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, 1998 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
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.
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
--------------------- ----------------------
5/31/98 5/31/97 5/31/98 5/31/97
--------- --------- --------- ---------
Net sales $ 8,566 $ 8,479 $ 27,441 $ 30,550
Cost of goods sold 6,375 6,815 19,811 22,577
--------- --------- --------- ---------
2,191 1,664 7,630 7,973
Cost and expenses:
Selling, general and administrative 2,060 2,180 6,561 7,200
Interest 106 117 349 398
Other income (4) (7) (16) (107)
--------- --------- --------- ---------
2,162 2,290 6,894 7,491
--------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS
BEFORE INCOME TAXES 29 (626) 736 482
State and federal income taxes--Note A 11 (250) 294 193
--------- --------- --------- ---------
NET INCOME (LOSS) $ 18 $ (376) $ 442 $ 289
========= ========= ========= =========
Income per common share--Note B
NET INCOME (LOSS) $ .01 $(.11) $ .13 $ .08
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding 3,511,372 3,477,141 3,496,125 3,481,991
========= ========= ========= =========
See notes to condensed consolidated financial statements.
-2-
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
May 31, 1998 and August 31, 1997
(In Thousands)
May 31, August 31,
1998 1997
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 788 $ 575
Accounts receivable, less allowance for doubtful accounts of
$275,000 at May 31, 1998 and $364,000 at August 31, 1997 4,840 5,100
Inventories 9,085 8,172
Prepaid expenses and other assets 279 258
Income taxes recoverable 9 653
Deferred taxes 672 440
---------- ----------
TOTAL CURRENT ASSETS 15,673 15,198
DEFERRED TAXES 163 163
OTHER ASSETS 231 183
PROPERTY, PLANT AND EQUIPMENT
Land and clay deposits 409 405
Buildings and improvements 3,491 3,491
Machinery, equipment, furniture and fixtures 24,546 24,086
Leasehold improvements 1,023 869
---------- ----------
29,469 28,851
Less allowances for depreciation,
depletion and amortization 22,207 21,162
---------- ----------
7,262 7,689
---------- ----------
$ 23,329 $ 23,233
========== ==========
-3-
May 31, August 31,
1998 1997
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable-Note C $ 700 $ 800
Accounts payable 3,005 2,459
Accrued expenses 1,039 1,738
Income taxes payable 62 --
Current maturities of indebtedness to related parties 10 9
Current maturities of long-term obligations--Note C 138 202
---------- ----------
TOTAL CURRENT LIABILITIES 4,954 5,208
INDEBTEDNESS TO RELATED PARTIES,
less current maturities 1,596 1,604
LONG-TERM OBLIGATIONS,
less current maturities--Note C 556 640
COMMITMENTS AND CONTINGENCIES--Note D
STOCKHOLDERS' EQUITY--Note E
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 718 718
Additional capital 9,246 9,246
Retained earnings 6,586 6,144
---------- ----------
16,550 16,108
Less:
Treasury stock:
At cost - 113,696 shares 327 327
At no cost - 1,687,788 shares -- --
---------- ----------
16,223 15,781
---------- ----------
$ 23,329 $ 23,233
========== ==========
See notes to condensed consolidated financial statements.
-4-
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
9 Months Ended
May 31,
1998 1997
-------- --------
OPERATING ACTIVITIES
Net income $ 442 $ 289
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 1,259 1,509
Deferred taxes (232) --
Gain on disposition of property, plant and equipment (11) (101)
Provision for doubtful accounts (5) 233
Changes in operating assets and liabilities:
Accounts receivable 265 2,110
Inventories (913) 1,599
Prepaid expenses and other assets (69) (108)
Accounts payable and accrued expenses (153) (2,581)
Income taxes payable 706 (164)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,289 2,786
INVESTING ACTIVITIES
Purchases of property, plant and equipment (837) (902)
Proceeds from disposition of assets and other receipts
related to discontinued operations-Note F -- 411
Expenditures on assets related to discontinued operations-Note F -- (57)
Proceeds from disposition of property, plant and equipment 16 155
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (821) (393)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-term borrowings -- 765
Principal payments on revolving line of credit, long-term obligations
and indebtedness to related parties (255) (3,328)
Proceeds from issuance of common stock -- 12
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (255) (2,551)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 213 (158)
Cash and cash equivalents at beginning of year 575 445
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 788 $ 287
======== ========
See notes to condensed consolidated financial statements.
-5-
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 1998 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. 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. At May 31, 1998, $700,000 was
outstanding under the revolving credit note.
NOTE D--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.
-6-
NOTE E-CAPITAL STOCK
At May 31, 1998 and August 31, 1997, there were 1,000,000 shares
of preferred stock, with a par value of $1 authorized. None have
been issued.
At May 31, 1998 and August 31, 1997, there were 10,000,000 shares
of par value $.20 common stock authorized of which 5,278,625
shares were issued. Of the shares issued, 3,477,141 were
outstanding. The remainder of the issued stock is comprised
of shares of 113,696 shares of treasury stock at cost and
1,687,788 shares of treasury stock at no cost.
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.
In fiscal 1997, the leased building and land were sold to the
lessee. The remaining parcel of land, which has a net book value
of $0, is on the market to be sold.
-7-
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.
Net Sales
- - ---------
The Company reported a 1% increase in net sales to $8,566,000 in
the third quarter of fiscal 1998 compared to net sales of
$8,479,000 in the third quarter of fiscal 1997. For the first
nine months of 1998, sales of $27,441,000 were approximately 10%
less than sales of $30,550,000 reported for the first nine months
of 1997.
FIREPLACE PRODUCTS. Net sales decreased approximately 6% in the
third quarter of fiscal 1998 compared to the third quarter of
1997. The sales decrease was attributed to a small decrease in
the quantity of fireplaces delivered as well as a small decrease
in the average unit-selling price of the fireplaces. Between the
comparative nine-month periods, net sales decreased approximately
16% in fiscal 1998. Reduced quantities delivered of both
fireplace units and log sets along with an overall reduction in
prices received for the products were responsible for the
decrease in sales.
FACE BRICK PRODUCTS. Net sales increased approximately 20% in
the third quarter of fiscal 1998 compared to the third quarter of
fiscal 1997. An increase in the number of bricks delivered along
with a small increase in the selling price accounted for the
increase in net sales in the most recent quarter. Between the
comparative nine-month periods, net sales increased by
approximately 11%. As in the quarterly comparison, the increase
in sales was caused by an increase in the quantity delivered
along with an increase in the selling price received for the
product.
-8-
Gross Profit
- - ------------
FIREPLACE PRODUCTS. Gross profit increased approximately 15% in
the third quarter of fiscal 1998 compared to the third quarter of
fiscal 1997. Between the comparative nine-month periods, gross
profit decreased approximately 19%. The increase in gross profit
for the third quarter of fiscal 1998 was due to a slight
improvement in the cost to manufacture the fireplace products
when compared to the third quarter of the previous year. The
decrease in gross profit for the first nine-months at fiscal 1998
was caused by the decrease in sales volume compared to the
corresponding period in fiscal 1997.
FACE BRICK PRODUCTS. Gross profit increased approximately 48% in
the third quarter of fiscal 1998 compared to the third quarter of
fiscal 1997. Between the comparative nine-month periods, gross
profit increased approximately 34%. The increase in gross profit
for both comparison periods was caused by a small increase in
sales price in combination with an increase in sales volume and a
decrease in the cost to produce the face brick.
Selling, General and Administrative Expenses
- - --------------------------------------------
Selling, general and administrative expenses decreased $120,000
or approximately 6% in the third quarter of fiscal 1998 compared
to the third quarter of fiscal 1997. Between the comparative
nine-month periods, expenses decreased $639,000 or approximately
9%. Reductions in expenses related to advertising, promotions
and literature during the current fiscal year were primarily
responsible for the decreases in selling, general and
administrative expenses..
Interest Expense
- - ----------------
Interest expense decreased $11,000 or approximately 9% in the
third quarter of 1998 compared to the third quarter of 1997.
Between the comparative nine-month periods, interest expense
decreased $49,000 or approximately 12%. The decrease in expense
in both the third quarter and the first nine months of 1998 was
caused by the decrease in average debt outstanding during both
periods compared to those in 1997.
Income Taxes
- - ------------
Income tax expense of $294,000 for the first nine months of
fiscal 1998 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
1998.
Liquidity and Capital Resources
- - -------------------------------
Net cash provided by operating activities was $1,289,000 for the
first nine months of 1998 compared to $2,786,000 for the first
nine months of 1997. The decreased cash flow from operations in
the first nine months of fiscal 1998 was due primarily to changes
in working capital, principally an increase in inventories and
decreases in income taxes recoverable and accrued expenses.
-9-
In May 1996, the Company entered into a two-year credit agreement
with a bank. The credit agreement was amended in April 1998
which extended the agreement for another two years. Under the
amended agreement, the company may borrow up to $3,000,000 under
a revolving credit facility. The outstanding principal balance
may bear interest at a variable or fixed rates, 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. The revolving credit facility had an
outstanding balance of $700,000 at May 31, 1998.
Working capital increased by $729,000 at May 31, 1998 compared to
August 31, 1997. The current ratio also increased from 2.9 at
August 31, 1997 to 3.2 at May 31, 1998.
Capital expenditures and capitalized lease obligations for the
first nine months of 1998 were $837,000 compared to $902,000 for
the first nine months of 1997. Expenditures include amounts for
tooling, dies, replacement items and repairs to manufacturing
equipment. In addition, the Company acquired the assets, tooling
and technology for a line of direct vent gas fireplaces from
another fireplace manufacturer. The capital additions have been
financed by cash flow from operations and funds from the
revolving credit facility.
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.
Management of the Company anticipates that it will continue
reviewing a number of strategic and/or structural corporate
alternatives, certain of which could have a material impact on
the Company's liquidity and capital resources. In this regard,
although the Company does not currently have any specific plans
or arrangements, it may consider selling, expanding or otherwise
restructuring certain definable business segments.
-10-
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, 1998 are not necessarily indicative of the results that may
be expected for the year ending August 31, 1998. 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, 1997.
-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
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: June 30, 1998 By: /s/ E. R. BUFORD
------------- -----------------------
E. R. Buford
President
DATE: June 30, 1998 By: /s/ R. N. STIVERS
------------- -----------------------
R. N. Stivers
Vice President-Finance
-13-