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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[no fee required, effective October 7, 1996]
For the fiscal year ended DECEMBER 31, 1996
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-26228
MARTIN INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 63-0133054
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(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
301 EAST TENNESSEE STREET, FLORENCE, ALABAMA 35630
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (205) 767-0330
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
NONE NONE
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Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.01
--------------------
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 for 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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by referenced in Part III of this Form 10-K or any
amendment to this Form 10-K.
---
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing.
AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NONAFFILIATES AS OF MARCH 24,
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1997: $27,053,474
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK, $0.01 PAR VALUE, AS OF MARCH 24, 1997: 8,743,895 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
(1) Proxy Statement for 1997 annual meeting of stockholders - Part III.
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PART I
ITEM 1 BUSINESS
GENERAL
The Company is a manufacturer of gas space heaters and is a producer of
gas logs and pre-engineered fireplaces. The Company's gas heating products are
marketed under the Martin Gas Products, Atlanta Stove, Warm Morning and Hunter
brand names, representing over 150 combined years in the gas heating appliance
marketplace. The Company's Ashley brand of wood- and coal-burning stoves is one
of the oldest names in the solid fuel heating industry. Through acquisitions,
the Company has also become a producer of do-it-yourself utility trailer kits
and premium gas barbecue grills. The Company manufactures its products at four
facilities, of which two are located in North Alabama, one is located in
Southwest Illinois and one is located in Southern Ontario, Canada, and markets
its products throughout the United States and parts of Canada through a variety
of distribution channels.
Prior to 1997, the Company manufactured metal office furniture 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 this
business segment to the point of an unacceptable return to the Company.
In July 1995 the Company completed its initial public offering of
2,300,000 shares of Common Stock. On February 1, 1996, the Company completed its
acquisition of Hunter Energy and Technologies Inc. and 1061099 Ontario Inc.
through the direct and indirect purchase of all of the outstanding shares of
these companies. Effective January 1, 1997, these two corporations were
amalgamated to form Hunter Technology Inc. ("HEAT"). HEAT manufactures gas space
heaters and pre-engineered fireplaces at a 100,000 square foot manufacturing
plant located on approximately 12 acres in Orillia, Ontario, Canada.
The Company is incorporated under the laws of the State of Delaware. Its
principal executive offices are located at 301 East Tennessee Street, Florence,
Alabama 35630, and its telephone number is (205) 767-0330. Unless the context
indicates otherwise, all references herein to the "Company" include Martin
Industries, Inc. and its subsidiaries.
The following table presents certain information regarding the Company's
products and brand names by industry segment and shipping and customer
information.
<TABLE>
<CAPTION>
INDUSTRY BRAND PEAK SHIPPING PRINCIPAL CUSTOMER
SEGMENT PRINCIPAL PRODUCTS NAMES MONTHS CATEGORIES
- -------------------- ----------------------------- ------------------ -------------- ------------------------------------
<S> <C> <C> <C> <C>
Home heating products Gas: vented and vent-free gas Martin Gas Products July-November Gas equipment wholesalers, hardware
heater and furnaces Atlanta Stove wholesalers, retailers, liquified
Warm Morning petroleum chains and natural gas
Hunter utilities
Solid fuel: wood- and coal Ashley July-November Hardware wholesalers, dealer
burning heaters and fireplace cooperatives and retailers
inserts
Gas logs Martin Gas Products July-November Gas equipment wholesalers, hardware
Atlanta Stove wholesalers, specialty fireplace
Martin Fireplaces distributors, liquified petroleum
chains and natural gas utilities
Pre-engineered wood- and Martin Fireplaces April-September Specialty fireplace distributors and
gas-burning fireplaces Martin Gas Products dealers, gas equipment wholesalers,
Atlanta Stove hardware wholesalers, retailers,
Hunter liquified petroleum chains and
natural gas utilities
Leisure and other Do-it-yourself utility trailer NuWay March-June Mass merchandisers, wholesale clubs,
products kits mail order catalog houses and farm
equipment supply houses
Premium gas barbecue grills Broilmaster January-March Gas equipment wholesalers and
hardware wholesalers
</TABLE>
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INDUSTRY SEGMENT INFORMATION
The Company's operations by industry segment are presented below. These
segments have been determined based on the type of business and distribution
channel utilized.
<TABLE>
<CAPTION>
Year Ended December 31,
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1996 1995 1994
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<S> <C> <C> <C>
CONTINUING OPERATIONS:
Net sales:
Home heating products $76,413,000 $ 61,618,000 $ 73,102,000
Leisure and other products 13,781,000 14,287,000 12,680,000
----------- ------------ ------------
$90,194,000 $ 75,905,000 $ 85,782,000
=========== ============ ============
Gross profit:
Home heating products $22,284,000 $ 18,464,000 $ 24,131,000
Leisure and other products 2,576,000 2,328,000 2,139,000
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$24,860,000 $ 20,792,000 $ 26,270,000
=========== ============ ============
Segment contribution(1):
Home heating products $14,804,000 $ 12,986,000 $ 17,914,000
Leisure and other products 1,001,000 1,135,000 1,055,000
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$15,805,000 $ 14,121,000 $ 18,969,000
=========== ============ ============
Identifiable assets:
Home heating products $31,097,000 $ 19,681,000 $ 18,584,000
Leisure and other products 4,724,000 4,684,000 4,303,000
----------- ------------ ------------
$35,821,000 $ 24,365,000 $ 22,887,000
=========== ============ ============
DISCONTINUED OPERATIONS:
Net sales $16,516,000 $ 21,420,000 $ 17,792,000
Gross profits $ 1,851,000 $ 3,965,000 $ 2,784,000
Segment contribution(1) $ 99,000 $ 2,162,000 $ 1,236,000
Identifiable assets $ 9,346,000(2) $ 11,872,000 $ 10,154,000
- -------------------
</TABLE>
(1) Segment contribution consists of gross profit less selling expenses.
(2) Represents Property, Plant and Equipment - $1,294,000; Accounts
Receivable - $5,019,000; and Inventory - $3,033,000.
PRODUCTS
Home Heating Products. Home heating products represent the largest
segment of the Company's business, contributing $76.4 million, or 84.7%, of net
sales of continuing operations in 1996. The Company manufactures a broad line of
vented and vent-free gas heaters and furnaces under the Martin Gas Products,
Atlanta Stove, Warm Morning and Hunter brand names and a variety of models of
gas logs and pre-engineered fireplaces under the Martin Gas Products, Martin
Fireplaces, Atlanta Stove and Hunter brand names.
In 1996, the Company produced 29 models of vent-free room heaters. These
products are designed to heat with natural gas or liquified petroleum and to
provide for the complete combustion of by-products released in the
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burning process. The Company's vent-free gas heating products are designed to be
99.9% fuel efficient and do not draw heat away by a vent or flue, which
contributes to their being a relatively inexpensive supplemental heating source.
The consumer is able to use the product in areas where a vented heater or
wood-burning fireplace would be impossible or impractical, such as in the middle
of a room. The Company also believes that its vent-free gas products are more
environmentally friendly than traditional solid fuel-burning heaters and
fireplaces because they produce no smoke, soot, ash or other by-products
associated with the burning of solid fuels such as wood and coal. For consumer
safety, the Company's vent-free gas heating products utilize an oxygen depletion
sensor that automatically stops the heater's operation if oxygen falls below
acceptable levels. The products also feature matchless ignition systems and are
design-certified by the American Gas Association ("AGA"), which is now under the
umbrella of the International Approval Service ("IAS").
In 1992, the Company introduced its current line of vent-free infrared
gas space heaters. These products provide radiant heat rather than convection
and are designed to heat objects instead of air. In 1996, the Company introduced
blue flame vent-free room heaters. These products heat by convection and are
designed to heat surrounding air. Gross sales of vent-free room heaters were
$11.2 million, $12.0 million and $13.7 million in 1996, 1995 and 1994,
respectively, which represented 11.9%, 15.2% and 15.3% of total gross sales of
continuing operations in the respective periods. In 1994, the Company introduced
a line of free-standing, vent-free heaters sold under the "Illusion," "Freedom"
and "Solitaire" product names through the distribution channels associated with
the Company's Martin Gas Products, Martin Fireplaces and Atlanta Stove product
lines, respectively. Featuring six vent-free gas logs in an enclosed unit, these
vent-free stoves offer the aesthetic appeal of traditional heating stoves and
the efficiency and flexibility of vent-free gas heaters.
The Company also manufactures and markets a variety of vented room
heaters, direct-vent wall furnaces, wall furnaces and floor furnaces under the
Martin Gas Products, Atlanta Stove, Warm Morning and Hunter brand names. Like
its vent-free heating appliances, the Company's vented gas heaters are
fabricated primarily from steel and burn natural gas or liquified petroleum;
however, by-products of combustion are removed from the heated area through a
vent. These heaters are produced in a number of sizes and styles and offer a
variety of features. Gross sales of vented heaters were $10.0 million, $9.0
million and $11.5 million in 1996, 1995 and 1994, respectively, which
represented 10.7%, 11.4% and 12.9% of total gross sales of continuing operations
in the respective periods.
For over 90 years, the Company has manufactured wood- and coal-burning
heating appliances. Today, the Company manufactures and markets several models
of wood- and coal-burning free-standing heaters and fireplace inserts. The
Ashley brand name is one of the oldest and, the Company believes, most well
recognized names in the solid fuel heating industry. With the introduction of
emissions standards on wood heaters by the EPA in 1988, manufacturers in the
wood heater industry were compelled to make rapid advancements in product
design. This led the Company to introduce catalytic technology in its wood
heater line, which utilizes catalytic combustors to increase efficiency by
subjecting the wood smoke to a secondary burning process. Prior to 1997, the
Company also marketed solid fuel heaters under the King brand name. In 1997, the
Company elected to discontinue marketing its King brand of solid fuel heating
appliances.
In 1996, the Company manufactured 27 models of vent-free gas logs. In
1993, the Company introduced its current series of vent-free gas logs and
vent-free fireplaces. The vent-free logs sold for installation in existing
masonry fireplaces and can be combined with the Company's pre-engineered
fireplaces. The logs are designed to have an authentic wood texture, are
manufactured from high-quality non-flammable ceramic material and feature a
technically-advanced burner that produces an enhanced flame pattern to give a
more realistic wood fire effect. Like the Company's other vent-free heating
products, the Company's vent-free gas log sets and vent-free fireplaces are
designed to heat without the need for a chimney flue or venting, which allows
them to be used where a traditional wood-burning fireplace would not be
possible. All vent-free logs are designed to be 99.9% fuel efficient and, like
the Company's other vent-free heating products, are equipped with an oxygen
depletion sensor, utilize an automatic ignition system and are design-certified
by the AGA/IAS.
The Company manufactures and distributes its fireplaces in a range of
prices for each of the common fuel categories (i.e., wood and gas logs that burn
natural gas or liquified petroleum) and in a wide variety of designs. Depending
on the style, the firebox of a fireplace may be lined with a realistic firebrick
design made of ceramic refractory material. Because these fireplaces are
prefabricated and shipped to consumers as a unit, contractors can
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install them more easily and at a lower cost than is the case with traditional
masonry fireplaces. In addition, because these fireplaces utilize a metal flue
instead of a masonry chimney, they offer enhanced installation flexibility.
Gross sales of fireplaces were $23.5 million, $17.4 million and $19.6 million in
1996, 1995 and 1994, respectively, which represented 25.0%, 22.0% and 22.0% of
total gross sales of continuing operations in the respective periods.
The Company either manufactures or purchases from other sources for use
in conjunction with its fireplace products certain essential components or
optional enhancements such as glass doors, blower kits, outside air kits,
screens and grates. Many of these items are incorporated into the fireplace
units during assembly, depending upon customer specifications. The Company also
purchases from outside sources optional enhancements such as simulated marble
trim packages, mantel kits and pre-finished fireplace enclosures.
Leisure and Other Products. In 1988, the Company acquired NuWay
Manufacturing Company, a manufacturer of do-it-yourself utility trailer kits. As
a result, the Company produces several models of unassembled metal trailer kits.
In 1995, the Company introduced a trailer kit that is 85% pre-assembled. The
Company's trailers comply with Department of Transportation requirements for
highway use and can be used for a variety of light cargo transportation
purposes.
In 1990, as part of its acquisition of certain assets of Locke Home
Products, the Company acquired its Broilmaster line of premium gas barbecue
grills. The Company manufactures and markets a number of models of its
Broilmaster grills with premium features such as deep bottom aluminum castings
to minimize flare-ups, adjustable porcelain-coated cast iron cooking grids and a
patented stainless steel burner for even heat distribution. The Company produces
grills for use with liquified petroleum as well as natural gas. In 1996, one of
the Company's Broilmaster models won the Consumers Digest Best Buy Award. Also,
in 1996, the Company introduced a stainless steel grill and a smoker/roaster
grill.
Metal Office Furniture. On February 24, 1997, the Company announced that
it had elected to discontinue operations of its metal office furniture segment.
The Company currently expects to cease production of these products in April
1997. The Company originally planned to redeploy all of the plant assets
associated with the metal office furniture facility into manufacturing its
existing core products or for acquired product lines; however, the Company
currently is attempting to sell its Filex brand name and the equipment
specifically related to the production of Filex products. There can be no
assurance, however, that the Company will be able to sell its Filex brand name
and associated equipment or, if the sale does not occur, that the Company will
be able to redeploy the plant assets associated with the metal office furniture
segment as originally planned.
PRODUCT DEVELOPMENT
The Company's business strategy involves commitment to the development of
new products and enhancements to the Company's existing products. In the last
five years, this commitment has resulted in the development of new products
which, including accessories, accounted for approximately 26.0% of the Company's
gross sales of continuing operations in 1996. These new products consist of
infrared and blue flame heaters, vent-free logs, vent-free fireplaces and
free-standing vent-free stoves. The Company's development program resulted in
the introduction in the fourth quarter of 1994 of the first in a series of new
direct-vent fireplaces, including a unit approved for installation in
manufactured homes, and a line of direct-vent gas heaters redesigned to make
them less expensive, more attractive and easier to install. Through the
purchase of HEAT, the Company also acquired a number of newly developed gas
heating products, including a patented gas-fired, direct vent baseboard heater
that was developed in conjunction with the Canadian Gas Research Institute and
several Canadian utility companies. The Company has recently undertaken to
make certain design changes in its baseboard heaters and has temporarily ceased
shipping this product in the meantime. The Company does not currently expect
this to have a material adverse effect on the financial condition or results of
operations of the Company. However, there can be no assurance that an extended
delay in production would not have such a material adverse effect. The
Company's investment in research and development totaled $1.8 million in 1996,
an increase of 12.5% over the prior year. This was the largest research and
development budget in Company history.
An integral part of the Company's development program is its use of
structured product development teams that include engineering, manufacturing and
marketing personnel and a planning committee consisting of senior management to
select products for development. The product development teams determine design
specifications and production requirements and develop prototypes of potential
new products and product enhancements. The marketing department provides
guidance on areas ranging from consumer interest in potential new products and
enhancements to product design. The Company also focuses on regulatory and
product standard changes in order to meet new requirements. The Company is
assisted in this focus by Company employees who serve on subcommittees and task
forces responsible for developing product standards applicable to the Company's
products,
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including the American National Standards Institute ("ANSI") subcommittees on
vented and vent-free gas heaters and decorative appliances, the vent-free task
force of the Gas Appliance Manufacturers Association ("GAMA") and the
Underwriters Laboratories standards committee for fireplaces.
The Company's engineering department consists of 23 employees, including
six product engineers. Using tools such as computer aided design ("CAD")
equipment, including Pro-Engineer, the engineering department refines new
product and product enhancement concepts. Product prototypes are tested at the
Company's on-site test facilities, which are equipped to conduct tests necessary
to ensure compliance with governmental safety and efficiency standards.
Following performance validation testing, if the Company decides to manufacture
a new product, the Company's engineering, manufacturing, quality and marketing
departments work together through pilot production where final design
modifications are made and production plans are implemented. Field and/or
internal performance reliability testing are conducted as required with respect
to product quality, durability and safety prior to the product's release for
regular production.
MANUFACTURING AND QUALITY ASSURANCE
The Company manufactures its products for its continuing operations at
four plants, two of which are located in North Alabama, one of which is located
in Southwest Illinois and one of which is located in Southern Ontario, Canada.
The following table indicates the facilities at which the Company presently
manufactures its products.
<TABLE>
<CAPTION>
Athens, Huntsville, Washington Park, Orillia,
Product Alabama Alabama Illinois Ontario
- ------------------------------- --------------------- ------------------ ------------------- ---------------------
<S> <C> <C> <C> <C>
Gas heating products X X X X
Solid fuel heating products X
Gas logs X X
Fireplaces X X
Utility trailer kits X
Barbecue grills X
</TABLE>
Each of the Company's plants maintains a variety of metal fabrication
equipment, including extensive shearing, press and metal forming and welding
equipment, paint systems, machine shops, maintenance equipment, warehouse space,
shipping and receiving departments, and computerized materials requirements
planning ("MRP"), production and inventory control systems. Assembly of products
is accomplished by use of conveyor lines and individual work stations.
The Company's manufacturing processes are designed to have products
available to meet customer demand without carrying unduly high inventories.
Annual master production plans are developed for each plant and are reviewed and
adjusted by senior management on a regularly scheduled basis and as customer
demand warrants. The master production plans are processed bi-weekly by the
respective plants. Each plant receives individual MRP and capacity planning
reports that are used to request raw materials (quantity and delivery dates),
develop departmental schedules and project manpower and production requirements
to accomplish the master plans.
The principal materials used in the production of the Company's products
include aluminized, galvanized, stainless, hot-rolled and cold-rolled steel,
cast iron, valves, controls, burners, paint and other finishing materials and
packaging. All raw materials used in finished products are obtained by the
central purchasing department. The Company is not a party to any long-term
supply contracts which are material to its business. Management believes that
the materials used in the production of the Company's products are available at
competitive prices from an adequate number of alternative suppliers and does not
believe that the loss of any single supplier would have a material adverse
effect on the Company's business. Because the Company is dependent upon outside
suppliers for all of its raw material needs, however, no assurance can be given
that the Company will continue to have available necessary raw materials at
reasonable prices or that any increases in raw material costs would not have a
material adverse effect on the Company's financial condition or results of
operations.
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Fireplaces, gas grills and utility trailers are typically shipped from
the manufacturing plant to the Company's customers. All other home heating
products are shipped from the manufacturing plant to the Company's central
warehouse located in Huntsville, Alabama via Company trucks. Shipments to gas
and wood heating customers are made from the central warehouse and are scheduled
by the customer service department through the use of a computerized product
tracking system, allowing the Company to inform customers of product
availability and facilitating timely shipment of orders. These programs also
help reduce outbound freight costs by taking advantage of load-pooling and
combination loading.
A primary emphasis of the Company's manufacturing process is quality
control. The Company believes that it maintains a comprehensive quality
assurance program. In addition to self-imposed quality standards, the Company's
products are also subject to independent standards for safety, construction,
instruction, efficiency, packaging, operation and emissions. In the case of gas
heating appliances, for example, the Company's products must meet standards
established by the ANSI, the AGA/IAS, the U.S. Department of Energy and the
National Fire Protection Agency. See "- Governmental Regulations" below.
The Company offers warranties which vary with each product line and are
typical of those within the Company's industries. The Company's warranties
generally provide for repair or replacement of failed parts or components. In
addition, warranties for gas heaters and gas logs offer a schedule of labor
allowances. Warranty service is typically performed by the Company or an
authorized dealer, distributor or service center. The Company's warranty
expenses in 1995 and 1996 were $794,000 and $1,327,000, respectively.
SALES AND MARKETING
The Company markets its products through a variety of distribution
channels, including retail stores that sell directly to the consumer;
wholesalers that typically offer a wide variety of products for resale to
retailers; specialty fireplace distributors that usually offer a limited variety
of products for resale to retailers and builders and often provide installation
of the product; specialty fireplace dealers; hardware dealer cooperatives, which
are associations of retailers formed to benefit from large quantity purchasing;
liquified petroleum and natural gas fuel suppliers; farm equipment supply
stores; mail order catalog houses; wholesale clubs that sell to a membership
consisting of both consumers and commercial purchasers; and a variety of
regional and national retail chains and mass merchandisers. The Company's
products are marketed through several divisions, each of which is focused on
specific channels of distribution. Similar home heating products are offered
under different brand names through different divisions and the distribution
channels associated therewith. For example, identical vent-free gas logs are
marketed to distinct customers through three divisions under the Martin Gas
Products, Atlanta Stove and Martin Fireplaces brand names. Although certain of
the Company's brands of home heating products may overlap in terms of features,
each will typically have its own brand image and customer base.
Sales of the Company's gas and solid fuel heating appliances are
concentrated in the eastern half of the United States and in Canada. The Company
sells its Martin Gas Products and Warm Morning gas heating products through gas
equipment wholesalers, hardware wholesalers and retailers and its Atlanta Stove
gas heating products through gas equipment wholesalers, retailers, liquified
petroleum chains and natural gas utilities. The Company's solid fuel heating
appliances are sold principally to wholesale hardware distributors, dealer
cooperatives and retailers. The Company sells its fireplace products throughout
the United States and Canada. Most of the Company's fireplace products are sold
through specialty distributors that resell to retailers as well as directly to
builders, often on an "installed" basis using the distributor's own installation
crews.
NuWay utility trailer kits are sold through a national network of mass
merchandisers, wholesale clubs, catalog houses and farm equipment supply houses.
The Company's premium gas barbecue grills are marketed through gas equipment
wholesalers and hardware wholesalers.
The Company employs a sales staff of 62 field sales and support
personnel, including 14 full-time Company employees identified as factory
representatives who receive a base salary and commissions, and also utilizes 32
independent manufacturers' agencies, which work on a commission basis and in
many cases have several salesmen representing the Company's products. Although
most manufacturers' representatives utilized by the Company also
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sell products other than those produced by the Company, none sell products in
direct competition with those of the Company. The Company's sales force covers
the United States and Canada, with field sales personnel generally living in or
near the sales territories for which they are responsible. The Company holds
regular regional and national sales meetings at which product development
sessions, performance reviews and planning workshops are conducted. All field
sales efforts for the Company are supported by a sales and marketing staff of 48
people located at the Company's corporate headquarters.
The Company promotes its products principally through direct contact with
its customers, published sales programs, participation in numerous national and
regional trade shows and print advertising. A majority of the Company's media
advertising is through trade publications. The Company maintains an in-house
media buying service as well as extensive printing capabilities.
The Company has developed its distribution channels in its gas heating
appliance business over a 50-year period and in its solid fuel heating business
over a 90-year period. To maintain its relationships with its distributors,
members of management and the Company's sales staff visit the Company's
customers on a regular basis. The Company believes that frequent personal
contact contributes significantly to its ability to attract and maintain quality
distributors. The Company also believes that customer service is integral to its
marketing efforts and has invested significant resources in overhauling its
approach to customer service over the past several years, with the objective of
responding more quickly and accurately to customer inquiries.
The Company holds registered and unregistered trademarks including
"Martin Industries," "Martin," "Warm Morning," "Ashley," "King," "Broilmaster"
and "Hunter," among others. Several of the Company's trademarks are registered
with the United States Patent and Trademark Office.
BACKLOG
The Company's backlog is based upon customer purchase orders that the
Company believes are firm. At December 31, 1996, the Company's backlog of orders
was approximately $7.5 million, as compared to a backlog of $5.1 million at
December 31, 1995. While backlog volume generally indicates the production
levels at which the Company will operate at any particular time, it is not
usually indicative of sales for a full year or future operating performance.
This is due primarily to the seasonal nature of the Company's business and its
use of early booking programs for its gas and solid fuel heating appliances and
premium gas barbecue grills. Orders under these programs often represent
approximately 60% of the customer's projected annual requirements and, because
of program terms, the shipping period often extends over several months. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview," at Item 7 below.
COMPETITION
Each of the industries in which the Company manufactures and sells
products is highly competitive. Although competitive factors vary by product
line, competition in all product lines is based primarily on product quality,
product innovation, customer service and price. The Company also believes that a
manufacturer's relationship with its distributors is a key factor in the
industries in which the Company competes.
The Company competes with a number of manufacturers in the home heating
products industry. Within this industry, there are several large manufacturers
of gas heaters and numerous producers of gas logs, pre-engineered fireplaces and
solid fuel heaters.
There are a number of manufacturers producing pre-engineered fireplaces,
gas logs and related accessories similar to those produced by the Company. The
pre-engineered fireplace market is the largest market in which the Company
participates and is very competitive, with eight principal manufacturers
comprising a large portion of this industry. Over the last two years, a number
of additional manufacturers have joined the already highly competitive gas log
market.
The Company's principal competitor in the do-it-yourself utility trailer
market is a Taiwanese manufacturer. Although there are numerous manufacturers of
pre-assembled utility trailers, because of the difficulty in shipping
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pre-assembled trailers in large quantities, these products do not tend to
compete with the Company's NuWay products on a national basis. The Company
believes that its premium Broilmaster grills compete principally with products
produced by three major manufacturers. Brand recognition and product quality
play essential roles in the competitive marketing of this product.
EMPLOYEES
At March 24, 1997, the Company had 902 full-time and 5 part-time
employees. The Company also from time to time utilizes temporary employees in
its operations and in 1996 the number of temporary employees ranged from 57 to
277. The hourly employees located at the Company's plant in Orillia, Ontario are
subject to a collective bargaining agreement with the Company. No other
employees of the Company are subject to a collective bargaining agreement with
the Company. In April 1997, the employment of approximately 200 full-time
employees will cease in connection with the discontinuance of the Company's
metal office furniture business. The Company believes that its employee
relations are good.
GOVERNMENTAL REGULATIONS
A substantial number of the products manufactured by the Company must
comply with federal, state and local laws, regulations and standards. In Canada,
products manufactured by the Company must comply with federal, provincial,
territorial and local laws, regulations and standards. These laws, regulations
and standards relate, among other things, to product safety, construction,
instruction, efficiency, packaging, installation, operation and emissions. The
Company's gas and solid fuel heating appliances and gas grills sold in the
United States must comply with standards established by ANSI and AGA/IAS. All
gas-fired and solid-fuel appliances manufactured by the Company for sale in the
United States must also comply with the standards for performance of the
National Fire Protection Association. All gas-fired vented heaters and furnaces
manufactured for sale in the United States further must comply with the
standards for minimum efficiency for direct heating appliances established by
the National Appliance Energy Conservation Act, and the Company's wood-burning
heaters must comply with the standards for performance for residential wood
heaters established by the United States Environmental Protection Agency. The
Company's pre-engineered fireplaces and solid fuel heating appliances sold in
the United States must meet standards established by Underwriters' Laboratories.
The Company's gas heating appliances manufactured for sale in Canada must comply
with standards developed by the Canadian Gas Association (the "CGA") under the
umbrella of the IAS. The CGA/IAS is accredited by the Standards Council of
Canada to prepare National Standards in Canada for natural gas and propane
equipment. In the province of British Columbia, gas appliances may be certified
only by the provincial gas safety authority to provincial standards for sale in
British Columbia only.
The Company maintains facilities and equipment for testing the Company's
products for compliance with these and other laws, regulations and standards
applicable to the Company's products. These laws, regulations and standards
generally require that all compliance testing either be performed by an
independent testing agency at the agency's laboratories or witnessed by an agent
of the independent testing agency at the Company's facilities. The Company
utilizes both alternatives for compliance testing.
Many state and local governments in the United States have adopted and
have in place building codes regulating the installation of certain of the
Company's home heating products. These building codes are based generally upon
one or more of the model codes drafted by three regional associations: the
Building Officials and Code Administrators International, Inc. ("BOCA"), the
International Conference of Building Officials, Inc. ("ICBO") and the Southern
Building Code Congress International, Inc. ("SBCCI"). The current model code
produced by ICBO, which has historically been the basis for building codes
adopted in Alaska, California, Colorado, Massachusetts, Montana, New York, Utah,
Washington and Wisconsin, prohibits installation of vent-free gas heaters. The
model codes of BOCA and SBCCI do not contain this prohibition, but do regulate
where such heaters may be installed within a structure and certain other aspects
of the product. In 1996, the International Code Council (the "ICC"), a body
formed by BOCA, ICBO and SBCCI to produce a model building code to be proposed
for adoption by all states and localities, released its model code. This uniform
model code reflects the historical position of BOCA and SBCCI allowing the
installation of vent-free gas heaters. However, there can be no assurance that
the current version of the ICC model code regarding the Company's products will
be the position contained in the version ultimately adopted by the ICC members,
or that individual states and localities will adopt the ICC model code.
8
<PAGE> 10
Provincial, territorial and local governments in Canada have adopted and
have in place building codes regulating building construction. These building
codes are based generally upon a model code, the National Building Code of
Canada. This code is produced by the Canadian Commission on Building and Fire
Codes. In the Province of Ontario, the Ministry of Housing regulates
construction under the Ontario Building Code. Vent-free gas appliances are only
permitted for sale in the provinces of British Columbia and Manitoba. The sale
of these appliances is restricted to a maximum gas input and is restricted to
certain rooms in a residence.
The Company believes that the products which it currently produces and
sells are in compliance in all material respects with the laws, regulations and
standards applicable to such products. Nevertheless, no assurance can be given
as to the impact of future governmental regulations and product standards on the
Company's operations, or the future capital expenditure requirements or the
costs of compliance associated therewith, nor can any assurance be given that
future governmental regulations or product standards will not have a material
adverse effect on the Company. Further, in the event that national or regional
building codes are drafted in the future which prevent or restrict the
installation of, or require modification to, certain gas heaters or other
products manufactured by the Company, or if individual federal, state,
territorial, provincial or local governmental entities or agencies adopt their
own codes to such effect, these events could have a material adverse effect on
the financial condition or results of operations of the Company.
ENVIRONMENTAL MATTERS
Manufacturing concerns such as the Company involve operations that are
subject to numerous federal, state, provincial and local laws, regulations and
standards relating to human health and safety and the environment. In the United
States, the Clean Air Act, the Clean Water Act, and similar state and local
counterparts of these federal laws regulate air and water emissions and
discharges into the environment. The Resource Conservation and Recovery Act and
the Comprehensive Environmental Response, Compensation and Liability Act, among
other federal, state and local laws, address the generation, storage, treatment,
handling, transportation and disposal of solid and hazardous waste and releases
of hazardous substances into the environment. In Canada, the Canadian
Environmental Protection Act and provincial environmental protection
legislation, along with local laws, regulate a similar range of environmental
issues. The Company's manufacturing operations require compliance with these
environmental laws and regulations, among others, as well as the workplace
safety and health standards established by the Occupational Safety and Health
Acts in both countries. Under these environmental laws and regulations, third
parties and governmental agencies in some cases have the power to require
remediation of environmental conditions and, in the case of governmental
agencies, to impose fines and penalties.
Several of the facilities currently and previously owned or operated by
the Company are located in industrial areas and have historically been used for
extensive periods, in some cases dating back to the turn of the century, for
industrial operations such as dyeing, foundry, petroleum, painting, plating,
textile and manufacturing. These historic operations have used materials and
generated wastes that would be considered to be regulated substances under
current environmental laws. Prior to the enactment of modern environmental laws
and regulations, industrial operations took fewer precautions relative to the
generation, handling, storage, treatment, disposal and release of substances now
known or believed to threaten human health and safety or the environment. The
Company has implemented recordkeeping and management practices and procedures in
order to help ensure compliance with applicable environmental laws and
regulations. Each plant has personnel responsible for environmental compliance
that work closely with the Company's corporate director of environmental
management. The corporate director of environmental management assists these
personnel by supplying technical advice and guidance in interpreting
regulations, transfers of technology, procedures and obtaining permits. The
Company believes that it is currently in compliance in all material respects
with these laws and regulations. Nevertheless, given the foregoing
circumstances, there can be no assurance that past operations at or near the
Company's presently or previously owned or operated facilities or the Company's
present or future operations will not necessitate action by the Company or give
rise to actions by governmental agencies or private parties that could cause the
Company to incur response costs, fines, penalties or other liabilities, damages
or expenses, or incur operational shut-downs, business interruptions or other
similar losses that either individually or in the aggregate would have a
material adverse effect on the Company's financial condition or results of
operations.
9
<PAGE> 11
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in a single story
facility in Florence, Alabama, consisting of 50,000 square feet. The Company's
engineering center, also in Florence, is located in a separate facility,
consisting of 20,000 square feet. In Huntsville, Alabama, the Company has two
facilities, the Huntsville plant, a 250,000 square foot facility which produces
certain gas and solid fuel heating products and NuWay utility trailer kits, and
the Huntsville warehouse, a 210,000 square foot facility which provides
additional warehousing space for the Company's gas and solid fuel heating
products. The Athens, Alabama plant is a 300,000 square foot facility which
produces certain of the Company's gas heating products and pre-engineered
fireplace products. The Washington Park, Illinois plant is a 120,000 square
foot facility where the Company manufactures its Broilmaster gas grills, gas
logs and certain of the Company's gas heaters. The Company's plant in Orillia,
Ontario, Canada is a 100,000 square foot facility which produces certain of the
Company's gas heating products and pre-engineered fireplace products. The
Company's Sheffield, Alabama plant is a 236,000 square foot facility at which
the Company manufactured its metal office furniture prior to discontinuing this
business segment. The Company currently leases its corporate headquarters and
its Athens manufacturing facility pursuant to lease agreements associated with
the industrial development financing arrangements utilized to acquire and
develop these properties. Although the debt associated with these properties
has been retired, the Company has continued to hold these facilities subject to
the lease arrangements in order to receive certain tax benefits. Each property
may be purchased at the Company's option for a nominal amount. Other than these
two properties, the Company owns all of its major facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in various pending and
threatened legal actions, including matters arising out of employment
relationships and product liability and other personal injury lawsuits relating
to its products, that arise in the ordinary course of its business. In the
opinion of the Company's management, the outcomes of the currently known pending
and threatened legal actions and proceedings are not presently expected to have
a material adverse effect on the financial condition or results of operations of
the Company; however, the ultimate resolution of these matters, which could
occur within one year, could result in losses in excess of current estimates.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the
Company, through the solicitation of proxies or otherwise, during the fourth
quarter of the fiscal year ended December 31, 1996.
10
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In January and April 1996, the Company declared regular quarterly cash
dividends of $.036 per share. In July 1996, the Board of Directors of the
Company established a policy of declaring quarterly cash dividends of $.038 per
share on the Common Stock. The Company declared regular quarterly cash dividends
of $.038 per share in July and October 1996, for a total of $.148 in per share
dividends declared in 1996. The Company declared cash dividends of $.393 per
share in 1995 and $.090 per share in 1994. The future payment of dividends,
however, will be within the discretion of the Board of Directors of the Company
and depend on the Company's profitability, capital requirements, financial
condition, growth, business opportunities and other factors which the Board of
Directors may deem relevant. In addition, the Company's credit agreement with
its primary lender (the "Amended Credit Agreement") restricts the payment of
cash dividends by the Company if such payment would cause the Company to fail to
meet certain financial covenants as stated in the Amended Credit Agreement. In
particular, one of the financial covenants in the Amended Credit Agreement
requires that the Company's net worth each year as of December 31 be at least
equal to its net worth as of December 31, 1994, plus the net proceeds received
by the Company in its initial public offering, plus fifty percent (50%) of the
Company's net income for each fiscal year after December 31, 1994. The Company
currently does not believe that these restrictions in the Amended Credit
Agreement will materially limit the Company's ability to pay currently
anticipated quarterly cash dividends.
The Company's Common Stock began trading on The Nasdaq Stock Market's
National Market on July 13, 1995. As of March 24, 1997, the Company had 138
stockholders of record. This number excludes individual stockholders holding
stock under nominee security position listings. The closing price of the Common
Stock on The Nasdaq Stock Market's National Market on March 24, 1997 was $5.75.
The prices in the table below represent the high and low sales prices for the
Company's Common Stock as reported on the National Market.
<TABLE>
<CAPTION>
Fiscal 1996
-----------------------
High Low
----------- ----------
<S> <C> <C>
First Quarter $ 11 $ 7 9/16
Second Quarter $ 11 1/2 $ 9
Third Quarter $ 9 1/8 $ 7
Fourth Quarter $ 8 $ 6
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1995
-----------------------
High Low
---------- ---------
<S> <C> <C>
Third Quarter (Beginning on July 13, 1995) $ 12 3/4 $ 9
Fourth Quarter $ 10 1/2 $ 8
</TABLE>
11
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA.
The selected statements of operations data, per share data and balance
sheet data for the five years ended December 31, 1996 set forth below have been
derived from the consolidated financial statements of the Company, which
statements have been audited by Arthur Andersen LLP, independent public
accountants. The following data should be read in conjunction with the
consolidated financial statements of the Company and notes appearing elsewhere
in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ----------- ----------- ----------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales $ 90,194 $ 75,905 $ 85,782 $ 73,218 $ 60,466
Cost of sales 65,334 55,113 59,512 53,949 44,885
---------- ----------- ----------- ----------- ------------
Gross profit 24,860 20,792 26,270 19,269 15,581
---------- ----------- ----------- ----------- ------------
Operating expenses:
Selling 9,055 6,671 7,301 6,504 5,961
General and administrative 6,733 4,887 5,253 4,895 4,809
Non-cash ESOP compensation(1) 2,812 2,850 1,824 1,092 0
---------- ----------- ----------- ----------- ------------
18,600 14,408 14,378 12,491 10,770
---------- ----------- ----------- ----------- ------------
Operating income 6,260 6,384 11,892 6,778 4,811
Interest expense 473 539 1,252 1,681 475
---------- ----------- ----------- ----------- ------------
Income from continuing operations
before income taxes 5,787 5,845 10,640 5,097 4,336
Provision for income taxes 2,592 2,624 4,256 2,166 1,552
---------- ----------- ----------- ----------- ------------
Income from continuing operations 3,195 3,221 6,384 2,931 2,784
Income (loss) from discontinued
operations, net of tax 62 1,349 771 851 (122)
Loss on disposal of discontinued
operations, net of tax (1,430) 0 0 0 0
---------- ----------- ----------- ----------- ------------
Income (loss) from discontinued
operations (1,368) 1,349 771 851 (122)
---------- ----------- ----------- ----------- ------------
Net income $ 1,827 $ 4,570 $ 7,155 $ 3,782 $ 2,662
========== =========== =========== =========== ============
Per Share Data:
Income from continuing operations $ 0.47 $ 0.62 $ 1.75 $ 0.93 $ 0.45
Income (loss) from discontinued
operations (0.20) 0.26 0.21 0.27 (0.02)
---------- ----------- ----------- ----------- ------------
Net income(2) $ 0.27 $ 0.88 $ 1.96 $ 1.20 $ 0.43
---------- ----------- ----------- ----------- ------------
Weighted average common and
common equivalent shares
outstanding(2) 6,772,191 5,204,254 3,655,645 3,155,110 6,164,550
Cash dividends $ 0.15 $ 0.39 $ 0.09 $ 0.00 $ 0.22
Other Data:
Income from continuing operations
before non-cash ESOP compensation
expense, depreciation and
amortization, interest and taxes(3) $ 10,695 $ 10,254 $ 14,592 $ 8,695 $ 5,725
Capital expenditures $ 2,798 $ 2,181 $ 1,266 $ 552 $ 681
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- ------------ ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and short-term investments $ 19,326 $ 20,439 $ 3,630 $ 6,349 $ 34
Working capital $ 44,906 $ 43,305 $ 20,158 $ 12,811 $ 9,875
Total assets $ 76,344 $ 63,582 $ 42,104 $ 39,471 $ 30,501
Long-term debt, less current portion $ 10,263 $ 7,228 $ 8,456 $ 9,752 $ 312
Stockholders' equity $ 48,032 $ 43,078 $ 17,448 $ 8,523 $ 14,765
</TABLE>
(1) In 1993, in connection with the establishment of the ESOP, the Company
adopted SOP No.93-6, which requires that the Company recognize non-cash
ESOP compensation expense in each fiscal quarter as shares of stock owned
by the ESOP are committed to be released to participants' accounts based
on the average fair value of the shares during the quarter. Shares of
stock owned by the ESOP are committed to be released to participants'
accounts as payments are made on the ESOP debt. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
--- ESOP Accounting" and Notes 2, 4 and 7 of Notes to Consolidated
Financial Statements.
(2) Net income per share has been calculated based on the weighted average
number of common and common equivalent shares outstanding, including the
effect of outstanding stock options in each respective year. In
accordance with SOP No. 93-6, shares of stock owned by the ESOP that have
been committed to be released to participants (1,368,888, 1,065,663 and
710,290 as of December 31, 1996, 1995 and 1994, respectively) are
considered outstanding on a weighted average basis for computing net
income per share. However, shares of stock owned by the ESOP that have
not been committed to be released (2,060,859, 2,412,219 and 2,778,825 as
of December 31, 1996, 1995 and 1994, respectively) are not considered
outstanding for such purpose. See Note 2 of Notes to Consolidated
Financial Statements.
(3) This measurement is not intended to represent income from continuing
operations, cash flow or any other measure of performance in accordance
with generally accepted accounting principles, but is included because
the Company believes certain investors find it to be useful for measuring
and identifying trends with respect to the Company's creditworthiness.
ITEM 7. 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 consolidated
financial statements of the Company and notes thereto and the other financial
information appearing elsewhere in this Annual Report.
OVERVIEW
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."
13
<PAGE> 15
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 year
ended December 31, 1996 reflect the operations of the acquisition beginning
February 1, 1996. See Note 10 of Notes to Consolidated Financial Statements.
Effective January 1, 1997, Hunter Energy and Technologies Inc. and 1061099 were
amalgamated to form Hunter Technology Inc. ("HEAT").
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. Unseasonably warm weather
results in higher customer inventories that in turn result in fewer fourth
quarter customer fill-in orders and lower response to the Company's early
booking programs for the following year. See " - Quarterly Results."
Notwithstanding the early booking programs, sales are recognized by the
Company when the product is shipped. A majority of sales of gas and solid fuel
heaters under the Company's early booking programs historically have occurred in
the second and third quarters, with products being shipped throughout this
period. Orders under the Company's early booking programs have historically
represented up to 60% of customers' projected annual requirements and, because
of program terms, the shipping period often extends over several months.
Customer orders for products other than orders placed under the early booking
programs are accepted and filled by the Company as received and shipped at the
customer's request. As used in the following discussion and elsewhere in this
Annual Report, the term "gross sales" reflects total customer invoices billed by
the Company for the applicable period, net of any customer sales credits issued.
The term "net sales" as used herein and elsewhere in this Annual Report,
reflects gross sales less deductions for cash discounts, freight and special
program credits allowed by the Company.
In an effort to decrease the effects of seasonal sales of its home
heating products and to achieve manufacturing efficiencies through increased
capacity utilization, the Company acquired its line of NuWay utility trailer
kits in 1988 and its line of Broilmaster gas barbecue grills in 1990. The
Company's NuWay and Broilmaster products historically have been contraseasonal
to the Company's home heating products, with higher sales during warm weather
months.
ESOP ACCOUNTING
The Company established the Martin Industries, Inc. Employee Stock
Ownership Plan and Related Trust (the "ESOP") in 1992, 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 Loan enabled the ESOP
to purchase approximately 51% of the Company's common stock on a fully diluted
basis from existing stockholders. The Bank Loan and the ESOP Loan are payable in
equal principal installments over 10 years. At the time of the origination of
the Bank Loan and the ESOP Loan and the consummation of the purchase by the ESOP
of the Company's shares, the Company recorded the principal amount of the Bank
Loan as long-term debt and recorded unearned compensation in an equal amount,
which is reflected as a reduction of stockholders' equity on the consolidated
balance sheet.
Pending repayment of the ESOP Loan, shares owned by the ESOP are held in
a suspense account. Shares of common stock are committed to be released from the
ESOP's suspense account and credited to ESOP participants' accounts based on the
ratio that the principal debt repayment of the ESOP Loan bears to the original
principal debt balance (i.e., approximately 347,340 shares of common stock per
year). The Company is required to recognize compensation expense each fiscal
quarter in an amount equal to one-fourth of the number of shares of common stock
committed to be released each year multiplied by the average fair market value
of such shares during the period. The fair market value of the shares of common
stock committed to be released and charged to compensation expense
14
<PAGE> 16
is also credited to stockholders' equity. Accordingly, if the fair market value
of the common stock increases, so will the Company's non-cash compensation
expense related to the ESOP, which in turn has a negative impact on the
Company's net income and net income per share, but does not reduce the Company's
net worth. Because the Company cannot predict the price at which its shares will
trade in the future, it cannot predict the amount of non-cash compensation
expense it will incur based upon the release of the ESOP's shares to the
participants' accounts or the resulting effect on net income or net income per
share. To the extent dividends are declared and paid on shares allocated to
participants' accounts, the ESOP allows the Administrative Committee to use such
dividends to repay the ESOP Loan. In such event, the dividends paid with respect
to allocated shares are paid to participants in the form of released shares. The
negative impact on earnings will be partially offset by the impact of such
dividends, since the Company is not required to recognize compensation expense
with respect to the release of shares related to dividends paid on ESOP shares
allocated to participants.
RESULTS OF CONTINUING OPERATIONS
The following tables set forth, for the periods indicated, information
derived from the Company's consolidated financial statements expressed as a
percentage of net sales and financial information for the Company's two industry
segments.
<TABLE>
<CAPTION>
Percentage of Net Sales
----------------------------------------------------
Year Ended December 31,
----------------------------------------------------
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 72.4 72.6 69.4
---- ---- ----
Gross profit 27.6 27.4 30.6
---- ---- ----
Operating expenses:
Selling 10.0 8.8 8.5
General and administrative 7.5 6.4 6.1
Non-cash ESOP compensation 3.1 3.8 2.1
--- --- ---
20.6 19.0 16.7
---- ---- ----
Operating income 7.0 8.4 13.9
Interest expense 0.5 0.7 1.5
--- --- ---
Income from continuing operations before
income taxes 6.5 7.7 12.4
Provision for income taxes 2.9 3.5 5.0
--- --- ---
Income from continuing operations 3.6% 4.2% 7.4%
=== === ===
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
Segment Information
-------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------
(In thousands)
1996 1995 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales:
Home heating products $ 76,413 $ 61,618 $ 73,102
Leisure and other products 13,781 14,287 12,680
----------------- ----------------- -----------------
$ 90,194 $ 75,905 $ 85,782
================= ================= =================
Gross profit:
Home heating products $ 22,284 $ 18,464 $ 24,131
Leisure and other products 2,576 2,328 2,139
----------------- ----------------- -----------------
$ 24,860 $ 20,792 $ 26,270
================= ================= =================
Segment contribution (1):
Home heating products $ 14,804 $ 12,986 $ 17,914
Leisure and other products 1,001 1,135 1,055
----------------- ----------------- -----------------
$ 15,805 $ 14,121 $ 18,969
================= ================= =================
</TABLE>
(1) Segment contribution consists of gross profit less selling expenses.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales in 1996 increased to $90.2 million from $75.9 million in 1995,
an increase of $14.3 million, or 18.8%. Net sales of home heating products in
1996 as compared to 1995 increased $14.8 million, or 24.0%. This increase was
partially offset by a $506,000, or 3.5%, decrease in net sales of leisure and
other products.
The increase in net sales of home heating products was due primarily to
the acquisition of HEAT in February 1996 and an increase in the sale of Martin
fireplace products. During 1996, HEAT contributed sales of $7.8 million. Sales
of Martin fireplace products increased from $21.2 million in 1995 to $26.9
million in 1996, an increase of 27.0%. The decrease in net sales of leisure and
other products was the result of a $1.6 million, or 23.6%, decrease in sales of
utility trailer kits partially offset by a $1.3 million, or 18.4%, increase in
sales of gas barbecue grills. The decrease in sales of utility trailer kits was
primarily the result of a $1.2 million decrease in sales to a retail utility
trailer customer.
Gross profit in 1996 increased to $24.9 million from $20.8 million in
1995, an increase of $4.1 million, or 19.6%. Gross profit on home heating
product sales increased $3.8 million, or 20.7%. Gross profit on leisure and
other product sales increased $248,000, or 10.7%. The gross profit increase in
the sale of home heating products was the result of the 24.0% increase in net
sales of home heating products, as discussed above, partially offset by a
decrease in the gross margin, defined as gross profit as a percentage of net
sales, from 30.0% in 1995 to 29.2% in 1996, as discussed below. The increase in
gross profit earned on the sale of leisure and other products was the result of
an increase in the gross margin from 16.3% in 1995 to 18.7% in 1996, partially
offset by the 3.5% decrease in net sales discussed above.
Gross margin increased to 27.6% in 1996 from 27.4% in 1995. The increase
was primarily the result of a higher mix of home heating product sales together
with an increase in the gross margin on the sale of leisure and other products.
Although the gross margin on home heating product sales decreased in 1996, net
sales of home heating products were 84.7% of total net sales as compared to
81.2% in 1995. The decrease in the gross margin on home heating products in 1996
was the result of a higher mix of lower margin HEAT and Martin fireplace sales.
The increase in gross margin on sales of leisure and other products, as
discussed above, was the result of a greater mix of higher margin gas barbecue
grill sales. In 1996, sales of gas barbecue grills were 58.1% of total sales of
leisure and other products, as compared to 47.4% in 1995.
16
<PAGE> 18
Selling expenses in 1996 increased to $9.1 million from $6.7 million in
1995, an increase of $2.4 million or 35.7%. HEAT's selling expenses of $1
million contributed to the increase. Advertising expense increased $403,000, or
24.5%, in 1996 primarily as a result of a $365,000 increase in cooperative
advertising expense. The increase in cooperative advertising expense is
primarily the result of a 10.6% increase in non-HEAT net sales and a higher mix
of home heating product and gas barbecue grill sales, which carried a higher
rate of claims in 1996. Salaries, commissions and related benefits increased
$232,000, or 6.1%, in 1996 primarily due to the increase in sales, partially
offset by a higher mix of sales by internal sales personnel. Travel expense
increased $131,000, or 34.9%, in 1996 primarily as a result of the increase in
sales and a higher mix of sales by internal sales personnel. Internal, or
Company-employed, sales personnel are paid a lower rate of commission than paid
to outside agents; however, the Company reimburses the travel expense of
internal sales personnel. Promotion expense increased $180,000, or 37.0%, in
1996 as a result of the increase in sales, increased volume rebates to gas
heater customers and special promotional programs for the Company's new gas
barbecue grill products.
Total segment contribution, defined as gross profit less selling
expenses, increased to $15.8 million in 1996 from $14.1 million in 1995, an
increase of $1.7 million, or 11.9%, primarily as a result of the 18.8% increase
in net sales, partially offset by a 35.7% increase in selling expenses, as
discussed in detail above.
General and administrative expenses were $6.7 million in 1996,
compared to $4.9 million in 1995, an increase of $1.8 million, or 37.8%. HEAT's
general and administrative expenses of $862,000 contributed to the increase. The
remaining increase of $1 million was primarily the result of a decrease in the
credit provision for doubtful accounts of $434,000, a $205,000 increase in the
provision for deferred compensation and other post-employment benefits, and a
$257,000 increase in professional fees. The decrease in the credit provision for
doubtful accounts from $583,000 in 1995 to $149,000 in 1996 was primarily the
result of the 1995 purchase of credit insurance on primary customer accounts,
thereby reducing the exposure which must be accounted for within the allowance
for doubtful accounts. Although the allowance for doubtful accounts was reduced
in 1995 and 1996, the Company considers its current allowance to be adequate as
of December 31, 1996. The provision for deferred compensation and other
post-employment benefits increased $205,000 in 1996 primarily as a result of the
early retirement of two Company executive officers during the year. Professional
fees increased $257,000 in 1996 as a result of increases in legal fees,
compensation consulting fees and executive recruiting fees.
Non-cash ESOP compensation expense was $2.8 million in 1996, as compared
to $2.9 million in 1995, a decrease of $38,000, or 1.3%. During 1996, 332,078
shares of unallocated ESOP shares were released as compensation at an average
fair value of $8.47 per share, as compared to 328,922 shares released as
compensation at an average fair value of $8.66 per share in 1995. During 1996
and 1995, shares released as dividends on shares allocated to participants were
19,282 and 37,671, respectively.
Interest expense in 1996 increased to $1.4 million from $1.2 million in
1995. The increase was primarily the result of the interest expense associated
with a $5,000,000 term loan utilized to refinance the debt of HEAT in March
1996. The term loan is unsecured at a fixed rate of 6.9% for seven years.
Interest income in 1996 increased to $919,000 from $615,000 in 1995. The
increase was the result of increased interest earnings on the proceeds from the
Company's 1995 initial public offering. In 1996, the unused proceeds were
invested for the entire year. In 1995, the proceeds were invested for the period
subsequent to the closing of the offering in July 1995. See Note 6 of Notes to
Consolidated Financial Statements.
The provision for income taxes decreased $32,000, or 1.2%, in 1996. The
decrease was the result of a $58,000 decrease in income from continuing
operations before income taxes together with a small decrease in the effective
tax rate.
Income from continuing operations in 1996 of $3.2 million decreased
$26,000, or 0.8%, primarily as a result of the factors discussed above.
17
<PAGE> 19
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales in 1995 decreased to $75.9 million from $85.8 million in 1994,
a decrease of $9.9 million, or 11.5%. Net sales of home heating products in 1995
as compared to 1994 decreased $11.5 million, or 15.7%. This decrease was
partially offset by a $1.6 million increase in net sales of leisure and other
products. The rate of increase in net sales of leisure and other products was
12.7%.
The decrease in net sales of home heating products was due primarily to
seasonal weather conditions. The combination of the relatively mild weather in
the winter of 1994-1995 and the unusually warm weather experienced throughout
much of the country during the summer and fall of 1995 resulted in higher
customer inventories and lower demand for 1995 shipments of home heating
products. Net sales of leisure and other products increased primarily as a
result of the introduction of the Company's 85% pre-assembled utility trailer,
the addition of a mass merchant utility trailer customer and increased
early-season shipments of grills.
Gross profit in 1995 decreased to $20.8 million from $26.3 million in
1994, a decrease of $5.5 million, or 20.9%. Gross profit on home heating product
sales decreased $5.7 million, or 23.5%. This decrease was partially offset by a
$189,000 increase in gross profit on sales of leisure and other products. The
gross profit decrease in the sale of home heating products was the result of the
15.7% decrease in net sales of home heating products, as discussed above,
combined with a decrease in the gross margin from 33.0% in 1994 to 30.0% in
1995, as discussed below. The increase in gross profit earned on the sale of
leisure and other products was consistent with the increase in net sales, after
consideration of the gross margin changes discussed below.
Gross margin decreased to 27.4% in 1995 from 30.6% in 1994. The decrease
was primarily the result of a lower mix of home heating product sales, together
with decreased margins on such sales. In 1995, net sales of home heating
products were 81.2% of total net sales as compared to 85.2% in 1994. Gross
margin on sales of home heating products decreased, as discussed above, by three
percentage points. The decrease in gross margin was primarily the result of a
lower mix of higher margin gas product sales together with a higher rate of
fixed manufacturing cost. Although gross profit on sales of leisure and other
products increased in 1995, gross margin decreased from 16.9% in 1994 to 16.3%
in 1995. The decrease was primarily the result of increases in the cost of
certain primary raw material components for grills and trailers which were not
absorbed by increased selling prices.
Selling expenses in 1995 decreased to $6.7 million from $7.3 million in
1994, a decrease of $630,000 or 8.6%. The decrease was the result of the
decrease in net sales of 11.5% discussed above, partially offset by an increase
in selling expenses as a percentage of net sales from 8.5% in 1994 to 8.8% in
1995. The rate of selling expenses on net sales of home heating products
increased to 8.9% in 1995 from 8.5% in 1994 primarily as a result of an increase
in administrative selling costs as a percentage of net sales from 6.0% in 1994
to 6.5% in 1995. Although net sales of home heating products decreased 15.7% in
1995, administrative selling costs such as advertising, promotion and other
fixed overhead costs did not decrease at the same rate. Advertising and
promotion expense incurred in the segment decreased 7.9% in 1995 as compared to
1994. The increase in home heating product selling expense as a percentage of
net sales was partially offset by a reduction in the rate of selling expense on
leisure and other product sales.
Total segment contribution decreased to $14.1 million in 1995 from $19.0
million in 1994, a decrease of $4.8 million, or 25.6%, as a result of the
factors discussed above.
General and administrative expenses were $4.9 million in 1995, compared
to $5.3 million in 1994, a decrease of $366,000, or 7.0%. The decrease was
primarily the result of a $583,000 credit provision for doubtful accounts and a
$353,000 decrease in bonuses paid to executive and other management personnel.
The $583,000 credit provision for doubtful accounts was primarily the result of
the Company purchasing credit insurance on its high volume, primary customer
accounts, as previously discussed. The decreases discussed herein were partially
offset by increases in salaries, professional fees and insurance expense. Salary
and employee benefit expense increased approximately $250,000, or 9.4%, in 1995
as a result of the hiring of additional product development engineers and annual
pay raises. Professional fees increased $199,000 in 1995 as a result of
increases in accounting and legal fees, and consulting fees incurred in
connection with the Company's management development program. Insurance expense
18
<PAGE> 20
increased $232,000 in 1995 primarily as the result of increased general
liability coverage requirements and the purchase of credit insurance discussed
above.
Non-cash ESOP compensation expense was $2.9 million in 1995, as compared
to $1.8 million in 1994, an increase of $1 million, or 56.3%. During 1995,
328,922 shares of unallocated ESOP shares were released as compensation at an
average fair value of $8.66 per share, as compared to 338,730 shares released as
compensation at an average fair value of $5.38 per share in 1994. During 1995
and 1994, shares released as dividends on shares allocated to participants were
37,671 and 8,610, respectively.
Interest expense in 1995 decreased to $1.2 million from $1.4 million in
1994. The reduction was the result of lower borrowing levels and rates during
1995. Long-term debt was reduced by $1.2 million and average short-term
borrowings were reduced by $1.6 million in 1995. The weighted average interest
rates paid on short-term borrowings during 1995 was 7.8%, as compared to 8.5% in
1994.
Interest income in 1995 increased to $615,000 from $191,000 in 1994. The
increase was the result of interest earnings on the proceeds from the Company's
1995 initial public offering. See Note 6 of Notes to Consolidated Financial
Statements.
The provision for income taxes decreased to $2.6 million in 1995 from
$4.3 million in 1994. The $1.7 million decrease was the result of a $4.8 million
decrease in income from continuing operations before taxes, partially offset by
an increase in the Company's effective tax rate. The effective tax rate was
44.9% in 1995, as compared to 40.0% in 1994. The increase in the effective tax
rate was primarily the result of a $1 million increase in non-cash ESOP
compensation expense which is not deductible for income tax purposes. Non-cash
ESOP compensation expense is determined as the average fair value of the
unallocated shares committed to be released; however, the Company is allowed a
tax deduction only for the cost of the shares released during the year.
Income from continuing operations in 1995 decreased to $3.2 million from
$6.4 million in 1994, primarily as a result of the factors discussed above.
RESULTS OF DISCONTINUED METAL OFFICE FURNITURE OPERATIONS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Income from discontinued operations, net of tax, decreased to $62,000 in
1996 from $1.3 million in 1995. The decrease was primarily the result of a $4.9
million, or 22.9%, decrease in net sales of metal office furniture in 1996, a
decrease in the gross margin on net sales of metal office furniture to 11.2% in
1996 from 18.5% in 1995 and an increase in the rate of selling expense on net
sales of metal office furniture to 10.6% in 1996 from 8.4% in 1995.
Net sales of metal office furniture decreased $4.9 million in 1996
primarily as a result of competition providing the Company's principal customer
for metal office furniture with lower and higher grade file cabinets not
manufactured by the Company. Customer purchases of the Company's medium grade
file cabinets decreased as a result.
The gross margin on net sales of metal office furniture decreased 39.5%
in 1996 primarily as a result of price concessions to the Company's principal
customer and an increase in the rate of fixed manufacturing costs as a
percentage of net sales to 15.3% in 1996 from 12.2% in 1995.
The rate of selling expenses on net sales of metal office furniture
increased 26.2% in 1996 primarily as a result of a higher rate of cooperative
advertising and administrative selling expenses. The rate of cooperative
advertising expense increased to 5.9% in 1996 from 4.7% in 1995. The Company
committed to contribute a larger fixed amount to the principal customer's annual
promotion program in 1996 as compared to 1995. Administrative selling expenses
as a percentage of net sales increased to 2.6% in 1996 from 1.6% in 1995
primarily as the result of increased Company advertising, promotion and fixed
salary expenses.
19
<PAGE> 21
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 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. See Note 11 to Notes to Consolidated
Financial Statements.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Income from discontinued operations, net of tax, increased to $1.3
million in 1995 from $771,000 in 1994, an increase of $578,000, or 75.0%. The
increase was primarily the result of a $3.6 million, or 20.4%, increase in net
sales of metal office furniture, an increase in gross margin to 18.5% in 1995
from 15.6% in 1994 and a decrease in the rate of selling expenses to 8.4% in
1995 from 8.7% in 1994.
Net sales of metal office furniture increased 20.4% in 1995 primarily as
the result of the continued expansion of the Company's principal customer for
metal office furniture.
Gross margin on sales of metal office furniture increased 18.6% in 1995
as the result of improved product pricing and mix.
Selling expense as a percentage of net sales of metal office furniture
decreased 3.4% in 1995. Although net sales increased 20.4%, administrative
selling costs decreased $28,000, or 8.0%, primarily as the result of lower sales
management bonuses.
QUARTERLY RESULTS
The following table sets forth certain quarterly income statement data
for each of the Company's last two fiscal years and the percentage of net sales
represented by the line items presented (except in the case of per share
amounts). The quarterly income statement data set forth below was derived from
unaudited consolidated financial statements of the Company and includes all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation thereof. The quarterly amounts for
previous quarters have been restated to segregate the results of operations
related to discontinued operations.
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------------------------------
March 30 June 29 September 28 December 31
------------------- -------------------- --------------------- -------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $15,395 100.0% $24,099 100.0% $22,485 100.0% $28,215 100.0%
Gross profit............... 3,383 22.0 6,836 28.4 5,697 25.3 8.944 31.7
Non-cash ESOP
compensation............. 758 4.9 809 3.4 646 2.9 599 2.1
Operating income (loss).... (1,147) (7.5) 2,181 9.1 1,106 4.9 4,120 14.6
Income (loss) from continuing
operations before income
taxes................... (1,163) (7.6) 2,022 8.4 895 4.0 4,033 14.3
Income (loss) from continuing
operations.............. (806) (5.2) 1,104 4.6 497 2.2 2,400 8.5
Income (loss) from discontinued
operations, net of tax.. 295 1.9 (131) (0.5) (117) (0.5) (1,415) (5.0)
------- ------- ------- ------
Net income (loss).......... $ (511) (3.3)% $ 973 4.1% $ 380 1.7% $ 985 3.5%
======= ======= ======= ======
Income (loss) from continuing
operations per share.... $ (0.13) $ 0.16 $ 0.07 $ 0.34
Income (loss) from discontinued
operations per share.... 0.05 (0.02) (0.01) (0.20)
------- ------- ------- ------
Net income (loss) per share(1). $ (0.08) $ 0.14 $ 0.06 $ 0.14
======= ======= ======= ======
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
1995
----------------------------------------------------------------------------------------
April 1 July 1 September 30 December 31
------------------- -------------------- --------------------- -------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $15,847 100.0% $23,452 100.0% $19,845 100.0% $16,761 100.0%
Gross profit............... 3,635 22.9 6,665 28.4 5,953 30.0 4,539 27.1
Non-cash ESOP
compensation............. 400 2.5 608 2.6 903 4.6 939 5.6
Operating income........... 264 1.7 2,897 12.4 2,318 11.7 905 5.4
Income from continuing
operations, before
income taxes............ 89 0.6 2,597 11.1 2,178 11.0 981 5.9
Income from continuing
operations.............. 25 0.2 1,483 6.3 1,211 6.1 502 3.0
Income from discontinued
operations, net of tax.. 256 1.6 289 1.2 215 1.1 589 3.5
------- ------- ------- ------
Net income................. $ 281 1.8% $ 1,772 7.5% $ 1,426 7.2% $1,091 6.5%
======= ======= ======= ======
Income from continuing
operations per share.... $ 0.01 $ 0.36 $ 0.20 $ 0.08
Income from discontinued
operations per share.... 0.06 0.07 0.03 0.09
------- ------- ------- ------
Net income per share(1).... $ 0.07 $ 0.43 $ 0.23 $ 0.17
======= ======= ======= ======
</TABLE>
(1) The sum of the quarterly per share amounts are different from the annual
per share amounts because of differences in the weighted average number
of common and common equivalent shares used in the quarterly and annual
computations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and growth from
internally generated funds, seasonal borrowings under its bank line of credit
and other short-term borrowings. The Company's primary capital requirements are
for working capital, debt service, capital expenditures and dividends.
The following table presents a summary of the Company's cash flows for
each of the three years in the period ended December 31, 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1996 1995 1994
--------------- --------------- ----------------
(In thousands)
<S> <C> <C> <C>
Net cash provided by operations $ 6,241 $ 2,059 $ 3,897
Capital expenditures (2,798) (2,181) (1,266)
Purchase of subsidiary, net of cash acquired (1,374) 0 0
Net short-term borrowings (repayments) (2,181) 0 (4,053)
Net payments on long-term debt (400) (1,317) (1,291)
Net proceeds from issuance of common
stock 0 19,397 0
Proceeds from exercise of stock options 186 25 475
Cash dividends paid (768) (1,220) (233)
Other, net 1 46 (248)
--------------- --------------- ----------------
Net increase (decrease) in cash and
short-term investments $ (1,093) $ 16,809 $ (2,719)
=============== =============== ================
</TABLE>
21
<PAGE> 23
The Company's operations over the last three years have generated cash of
approximately $12.2 million, which has been used to eliminate short-term debt,
service long-term debt, finance capital expenditures, fund acquisitions and pay
dividends. During this period, the Company has also applied working capital to
increase inventories by $7.9 million.
As a result of its seasonal business cycle, the Company finances interim
working capital requirements under an unsecured line of credit with its
principal lender. The line of credit has a current maximum of $20,000,000 and
expires on July 31, 1997. Interest on the line of credit is payable monthly at a
variable rate of 30-day LIBOR plus 1.25%. During 1996, the Company had an
average month-end balance of $5.0 million with a maximum month-end balance of
$13.0 million.
In January 1993, the Company obtained the Bank Loan, the proceeds of
which were loaned under the ESOP Loan to enable the ESOP to purchase 3,489,115
shares of common stock from certain stockholders of the Company. The Bank Loan
is due in semi-annual principal payments of $596,700 over a ten-year period.
Interest on the Bank Loan is payable monthly at a variable rate of 79.5% of
prime plus 1.35%. Simultaneously with the origination of the Bank Loan, the
Company entered into a separate interest rate swap agreement that was designed
to fix the interest rate on the Bank Loan for seven years from its origination
at 8.21%.
On July 18, 1995, the Company closed the sale of 2,300,000 shares of
common stock at a price of $9.50 per share in connection with the initial public
offering of its stock. The proceeds of the Offering, net of an underwriting
discount of $1,530,000 and expenses of $923,000, were $19,397,000. Through the
date of this Annual Report, the Company has used approximately $4.5 million of
the proceeds to fund capital expenditures and the acquisition of HEAT. See Note
10 to Notes to Consolidated Financial Statements. The Company plans to use the
remaining proceeds of the Offering to fund future acquisitions and capital
expenditures and, to the extent not so used, to reduce outstanding indebtedness,
for working capital or for other general corporate purposes. Pending such uses,
the Company has invested the remaining proceeds in commercial paper and other
low-risk, highly liquid securities.
In March 1996, the Company obtained a $5 million unsecured term loan from
its principal lender to refinance the bank debt which the Company caused to be
paid upon the closing of its acquisition of HEAT. The term loan is due in
semi-annual principal payments of $250,000 over a seven-year period with a
balloon payment of $1.5 million due at maturity. Interest on the term loan is
payable monthly at a fixed rate of 6.9%.
The Company believes that cash flow from operations, together with the
Company's unused borrowing capacity and the remaining proceeds from the
Offering, will be sufficient to fund the Company's operating needs for the
foreseeable future. In addition, to provide any additional funds necessary for
the continued pursuit of the Company's growth strategies, the Company may incur,
from time to time, additional short- and long-term bank indebtedness and may
issue, in public or private transactions, its equity and debt securities, the
availability and terms of which will depend upon market and other conditions.
There can be no assurance that such additional financing will be available on
terms acceptable to the Company. It is anticipated that during 1997, the Company
will expend approximately $4.0 million for capital expenditures.
CREDIT RISK
The Company extends credit to a wide range of customers and offers
payment terms ranging from 30 days to early-booking terms which can be as long
as nine months. The Company does not believe that it has a significant
concentration of credit risk in any one geographic area or market segment.
Currently, the Company purchases credit insurance which provides coverage for
losses on accounts receivable with certain primary customers.
INFLATION
The Company believes that the relatively moderate rate of inflation
experienced over the last three years has not had a material impact on its sales
or profitability. The Company has generally been able to absorb increases in
costs without significantly increasing the selling prices of its products due to
offsetting cost reductions and improved manufacturing efficiencies. However,
there can be no assurance that the Company's business will not be adversely
affected by inflation in the future.
22
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, including the
report of independent accountants, the consolidated balance sheets as of
December 31, 1996 and 1995, the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1996, 1995
and 1994 and notes to the consolidated financial statements are set forth on
pages F-1 through F-21 of this Annual Report on Form 10-K. In addition, on page
S-1 of this Annual Report on Form 10-K, the supplemental financial statement
schedule, as required by Item 8, is provided.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the "Election of Directors", "Executive Officers of the Company"
and "Section 16(a) Beneficial Ownership Reporting Compliance" sections of the
proxy statement for the 1997 Annual Meeting of Stockholders of the Company,
which sections are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
See the "Remuneration of Executive Officers" section of the proxy
statement for the 1997 Annual Meeting of Stockholders of the Company, which
section is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) See the "Principal Stockholders" section of the proxy statement
for the 1997 Annual Meeting of Stockholders of the Company, which section is
incorporated herein by reference.
(b) See the "Election of Directors" and "Principal Stockholders"
sections of the proxy statement for the 1997 Annual Meeting of Stockholders of
the Company, which sections are incorporated herein by reference.
(c) There are no arrangements known to the Company the operation of
which may at a subsequent date result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the "Certain Transactions" section of the proxy statement for
the 1997 Annual Meeting of Stockholders of the Company, which section is
incorporated herein by reference.
23
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Certain documents filed as part of Form 10-K
1. Financial Statements.
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
Report of Independent Public Accountants............................................................... F-1
Consolidated Balance Sheets as of December 31, 1996 and 1995........................................... F-2
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994............. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995
and 1994............................................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 ............ F-6
Notes to Consolidated Financial Statements............................................................. F-7
</TABLE>
2. Financial Statement Schedule.
The financial statement schedule required by Regulation
S-X is filed as part of Exhibit S of this Annual Report on
Form 10-K, as listed below:
Schedule Supporting the Consolidated Financial Statements:
Page
Schedule II - Valuation and Qualifying
Accounts S-2
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission have been omitted because they are not
required under the related instructions or are
inapplicable, or because the information has been provided
in the Consolidated Financial Statements or the Notes
thereto.
3. Exhibits required to be filed by Item 601 of Regulation
S-K.
The Exhibits filed as part of this Annual Report on Form
10-K are listed in Item 14(c) of this Annual Report on Form
10-K, which listing is hereby incorporated herein by
reference.
(b) Reports on Form 8-K.
There were no Current Reports on Form 8-K filed during the last
quarter of the period covered by this Annual Report on Form 10-K.
24
<PAGE> 26
(c) Exhibits.
The Exhibits required by Item 601 of Regulation S-K are set forth
in the following list and are filed either by incorporation by
reference from previous filings with the Securities and Exchange
Commission (the "Commission") or by attachment to this Annual
Report on Form 10-K as so indicated in such list.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
*3(a) Form of Restated Certificate of Incorporation of Martin
Industries, Inc. which was filed as Exhibit 3(a) to the Company's
Registration Statement on Form S-1 filed with the Commission on
March 17, 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. (included in Exhibit 3(a)).
*10(a) Martin Industries, Inc. Employee Stock Ownership Plan, as amended,
which was filed as Exhibit 10(a) to the Company's Registration
Statement on Form S-1 filed with the Commission on March 17, 1995
(Registration No. 33-90432) and, with respect to Amendment No. 7
thereto, as filed as Exhibit 10(a) to the Company's Quarterly
Report on Form 10-Q for the 13-week period ended September 30,
1995 (Commission File No. 0-26228).
*10(b) Martin Industries, Inc. Employee Stock Ownership Trust Agreement
between Martin Industries, Inc., Bill G. Hughey, James W. Truitt
and James D. Wilson dated November 12, 1992, as amended, which was
filed as Exhibit 10(b) to the Company's Registration Statement on
Form S-1 filed with the Commission on March 17, 1995 (Registration
No. 33-90432).
*10(c) Loan Agreement by and between Martin Industries, Inc. and AmSouth
Bank N.A. dated January 7, 1993 in the principal amount of
$11,934,000, as amended, which was filed as Exhibit 10(c) to the
Company Registration Statement on Form S-1 filed with the
Commission on March 17, 1995 (Registration No. 33-90432).
*10(d) Term Note by Martin Industries, Inc. in favor of AmSouth Bank,
N.A. dated January 7, 1993 in the principal amount of $11,934,000
which was filed as Exhibit 10(d) to the Company's Registration
Statement on Form S-1 filed with the Commission on March 17, 1995
(Registration No. 33-90432).
*10(e) Loan and Security Agreement by and between Bill G. Hughey, James
W. Truitt and James D. Wilson, as trustees of the Martin
Industries, Inc. Employee Stock Ownership Plan and Related Trust
(the "ESOP"), and Martin Industries, Inc. dated January 7, 1993 in
the principal amount of $11,934,000 which was filed as Exhibit
10(f) to the Company's Registration Statement on Form S-1 filed
with the Commission on March 17, 1995 (Registration No. 33-90432).
</TABLE>
25
<PAGE> 27
<TABLE>
<S> <C>
*10(f) Promissory Note by Bill G. Hughey, James W. Truitt and James D.
Wilson, as trustees of the ESOP, in favor of Martin Industries,
Inc. dated January 7, 1993, in the principal amount of $11,934,000
which was filed as Exhibit 10(g) to the Company's Registration
Statement on Form S-1 filed with the Commission on March 17, 1995
(Registration No. 33-90432).
*10(g) Interest Rate Swap Agreement by and between Martin Industries,
Inc. and AmSouth Bank, N.A. dated November 3, 1992 which was filed
as Exhibit 10(h) to the Company's Registration Statement on Form
S-1 filed with the Commission on March 17, 1995 (Registration No.
33-90432).
*10(h) License and Commercial Agreement by and between Astle Corporation
and Martin Industries, Inc. dated July 1, 1994 which was filed as
Exhibit 10(i) to the Company's Registration Statement on Form S-1
filed with the Commission on March 17, 1995 (Registration No.
33-90432).
*10(i) License and Commercial Agreement by and between Astle Corporation
and Martin Industries, Inc., dated July 1, 1994 which was filed as
Exhibit 10(j) to the Company's Registration Statement on Form S-1
filed with the Commission on March 17, 1995 (Registration No.
33-90432).
*10(j) Acquisition Service Agreement by and between Martin Industries,
Inc, and Amerimark Capital Group dated September 1, 1994 which was
filed as Exhibit 10(k) to the Company's Registration Statement on
Form S-1 filed with the Commission on March 17, 1995 (Registration
No. 33-90432).
*10(k) Martin Industries, Inc. 1988 Nonqualified Stock Option Plan, as
amended, which was filed as Exhibit 10(l) to the Company's
Registration Statement on Form S-1 filed with the Commission on
March 17, 1995 (Registration No. 33-90432).
*10(l) Executive Supplemental Income Plan Guidelines and Form of
Supplemental Income Agreement which was filed as Exhibit 10(n) to
the Company's Registration Statement on Form S-1 filed with the
Commission on March 17, 1995 (Registration No. 33-90432).
*10(m) Supplemental Executive Retirement Plan which was filed as Exhibit
10(o) to the Company's Registration Statement on Form S-1 filed
with the Commission on March 17, 1995 (Registration No. 33-90432).
*10(n) Lease Agreement by and between the Industrial Development Board
for the City of Florence and Martin Industries, Inc. dated August
1, 1978 which was filed as Exhibit 10(p) to the Company's
Registration Statement on Form S-1 filed with the Commission on
March 17, 1995 (Registration No. 33-90432).
*10(o) Lease Agreement by and between the Industrial Development Board
for the City of Athens and Martin Stamping & Stove Company,
predecessor corporation to Martin Industries, Inc., dated December
1, 1964 which was filed as Exhibit 10(q) to the Company's
Registration Statement on Form S-1 filed with the Commission on
March 17, 1995 (Registration No. 33-90432).
*10(p) Renewal Option Agreement between the Industrial Development Board
of the City of Athens and Martin Stamping & Stove Company,
predecessor corporation to Martin Industries, Inc., dated December
1, 1964 which was filed as Exhibit 10(r) to the Company's
Registration Statement on Form S-1 filed with the Commission on
March 17, 1995 (Registration No. 33-90432).
</TABLE>
26
<PAGE> 28
<TABLE>
<S> <C>
*10(q) Purchase Option Agreement between the Industrial Development Board
of the City of Athens and Martin Stamping & Stove Company,
predecessor corporation to Martin Industries, Inc., dated December
1, 1964 which was filed as Exhibit 10(s) to the Company's
Registration Statement on Form S-1 filed with the Commission on
March 17, 1995 (Registration No. 33-90432).
*10(r) First Amendment to Loan Agreement and Other Loan Documents by and
between Martin Industries, Inc. and AmSouth Bank of Alabama dated
as of March 15, 1995 which was filed as Exhibit 10(u) to the
Company's Registration Statement on Form S-1 filed with the
Commission on March 17, 1995 (Registration No. 33-90432).
*10(s) Modified, Amended and Restated Line of Credit Note by Martin
Industries, Inc. in favor of AmSouth Bank of Alabama dated as of
March 15, 1995 in the principal amount of $20,000,000 which was
filed as Exhibit 10(v) to the Company's Registration Statement on
Form S-1 filed with the Commission on March 17, 1995 (Registration
No. 33-90432).
*10(t) Share Purchase Agreement dated February 1, 1996, by and among the
Company, 1166081 Ontario Inc., certain shareholders of Hunter
Energy and Technologies Inc., 1061099 Ontario Inc. and 679401
Ontario Inc. and all of the shareholders of Airform Fabrics Inc.
which was filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K as filed with the Commission on February 16, 1996
(Commission File No. 0-26228).
*10(u) Share Purchase Agreement dated as of February 1, 1996, by and
among 1166081 Ontario Inc., Iain J. Richmond, Donald A. Hunter,
Andrew St. Germaine and Donshardan Investments Ltd. which was
filed as Exhibit 2.2 to the Company's Current Report on Form 8-K
as filed with the Commission on February 16, 1996 (Commission File
No. 0-26228).
*10(v) Second Amendment to Loan Agreements and Other Loan Documents dated
as of March 28, 1996, by and between Martin Industries, Inc. and
AmSouth Bank of Alabama which was filed as Exhibit 10(y) to the
Company's Annual Report on Form 10-K as filed with the Commission
on March 30, 1996 (Commission File No. 0-26228).
*10(w) Term Note by Martin Industries, Inc. in favor of AmSouth Bank of
Alabama dated March 28, 1996, in the principal amount of
$5,000,000 which was filed as Exhibit 10(z) to the Company's
Annual Report on Form 10-K as filed with the Commission on March
30, 1996 (Commission File No. 0-26228).
10(x) Martin Industries, Inc. 1996 Non-Employee Directors' Stock Option
and Deferred Compensation Plan.
10(y) Amendment No. 6 to Martin Industries, Inc. 1988 Nonqualified Stock
Option Plan.
10(z) Martin Industries, Inc. Amended and Restated 1994 Nonqualified
Stock Option Plan.
</TABLE>
27
<PAGE> 29
<TABLE>
<S> <C>
11 Statement regarding computation of per share earnings.
21 Subsidiaries of the Company.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule (Electronic Submission only).
</TABLE>
* Incorporated by reference.
(d) Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts
"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 Annual Report on Form 10-K
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 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.
28
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Martin Industries, Inc.:
We have audited the accompanying consolidated balance sheets of MARTIN
INDUSTRIES, INC. (a Delaware corporation) AND SUBSIDIARY as of December 31, 1996
and 1995 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial position of Martin Industries, Inc. and
subsidiary as of December 31, 1996 and 1995 and the results of their operations
and their cash flows for the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles.
Birmingham, Alabama
February 24, 1997
F-1
<PAGE> 31
<TABLE>
<CAPTION>
MARTIN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1996 1995
----------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $19,326,000 $20,439,000
Accounts and notes receivable, less allowance
for doubtful accounts of $419,000
and $594,000 respectively 17,788,000 13,824,000
Inventories 18,346,000 16,534,000
Refundable income taxes 0 512,000
Deferred tax benefits 3,401,000 2,049,000
Prepaid expenses and other assets 1,786,000 978,000
----------- -----------
60,647,000 54,336,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 1,320,000 587,000
Construction in progress 521,000 689,000
Buildings 8,147,000 5,474,000
Machinery and equipment 12,976,000 10,238,000
----------- -----------
22,964,000 16,988,000
Less accumulated depreciation and amortization 12,189,000 10,642,000
----------- -----------
10,775,000 6,346,000
----------- -----------
OTHER NONCURRENT ASSETS:
Deferred tax benefits 653,000 675,000
Other 4,269,000 2,225,000
----------- -----------
4,922,000 2,900,000
----------- -----------
$76,344,000 $63,582,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-2
<PAGE> 32
<TABLE>
<CAPTION>
MARTIN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31
1996 1995
---------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 742,000 $ 12,000
Current portion of long-term debt 1,792,000 1,315,000
Accounts payable 4,467,000 4,072,000
Accrued income taxes payable 602,000 0
Accrued liabilities:
Payroll and employee benefits 3,068,000 3,090,000
Product liability 560,000 660,000
Warranty 1,299,000 617,000
Workers' compensation 602,000 603,000
Other 2,609,000 662,000
----------- -----------
15,741,000 11,031,000
----------- -----------
NONCURRENT LIABILITIES:
Long-term debt 10,263,000 7,228,000
Deferred compensation 2,183,000 2,013,000
Other 125,000 232,000
----------- -----------
12,571,000 9,473,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
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 at December 31, 1996 and 1995 97,000 97,000
Paid-in capital 25,866,000 23,457,000
Retained earnings 31,035,000 30,130,000
Unrealized gain on foreign currency translation 25,000 0
----------- -----------
57,023,000 53,684,000
Less:
Treasury stock at cost (1,021,925 shares at December 31, 1996
and 1,269,715 shares at December 31, 1995) 1,911,000 2,319,000
Unearned compensation 7,080,000 8,287,000
----------- -----------
48,032,000 43,078,000
----------- -----------
$76,344,000 $63,582,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 33
MARTIN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
----------------------------------------------------
<S> <C> <C> <C>
NET SALES $90,194,000 $75,905,000 $85,782,000
Cost of Sales 65,334,000 55,113,000 59,512,000
----------- ----------- -----------
GROSS PROFIT 24,860,000 20,792,000 26,270,000
----------- ----------- -----------
Operating Expenses:
Selling 9,055,000 6,671,000 7,301,000
General and Administrative 6,733,000 4,887,000 5,253,000
Non-cash ESOP Compensation 2,812,000 2,850,000 1,824,000
----------- ----------- -----------
18,600,000 14,408,000 14,378,000
----------- ----------- -----------
OPERATING INCOME 6,260,000 6,384,000 11,892,000
Interest Expense 1,392,000 1,154,000 1,443,000
Interest Income (919,000) (615,000) (191,000)
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 5,787,000 5,845,000 10,640,000
Provision for Income Taxes 2,592,000 2,624,000 4,256,000
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS 3,195,000 3,221,000 6,384,000
----------- ----------- -----------
DISCONTINUED OPERATIONS:
Income from Discontinued Operations, Net of Tax 62,000 1,349,000 771,000
Loss on Disposal of Discontinued Operations, Net of Tax (1,430,000) 0 0
----------- ----------- -----------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (1,368,000) 1,349,000 771,000
------------ ----------- -----------
NET INCOME $ 1,827,000 $ 4,570,000 $ 7,155,000
=========== =========== ===========
PER SHARE DATA:
INCOME FROM CONTINUING OPERATIONS $ 0.47 $ 0.62 $ 1.75
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (0.20) 0.26 0.21
----------- ----------- -----------
NET INCOME $ 0.27 $ 0.88 $ 1.96
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 6,772,191 5,204,254 3,655,645
=========== =========== ===========
DIVIDENDS DECLARED $ 0.148 $ 0.393 $ 0.090
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 34
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1994, 1995, and 1996
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------------- Paid-in Retained --------------------------
Shares Amount Capital Earnings Shares Amount
--------- ------------- ------------ ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1993 7,448,000 $ 74,000 $ 1,434,000 $ 20,169,000 1,405,705 $ 2,395,000
Net income 0 0 0 7,155,000 0 0
Dividends ($.09 per share) 0 0 0 (266,000) 0 0
Purchase of treasury stock 0 0 0 0 72,100 266,000
Exercise of stock options 0 0 142,000 0 (202,090) (333,000)
Payments received
on notes receivable 0 0 0 0 0 0
Fair value of stock
released to ESOP, net of
applicable income taxes 0 0 624,000 0 0 0
--------- ----------- ------------ ------------- ---------- -----------
BALANCE,
DECEMBER 31, 1994 7,448,000 74,000 2,200,000 27,058,000 1,275,715 2,328,000
Net income 0 0 0 4,570,000 0 0
Net proceeds from issuance
of common stock 2,300,000 23,000 19,374,000 0 0 0
Dividends ($.393 per share) 0 0 0 (1,498,000) 0 0
Exercise of stock options 0 0 16,000 0 (6,000) (9,000)
Payments received
on notes receivable 0 0 0 0 0 0
Fair value of stock
released to ESOP, net of
applicable income taxes 0 0 1,867,000 0 0 0
--------- ----------- ------------ ------------- ---------- -----------
BALANCE,
DECEMBER 31, 1995 9,748,000 97,000 23,457,000 30,130,000 1,269,715 2,319,000
Net income 0 0 0 1,827,000 0 0
Dividends ($.148 per share) 0 0 0 (922,000) 0 0
Exercise of stock options 0 0 650,000 0 (247,790) (408,000)
Fair value of stock
released to ESOP, net of
applicable income taxes 0 0 1,759,000 0 0 0
Unrealized gain on foreign
currency translation 0 0 0 0 0 0
--------- ----------- ------------ ------------- ---------- -----------
BALANCE,
DECEMBER 31, 1996 9,748,000 $ 97,000 $ 25,866,000 $ 31,035,000 1,021,925 $ 1,911,000
========= =========== ============ ============= ========== ===========
Foreign
Notes Unearned Currency
Receivable Compensation Translation Total
---------- ------------ ----------- -----
<S> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1993 18,000 $ 10,741,000 $ 0 $ 8,523,000
Net income 0 0 0 7,155,000
Dividends ($.09 per share) 0 0 0 (266,000)
Purchase of treasury stock 0 0 0 (266,000)
Exercise of stock options 0 0 0 475,000
Payments received
on notes receivable (9,000) 0 0 9,000
Fair value of stock
released to ESOP, net of
applicable income taxes 0 (1,194,000) 0 1,818,000
--------- ------------ ----------- ------------
BALANCE,
DECEMBER 31, 1994 9,000 9,547,000 0 17,448,000
Net income 0 0 0 4,570,000
Net proceeds from issuance
of common stock 0 0 0 19,397,000
Dividends ($.393 per share) 0 0 0 (1,498,000)
Exercise of stock options 0 0 0 25,000
Payments received
on notes receivable (9,000) 0 0 9,000
Fair value of stock
released to ESOP, net of
applicable income taxes 0 (1,260,000) 0 3,127,000
--------- ------------ ----------- ------------
BALANCE,
DECEMBER 31, 1995 0 8,287,000 0 43,078,000
Net income 0 0 0 1,827,000
Dividends ($.148 per share) 0 0 0 (922,000)
Exercise of stock options 0 0 0 1,058,000
Fair value of stock
released to ESOP, net of
applicable income taxes 0 (1,207,000) 0 2,966,000
Unrealized gain on foreign
currency translation 0 0 25,000 25,000
--------- ------------ ----------- ------------
BALANCE,
DECEMBER 31, 1996 0 $ 7,080,000 $ 25,000 $ 48,032,000
========= ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 35
<TABLE>
<CAPTION>
MARTIN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,827,000 $ 4,570,000 $ 7,155,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of discontinued operations, net of tax 1,430,000 0 0
Depreciation and amortization 1,623,000 1,020,000 876,000
Net (gain) loss on sales of assets 39,000 (17,000) (7,000)
Provision (credit) for doubtful accounts
and notes receivable (117,000) (583,000) 60,000
Provision (credit) to value inventories at LIFO cost (349,000) 490,000 162,000
Provision (credit) for deferred income taxes (146,000) 390,000 (286,000)
Non-cash ESOP compensation 2,812,000 2,850,000 1,824,000
Provision for performance compensation 0 338,000 1,247,000
Provision for deferred compensation 371,000 148,000 286,000
(Increase) decrease in operating assets:
Accounts and notes receivable (1,988,000) 966,000 (266,000)
Inventories 539,000 (3,820,000) (4,611,000)
Refundable income taxes 512,000 (465,000) (2,189,000)
Prepaid expenses and other assets (573,000) (411,000) (37,000)
Other noncurrent assets (557,000) 140,000 61,000
Increase (decrease) in operating liabilities:
Accounts payable (1,443,000) (1,580,000) 842,000
Accrued income taxes payable 1,404,000 0 0
Accrued liabilities 960,000 (1,587,000) (903,000)
Other noncurrent liabilities (103,000) (390,000) (317,000)
----------- ----------- -----------
Net cash provided by operating activities 6,241,000 2,059,000 3,897,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,798,000) (2,181,000) (1,266,000)
Proceeds from sales of assets 1,000 37,000 9,000
Purchase of subsidiary, net of cash acquired (1,374,000) 0 0
----------- ----------- -----------
Net cash used in investing activities (4,171,000) (2,144,000) (1,257,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on notes payable (2,181,000) 0 (4,053,000)
Principal payments on long-term debt (5,400,000) (1,317,000) (1,291,000)
Proceeds from the issuance of long-term debt 5,000,000 0 0
Net proceeds from issuance of common stock 0 19,397,000 0
Purchase of treasury stock 0 0 (266,000)
Exercise of stock options 186,000 25,000 475,000
Payments received on notes receivable from sales of stock 0 9,000 9,000
Cash dividends paid (768,000) (1,220,000) (233,000)
----------- ----------- -----------
Net cash provided by (used in) financing activities (3,163,000) 16,894,000 (5,359,000)
----------- ----------- -----------
Net Increase (Decrease) in Cash
and Short-Term Investments (1,093,000) 16,809,000 (2,719,000)
Effect of Exchange Rate Changes on Cash (20,000) 0 0
Cash and Short-Term Investments
at the Beginning of the Year 20,439,000 3,630,000 6,349,000
----------- ----------- -----------
Cash and Short-Term Investments
at the End of the Year $ 19,326,000 $ 20,439,000 $ 3,630,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,298,000 $ 1,137,000 $ 1,409,000
Income taxes, net $ 1,196,000 $ 3,494,000 $ 7,173,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 36
MARTIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Martin Industries, Inc. (the "Company") is a manufacturer of products in
two industry segments (see Note 12), which include home heating products
and leisure and other products. On February 24, 1997, the Company elected
to discontinue its operations in the metal office furniture segment. Home
heating products are sold primarily to domestic distributors and dealers.
The Company's leisure products, primarily barbecue gas grills and utility
trailers, are sold to distributors, dealers and mass merchandisers. The
principal markets for the Company's products are the United States and
Canada.
The Company's business is seasonal and cyclical with the potential for
significant fluctuations in quarterly earnings. These fluctuations may be
affected by weather conditions, general economic conditions, inflation,
employment, the level of consumer confidence, and factors impacting the
housing industry.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The 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 10.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with 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.
CASH AND SHORT-TERM INVESTMENTS
All short-term investments of the Company, which include commercial
paper, money market funds and other low risk investments, are considered
cash equivalents in the consolidated statements of cash flows as they are
highly liquid and have original maturities of three (3) months or less.
F-7
<PAGE> 37
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 December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Inventories valued at first-in, first-out
("FIFO") cost:
Raw materials and purchased parts $10,570,000 $ 8,391,000
Work-in-process 4,281,000 4,043,000
Finished goods 9,066,000 10,020,000
----------- -----------
23,917,000 22,454,000
Less excess of FIFO over LIFO cost 5,571,000 5,920,000
----------- -----------
$18,346,000 $16,534,000
=========== ===========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is
computed on the straight-line, declining balance and
sum-of-the-years-digits methods over the estimated service lives of the
depreciable assets (10-33 years for buildings and 3-10 years for
machinery and equipment).
Maintenance and repairs are charged to expense as incurred. Cost of
renewals and betterments are capitalized by charges to property accounts
and depreciated at applicable annual rates. The cost and accumulated
depreciation of assets sold, retired, or otherwise disposed of are
removed from the accounts, and the related gain or loss is credited or
charged to income.
REVENUE RECOGNITION
Revenue is recognized upon the shipment of the Company's products to its
customers.
DESIGN AND DEVELOPMENT
Design and development expenses are charged against income in the period
in which the expenses are incurred.
F-8
<PAGE> 38
INSURANCE ARRANGEMENTS
The Company is partially self-insured for worker's compensation, product
liability, and employee medical/dental claims. The Company purchases
insurance coverage for all worker's compensation claims in excess of
$250,000 per occurrence, for all product liability claims in excess of
$100,000 per occurrence, and for all medical claims in excess of $200,000
per occurrence.
Worker's compensation claims are accrued currently for management's
estimated cost of claims incurred, including related expenses, based upon
independent actuary reports and historical claims experience. Product
liability and employee medical/dental claims are also accrued currently
based on management's estimated cost of claims incurred as determined by
reference to historical experience and current claim trends. Management
considers the accrued liabilities for unsettled claims to be adequate;
however, there is no assurance that the estimates accrued will not vary
from the ultimate amounts incurred upon final disposition of all
outstanding claims. As a result, periodic adjustments to the reserves
will be made as events occur which indicate changes are necessary.
PRODUCT WARRANTIES
The Company warrants its products against manufacturing defects generally
for a period of three years commencing at the time of sale. The estimated
cost of such warranties is accrued at the time of sale based upon
historical experience and current claim trends. Periodic adjustments to
the accrual will be made as events occur which indicate changes are
necessary.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company recognizes non-cash ESOP compensation expense as shares of
stock owned by the ESOP are committed to be released to participant
accounts based on the average fair value of the shares during the year.
Shares of stock owned by the ESOP are committed to be released to
participant accounts based on scheduled principal payments to be made on
the ESOP debt. The difference in the average fair value of the committed
shares and the original cost of those shares, net of income taxes, if
applicable, is charged or credited to paid-in capital (see Notes 4 and
7).
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company currently maintains a plan whereby the Company pays
supplemental Medicare insurance premiums on behalf of certain retired
officers, directors and their spouses. The plan will also provide these
benefits to certain current officers and directors who meet the stated
service requirements upon their retirement. The Company accounts for
these benefits in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 106, Employers' Accounting for Postretirement
Benefits Other Than
F-9
<PAGE> 39
Pensions, which requires the accrual of postretirement benefits as they
are earned by employees.
The Company also maintains a plan whereby the Company provides medical
insurance coverage through its self-insured medical/dental plan to
certain former officers and directors who have terminated their
employment and have not reached retirement age. The Company accounts for
these benefits in accordance with SFAS No. 112, Employers' Accounting for
Postemployment Benefits, which requires the accrual of postemployment
benefits as they are earned by employees.
INCOME TAXES
The Company accounts for income taxes utilizing the asset and liability
method of accounting for deferred income taxes and recognizes deferred
tax benefits and liabilities for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted SFAS No. 121 which
requires all businesses to recognize an impairment loss on a long-lived
asset as a charge to current income when certain events or changes in
circumstances indicate that the carrying value of the asset may not be
recoverable. The Company continually evaluates whether events and
circumstances have occurred that indicate the remaining balance of such
long-lived assets and intangibles may be impaired and not be recoverable.
In performing this evaluation, the Company uses an estimate of the
related cash flows expected to result from the use of the asset and its
eventual disposition. When this evaluation indicates the asset has been
impaired, the Company will measure such impairment based on the asset's
fair value. There was no effect on the financial statements as a result
of adoption of this standard.
As of December 31, 1996 and December 31, 1995, accumulated amortization
of intangibles amounted to $366,000 and $288,000, respectively.
ACCOUNTING FOR STOCK-BASED COMPENSATION
SFAS No. 123, Accounting for Stock-Based Compensation, requires all
businesses to change the disclosures about their employee stock-based
compensation plans, recommends changes in the accounting for these plans,
and requires those businesses who do not change their accounting to
disclose what their earnings and earnings per share would have been if
they had changed. SFAS No. 123 recommends, but does not require, that a
company value all stock transactions with employees and non-employees at
the fair value of the equity instrument. While the Company did adopt SFAS
No. 123 effective January 1, 1996, the Company did not change its
accounting for stock-based
F-10
<PAGE> 40
compensation. As a result, the Company has disclosed the required pro
forma information (see Note 7).
INCOME PER SHARE
Income per share has been computed based on the weighted average number
of common shares outstanding, including the effect of outstanding stock
options, if dilutive, in each respective year. Shares of stock owned by
the ESOP that have been committed to be released, net of shares
distributed to participants (1,368,888, 1,065,663, and 710,290 at
December 31, 1996, 1995 and 1994, respectively), have been considered
outstanding, on a weighted average basis, for the purpose of computing
income per share. Shares of stock owned by the ESOP that have not been
committed to be released (2,060,859, 2,412,219, and 2,778,825 at December
31, 1996, 1995 and 1994, respectively) have not been considered
outstanding for such purpose.
FOREIGN CURRENCY TRANSLATION
The Company has determined that the local currency of its Canadian
subsidiary is the functional currency. In accordance with SFAS No. 52,
Foreign Currency Translation, the assets and liabilities denominated in
foreign currency are translated into U.S. dollars at the current rate of
exchange existing at year-end and revenues and expenses are translated at
average monthly exchange rates. Related translation adjustments are
reported as a separate component of stockholders' equity, whereas gains
or losses resulting from foreign currency transactions are included in
results of operations.
PRIOR YEAR RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
3. INCOME TAXES
An analysis of the provision (credit) for income taxes from continuing
operations for the years ended December 31, 1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Federal:
Current $2,460,000 $1,997,000 $4,064,000
Deferred (95,000) 349,000 (262,000)
---------- ---------- ----------
2,365,000 2,346,000 3,802,000
State/Provincial:
Current 278,000 237,000 478,000
Deferred (51,000) 41,000 (24,000)
---------- ---------- ----------
227,000 278,000 454,000
---------- ---------- ----------
$2,592,000 $2,624,000 $4,256,000
========== ========== ==========
</TABLE>
F-11
<PAGE> 41
The amount of income taxes attributable to the Canadian subsidiary has
not been presented separately as the amount is not material.
The provisions for income taxes from continuing operations differs from
the amounts computed by applying the federal statutory rate due to the
following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Tax provision at the federal
statutory rate $1,968,000 $1,987,000 $3,618,000
State income taxes, net of federal
income tax benefit 150,000 183,000 300,000
Non-cash ESOP compensation 546,000 563,000 214,000
Other (72,000) (109,000) 124,000
---------- ---------- ----------
$2,592,000 $2,624,000 $4,256,000
========== ========== ==========
</TABLE>
Temporary differences which create net deferred tax benefits at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Canadian net operating loss carryforward $ 991,000 $ 0
Accrued loss on disposal of discontinued operations 861,000 0
Deferred compensation 821,000 757,000
Allowance for doubtful accounts 146,000 223,000
Accrued performance compensation 330,000 401,000
Accrued product liability 211,000 248,000
Accrued worker's compensation 214,000 227,000
Inventory 368,000 281,000
Accrued warranty 246,000 232,000
Depreciation (745,000) (188,000)
Accrued vacation 237,000 220,000
Accrued medical claims 310,000 256,000
Other 64,000 67,000
---------- ----------
$4,054,000 $2,724,000
========== ==========
</TABLE>
The Company has not recorded a valuation allowance for deferred tax
benefits as realization is considered more likely than not due to
significant income taxes paid by the Company in prior years.
F-12
<PAGE> 42
4. LONG-TERM DEBT
The Company's long-term debt at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Bank term loan (ESOP), variable rate, 7.91%
and 8.11% at December 31, 1996 and 1995,
respectively, secured by fixed assets of
the Company $ 7,160,000 $ 8,354,000
Bank term loan, fixed rate of 6.90%, unsecured 4,750,000 0
Capitalized lease obligations, interest rates ranging
from 5.37% to 7.46% at December 31, 1996
and 1995, secured by automotive and computer
equipment 71,000 189,000
Other 74,000 0
----------- -----------
12,055,000 8,543,000
Less current maturities 1,792,000 1,315,000
----------- -----------
$10,263,000 $ 7,228,000
=========== ===========
</TABLE>
In connection with the establishment of the ESOP, on January 7, 1993, the
Company obtained a bank term loan amounting to $11,934,000 due over a
ten-year period at a rate of 79.5% of prime plus 1.35%. Simultaneously,
the Company entered into a separate interest rate swap agreement with the
bank which carried a notional principal amount of $11,934,000 (which
notional amount amortizes corresponding with the loan balance), on which
the Company receives payments based on a variable rate (6.56% and 6.76%
at December 31, 1996 and 1995 respectively) and makes payments based on a
fixed rate of 6.86%. This agreement is designed to fix the interest rate
on the debt for seven years at 8.21%. The bank term loan proceeds were
loaned by the Company to the ESOP (see Notes 2 and 7), which utilized the
funds together with a $54,000 cash contribution from the Company to
purchase 3,489,115 shares of common stock from existing stockholders. The
terms of the Company loan to the ESOP are substantially similar to the
terms under the bank term loan. The Company is obligated to repay the
bank term loan in semiannual principal payments of $596,700 each and has
pledged the fixed assets of the Company as collateral on the loan. The
bank term loan also requires the Company to meet certain defined
covenants and ratios (i.e., debt service coverage, working capital, and
net worth) common to such agreements, all of which the Company was in
compliance with at December 31, 1996.
During 1996, in connection with the acquisition of the Canadian
subsidiary, the Company received a $5,000,000 bank term loan which was
utilized to refinance the subsidiary's debt. The bank term loan requires
semi-annual principal payments in the amount of $250,000 and matures on
March 15, 2003.
F-13
<PAGE> 43
The total debt maturing in each of the next five years at December 31,
1996 is as follows:
<TABLE>
<S> <C>
1997 $ 1,792,000
1998 1,711,000
1999 1,717,000
2000 1,697,000
2001 1,693,000
Thereafter 3,445,000
-----------
$12,055,000
===========
</TABLE>
5. BANK LINE OF CREDIT
At December 31, 1996, the Company maintained an unsecured bank line of
credit of up to a maximum of $20,000,000 which is to be utilized to
finance inventories and receivables on an interim basis. Interest on the
line of credit is payable monthly at a variable rate based on the 30-day
London Interbank Offered Rate ("LIBOR") plus 1.25%. The existing line
agreement expires on July 31, 1997. There were no amounts outstanding on
the line at December 31, 1996 and 1995. The maximum and average amounts
of borrowings outstanding under the line of credit were $13,047,000 and
$4,966,000, and $13,252,000 and $3,985,000 during 1996 and 1995,
respectively. The weighted average interest rates on these borrowings
during 1996 and 1995 were 6.7% and 7.8%, respectively.
6. STOCKHOLDERS' EQUITY
On July 13, 1995, the Company commenced its Offering of 2,000,000 shares
of common stock at an initial price to the public of $9.50 per share. The
closing of the transaction was completed on July 18, 1995, at which time
the underwriters of the Offering exercised their over-allotment option to
purchase an additional 300,000 shares of common stock to be sold to the
public at $9.50 per share. The proceeds of the Offering, net of an
underwriting discount of $1,530,000 and expenses of $923,000, were
$19,397,000.
7. EMPLOYEE BENEFIT AND COMPENSATION PLANS
EMPLOYEE AND DIRECTOR STOCK OPTION PLANS
In 1988, the Company adopted the 1988 Stock Option Plan for certain key
management personnel. Options granted under the 1988 plan were issued at
a total purchase price determined by the Board of Directors, to be
satisfied 50% in cash upon exercise of the options and 50% in previously
earned but unpaid compensation accrued. The previously earned but unpaid
compensation accrued represents compensation utilized to reduce the cash
exercise price of the option at the date of grant. The difference in the
total purchase price of the options and the estimated fair value of the
shares at the date of grant was not material to the Company's
consolidated financial statements. Options granted under the
F-14
<PAGE> 44
1988 plan are exercisable over a ten-year period beginning one year after
the date of grant. At December 31, 1996, there were no options available
for grant under this plan.
In 1994, the Company adopted the 1994 Stock Option Plan for certain
officers, directors, and key management employees of the Company. Options
granted under the 1994 plan were issued at estimated fair value and are
exercisable over a ten-year period. Total options issuable under this
plan amount to 525,000, of which 159,800, 20,000 and 54,250 were issued
in 1996, 1995 and 1994, respectively.
During 1994, the Company adopted a stock option agreement with a former
director and consultant whereby options for 7,000 shares were granted at
their estimated fair value. These options are exercisable over a ten-year
period.
During 1996, the Company adopted the 1996 Non-Employee Directors' Stock
Option and Deferred Compensation Plan whereby directors may elect to
receive stock options in lieu of directors' fees. Further, directors may
elect to defer all or any portion of the directors' fees in accordance
with the terms of the 1996 plan. Options granted under the 1996 plan were
issued at estimated fair value and are exercisable over a ten-year period
beginning one year after the date of grant. Total options issuable under
this plan amount to 100,000, of which 11,574 were issued in 1996.
The Company accounts for these plans under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost for
these plans been determined consistent with SFAS No. 123, the Company's
income from continuing operations and income from continuing operations
per share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Income from continuing operations:
As Reported $3,195,000 $3,221,000
Pro Forma $2,960,000 $3,219,000
Income from continuing operations per share:
As Reported $ 0.47 $ 0.62
Pro Forma $ 0.44 $ 0.62
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
Information with respect to stock options is summarized as follows
(weighted average purchase price of $3.68 per share at December 31,
1996):
F-15
<PAGE> 45
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ ------------------
Shares Wtd Avg Shares Wtd Avg Shares Wtd Avg
(000) Ex Price (000) Ex Price (000) Ex Price
----- -------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 755 $2.02 741 $1.82 882 $1.53
Granted 171 7.84 20 9.13 61 5.14
Exercised (248) 1.50 (6) 1.50 (202) 1.56
Forfeited -- -- -- -- -- --
Expired -- -- -- -- -- --
---- ---- ----
Outstanding at end of year 678 $3.68 755 $2.02 741 $1.82
---- ---- ----
Exercisable at end of year 507 $2.26 735 $1.82 680 $1.52
---- ---- ----
Weighted average fair value of
options granted $3.62 $4.29
---- ----
</TABLE>
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995,
respectively: risk-free interest rates of 6.03 and 5.71 percent; expected
dividend yields of 1.9 and 1.5 percent; expected lives of six years;
expected volatility of 48 percent.
Of the 678,000 options outstanding at December 31, 1996, 426,000 have a
range of exercise prices between $1.27 and $1.73 with a weighted average
exercise price of $1.53 and a weighted average remaining contractual life
of six years. All of these options are exercisable. Of the options
outstanding at December 31, 1996, 168,000 have a range of exercise prices
between $5.14 and $8.00 with a weighted average exercise price of $6.22
and a weighted average remaining contractual life of nine years. Of these
options, 61,250 are exercisable. The remaining 84,000 options outstanding
at December 31, 1996 have a range of exercise prices from $9.13 to $9.50
with a weighted average exercise price of $9.76 and a weighted average
remaining contractual life of ten years. Of these options, 20,000 are
exercisable.
During 1996, 1995 and 1994, the Company recognized tax benefits related
to the exercise of stock options in the amounts of $694,000, $17,000, and
$165,000, respectively. The tax benefits were credited to paid-in capital
in the respective years.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company maintains an ESOP which is available to substantially all
employees who meet certain age and service requirements. The Company's
Board of Directors serves as the ESOP's Administrative Committee and
thereby directs the actions of the trustees of the ESOP, who are
executive officers of the Company.
On January 7, 1993, the ESOP received a loan from the Company in the
amount of $11,934,000 under substantially similar terms as the Company's
bank term loan discussed in Note 4. The ESOP utilized the funds together
with a $54,000 initial cash contribution from the Company to purchase
3,489,115 shares of Company common stock from existing stockholders. The
ESOP has pledged the common stock purchased as security
F-16
<PAGE> 46
on the loan from the Company. The outstanding balance due on the loan,
which is reflected as unearned compensation in the accompanying
consolidated balance sheets, as of December 31, 1996 and 1995 was
$7,080,000 and $8,287,000, respectively. Company contributions are made
to the ESOP in such amounts as determined by the Company's Board of
Directors; however, the Company's contribution must be sufficient to
cover principal and interest on the loan to the ESOP.
During the years ended December 31, 1996, 1995 and 1994, the Company
recognized interest expense related to the ESOP debt of $645,000,
$782,000 and $879,000, respectively. Non-cash ESOP compensation expense
recognized by the Company during the years ended December 31, 1996, 1995
and 1994, which was based on the average fair value of the shares
committed to be released as compensation, amounted to $2,812,000,
$2,850,000 and $1,824,000, respectively. Additionally, the fair value of
shares released in payment of dividends on allocated shares amounted to
$154,000, $277,000 and $33,000 in 1996, 1995 and 1994, respectively.
The difference in the average fair value and the original cost of shares
committed to be released as compensation or dividends on allocated
shares, net of income taxes, if applicable, was credited to paid-in
capital during the years ended December 31, 1996, 1995 and 1994 and
amounted to $1,759,000, $1,867,000 and $624,000, respectively.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("SERP")
The SERP was adopted by the Company to provide retirement benefits for
certain key management personnel who are not eligible to participate in
the ESOP. Awards under the plan are granted annually to participants in
the form of phantom shares of Company common stock equal to the number of
shares the participant would have received under the ESOP.
During 1996, 1995 and 1994, phantom shares of the Company's common stock
totaling 12,571, 17,842 and 20,795, respectively, were allocated to
participant accounts. Compensation expense equal to the fair value of
phantom shares granted is accrued annually together with any change in
the fair value of shares previously allocated. Compensation expense in
1996, 1995 and 1994 amounted to ($2,000), $237,000 and $221,000,
respectively.
PROFIT-SHARING PLAN
The Company maintains a profit-sharing plan covering substantially all
employees. Contributions to the plan are at the discretion of the Board
of Directors. As a result of the adoption of the ESOP in 1993, no
contributions have been made to the plan since 1992.
As part of the profit-sharing plan, the Company offers a savings and
retirement provision under Section 401(k) of the Internal Revenue Code to
substantially all of its employees. Under these provisions, employees may
contribute up to 8% of their total compensation
F-17
<PAGE> 47
to the plan. The Company makes matching contributions up to a maximum of
1% of the employee's compensation, as defined, which amounted to $87,000,
$88,000 and $91,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
DEFERRED COMPENSATION PLAN
The Company maintains a supplemental income plan for 11 current or
retired employees. The Plan provides for 120 monthly payments starting at
age 65 equal to 40% of the employee's regular compensation, as defined.
The Company is accruing the net present value of the estimated benefits
from the dates of the agreements to the estimated retirement dates. As a
part of this program, the Company purchased life insurance on the
participants to utilize in funding these obligations. Deferred
compensation expense recognized by the Company in the years ended
December 31, 1996, 1995 and 1994 amounted to $371,000, $148,000 and
$286,000, respectively.
PERFORMANCE COMPENSATION
During the years ended December 31, 1995 and 1994, certain incentive
compensation was accrued as approved by the Compensation Committee of the
Board of Directors based upon the achievement of certain established
profit goals. The Company's provision for performance compensation in
1996, 1995 and 1994 amounted to $0, $338,000 and $1,247,000,
respectively.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosure About Fair Value of Financial Instruments,
requires all businesses to disclose the fair value of financial
instruments, both assets and liabilities recognized and not recognized on
the balance sheet, for which it is practicable to estimate fair value.
Based upon their remaining term to maturity and the current interest rate
environment, the estimated fair value of the Company's financial
instruments at December 31, 1996 approximates their carrying value at
that date.
As of December 31, 1996 and as discussed in Note 4, the Company is a
party to an interest rate swap, an off-balance-sheet, derivative
financial instrument. The interest rate swap carries a current notional
amount of $7,160,000 and is accounted for as a 7-year hedge of the bank
term loan originated in 1993. The counter-party to the interest rate swap
is the Company's primary bank. The Company believes the credit and
liquidity risk of the counter-party failing to meet its obligation is
remote as the Company settles its interest position with the bank on a
quarterly basis. The amount of gain in the interest rate swap currently
deferred is its estimated termination benefit of $10,600 as of
December 31, 1996.
F-18
<PAGE> 48
9. COMMITMENTS AND CONTINGENCIES
LEGAL
The Company is a party to various legal proceedings, including employment
matters, incidental to its business. In the opinion of management, after
consultation with legal counsel responsible for these matters, the
ultimate liability, if any, with respect to these proceedings is not
presently expected to materially affect the financial position or results
of operations of the Company; however, the ultimate resolution of these
matters, which could occur within one year, could result in losses in
excess of current estimates.
LEASES
The Company had financing lease obligations for a portion of its
manufacturing facilities and its central office building. These
obligations were classified as financing leases as they contained bargain
purchase options which the Company intends to exercise. Although the
Company satisfied the financing lease obligations in a prior year, the
bargain purchase options had not been exercised as of December 31, 1996.
A summary of the asset balances of the leased facilities follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Class of property:
Land $ 192,000 $ 192,000
Buildings and Machinery 2,223,000 2,223,000
----------- -----------
2,415,000 2,415,000
Less accumulated amortization 1,513,000 1,464,000
----------- -----------
$ 902,000 $ 951,000
=========== ===========
</TABLE>
In addition, the Company has various items of machinery and equipment
under operating leases that expire during the next one to five years or
are on month-to-month rental terms. Rent expense under all operating
leases amounted to $463,000, $449,000 and $336,000 in the years ended
December 31, 1996, 1995 and 1994, respectively.
The following is a schedule of future minimum rental payments by year
under operating leases having initial or remaining noncancelable lease
terms in excess of one year as of December 31, 1996:
<TABLE>
<S> <C>
1997 $272,000
1998 189,000
1999 155,000
2000 137,000
2001 33,000
Thereafter 83,000
--------
$869,000
========
</TABLE>
F-19
<PAGE> 49
10. 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., 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
promissory notes bear interest at a rate of 9% per annum and mature
during 1997. The purpose of the escrow is to make funds available to meet
the seller's indemnification obligations to the Company. The total
purchase price exceeded the fair value of net assets acquired by
approximately $2,250,000, which amount is recorded as goodwill (included
in other non-current assets) to be amortized over 40 years. The
consolidated results of operations for the year ended December 31, 1996
reflect the operations of the acquisition beginning February 1, 1996.
The following unaudited pro forma summary presents the consolidated
results of continuing operations of the Company as if the business
combination had occurred on January 1, 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net sales from continuing operations $90,842,000 $84,811,000
Income from continuing operations $ 2,677,000 $ 1,517,000
Income from continuing operations per are $ .40 $ .29
</TABLE>
11. DISCONTINUED OPERATIONS
On February 24, 1997, the Company announced that it had elected to
discontinue its operations in the metal office furniture segment. The
segment's operations have been treated as a discontinued operation for
accounting purposes for all years presented. Income from discontinued
operations has been reported net of taxes of $37,000, $813,000 and
$465,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. The Company has established a reserve at December 31, 1996
of $1,430,000, net of taxes of $861,000, for estimated operating losses
($1,436,000-included in other accrued liabilities) through the date of
discontinuance (April, 1997), write-downs of inventory ($100,000) and
property, plant and equipment ($510,000) to estimated net realizable
value, and estimated costs to discontinue these operations ($245,000).
While the Company has not determined if it will sell the plant that
manufactured the metal office furniture, the Company has reduced the
carrying value of such plant to its net realizable value. The operating
results have been segregated and reported as discontinued operations in
the accompanying consolidated statements of operations.
F-20
<PAGE> 50
12. INDUSTRY SEGMENT INFORMATION
The Company's operations by industry segment are presented below. These
segments have been determined based on the type of business and
distribution channel utilized.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
CONTINUING OPERATIONS:
Net sales:
Home heating products $76,413,000 $61,618,000 $73,102,000
Leisure and other products 13,781,000 14,287,000 12,680,000
----------- ----------- -----------
$90,194,000 $75,905,000 $85,782,000
=========== =========== ===========
Gross profit:
Home heating products $22,284,000 $18,464,000 $24,131,000
Leisure and other products 2,576,000 2,328,000 2,139,000
----------- ----------- -----------
$24,860,000 $20,792,000 $26,270,000
=========== =========== ===========
Segment contribution:(1)
Home heating products $14,804,000 $12,986,000 $17,914,000
Leisure and other products 1,001,000 1,135,000 1,055,000
----------- ----------- -----------
$15,805,000 $14,121,000 $18,969,000
=========== =========== ===========
Identifiable assets:
Home heating products $31,097,000 $19,681,000 $18,584,000
Leisure and other products 4,724,000 4,684,000 4,303,000
----------- ----------- -----------
$35,821,000 $24,365,000 $22,887,000
=========== =========== ===========
DISCONTINUED OPERATIONS:
Net sales $16,516,000 $21,420,000 $17,792,000
Gross profit $ 1,851,000 $ 3,965,000 $ 2,784,000
Segment contribution(1) $ 99,000 $ 2,162,000 $ 1,236,000
Identifiable assets $ 9,346,000(2) $11,872,000 $10,154,000
</TABLE>
(1) Segment contribution consists of gross profit less selling expenses.
(2) Represents Property, Plant and Equipment-$1,294,000; Accounts
Receivable-$5,019,000; and Inventory-$3,033,000.
F-21
<PAGE> 51
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Martin Industries, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of MARTIN INDUSTRIES, INC. included in this
Form 10-K and have issued our report thereon dated February 24, 1997. Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the accompanying index is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
February 24, 1997
S-1
<PAGE> 52
SCHEDULE II
MARTIN INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
CHARGED/
BALANCE AT (CREDITED) (DEDUCTIONS)/
BEGINNING TO COSTS AND RECOVERIES, BALANCE AT
OF YEAR EXPENSES NET END OF YEAR
---------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts $1,356,000 $ 60,000 $(141,000) $1,275,000
FOR THE YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts $1,275,000 $(583,000) $ (98,000) $ 594,000
FOR THE YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts $ 594,000 $(117,000) $ (58,000) $ 419,000
</TABLE>
S-2
<PAGE> 53
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MARTIN INDUSTRIES, INC.
By:/s/ James D. Wilson
-------------------------------------
James D. Wilson
President and Chief Executive Officer
Date: March 28, 1997
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 Company and in
the capacities and on the dates indicated.
Signature Title Date
/s/ JAMES D. WILSON President, Chief Executive Officer March 28, 1997
- --------------------------
James D. Wilson and Director (Principal Executive
Officer)
/s/ RODERICK V. SCHLOSSER Vice President of Finance and March 28, 1997
- --------------------------
Roderick V. Schlosser Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ JAMES W. TRUITT Director March 28, 1997
- --------------------------
James W. Truitt
/s/ WILLIAM H. MARTIN, III Director March 28, 1997
- --------------------------
William H. Martin, III
/s/ WILLIAM D. BIGGS Director March 28, 1997
- --------------------------
William D. Biggs
/s/ JIM D. CAUDLE, SR. Director March 28, 1997
- --------------------------
Jim D. Caudle, Sr.
/s/ HERBERT J. DICKSON Director March 28, 1997
- --------------------------
Herbert J. Dickson
/s/ BILL G. HUGHEY Director March 28, 1997
- --------------------------
Bill G. Hughey
/s/ CHARLES R. MARTIN Director March 28, 1997
- --------------------------
Charles R. Martin
/s/ LOUIS J. MARTIN, II Director March 28, 1997
- --------------------------
Louis J. Martin, II
<PAGE> 55
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Description of Exhibits Number
- ------ ----------------------- ------
<S> <C>
*3(a) Form of Restated Certificate of Incorporation of Martin
Industries, Inc. which was filed as Exhibit 3(a) to the Company's
Registration Statement on Form S-1 filed with the Commission on
March 17, 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. (included in Exhibit 3(a)).
*10(a) Martin Industries, Inc. Employee Stock Ownership Plan, as amended,
which was filed as Exhibit 10(a) to the Company's Registration
Statement on Form S-1 filed with the Commission on March 17, 1995
(Registration No. 33-90432) and, with respect to Amendment No. 7
thereto, as filed as Exhibit 10(a) to the Company's Quarterly
Report on Form 10-Q for the 13-week period ended September 30,
1995 (Commission File No. 0-26228).
*10(b) Martin Industries, Inc. Employee Stock Ownership Trust Agreement
between Martin Industries, Inc., Bill G. Hughey, James W. Truitt
and James D. Wilson dated November 12, 1992, as amended, which was
filed as Exhibit 10(b) to the Company's Registration Statement on
Form S-1 filed with the Commission on March 17, 1995 (Registration
No. 33-90432).
*10(c) Loan Agreement by and between Martin Industries, Inc. and AmSouth
Bank N.A. dated January 7, 1993 in the principal amount of
$11,934,000, as amended, which was filed as Exhibit 10(c) to the
Company Registration Statement on Form S-1 filed with the
Commission on March 17, 1995 (Registration No. 33-90432).
*10(d) Term Note by Martin Industries, Inc. in favor of AmSouth Bank,
N.A. dated January 7, 1993 in the principal amount of $11,934,000
which was filed as Exhibit 10(d) to the Company's Registration
Statement on Form S-1 filed with the Commission on March 17, 1995
(Registration No. 33-90432).
*10(e) Loan and Security Agreement by and between Bill G. Hughey, James
W. Truitt and James D. Wilson, as trustees of the Martin
Industries, Inc. Employee Stock Ownership Plan and Related Trust
(the "ESOP"), and Martin Industries, Inc. dated January 7, 1993 in
the principal amount of $11,934,000 which was filed as Exhibit
10(f) to the Company's Registration Statement on Form S-1 filed
with the Commission on March 17, 1995 (Registration No. 33-90432).
*10(f) Promissory Note by Bill G. Hughey, James W. Truitt and James D.
Wilson, as trustees of the ESOP, in favor of Martin Industries,
Inc. dated January 7, 1993, in the principal amount of $11,934,000
which was filed as Exhibit 10(g) to the Company's Registration
Statement on Form S-1 filed with the Commission on March 17, 1995
(Registration No. 33-90432).
</TABLE>
<PAGE> 56
<TABLE>
<S> <C>
*10(g) Interest Rate Swap Agreement by and between Martin Industries,
Inc. and AmSouth Bank, N.A. dated November 3, 1992 which was filed
as Exhibit 10(h) to the Company's Registration Statement on Form
S-1 filed with the Commission on March 17, 1995 (Registration No.
33-90432).
*10(h) License and Commercial Agreement by and between Astle Corporation
and Martin Industries, Inc. dated July 1, 1994 which was filed as
Exhibit 10(i) to the Company's Registration Statement on Form S-1
filed with the Commission on March 17, 1995 (Registration No.
33-90432).
*10(i) License and Commercial Agreement by and between Astle Corporation
and Martin Industries, Inc., dated July 1, 1994 which was filed as
Exhibit 10(j) to the Company's Registration Statement on Form S-1
filed with the Commission on March 17, 1995 (Registration No.
33-90432).
*10(j) Acquisition Service Agreement by and between Martin Industries,
Inc, and Amerimark Capital Group dated September 1, 1994 which was
filed as Exhibit 10(k) to the Company's Registration Statement on
Form S-1 filed with the Commission on March 17, 1995 (Registration
No. 33-90432).
*10(k) Martin Industries, Inc. 1988 Nonqualified Stock Option Plan, as
amended, which was filed as Exhibit 10(l) to the Company's
Registration Statement on Form S-1 filed with the Commission on
March 17, 1995 (Registration No. 33-90432).
*10(l) Executive Supplemental Income Plan Guidelines and Form of
Supplemental Income Agreement which was filed as Exhibit 10(n) to
the Company's Registration Statement on Form S-1 filed with the
Commission on March 17, 1995 (Registration No. 33-90432).
*10(m) Supplemental Executive Retirement Plan which was filed as Exhibit
10(o) to the Company's Registration Statement on Form S-1 filed
with the Commission on March 17, 1995 (Registration No. 33-90432).
*10(n) Lease Agreement by and between the Industrial Development Board
for the City of Florence and Martin Industries, Inc. dated August
1, 1978 which was filed as Exhibit 10(p) to the Company's
Registration Statement on Form S-1 filed with the Commission on
March 17, 1995 (Registration No. 33-90432).
*10(o) Lease Agreement by and between the Industrial Development Board
for the City of Athens and Martin Stamping & Stove Company,
predecessor corporation to Martin Industries, Inc., dated December
1, 1964 which was filed as Exhibit 10(q) to the Company's
Registration Statement on Form S-1 filed with the Commission on
March 17, 1995 (Registration No. 33-90432).
*10(p) Renewal Option Agreement between the Industrial Development Board
of the City of Athens and Martin Stamping & Stove Company,
predecessor corporation to Martin Industries, Inc., dated December
1, 1964 which was filed as Exhibit 10(r) to the Company's
Registration Statement on Form S-1 filed with the Commission on
March 17, 1995 (Registration No. 33-90432).
*10(q) Purchase Option Agreement between the Industrial Development Board
of the City of Athens and Martin Stamping & Stove Company,
predecessor corporation to Martin Industries, Inc., dated December
1, 1964 which was filed as Exhibit 10(s) to the Company's
Registration Statement on Form S-1 filed with the Commission on
March 17, 1995 (Registration No. 33-90432).
</TABLE>
<PAGE> 57
<TABLE>
<S> <C>
*10(r) First Amendment to Loan Agreement and Other Loan Documents by and
between Martin Industries, Inc. and AmSouth Bank of Alabama dated
as of March 15, 1995 which was filed as Exhibit 10(u) to the
Company's Registration Statement on Form S-1 filed with the
Commission on March 17, 1995 (Registration No. 33-90432).
*10(s) Modified, Amended and Restated Line of Credit Note by Martin
Industries, Inc. in favor of AmSouth Bank of Alabama dated as of
March 15, 1995 in the principal amount of $20,000,000 which was
filed as Exhibit 10(v) to the Company's Registration Statement on
Form S-1 filed with the Commission on March 17, 1995 (Registration
No. 33-90432).
*10(t) Share Purchase Agreement dated February 1, 1996, by and among the
Company, 1166081 Ontario Inc., certain shareholders of Hunter
Energy and Technologies Inc., 1061099 Ontario Inc. and 679401
Ontario Inc. and all of the shareholders of Airform Fabrics Inc.
which was filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K as filed with the Commission on February 16, 1996
(Commission File No. 0-26228).
*10(u) Share Purchase Agreement dated as of February 1, 1996, by and
among 1166081 Ontario Inc., Iain J. Richmond, Donald A. Hunter,
Andrew St. Germaine and Donshardan Investments Ltd. which was
filed as Exhibit 2.2 to the Company's Current Report on Form 8-K
as filed with the Commission on February 16, 1996 (Commission File
No. 0-26228).
*10(v) Second Amendment to Loan Agreements and Other Loan Documents dated
as of March 28, 1996, by and between Martin Industries, Inc. and
AmSouth Bank of Alabama which was filed as Exhibit 10(y) to the
Company's Annual Report on Form 10-K as filed with the Commission
on March 30, 1996 (Commission File No. 0-26228).
*10(w) Term Note by Martin Industries, Inc. in favor of AmSouth Bank of
Alabama dated March 28, 1996, in the principal amount of
$5,000,000 which was filed as Exhibit 10(z) to the Company's
Annual Report on Form 10-K as filed with the Commission on March
30, 1996 (Commission File No. 0-26228).
10(x) Martin Industries, Inc. 1996 Non-Employee Directors' Stock Option
and Deferred Compensation Plan.
10(y) Amendment No. 6 to Martin Industries, Inc. 1988 Nonqualified Stock
Option Plan.
10(z) Martin Industries, Inc. Amended and Restated 1994 Nonqualified
Stock Option Plan.
11 Statement regarding computation of per share earnings.
</TABLE>
<PAGE> 58
<TABLE>
<S> <C>
21 Subsidiaries of the Company.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule (Electronic Submission only).
</TABLE>
* Incorporated by reference.
<PAGE> 1
EXHIBIT 10(X)
MARTIN INDUSTRIES, INC.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION
AND DEFERRED COMPENSATION PLAN
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS
As used herein, the following terms shall have the meanings hereinafter
set forth unless the context clearly indicates to the contrary:
(a) "Board" shall mean the Board of Directors of Martin
Industries, Inc., a Delaware corporation.
(b) "Committee" shall mean the committee of the Board appointed
pursuant to Article III to administer the Plan.
(c) "Company" shall mean Martin Industries, Inc., a Delaware
corporation, and any successor in interest thereto.
(d) "Eligible Director" shall mean any person who is serving as
a director of the Company who is not an officer of the Company or a subsidiary
of the Company or otherwise employed by the Company or a subsidiary of the
Company.
(e) "Fair Market Value" shall mean, if applicable, the closing
price per share of the Stock on the principal United States securities exchange
registered under the 1934 Act on which such Stock is sold in the regular way; or
the last sales price of the day during regular trading per share of the Stock
quoted on an automated quotation system of a registered securities association
on which such Stock is sold in the regular way; or if the Stock is not
registered or traded in such a manner that such quotations are available, the
Fair Market Value shall be deemed to be the fair value per share of Stock
determined in good faith by the Board or the Committee as of a date which is
within 30 days of the date as of which the determination is to be made.
(f) "Fees" shall mean the cash retainer and meeting fees
payable to an Eligible Director for service on the Board of Directors of the
Company and any committees thereof.
(g) "Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended.
(h) "Option" shall mean an option to purchase Stock granted
pursuant to the provisions of Article IV hereof.
(i) "Optionee" shall mean a person to whom an Option has been
granted hereunder.
(j) "Plan" shall mean the Martin Industries, Inc. 1996
Non-Employee Directors' Stock Option and Deferred Compensation Plan, the terms
of which are set forth herein.
(k) "Retainer" shall mean the cash retainer payable to an
Eligible Director for service on the Board of Directors of the Company and any
committees thereof.
(l) "Stock," with respect to each share to which that term
refers, shall mean one (1) share of Common Stock, par value $0.01 per share, of
the Company now authorized; any other shares of the Stock of
1
<PAGE> 2
the Company hereafter authorized; and securities of the Company which, under any
conditions, will be converted into or exchanged for any such Stock.
(m) "Stock Option Agreement" shall mean the agreement between
the Company and the Optionee under which the Optionee may purchase Stock
hereunder.
(n) "1934 Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
ARTICLE II
THE PLAN
SECTION 2.1 NAME
This Plan shall be known as the "Martin Industries, Inc. 1996
Non-Employee Directors' Stock Option and Deferred Compensation Plan."
SECTION 2.2 PURPOSE
The purpose of the Plan is to advance the interests of the Company and
its stockholders by affording to Eligible Directors an opportunity to acquire or
increase their proprietary interest in the Company by the grant to such
directors of Options and by allowing such directors to receive Options in lieu
of Fees that otherwise would have been paid in cash under the terms set forth
herein and, thereby, to align the interests of the Eligible Directors with the
interests of the stockholders of the Company. The purpose of the Plan is also to
enhance the Company's long-term growth and financial performance by increasing
the Company's ability to continue to attract and retain the services of
experienced and knowledgeable directors.
SECTION 2.3 EFFECTIVE DATE
The Plan was adopted by the Board of Directors on May 3, 1996, and became
effective as of that date, subject to ratification and approval prior to June 1,
1997 by the affirmative vote of a majority of the shares of Stock of the Company
present, or represented, and entitled to vote at a meeting of stockholders of
the Company duly held in accordance with the Restated Certificate of
Incorporation of the Company and the General Corporation Law of the State of
Delaware. The Plan and all Options granted hereunder are further subject to the
receipt by the Company of any consents or approvals required to adopt the Plan
and/or grant Options under applicable law and under any permit, agreement or
instrument to which the Company is a party or by which any of its properties or
assets are bound. Any Option granted prior to such stockholder and other consent
and approval of the Plan as herein provided shall be subject to such approval
and shall have no legal effect and shall convey no rights to the holder thereof
in the event said stockholder and other consent and approval of the Plan is not
obtained. The Plan shall expire ten (10) years from the effective date of the
Plan; provided, however, that upon termination of the Plan, the applicable
provisions of the Plan shall continue to apply to all Options which are
outstanding on the date the Plan is terminated. If stockholder approval is not
obtained within the period contemplated herein, the Plan shall be nullified and
all Options granted pursuant to Article VI below shall be rescinded and all
elections to receive options pursuant to Article VI below shall be rescinded and
all Eligible Directors shall receive cash equal to all Fees that had been the
subject of an election under said article or Article V hereof.
2
<PAGE> 3
ARTICLE III
ADMINISTRATION AND OPERATION
SECTION 3.1 APPOINTMENT OF AND DUTIES AND POWERS OF COMMITTEE
The Plan shall be administered by a Committee appointed by the Board of
Directors of the Company and consisting of at least three (3) members who shall
not be Eligible Directors. Subject to the express provisions of the Plan, the
Committee shall have complete authority to interpret the Plan, to prescribe,
amend, and rescind rules and regulations relating to it, and to make all other
determinations necessary or advisable in the administration of the Plan. The
final determination of the Committee as to any disputed questions shall be
conclusive.
Any action of the Committee may be taken without a meeting if a majority
of the members of the Committee sign written consents setting forth the action
taken or to be taken at any time before or after the intended effective date of
such action. Any member of the Committee may participate in a meeting of the
Committee by means of a conference telephone or similar communications equipment
enabling all persons participating in the meeting to hear each other. The
Committee may authorize any member thereof to execute all instruments required
in the administration of the Plan, and such instruments may be executed by
facsimile signature.
The Committee may delegate to any member or members of the Committee or
to any employee or employees of the Company the authority to perform any
ministerial act in connection with the administration of the Plan.
SECTION 3.2 MAJORITY RULE
A majority of the members of the Committee shall constitute a quorum, and
any action taken by a majority present at a meeting at which a quorum is present
or any action taken without a meeting evidenced by a writing executed by a
majority of the whole Committee shall constitute the action of the Committee.
SECTION 3.3 COMPANY ASSISTANCE
The Company shall supply full and timely information to the Committee on
all matters relating to Eligible Directors and such pertinent facts related
thereto as the Committee may require. The Company shall furnish the Committee
with such clerical and other assistance as is necessary in the performance of
its duties.
SECTION 3.4 PLAN OPERATION IN COMPLIANCE WITH RULE 16b-3 OF THE 1934 ACT.
The Plan shall be interpreted and administered to comply with Rule 16b-3
promulgated under the 1934 Act, as then applicable to the Company's employee
benefit plans. At such time as the terms of the Plan are required to comply with
(or, if earlier, are elected by the Company to comply with) the provisions of
Rule 16b-3 adopted in Release No. 34-37260 dated May 31, 1996, all Options
granted under this Plan shall provide that at least six months must elapse from
the date of the grant of the Option to the date of disposition of any underlying
shares of Stock to which such Option relates, unless any earlier disposition may
be effected without causing a violation of Section 16(b) of the 1934 Act or any
rules and regulations promulgated thereunder.
ARTICLE IV
SHARES OF STOCK SUBJECT TO PLAN
SECTION 4.1 LIMITATIONS
The number of shares of Stock which may be issued and sold hereunder
shall not exceed 100,000 shares of Stock, subject to adjustment pursuant to the
provisions of Section 4.3 hereof. Such shares may be either
3
<PAGE> 4
authorized and unissued shares or shares issued and thereafter acquired by the
Company, and such amount of shares shall be and is hereby reserved for issuance
pursuant to this Plan. Any of such shares which may remain unsold and which are
not subject to outstanding Options at the termination of the Plan shall cease to
be reserved for the purpose of the Plan, but until the termination of the Plan,
the Company shall at all times reserve a sufficient number of shares to meet the
requirements of the Plan.
SECTION 4.2 OPTIONS GRANTED UNDER PLAN
Shares of Stock with respect to which an Option granted hereunder shall
have been exercised shall not again be available for grant hereunder. If Options
granted hereunder shall expire, terminate, or be canceled for any reason without
being wholly exercised, new Options may be granted hereunder covering the number
of shares to which such Option expiration, termination or cancellation relates.
SECTION 4.3 ANTIDILUTION
In the event that the outstanding shares of Stock hereafter are
increased, decreased or changed into or exchanged for a different number or kind
of shares or other securities of the Company by reason of merger, consolidation,
reorganization, recapitalization, reclassification, combination of shares, stock
split, or stock dividend after the effective date of the Plan,
(a) the aggregate number and kind of shares subject to Options
which may be granted hereunder shall be adjusted appropriately; and
(b) rights under outstanding Options granted hereunder, both as
to the number of subject shares and the Option price, shall be adjusted
appropriately.
In the event of a dissolution or liquidation of the Company, the Options
granted hereunder shall terminate; provided, however, that the Optionees shall
have the right for a period of thirty (30) days prior to such dissolution or
liquidation to exercise outstanding Options in full without regard to any
installment exercise provisions and whether the Option by its terms is at such
time immediately exercisable in full, to the extent it shall not have been
exercised. In the event of (i) any merger, consolidation or combination
involving the Company, other than (A) any merger, consolidation or combination
that is solely for the purpose of changing the domicile of the Company, and (B)
any merger, consolidation or combination that would result in the holders of the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by the securities remaining outstanding or by
being converted into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the voting securities of the
Company (or such surviving entity) outstanding immediately after such merger,
consolidation or combination, or (ii) any sale of substantially all the assets
of the Company or a sufficient amount of Stock in the Company (whether by tender
offer, original issuance, or a single or series of related stock purchase and
sale agreements and/or transactions) sufficient to confer on the purchaser or
purchasers thereof (whether individually or in a group) the ability to elect a
majority of the Board of Directors of the Company (without regard to any
provisions concerning the classification of Board members or the staggering of
their terms), the Optionee shall have the right, immediately prior to such
merger, consolidation, combination, or asset or stock sale to exercise
outstanding Options in full, without regard to any installment exercise
provisions and whether the Option by its terms is at such time immediately
exercisable in full, to the extent that it shall not have been exercised. In the
event of a transaction of the nature described in (i) above (including, without
limitation, in (i)(A) and (i)(B) above), nothing contained herein shall prevent
the Board and the Board of Directors of the surviving corporation and/or the
acquiring corporation from converting an Option into an option to purchase stock
in the surviving or acquiring corporation on a fair and equitable basis. In the
event of a transaction described in (i) (including, without limitation, in
(i)(A) and (i)(B)) and (ii) above, the Board shall be entitled in its discretion
to require Optionees either to exercise their Options prior to such transactions
becoming effective or to forfeit them in the absence of such an exercise.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined solely by the Committee, and any such adjustment
shall provide for the elimination of fractional share interests.
4
<PAGE> 5
ARTICLE V
DEFERRAL OF FEES
Each Eligible Director may elect to defer all or any portion of any of
his Fees in accordance with the terms of this Article V.
(a) An election to defer Fees may be made at any time, but not
more frequently than once each calendar year, and shall be effective only with
respect to Fees payable for services to be performed after the date of the
election. Such election shall be made by executing and delivering a deferred
compensation agreement to the Committee. A deferral election may not be
modified. An Eligible Director may terminate a deferral election at any time by
delivering a written notice of termination to the Committee. Such notice shall
specify the effective date, and deferrals shall cease as soon as practicable
thereafter. A termination notice shall not be effective with regard to amounts
previously deferred.
(b) The Company shall establish an account for each Eligible
Director who defers Fees hereunder (the "Deferral Account") and shall adjust the
account as follows:
(i) At the end of each calendar month in which Fees
deferred would otherwise be payable, credit the account with the amount
deferred for such month; and
(ii) As of the first day of each month (A) debit the
account by the amount, if any, paid to the Eligible Director or his
beneficiary during the preceding calendar month in accordance with the
terms hereof or the terms of any deferred compensation agreement; and (B)
credit the account with interest on the balance as of said first day of
the month following the aforementioned debit to the account, at the rate
paid on five-year U.S. Treasury notes on the first day of the month for
which the interest is to be credited, or at such other rate as is
prescribed by the Committee in the deferred compensation agreement.
The Committee shall provide each Eligible Director who has elected to defer Fees
hereunder with an account statement at least annually.
(c) The amount credited to the Deferral Account of an Eligible
Director shall be paid to him in substantially equal consecutively monthly
installments over a period not to exceed three (3) years, or in such other
manner as the Committee may permit. Each such Eligible Director shall elect the
manner and time of payment (including the time payments shall commence) in the
first deferred compensation agreement he executes and such election shall apply
to any subsequent deferred compensation agreement the Eligible Director executes
unless specifically modified in a subsequent agreement.
(d) Except as provided in paragraph (e) below, the amount
credited to the Deferral Account of an Eligible Director, at the time of his
death, shall be paid to his designated beneficiary in substantially equal
consecutive monthly installments over a period not to exceed three (3) years, or
in such other manner as the Committee may permit. If payment commenced in
accordance with paragraph (c) above prior to the Eligible Director's death,
payment shall continue in accordance with the form of payment then in effect. If
payment had not commenced in accordance with paragraph (c) above, payment shall
be made or commenced as soon as practicable following the date of death. Each
such Eligible Director shall elect the manner in which payment shall be made to
his designated beneficiary in the first deferred compensation agreement he
executes. Such election shall apply to all subsequent deferred compensation
agreements executed by the Eligible Director unless specifically modified in a
subsequent agreement.
(e) In the event an Eligible Director suffers a financial
hardship caused by accident, illness or other event beyond his control, the
Committee may, in its discretion, accelerate payment of the amounts credited to
the Eligible Director's Deferral Account, if any, to the extent reasonably
necessary to eliminate such hardship. In addition, if following the death of an
Eligible Director, his beneficiary or beneficiaries suffers a financial hardship
caused by an accident, illness or other event beyond the control of such
beneficiary or beneficiaries, the Committee
5
<PAGE> 6
may, in its discretion, accelerate payment of the amounts credited to the
Eligible Director's Deferral Account, if any, to which such beneficiary or
beneficiaries are entitled to the extent reasonably necessary to eliminate such
hardship.
ARTICLE VI
OPTIONS
SECTION 6.1 ANNUAL OPTION GRANTS
(a) On the date of the meeting of the Board each year which
follows the Annual Meeting of Stockholders in said year (the "Annual Meeting of
Stockholders"), beginning with the date of the Annual Meeting of Stockholders
held in 1996, each director elected to the Board of Directors by the
stockholders of the Company at the annual meeting of stockholders in said year
and who is an Eligible Director, and, in addition to the newly elected Eligible
Directors, each Eligible Director then in office on such date shall
automatically be granted an Option as of the date of such Board meeting to
purchase shares of Stock as follows:
(i) Each director elected to the Board at the Annual
Meeting of Stockholders and who is an Eligible Director shall receive an
Option to purchase the number of shares of Stock (rounded up to the next
whole number) determined by dividing the whole dollar amount of the
director's Retainer for the upcoming year of service by the Fair Market
Value of the Stock on the date of grant.
(ii) Each Eligible Director not standing for election at
the Annual Meeting of Stockholders and who is to continue to serve as a
director of the Company shall receive an Option to purchase the number
of shares of Stock (rounded up to the next whole number) determined by
dividing the whole dollar amount of the director's Retainer for the
upcoming year of service by the Fair Market Value of the Stock on the
date of grant and then multiplying the resulting amount by .6666.
Example:
At the Annual Meeting of Stockholders for 1999, Eligible Director
A stands for election and is elected to the Board of Directors and
Eligible Director B is continuing into the third year of a
three-year term as a director of the Company. Each Eligible
Director will be paid a $12,000 Retainer for the upcoming year.
The Fair Market Value of the Stock on the date of the next meeting
of the Board following the Annual Meeting of Stockholders is
$11.00. Under these facts, Eligible Director A will receive an
Option to purchase 1,091 shares of Stock ($12,000 / $11.00 =
1,090.9, rounded up to 1,091). Eligible Director B will receive an
Option to purchase 728 shares of Stock (1,090.9 x .6666 = 727.1,
rounded up to 728).
(b) Each Option granted under this Section shall be evidenced
by a Stock Option Agreement dated as of the date of grant and executed by the
Company and the Optionee, which Agreement shall set forth such terms and
conditions as may be determined by the Committee consistent with the Plan.
(c) The per share price of the Stock subject to each Option
granted under this Section 6.1 shall be one hundred percent (100%) of the Fair
Market Value of the Stock on the date the Option is granted.
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SECTION 6.2 OPTION GRANTS IN LIEU OF PAYMENT OF FEES
(a) Each Eligible Director may elect to receive his Fees in the
form of Options in lieu of cash. An election shall apply to the full amount of
the Eligible Director's Fees and shall be made in writing, on such form and in
such manner as the Committee may prescribe, before the Annual Meeting of
Stockholders of the Company each year, such election to cover Fees accrued
during the twelve-month period to begin on June 1 following said annual meeting
and end May 31 of the following year (the "Election Option Period"); provided,
however, that for the initial year of the Plan, an Eligible Director may make
his election hereunder at any time prior to August 31, 1996, which election
shall apply to the period beginning September 1, 1996 and ending on May 31,
1997.
(b) On the first business day following each of the three-month
periods ending August 31, November 30, February 28 (or 29, as the case may be)
and May 31 in each Election Option Period (the "Election Quarter Period"), the
Company shall grant to each Eligible Director who has made an election in
accordance with paragraph (a) above an Option to purchase the number of shares
of Stock (rounded up to the next whole number) determined by dividing x by y,
where --
x is the amount of the Eligible Director's Fees accrued during the
Election Quarter Period increased by a factor of thirty percent
(30%); and
y is the Black-Scholes value of each Option to purchase a share of
Stock on the date of grant.
(c) The per share price of the Stock subject to each Option
granted under this Section 6.2 shall be one hundred percent (100%) of the Fair
Market Value of the Stock on the date the Option is granted.
(d) An election by an Eligible Director whose service on the
Board terminates prior to the end of an Election Quarter Period to which the
election relates shall be void. Such Eligible Director shall receive the portion
of his Fees earned as of the date of termination in cash.
SECTION 6.3 OPTION PERIOD
Each Option granted hereunder must be granted within ten years from the
effective date of the Plan. The period for the exercise of each Option shall be
ten years. Options granted hereunder prior to stockholder approval of the Plan
shall provide that such Options are not exercisable within the first
twelve-months following the grant thereof and, further, that at least six months
must elapse from the date of stockholder approval of the Plan to the date of
disposition of any underlying shares of Stock to which such Option relates,
unless any earlier exercise of disposition may be effected without causing a
violation of Section 16(b) of the 1934 Act or any rules and regulations
promulgated thereunder. Following stockholder approval of the Plan, Options
granted hereunder shall not be exercisable within the first twelve months after
the date of grant; provided, however, that said Options may become exercisable
earlier in accordance with the provisions of this Plan concerning the
termination of an Optionee's directorship on account of total and permanent
disability or death (Section 6.5) and change of control of the Company (Section
4.3), provided that, in each case, the earlier exercise thereof would not cause
a violation of Section 16(b) of the 1934 Act or any rules and regulations
promulgated thereunder. Following stockholder approval of the Plan, the
Committee in its discretion may accelerate the times when Options are
exercisable after the initial grant thereof; provided, however, that the
Committee may not exercise such power in a manner that would shorten the initial
twelve-month period for Eligible Directors referred to in the foregoing sentence
or the other periods referenced in this Section 6.3 if to do so would permit or
result in a violation of Section 16(b) of the 1934 Act.
SECTION 6.4 OPTION EXERCISE
(a) Options may be exercised with respect to whole shares only,
for such shares of Stock and within the period permitted by the exercise thereof
as determined by the Committee, and shall be exercised by written notice of
intent to exercise the Option with respect to a specified number of shares
delivered to the Company at its
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principal office, and payment in full to the Company at said office of the
amount of the Option price for the number of shares of Stock with respect to
which the Option is then being exercised.
(b) The Option price upon exercise of any Option shall be
payable to the Company in full either (i) in cash or its equivalent, (ii) by
tendering shares of previously acquired Stock which has been held by the
Optionee for a minimum of six months prior to such exercise, and having a Fair
Market Value as of the business day immediately preceding the date of exercise
equal to the total Option price, or (iii) by a combination of (i) and (ii). Any
shares of Stock received by the Company pursuant to this Section 6-4 shall be
held by the Company as treasury shares.
(c) No Option granted hereunder shall be exercisable unless at
all times during the period beginning on the date of the granting of such Option
and ending on the day which is three years before the date of exercise (or
ending on the day which is 90 days before the date of exercise in the event of
the termination of the directorship of the Optionee for cause, or ending on the
expiration date of the Option in the event of termination of the directorship on
account of the mandatory retirement, determination of total and permanent
disability or the death of the Optionee, as the case may be) the Optionee was a
director of the Company.
SECTION 6.5 EFFECT OF DEATH OR OTHER TERMINATION OF EMPLOYMENT
(a) In the event that the directorship of an Optionee to whom
an Option shall have been granted hereunder shall be terminated for any reason
(including voluntary resignation, early retirement or failure to be re-elected)
other than for cause (as defined below), mandatory retirement according to the
policy of the Board, death or disability, such Option may be exercised (to the
extent that the Optionee shall have been entitled to do so at the date of his
termination) by such Optionee at any time prior to the expiration date of the
Option or within three years after the date of such directorship termination,
whichever is earlier.
(b) If the directorship of an Optionee to whom an Option shall
have been granted hereunder is terminated for cause, as defined below, such
Option may be exercised (to the extent that the Optionee shall have been
entitled to do so at the date of his termination) by such Optionee at any time
prior to the expiration date of the Option or within ninety (90) days after the
date of such termination, whichever is earlier. For purposes of this Section
6.5, the term "for cause" shall be defined as a good faith express determination
by the Board that the Optionee has been guilty of willful misconduct or
dishonesty or a good faith express determination by the Board that the Optionee
has been grossly derelict in or has grossly neglected the Optionee's duty to the
Company.
(c) In the event that the directorship of an Optionee to whom
an Option shall have been granted hereunder shall be terminated by reason of
mandatory retirement according to the policy of the Board, such Option may be
exercised (to the extent that the Optionee shall have been entitled to do so at
the date of his termination) by such Optionee at any time prior to the
expiration date of the Option.
(d) In the event that the directorship of an Optionee to whom
an Option shall have been granted hereunder shall be terminated by the death or
total and permanent disability (as defined in Section 72(m)(7) of the Internal
Revenue Code of 1986, as amended (the "Code"), or as determined by the Committee
in its discretion) of such Optionee, such Option may be exercised (to the extent
that the Optionee shall have been entitled to do so at the date of his
termination) by such Optionee, his personal representatives, the executor or
administrator of the estate of the Optionee, or the person or persons to whom an
Option granted hereunder shall have been validly transferred pursuant to a will
or the laws of descent and distribution, or otherwise, at any time prior to the
expiration date of the Option.
SECTION 6.6 NONTRANSFERABILITY OF OPTIONS
At such time as the terms of the Plan are required to comply with (or,
if earlier, are elected by the Company to comply with) the provisions of Rule
16b-3, adopted in Release No. 34-37260 dated May 30, 1996, Options granted
hereunder may be transferred by an Optionee upon the prior consent of the
Committee; provided, however, that such Committee approval shall not be required
for transfers of an Option by will or the laws of descent and
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distribution. Prior to such time, no Option shall be transferred by an Optionee
otherwise than by will or the laws of descent and distribution. No transfer of
an Option by the Optionee by will or by the laws of descent and distribution
shall be effective to bind the Company unless the Company shall have been
furnished with written notice thereof and an authenticated copy of the will
and/or such other evidence as the Committee may deem necessary to establish the
validity of the transfer and the acceptance by the transferee or transfers of
the terms and conditions of such Option. Subject to the foregoing, during the
lifetime of an Optionee, the Option shall be exercisable only by him.
SECTION 6.7 RIGHTS AS STOCKHOLDER
An Optionee or a transferee of an Option shall have no rights as a
stockholder with respect to any shares subject to such Option prior to the
purchase of such shares by exercise of such Option as provided herein.
ARTICLE VII
STOCK CERTIFICATES
SECTION 7.1 STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate for
shares of Stock purchased upon the exercise of an Option granted hereunder or
any portion thereof, prior to fulfillment of all of the following conditions:
(a) the completion of any registration or other qualification
of such shares under any federal or state law or under the rulings or
regulations of the Securities and Exchange Commission or any other governmental
regulatory body, which the Committee shall in its sole discretion deem necessary
or advisable;
(b) the obtaining of any approval or other clearance from any
federal or state governmental agency which the Committee shall in its sole
discretion determine to be necessary or advisable;
(c) the lapse of such reasonable period of time following the
exercise of the Option as the Committee from time to time may establish for
reasons of administrative convenience;
(d) the compliance with any and all applicable federal, state
or local laws; and
(e) such other terms and conditions as may be set forth in the
Plan.
The Company shall further be entitled to place whatever legends on such
certificate as it shall deem reasonably necessary or appropriate.
ARTICLE VIII
TERMINATION, AMENDMENT, AND MODIFICATION OF THE PLAN
The Board may at any time terminate, and may at any time and from time to
time and in any respect amend or modify, the Plan; provided, however, that no
such action of the Board without approval of the stockholders of the Company may
(a) increase the total number of shares of Stock subject to the
Plan except as contemplated in Section 4.3 hereof;
(b) materially modify the requirements as to those persons who
are eligible to participate in the Plan; and
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provided, further, that no termination, amendment, or modification of the Plan
shall in any manner affect any Stock Option Agreement theretofore entered into
pursuant to the Plan without the consent of the Optionee or valid transferee of
the Option. The foregoing provisions of this Article VIII notwithstanding, until
such time as the terms of the Plan are required to comply with (or, if earlier,
are elected by the Company to comply with) the provisions of Rule 16b-3, adopted
in Release No. 34-37260 dated May 30, 1996, the provisions of Article VI of the
Plan shall not be amended more than once every six months, other than to comport
with changes in the Internal Revenue Code, ERISA, or the rules thereunder.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option or
incentive or other compensation plans in effect for the Company or any of its
subsidiaries, nor shall the Plan preclude the Company from establishing any
other forms of incentive or other compensation for employees of the Company or
any of its subsidiaries.
SECTION 9.2 PLAN BINDING ON SUCCESSORS
The Plan shall be binding upon the successors and assigns of the
Company.
SECTION 9.3 SINGULAR, PLURAL; GENDER
Whenever used herein, nouns in the singular shall include the plural,
and the masculine pronoun shall include the feminine gender.
SECTION 9.4 HEADINGS, ETC., NO PART OF PLAN
Headings of Articles and Sections hereof are inserted for convenience
and references; they constitute no part of the Plan.
SECTION 9.5 INVESTMENT REPRESENTATION
Each Stock Option Agreement may contain an agreement that, upon demand
by the Committee for such a representation, the Optionee shall deliver to the
Committee at the time of any exercise of an Option a written representation that
the shares of Stock to be acquired upon such exercise are to be acquired for
investment and not for resale or with a view to the distribution thereof. Upon
such demand, delivery of such representation prior to the delivery of any shares
issued upon exercise of an Option and prior to the expiration of the Option
period shall be a condition precedent to the right of the Optionee or such other
persons to purchase any such shares.
SECTION 9.6 COMPLIANCE WITH OTHER LAWS AND REGULATIONS
The Plan, the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such Options, shall
be subject to all applicable federal and state laws, rules and regulations and
to such approvals by any governmental or regulatory agency or national
securities exchange as may be required. The Company shall not be required to
issue or deliver any certificates for shares of Stock prior to the completion of
any registration or qualification of such shares under any federal or state law,
or any ruling or regulation of any governmental body or national securities
exchange which the Company shall, in its sole discretion, determine to be
necessary or advisable.
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SECTION 9.7 WITHHOLDING BY THE COMPANY
A Stock Option Agreement executed pursuant to this Plan may contain a
provision to the effect that the Optionee will consent to any withholding
actions that the Company deems reasonably necessary to enable the Company to
obtain the benefit of an income tax deduction under the Code, and any related
state or local income tax laws.
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EXHIBIT 10(Y)
AMENDMENT NO. 6
TO
MARTIN INDUSTRIES, INC.
1988 NONQUALIFIED STOCK OPTION PLAN
As directed by the Board of Directors of Martin Industries, Inc.
at its meeting held on February 18, 1997, the 1988 Nonqualified Stock Option
Plan of Martin Industries, Inc. is hereby amended by adding a new paragraphs
(j), (k) and (l) at Section 1.1, to read in their entireties as follows:
"(j) "Grants and Awards Committee" shall mean a committee of the
Board of Directors that is composed solely of two or more "non-employee
directors" as such term is defined in Rule 16b-3 of the General Rules and
Regulations promulgated under the Exchange Act.
(k) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(l) "Insider" shall mean an individual who is required to file
reports of beneficial ownership and changes in beneficial ownership with
the Securities and Exchange Commission under Section 16 under the
Exchange Act."
Further, as directed by the Board of Directors of Martin
Industries, Inc. at its meeting held on February 18, 1997, the 1988 Nonqualified
Stock Option Plan of Martin Industries, Inc. is hereby amended by deleting in
its entirety Section 4.1 thereof and substituting the following in lieu thereof:
"Section 4.1 Duties and Powers of Committee
The Plan shall be administered by the Committee, except that any
action taken with respect to grants and awards of securities to and other
acquisitions of securities by Insiders under the Plan shall be taken by
the Committee only if all of the members of the Committee meet the
definition of a "non-employee director" under Rule 16b-3(b)(3) under the
Exchange Act. If all of the members of the Committee are not
"non-employee directors," such action shall be taken by a committee or
subcommittee of two (2) or more members, all of whom are "non-employee
directors." Subject to the foregoing and to the express provisions of the
Plan, the Committee shall have sole direction and authority to determine
from among eligible management personnel those to whom and the time or
times at which Options may be granted, the number of shares of Stock to
be subject to each Option, the exercise price of each Option, and period
for the exercise of such Option which need not be the same for each grant
hereunder. Subject to the express provisions of the Plan, the Committee
shall also have complete authority to interpret the Plan, to prescribe,
amend, and rescind rules and regulations relating to it, to determine the
details and provisions of each Stock Option Agreement, and to make all
other determinations necessary or advisable in the administration of the
Plan."
Further, as directed by the Board of Directors of Martin
Industries, Inc. at its meeting held on February 18, 1997, the 1988 Nonqualified
Stock Option Plan of Martin Industries, Inc. is hereby amended by deleting
Section 6.4, paragraph (a) in its entirety and substituting the following in
lieu thereof:
"Section 6.4 Option Exercise
(a) Options may be exercised with respect to whole
shares only, for such shares of Stock and within the period permitted by
the exercise thereof as determined by the Committee or, in accordance
with Section 4.1 above, the Grants and Awards Committee, as the case may
be, and shall be exercised by written notice of intent to exercise the
Option with respect to a specified number of shares delivered to the
Company at its principal office in the State of
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Alabama, and payment in full to the Company at said office of the amount
of the Option price for the number of shares of Stock with respect to
which the Option is then being exercised.
(b) [Remains unchanged]"
Further, as directed by the Board of Directors of Martin
Industries, Inc. at its meeting held on February 18, 1997, the 1988 Nonqualified
Stock Option Plan of Martin Industries, Inc. is hereby amended by adding a new
Section 9.0 to read in its entirety as follows:
"Section 9.10 Compliance with Section 16
During any period in which the Company has a class of
equity securities registered under Section 12 under the Exchange Act and
with respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable
provisions of Section 16 of the Exchange Act and the rules promulgated
thereunder (including, without limitation, Rule 16b-3) or their
successors under the Exchange Act. To the extent any provision of the
Plan or any Stock Option Agreement or any action by the Committee or the
Grants and Awards Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the
committee, and it shall be restructured to the extent deemed advisable by
the Committee or the Grants and Awards Committee, as the case may be, so
to comply."
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EXHIBIT 10 (Z)
MARTIN INDUSTRIES, INC.
AMENDED AND RESTATED 1994 NONQUALIFIED STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS
As used herein, the following terms shall have the meanings hereinafter
set forth unless the context clearly indicates to the contrary:
(a) "Company" shall mean Martin Industries, Inc., a Delaware
corporation.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Compensation Committee" shall mean the Compensation
Committee of the Board, as the same may be constituted from time to time.
(d) "Grants and Awards Committee" shall mean a committee of the
Board of Directors that is composed solely of two or more "Non-Employee
Directors," as such term is defined in Rule 16b-3 of the General Rules and
Regulations promulgated under the Exchange Act.
(e) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(f) "Fair Market Value" shall mean, if applicable, the closing
price per share of the Stock on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such Stock is sold
in the regular way; or the last sales price per share of the Stock quoted on an
automated quotation system of a registered securities association on which such
Stock is sold in a regular way; or if the Stock is not registered or traded in
such a manner that such quotations are available, the Fair Market Value shall be
deemed to be the fair value per share of Stock determined in good faith by the
Board or the Committee as of a date which is within 30 days of the date as of
which the determination is to be made.
(g) "Stock," with respect to each share to which that term
refers, shall mean one (1) share of Common Stock, par value $0.01 per share, of
the Company now authorized; any other shares of the Stock of the Company
hereafter authorized; and securities of the Company which, under any conditions,
will be converted into or exchanged for any such Stock.
(h) "Option" shall mean an option to purchase Stock granted
pursuant to the provisions of Article VI hereof.
(i) "Optionee" shall mean a director, officer, or key
management employee of the Company or any of its subsidiaries to whom an Option
has been granted hereunder.
(j) "Insider" shall mean an individual who is required to file
reports of beneficial ownership and changes in beneficial ownership with the
Securities and Exchange Commission under Section 16 of the Exchange Act.
(k) "Plan" shall mean the Martin Industries, Inc. 1994
Nonqualified Stock Option Plan, the terms of which are set forth herein.
(l) "Stock Option Agreement" shall mean the agreement between
the Company and the Optionee under which the Optionee may purchase Stock
hereunder.
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ARTICLE II
THE PLAN
SECTION 2.1 NAME
This Plan shall be known as the "Martin Industries, Inc. 1994
Nonqualified Stock Option Plan."
SECTION 2.2 PURPOSE
The purpose of the Plan is to advance the interests of the Company and
its stockholders by affording to directors (including nonemployee directors),
officers and key management personnel of the Company and its subsidiaries an
opportunity to acquire or increase their proprietary interest in the Company by
the grant to such directors, officers and key management personnel of Options
under the terms set forth herein and to align the interests of the stockholders
of the Company with the interests of said directors, officers and key management
employees. The purpose of the Plan is also to provide compensation to selected
directors, officers and key management personnel for past services rendered to
the Company or its subsidiaries. By thus compensating such directors, officers
and key management personnel and encouraging them to become owners of Stock of
the Company, the Company seeks to compensate, motivate, incentivize, retain, and
attract those highly competent individuals upon whose judgment, initiative,
leadership, and continued efforts the successful conduct of the business
operations of the Company is largely dependent.
SECTION 2.3 EFFECTIVE DATE
The Plan was adopted by the Board of Directors and became effective as
of October 18, 1994 (the "Effective Date"), and was ratified and approved by the
stockholders of the Company on April 7, 1995.
ARTICLE III
PARTICIPANTS
SECTION 3.1 ELIGIBILITY
Except as otherwise provided herein, any director (including any
nonemployee director) or officer of the Company or its subsidiaries, or any key
management employee of the Company or its subsidiaries, shall be eligible to
participate in the Plan. Subject to the express provisions of the Plan, the
Compensation Committee may grant Options, and, as the case may be, the Grants
and Awards Committee may approve such grant, to any eligible director, officer
or key management employee of the Company or its subsidiaries in accordance with
such determinations as the Compensation Committee and the Grants and Awards
Committee from time to time in their sole discretion shall make.
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ARTICLE IV
ADMINISTRATION
SECTION 4.1 DUTIES AND POWERS OF THE COMPENSATION COMMITTEE AND THE GRANTS AND
AWARDS COMMITTEE
The Plan shall be administered by the Compensation Committee, except
that any action taken with respect to grants and awards of securities to and
other acquisitions of securities by Insiders under the Plan shall be taken by
the Compensation Committee only if all of the members of the Compensation
Committee meet the definition of a "non-employee director" under Rule
16b-3(b)(3) under the Exchange Act. If all of the members of the Compensation
Committee are not "non-employee directors," such action shall be taken by a
committee or subcommittee of two (2) or more members, all of whom are
"non-employee directors." Subject to the foregoing and the express provisions of
the Plan, the Compensation Committee shall have the discretion and authority to
determine from among eligible directors, officers and key management employees
those to whom and the time or times at which Options may be granted, the number
of shares of Stock to be subject to each Option, the exercise price of each
Option, and the period for the exercise of such Option, which need not be the
same for each grant hereunder. Subject to the express provisions of the Plan,
the Compensation Committee shall have complete authority to interpret the Plan,
to prescribe, amend, and rescind rules and regulations relating to it, to
determine the details and provisions of each Stock Option Agreement, and to make
all other determinations necessary or advisable in the administration of the
Plan.
SECTION 4.2 MAJORITY RULE
A majority of the members of the Compensation Committee shall constitute
a quorum, and any action taken by a majority present at a meeting at which a
quorum is present or any action taken without a meeting evidenced by a writing
executed by all of the members of the committee shall constitute the action of
the committee. Grants of Options to members of the Grants and Awards Committee
shall be further approved by the majority of the remaining members of the Board
of the Company.
SECTION 4.3 COMPANY ASSISTANCE
The Company shall supply full and timely information to the Compensation
Committee and the Grants and Awards Committee on all matters relating to
eligible directors, officers and key management employees, their employment,
death, retirement, disability, or other termination of employment, and such
other pertinent facts as the said committees may require. The Company shall
furnish the Compensation Committee and the Grants and Awards Committee with such
clerical and other assistance as is necessary in the performance of their
duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
SECTION 5.1 LIMITATIONS
The number of shares of Stock which may be issued and sold hereunder
shall not exceed 262,500 shares of Stock, subject to adjustment pursuant to the
provisions of Section 5.3 hereof. Such shares may be either authorized and
unissued shares or shares issued and thereafter acquired by the Company, and
such amount of shares shall be and is hereby reserved for issuance pursuant to
this Plan. Any of such shares which may remain unsold and which are not subject
to outstanding Options at the termination of the Plan shall cease to be reserved
for the purpose of the Plan, but until the termination of the Plan, the Company
shall at all times reserve a sufficient number of shares to meet the
requirements of the Plan.
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SECTION 5.2 OPTIONS GRANTED UNDER PLAN
Shares of Stock with respect to which an Option granted hereunder shall
have been exercised shall not again be available for grant hereunder. If Options
granted hereunder shall expire, terminate, or be canceled for any reason without
being wholly exercised, new Options may be granted hereunder covering the number
of shares to which such Option expiration, termination or cancellation relates.
SECTION 5.3 ANTIDILUTION
In the event that the outstanding shares of Stock hereafter are
increased, decreased or changed into or exchanged for a different number or kind
of shares or other securities of the Company by reason of merger, consolidation,
reorganization, recapitalization, reclassification, combination of shares, stock
split, or stock dividend after the effective date of the Plan,
(a) the aggregate number and kind of shares subject to Options
which may be granted hereunder shall be adjusted appropriately; and
(b) rights under outstanding Options granted hereunder, both as
to the number of subject shares and the Option price, shall be adjusted
appropriately.
In the event of a dissolution or liquidation of the Company, the Options
granted hereunder shall terminate; provided, however, that the Optionees shall
have the right for a period of thirty (30) days prior to such dissolution or
liquidation to exercise outstanding Options in full without regard to any
installment exercise provisions and whether the Option by its terms is at such
time immediately exercisable in full, to the extent it shall not have been
exercised. In the event of (i) any merger, consolidation or combination
involving the Company, other than (A) any merger, consolidation or combination
that is solely for the purpose of changing the domicile of the Company, and (B)
any merger, consolidation or combination that would result in the holders of the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by the securities remaining outstanding or by
being converted into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the voting securities of the
Company (or such surviving entity) outstanding immediately after such merger,
consolidation or combination, or (ii) any sale of substantially all the assets
of the Company or a sufficient amount of Stock in the Company (whether by tender
offer, original issuance, or a single or series of related stock purchase and
sale agreements and/or transactions) sufficient to confer on the purchaser or
purchasers thereof (whether individually or in a group) the ability to elect a
majority of the Board of Directors of the Company, the Optionee shall have the
right, immediately prior to such merger, consolidation, combination, or asset or
stock sale to exercise outstanding Options in full, without regard to any
installment exercise provisions and whether the Option by its terms is at such
time immediately exercisable in full, to the extent that it shall not have been
exercised. In the event of a transaction of the nature described in (i) above
(including, without limitation, in (i)(A) and (i)(B) above), nothing contained
herein shall prevent the Board and the Board of Directors of the surviving
corporation and/or the acquiring corporation from converting an Option into an
option to purchase stock in the surviving or acquiring corporation on a fair and
equitable basis. In the event of a transaction described in (i) (including,
without limitation, in (i)(A) and (i)(B)) and (ii) above, the Board shall be
entitled in its discretion to require Optionees either to exercise their Options
prior to such transactions becoming effective or to forfeit them in the absence
of such an exercise.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined solely by the Committee, and any such adjustment
shall provide for the elimination of fractional share interests.
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ARTICLE VI
OPTIONS
SECTION 6.1 OPTION GRANT AND AGREEMENT
(a) Each Option granted hereunder shall be evidenced by a Stock
Option Agreement dated as of the date of grant and executed by the Company and
the Optionee, which Agreement shall set forth such terms and conditions as may
be determined by the Committee consistent with the Plan.
(b) In the event that an Optionee elects to exercise any Option under
the Plan by tendering Stock (rather than cash) to the Company pursuant to
Section 6.4 below, the Committee is authorized (but not required) to grant such
Optionee additional Options with respect to a number of shares of Stock equal to
the number of shares so tendered, and having terms and conditions identical in
all respects to the Options so exercised, except that the exercise price of such
newly issued Options shall be equal to the Fair Market Value of the Stock as of
the date of such tender.
SECTION 6.2 OPTION PRICE
The per share price of the Stock subject to each Option shall be
determined by the Compensation Committee in the exercise of its discretion, with
due consideration for the compensation and incentive purposes of this Plan, but
said per share price shall not be less than the greater of (i) the par value of
the Stock on the date the Option is granted or any time during which the Option
is exercisable, or (ii) 85% of the Fair Market Value of the Stock on the date of
grant.
SECTION 6.3 OPTION PERIOD
Each Option granted hereunder must be granted within ten years from the
Effective Date of the Plan. The period for the exercise of each Option shall be
determined by the Compensation Committee, but in no instance shall such period
exceed ten years. During any period in which the Company has a class of equity
securities registered under Section 12 of the Exchange Act, Options granted to
any officer ( as defined at Rule 16a-1(f) promulgated under the Exchange Act) of
director of the Company shall not be exercisable within the first six months
after the date of grant, except in the case of the termination of an Optionee's
employment on account of total and permanent disability or death or unless it
should become exercisable upon a change of control of the Company pursuant to
Section 5.3 hereof, in each case where the exercise thereof would not cause a
violation of Section 16(b) of the Exchange Act. The foregoing notwithstanding,
the Compensation Committee in its discretion may provide for a shorter, or no,
holding period prior to the exercise of an Option or may accelerate the times
when Options are exercisable after the initial grant thereof, subject, in the
case of Options of Insiders, to approval by the Grants and Awards Committee, if
necessary; provided, however, that the Compensation Committee or the Grants and
Awards Committee may not exercise such power in a manner that would shorten the
initial six-month period for officers and directors of the Company referred to
in the foregoing sentence if it would permit a violation of Section 16(b) of the
Exchange Act.
SECTION 6.4 OPTION EXERCISE
(a) Options may be exercised with respect to whole shares only,
for such shares of Stock and within the period permitted by the exercise thereof
as determined by the Compensation Committee (and, with respect to Options of
Insiders, if necessary, as approved by the Grants and Awards Committee), and
shall be exercised by written notice of intent to exercise the Option with
respect to a specified number of shares delivered to the Company at its
principal office in the State of Alabama, and payment in full to the Company at
said office of the amount of the Option price for the number of shares of Stock
with respect to which the Option is then being exercised.
(b) The Option price upon exercise of any Option shall be
payable to the Company in full either (i) in cash or its equivalent, (ii) by
tendering shares of previously acquired Stock which has been held by the
5
<PAGE> 6
Optionee for a minimum of six months prior to such exercise, and having a Fair
Market Value as of the business day immediately preceding the date of exercise
equal to the total Option price, or (iii) by a combination of (i) and (ii). Any
shares of Stock received by the Company pursuant to this Section 6.4(b) shall be
held by the Company as treasury shares.
(c) No Option granted hereunder shall be exercisable unless at
all times during the period beginning on the date of the granting of such Option
and ending on the day which is three months before the date of exercise (or
ending on the day which is twelve months before the date of exercise in the
event of the total and permanent disability or death of an Optionee) the
Optionee was a director, officer or full-time employee of either the Company or
a subsidiary of the Company, or a corporation (or parent or subsidiary of such
corporation) issuing or assuming such Option in accordance with the terms of
this Plan.
SECTION 6.5 NONTRANSFERABILITY OF OPTION
No Option shall be transferred by an Optionee otherwise than by will or
the laws of descent and distribution. During the lifetime of an Optionee, the
Option shall be exercisable only by the Optionee.
SECTION 6.6 EFFECT OF DEATH OR OTHER TERMINATION OF EMPLOYMENT
(a) In the event that the employment or directorship of an
Optionee to whom an Option shall have been granted shall be terminated for any
reason other than for cause (as defined below), death or disability, such Option
may be exercised (to the extent that the Optionee shall have been entitled to do
so at the date of his termination) by such Optionee at any time prior to the
expiration date of the Option or within three months after the date of such
termination, whichever is earlier, but only to the extent such Optionee had the
right to exercise such Option at the date of such termination.
(b) If the employment or directorship of an Optionee to whom an
Option shall have been granted is terminated for cause, as defined below, such
Option shall terminate immediately upon such termination. For purposes of this
Section 6.6, the term "for cause" shall be defined as a good faith express
determination by the Board that the Optionee has been guilty of willful
misconduct or dishonesty, a good faith express determination by the Board that
the Optionee has been grossly derelict in or has breached or has grossly
neglected the Optionee's duty to the Company or upon the Optionee's voluntarily
leaving the employment of the Company and thereafter becoming employed by or
associated directly or indirectly with a firm or entity which, in the good faith
determination by the Board, is in direct competition with the Company and/or one
or more of its subsidiaries.
(c) If an Optionee to whom an Option shall have been granted
shall die or become totally and permanently disabled (as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, as amended (the "Code"), or as
determined by the Compensation Committee in its discretion), while he is
employed by or a director of the Company or its subsidiaries, such Option may be
exercised (to the extent that the Optionee would otherwise have been entitled to
do so at the date of his death or disability) by such Optionee, his personal
representatives, the executor or administrator of the estate of the Optionee, or
the person or persons to whom an Option granted hereunder shall have been
validly transferred pursuant to a will or the laws of descent and distribution,
at any time prior to the expiration date of the Option or within twelve months
after the date of such death or disability, whichever shall first occur.
(d) No transfer of an Option by the Optionee by will or by the
laws of descent and distribution shall be effective to bind the Company unless
the Company shall have been furnished with written notice thereof and an
authenticated copy of the will and/or such other evidence as the Committee may
deem necessary to establish the validity of the transfer and the acceptance by
the transferee or transferees of the terms and conditions of such Option.
(e) Section 6.4(c) above notwithstanding, the Compensation
Committee may, in its sole discretion, either at the date of the execution of a
Stock Option Agreement or at any time thereafter, increase the
6
<PAGE> 7
amount of time during which an Optionee or his personal representative,
executor, administrator or other legatee or devisee may exercise such Option
following such Optionee's termination other than for cause as set forth in
Sections 6.6 (a) and (c) above; provided, however, that in the case of Options
of Insiders, any such increase in the amount of time during which said Option
may be exercised may require the approval of the Grants and Awards Committee.
The Compensation Committee may also, in its sole discretion, require as a
condition to the exercise of an Option and/or the purchase of shares of stock
thereunder whatever assurances it deems reasonable that the Option has not and
will not meet the definition of "for cause" set forth in Section 6.6 (b) above.
SECTION 6.7 RIGHTS AS STOCKHOLDER
An Optionee or a transferee of an Option shall have no rights as a
stockholder with respect to any shares subject to such Option prior to the
purchase of such shares by exercise of such Option as provided herein.
ARTICLE VII
STOCK CERTIFICATES
SECTION 7.1 STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate
for shares of Stock purchased upon the exercise of an Option granted hereunder
or any portion thereof, prior to fulfillment of all of the following conditions:
(a) the completion of any registration or other qualification
of such shares under any federal or state law or under the rulings or
regulations of the Securities and Exchange Commission or any other governmental
regulatory body, which the Compensation Committee shall in its sole discretion
deem necessary or advisable;
(b) the obtaining of any approval or other clearance from any
federal or state governmental agency which the Compensation Committee shall in
its sole discretion determine to be necessary or advisable;
(c) the lapse of such reasonable period of time following the
exercise of the Option as the Compensation Committee from time to time may
establish for reasons of administrative convenience;
(d) the compliance with any and all applicable federal, state
or local laws; and
(e) such other terms and conditions as may be set forth in the
Plan.
The Company shall further be entitled to place whatever legends on such
certificate as it shall deem reasonably necessary or appropriate.
ARTICLE VIII
TERMINATION, AMENDMENT, AND MODIFICATION OF THE PLAN
The Board may at any time terminate, and may at any time and from time
to time and in any respect amend or modify, the Plan; provided, however, that no
such action of the Board without approval of the stockholders of the Company may
(a) increase the total number of shares of Stock subject to the
Plan except as contemplated in Section 5.3 hereof;
7
<PAGE> 8
(b) materially modify the requirements as to those persons who
are eligible to participate in the Plan; and
provided, further, that no termination, amendment, or modification of the Plan
shall in any manner affect any Stock Option Agreement theretofore entered into
pursuant to the Plan without the consent of the Optionee or valid transferee of
the Option.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 EMPLOYMENT
Nothing in the Plan or in any Option granted hereunder or in any Stock
Option Agreement relating thereto shall confer upon any employee the right to
continue in the employ of the Company or any of its subsidiaries.
SECTION 9.2 OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option or
incentive or other compensation plans in effect for the Company or any of its
subsidiaries, nor shall the Plan preclude the Company from establishing any
other forms of incentive or other compensation for employees of the Company or
any of its subsidiaries.
SECTION 9.3 PLAN BINDING ON SUCCESSORS
The Plan shall be binding upon the successors and assigns of the
Company.
SECTION 9.4 SINGULAR, PLURAL; GENDER
Whenever used herein, nouns in the singular shall include the plural,
and the masculine pronoun shall include the feminine gender.
SECTION 9.5 HEADINGS, ETC., NO PART OF PLAN
Headings of Articles and Sections hereof are inserted for convenience
and references; they constitute no part of the Plan.
SECTION 9.6 INVESTMENT REPRESENTATION
Each Stock Option Agreement shall contain an agreement that, upon demand
by the Compensation Committee for such a representation, the Optionee shall
deliver to the Compensation Committee at the time of any exercise of an Option a
written representation that the shares of Stock to be acquired upon such
exercise are to be acquired for investment and not for resale or with a view to
the distribution thereof. Upon such demand, delivery of such representation
prior to the delivery of any shares issued upon exercise of an Option and prior
to the expiration of the Option period shall be a condition precedent to the
right of the Optionee or such other persons to purchase any such shares.
8
<PAGE> 9
SECTION 9.7 COMPLIANCE WITH SECTION 16
During any period in which the Company has a class of equity securities
registered under Section 12 of the Exchange Act, and with respect to persons
subject to Section 16 of the Exchange Act, transactions under this Plan are
intended to comply with all applicable provisions of Section 16 of the Exchange
Act and the rules promulgated thereunder (including, without limitation, Rule
16b-3) or their successors under the Exchange Act. To the extent any provision
of the Plan or any Stock Option Agreement or any action by the Grants and Awards
Committee or the Compensation Committee fails to so comply, it shall be deemed
null and void, to the extent permitted by law and deemed advisable by the
committee, and it shall be restructured to the extent deemed advisable by the
committee so to comply.
SECTION 9.8 COMPLIANCE WITH OTHER LAWS AND REGULATIONS
The Plan, the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such Options, shall
be subject to all applicable federal and state laws, rules and regulations and
to such approvals by any governmental or regulatory agency or national
securities exchange as may be required. The Company shall not be required to
issue or deliver any certificates for shares of Stock prior to the completion of
any registration or qualification of such shares under any federal or state law,
or any ruling or regulation of any governmental body or national securities
exchange which the Company shall, in its sole discretion, determine to be
necessary or advisable.
SECTION 9.9 WITHHOLDING BY THE COMPANY
A Stock Option Agreement executed pursuant to this Plan may contain a
provision to the effect that the Optionee will consent to any withholding
actions that the Company deems reasonably necessary to enable the Company to
obtain the benefit of an income tax deduction under the Code, and any related
state or local income tax laws, in the amount of the difference between the
Option exercise price of the Stock and its fair market value on the date of
exercise or the lapse of a restriction, as applicable.
9
<PAGE> 1
EXHIBIT 11
MARTIN INDUSTRIES, INC.
STATEMENT OF COMPUTATION
OF NET INCOME PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
<TABLE>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income $7,155,000 $4,570,000 $1,827,000
========== ========== ==========
Weighted average number of common and common
equivalent shares outstanding:
Weighted averages shares, excluding ESOP and
stock option effects 2,614,675 3,729,360 5,172,386
Weighted average effect of allocated ESOP shares 553,280 893,588 1,239,836
Weighted average effect of stock options 487,690 581,306 359,969
---------- ---------- ----------
3,655,645 5,204,254 $6,772,191
========== ========== ==========
Net income per share $ 1.96 $ .88 $ .27
========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF MARTIN INDUSTRIES, INC.
<TABLE>
<CAPTION>
Jurisdiction of
Name of Corporation Ownership Incorporation
- ---------------------------------- --------------------------------------------- ----------------
<S> <C> <C>
1166081 Ontario Inc. ("1166081") 100% by Martin Industries, Inc. ("Registrant") Ontario, Canada
Hunter Technology Inc. ("HEAT") 100% by 1166081 Ontario, Canada
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report, included in this Form 10-K, into the Company's previously
filed Registration Statement File Nos. 33-81031, 33-99804, and 33-99802.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,326
<SECURITIES> 0
<RECEIVABLES> 17,788
<ALLOWANCES> 419
<INVENTORY> 18,346
<CURRENT-ASSETS> 60,647
<PP&E> 22,964
<DEPRECIATION> 12,189
<TOTAL-ASSETS> 76,344
<CURRENT-LIABILITIES> 15,741
<BONDS> 10,263
0
0
<COMMON> 97
<OTHER-SE> 47,935
<TOTAL-LIABILITY-AND-EQUITY> 76,344
<SALES> 90,194
<TOTAL-REVENUES> 90,194
<CGS> 65,334
<TOTAL-COSTS> 65,334
<OTHER-EXPENSES> 18,600
<LOSS-PROVISION> (117)
<INTEREST-EXPENSE> 473
<INCOME-PRETAX> 5,787
<INCOME-TAX> 2,592
<INCOME-CONTINUING> 3,195
<DISCONTINUED> 1,368
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,827
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
