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 Commission File No. 0-5940
November 30, 1998
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.)
5400 LBJ Freeway, Suite 1375
Dallas, Texas 75240
- ------------------------------- --------------
(Address of principal executive (Zip Code)
offices)
972/726-7175
- ----------------------------
(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 3,477,141 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)
3 Months Ended
November 30,
------------------------
1998 1997
---------- ----------
Net sales $ 10,317 $ 10,426
Cost of goods sold 7,539 7,266
---------- ----------
2,778 3,160
Cost and expenses:
Selling, general and administrative 2,345 2,391
Interest 121 123
Other (income) expense (23) 4
---------- ----------
2,443 2,518
---------- ----------
INCOME FROM OPERATIONS BEFORE
INCOME TAXES 335 642
State and federal income taxes--Note A 134 257
---------- ----------
NET INCOME $ 201 $ 385
========== ==========
Income per common share--Note B
Basic and diluted income per
common share $.06 $.11
========== ==========
Basic weighted average common
shares outstanding 3,477,141 3,477,141
========== ==========
Diluted weighted average common
and common equivalent shares
outstanding 3,528,300 3,529,195
========== ==========
See notes to condensed consolidated financial statements.
<PAGE>
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
November 30, 1998 and August 31, 1998
(In Thousands)
November 30, August 31,
1998 1998
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 540 $ 407
Accounts receivable, less allowance
for doubtful accounts of $286,000 at
November 30, 1998 and $292,000 at
August 31, 1998 5,694 5,598
Inventories 10,845 9,077
Prepaid expenses and other assets 323 227
Income taxes recoverable -- 35
Deferred taxes 607 607
----------- -----------
TOTAL CURRENT ASSETS 18,009 15,951
DEFERRED TAXES 138 138
OTHER ASSETS 463 392
PROPERTY, PLANT AND EQUIPMENT
Land and clay deposits 566 566
Buildings and improvements 3,491 3,491
Machinery, equipment, furniture
and fixtures 25,037 24,753
Leasehold improvements 1,077 1,059
----------- -----------
30,171 29,869
Less allowances for depreciation,
depletion and amortization 23,076 22,703
----------- -----------
7,095 7,166
----------- -----------
$ 25,705 $ 23,647
=========== ===========
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<PAGE>
November 30, August 31,
1998 1998
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable-Note C $ 1,600 $ 700
Accounts payable 4,038 2,674
Accrued expenses 1,129 1,591
Income taxes payable 99 --
Current maturities of indebtedness to
related parties 11 11
Current maturities of long-term
obligations--Note C 118 137
----------- -----------
TOTAL CURRENT LIABILITIES 6,995 5,113
INDEBTEDNESS TO RELATED PARTIES,
less current maturities 1,590 1,593
LONG-TERM OBLIGATIONS,
less current maturities--Note C 631 653
COMMITMENTS AND CONTINGENCIES--Note D
STOCKHOLDERS' EQUITY--Note E
Preferred stock - $1 par value; 1,000,000
shares authorized, none issued -- --
Common stock - $.20 par value; 10,000,000
shares authorized, 5,278,625
shares issued 718 718
Additional capital 9,246 9,246
Retained earnings 6,852 6,651
----------- -----------
16,816 16,615
Less:
Treasury stock:
At cost - 113,696 shares 327 327
At no cost - 1,687,788 shares -- --
----------- -----------
16,489 16,288
----------- -----------
$ 25,705 $ 23,647
=========== ===========
See notes to condensed consolidated financial statements.
-4-
<PAGE>
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
3 Months Ended
November 30,
----------------------
1998 1997
--------- ---------
OPERATING ACTIVITIES
Net income $ 201 $ 385
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 373 406
Provision for doubtful accounts 24 57
Changes in operating assets and liabilities:
Accounts receivable (120) (1,051)
Inventories (1,768) (472)
Prepaid expenses and other assets (167) 69
Accounts payable and accrued expenses 902 872
Income taxes payable 134 225
--------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES (421) 491
INVESTING ACTIVITIES
Purchases of property, plant and equipment (302) (175)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (302) (175)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and
long-term borrowings 900 300
Principal payments on revolving line of credit,
long-term obligations and indebtedness to
related parties (44) (54)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 856 246
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 133 562
Cash and cash equivalents at beginning of year 407 575
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 540 $ 1,137
========= =========
See notes to condensed consolidated financial statements.
-5-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A--INCOME TAXES
Income taxes have been provided using the liability
method for providing deferred taxes. Income for the
first three months of fiscal 1999 reflects an
estimated annualized tax rate of approximately 40%.
NOTE B--INCOME PER COMMON SHARE
Basic income per common share is based upon the
weighted average number of shares of common stock
outstanding during each period. Diluted income per
share is based upon the weighted average number of
shares 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 shares that are assumed to have been
purchased at the average price of common stock
during each quarter with the proceeds from the
exercise of the options.
All periods presented have been restated to reflect
the adoption of Statement of Financial Accounting
Standard No. 128 (SFAS 128), "Earnings Per Share".
NOTE C--NOTES PAYABLE AND LONG-TERM DEBT
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 demand 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 Company's obligation to the
bank is secured by accounts receivable and
inventory. In April 1998, the credit agreement was
amended whereby the maximum amount available under
the revolving credit facility was reduced to
$3,000,000 and the expiration date was extended for
an additional two year period. 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. At
November 30, 1998, the Company is in compliance with
these covenants. At November 30, 1998, $1,600,000
was outstanding under the revolving credit note.
NOTE D--COMMITMENTS AND 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.
-6-
<PAGE>
On October 22, 1998, the Company entered into an
Agreement for the sale of its Texas Clay division
for approximately $12.9 million subject to final
adjustment. The Agreement is subject to final
approval by the Company's stockholders.
NOTE E--CAPITAL STOCK
At November 30, 1998 and August 31, 1998, there were
1,000,000 shares of preferred stock, with a par
value of $1 authorized. None have been issued.
At November 30, 1998 and August 31, 1998, there were
10,000,000 shares of par value $.20 common stock
authorized of which 5,278,625 shares were issued.
Of the shares issued, 3,477,141 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.
-7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial
condition and results of operations of the Company should
be read in conjunction with the unaudited condensed
consolidated financial statements and related notes of the
Company included elsewhere in this report. This
Management's Discussion and Analysis of Financial Condition
and Results of Operations and other parts of this Quarterly
Report on Form 10-Q contain forward-looking statements that
involve risks and uncertainties. Among the risks and
uncertainties to which the Company is subject are the risks
inherent in the cyclical and unpredictable nature of the
housing and home products business generally, fluctuations
in interest rates, geographic concentration of the
Company's primary market, the fact that the Company has
experienced fluctuations in revenues and operating results,
and the highly competitive nature of the industries in
which the Company competes, together with each of those
other factors set forth in the Company's filings made with
the Securities & Exchange Commission. As a result, the
actual results realized by the Company could differ
materially from the results discussed in the forward-
looking statements made herein. Words or phrases such as
"will," "anticipate," "expect," "believe," "intend,"
"estimate," "project," "plan" or similar expressions are
intended to identify forward-looking statements. Readers
are cautioned not to place undue reliance on the forward-
looking statements made in this Quarterly Report on Form 10-Q.
Net Sales
- ---------
Consolidated net sales for the first quarter of fiscal 1999
were $10,317,000 versus $10,426,000 for the same quarter in
fiscal 1998, a decrease of 1%.
FIREPLACE PRODUCTS. Sales in the fireplace products
segment for the first quarter of fiscal 1999 decreased by
7% compared to the first quarter of 1998. The sales
decrease was attributed to a decrease in the quantity of
wood burning fireplaces and gas log sets delivered in the
first quarter of 1999.
FACE BRICK PRODUCTS. Sales in the face brick products
segment increased by 23% in the first quarter of 1999
compared to the first quarter of 1998. A strong demand
from the construction industry in the area served by the
brick manufacturing facility was mainly responsible for the
increase in sales. A new size of face brick introduced in
the first quarter of fiscal 1998 has proved to be very
popular.
Gross Profit
- ------------
FIREPLACE PRODUCTS. Gross profit decreased approximately
33% in the first quarter of fiscal 1999 compared to the
first quarter of fiscal 1998. The decrease in sales volume
was the major factor contributing to the decrease in gross
profit.
FACE BRICK PRODUCTS. Gross profit increased approximately
51% in the first quarter of fiscal 1999 compared with the
prior year. The increase resulted from production
efficiencies realized in the manufacturing process in
addition to the increase in sales volume.
-8-
<PAGE>
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses decreased by
$46,000 or approximately 2% in the first quarter of fiscal
1999 compared to the first quarter of fiscal 1998.
Expenses were 22.7% of sales in 1999 compared to 22.9% of
sales in 1998.
Interest Expense
- ----------------
Interest expense decreased $2,000 in the first quarter of
1999 compared to the first quarter of 1998. A slight
decrease in interest rates was responsible for the decrease
in interest expense.
Income Taxes
- ------------
Income tax expense of $134,000 for the first quarter of
fiscal 1999 includes the provision for both federal and
state income taxes. An estimated annualized effective tax
rate of 40% was applied to pre-tax income for the first
quarter of 1999.
Liquidity and Capital Resources
- -------------------------------
Net cash used in operating activities was $421,000 for the
first three months of 1999. The decreased cash flow from
operations was due primarily to changes in working capital,
principally an increase in inventories.
Working capital increased from $10,838,000 at August 31,
1998 to $11,014,000 at November 30, 1998. The current
ratio decreased from 3.1 at August 31, 1998 to 2.6 at
November 30, 1998.
Capital expenditures and capitalized lease obligations for
the first quarter of 1999 were $302,000. Expenditures
include amounts for tooling, dies, replacement items and
major repairs to manufacturing equipment.
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.
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 on a monthly
basis and also at the end of the borrowing period if
borrowing at a fixed rate. In April 1998, the credit
agreement was amended whereby the maximum amount available
under the revolving credit facility was reduced to
$3,000,000 and the expiration date was extended for an
additional two-year period. The revolving credit facility
had an outstanding balance of $1,600,000 at November 30,
1998.
In October 1998, the Company entered into an agreement for
the sale of its face brick products division. The
agreement is subject to approval of the stockholders of the
Company. The cash proceeds, estimated to be approximately
$12,000,000, will be available to pay down certain
indebtedness and enhance the Company's remaining business
operations through strategic acquisitions or other
appropriate uses.
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.
-9-
<PAGE>
Year 2000 Issue
- ---------------
Many existing computer systems and applications and other
control devices use only two digits to identify a year in
the date field, without considering the impact of the
upcoming change in the century. As a result, as year 2000
approaches, computer systems and applications used by many
companies may need to be upgraded to comply with "Year
2000" requirements. The Company relies on its systems in
operating and monitoring many significant aspects of its
business, including financial systems (such as general
ledger, accounts payable, accounts receivable, inventory
and order management), customer services, infrastructure
and network and telecommunications equipment. The Company
also relies directly and indirectly on the systems of
external business enterprises such as customers, suppliers,
creditors and financial organizations.
Based on various assessments during the past year, the
Company determined that only minor modifications of its
information and production software systems would be
necessary in order to properly utilize dates beyond the
year 1999. Most of the changes have already been made.
Although the Company anticipates all remaining
modifications to be completed in early 1999, if such
modifications were not made, management believes the year
2000 issue will not have a material impact on the
operations of the Company.
The cost for system modifications was approximately $11,000
and any further modification expenses are expected to be
insignificant.
At this date, the Company is not aware of any customer,
vendor, or supplier (external agents) with a year 2000
issue that would materially affect the Company's results of
operations, liquidity or capital resources. However, the
Company has no means of ensuring that external agents will
be Year 2000 ready. The inability of external agents to
complete their Year 2000 resolution process in a timely
fashion could materially impact the Company. The effect of
non-compliance by external agents is not determinable.
Management is of the opinion that all significant year 2000
issues have been identified and addressed. Accordingly,
the Company has no developed year 2000 contingency plans
for continuing operations.
-10-
<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 three-month period
ended November 30, 1998 are not necessarily indicative of
the results that may be expected for the year ending August
31, 1999. 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 31,1998.
-11-
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits
--------
Exhibit
No. Description
-------- -----------
27.1 Financial Data Schedule (filed herewith)
(b). Report on Form 8-K
------------------
The Registrant filed one report on Form 8-K during
the quarter for which this report is filed.
-12-
<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: 12/23/98 BY: /s/ E.R.BUFORD
-------- ------------------------
E. R. Buford
President
DATE: 12/23/98 BY: /s/ R. N. STIVERS
-------- ------------------------
R. N. Stivers
Vice President-Finance
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE TEMTEX INDUSTRIES,
INC. AND SUBSIDIARIES FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED NOVEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 540
<SECURITIES> 0
<RECEIVABLES> 5,980
<ALLOWANCES> 286
<INVENTORY> 10,845
<CURRENT-ASSETS> 18,009
<PP&E> 30,171
<DEPRECIATION> 23,076
<TOTAL-ASSETS> 25,705
<CURRENT-LIABILITIES> 6,995
<BONDS> 0
0
0
<COMMON> 718
<OTHER-SE> 15,771
<TOTAL-LIABILITY-AND-EQUITY> 25,705
<SALES> 10,317
<TOTAL-REVENUES> 10,317
<CGS> 7,539
<TOTAL-COSTS> 7,539
<OTHER-EXPENSES> (23)
<LOSS-PROVISION> 24
<INTEREST-EXPENSE> 121
<INCOME-PRETAX> 335
<INCOME-TAX> 134
<INCOME-CONTINUING> 201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
