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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 February 28, 1997 Commission File No. 0-5940
TEMTEX INDUSTRIES, INC.
------------------------------------------------------
(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 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 [ ]
The Registrant had 3,477,141 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 6 Mths. Ended
---------------------- ----------------------
2/28/97 2/29/96 2/28/97 2/29/96
-------- ------- ------- -------
Net sales $ 8,985 $ 9,060 $ 22,071 $ 22,053
Cost of goods sold 6,687 6,723 15,762 15,640
-------- -------- -------- --------
2,298 2,337 6,309 6,413
Cost and expenses:
Selling, general and administrative 2,402 2,255 5,020 5,156
Interest 123 133 281 294
Other (income) expense (80) 8 (100) 3
-------- -------- -------- --------
2,445 2,396 5,201 5,453
-------- -------- -------- --------
(LOSS) INCOME FROM OPERATIONS
BEFORE INCOME TAXES (147) (59) 1,108 960
State and federal income taxes
--Note A (59) (25) 443 413
-------- -------- -------- --------
NET (LOSS) INCOME $ (88) $ (34) $ 665 $ 547
======== ======== ======== ========
Income per common share--Note B
NET (LOSS) INCOME $(.03) $(.01) $ .19 $ .16
===== ===== ===== =====
Weighted average common and common
equivalent shares outstanding 3,475,141 3,464,141 3,484,416 3,493,721
See notes to condensed consolidated financial statements.
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TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
February 28, 1997 and August 31, 1996
(In Thousands)
February 28, August 31,
1997 1996
----------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 241 $ 445
Accounts receivable, less allowance
for doubtful accounts of $420,000
at February 28, 1997 and $435,000
at August 31, 1996 4,772 6,971
Inventories 9,060 10,224
Prepaid expenses and other assets 534 285
Deferred taxes 226 226
--------- ---------
TOTAL CURRENT ASSETS 14,833 18,151
DEFERRED TAXES 672 672
OTHER ASSETS 150 381
ASSETS RELATED TO DISCONTINUED OPERATIONS
--Note F -- 202
PROPERTY, PLANT AND EQUIPMENT
Land and clay deposits 325 325
Buildings and improvements 3,491 3,491
Machinery, equipment, furniture and fixtures 23,668 23,289
Leasehold improvements 866 866
--------- ---------
28,350 27,971
Less allowances for depreciation,
depletion and amortization 20,106 19,367
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8,244 8,604
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$ 23,899 $ 28,010
========= =========
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February 28, August 31,
1997 1996
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ -- $ 3,099
Accounts payable 3,084 4,714
Accrued expenses 1,470 1,708
Income taxes payable 218 57
Current maturities of indebtedness
to related parties 8 8
Current maturities of long-term
obligations--Note C 182 236
------------ ------------
TOTAL CURRENT LIABILITIES 4,962 9,822
INDEBTEDNESS TO RELATED PARTIES,
less current maturities 1,609 1,613
LONG-TERM OBLIGATIONS,
less current maturities--Note C 681 605
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, 5,278,625 shares issued
at 2/28/97 and 5,268,625 shares issued
at 8/31/96. 718 716
Additional capital 9,246 9,236
Retained earnings 7,010 6,345
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16,974 16,297
Less:
Treasury stock:
At cost - 113,696 shares 327 327
At no cost - 1,687,788 shares -- --
------------ ------------
16,647 15,970
$ 23,899 $ 28,010
============ ============
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
2/28/97 2/29/96
------ -------
OPERATING ACTIVITIES
Net income $ 665 $ 547
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 1,000 895
Gain on disposition of property, plant and equipment 98 --
Provision for doubtful accounts 182 142
Changes in operating assets and liabilities:
Accounts receivable 2,017 1,598
Inventories 1,164 (1,208)
Prepaid expenses and other assets (204) 49
Accounts payable and accrued expenses (1,868) 817
Income taxes payable 161 645
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,215 3,485
INVESTING ACTIVITIES
Purchases of property, plant and equipment (653) (846)
Proceeds from disposition of assets and other receipts
related to discontinued operations 411 --
Expenditures on assets related to discontinued
operations (57) (31)
Proceeds from disposition of property, plant
and equipment 150 --
------- -------
NET CASH USED IN FINANCING ACTIVITIES (149) (877)
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 (3,282) (2,355)
Proceeds from issuance of common stock 12 --
------- -------
NET CASH USED IN FINANCING ACTIVITIES (3,270) (2,355)
------- -------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (204) 253
Cash and cash equivalents at beginning of year 445 736
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 241 $ 989
======= =======
See notes to condensed consolidated financial statements.
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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 six
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 February 28, 1997 there was
no balance outstanding under the revolving credit note.
NOTE D--CAPITAL STOCK
At February 28, 1997 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 February 28, 1997 and August 31, 1996, there were 10,000,000
shares of par value $.20 common stock authorized. At August 31,
1996, 5,268,625 shares were issued of which 3,467,141 shares were
outstanding. At February 28, 1997, 5,278,625 shares were issued of
which 3,477,141 shares 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.
In fiscal 1996, the Company leased the building and the majority of
the land. The initial lease term was for a period of five years
with an option to extend the lease for an additional five year
period. The lease also contained an option to purchase the
property during the first two years of the initial lease period.
Rental income received was recorded as a reduction in the carrying
value of the property. The lessee exercised the option to purchase
the leased property and the sale of the property was consummated in
the second quarter of fiscal 1997.
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 a 1% decrease in net sales to $8,985,000 in
the second quarter of fiscal 1997 compared to net sales of
9,060,000 in the second quarter of fiscal 1996. For the first six
months of 1997, sales of $22,071,000 were approximately the same as
sales of $22,053,000 reported for the first six months of 1996.
FIREPLACE PRODUCTS. Net sales decreased approximately 1% in the
second quarter of fiscal 1997 compared to the second quarter of
1996. The sales decrease was attributed to a 6% decrease in the
number of zero clearance fireplace units delivered during the most
recent quarter. An 11% increase in the number of vent-free gas log
sets delivered in the second quarter of 1997 was almost enough to
offset the negative impact on sales caused by the reduced quantity
of fireplaces. Between the comparative six month periods, net
sales also decreased approximately 1% as in the quarterly
comparison. The decrease in sales resulted from a small decrease
in the number of both fireplace units and gas log sets that were
shipped in the most recent six month period.
FACE BRICK PRODUCTS. Net sales decreased approximately 1% in the
second quarter of fiscal 1997 compared to the second quarter of
fiscal 1996. The reduction in sales was the direct result of a
reduction in the quantity shipped in the most recent quarter.
Between the comparative six month periods, net sales increased
approximately 7% as the result of a 7% increase in the quantity of
brick sold.
GROSS PROFIT
- ------------
FIREPLACE PRODUCTS. Gross profit decreased by approximately 2% in
the second quarter of fiscal 1997 compared to the second quarter of
fiscal 1996. Between the comparative six month periods, gross
profit decreased approximately 3%. The decrease in gross profit
for both periods in fiscal 1997 was caused by the decrease in sales
volume compared to the corresponding periods of fiscal 1996.
FACE BRICK PRODUCTS. Gross profit decreased approximately 1% in
the second quarter of fiscal 1997 compared to the second quarter of
fiscal 1996. The decrease in gross profit resulted from the
decrease in sales volume. Between the six month periods, gross
profit increased 6%, approximately the same as the increase
recorded in sales.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses increased by $147,000
or 7% in the second quarter of fiscal 1997 compared to the second
quarter of fiscal 1996. As a percentage of sales, expenses
increased from approximately 25% in 1996 to 27% in 1997. Between
the comparative six month periods, expenses decreased approximately
$136,000 or 3%. As a percentage of sales, expenses were
approximately 23% in each of the six month comparison periods.
INTEREST EXPENSE
- ----------------
Interest expense decreased $10,000 or 8% in the second quarter of
1997 compared to the second quarter of 1996. Between the
comparative six month periods, interest expense decreased $13,000
or 4%. The decrease in expense in both the second quarter and the
first six months of 1997 was caused by the decrease in debt
outstanding during both periods compared to those in 1996.
INCOME TAXES
- ------------
Income tax expense of $443,000 for the first six months 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 six months of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities was $3,215,000 for the
first six months of 1997 compared to $3,485,000 for the first six
months of 1996. The reduced cash flow from operations was caused
by changes in working capital, principally the decrease in accounts
payable and accrued expenses.
In May 1996, the Company entered into a two year credit agreement
with a bank whereby the Company may borrow up to $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 $1,542,000 at February 28, 1997
compared to August 31, 1996. The current ratio increased from 1.8
to 3.0 along with the increase in working capital.
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Capital expenditures and capitalized lease obligations for the
first six months of 1997 were $660,000 compared to $846,000 for the
first six 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.
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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 six month period ended February 28, 1997 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.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit
No. Description
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27 Financial Data Schedule (filed herewith)
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: 4/10/97 BY: /s/ E. R. Buford
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E. R. Buford
President
DATE: 4/10/97 BY: /s/ R. N. Stivers
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R. N. Stivers
Vice President-Finance