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 27, 1999
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
3,545,393 Shares Outstanding at May 3, 1999
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 27, June 27,
1999 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 166,335 $ 111,620
Receivables 11,192,872 11,126,444
Refundable income taxes - 20,000
Inventories 4,758,896 6,140,647
Deferred income taxes 230,000 230,000
Other current assets 270,740 204,107
TOTAL CURRENT ASSETS 16,618,843 17,832,818
PROPERTY, PLANT AND EQUIPMENT, at cost 14,864,837 14,153,205
Less, Accumulated depreciation and
amortization 5,525,289 5,141,452
PROPERTY, PLANT AND EQUIPMENT, NET 9,339,548 9,011,753
Unexpended industrial revenue bond
proceeds 66,091 1,115,854
Excess acquisition cost over fair
value of acquired net assets, net 4,198,605 2,058,409
Other assets 182,095 210,754
TOTAL ASSETS $30,405,182 $30,229,588
See notes to condensed consolidated financial statements.
MILLER BUILDING SYSTEMS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 27, June 27,
1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ - $ 3,550,000
Current maturities of long-term debt 795,787 762,900
Accounts payable 3,516,776 3,246,373
Accrued income taxes 320,647 17,469
Accrued expenses and other 1,234,899 1,645,871
TOTAL CURRENT LIABILITIES 5,868,109 9,222,613
Long-term debt, less current maturities 5,604,153 6,094,389
Deferred income taxes 316,000 316,000
Other 14,470 15,276
TOTAL LIABILITIES 11,802,732 15,648,278
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value - -
Common stock, $.01 par value 42,506 40,235
Additional paid-in capital 13,847,920 11,600,191
Retained earnings 7,490,769 5,770,243
21,381,195 17,410,669
Less, Treasury stock, at cost 2,778,745 2,829,359
TOTAL STOCKHOLDERS' EQUITY 18,602,450 14,581,310
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $30,405,182 $30,229,588
See notes to condensed consolidated financial statements.
MILLER BUILDING SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 27, March 28,
1999 1998
Net sales $14,325,764 $14,449,832
Costs and expenses:
Cost of products sold 11,835,910 12,081,525
Selling, general and administrative 1,594,181 1,817,251
Interest expense 137,050 114,027
Other income, principally interest (884) (15,951)
INCOME BEFORE INCOME TAXES 759,507 452,980
Income taxes 269,000 174,000
NET INCOME $ 490,507 $ 278,980
Earnings per share of common stock:
Basic $ .14 $ .08
Diluted $ .14 $ .08
Number of shares used in computation
of earnings per share:
Basic 3,543,309 3,280,300
Diluted 3,625,180 3,468,246
Nine Months Ended
March 27, March 28,
1999 1998
Net sales $47,942,796 $38,170,981
Costs and expenses:
Cost of products sold 39,574,872 31,217,914
Selling, general and administrative 5,153,670 4,789,485
Interest expense 458,133 209,476
Other income, principally interest (8,112) (16,450)
INCOME BEFORE INCOME TAXES 2,764,233 1,970,556
Income taxes 1,051,000 750,000
NET INCOME $ 1,713,233 $ 1,220,556
Earnings per share of common stock:
Basic $ .48 $ .37
Diluted $ .47 $ .36
Number of shares used in computation
of earnings per share:
Basic 3,538,399 3,257,124
Diluted 3,623,039 3,421,404
See notes to condensed consolidated financial statements.
MILLER BUILDING SYSTEMS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
March 27, March 28,
1999 1998
Net cash provided by
operating activities $ 4,019,038 $ 1,858,677
Cash flows (used in)
investing activities:
Purchase of property, plant
and equipment (1,064,644) (1,744,025)
Decrease in unexpended industrial
revenue bond proceeds 1,049,763 -
Acquisition of business,
net of cash acquired - (2,710,734)
Proceeds from sale of property - 450,000
Net cash (used in)
investing activities (14,881) (4,004,759)
Cash flows provided by (used in)
financing activities:
Proceeds from short-term borrowings 21,155,000 19,925,000
Reduction of short-term borrowings (24,705,000) (17,645,000)
Payments of long-term debt (457,349) (203,446)
Proceeds from exercise of
stock options 57,907 113,306
Net cash provided by (used in)
financing activities (3,949,442) 2,189,860
Increase in cash
and cash equivalents 54,715 43,778
Cash and cash equivalents:
Beginning of period 111,620 89,117
End of period $ 166,335 $ 132,895
Noncash investing and financing activities:
Issuance of 227,082 shares of
common stock in connection
with business acquisition $ 2,250,000 $ -
Acquisition of United
Structures, Inc.:
Liabilities assumed - 4,108,000
Unpaid cash portion of
purchase price - 125,000
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 July 3, 1999. The
Annual Report on Form 10-K for the year ended June 27, 1998 and the
Quarterly Report on Form 10-Q for the quarters ended September 26,
1998 and December 26, 1998, should be read in conjunction with these
statements.
The June 27, 1998 condensed consolidated balance sheet was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
Note B - ACCOUNTS RECEIVABLE
Accounts receivable at March 27, 1999 include $993,000 of
receivables due from one customer who defaulted on its payment terms
because the customer was unable to complete the third-party financing
it had arranged. The customer is working with Miller to find a
third-party purchaser for these units. Miller believes the allowance
for doubtful accounts is adequate to cover uncollectible receivables
as of March 27, 1999, including losses, if any, that may result from
this customer's inability to sell the units and pay the outstanding
balance, including carrying charges. The allowance for doubtful
accounts was increased by $42,227 for the financing charges and other
carrying costs recorded in the current quarter. Management does not
believe losses, if any, on the resale of the units would be in excess
of the $140,850 specifically provided for in the allowance for
doubtful accounts.
Note C - INVENTORIES
Inventories consist of the following:
March 27, 1999 June 27, 1998
Raw materials $ 3,794,131 $ 4,604,615
Work in process 646,518 1,215,552
Finished goods 318,247 320,480
$ 4,758,896 $ 6,140,647
Note D - EARNINGS PER SHARE
The number of shares used in the computation of basic and
diluted earnings per share are as follows:
Three Months Ended
March 27, March 28,
1999 1998
Weighted average number
of common shares outstanding
(used for basic earnings
per share) 3,543,309 3,280,300
Effect of dilutive
securities:
Stock options 81,871 140,924
Contingently issuable shares - 47,022
Diluted shares outstanding
(used for diluted earnings
per share) 3,625,180 3,468,246
Nine Months Ended
March 27, March 28,
1999 1998
Weighted average number
of common shares outstanding
(used for basic earnings
per share) 3,538,399 3,257,124
Effect of dilutive
securities:
Stock options 84,640 148,606
Contingently issuable shares - 15,674
Diluted shares outstanding
(used for diluted earnings
per share) 3,623,039 3,421,404
Note E - 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 factory-built
structures primarily for the telecommunications industry. The
purchase price ("minimum purchase price"), including direct
acquisition costs, consisted of cash of $3.1 million and assumed
liabilities of $4.1 million. In addition to the minimum purchase
price, Miller agreed to pay the seller a contingent purchase price
("contingent purchase price"), payable in shares of Miller's common
stock, based on United's earnings for the six-month period ended June
27, 1998. United's earnings for the six-month period ended June 27,
1998 exceeded the targeted amount and, accordingly, on September 4,
1998 Miller paid the maximum additional contingent purchase price of
$2,250,000 (227,082 shares of Miller's common stock). The contingent
purchase price was recorded as additional 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 was developed assuming United had been acquired at the
beginning of the 1998 fiscal year. The unaudited pro forma earnings per share
(basic and diluted) reflect the issuance of 227,082 additional shares as though
these shares were issued and outstanding during the period.
Nine Months Ended
March 28, 1998
Net sales $ 45,018,000
Net income 1,592,000
Earnings per share:
Basic .46
Diluted .44
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 the 1998 fiscal year, nor
is it indicative of future operating results.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Report contains certain statements that are "forward-looking" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended. Those statements are dependent on
certain risks and uncertainties. Such factors, among others, are the mix between
products with varying profit margins, the belief that previous growth rates in
the telecommunication shelter market will continue, the awarding of contracts,
the expected profitability of the new Pennsylvania operation, the strength of
the economy in the various sections of the country served by the Company, the
impact of our competitors on the profitability of our products, the future
availability of raw materials, the anticipated adequacy of the Company's
operating cash flows and credit facilities to finance operations, capital
expenditures and other needs of its business, the collectibility of certain
accounts receivable, and the ability of the Company and its customers and
vendors to become year 2000 compliant. Readers are cautioned that reliance on
any forward-looking statements contained herein are based on reasonable
assumptions, any of which could prove to be inaccurate given the inherent
uncertainties as to the occurrence or nonoccurrence of future events. There can
be no assurance that the forward-looking statements contained in this Report
will prove to be accurate. The inclusion of a forward-looking statement herein
should not be regarded as a representation by the Company that the Company's
objectives will be achieved.
Financial Condition - March 27, 1999 compared to June 27, 1998
At March 27, 1999, Miller's working capital was $10,750,734
compared to $8,610,205 at June 27, 1998. The working capital ratio
was 2.8 to 1 at March 27, 1999 and 1.9 to 1 at June 27, 1998.
Miller has an unsecured bank credit agreement which provides for
advances up to $7,000,000 through November 30, 1999. There were no
outstanding borrowings under this credit agreement at March 27, 1999
compared to $3,550,000 at June 27, 1998.
Miller believes operating cash flows and the bank credit
agreement are sufficient to meet operating needs.
Results of Operations - Three months ended March 27, 1999 compared to
the three months ended March 28, 1998
As discussed in Note E of Notes to Condensed Consolidated
Financial Statements, effective January 1, 1998, Miller acquired
United Structures, Inc. ("United") which was accounted for as a
purchase transaction. Miller's operating results for the current
nine-month period include the operating results of United. Pro forma
financial information for last year's first nine months is included
in Note E.
Net sales for the third quarter of fiscal 1999 declined slightly
(less than 1%) from the corresponding quarter in fiscal 1998. Net
sales for the Structures product line, ("Structures") decreased 27.8%
from the third quarter last year. This decrease was primarily the
result of decreased production as a result of winter storms and lower
backlogs at the Indiana plant, along with the decision to build only
Telecom units at the Kansas plant. Net sales for the Telecom product
line, ("Telecom") increased 38.4% from the third quarter last year.
This increase was the result of Telecom sales at the new Pennsylvania
plant and increased Telecom sales at the Kansas plant. The
Structures business has rebounded and their backlogs reached a record
high in April 1999. This backlog has filled our production capacity
for the fourth quarter and well into the first quarter of fiscal
2000. The order rate for the Telecommunications business has
recently slowed. The consolidation within the Telecommunication
industry has caused a delay of orders with several of our customers.
We are also seeing certain companies place a series of smaller orders
versus the large orders placed previously, as the Telecommunication
companies more closely match shelter orders with site acquisitions.
We will shift Structures business to our Telecom plants where
practical; this will maintain efficient production levels at the
Telecom plants until the current lull in Telecom order activity
passes. We believe United and the newly completed Leola,
Pennsylvania facility will continue to be strong contributors to
Miller's overall profitability during the remainder of fiscal 1999.
During the three-month period ended March 27, 1999, cost of
products sold was 82.6% of net sales compared to 83.6% for the
comparable period of fiscal 1998. This decrease is primarily the
result of a higher mix of Telecom product which carry a higher gross
margin. The decrease in the cost of products sold percentage for the
quarter ended March 27, 1999 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 27, 1999, decreased 12.3% when compared to the
similar period of fiscal 1998. The lower selling, general and
administrative expense was generally the result of lower incentive
compensation and travel expenses. As a percentage of net sales,
selling, general and administrative expenses for the three-month
period ended March 27, 1999, were 11.1%, compared to 12.6% in the
comparable three-month period in fiscal 1998.
Interest expense increased $23,023 to $137,050 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 during the period.
The provision for income taxes was 35.4% of income before income
taxes for the three months ended March 27, 1999 and 38.4% for the
comparable three-month period of fiscal 1998. The provision for
income taxes was adjusted for anticipated lower state income tax
expense for the fiscal year ending July 3, 1999.
Results of Operations - Nine months ended March 27, 1999 compared to
the nine months ended March 28, 1998
Net sales increased $9,771,815 during the first nine months of
fiscal 1999 or approximately 25.6% from the corresponding period in
fiscal 1998. Net sales for the Structures product line, decreased
14.2% from the first nine months last year. This decrease in
Structures net sales was primarily the result of increased product
complexity, poor weather conditions, low backlogs and difficulty in
hiring qualified personnel at the Indiana plant. In addition, the
decision to build only Telecom units at the Kansas plant and softness
in the markets served by the Vermont and South Dakota plants also
contributed to the decline in Structures net sales. Net sales for
the Telecom product line, increased 102.0% from the first nine months
last year. This increase was primarily the result of sales at the
acquired United operation, Telecom sales at the recently opened
Pennsylvania plant and increased Telecom sales at the Kansas plant.
During the nine-month period ended March 27, 1999, cost of
products sold was 82.5% of net sales compared to 81.8% for the
comparable period of fiscal 1998. This increase is primarily the
result of generally higher overhead costs, costs related to the
start-up operation at the Pennsylvania plant and higher overhead
costs at United. The increase in the cost of products sold
percentage for the nine months ended March 27, 1999 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 27, 1999, increased 7.6% when compared to the
similar period of fiscal 1998. The higher selling, general and
administrative expense was generally the result of the additional
administrative costs at the United and Pennsylvania operations and
higher overall staffing levels. As a percentage of net sales,
selling, general and administrative expenses for the nine-month
period ended March 27, 1999, were 10.7%, compared to 12.5% in the
comparable nine-month period in fiscal 1998.
Interest expense increased $248,657 to $458,133 during the
current nine-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 the construction of the new
Pennsylvania facility and the acquisition of United.
The provision for income taxes was 38.0% of income before income
taxes for the nine months ended March 27, 1999 and 38.1% for the
comparable nine-month period of fiscal 1998.
Accounting and Regulatory Developments
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("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. The new disclosures required by SFAS No. 131 will
be effective for Miller's financial statements for the year ending
July 3, 1999 and will increase financial disclosures only and have no
impact on results of operations or financial position.
Year 2000 Compliance
Miller is continuing the process of identifying, evaluating, and
implementing changes necessary to address the year 2000 issue. This
issue affects computer systems that have date-sensitive programs that
may not properly recognize the year 2000. Systems that do not
properly recognize such information could generate erroneous data or
cause a system to fail, resulting in business interruption. Miller
believes its current systems are year 2000 compliant and, therefore,
does not believe the cost of converting any internal systems to be
year 2000 compliant will be material to its consolidated financial
condition or results of operations. Costs related to the year 2000
issue have been expensed as incurred. Costs incurred to date have
been less than $50,000 and management does not believe any material
additional costs will be incurred. The year 2000 issue is expected
to affect the systems of various entities with which Miller
interacts, including customers and vendors. There can be no
assurance that the systems of other companies on which Miller's
systems rely will be timely converted, or that a failure by another
company's systems to be year 2000 compliant would not have a material
adverse effect on Miller. Miller will develop a contingency plan to
safeguard Miller's operations in the event that any of Miller's
customers or vendors are not year 2000 compliant. In addition,
Miller will complete internal testing on all systems to insure year
2000 compliance. Based on information currently available,
management believes its systems are year 2000 compliant.
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
There were no reports on Form 8-K filed during the three
months ended March 27, 1999.
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 10, 1999 \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