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 November 30, 1997 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.)
5400 LBJ Freeway, Suite 1375, Dallas, Texas 75240
- - ------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
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 January 12, 1998.
<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,
----------------------
1997 1996
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Net sales $10,426 $13,086
Cost of goods sold 7,266 9,075
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3,160 4,011
Cost and expenses:
Selling, general and administrative 2,391 2,618
Interest 123 158
Other expense (income) 4 (20)
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2,518 2,756
------- -------
INCOME FROM OPERATIONS BEFORE
INCOME TAXES 642 1,255
State and federal income taxes--Note A 257 502
------- -------
NET INCOME $ 385 $ 753
======= =======
Income per common share--Note B
NET INCOME $.11 $.22
==== ====
Weighted average common and common
equivalent shares outstanding 3,491,484 3,493,691
========= =========
See notes to condensed consolidated financial statements.
2
<PAGE>
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
November 30, 1997 and August 31, 1997
(In Thousands)
<TABLE>
<CAPTION>
November 30, August 31,
1997 1997
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,137 $ 575
Accounts receivable, less allowance for
doubtful accounts of $373,000 at November
30, 1997 and $364,000 at August 31, 1997 6,094 5,100
Inventories 8,644 8,172
Prepaid expenses and other assets 221 258
Income taxes recoverable 653 653
Deferred taxes 440 440
----------- ----------
TOTAL CURRENT ASSETS 17,189 15,198
DEFERRED TAXES 163 163
OTHER ASSETS 151 183
PROPERTY, PLANT AND EQUIPMENT
Land and clay deposits 405 405
Buildings and improvements 3,491 3,491
Machinery, equipment, furniture and fixtures 24,106 24,086
Leasehold improvements 870 869
----------- ----------
28,872 28,851
Less allowances for depreciation,
depletion and amortization 21,414 21,162
----------- ----------
7,458 7,689
----------- ----------
$ 24,961 $ 23,233
============ ==========
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
November 30, August 31,
1997 1997
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,100 $ 800
Accounts payable 3,751 2,459
Accrued expenses 1,318 1,738
Income taxes payable 225 --
Current maturities of indebtedness to related parties 10 9
Current maturities of long-term obligations--Note C 184 202
------------ -----------
TOTAL CURRENT LIABILITIES 6,588 5,208
INDEBTEDNESS TO RELATED PARTIES,
less current maturities 1,601 1,604
LONG-TERM OBLIGATIONS,
less current maturities--Note C 606 640
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 6,529 6,144
------------ -----------
16,493 16,108
Less:
Treasury stock:
At cost - 113,696 shares 327 327
At no cost - 1,687,788 shares -- --
------------ -----------
16,166 15,781
------------ -----------
$ 24,961 $ 23,233
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
3 Months Ended
November 30,
------------------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 385 $ 753
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 406 500
Gain on disposition of property, plant and equipment -- (18)
Provision for doubtful accounts 57 89
Changes in operating assets and liabilities:
Accounts receivable (1,051) (574)
Inventories (472) 724
Prepaid expenses and other assets 69 (146)
Accounts payable and accrued expenses 872 316
Income taxes payable 225 450
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 491 2,094
INVESTING ACTIVITIES
Purchases of property, plant and equipment (175) (518)
Expenditures on assets related to discontinued operations --Note F -- (41)
Proceeds from disposition of property, plant and equipment -- 35
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (175) (524)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-term borrowings 300 194
Principal payments on revolving line of credit,
long-term obligations and indebtedness to related parties (54) (988)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 246 (794)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 562 776
Cash and cash equivalents at beginning of year 575 445
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,137 $ 1,221
======== ========
</TABLE>
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 in
accordance with the Financial Accounting Standards Board Statement
No. 109, Accounting for Income Taxes. Income for the first three
months of fiscal 1998 reflects an estimated annualized tax rate of
approximately 40%.
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, 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. As of November 30, 1997, $1,100,000
was outstanding under the revolving credit note.
NOTE D--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 E--CAPITAL STOCK
At November 30, 1997 and August 31, 1997, there were 1,000,000
shares of preferred stock, with a par value of $1 authorized. None
have been issued.
6
<PAGE>
NOTE E--CAPITAL STOCK (Continued)
At November 30, 1997 and August 31, 1997, 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.
NOTE F--DISCONTINUED OPERATIONS
In 1993, management of the Company decided to discontinue the
Company's contract products segment.
In fiscal 1996, the Company leased the building and the majority of
the land. The initial lease term was for a period of five years
with an option to extend the lease for an additional five-year
period. The lease also contained an option to purchase the
property during the first two years of the initial lease period.
In fiscal 1997, the leased building and land were sold to the
lessee. The remaining parcel of land, which has a net book value
of $0, is on the market to be sold.
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
- - ---------
The Company reported a 20% decrease in net sales to $10,426,000 in
the first quarter of fiscal 1998 compared to net sales of
$13,086,000 in the first quarter of fiscal 1997.
FIREPLACE PRODUCTS. Net sales decreased approximately 23% in the
first quarter of fiscal 1998 compared to the first quarter of
fiscal 1997. The sales decrease was attributed to a decrease in
the number of zero-clearance fireplaces and vent-free log sets
delivered in the first quarter of fiscal 1998. A significant
portion of the decrease can be traced directly to the loss of a
major retail customer in fiscal 1997.
FACE BRICK PRODUCTS. Net sales decreased approximately 7% in the
first quarter of fiscal 1998 compared to the first quarter of
fiscal 1997. The decrease in sales was the direct result of a
decrease in the quantity of brick sold in the first quarter of 1998
partially offset by a small increase in the selling price that the
Company received for its face brick.
GROSS PROFIT
- - ------------
FIREPLACE PRODUCTS. Gross profit decreased approximately 27% in
the first quarter of fiscal 1998 compared to the first quarter of
fiscal 1997. The decrease was caused by the decrease in net sales.
FACE BRICK PRODUCTS. Gross profit increased approximately 5% in
the first quarter of fiscal 1998 compared to the first quarter of
fiscal 1997. The increase was a direct result of the increase in
selling price of the face brick.
8
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- - --------------------------------------------
Selling, general and administrative expenses decreased by $227,000
or approximately 9% in the first quarter of fiscal 1998 compared to
the first quarter of fiscal 1997. Reductions in payroll expenses,
selling commissions, advertising expenses and promotional expenses
were mainly responsible for the decrease in selling, general and
administrative expenses in fiscal 1998.
INTEREST EXPENSE
- - ----------------
Interest expense decreased $35,000 or approximately 22% in the
first quarter of 1998 compared to the first quarter of 1997. The
decrease in expense in 1998 was the direct result of a decrease in
the debt outstanding.
INCOME TAXES
- - ------------
Income tax expense of $257,000 for the first quarter of fiscal 1998
includes the provision for both federal and state income taxes. An
estimated effective tax rate of 40% was applied to pre-tax income
for the first quarter of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Net cash provided by operating activities was $491,000 for the first
quarter of 1998 compared to $2,094,000 for the first quarter of
1997. The decreased cash flow from operations in the first quarter
of fiscal 1998 was due primarily to the reduction in net income as
well as changes in working capital, principally increases in
accounts receivable and inventories.
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.
Working capital increased by $611,000 at November 30, 1997 compared
to August 31, 1997. The current ratio decreased from 2.9 at August
31, 1997 to 2.6 at November 30, 1997.
Capital expenditures and capitalized lease obligations for the
first three months of 1998 were $175,000 compared to $525,000 for
the first three months of fiscal 1997. Expenditures include
amounts for tooling, dies, replacement items and repairs to
manufacturing equipment. The capital additions have been financed
by cash flow from operations and borrowings under the credit
facility.
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>
Management of the Company anticipates that in the future it will
review a number of strategic and/or structural corporate
alternatives, certain of which could have a material impact on the
Company's liquidity and capital resources. In this regard,
although the Company does not currently have any specific plans or
arrangements, it may consider selling, expanding or otherwise
restructuring certain definable business segments.
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, 1997 are not
necessarily indicative of the results that may be expected for the
year ending August 31, 1998. 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, 1997
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 did not file any reports 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: 1/14/98 BY: /s/ E.R.BUFORD
-------------- ------------------------------
E. R. Buford
President
DATE: 1/14/98 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 CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> AUG-31-1997
<PERIOD-END> NOV-30-1997
<CASH> 1,137
<SECURITIES> 0
<RECEIVABLES> 6,467
<ALLOWANCES> 373
<INVENTORY> 8,644
<CURRENT-ASSETS> 17,189
<PP&E> 28,872
<DEPRECIATION> 21,414
<TOTAL-ASSETS> 24,961
<CURRENT-LIABILITIES> 6,588
<BONDS> 0
0
0
<COMMON> 718
<OTHER-SE> 15,448
<TOTAL-LIABILITY-AND-EQUITY> 24,961
<SALES> 10,426
<TOTAL-REVENUES> 10,426
<CGS> 7,266
<TOTAL-COSTS> 7,266
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 57
<INTEREST-EXPENSE> 123
<INCOME-PRETAX> 642
<INCOME-TAX> 257
<INCOME-CONTINUING> 385
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 385
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
