<PAGE>
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, 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 Identification
incorporation or organization) 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 3,467,141 shares of common stock, par value $.20
per share, outstanding as of the close of the period covered by
this report.
<PAGE>
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
May 31, May 31,
1996 1995 1996 1995
------ ------ ------- -------
<S> <C> <C> <C> <C>
Net sales $9,660 $8,581 $31,713 $32,961
Cost of goods sold 7,538 6,772 23,178 23,636
------ ------ ------- -------
2,122 1,809 8,535 9,325
Cost and expenses:
Selling, general
and administrative 2,041 2,663 7,197 8,269
Interest 137 140 431 337
Other income (8) (15) (5) (159)
------ ------ ------- -------
2,170 2,788 7,623 8,447
------ ------ ------- -------
(LOSS) INCOME FROM
OPERATIONS BEFORE
INCOME TAXES (48) (979) 912 878
State and federal income
tax (benefit)
expense--Note A (21) (360) 392 322
------ ------ ------- -------
NET (LOSS) INCOME $ (27) $ (619) $ 520 $ 556
====== ====== ======= =======
(Loss) income per common
share--Note B
NET (LOSS) INCOME $ (.01) $ (.17) $ .15 $ .16
====== ====== ======= =======
Weighted average common
and common equivalent
shares outstanding 3,467,141 3,541,040 3,484,861 3,544,134
========= ========= ========= =========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
May 31, 1996 and August 31, 1995
(In Thousands)
<TABLE>
<CAPTION> May 31, August 31,
1996 1995
----------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 493 $ 736
Accounts receivable, less
allowance for doubtful
accounts of $498,000 at
May 31, 1996 and $541,000 at
August 31, 1995 5,723 7,011
Inventories 9,642 8,773
Prepaid expenses and other assets 446 401
Income taxes recoverable 0 443
Deferred taxes 350 350
------- -------
TOTAL CURRENT ASSETS 16,654 17,714
DEFERRED TAXES 530 530
OTHER ASSETS 359 366
ASSETS RELATED TO DISCONTINUED
OPERATIONS--Note F 171 99
PROPERTY, PLANT AND EQUIPMENT
Land and clay deposits 325 325
Buildings and improvements 3,496 3,496
Machinery, equipment, furniture
and fixtures 22,828 21,448
Leasehold improvements 786 742
------- -------
27,435 26,011
Less allowances for depreciation,
depletion and amortization 18,814 17,505
------- -------
8,621 8,506
------- -------
$26,335 $27,215
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION> May 31, August 31,
1996 1995
------------ ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,299 $ 2,000
Accounts payable 4,445 4,144
Accrued expenses 992 1,786
Income taxes payable 109 --
Current maturities of indebtedness
to related parties 8 7
Current maturities of long-term
obligations--Note C 266 763
------- -------
TOTAL CURRENT LIABILITIES 8,119 8,700
INDEBTEDNESS TO RELATED PARTIES,
less current maturities 1,615 1,621
LONG-TERM OBLIGATIONS,
less current maturities--Note C 654 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,
5,268,625 shares issued 716 715
Additional capital 9,235 9,225
Retained earnings 6,323 5,803
------- -------
16,274 15,743
Less:
Treasury stock:
At cost - 113,696 shares 327 327
At no cost - 1,687,788 shares -- --
------- -------
15,947 15,416
------- -------
$26,335 $27,215
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
9 Months Ended
May 31,
1996 1995
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 520 $ 556
Adjustments to reconcile net
income to net cash
provided by operating activities:
Depreciation, depletion and amortization 1,385 1,064
Gain on disposition of buildings
and equipment (7) (83)
Provision for doubtful accounts 143 101
Changes in operating assets and liabilities:
Accounts receivable 1,145 1,872
Inventories (869) (695)
Prepaid expenses and other assets (38) (88)
Accounts payable and accrued expenses (493) (1,262)
Income taxes payable 552 (486)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,338 979
INVESTING ACTIVITIES
Purchases of property, plant and equipment (1,502) (3,511)
Expenditures on assets related to
discontinued operations (72) (2)
Proceeds from disposition of property,
plant and equipment 9 89
Proceeds from disposition of assets
and other receipts related to
discontinued operations -- 6
------- -------
NET CASH USED IN INVESTING ACTIVITIES (1,565) (3,418)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and
long-term borrowings 2,299 2,456
Principal payments on revolving line of
credit, long-term obligations and
indebtedness to related parties (3,326) (258)
Proceeds from issuance of common stock 11 3
------- -------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (1,016) 2,201
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (243) (238)
Cash and cash equivalents at beginning of year 736 627
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 493 $ 389
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
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 nine
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 May 1996, a two year credit agreement with a bank to provide the
Company with a maximum of $3,000,000 under a revolving credit
facility expired, as scheduled. At that time, the Company repaid
both the balance outstanding and accrued interest thereon. Also,
a promissory term note that had been added to the revolving credit
note was repaid at the same time even though final payment was not
previously scheduled to be made until March 1998.
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 beginning August 31, 1996. As of May
31, 1996, $2,299,000 was outstanding under the revolving credit
note.
NOTE D--CAPITAL STOCK
At May 31, 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 May 31, 1996 and August 31, 1995, there were 10,000,000 shares
of par value $.20 common stock authorized of which 5,268,625 shares
were issued. Of the shares issued, 3,467,141 were outstanding.
The remainder of the issued stock is comprised of 113,696 shares of
<PAGE>
treasury stock at cost and 1,687,788 shares of treasury stock at no
cost.
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>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net Sales
The Company reported an 13% increase in net sales to $9,660,000 in
the third quarter of fiscal 1996 compared to net sales of
$8,581,000 in the third quarter of fiscal 1995. For the first nine
months of 1996, net sales of $31,713,000 were approximately 4% less
than net sales of $32,961,000 reported for the first nine months of
1995.
Fireplace Products. Net sales increased approximately 10% in the
third quarter of fiscal 1996 compared to the third quarter of 1995.
The sales increase was attributed to a 14% increase in the quantity
of zero clearance fireplace units delivered during the quarter.
Between the comparative nine month periods, net sales decreased
approximately 5%. Although deliveries of both zero clearance
fireplace units and ventfree gas log sets were slightly greater in
the most recent nine months, the average unit sales prices received
for the products were less than those received in the prior year
which caused the overall decrease in net sales. Net sales of
fireplace units were apparently favorably influenced by the
increase in housing starts in the current quarter compared to the
third quarter of last year. The increase in nationwide housing
starts was approximately 16% between the comparative quarters but
only approximately 4% between the nine month comparison periods.
Face Brick Products. Net sales increased approximately 21% in the
third quarter of fiscal 1996 compared to the third quarter of
fiscal 1995. An increase in the quantity of brick shipped accounted
for the major portion of the sales increase. Between the
comparative nine month periods, net sales increased approximately
3%. The increase was caused by an increase in the quantity of
brick delivered in addition to a small increase in the price
received for the brick.
Gross Profit
Fireplace Products. Gross profit increased by approximately 17% in
the third quarter of fiscal 1996 compared to the third quarter of
fiscal 1995. Between the comparative nine month periods, gross
profit decreased approximately 11%. The change in the sales volume
in each of the current periods caused a corresponding change in the
gross profit recorded in each period of the current year.
Face Brick Products. Gross profit increased approximately 18% in
the third quarter of fiscal 1996 compared to the third quarter of
fiscal 1995. Between the nine month periods, gross profit increased
approximately 1%. The increases in both periods were a direct
result of the increases in sales volume.
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by $622,000
or 23% in the third quarter of fiscal 1996 compared to the third
quarter of fiscal 1995. As a percentage of sales, expenses
decreased from approximately 31% in 1995 to 21% in 1996. Selling
expenses in fiscal 1995 included greater than normal amounts for
advertising, promotions, displays and trade shows to promote the
Company's various gas fireplace products. Between the comparative
nine month periods, expenses decreased approximately $1,072,000 or
13%. As a percentage of sales, expenses decreased from 25% in 1995
to 23% in 1996.
Interest Expense
Interest expense was approximately the same in the third quarter of
fiscal 1996 as the third quarter of fiscal 1995. Between the
comparative nine month periods, interest expense increased $94,000
or 28%. The increase in expense was caused by the increase in debt
outstanding during the most recent nine months.
Income Taxes
Income tax expense of $392,000 for the first nine 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 nine months of fiscal 1996.
Liquidity and Capital Resources
Net cash provided by operating activities was $2,338,000 for the
first nine months of 1996 compared to $979,000 for the first nine
months of 1995. The increase in 1996 was caused primarily by
changes in working capital, principally the decrease in accounts
receivable.
In May 1996, a two year credit agreement with a bank expired, as
scheduled. The Company repaid both the balance outstanding and
interest that was due at the time of expiration. The Company
entered into a two year credit agreement with another 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 a variable or fixed rate. Interest is
payable on a monthly basis.
Working capital decreased by $479,000 at May 31, 1996 compared to
August 31, 1995. The current ratio remained at approximately 2.0.
<PAGE>
Capital expenditures and capitalized lease obligations for the
first nine months of 1996 were $1,502,000 compared to $3,511,000
for the first nine 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>
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, 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>
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>
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: 7/11/96 BY:/s/E.R.Buford
-------------- ----------------------
E. R. Buford
President
DATE: 7/11/96 BY:/s/R. N. Stivers
-------------- ----------------------
R. N. Stivers
Vice President-Finance
INDEX TO EXHIBITS
Exhibit
Number Description of Document
- ------- -----------------------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from the Temtex
Industries, Inc. and Subsidiaries financial statements for the nine months ended
May 31, 1996 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-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 493
<SECURITIES> 0
<RECEIVABLES> 6,221
<ALLOWANCES> 498
<INVENTORY> 9,642
<CURRENT-ASSETS> 16,654
<PP&E> 27,435
<DEPRECIATION> 18,814
<TOTAL-ASSETS> 26,335
<CURRENT-LIABILITIES> 8,119
<BONDS> 0
0
0
<COMMON> 716
<OTHER-SE> 15,231
<TOTAL-LIABILITY-AND-EQUITY> 26,335
<SALES> 31,713
<TOTAL-REVENUES> 31,722
<CGS> 23,178
<TOTAL-COSTS> 30,375
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 143
<INTEREST-EXPENSE> 431
<INCOME-PRETAX> 912
<INCOME-TAX> 392
<INCOME-CONTINUING> 520
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 520
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
