<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR 13-WEEK PERIOD ENDED MARCH 29, 1997 COMMISSION FILE NO. 0-26228
MARTIN INDUSTRIES, INC.
-----------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 63-0133054
- ------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
301 EAST TENNESSEE STREET
FLORENCE, ALABAMA 35630
- --------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(205) 767-0330
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----- -----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
8,653,895 SHARES OF COMMON STOCK, $.01
PAR VALUE, AS OF May 7, 1997
<PAGE> 2
MARTIN INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
MARCH 29, 1997(UNAUDITED) AND DECEMBER 31, 1996 2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE 13-WEEK PERIODS ENDED MARCH
29, 1997 AND MARCH 30, 1996 4
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE 13-WEEK PERIODS ENDED MARCH 29, 1997
AND MARCH 30, 1996 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
</TABLE>
1
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARTIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
CASH AND SHORT-TERM INVESTMENTS $12,486,000 $19,326,000
ACCOUNTS AND NOTES RECEIVABLE, LESS
ALLOWANCE FOR DOUBTFUL ACCOUNTS OF
$424,000 AND $419,000, RESPECTIVELY 18,491,000 17,788,000
INVENTORIES 22,779,000 18,346,000
REFUNDABLE INCOME TAXES 795,000 0
DEFERRED TAX BENEFITS 3,460,000 3,401,000
PREPAID EXPENSES AND OTHER ASSETS 1,763,000 1,786,000
----------- -----------
TOTAL CURRENT ASSETS 59,774,000 60,647,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 11,085,000 10,775,000
DEFERRED TAX BENEFITS 627,000 653,000
OTHER NONCURRENT ASSETS 4,457,000 4,269,000
----------- -----------
16,169,000 15,697,000
----------- -----------
TOTAL ASSETS $75,943,000 $76,344,000
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED STATEMENTS.
2
<PAGE> 4
MARTIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES:
NOTES PAYABLE $ 1,793,000 $ 742,000
CURRENT PORTION OF LONG-TERM DEBT 1,740,000 1,792,000
ACCOUNTS PAYABLE 5,237,000 4,467,000
ACCRUED INCOME TAXES PAYABLE 0 602,000
ACCRUED LIABILITIES:
PAYROLL RELATED 3,575,000 3,068,000
PRODUCT LIABILITY 557,000 560,000
WARRANTY 1,261,000 1,299,000
WORKERS' COMPENSATION 626,000 602,000
OTHER 2,220,000 2,609,000
------------ -----------
TOTAL CURRENT LIABILITIES 17,009,000 15,741,000
------------ -----------
LONG-TERM DEBT 9,411,000 10,263,000
DEFERRED COMPENSATION 2,170,000 2,183,000
OTHER NONCURRENT LIABILITIES 98,000 125,000
------------ -----------
11,679,000 12,571,000
------------ -----------
TOTAL LIABILITIES 28,688,000 28,312,000
------------ -----------
STOCKHOLDERS' EQUITY
PREFERRED STOCK $.01 PAR VALUE, 1,000,000
SHARES AUTHORIZED; NO SHARES ISSUED AND
OUTSTANDING 0 0
COMMON STOCK, $.01 PAR VALUE, 20,000,000
SHARES AUTHORIZED; 9,748,000 SHARES ISSUED 97,000 97,000
PAID-IN CAPITAL 26,141,000 25,866,000
RETAINED EARNINGS 29,914,000 31,035,000
UNREALIZED GAIN (LOSS) ON FOREIGN CURRENCY TRANSLATION (50,000) 25,000
------------ -----------
56,102,000 57,023,000
LESS:
TREASURY STOCK AT COST (1,004,105 AND 1,021,925
SHARES, RESPECTIVELY) 2,065,000 1,911,000
UNEARNED COMPENSATION - ESOP 6,782,000 7,080,000
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 47,255,000 48,032,000
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 75,943,000 $76,344,000
============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED STATEMENTS.
3
<PAGE> 5
MARTIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
13-WEEK
PERIOD ENDED
----------------------------
MARCH 29, MARCH 30,
1997 1996
------------ ------------
<S> <C> <C>
NET SALES $ 15,905,000 $ 15,395,000
COST OF SALES 13,007,000 12,012,000
------------ ------------
GROSS PROFIT 2,898,000 3,383,000
------------ ------------
OPERATING EXPENSES:
SELLING 2,322,000 2,097,000
GENERAL AND ADMINISTRATIVE 1,527,000 1,675,000
NON-CASH ESOP COMPENSATION EXPENSE 529,000 758,000
------------ ------------
4,378,000 4,530,000
------------ ------------
OPERATING LOSS (1,480,000) (1,147,000)
INTEREST EXPENSE 266,000 246,000
INTEREST INCOME (238,000) (230,000)
------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (1,508,000) (1,163,000)
CREDIT FOR INCOME TAXES (640,000) (357,000)
------------ ------------
LOSS FROM CONTINUING OPERATIONS (868,000) (806,000)
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX 0 295,000
------------ ------------
NET LOSS $ (868,000) $ (511,000)
============ ============
LOSS FROM CONTINUING OPERATIONS PER SHARE $ (0.13) (0.13)
INCOME FROM DISCONTINUED OPERATIONS PER SHARE 0.00 0.05
------------ ------------
NET LOSS PER SHARE $ (0.13) $ (0.08)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 6,715,818 6,145,737
============ ============
DIVIDENDS DECLARED PER SHARE $ 0.038 $ 0.036
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED STATEMENTS.
4
<PAGE> 6
MARTIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
13-WEEK
PERIOD ENDED
----------------------------
MARCH 29, MARCH 30,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (868,000) $ (511,000)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 449,000 306,000
GAIN ON SALE OF ASSETS (12,000) 0
PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE 5,000 6,000
NON-CASH ESOP COMPENSATION EXPENSE 529,000 758,000
OTHER CHANGES IN OPERATING ASSETS AND LIABILITIES (5,937,000) (5,521,000)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (5,834,000) (4,962,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (774,000) (758,000)
PROCEEDS FROM SALES OF ASSETS 23,000 1,000
PURCHASE OF SUBSIDIARY, NET OF CASH ACQUIRED 0 (1,374,000)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (751,000) (2,131,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET BORROWINGS ON NOTES PAYABLE 1,006,000 3,820,000
NET REPAYMENTS OF LONG-TERM DEBT (854,000) (1,350,000)
PURCHASE OF TREASURY STOCK (250,000) 0
EXERCISE OF STOCK OPTIONS 44,000 80,000
CASH DIVIDENDS PAID (202,000) (180,000)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (256,000) 2,370,000
------------ ------------
NET DECREASE IN CASH AND SHORT-TERM
INVESTMENTS (6,841,000) (4,723,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,000 0
CASH AND SHORT-TERM INVESTMENTS AT THE
BEGINNING OF THE PERIOD 19,326,000 20,439,000
------------ ------------
CASH AND SHORT-TERM INVESTMENTS AT THE
END OF THE PERIOD $ 12,486,000 $ 15,716,000
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED STATEMENTS.
5
<PAGE> 7
MARTIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Unaudited Interim Condensed Consolidated Financial Statements
The accompanying unaudited interim condensed consolidated financial
statements of Martin Industries, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and are presented in accordance with the requirements of Form 10-Q
and Article 10 of Regulation S-X. The financial statements should be read in
conjunction with the audited financial statements and notes thereto for the
year ended December 31, 1996 included on Form 10-K, as filed with the
Securities and Exchange Commission on March 31, 1997.
In the opinion of management, the unaudited condensed consolidated
financial statements included herein reflect all adjustments (which include
only normal recurring adjustments) necessary to present fairly the information
set forth therein. The consolidated results of operations for the periods
presented are not necessarily indicative of results for the full year. The
Company's business is seasonal and cyclical with the potential for significant
fluctuations in quarterly earnings.
Principles of Consolidation and Fiscal Periods
The unaudited interim condensed consolidated financial statements
include the accounts and transactions of the Company and its wholly owned
Canadian subsidiary, 1166081 Ontario Inc. All significant intercompany accounts
and transactions have been eliminated in consolidation. See Note 2 for
discussion of the business combination.
The Company's fiscal quarters end on the Saturday nearest each calendar
quarter-end. The Company utilizes a December 31 fiscal year-end.
2. BUSINESS COMBINATION
On February 1, 1996, the Company's newly formed, wholly owned Canadian
subsidiary, 1166081 Ontario Inc. ("Martin Canada"), acquired all of the capital
stock of Hunter Energy and Technologies Inc. and 1061099 Ontario Inc.
("1061099"), a sister company which owned the land and building leased by Hunter
Energy and Technologies Inc. for its manufacturing operation. The transaction
was accounted for under the purchase method of accounting. The aggregate
purchase price of approximately $1,943,000 included $850,000 in cash, $729,000
in promissory notes, and $364,000 paid into escrow. Transaction expenses of
$160,000 were incurred. The promissory notes bear interest at a rate of 9% per
annum and matured during the first quarter of 1997. The Company has withheld
payment on certain of the promissory notes pending resolution of certain issues
with the holders of the notes arising out of the purchase transaction. The
purpose of the escrow is to make funds available to meet the sellers'
indemnification obligations to the Company. The total purchase price exceeded
the fair value of the net assets acquired by $2,250,000, which amount is
reflected as goodwill (included in other noncurrent assets) to be amortized
over 40 years. The consolidated results of operations for the 1996 period
reflect the operations of the acquisition for the period from the purchase
6
<PAGE> 8
date, February 1, 1996, through March 30, 1996. Effective January 1, 1997,
Hunter Energy and Technologies Inc. and 1061099 were amalgamated to form Hunter
Technology Inc. ("HEAT").
3. ESOP ACCOUNTING
In 1992 the Company established the Employee Stock Ownership Plan
("ESOP") and in January 1993 the Company borrowed $11.9 million from its primary
lender (the "bank loan"), which funds were then loaned by the Company to the
ESOP (the "ESOP loan") on terms substantially similar to those of the bank loan.
The ESOP utilized the ESOP loan proceeds, together with a $54,000 initial cash
contribution from the Company, to purchase 3,489,115 shares of the Company's
common stock from existing stockholders. The bank loan and ESOP loan are payable
in equal semi-annual principal installments over a 10-year period.
At the time of the origination of the bank loan and the ESOP loan and
subsequent purchase by the ESOP of Company shares, the Company recorded the
principal amount of the bank loan as long-term debt and recorded unearned
compensation for the principal amount of the ESOP loan, which is reflected as a
reduction to stockholders' equity on the balance sheet. Pending repayment of the
ESOP loan, shares owned by the ESOP are held in a suspense account and are
unallocated to participants. Shares of common stock are committed to be released
from the suspense account and subsequently allocated to participants' accounts
based on the ratio that the annual principal debt repayment of the ESOP loan
bears to the original principal balance (approximately 347,340 shares of common
stock per year). The Company recognizes non-cash compensation expense and
credits equity each month in an amount equal to one-twelfth of the number of
shares of common stock committed to be released each year, net of shares
committed to be released in lieu of cash dividends declared on allocated shares,
multiplied by the average fair value of such shares during the period. Non-cash
compensation expense will be based on the average market price at which the
shares of common stock are traded in the open market during the applicable
period.
Accordingly, if the average market price of the common stock increases,
the Company's non-cash ESOP compensation expense will also increase, thereby
having a negative impact on the Company's net income (loss) and net income
(loss) per share. Because the Company cannot predict the price at which its
shares will trade in the future, it cannot predict the amount of non-cash ESOP
compensation expense or the resulting effect on net income (loss) or net income
(loss) per share for future periods.
4. NET LOSS PER SHARE
Net loss per share has been computed based on the weighted average
number of common shares outstanding in each respective period. Shares of stock
owned by the ESOP that have been committed to be released to participants have
been considered outstanding on a weighted average basis for the purpose of
computing net loss per share. Shares of stock owned by the ESOP that have not
been committed to be released have not been considered outstanding for such
purpose. The computation of the weighted average number of common and common
equivalent shares outstanding for the interim periods reported herein is
summarized as follows:
7
<PAGE> 9
<TABLE>
<CAPTION>
13-Week
Period Ended
-----------------------
March 29, March 30,
1997 1996
--------- ---------
<S> <C> <C>
Weighted average shares,
excluding ESOP 5,303,500 5,036,656
Weighted average effect
of ESOP shares committed
to be released 1,412,318 1,109,081
--------- ---------
Weighted average number
of common and common
equivalent shares outstanding 6,715,818 6,145,737
========= =========
</TABLE>
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
per Share. This Statement establishes standards for computing and presenting
earnings per share ("EPS"). This Statement will simplify the standards for
computing EPS previously found in APB Opinion No. 15, Earnings per Share, and
will make them comparable to international EPS standards. It will replace the
presentation of primary EPS with a presentation of basic EPS and will require
dual presentation of basic and diluted EPS on the face of the income statement
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
This Statement is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods and requires
restatement of all prior-period EPS data presented. The Company will adopt
the Statement at fiscal year-end 1997. Had the Company implemented SFAS 128 on
January 1, 1996, the pro forma EPS results would have been as follows:
<TABLE>
<CAPTION>
13-Week Period Ended 13-Week Period Ended
March 29, 1997 March 30, 1996
---------------------------------- ----------------------------------
Diluted Diluted
Effect of Effect of
Options Options
Basic Issued Diluted Basic Issued Diluted
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Loss from continuing operations $ (868,000) -- $ (868,000) $ (806,000) -- $ (806,000)
Shares available to common shareholders 6,715,818 -- 6,715,818 6,145,737 -- 6,145,737
Loss from continuing operations per share $ (0.13) -- $ (0.13) $ (0.13) -- $ (0.13)
</TABLE>
Options outstanding of 655,192 and 710,780 as of March 29, 1997 and
March 30, 1996, respectively, were not included in the table above as they were
anti-dilutive.
5. INVENTORIES
Substantially all of the Company's inventories are valued at last-in,
first-out ("LIFO") cost, which is not in excess of market. An analysis of
inventories at March 29, 1997 and December 31, 1996 follows:
<TABLE>
<CAPTION>
March 29, December 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Inventories valued at first-in, first-out ("FIFO") cost:
Raw materials and purchased parts $10,560,000 $10,570,000
Work-in-process 4,463,000 4,281,000
Finished goods 13,276,000 9,066,000
----------- -----------
28,299,000 23,917,000
Less excess of FIFO over LIFO cost 5,520,000 5,571,000
----------- -----------
$22,779,000 $18,346,000
=========== ===========
</TABLE>
6. DISCONTINUED OPERATIONS
On February 24, 1997, the Company announced that it had elected to
discontinue its operations in the metal office furniture segment. For 1996,
the segment's operations, net of tax, have been treated as a discontinued
operation for accounting purposes. The Company established a reserve at December
31, 1996 of $1,430,000, net of taxes of $861,000. The loss from discontinued
operations charged to the reserve in the first quarter of 1997 was $62,000.
After the close of the first quarter, the Company sold the specialty
equipment and trade name as well as disposed of certain obsolete inventory
associated with its discontinued metal office furniture division. The
disposition of the above assets was not reflected in the first quarter's
results, and the effect of such transactions will be deferred until the costs of
closing the operation are finalized later in the year.
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the unaudited
interim consolidated financial statements of the Company and notes thereto
appearing elsewhere in this Form 10-Q. All references to the first quarter of
1997 and the first quarter of 1996 are referring to the 13-week periods ended
March 29, 1997 and March 30, 1996, respectively.
The Company manufactures products in two industry segments: home
heating products and leisure and other products such as do-it-yourself utility
trailer kits and gas barbecue grills. Each of the industry segments in which the
Company operates is cyclical in nature, with sales being affected by general
economic cycles, consumer confidence levels, inflation, employment and income
levels and the availability of credit generally. The Company's fireplace
business is also influenced by factors affecting the housing industry, such as
housing demand, the availability of financing and the level and stability of
interest rates.
Prior to 1997, the Company manufactured products in the metal office
furniture segment through its Filex line acquired in 1989. In February of 1997,
the Company elected to discontinue its metal office furniture operations. The
recent consolidation in the office furniture industry increased competition and
margin pressures in the segment to the point of an unacceptable return to the
Company. The metal office furniture segment's operations are treated as
discontinued in the accompanying consolidated financial statements. See
"--Results of Discontinued Metal Office Furniture Operations."
On February 1, 1996, the Company's newly formed wholly owned Canadian
subsidiary, 1166081 Ontario Inc. ("Martin Canada"), acquired all of the capital
stock of Hunter Energy and Technologies Inc. and 1061099 Ontario Inc.
("1061099"), a sister company which owned the land and building leased by Hunter
Energy and Technologies Inc. for its manufacturing operation. This transaction
was accounted for under the purchase method of accounting. The aggregate
purchase price of approximately $1,943,000 included $850,000 in cash, $729,000
in promissory notes payable and $364,000 paid into escrow. Transaction expenses
of $160,000 were incurred. The consolidated results of operations for the 1996
period reflect the operations of the acquisition for the period from the
purchase date, February 1, 1996, through March 30, 1996.
Sales of home heating products and, in particular, gas and solid fuel
heaters (other than fireplaces), historically have been seasonal in nature,
with sales being directly affected by weather conditions. In an effort to
better control its production schedule and inventory of finished products in
light of this seasonality, the Company utilizes early booking programs, which
allow the Company to project sales early in the year and plan production
accordingly. In general, the Company takes early booking orders for its heating
products in the first and second quarters and fills the majority of these
orders in the second and third quarters, with fill-in orders being shipped in
the fourth quarter and to a lesser degree in the ensuing first quarter.
RESULTS OF CONTINUING OPERATIONS
The following tables set forth, for the periods indicated, information
derived from the Company's financial statements expressed as a percentage of net
sales together with industry segment information.
9
<PAGE> 11
<TABLE>
<CAPTION>
13-Week
Period Ended
--------------------
March 29, March 30,
1997 1996
--------- ---------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 81.8 78.0
----- -----
Gross profit 18.2 22.0
Operating expenses:
Selling 14.6 13.6
General and administrative 9.6 10.9
Non-cash ESOP compensation expense 3.3 4.9
----- -----
Operating loss (9.3) (7.4)
Interest expense, net .2 .1
----- -----
Loss from continuing operations before income taxes (9.5) (7.5)
Credit for income taxes (4.0) (2.3)
----- -----
Loss from continuing operations (5.5)% (5.2)%
===== =====
</TABLE>
<TABLE>
<CAPTION>
Segment Information
-------------------------
13-Week
Period Ended
-------------------------
March 29, March 30,
1997 1996
--------- ---------
(In Thousands)
<S> <C> <C>
Net sales:
Home heating products $ 10,006 $ 10,574
Leisure and other products 5,899 4,821
-------- --------
$ 15,905 $ 15,395
======== ========
Gross profit:
Home heating products $ 1,573 $ 2,511
Leisure and other products 1,325 872
-------- --------
$ 2,898 $ 3,383
======== ========
Segment contribution (loss):(1)
Home heating products $ (159) $ 841
Leisure and other products 735 445
-------- --------
$ 576 $ 1,286
======== ========
</TABLE>
(1) Segment contribution consists of gross profit less selling
expenses.
10
<PAGE> 12
13-WEEK PERIOD ENDED MARCH 29, 1997 COMPARED TO 13-WEEK PERIOD ENDED MARCH 30,
1996
Net Sales
Net sales in the 13-week period ended March 29, 1997 increased to $15.9
million from $15.4 million in the 13-week period ended March 30, 1996, an
increase of $510,000, or 3.3%.
Home Heating Products. Net sales of home heating products decreased to $10.0
million in the first quarter of 1997 from $10.6 million in the first quarter of
1996, a decrease of $568,000, or 5.4%. The decrease in net sales of home heating
products was primarily the result of warm weather in certain key markets during
the first quarter of 1997 and a delay in the introduction of the Company's 1997
early booking program.
Leisure and Other Products. Net sales of leisure and other products increased
$1.1 million, or 22.4%, in the first quarter of 1997 to $5.9 million as compared
to $4.8 million in the first quarter of 1996. Net sales of barbecue gas grills
increased $771,000 in the first quarter of 1997 as compared to the first quarter
of 1996 primarily as a result of new model introductions and publicity from a
Broilmaster grill being awarded a "Best Buy" designation by Consumer Digest
magazine. Net sales of utility trailer kits increased $357,000 in the first
quarter of 1997 as compared to the first quarter of 1996.
Gross Profit
Gross profit in the first quarter of 1997 was $2.9 million as compared
to $3.4 million in the first quarter of 1996, a decrease of $485,000, or 14.3%.
Gross margin, defined as gross profit as a percentage of net sales, decreased to
18.2% in the first quarter of 1997 from 22.0% in the first quarter of 1996.
Home Heating Products. Gross profit on net sales of home heating products in the
first quarter of 1997 was $1.6 million as compared to $2.5 million in the first
quarter of 1996, a decrease of $938,000, or 37.4%. The decrease in net sales for
the quarter of 5.4% as discussed above, a shift in sales mix from higher margin
gas heating products to lower margin fireplace products, and a significant
increase in fixed manufacturing costs in the Company's heating product
facilities in anticipation of greater demand for the remainder of 1997 resulted
in the overall decrease in gross profit. Gas heating product net sales,
excluding HEAT, were 35.2% of home heating product net sales in the first
quarter of 1997 as compared to 42.9% in the first quarter of 1996. Net sales of
fireplace products, excluding HEAT, were 61.0% of home heating product sales
during the first quarter of 1997 compared to 53.7% during the first quarter of
1996. The gross profit on gas heating products and fireplace products, excluding
HEAT, during the first quarter of 1997 was 18.3% and 13.8%, respectively.
Leisure and Other Products. Gross profit on net sales of leisure and other
products in the first quarter of 1997 was $1,325,000 as compared to $872,000 in
the first quarter of 1996, an increase of $453,000, or 51.9%. The increase was
primarily the result of the 22.4% increase in net sales discussed above and an
increase in the mix of higher margin gas grill sales in the first quarter of
1997.
Selling Expenses
Selling expenses in the first quarter of 1997 increased to $2.3 million
from $2.1 million in the first quarter of 1996, an increase of $225,000, or
10.7%. Primarily, the increase in selling expenses was
11
<PAGE> 13
attributable to a $105,000 increase in promotion expenses in the home heating
product segment and a $60,000 increase in new product advertising expenses in
the leisure and other products segment.
Segment Contribution
Total segment contribution, defined as gross profit less selling
expenses, decreased to $576,000 in the first quarter of 1997 from $1.3 million
in the first quarter of 1996, a decrease of $710,000, or 55.2%. The decrease was
primarily the result of the 14.3% decrease in gross profit, the 10.7% increase
in selling expenses and other factors discussed above.
General and Administrative Expenses
General and administrative expenses decreased $148,000, or 8.8%, in the
first quarter of 1997 as compared to the first quarter of 1996. The decrease,
offset by a $69,000 increase in design and development expenses, resulted mainly
from a $187,000 decrease in the Company's Supplemental Executive Retirement Plan
("SERP") expense. The decrease in SERP expense in the first quarter of 1997 was
the result of a decrease in the fair value of the Company's common stock from
$11.00 per share at March 30, 1996 to $5.75 per share at March 29, 1997.
Non-cash ESOP Compensation Expense
Non-cash ESOP compensation expense was $529,000 in the first quarter of
1997 as compared to $758,000 in the first quarter of 1996, a decrease of
$229,000, or 30.2%. In the first quarter of 1997, 78,572 shares of unallocated
ESOP stock were committed to be released as compensation at an average fair
value of $6.73 per share as compared to 82,572 shares committed to be released
as compensation at an average fair value of $9.18 per share in the first quarter
of 1996. See discussion of ESOP accounting in Note 3 to Notes to Condensed
Consolidated Financial Statements.
Interest Expense
Interest expense in the first quarter of 1997 was $266,000 as compared
to $246,000 in the first quarter of 1996, an increase of $20,000, or 8.1%. The
increase was attributable to an increase of $1.7 million in average outstanding
debt. The increase in average outstanding debt was the result of the debt
assumed in the acquisition of HEAT on February 1, 1996. As such, the
outstanding debt attributable to the acquisition was in place for a portion of
the first quarter of 1996. This same debt was in place during the entire first
quarter of 1997.
Interest Income
Interest income in the first quarter of 1997 was $238,000 as compared
to $230,000 in the first quarter of 1996, an increase of $8,000, or 3.5%.
Credit for Income Taxes
The credit for income taxes increased to $640,000 in the first quarter
of 1997 from $357,000 in the first quarter of 1996, an increase of $283,000, or
79.3%. The increase was the result of a $345,000 increase in loss from
continuing operations before income taxes to $1,508,000 in the first quarter of
1997
12
<PAGE> 14
from $1,163,000 in the first quarter of 1996. The increase in credit for income
taxes was also the result of an increase in the effective tax rate to 42.4%
during the first quarter of 1997 compared to 30.7% during the first quarter of
1996. The increase in the tax rate is the result of the non-recognition of a tax
benefit on the $265,000 net loss of HEAT during the first quarter of 1996 as
realization of the benefit was not assured at the time.
Loss from Continuing Operations and Loss from Continuing Operations Per Share
The loss from continuing operations in the first quarter of 1997 was
$868,000 as compared to $806,000 in the first quarter of 1996. The increase in
loss from continuing operations was primarily the result of the factors
discussed above.
Loss from continuing operations per share was $0.13 in the first
quarter of 1997 as compared to $0.13 in the first quarter of 1996. The rate of
increase in loss from continuing operations of 7.7% combined with the increase
in the weighted average number of common and common equivalent shares
outstanding of 9.3% resulted in no change in the loss from continuing operations
per share. The increase in weighted average shares outstanding was primarily the
result of stock options exercised and ESOP shares released to participants.
RESULTS OF DISCONTINUED METAL OFFICE FURNITURE OPERATIONS
As a result of the Company's decision to discontinue and dispose of the
metal office furniture operation, an estimated net loss on disposal of $1.4
million was charged to discontinued operations in the fourth quarter of 1996.
The loss includes management's current estimate of the operating losses through
final disposal, the write-downs of inventory and property, plant and equipment
to net realizable value, and the costs to close the plant. As such, the
operations of the metal office furniture segment have been charged against the
reserve during the first quarter of 1997. The loss charged to the reserve in
the first quarter of 1997 was $62,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations in the first
quarter of the year from internally generated funds and seasonal borrowings
under its bank line of credit. The Company's primary capital requirements are
for working capital, debt service, capital expenditures and dividends.
The Company's operations in the 13-week period ended March 29, 1997
used $5.8 million in cash to finance increases in accounts receivable, including
extended term ("dating") receivables, and inventories required to supply the
Company's peak shipping season which occurs primarily in the third and fourth
quarters of each year. The Company's operating cash and bank line of credit were
utilized to provide the funds needed for these working capital requirements,
capital expenditures, long-term debt repayments and dividends for the period.
Historically, the Company's operations for the remainder of the year have
provided the funds required to repay the bank line of credit.
As discussed above, the Company finances temporary working capital
requirements under an unsecured bank line of credit with its principal lender.
The credit agreement provides a line of $20.0 million for a term expiring July
31, 1997. Interest on the line of credit is payable monthly at a variable rate
equivalent to 30-day LIBOR plus 1.25%, which at April 29, 1997 was 6.96875%.
13
<PAGE> 15
FINANCIAL POSITION
Cash and short-term investments in the first quarter of 1997 decreased
$6.8 million as a result of the factors discussed above. Accounts receivable and
inventories in the first quarter increased $708,000 and $4.4 million,
respectively. The increase in accounts receivable was the result of the $5.8
million increase in dating receivables primarily offset by a $4.8 million
other reduction. In an effort to better control its production schedule in
light of the seasonal nature of its home heating product and barbecue gas grill
business, the Company utilizes early booking programs under which customers
receive favorable dating terms for placing their orders early and permitting
the Company to ship the products at "factory convenience."
The increase in inventories was the result of the Company's general
practice of producing gas and solid fuel heaters in the late winter, spring and
summer to supply the typical peak shipping season in the last two quarters of
the year.
During the first quarter of 1997, net property, plant and equipment
increased $310,000, or 2.9%. The increase was the result of $774,000 in capital
expenditures during the quarter offset by depreciation expense.
14
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*3(a) Form of Restated Certificate of Incorporation of
Martin Industries, Inc. which was filed as Exhibit
3(a) to the Registrant's Registration Statement on
Form S-1 filed with the Commission on July 10, 1995
(Registration No. 33-90432).
*3(b) Bylaws of Martin Industries, Inc. which were filed
as Exhibit 3(b) to the Registrant's Quarterly
Report on Form 10-Q filed with the Commission on May
14, 1996 (Commission File No. 0-26228).
*4 Article 4 of the Restated Certificate of
Incorporation of Martin Industries, Inc. which was
included in Exhibit 3(a) to the Registrant's
Registration Statement on Form S-1 filed with the
Commission on July 10, 1995 (Registration No.
33-90432).
**27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period.
- -----------------------------------
*Incorporated by reference
**Filed with electronic filing only
15
<PAGE> 17
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
With the exception of historical information, the matters and
statements discussed, made or incorporated by reference in this Quarterly
Report on Form 10-Q constitute forward-looking statements and are discussed,
made or incorporated by reference, as the case may be, pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve certain assumptions, risks and uncertainties
that could cause actual results to differ materially from those included in or
contemplated by the statements. These assumptions, risks and uncertainties
include, but are not limited to, those associated with general economic cycles;
the cyclical nature of the industries in which the Company operates and the
factors related thereto, including consumer confidence levels, inflation,
employment and income levels, the availability of credit, and factors affecting
the housing industry; the potential in the Company's business to experience
significant fluctuations in quarterly earnings; the Company's business
strategy, including its strategy of pursuing acquisitions and new product
development; potential losses from product liability and personal injury
lawsuits; the effects of seasonality and weather conditions on the Company's
home heating product sales and other sales; fluctuations in quarterly earnings
due to ESOP accounting; the effect of existing and new governmental and
environmental regulations applicable to the Company; the dependence of the
Company on key personnel; the highly competitive nature of each of the
industries in which the Company operates; the volatility of the stock price at
which outstanding shares of the Company may trade from time to time; and the
other risks and uncertainties discussed or indicated in all documents filed by
the Company and with the Commission. The Company expressly disclaims any
obligation to update any forward-looking statements as a result of
developments occurring after the filing of this report.
SIGNATURES
Pursuant to the requirements 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.
MARTIN INDUSTRIES, INC.
Date: May 13, 1997 By /s/ Roderick V. Schlosser
-------------------------- ---------------------------
Roderick V. Schlosser,
Vice President of Finance
and Treasurer
(Executed on behalf of
Registrant and as Principal
Financial Officer)
16
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits Page No.
- ------- ----------------------- --------
<S> <C> <C>
*3(a) Form of Restated Certificate of Incorporation of Martin
Industries, Inc. which was filed as Exhibit 3(a) to the
Registrant's Registration Statement on Form S-1 filed with the
Commission on July 10, 1995 (Registration No. 33-90432).
*3(b) Bylaws of Martin Industries, Inc which were filed as Exhibit
3(b)to the Registrant's Quarterly Report on Form 10-Q
filed with the Commission on May 14, 1996 (Commission File
No. 0-26228).
*4 Article 4 of the Restated Certificate of Incorporation of
Martin Industries, Inc. which was included in Exhibit 3(a) to
the Registrant's Registration Statement on Form S-1 filed with
the Commission on July 10, 1995 (Registration No. 33-90432).
**27 Financial Data Schedule (for SEC use only).
</TABLE>
- --------------------------
*Incorporated by reference
**Filed with electronic filing only
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE FISCAL QUARTER ENDED MARCH 29, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-29-1997
<CASH> 12,486
<SECURITIES> 0
<RECEIVABLES> 18,915
<ALLOWANCES> 424
<INVENTORY> 22,779
<CURRENT-ASSETS> 59,774
<PP&E> 23,675
<DEPRECIATION> 12,590
<TOTAL-ASSETS> 75,943
<CURRENT-LIABILITIES> 17,009
<BONDS> 9,411
0
0
<COMMON> 97
<OTHER-SE> 47,158
<TOTAL-LIABILITY-AND-EQUITY> 75,943
<SALES> 15,905
<TOTAL-REVENUES> 15,905
<CGS> 13,007
<TOTAL-COSTS> 13,007
<OTHER-EXPENSES> 4,373
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> (1,508)
<INCOME-TAX> (640)
<INCOME-CONTINUING> (868)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (868)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
