MLR

Business Context and Reporting Period

Company: Miller Industries, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2003
Business Overview: The Company manufactures towing and recovery equipment and provides towing services. During the reporting period, the Company was in the process of divesting its towing services segment and the distribution group of its equipment segment, classifying these as discontinued operations.

Key Financial Metrics

Note: 2002 Net Loss includes a cumulative effect of a change in accounting principle of $(21,812) thousand.

Material Changes vs. Prior Period

• Revenue Decline: Net sales from continuing operations decreased 9.3% year-over-year (Six Months), driven by a 9.9% drop in towing and recovery equipment sales due to customer cost pressures, tight credit markets, and the war in Iraq.
• Profitability: Income from continuing operations decreased slightly by 7.5% to $3.385 million. However, the Net Loss improved significantly from $(22.4) million in 2002 to $(1.1) million in 2003, primarily because the 2002 period included a one-time accounting adjustment charge of $21.8 million.
• Cash Flow: Operating cash flow turned negative ($0.6 million used) compared to $11.1 million provided in the prior year, largely due to cash usage in discontinued operations and increased inventory levels ($5.7 million increase).
• Discontinued Operations: The Company sold eleven towing service locations and one distributor location during the period, generating $5.1 million in proceeds. Losses from these discontinued operations were $4.4 million.

Outlook, Risks, and Contingencies

Going Concern and Liquidity Crisis

The filing raises substantial doubt about the Company's ability to continue as a going concern. Key factors include:

• Debt Defaults: The Company is in default under both its Senior and Junior Credit Facilities. The Junior Credit Facility ($13.8 million outstanding) matured on July 23, 2003, and was not repaid. This triggered cross-defaults on the Senior Facility.
• Enforcement Actions: Lenders have initiated a "Standstill Period" and a "Payment Blockage Notice." There is no assurance that lenders will waive defaults or agree to refinancing. Failure to refinance could force the Company into bankruptcy.
• NYSE Delisting Risk: The Company received notice from the NYSE that it is not in compliance with listing standards due to shareholders' equity ($40.1 million) and market capitalization ($28.9 million) falling below the required $50.0 million thresholds. The Company has submitted a plan to regain compliance, but delisting remains a risk.

Management Commentary

Management is focusing on restructuring bank facilities, disposing of remaining RoadOne and distributor operations, and returning manufacturing operations to profitable levels. The Company is actively negotiating with lenders to extend or refinance credit facilities.

Investor Verification Checklist

• Debt Restructuring Status: Verify if the Company has successfully negotiated a waiver of defaults or a refinancing agreement with Senior and Junior lenders to avoid bankruptcy.
• NYSE Compliance: Confirm whether the NYSE has accepted the Company's plan to regain listing compliance or if trading suspension/delisting has occurred.
• Discontinued Operations Wind-down: Monitor the completion of sales for the remaining two towing service markets and eight distribution locations to assess final proceeds and remaining liabilities.
• Liquidity Position: Review subsequent cash burn rates given the negative operating cash flow and the inability to access credit facilities without waivers.
• Insurance Coverage: Verify the status of insurance and surety bond coverage, which the Company noted has been difficult to maintain due to market disruptions and operating results.