UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file Number 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
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Common Shares, Par Value $.01 Per Share
3,300,001 Shares Outstanding at May 6, 1998
MILLER BUILDING SYSTEMS, INC.
CONTENTS
Pages
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3-4
Condensed Consolidated Statements of Income 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial
Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10-13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Index to Exhibits 15
Part I. Financial Information
Item 1. Financial Statements
MILLER BUILDING SYSTEMS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 28, June 28,
1998 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 132,895 $ 89,117
Receivables 10,506,759 8,450,479
Inventories 5,385,582 3,712,664
Deferred income taxes 448,000 448,000
Property held for sale - 412,106
Other current assets 199,928 66,713
TOTAL CURRENT ASSETS 16,673,164 13,179,079
PROPERTY, PLANT AND EQUIPMENT, at cost 12,891,848 10,900,119
Less, Accumulated depreciation and
amortization 4,983,838 4,308,543
7,908,010 6,591,576
OTHER ASSETS 2,160,861 104,562
TOTAL ASSETS $26,742,035 $19,875,217
See notes to condensed consolidated financial statements.
MILLER BUILDING SYSTEMS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 28, June 28,
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 5,250,000 $ 1,870,000
Current maturities of long-term debt 222,494 207,971
Accounts payable 4,199,015 1,478,675
Accrued income taxes 293,539 1,072,464
Accrued expenses and other 1,888,218 1,561,979
TOTAL CURRENT LIABILITIES 11,853,266 6,191,089
LONG-TERM DEBT, less current maturities 1,228,153 1,357,374
DEFERRED INCOME TAXES 133,000 133,000
OTHER 16,601 16,601
TOTAL LIABILITIES 13,231,020 7,698,064
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value 40,235 40,235
Additional paid-in capital 11,454,903 11,454,903
Retained earnings 4,849,928 3,596,049
16,345,066 15,091,187
Less, Treasury stock, at cost 2,834,051 2,914,034
TOTAL STOCKHOLDERS' EQUITY 13,511,015 12,177,153
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $26,742,035 $19,875,217
See notes to condensed consolidated financial statements.
MILLER BUILDING SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 28, March 29,
1998 1997
Net sales $14,449,832 $10,235,248
Costs and expenses:
Cost of products sold 12,081,525 8,448,883
Selling, general and administrative 1,817,251 1,507,723
Interest expense 114,027 33,323
Other income, principally interest (15,951) (11,372)
INCOME BEFORE INCOME TAXES 452,980 256,691
Income taxes 174,000 97,000
NET INCOME $ 278,980 $ 159,691
Earnings per share of common stock:
Basic $ .08 $ .05
Diluted $ .08 $ .05
Number of shares used in computation
of earnings per share:
Basic 3,280,300 3,194,442
Diluted 3,468,246 3,356,792
Nine Months Ended
March 28, March 29,
1998 1997
Net sales $38,170,981 $33,279,066
Costs and expenses:
Cost of products sold 31,217,914 27,216,242
Selling, general and administrative 4,789,485 4,473,096
Interest expense 209,476 110,947
Other income, principally interest ( 16,450) (47,755)
INCOME BEFORE INCOME TAXES 1,970,556 1,526,536
Income taxes 750,000 582,000
NET INCOME $ 1,220,556 $ 944,536
Earnings per share of common stock:
Basic $ .37 $ .30
Diluted $ .36 $ .29
Number of shares used in computation
of earnings per share:
Basic 3,257,124 3,138,036
Diluted 3,421,404 3,301,915
See notes to condensed consolidated financial statements.
MILLER BUILDING SYSTEMS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
March 28, March 29,
1998 1997
Net cash provided by
operating activities $ 2,153,253 $ 1,138,302
Cash flows provided by (used in)
investing activities:
Purchase of property, plant
and equipment (1,744,025) (820,715)
Acquisition of business,
net of cash acquired (3,005,310)
Proceeds from sale of subsidiary - 1,516,390
Proceeds from sale of property 450,000 -
Net cash provided by (used in)
investing activities (4,299,335) 695,675
Cash flows provided by (used in)
financing activities:
Proceeds from short-term borrowings 19,925,000 7,765,000
Payments on short-term borrowings (17,645,000) (9,065,000)
Payments of long-term debt and
capitalized lease obligations (203,446) (815,000)
Proceeds from exercise of
stock options 113,306 193,737
Net cash provided by (used in)
financing activities 2,189,860 (1,921,263)
Increase (decrease) in cash and
cash equivalents 43,778 (87,286)
Cash and cash equivalents:
Beginning of period 89,117 165,329
End of period $ 132,895 $ 78,043
Noncash investing and financing activities:
Acquisition of United
Structures, Inc.:
Liabilities assumed $ 4,108,000 $ -
Unpaid cash portion of
purchase price 125,000 -
Building capitalized under capital
lease and the related capital
lease obligation - 979,000
See notes to condensed consolidated financial statements.
MILLER BUILDING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - BASIS OF PRESENTATION AND OPINION OF MANAGEMENT
The accompanying condensed consolidated financial statements
include the accounts of Miller Building Systems, Inc. and its
subsidiaries (individually and collectively referred to herein as
"Miller"). The unaudited interim condensed consolidated financial
statements have been prepared in accordance with the instructions to
Form 10-Q and, therefore, do not include all information and
disclosures necessary for a fair presentation of consolidated
financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. In the
opinion of management, the information furnished herein includes all
adjustments (consisting of normal recurring accruals) necessary to
reflect a fair statement of the interim periods presented. Operating
results for the interim periods are not necessarily indicative of the
results that may be expected for the year ending June 27, 1998. The
1997 Miller Building Systems Annual Report on Form 10-K and Quarterly
Report on Form 10-Q for the quarters ended September 27, 1997 and
December 27, 1997, should be read in conjunction with these
statements.
The June 28, 1997 condensed consolidated balance sheet was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
Earnings per Share - In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share." This Statement
establishes standards for computing and presenting earnings per
share, simplifies the standards for computation and makes the
calculation comparable to international accounting standards. Under
SFAS No. 128, "Primary earnings per share" was replaced by "basic"
earnings per share. In addition, "basic" and "diluted" earnings per
share are required to be presented on the face of the income
statement. SFAS No. 128 is effective for periods ending after
December 15, 1997, and restatement of prior periods must occur upon
adoption. Basic earnings per share is computed by dividing net
income by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is
computed by dividing net income by the weighted average number of
shares of common stock outstanding plus the effect of dilutive
securities.
Note A - BASIS OF PRESENTATION AND OPINION OF MANAGEMENT, Continued
The number of shares used in the computation of basic and
diluted earnings per share are as follows:
Three Months Ended Nine Months Ended
March 28, March 29, March, 28 March 29,
1998 1997 1998 1997
Weighted average number
of shares outstanding
(used in the computation
of basic earnings
per share) 3,280,300 3,194,442 3,257,124 3,138,036
Effect of dilutive
securities:
Stock options 140,924 162,350 148,606 163,879
Earnings contingency 47,022 - 15,674 -
Diluted shares outstanding
(used in computation of
diluted earnings per
share) 3,468,246 3,356,792 3,421,404 3,301,915
The earnings contingency represents the dilutive effect of
shares to be issued in connection with the acquisition of United
Structures, Inc. under the terms of the contingent purchase price
(see Note C).
Note B - INVENTORIES
Inventories consist of the following:
March 28, 1998 June 28, 1997
Raw materials $ 3,837,104 $ 3,133,958
Work in process 1,025,288 578,706
Finished goods 523,190 -
$ 5,385,582 $ 3,712,664
Note C - ACQUISITION OF NEW YORK OPERATION
Effective January 1, 1998, Miller acquired all of the issued and
outstanding shares of common stock of United Structures, Inc.
("United"), a New York corporation. United is engaged in the
business of designing, manufacturing and marketing of factory-built
structures primarily for the telecommunications industry. The
purchase price (the "minimum purchase price"), including direct
acquisition costs, consisted of cash of $3.1 million and assumed
Note C - ACQUISITION OF NEW YORK OPERATION, Continued
liabilities of $4.1 million. In addition to the minimum purchase
price, Miller has agreed to pay the seller a contingent purchase
price("contingent purchase price"), which will be payable in shares
of Miller's common stock, based on United's earnings for the six
months ending June 27, 1998. The contingent purchase price cannot
exceed $2,250,000 (225,000 shares assuming a $10.00 per share market
price) of Miller's common stock. As of March 28, 1998, based on
United's earnings for the three months ended March 28, 1998, 47,022
shares of Miller's common stock have been earned by the seller. The
contingent purchase price, if any, is payable September 1, 1998. The
excess of the minimum purchase price over the fair value of acquired
tangible assets aggregated $2.1 million and has been allocated to
goodwill to be amortized on a straight-line basis over 20 years. Any
contingent purchase price, which is contingent upon United's future
earnings, will be allocated to goodwill. The acquisition of United
was accounted for using the purchase method and United's operating
results have been included in Miller's consolidated financial statements
since the acquisition date of January 1, 1998.
The following unaudited pro forma financial information for the
nine months ended March 28, 1998 and March 29, 1997 were developed
assuming United had been acquired on June 29, 1997 and June 30, 1996,
respectively.
The unaudited pro forma financial information is not
necessarily indicative of what actually would have occurred if the
acquisition had been completed as of the beginning of each of the
fiscal periods presented, nor is it indicative of future operating
results. The unaudited pro forma earnings per share (basic and
diluted) reflect the issuance of 225,000 additional shares, which are
issuable as contingent purchase price, as though these shares were
issued and outstanding during each of the periods presented.
Nine Months Ended
March 28, 1998 March 29, 1997
Net sales $ 45,018,000 $ 37,571,000
Net income $ 1,592,000 $ 1,000,000
Earnings per share:
Basic $ .46 $ .30
Diluted $ .44 $ .28
The pro forma financial information is not necessarily
indicative of what actually would have occurred if the acquisition
had been completed as of the beginning of each of the fiscal periods
presented, nor is it indicative of future operating results.
Note D - SALE OF CALIFORNIA OPERATION
On October 21, 1996, Miller sold all of the issued and
outstanding stock of its wholly owned California subsidiary, to
MODTECH, Inc. ("Buyer"). The California subsidiary manufactured
modular and mobile buildings in Patterson, California.
The consideration paid by the Buyer to Miller consisted of a
cash purchase price of $1,516,390. Miller and the Buyer also entered
into a three-year lease obligation for certain real property (the
"Patterson Property") which lease agreement requires the Buyer, as
lessee, to pay Miller rental payments of $4,500 per month. On
January 16, 1998, with the issuance of an acceptable expanded
environmental report on the Patterson Property, Miller and the Buyer
mutually agreed to cancel the lease agreement, and the Buyer acquired
the Patterson Property from Miller for a cash purchase price of
$450,000.
In connection with this sale transaction, Miller entered into a
non-competition agreement with the Buyer which provides that Miller
will not, at any time within a five-year period following closing,
engage in any business that manufactures and markets the products
which were previously manufactured by Miller's former California
subsidiary in the states of California, Nevada and Arizona.
Note E - Accounting and Regulatory Developments
In June 1997, the FASB issued SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information," which Miller will
be required to adopt in its fiscal 1999 year-end financial
statements. SFAS No. 131 specifies revised guidelines for
determining operating segments and the type and level of information
to be disclosed. Miller has not yet determined what changes in its
disclosures, if any, will be required by SFAS No. 131.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Some matters set forth herein are forward looking statements
that are dependent on certain risks and uncertainties. Such factors,
among others, are the mix between fleet and custom products, the
strength of the economy in the various sections of the country served
by Miller and the bidding and quoting process, where our competitors
can impact the profitability of our products. At times, Miller's
actual performance differs materially from its projections and
estimates regarding the economy, the modular building and
telecommunications shelter industries and other key performance
indicators. Miller's actual results could vary significantly from
the performance projected in the forward looking statements.
Financial Condition - March 28, 1998 compared to June 28, 1997
At March 28, 1998, Miller's working capital was $4,819,898
compared to $6,987,990 at June 28, 1997. The working capital ratio
was 1.4 to 1 at March 28, 1998 and 2.1 to 1 at June 28, 1997.
Miller has an unsecured bank credit agreement which provides for
advances up to $5,000,000 through November 30, 1998. On March 16,
1998 the bank increased the line of credit by $2,500,000 to
temporarily fund the cost of the Pennsylvania plant addition until
Industrial Revenue Bond funds are available and to finance the
purchase of United. On June 30, 1998, the outstanding principle
balance of the extended line of credit will convert to a term loan
with a maturity of 60 months after the conversion date. Outstanding
borrowings under this credit agreement were $4,150,000 at March 28,
1998 compared to $1,870,000 at June 28, 1997. Miller also has a
secured promissory note for $1,100,000, related to the acquisition of
United Structures, Inc. The promissory note was paid in full on
April 10, 1998 from cash flows generated by United.
Miller believes operating cash flows and the bank credit
agreement are sufficient to meet operating needs.
Results of Operations - Three months ended March 28, 1998 compared to
the three months ended March 29, 1997
Net sales increased $4,214,584 during the third quarter of
fiscal 1998 or approximately 41.2% from the corresponding quarter in
fiscal 1997. Net sales for the Structures product line,
("Structures") increased 26.5% from the third quarter last year. The
net sales increase at Structures was primarily the result of higher
sales at the Structures Elkhart, Indiana plant and at the Burlington,
Kansas facility, which did not begin the Structures operation until
April of fiscal year 1997. Net sales for the Telecom product line,
("Telecom") increased 53.6% from the third quarter last year. This
increase was the result of sales at the newly acquired United
operation. The Structures' business remains steady as our backlogs
are strong. The Telecom business, which has been soft for the past
eight months, is showing signs of recovery. The Telecom backlogs now
exceed last year. The increase in Telecom orders and the
continuation of the previously announced Michigan State Police
project should create strong Telecom sales during the fourth quarter
of our fiscal year. We believe United will continue to be a
profitable addition to Miller. The new Leola, Pennsylvania facility
is under construction and is expected to be in operation late in
Miller's fourth fiscal quarter.
During the three-month period ended March 28, 1998, cost of
products sold was 83.6% of net sales compared to 82.5% for the
comparable period of fiscal 1997. This increase can be attributed to
the lower than anticipated telecommunications sales volume at the
Kansas facility, coupled with a larger percentage of unit sales at
Structures which carry a lower profit margin. The increase in the
cost of products sold percentage for the quarter ended March 28, 1998
is not necessarily indicative of the trend in cost of sales
anticipated in future periods.
Selling, general and administrative expense for the three-month
period ended March 28, 1998, increased 20.5% when compared to the
similar period of fiscal 1997. The higher selling, general and
administrative expense was generally the result of the additional
administrative costs at the United operation and higher overall
staffing levels. As a percentage of net sales, selling, general and
administrative expenses for the three-month period ended March 28,
1998, were 12.6%, compared to 14.7% in the comparable three-month
period in fiscal 1997.
Interest expense increased $80,704 to $114,027 during the
current three-month period compared to the similar period of the
prior year. The increase was attributable to higher levels of
outstanding debt, which was principally the result of funding
construction costs at the new Pennsylvania facility and the
acquisition of United.
The provision for income taxes was 38.4% of income before income
taxes for the three months ended March 28, 1998 and 37.8% for the
comparable three-month period of fiscal 1997.
Results of Operations - Nine months ended March 28, 1998 compared to
the nine months ended March 29, 1997
Net sales increased $4,891,915 during the first nine-months of
fiscal 1998 or approximately 14.7% from the corresponding period in
fiscal 1997. Net sales for the Structures product line,
("Structures") increased 7.3% over the first nine-months last year.
The $1.6 million of lost revenue related to the Patterson, California
operation, which was sold during the first quarter of fiscal 1997,
was more than offset by increased sales volume at the Structures'
Elkhart and Kansas facilities. Net sales for the Telecom product
line, ("Telecom") increased 25.2% over the first nine-months last
year. This increase was the result of sales at the new Kansas and
United plants, partially offset by the decline in sales volume at the
Elkhart plant.
During the nine-month period ended March 28, 1998, the cost of
products sold percentage was 81.8% of net sales unchanged from the
comparable period of fiscal 1997. The cost of products sold
percentage for the period ended March 28, 1998 is not necessarily
indicative of the trend in cost of sales anticipated in future
periods.
Selling, general and administrative expense for the nine-month
period ended March 28, 1998, increased 7.1% from the similar period
of fiscal 1997. The overall increase in selling, general and
administrative expense related to higher staffing levels and
administrative cost related to the newly acquired United operation
partially offset by a decrease in incentive compensation costs. As
a percentage of net sales, selling, general and administrative
expenses for the nine-month period ended March 28, 1998, were 12.5%,
compared to 13.4% in the comparable nine-month period in fiscal 1997.
Interest expense increased $98,529 to $209,476 during the
current nine-month period compared to the similar period of the prior
year. The increase was attributable to higher levels of debt
outstanding during the period.
The provision for income taxes was 38.1% of income before income
taxes for the nine months ended March 28, 1998 and the comparable
nine-month period of fiscal 1997.
Other Matters
As disclosed in Note C of the condensed consolidated financial
statements, effective January 1, 1998, Miller acquired all of the
issued and outstanding common shares of United Structures, Inc.
Part II. Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See Index to Exhibits
(b) Reports on Form 8-K
The following reports on Form 8-K and 8-K/A were filed
during the three months ended March 28, 1998.
January 29, 1998, Miller Building Systems, Inc., executed
a Memorandum Agreement to acquire all of the issued and
outstanding shares of common stock of United Structures,
Inc.
February 27, 1998, Miller Building Systems, Inc., executed
a Stock Purchase Agreement with David Newman and Marc
Newman to acquire all of the issued and outstanding shares
of common stock of United Structures, Inc.
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
DATE: May 11, 1998 \Edward C. Craig
Edward C. Craig
President and Chief Executive
Officer
(Principal Executive
Officer)
\Thomas J. Martini
Thomas J. Martini
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
MILLER BUILDING SYSTEMS, INC.
AND SUBSIDIARIES
FORM 10-Q
INDEX TO EXHIBITS
Number Assigned
in Regulation S-K
Item 601 Description of Exhibit
(27) Financial Data Schedule