<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR 39-WEEK PERIOD ENDED SEPTEMBER 30, 2000 COMMISSION FILE NO. 0-26228
MARTIN INDUSTRIES, INC.
--------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 63-0133054
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(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
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(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.
8,572,060 SHARES OF COMMON STOCK, $.01
PAR VALUE, AS OF NOVEMBER 13, 2000
<PAGE> 2
MARTIN INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Unaudited Condensed Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 2
Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Income for the 13-Week and 39-Week Periods Ended
September 30, 2000 and October 2, 1999 4
Unaudited Condensed Consolidated Statements of
Cash Flows for the 39-Week Periods Ended
September 30, 2000 and October 2, 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 22
</TABLE>
1
<PAGE> 3
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARTIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and short-term investments $ 4,000 $ 5,218,000
Accounts and notes receivable, less
allowance for doubtful accounts of
$734,000 and $604,000, respectively 13,355,000 13,153,000
Inventories 11,388,000 13,192,000
Deferred tax benefits 2,342,000 2,970,000
Prepaid expenses and other assets 1,099,000 1,180,000
------------ ------------
Total current assets 28,188,000 35,713,000
------------ ------------
Property, plant and equipment, net 13,607,000 13,579,000
Deferred tax benefits 5,203,000 4,601,000
Goodwill, net of accumulated amortization
of $233,000 and $203,000, respectively 1,719,000 1,827,000
Cash value of life insurance 1,601,000 1,359,000
Notes receivable 642,000 1,181,000
Other 459,000 660,000
------------ ------------
23,231,000 23,207,000
------------ ------------
Total assets $ 51,419,000 $ 58,920,000
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
2
<PAGE> 4
MARTIN INDUSTRIES, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
LIABILITIES
Current liabilities:
Short-term borrowings $ 8,380,000 $ 944,000
Current portion of long-term debt 1,194,000 4,458,000
Accounts payable 5,715,000 5,303,000
Accrued liabilities:
Payroll and employee benefits 2,459,000 2,374,000
Product liability 1,056,000 1,122,000
Warranty 873,000 878,000
Workers' compensation 784,000 731,000
Restructure charges 89,000 589,000
Other 826,000 873,000
------------ ------------
Total current liabilities 21,376,000 17,272,000
------------ ------------
Long-term debt 1,269,000 2,406,000
Deferred compensation 1,983,000 2,187,000
------------ ------------
3,252,000 4,593,000
------------ ------------
Total liabilities 24,628,000 21,865,000
------------ ------------
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; 9,764,205 shares issued at September 30,
2000 and 9,763,054 at December 31, 1999 98,000 98,000
Paid-in capital 26,722,000 27,241,000
Retained earnings 7,262,000 17,639,000
Accumulated other comprehensive loss (817,000) (554,000)
------------ ------------
33,265,000 44,424,000
Less:
Treasury stock at cost (1,192,145 shares at
September 30, 2000 and at December 31, 1999) 3,789,000 3,789,000
Unearned compensation - ESOP 2,685,000 3,580,000
------------ ------------
Total stockholders' equity 26,791,000 37,055,000
------------ ------------
Total liabilities and stockholders' equity $ 51,419,000 $ 58,920,000
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
3
<PAGE> 5
MARTIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
13-WEEK 39-WEEK
PERIOD ENDED PERIOD ENDED
---------------------------- ----------------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 13,556,000 $ 21,415,000 $ 49,183,000 $ 65,222,000
Cost of sales 13,225,000 20,231,000 46,443,000 57,364,000
------------ ------------ ------------ ------------
GROSS PROFIT 331,000 1,184,000 2,740,000 7,858,000
------------ ------------ ------------ ------------
Operating expenses:
Selling 1,869,000 2,471,000 6,768,000 7,361,000
General and administrative 1,851,000 2,000,000 6,313,000 5,854,000
Non-cash ESOP compensation expense 108,000 159,000 374,000 513,000
Restructure credit 0 0 (100,000) 0
------------ ------------ ------------ ------------
3,828,000 4,630,000 13,355,000 13,728,000
------------ ------------ ------------ ------------
OPERATING LOSS (3,497,000) (3,446,000) (10,615,000) (5,870,000)
(Gain) loss on sales of assets (2,000) 5,000 (714,000) (1,226,000)
Interest expense 250,000 186,000 639,000 586,000
Interest income (31,000) (92,000) (163,000) (319,000)
------------ ------------ ------------ ------------
Loss before income taxes (3,714,000) (3,545,000) (10,377,000) (4,911,000)
Credit for income taxes 0 (1,135,000) 0 (1,516,000)
------------ ------------ ------------ ------------
NET LOSS $ (3,714,000) $ (2,410,000) $(10,377,000) $ (3,395,000)
============ ============ ============ ============
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment (85,000) (63,000) (263,000) 284,000
------------ ------------ ------------ ------------
Comprehensive loss $ (3,799,000) $ (2,473,000) $(10,640,000) $ (3,111,000)
============ ============ ============ ============
BASIC PER SHARE DATA:
Net loss $ (0.48) $ (0.32) $ (1.35) $ (0.47)
============ ============ ============ ============
Weighted average number of common
shares outstanding 7,746,962 7,420,515 7,659,678 7,286,036
============ ============ ============ ============
DILUTED PER SHARE DATA:
Net loss $ (0.48) $ (0.32) $ (1.35) $ (0.47)
============ ============ ============ ============
Weighted average number of common
shares outstanding 7,746,962 7,420,515 7,659,678 7,286,036
============ ============ ============ ============
DIVIDENDS DECLARED PER SHARE $ 0.000 $ 0.021 $ 0.000 $ 0.063
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
<PAGE> 6
MARTIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
39-WEEK
PERIOD ENDED
-------------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,377,000) $ (3,395,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,744,000 1,222,000
Gain on sales of assets (714,000) (1,226,000)
Provision for doubtful accounts and notes receivable 130,000 97,000
Non-cash ESOP compensation expense 374,000 513,000
Other changes in operating assets and liabilities 1,670,000 (1,247,000)
------------ ------------
Net cash used in operating activities (7,173,000) (4,036,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,255,000) (4,225,000)
Proceeds from sales of assets 1,120,000 1,236,000
------------ ------------
Net cash used in investing activities (1,135,000) (2,989,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings 7,484,000 930,000
Net repayments of long-term debt (4,400,000) (1,734,000)
Exercise of stock options 0 105,000
Cash dividends paid 0 (330,000)
------------ ------------
Net cash used in financing activities 3,084,000 (1,029,000)
------------ ------------
NET DECREASE IN CASH AND SHORT-TERM
INVESTMENTS (5,224,000) (8,054,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 10,000 5,000
CASH AND SHORT-TERM INVESTMENTS AT THE
BEGINNING OF THE PERIOD 5,218,000 9,818,000
------------ ------------
CASH AND SHORT-TERM INVESTMENTS AT THE
END OF THE PERIOD $ 4,000 $ 1,769,000
============ ============
Cash paid during the period for:
Interest, net $ 499,000 $ 525,000
Income taxes, net $ 0 $ 22,000
</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. and subsidiary (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, 1999 included on Form 10-K, as filed with the
Securities and Exchange Commission on March 30, 2000.
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 Company's
business is seasonal and cyclical with the potential for significant
fluctuations in quarterly results; therefore, the consolidated results of
operations for the periods presented are not necessarily indicative of results
for the full year.
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.
Prior Year Reclassification
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
2. INVENTORIES
The Company's inventories are determined by the last-in, first-out
("LIFO") method for approximately 57% and 63% of the Company's inventories at
September 30, 2000 and December 31, 1999, respectively, and by the first-in,
first-out ("FIFO") method for all other inventories. Inventory costs include
material, labor and overhead, and the Company evaluates raw materials, purchase
parts, work-in-process and finished goods to ensure that inventory is not
recorded at amounts in excess of estimated net realizable value. Inherent in the
estimates of net realizable value are management's estimates related to the
Company's customer demand, product mix and salvage value. At September 30,
6
<PAGE> 8
2000 and December 31, 1999, the reserve for excess and obsolete inventory was
$971,000 and $1,872,000, respectively. An analysis of inventories, net of
reserves, at September 30, 2000 and December 31, 1999 follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Inventories valued at first-in, first-out ("FIFO") cost:
Raw materials and purchased parts $ 7,283,000 $ 6,904,000
Work-in-process 2,143,000 3,088,000
Finished goods 7,222,000 8,617,000
------------ ------------
16,648,000 18,609,000
Less excess of FIFO over LIFO cost 5,260,000 5,417,000
------------ ------------
$ 11,388,000 $ 13,192,000
============ ============
</TABLE>
3. INCOME TAXES
The Company has net deferred tax assets resulting primarily from net
operating loss ("NOL") carryforwards in United States jurisdictions of
approximately $6,955,000 expiring in fiscal years 2019 through 2020, and NOL
carryforwards in Canada of approximately $2,344,000 expiring in fiscal years
2000 through 2007. Approximately $85,000 expires in 2000.
The Company establishes valuation allowances in accordance with SFAS
No. 109, Accounting for Income Taxes. The Company continually reviews the
adequacy of the valuation allowance and is recognizing these benefits only as
reassessment indicates that it is more likely than not that the benefits will be
realized primarily through future taxable income and certain available tax
planning strategies.
During 2000, the Company has not recognized a credit for income taxes
as the deferred tax assets resulting from the Company's operating losses were
fully reserved. In assessing the valuation allowance established at December 31,
1999, the Company recorded valuation allowances primarily related to the
Canadian NOL carryforwards to a level where management believes that it is more
likely than not that the remaining Canadian net deferred tax asset of
approximately $954,000 will be realized primarily through future taxable income
and available tax planning strategies.
The total amount of future taxable income in the United States
necessary to realize the remaining deferred tax benefits is approximately $18.5
million. The Company will need to generate this income principally through the
implementation of reasonable and prudent tax planning strategies (including the
sale of certain divisions, property held for sale and other tax planning
strategies if necessary) to fully realize the net deferred tax assets. There can
be no assurance that the Company will generate enough taxable income through its
operations to realize the net deferred tax assets.
4. EARNINGS PER SHARE
Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period.
7
<PAGE> 9
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the Company. Diluted EPS has been computed based on the weighted
average number of shares outstanding, including the effect of outstanding stock
options, if dilutive, in each respective year.
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 39-Week Period Ended
--------------------------- ---------------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average shares-basic,
excluding ESOP and stock
option effects 5,654,586 5,461,086 5,654,136 5,413,441
Weighted average effect of ESOP
shares committed to be
released 2,092,376 1,959,429 2,005,542 1,872,595
------------ ------------ ------------ ------------
Weighted average shares-basic 7,746,962 7,420,515 7,659,678 7,286,036
Dilutive effect of stock options 0 0 0 0
------------ ------------ ------------ ------------
Weighted average shares-diluted 7,746,962 7,420,515 7,659,678 7,286,036
============ ============ ============ ============
</TABLE>
Options outstanding of 546,514 and 525,014 as of September 30, 2000 and October
2, 1999, respectively, were not included in the table above as they were
anti-dilutive.
5. COMMITMENTS
On February 1, 1996, 1166081 Ontario Inc. acquired all of the capital
stock of Hunter Technology Inc. ("Hunter") for a purchase price (exclusive of
assumed debt) of approximately $1,943,000 that included $850,000 in cash,
$729,000 in promissory notes payable and $364,000 paid into escrow. The escrow
fund was established at the closing to make funds available to meet the sellers'
indemnification obligations to the Company. During the first quarter of 1997,
the Company notified certain of the sellers that it was withholding payment on
the promissory notes held by them pending resolution of certain issues with the
holders of the notes arising out of the purchase transaction. The Company also
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 sued to enforce collection of their notes.
During 1998, the Company effected a settlement with all but two of the
former shareholders, and a contingent settlement with these two. Pursuant to the
settlement, the Company has received
8
<PAGE> 10
approximately $315,000 (including interest) of funds held in escrow, an
additional payment of $32,000, and cancellation of promissory notes and accrued
interest totaling approximately $364,000. Consequently, during the fourth
quarter of 1998, the Company recorded a gain on settlement of litigation of
$422,000. The contingent settlement with the two former shareholders is subject
to the adjudication or dismissal of certain litigation assumed upon the
acquisition of Hunter and will result (if the contingency is satisfied and that
portion of the settlement effectuated) in receipt by the Company of an
additional $105,000, and cancellation of notes and accrued interest totaling
approximately $229,000.
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 which may not be covered by adequate insurance
coverage.
6. RESTRUCTURE CHARGES
In 1998, 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 included
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 September 30,
2000 and December 31, 1999 totaled $79,000 and $189,000, respectively.
On December 9, 1999, the Company announced the planned closing and
consolidation of its Huntsville, Alabama manufacturing facility. The closing of
the facility began during the first quarter of 2000 and was complete at the end
of the second quarter. The production in Huntsville was transferred to the
Company's existing facilities in Athens and Sheffield, Alabama and Orillia,
Ontario. During the third quarter of 2000, the production of gas logs and
utility trailers was moved from Sheffield to Athens and Orillia, respectively.
At December 31, 1999, the Company recorded a restructure charge of $400,000,
before tax, in connection with the closing. The restructure charge included
employee termination costs of $125,000 and other exit costs of $275,000
(primarily payroll and benefits of $69,000 and group insurance of $159,000).
During 2000, the Company recorded a $100,000 reduction of the reserve based on
management's analysis that the original reserve for group insurance claims
should be reduced based on a lower-than-anticipated number of terminated
employees participating in the Company's self-insured insurance plan. The
estimated amount of the reduced reserve remaining as of September 30, 2000
totaled $10,000.
9
<PAGE> 11
7. SALES OF CERTAIN ASSETS
During the second quarter of 2000, the Company sold its Huntsville,
Alabama manufacturing plant and certain equipment. The Company recorded a gain
on sale of $637,000, which is included in gain on sales of assets in the
Condensed Consolidated Statements of Operations and Comprehensive Income. In
connection with this sale, the Company received total proceeds of $953,000.
During the first quarter of 2000, the Company sold certain undeveloped
land and rental property and recorded a $75,000 gain. In connection with this
sale, the Company received total proceeds of $124,000.
On March 31, 1999, the Company completed the sale of all of the assets
of its Ashley solid fuel division. The Company recorded a gain on the sale of
the Ashley division of $1,165,000 which is included in gain on sales of assets
in the Condensed Consolidated Statements of Operations and Comprehensive Income.
In connection with this sale, the Company received cash of $1.1 million during
1999, and accepted notes receivable totaling approximately $1.1 million. The
notes bear interest at 7% and are due in installments through the end of 2001.
The Company is holding common stock as collateral and also obtained a personal
guarantee from the buyer.
8. SHORT-TERM BORROWINGS
Management of the Company currently believes that existing cash and
funds generated from operations, together with the Company's unused borrowing
capacity under the Company's secured line of credit, will be sufficient to fund
the Company's operating needs during fiscal year 2000. The Company, however, has
experienced significant losses during the last two years, and losses have
continued in fiscal year 2000. Such continued losses could result in a material
reduction of internally generated funds and could also result in the use of a
substantial portion or all of the Company's secured line of credit.
Consequently, there can be no assurances that the Company's liquidity position
will not be adversely affected during fiscal year 2000. Further, there can be no
assurance that additional financing or, if the Company's current line of credit
is not renewed, financing to replace the existing line of credit will be
available beyond fiscal year 2000 or will be available on terms acceptable to
the Company. If such financing is not available, the business, operations and
financial condition of the Company will be materially adversely affected. It is
anticipated that during 2000 the Company will expend less than $2.5 million for
capital expenditures as compared to $5.7 million in 1999; through September 30,
2000, the Company had expended $2.3 million for capital expenditures.
9. INDUSTRY SEGMENT INFORMATION
Under SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, certain information is disclosed for the two reportable
operating segments of the Company. The reportable segments were determined using
the internal management reporting system. They are composed of the Company's
significant sales segments. The home heating products segment includes vented
and vent-free gas heaters and furnaces, pre-engineered gas- and wood-burning
fireplaces and gas logs. The leisure and other products segment includes premium
gas barbecue grills, utility trailer kits and repair parts. The accounting
policies for each segment are the same as those used by the Company. The Company
evaluates performance based on net sales, gross profit and segment contribution,
defined as gross profit less selling expenses. As such, the Company does not
allocate general and administrative expense, non-cash ESOP compensation expense,
interest expense, interest and other income or income taxes to the reportable
operating segments. The segment results include certain overhead allocations,
primarily related to production variances, fixed manufacturing and selling
expenses. The results and
10
<PAGE> 12
identifiable net assets for the two reportable segments of the Company are
included in the following table.
<TABLE>
<CAPTION>
Segment Information
------------------------------------------------------------
13-Week Period Ended 39-Week Period Ended
---------------------------- ----------------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
Net sales:
Home heating products $ 12,188 $ 18,866 $ 30,287 $ 44,085
Leisure and other products 1,368 2,549 18,896 21,137
------------ ------------ ------------ ------------
$ 13,556 $ 21,415 $ 49,183 $ 65,222
============ ============ ============ ============
Gross profit (loss)
Home heating products $ 434 $ 1,059 $ 1,337 $ 4,531
Leisure and other products (103) 125 1,403 3,327
------------ ------------ ------------ ------------
$ 331 $ 1,184 $ 2,740 $ 7,858
============ ============ ============ ============
Segment contribution (loss): (1)
Home heating products $ (1,030) $ (622) $ (2,578) $ (191)
Leisure and other products (508) (665) (1,450) 688
------------ ------------ ------------ ------------
$ (1,538) $ (1,287) $ (4,028) $ 497
============ ============ ============ ============
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Identifiable net assets: (2)
Home heating products $ 11,706 $ 16,170
Leisure and other products 8,449 6,621
Other (3) 4,840 3,980
------------ ------------
$ 24,995 $ 26,771
============ ============
</TABLE>
(1) Segment contribution (loss) consists of gross profit less selling
expenses.
(2) Represents Property, Plant and Equipment and Inventory (each net of
respective reserves).
(3) Represents amount attributable to the Company's corporate
administration.
11
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the unaudited
interim condensed consolidated financial statements of the Company and notes
thereto appearing elsewhere in this Form 10-Q. All references to the third
quarter of 2000 and the third quarter of 1999 are referring to the 13-week
periods ended September 30, 2000 and October 2, 1999, respectively. All
references to the 2000 year-to-date period and the 1999 year-to-date period are
referring to the 39-week periods ended September 30, 2000 and October 2, 1999,
respectively.
GENERAL
During the third quarter of 2000, the Company engaged Management
Dynamics, Inc., an Atlanta, Georgia consulting firm specializing in
manufacturing cost improvement. Other recent developments include the reduction
of the total number of employees, including contract labor. From September 30,
1999 to September 30, 2000, headcount decreased from 849 to 630, with most of
the reduction coming during the third quarter of 2000.
The Company announced on March 29, 2000, that it had engaged J.C.
Bradford & Co., LLC, of Nashville, Tennessee, to assist the Company in exploring
its strategic alternatives, which could include the sale of the Company or some
or all of its operating divisions or product lines. On May 31, 2000, the Company
announced that its Board of Directors appointed John L. Duncan to replace Robert
L. Goucher as its President and Chief Executive Officer. Mr. Duncan, who has
been a Director of the Company since May 1999, is the former president and CEO
of Murray Ohio Manufacturing Company. The Company also announced that it has
engaged the investment banking firm of McDonald Investments, Inc. to replace
J.C. Bradford & Co., LLC as the Company's investment bank. McDonald Investments,
an affiliate of Key Corp., is a full service investment banking firm
headquartered in Cleveland, Ohio. There can be no assurance that any transaction
or other strategic alternative will occur or be pursued or as to the form that
any possible transaction or other strategic alternative might take. The Company
does not currently expect to disclose developments regarding its pursuit of
strategic alternatives unless and until it is in a position to announce it has
decided upon a definitive transaction or strategic alternative.
As used in the following discussion and elsewhere in this Quarterly
Report, the term gross sales reflects total customer invoices billed by the
Company for the applicable period, net of any customer sales credits issued. The
term net sales as used herein and elsewhere in this Quarterly Report, reflects
gross sales less deductions for cash discounts, freight and royalties paid by
the Company.
RESULTS OF 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.
12
<PAGE> 14
<TABLE>
<CAPTION>
13-Week Period Ended 39-Week Period Ended
----------------------------- ------------------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 97.6 94.5 94.4 88.0
------------ ------------ ------------ ------------
Gross profit 2.4 5.5 5.6 12.0
Operating expenses:
Selling 13.8 11.5 13.8 11.3
General and administrative 13.6 9.4 12.8 9.0
Non-cash ESOP compensation expense 0.8 0.7 0.8 0.7
Restructure credit 0.0 0.0 (0.2) 0.0
------------ ------------ ------------ ------------
28.2 21.6 27.2 21.0
------------ ------------ ------------ ------------
Operating loss (25.8) (16.1) (21.6) (9.0)
Gain on sales of assets 0.0 0.0 (1.5) (1.9)
Interest expense 1.8 0.9 1.3 0.9
Interest income (0.2) (0.4) (0.3) (0.5)
------------ ------------ ------------ ------------
Loss before income taxes (27.4) (16.6) (21.1) (7.5)
Credit for income taxes 0.0 (5.4) 0.0 (2.3)
------------ ------------ ------------ ------------
Net loss (27.4)% (11.2)% (21.1)% (5.2)%
============ ============ ============ ============
</TABLE>
13-WEEK PERIOD ENDED SEPTEMBER 30, 2000 COMPARED TO 13-WEEK PERIOD ENDED OCTOBER
2, 1999
Net Sales
Net sales in the 13-week period ended September 30, 2000 decreased to
$13.6 million from $21.4 million in the 13-week period ended October 2, 1999, a
decrease of $7.9 million, or 36.7%.
Home Heating Products. Net sales of home heating products decreased to $12.2
million in the third quarter of 2000 from $18.9 million in the third quarter of
1999, a decrease of $6.7 million, or 35.4%. The decrease in net sales of home
heating products was primarily the result of a decrease in hearth products gross
sales of $2.8 million, or 21.0%, to $10.7 million and a decrease in heating
appliance gross sales of $4.0 million, or 64.8%, to $2.2 million. Hearth product
sales continued to be negatively impacted by lower housing starts and a
significant depression in the manufactured home industry together with the
Company's inability to produce and ship hearth products in a timely manner due,
in part, to the implementation of a new distribution system earlier in the year.
The decrease in heating appliance sales is primarily the result of a decrease in
customer orders and delays in shipping early season orders. The shipping delays
were primarily caused by the transfer of the manufacturing of vent-free heaters.
During 1999, the Company both manufactured and imported vent-free heaters.
Rather than continuing to manufacture, the Company entered into a sourcing
agreement with one of its significant vendors whereby the Company agreed to
purchase all of its infrared and blue-flame heater
13
<PAGE> 15
requirements from the vendor for a period of four years or until it purchased
400,000 units, whichever occurred first. During the third quarter of 2000, the
Company terminated its sourcing agreement and agreed to purchase work-in-process
inventory and certain purchased parts from the vendor. The Company made the
decision to produce infrared and blue-flame heaters at its Athens, Alabama
facility. Production began during the third quarter.
Leisure and Other Products. Net sales of leisure and other products decreased
$1.2 million, or 46.3%, in the third quarter of 2000 to $1.4 million, as
compared to $2.5 million in the third quarter of 1999. Sales of Broilmaster
premium barbecue gas grills decreased $445,000, or 27.8%, in the third quarter
of 2000, as compared to the third quarter of 1999. Sales of NuWay utility
trailers decreased $149,000, or 33.3%, in the third quarter of 2000, as compared
to the third quarter of 1999. The remainder of the decrease in leisure and other
net sales was caused by sales declines in OEM products and replacement parts.
The Company's orders as of November 10, 2000 for its home heating and
leisure and other products were approximately $2.7 million, as compared with
$7.6 million at the same time last year. The Company attributes this decline
primarily to the loss of orders for hearth products and vent-free heaters. The
Company believes that this decline will have an adverse effect on the Company's
net sales and earnings in the fourth quarter of 2000.
Gross Profit
The gross profit in the third quarter of 2000 was $331,000 as compared
to $1.2 million in the third quarter of 1999. The gross margin, defined as gross
profit as a percentage of net sales, was 2.4% in the third quarter of 2000. The
gross margin was 5.5% in the third quarter of 1999.
Home Heating Products. The gross profit on net sales of home heating products in
the third quarter of 2000 was $434,000 as compared to $1.1 million in the third
quarter of 1999. The decrease was primarily the result of the decrease in sales
volume. The gross margin was 3.6% in the third quarter of 2000. The gross margin
was 5.6% in the third quarter of 1999.
Leisure and Other Products. The gross loss on net sales of leisure and other
products in the third quarter of 2000 was $103,000 as compared to a gross profit
of $125,000 in the third quarter of 1999. The gross loss was primarily due to
the decrease in sales volume and a decrease in Broilmaster product margins
resulting from the discounting of certain discontinued products.
Selling Expenses
Selling expenses in the third quarter of 2000 decreased to $1.9 million
from $2.5 million in the third quarter of 1999, a decrease of $602,000, or
24.4%, primarily the result of decreases in commissions, advertising (including
co-op) and promotion and administrative expenses associated with the decrease in
sales. Selling expenses, as a percent of net sales, increased to 13.8% in the
third quarter of 2000 from 11.5% in the third quarter of 1999.
Segment Loss
Total segment loss, defined as gross profit (loss) less selling
expenses, was $1.5 million in the third quarter of 2000, as compared to $1.3
million during the third quarter of 1999.
14
<PAGE> 16
General and Administrative Expenses
General and administrative expenses decreased $149,000, or 7.5%, in the
third quarter of 2000 as compared to the third quarter of 1999. A gross decrease
of $450,000 in these expenses was offset by a $202,000 increase in severance
expense incurred in connection with certain officer and other salaried employee
terminations and a $99,000 increase in depreciation and amortization expense
associated with a computer systems change implemented in 1999 and the first
quarter of 2000.
Non-cash ESOP Compensation Expense
Non-cash ESOP compensation expense was $108,000 in the third quarter of
2000 as compared to $159,000 in the third quarter of 1999, a decrease of
$51,000, or 32.1%. In the third quarter of 2000, 86,835 shares of unallocated
ESOP stock were committed to be released as compensation at an average fair
value of $1.24 per share as compared to 71,661 shares committed to be released
as compensation at an average fair value of $2.22 per share in the third quarter
of 1999.
Interest Expense
Interest expense in the third quarter of 2000 was $250,000 as compared
to $186,000 in the third quarter of 1999, an increase of $64,000, or 34.4%. The
increase was primarily attributable to an increase in average short-term
borrowings together with an increase in interest rates.
Interest Income
Interest income in the third quarter of 2000 was $31,000 as compared to
$92,000 in the third quarter of 1999, a decrease of $61,000, or 66.3%. The
decrease was primarily attributable to a decrease in average outstanding
investments.
Credit for Income Taxes
During the third quarter of 2000, the Company did not recognize a
credit for income taxes because the deferred tax assets resulting from the
Company's operating losses were fully reserved. See Note 3 to Notes to Condensed
Consolidated Financial Statements. During the third quarter of 1999, the Company
recorded a credit for income taxes of $1.1 million.
Net Loss and Net Loss Per Share
The net loss in the third quarter of 2000 was $3.7 million as compared
to a net loss of $2.4 million in the third quarter of 1999. The change was
primarily the result of the factors discussed above.
The net loss per share-basic was $0.48 in the third quarter of 2000 as
compared to the net loss per share-basic of $0.32 in the third quarter of 1999.
The increase in the net loss per share-basic in the third quarter of 2000 was
partially offset by the increase in the weighted average shares outstanding. The
increase in the weighted average shares outstanding was primarily the result of
ESOP shares committed to be released to participants.
15
<PAGE> 17
The net loss per share-diluted was $0.48 in the third quarter of 2000
as compared to a net loss per share-diluted of $0.32 in the third quarter of
1999. The effect of stock options was not dilutive.
39-WEEK PERIOD ENDED SEPTEMBER 30, 2000 COMPARED TO 39-WEEK PERIOD ENDED OCTOBER
2, 1999
Net Sales
Net sales in the 39-week period ended September 30, 2000 decreased to
$49.2 million as compared to $65.2 million in the 39-week period ended October
2, 1999, a decrease of $16.0 million, or 24.6%.
Home Heating Products. Net sales of home heating products decreased to $30.3
million in the 2000 year-to-date period as compared to $44.1 million in the 1999
year-to-date period, a decrease of $13.8 million, or 31.3%. The decrease in net
sales of home heating products was primarily the result of a decrease of $8.0
million in hearth products gross sales. Hearth product sales were negatively
impacted by lower housing starts, a significant depression in the manufactured
home industry and the Company's inability to produce and ship products in a
timely manner due, in part, to the implementation of a new distribution system
earlier in the year. Sales of heating appliances decreased $6.4 million. The
decrease was primarily the result of a decrease in customer orders and delays in
shipping early season orders.
Leisure and Other Products. Net sales of leisure and other products decreased
$2.2 million, or 10.6%, in the 2000 year-to-date period to $18.9 million as
compared to $21.1 million in the 1999 year-to-date period. The decrease was
primarily the result of a $2.1 million, or 45.7%, decrease in sales of NuWay
utility trailers. The loss of a significant NuWay customer in late 1999 and the
decrease in volume from another customer negatively impacted trailer sales.
Also, the planned introduction of the redesigned trailer late in the first
quarter, which resulted in the loss of some early season orders, negatively
impacted trailer sales. Sales of Broilmaster premium barbeque grills increased
$713,000, or 4.7%, primarily due to enhancements to the 2000 product offering
and strong brand recognition. The remainder of the decrease in leisure and other
net sales was caused by sales declines in OEM products and replacement parts.
Gross Profit
The gross profit in the 2000 year-to-date period was $2.7 million as
compared to $7.9 million in the 1999 year-to-date period, a decrease of $5.1
million, or 65.1%. The gross margin decreased to 5.6% in the 2000 year-to-date
period from 12.0% in the 1999 year-to-date period.
Home Heating Products. The gross profit on net sales of home heating products
was $1.3 million in the 2000 year-to-date period as compared to $4.5 million in
the 1999 year-to-date period, a decrease of $3.2 million or 70.5%. The decrease
in gross profit was primarily the result of a decrease in
16
<PAGE> 18
sales volume, an increase in manufacturing costs and a provision for excess,
obsolete and discontinued product of $498,000.
Leisure and Other Products. The gross profit on net sales of leisure
and other products decreased $1.9 million, or 57.8%, in the 2000 year-to-date
period to $1.4 million as compared to $3.3 million in the 1999 year-to-date
period. The decrease in gross profit was primarily the result of the decrease in
sales volume, a decrease in Broilmaster product margins, an increase in the
amount of manufacturing costs allocated to the segment and a provision for
excess, obsolete and discontinued product of $144,000.
Selling Expenses
Selling expenses in the 2000 year-to-date period were $6.8 million as
compared to $7.4 million in the 1999 year-to-date period. Selling expenses as a
percentage of net sales increased to 13.8% in the 2000 year-to-date period from
11.3% in the 1999 year-to-date period.
Segment Loss
Total segment loss was $4.0 million in the 2000 year-to-date period
compared to a segment contribution of $497,000 in the 1999 year-to-date period.
The change was the result of the decrease in gross profit.
General and Administrative Expenses
General and administrative expenses increased $459,000, or 7.8%, in the
2000 year-to-date period as compared to the 1999 year-to-date period. The
increase was primarily the result of severance expense incurred in connection
with the termination of officers and other salaried employees and an increase in
depreciation and amortization expense associated with a computer systems change
implemented in 1999 and the first quarter of 2000.
Non-cash ESOP Compensation Expense
Non-cash ESOP compensation expense decreased $139,000, or 27.1%, in the
2000 year-to-date period to $374,000, as compared to $513,000 in the 1999
year-to-date period. In the 2000 year-to-date period, 260,505 shares of
unallocated ESOP stock were committed to be released as compensation at an
average fair value of $1.44 per share, as compared to 214,755 shares committed
to be released as compensation at an average fair value of $2.39 per share in
the 1999 year-to-date period.
Restructure Credit
The restructure credit of $100,000 in the 2000 year-to-date period
represents a reduction of the reserve for the Huntsville, Alabama plant closing.
The reduction was based on the Company's analysis that the original reserve for
group insurance claims should be reduced based on a lower-than-anticipated
number of terminated employees participating in the Company's self-insured
insurance plan.
17
<PAGE> 19
Gain on Sales of Assets
The gain on sales of assets of $714,000 during the 2000 year-to-date
period includes the $75,000 gain recorded in connection with the sale of certain
undeveloped land and rental property and the $637,000 gain recorded in
connection with the sale of the Huntsville, Alabama manufacturing plant and
certain equipment. See Note 7 to Notes to Condensed Consolidated Financial
Statements. The $1.2 million gain on sales of assets during the 1999
year-to-date period primarily represents the gain on sale of the Ashley division
recorded during the first quarter.
Interest Expense
Interest expense increased $53,000, or 9.0%, in the 2000 year-to-date
period to $639,000, as compared to $586,000 in the 1999 year-to-date period. The
increase was primarily attributable to an increase in average outstanding debt
and interest rates during the year-to-date period.
Interest Income
Interest income decreased $156,000, or 48.9%, in the 2000 year-to-date
period to $163,000, as compared to $319,000 in the 1999 year-to-date period. The
decrease was primarily the result of a decrease in average outstanding
investments.
Credit for Income Taxes
During the 2000 year-to-date period, the Company did not recognize a
credit for income taxes because the deferred tax assets resulting from the
Company's operating losses were fully reserved. See Note 3 to Notes to Condensed
Consolidated Financial Statements. During the 1999 year-to-date period, the
Company recorded a credit for income taxes of $1.5 million.
Net Loss and Net Loss Per Share
The net loss in the 2000 year-to-date period was $10.4 million as
compared to the net loss of $3.4 million in the 1999 year-to-date period. The
change was primarily the result of the factors discussed above.
The net loss per share-basic was $1.35 in the 2000 year-to-date period
as compared to $0.47 in the 1999 year-to-date period. The increase in net loss
per share-basic was partially offset by the increase in the weighted average
shares outstanding. The increase in weighted average shares outstanding was
primarily the result of ESOP shares committed to be released to participants.
The net loss per share on a diluted basis was $1.35 in the 2000
year-to-date period as compared to $0.47 in the 1999 year-to-date period. The
effect of stock options was not dilutive.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations from internally
generated funds and seasonal borrowings under its bank line of credit. The
Company's primary capital requirements are for working capital, capital
expenditures and debt service.
18
<PAGE> 20
As a result of its seasonal business cycle, the Company finances interim
working capital requirements with cash and bank lines of credit, one with its
principal lender and one with a Canadian financial institution. The line of
credit with its principal lender was entered into effective January 1, 2000, has
a current maximum of $10,000,000 and expires on January 1, 2001. The line of
credit is secured by the receivables and inventory of the Company (exclusive of
the receivables and inventory of Hunter). Interest on the line of credit is
payable monthly at a variable rate of 30-day LIBOR plus 1.25%, which on November
10, 2000 was 7.87%. As of September 30, 2000, the outstanding balance of the
line of credit was $6.7 million; as of November 10, 2000, the outstanding
balance was $5.9 million. In connection with the renewal of the line in March
2000, the Company repaid the $3.2 million term loan utilized to fund the
acquisition of Hunter.
During 1998, Hunter established a bank line of credit with a Canadian
financial institution. Effective in August of the current year, the Company,
Hunter and the Canadian financial institution agreed to and began operating
under amended terms with respect to the line of credit and are currently
completing the documentation reflecting such agreements. The credit agreement,
as amended, provides for borrowings up to approximately $1.5 million. The credit
line is subject to an annual renewal on April 30 each year. The line of credit
is secured by Hunter's receivables, inventory, building and equipment. Interest
on the line of credit is payable monthly at a variable rate equivalent to the
financial institution's prime lending rate plus 1.0%, which at November 10, 2000
was 8.5%. As of September 30, 2000, the outstanding balance of the line of
credit was $1.5 million; as of November 10, 2000, the outstanding balance was
$951,000.
In January 1993, the Company obtained a term loan from its primary
lender, the proceeds of which were loaned to the Company's Employee Stock
Ownership Plan ("ESOP") to enable the ESOP to purchase 3,489,115 shares of
common stock from certain stockholders of the Company. The loan is due in
semi-annual principal payments of $596,700 over a ten-year period. Interest on
the loan is payable monthly at a variable rate of 79.5% of prime plus 1.35%. At
November 10, 2000, the interest rate was 8.90%. The loan is secured by a lien on
the Company's buildings and equipment and is cross collateralized with the
secured line of credit. As of September 30, 2000 and November 10, 2000, the
outstanding balance of the loan was $2,387,000.
Management of the Company currently believes that existing cash and
funds generated from operations, together with the Company's unused borrowing
capacity under the Company's secured line of credit, will be sufficient to fund
the Company's operating needs during the remainder of fiscal year 2000. The
Company, however, has experienced significant losses during the last two years
and during the 2000 year-to-date period, and in all likelihood losses will
continue during the remainder of fiscal year 2000. Such continued losses could
result in a material reduction of internally generated funds and could also
result in the use of a substantial portion or all of the Company's secured line
of credit. Consequently, there can be no assurances that the Company's liquidity
position will not be adversely affected during fiscal year 2000. Further, there
can be no assurance that additional financing or, if the Company's current line
of credit is not renewed, financing to replace the existing line of credit will
be available beyond fiscal year 2000 on terms acceptable to the Company. If such
financing is not available, the business, operations and financial condition of
the Company will be materially adversely affected. It is anticipated that during
2000 the Company will expend less than $2.5 million for capital expenditures as
compared to $5.7 million in 1999; through September 30, 2000, the Company
expended $2.3 million for capital expenditures.
On October 29, 1999, the Company announced that its Board of Directors
had discontinued the payment of regular quarterly cash dividends. The Company's
Board of Directors decided that it would be in the best interests of the Company
and its stockholders for the Company to discontinue the payment of a cash
dividend at that time and to invest those funds in the business in support and
furtherance of the Company's strategic plan. Any future payment of dividends
will be within the discretion of the Board
19
<PAGE> 21
of Directors and will depend on the Company's profitability, capital
requirements, financial condition, business opportunities and other factors
which the Board of Directors may deem relevant.
FINANCIAL POSITION
Cash and short-term investments in the 2000 year-to-date period
decreased $5.2 million primarily as a result of the net loss of $10.4 million,
capital expenditures of $2.3 million and $4.4 million in payments of long-term
debt. These factors were partially offset by the collection of accounts and
notes receivable, proceeds from sales of assets and short-term borrowings.
During the 2000 year-to-date period, net property, plant and equipment
increased $28,000. The increase was the result of $2.3 million in capital
expenditures during the year-to-date period offset by the sale of certain assets
and depreciation expense of $2.2 million. Capital expenditures primarily include
equipment and tooling for the Company's production facilities and costs incurred
in conjunction with the continued implementation of the fully integrated
computer system.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign currency
exchange rates and interest rates as part of its normal operations. The Company
has estimated its market risk exposures using sensitivity analyses assuming a
10% change in market rates.
FOREIGN CURRENCY EXCHANGE RATE RISK
Due to its Canadian operations, the Company has assets, liabilities,
operations and cash flows in the Canadian currency. Fluctuations in foreign
currency exchange rates impact the U.S. dollar value of Canadian dollar assets,
liabilities, operations and cash flows. The Company translates the Canadian
dollar income statement to U.S. dollars using the average rate of exchange and
translates the Canadian dollar balance sheet to U.S. dollars using the closing
rate of exchange. Certain accounts (e.g., capital stock) are translated using an
historical exchange rate. Consequently, unrealized foreign currency translation
adjustments are reported as a separate component of stockholders' equity. To
illustrate the potential impact of changes in foreign currency exchange rates on
the unrealized foreign currency translation adjustment, a hypothetical 10%
change (decrease) in the average and closing exchange rates for the nine-month
period ended September 30, 2000 would have increased the unrealized foreign
currency translation adjustment (a loss) by $694,000.
INTEREST RATE RISK
At September 30, 2000, the Company's ESOP loan had $2,387,000 of debt
outstanding at a variable interest rate of 79.5% of prime plus 1.35%. The debt
is scheduled to mature in September 2002. Therefore, the Company is exposed to
interest rate fluctuations on the debt balance. A hypothetical increase of 10%
(for example, the prime rate of 9.5% would increase to 10.45%) in the prime
lending rate would not cause the Company's interest expense to increase
significantly.
Effective January 1, 2000, the Company entered into a secured bank line
of credit of up to a maximum of $10,000,000 which is to be utilized to finance
inventories, receivables and operations on an interim basis. Interest on the
line of credit is payable monthly at a variable rate based on the 30-day
20
<PAGE> 22
London Interbank Offered Rate (LIBOR) plus 1.25%. A hypothetical increase of
10% in the LIBOR rate would not cause the Company's interest expense to increase
significantly.
Further, Hunter maintains a secured bank line of credit of up to a
maximum of approximately $1.5 million which is to be utilized to finance
inventories, receivables and operations. Interest on the line of credit is
payable monthly at a variable rate based on the lender's prime rate plus 1.0%. A
hypothetical increase of 10% in the prime lending rate would not cause the
Company's interest expense to increase significantly.
Certain statements contained in this section and the estimated amounts
generated from the sensitivity analyses referred to above include
forward-looking statements of market risk which assume that certain adverse
market conditions may occur. Actual future market conditions may differ
materially from such assumptions. Accordingly, the forward-looking statements
should not be considered projections by the Company of future events or losses.
21
<PAGE> 23
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).
*3(c) Amendments to the By-laws of Martin Industries, Inc. which
were filed as Exhibit 99.1 to the Company's Form 8-K on
February 24, 1999 (Commission File No. 0-26228).
*4(a) Article 4 of the Restated Certificate of Incorporation of
Martin Industries, Inc. (included in Exhibit 3(a)).
*4(b) Rights Agreement, dated as of February 23, 1999, between
Martin Industries, Inc. and SunTrust Bank, Atlanta, Rights
Agent, which was filed as Exhibit 1 to the Company's
Registration Statement on Form 8-A (Commission File No.
0-26228).
**27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the period.
-----------------------------------
*Incorporated by reference
**Filed with electronic filing only
"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, including those regarding the short-term and long-term programs
being undertaken by the Company and expectations regarding the future
competitiveness of the Company's new products, the future savings generated by
engaging Management Dynamics, Inc., the Company's future ability to meet the
needs and expectations of its customers, results in future quarters, the
restructuring charges resulting from the closing of the Huntsville, Alabama
facility and the Washington Park facility, the Company's engagement of McDonald
Investments, Inc. to assist the Company in exploring strategic alternatives, the
estimated reserve for
22
<PAGE> 24
excess and obsolete inventories, the utilization of deferred tax assets related
to net operating loss carryforwards, the Company's beliefs with respect to the
funding of its operations during fiscal year 2000 and thereafter, and the
Company's expectations and estimates regarding its foreign currency exchange
rate and interest rate risk, 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 be
able to successfully implement or complete the short-term and long-term programs
being undertaken by the Company, that the Company's new products will meet its
expectations, that the engagement of Management Dynamics, Inc. will result in
the future savings anticipated by the Company, that the Company will be able in
the future to meet the needs and expectations of its customers, that the Company
will be able to renew its line of credit with its primary lender beyond fiscal
year 2000 or, if such line of credit is not renewed or the Company requires
additional financing, that the Company will be able to obtain financing to
replace the line of credit or such additional financing on terms acceptable to
the Company, that the Company will not exceed the estimated reserve for excess
and obsolete inventories or will utilize deferred tax assets related to net
operating loss carryforwards. 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 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: November 14, 2000 By /s/ Roderick V. Schlosser
-----------------------------------
Roderick V. Schlosser
Vice President and Chief Financial Officer
and Secretary
(Executed on behalf of Registrant and
as Principal Financial Officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits Page No.
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<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).
*3(c) Amendments to the By-laws of Martin Industries, Inc. which were filed
as Exhibit 99.1 to the Company's Form 8-K on February 24, 1999
(Commission File No. 0-26228).
*4(a) Article 4 of the Restated Certificate of Incorporation of Martin
Industries, Inc. (included in Exhibit 3(a)).
*4(b) Rights Agreement, dated as of February 23, 1999, between Martin
Industries, Inc. and SunTrust Bank, Atlanta, Rights Agent, which was
filed as Exhibit 1 to the Company's Registration Statement on Form 8-A
(Commission File No. 0-26228).
**27 Financial Data Schedule (for SEC use only).
</TABLE>
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*Incorporated by reference
**Filed with electronic filing only
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