MILLER INDUSTRIES INC /TN/ (MLR) FY 2021 MD&A

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our results of operations and financial condition should be read in conjunction with the Consolidated Financial Statements and Notes thereto. Unless the context indicates otherwise, all dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in thousands.

Executive Overview

Miller Industries, Inc. is The World’s Largest Manufacturer of Towing and Recovery Equipment®, with domestic manufacturing subsidiaries in Tennessee and Pennsylvania, and foreign manufacturing subsidiaries in France and the United Kingdom. We offer a broad range of equipment to meet our customers’ design, capacity and cost requirements under our Century®, Vulcan®, Challenger®, Holmes®,

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Champion®, Chevron™, Eagle®, Titan®, Jige™ and Boniface™ brand names. In this Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the words “Miller Industries,” “the Company,” “we,” “our,” “ours” and “us” refer to Miller Industries, Inc. and its subsidiaries or any of them.

Our management focuses on a variety of key indicators to monitor our overall operating and financial performance. These indicators include measurements of revenue, operating income, gross margin, net income, earnings per share, capital expenditures and cash flow.

We derive revenues primarily from product sales made through our network of domestic and foreign independent distributors. Our revenues are sensitive to a variety of factors including general economic conditions as well as demand for, and price of, our products, our technological competitiveness, our reputation for providing quality products and reliable service, competition within our industry, and the cost and availability of purchased component parts, truck chassis and raw materials (including aluminum, steel and petroleum-related products).

Our history of innovation in the towing and recovery industry has been an important factor behind our growth over the last decade and we believe that our continued emphasis on research and development will be a key factor in our future growth. Our domestic plant expansion and modernization projects have installed sophisticated robotics and implemented other advanced technologies to optimize our manufacturing processes.  We completed phase one of the implementation of an enterprise software solution during 2021, which we expect to substantially improve our administrative efficiency and customer service levels. As we retain our focus toward modernization, we continue to invest in robotics and automated material handling equipment across all of our domestic manufacturing facilities.

We opened our free-standing R&D facility in Chattanooga in 2019, where we pursue various innovations in our products and manufacturing processes, some of which are intended to enhance the safety of our employees and reduce our environmental impact.  Our latest new product, the M100, which we believe to be the world’s largest tow truck, was introduced in the fall of 2019.

All of our domestic facilities have undergone substantial expansion and modernization projects during the period 2017 to 2021, as we have invested over $82,000 on property, plant and equipment over this five-year period, including our most recent fabrication equipment upgrades at our Greeneville, Tennessee facilities.  These projects not only increased our production capacity, but also included installing sophisticated robotics and implementing other advanced technologies to optimize our manufacturing process.

Our industry is cyclical in nature. Until the onset of the COVID-19 pandemic, the overall demand for our products and resulting revenues in recent years have been positively affected by favorable economic conditions, such as lower fuel prices, and positive consumer sentiment in our industry. However, historically, the overall demand for our products and our resulting revenues have at times been negatively affected by:

We remain concerned about the continuing effects of these factors on the towing and recovery industry, and we continue to monitor our overall cost structure to see that it remains in line with business conditions.

In addition, we have been and will continue to be affected by changes in the prices that we pay for raw materials, particularly aluminum, steel, petroleum-related products and other raw materials, which represent a substantial part of our total cost of operations. Prices in raw materials can be affected by tariffs and quantitative restrictions, such as those that were imposed by the U.S. government in 2018. Historically, we have implemented price increases on our products to offset price increases in the raw materials that we use which will be fully-implemented over the course of 2022. We also developed alternatives to some of the components used in our production process that incorporate these raw materials, and our suppliers have implemented these alternatives in the production of our component parts. We continue to monitor raw material prices and availability in order to more favorably position the Company in this dynamic market.

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As of December 31, 2021 and 2020, the Company owed $0 under its primary credit facility.

The supply chain disruptions and workforce retention challenges we experienced during 2021 were due primarily to continued impacts from COVID-19. These factors along with our new software system implementation caused substantial downward pressures on our revenues, margins and earnings during 2021. The business process improvements critical to developing our new software system are now operational. However, supply chain constraints continue to significantly reduce our ability to complete finished goods without timing delays. Nevertheless, based on our strong backlog and the current status of our process improvements, and assuming a continued easing of supply chain constraints and workforce challenges during 2022, we believe we have the opportunity to substantially improve our operating results in 2022.

Impact of COVID-19 and Supply Chain Disruptions

The spread of the COVID-19 virus during 2020 caused an economic downturn on a global scale, as well as significant volatility in the financial markets. During the month of March 2020, we enacted limited shutdowns of all of our domestic facilities to make appropriate modifications to our operations because of COVID-19, which allowed us to continue to serve our customers, while taking precautions to provide a safe work environment for our employees and customers. Since that time and through the present, we have been rotating the majority of our workforce every four days, have designated periods of non-production time for sanitation efforts, have adjusted work schedules to maximize our capacity while adhering to recommended precautions such as social distancing, and have established and implemented work from home provisions where possible. These safety modifications continue to have an adverse impact on our plant productivity, although the impact has been less severe as we have become more accustomed to working under them. We are unable to predict when we may be able to safely relax these new operating measures that were adopted as a result of the COVID-19 pandemic.

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In March 2020, we drew $25,000 on our existing credit facility for working capital needs and as a precautionary measure to ensure future short-term cash flow requirements were met during the heightened uncertainty resulting from the COVID-19 pandemic, but repaid the balance in full later in 2020, as our cash position was stronger than anticipated. At December 31, 2021, we had cash and temporary investments of $54,332.

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During the second and third quarters of 2020 we experienced material curtailments of new chassis deliveries due to shutdowns and production slowdowns at our suppliers’ facilities. We also experienced reductions in orders for our products at the beginning of the pandemic. This depressed demand along with the decreases in deliveries of chassis caused us to temporarily shut our domestic plants in Pennsylvania and Greeneville, Tennessee for several weeks at the end of the second quarter of 2020 and for the first few weeks of the third quarter of 2020. Our international plants also were adversely impacted and experienced shutdowns during the second quarter of 2020. While all of our plants were open for all of 2021, the possibility of new shutdowns of one or more of our facilities due to the COVID-19 pandemic remains.

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As the economy improved over the course of 2021, significant supply chain challenges such as shortages and delivery delays in semiconductors and other component parts and price increases on many materials, including record high steel prices, impacted the operations of many companies on a global scale. We continued to experience these critical supply chain disruptions during the second half of 2021, which impacted our ability to obtain on a timely basis various raw materials and purchased component parts that are necessary to our production processes, including our ability to obtain chassis from third party suppliers, and also resulted in substantial price increases for many materials and component parts. We also continued to experience in the second half of 2021 increases in employee turnover rates and difficulties in hiring new workers for our skilled workforce, which has caused increased recruiting, training and retention costs. These supply chain and workforce headwinds generally worsened over the course of the second half of 2021, and are continuing into early 2022. We continue to monitor these disruptions and attempt to mitigate the risk associated with them, including by implementing several price increases and surcharges that will be fully-implemented over the course of 2022, and by relying more heavily on our in-house fabrication capabilities, which were significantly expanded in 2020. However, the impact of these disruptions remains largely out of our control and we currently anticipate that these factors will continue to have a material adverse impact on production at our facilities during the first half of 2022 and possibly beyond.

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We implemented several price increases and surcharges for our products during 2021 and have announced several more for the first half of 2022 in an effort to address the substantial price increases for materials and component parts used in our production process. However, our price increases require a long lead time to implement and will not be fully implemented until later in 2022, while the higher material costs for raw materials or purchased component parts that we use is felt much sooner, which factors had a substantial adverse impact on our net income during the second half of 2021.

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The impact of the COVID-19 pandemic and supply chain disruptions resulting from the economic recovery from the pandemic continue to unfold and their effect on our operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time. Future developments include the duration, scope and severity of the ongoing pandemic, including as a result of the emergence of new strains of the virus and any future resurgences of COVID-19 or variant strains, the actions taken to contain or mitigate its impact, the impact on governmental programs and budgets, the success of vaccination programs, the development of treatments or other vaccines, the demand for new equipment from towing equipment operators and the resumption of widespread economic activity and the success and timing of the general economy and our suppliers in resolving supply chain disruptions. While we know that COVID-19 related changes to our operating processes and supply chain disruptions experienced as the economy recovers from the impact of the pandemic have and will continue to impact our production levels for so long as they are in place, due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any confidence the likely impact of the continuing COVID-19 pandemic and supply chain disruptions on our future operations. Even after the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or depression, or to continuing or worsening supply chain disruptions and workforce turnover, or to a general reduction in miles driven on roadways due to a decrease in travel. We also will be monitoring the potential impact of the Russia conflict with Ukraine on our fuel costs and supply chain for materials, parts and components, particularly with respect to steel and items with substantial steel content.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates. Certain accounting policies are deemed “critical,” as they require management’s highest degree of judgment, estimations and assumptions. A discussion of critical accounting policies, the judgments and uncertainties affecting their application and the likelihood that materially different amounts would be reported under different conditions or using different assumptions follows:

Accounts Receivable

We extend credit to customers in the normal course of business. Collections from customers are continuously monitored and an allowance for credit losses is maintained based on historical experience and any specific customer collection issues. While such bad debt expenses have historically been within expectations and the allowance established, there can be no assurance that we will continue to experience the same credit loss rates as in the past.

Inventory

Inventory costs include materials, labor and factory overhead. Inventories are stated at the lower of cost or net realizable value, determined on a first-in, first-out basis. Appropriate consideration is given to obsolescence, valuation and other factors in determining net realizable value. Revisions of these estimates could result in the need for adjustments.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be fully recoverable. When a determination has been made that the carrying amount of long-lived asset may not be fully recovered, the amount of impairment is measured by comparing an asset’s estimated fair value to its carrying value. The determination of fair value is based on projected future cash flows discounted at a rate determined by management, or if available, independent appraisals or sales price negotiations. The estimation of fair value includes significant judgment regarding assumptions of revenue, operating costs, interest rates, property and equipment additions, and industry competition and general economic and business conditions among other factors. We believe that these estimates are reasonable; however, changes in any of these factors could affect these evaluations. Based on these estimates, we believe that our long-lived assets are appropriately valued.

Goodwill

Goodwill is tested for impairment annually or if an event or circumstance occurs that would more likely than not reduce the fair value of the reporting unit below the carrying amount. Goodwill is reviewed for impairment utilizing a qualitative assessment and, if necessary, a quantitative assessment. If we perform a qualitative analysis of goodwill and determine that fair value more likely than not exceeds the carrying value of the reporting unit, no further testing is needed. Alternatively, if we elect to utilize a quantitative assessment,

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an impairment loss would be recognized to the extent that the carrying value of the reporting unit exceeds its fair value, not to exceed the carrying value of the goodwill. We cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of goodwill. Such events might include, but are not limited to, the impact of the economic environment or a material change in a relationship with significant customers.

Warranty Reserves

We estimate expense for product warranty claims at the time products are sold. These estimates are established using historical information about the nature, frequency, and average cost of warranty claims. We review trends of warranty claims and take actions to improve product quality and minimize warranty claims. We believe the warranty reserve is adequate; however, actual claims incurred could differ from the original estimates, requiring adjustments to the accrual.

Income Taxes

Our income tax expense, deferred tax assets and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. We are subject to income taxes in both the United States and foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense. When calculating a provision for income tax for each of the years presented in the consolidated statements of income and deferred tax assets and liabilities as of each date presented in the consolidated balance sheets, we make significant estimates related to tax depreciation and inventory capitalization that are subject to review and that may change significantly prior to filing our income tax return. As such, the estimates made to calculate current and deferred tax expense represent a critical accounting estimate which could materially change in future periods.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in deductible or taxable amounts in the future. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates we use to manage the underlying businesses.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in multiple jurisdictions. Accounting Standards Codification (“ASC”) 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation process, on the basis of the technical merits.

We record unrecognized tax benefits as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes because of the evaluation of new information not previously available to us. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

Revenues

Under our accounting policies, revenues are recognized when obligations under the terms of a contract with a customer are satisfied. Generally, this occurs upon shipment, which is when control has transferred to independent distributors or other customers. From time to time, revenue is recognized under a bill and hold arrangement. Recognition of revenue on bill and hold arrangements occurs when control transfers to the customer. Our policy requires the reason for the bill and hold arrangement to be substantive, and the product to be separately identified as belonging to the customer, ready for physical transfer, and unavailable to be used or directed to another customer.

Revenue is measured as the amount of consideration expected to be received in exchange for the transfer of products. Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue. Warranty related costs are recognized as an expense at the time products are sold. Depending on the terms of the arrangement, for certain contracts the Company may defer the recognition of a portion of the consideration received because a future obligation has not yet been satisfied, such as an extended service contract. An observable stand-alone selling price for separate performance obligations or a cost plus margin approach is utilized when one is not available.

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While we manufacture only the bodies of wreckers and car carriers, which are installed on truck chassis manufactured by third parties, we frequently purchase truck chassis for resale to our customers. Sales of company-purchased truck chassis are included in net sales. Margin percentages are substantially lower on completed recovery vehicles containing company-purchased chassis.

Foreign Currency Translation

The functional currency for our foreign operations is the applicable local currency. The translation from the applicable foreign currencies to U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date, historical rates for equity and the weighted average exchange rate during the period for revenue and expense accounts. Foreign currency translation adjustments are included in shareholders’ equity. Intercompany transactions denominated in a currency other than the functional currency are remeasured into the functional currency. Gains and losses resulting from foreign currency transactions are included in other (income) expense, net in our consolidated statements of income.

Results of Operations

The following table sets forth, for the years indicated, the components of the consolidated statements of income expressed as a percentage of net sales.

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Net sales were $717,476 for the year ended December 31, 2021, compared to $651,286 for the year ended December 31, 2020, an increase of 10.2%. The increase in our revenue stream was largely attributable to not experiencing shutdown periods during 2021 that were necessary during 2020 due to the impact of the COVID-19 pandemic. Net domestic sales increased during the period from $556,540 to $627,573, and net foreign sales decreased from $94,746 to $89,903 during the same period.  Net sales during 2021 were adversely impacted by supply chain disruptions throughout the year, which increased work in process and inventories as deliveries of our products were delayed by delays in deliveries of certain critical final component parts from our suppliers, which in turn substantially increased our backlog of orders.

Costs of operations increased 13.0% to $647,624 for the year ended December 31, 2021 from $572,928 for the year ended December 31, 2020. Overall, costs of operations as a percentage of net sales increased from 88.0% for the year ended December 31, 2020 to 90.3% for the year ended December 31, 2021, primarily due to rising inflation, supply chain disruptions/constraints, and significant increases in labor costs. These factors were more pronounced during the third and fourth quarters of 2021, in comparison to the prior two quarters, which resulted in significantly increased costs, and contributed to a substantial decrease in net income during the second half of 2021.

Selling, general and administrative expenses for the year ended December 31, 2021 increased to $46,233 from $39,714 for the year ended December 31, 2020, primarily due to increases in travel related expenses and a resumption of activities that were suspended due to the onset of the COVID-19 pandemic during 2020. In addition, these costs were adversely impacted by increased salaries and inflationary pressures from the economic climate. As a percentage of net sales, selling, general and administrative expenses increased to 6.4% for 2021 from 6.1% for 2020, primarily due the factors indicated above. These factors were more pronounced during the third and fourth quarters of

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2021, in comparison to the prior two quarters, which resulted in significantly increased expenses, and contributed to a substantial decrease in net income during the second half of 2021.

Interest expense, net increased to $1,355 for the year ended December 31, 2021 from $1,215 for the year ended December 31, 2020. Increases in interest expense, net were primarily due to decreases in interest income from distributor receivables, partially offset by decreases in interest payments on distributor floor planning and interest payments on the credit facility.

When the Company has transactions that are denominated in a currency other than its functional currency, the Company is exposed to foreign currency transaction risk and must record gains and losses through other (income) expense when the related balance sheet items are remeasured in the functional currency of the Company. Other (income) expense, net is composed primarily of these foreign currency exchange gains and losses, with the remainder being composed of gains and losses on disposals of equipment. The Company experienced a net foreign currency exchange loss of $536 for 2021 compared to a net exchange gain of $685 for 2020.

The provision for income taxes for the years ended December 31, 2021 and 2020 reflects a combined federal, state and foreign tax rate of 25.3% and 21.7%, respectively, which corresponds to a tax provision of $5,511 for 2021 as compared to $8,267 for 2020. Our tax rate in 2021 compares unfavorably to 2020 primarily due to an increased percentage of income recognized in foreign jurisdictions with higher statutory rates, which also prohibited the company from recognizing certain domestic deductions which reward higher levels of domestic earnings in comparison to earnings from foreign jurisdictions. For more information on the effective tax rate, see Note 6 to our Consolidated Financial Statements.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

For a comparison of the 2020 to 2019 reporting periods, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - “Results of Operations - Year Ended December 31, 2020 Compared to Year Ended December 31, 2019” of our Annual Report on Form 10-K filed on March 3, 2021 for the fiscal year ended December 31, 2020.

Liquidity and Capital Resources

Cash provided by operating activities during 2021 was $15,268, compared to $60,709 provided during 2020. Cash provided by operating activities is generally attributable to the receipt of payments from our customers as settlement of their contractual obligation once we have fulfilled all performance obligations related to our contracts with them. These cash receipts are netted with payments for purchases of inventory, payments for materials used in manufacturing, and other payments that are necessary in the ordinary course of our operations, such as those for utilities and taxes. During 2021, we increased purchases of materials, components and chassis to ramp up production to meet rising demand as the global economy began to recover from the pandemic and to mitigate certain supply chain disruptions, and we also increased headcount in response to labor shortages and workforce retention challenges in our markets. These factors coupled with the increased costs of inventory and labor caused cash provided by operating activities to decrease in 2021.  Additionally, during 2020, our decreased revenue stream caused less cash to be used for purposes of new production while receivables from higher sales levels of the prior year continued to flow in, resulting in substantially greater cash provided by operating activities during 2020.  During 2021, we have largely used available cash flow from operations toward working capital needs, to pay for capital expenditures, and to pay dividends.

Cash used in investing activities during 2021 was $9,059, compared to $17,224 used during 2020. The cash used in investing activities for 2021 and 2020 was primarily for the purchase of property, plant and equipment, including a significant equipment upgrade project at our Greeneville, Tennessee location.

Cash used in financing activities during 2021 was $8,238, compared to $13,631 used during 2020. The cash used in financing activities in 2021 was attributable to dividend payments of $8,216 and an immaterial amount of payments on finance lease obligations. The cash used in financing activities in 2020 was primarily attributable to dividend payments of $8,212, net payments on the credit facility of $4,998, net payments on our French subsidiary’s loan of $400, and an immaterial amount of payments on finance lease obligations.

As of December 31, 2021, we had cash and cash equivalents of $54,332. Our primary cash requirements include working capital, capital expenditures, the funding of any declared cash dividends and principal and interest payments on indebtedness. In the latter half of 2021, supply chain bottlenecks required us to allocate cash to working capital at higher than our normal levels in order to allow inventory to be produced to completion as quickly as the supply chain allowed. As a result, the accounts payable balance and raw materials and work in process inventory balances at December 31, 2021 increased significantly when compared to the prior year balances. Such constraints also

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impacted our ability to reduce our backlog, which has increased to historic highs. These supply chain disruptions and bottlenecks are continuing into 2022, but we are optimistic that they will ease in the second half of 2022, allowing cash to be allocated to future capital projects consistent with the Company’s past practices and the buildup in backlog to be reduced.

At December 31, 2021, we had commitments of approximately $5,052 for the acquisition of property and equipment. As of December 31, 2021, we also had commitments of $3,751 in software license fees, all of which is expected to be settled over the next four years. In addition, as of December 31, 2021 we had purchase obligations of $90,494 arising from open purchase orders, which increased from $34,316 at December 31, 2020 as a result of supply chain constraints and increased production during the second half of 2021. We expect all such purchase order obligations will be settled during 2022.

We expect our primary sources of cash to be cash flow from operations and cash and temporary investments on hand at December 31, 2021, with borrowings under our credit facility being available as needed. We expect these sources to be sufficient to satisfy our cash needs during 2022 and for the next several years. However, our ability to satisfy our cash needs will substantially depend upon a number of factors including our future operating performance, taking into account the economic, regulatory and other factors discussed above and elsewhere in this Annual Report, as well as financial, business and other factors, many of which are beyond our control.

At December 31, 2021 and 2020, $28,983 and $22,787, respectively, of the Company’s cash and temporary investments were held by foreign subsidiaries based in the local currency. We do not currently have plans to repatriate undistributed foreign earnings to the United States and have not determined any timeline or amount for any such future distributions.

During 2019, in addition to investments in manufacturing equipment technology, the Company purchased a facility in Chattanooga to be used in research and development and various other activities. During 2020 and 2021, the Company took advantage of temporary shutdown periods and engaged in a project to significantly upgrade fabrication equipment at its Greeneville, Tennessee location.

For a discussion of the 2020 reporting period, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - “Liquidity and Capital Resources” of our Annual Report on Form 10-K filed on March 3, 2021 for the fiscal year ended December 31, 2020.

Credit Facility and Other Obligations

Credit Facility

On December 21, 2020, we amended and restated our loan agreement with First Horizon Bank (formerly known as First Tennessee Bank National Association), which governs our existing $50,000 unsecured revolving credit facility, to (i) renew and extend the maturity date from May 31, 2022 to May 31, 2027 and make certain other conforming changes, (ii) amend the tangible net worth covenant to increase the minimum required compliance level thereunder from $160,000 to $190,000 (the Company’s tangible net worth at December 31, 2021 was approximately $277,000), and (iii) allow for the sale and leaseback of certain equipment. The credit facility contains customary representations and warranties, events of default, and financial, affirmative and negative covenants for loan agreements of this kind. Covenants under the credit facility restrict the payment of cash dividends if the Company would be in violation of the minimum tangible net worth test or the leverage ratio test in the current loan agreement as a result of the dividend, among various restrictions. We have been in compliance with these covenants throughout 2019 and 2020. In the absence of a default, all borrowings under the credit facility bear interest at the LIBOR Rate plus 1.00% or 1.25% per annum. The Company will pay a non-usage fee under the current loan agreement at a rate per annum equal to between 0.15% and 0.35% of the unused amount of the credit facility, which fee is paid quarterly.

Outstanding Borrowings

As of December 31, 2021 and 2020, the Company had no borrowings outstanding under the credit facility. During 2020, the Company continued to collect on accounts receivable while less cash was used on working capital expenditures during the periods of lower demand resulting from the COVID-19 pandemic, thus increasing cash available for payments on the credit facility. While our cash position is still strong, demand has strengthened and our backlog has increased during 2021, which has prompted us to increase our inventory in efforts to mitigate risk from supply chain bottlenecks, which has decreased our cash position in 2021.

Our French subsidiary, Jige International S.A., had an agreement with Banque Européenne du Crédit Mutuel for an unsecured fixed rate loan which matured at September 30, 2020.

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Changes in interest rates affect the interest paid on indebtedness under our credit facility because the outstanding amounts of indebtedness under our current credit facility are subject to variable interest rates. Under our credit facility, the non-default rate of interest is equal to the LIBOR Market Index Rate plus 1.00% or 1.25% per annum, depending on our leverage ratio, for a rate of interest of 1.10% at December 31, 2021. A one percent change in the interest rate on our variable-rate debt would not have materially impacted our financial position, results of operations or cash flows for the year ended December 31, 2021.

Other Long-Term Obligations

Prior to applying a discount rate to our lease liabilities, we had approximately $1,328 in non-cancellable operating lease obligations and $15 in non-cancellable finance lease obligations at December 31, 2021.  Leases with original contractual terms less than one year were excluded from non-cancellable lease obligations.

During 2021, we completed phase one of our enterprise software solution implementation which we expect to substantially improve our administrative efficiency and customer service levels.  We have $3,751 in remaining contractual payments under our agreement with the software provider, which extends through 2025.

Recent Accounting Pronouncements

Recently Issued Standards

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805).  The update provides guidance on how to measure and recognize contract assets and contract liabilities when purchased as part of a business combination.  According to the guidance, the acquirer must follow ASC Topic 606 in accounting for the contract asset or contract liability being purchased.  The amendments in the update will be effective for financial statements beginning after December 15, 2022, including interim periods within those fiscal years.  The Company will apply the amendments prospectively.  The adoption of this update will not have a material impact on the Company’s consolidated financial statements and related disclosures.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832). The amendments within the update require certain disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy.  The amendments will require disclosure of information about the nature of the transactions and the related accounting policy used to account for the transactions, information regarding the line items within the consolidated financial statements that are affected by the transactions, and significant terms and conditions of the transactions.  The amendments in the update will be effective for financial statements issued for annual periods beginning after December 15, 2021, with early adoption permitted.  The Company will apply the amendments prospectively.  The adoption of this update will not have a material impact on the Company’s consolidated financial statements and related disclosures.

Recently Adopted Standards

During the first quarter of 2021, the Company adopted ASU 2019-12 Income Taxes (Topic 740), which among other things requires the Company to recognize franchise tax that is partially based on income as an income-based tax. The Company applied the amendments in the update on a modified retrospective basis, which did not have a material impact on the Company’s consolidated financial statements or related disclosures.

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