<PAGE>
Page 1 of 13
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 29, 1996 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.)
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 3,464,141 shares of common stock, par value $.20
per share, outstanding as of the close of the period covered by
this report.
<PAGE>
Page 2 of 13
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In Thousands Except Share Amounts)
3 Mths. Ended 6 Mths. Ended
2/29/96 2/28/95 2/29/96 2/28/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 9,060 $ 10,213 $ 22,053 $ 24,380
Cost of goods sold 6,723 7,548 15,640 16,864
--------- --------- --------- ---------
2,337 2,665 6,413 7,516
Cost and expenses:
Selling, general and administrative 2,255 2,456 5,156 5,606
Interest 133 111 294 197
Other expense (income) 8 (133) 3 (144)
--------- --------- --------- ---------
2,396 2,434 5,453 5,659
--------- --------- --------- ---------
(LOSS) INCOME FROM OPERATIONS
BEFORE INCOME TAXES (59) 231 960 1,857
State and federal income tax
(benefit) expense--Note A (25) 85 413 682
--------- --------- --------- ---------
NET (LOSS) INCOME $ (34) $ 146 $ 547 $ 1,175
========= ========= ========= =========
(Loss) income per common share--Note B
NET (LOSS) INCOME $ (.01) $ .04 $ .16 $ .33
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding 3,464,141 3,544,357 3,493,721 3,545,681
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Page 3 of 13
<TABLE>
<CAPTION>
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
February 29, 1996 and August 31, 1995
(In Thousands)
February 29, August 31,
1996 1995
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 989 $ 736
Accounts receivable, less allowance for
doubtful accounts of $655,000 at
February 29, 1996 and $541,000 at
August 31, 1995 5,271 7,011
Inventories 9,981 8,773
Prepaid expenses and other assets 389 401
Income taxes recoverable 0 443
Deferred taxes 350 350
------- -------
TOTAL CURRENT ASSETS 16,980 17,714
DEFERRED TAXES 530 530
OTHER ASSETS 329 366
ASSETS RELATED TO DISCONTINUED OPERATIONS
--Note F 130 99
PROPERTY, PLANT AND EQUIPMENT
Land and clay deposits 325 325
Buildings and improvements 3,496 3,496
Machinery, equipment, furniture and fixtures 22,259 21,448
Leasehold improvements 752 742
------- -------
26,832 26,011
Less allowances for depreciation,
depletion and amortization 18,375 17,505
------- -------
8,457 8,506
------- -------
$26,426 $27,215
======= =======
</TABLE>
<PAGE>
Page 4 of 13
<TABLE>
<CAPTION>
February 29, August 31,
1996 1995
------------ ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ -- $ 2,000
Accounts payable 5,485 4,144
Accrued expenses 1,262 1,786
Income taxes payable 202 --
Current maturities of indebtedness
to related parties 8 7
Current maturities of long-term
obligations--Note C 714 763
------- -------
TOTAL CURRENT LIABILITIES 7,671 8,700
INDEBTEDNESS TO RELATED PARTIES,
less current maturities 1,617 1,621
LONG-TERM OBLIGATIONS,
less current maturities--Note C 1,175 1,478
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, 5,265,625 shares issued 715 715
Additional capital 9,225 9,225
Retained earnings 6,350 5,803
------- -------
16,290 15,743
Less:
Treasury stock:
At cost - 113,696 shares 327 327
At no cost - 1,687,788 shares -- --
------- -------
15,963 15,416
------- -------
$26,426 $27,215
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Page 5 of 13
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
6 Months Ended
2/29/96 2/28/95
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 547 $1,175
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 895 638
Gain on disposition of buildings and equipment -- (70)
Provision for doubtful accounts 142 36
Changes in operating assets and liabilities:
Accounts receivable 1,598 1,684
Inventories (1,208) (855)
Prepaid expenses and other assets 49 (344)
Accounts payable and accrued expenses 817 50
Income taxes payable 645 (120)
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,485 2,194
INVESTING ACTIVITIES
Purchases of property, plant and equipment (846) (2,383)
Expenditures on assets related to discontinued
operations (31) (2)
Proceeds from disposition of property, plant
and equipment -- 70
------ ------
NET CASH USED IN INVESTING ACTIVITIES (877) (2,315)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and
long-term borrowings -- 512
Principal payments on revolving line of credit,
long-term obligations and indebtedness to
related parties (2,355) (154)
------ ------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (2,355) 358
------ ------
INCREASE IN CASH AND CASH EQUIVALENTS 253 237
Cash and cash equivalents at beginning of year 736 627
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 989 $ 864
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Page 6 of 13
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. Income for the first six
months of fiscal 1996 reflects an estimated annualized tax rate of
approximately 43%.
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 fiscal 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 fiscal 1995, in which a three year term note of
$1,212,000 was added. The term note requires quarterly payments of
principal and interest with the final payment due in March, 1998.
The agreement was amended again in fiscal 1996 whereby the ratios
required by the 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, were revised to become less
restrictive.
NOTE D--CAPITAL STOCK
At February 29, 1996 and August 31, 1995, there were 1,000,000
shares of preferred stock, with a par value of $1 authorized. None
have been issued.
At February 29, 1996 and August 31, 1995, there were 10,000,000
shares of par value $.20 common stock authorized of which 5,265,625
shares were issued. Of the shares issued, 3,464,141 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.
<PAGE>
Page 7 of 13
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.
At August 31, 1995 assets related to the discontinued contract
products operations were stated at estimated realizable values and
consisted of land, building and equipment.
In fiscal 1996, the Company leased the building and the majority of
the land. The initial lease term is for a period of five years with
an option to extend the lease for an additional five year period.
The lease also contains an option to purchase the property during
the first two years of the initial lease period.
The remaining parcel of land and equipment are on the market to be
sold.
<PAGE>
Page 8 of 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net Sales
The Company reported an 11% decrease in net sales to $9,060,000 in
the second quarter of fiscal 1996 compared to net sales of
$10,213,000 in the second quarter of fiscal 1995. For the first
six months of 1996, sales of $22,053,000 were approximately 10%
less than sales of $24,380,000 reported for the first six months of
1995.
Fireplace Products. Net sales decreased approximately 14% in the
second quarter of fiscal 1996 compared to the second quarter of
1995. The sales decrease was attributed to an 8% decrease in the
quantity of zero clearance fireplace units delivered during the
quarter as well as a 4% decrease in the quantity of ventfree gas
log sets delivered during the period. Between the comparative six
month periods, net sales decreased approximately 10%. Deliveries
of zero clearance fireplaces decreased by approximately 2% between
the six month periods and deliveries of ventfree gas log sets
decreased by approximately 8%. Net sales of zero clearance
fireplaces apparently were not influenced by the small increase in
housing starts in the current quarter compared to the second
quarter of last year. Although nationwide housing starts increased
approximately 3% between the comparative quarters, for the six
month comparison periods, housing starts were approximately 2% less
than the previous year.
Face Brick Products. Net sales increased approximately 1% in the
second quarter of fiscal 1996 compared to the second quarter of
fiscal 1995. A small reduction in the quantity of brick sold was
offset by an increase in the overall selling price for the brick
delivered. Between the comparative six month periods, net sales
decreased approximately 6% as the result of a 6% decrease in the
quantity of brick sold.
Gross Profit
Fireplace Products. Gross profit decreased by approximately 19% in
the second quarter of fiscal 1996 compared to the second quarter of
fiscal 1995. Between the comparative six month periods, gross
profit decreased approximately 16%. The decrease in gross profit
for both periods in fiscal 1996 was caused by the decrease in sales
volume compared to the corresponding periods of fiscal 1995.
Face Brick Products. Gross profit increased approximately 13% in
the second quarter of fiscal 1996 compared to the second quarter of
fiscal 1995. The small increase in the selling price received for
the product, combined with a reduction in the manufacturing cost,
was responsible for the increase in gross profit. Between the six
month periods, gross profit decreased approximately 8% mainly as a
direct result of the decrease in sales volume.
<PAGE>
Page 9 of 13
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by $201,000
or 8% in the second quarter of fiscal 1996 compared to the second
quarter of fiscal 1995. As a percentage of sales, expenses
increased from approximately 24% in 1995 to 25% in 1996. Between
the comparative six month periods, expenses decreased approximately
$450,000 or 8%. As a percentage of sales, expenses were
approximately 23% in each of the six month comparison periods.
Interest Expense
Interest expense increased $22,000 or 22% in the second quarter of
1996 compared to the second quarter of 1995. Between the
comparative six month periods, interest expense increased $97,000
or 49%. The increase in expense in both the second quarter and the
first six months of 1996 was caused by the increase in debt
outstanding during both periods compared to those in 1995. It
should be noted that outstanding debt at February 29, 1996 was more
than $2,300,000 less than the amount outstanding at August 31,
1995.
Income Taxes
Income tax expense of $413,000 for the first six months of fiscal
1996 includes the provision for both federal and state income
taxes. An estimated annualized effective tax rate of 43% was
applied to pre-tax income for the first six months of fiscal 1996.
Liquidity and Capital Resources
Net cash provided by operating activities was $3,485,000 for the
first six months of 1996 compared to $2,194,000 for the first six
months of 1995. The increased cash flow from operations in 1996
was caused primarily by changes in working capital, principally the
decrease in accounts receivable.
In 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 facility. The amount available under the
revolving credit facility is subject to limitations based on
specified percentages of the Company's eligible outstanding
receivables and inventory. 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 quarterly and
also at the end of the borrowing period of borrowing at a fixed
rate. In fiscal 1995, the loan agreement was amended whereby a
promissory term note in the amount of $1,212,000 was added with a
maturity date of March 1998. The term note requires quarterly
payments of principal and interest.
Working capital increased by $295,000 at February 29, 1996 compared
to August 31, 1995. The current ratio increased from 2.0 to 2.2
along with the working capital increase.
<PAGE>
Page 10 of 13
Capital expenditures and capitalized lease obligations for the
first six months of 1996 were $846,000 compared to $2,396,000 for
the first six months of 1995. Expenditures include amounts for
tooling, dies
and repairs to existing tooling and equipment. The capital
additions have been financed by cash flow from operations.
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.
<PAGE>
Page 11 of 13
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 29, 1996 are not
necessarily indicative of the results that may be expected for the
year ending August 31, 1996. 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,
1995.
<PAGE>
Page 12 of 13
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.
<PAGE>
Page 13 of 13
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: 4/11/96 BY:/s/E.R.Buford
E. R. Buford
President
DATE: 4/11/96 BY:/s/R. N. Stivers
R. N. Stivers
Vice President-Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE TEMTEX INDUSTRIES,
INC. AND SUBSIDIARIES FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED FEBRUARY 29,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 989
<SECURITIES> 0
<RECEIVABLES> 5,926
<ALLOWANCES> 655
<INVENTORY> 9,981
<CURRENT-ASSETS> 16,980
<PP&E> 26,832
<DEPRECIATION> 18,375
<TOTAL-ASSETS> 26,426
<CURRENT-LIABILITIES> 7,671
<BONDS> 0
0
0
<COMMON> 715
<OTHER-SE> 15,248
<TOTAL-LIABILITY-AND-EQUITY> 26,426
<SALES> 22,053
<TOTAL-REVENUES> 22,053
<CGS> 15,640
<TOTAL-COSTS> 20,796
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 142
<INTEREST-EXPENSE> 294
<INCOME-PRETAX> 960
<INCOME-TAX> 413
<INCOME-CONTINUING> 547
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 547
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
