ITEM 1. BUSINESS
The Company
Miller Building Systems, Inc. ("Miller") is the parent of Miller Structures, Inc. ("Structures"), Miller Telecom Services, Inc. ("Telecom") and Miller Building Systems of Kansas, Inc. (incorporated in fiscal 1997.) All operations of Miller are conducted through its three 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.
Effective June 29, 1997, Miller reorganized its operations and corporate structure. The Structures and Telecom subsidiaries were reorganized as manufacturing facilities which will produce both the Structures and Telecom product lines. There are three major production facilities, which will operate as wholly owned subsidiaries of Miller. These are Miller Building Systems of Indiana, Inc. (formerly Miller Telecom Services, Inc.); Miller Building Systems of Pennsylvania, Inc. (formerly Miller Structures, Inc.); and Miller Building Systems of Kansas, Inc. The Structures plant in Vermont will operate under Miller Building Systems of Pennsylvania, Inc., d.b.a. Miller Building Systems of Vermont. The Vermont plant will manufacture the Structures product line. Miller Building Systems of South Dakota, Inc.(formerly Miller Structures, Inc., a South Dakota corporation) will operate as a wholly owned subsidiary of Miller Building Systems of Kansas, Inc. and will also manufacture the Structures product line. Miller Construction Services, Inc. is a newly formed, wholly owned subsidiary of Miller. This subsidiary will provide complete turnkey service from site preparation, through setting and installation.
During the fiscal year Miller sold its operation in Patterson, California (see Note G of the Notes to Consolidated Financial Statements). The proceeds from the sale of the California operation were used to fund the acquisition of the Kansas facility (see Note C of the Notes to Consolidated Financial Statements).
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 Burlington, Kansas.
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 buildings 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 28, 1997 and June 29, 1996, the following customers represented 10% or more of net sales of Miller: In-Roads, Inc. represented 15% of Miller's net sales for the fiscal year ended June 28, 1997 and Transport International Pool, Inc., d/b/a GE Capital Modular Space, a division of General Electric Capital Corporation ("GE Capital"), represented 13% for the fiscal year ended June 29, 1996.
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 production from that location. The Telecom office controls manufacturing facilities in Elkhart, Indiana and Burlington, Kansas.
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. The latter 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, 1997 and 1996 was as follows:
1997 1996 Structures $8,699,000 $11,488,000 Telecom 2,705,000 2,847,000
The backlog at Structures at August 31, 1996, when adjusted for the sold California operation was $10,184,000. The decline in backlog is the result of higher production levels at the Structures plants. The current backlog level should provide the basis to continue these increased production levels through our second fiscal quarter; however, management believes it is too early to
determine whether this current business activity will extend to the second half of fiscal 1998. The small decline in the Telecom backlog is also related to our higher production levels. In addition, we have experienced a slowing of orders in recent months as the telecommunications industry in general has focused on getting existing infrastructure online and generating revenue. Miller believes that the build-out of the telecommunication infrastructure will increase in calender 1998. This should have a favorable impact on sales and production during the second half of Miller's fiscal year.
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.
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 I of Notes to Consolidated Financial Statements.
Employees
As of August 31, 1997, Miller and its subsidiaries had approximately 400 employees of which approximately 315 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.
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
Burlington, KS 155,000 150,000 5,000 Capitalized Lease
Sioux Falls, SD 36,100 34,200 1,900 Leased (3)
Bennington, VT 28,900 27,000 1,900 Owned _________________ _______ _______ ______ Total approximate square footage 414,200 382,200 32,000
(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.
Miller also owns a 44,600 square foot manufacturing facility in Patterson, California. This plant is currently leased to the buyer of the California operation. (see Note G of the Notes to Consolidated Financial Statements).
ITEM 3.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS
Steven F. Graver (age 45) 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 62) 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 modular 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 49) 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.
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 "MBSI." 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 1997 Fiscal 1996 High Low High Low
1st Quarter 6 5/8 5 1/2 3 1/4 2 1/4 2nd Quarter 8 3/4 5 3/8 3 1/2 2 3rd Quarter 9 3/8 6 1/4 5 3 4th Quarter 8 6 1/4 6 3/8 4 1/4
As of August 29, 1997, Miller estimates there were approximately 1,500 stockholders of Miller's Common Stock. Of this total, approximately 200 were stockholders of record and shares for approximately 1,300 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 from fiscal 1994, through fiscal 1997 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.
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 28, June 29, July 1, July 2, June 30, 1997 1996 1995 1994 1993 (In thousands, except per share data)
Net sales $46,287 $37,858 $41,455 $38,569 $40,623 Net income (loss) 1,574 486 320 312 (2,014) Net income (loss) per share .47 .16 .10 .10 (.61) Cash dividends per share - - - - .075 Total assets 19,875 16,920 16,522 15,308 16,411 Long-term debt, less current maturities 1,357 1,270 1,385 110 210
(A) Net sales (in thousands) for fiscal years ended 1997, 1996, 1995, 1994 and 1993 include $1,636; $5,787; $6,414; $7,440 and $10,890, respectively, of Miller's California subsidiary which was sold on October 21, 1996. Net sales (in thousands) for fiscal 1997 include $2,139 for the new Kansas facility which commenced operations in January 1997.
(B) Miller's operating results for fiscal years 1996, 1995, 1994 and 1993 were adversely impacted by nonrecurring items (in thousands) of $358, $361, $159, and $2,345, respectively.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fiscal 1997 Compared to Fiscal 1996
Net sales increased $8.4 million or approximately 22% in fiscal 1997 from the corresponding period in fiscal 1996. Structures reported a $5.1 million, or approximately a 19% increase in net sales during fiscal 1997. The increase in net sales was achieved despite the decline in sales related to the California operation which was sold during the current year's first fiscal quarter. The Eastern and Midwest Structures' plants benefited from several large contracts which kept the plants busy during the traditionally slow winter months and at nearly full capacity during the fourth quarter. In addition, Structures has expanded its customer base which provides greater access to the construction markets. The sold Structures' operation in California had net sales of $1.6 million in fiscal 1997 and $5.8 million in fiscal 1996. Telecom's net sales increased $3.3 million, or nearly 30% during fiscal 1997. Telecom continues to gain market share and has become a competitive force in the telecommunications shelter industry. Miller expects the growth in the telecommunication shelter market to continue. The Kansas facility which began operations in January 1997 produced both the Structures and Telecom product lines. Net sales for the Structures products was $.4 million and was $1.7 million for the Telecom products.
Miller's gross profit during the 1997 fiscal year approximated 19% of net sales compared to approximately 18% of net sales in fiscal 1996. During fiscal 1997, net sales from Telecom were nearly a third of Miller's total net sales. The increased sales volume in the Structures' plants, which consisted primarily of higher margin custom projects, accounted for the improved gross profit. Miller expects that the higher margin custom projects will continue to represent the major portion of the Structures' sales volume.
Selling, general and administrative expenses increased $.7 million in fiscal 1997. These expenses were 14% of net sales in fiscal 1997 compared to 15% of net sales in fiscal 1996. The increase in administrative expense was primarily the result of additional headcount, performance based compensation and start-up expenses at the Kansas plant.
The increase in interest expense in fiscal 1997 compared to fiscal 1996 of $23,140 was primarily the result of higher interest rates, higher debt outstanding on the revolving line of credit, and the capital lease obligation for the Kansas facility.
During fiscal 1997, Miller recorded an income tax provision of $1,006,000 or 39% of pre-tax profit compared to an income tax provision of $334,000 or 41% of pre-tax profit in fiscal 1996. The decrease in the current year's effective tax rate is attributable to a lower effective tax rate for state income taxes. The effective tax rate varies from year to year depending on the levels of income in states where Miller is subject to state income tax.
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.
Liquidity and Capital Resources
Miller's working capital as of June 28, 1997 was $6,987,990 compared to $5,942,053 as of June 29, 1996. The working capital ratio as of June 28, 1997 and June 29, 1996 was 2.1 and 2.2 to 1, respectively.
For the fiscal year ended June 28, 1997, Miller's operating activities used net cash of $246,610. Increases in cash from operating activities consisted primarily of net income, depreciation and amortization, and increases in accrued liabilities. These increases were more than offset by the $2.6 million increase in receivables and the $1.0 million increase in inventories. The increase in receivables and inventories were principally attributable to the strong third and fourth quarters compared to the preceding year. Miller's investing activities provided net cash of $400,316. The $1.5 million proceeds from the sale of the California subsidiary were partially offset by $1.1 million of capital expenditures. Miller's financing activities used net cash of $229,918. Increases in financing cash flows from the line of credit and proceeds from exercise of stock options were offset by payments of long-term debt and cash expended for the purchase of treasury stock. The net decrease in cash and cash equivalents for the fiscal year ended June 28, 1997 was $76,212 which resulted in cash and cash equivalents at the end of the year of $89,117.
An unsecured revolving credit agreement with a bank makes available advances up to $5,000,000 through November 30, 1997. There was $1,870,000 outstanding on the revolving credit line at June 28, 1997 and $1,500,000 at June 29, 1996.
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.
Accounting and Regulatory Developments
In February 1997, Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" was issued by the Financial Accounting Standards Board ("FASB"). Miller is required to adopt this pronouncement during its fiscal 1998 second quarter ending December 27, 1997. SFAS No. 128 will require Miller to make a dual presentation of basic and diluted earnings per share on the face of the income statement. Miller does not anticipate that SFAS No. 128 will have a significant impact on Miller's historically reported earnings per share.
In June 1997, FASB issued SFAS No. 131, "Disclosures 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 revise 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.
Forward Looking Statements
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.
ITEM 8.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
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.
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.
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.
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.
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 . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of June 28, 1997 and June 29, 1996
Consolidated Statements of Income for the years ended June 28, 1997, June 29, 1996 and July 1, 1995 . . . . . . . . . .
Consolidated Statements of Stockholders' Equity for the years ended June 28, 1997, June 29, 1996 and July 1, 1995 . . . . . . .
Consolidated Statements of Cash Flows for the years ended June 28, 1997, June 29, 1996 and July 1, 1995 . . . . . . . . . .
Notes to Consolidated Financial Statements. . . . . . . . . . . .
(2) Financial Statement Schedule
II - Valuation and Qualifying Accounts. . . . . . . . . . . . . .
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:
The following report on Form 8-K was filed during the three months ended June 28, 1997.
May 21, 1997, announcing the change of ticker symbol to MBSI from MTIK effective when trading opened on June 2, 1997.
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, 1997 \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, 1997 Edward C. Craig Executive Officer and Director (Principal Executive Officer)
\Thomas J. Martini Secretary and September 16, 1997 Thomas J. Martini Treasurer (Principal Financial and Accounting Officer)
\David E. Downen Director September 16, 1997 David E. Downen
\Steven F. Graver Director September 16, 1997 Steven F. Graver
\William P. Hall Director September 16, 1997 William P. Hall
\Myron C. Noble Director September 16, 1997 Myron C. Noble
\David H. Padden Director September 16, 1997 David H. Padden
\Jeffrey C. Rubenstein Director September 16, 1997 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 Building Systems, Inc. and subsidiaries as of June 28, 1997 and June 29, 1996, and the consolidated results of their operations and their cash flows for the years ended June 28, 1997, June 29, 1996 and July 1, 1995, 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 information required to be included therein.
COOPERS & LYBRAND L.L.P.
South Bend, Indiana July 28, 1997
MILLER BUILDING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 28, June 29, 1997 1996
ASSETS
CURRENT ASSETS Cash and cash equivalents $ 89,117 $ 165,329 Receivables, less allowance for doubtful receivables of $48,000 in 1997 and $54,000 in 1996 8,450,479 6,749,230
Refundable income taxes - 241,158
Inventories 3,712,664 3,541,000
Deferred income taxes 448,000 252,000
Property held for sale 412,106 -
Other current assets 66,713 83,087
TOTAL CURRENT ASSETS 13,179,079 11,031,804
PROPERTY, PLANT AND EQUIPMENT
Land 598,237 835,421 Buildings and leasehold improvements 5,918,922 5,497,359 Machinery and equipment 4,382,960 4,068,357 10,900,119 10,401,137 Less, Accumulated depreciation and amortization 4,308,543 4,627,438
PROPERTY, PLANT AND EQUIPMENT, NET 6,591,576 5,773,699
OTHER ASSETS 104,562 114,855
TOTAL ASSETS $19,875,217 $16,920,358
The accompanying notes are a part of the consolidated financial statements.
June 28, June 29, 1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES Short-term borrowings $ 1,870,000 $ 1,500,000 Current maturities of long-term debt 207,971 115,000 Accounts payable 1,478,675 2,291,448 Accrued income taxes 1,072,464 79,438 Accrued expenses and other 1,561,979 1,103,865
TOTAL CURRENT LIABILITIES 6,191,089 5,089,751
LONG-TERM DEBT, less current maturities 1,357,374 1,270,000
DEFERRED INCOME TAXES 133,000 136,000
OTHER 16,601 20,019
TOTAL LIABILITIES 7,698,064 6,515,770
COMMITMENTS AND CONTINGENCIES - Note H
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 3,596,049 2,048,824
15,091,187 13,543,962
Less, Treasury stock, at cost 2,914,034 3,139,374
TOTAL STOCKHOLDERS' EQUITY 12,177,153 10,404,588
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,875,217 $16,920,358
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MILLER BUILDING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 28, June 29, July 1, 1997 1996 1995
Net sales $46,286,770 $37,857,968 $41,454,500
Costs and expenses: Cost of products sold 37,323,073 31,002,433 35,373,322 Selling, general and administrative 6,286,184 5,558,322 5,018,490 Provision for doubtful receivables 51,293 1,287 67,528 (Gain) loss on sale of property and equipment (3,667) (12,323) 3,379 Interest expense 155,285 132,145 134,833 Interest income (105,226) ( 1,699) (13,087) Nonrecurring items - 358,180 361,123
INCOME BEFORE INCOME TAXES 2,579,828 819,623 508,912
Income taxes 1,006,000 334,000 189,000
NET INCOME $ 1,573,828 $ 485,623 $ 319,912
Earnings per share of common stock: Primary $ .47 $ .16 $ .10 Fully diluted $ .47 $ .15 $ .10
Weighted average number of shares of common stock and common stock equivalents: Primary 3,335,767 3,128,693 3,130,207 Fully diluted 3,360,050 3,290,453 3,130,207
The accompanying notes are a part of the consolidated financial statements.
MILLER BUILDING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
The accompanying notes are a part of the consolidated financial statements.
MILLER BUILDING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 28, June 29, July 1, 1997 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,573,828 $ 485,623 $ 319,912 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 636,287 632,277 612,359 Amortization of other assets 10,293 10,582 17,886 Deferred income taxes (199,000) 70,000 67,000 Nonrecurring items - 358,180 361,123 Other (6,612) (12,323) 3,379 Changes in certain assets and liabilities, net of effect of disposition of subsidiary in 1997 Receivables (2,591,757) (789,120) 226,710 Refundable income taxes 241,158 (241,158) - Inventories (991,266) (7,381) (161,215) Other current assets 11,550 43,665 274,074 Accounts payable (431,901) 216,938 (1,128,428) Accrued income taxes 993,026 (10,389) (50,715) Accrued expenses and other 507,784 (378,701) (475,750)
Net cash provided by (used in) operating activities (246,610) 378,193 66,335
CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment 7,250 28,998 51,268 Purchase of property, plant and equipment (1,123,324) (395,526) (1,934,432) Proceeds from sale of subsidiary 1,516,390 - - Unexpended industrial revenue bond proceeds - 76,729 (76,729)
Net cash provided by (used in) investing activities 400,316 (289,799) (1,959,893)
CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from short-term borrowings 14,695,000 10,440,000 19,838,000 Reduction of short-term borrowings (14,325,000) (10,490,000) (18,813,000) Proceeds from long-term debt - - 1,500,000 Bond issuance costs - - (120,436) Payments of long-term debt (798,655) (224,925) (100,481) Purchase of treasury stock (351,063) - (260,000) Proceeds from sale of treasury stock - - 50,001 Proceeds from exercise of stock options 549,800 - 19,250
Net cash provided by (used in) financing activities (229,918) (274,925) 2,113,334
Increase (decrease) in cash and cash equivalents (76,212) (186,531) 219,776
CASH AND CASH EQUIVALENTS Beginning of year 165,329 351,860 132,084 End of year $ 89,117 $ 165,329 $ 351,860
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 151,783 $ 127,246 $ 113,167 Income taxes (net of refunds) (29,184) 515,547 172,715
NONCASH INVESTING AND FINANCING ACTIVITIES: Building capitalized under capital lease and the related capital lease obligation 979,000 - -
The accompanying notes are a part of the consolidated financial statements.
Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Miller Building Systems, Inc. ("Miller") is the parent of Miller Structures, Inc. ("Structures"), Miller Telecom Services, Inc. ("Telecom") and Miller Building Systems of Kansas, Inc. (incorporated in fiscal 1997). All operations of Miller are conducted through its three wholly owned subsidiaries which design, manufacture, and market factory- built buildings. Miller has two product lines, Structures and Telecom. The factory-built buildings produced by Structures are modular and mobile buildings, which are generally movable and relocatable, and designed to meet the specialized needs of a wide variety of users. Structures products are sold to independent customers who, in turn, sell or lease to the end users. The Structures division has manufacturing facilities in Elkhart, Indiana; Leola, Pennsylvania; Sioux Falls, South Dakota; Bennington, Vermont; Burlington, Kansas and prior to October 1996, Patterson, California. The Telecom division manufactures specialized buildings, which utilize modular construction techniques and pre-cast concrete technology, and are designed principally for customers in the telecommunications industry. Telecom's products are sold directly to the end user. Telecom has manufacturing facilities in Elkhart, Indiana and Burlington, Kansas. Miller's Structures and Telecom products are sold throughout the United States.
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 wholly owned subsidiaries.
Fiscal Year - Miller's fiscal year is a 52 or 53 week period ending on the Saturday closest to June 30.
Revenue Recognition and Concentration of Credit Risk - Miller generally recognizes revenues from the sales of its products upon the completion of manufacturing and the transfer of title. One customer individually accounted for 15% of net sales in fiscal 1997, and a different customer accounted for 13% of net sales in fiscal 1996 and 23% of net sales in fiscal 1995. At June 28, 1997, 41% of receivables is concentrated with Miller's largest customer in fiscal 1997 and 28% is concentrated with five other customers. At June 29, 1996, 16% of receivables was concentrated with Miller's largest customer in fiscal 1996 and 40% was concentrated with five other customers.
Cash and Cash Equivalents - Miller considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents for purposes of the consolidated statements of cash flows.
Inventories - Inventories are stated at the lower of cost or market, with cost determined under the first-in, first-out method.
Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued.
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 28, 1997 and June 29, 1996, capitalized software costs, included with machinery and equipment, (and the related accumulated amortization) aggregated $256,953 ($93,644), and $233,025 ($47,334), 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.
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 28, 1997, June 29, 1996 and July 1, 1995, Miller expensed $77,546, $22,560 and $17,237 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.
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 cash equivalents, receivables, short-term borrowings and accounts payable approximated their fair value as of June 28, 1997 and 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 28, 1997 and 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.
Note B: INVENTORIES.
Inventories consist of the following:
June 28, June 29, 1997 1996
Raw materials $3,133,958 $2,875,527 Work in process 578,706 612,016 Finished goods - 53,457 $3,712,664 $3,541,000
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, 1997. 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 28, 1997 and June 29, 1996, the weighted average interest rate on outstanding borrowings was 8.34% and 8.25%, respectively. As of June 28, 1997 and June 29, 1996, outstanding borrowings under the loan agreement aggregated $1,870,000 and $1,500,000, 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 28, June 29, 1997 1996 Industrial revenue bond, variable rate (4.25% at June 28, 1997), principal payable in annual installments of $115,000 with an installment of $120,000 at final maturity in November 2007 $1,270,000 $1,385,000 Capitalized lease, interest imputed at 5.63%, payable monthly through December 2006 295,345 -
Total 1,565,345 1,385,000
Less, Current maturities 207,971 115,000 Long-term debt $1,357,374 $1,270,000
Note C: DEBT, Continued.
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 also entered into an agreement with the then current tenant of the property, whereby Miller agreed to pay the tenant $750,000, in three installments ($400,000 on August 12, 1996; $275,000 on October 24, 1996; and $75,000 five days after the former tenant received a signed acceptance and release agreement from Coffey County). Miller has accounted for this transaction as a capital lease whereby Miller recorded the leased property under the capital lease and the related obligation on its balance sheet. As of June 28, 1997, the cost and accumulated amortization of the capitalized lease property was $979,000 and $13,597, respectively.
As of June 28, 1997, the annual maturities of the industrial revenue bond and the future minimum lease payments under the capitalized lease obligation are as follows:
Fiscal Years Industrial Capitalized Ending Revenue Bond Lease
1998 $ 115,000 $105,000 1999 115,000 30,000 2000 115,000 30,000 2001 115,000 30,000 2002 115,000 30,000 Thereafter 695,000 135,000 $1,270,000 360,000
Less: Amount representing interest 64,655
$295,345
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 redemption is at a premium determined by the number of years from conversion to original maturity.
Note D: STOCK COMPENSATION PLANS.
Stock Option Plans
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.
The following table summarizes stock option activity:
Number Weighted Average of Shares Exercise Price
Outstanding at July 3, 1994 160,000 $3.06 Granted 329,000 4.07 Exercised (7,000) 2.75 Canceled (88,000) 3.42
Outstanding at July 1, 1995 394,000 3.83 Granted 215,000 4.64 Cancelled (126,000) 5.04
Outstanding at June 29, 1996 483,000 3.87 Granted 58,000 6.29 Exercised (162,200) 3.39
Outstanding at June 28, 1997 378,800 4.45
Exercisable at June 28, 1997 180,600 4.00
Note D: STOCK COMPENSATION PLANS, Continued.
Options outstanding at June 28, 1997 are exercisable at prices ranging from $2.50 to $6.375 per share and have a weighted average remaining contractual life of 6.60 years. The following table summarizes information about stock options outstanding at June 28, 1997.
Outstanding Exercisable
Number Weighted Number Outstanding Average Weighted Exercisable Weighted Range of at Remaining Average at Average Exercise June 28, Contractual Exercise June 28, Exercise Price 1997 Life Price 1997 Price
$2.50 -$4.00 240,800 6.56 $3.55 131,600 $3.35
4.01 - 5.50 20,000 6.72 4.72 15,000 4.50
5.51 - 6.375 118,000 5.97 6.24 34,000 6.28
378,800 180,600
At June 29, 1996 and July 1, 1995, there were exercisable options to purchase 241,200 and 188,600 shares at weighted average exercise prices of $3.31 and $3.24 per share, respectively. The weighted average grant date fair value of options granted during the years ended June 28, 1997 and June 29, 1996 were $2.89 and $1.94, respectively. As of June 28, 1997, 2,000 shares were reserved for the granting of future stock options, compared with 60,000 shares at June 29, 1996.
Had the Company adopted the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and net income per share would have been: June 28, June 29, 1997 1996
Pro forma net income $1,458,654 $394,177 Pro forma net income per share .44 .13
The pro forma amounts shown above and the weighted-average grant-date fair value of options granted are estimated using the Black-Scholes option- pricing model with the following assumptions:
Risk free interest rate 6.30% 5.77% Expected life 3.3 years 2.6 years Expected volatility 50% 50%
Note D: STOCK COMPENSATION PLANS, Continued.
Stock Purchase Plan
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 28, 1997, the Company has not implemented the employee stock purchase plan.
Note E: INCOME TAXES
The provision for income taxes is summarized as follows:
Years Ended June 28, June 29, July 1, 1997 1996 1995 Current: Federal $1,020,000 $185,000 $ 72,000 State 185,000 79,000 50,000
1,205,000 264,000 122,000
Deferred tax (credit) (199,000) 70,000 67,000
Total $1,006,000 $334,000 $189,000
The provision 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 28, June 29, July 1, 1997 1996 1995 Computed federal income tax $ 877,000 $279,000 $ 173,000 Increase (decrease) resulting from: State income taxes, net of federal income tax benefit 94,000 59,000 33,000 Other, net 35,000 (4,000) (17,000)
Total $1,006,000 $334,000 $ 189,000
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 liabili-
ties for financial reporting purposes and the amounts used for income tax purposes. The components of the net deferred tax asset and liability at June 28, 1997 and June 29, 1996 are as follows:
June 28, June 29, 1997 1996 Current deferred tax asset:
Allowance for doubtful receivables $ 20,000 $ 22,000 Inventories 154,000 138,000 Property held for sale 62,000 - Accrued warranty 70,000 33,000 Other accrued liabilities 142,000 59,000 Total $ 448,000 $ 252,000
Long-term deferred tax asset (liability):
Property, plant and equipment $(140,000) $(144,000) Other 7,000 8,000
Total $(133,000) $(136,000)
Note F: NONRECURRING ITEMS.
Nonrecurring items consist of the following:
Years Ended June 28, June 29, July 1, 1997 1996 1995 Costs associated with terminated acquisition $ - $256,792 $ - Settled warranty issues - - 265,514 Residential exit costs - 76,613 186,198 Other nonrecurring charges (credits) - 24,775 (90,589)
$ - $358,180 $361,123
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, which manufactured factory- built modular residential housing.
Note F: NONRECURRING ITEMS, Continued.
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.
Note G: 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. Upon the issuance of an acceptable expanded environmental report on the Patterson Property, Miller and Buyer will mutually agree to cancel the lease agreement, and Buyer will acquire the Patterson Property from Miller for a cash purchase price of $450,000. Miller expects to sell the Patterson Property during fiscal year 1998 and, accordingly, the carrying value of the Patterson Property of $412,106 is reflected as a current asset (Property held for sale) at June 28, 1997.
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 H: 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: 1998 - $43,237.
Rental expense under all operating leases aggregated $97,654, $70,691 and $159,225 for the years ended June 28, 1997, June 29, 1996 and July 1, 1995, respectively.
Note H: COMMITMENTS AND CONTINGENCIES, Continued.
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 $734,000. 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 an analysis of historical claims data.
Note I: UNAUDITED INTERIM FINANCIAL INFORMATION.
Presented below is certain selected unaudited quarterly financial information for the years ended June 28, 1997 and June 29, 1996:
Earnings Net Gross Net Income (Loss) Sales Profit (Loss) Per Share 1997: Fourth $13,007,704 $2,900,872 $ 629,292 $.19 Third 10,235,248 1,786,365 159,691 .05 Second 10,007,430 1,957,654 280,076 .08 First 13,036,388 2,318,806 504,769 .15 $46,286,770 $8,963,697 $1,573,828 $.47
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
The sum of quarterly earnings (loss) per share for the four quarters of fiscal 1996 do not equal annual earnings per share due to changes in the average common equivalent shares.
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 28, 1997:
Allowance for doubtful receivables $ 53,605 $ 51,293 $ - $ 56,659(A) $ 48,239
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
(A) Uncollectible accounts written off.
MILLER BUILDING SYSTEMS, INC., AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit Number Description of Exhibit
11 Statement regarding computation of per share earnings
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
27 Financial Data Schedule
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) (g) (i) (j) (l)
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 (f)
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 (h)
10.48 1991 Stock Option Plan adopted by the Registrant's stockholders on October 30, 1991 and Form of Option Agreement (k)
10.49 Miller Building Systems, Inc. 401(k) Plan (m)
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 (o)
10.53 1994 Stock Option Plan adopted by the Registrant's stockholders on October 25, 1994 and For of Option Agreement (p)
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 (p)
10.56 Employment agreement between Registrant and Edward C. Craig, dated July 1, 1994 (p) (I)
10.57 Employment agreement between Registrant and Edward C. Craig, dated February 29, 1996 (q) (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 (q)
10.59 Agreement between Registrant and American Quality Manufacturing, Inc. dated July 25, 1996, to vacate the leased property located in Burlington, Kansas (q)
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 (q)
10.61 Agreement for Purchase and Sale of all of the outstanding Capital Stock of Miller Structures, Inc., a California Corporation, dated September 30, 1996, between Miller Structures, Inc., an Indiana Corporation, and MODTECH, Inc. (r)
10.62 Non-Competition Agreement, dated October 1, 1996, between Miller Structures, Inc., an Indiana Corporation, and MODTECH, Inc. with respect to sale of the Capital Stock of Miller Structures, Inc., a California Corporation (r)
10.63 Supplemental Closing Agreement, dated October 21, 1996, between Miller Structures, Inc., an Indiana Corporation, and MODTECH, Inc. with respect to the sale of the Capital Stock of Miller Structures, Inc., a California Corporation (r)
(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 10-K for year ended June 30, 1990 (g) Form 8-K, Date of Report - April 23, 1991 (h) Form 8-K, Date of Report - May 6, 1991 (i) Form 8-K, Date of Report - July 25, 1991 (j) Form 8-K, Date of Report - August 26, 1991 (k) Form S-8, Date of Report - July 31,1992 (l) Form 8-K, Date of Report - April 22, 1993 (m) Form 10-K for year ended June 30, 1993 (n) Form S-8, Date of Report - Dated December 30, 1994 (o) Form 10-K, for year ended July 2, 1994 (p) Form 10-K, for year ended July 1, 1995 (q) Form 10-K, for year ended June 29, 1996 (r) Form 8-K, Date of Report - October 21, 1996
(I) Indicates a management contract or compensation plan or arrangement.