FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
OR
/ / TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-13746
FIREPLACE MANUFACTURERS, INC.
(Exact Name of Registrant as specified in its charter)
California 95-3244946
- ------------------------------------------------- --------------------------
(State or other jurisdiction of Incorporation) (I.R.S. Employer I.D. No.)
2701 South Harbor Boulevard, Santa Ana, California 92704
- --------------------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 549-7782
---------------
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 for such shorter period than the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES /X/ NO / /
The number of shares outstanding of each of the Registrant's classes of
Common Stock as of October 31, 1997, was as follows:
Common Stock, $0.01 Par Value per share - 3,269,150
Documents incorporated by reference. None
PART I
FINANCIAL INFORMATION
The following comparative financial statements for the three and six month
periods ended September 30, 1997, have not been audited by independent public
accountants; but, in the opinion of management, all adjustments necessary to
present fairly the results of operations for the periods have been included.
The statements have been prepared by the company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures, normally included in the financial statements
prepared in accordance with generally accepted accounting principles, have
been condensed or omitted pursuant to such rules and regulations.
Operating results for the six month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year
ending March 31, 1998. It is suggested that the condensed financial
statements be read in conjunction with the financial statements and
accompanying notes included in the Company's 1997 Annual Report on Form 10-K.
2
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
Consolidated Balance Sheets
SEPTEMBER 30 MARCH 31
1997 1997
------------ --------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 168,000 $ 333,000
Trade accounts and notes receivable, less
allowance for doubtful accounts of $289,000,
at September 30, 1997, and $272,000 at
March 31, 1997 2,043,000 2,307,000
Inventories (Note 2) 1,813,000 1,847,000
Prepaid expenses and other assets 126,000 118,000
Deferred Income Taxes 421,000 421,000
---------- ----------
TOTAL CURRENT ASSETS 4,571,000 5,026,000
Property and Equipment at cost, Net (Note 3) 1,602,000 1,761,000
Other Assets 209,000 150,000
---------- ----------
$6,382,000 $6,937,000
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable 1,425,000 2,042,000
Current portion of long-term debt (Note 4) 212,000 212,000
Accrued Liabilities 1,271,000 1,454,000
---------- ----------
TOTAL CURRENT LIABILITIES 2,908,000 3,708,000
---------- ----------
Long-Term Debt, less current portion (Note 4) 129,000 235,000
Deferred Income Taxes 281,000 281,000
---------- ----------
TOTAL LONG TERM LIABILITES 410,000 516,000
---------- ----------
Preferred Stock: $1.00 par value, authorized
1,000,000 shares; none issued or outstanding
Common Stock: $.01 par value, authorized
10,000,000 shares; issued and outstanding
3,333,575 shares at September 30, 1997 and
3,447,950 at March 31, 1997 33,000 35,000
Additional Paid in Capital 1,000 248,000
Retained Earnings 3,030,000 2,430,000
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 3,064,000 2,713,000
---------- ----------
6,382,000 6,937,000
---------- ----------
---------- ----------
"Unaudited"
The accompanying notes are an integral part of these financial statements.
3
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
Consolidated Statements of Operations
THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996
------------ -----------
Net Sales $7,361,000 $8,372,000
Cost of Sales 5,313,000 6,472,000
---------- ----------
Gross Margin 2,048,000 1,900,000
Selling, General, and Administrative Expenses 1,498,000 1,426,000
---------- ----------
Operating Income 550,000 474,000
Interest and Other Expense 7,000 86,000
---------- ----------
Earnings before income taxes 543,000 388,000
Provision for Income Taxes 217,000 155,000
---------- ----------
NET EARNINGS 326,000 233,000
---------- ----------
---------- ----------
Earnings (loss) per common share $0.10 $0.07
---------- ----------
---------- ----------
Weighted average number of common shares
and common share equivalents outstanding 3,364,497 3,323,446
---------- ----------
---------- ----------
"Unaudited"
The accompanying notes are an integral part of these financial statements.
4
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
Consolidated Statements of Operations
SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996
------------- ------------
Net Sales $15,129,000 $17,078,000
Cost of Sales 11,020,000 13,253,000
----------- -----------
Gross Margin 4,109,000 3,825,000
Selling, General, and Administrative Expenses 3,095,000 2,975,000
---------- ----------
Operating Income 1,014,000 850,000
Interest and Other Expense 14,000 175,000
---------- ----------
Earnings before income taxes 1,000,000 675,000
Provision for Income Taxes 400,000 270,000
---------- ----------
NET EARNINGS 600,000 405,000
---------- ----------
---------- ----------
Earnings (loss) per common share $0.18 $0.12
---------- ----------
---------- ----------
Weighted average number of common shares
and common share equivalents outstanding 3,364,497 3,323,446
---------- ----------
---------- ----------
"Unaudited"
The accompanying notes are an integral part of these financial statements.
5
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
Consolidated Statements of Cash Flows
SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996
------------ ------------
CASH FLOW (LOSS) FROM OPERATING ACTIVITIES
Net earnings $ 600,000 $ 405,000
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization before
retirements 302,000 293,000
Loss (gain) on sale of property and
equipment 1,000 3,000
Changes in operating assets and
liabilities:
Trade accounts and notes receivable 264,000 (440,000)
Inventories 34,000 243,000
Prepaid expenses and other assets (67,000) 13,000
Accounts payable and accrued
liabilities (800,000) 361,000
---------- ---------
Net cash provided by (used in) operating activities 334,000 878,000
---------- ---------
CASH FLOW (LOSS) FROM INVESTING ACTIVITIES
Purchases of property and equipment (144,000) (198,000)
Reduction in notes receivable from
officers/stockholders 11,000
Proceeds from sale of property and equipment
---------- ---------
Net cash provided by (used in) investing activities (144,000) (187,000)
---------- ---------
CASH FLOW (LOSS) FROM FINANCING ACTIVITIES
Proceeds from (payments on) long-term debt (106,000) (112,000)
Net proceeds from (payments on) revolving
credit line 62,000
Repurchase of common stock (249,000) (159,000)
---------- ---------
Net cash provided by (used in) financing
activities (355,000) (209,000)
---------- ---------
Net increase (decrease) in cash and cash
equivalents (165,000) 482,000
Cash and cash equivalents at beginning of period 333,000 136,000
---------- ---------
Cash and cash equivalents at end of period $ 168,000 $ 618,000
---------- ---------
---------- ---------
"Unaudited"
The accompanying notes are an integral part of these financial statements.
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FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Company and
its presently inactive, wholly-owned subsidiary (Fireplace Industries of
California, Inc.) All material inter-company transactions have been
eliminated. All adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the results of operations have been
included.
2. Inventories
-----------
Inventories are comprised of:
SEPTEMBER 30 MARCH 31
1997 1997
------------- -----------
Raw Materials $1,270,000 $1,254,000
Work in Progress 265,000 265,000
Finished Goods 278,000 328,000
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TOTAL $1,813,000 $1,847,000
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3. Property and Equipment
----------------------
The Company's investment in property and equipment, at cost, less related
accumulated depreciation and amortization is summarized below:
SEPTEMBER 30 MARCH 31
1997 1997
------------- -----------
Machinery and Equipment $3,046,000 $2,982,000
Tools, Dies and Molds 1,375,000 1,322,000
Furniture, Fixtures, and Vehicles 592,000 629,000
Buildings and Leasehold Improvements 64,000 64,000
Research and Development Equipment 291,000 279,000
---------- ----------
$5,368,000 $5,276,000
Accumulated Depreciation and Amortization 3,766,000 3,515,000
---------- ----------
$1,602,000 $1,761,000
---------- ----------
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FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. Long-Term Debt
--------------
Long-Term debt is summarized as follows:
SEPTEMBER 30 MARCH 31
1997 1997
------------ ---------
Equipment term loans payable to bank,
secured by substantially all of the Company's
assets, bearing interest at the bank's prime
rate plus 1% due in monthly principal amounts
of approximately $16,000, plus interest,
through February 1999. The equipment term loans
are part of the agreement covering the line
of credit and are subject to the same covenants $273,000 $367,000
Notes payable to a finance company, bearing
interest at 8.75%, due in monthly principal
and interest payments of $2,500 through
March 2000 $ 68,000 $ 80,000
-------- --------
$341,000 $447,000
Less current maturities $212,000 $212,000
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$129,000 $235,000
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-------- --------
Maturities of long-term debt are as
follows: 1998 $106,000; 1999 $206,000
and 2000 $29,000.
5. Related Party Transactions
--------------------------
The Company has two monthly operating leases of equipment with H&H Equities
Incorporated. H&H Equities incorporated is wholly owned by Willard P. Harris
and John D. Hornsby, officers of the Company and members of the Company's
Board of Directors. The monthly lease payments are $7,119 and totaled $42,714
for the six months ended September 30, 1997.
8
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(1) LIQUIDITY AND CAPITAL RESOURCES
The Company has lines of credit with a bank for an aggregate $4,000,000 with
an interest rate of .50 percent above prime, payable monthly. At March 31,
1997 and September 30, 1997, there were no amounts outstanding under the
lines of credit.
The Company also has available a $500,000 equipment line of credit. The
borrowings under the line bear interest at the bank's prime rate plus 1%. At
September 30, 1997, there were no amounts outstanding under this agreement.
Accounts receivable (before allowance for doubtful accounts) at September 30,
1997 were $2,332,000 compared to $2,579,000 at March 31, 1997. This 10.0%
decrease is primarily attributed to improved credit collections that lowered
the number of days sales were outstanding. Days sales outstanding at March
31, 1997 was 28 compared to 27 at September 30, 1997.
The current ratio has increased 15% as of September 30, 1997 to 1.57:1 from
1.36:1 at March 31, 1996. The Company benefited from improved cash flow by
taking accounts payable discounts at 10 days. Paying current liabilities off
sooner helped to improve this ratio.
The Company has made capital additions of $144,000 during the six months
ended September 30, 1997. The Company anticipates total purchases of
approximately $500,000 during the fiscal year ending March 31, 1998.
The Company has, and may continue to, repurchase its common stock. Between
March 31, 1997 and September 30, 1997 the Company has repurchased 114,325
shares of common stock for $249,000. These shares are retired as required by
California law.
(2) RESULTS OF OPERATIONS
Sales for the six months ended September 30, 1997 decreased by 11.4% from the
same six month period in 1996. Sales for the three months ended September 30,
1997 decreased 12.1% from the same three month period in 1996. These
decreases are attributed to the Company's decision to decrease sales of lower
margin wood burning fireplaces and accessories.
Cost of sales as a percent of sales decreased 4.8% for the six months ended
September 30, 1997 and 5.1% for the three months ended September 30, 1997
from the same periods in 1996. These decreases are attributed to increased
sales of higher margin gas units, an improved purchasing program and better
control of labor costs.
Selling, general and administrative expenses were 20.5% of sales for the six
months ended September 30, 1997 compared to 17.4% for the same period in 1996
and were 20.4% for the three months ended September 30, 1997 compared to
17.0% for the same period in 1996. The increases are attributed to higher
bonus accruals which reflect the higher fiscal 1998 second quarter net earnings.
Interest and other expense decreased 92% for both the three and six months
ended September 30, 1997 from the same periods in 1996. These decreases are
due to interest calculated on lower borrowings.
Net earnings increased by 48% for the six months ended September 30, 1997 and
40% for the three months ended September 30, 1997 compared to the same
periods in 1996. These increases are attributed to increased sales of higher
margin gas units plus lower material, labor, and interest expense offset
against higher bonus accruals.
9
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(3) NEW ACCOUNTING PRONOUNCEMENTS
No related pronouncements were issued this quarter.
PART II - OTHER INFORMATION
(a) Exhibits
(27) Financial Data Schedule:
Incorporated by reference from the Electronic filing of this report.
(b) Reports on Form 8-K
No Form 8-K was filed during this quarter.
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.
Date: November 12, 1997
FIREPLACE MANUFACTURERS, INC.
BY: WILLARD P. HARRIS
-------------------------
Willard P. Harris
Chief Executive Officer
JANE ANN IOVINE
-------------------------
Jane Ann Iovine
Vice President of Finance
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