SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended February 29, 2000 Commission File No. 0-5940
TEMTEX INDUSTRIES, INC.
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(Exact name of Registrant as specified in its Charter)
Delaware 75-1321869
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5400 LBJ Freeway, Suite 1375
Dallas, Texas 75240
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(Address of principal executive (Zip Code)
offices)
972/726-7175
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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 requirement for the past 90 days.
Yes X No
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The Registrant had 3,444,641 shares of common stock, par
value $.20 per share, outstanding as of the close of the
period covered by this report.
PART I. FINANCIAL INFORMATION
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In Thousands Except Share Amounts)
Three Months Ended Six Months Ended
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
------------ ------------ ------------- ------------
Net sales $ 5,210 $ 6,310 $ 11,334 $ 13,985
Cost of goods sold 4,829 5,638 9,977 11,720
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381 672 1,357 2,265
Cost and expenses:
Selling, general and administrative 2,015 1,878 3,797 3,913
Interest 60 76 103 188
Other expense (income) 4 6 (145) 8
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2,079 1,960 3,755 4,109
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LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAX BENEFIT AND
DISCONTINUED OPERATIONS (1,698) (1,288) (2,398) (1,844)
State and federal income tax benefit--Note B (679) (448) (959) (599)
------------ ------------ ------------- -------------
LOSS FROM CONTINUING OPERATIONS (1,019) (840) (1,439) (1,245)
GAIN FROM DISPOSAL AND OPERATING
INCOME FROM DISCONTINUED
OPERATIONS, NET OF INCOME
TAXES -- Note H -- 4,828 -- 5,434
------------ ------------ ------------- -------------
NET (LOSS) INCOME $ (1,019) $ 3,988 $ (1,439) $ 4,189
============ ============ ============= =============
Basic and diluted (loss) income per common share:
Continuing operations $ (.30) $ (.24) $ (.42) $ (.36)
======== ======== ======== ========
Net Income:
Basic $ (.30) $ 1.15 $ (.42) $ 1.20
======== ======== ======== ========
Diluted $ (.30) $ 1.13 $ (.42) $ 1.19
======== ======== ======== ========
Basic Weighted average common shares outstanding 3,444,641 3,477,458 3,444,641 3,477,298
============ ============ ============ =============
Diluted weighted average common and common
equivalent shares outstanding 3,468,678 3,523,628 3,471,253 3,525,963
============ ============ ============ =============
See notes to condensed consolidated financial statements.
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TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands)
February 29, August 31,
2000 1999
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,431 $ 4,077
Accounts receivable, less allowance for doubtful accounts of
$261,000 at February 29, 2000 and $267,000 at August 31, 1999 3,218 3,648
Inventories-Note D 8,037 8,680
Prepaid expenses and other assets 395 254
Deferred taxes 169 169
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TOTAL CURRENT ASSETS 15,250 16,828
DEFERRED TAXES 144 144
OTHER ASSETS 164 1,793
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 2,615 2,615
Machinery, equipment, furniture and fixtures 18,172 17,859
Leasehold improvements 1,280 1,213
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22,067 21,687
Less allowances for depreciation,
depletion and amortization 17,339 16,752
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4,728 4,935
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$ 20,286 $ 23,700
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February 29, August 31,
2000 1999
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(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,865 $ 1,725
Accrued expenses 1,069 1,749
Income taxes payable (669) 746
Current maturities of indebtedness to related parties 15 13
Current maturities of long-term obligations--Note E 30 29
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TOTAL CURRENT LIABILITIES 2,310 4,262
INDEBTEDNESS TO RELATED PARTIES,
less current maturities 1,572 1,580
LONG-TERM OBLIGATIONS,
less current maturities--Note E 389 404
COMMITMENTS AND CONTINGENCIES--Note F
STOCKHOLDERS' EQUITY--Note G
Preferred stock - $1 par value; 1,000,000
shares authorized, none issued -- --
Common stock - $.20 par value; 10,000,000 shares authorized,
5,286,125 shares issued 720 720
Additional capital 9,253 9,253
Retained earnings 6,481 7,920
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16,454 17,893
Less:
Treasury stock:
At cost - 153,696 shares 439 439
At no cost - 1,687,788 shares -- --
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16,015 17,454
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$ 20,286 $ 23,700
============ ============
See notes to condensed consolidated financial statements.
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TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
Six Months Ended
February 29, February 28,
------------ ------------
2000 1999
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OPERATING ACTIVITIES
Net (loss) income $ (1,439) $ 4,189
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation, depletion and amortization 605 700
Discontinued operations:
Gain on sale, net of tax -- (4,675)
Income from operations, net of tax -- (759)
Loss on disposition of property, plant and equipment 12 --
Provision for doubtful accounts 74 73
Changes in operating assets and liabilities:
Accounts receivable 356 (80)
Inventories 643 (1,315)
Prepaid expenses and other assets 1,488 (1,039)
Accounts payable and accrued expenses (540) (1,429)
Income taxes payable/recoverable (1,415) 2,513
Cash used in discontinued operations -- (1,986)
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NET CASH USED IN OPERATING ACTIVITIES (216) (3,808)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (410) (523)
Purchases of property, plant and equipment, discontinued operations -- (24)
Proceeds from sale of discontinued operations -- 12,525
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NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (410) 11,978
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-term borrowings -- --
Principal payments on revolving line of credit, long-term obligations
and indebtedness to related parties (20) (739)
Principal payments on long-term obligations, discontinued operations -- (31)
Proceeds from issuance of common stock -- 9
Purchase of treasury stock -- (16)
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NET CASH USED IN FINANCING ACTIVITIES (20) (777)
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(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (646) 7,393
Cash and cash equivalents at beginning of year 4,077 327
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,431 $ 7,720
============ ============
See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements include the accounts of Temtex Industries, Inc. (the
Company) and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The condensed financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six-
month period ended February 29, 2000 are not necessarily
indicative of the results that may be expected for the year
ending August 31, 2000. For further information, refer to the
consolidated financial statements and notes thereto included in
the Company's annual report on Form 10-K for the year ended
August 31, 1999.
NOTE B--INCOME TAXES
Income tax benefit has been provided using the liability method
for providing deferred taxes. Loss for the first six months of
fiscal 2000 reflects an estimated annualized tax rate of
approximately 40%.
NOTE C--INCOME PER COMMON SHARE
Basic income per common share is based upon the weighted average
number of shares of common stock outstanding during each period.
Diluted income per share is based upon the weighted average
number of shares of common stock and common stock equivalents
outstanding during each period. Common stock equivalents
include options granted to key employees and outside directors.
The number of common stock equivalents was based on the number
of shares issuable on the exercise of options reduced by the
number of shares that are assumed to have been purchased at the
average price of common stock during each quarter with the
proceeds from the exercise of the options.
NOTE D--INVENTORIES
Inventories are summarized below:
February 29, 2000 August 31, 1999
----------------- ---------------
(in thousands)
Finished goods $ 3,235 $ 3,121
Work in process 856 856
Raw materials and supplies 3,946 4,703
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$ 8,037 $ 8,680
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NOTE E--NOTES PAYABLE AND LONG-TERM DEBT
A two-year credit agreement entered into by the Company with a
bank in May 1996 and amended in April 1998 was repaid in January
1999 with proceeds received from the sale of the Company's face
brick manufacturing facility.
In August 1999, the Company and the bank mutually agreed to
terminate the agreement prior to its scheduled termination.
NOTE F--COMMITMENTS AND CONTINGENCIES
Due to the complexity of the Company's operations, disagreements
occasionally occur.
In the opinion of management, the Company's ultimate loss from
such disagreements and potential resulting legal action, if any,
will not be significant.
NOTE G--CAPITAL STOCK
At February 29, 2000 and August 31, 1999, there were 1,000,000
shares of preferred stock, with a par value of $1 authorized.
None have been issued.
The Company's Board of Directors approved the repurchase of up
to $1.0 million of the Company's Common Stock after a Special
Shareholder's meeting held on January 5, 1999. As of February
29, 2000, 40,000 shares have been purchased on the open market
and are included as treasury stock.
At February 29, 2000 and August 31, 1999, there were 10,000,000
shares of par value $.20 common stock authorized of which
5,286,125 shares were issued. Of the shares issued, 3,444,641
were outstanding. The remainder of the issued stock is
comprised of 1,841,484 shares of treasury stock.
NOTE H--DISCONTINUED OPERATIONS
On January 5, 1999, the Company sold its Texas Clay face brick
manufacturing division for approximately $12.5 million. The
financial statements classify Texas Clay as a discontinued
operation.
-7-
NOTE H-- DISCONTINUED OPERATIONS - (continued)
The components of the Company's results from the discontinued
operation of Texas Clay, net of income taxes, are as follows:
Three Months Ended Six Months Ended
February 29, February 28, February 29, February 28,
------------ ------------ ------------ ------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Income from operations of Texas Clay before
income taxes $ -- $ 280 $ -- $ 1,171
Income taxes -- 127 -- 412
------------ ------------ ------------ ------------
-- 153 -- 759
Gain on disposal of Texas Clay before
income taxes -- 7,420 -- 7,420
Income taxes -- 2,745 -- 2,745
------------ ------------ ------------ ------------
-- 4,675 -- 4,675
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Gain from disposal and income from
discontinued operations, net of income taxes $ -- $ 4,828 $ -- $ 5,434
============ ============ ============ ============
Income per share:
Basic income per common share:
Operations $ -- $ .04 $ -- $ .22
Gain on sale -- 1.35 -- 1.34
------ ------ ------ ------
$ -- $ 1.39 $ -- $ 1.56
====== ====== ====== ======
Diluted income per common and common
equivalent share:
Operations $ -- $ .04 $ -- $ .22
Gain on sale -- 1.33 -- 1.33
------ ------ ------ ------
$ -- $ 1.37 $ -- $ 1.55
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-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition
and results of operations of the Company should be read in
conjunction with the unaudited condensed consolidated financial
statements and related notes of the Company included elsewhere in
this report. This Management's Discussion and Analysis of
Financial Condition and Results of Operations and other parts of
this Quarterly Report on Form 10-Q contain forward-looking
statements that involve risks and uncertainties. Among the risks
and uncertainties to which the Company is subject are the risks
inherent in the cyclical and unpredictable nature of the housing
and home products business generally, fluctuations in interest
rates, geographic concentration of the Company's primary market,
the fact that the Company has experienced fluctuations in
revenues and operating results, and the highly competitive nature
of the industries in which the Company competes, together with
each of those other factors set forth in the Company's filings
made with the Securities & Exchange Commission. As a result, the
actual results realized by the Company could differ materially
from the results discussed in the forward-looking statements made
herein. Words or phrases such as "will," "anticipate," "expect,"
"believe," "intend," "estimate," "project," "plan" or similar
expressions are intended to identify forward-looking statements.
Readers are cautioned not to place undue reliance on the forward-
looking statements made in this Quarterly Report on Form 10-Q.
In the second quarter of fiscal 1999, the Company sold its
facility that produced face brick products. The results of
operations have been classified as discontinued operations. The
following discussion focuses on the remaining segment of
business, "Fireplace Products".
Net Sales
- ---------
Net sales of fireplace products decreased approximately 17% or
$1,100,000 in the second quarter of fiscal 2000 compared to the
second quarter of fiscal 1999. The decrease in sales resulted
from the decrease in the quantity of fireplaces delivered in the
second quarter of 2000 as well as decreases in the average unit
selling prices for those products. Between the comparative six-
month periods, net sales decreased approximately 19% in fiscal
2000. Reduced quantities and reduced unit selling prices in the
six-months of fiscal 2000 were responsible for the reduction in
sales. Industry competition continues to be the dominating force
in determining selling prices.
Gross Profit
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Gross profit decreased approximately 43% in the second quarter of
fiscal 2000 compared to the second quarter of fiscal 1999. Gross
profit decreased approximately 40% between the comparative six-
month periods. Reduced sales and the lack of capacity
utilization were responsible for the reduced gross profit in both
comparison periods.
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Selling, General and Administrative Expenses
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Selling, general and administrative expenses increased by
$137,000 or approximately 7% in the second quarter of fiscal 2000
compared to the second quarter of fiscal 1999. Between the
comparative six-month periods, expense decreased $116,000 or
approximately 3%. In the second quarter of fiscal 2000, the
Company terminated the Select Management Employee Security Plan.
The increase in selling, general and administrative expenses was
the direct result of the expense incurred in terminating the
plan.
Interest Expense
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Net interest expense decreased $16,000 or approximately 21% and
$85,000 or approximately 45% between the comparative quarters and
six-month periods, respectively. The decrease in the net expense
in both the second quarter and the first six-months of fiscal
2000 was caused in part, by the decrease in the average
indebtedness during both periods of fiscal 2000 compared to
fiscal 1999. In addition, the Company has cash fund investments
through a bank, which are earning interest.
Income Taxes
- ------------
Income tax benefit for the first six-months of fiscal 2000 is
based on an estimated annualized effective tax rate of 40%.
Liquidity and Capital Resources
- -------------------------------
Net cash used by operating activities was $216,000 for the first
six-months of 2000 compared to $3,808,000 for the first six
months of 1999. The decreased cash flow from operations in the
first six-months of fiscal 2000 was primarily due to the loss
incurred by operations as well as changes in working capital,
principally decreases in accounts payable, accrued expenses and
income taxes payable.
The brick manufacturing division was sold for approximately
$12,500,000 in the second quarter of fiscal 1999. The cash
proceeds were used to pay certain indebtedness with the remainder
being available for other appropriate uses.
Working capital increased from $12,566,000 at August 31, 1999 to
$12,940,000 at February 29, 2000.
Capital expenditures and capitalized lease obligations for the
first six months of 2000 were $410,000. Expenditures include
amounts for tooling, dies, replacement items and major repairs to
manufacturing equipment.
In May 1996, the Company entered into a two-year credit agreement
with a bank whereby the Company could borrow up to $4,000,000
under a revolving credit facility. In April 1998, the credit
agreement was amended whereby the maximum amount available under
the revolving credit facility was reduced to $3,000,000 and the
expiration date was extended for an additional two-year period.
The outstanding balance on the credit facility was repaid by the
Company with proceeds from the sale of its brick manufacturing
facility in the second quarter of fiscal 1999. In August 1999,
the Company and the bank mutually agreed to terminate the credit
agreement prior to its scheduled termination.
-10-
The Company anticipates that cash flow from operations, together
with cash on hand should provide the Company with adequate funds
to meet its working capital requirements as well as requirements
for capital expenditures for at least the next twelve months.
The Company is reviewing various options that are available in
order to establish a new credit facility should one be required
at some time in the future. However, to the extent the Company
is unable to obtain a credit facility on suitable terms in the
future, or to the extent the Company experiences operating losses
in future periods, it may be required to seek additional sources
of capital. Sources of additional capital may include public and
private equity and debt financing, sales of nonstrategic assets
and other financing arrangements. No assurances can be made that
the Company will be able to obtain sufficient capital in the
future.
Year 2000 Issue
- ---------------
Modifications to the Company's software programs and operating
systems for "Year 2000" compliance were successfully completed in
prior years. The Company's business has not been adversely
affected due to the failure of key third parties to successfully
complete the Year 2000 conversion. Although there can be no
assurance that all of the Company's material third-party
relationships had successful conversion programs, management does
not expect that any such failure would have a material adverse
effect on the financial position, results of operations or
liquidity of the Company. The costs for the Company's program
and system modifications to date have not been material and the
Company knows of no further required modifications that would
have a material impact on its financial position, results of
operations or liquidity.
-11-
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits
Exhibit
No. Description
------ -----------------------------------
27.1 Financial Data Schedule (filed herewith)
(b). Report on Form 8-K
The Registrant did not file any reports on Form 8-
K during the quarter for which this report is
filed.
-12-
SIGNATURES
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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.
TEMTEX INDUSTRIES, INC.
DATE: 4/6/00 BY: /s/ E.R.Buford
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E. R. Buford
President
DATE: 4/6/00 BY: /s/ R. N. Stivers
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R. N. Stivers
Vice President-Finance
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