrant (n)
(a) Registration Statement on Form S-1, as amended (File No. 0-14651)
(b) Form S-8, Date of Report - October 28, 1987
(c) Form 8-K, Date of Report - July 20, 1989
(d) Form 10-K for year ended June 30, 1989
(e) Form 8-K, Date of Report - January 31, 1990
(f) Form 8-K, Date of Report - March 16, 1990
(g) Form 10-K for year ended June 30, 1990
(h) Form 8-K, Date of Report - April 23, 1991
(i) Form 8-K, Date of Report - May 6, 1991
(j) Form 8-K, Date of Report - July 25, 1991
(k) Form 8-K, Date of Report - August 26, 1991
(l) Form S-8, Date of Report - July 31,1992
(m) Form 8-K, Date of Report - April 22, 1993
(n) Form 10-K for year ended June 30, 1993
(o) Form S-8, Date of Report - Dated December 30, 1994
(p) Form 10-K, for year ended July 2, 1994
(q) Form 10-K, for year ended July 1, 1995
(I) Indicates a management contract or compensation plan or arrangement.