<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For 39-Week Period Ended September 27, 1997 Commission File No. 0-26228
MARTIN INDUSTRIES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 63-0133054
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 East Tennessee Street
Florence, Alabama 35630
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(205) 767-0330
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
8,643,957 shares of Common Stock, $.01
par value, as of November 5, 1997
<PAGE> 2
MARTIN INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Unaudited Condensed Consolidated Balance Sheets as
of September 27, 1997 and December 31, 1996 2
Unaudited Condensed Consolidated Statements of
Operations for the 13-Week and 39-Week Periods
Ended September 27, 1997 and September 28, 1996 4
Unaudited Condensed Consolidated Statements of
Cash Flows for the 39-Week Periods Ended
September 27, 1997 and September 28, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
1
<PAGE> 3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
MARTIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 27, December 31,
1997 1996
============= ============
<S> <C> <C>
Current assets:
Cash and short-term investments $11,092,000 $19,326,000
Accounts and notes receivable, less
allowance for doubtful accounts of
$440,000 and $419,000, respectively 34,320,000 17,788,000
Inventories 26,929,000 18,346,000
Refundable income taxes 356,000 0
Deferred tax benefits 2,986,000 3,401,000
Prepaid expenses and other assets 1,374,000 1,786,000
----------- -----------
Total current assets 77,057,000 60,647,000
----------- -----------
Property, plant and equipment, net 10,822,000 10,775,000
Deferred tax benefits 572,000 653,000
Other noncurrent assets 4,438,000 4,269,000
----------- -----------
15,832,000 15,697,000
----------- -----------
Total assets $92,889,000 $76,344,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
2
<PAGE> 4
MARTIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
September 27, December 31,
1997 1996
============= ============
<S> <C> <C>
LIABILITIES
Current liabilities:
Notes payable $19,080,000 $ 742,000
Current portion of long-term debt 1,754,000 1,792,000
Accounts payable 5,926,000 4,467,000
Accrued income taxes payable 0 602,000
Accrued liabilities:
Payroll related 3,154,000 3,068,000
Product liability 488,000 560,000
Warranty 1,363,000 1,299,000
Workers' compensation 664,000 602,000
Other 1,353,000 2,609,000
----------- -----------
Total current liabilities 33,782,000 15,741,000
----------- -----------
Long-term debt 8,610,000 10,263,000
Deferred compensation 2,144,000 2,183,000
Other noncurrent liabilities 44,000 125,000
----------- -----------
10,798,000 12,571,000
----------- -----------
Total liabilities 44,580,000 28,312,000
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock $.01 par value,
1,000,000 shares authorized; no
shares issued and outstanding 0 0
Common stock, $.01 par value,
20,000,000 shares authorized;
9,748,000 shares issued 97,000 97,000
Paid-in capital 26,562,000 25,866,000
Retained earnings 30,479,000 31,035,000
Cumulative foreign currency
translation adjustment (54,000) 25,000
----------- -----------
57,084,000 57,023,000
Less:
Treasury stock at cost (1,104,105 and
1,021,925 shares, respectively) 2,590,000 1,911,000
Unearned compensation - ESOP 6,185,000 7,080,000
----------- -----------
Total stockholders' equity 48,309,000 48,032,000
----------- -----------
Total liabilities and
stockholders' equity $92,889,000 $76,344,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
3
<PAGE> 5
MARTIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
13-Week 39-Week
Period Ended Period Ended
============================= ===============================
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
============= ============= ============= =============
<S> <C> <C> <C> <C>
NET SALES $ 23,850,000 $ 22,485,000 $ 63,258,000 $ 61,979,000
COST OF SALES 17,810,000 16,788,000 48,102,000 46,063,000
------------ ------------ ------------ ------------
Gross profit 6,040,000 5,697,000 15,156,000 15,916,000
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling 2,555,000 2,282,000 7,633,000 6,479,000
General and administrative 1,573,000 1,663,000 4,734,000 5,084,000
Non-cash ESOP compensation expense 483,000 646,000 1,445,000 2,213,000
------------ ------------ ------------ ------------
4,611,000 4,591,000 13,812,000 13,776,000
------------ ------------ ------------ ------------
Operating income 1,429,000 1,106,000 1,344,000 2,140,000
INTEREST EXPENSE 501,000 445,000 1,144,000 1,091,000
INTEREST INCOME (219,000) (234,000) (673,000) (705,000)
------------ ------------ ------------ ------------
Income from continuing operations
before income taxes 1,147,000 895,000 873,000 1,754,000
PROVISION FOR INCOME TAXES 492,000 399,000 409,000 959,000
------------ ------------ ------------ ------------
Income from continuing operations 655,000 496,000 464,000 795,000
Income (loss) from discontinued
operations, net of tax (253,000) (116,000) (253,000) 47,000
------------ ------------ ------------ ------------
Net income $ 402,000 $ 380,000 $ 211,000 $ 842,000
============ ============ ============ ============
INCOME FROM CONTINUING OPERATIONS
PER SHARE $ 0.09 $ 0.07 $ 0.07 $ 0.12
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS PER SHARE (0.03) (0.01) (0.04) 0.01
------------ ------------ ------------ ------------
NET INCOME PER SHARE $ 0.06 $ 0.06 $ 0.03 $ 0.13
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 7,082,734 6,882,452 7,037,593 6,706,274
============ ============ ============ ============
DIVIDENDS DECLARED PER SHARE $ 0.040 $ 0.038 $ 0.116 $ 0.110
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
<PAGE> 6
MARTIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
39-Week
Period Ended
==============================
September 27, September 28,
1997 1996
============= =============
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 211,000 $ 842,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,301,000 1,090,000
Gain on sale of assets (12,000) 0
Provision for doubtful accounts and notes receivable 21,000 23,000
Non-cash ESOP compensation expense 1,445,000 2,213,000
Other changes in operating assets and liabilities (25,758,000) (17,805,000)
------------ ------------
Net cash used in operating activities (22,792,000) (13,637,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,803,000) (2,047,000)
Proceeds from sale of assets 1,023,000 1,000
Purchase of subsidiary, net of cash acquired 0 (1,374,000)
------------ ------------
Net cash used in investing activities (780,000) (3,420,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on notes payable 18,346,000 11,824,000
Net repayments of long-term debt (1,689,000) (1,427,000)
Purchase of treasury stock (775,000) 0
Exercise of stock options 44,000 180,000
Cash dividends paid (613,000) (564,000)
------------ ------------
Net cash provided by financing activities 15,313,000 10,013,000
------------ ------------
NET DECREASE IN CASH AND SHORT-TERM
INVESTMENTS (8,259,000) (7,044,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 25,000 0
CASH AND SHORT-TERM INVESTMENTS AT THE
BEGINNING OF THE PERIOD 19,326,000 20,439,000
------------ ------------
CASH AND SHORT-TERM INVESTMENTS AT THE
END OF THE PERIOD $ 11,092,000 $ 13,395,000
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
5
<PAGE> 7
MARTIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
Unaudited Interim Condensed Consolidated Financial Statements
The accompanying unaudited interim condensed consolidated financial
statements of Martin Industries, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and are presented in accordance with the requirements of Form 10-Q
and Article 10 of Regulation S-X. The financial statements should be read in
conjunction with the audited financial statements and notes thereto for the year
ended December 31, 1996 included on Form 10-K, as filed with the Securities and
Exchange Commission on March 31, 1997.
In the opinion of management, the unaudited condensed consolidated
financial statements included herein reflect all adjustments (which include only
normal recurring adjustments) necessary to present fairly the information set
forth therein. The consolidated results of operations for the periods presented
are not necessarily indicative of results for the full year. The Company's
business is seasonal and cyclical with the potential for significant
fluctuations in quarterly earnings.
Principles of Consolidation and Fiscal Periods
The unaudited interim condensed consolidated financial statements
include the accounts and transactions of the Company and its wholly owned
Canadian subsidiary, 1166081 Ontario Inc. All significant intercompany accounts
and transactions have been eliminated in consolidation. See Note 2 for
discussion of the business combination.
The Company's fiscal quarters end on the Saturday nearest each calendar
quarter-end. The Company utilizes a December 31 fiscal year-end.
2. BUSINESS COMBINATION
On February 1, 1996, the Company's newly formed, wholly owned Canadian
subsidiary, 1166081 Ontario Inc. ("Martin Canada"), acquired all of the capital
stock of Hunter Energy and Technologies Inc. and 1061099 Ontario Inc.
("1061099"), a sister company which owned the land and building leased by Hunter
Energy and Technologies Inc. for its manufacturing operation. The transaction
was accounted for under the purchase method of accounting. The aggregate
purchase price of approximately $1,943,000 included $850,000 in cash, $729,000
in promissory notes, and $364,000 paid into escrow. Transaction expenses of
$160,000 were incurred. The promissory notes bear interest at a rate of 9% per
annum and matured during the first quarter of 1997. The Company has withheld
payment on certain of the promissory notes pending resolution of certain issues
with the holders of the notes arising out of the purchase transaction. The
purpose of the escrow is to make funds available to meet the sellers'
indemnification obligations to the Company. The Company has claimed the entire
amount in escrow and instituted litigation to recover these amounts and
additional amounts from certain
6
<PAGE> 8
sellers in the purchase transaction, and certain of the sellers have sued to
enforce collection of their notes. The outcome of these matters is uncertain at
this time. The total purchase price exceeded the fair value of the net assets
acquired by $2,250,000, which amount is reflected as goodwill (included in other
noncurrent assets) to be amortized over 40 years. The consolidated results of
operations for the 1996 period reflect the operations of the acquisition for the
period from the purchase date, February 1, 1996, through September 28, 1996.
Effective January 1, 1997, Hunter Energy and Technologies Inc. and 1061099 were
amalgamated to form Hunter Technology Inc. ("HEAT").
3. COMMITMENTS AND CONTINGENCIES
The Company has experienced production and design problems with certain
HEAT products. These problems, in some cases, caused the production to be
suspended and, therefore, sales were also suspended. Corrections have been
implemented, and all but one of the affected products are back in production.
The Company, however, could incur additional costs to make further corrections
on products shipped prior to the production suspension. Management is in the
process of addressing and evaluating this exposure. At present, the amount of
possible exposure is estimated to be in a range of $-0- to $1.5 million.
4. NET INCOME PER SHARE
Net income per share has been computed based on the weighted average
number of common shares outstanding in each respective period. Shares of stock
owned by the ESOP that have been committed to be released to participants have
been considered outstanding on a weighted average basis for the purpose of
computing net income per share. Shares of stock owned by the ESOP that have not
been committed to be released have not been considered outstanding for such
purpose. The computation of the weighted average number of common and common
equivalent shares outstanding for the interim periods reported herein is
summarized as follows:
<TABLE>
<CAPTION>
13-Week 39-Week
Period Ended Period Ended
----------------------------- -----------------------------
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted average shares,
excluding ESOP and
stock option effects 5,214,178 5,238,193 5,255,871 5,148,850
Weighted average effect
of ESOP shares committed
to be released 1,585,989 1,282,751 1,499,155 1,195,916
Dilutive effect of stock options 282,567 361,508 282,567 361,508
--------- --------- --------- ---------
Weighted average number
of common and common
equivalent shares outstanding 7,082,734 6,882,452 7,037,593 6,706,274
========= ========= ========= =========
</TABLE>
7
<PAGE> 9
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
per Share. This Statement establishes standards for computing and presenting
earnings per share ("EPS"). This Statement will simplify the standards for
computing EPS previously found in Accounting Principles Board Opinion No. 15,
Earnings per Share, and will make them comparable to international EPS
standards. It will replace the presentation of primary EPS with a presentation
of basic EPS and will require dual presentation of basic and diluted EPS on the
face of the income statement and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.
This Statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods and requires
restatement of all prior-period EPS data presented. The Company will adopt the
Statement at fiscal year-end 1997. Had the Company implemented SFAS 128 on
January 1, 1996, the pro forma EPS results would have been as follows:
<TABLE>
<CAPTION>
13-Week Period Ended 13-Week Period Ended
September 27, 1997 September 28, 1996
-------------------------------------------- --------------------------------------------
Diluted Diluted
Effect of Effect of
Options Options
Basic Issued Diluted Basic Issued Diluted
----- ------ ------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations $ 655,000 $ 655,000 $ 655,000 $ 496,000 $ 496,000 $ 496,000
Shares available to common
shareholders 6,800,167 282,567 7,082,734 6,520,944 361,508 6,882,452
Income from continuing
operations per share $ 0.10 $ (0.01) $ 0.09 $ 0.08 $ (0.01) $ 0.07
</TABLE>
<TABLE>
<CAPTION>
39-Week Period Ended 39-Week Period Ended
September 27, 1997 September 28, 1996
-------------------------------------------- --------------------------------------------
Diluted Diluted
Effect of Effect of
Options Options
Basic Issued Diluted Basic Issued Diluted
----- ------ ------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations $ 464,000 $ 464,000 $ 464,000 $ 795,000 $ 795,000 $ 795,000
Shares available to common
shareholders 6,755,026 282,567 7,037,593 6,344,766 361,508 6,706,274
Income from continuing
operations per share $ 0.07 -- $ 0.07 $ 0.13 $ (0.01) $ 0.12
</TABLE>
Options of 396,050 for the 13-week and 39-week periods ended September
27, 1997 and 234,242 for the 13-week and 39-week periods ended September 28,
1996 were not included in the table above as they were anti-dilutive.
8
<PAGE> 10
5. INVENTORIES
Substantially all of the Company's inventories are valued at last-in,
first-out ("LIFO") cost, which is not in excess of market. An analysis of
inventories at September 27, 1997 and December 31, 1996 follows:
<TABLE>
<CAPTION>
September 27, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
Inventories valued at first-in,
first-out ("FIFO") cost:
Raw materials and purchased parts $12,631,000 $10,570,000
Work-in-process 5,543,000 4,281,000
Finished goods 14,582,000 9,066,000
----------- -----------
32,756,000 23,917,000
Less excess of FIFO over LIFO cost 5,827,000 5,571,000
----------- -----------
$26,929,000 $18,346,000
=========== ===========
</TABLE>
6. DISCONTINUED OPERATIONS
On February 24, 1997, the Company announced that it had elected to
discontinue its operations in the metal office furniture segment. For 1996 and
1997, the segment's operations, net of tax, have been treated as discontinued
operations for accounting purposes. The Company established a reserve at
December 31, 1996 of $1,430,000, net of taxes of $861,000. As of September 27,
1997, the reserve has been reduced to a zero balance. Further, the actual loss
from discontinued operations, net of tax, during the 13-week and 39-week periods
ended September 27, 1997, has exceeded the original estimated reserve by
$253,000, which is reflected as a loss from discontinued operations in the
Condensed Consolidated Statements of Operations for the respective periods.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the unaudited
interim condensed consolidated financial statements of the Company and notes
thereto appearing elsewhere in this Form 10-Q. All references to the third
quarter of 1997 and the third quarter of 1996 are referring to the 13-week
periods ended September 27, 1997 and September 28, 1996, respectively. All
references to the 1997 year-to-date period and the 1996 year-to-date period are
referring to the 39-week periods ended September 27, 1997 and September 28,
1996, respectively.
The Company manufactures products in two industry segments: home
heating products and leisure and other products such as do-it-yourself utility
trailer kits and gas barbecue grills. Each of the industry segments in which the
Company operates is cyclical in nature, with sales being affected by general
economic cycles, consumer confidence levels, inflation, employment and income
levels and the availability of credit generally. The Company's fireplace
business, which is included in the home heating products segment, 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.
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.
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 condensed consolidated financial statements.
See "--Results of Discontinued Metal Office Furniture Operations."
On February 1, 1996, the Company's wholly owned Canadian subsidiary,
1166081 Ontario Inc. ("Martin Canada"), acquired all of the capital stock of
Hunter Energy and Technologies Inc. ("HEAT") and 1061099 Ontario Inc.
("1061099"), a sister company which owned the land and building leased by HEAT
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 matured during the
first quarter of 1997. The Company has withheld payment on certain of the
promissory notes pending resolution of certain issues with the holders of the
notes arising out of the purchase transaction. The purpose of the escrow is to
make funds available to meet the sellers' indemnification obligations to the
Company. The Company has claimed the entire amount in escrow and instituted
litigation to recover these amounts and additional amounts from certain sellers
in the purchase transaction, and certain of the sellers have sued to enforce
collection of their notes. The outcome of these matters is uncertain at this
time. The condensed consolidated results of operations for the 1996 period
reflect the
10
<PAGE> 12
operations of the acquired entities for the period from the purchase date,
February 1, 1996, through September 28, 1996.
RESULTS OF CONTINUING OPERATIONS
The following tables set forth, for the periods indicated, information
derived from the Company's financial statements expressed as a percentage of net
sales together with industry segment information.
<TABLE>
<CAPTION>
13-Week Period Ended 39-Week Period Ended
------------------------ ------------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 74.7 74.7 76.0 74.3
----- ----- ----- -----
Gross profit 25.3 25.3 24.0 25.7
Operating expenses:
Selling 10.7 10.1 12.1 10.5
General and administrative 6.6 7.4 7.5 8.2
Non-cash ESOP compensation expense 2.0 2.9 2.3 3.6
----- ----- ----- -----
Operating income 6.0 4.9 2.1 3.4
Interest expense, net 1.2 .9 .7 .6
----- ----- ----- -----
Income before income taxes 4.8 4.0 1.4 2.8
Provision for income taxes 2.1 1.8 .7 1.5
----- ----- ----- -----
Income from continuing operations 2.7% 2.2% .7% 1.3%
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Segment Information
------------------------------------------------------------
13-Week Period Ended 39-Week Period Ended
------------------------ ------------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Net sales:
Home heating products $21,461 $20,937 $48,554 $50,863
Leisure and other products 2,389 1,548 14,704 11,116
------- ------- ------- -------
$23,850 $22,485 $63,258 $61,979
======= ======= ======= =======
Gross profit:
Home heating products $ 5,655 $ 5,579 $11,860 $14,141
Leisure and other products 385 118 3,296 1,775
------- ------- ------- -------
$ 6,040 $ 5,697 $15,156 $15,916
======= ======= ======= =======
Segment contribution (loss)(1):
Home heating products $ 3,624 $ 3,680 $ 6,279 $ 8,847
Leisure and other products (139) (265) 1,244 590
------- ------- ------- -------
$ 3,485 $ 3,415 $ 7,523 $ 9,437
======= ======= ======= =======
</TABLE>
(1) Segment contribution (loss) consists of gross profit less selling expenses.
11
<PAGE> 13
13-WEEK PERIOD ENDED SEPTEMBER 27, 1997 COMPARED TO 13-WEEK PERIOD ENDED
SEPTEMBER 28, 1996
Net Sales
Net sales in the 13-week period ended September 27, 1997 increased to
$23.9 million from $22.5 million in the 13-week period ended September 28, 1996,
an increase of $1.4 million, or 6.1%.
Home Heating Products. Net sales of home heating products increased to $21.5
million in the third quarter of 1997 from $20.9 million in the third quarter of
1996, an increase of $524,000, or 2.5%. The increase in net sales was less than
might have been expected due to a decrease in the order rate for the Company's
gas heater products and production and design problems experienced with certain
HEAT products. These problems, in some cases, caused the production to be
suspended and, therefore, sales were also suspended. Corrections have been
implemented, and all but one of the affected products are back in production.
The Company, however, could incur additional costs to make further corrections
on products shipped prior to the production suspension. Management is in
process of addressing and evaluating this exposure.
Leisure and Other Products. Net sales of leisure and other products increased
$841,000, or 54.3%, in the third quarter of 1997 to $2.4 million as compared to
$1.5 million in the third quarter of 1996. The increase in this segment is the
result of the continued acceptance of new products introduced in the Broilmaster
grills line and improved distribution of the NuWay trailer.
Gross Profit
Gross profit in the third quarter of 1997 was $6.0 million as compared
to $5.7 million in the third quarter of 1996, an increase of $343,000, or 6.0%.
Gross margin, defined as gross profit as a percentage of net sales, was 25.3% in
the third quarter of 1997 as compared to 25.3% in the third quarter of 1996.
Home Heating Products. Gross profit on net sales of home heating products in the
third quarter of 1997 was $5.7 million as compared to $5.6 million in the third
quarter of 1996, an increase of $76,000, or 1.4%. The increase in net sales for
the quarter of 2.5% was the primary contributor to the increase. Gross margin
was 26.4% in the third quarter of 1997 as compared to 26.6% in the third quarter
of 1996.
Leisure and Other Products. Gross profit on net sales of leisure and other
products in the third quarter of 1997 was $385,000 as compared to $118,000 in
the third quarter of 1996, an increase of $267,000, or 226.3%. The increase was
primarily the result of the 54.3% increase in net sales discussed above. Gross
margin was 16.1% in the third quarter of 1997 as compared to 7.6% in the third
quarter of 1996 primarily as the result of a greater mix of higher margin
barbecue gas grill sales.
Selling Expenses
Selling expenses in the third quarter of 1997 increased to $2.6 million
from $2.3 million in the third quarter of 1996, an increase of $273,000, or
12.0%. The increase in selling expenses was mainly attributable to a $126,000
increase in advertising and promotion expenses in the home heating segment and a
$70,000 increase in advertising and promotion expenses in the leisure and other
segment. Selling expenses as a percentage of net sales increased to 10.7% in the
third quarter of 1997 from 10.1% in the third quarter of 1996.
Segment Contribution
Total segment contribution, defined as gross profit less selling
expenses, increased to $3.5 million in the third quarter of 1997 from $3.4
million in the third quarter of 1997, an increase of $70,000, or 2.0%. The
increase was primarily the result of the 6.0% increase in gross profit, net of
the increase in selling expenses.
12
<PAGE> 14
General and Administrative Expenses
General and administrative expenses decreased $90,000, or 5.4%, in the
third quarter of 1997 as compared to the third quarter of 1996. General and
administrative expenses as a percentage of net sales were 6.6% in the third
quarter of 1997 as compared to 7.4% in the third quarter of 1996.
Non-cash ESOP Compensation Expense
Non-cash ESOP compensation expense was $483,000 in the third quarter of
1997 as compared to $646,000 in the third quarter of 1996, a decrease of
$163,000, or 25.2%. In the third quarter of 1997, 78,175 shares of unallocated
ESOP stock were committed to be released as compensation at an average fair
value of $6.18 per share, as compared to 81,692 shares committed to be released
as compensation at an average fair value of $7.91 per share in the third quarter
of 1996.
Interest Expense
Interest expense in the third quarter of 1997 was $501,000 as compared
to $445,000 in the third quarter of 1996, an increase of $56,000, or 12.6%. The
increase was attributable to the increase of $2.9 million in average outstanding
debt during the third quarter.
Interest Income
Interest income in the third quarter of 1997 was $219,000 as compared
to $234,000 in the third quarter of 1996, a decrease of $15,000, or 6.4%.
Provision for Income Taxes
The provision for income taxes increased to $492,000 in the third
quarter of 1997 from $399,000 in the third quarter of 1996, an increase of
$93,000, or 23.3%. The increase was the result of a $252,000 increase in income
before taxes to $1.1 million in the third quarter of 1997 from $895,000 in the
third quarter of 1996, an increase of 28.2%. The effective tax rate decreased to
42.9% in the third quarter of 1997 from 44.6% in the third quarter of 1996
primarily as a result of the decrease in the non-deductible portion of the
non-cash ESOP compensation expense.
Income from Continuing Operations and Income from Continuing Operations Per
Share
The income from continuing operations in the third quarter of 1997 was
$655,000 as compared to $496,000 in the third quarter of 1996. The increase in
income from continuing operations was primarily the result of the factors
discussed above.
Income from continuing operations per share was $0.09 in the third
quarter of 1997 as compared to $0.07 in the third quarter of 1996. The increase
of 28.6% was due to the increase in income from continuing operations of 32.1%
combined with the increase in the weighted average number of common and common
equivalent shares outstanding of 2.9%. The increase in weighted average shares
outstanding was primarily the result of stock options exercised and ESOP shares
committed to be released to participants less treasury shares purchased.
13
<PAGE> 15
39-WEEK PERIOD ENDED SEPTEMBER 27, 1997 COMPARED TO 39-WEEK PERIOD ENDED
SEPTEMBER 28, 1996
Net Sales
Net sales in the 39-week period ended September 27, 1997 increased to
$63.3 million as compared to $62.0 million in the 39-week period ended September
28, 1996, an increase of $1.3 million, or 2.1%.
Home Heating Products. Net sales of home heating products decreased to $48.6
million in the 1997 year-to-date period as compared to $50.9 million in the 1996
year-to-date period, a decrease of $2.3 million, or 4.5%. The decrease in net
sales of home heating products was primarily the result of the decrease in the
order rate for the Company's gas heater products combined the with production
and design problems with certain HEAT products as discussed above in the
discussion of net sales for the 13-week period ended September 27, 1997.
Leisure and Other Products. Net sales of leisure and other products increased
$3.6 million, or 32.3%, in the 1997 year-to-date period to $14.7 million as
compared to $11.1 million in the 1996 year-to-date period. The increase was
primarily the result of a $2.8 million, or 47.2%, increase in net sales of
barbecue gas grills. Net sales of utility trailer kits increased $694,000, or
14.9%, in the 1997 year-to-date period.
Gross Profit
Gross profit in the 1997 year-to-date period was $15.2 million as
compared to $15.9 million in the 1996 year-to-date period, a decrease of
$760,000, or 4.8%. Gross margin decreased to 24.0% in the 1997 year-to-date
period from 25.7% in the 1996 year-to-date period.
Home Heating Products. Gross profit on net sales of home heating products was
$11.9 million in the 1997 year-to-date period as compared to $14.1 million in
the 1996 year-to-date period, a decrease of $2.2 million, or 16.1%. Gross margin
decreased to 24.4% in the 1997 year-to-date period from 27.8% in the 1996
year-to-date period. The decrease in gross profit and gross margin was caused by
an increase in the rate of fixed manufacturing cost and by a shift in sales mix
from higher margin gas heating products to Martin fireplace products. Fixed
manufacturing costs for the home heating segment excluding HEAT increased to
13.1% of home heating sales in the 1997 year-to-date period from 11.4% in the
1996 year-to-date period. Additional depreciation, insurance and contract
maintenance services primarily have caused the increase. Gas heating product
sales, excluding HEAT, were 52.3% of home heating product sales in the 1997
year-to-date period as compared to 55.4% in the 1996 year-to-date period.
Leisure and Other Products. Gross profit on net sales of leisure and other
products increased $1.5 million, or 85.7%, in the 1997 year-to-date period to
$3.3 million as compared to $1.8 million in the 1996 year-to-date period. The
increase was primarily the result of the 32.3% increase in net sales as
discussed above. Gross margin increased to 22.4% in the 1997 year-to-date period
from 16.0% in the 1996 year-to-date period. The increase was primarily the
result of a greater mix of higher margin, barbecue gas grill sales.
14
<PAGE> 16
Selling Expenses
Selling expenses in the 1997 year-to-date period were $7.6 million as
compared to $6.5 million in the 1996 year-to-date period, an increase of $1.1
million, or 17.8%. Cooperative advertising expenses and commissions increased
$184,000 primarily as a result of the increase in sales within the leisure and
other products segment. Advertising and promotion expenses increased $872,000.
Selling expenses as a percentage of net sales increased to 12.1% in the 1997
year-to-date period from 10.5% in the 1996 year-to-date period.
Segment Contribution
Total segment contribution decreased to $7.5 million in the 1997
year-to-date period from $9.4 million in the 1996 year-to-date period, a
decrease of $1.9 million, or 20.3%. The decrease was primarily the result of the
decrease in gross profit together with the increased selling expense discussed
above.
General and Administrative Expense
General and administrative expenses decreased $350,000, or 6.9%, in the
1997 year-to-date period as compared to the 1996 year-to-date period. The
decrease was primarily attributable to decreases in payroll, supplies, the
Company's Supplemental Executive Retirement Plan and deferred compensation
together with a business interruption insurance claim filed by HEAT.
Non-cash ESOP Compensation Expense
Non-cash ESOP compensation expense decreased $768,000, or 34.7%, in the
1997 year-to-date period to $1.4 million, as compared to $2.2 million in the
1996 year-to-date period. In the 1997 year-to-date period, 233,607 shares of
unallocated ESOP stock were committed to be released as compensation at an
average fair value of $6.19 per share, as compared to 247,367 shares committed
to be released as compensation at an average fair value of $8.95 per share in
the 1996 year-to-date period.
Interest Expense
Interest expense increased $53,000, or 4.9%, in the 1997 year-to-date
period to $1.1 million, as compared to $1.1 million in the 1996 year-to-date
period.
Interest Income
Interest income decreased $32,000, or 4.5%, in the 1997 year-to-date
period to $673,000, as compared to $705,000 in the 1996 year-to-date period.
Provision for Income Taxes
The provision for income taxes decreased $550,000, or 57.4%, in the
1997 year-to-date period to $409,000, as compared to $959,000 in the 1996
year-to-date period. The decrease in income taxes was primarily the result of a
decrease of $881,000, or 50.2%, in income from continuing operations before
income taxes in the 1997 year-to-date period to $873,000, as compared to $1.8
million in the 1996 year-to-date period. The effective tax rate decreased to
46.8% in the 1997 year-to-date period from
15
<PAGE> 17
54.7% in the 1996 year-to-date period. The decrease in the effective tax rate
was primarily the result of the non-recognition of a tax benefit on the $338,000
net loss of HEAT during the 1996 year-to-date period.
Income from Continuing Operations and Income from Continuing Operations Per
Share
Income from continuing operations in the 1997 year-to-date period was
$464,000 as compared to income from continuing operations of $795,000 in the
1996 year-to-date period, a decrease of $331,000, or 41.6%. The decrease was
primarily the result of the factors discussed above.
Income from continuing operations per share was $0.07 in the 1997
year-to-date period as compared to income from continuing operations per share
of $0.12 in the 1996 year-to-date period, a decrease of 41.7%.
RESULTS OF DISCONTINUED METAL OFFICE FURNITURE OPERATIONS
As a result of the Company's decision to discontinue and dispose of the
metal office furniture operation, an estimated net loss on disposal of $1.4
million was charged to discontinued operations in the fourth quarter of 1996.
The loss included management's best 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. The results of
operations of the metal office furniture segment have been charged against the
1996 reserve during the 1997 year-to-date period. During the 13-week period
ended September 27, 1997, the loss exceeded management's estimated reserve by
$253,000, net of tax. As such, the excess loss has been charged to loss from
discontinued operations, net of tax, within the Condensed Consolidated
Statements of Operations. The Company anticipates additional losses from
discontinued operations; however, it is unable to estimate the amount at present
as a result of ongoing negotiations with its former primary metal office
furniture customer. The Company currently believes that the remaining loss from
discontinued operations will not be material to the financial condition of the
Company.*
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations from internally
generated funds and seasonal borrowings under its bank line of credit. The
Company's primary capital requirements are for working capital, debt service,
capital expenditures and dividends.
The Company's operations in the 39-week period ended September 27, 1997
used $22.8 million in cash primarily to finance increases in extended term
("dating") receivables and inventories required to supply the Company's peak
shipping season which occurs primarily in the third and fourth quarters of each
year. The Company's operating cash and bank line of credit were utilized to
provide the funds needed for working capital requirements, capital expenditures,
long-term debt repayments and dividends for the period. Historically, the
Company's operations for the remainder of the year have provided the funds
required to repay the bank line of credit.
As discussed above, the Company finances temporary working capital
requirements under an unsecured bank line of credit with its principal lender.
The credit agreement provides a line of $30.0 million. Interest on the line of
credit is payable monthly at a variable rate equivalent to 30-day LIBOR plus
1.25%, which at October 30, 1997 was 6.90625%.
16
<PAGE> 18
FINANCIAL POSITION
Cash and short-term investments in the 1997 year-to-date period
decreased $8.3 million as a result of the factors discussed above. Accounts
receivable and inventories in the 1997 year-to-date period increased $16.5
million and $8.6 million, respectively. The increase in accounts receivable was
primarily the result of an $18.0 million increase in dating receivables. In an
effort to better control its production schedule in light of the seasonal nature
of its home heating and barbecue gas grill business, the Company utilizes early
booking programs under which customers receive favorable dating terms for
placing their orders early and permitting the Company to ship the products at
"factory convenience."
The increase in inventories was the result of the Company's general
practice of producing gas and solid fuel heaters in the late winter, spring and
summer to supply the typical peak shipping season in the last two quarters of
the year. Further, shipments during the third quarter were less than forecasted
resulting in higher inventory levels.
During the 1997 year-to-date period, net property, plant and equipment
increased $47,000. The increase was the net result of $1.8 million in capital
expenditures during the 1997 year-to-date period primarily offset by the
disposal of property, plant and equipment with a net book value of $427,000 and
depreciation expense of $1.3 million.
As previously discussed, the Company utilizes its bank line of credit
during the peak production period in the second and third quarters to finance
working capital requirements. During the 1997 year-to-date period, the Company
utilized $18.3 million of its bank line of credit for this purpose as reflected
by the increase in short-term borrowings for the period.
During the 1997 year-to-date period, other accrued liabilities
decreased $1.3 million. The decrease was primarily the result of the decrease in
the accrual provided in 1996 for the estimated loss from the discontinuance of
the metal office furniture operation.
17
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*3(a) Form of Restated Certificate of Incorporation of Martin
Industries, Inc. which was filed as Exhibit 3(a) to the
Registrant's Registration Statement on Form S-1 filed with the
Commission on July 10, 1995 (Registration No. 33-90432).
*3(b) By-laws of Martin Industries, Inc. as amended and restated on
May 16, 1997 which were filed as Exhibit 3(b) to the
Registrant's Quarterly Statement on Form 10-Q for the 26-week
period ended June 28, 1997 (Commission File No. 0-26228).
*4 Article 4 of the Restated Certificate of Incorporation of
Martin Industries, Inc. which was included in Exhibit 3(a) to
the Registrant's Registration Statement on Form S-1 filed with
the Commission on July 10, 1995 (Registration No. 33-90432).
10(a) Amendment No. 8 to Martin Industries, Inc. Employee Stock
Ownership Plan.
10(b) Third Amendment to Loan Agreement and Other Loan Documents
dated as of August 28, 1997 by and between Martin Industries,
Inc. and AmSouth Bank.
10(c) Modified, Amended and Restated Line of Credit Note dated
as of August 28, 1997 by and between Martin Industries, Inc.
and AmSouth Bank.
**27 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period.
- -----------------------------------
*Incorporated by reference
**Filed with electronic filing only
18
<PAGE> 20
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995:
With the exception of factual information, the matters and statements
discussed, made or incorporated by reference in this Quarterly Report on Form
10-Q, as well as those statements specifically designated with an asterisk(*),
constitute forward-looking statements, contain the words "estimates,"
"projects," "intends," "believes," "anticipates," "expects," and words of
similar import, are based upon current expectations and are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements and words involve known and unknown assumptions,
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance, or achievements expressed or implied by such
forward-looking statements or words. Such assumptions, risks, uncertainties and
factors include 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 other assumptions, risks, uncertainties and factors reflected
from time to time in the Company's filings with the Securities and Exchange
Commission. The Company expressly disclaims any obligation to update any
forward-looking statements as a result of developments occurring after the
filing of this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARTIN INDUSTRIES, INC.
Date: November 7, 1997 By /s/ Roderick V. Schlosser
-----------------------------
Roderick V. Schlosser
Vice President of Finance
and Treasurer
(Executed on behalf of
Registrant and as Principal
Financial Officer)
19
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits Page No.
------ ----------------------- --------
<S> <C> <C>
*3(a) Form of Restated Certificate of
Incorporation of Martin Industries, Inc.
which was filed as Exhibit 3(a) to the
Registrant's Registration Statement on Form
S-1 filed with the Commission on July 10,
1995 (Registration No. 33-90432).
*3(b) By-laws of Martin Industries, Inc. as
amended and restated on May 16, 1997 which
were filed as Exhibit 3(b) to the
Registrant's Quarterly Statement on Form
10-Q for the 26-week period ended June 28,
1997 (Commission File No. 0-26228).
*4 Article 4 of the Restated Certificate of
Incorporation of Martin Industries, Inc.
which was included in Exhibit 3(a) to the
Registrant's Registration Statement on Form
S-1 filed with the Commission on July 10,
1995 (Registration No. 33-90432).
10(a) Amendment No. 8 to Martin Industries, Inc.
Employee Stock Ownership Plan.
10(b) Third Amendment to Loan Agreement and Other
Loan Documents dated as of August 28, 1997
by and between Martin Industries, Inc. and
AmSouth Bank.
10(c) Modified, Amended and Restated Line of Credit Note dated
as of August 28, 1997 by and between Martin Industries, Inc.
and AmSouth Bank.
**27 Financial Data Schedule.
</TABLE>
--------------------------
*Incorporated by reference
**Filed with electronic filing only
<PAGE> 1
EXHIBIT 10(a)
AMENDMENT NO. 8
to the
MARTIN INDUSTRIES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
Pursuant to and in accordance with the provisions of Section
19 of the Martin Industries, Inc. Employee Stock Ownership Plan, as heretofore
amended (the "Plan"), the Plan is hereby amended as follows:
Section 13(a) of the Plan is hereby amended to read as
follows:
(a) Vesting Schedule.
(1) If a Participant has a Break in Service or his
employment is terminated for any reason other than as described in
Section 12 or Section 13(a)(2), the vesting of his Plan Benefit will be
based upon his Years of Service, as defined in Section 2, in accordance
with the following Vesting Schedule:
Years of Service Percentage of Accounts Vested
Less than Three Years 0
Three Years 20
Four Years 40
Five Years 60
Six Years 80
Seven or more Years 100
(2) A Participant who is employed at the Company's
plant in Sheffield, Alabama, and whose employment is terminated as a
result of the closing of such plant in April of 1997, shall be 100%
vested in his Plan Benefit.
1
<PAGE> 2
This amendment to the Plan shall be effective as of April 1,
1997.
MARTIN INDUSTRIES, INC.
By /s/ JAMES D. WILSON
----------------------------
James D. Wilson, President
ATTEST:
By /s/ JAMES W. TRUITT
--------------------------------
Its Secretary
[CORPORATE SEAL]
2
<PAGE> 1
EXHIBIT 10(b)
THIRD AMENDMENT TO LOAN AGREEMENT
AND OTHER LOAN DOCUMENTS
THIS THIRD AMENDMENT TO LOAN AGREEMENT AND OTHER LOAN DOCUMENTS (this
"Amendment") dated as of August 28, 1997 (the "Effective Date"), is entered
into by MARTIN INDUSTRIES, INC., a Delaware corporation which is the successor
by merger to Martin Industries, Inc., an Alabama corporation (the "Borrower"),
and AMSOUTH BANK, an Alabama banking corporation formerly doing business as
AmSouth Bank N.A., a national banking association, and AmSouth Bank of Alabama,
an Alabama banking corporation (the "Lender").
RECITALS
A. The Borrower and the Lender are parties to a certain Loan
Agreement dated as of January 7, 1993, as amended by letter of April 5, 1994,
and as assumed and modified by an Assumption and Modification Agreement dated
February 17, 1995, and as further modified and amended by a First Amendment to
Loan Agreement and Other Loan Documents dated as of March 15, 1995, and as
further modified and amended by a Second Amendment to Loan Agreement and Other
Documents dated as of March 28, 1996 (the "Loan Agreement").
B. The Borrower and the Lender wish further to amend the Loan
Agreement to make the changes set forth in this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and in
further consideration of the mutual agreements set forth herein, effective as
of the Effective Date, the Borrower and the Lender hereby agree as follows:
1. DEFINITIONS. Capitalized terms used in this Agreement and
not otherwise defined herein have the meanings defined for them in the Loan
Agreement.
2. REPRESENTATIONS AND WARRANTIES OF BORROWER. The Borrower
represents and warrants to the Lender that as of the Effective Date no Event of
Default (nor any event that upon notice or lapse of time or both would
constitute an Event of Default) exists under the Loan Agreement or any of the
other Loan Documents.
3. AMENDMENTS TO LOAN AGREEMENT AS OF EFFECTIVE DATE. Effective
as of the Effective Date, the Loan Agreement is amended as follows:
(a) The following new definition is added in alphabetical order in
Section 1.02:
THIRD AMENDMENT shall mean the Third Amendment to Loan
Agreement and Other Loan Documents between the Borrower and the Lender
as of August 28, 1997, which document amends certain of the provisions
of this Agreement.
<PAGE> 2
(b) The following definitions are amended as follows:
MAXIMUM LINE OF CREDIT shall mean $30,000,000.
LIBOR-BASED RATE shall mean a fixed rate one hundred
twenty-five (125) basis points in excess of the rate of interest
determined by the British Bankers Association, as reported in the Wall
Street Journal, of the cost of funds available to the Lender from the
purchase on the London interbank market of funds in the form of time
deposits in United States dollars in the approximate amount of the
Maximum Line of Credit having a one month maturity, adjusted for any
applicable LIBOR Reserve Requirement.
(c) The date "May 31, 1993" in the definition of "Line of Credit
Termination Date" in Section 1.02, which was previously extended to
July 31, 1997, is further amended to read "July 31, 1999."
(d) The figure "$15,000,000" that appears in two places in the
definition of "Maximum Line of Credit", which was previously
amended to $20,000,000, is further amended to read $30,000,000.
(e) The figure "$15,000,000" that appears in the fourth line of
Section 3.02, which was previously amended to "$20,000,000", is further
amended to read "$30,000,000".
4. MODIFIED LINE OF CREDIT NOTE. To evidence certain of the
changes effected by this Amendment, the Borrower shall execute and deliver to
the Lender a Modified, Amended and Restated Line of Credit Note substantially
in the form attached hereto as Exhibit A (the "Modified Line of Credit Note").
Commencing on the Effective Date the Modified, Amended and Restated Line of
Credit Note shall be the "Line of Credit Note" referred to in the Loan
Agreement and the other Loan Documents. The Lender may retain the original
Line of Credit Note dated January 7, 1993 and the Modified, Amended and
Restated Line of Credit Note dated March 15, 1995, in its file along with the
Modified, Amended and restated Line of Credit Note of even date until the
indebtedness evidenced thereby has been paid in full and the Line of Credit has
been terminated as set forth in the Loan Agreement.
5. REFERENCES IN LOAN DOCUMENTS. Effective as of the Effective
Date, all references in the Loan Documents to the "Loan Agreement" shall mean
the Loan Agreement, as heretofore modified and amended and as further modified
and amended by this Amendment, and all references to the "Line of Credit Note"
shall mean the Modified, Amended and Restated Line of Credit Note referred to
in this Amendment. Effective as of the Effective Date, the words "fifteen
million dollars" and figure "$15,000,000" as used in any of the Loan Documents
to refer to the maximum principal amount of the Line of Credit Master Note, as
amended to "twenty million dollars" and "$20,000,000", are further amended to
read "thirty million dollars" and $30,000,000" respectively.
6. LOAN DOCUMENTS TO REMAIN IN EFFECT. Except as specifically
modified by this Amendment, the Loan Agreement and the other Loan Documents
shall remain in full force and effect in accordance with their respective
terms.
<PAGE> 3
7. NO NOVATION, ETC. Nothing contained in this Amendment
shall be deemed to constitute a novation of the terms of the Loan Documents, or
impair any Liens granted to the Lender thereunder, or affect any of the rights,
powers or remedies of the Lender thereunder or constitute a waiver of any
provision thereof, except as specifically set forth in this Amendment.
8. GOVERNING LAW, SUCCESSORS AND ASSIGNS, ETC. This Amendment
shall be governed by and construed in accordance with the laws of the State of
Alabama and shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
9. DATE. The date of this Amendment is intended as and for a
date for the convenient identification of this Amendment and for determining
the Effective Date hereof, and is not intended to indicate that this Amendment
was executed and delivered on said date.
10. SEVERABILITY. If any provision of this Amendment shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
11. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which so executed shall be deemed an original, but all
counterparts shall together constitute but one and the same instrument.
12. NO WAIVER. Nothing contained herein shall be construed as
a waiver, acknowledgment or consent to any breach of or Event of Default under
the Agreement and the Loan Documents not specifically mentioned herein, and the
consents granted herein are effective only in the specific instance and for the
purposes for which given.
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Amendment to be executed and delivered by their duly authorized
representatives, effective as of the date first set forth above.
MARTIN INDUSTRIES, INC.,
a Delaware corporation
By: /s/ Roderick V. Schlosser
---------------------------
Its: Vice President of Finance
and Treasurer
---------------------------
AMSOUTH BANK,
an Alabama banking corporation
By: /s/ Michael W. Allen
---------------------------
Michael W. Allen
Senior Vice President
<PAGE> 1
EXHIBIT 10(c)
MODIFIED, AMENDED AND RESTATED
LINE OF CREDIT NOTE
$30,000,000 Huntsville, Alabama
As of August 28, 1997
FOR VALUE RECEIVED, Martin Industries, Inc., a Delaware corporation
(the "Borrower"), hereby promises to pay, on the Line of Credit Termination
Date (such term and other capitalized terms used in this Note that are not
otherwise defined herein having the meanings defined for them in the
hereinafter-descibed Loan Agreement), to the order of AmSouth Bank, an Alabama
banking corporation (the "Lender"), at its Main Office in Birmingham, Alabama,
in lawful money of the United States of American, the principal amount of
Thirty Million and No/100 Dollars ($30,000.000), or so much thereof as may
heretofore have been advanced by the Lender under the Line of Credit Master
Note in the face amount of $15,000,000 (the "Initial Note"), and the Modified,
Amended and Restated Line of Credit Note in the face amount of $20,000,000,
(the "First Modification") which are being extended, renewed and modified
hereby or as may hereafter be advanced under this Note, and to pay interest
from the date of this note on sums advanced under the Initial Note and the
First Modification, and from the date advanced on additional sums advanced
under this Note, until payment in full, on the unpaid principal balance of the
amount advanced hereunder, at the rate per annum (computed on the basis of the
actual number of days elapsed over an assumed year of 360 days, as more
particularly set forth below) equal to the applicable rate set forth below:
1. Libor-Base Rate. This Note shall bear
interest at the LIBOR-Based Rate. On the first Business Day of
each month the Lender shall determine the LIBOR-Based Rate for the
then-current month, and all outstanding Advances under this note as
well as all Advances made during such calendar month shall accrue
interest at the LIBOR-Based Rate. If in the Lender's opinion it is
impossible or impractical to obtain the LIBOR-Based Rate for a certain
calendar month, all outstanding Advances as well as all Advances made
during such calendar month shall bear interest as the Prime Rate. Such
interest shall be payable monthly in arrears on the 15th day of each
month for the period ending the last day of the immediately preceding
calendar month. As used herein (a) "LIBOR-Based Rate" shall mean a
fixed rate 125 basis points in excess of the rate of interest
determined by the British Bankers Association as reported in the Wall
Street Journal of the cost of the funds available to the Lender from
the purchase on the London interbank market of funds in the form of
time deposits in United States dollars in the approximate amount of the
Maximum Line of Credit having a one month maturity, adjustable for any
applicable LIBOR Reserve Requirement; and (b) "LIBOR Reserve
Requirement" shall mean the percentage prescribed by the Board of
Governors of the Federal Reserve System (or any successor Government
Authority), on the date on which the LIBOR-Based Rate is determined,
for determining the reserve requirements of the Lender (including any
marginal, emergency, supplemental, special or other reserves) with
respect to liabilities relating to time deposits purchased in the
London interbank market
<PAGE> 2
having a one month maturity, without benefit or credit for any
proration, exemptions or offsets under any now or hereafter applicable
regulations.
2. Reconversion to Prime Rate. If this Note bears
interest at the LIBOR-Based Rate, then the Borrower shall have a one
time option after the IPO Date to convert the interest rate applicable
to this Note from the LIBOR-Based Rate back to the Prime Rate. The
Borrower may exercise this option by giving written notice at least 15
days prior to the first Business Day of any calendar month. Such
notice shall be irrevocable once given and the change shill become
effective upon the first Business Day of a calendar month that occurs
at least 15 days after such notice is given. Commencing on the
effective date of the Prime Rate option, all outstanding Advances as
well as all future Advances under this Note shall bear interest at a
per annum rate equal to the Prime Rate in the same manner as set forth
in paragraph 1 of this Note.
The first monthly interest payment under this Note shall be due and
payable on September 15, 1997. Upon payment in full of this Note, all accrued
interest shall be due and payable In full.
The Lender will send the Borrower a monthly billing statement in
advance of each interest payment date (i.e. the 15th day of each month) showing
the interest that accrued on the Line of Credit through the end of the
immediately preceding month and which shall be due and payable on such interest
payment date.
This Note is a master note, and it is expected that the proceeds of the
loan evidenced hereby will be advanced by the Lender to the Borrower in
installments, as needed for the purposes set forth in the Loan Agreement, upon
compliance with the terms and conditions set forth therein. This Note shall be
valid and enforceable as to, and all collateral granted to the Lender as
security for the loan evidenced hereby shall be and remain valid and binding as
security for, the aggregate amount advanced at any time hereunder, whether or
not the full face amount hereof is advanced. Each principal advance and
payment on this Note may be reflected by notations made by the Lender on its
internal records (which may be kept on computer or otherwise), and the Lender
is hereby authorized to record on such records all such principal Advances and
payments. The aggregate unpaid amount reflected by the Lender's notations on
its internal records (whether on computer or otherwise) shall be deemed
rebuttably presumptive evidence of the principal amount remaining outstanding
and unpaid on this Note. No failure of the Lender so to record any Advance or
payment shall limit or otherwise affect the obligation of the Borrower
hereunder with respect to any Advance, and no payment of principal by the
Borrower shall be affected by the failure of the Lender to so record the same.
This note is being executed and delivered to modify, amend and restate
in its entirety, effective as of the Effective Date of the Third Amendment,
the Line of Credit Note dated January 7, 1993 in the face amount of
$15,000,000, and the First Modification dated March 15, 1995 in the face
amount of $20,000,000. Notwithstanding the execution of this Note the
outstanding indebtedness evidenced by the Initial Note and the First
Modification shall remain in full force and effect and shall hereafter be
evidenced by this Note, and nothing contained
<PAGE> 3
herein shall be construed as effecting any novation, payment or accord and
satisfaction of such indebtedness.
This Note is the Modified, Amended and Restated Line of Credit Note referred to
in the Third Amendment To Loan Agreement and other loan documents, and is
subject to all of the provisions of the Loan Agreement, including those
providing for optional prepayment, acceleration of maturity and adjustment of
the interest rate hereunder, all set forth in the Loan Agreement. This Note is
secured by the Security Documents, as that term is defined in the Loan
Agreement. This Note in executed in renewal, extension and modification of the
Initial Note and the First Modification. The terms of this Note shall be
applicable commencing on the Effective Date. The terms of the Initial Note
and the First Modification shall continue to be applicable prior to the
Effective Date. The Lender may retain the Initial Note and the First
Modification in its file along with this Note until the indebtedness evidenced
hereby has been paid in full and the Line of Credit has been terminated as set
forth in the Loan Agreement.
This Note, as modified, amended and restated, shall continue to be secured by
all of the Security Documents described in the Loan Agreement, as amended.
Nothing continued herein shall be construed to release, satisfy, discharge,
terminate, subordinate or otherwise adversely affect or impair (a) the validity
or enforceability of the indebtedness evidenced by the Initial Note and the
First Modification, as modified, amended and restated hereby, (b) the validity,
perfection or priority of the Liens of the Security Documents as security for
such indebtedness, or of any of the other Loan Documents, or (c) the liability
of any obligor for the repayment of such indebtedness.
MARTIN INDUSTRIES, INC.
By: /s/ Roderick V. Schlosser
-------------------------
Its: Vice President of Finance
and Treasurer
--------------------------
Post Office Box 129
301 East Tennessee Street
Florence, Alabama 35631
Taxpayer I.D.: 63-0133054
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 27, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-27-1997
<CASH> 11,092
<SECURITIES> 0
<RECEIVABLES> 34,760
<ALLOWANCES> 440
<INVENTORY> 26,929
<CURRENT-ASSETS> 77,057
<PP&E> 23,375
<DEPRECIATION> 12,553
<TOTAL-ASSETS> 92,889
<CURRENT-LIABILITIES> 33,782
<BONDS> 8,610
0
0
<COMMON> 97
<OTHER-SE> 48,212
<TOTAL-LIABILITY-AND-EQUITY> 92,889
<SALES> 63,258
<TOTAL-REVENUES> 63,258
<CGS> 48,102
<TOTAL-COSTS> 48,102
<OTHER-EXPENSES> 13,791
<LOSS-PROVISION> 21
<INTEREST-EXPENSE> 471
<INCOME-PRETAX> 873
<INCOME-TAX> 409
<INCOME-CONTINUING> 464
<DISCONTINUED> (253)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
