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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended
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Dec. 31, 2019
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Consolidation The accompanying consolidated financial statements include the accounts of Miller Industries, Inc. and its subsidiaries. All significant intercompany transactions and balances have been eliminated. To facilitate timely reporting, the consolidated financial statements include accounts of certain subsidiaries whose fiscal closing dates differ from December 31 st by 31 days (or less). Cash and Temporary Investments Cash and temporary investments include all cash and cash equivalent investments with original maturities of three months or less. Accounts Receivable Receivables are stated at their estimated collectible amounts and consist of amounts billed and currently due from customers. The Company extends credit to customers in the normal course of business. Collections from customers are continuously monitored and an allowance for doubtful accounts is maintained based on historical experience and any specific customer collection issues. Data by each major customer is regularly reviewed to evaluate the adequacy of the allowance for doubtful accounts and actual write-offs are charged against the allowance. Inventories 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. Inventories, net of reserves, at December 31, 2019 and 2018 consisted of the following:
|  | December 31, |  | December 31,
|  | 2019 |  | 2018
Chassis |  | $ | 6,561 |  | $ | 8,921
Raw materials |  |  | 39,444 |  |  | 40,021
Work in process |  |  | 16,520 |  |  | 14,995
Finished goods |  |  | 25,440 |  |  | 29,830
|  | $ | 87,965 |  | $ | 93,767
Property, Plant and Equipment Property, plant and equipment are recorded at cost, less accumulated depreciation. Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets. Accelerated depreciation methods are used for income tax reporting purposes. Estimated useful lives range from 20 to 30 years for buildings and improvements and 5 to 10 years for machinery and equipment, furniture and fixtures, and software costs. Expenditures for routine maintenance and repairs are charged to expense as incurred. Internal labor is used in certain capital projects. Fully depreciated assets are retained in property, plant and equipment and accumulated depreciation until they are removed from service. When assets are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the consolidated balance sheets and any resulting gain or loss from disposition is recorded as other (income) expense, net in the consolidated statements of income in the period realized. Property, plant and equipment at December 31, 2019 and 2018 consisted of the following:
|  | 2019 |  | 2018
Land and improvements |  | $ | 13,953 |  | $ | 11,807
Buildings and improvements |  |  | 73,121 |  |  | 68,717
Machinery and equipment |  |  | 50,235 |  |  | 43,961
Furniture and fixtures |  |  | 9,172 |  |  | 7,786
Software costs |  |  | 6,033 |  |  | 5,695
|  |  | 152,514 |  |  | 137,966
Less accumulated depreciation |  |  | (61,779) |  |  | (55,116)
|  | $ | 90,735 |  | $ | 82,850
The Company recognized $9,127, $7,745 and $6,147, in depreciation and amortization expense in 2019, 2018 and 2017, respectively. The Company capitalizes costs related to software development in accordance with established criteria, and amortizes those costs to expense on a straight-line basis over five years. System development costs not meeting proper criteria for capitalization are expensed as incurred. Basic and Diluted Income Per Common Share Basic income per common share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted income per common share is calculated by dividing net income by the weighted average number of common and potential dilutive common shares outstanding. Diluted income per common share takes into consideration the assumed exercise of outstanding stock options resulting in approximately 5,000 and 17,000 potential dilutive common shares in each of the years ended December 31, 2018 and 2017, respectively. The Company had no outstanding stock options and no potential dilutive common shares for the year ended December 31, 2019. For the years ended December 31, 2018 and 2017, none of the outstanding stock options would have been anti-dilutive. Long-Lived Assets The Company periodically reviews the carrying amount of its long-lived assets to determine if those assets may not be recoverable based upon the future operating cash flows expected to be generated by those assets. Management believes that its long-lived assets are appropriately valued. Goodwill Goodwill consists of the excess of cost of acquired entities over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed. Goodwill is not amortized. However, the Company evaluates the carrying value of goodwill for impairment at least annually or if an event or circumstance occurs that would indicate that the carrying amount had been impaired. 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, 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. Accrued Liabilities Accrued liabilities consisted of the following at December 31, 2019 and 2018:
|  | 2019 |  | 2018
Accrued wages, commissions, bonuses and benefits |  | $ | 12,382 |  | $ | 9,152
Accrued products warranty |  |  | 3,859 |  |  | 3,752
Accrued taxes |  |  | 2,079 |  |  | 1,039
Other |  |  | 9,493 |  |  | 10,920
|  | $ | 27,813 |  | $ | 24,863
Income Taxes The Company’s income tax expense, deferred tax assets and liabilities and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. The Company is 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. The Company recognizes as deferred income tax assets and liabilities the future tax consequences of the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company considers the need to record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. Tax loss carryforwards, reversal of deferred tax liabilities, tax planning and estimates of future taxable income are considered in assessing the need for a valuation allowance. The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the positions and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of income. Accrued interest and penalties are included within the related tax liability line in the accompanying consolidated balance sheets. Stock-Based Compensation Stock compensation expense was $150 for 2019, 2018 and 2017. No options were granted during 2019, 2018, or 2017. The fair value of options granted in 2008 has been estimated as of the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected dividend yield of 0%; expected volatility of 44%; risk-free interest rate of 1.71%; and expected life of four years. Using these assumptions, the fair value of options granted in 2008 was $1,596, which was amortized as compensation expense over the vesting period. At December 31, 2018, the Company had no unrecognized compensation expense related to stock options. The Company issued 10,250 and 26,500 shares of common stock during 2018 and 2017, respectively, from the exercise of stock options. The company issued no shares from the exercise of stock options during 2019. Product Warranty The Company generally provides a one-year limited product and service warranty on certain of its products. The Company provides for the estimated cost of this warranty at the time of sale. These estimates are established using historical information about the nature, frequency, and average cost of warranty claims. Warranty expense in 2019, 2018 and 2017, was $2,483, $3,793 and $2,618, respectively. The table below provides a summary of the warranty liability for December 31, 2019 and 2018:
|  | 2019 |  | 2018
Accrual at beginning of the year |  | $ | 3,752 |  | $ | 3,147
Provision |  |  | 2,483 |  |  | 3,793
Settlement and Other |  |  | (2,376) |  |  | (3,188)
Accrual at end of year |  | $ | 3,859 |  | $ | 3,752
Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and trade accounts receivable. The Company places its cash investments with high-quality financial institutions. In addition, the Company limits the amount of credit exposure through the use of accounts and funds backed by the U.S. Government and its agencies. Trade accounts receivable are generally diversified due to the number of entities comprising the Company’s customer base and their dispersion across many geographic regions and by frequent monitoring of the creditworthiness of the customers to whom the credit is granted in the normal course of business. At December 31, 2018, the Company had one customer with a trade account receivable balance greater than 10% of total accounts receivable. The account balance was 16% of total accounts receivable at December 31, 2018. There were no customers with a trade account receivable balance greater than 10% at December 31, 2019. Revenue Recognition Revenue is recognized when obligations under the terms of a contract with a customer are satisfied. Except for certain extended service contracts on a small percentage of units sold, the Company’s performance obligations are satisfied, and sales revenue is recognized when products are shipped from the Company’s facilities. 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 and a reserve is established. 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 price is used to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach is utilized when one is not available. Shipping and Handling Fees and Cost The Company records revenues earned for shipping and handling as revenue, while the cost of shipping and handling is classified as cost of operations. Research and Development Research and development costs are expensed as incurred and included in cost of operations and to a lesser extent in selling, general and administrative expenses. Research and development costs amounted to $3,702, $3,127 and $1,943 for 2019, 2018 and 2017, respectively. Foreign Currency Translation The functional currency for the Company’s 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 resulting from such translations 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. Recent Accounting Pronouncements Recently Issued Standards In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) 2019-12 Income Taxes (Topic 740), which among other things will require the Company to recognize franchise tax that is partially based on income as an income-based tax. The update will be effective for financial statements issued for annual periods, and interim periods within these annual periods, beginning after December 15, 2020, with early adoption permitted. The Company plans to apply the amendments in the update on a modified retrospective basis. The adoption of this update will not have a material impact on the Company’s consolidated financial statements and related disclosures. In August 2018, the FASB issued ASU 2018‑15 Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350‑40) to align the requirements for capitalizing implementation costs incurred in cloud computing arrangements that are service contracts with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update will be effective for financial statements issued for annual periods, and interim periods within these annual periods, beginning after December 15, 2019, with early adoption permitted. The Company plans to apply the amendments in the update prospectively to all implementation costs incurred after the date of the adoption. 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 2019, the Company adopted ASU 2016-02 Leases (Topic 842). The FASB issued ASU 2016‑02 to improve financial reporting on leasing transactions. The update affects all companies that lease assets. The amendments require lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by lease agreements with terms greater than twelve months. Companies are also required to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. The Company elected the package of practical expedients permitted by ASC Topic 842. Accordingly, the Company accounted for its existing operating leases as operating leases under the new guidance without reassessing whether the contracts contained a lease under ASC Topic 842 or whether classification of the operating leases would be different in accordance with ASC Topic 842. In the same manner, the company will not reassess the allocation of initial direct costs on existing leases. The Company also elected to not allocate consideration between lease and non-lease components. The amendments were adopted by the Company in the first quarter of 2019 by applying the modified retrospective approach and making a cumulative-effect adjustment to the opening balance of retained earnings at January 1, 2019. The cumulative effect adjustment to the consolidated balance sheets as of January 1, 2019 was as follows:
|  | Balance at |  | Cumulative Effect |  | Balance at
|  | December 31, 2018 |  | Adjustment |  | January 1, 2019
Assets |  |  |  |  |  |  |  |  |
Right-of-use assets - operating leases |  | $ | — |  | $ | 2,268 |  | $ | 2,268
Liabilities and Shareholders’ Equity |  |  |  |  |  |  |  |  |
Current portion of operating lease obligation |  |  | — |  |  | 1,358 |  |  | 1,358
Noncurrent portion of operating lease obligation |  |  | — |  |  | 905 |  |  | 905
Deferred income tax liabilities |  |  | 1,700 |  |  | 1 |  |  | 1,701
Accumulated surplus |  |  | 81,354 |  |  | 4 |  |  | 81,358

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- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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