ITEM 1. BUSINESS
The Company
Miller Building Systems, Inc. ("Miller") is the parent of Miller Structures, Inc. ("Structures") and Miller Telecom Services, Inc. ("Telecom"). All operations of Miller are conducted through its two wholly-owned subsidiaries which design, manufacture, and market factory-built buildings. Miller ceased all operations at PME Pacific Systems, Inc. ("PME") after its final contract was completed in early 1994.
Miller originally was organized as an Indiana corporation in November 1982 under the name of "Graylyon Corp." and then merged, effective April 1983, into a Delaware corporation named "Gray Lyon Company". In November 1986, the Company amended its Certificate of Incorporation to change its name to "Modular Technology, Inc." In November 1988, the Company again amended its Certificate of Incorporation to change its name to "Miller Building Systems, Inc." All references to Miller herein refer to Miller Building Systems, Inc., a Delaware corporation, and its predecessor Indiana corporation.
Miller maintains its Executive Offices at 58120 County Road 3 South, Elkhart, Indiana 46517; telephone number (219) 295-1214. The Executive Office is Miller's principal operating office from which it manages and coordinates the activities of Structures and Telecom.
STRUCTURES
Structures is headquartered in Elkhart, Indiana and operates all administrative, sales and production from that location. The Structures office controls manufacturing facilities in Bennington, Vermont, Elkhart, Indiana, Leola, Pennsylvania, Sioux Falls, South Dakota and Patterson, California. A Residential division, which operated as Miller Residential ("Residential") a division of Structures was closed during the third quarter of fiscal 1995. Miller has discontinued all operations of the Residential division and the plant was closed with all substantially all assets disposed of by the end of fiscal 1995.
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 comparable conventional site-built buildings. 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 sitebuilt 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 July 1, 1995 and July 2, 1994, the following customer represented 10% or more of net sales of Miller: Transport International Pool, Inc. d/b/a GE Capital Modular Space, a division of General Electric Capital Corporation, represented 23% and 21% respectively.
Competition
Competition in the factory-built building industry is intense and Structures competes with a number of entities, some of which may have greater financial resources than Miller and Structures. To the extent that factory-built buildings become more widely accepted as an alternative to conventional on-site construction, competition from local contractors and manufacturers of other pre- engineered building systems may increase. In addition to competition from firms designing and constructing on-site buildings, Structures competes with numerous factory-built building manufacturers that operate in particular geographical regions.
Structures competes for orders from its customers primarily on the basis of price, quality, timely delivery, engineering capability and reliability. Structures believes that the principal basis on which it competes with on-site construction is the combination of the timeliness of factory versus on-site construction, the cost of its products relative to on-site construction, the quality and appearance of its buildings, its ability to design and engineer buildings to meet unique customer requirements (including local and state regulatory compliance) and reliability in terms of completion time. The manufacturing efficiencies and generally lower wage rates of factory construction, even with the added transportation expense, in many instances result in the cost of factory-built buildings being equal to or lower than the cost of on-site construction of comparable quality. Quality, reliability and the ability to comply with regulatory requirements in a large number of states and localities depend upon the engineering and manufacturing expertise of the management and staff of Structures. The relative importance of these factors varies from customer to customer. Most of Structures' orders are awarded by its customers on the basis of competitive bidding.
TELECOM
Telecom is located in Elkhart, Indiana and operates all administrative, sales and manufacturing activities from that location. Telecom manufactures specialized buildings which utilize modular construction techniques.
Products
Telecom manufactures modular factory-built buildings using pre-cast concrete, steel, wood or fiberglass construction. Each building is custom-built to the end users specifications and is typically finished to include electrical, grounding, sensing alarm, mechanical and air conditioning systems.
The pre-cast concrete technology available through Telecom allows for vandal-proof and environmental protection necessary for the telecommunication industry. Telecom produces single and multiple module buildings with modules ranging in size from 8' x 10' to modules as large as 14' x 30'. Telecom has provided buildings, when assembled, consisting of a single module of 80 square feet to multiple module buildings ranging up to 1,440 square feet. Multiple story technology is currently being developed by Telecom. Telecom can provide complete site installation of the building, 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.
Marketing
Telecom generally sells its product directly to the end user of the buildings, which has been principally telecommunication and utility companies, military bases and municipalities. Telecom also provides building transportation and site placement services, if required by the scope of the work. Telecom generally 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 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, 1995 and 1994 was as follows:
1995 1994
Structures $4,791,000 $7,699,000 Telecom 1,895,000 950,000
Backlog is broadly defined as firm order commitments not yet produced into a final building product. The 38% decrease from the prior year's backlog position for the Structures' modular and mobile office buildings is a result of some slowness in certain parts of the economy and Miller's decision to shift sales toward the more profitable technical and specific use units. Structures' management believes it is to early to determine if the current decline in backlog related to the economic slowness will have a negative impact on future earnings. Telecom's backlog nearly doubled as this subsidiary continues to develop its reputation and customer base. The management of Telecom believes that their backlogs will continue to increase with the ongoing development of their customer bases.
Regulation
Customers of Miller's factory-built buildings, or Miller's subsidiaries if they complete the on site work, are generally required to obtain building installation permits from applicable governmental agencies. In certain cases, however, conditional use permits may be obtained in lieu of 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. Obtaining state approvals is generally the responsibility of the manufacturer. Some states also 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.
Miller's subsidiaries, on occasion, have experienced regulatory delays in obtaining the various required building plan approvals. Miller's subsidiaries, in addition to some of its customers, actively seek assistance from various regulatory agencies in order to facilitate the approval process and reduce the regulatory delays.
Raw Materials
Raw materials for products of Miller's subsidiaries are readily available from multiple sources and the subsidiaries have not experienced any difficulty in obtaining materials on a timely basis and in adequate quality and quantity. Miller's subsidiaries, in certain instances, have entered into national purchase arrangements with various suppliers. The benefit to Miller's subsidiaries of these type of arrangements is often lower material costs and a higher level of service and commitment.
Patents and Trademarks
Miller has a patent for non-combustible modular buildings.
Seasonality
Miller's subsidiaries historically have experienced greater sales during the first and fourth fiscal quarters with lesser sales during the second and third fiscal quarters. This reflects the seasonality of sales for products used in various applications, including classrooms and other educational buildings, and also the impact of weather on general construction related activities. See unaudited interim financial information contained in Note H of Notes to Consolidated Financial Statements.
Employees
As of August 31, 1995, Miller and its subsidiaries had approximately 325 employees of which approximately 240 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
Sioux Falls, SD 36,100 34,200 1,900 Leased (3)
Patterson, CA 44,600 41,400 3,200 Owned
Bennington, VT 28,900 27,000 1,900 Owned _______________ _______ ______ _______ Total approximate square footage 303,800 273,600 30,200
(1) Structures' administrative, sales, engineering and manufacturing facility. The Executive offices of Miller are also at this location.
(2) Telecom administrative, sales and manufacturing facility.
(3) Leased until April 15, 1996 with three successive two-year renewal options.
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 43) 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, Bofhof, 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 Graver, Bokhof & Goodwin, 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, an investment management firm which Mr. Graver co-founded.
Edward C. Craig (age 60) became the Chief Executive Officer of Miller and Vice Chairman of the Board of Directors of Miller effective on July 2, 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 47) in April 1992 became the Secretary and Treasurer of Miller. Mr. Martini has been the Chief Financial Officer of Miller since February 1991. From May 1986 to February 1991, he was the Corporate Controller of Starcraft, Inc., a manufacturer of recreational vehicles.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Miller's Common Stock is quoted on the National Association of Securities Dealers' Automated Quotation (NASDAQ) system under the ticker symbol "MTIK." The following table sets forth the quarterly range of high and low quotations for these securities as reported on the NASDAQ National Market System for the two most recent fiscal years.
Fiscal 1995 Fiscal 1994 High Low High Low
1st Quarter 4 3 3 1/4 2 3/4 2nd Quarter 4 3 1/8 4 2 1/2 3rd Quarter 4 1/4 3 1/4 4 1/4 3 4th Quarter 4 2 5/8 3 3/4 3
As of August 31, 1995, Miller estimates there were approximately 1,600 stockholders of Miller's Common Stock. Of this total, approximately 250 were stockholders of record and shares for approximately 1,350 stockholders were held in street name. Harris Trust & Savings Bank, Chicago, is Miller's Transfer Agent and Registrar.
Miller did not pay dividends on its Common Stock in fiscal 1995 or fiscal 1994, as the Board of Directors ceased the payment of dividends in the third fiscal quarter of 1993. Miller does not intend to pay 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 July 1, July 2, June 30, June 30, June 30, 1995 1994 1993 1992 1991 (In thousands, except per share data)
Net sales $41,455 $38,569 $40,623 $40,757 $37,776 Net income (loss) 320(A) 312(A) (2,014)(A) (224) 1,951 Net income (loss) per share .10 .10 (.61) (.06) .52 Cash dividends per share - - .075 .10 .08 Total assets 16,522 15,308 16,411 17,954 17,491 Long-term debt, less current maturities 1,385 110 210 302 -
(A) Miller's operating results were for fiscal years 1995, 1994 and 1993 were adversely impacted by nonrecurring items of $361,123, $159,252 and $2,345,363, respectively.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fiscal 1995 Compared to Fiscal 1994
Net sales increased $2.9 million or approximately 7% in fiscal 1995 from the corresponding amount in fiscal 1994. Structures reported a $3.4 million or approximately an 11% increase in net sales. Net sales in the Eastern plants of Structures increased $4.4 million or approximately 20%, while net sales in the West decreased $1.0 million or approximately 14%. All Structures' Eastern plants experienced net sales growth as the economy in these markets remained strong. The decline in net sales in the West was the result of the continuing sluggishness in the California economy. Telecom recorded a $1.0 million or approximately 23% increase in net sales as this subsidiary continues to build its reputation and customer base. Net sales at the closed residential division of Structures was virtually unchanged.
Miller's gross profit during the 1995 fiscal year approximated 15% of net sales compared to approximately 12% of net sales in fiscal 1994. During fiscal 1995 Miller was able to shift a portion of the sales from the low end fleet business to the more profitable technical and specific use applications. Miller plans to continue the expansion of the technical and specific use markets.
Selling, general and administrative expenses increased $.7 million in fiscal 1995. These expenses were 12% of net sales in fiscal 1995 compared to 11% of net sales in fiscal 1994. The increase in administrative expenses was primarily the result of higher payroll and other administrative expenses related to the growth at both Structures and Telecom.
During the year, Miller recorded nonrecurring items of $361,123. These nonrecurring items consist primarily of a $265,514 charge which resulted from the final resolution of disputed warranty issues with a customer, a charge of $186,198 for exit costs associated with the closing of the residential division, and the reversal of $90,589 of certain restructuring charges recorded in fiscal 1993. The earlier than anticipated exit from the lease at the Fontana plant, a favorable arbitration settlement and the reversal of warranty reserves at the closed PME operations, partially offset by additional interest expense for an IRS audit, were the principal causes for the reversal of restructuring costs.
At July 1, 1995, $239,639 in nonrecurring items remain outstanding of which $193,857 is a current liability. These items consist of severance and noncompete agreements with former officers, interest payable on the Internal Revenue audit and worker's compensation and relocation reserves related to the closed Western plants. $45,782 related to the noncompete agreement with a former officer is reflected as long-term. Of this total, approximately $4,000 will be paid in fiscal 1996, with the balance payable through fiscal 2004.
The increase in interest expense in fiscal 1995 compared to fiscal 1994 of $42,808 was the result of a $55,349 increase in interest expense for the industrial revenue bond issued to finance the plant expansion at Telecom. Lower debt outstanding on the revolving line of credit was the principal cause for a $12,541 offsetting decrease in interest expense.
During fiscal 1995 Miller recorded an income tax provision of $189,000 or 37% of pre-tax profit. In fiscal 1994, Miller recorded an income tax credit of $66,000. A provision of $91,000 or 37% of the pre-tax profit was offset by a reversal of $157,000 for a provision of federal and state income taxes related to an Internal Revenue Service audit settled favorably by Miller.
Fiscal 1994 Compared to Fiscal 1993
Net sales decreased $2.1 million in fiscal 1994 from the corresponding amount in fiscal 1993. Structures reported a $2.3 million or approximately a 7% decrease in net sales. Net sales in the Eastern plants of Structures remained virtually unchanged, while net sales in the West decreased $3.4 million or approximately 32%. The decline in net sales in the West was the result of closing the plants in Woodburn, Oregon and Fontana, California. Net sales in the residential division of Structures increased $1.2 million or approximately 68%. The increase at the residential division of Structures was the result of the development of the divisions' dealer/builder customer base. Telecom recorded a $2.1 million or approximately 90% increase in net sales as this subsidiary continues to build its customer base. Net sales at PME decreased $1.9 million or approximately 55% as a result of the closing of the subsidiary.
Miller's gross profit during the 1994 fiscal year approximated 12% of net sales compared to approximately 13% of net sales in fiscal 1993. During 1994, the Company experienced a shift in demand away from the more profitable technical and specific use applications.
Selling, general and administrative expenses decreased $.9 million in fiscal 1994. These expenses were 11% of net sales in fiscal 1994 compared to 13% of net sales in fiscal 1993. The decrease in administrative expenses was primarily the result of reduced expenses related to the closed West Coast plants and the phase-out of PME's operations. These reductions were partially offset by increased administrative costs related to the growth at Structures' residential division and Telecom.
During the year, Miller recorded nonrecurring items of $159,252. These nonrecurring items consisted of $264,150 for a severance agreement with a former officer and the reversal of $104,898 in certain restructuring charges recorded in fiscal 1993. The earlier than anticipated sale of the Woodburn plant, eliminating property taxes and costs for the maintenance of the building, and the elimination of the office lease at the PME operations were the principle causes for the reversal of restructuring costs. A $193,242 gain on the sale of the Woodburn plant was recorded during the current fiscal year and is reflected in the gain on sale of property and equipment.
At July 2, 1994, $612,594 in nonrecurring items remained outstanding of which $498,198 was classified as a current liability and $144,396 was reflected as long-term. These items consisted of severance and noncompete agreements with former officers, a lease commitment for the Fontana plant, warranty reserves related to the PME operations, interest payable on the Internal Revenue audit and worker's compensation and relocation reserves related to the closed Western plants.
Miller recorded a $120,220 provision for doubtful receivables in fiscal 1994 (applicable to the closed PME operations). The allowance related to disputes over delays and change orders for the completed PME project at the Denver International Airport.
The increase in interest expense in fiscal 1994 compared to fiscal 1993 of $15,942 was the result of higher interest rates and higher debt outstanding on the revolving line of credit.
During fiscal 1994, Miller recorded an income tax credit of $66,000. A provision of $91,000 or 37% of the pre-tax profit was offset by a reversal of $157,000 for a provision of federal and state income taxes related to an Internal Revenue Service audit settled favorably by Miller. In fiscal 1993, Miller recorded an income tax credit of $593,000 or 23% of the pre-tax loss which included $309,000 for federal and state income taxes resulting from an Internal Revenue Service audit, which was being appealed.
Liquidity and Capital Resources
Miller's working capital as of July 1, 1995 was $5,254,456 compared to $5,373,230 as of July 2, 1994. The working capital ratio as of July 1, 1995 and July 2, 1994 was 2.0 to 1.
During fiscal 1995, operations provided cash flows of $66,335 consisting primarily of net income and certain noncash charges offset by reductions in accounts payable and other accrued liabilities. Miller utilized cash of $1,959,893 in investing activities, consisting of the Telecom plant expansion to support the subsidiary's growth and other purchases of plant and equipment. The investments made by Miller were financed through increased borrowings on the revolving line of credit and the proceeds from the industrial revenue bond.
An unsecured revolving credit agreement with a bank makes available advances up to $5,000,000 through November 30, 1995. There was $1,550,000 outstanding on the revolving credit line at July 1, 1995 and $525,000 at July 2, 1994. The $5,000,000 availability under the present loan agreement has been reduced by $134,344 for a standby letter of credit issued in connection with an obligation payable to a former officer.
Miller believes it has adequate resources available to fund the continuation of its internal growth during the coming fiscal year. The unsecured revolving credit line assures that resources will be available for future growth.
Impact of Inflation
Inflation has not had an identifiable effect on Miller's operating margins during the last three fiscal years. Product selling prices are quoted reflecting current material prices and other related costs and expenses. Accordingly, any impact of inflation is reflected in the product selling prices.
ITEM 8.

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 report.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth in the Compensation and 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 Principal Shareholder and Share Ownership of Director and Executive Officers 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 Transactions with Management and Others 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........................................F-1
Consolidated Balance Sheets as of July 1, 1995 and July 2, 1994..........F-2
Consolidated Statements of Operations for the years ended July 1, 1995, July 2, 1994 and June 30,1993......................................F-3
Consolidated Statements of Stockholders' Equity for the years ended July 1, 1995, July 2, 1994 and June 30, 1993.......................F-4
Consolidated Statements of Cash Flows for the years ended July 1, 1994, July 2, 1994 and June 30, 1993.....................................F-5
Notes to Consolidated Financial Statements...............................F-6
(2) Financial Statement Schedule
II - Valuation and Qualifying Accounts..................................F-13
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, are inapplicable, or the information is included in the Notes to Consolidated Financial Statements, and therefore have been omitted.
(3) See Index to Exhibits
(b) Reports on Form 8-K filed in the fourth quarter of fiscal 1995:
The following report on Form 8-K was filed during the three months ended July 1, 1995.
May 19, 1995, reporting a Resolution adopted by the Board of Directors on April 27, 1995 to amend the By-Laws which increased the number of Directors from seven (7) to eight (8); and elected Myron C. Noble to the Board of Directors on April 27, 1995 filling the vacancy created by the foregoing amendment.
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 12, 1995 \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 12, 1995 Edward C. Craig Executive Officer and Director (Principal Executive Officer)
\Thomas J. Martini Secretary and September 12, 1995 Thomas J. Martini Treasurer (Principal Financial and Accounting Officer)
\Ronald L. Chez Director September 12, 1995 Ronald L. Chez
\David E. Downen Director September 12, 1995 David E. Downen
\Steven F. Graver Director September 12, 1995 Steven F. Graver
\William P. Hall Director September 12, 1995 William P. Hall
\Myron C. Noble Director September 12, 1995 Myron C. Noble
\David H. Padden Director September 12, 1995 David H. Padden
\Jeffrey C. Rubenstein Director September 12, 1995 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 standard. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Miller Buildings Systems, Inc. and subsidiaries as of July 1, 1995 and July 2, 1994, and the consolidated results of their operations and their cash flows for the years ended July 1, 1995, July 2, 1994 and June 30, 1993, 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.
COOPERS & LYBRAND L.L.P.
South Bend, Indiana August 15, 1995
MILLER BUILDING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 1, July 2, 1995 1994
ASSETS
CURRENT ASSETS Cash and temporary cash investments $ 351,860 $ 132,084 Receivables, less allowance for doubtful receivables of $59,000 in 1995 and $120,000 in 1994 5,960,110 6,186,820 Inventories: Raw materials 2,945,366 2,933,238 Work in process 441,366 287,106 Finished goods 146,887 152,060
3,533,619 3,372,404
Deferred federal income taxes 320,000 399,000
Other current assets 126,752 400,826
TOTAL CURRENT ASSETS 10,292,341 10,491,134
PROPERTY, PLANT AND EQUIPMENT Land 847,336 764,857 Buildings and leasehold improvements 5,357,144 4,208,163 Machinery and equipment 3,906,285 3,487,256
10,110,765 8,460,276 Less, Accumulated depreciation and amortization 4,083,640 3,666,270
6,027,125 4,794,006
OTHER ASSETS 202,166 22,887
TOTAL ASSETS $16,521,632 $15,308,027
The accompanying notes are a part of the consolidated financial statements.
July 1, July 2, 1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES Short-term borrowings $ 1,550,000 $ 525,000 Current maturities of long-term debt 224,925 100,481 Accounts payable 2,074,510 3,202,938 Accrued income taxes 89,827 140,542 Accrued expenses and other 904,766 680,745 Accrued nonrecurring items 193,857 468,198
TOTAL CURRENT LIABILITIES 5,037,885 5,117,904
LONG-TERM DEBT, less current maturities 1,385,000 109,925
DEFERRED FEDERAL INCOME TAXES 134,000 146,000
OTHER 45,782 144,396
TOTAL LIABILITIES 6,602,667 5,518,225
COMMITMENTS AND CONTINGENCIES - Notes C and G
STOCKHOLDERS' EQUITY Common stock, $.01 par value, issued 4,023,548 shares 40,235 40,235 Additional paid-in capital 11,454,903 11,454,903 Retained earnings 1,563,201 1,250,434
13,058,339 12,745,572
Less, Treasury stock, at cost 3,139,374 2,955,770
TOTAL STOCKHOLDERS' EQUITY 9,918,965 9,789,802
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,521,632 $15,308,027
MILLER BUILDING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
July 1, July 2, June 30, 1995 1994 1993
Net sales $41,454,500 $38,568,812 $40,622,923
Costs and expenses: Cost of products sold 35,373,322 33,791,773 35,489,137 Selling, general and administrative 5,018,490 4,362,530 5,281,693 Nonrecurring items 361,123 159,252 2,345,363 Provision for doubtful receivables 67,528 120,220 49,361 (Gain) loss on sale property and equipment 3,379 (183,910) (3,485) Interest expense 134,833 92,025 76,083 Interest income (13,087) (18,938) (7,990)
INCOME (LOSS) BEFORE INCOME TAX CREDIT 508,912 245,860 (2,607,239)
Income tax (credit) 189,000 (66,000) (593,000)
NET INCOME (LOSS) $ 319,912 $ 311,860 $(2,014,239)
Earnings (loss) per share of common stock, based upon weighted average number of common shares and equivalent shares outstanding $ .10 $ .10 $ (.61)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND EQUIVALENT SHARES OUTSTANDING 3,130,207 3,197,421 3,275,700
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
The accompanying notes are a part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended July 1, 1995, July 2, 1994 and June 30, 1993
Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Principles of Consolidation - The consolidated financial statements include the accounts of Miller Building Systems, Inc. and its subsidiaries, all of which are wholly-owned, (individually and collectively referred to herein as "Miller").
Fiscal Year - Effective July 1, 1993, Miller adopted a fiscal year ending on the Saturday closest to June 30. Prior to this change, Miller's fiscal year ended on June 30.
Revenue Recognition - Miller generally recognizes revenues from the sales of its products upon the completion of manufacturing and the transfer of title.
Inventories - Inventories are stated at the lower of cost or market, with cost determined under the first-in, first-out method.
Property, Plant and Equipment - Property, plant and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization of plant and equipment are computed using the straight- line method over the estimated useful lives of the assets. Costs of purchased software and, under certain conditions, internal software development costs are capitalized and the amortized over a future period. Capitalized software costs, for both internally developed and purchased software products, are amortized using the straight-line method over sixty months. As of July 1, 1995 and July 2, 1994, capitalized software costs, included with machinery and equipment, (and the related accumulated amortization) aggregated $199,007 ($8,251) and $148,010 ($27,222), respectively.
Bond Issuance Cost - 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 - Effective July 1, 1993, Miller adopted Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes," which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. As permitted by SFAS No. 109, Miller elected not to restate the financial statements of any prior years, and the adoption of SFAS No. 109 did not have a material effect on Miller's consolidated financial statements.
Prior to July 1, 1993, the provision for income taxes was based on income and expenses included in the consolidated statements of operations. Differences between taxes so computed and taxes payable under applicable statutes and regulations were classified as deferred taxes arising from timing differences.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued for the years ended July 1, 1995, July 2, 1994 and June 30, 1993
Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Concluded.
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 July 1, 1995 and July 2, 1994, Miller expensed $17,237 and $17,017, respectively, under this Plan. No amounts were expensed for the fiscal year ended June 30, 1993.
Earnings (Loss) 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. The common equivalent shares did not enter into the computation of loss per share for the year ended June 30, 1993 because their inclusion would have been antidilutive.
Consolidated Statements of Cash Flows - Miller considers all highly liquid investments purchased with an original maturity of three months or less to be temporary cash investments for purposes of the consolidated statements of cash flows.
Note B: NONRECURRING ITEMS.
During the fiscal year ended July 1, 1995, Miller recorded a pre-tax charge of $265,514 which resulted from the final resolution of disputed warranty issues with a customer. Also, Miller recorded a pre-tax charge of $186,198 for exit costs associated with the closing of its residential division, which manufactured factory-built modular residential housing.
During the fourth quarter of fiscal year ended July 2, 1994, Miller recorded a severance agreement with a former officer which consisted of seventeen months compensation and certain benefits. The agreement is payable monthly through December 31, 1995.
During the fiscal year ended June 30, 1993, Miller commenced certain restructuring actions which resulted in a pre-tax restructuring charge of $2,345,363. The restructuring costs included the write-off of a non-compete agreement with a former officer and the closing of certain West coast operations. These included the plants in Woodburn, Oregon and Fontana, California and the termination of PME Pacific Systems, Inc. ("PME"). During fiscal 1995 and 1994 certain accruals for these restructuring costs, principally related to the closed Woodburn and Fontana plants and the PME operations were settled at amounts less than originally accrued.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
for the years ended July 1, 1995, July 2, 1994 and June 30, 1993
Note B: NONRECURRING ITEMS, Concluded.
Years Ended July 1, July 2, June 30, 1995 1994 1993
Settled warranty issues $265,514 $ - $ - Residential exit costs 186,198 - - Severance agreement - 264,150 - Restructuring costs (90,589) (104,898) 2,345,363
$361,123 $ 159,252 $2,345,363
At July 1, 1995, $45,782 ($144,396 at July 2, 1994) of the accrual for liabilities and costs associated with the nonrecurring items is reflected as a long-term liability and the remaining accrual is classified as a current liability.
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, 1995. Interest is payable monthly at prime or a margin over the London Interbank Offering Rate, depending on the pricing option selected by Miller. At July 1, 1995 and July 2, 1994, the weighted average interest rate on outstanding borrowings was 8.68% and 7.25%, respectively. As of July 1, 1995 and July 2, 1994, outstanding borrowings under the loan agreement aggregated $1,550,000 and $525,000, 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:
July 1, July 2, 1995 1994 Industrial revenue bond, variable rate (4.15% at July 1, 1995), payable in annual installments of $115,000, with an installment of $120,000 at final maturity in November 2007. $1,500,000 $ -
Obligation payable to a former officer of Miller payable in semi-monthly installments of $4,798 through June 15, 1996. Interest at 9% imputed for financial reporting purposes. 109,925 210,406
Total 1,609,925 210,406
Less, Current maturities 224,925 100,481
Long-term debt $1,385,000 $109,925
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
for the years ended July 1, 1995, July 4, 1994 and June 30, 1993
Note C: Debt, Concluded.
Aggregate maturities of long-term debt for each of the next five years are as follows: 1996 - $224,925; 1997 - $115,000; 1998 - $115,000; 1999 -$115,000 and 2000 $115,000.
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 the original maturity. In addition, in connection with the note payable to a former officer, Miller obtained an irrevocable letter of credit in favor of that officer approximating the outstanding principal balance. Availability under the $5 million bank line of credit agreement is reduced by the amount of this standby letter of credit.
Note D: STOCKHOLDERS' EQUITY.
On June 30, 1994, the Board of Directors adopted the Miller Building Systems, Inc. 1994 Stock Option Plan (the "1994 Plan") under which 300,000 shares of common stock were reserved for future grant. The 1994 Plan expires June 30, 2004. On August 26, 1991, the Board of Directors adopted the 1991 Stock Option Plan (the "1991 Plan") under which 250,000 shares of common stock were reserved for future grant. The 1991 Plan expires August 26, 2001. The 1994 Plan and 1991 Plan provide that options can be granted by Miller at a price not less than 100% of fair market value (or 110% of fair market value if the optionee owns 10% or more of Miller's common stock). The term of an option granted under the 1994 Plan and 1991 Plan cannot exceed ten years, and options are either exercisable upon grant or contain a specific vesting schedule, except in the event of a change of control, as defined, at which time all outstanding options become fully exercisable by the optionee.
Changes in options are summarized as follows:
Number Per Share Of Shares Option Price
Outstanding at July 1, 1992 129,500 $3.00 - $4.63 Granted 72,000 2.50 - 2.75
Outstanding at June 30, 1993 201,500 2.50 - 4.63 Canceled (41,500) 3.00 - 4.25
Outstanding at July 2, 1994 160,000 2.50 - 4.63 Granted 329,000 3.25 - 6.00 Exercised (7,000) 2.75 Canceled (88,000) 2.75 - 4.63
Outstanding at July 1, 1995 394,000 $2.50 - $6.00
Exercisable at July 1, 1995 188,600
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
for the years ended July 1, 1995, July 2, 1994 and June 30, 1993
Note E: INCOME TAXES.
The provision (credit) for income taxes is summarized as follows:
Years Ended July 1, July 2, June 30, 1995 1994 1993 Current: Federal $ 72,000 $(18,000) $(349,000) State 50,000 (4,000) 53,000
122,000 (22,000) (296,000) Deferred tax (credit) 67,000 (44,000) (297,000)
Total $189,000 $(66,000) $(593,000)
The provision (credit) for income taxes included in the consolidated statements of operations differs from that computed by applying the federal statutory tax rate (34%) to income (loss) before income taxes as follows:
Years Ended July 1, July 2, June 30, 1995 1994 1993 Computed federal income tax (credit) $173,000 $ 83,600 $(886,500) Increase (decrease) resulting from: Federal income taxes recorded (reversed) for Internal Revenue Service exam- ination - (120,400) 251,000 State income taxes, net of federal income tax impact 33,000 (2,600) 35,000 Other, net (17,000) (26,600) 7,500
Total $189,000 $ (66,000) $(593,000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
for the years ended July 1, 1995, July 2, 1994 and June 30, 1993
Note E: INCOME TAXES, Continued
Deferred income taxes reflect the estimated future net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the net deferred tax asset and liability at July 1, 1995 and July 2, 1994 are as follows:
July 1, July 2, 1995 1994 Current deferred tax asset: Inventories $ 140,000 $ 130,000 Accrued warranty 59,000 93,000 Accrued nonrecurring items 24,000 122,000 Allowance for doubtful receivables 76,000 49,000 Other 21,000 5,000
Total $ 320,000 $ 399,000
Long-term deferred tax asset (liability): Property, plant and equipment $ (149,000) $(205,000) Accrued nonrecurring items 15,000 59,000
Total $ (134,000) $(146,000)
During the year ended June 30, 1993, the Internal Revenue Service ("IRS") completed an audit for Miller's federal income tax returns for the fiscal years 1989, 1990 and 1991 and the revenue agent proposed adjustments related to the valuation and amortization of certain intangible assets. During fiscal 1994, Miller settled these audit issues with the IRS and, accordingly, a federal and state tax benefit (reversal of previously accrued income taxes) of $157,000 was recorded in the year ended July 2, 1994.
Note F: MAJOR CUSTOMERS.
Miller's primary business involves the design and manufacture of factory built buildings. Miller sells its products primarily to independent customers who, in turn, sell or lease to the end users.
One customer individually accounted for 23% of net sales in fiscal 1995, 21% of net sales in fiscal 1994 and 34% of net sales in fiscal 1993. At July 1, 1995, 15% of receivables is concentrated with this one customer and 37% concentrated in five other customers. At July 2, 1994, 28% of receivables was concentrated with this one customer and 33% was concentrated with five other customers.
Note G: COMMITMENTS AND CONTINGENCIES.
Lease Commitments:
Miller leases certain real estate under a noncancellable operating lease expiring April 1996. 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 $35,833 in fiscal year 1996 with no commitments thereafter.
Rental expense under all operating leases aggregated $159,225, $179,620 and $164,832 for the years ended July 1, 1995, July 2, 1994 and June 30, 1993, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Concluded
for the years ended July 1, 1995, July 2, 1994 and June 30, 1993
Note H: UNAUDITED INTERIM FINANCIAL INFORMATION.
Presented below is certain selected unaudited quarterly financial information for the years ended July 1, 1995 and July 2, 1994:
Earnings Net Gross Net Income (Loss) Sales Profit (Loss) Per Share
1995: Fourth $11,298,949 $1,899,047 $ 263,885 $ .08 Third 9,225,932 1,131,982 (370,960) (.12) Second 9,691,497 1,440,865 118,817 .04 First 11,238,122 1,609,284 308,170 .10
Total $41,454,500 $6,081,178 $ 319,912 $ .10
1994: Fourth $10,804,983 $1,263,563 $ (87,561) $(.03) Third 8,279,366 773,141 23,624 .01 Second 7,232,812 973,156 53,351 .02 First 12,251,651 1,767,179 322,446 .10
Total $38,568,812 $4,777,039 $ 311,860 $ .10
MILLER BUILDING SYSTEM, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
MILLER BUILDING SYSTEMS, INC., AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit Number Description of Exhibit
23.3 Consent of Independent Accountants
10.53 Employment agreement between Registrant and Edward C. Craig, dated July 1, 1994.
10.54 Agreement between Registrant and Ronald L. Chez, dated September 9, 1994.
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.
11 Statement regarding computation of per share earnings.
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) (d) (f) (i) (k) (l) (n)
4.1 Specimen Common Stock Certificate (e)
4.2 Certificate of Incorporation, Articles Fourth, Eighth, and Tenth; By-Laws, Articles II, VII, and IX (a)
10.9 Employee Incentive Stock Option Plan adopted by the Registrant's stockholders on April 11, 1983 and Form of Option Agreement (a) (b) (c)
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 (h)
10.12 Lease Agreement between Toboll properties and Miller Structures, Inc. (South Dakota) dated August 1, 1990 with respect to the lease of land in Sioux Falls, South Dakota (h)
10.14 Lease between Miller Structures, Inc.), a California corporation, and C&W dated as of March 20, 1985 with respect to property located in Fontana, California (a)
10.44 Employment Agreement between Registrant and John M. Davis, dated March 16, 1990 and effective as of February 1, 1990 (g)
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 (j)
10.48 1991 Stock Option Plan adopted by the Registrant's stockholders on October 30, 1991 and Form of Option Agreement (m)
10.49 Miller Building Systems, Inc. 401(k) Plan (o)
10.50 Letter to Frederick H. Goldberger, dated April 28, 1993, declaring the non-competition covenant, of the Agreement of May 6, 1991, to have no value (o)
10.51 First amendment to employment agreement between Registrant and John M. Davis, dated March 16, 1994 (q)
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 (q)
10.53 1994 Stock Option Plan adopted by the Registrant's stockholders on October 25, 1994 and For of Option Agreement (p)
21.1 Subsidiaries of the Registrant (o) ______________
(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 - November 1, 1988 (d) Form 8-K, Date of Report - July 20, 1989 (e) Form 10-K for year ended June 30, 1989 (f) Form 8-K, Date of Report - January 31, 1990 (g) Form 8-K, Date of Report - March 16, 1990 (h) Form 10-K for year ended June 30, 1990 (i) Form 8-K, Date of Report - April 23, 1991 (j) Form 8-K, Date of Report - May 6, 1991 (k) Form 8-K, Date of Report - July 25, 1991 (l) Form 8-K, Date of Report - August 26, 1991 (m) Form S-8, Date of Report - July 31,1992 (n) Form 8-K, Date of Report - April 22, 1993 (o) Form 10-K for year ended June 30, 1993 (p) Form S-8, Date of Report - Dated December 30, 1994 (q) Form 10-K, for year ended July 2, 1994


Item 1. - Business. - ------- ---------
The registrant, Caliber System, Inc. (formerly Roadway Services, Inc.), is a corporation organized under the laws of the State of Ohio in 1982 and is engaged through its subsidiaries in a broad range of transportation, logistics, and related information services. On December 14, 1995, the shareholders of the registrant approved the spin-off to the registrant's shareholders of approximately 95% of the stock of its wholly-owned subsidiary, Roadway Express, Inc., the registrant's national long haul, less-than-truckload (LTL) motor freight carrier. The spin-off was completed at the beginning of 1996. On November 6, 1995 the registrant announced plans to exit the air freight business served by Roadway Global Air, Inc., its worldwide air freight carrier. Additional information concerning the above transactions is set forth in the discussion contained on pages 4, 5 and 19, and pages 30 through 33 of the registrant's Annual Report to Shareholders for the year ended December 31, 1995, and is incorporated herein by reference. The registrant's remaining operations include a small-package carrier, a superregional freight carrier, a surface expedited carrier and a contract logistics provider. These operations provide services and solutions to meet customer requirements based upon shipment size, distance, time in transit, and distribution needs. The registrant conducts these operations principally through RPS, Inc. ("RPS", formerly Roadway Package System, Inc.), Viking Freight, Inc. ("Viking", formerly Viking Freight System, Inc.), Roberts Express, Inc. ("Roberts") and Caliber Logistics, Inc. ("Caliber Logistics", formerly Roadway Logistics Systems, Inc.).
RPS serves customers in the small-package market throughout North America and between North America and Europe, focusing primarily on the business-to-business delivery of packages weighing up to 150 pounds. RPS provides service to 98% of the United States, and, through RPS, Ltd., its subsidiary, to 100% of Canada. RPS service extends to 27 European countries through a partnership with General Parcel Logistics GmbH. RPS also offers service offshore to Puerto Rico, Alaska and Hawaii via a ground/air network operation. RPS provides other specialized transportation services to meet specific customer requirements in the small-package market. RPS conducts its operations primarily with owner-operated vehicles and, in addition, owns over 7,000 trailers. United Parcel Service is the dominant carrier in the portion of the industry in which RPS competes. Competition focuses largely on providing economical pricing and dependable service.
Viking is a superregional freight carrier, formed early in 1996 by the consolidation of the businesses of four regional carrier subsidiaries, Central Freight Lines Inc., Coles Express, Inc., Spartan Express, Inc., and Viking Freight System, Inc., with regional coverage across the country. Viking's primary business consists of handling shipments weighing less than 10,000 pounds each. Most of their shipments require less than the full cargo and/or weight capacity of a trailer and are more efficiently transported by sharing trailer capacity with other shipments. Viking operates a dedicated trucking network principally serving its core geographic markets with next-day and second-day freight service. In addition, national service is provided
to meet specific customer requirements. With a fleet of over 20,000 trucks, tractors and trailers, Viking serves 91% of the U.S. population in all 50 states and Puerto Rico; it also serves Canada through an arrangement with Interlink Freight Systems, Inc. The freight industry is extremely competitive. High levels of competition and periodic industry overcapacity continue to result in aggressive discounting and narrow margins. Viking competes primarily with other regional freight carriers and, to a lesser extent, national freight and small-package carriers.
Roberts is the largest surface expedited carrier in North America, providing critical needs shipping and transportation for emergency shipments. Roberts also provides similar service in Europe. Utilizing over 2,000 vehicles, Roberts delivers shipments within 15 minutes of the promised delivery time in 96% of all cases. In addition to time-critical delivery, Roberts offers White Glove Services(R), requiring specially equipped vehicles and highly trained teams to handle such items as electronics, medical equipment, radioactive materials, pressurized gases, trade show exhibits and works of art. Roberts transports freight through independent owner-operators.
Caliber Logistics is a contract logistics provider with expertise across the entire supply chain, from inbound materials management through distribution to the final consumer. Services provided include transportation management, dedicated transportation, warehouse operations and management, just-in-time delivery programs (including light assembly and manufacturing), customer order processing, returnable container management, freight bill payment and auditing and other management services outsourced by its customers. Caliber Logistics operates in a relatively new business area and further vigorous competition is expected from existing competitors and new entrants.
At the end of 1995, the registrant and its affiliates employed approximately 25,700 persons (on a full time equivalent basis) and utilized the services of approximately 10,500 independent contractors.
All of the registrant's domestic motor carrier subsidiaries are subject to regulation by the United States Department of Transportation.
The freight transportation industry is affected directly by the state of the overall economy. Seasonal fluctuations affect tonnage, revenues, and earnings, with the fall of each year being the busiest shipping period and the months of December and January the slowest.
Item 2.

Item 2. - Properties. - ------- -----------
Caliber System, Inc. - --------------------
Corporate offices of the registrant and its information systems subsidiary, Caliber Technology, Inc. (formerly Roadway Information Technology, Inc.) are located in Akron, Ohio in leased facilities. Limited additional corporate office space is located in nearby leased facilities.
RPS, Inc. - ---------
As of December 31, 1995, RPS operated 339 terminals, including 23 hub facilities. Forty-six of the terminals, 19 of which are hub facilities, are owned; and 293 terminals, including the other four hub facilities, are leased, generally for terms of three years or less. Twelve of the terminals, including three hub facilities, are operated by RPS, Ltd., RPS' Canadian subsidiary. The 23 hub facilities are strategically located to cover the geographic area served by RPS. These facilities, averaging 97,500 square feet, range in size from 24,000 to 147,900 square feet.
RPS' corporate offices and information and data centers are located in an approximately 350,000 square foot building owned by a subsidiary of the registrant in the Pittsburgh, Pennsylvania area.
Viking Freight, Inc. - --------------------
As of December 31, 1995, Viking operated 221 terminals. Eighty-four of the terminals, with 4,450 loading spaces, are owned; and the remaining 137 terminals, with 3,128 loading spaces, are leased. The largest terminal facility, located in Dallas, Texas, has 525 loading spaces and is owned by the company. The company's general offices are located in leased facilities in San Jose, California.
Roberts Express, Inc. - -------------------------------------
Roberts' general offices are located in Akron, Ohio in owned facilities. Roberts does not use terminal facilities in its business.
Caliber Logistics, Inc. - -----------------------
Caliber Logistics' general offices are located in Hudson, Ohio in leased facilities.
Item 3.

Item 3. - Legal Proceedings. - ------- ------------------
The registrant is involved in various lawsuits arising in the ordinary course of its business. In the opinion of management, the outcome of these matters will not have a material adverse effect on the financial condition or results of operations of the registrant.
Item 4.

Item 4. - Submission of Matters to a Vote of Security Holders. - ------- ----------------------------------------------------
On December 14, 1995, the registrant held a special meeting of shareholders at 901 Lakeside Ave., Cleveland, Ohio. The purpose of the meeting was to vote on the proposals recommended by the Board of Directors to approve the following:
Proposal One: The distribution by the registrant of at least 95% of the outstanding shares of common stock of Roadway Express, Inc. ("REX"), a then wholly-owned subsidiary of the registrant to the shareholders of record on December 29, 1995, on the basis of one share of common stock of REX for each two shares of common stock of the registrant. The results of the vote on Proposal One were as follows:
Proposal Two: An amendment to the Amended Articles of Incorporation of the registrant changing the name of the registrant to "Caliber System, Inc." The results of the vote on Proposal Two were as follows:
Proposal Three: The adoption by REX, then a wholly-owned subsidiary of the registrant, of the REX Management Incentive Stock Plan. The results of the vote on Proposal Three were as follows:
Executive Officers of the Registrant. - -------------------------------------
Officers are elected to serve on a calendar year basis except for the Chairman, President, Treasurer and Secretary, who are elected for an annual term following the annual meeting of shareholders. No family relationships exist between any of the executive officers named above or between any executive officer and any director of the registrant.
PART II
Item 5.

Item 5. - Market for Registrant's Common Equity and Related Stockholder - ------- ------------------------------------------------------------- Matters. --------
In response to the information called for by this Item, the material set forth under the heading "Common Stock and Dividends" on page 39 of the registrant's Annual Report to Shareholders for the year ended December 31, 1995, is incorporated herein by reference.
Item 6.

Item 6. - Selected Financial Data. - ------- ------------------------
In response to the information called for by this Item, the historical data set forth for the years 1995, 1994, 1993, 1992 and 1991, and Notes (1), (2) and (3) on pages 42 and 43 of the registrant's Annual Report to Shareholders for the year ended December 31, 1995, are incorporated herein by reference.
Item 7.

Item 7. - Management's Discussion and Analysis of Financial Condition and - ------- --------------------------------------------------------------- Results of Operations. ----------------------
In response to the information called for by this Item, the material set forth on pages 19 through 22 of the registrant's Annual Report to Shareholders for the year ended December 31, 1995, is incorporated herein by reference.
Item 8.

Item 8. - Financial Statements and Supplementary Data. - ------- --------------------------------------------
The consolidated financial statements of the registrant and its subsidiaries set forth on pages 24 through 38 and the Report of Independent Auditors on page 23 of the registrant's Annual Report to Shareholders for the year ended December 31, 1995, are incorporated herein by reference.
The material set forth under the heading "Summary of Quarterly Results of Operations" on page 40 and 41 of the registrant's Annual Report to Shareholders for the year ended December 31, 1995, is incorporated herein by reference.
Item 9.

Item 10. - Directors and Executive Officers of the Registrant. - -------- ---------------------------------------------------
In response to the information called for by Item 401 of Regulation S-K with respect to directors of the registrant, the material set forth under the heading "Information About Nominees for Directors" in the registrant's proxy statement for the annual meeting of shareholders to be held on May 8, 1996, which will be filed pursuant to Regulation 14A with the Securities and Exchange Commission, is incorporated herein by reference.
In response to the information called for by Item 401 of Regulation S-K with respect to executive officers of the registrant, the material set forth under the heading "Executive Officers of the Registrant" in Part I of this Form 10-K Annual Report for the year ended December 31, 1995, is incorporated herein by reference.
Item 11.

Item 11. - Executive Compensation. - -------- -----------------------
In response to the information called for by this Item with respect to directors of the registrant, the material set forth under the heading "Director Compensation" in the registrant's proxy statement for the annual meeting of shareholders to be held on May 8, 1996, which will be filed pursuant to Regulation 14A with the Securities and Exchange Commission, is incorporated herein by reference.
In response to the information called for by this Item with respect to executive officers of the registrant, the material set forth under the heading "Executive Compensation and Shareholdings by Executive Officers" in the registrant's proxy statement for the annual meeting of shareholders to be held on May 8, 1996, which will be filed pursuant to Regulation 14A with the Securities and Exchange Commission, is incorporated herein by reference.
Item 12.

Item 12. - Security Ownership of Certain Beneficial Owners and Management. - -------- ---------------------------------------------------------------
In response to the information called for by this Item, the material set forth under the heading "Principal Holders of Company Common Stock on February 29, 1996," including the notes thereto; the material set forth under the heading "Information About Nominees for Directors," including the notes thereto; and the material set forth under the heading "Ownership of Company Common Stock by Management," including the notes thereto, in the registrant's proxy statement for the annual meeting of shareholders to be held on May 8, 1996, which will be filed pursuant to Regulation 14A with the Securities and Exchange Commission, is incorporated herein by reference.
Item 13.

Item 14. - Exhibits, Financial Statement Schedules, and Reports on Form 8-K. - -------- -----------------------------------------------------------------
(a)(1) and (2) List of Financial Statements and Financial Statement Schedules--The response to this portion of Item 14 is submitted as a separate section of this report.
(3) Exhibit Index--The response to this portion of Item 14 is submitted as a separate section of this report.
(b) Reports on Form 8-K Filed in the Fourth Quarter of 1995--A report on Form 8-K dated November 17, 1995 was filed under:
* Item 2, Acquisition or Disposal of Assets. - Announced plans to exit the air freight business served by its subsidiary Roadway Global Air, Inc. and to sell certain related assets.
* Item 7, Financial Statements, Pro Forma Financial Information and Exhibits.-
The following pro forma financial information was incorporated by reference to note (b) on page 32 and to pages 33 through 38 of the registrant's Proxy Statement for the Special Meeting of Shareholders held on December 14, 1995.
Roadway Services, Inc. Pro Forma Condensed Financial Statements:
* Unaudited Pro Forma Condensed Balance Sheet, September 9, 1995
* Unaudited Pro Forma Statement of Consolidated Income, Thirty-Six Weeks Ended September 9, 1995
* Unaudited Pro Forma Statement of Consolidated Income, Year Ended December 31, 1994
* Unaudited Pro Forma Statement of Consolidated Income, Thirty-Six Weeks Ended September 10, 1994
(c) Exhibits--The response to this portion of Item 14 is submitted as a separate section of this report.
(d) Financial Statement Schedules--The response to this portion of Item 14 is submitted as a separate section of this report.
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.
CALIBER SYSTEM, INC.
Date March 12, 1996 By /s/ Daniel J. Sullivan -------------- ------------------------------------- Daniel J. Sullivan, Chairman, President and Chief Executive Officer
Date March 12, 1996 By /s/ D. A. Wilson -------------- ------------------------------------- D. A. Wilson, Senior Vice President- Finance and Planning, Secretary and Chief Financial Officer
Date March 12, 1996 By /s/ Kathryn W. Dindo -------------- ------------------------------------- Kathryn W. Dindo, Vice President and Controller
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.
CALIBER SYSTEM, INC.
Date March 12, 1996 By /s/ G. B. Beitzel -------------- ------------------------------------- G. B. Beitzel, Director
Date March 12, 1996 By /s/ R. A. Chenoweth -------------- ------------------------------------- R. A. Chenoweth, Director
Date March 12, 1996 By /s/ Charles R. Longsworth -------------- ------------------------------------- Charles R. Longsworth, Director
Date March 12, 1996 By /s/ Daniel J. Sullivan -------------- ------------------------------------- Daniel J. Sullivan, Director
Date March 12, 1996 By H. Mitchell Watson, Jr. -------------- ------------------------------------- H. Mitchell Watson, Jr., Director
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) AND (2), AND 14(d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1995
CALIBER SYSTEM, INC.
AKRON, OHIO
FORM 10-K--ITEM 14(a) (1) AND (2)
CALIBER SYSTEM, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements, included in the registrant's Annual Report to Shareholders for the year ended December 31, 1995, are incorporated by reference in Item 8:
Consolidated Balance Sheets--December 31, 1995 and 1994--pages 24 and 25 Statements of Consolidated Income--Years ended December 31, 1995, 1994 and 1993--page 26 Statements of Consolidated Cash Flows--Years ended December 31, 1995, 1994 and 1993--page 27 Statements of Consolidated Shareholders' Equity--Years ended December 31, 1995, 1994 and 1993--pages 28 and 29 Notes to Consolidated Financial Statements--December 31, 1995--pages 30 through 38
The following consolidated financial statement schedule of Caliber System, Inc. and subsidiaries is included in Item 14(d):
Schedule II-Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CALIBER SYSTEM, INC.
Years Ended December 31, 1995, 1994 and 1993
(dollars in thousands)