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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, 1995 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 Identification No.)
incorporation or organization)
3010 LBJ Freeway, Suite 650, Dallas, Texas 75234
- ------------------------------------------ ----------------
(Address of principal executive offices) (Zip Code)
214/484-1845
- ---------------------------------------------------
(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 3,459,141 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)
<TABLE>
<CAPTION>
3 Mths. Ended 9 Mths. Ended
5/31/95 5/31/94 5/31/95 5/31/94
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 8,581 $10,234 $32,961 $32,578
Cost of goods sold 6,772 7,074 23,636 22,140
------- ------- ------- -------
1,809 3,160 9,325 10,438
Cost and expenses:
Selling, general and administrative 2,663 2,470 8,269 7,459
Interest 140 87 337 440
Other income (15) (16) (159) (48)
------- ------- ------- -------
2,788 2,541 8,447 7,851
------- ------- ------- -------
INCOME FROM OPERATIONS
BEFORE INCOME TAXES (979) 619 878 2,587
State and federal income tax
(benefit) expense--Note A (360) (193) 322 279
------- ------- ------- -------
NET (LOSS) INCOME $ (619) $ 812 $ 556 $ 2,308
------- ------- ------- -------
------- ------- ------- -------
(Loss) income per common share--Note B
NET (LOSS) INCOME $(.17) $ .23 $ .16 $ .73
----- ----- ----- -----
----- ----- ----- -----
Weighted average common and common
equivalent shares outstanding 3541040 3547704 3544134 3179864
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See notes to condensed consolidated financial statements.
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TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
May 31, 1995 and August 31, 1994
(In Thousands)
<TABLE>
<CAPTION>
May 31, August 31,
1995 1994
-------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 389 $ 627
Accounts receivable, less allowance for
doubtful accounts of $584,000 in 1995
and $522,000 in 1994 5,756 7,729
Inventories 9,479 8,784
Prepaid expenses and other assets 543 442
Income taxes recoverable 483 --
Deferred taxes 93 93
------- -------
TOTAL CURRENT ASSETS 16,743 17,675
DEFERRED TAXES 871 871
OTHER ASSETS 356 370
ASSETS RELATED TO DISCONTINUED OPERATIONS
--Note F 101 105
PROPERTY, PLANT AND EQUIPMENT
Land and clay deposits 120 120
Buildings and improvements 3,167 2,320
Machinery, equipment, furniture and fixtures 21,054 18,082
Leasehold improvements 734 613
------- -------
25,075 21,135
Less allowances for depreciation,
depletion and amortization 17,189 16,408
------- -------
7,886 4,727
------- -------
$25,957 $23,748
------- -------
------- -------
</TABLE>
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<TABLE>
<CAPTION>
May 31, August 31,
1995 1994
------------ ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,875 $ 375
Accounts payable 4,236 4,819
Accrued expenses 1,390 2,069
Income taxes payable -- 3
Current maturities of indebtedness
to related parties--Note G 7 7
Current maturities of long-term
obligations--Note C 582 213
------- -------
TOTAL CURRENT LIABILITIES 8,090 7,486
INDEBTEDNESS TO RELATED PARTIES,
less current maturities--Note G 1,623 947
LONG-TERM OBLIGATIONS,
less current maturities--Note C 769 399
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, 5,260,625 shares issued 714 714
Additional capital 9,218 9,215
Retained earnings 5,870 5,314
------- -------
15,802 15,243
Less:
Treasury stock:
At cost - 113,696 shares 327 327
At no cost - 1,687,788 shares -- --
------- -------
15,475 14,916
------- -------
$25,957 $23,748
------- -------
------- -------
</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>
9 Months Ended
May 31,
1995 1994
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 556 $ 2,308
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 1,064 736
Deferred tax benefit -- (342)
Gain on disposition of buildings and equipment (83) (23)
Provision for doubtful accounts 101 302
Changes in operating assets and liabilities:
Accounts receivable 1,872 (1,059)
Inventories (695) (994)
Prepaid expenses and other assets (88) (77)
Accounts payable and accrued expenses (1,262) (184)
Income taxes payable (486) 207
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 979 874
INVESTING ACTIVITIES
Purchases of property, plant and equipment (3,511) (1,223)
Expenditures on assets related to discontinued
operations (2) (256)
Proceeds from disposition of property, plant
and equipment 89 25
Proceeds from disposition of assets and other
receipts related to discontinued operations 6 44
------- -------
NET CASH USED IN INVESTING ACTIVITIES (3,418) (1,410)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and
long-term borrowings 2,456 110
Principal payments on revolving line of credit,
long-term obligations and indebtedness to
related parties (258) (5,640)
Proceeds from issuance of common stock 3 6,530
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,201 1,000
------- -------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (238) 464
Cash and cash equivalents at beginning of year 627 410
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 389 $ 874
------- -------
------- -------
</TABLE>
See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--INCOME TAXES
The Company calculates its income tax expense under the liability method of
accounting for income taxes. At September 1, 1993, the Company recorded a
valuation allowance against the entire net deferred tax asset amount that
resulted from using the liability method. During the quarter ended May 31,
1994, the Company reduced the valuation allowance which increased net income by
$342,000. The Company utilized all of its tax loss carryforwards in fiscal
1994.
Income for the first nine 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 May 31, 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 May 31, 1995 and August 31, 1994, there were 10,000,000 shares of par value
$.20 common stock authorized of which 5,260,625 shares were issued. Of the
shares issued, 3,459,141 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.
NOTE G--INDEBTEDNESS TO RELATED PARTIES
One of the manufacturing facilities is leased from a partnership consisting of
the Company's Chairman and a former director and is accounted for as a
capitalized lease. During fiscal 1995, the facility was expanded to increase
the manufacturing capacity as well as add other improvements to the location.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NET SALES
The Company reported a 16% decrease in net sales to $8,581,000 in the third
quarter of fiscal 1995 compared to net sales of $10,234,000 in the third quarter
of fiscal 1994. For the first nine months of 1995, sales of $32,961,000 were
approximately 1% greater than sales of $32,578,000 reported for the first nine
months of 1994.
FIREPLACE PRODUCTS. Net sales decreased approximately 19% in the third quarter
of fiscal 1995 compared to the third quarter of 1994. The sales decrease was
attributed to a 15% decrease in the quantity of zero clearance fireplaces
delivered and a 45% decrease in the quantity of ventfree gas log sets delivered
between the comparative quarters. Purchases from retailers have declined as
retailers have unsold inventory remaining as the result of the weak demand
caused by the mild winter across the nation. Anticipated reorders to replenish
retail inventories did not occur as planned. Sales of zero clearance fireplaces
were also negatively influenced by the reduction in new housing starts between
the comparative quarters. Nationwide, annualized new housing starts decreased
approximately 16% in the third quarter of fiscal 1995 compared to the third
quarter of fiscal 1994 due to overall increases in mortgage lending rates.
Between the comparative nine month periods, net sales increased approximately
1%. Deliveries of zero clearance fireplaces increased by approximately 5%
between the nine month comparison periods and deliveries of ventfree gas log
sets decreased by approximately 4%. Between the comparative nine month periods,
new housing starts decreased by approximately 3% which indicates that the
Company increased its share in providing the new housing market with zero
clearance fireplaces.
FACE BRICK PRODUCTS. Net sales decreased approximately 6% in the third quarter
of fiscal 1995 compared to the third quarter of fiscal 1994. A reduction in the
quantity of brick sold was partially offset by a slight increase in the average
selling price. Between the comparative nine month periods, net sales increased
by approximately 2%. The increase in the average selling price received for the
brick more than offset the small decrease in the quantity sold.
GROSS PROFIT
FIREPLACE PRODUCTS. Gross profit decreased by approximately 53% in the third
quarter of fiscal 1995 compared to the third quarter of fiscal 1994. The
decrease in sales volume was responsible for the decrease in gross profit.
Fixed manufacturing costs on a per unit basis increased as a result of the
decrease in sales volume. Between the comparative nine month periods, gross
profit decreased by approximately 14%.
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FACE BRICK PRODUCTS. Gross profit decreased approximately 5% in the third
quarter of fiscal 1995 compared to the third quarter of fiscal 1994. The
decrease in net sales was responsible for the decreases in gross profit.
Between the nine month periods, gross profit increased approximately 6% as a
result of the increase in the average unit selling price between the two
periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $193,000 or 8% in the
third quarter of fiscal 1995 compared to the third quarter of fiscal 1994.
Between the comparative nine month periods, expenses increased by $810,000 or
approximately 11%. The increases in both periods of fiscal 1995 were due mainly
to planned increases in selling expenses including advertising, promotions,
displays and trade shows.
INTEREST EXPENSE
Interest expense increased $53,000 in the third quarter of 1995 compared to the
third quarter of 1994. The increase was caused by the increase in short term
debt outstanding during the most recent quarter. Between the comparative nine
month periods, interest expense decreased $103,000. Outstanding debt was
significantly reduced in the second quarter of fiscal 1994 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 $322,000 for the first nine months of fiscal 1995 includes
the provision for both federal and state income taxes. Income for the nine
months ended May 31, 1994 reflects the utilization of operating loss
carryforwards, which had been fully reserved, resulting in a benefit of
approximately $342,000. 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 nine
months of fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $979,00 for the first nine months
of 1995 compared to $874,000 for the first nine months of 1994. The increased
cash flow from operations was caused primarily by changes in working capital,
principally a 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.
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Working capital decreased by $1,536,000 at May 31, 1995 compared to August 31,
1994 and the current ratio decreased from 2.4 at August 31, 1994 to 2.1 at May
31, 1995.
Capital expenditures for the first nine months of 1995 were $3,511,000 compared
to $1,223,000 for the first nine 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. In addition, capitalized lease obligations of $717,000
were recorded in fiscal 1995. The major portion of the capitalized lease
obligations was the cost of the manufacturing facility expansion at the
Manchester, Tennessee fireplace products plant. The capital additions have been
financed by cash flow from operations and funds from both the revolving credit
and term notes.
In the second quarter of fiscal 1994, 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. If additional funds are needed, due to the amount of current year
capital expenditures, the lending bank that holds the credit agreement has
indicated that the agreement would be amended to provide the Company with
whatever additional funds the Company might require.
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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, 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
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: July 11, 1995 BY:/s/E.R.Buford
----------------- -----------------------
E. R. Buford
President
DATE: July 11, 1995 BY:/s/R. N. Stivers
----------------- -----------------------
R. N. Stivers
Vice President-Finance
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TEMTEX
INDUSTRIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
MAY 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-1-1994
<PERIOD-END> MAY-31-1995
<CASH> 389
<SECURITIES> 0
<RECEIVABLES> 6,340
<ALLOWANCES> 584
<INVENTORY> 9,479
<CURRENT-ASSETS> 16,743
<PP&E> 25,075
<DEPRECIATION> 17,189
<TOTAL-ASSETS> 25,957
<CURRENT-LIABILITIES> 8,090
<BONDS> 0
<COMMON> 714
0
0
<OTHER-SE> 14,761
<TOTAL-LIABILITY-AND-EQUITY> 25,957
<SALES> 32,961
<TOTAL-REVENUES> 33,120
<CGS> 23,636
<TOTAL-COSTS> 31,905
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 101
<INTEREST-EXPENSE> 337
<INCOME-PRETAX> 878
<INCOME-TAX> 322
<INCOME-CONTINUING> 556
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 556
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
