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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 May 31, 1997 Commission File No. 0-5940
TEMTEX INDUSTRIES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 75-1321869
- ------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization Identification No.)
5400 LBJ Freeway, Suite 1375, Dallas, Texas 75240
- ------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
972/726-7175
- ---------------------------------------------------
(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 9 Mths. Ended
May 31, May 31,
1997 1996 1997 1996
--------- --------- --------- ---------
Net sales $ 8,479 $ 9,660 $ 30,550 $ 31,713
Cost of goods sold 6,815 7,538 22,577 23,178
--------- --------- --------- ---------
1,664 2,122 7,973 8,535
Cost and expenses:
Selling, general and administrative 2,180 2,041 7,200 7,197
Interest 117 137 398 431
Other income (7) (8) (107) (5)
--------- --------- --------- ---------
2,290 2,170 7,491 7,623
--------- --------- --------- ---------
(LOSS) INCOME FROM OPERATIONS
BEFORE INCOME TAXES (626) (48) 482 912
State and federal income taxes
--Note A (250) (21) 193 392
--------- --------- --------- ---------
NET (LOSS) INCOME $ (376) $ (27) $ 289 $ 520
========= ========= ========= =========
(Loss) income per common share--Note B
NET (LOSS) INCOME $ (.11) $ (.01) $ .08 $ .15
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding 3,477,141 3,467,141 3,481,991 3,484,861
========= ========= ========= =========
See notes to condensed consolidated financial statements.
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TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
May 31, 1997 and August 31, 1996
(In Thousands)
May 31, August 31,
1997 1996
------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 287 $ 445
Accounts receivable, less allowance
for doubtful accounts of $469,000
at May 31, 1997 and $435,000
at August 31, 1996 4,628 6,971
Inventories 8,625 10,224
Prepaid expenses and other assets 423 285
Deferred taxes 226 226
------- -------
TOTAL CURRENT ASSETS 14,189 18,151
DEFERRED TAXES 672 672
OTHER ASSETS 165 381
ASSETS RELATED TO DISCONTINUED OPERATIONS
--Note F -- 202
PROPERTY, PLANT AND EQUIPMENT
Land and clay deposits 405 325
Buildings and improvements 3,491 3,491
Machinery, equipment, furniture and fixtures 23,835 23,289
Leasehold improvements 868 866
------- -------
28,599 27,971
Less allowances for depreciation,
depletion and amortization 20,615 19,367
------- -------
7,984 8,604
------- -------
$23,010 $28,010
======= =======
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May 31, August 31,
1997 1996
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 500 $ 3,099
Accounts payable 2,362 4,714
Accrued expenses 1,479 1,708
Income taxes payable (107) 57
Current maturities of indebtedness
to related parties 9 8
Current maturities of long-term
obligations--Note C 183 236
------- -------
TOTAL CURRENT LIABILITIES 4,426 9,822
INDEBTEDNESS TO RELATED PARTIES,
less current maturities 1,606 1,613
LONG-TERM OBLIGATIONS,
less current maturities--Note C 707 605
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 5/31/97 and 5,268,625 shares issued
at 8/31/96. 718 716
Additional capital 9,246 9,236
Retained earnings 6,634 6,345
------- -------
16,598 16,297
Less:
Treasury stock:
At cost - 113,696 shares 327 327
At no cost - 1,687,788 shares -- --
------- -------
16,271 15,970
------- -------
$23,010 $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)
9 Months Ended
May 31,
1997 1996
-------- --------
OPERATING ACTIVITIES
Net income $ 289 $ 520
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 1,509 1,385
Gain on disposition of property, plant and equipment (101) (7)
Provision for doubtful accounts 233 143
Changes in operating assets and liabilities:
Accounts receivable 2,110 1,145
Inventories 1,599 (869)
Prepaid expenses and other assets (108) (38)
Accounts payable and accrued expenses (2,581) (493)
Income taxes payable (164) 552
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,786 2,338
INVESTING ACTIVITIES
Purchases of property, plant and equipment (902) (1,502)
Proceeds from disposition of assets and other receipts
related to discontinued operations 411 --
Expenditures on assets related to discontinued
operations (57) (72)
Proceeds from disposition of property, plant
and equipment 155 9
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (393) (1,565)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and
long-term borrowings 765 2,299
Principal payments on revolving line of credit,
long-term obligations and indebtedness to
related parties (3,328) (3,326)
Proceeds from issuance of common stock 12 11
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (2,551) (1,016)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (158) (243)
Cash and cash equivalents at beginning of year 445 736
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 287 $ 493
======== ========
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 nine 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. At May 31, 1997, $500,000 was outstanding under the
revolving credit note.
NOTE D--CAPITAL STOCK
At May 31, 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 May 31, 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 May
31, 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 is 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 12% decrease in net sales to $8,479,000 in the
third quarter of fiscal 1997 compared to net sales of 9,660,000 in the
third quarter of fiscal 1996. For the first nine months of 1997,
sales of $30,550,000 were approximately 4% less than sales of
$31,713,000 reported for the first nine months of 1996.
FIREPLACE PRODUCTS. Net sales decreased approximately 16% in the
third quarter of fiscal 1997 compared to the third quarter of 1996.
The sales decrease was mainly attributed to a 13% decrease in the
number of zero clearance fireplace units delivered during the most
recent quarter. Between the comparative nine month periods, net sales
decreased approximately 6%. As in the quarterly comparison, the
decrease in sales was mainly caused by a 7% decrease in the number of
fireplace units delivered during the most recent nine month period.
FACE BRICK PRODUCTS. Net sales decreased less than 1% in the third
quarter of fiscal 1997 compared to the third quarter of fiscal 1996.
The reduction in sales was the direct result of a reduction in the
quantity of brick shipped in the most recent quarter. Between the
comparative nine month periods, net sales increased approximately 4%,
mainly as the result of a 3% increase in the quantity of brick
delivered.
Gross Profit
- ------------
FIREPLACE PRODUCTS. Gross profit decreased by approximately 38% in
the third quarter of fiscal 1997 compared to the third quarter of
fiscal 1996. Between the comparative nine month periods, gross profit
decreased approximately 11%. 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 increased approximately 7% in the
third quarter of fiscal 1997 compared to the third quarter of fiscal
1996. The increase in gross profit resulted from an overall increase
in the sales price that the Company received for its brick products
between the comparative quarters. Between the nine month periods,
gross profit increased 6%. The increase was mainly due to the
increase in sales caused by the increase in the quantity shipped aided
by a small increase in the sales price.
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Selling, General And Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses increased by $139,000 or
7% in the third quarter of fiscal 1997 compared to the third quarter
of fiscal 1996. Between the comparative nine month periods, expenses
remained the same.
Interest Expense
- ----------------
Interest expense decreased $20,000 or 15% in the third quarter of 1997
compared to the third quarter of 1996. Between the comparative nine
month periods, interest expense decreased $33,000 or approximately 8%.
The decrease in expense in both the third quarter and the first nine
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 $193,000 for the first nine 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 nine months of fiscal 1997.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities was $2,786,000 for the first
nine months of 1997 compared to $2,338,000 for the first nine months
of 1996. The increased cash flow from operations was caused by
changes in working capital, principally the decrease in accounts
receivable and inventories.
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 $1,434,000 at May 31, 1997 compared to
August 31, 1996. The current ratio increased from 1.8 to 3.2 along
with the increase in working capital.
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Capital expenditures and capitalized lease obligations for the first
nine months of 1997 were $909,000 compared to $1,502,000 for the first
nine 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 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 nine month period ended May
31, 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. EXHBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
--------
Exhibit
No. Description
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27.1 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: 07/07/97 BY: /s/ E.R.Buford
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E. R. Buford
President
DATE: 07/07/97 BY: /s/ R. N. Stivers
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R. N. Stivers
Vice President-Finance