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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 November 30, 1995 Commission File No. 0-5940
TEMTEX INDUSTRIES, INC.
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(Exact name of Registrant as specified in its Charter)
Delaware 75-1321869
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3010 LBJ Freeway, Suite 650, Dallas, Texas 75234
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(Address of principal executive offices) (Zip Code)
214/484-1845
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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 [ ]
The Registrant had 3,464,141 shares of common stock, par value $.20
per share, outstanding as of the close of the period covered by
this report.
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PART I. FINANCIAL INFORMATION
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In Thousands Except Share Amounts)
3 Mths. Ended
November 30,
1995 1994
---- ----
Net sales $12,993 $14,167
Cost of goods sold 8,917 9,316
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4,076 4,851
Cost and expenses:
Selling, general and administrative 2,901 3,150
Interest 161 86
Other income (5) (11)
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3,057 3,225
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INCOME FROM OPERATIONS BEFORE
INCOME TAXES 1,019 1,626
State and federal income taxes--Note A 438 597
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NET INCOME $ 581 $ 1,029
======= =======
Income per common share--Note B
NET INCOME $ .16 $ .29
======= =======
Weighted average common and common
equivalent shares outstanding 3,523,301 3,547,005
========= =========
See notes to condensed consolidated financial statements.
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TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
November 30, 1995 and August 31, 1995
(In Thousands)
November 30, August 31,
1995 1995
------------ ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,434 $ 736
Accounts receivable, less allowance for
doubtful accounts of $609,000 at November
30, 1995 and $541,000 at August 31, 1995 7,910 7,011
Inventories 8,661 8,773
Prepaid expenses and other assets 365 401
Income taxes recoverable 443 443
Deferred taxes 350 350
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TOTAL CURRENT ASSETS 19,163 17,714
DEFERRED TAXES 530 530
OTHER ASSETS 316 366
ASSETS RELATED TO DISCONTINUED OPERATIONS
--Note F 107 99
PROPERTY, PLANT AND EQUIPMENT
Land and clay deposits 325 325
Buildings and improvements 3,496 3,496
Machinery, equipment, furniture and fixtures 21,825 21,448
Leasehold improvements 752 742
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26,398 26,011
Less allowances for depreciation,
depletion and amortization 17,934 17,505
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8,464 8,506
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$28,580 $27,215
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November 30, August 31,
1995 1995
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,000 $2,000
Accounts payable 5,740 4,144
Accrued expenses 1,746 1,786
Income taxes payable 409 --
Current maturities of indebtedness
to related parties 7 7
Current maturities of long-term
obligations--Note C 765 763
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TOTAL CURRENT LIABILITIES 9,667 8,700
INDEBTEDNESS TO RELATED PARTIES,
less current maturities 1,619 1,621
LONG-TERM OBLIGATIONS,
less current maturities--Note C 1,297 1,478
COMMITMENTS AND CONTINGENCIES--Note E -- --
STOCKHOLDERS' EQUITY--Note D
Preferred stock - $1 par value; 1,000,000
shares authorized, none issued -- --
Common stock - $.20 par value; 10,000,000
shares authorized, 5,265,625 shares issued 715 715
Additional capital 9,225 9,225
Retained earnings 6,384 5,803
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16,324 15,743
Less:
Treasury stock:
At cost - 113,696 shares 327 327
At no cost - 1,687,788 shares -- --
15,997 15,416
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$28,580 $27,215
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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)
3 Months Ended
November 30,
1995 1994
---- ----
OPERATING ACTIVITIES
Net income $ 581 $1,029
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 429 314
Provision for doubtful accounts 83 107
Changes in operating assets and liabilities:
Accounts receivable (982) (1,052)
Inventories 112 (624)
Prepaid expenses and other assets 86 (168)
Accounts payable and accrued expenses 1,556 1,169
Income taxes payable 409 530
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,274 1,305
INVESTING ACTIVITIES
Purchases of property, plant and equipment (387) (908)
Expenditures on assets related to discontinued
operations (8) (1)
------ ------
NET CASH USED IN INVESTING ACTIVITIES (395) (909)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and
long-term borrowings -- 512
Principal payments on revolving line of credit,
long-term obligations and indebtedness to
related parties (1,181) (56)
------ ------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (1,181) 456
------ ------
INCREASE IN CASH AND CASH EQUIVALENTS 698 852
Cash and cash equivalents at beginning of year 736 627
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,434 $1,479
====== ======
See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--INCOME TAXES
The Company calculates its income tax expense under the liability
method of accounting for income taxes. Income for the first three
months of fiscal 1996 reflects an estimated annualized tax rate of
approximately 43%.
NOTE B--INCOME PER COMMON SHARE
Income per common share is based on the weighted average number 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 common shares that are assumed to
have been purchased, at the average price of the common stock during
each quarter, with the proceeds from the exercise of the options. Fully
diluted income per common share is not presented because dilution is
not significant.
NOTE C--NOTES PAYABLE AND LONG-TERM DEBT
In fiscal 1994, the Company entered into a two year credit agreement
with a bank whereby the Company may borrow a maximum of $3,000,000
under a revolving credit note. The credit agreement was amended in
fiscal 1995, in which a three year term note of $1,212,000 was added.
The term note requires quarterly payments of principal and interest
with the final payment due in March, 1998. Covenants contained in the
original loan agreement that require the maintenance of a specified
ratio of total liabilities to tangible net worth, as defined, and a
fixed charge flow coverage ratio, as defined, remain in effect.
NOTE D--CAPITAL STOCK
At November 30, 1995 and August 31, 1995, there were 1,000,000 shares
of preferred stock, with a par value of $1 authorized. None have been
issued.
At November 30, 1995 and August 31, 1995, there were 10,000,000 shares
of par value $.20 common stock authorized of which 5,265,625 shares
were issued. Of the shares issued, 3,464,141 were outstanding. The
remainder of the issued stock is comprised of 113,696 shares of
treasury stock at cost and 1,687,788 shares of treasury stock at no
cost.
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NOTE E--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 F--DISCONTINUED OPERATIONS
In 1993, management of the Company decided to discontinue the Company's
contract products segment.
At August 31, 1995 assets related to the discontinued contract products
operations were stated at estimated realizable values and consisted of
land, building and equipment.
In the first quarter of fiscal 1996, the Company leased the building
and the majority of the land. The initial lease term is for a period of
five years with an option to extend the lease for an additional five
year period. The lease also contains an option to purchase the
property during the first two years of the initial lease period.
The remaining parcel of land and equipment are on the market to be
sold.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net Sales
The Company reported an 8% decrease in net sales to $12,993,000 in the
first quarter of fiscal 1996 compared to net sales of $14,167,000 in
the first quarter of fiscal 1995.
Fireplace Products. Net sales decreased approximately 8% in the first
quarter of fiscal 1996 compared to the first quarter of fiscal 1995.
The sales decrease was attributed to a small decrease in the number of
zero-clearance fireplaces and ventfree log sets delivered in addition
to a small decrease in the average selling prices received for the
products in the first quarter of fiscal 1996. Net sales were
apparently influenced by the decrease in housing starts between the
comparison periods. Nationwide, housing starts decreased from an
annualized average of 1,494,000 in the first quarter of fiscal 1995 to
an annualized average of 1,363,000 for the first two months of fiscal
1996. [Housing start data for November 1995 (the last month of
Company's first quarter), was not published at the time this report was
prepared.]
Face Brick Products. Net sales decreased approximately 11% in the first
quarter of fiscal 1996 compared to the first quarter of fiscal 1995.
The reduction in sales was the direct result of a reduction in the
quantity of brick sold in the first quarter of 1996.
Gross Profit
Fireplace Products. Gross profit decreased approximately 15% in the first
quarter of fiscal 1996 compared to the first quarter of fiscal 1995.
The decrease was caused by the decrease in net sales.
Face Brick Products. Gross profit decreased approximately 21% in the first
quarter of fiscal 1996 compared to the first quarter of fiscal 1995.
With fixed manufacturing costs maintaining a relatively constant level,
the lower volume of product manufactured and sold did not permit
favorable absorption of overhead expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by $249,000 or
8% in the first quarter of fiscal 1996 compared to the first quarter of
fiscal 1995. Selling expenses are generally variable and decrease as
sales decrease. As a percentage of sales, expenses were approximately
22% in each of the comparison quarters.
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Interest Expense
Interest expense increased $75,000 in the first quarter of 1996
compared to the first quarter of 1995. The increase in expense was
caused by the increase in debt outstanding during the first quarter of
1996. It should be noted that outstanding debt at November 30, 1995
was more than $1,000,000 less than the amount outstanding at August 31,
1995.
Income Taxes
Income tax expense of $438,000 for the first quarter of fiscal 1996
includes the provision for both federal and state income taxes. An
estimated annualized effective tax rate of 43% was applied to pre-tax
income for the first quarter of fiscal 1996.
Liquidity and Capital Resources
Net cash provided by operating activities was $2,274,00 for the first
quarter of 1996 compared to $1,305,000 for the first quarter of 1995.
The increased cash flow from operations in the first quarter of fiscal
1996 was due primarily to changes in working capital, principally
increases in accounts payable and income taxes payable.
In May 1994, the Company entered into a two-year credit agreement with
a bank whereby the Company may borrow a maximum of $3,000,000 under a
revolving credit facility. The amount available under the revolving
credit facility is subject to limitations based on specified
percentages of the Company's eligible outstanding receivables and
inventory. The outstanding principal balance may bear interest at a
variable or fixed rate, at the Company's option, at the time funds are
requested. Interest is payable quarterly and also at the end of the
borrowing period if borrowing at a fixed rate. In fiscal 1995, the
loan agreement was amended whereby a promissory term note in the amount
of $1,212,000 was added with a maturity date of March 1998. The term
note requires quarterly payments of principal and interest.
Working capital increased by $482,000 at November 30, 1995 compared to
August 31, 1995. Although there was an increase in the amount of
working capital, the current ratio remained the same at approximately
2.0 at each of the measurement dates.
Capital expenditures and capitalized lease obligations for the first
three months of 1996 were $387,000 compared to $921,000 for the first
three months of 1995. Expenditures include amounts for tooling, dies
and repairs to existing tooling and equipment. The capital additions
have been financed by cash flow from operations.
The Company anticipates that cash flow from operations together with
funds available from the revolving credit facility 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.
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The accompanying unaudited condensed consolidated 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 three month period ended
November 30, 1995 are not necessarily indicative of the results that
may be expected for the year ending August 31, 1996. 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, 1995.
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PART II. OTHER INFORMATION
Item 6(b). Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the quarter
for which this report is filed.
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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.
TEMTEX INDUSTRIES, INC.
DATE: 1/10/96 BY:/s/E.R.Buford
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E. R. Buford
President
DATE: 1/10/96 BY:/s/R. N. Stivers
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R. N. Stivers
Vice President-Finance