<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 26-Week Period Ended June 27, 1998 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)
(256) 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.
8,701,348 shares of Common Stock, $.01
par value, as of August 7, 1998
<PAGE> 2
MARTIN INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Unaudited Condensed Consolidated Balance Sheets as of
June 27, 1998 and December 31, 1997 2
Unaudited Condensed Consolidated Statements of
Operations for the 13-Week and 26-Week Periods Ended
June 27, 1998 and June 28, 1997 4
Unaudited Condensed Consolidated Statements of
Cash Flows for the 26-Week Periods Ended
June 27, 1998 and June 28, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 20
Item 4. Submission of Matters to a Vote of Security-Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
</TABLE>
1
<PAGE> 3
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
MARTIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 27, December 31,
1998 1997
--------------- -------------
<S> <C> <C>
Current assets:
Cash and short-term investments $ 9,326,000 $ 15,157,000
Accounts and notes receivable, less
allowance for doubtful accounts of
$449,000 and $432,000, respectively 18,340,000 10,106,000
Inventories 23,683,000 24,884,000
Refundable income taxes 296,000 269,000
Deferred tax benefits 3,497,000 3,488,000
Prepaid expenses and other assets 1,528,000 1,811,000
------------- -------------
Total current assets 56,670,000 55,715,000
------------- -------------
Property, plant and equipment, net 9,821,000 10,317,000
Deferred tax benefits 555,000 581,000
Other noncurrent assets 4,167,000 4,367,000
------------- -------------
14,543,000 15,265,000
------------- -------------
Total assets $ 71,213,000 $ 70,980,000
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
2
<PAGE> 4
MARTIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 27, December 31,
1998 1997
-------------- -------------
<S> <C> <C>
LIABILITIES
Current liabilities:
Notes payable $ 468,000 $ 481,000
Current portion of long-term debt 1,746,000 1,750,000
Accounts payable 4,336,000 3,496,000
Accrued liabilities:
Payroll and employee benefits 3,038,000 2,699,000
Product liability 710,000 651,000
Warranty 1,327,000 1,535,000
Workers' compensation 568,000 572,000
Other 1,677,000 1,359,000
-------------- -------------
Total current liabilities 13,870,000 12,543,000
-------------- -------------
Long-term debt 7,731,000 8,599,000
Deferred compensation 2,192,000 2,197,000
Other noncurrent liabilities 0 18,000
-------------- -------------
9,923,000 10,814,000
-------------- -------------
Total liabilities 23,793,000 23,357,000
-------------- -------------
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; 9,750,688 shares issued at June 27, 1998
and 9,748,746 at December 31, 1997 98,000 97,000
Paid-in capital 27,155,000 26,863,000
Retained earnings 28,624,000 29,501,000
Foreign currency translation adjustment (619,000) (372,000)
-------------- -------------
55,258,000 56,089,000
Less:
Treasury stock at cost (991,230 shares at
June 27, 1998 and 1,104,105 at December 31, 1997 2,559,000 2,590,000
Unearned compensation - ESOP 5,279,000 5,876,000
-------------- -------------
Total stockholders' equity 47,420,000 47,623,000
-------------- -------------
Total liabilities and stockholders' equity $ 71,213,000 $ 70,980,000
============== =============
</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 26-WEEK
PERIOD ENDED PERIOD ENDED
----------------------------- ------------------------------
JUNE 27, JUNE 28, JUNE 27, JUNE 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 24,233,000 $ 23,503,000 $ 43,141,000 $ 39,408,000
COST OF SALES 18,902,000 17,285,000 34,133,000 30,292,000
------------ ------------ ------------ ------------
Gross profit 5,331,000 6,218,000 9,008,000 9,116,000
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling 2,494,000 2,756,000 5,008,000 5,078,000
General and administrative 1,624,000 1,634,000 3,111,000 3,161,000
Non-cash ESOP compensation expense 376,000 433,000 778,000 962,000
Restructure charge 615,000 0 615,000 0
------------ ------------ ------------ ------------
5,109,000 4,823,000 9,512,000 9,201,000
------------ ------------ ------------ ------------
Operating income (loss) 222,000 1,395,000 (504,000) (85,000)
INTEREST EXPENSE 307,000 377,000 547,000 643,000
INTEREST AND OTHER INCOME (480,000) (216,000) (697,000) (454,000)
------------ ------------ ------------ ------------
Income (loss) from continuing operations before income taxes 395,000 1,234,000 (354,000) (274,000)
PROVISION (CREDIT) FOR INCOME TAXES 245,000 557,000 (36,000) (83,000)
------------ ------------ ------------ ------------
Income (loss) from continuing operations 150,000 677,000 (318,000) (191,000)
Loss on disposal of discontinued operations, net of tax 0 0 0 0
------------ ------------ ------------ ------------
Net income (loss) $ 150,000 $ 677,000 $ (318,000) $ (191,000)
============ ============ ============ ============
BASIC PER SHARE DATA:
Income (loss) from continuing operations $ 0.02 $ 0.10 $ (0.04) $ (0.03)
Loss from discontinued operations 0.00 0.00 0.00 0.00
------------ ------------ ------------ ------------
Net income (loss) $ 0.02 $ 0.10 $ (0.04) $ (0.03)
============ ============ ============ ============
Weighted average number of common and common equivalent
shares outstanding 7,171,765 6,751,983 7,082,582 6,732,806
============ ============ ============ ============
DILUTED PER SHARE DATA:
Income (loss) from continuing operations $ 0.02 $ 0.10 $ (0.04) $ (0.03)
Loss from discontinued operations 0.00 0.00 0.00 0.00
------------ ------------ ------------ ------------
Net income (loss) $ 0.02 $ 0.10 $ (0.04) $ (0.03)
============ ============ ============ ============
Weighted average number of common and common equivalent
shares outstanding 7,312,809 7,034,389 7,082,582 6,732,806
============ ============ ============ ============
DIVIDENDS DECLARED PER SHARE $ 0.040 $ 0.038 $ 0.080 $ $ 0.076
============ ============ ============ ============
</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>
26-WEEK
PERIOD ENDED
------------------------------
JUNE 27, JUNE 28,
1998 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (318,000) $ (191,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Accrued restructure charge 513,000 0
Depreciation and amortization 823,000 884,000
Loss (gain) on sale of assets 1,000 (12,000)
Gain on sale of marketable securities (288,000) 0
Provision for doubtful accounts and notes receivable 17,000 7,000
Non-cash ESOP compensation expense 778,000 962,000
Other changes in operating assets and liabilities (5,671,000) (16,512,000)
------------ -------------
Net cash used in operating activities (4,145,000) (14,862,000)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (416,000) (1,486,000)
Proceeds from sale of assets 1,000 1,023,000
Proceeds from sale of marketable securities 159,000 0
------------ -------------
Net cash used in investing activities (256,000) (463,000)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments) (4,000) 9,308,000
Net repayments of long-term debt (868,000) (801,000)
Purchase of treasury stock (230,000) (775,000)
Exercise of stock options 121,000 44,000
Cash dividends paid (439,000) (402,000)
------------ -------------
Net cash provided by (used in) financing activities (1,420,000) 7,374,000
------------ -------------
NET DECREASE IN CASH AND SHORT-TERM
INVESTMENTS (5,821,000) (7,951,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (10,000) 0
CASH AND SHORT-TERM INVESTMENTS AT THE
BEGINNING OF THE PERIOD 15,157,000 19,326,000
------------ -------------
CASH AND SHORT-TERM INVESTMENTS AT THE
END OF THE PERIOD $ 9,326,000 $ 11,375,000
============ =============
</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, 1997 included on Form 10-K, as filed with the
Securities and Exchange Commission on March 31, 1998.
In the opinion of management, the unaudited interim condensed
consolidated financial statements included herein reflect all 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.
The Company's fiscal quarters end on the Saturday nearest each
calendar quarter-end. The Company utilizes a December 31 fiscal year-end.
New Accounting Standards and Statements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131, which
supersedes SFAS Nos. 14, 18, 24, and 30, establishes new standards for segment
reporting using the "management approach" in which reportable segments are
based on the same criteria on which management disaggregates a business for
making operation decisions and assessing performance. The Company will adopt
the new rules in 1998. The new rules are not expected to differ significantly
from the Company's present segment reporting.
6
<PAGE> 8
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits. SFAS No. 132, which
supersedes SFAS Nos. 87, 88, and 106, standardizes the disclosure requirements
for pensions and other postretirement benefits to the extent practicable,
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis, and eliminates
certain disclosures that are no longer useful as they were when SFAS Nos. 87,
88, and 106, were issued. The Company will adopt the new rules in 1998. The new
rules are not expected to have a significant impact on the Company's financial
reporting.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. This statement is
effective for fiscal years beginning after June 15, 1999. The Company is in the
process of evaluating the impact of this statement on its financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued a new Statement of Position ("SOP"), Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. The SOP, which must
be adopted by 1999, requires capitalization of costs of internal-use software.
The Company is in the process of evaluating the impact of this statement on its
financial statements.
2. 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 June 27, 1998 and December 31, 1997 follows:
<TABLE>
<CAPTION>
June 27, December 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Inventories valued at first-in, first-out ("FIFO") cost:
Raw materials and purchased parts $11,554,000 $12,467,000
Work-in-process 4,991,000 5,194,000
Finished goods 12,812,000 12,803,000
----------- -----------
29,357,000 30,464,000
Less excess of FIFO over LIFO cost 5,674,000 5,580,000
----------- -----------
$23,683,000 $24,884,000
=========== ===========
</TABLE>
3. EARNINGS PER SHARE
In December 1997, the Company adopted SFAS No. 128, Earnings per Share,
and restated all prior-period earnings per share ("EPS") data presented.
7
<PAGE> 9
A reconciliation of shares as the denominator of the basic EPS
computation to the diluted EPS computation is as follows:
<TABLE>
<CAPTION>
13-Week 26-Week
Period Ended Period Ended
------------------------ ------------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average shares-basic,
excluding ESOP and stock
option effects 5,421,661 5,252,829 5,375,896 5,277,070
Weighted average effect of ESOP shares
committed to be released 1,750,104 1,499,154 1,706,686 1,455,736
--------- --------- --------- ---------
Weighted average shares-basic 7,171,765 6,751,983 7,082,582 6,732,806
Dilutive effect of stock options 141,044 282,406 0 0
--------- --------- --------- ---------
Weighted average number of common
and common equivalent shares
outstanding-diluted 7,312,809 7,034,389 7,082,582 6,732,806
========= ========= ========= =========
</TABLE>
Options outstanding of 564,529 and 380,159 for the 13-week periods ended
June 27, 1998 and June 28, 1997, respectively, were not included in the table
above as they were anti-dilutive. Options outstanding of 705,573 and 662,565
for the 26-week periods ended June 27, 1998 and June 28, 1997, respectively,
were not included in the table above as they were anti-dilutive.
4. COMMITMENTS AND CONTINGENCIES
Product Contingency
The Company has experienced production and design problems with
certain products manufactured by Hunter Technology Inc., a wholly-owned
subsidiary of 1166081 Ontario Inc. These product problems, in some cases,
caused the production to be suspended and, therefore, shipments were also
suspended. Corrections have been implemented and all but one of the affected
products are back in production. The Company has been in the process of
evaluating the potential exposure to deal with problems related to products
shipped prior to these corrections. The Company has completed its evaluation
and it currently believes that the ultimate liability will not have a
material adverse effect on the Company.
Legal
On February 1, 1996, the Company's wholly owned subsidiary, 1166081
Ontario Inc. ("Martin Canada"), acquired all of the capital stock of Hunter
Technology Inc. ("Hunter").
8
<PAGE> 10
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 purpose
of the escrow is to make funds available to meet the sellers' indemnification
obligations to the Company. 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 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 Company is a party to various legal proceedings that are
incidental to its business. Certain of these cases filed against the Company
and other companies engaged in businesses similar to the Company often allege,
among other things, product liability, personal injury and breach of contract
and warranty. Such suits sometimes seek the imposition of large amounts of
compensatory and punitive damages and trials by jury. In the opinion of
management, after consultation with legal counsel responsible for these
matters, the ultimate liability, if any, with respect to the proceedings in
which the Company is currently involved is not presently expected to have a
material adverse affect on the Company. However, the potential exists for
unanticipated material adverse judgments against the Company.
5. REPORTING COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards for the
reporting and display of "comprehensive income," which is the total of net
income (loss) and all other nonowner changes in stockholders' equity, and its
components. Comprehensive income (loss) is as follows:
<TABLE>
<CAPTION>
13-Week 26-Week
Period Ended Period Ended
------------------------ -----------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $ 150,000 $677,000 $(318,000) $(191,000)
Other comprehensive income (loss),
net of tax
Foreign currency translation
adjustment (321,000) 3,000 (247,000) (72,000)
--------- -------- --------- ---------
Comprehensive income (loss) $(171,000) $680,000 $(565,000) $(263,000)
========= ======== ========= =========
</TABLE>
9
<PAGE> 11
6. RESTRUCTURE CHARGE
As part of the continuing effort to reduce operating costs and
improve manufacturing efficiencies, the Company made the decision to close its
Washington Park, Illinois facility. The Company initiated the closing and the
transfer of the gas grill, gas log and freestanding vent-free stove production
into the Athens, Alabama and Huntsville, Alabama locations during the second
quarter of 1998. The Company recorded a non-recurring charge of $615,000,
before tax, in connection with the closing. The non-recurring charge includes
plant closing costs of $590,000 (primarily payroll, severance and payroll taxes
of $234,000 and group insurance of $255,000) and a property, plant and
equipment valuation charge of $25,000. The estimated reserve remaining as of
June 27, 1998 totaled $513,000.
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
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 second
quarter of 1998 and the second quarter of 1997 are referring to the 13-week
periods ended June 27, 1998 and June 28, 1997, respectively. All references to
the 1998 year-to-date period and the 1997 year-to-date period are referring to
the 26-week periods ended June 27, 1998 and June 28, 1997, respectively.
The Company manufactures products in two industry segments: home
heating products and leisure and other products such as do-it-yourself utility
trailer kits and gas barbecue grills. Each of the industry segments in which
the Company operates is cyclical in nature, with sales being affected by
general economic cycles, consumer confidence levels, inflation, employment and
income levels and the availability of credit generally. The Company's fireplace
business is also influenced by factors affecting the housing industry, such as
housing demand, the availability of financing and the level and stability of
interest rates.
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."
As part of the continuing effort to reduce operating costs and improve
manufacturing efficiencies, the Company made the decision to close its
Washington Park, Illinois facility. The Company initiated the closing and the
transfer of the gas grill, gas log and freestanding vent-free stove production
into the Athens, Alabama and Huntsville, Alabama locations during the second
quarter of 1998. The Company recorded a non-recurring charge of $615,000,
before tax, in connection with the closing. The non-recurring charge includes
plant closing costs of $590,000 (primarily payroll, severance and payroll taxes
of $234,000 and group insurance of $255,000) and a property, plant and
equipment valuation charge of $25,000. The estimated reserve remaining as of
June 27, 1998 totaled $513,000. See "13-Week Period Ended June 27, 1998
Compared to 13-Week Period Ending June 28, 1997 -- Restructure Charge."
11
<PAGE> 13
YEAR 2000 COMPLIANCE
The efficient operation of the Company's business is dependent in part
on its computer software programs and operating systems (collectively,
"Programs and Systems"). These Programs and Systems are used in several key
areas of the Company's business, including inventory management, pricing,
sales, and financial reporting, as well as in various administrative functions.
The Company is in process of evaluating and modifying its Programs and Systems
to identify and address potential Year 2000 compliance problems. These actions
are necessary to ensure that the Programs and Systems will recognize and
process the year 2000 and beyond. It is anticipated that further modification
or replacement of certain of the Company's Programs and Systems will be
necessary to make such Programs and Systems Year 2000 compliant. The Company
does not expect that the cost to modify its Programs and Systems will be
material to its financial condition or results of operations. The Company will
also be communicating with suppliers, financial institutions and others to
coordinate the Year 2000 conversion. The Company does not currently have any
information concerning the Year 2000 compliance status of its suppliers and
customers. In the event that any of the Company's significant suppliers or
customers do not successfully and timely achieve Year 2000 compliance, the
Company's business or operations could be adversely affected.
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 26-Week Period Ended
---------------------- --------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 78.0 73.5 79.1 76.9
----- ----- ----- -----
Gross profit 22.0 26.5 20.9 23.1
Operating expenses:
Selling 10.3 11.7 11.6 12.9
General and administrative 6.7 7.0 7.2 8.0
Non-cash ESOP compensation expense 1.6 1.8 1.8 2.4
Restructure charge 2.5 0.0 1.4 0.0
----- ----- ----- -----
Operating income (loss) .9 6.0 (1.1) (.2)
Interest expense (income), net (.7) .7 (.3) .5
----- ----- ------ -----
Income (loss) before income taxes 1.6 5.3 (.8) (.7)
Provision (credit) for income taxes 1.0 2.4 (.1) (.2)
----- ----- ----- -----
Net income (loss) .6% 2.9% (.7)% (.5)%
===== ===== ===== =====
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
Segment Information
----------------------------------------------------
13-Week Period Ended 26-Week Period Ended
---------------------- ----------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Net sales:
Home heating products $16,504 $17,087 $27,242 $27,093
Leisure and other products 7,729 6,416 15,899 12,315
------- ------- ------- -------
$24,233 $23,503 $43,141 $39,408
======= ======= ======= =======
Gross profit:
Home heating products $ 3,710 $ 4,632 $ 5,388 $ 6,205
Leisure and other products 1,621 1,586 3,620 2,911
------- ------- ------- -------
$ 5,331 $ 6,218 $ 9,008 $ 9,116
======= ======= ======= =======
Segment contribution(1):
Home heating products $ 2,186 $ 2,814 $ 2,231 $ 2,655
Leisure and other products 651 648 1,769 1,383
------- ------- ------- -------
$ 2,837 $ 3,462 $ 4,000 $ 4,038
======= ======= ======= =======
</TABLE>
(1) Segment contribution consists of gross profit less selling expenses.
13-WEEK PERIOD ENDED JUNE 27, 1998 COMPARED TO 13-WEEK PERIOD ENDED JUNE 28,
1997
Net Sales
Net sales in the 13-week period ended June 27, 1998 increased to $24.2
million from $23.5 million in the 13-week period ended June 28, 1997, an
increase of $730,000, or 3.1%.
Home Heating Products. Net sales of home heating products decreased to $16.5
million in the second quarter of 1998 from $17.1 million in the second quarter
of 1997, a decrease of $583,000, or 3.4%. The decrease in net sales of home
heating products was primarily the result of continued competitive pressures in
the gas space heater market and higher levels of inventory being carried over
by the Company's customers as a result of the mild winter of late 1997 and the
first quarter of 1998.
Leisure and Other Products. Net sales of leisure and other products increased
$1.3 million, or 20.5%, in the second quarter of 1998 to $7.7 million as
compared to $6.4 million in the second quarter of 1997. Net sales of barbecue
gas grills increased $1.3 million in the second quarter of 1998 as compared to
the second quarter of 1997 primarily as a result of new model introductions and
expanded distribution.
Gross Profit
Gross profit in the second quarter of 1998 was $5.3 million as
compared to $6.2 million in the second quarter of 1997, a decrease of $887,000,
or 14.3%. Gross margin, defined as gross profit as a percentage of net sales,
was 22.0% in the second quarter of 1998 as compared to 26.5% in the second
quarter of 1997.
13
<PAGE> 15
Home Heating Products. Gross profit on net sales of home heating products in
the second quarter of 1998 was $3.7 million as compared to $4.6 million in the
second quarter of 1997, a decrease of $922,000 or 19.9%. The shift in mix from
higher margin gas heaters to lower margin fireplace products, lower net selling
prices and a higher rate of production variances contributed to the decrease.
Gross margin was 22.5% in the second quarter of 1998 as compared to 27.1% in the
second quarter of 1997 primarily as the result of a higher mix of lower margin
fireplace sales.
Leisure and Other Products. Gross profit on net sales of leisure and other
products in the second quarter of 1998 increased $35,000, or 2.2%, to $1.6
million as compared to the second quarter of 1997. The substantially flat
result was caused by the adverse affect of higher production overhead and lower
manufacturing efficiencies in the Company's Washington Park, Illinois facility.
Manufacturing operations in Washington Park were terminated in June 1998 and
are being transferred to the Alabama facilities. See "-- Restructure Charge."
Gross margin was 21.0% in the second quarter of 1998 as compared to 24.7% in
the second quarter of 1997.
Selling Expenses
Selling expenses in the second quarter of 1998 decreased to $2.5
million from $2.8 million in the second quarter of 1997, a decrease of
$262,000, or 9.5%. The decrease in selling expenses was mainly attributable to
a $104,000 decrease in advertising and promotion expenses in the home heating
segment, a $71,000 decrease in payroll expenses and a $108,000 decrease in
co-op advertising. Selling expenses as a percentage of net sales decreased to
10.3% in the second quarter of 1998 from 11.7% in the second quarter of 1997.
Segment Contribution
Total segment contribution, defined as gross profit less selling
expenses, decreased to $2.8 million in the second quarter of 1998 from $3.5
million in the second quarter of 1997, a decrease of $625,000, or 18.1%. The
decrease was primarily the result of the $887,000 decrease in gross profit,
partially offset by the 9.5% decrease in selling expenses and other factors
discussed above.
General and Administrative Expenses
General and administrative expenses decreased $10,000, or 0.6%, in the
second quarter of 1998 as compared to the second quarter of 1997. General and
administrative expenses as a percentage of net sales were 6.7% in the second
quarter of 1998 as compared to 7.0% in the second quarter of 1997.
Non-cash ESOP Compensation Expense
Non-cash ESOP compensation expense was $376,000 in the second quarter
of 1998 as compared to $433,000 in the second quarter of 1997, a decrease of
$57,000, or 13.2%. In the second quarter of 1998, 75,516 shares of unallocated
ESOP stock were committed to be released as compensation at an average fair
value of $4.98 per share, as compared to 76,860 shares committed to be released
as compensation at an average fair value of $5.63 per share in the second
quarter of 1997.
14
<PAGE> 16
Restructure Charge
As reported in the Company's Form 10-Q for the 13-week period ended
March 28, 1998, the Company made the decision to close its Washington Park,
Illinois facility. The Company initiated the closing and the transfer of the gas
grill, gas log and freestanding vent-free stove production into the Athens,
Alabama and Huntsville, Alabama locations during the second quarter of 1998. The
Company recorded a non-recurring charge of $615,000, before tax, in connection
with the closing. The non-recurring charge includes plant closing costs of
$590,000 (primarily payroll, severance and payroll taxes of $234,000 and group
insurance of $255,000) and a property, plant and equipment valuation charge of
$25,000. The estimated reserve remaining as of June 27, 1998 totaled $513,000.
While the consolidation resulted in lower manufacturing efficiencies and a lower
gross margin on grill sales in the second quarter of 1998, the Company
anticipates annual cost savings of up to $1 million beginning in late 1998 as a
result of this consolidation. The foregoing statement and statements elsewhere
in this Quarterly Report regarding the Company's expectations regarding the
amount of restructuring charges and annual cost savings associated with closing
the Washington Park facility constitute forward-looking statements and involve
known and unknown assumptions, risks and uncertainties that could cause the
actual charges and savings to differ materially from those expressed in the
statements. There can be no assurance that the Company will not incur more
restructuring charges than expected or that it will be able to achieve the
anticipated level of cost savings. (See "'Safe Harbor' statement under the
Private Securities Litigation Reform Act of 1995" on page 22.)
Interest Expense
Interest expense in the second quarter of 1998 was $307,000 as
compared to $377,000 in the second quarter of 1997, a decrease of $70,000, or
18.6%. The decrease was attributable to the decrease of $5.2 million in average
outstanding debt during the second quarter.
Interest and Other Income
Interest and other income in the second quarter of 1998 was $480,000
as compared to $216,000 in the second quarter of 1997, an increase of $264,000,
or 122.2%. The increase was primarily attributed to a gain on sale of
marketable securities of $288,000.
Provision for Income Taxes
The provision for income taxes decreased to $245,000 in the second
quarter of 1998 from $557,000 in the second quarter of 1997, a decrease of
$312,000, or 56.0%. The decrease was the result of an $839,000 decrease in
income before taxes to $395,000 in the second quarter of 1998 from $1.2 million
in the second quarter of 1997, a decrease of 68.0%. The effective tax rate
increased to 62.0% in the second quarter of 1998 from 45.1% in the second
quarter of 1997 primarily as a result of the non-recognition of a tax benefit
on the $183,000 net loss of HEAT during the second quarter of 1998.
Income from Continuing Operations and Income from Continuing
Operations Per Share
The income from continuing operations in the second quarter of 1998
was $150,000 as compared to $677,000 in the second quarter of 1997. The
decrease in income from continuing operations was primarily the result of the
factors discussed above.
15
<PAGE> 17
Income from continuing operations per share-basic was $0.02 in the
second quarter of 1998 as compared to $0.10 in the second quarter of 1997. This
decrease was due to the decrease in income from continuing operations combined
with the increase in the weighted average number of common and common
equivalent shares outstanding. 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.
Income from continuing operations per share-diluted was $0.02 in the
second quarter of 1998 as compared to $0.10 in the second quarter of 1997. The
income per share on a diluted basis was the same as the income per share on a
basic basis for the second quarter of 1998 and the second quarter of 1997, as
the impact of diluted shares was minimal.
Income from continuing operations, excluding the impact of the
restructure charge ($384,000, net of tax) and the gain on sale of marketable
securities ($180,000, net of tax), was $354,000, or $0.05 per share on a basic
and diluted basis, for the second quarter of 1998 as compared to $677,000, or
$0.10 per share on a basic and diluted basis, for the second quarter of 1997.
There were no restructure charges or gain on sales of marketable securities in
the second quarter of 1997.
26-WEEK PERIOD ENDED JUNE 27, 1998 COMPARED TO 26-WEEK PERIOD ENDED JUNE 28,
1997
Net Sales
Net sales in the 26-week period ended June 27, 1998 increased to $43.1
million as compared to $39.4 million in the 26-week period ended June 28, 1997,
an increase of $3.7 million, or 9.5%.
Home Heating Products. Net sales of home heating products increased to $27.2
million in the 1998 year-to-date period as compared to $27.1 million in the 1997
year-to-date period, an increase of $149,000, or 0.5%. The increase in net sales
of home heating products was primarily the result of an increase in Martin
Fireplace net sales of $1.9 million, offset by net decreases in gas space
heaters and other heating products of $1.8 million.
Leisure and Other Products. Net sales of leisure and other products increased
$3.6 million, or 29.1%, in the 1998 year-to-date period to $15.9 million as
compared to $12.3 million in the 1997 year-to-date period. The increase was
primarily the result of a $3.9 million, or 49.2%, increase in net sales of
barbecue gas grills. Net sales of utility trailer kits decreased $258,000, or
6.2%, in the 1998 year-to-date period to $3.9 million as compared to $4.2
million in the 1997 year-to-date period.
Gross Profit
Gross profit in the 1998 year-to-date period was $9.0 million as
compared to $9.1 million in the 1997 year-to-date period, a decrease of
$108,000, or 1.2%. Gross margin decreased to 20.9% in the 1998 year-to-date
period from 23.1% in the 1997 year-to-date period.
Home Heating Products. Gross profit on net sales of home heating products was
$5.4 million in the 1998 year-to-date period as compared to $6.2 million in the
1997 year-to-date period, a decrease of $817,000 or 13.2%. Gross margin
decreased to 19.8% in the 1998 year-to-date period from 22.9% in the 1997
year-to-date period. The decrease in gross margin was caused by the shift in
sales mix from higher margin gas heating products to Martin Fireplace products
and lower net selling prices. Martin Fireplace product sales were 53.5% of home
heating product sales in the 1998 year-to-date period as compared to 46.6% in
the 1997 year-to-date period.
16
<PAGE> 18
Leisure and Other Products. Gross profit on net sales of leisure and other
products increased $709,000, or 24.4%, in the 1998 year-to-date period to $3.6
million as compared to $2.9 million in the 1997 year-to-date period. Gross
margin decreased to 22.8% in the 1998 year-to-date period from 23.6% in the
1997 year-to-date period. The decrease was primarily the result of the adverse
affect of higher production overhead and lower manufacturing efficiencies in
the Company's Washington Park, Illinois facility. Manufacturing operations in
Washington Park were terminated in June, 1998 and are being transferred to the
Alabama facilities. See "--Restructure Charge."
Selling Expenses
Selling expenses in the 1998 year-to-date period were $5.0 million as
compared to $5.1 million in the 1997 year-to-date period, a decrease of
$70,000, or 1.4%. The decrease was primarily due to a $76,000 decrease in
payroll expenses, a $69,000 decrease in co-op advertising and a $57,000
decrease associated with Hunter, offset by a $114,000 increase in commissions.
Selling expenses as a percentage of net sales decreased to 11.6% in the 1998
year-to-date period from 12.9% in the 1997 year-to-date period.
Segment Contribution
Total segment contribution was $4.0 million in the 1998 year-to-date
period compared to $4.0 million in the 1997 year-to-date period. The
substantially flat result was primarily the result of the decrease in gross
profit offset by decreased selling expenses discussed above.
General and Administrative Expense
General and administrative expenses decreased $50,000, or 1.6%, in the
1998 year-to-date period as compared to the 1997 year-to-date period.
Non-cash ESOP Compensation Expense
Non-cash ESOP compensation expense decreased $184,000, or 19.1%, in
the 1998 year-to-date period to $778,000, as compared to $962,000 in the 1997
year-to-date period. In the 1998 year-to-date period, 150,528 shares of
unallocated ESOP stock were committed to be released as compensation at an
average fair value of $5.17 per share, as compared to 155,432 shares committed
to be released as compensation at an average fair value of $6.19 per share in
the 1997 year-to-date period.
Restructure Charge
As reported in the Company's Form 10-Q for the 13-week period ended
March 28, 1998, the Company made the decision to close its Washington Park,
Illinois facility. The Company initiated the closing and the transfer of the gas
grill, gas log and freestanding vent-free stove production into the Athens,
Alabama and Huntsville, Alabama locations during the second quarter of 1998. See
"13-Week Period Ended June 27, 1998 Compared to 13-Week Period Ended June 28,
1997--Restructure Charge."
17
<PAGE> 19
Interest Expense
Interest expense decreased $96,000, or 14.9%, in the 1998 year-to-date
period to $547,000, as compared to $643,000 in the 1997 year-to-date period.
The decrease was primarily attributable to the decrease of $6.6 million in
overage outstanding debt during the year-to-date period.
Interest and Other Income
Interest and other income increased $243,000, or 53.5%, in the 1998
year-to-date period to $697,000, as compared to $454,000 in the 1997
year-to-date period. The increase was primarily attributable to a gain on sale
of marketable securities of $288,000.
Credit for Income Taxes
The credit for income taxes decreased to $36,000 in the 1998
year-to-date period from a credit of $83,000 in the 1997 year-to-date period, a
decrease of $47,000, or 56.6%. The effective tax rate decreased to 10.2% in the
1998 year-to-date period from 30.3% in the 1997 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 $244,000 net loss of Hunter during the
1998 year-to-date period.
Loss from Continuing Operations and Loss from Continuing Operations Per Share
Loss from continuing operations in the 1998 year-to-date period was
$318,000 as compared to $191,000 in the 1997 year-to-date period, an increase of
$127,000, or 66.5%. The increase was primarily the result of the factors
discussed above.
Loss from continuing operations per share-basic was $0.04 in the 1998
year-to-date period as compared to $0.03 in the 1997 year-to-date period, an
increase of 33.3%.
The loss per share on a diluted basis was the same as the loss per
share on a basic basis for the 1998 year-to-date period and the 1997
year-to-date period as the loss from continuing operations prohibited the
calculation of the dilutive effect of outstanding stock options.
Loss from continuing operations, excluding the impact of the
restructure charge ($384,000, net of tax) and the gain on sale of marketable
securities ($180,000, net of tax), was $114,000, or a loss of $0.02 per share on
a basic and diluted basis, for the 1998 year-to-date period as compared to
$191,000, or a loss of $0.03 per share on a basic and diluted basis, for the
1997 year-to-date period. There were no restructure charges or gain on sales of
marketable securities in the 1997 year-to-date period.
RESULTS OF DISCONTINUED METAL OFFICE FURNITURE OPERATIONS
On February 24, 1997, the Company announced that it had elected to
discontinue its operations in the metal office furniture segment. For 1997, the
segment's operations, net of tax, have been treated as a discontinued operation
for accounting purposes. The Company established a reserve at December 31, 1996
of $1,430,000, net of taxes of $861,000. The loss from discontinued operations
charged to the reserve in the 1997 year-to-date period was $1,006,000.
During 1997, the Company exceeded the original estimated reserve by
$756,000, net of taxes of $457,000. The estimated reserve was exceeded
primarily as a result of greater than anticipated credits for damaged and
defective merchandise, lower than anticipated margins on sales (due to
discounted sales prices and higher than expected freight costs), group
insurance costs and write-downs of inventory. At
18
<PAGE> 20
December 31, 1997, the Company recorded an estimated reserve of $187,000, net
of taxes of $112,000, for charges to be incurred during 1998. The charge
against the reserve in the 1998 year-to-date period was $50,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations in the first half of the
year from internally generated funds and seasonal borrowings under its bank
line of credit. The Company's primary capital requirements are for working
capital, debt service, capital expenditures and dividends.
The Company's operations in the 26-week period ended June 27, 1998 used
$4.1 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 initial public offering investments were utilized
to provide the funds needed for working capital requirements, capital
expenditures, long-term debt repayments and dividends for the period.
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 for a term expiring July
31, 1999. Interest on the line of credit is payable monthly at a variable rate
equivalent to 30-day LIBOR plus 1.25%, which at July 31, 1998 was 6.91%. As of
June 27, 1998, the Company had an outstanding balance of $-0- against this line
of credit.
FINANCIAL POSITION
Cash and short-term investments in the 1998 year-to-date period
decreased $5.8 million as a result of the factors discussed above. Accounts
receivable increased $8.2 million in the 1998 year-to-date period. The increase
in accounts receivable was primarily the result of the $8.0 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."
During the 1998 year-to-date period, net property, plant and equipment
decreased $496,000, or 4.8%. The decrease was the net result of $416,000 in
capital expenditures during the 1998 year-to-date period primarily offset by
depreciation expense of $804,000.
19
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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 Quarterly Report, the Company has used approximately $9,600,000 of
the proceeds to fund capital expenditures, acquire Hunter Technology Inc.
and for general working capital requirements. During the 1998 year-to-date
period, the Company used approximately $5,100,000 for general working
capital requirements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The annual meeting of stockholders of Martin Industries, Inc. was held
on May 15, 1998. At the annual meeting, the stockholders elected three members
to the board of directors of the Company to serve as a class until the annual
meeting to be held in 2001 and one director to serve until the annual meeting
to be held in 1999. The nominees to the board of directors to serve until the
annual meeting to be held in 2001 received the following number of votes:
<TABLE>
<CAPTION>
Shares Voted Shares Voted Abstentions
FOR AGAINST and Non-Votes
------------ ------------ -------------
<S> <C> <C> <C>
William D. Biggs 7,667,696 512,158 0
Jim D. Caudle, Sr. 7,666,396 513,458 0
James J. Tanous 7,901,595 278,259 0
</TABLE>
The nominee to the board of directors to serve until the annual
meeting to be held in 1999 received the following number of votes:
<TABLE>
<CAPTION>
Shares Voted Shares Voted Abstentions
FOR AGAINST and Non-Votes
------------ ------------ -------------
<S> <C> <C> <C>
Herbert J. Dickson 7,667,896 511,958 0
</TABLE>
At the annual meeting, the stockholders also considered the selection
of the Company's independent auditors for the fiscal year ending December 31,
1998. The stockholders approved the selection by the board of directors of the
accounting firm of Arthur Andersen LLP as independent auditors for the Company
for said fiscal year by the following number of votes:
<TABLE>
<CAPTION>
Shares Voted Shares Voted Abstentions
FOR AGAINST and Non-Votes
------------ ------------ -------------
<S> <C> <C>
7,667,896 511,958 0
</TABLE>
No other matters were considered or voted upon at the annual meeting.
20
<PAGE> 22
ITEM 5. OTHER INFORMATION
Pursuant to recently adopted changes to Rule 14a-4 of the Proxy Rules
under the Securities Exchange Act of 1934, if a stockholder fails to notify the
Company on or before February 22, 1999 of a proposal which such stockholder
intends to present at the Company's May 1999 Annual Meeting by a means other
than inclusion of such proposal in the Company's proxy materials for that
meeting, then if the proposal is presented at such annual meeting, the holders
of the board of director's proxies at such meeting may use their discretionary
voting authority with respect to such proposal, regardless of whether the
proposal was discussed in the Company's proxy statement for such meeting.
Stockholders should also note that under the Company's By-laws, in order to be
timely, nominations of persons for election to the board of directors of the
Company and proposals of business to be considered at the annual meeting must be
delivered to the Company between February 14, 1999 and March 16, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*3(a) Form of Restated Certificate of Incorporation of
Martin Industries, Inc. which was filed as Exhibit
3(a) to the Registrant's Registration Statement on
Form S-1 filed with the Commission on July 10, 1995
(Registration No. 33-90432).
*3(b) Bylaws of Martin Industries, Inc. 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. 9 to Martin Industries, Inc. Employee
Stock Ownership Plan.
10(b) Martin Industries, Inc. Amended and Restated 1994
Nonqualified Stock Option Plan.
**27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
The Company filed a report on Form 8-K with the Commission on
May 15, 1998 in which the Company reported under Item 5 with
respect to the implementation of corrections of certain product
and design problems with certain products manufactured by
Hunter Technology Inc.
- -----------------------------------
*Incorporated by reference
**Filed with electronic filing only
21
<PAGE> 23
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995:
With the exception of historical factual information, the matters and
statements discussed, made or incorporated by reference in this Quarterly Report
on Form 10-Q, including those regarding the anticipated restructuring charges
and annual cost savings resulting from the closing of the Washington Park
facility and the Company's expectations regarding of the possible exposure as a
result of the Hunter Technology Inc.'s design and production problems,
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. Wherever possible, the Company
has identified these "forward-looking" statements (as defined in Section 21E of
the Securities Exchange Act of 1934) by words such as "anticipates," "may,"
"believes," "estimates," "projects," "expects," "intends," and words of similar
import. In addition, the Company and its representatives may from time to time
make other oral or written statements that are also forward-looking statements.
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. In particular, there can be no
assurance that the Company will not incur costs related to products of Hunter
Technology Inc. or restructuring charges associated with the closing of the
Washington Park facility in excess of those currently expected or that it will
be able to achieve the anticipated level of cost savings or benefits
contemplated by the referenced forward-looking 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 publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
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.
<TABLE>
<S> <C>
Date: August 11, 1998 By /s/ Roderick V. Schlosser
----------------------------------------
Roderick V. Schlosser
Vice President & Chief Financial Officer
(Executed on behalf of
Registrant and as Principal
Financial Officer)
</TABLE>
22
<PAGE> 24
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 was 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. 9 to Martin Industries, Inc.
Employee Stock Ownership Plan.
10(b) Martin Industries, Inc. Amended and Restated 1994
Nonqualified Stock Option Plan.
**27 Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------------------------
*Incorporated by reference
**Filed with electronic filing only
<PAGE> 1
EXHIBIT 10(A)
AMENDMENT NO. 9
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 by adding thereto, at
the end thereof, the following new paragraph (3):
(3) A Participant who is employed at the Company's
plant in Washington Park, Illinois, on April 2, 1998, and whose
employment is terminated as a result of the closing of such plant in
June of 1998, shall be 100% vested in his Plan Benefit.
This amendment to the Plan shall be effective as of April 2, 1998.
MARTIN INDUSTRIES, INC.
By /s/ William H. Martin
-------------------------------------
ATTEST:
By /s/ Roderick V. Schlosser
-------------------------------------
Its Secretary
[CORPORATE SEAL]
1
<PAGE> 1
EXHIBIT 10(B)
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.
1
<PAGE> 2
(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.
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.
2
<PAGE> 3
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.
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
3
<PAGE> 4
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 525,000 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.
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,
4
<PAGE> 5
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)
5
<PAGE> 6
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.
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
6
<PAGE> 7
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
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.
7
<PAGE> 8
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 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
8
<PAGE> 9
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.
9
<PAGE> 10
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;
(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.
10
<PAGE> 11
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.
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
11
<PAGE> 12
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.
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARTIN
INDUSTRIES' FORM 10-Q FOR THE SIX MONTH PERIOD ENDED JUNE 27, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-27-1998
<CASH> 9,326
<SECURITIES> 0
<RECEIVABLES> 18,789
<ALLOWANCES> 449
<INVENTORY> 18,340
<CURRENT-ASSETS> 56,670
<PP&E> 23,202
<DEPRECIATION> 13,381
<TOTAL-ASSETS> 71,213
<CURRENT-LIABILITIES> 13,870
<BONDS> 7,731
0
0
<COMMON> 98
<OTHER-SE> 47,322
<TOTAL-LIABILITY-AND-EQUITY> 71,213
<SALES> 43,141
<TOTAL-REVENUES> 43,141
<CGS> 34,133
<TOTAL-COSTS> 34,133
<OTHER-EXPENSES> 9,495
<LOSS-PROVISION> 17
<INTEREST-EXPENSE> (150)
<INCOME-PRETAX> (354)
<INCOME-TAX> (36)
<INCOME-CONTINUING> (318)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (318)
<EPS-PRIMARY> (0.04)<F1>
<EPS-DILUTED> (0.04)<F1>
<FN>
<F1>The earnings per share ("EPS") information has been prepared in accordance with
Statement of Financial Accounting Standard No. 128, Earnings Per Share. As
such, basic EPS and diluted EPS have been entered in place of primary and fully
diluted, respectively.
</FN>
</TABLE>
