<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For 13-Week Period Ended March 28, 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.
8,757,855 shares of Common Stock, $.01
par value, as of May 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
March 28, 1998 and December 31, 1997 2
Unaudited Condensed Consolidated Statements of
Operations for the 13-Week Periods Ended
March 28, 1998 and March 29, 1997 4
Unaudited Condensed Consolidated Statements of
Cash Flows for the 13-Week Periods Ended
March 28, 1998 and March 29, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
1
<PAGE> 3
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
MARTIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 28, December 31,
1998 1997
----------- ------------
<S> <C> <C>
Current assets:
Cash and short-term investments $13,115,000 $15,157,000
Accounts and notes receivable, less
allowance for doubtful accounts of
$440,000 and $432,000, respectively 14,375,000 10,106,000
Inventories 26,133,000 24,884,000
Refundable income taxes 533,000 269,000
Deferred tax benefits 3,549,000 3,488,000
Prepaid expenses and other assets 1,685,000 1,811,000
----------- -----------
Total current assets 59,390,000 55,715,000
----------- -----------
Property, plant and equipment, net 10,121,000 10,317,000
Deferred tax benefits 553,000 581,000
Other noncurrent assets 4,332,000 4,367,000
----------- -----------
15,006,000 15,265,000
----------- -----------
Total assets $74,396,000 $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>
March 28, December 31,
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES
Current liabilities:
Notes payable $ 4,476,000 $ 481,000
Current portion of long-term debt 1,748,000 1,750,000
Accounts payable 3,669,000 3,496,000
Accrued liabilities:
Payroll and employee benefits 3,024,000 2,699,000
Product liability 691,000 651,000
Warranty 1,471,000 1,535,000
Workers' compensation 660,000 572,000
Other 1,170,000 1,359,000
------------ ------------
Total current liabilities 16,909,000 12,543,000
------------ ------------
Long-term debt 7,742,000 8,599,000
Deferred compensation 2,165,000 2,197,000
Other noncurrent liabilities 0 18,000
------------ ------------
9,907,000 10,814,000
------------ ------------
Total liabilities 26,816,000 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; 9,749,085 shares issued at March 28,
1998 and 9,748,746 at December 31, 1997 97,000 97,000
Paid-in capital 27,019,000 26,863,000
Retained earnings 28,756,000 29,501,000
Foreign currency translation adjustment (298,000) (372,000)
------------ ------------
55,574,000 56,089,000
Less:
Treasury stock at cost (999,105 shares at
March 28, 1998 and 1,104,105 at
December 31, 1997) 2,417,000 2,590,000
Unearned compensation - ESOP 5,577,000 5,876,000
------------ ------------
Total stockholders' equity 47,580,000 47,623,000
------------ ------------
Total liabilities and stockholders' equity $ 74,396,000 $ 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
PERIOD ENDED
-------------------------------
MARCH 28, MARCH 29,
1998 1997
------------ ------------
<S> <C> <C>
NET SALES $ 18,908,000 $ 15,905,000
COST OF SALES 15,231,000 13,007,000
------------ ------------
Gross profit 3,677,000 2,898,000
------------ ------------
OPERATING EXPENSES:
Selling 2,514,000 2,322,000
General and administrative 1,487,000 1,527,000
Non-cash ESOP compensation expense 402,000 529,000
------------ ------------
4,403,000 4,378,000
------------ ------------
Operating loss (726,000) (1,480,000)
INTEREST EXPENSE 240,000 266,000
INTEREST INCOME (217,000) (238,000)
------------ ------------
Loss from continuing operations before income taxes (749,000) (1,508,000)
CREDIT FOR INCOME TAXES (281,000) (640,000)
------------ ------------
Loss from continuing operations (468,000) (868,000)
Loss on disposal of discontinued operations, net of tax 0 0
------------ ------------
Net loss $ (468,000) $ (868,000)
============ ============
BASIC PER SHARE DATA:
Loss from continuing operations $ (0.07) $ (0.13)
Loss from discontinued operations 0.00 0.00
------------ ------------
Net loss $ (0.07) $ (0.13)
============ ============
Weighted average number of common and common equivalent
shares outstanding 6,991,295 6,715,818
============ ============
DILUTED PER SHARE DATA:
Loss from continuing operations $ (0.07) $ (0.13)
Loss from discontinued operations 0.00 0.00
------------ ------------
Net loss $ (0.07) (0.13)
============ ============
Weighted average number of common and common equivalent
shares outstanding 6,991,295 6,715,818
============ ============
DIVIDENDS DECLARED PER SHARE $ 0.040 $ 0.038
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
<PAGE> 6
MARTIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
13-WEEK
PERIOD ENDED
-------------------------------
MARCH 28, MARCH 29,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (468,000) $ (868,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 397,000 449,000
Gain on sale of assets 0 (12,000)
Provision for doubtful accounts and notes receivable 8,000 5,000
Non-cash ESOP compensation expense 402,000 529,000
Other changes in operating assets and liabilities (5,201,000) (5,937,000)
------------ ------------
Net cash used in operating activities (4,862,000) (5,834,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (175,000) (774,000)
Proceeds from sale of assets 0 23,000
------------ ------------
Net cash used in investing activities (175,000) (751,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on notes payable 3,989,000 1,006,000
Net repayments of long-term debt (857,000) (854,000)
Purchase of treasury stock 0 (250,000)
Exercise of stock options 80,000 44,000
Cash dividends paid (214,000) (202,000)
------------ ------------
Net cash provided by (used in) financing activities 2,998,000 (256,000)
------------ ------------
NET DECREASE IN CASH AND SHORT-TERM
INVESTMENTS (2,039,000) (6,841,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,000) 1,000
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 $ 13,115,000 $ 12,486,000
============ ============
</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 (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.
The Company's fiscal quarters end on the Saturday nearest each calendar
quarter-end. The Company utilizes a December 31 fiscal year-end.
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 March 28, 1998 and December 31, 1997 follows:
<TABLE>
<CAPTION>
March 28, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
Inventories valued at first-in, first-out ("FIFO") cost:
Raw materials and purchased parts $13,115,000 $12,467,000
Work-in-process 5,015,000 5,194,000
Finished goods 13,652,000 12,803,000
----------- -----------
31,782,000 30,464,000
Less excess of FIFO over LIFO cost 5,649,000 5,580,000
----------- -----------
$26,133,000 $24,884,000
=========== ===========
</TABLE>
6
<PAGE> 8
3. EARNINGS PER SHARE
In December 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings per Share, and restated all prior-period
earnings per share ("EPS") data presented.
A reconciliation of shares as the denominator of the basic EPS
computation to the diluted EPS computation is as follows:
<TABLE>
<CAPTION>
13-Week
Period Ended
------------------------
March 28, March 29,
1998 1997
--------- ---------
<S> <C> <C>
Weighted average shares-basic, excluding ESOP
and stock option effects 5,328,027 5,303,500
Weighted average effect of ESOP shares
committed to be released 1,663,268 1,412,318
--------- ---------
Weighted average shares-basic 6,991,295 6,715,818
Dilutive effect of stock options 0 0
--------- ---------
Weighted average number of common and common
equivalent shares outstanding-diluted 6,991,295 6,715,818
========= =========
</TABLE>
Options outstanding of 751,103 and 655,192 as of March 28, 1998 and
March 29, 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, however, could incur additional costs to make
further corrections on products shipped prior to these corrections, and
continues to address and evaluate this exposure. At present, the amount of
possible exposure is estimated to be in a range of $ -0- to $1.5 million.
Legal
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.
These kinds of 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
7
<PAGE> 9
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
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 loss for the first quarter of 1998 and the first quarter of 1997
are as follows:
<TABLE>
<CAPTION>
13-Week
Period Ended
-------------------------
March 28, March 29,
1998 1997
--------- ---------
<S> <C> <C>
Net loss $(468,000) $(868,000)
Other comprehensive income, net of tax
Foreign currency translation adjustment 74,000 (75,000)
--------- ---------
Comprehensive loss $(394,000) $(943,000)
========= =========
</TABLE>
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the unaudited
interim condensed consolidated financial statements of the Company and notes
thereto appearing elsewhere in this Form 10-Q. All references to the first
quarter of 1998 and the first quarter of 1997 are referring to the 13-week
periods ended March 28, 1998 and March 29, 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.
On February 1, 1996, the Company's newly formed wholly owned Canadian
subsidiary, 1166081 Ontario Inc., acquired all of the capital stock of Hunter
Technology Inc. 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.
Prior to 1997, the Company manufactured products in the metal office
furniture segment through its Filex line. In February of 1997, the Company
elected to discontinue its metal office furniture operations. The recent
consolidation in the office furniture industry increased competition and margin
pressures in the segment to the point of an unacceptable return to the Company.
The metal office furniture segment's operations are treated as discontinued in
the accompanying consolidated financial statements. See "--Results of
Discontinued Metal Office Furniture Operations."
9
<PAGE> 11
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
--------------------------
March 28, March 29,
1998 1997
--------- ---------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 80.6 81.8
--------- ---------
Gross profit 19.4 18.2
Operating expenses:
Selling 13.3 14.6
General and administrative 7.9 9.6
Non-cash ESOP compensation expense 2.1 3.3
--------- ---------
Operating loss (3.9) (9.3)
Interest expense (income), net .1 .2
--------- ---------
Loss from continuing operations before income taxes (4.0) (9.5)
Credit for income taxes (1.5) (4.0)
--------- ---------
Loss from continuing operations (2.5)% (5.5)%
========= =========
</TABLE>
<TABLE>
<CAPTION>
Segment Information
--------------------------
13-Week Period Ended
--------------------------
March 28, March 29,
1998 1997
--------- ---------
(In Thousands)
<S> <C> <C>
Net sales:
Home heating products $ 10,738 $ 10,006
Leisure and other products 8,170 5,899
--------- ---------
$ 18,908 $ 15,905
========= =========
Gross profit:
Home heating products $ 1,678 $ 1,573
Leisure and other products 1,999 1,325
--------- ---------
$ 3,677 $ 2,898
========= =========
Segment contribution (loss):(1)
Home heating products $ 45 $ (159)
Leisure and other products 1,118 735
--------- ---------
$ 1,163 $ 576
========= =========
</TABLE>
(1) Segment contribution (loss) consists of gross profit less selling
expenses.
10
<PAGE> 12
13-WEEK PERIOD ENDED MARCH 28, 1998 COMPARED TO 13-WEEK PERIOD ENDED MARCH 29,
1997
Net Sales
Net sales in the 13-week period ended March 28, 1998 increased to $18.9
million from $15.9 million in the 13-week period ended March 29, 1997, an
increase of $3.0 million, or 18.9%.
Home Heating Products. Net sales of home heating products increased to $10.7
million in the first quarter of 1998 from $10.0 million in the first quarter of
1997, an increase of $732,000, or 7.3%. The increase in net sales of home
heating products was primarily the result of an increase in Martin Fireplace net
sales of $793,000, or 14.2%. Martin Fireplace shipments benefited from broader
distribution and housing starts.
Leisure and Other Products. Net sales of leisure and other products increased
$2.3 million, or 38.5%, in the first quarter of 1998 to $8.2 million as compared
to $5.9 million in the first quarter of 1997. Net sales of barbecue gas grills
increased $2.6 million, or 61.7%, in the first quarter of 1998 as compared to
the first quarter of 1997 primarily as a result of continued acceptance of new
model introductions and expanded distribution.
Gross Profit
Gross profit in the first quarter of 1998 was $3.7 million as compared
to $2.9 million in the first quarter of 1997, an increase of $779,000, or 26.9%.
Gross margin, defined as gross profit as a percentage of net sales, increased to
19.4% in the first quarter of 1998 from 18.2% in the first quarter of 1997.
Home Heating Products. Gross profit on net sales of home heating products in the
first quarter of 1998 was $1.7 million as compared to $1.6 million in the first
quarter of 1997, an increase of $105,000, or 6.7%. The increase in net sales for
the quarter of 7.3% was the primary contributor to the increase. Gross margin
was 15.6% in the first quarter of 1998 as compared to 15.7% in the first quarter
of 1997.
Leisure and Other Products. Gross profit on net sales of leisure and other
products in the first quarter of 1998 was $2.0 million as compared to $1.3
million in the first quarter of 1997, an increase of $674,000, or 50.9%. The
increase was primarily the result of the 38.5% increase in net sales discussed
above and an increase in the mix of higher margin gas grill sales in the first
quarter of 1998. Gas grill net sales represented 83.1% of total leisure and
other net sales in the first quarter of 1998 as compared to 70.2% in the first
quarter of 1997.
Selling Expenses
Selling expenses in the first quarter of 1998 increased to $2.5 million
from $2.3 million in the first quarter of 1997, an increase of $192,000, or
8.3%, primarily the result of increased commissions, promotions and advertising
expense. However, selling expenses as a percent of net sales decreased to 13.3%
in the first quarter of 1998 from 14.6% in the first quarter of 1997.
11
<PAGE> 13
Segment Contribution
Total segment contribution, defined as gross profit less selling
expenses, increased to $1,163,000 in the first quarter of 1998 from $576,000 in
the first quarter of 1997, an increase of $587,000, or 101.9%. The increase was
the result of the 26.9% increase in gross profit, offset by the 8.3% increase in
selling expenses.
General and Administrative Expenses
General and administrative expenses decreased $40,000, or 2.6%, in the
first quarter of 1998 as compared to the first quarter of 1997.
Non-cash ESOP Compensation Expense
Non-cash ESOP compensation expense was $402,000 in the first quarter of
1998 as compared to $529,000 in the first quarter of 1997, a decrease of
$127,000, or 24.0%. In the first quarter of 1998, 75,012 shares of unallocated
ESOP stock were committed to be released as compensation at an average fair
value of $5.36 per share as compared to 78,572 shares committed to be released
as compensation at an average fair value of $6.73 per share in the first quarter
of 1997.
Interest Expense
Interest expense in the first quarter of 1998 was $240,000 as compared
to $266,000 in the first quarter of 1997, a decrease of $26,000, or 9.8%. The
decrease was primarily attributable to a decrease of $473,000 in average
outstanding debt.
Interest Income
Interest income in the first quarter of 1998 was $217,000 as compared
to $238,000 in the first quarter of 1997, a decrease of $21,000, or 8.8%.
Credit for Income Taxes
The credit for income taxes decreased to $281,000 in the first quarter
of 1998 from $640,000 in the first quarter of 1997, a decrease of $359,000, or
56.1%. The decrease was the result of a $759,000 decrease in loss from
continuing operations before income taxes to $749,000 in the first quarter of
1998 from $1,508,000 in the first quarter of 1997. The decrease in credit for
income taxes was also the result of a decrease in the effective tax rate to
37.5% during the first quarter of 1998 compared to 42.4% during the first
quarter of 1997. The decrease in the tax rate is primarily the result of the
non-recognition of a tax benefit on the $61,000 pre-tax loss of Hunter
Technology Inc. during the first quarter of 1998 as realization of any
additional benefit is not assured at this time.
12
<PAGE> 14
Loss from Continuing Operations and Loss from Continuing Operations Per Share
The loss from continuing operations in the first quarter of 1998 was
$468,000 as compared to $868,000 in the first quarter of 1997. The decrease in
loss from continuing operations was primarily the result of the factors
discussed above.
Loss from continuing operations per share-basic was $0.07 in the first
quarter of 1998 as compared to $0.13 in the first quarter of 1997. The rate of
decrease in loss from continuing operations of 46.1% combined with the increase
in the weighted average number of common and common equivalent shares
outstanding of 4.1% resulted in a 46.2% decrease in the loss from continuing
operations per share-basic. The increase in weighted average shares outstanding
was primarily the result of stock options exercised and ESOP shares released to
participants.
Loss from continuing operations per share-diluted was $0.07 in the
first quarter of 1998 as compared to $0.13 in the first quarter of 1997. The
loss per share on a diluted basis was the same as the loss per share on a basic
basis for the first quarter of 1998 and for the first quarter of 1997 as, in
both quarters, the loss from continuing operations prohibited the calculation of
the dilutive effect of outstanding stock options.
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 first quarter of 1997 was $62,000.
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. 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 first quarter of 1998 was $31,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations in the first
quarter of the year from internally generated funds and seasonal borrowings
under its bank line of credit. The Company's primary capital requirements are
for working capital, debt service, capital expenditures and dividends.
The Company's operations in the 13-week period ended March 28, 1998
used $4.9 million in cash 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 these working capital requirements, capital expenditures,
long-term debt repayments and dividends for the
13
<PAGE> 15
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 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 April 24, 1998 was approximately
6.94%.
FINANCIAL POSITION
Cash and short-term investments in the first quarter of 1998 decreased
$2.0 million as a result of the factors discussed above. Accounts receivable and
inventories in the first quarter increased $4.3 million and $1.2 million,
respectively. The increase in accounts receivable was the result of a $7.5
million increase in dating receivables primarily on grill sales. In an effort to
better control its production schedule in light of the seasonal nature of its
home heating product and barbecue gas grill business, the Company utilizes early
booking programs under which customers receive favorable dating terms for
placing their orders early and permitting the Company to ship the products at
"factory convenience."
The increase in inventories was primarily attributable to an increase
in the Company's gas grill inventory. The increase occurred because of the
anticipated demand and the pending closing of the Company's Washington Park,
Illinois facility (see discussion below).
During the first quarter of 1998, net property, plant and equipment
decreased $196,000, or 1.9%. The decrease was the result of $175,000 in capital
expenditures during the quarter offset by depreciation expense of $371,000.
Notes payable increased $4.0 million in the first quarter of 1998. The
increase was the result of the Company's borrowings under the bank line of
credit (see discussion above).
CONSOLIDATION OF CERTAIN 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 manufacturing operations from this
facility will be moved to the Athens, Alabama and Huntsville, Alabama locations.
The consolidation of the Washington Park facility is scheduled to be completed
in the latter part of the second quarter. The Company expects a non-recurring
charge of approximately $500,000 - $1,000,000 before tax to be recognized during
the second quarter. The Company anticipates future annual cost savings as a
result of this consolidation to be approximately $1.0 million, beginning in the
fourth quarter of 1998. The foregoing statements 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 16.)
14
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*3(a) Form of Restated Certificate of Incorporation of
Martin Industries, Inc. which was filed as Exhibit
3(a) to the Registrant's Registration Statement on
Form S-1 filed with the Commission on July 10, 1995
(Registration No. 33-90432).
*3(b) Bylaws of Martin Industries, Inc. 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).
**27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period.
- -----------------------------------
*Incorporated by reference
**Filed with electronic filing only
15
<PAGE> 17
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
With the exception of historical information, the matters and
statements discussed, made or incorporated by reference in this Quarterly Report
on Form 10-Q constitute forward-looking statements and are discussed, made or
incorporated by reference, as the case may be, pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. 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," "believes," "estimates," "expects" and similar phrases.
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. 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.
Date: May 7, 1998 By /s/ Roderick V. Schlosser
--------------------------------
Roderick V. Schlosser
Vice President of Finance
and Treasurer
(Executed on behalf of
Registrant and as Principal
Financial Officer)
16
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits Page No.
- ------ ----------------------- --------
<S> <C> <C>
*3(a) Form of Restated Certificate of Incorporation of Martin
Industries, Inc. which was filed as Exhibit 3(a) to the
Registrant's Registration Statement on Form S-1 filed with the
Commission on July 10, 1995 (Registration No. 33-90432).
*3(b) 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).
**27 Financial Data Schedule (for SEC use only).
</TABLE>
- --------------------------
*Incorporated by reference
**Filed with electronic filing only
17
<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 MARCH 28, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-28-1998
<CASH> 13,115
<SECURITIES> 0
<RECEIVABLES> 14,815
<ALLOWANCES> 440
<INVENTORY> 26,133
<CURRENT-ASSETS> 59,390
<PP&E> 23,104
<DEPRECIATION> 12,983
<TOTAL-ASSETS> 74,396
<CURRENT-LIABILITIES> 16,909
<BONDS> 7,742
0
0
<COMMON> 97
<OTHER-SE> 47,483
<TOTAL-LIABILITY-AND-EQUITY> 74,396
<SALES> 18,908
<TOTAL-REVENUES> 18,908
<CGS> 15,231
<TOTAL-COSTS> 15,231
<OTHER-EXPENSES> 4,395
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> (749)
<INCOME-TAX> (281)
<INCOME-CONTINUING> (468)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (468)
<EPS-PRIMARY> (0.07)<F1>
<EPS-DILUTED> (0.07)<F1>
<FN>
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>
