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, 1996 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 Identification
incorporation or organization) No.)
5400 LBJ Freeway, Suite 1375, Dallas, Texas 75240
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(Address of principal executive offices) (Zip Code)
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 3,467,141 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)
3 Mths. Ended
November 30,
1996 1995
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Net sales $13,086 $12,993
Cost of goods sold 9,075 8,917
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4,011 4,076
Cost and expenses:
Selling, general and administrative 2,618 2,901
Interest 158 161
Other income (20) (5)
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2,756 3,057
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INCOME FROM OPERATIONS BEFORE
INCOME TAXES 1,255 1,019
State and federal income taxes--Note A 502 438
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NET INCOME $ 753 $ 581
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Income per common share--Note B
NET INCOME $.22 $.16
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Weighted average common and common
equivalent shares outstanding 3,493,691 3,523,301
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See notes to condensed consolidated financial statements.
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
November 30, 1996 and August 31, 1996
(In Thousands)
November 30, August 31,
1996 1996
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,221 $ 445
Accounts receivable, less allowance for
doubtful accounts of $330,000 at November
30, 1996 and $435,000 at August 31, 1996 7,456 6,971
Inventories 9,500 10,224
Prepaid expenses and other assets 496 285
Deferred taxes 226 226
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TOTAL CURRENT ASSETS 18,899 18,151
DEFERRED TAXES 672 672
OTHER ASSETS 316 381
ASSETS RELATED TO DISCONTINUED OPERATIONS
--Note F 243 202
PROPERTY, PLANT AND EQUIPMENT
Land and clay deposits 325 325
Buildings and improvements 3,491 3,491
Machinery, equipment, furniture and fixtures 23,608 23,289
Leasehold improvements 863 866
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28,287 27,971
Less allowances for depreciation,
depletion and amortization 19,675 19,367
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8,612 8,604
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$28,742 $28,010
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November 30, August 31,
1996 1996
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,200 $ 3,099
Accounts payable 5,276 4,714
Accrued expenses 1,462 1,708
Income taxes payable 507 57
Current maturities of indebtedness
to related parties 8 8
Current maturities of long-term
obligations--Note C 240 236
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TOTAL CURRENT LIABILITIES 9,693 9,822
INDEBTEDNESS TO RELATED PARTIES,
less current maturities 1,611 1,613
LONG-TERM OBLIGATIONS,
less current maturities--Note C 715 605
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, 5,268,625 shares issued 716 716
Additional capital 9,236 9,236
Retained earnings 7,098 6,345
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17,050 16,297
Less:
Treasury stock:
At cost - 113,696 shares 327 327
At no cost - 1,687,788 shares -- --
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16,723 15,970
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$28,742 $28,010
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See notes to condensed consolidated financial statements.
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements
of Cash Flows (Unaudited)
(In Thousands)
3 Months Ended
November 30,
1996 1995
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OPERATING ACTIVITIES
Net income $ 753 $ 581
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 500 429
Gain on disposition of property, plant and
equipment (18) --
Provision for doubtful accounts 89 83
Changes in operating assets and liabilities:
Accounts receivable (574) (982)
Inventories 724 112
Prepaid expenses and other assets (146) 86
Accounts payable and accrued expenses 316 1,556
Income taxes payable 450 409
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NET CASH PROVIDED BY OPERATING ACTIVITIES 2,094 2,274
INVESTING ACTIVITIES
Purchases of property, plant and equipment (518) (387)
Expenditures on assets related to discontinued
operations (41) (8)
Proceeds from disposition of property, plant and
equipment 35 --
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NET CASH USED IN FINANCING ACTIVITIES (524) (395)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and
long-term borrowings 194 --
Principal payments on revolving line of credit,
long-term obligations and indebtedness to
related parties (988) (1,181)
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NET CASH USED IN FINANCING ACTIVITIES (794) (1,181)
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INCREASE IN CASH AND CASH EQUIVALENTS 776 698
Cash and cash equivalents at beginning of year 445 736
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,221 $ 1,434
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See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--INCOME TAXES
Income taxes have been provided using the liability method in
accordance with the Financial Accounting Standards Board Statement
No. 109, Accounting for Income Taxes. Income for the first three
months of fiscal 1997 reflects an estimated annualized tax rate of
approximately 40%.
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 May 1996, the Company entered into a two year credit agreement
with a bank whereby the Company may borrow a maximum of $4,000,000
under a revolving credit facility. At the option of the Company,
borrowings under the note may bear interest at the lending bank's
prime commercial interest rate or at the London Interbank Offered
Rate ("LIBOR") plus 1.25 percentage points. Interest is payable on
a monthly basis. The loan agreement contains covenants that
require the maintenance of a specified ratio of quick assets to
current liabilities, as defined, and a specified ratio of total
liabilities to tangible net worth, as defined, both ratios to be
measured on a quarterly basis. As of November 30, 1996, $2,200,000
was outstanding under the revolving credit note.
NOTE D--CAPITAL STOCK
At November 30, 1996 and August 31, 1996, there were 1,000,000
shares of preferred stock, with a par value of $1 authorized. None
have been issued.
At November 30, 1996 and August 31, 1996, there were 10,000,000
shares of par value $.20 common stock authorized of which 5,268,625
shares were issued. Of the shares issued, 3,467,141 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.
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.
In 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. Rental
income received is recorded as a reduction in the carrying value of
the property.
The remaining parcel of land and equipment are on the market to be
sold.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NET SALES
The Company reported a 1% increase in net sales to $13,086,000 in
the first quarter of fiscal 1997 compared to net sales of
$12,993,000 in the first quarter of fiscal 1996.
FIREPLACE PRODUCTS. Net sales decreased approximately 2% in the
first quarter of fiscal 1997 compared to the first quarter of
fiscal 1996. The sales decrease was attributed to a small decrease
in the number of zero-clearance fireplaces and ventfree log sets
delivered in the first quarter of fiscal 1997.
FACE BRICK PRODUCTS. Net sales increased approximately 14% in the
first quarter of fiscal 1997 compared to the first quarter of
fiscal 1996. The increase in sales was the direct result of an
increase in the quantity of brick sold in the first quarter of
1997.
GROSS PROFIT
FIREPLACE PRODUCTS. Gross profit decreased approximately 4% in the
first quarter of fiscal 1997 compared to the first quarter of
fiscal 1996. The decrease was caused by the decrease in net sales.
FACE BRICK PRODUCTS. Gross profit increased approximately 11% in
the first quarter of fiscal 1997 compared to the first quarter of
fiscal 1996. The increase was a direct result of the increase in
sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased by $283,000
or approximately 10% in the first quarter of fiscal 1997 compared
to the first quarter of fiscal 1996. As a percentage of sales,
expenses decreased from approximately 22% in 1996 to 20% in 1997.
A reduction in advertising expenses related to fireplace products
was mainly responsible for the reduction in selling, general and
administrative expenses in the first quarter of the current year.
INTEREST EXPENSE
Interest expense was approximately the same in the first quarter of
fiscal 1997 compared to the first quarter of fiscal 1996. The
average debt outstanding was approximately the same and the average
interest rate charged on the outstanding debt was approximately the
same between the comparative quarters.
INCOME TAXES
Income tax expense of $502,000 for the first quarter of fiscal 1997
includes the provision for both federal and state income taxes. An
estimated annualized effective tax rate of 40% was applied to pre-
tax income for the first quarter of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $2,094,00 for the
first quarter of 1997 compared to $2,274,000 for the first quarter
of 1996. The decreased cash flow from operations in the first
quarter of fiscal 1997 was due primarily to changes in working
capital, principally a smaller increase in accounts payable and
accrued expenses compared to the first quarter of 1996.
In May 1996, the Company entered into a two-year credit agreement
with a bank whereby the Company may borrow a maximum of $4,000,000
under a revolving credit facility. 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 on a monthly basis and also at the end of the borrowing
period if borrowing at a fixed rate.
Working capital increased by $877,000 at November 30, 1996 compared
to August 31, 1996. The current ratio increased from 1.8 at August
31, 1996 to 1.9 at November 30, 1996.
Capital expenditures and capitalized lease obligations for the
first three months of 1997 were $525,000 compared to $387,000 for
the first three months of 1996. Expenditures include amounts for
tooling, dies, replacement items and repairs to manufacturing
equipment. The capital additions have been financed by cash flow
from operations and term notes on a portion of the replacement
items.
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.
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, 1996 are not
necessarily indicative of the results that may be expected for the
year ending August 31, 1997. 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,
1996.
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.
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: 1/9/97 BY: /s/ E.R.Buford
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E. R. Buford
President
DATE: 1/9/97 BY: /s/ R. N. Stivers
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R. N. Stivers
Vice President-Finance