| MILLER INDUSTRIES INC /TN/ ITEM 1A RISK FACTORS There are many factors that affect our business and the results of our operations, some of which are beyond our control |
| The following is a description of some of the important factors that may cause the actual results of our operations in future periods to differ materially from those currently expected or desired |
| We encourage you to read this section carefully |
| Our business is subject to the cyclical nature of our industry, general economic conditions and weather |
| Adverse changes with respect to any of these factors may lead to a downturn in our business |
| The towing and recovery industry is cyclical in nature and has been affected historically by high interest rates, fuel costs, insurance costs, and economic conditions in general |
| Accordingly, a downturn in the economy could have a material adverse effect on our operations, as was the case during the recent general economic downturn |
| The industry also is influenced by consumer confidence and general credit availability, and by weather conditions, none of which is within our control |
| Our dependence upon outside suppliers for our raw materials, including aluminum and steel, and other purchased component parts, leaves us subject to price increases and delays in receiving supplies of such materials or parts |
| We are dependent upon outside suppliers for our raw material needs and other purchased component parts, and although we believe that these suppliers will continue to meet our requirements and specifications, and that alternative sources of supply are available, events beyond our control could have an adverse effect on the cost or availability of raw materials and component parts |
| Shipment delays, unexpected price increases or changes in payment terms from our suppliers of raw materials or component parts could impact our ability to secure necessary raw materials or component parts, or to secure such materials and parts at favorable prices |
| For example, recent 7 _________________________________________________________________ increases in demand for aluminum and steel, as well as disruptions in the supply of raw materials, has resulted in substantially higher prices for aluminum, steel and related raw materials |
| Partially to offset these increases, we have, from time to time, implemented general price increases and cost surcharges |
| While we have attempted to pass these increased costs on to our customers, there can be no assurance that we will be able to continue to do so |
| Additionally, demand for our products could be negatively affected by the unavailability of truck chassis, which are manufactured by third parties and are frequently supplied by us, or are purchased separately by our distributors or by towing operators |
| Although we believe that sources of our raw materials and component parts will continue to be adequate to meet our requirements and that alternative sources are available, shortages, price increases or delays in shipments of our raw materials and component parts could have a material adverse effect on our financial performance, competitive position and reputation |
| Our competitors could impede our ability to attract new customers, or attract current customers away from us |
| The towing and recovery equipment manufacturing industry is highly competitive |
| Competition for sales exists at both the distributor and towing-operator levels and is based primarily on product quality and innovation, reputation, technology, customer service, product availability and price |
| In addition, sales of our products are affected by the market for used towing and recovery equipment |
| Certain of our competitors may have substantially greater financial and other resources and may provide more attractive dealer and retail customer financing alternatives than us |
| Our future success depends upon our ability to develop proprietary products and technology |
| Historically, we have been able to develop or acquire patented and other proprietary product innovations which have allowed us to produce what management believes to be technologically advanced products relative to most of our competition |
| Certain of our patents have expired, and others will expire in the next few years, and as a result, we may not have a continuing competitive advantage through proprietary products and technology |
| In addition, pursuant to the terms of a consent judgment entered into in 2000 with the Antitrust Division of the US Department of Justice, we are required to offer non-exclusive royalty-bearing licenses to certain of our key patents to all wrecker and car carrier manufacturers |
| Our historical market position has been a result, in part, of our continuous efforts to develop new products |
| Our future success and ability to maintain market share will depend, to an extent, on new product development |
| Continued increases in our customers’ fuel costs, and the reduced availability of credit for our customers, will have a material effect upon our business |
| In recent years, our customers have experienced substantial increases in fuel and other transportation costs |
| There can be no assurance that fuel and transportation costs will not continue to increase for our customers in the future |
| Additionally, our customers have, from time to time, experienced reduced availability of credit, which negatively affects their ability to, and capacity for, purchasing equipment |
| These increases in fuel and transportation costs, and these reductions in the availability of credit, have had, and may continue to have, a negative effect on our customers, and a material effect upon our business and operating results |
| Our international operations are subject to various political, economic and other uncertainties that could adversely affect our business results, including by restrictive taxation or other government regulation and by foreign currency fluctuation |
| A significant portion of our net sales and production in 2005 were outside the United States, primarily in Europe |
| As a result, our operations are subject to various political, economic and other uncertainties, including risks of restrictive taxation policies, changing political conditions and governmental regulations |
| Also, a substantial portion of our net sales derived outside the United States, as well as salaries of employees located outside the United States and certain other expenses, are denominated in foreign currencies, including British pounds and the Euro |
| We are subject to risk of financial loss resulting from fluctuations in exchange rates of these currencies against the US dollar |
| 8 _________________________________________________________________ The proposed expansion of our Ooltewah, Tennessee and Hermitage, Pennsylvania manufacturing facilities could adversely affect production at those facilities |
| We recently determined to expand our existing manufacturing facilities in Ooltewah, Tennessee and Hermitage, Pennsylvania as a result of the recent increases in demand for our products |
| Although we have implemented a plan to minimize the impact of these expansion activities on our current production, construction delays and related problems could arise as a result of our expansion efforts |
| Construction or other related problems at these facilities could result in manufacturing delays, and could otherwise adversely affect our ability to operate these facilities at full manufacturing capacity |
| The need to service our indebtedness may affect the growth and profitability of our business |
| As of January 31, 2006 our debt included approximately dlra6dtta3 million under our new senior credit facility and dlra10dtta0 million under our junior credit facility |
| Although these debt levels reflect a significant decrease over prior periods, a substantial portion of our cash flow from operations has been and will continue to be dedicated to service our debt |
| Using cash in this manner may affect our ability to grow our business and to take advantage of opportunities for growth |
| In addition, this substantial indebtedness may make us more vulnerable to general adverse economic and industry conditions |
| The requirements and restrictions imposed by our credit facilities restrict our ability to operate our business, and failure to comply with these requirements and restrictions could adversely affect our business |
| The terms of our new senior credit facility and our amended junior credit facility restrict our ability and our subsidiaries’ ability to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments or investments in certain situations, consummate certain asset sales, enter into certain transactions with affiliates, incur liens, or merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our or their assets |
| Our credit facilities also require us to meet certain financial tests, and to comply with certain other reporting, affirmative and negative covenants |
| If we fail to comply with the requirements of either of our credit facilities, such non-compliance would result in an event of default |
| If not waived by the lending groups, such event of default would result in the acceleration of the amounts due under the respective credit facility, and may permit our lenders to foreclose on our assets that secure the credit facilities |
| Our ability to service our credit facilities may be affected by fluctuations in interest rates |
| Because of the amount of obligations outstanding under our credit facilities and the connection of the interest rate under each facility (including the default rates) to the LIBOR rate, an increase in the LIBOR rate could have a significant effect on our ability to satisfy our obligations under the credit facilities and increase our interest expense significantly |
| Therefore, our liquidity and access to capital resources could be further affected by increasing interest rates |
| We depend upon skilled labor to manufacture our products |
| If we experience problems hiring and retaining skilled labor, our business may be negatively affected |
| The timely manufacture and delivery of our products requires an adequate supply of skilled labor, and the operating costs of our manufacturing facilities can be adversely affected by high turnover in skilled positions |
| Accordingly, our ability to increase sales, productivity and net earnings will be limited to a degree by our ability to employ the skilled laborers necessary to meet our requirements |
| There can be no assurance that we will be able to maintain an adequate skilled labor force necessary to efficiently operate our facilities |
| In addition, in connection with a representation petition filed by the United Auto Workers Union with the National Labor Relations Board, a vote was held on union representation for employees at our Ooltewah, Tennessee manufacturing plant in 2002 |
| These employees voted against joining the United Auto Workers Union, but the vote was subsequently overturned by the National Labor Relations Board |
| Thereafter, a new vote was scheduled for February 2005, but this vote was cancelled at the request of the United Auto Workers Union |
| While our employees are not currently members of a union, there can be no assurance that the employees at our Ooltewah manufacturing plant, or any other of our employees, may not choose to become unionized in the future |
| 9 _________________________________________________________________ If our common stock was delisted from the New York Stock Exchange the market for our common stock may be substantially less active and it may impair the ability of our shareholders to buy and sell our common stock |
| In June 2003, we received notification from the New York Stock Exchange that we were not in compliance with the NYSE’s continued listing standards because we did not have sufficient shareholders’ equity or an adequate 30-day average market capitalization |
| In response, we implemented a plan for regaining compliance with the continued listing standards |
| In December 2004, the NYSE notified us that, as a result of our compliance plan, we had regained compliance with the NYSE’s continued listing standards and had been approved as a “company in good standing” with the NYSE As a condition to the NYSE’s approval, we were subject to a 12-month follow-up period with the NYSE to ensure continued compliance with the continued listing standards, and continue to be subject to the NYSE’s routine monitoring procedures |
| If we are unable to comply with the NYSE’s continued listing standards, our common stock could be delisted from the New York Stock Exchange |
| If our common stock is delisted, it is likely that the trading market for our common stock would be substantially less active, and the ability of our shareholders to buy and sell shares of our common stock would be materially impaired |
| In addition, the delisting of our common stock could adversely affect our ability to enter into future equity financing transactions |
| We are subject to certain retained liabilities related to the wind down of our towing services operations |
| As a result, almost all of our former towing services businesses now operate under new ownership, and in general the customary operating liabilities of these businesses were assumed by the new owners |
| Our subsidiaries that sold these businesses are subject to some continuing liabilities with respect to their pre-sale operations, including, for example, liabilities related to litigation, certain trade payables, workers compensation and other insurance, surety bonds, and real estate, and Miller Industries is subject to some of such continuing liabilities by virtue of certain direct parent guarantees |
| In October 2005, our subsidiary, RoadOne, Inc, filed for liquidation under Chapter 7 of the federal bankruptcy laws in the Bankruptcy Court of the Eastern District of Tennessee and a trustee was appointed |
| At this time, management is not able to predict whether or not any liabilities of discontinued operations currently reflected in our consolidated financial statements will be eliminated |
| Any loss of the services of our key executives could have a material adverse impact on our operations |
| Our success is highly dependent on the continued services of our management team |
| The loss of services of one or more key members of our senior management team could have a material adverse effect on us |
| A product liability claim in excess of our insurance coverage, or an inability to acquire or maintain insurance at commercially reasonable rates, could have a material adverse effect upon our business |
| We are subject to various claims, including product liability claims arising in the ordinary course of business, and may at times be a party to various legal proceedings incidental to our business |
| A successful product liability or other claim brought against us in excess of our insurance coverage, or the inability of us to acquire or maintain insurance at commercially reasonable rates, could have a material adverse effect upon our business, operating results and financial condition |
| Our stock price may fluctuate greatly as a result of the general volatility of the stock market |
| From time to time, there may be significant volatility in the market price for our common stock |
| Our quarterly operating results, changes in earnings estimated by analysts, changes in general conditions in our industry or the economy or the financial markets or other developments affecting us could cause the market price of the common stock to fluctuate substantially |
| In addition, in recent years the stock market has experienced significant price and volume fluctuations |
| This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to their operating performance |
| 10 _________________________________________________________________ Our Chairman and Co-Chief Executive Officer owns a substantial interest in our common stock |
| He may vote his shares in ways with which you disagree |
| William G Miller, our chairman, beneficially owns approximately 14dtta5prca of the outstanding shares of common stock |
| Accordingly, Mr |
| Miller has the ability to exert significant influence over our business affairs, including the ability to influence the election of directors and the result of voting on all matters requiring shareholder approval |
| Our charter and bylaws contain anti-takeover provisions that may make it more difficult or expensive to acquire us in the future or may negatively affect our stock price |
| Our charter and bylaws contain restrictions that may discourage other persons from attempting to acquire control of us, including, without limitation, prohibitions on shareholder action by written consent and advance notice requirements regarding amendments to certain provisions of our charter and bylaws |
| In addition, our charter authorizes the issuance of up to 5cmam000cmam000 shares of preferred stock |
| The rights and preferences for any series of preferred stock may be set by the board of directors, in its sole discretion and without shareholder approval, and the rights and preferences of any such preferred stock may be superior to those of common stock and thus may adversely affect the rights of holders of common stock |