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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, 1995 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 No.)
incorporation or organization)
3010 LBJ Freeway, Suite 650, Dallas, Texas 75234
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(Address of principal executive offices) (Zip Code)
214/484-1845
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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 3,456,641 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)
<TABLE>
<CAPTION>
3 Mths. Ended 6 Mths. Ended
2/28/95 2/28/94 2/28/95 2/28/94
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<S> <C> <C> <C> <C>
Net sales $10,213 $10,758 $24,380 $22,344
Cost of goods sold 7,548 7,432 16,864 15,066
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2,665 3,326 7,516 7,278
Cost and expenses:
Selling, general and administrative 2,456 2,588 5,606 4,989
Interest 111 121 197 353
Other income (133) (32) (144) (32)
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2,434 2,677 5,659 5,310
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INCOME FROM OPERATIONS
BEFORE INCOME TAXES 231 649 1,857 1,968
State and federal income taxes--Note A 85 145 682 472
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NET INCOME $ 146 $ 504 $ 1,175 $ 1,496
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Income per common share--Note B
NET INCOME $ .04 $ .15 $ .33 $ .50
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------- ------- ------- -------
Weighted average common and common
equivalent shares outstanding 3544357 3446680 3545681 2995399
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See notes to condensed consolidated financial statements.
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TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
February 28, 1995 and August 31, 1994
(In Thousands)
<TABLE>
<CAPTION>
February 28, August 31,
1995 1994
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 864 $ 627
Accounts receivable, less allowance for
doubtful accounts 6,009 7,729
Inventories 9,639 8,784
Prepaid expenses and other assets 813 442
Deferred taxes 93 93
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TOTAL CURRENT ASSETS 17,418 17,675
DEFERRED TAXES 871 871
OTHER ASSETS 343 370
ASSETS RELATED TO DISCONTINUED OPERATIONS
--Note F 107 105
PROPERTY, PLANT AND EQUIPMENT
Land and clay deposits 120 120
Buildings and improvements 2,487 2,320
Machinery, equipment, furniture and fixtures 20,081 18,082
Leasehold improvements 653 613
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23,341 21,135
Less allowances for depreciation,
depletion and amortization 16,856 16,408
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6,485 4,727
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$25,224 $23,748
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</TABLE>
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<TABLE>
<CAPTION>
February 28, August 31,
1995 1994
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 375 $ 375
Accounts payable 5,273 4,819
Accrued expenses 1,665 2,069
Income taxes payable (117) 3
Current maturities of indebtedness
to related parties 8 7
Current maturities of long-term
obligations--Note C 370 213
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TOTAL CURRENT LIABILITIES 7,574 7,486
INDEBTEDNESS TO RELATED PARTIES,
less current maturities 942 947
LONG-TERM OBLIGATIONS,
less current maturities--Note C 617 399
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, 5,258,125 shares issued 714 714
Additional capital 9,215 9,215
Retained earnings 6,489 5,314
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16,418 15,243
Less:
Treasury stock:
At cost - 113,696 shares 327 327
At no cost - 1,687,788 shares -- --
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16,091 14,916
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$25,224 $23,748
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</TABLE>
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)
<TABLE>
<CAPTION>
6 Months Ended
February 28,
1995 1994
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,175 $ 1,496
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 638 466
Gain on disposition of buildings and equipment (70) (23)
Provision for doubtful accounts 36 216
Changes in operating assets and liabilities:
Accounts receivable 1,684 (745)
Inventories (855) (379)
Prepaid expenses and other assets (344) 26
Accounts payable and accrued expenses 50 (517)
Income taxes payable (120) 103
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NET CASH PROVIDED BY OPERATING ACTIVITIES 2,194 643
INVESTING ACTIVITIES
Purchases of property, plant and equipment (2,383) (762)
Expenditures on assets related to discontinued
operations (2) (147)
Proceeds from disposition of property, plant
and equipment 70 25
Proceeds from disposition of assets and other
receipts related to discontinued operations -- 30
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NET CASH USED IN INVESTING ACTIVITIES (2,315) (854)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and
long-term borrowings 512 110
Principal payments on revolving line of credit,
long-term obligations and indebtedness to
related parties (154) (5,482)
Proceeds from issuance of common stock -- 6,552
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NET CASH PROVIDED BY FINANCING ACTIVITIES 358 1,180
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INCREASE IN CASH AND CASH EQUIVALENTS 237 969
Cash and cash equivalents at beginning of year 627 410
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 864 $ 1,379
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------- -------
</TABLE>
See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--INCOME TAXES
Effective September 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," (SFAS 109). There was no effect of adopting SFAS 109 on net income in
the first six months of fiscal 1994 as the Company recorded a valuation
allowance against the entire net deferred tax asset amount.
Income for the first six months of fiscal 1995 reflects an estimated annualized
tax rate of approximately 36.7%.
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 1994, the Company entered into a two year credit agreement with a bank
whereby the Company may borrow a maximum of $3,000,000 under a revolving credit
note. The credit agreement was amended in September 1994, in which a three year
term note of $512,000 was added. The term note bears interest at the lending
bank's prime commercial interest rate with principal and interest payments
required on a quarterly basis. Covenants contained in the original loan
agreement that require the maintenance of a specified ratio of total liabilities
to tangible net worth, as defined, and a fixed charge flow coverage ratio, as
defined, remain in effect.
NOTE D--CAPITAL STOCK
At February 28, 1995 and August 31, 1994, there were 1,000,000 shares of
preferred stock, with a par value of $1 authorized. None have been issued.
At February 28, 1995 and August 31, 1994, there were 10,000,000 shares of par
value $.20 common stock authorized of which 5,258,125 shares were issued. Of
the shares issued, 3,456,641 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. Assets related to the discontinued contract products
operations are included in the Condensed Consolidated Balance Sheets under the
caption "Assets Related to Discontinued Operations" and consist of land,
building and equipment.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NET SALES
The Company reported a 5% decrease in net sales to $10,213,000 in the second
quarter of fiscal 1995 compared to net sales of $10,758,000 in the second
quarter of fiscal 1994. For the first six months of 1995, sales of $24,380,000
were approximately 9% greater than sales of $22,344,000 reported for the first
six months of 1994.
FIREPLACE PRODUCTS. Net sales decreased approximately 5% in the second quarter
of fiscal 1995 compared to the second quarter of 1994. The sales decrease was
attributed to a 16% decrease in the quantity of ventfree gas log sets delivered
partially offset by a 4% increase in the number of zero clearance fireplaces
delivered in the same period. Between the comparative six month periods, net
sales increased approximately 10%. Deliveries of ventfree gas logs increased by
6% between the six month periods and deliveries of zero clearance fireplaces
increased by 15%. The unseasonably warm weather in the late fall and early
winter period apparently contributed to the reduction in sales of ventfree gas
log sets as retail levels were less than anticipated for this time period. Net
sales of zero clearance fireplaces may have been influenced by the slight
increase in housing starts in both the current quarter as well as the first six
months compared to the same periods last year. Nationwide, housing starts
increased 2% in the second quarter of the current fiscal year compared to the
second quarter of last year and 4% between the comparative six month periods.
FACE BRICK PRODUCTS. Net sales decreased approximately 6% in the second quarter
of fiscal 1995 compared to the second quarter of fiscal 1994. A reduction in the
quantity of brick sold was partially offset by an increase in the overall
selling price. Between the comparative six month periods, net sales increased
by approximately 7% as the result of a small increase in the quantity of brick
sold in conjunction with an overall price increase.
GROSS PROFIT
FIREPLACE PRODUCTS. Gross profit decreased by approximately 21% in the second
quarter of fiscal 1995 compared to the second quarter of fiscal 1994. The
decrease in sales volume was mainly responsible for the decrease in gross
profit. Between the comparative six month periods, gross profit increased by
approximately 2% as a direct result of the increase in sales volume between the
two periods.
FACE BRICK PRODUCTS. Gross profit decreased 16% in the second quarter of fiscal
1995 compared to the second quarter of fiscal 1994. The decrease in net sales
was responsible for the decrease in gross profit. Between the six month
periods, gross profit increased approximately 11% as a result of the increase in
net sales between the two periods.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased by $132,000 or 5% in the
second quarter of fiscal 1995 compared to the second quarter of fiscal 1994. As
a percentage of sales, expenses remained at approximately 24% in each quarter.
Between the comparative six month periods, expenses increased $617,000 or 12%.
As a percentage of sales, expenses increased from approximately 22% for the
first six months of 1994 to approximately 23% for the first six months of 1995.
The increase was due mainly to increases in selling expenses including
advertising, promotions, displays and trade shows.
INTEREST EXPENSE
Interest expense decreased $10,000 or 8% in the second quarter of 1995 compared
to the second quarter of 1994. Between the comparative six month periods,
interest expense decreased $156,000 or 44%. Outstanding debt was significantly
reduced in December 1993 when a portion of the net proceeds that the Company
received from a secondary stock offering was used to retire a major portion of
the Company's debt.
INCOME TAXES
Income tax expense of $682,000 for the first six months of fiscal 1995 includes
the provision for both federal and state income taxes. Income for the six
months ended February 28, 1994 reflects the utilization of operating loss
carryforwards, which had been fully reserved, resulting in a benefit of
approximately $216,000. All of the Company's net operating loss and investment
tax credit carryforwards were utilized in fiscal 1994. An estimated annualized
effective tax rate of 36.7% was applied to pre-tax income for the first six
months of fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $2,194,000 for the first six
months of 1995 compared to $643,000 for the first six months of 1994. The
increased cash flow from operations in 1995 was caused primarily by changes in
working capital, principally the decrease in accounts receivable.
In May 1994, the Company entered into a two year credit agreement with a bank
whereby the Company may borrow up to $3,000,000 under a revolving credit note.
The credit agreement was amended in September 1994, in which a three year term
note of $512,000 was added. Funds provided by the term note were used for
various capital expenditures. The term note bears interest at the lending
bank's prime commercial interest rate. Quarterly principal and accrued interest
payments are required.
Working capital decreased by $345,000 at February 28, 1995 compared to August
31, 1994 and the current ratio decreased from 2.4 at August 31, 1994 to 2.3 at
February 28, 1995.
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Capital expenditures and capitalized lease obligations for the first six months
of 1995 were $2,396,000 compared to $762,000 for the first six months of 1994.
Expenditures include amounts for tooling and dies for new fireplace products
models, equipment, both replacement and for additional capacity, and the
construction of an office building to replace one destroyed by fire in 1991 at
the brick products manufacturing facility. The capital additions have been
financed by cash flow from operations and funds from the term note.
In December 1993, the Company completed a secondary stock offering in which
1,000,000 shares of common stock were issued which provided the Company with
approximately $6,529,000, net of expenses. A portion of the net proceeds was
used to retire debt with the remaining portion being used for working capital
purposes.
The Company anticipates that cash flow from operations together with funds from
the term note and 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,
1995 are not necessarily indicative of the results that may be expected for the
year ending August 31, 1995. 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, 1994.
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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.
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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: 4/10/95 BY:/s/E.R.Buford
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E. R. Buford
President
DATE: 4/10/95 BY:/s/R. N. Stivers
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R. N. Stivers
Vice President-Finance
