<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-13746
FIREPLACE MANUFACTURERS, INCORPORATED
(Exact Name of Registrant as specified in its charter)
California 95-3244946
- ------------------------------ -------------------------
(State or other jurisdiction) (I.R.S. Employer I.D. No.)
2701 South Harbor Boulevard Santa Ana, California 92704
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 549-7782
----------------
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 proceeding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
The number of shares outstanding of each of the Registrant's classes of Common
Stock on January 31, 1997, was as follows:
Common Stock, $0.01 Par Value per share - 3,257,198
<PAGE>
Part I
FINANCIAL INFORMATION
The following comparative financial statements for the three and nine month
periods ended December 31, 1996, have not been audited by independent public
accountants; but, in the opinion of management, all adjustments necessary to
present fairly the results of operations for the period have been included.
The statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted pursuant to such rules and regulations.
Operating results for the three and nine month periods ended December 31, 1996
are not necessarily indicative of the results that may be expected for the year
ending March 31, 1997. It is suggested that the condensed financial statements
be read in conjunction with the financial statements and accompanying notes
included in the Company's 1996 Annual Report on Form 10-KSB.
2
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31 MARCH 31
1996 1996
------------- -----------
ASSETS
Current Assets:
Cash and Cash Equivalents $182,000 $136,000
Trade accounts and notes receivable, less
allowance for doubtful accounts of
$255,000, at December 31, 1996, and
$239,000 at March 31, 1996 3,137,000 3,273,000
Inventories (Note 2) 2,087,000 2,735,000
Prepaid expenses and other assets 116,000 101,000
Deferred Income Taxes 314,000 314,000
------------- -----------
TOTAL CURRENT ASSETS 5,836,000 6,559,000
Property and Equipment at cost, Net (Note 3) 1,821,000 2,104,000
Other Assets 50,000 120,000
------------- -----------
$7,707,000 $8,783,000
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------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Lines of Credit $1,233,000 $2,263,000
Accounts Payable 1,582,000 2,647,000
Current portion of long-term debt (Note 4) 235,000 235,000
Accrued Liabilities 1,515,000 717,000
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TOTAL CURRENT LIABILITIES 4,565,000 5,862,000
------------- -----------
Long-Term Debt, less current portion
(Note 4) 514,000 904,000
Deferred Income Taxes 369,000 369,000
------------- -----------
TOTAL LONG TERM LIABILITIES 883,000 1,273,000
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Preferred Stock: $1.00 par value,
authorized 1,000,000 shares; none
issued or outstanding
Common Stock: $.01 par value, authorized
10,000,000 shares; issued and
outstanding 3,257,198 shares at
December 31, 1996 and 3,475,450 at
March 31, 1996 33,000 35,000
Additional Paid in Capital 108,000 309,000
Retained Earnings 2,157,000 1,436,000
Notes Receivable From Officers/Stockholders
(Note 5) (39,000) (132,000)
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TOTAL STOCKHOLDERS' EQUITY 2,259,000 1,648,000
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$7,707,000 $8,783,000
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"Unaudited"
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
DECEMBER 31 DECEMBER 31
1996 1995
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Net Sales $8,215,000 $8,854,000
Cost of Sales 6,039,000 7,279,000
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Gross Margin 2,176,000 1, 575,000
Selling, General, and Administrative Expenses 1,602,000 1,253,000
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Operating income 574,000 322,000
Interest and Other Expense 47,000 102,000
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Earnings before income taxes 527,000 220,000
Provision for Income Taxes 211,000 89,000
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NET EARNINGS 316,000 131,000
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Earnings (loss) per common share $0.10 $0.04
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Weighted average number of common shares
and common share equivalents outstanding 3,299,507 3,540,439
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"Unaudited"
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
DECEMBER 31 DECEMBER 31
1996 1995
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Net Sales $25,293,000 $22,352,000
Cost of Sales 19,293,000 18,628,000
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Gross Margin 6,000,000 3,724,000
Selling, General, and Administrative Expenses 4,576,000 3,321,000
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Operating Income 1,424,000 403,000
Interest and Other Expense 222,000 274,000
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Earnings (loss) before income taxes 1,202,000 129,000
Provision for Income Taxes 481,000 52,000
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NET EARNINGS (LOSS) 721,000 77,000
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Earnings (loss) per common share $0.22 $0.02
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Weighted average number of common shares
and common share equivalents outstanding 3,345,731 3,548,480
------------- -----------
------------- -----------
"Unaudited"
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED
DECEMBER 31 DECEMBER 31
1996 1995
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CASH FLOW (LOSS) FROM OPERATING ACTIVITIES
Net earnings $721,000 $77,000
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 525,000 386,000
Deferred income taxes 0 0
Compensation to reduce notes receivable
from Officers and Stockholders 93,000 29,000
Loss (gain) on sale of property and
equipment (7,000) 30,000
Changes in operating assets and
liabilities:
Trade accounts and notes receivable 136,000 (1,712,000)
Inventories 648,000 233,000
Prepaid expenses and other assets 55,000 (118,000)
Accounts payable and accrued
liabilities (267,000) 524,000
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Net cash provided by (used in) operating
activities 1,904,000 (551,000)
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CASH FLOW (LOSS) FROM INVESTING ACTIVITIES
Purchases of property and equipment (242,000) (430,000)
Reduction in notes receivable from
officers/stockholders 0 14,000
Proceeds from sale of property and equipment 7,000 7,000
------------- -----------
Net cash provided by (used in)
investing activities (235,000) (409,000)
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CASH FLOW (LOSS) FROM FINANCING ACTIVITIES
Proceeds from (payments on) long-term debt (390,000) 24,000
Net proceeds from (payments on) revolving
credit line (1,030,000) 988,000
Repurchase of common stock (203,000) (14,000)
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Net cash provided by (used in) financing
activities (1,623,000) 998,000
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Net increase (decrease) in cash and cash
equivalents 46,000 38,000
Cash and cash equivalents at beginning
of period 136,000 117,000
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Cash and cash equivalents at end of period $182,000 $155,000
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"Unaudited"
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SELECTED FINANCIAL DATA
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its presently inactive, wholly-owned subsidiary (Fireplace Industries of
California, Inc.). All material inter-company transactions have been
eliminated. All adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the results of operations have been
included.
2. INVENTORIES
Inventories are comprised of:
DECEMBER 31 MARCH 31
1996 1996
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Raw Materials $1,181,750 $1,643,000
Work in Progress 316,000 316,000
Finished Goods 589,250 776,000
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TOTAL $2,087,000 2,735,000
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3. PROPERTY AND EQUIPMENT
The Company's investment in property and equipment, at cost, less related
accumulated depreciation and amortization is summarized below:
DECEMBER 31 MARCH 31
1996 1996
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Machinery and Equipment $2,946,000 $3,528,000
Tools, Dies and Molds 1,275,000 2,761,000
Furniture, Fixtures, and Vehicles 622,000 637,000
Buildings and Leasehold Improvements 54,000 92,000
Research and Development Equipment 279,000 282,000
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$5,176,000 $7,300,000
Accumulated Depreciation and
Amortization 3,355,000 5,196,000
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$1,821,000 $2,104,000
------------ -----------
------------ -----------
7
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SELECTED FINANCIAL DATA
4. LONG-TERM DEBT
Long-Term debt is summarized as follows:
DECEMBER 31 MARCH 31
1996 1996
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Equipment term loans payable to bank,
bearing interest at the bank's prime rate
plus 1% due in monthly principal amounts
from $7,000 to $8,000 plus interest,
through March 1999. $413,000 $555,000
Notes payable to a finance company, bearing
interest at 8.75% due in monthly principal
and interest payments of $2,500 through
March 2000. $86,000 $104,000
Unsecured subordinated note payable, bearing
interest at 14%, principal payments due
quarterly increasing from $10,000 to $35,000
through September 1999. $250,000 $480,000
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$749,000 $1,139,000
Less current portion $235,000 $235,000
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$514,000 $904,000
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5. RELATED PARTY TRANSACTIONS
On December 31, 1996, advances to officers/stockholders totaling $39,000 are
outstanding, this represents a decrease of $93,000 from the period ended
March 31, 1996. The decrease was a result of compensation used by
officers/stockholders to repay the loans. Principal payments on these
advances will be due in semiannual installments over the next year, with
interest on the notes ranging from 8% to 10%. In the event that the amounts
are not repaid, the principal and interest due will be charged to these
individuals as compensation expense over the remaining repayment period.
The Company has entered into two monthly operating leases of equipment with H&H
Equities Incorporated. H&H Equities Incorporated is wholly owned by Willard P.
Harris and John D. Hornsby, members of the Company's Board of Directors. The
monthly lease payments are $7,119 and totaled $79,566 for the nine months ended
December 1996.
8
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(1) LIQUIDITY AND CAPITAL RESOURCES
The Company has lines of credit with a bank for an aggregate $4,500,000 with an
interest rate of .5 percent above prime, payable monthly. At December 31, 1996
$1,233,000 was owed under the lines of credit compared to $2,263,000 at March
31, 1996. The line of credit agreements contain restrictive covenants which
require maintenance of working capital and other financial ratios, prohibit the
payment of dividends and have certain other limitations. The Company was in
compliance with all of these restrictive covenants as of December 31, 1996. The
line of credit is renegotiated annually on August first, the Company does not
anticipate any problems with its ability to continue with its current financing.
Accounts receivable (before allowance for doubtful accounts) at December 31,
1996 were $3,392,000 compared to $3,512,000 at March 31, 1996. This 3.4%
decrease is primarily due to improved credit collections for the three months
ended December 31, 1996 from the three months ended March 31, 1996.
The current ratio has increased 13.4% as of December 31, 1996 to 1.27:1 from
1.12:1 at March 31, 1996. The Company was able to use the higher selling price
per unit, discussed in "Results of Operations" below, to payoff its line of
credit resulting in this lower ratio.
The Company has made capital additions of $242,000 during the nine months ended
December 31, 1996. The Company anticipates total purchases of approximately
$500,000 during the fiscal year ending March 31, 1997.
The Company has, and may continue to, repurchase its common stock. Between
March 31, 1996 and December 31, 1996 the Company has repurchased 218,252 shares
of common stock for $203,000. These shares are retired as required by
California law.
(2) RESULTS OF OPERATION
Sales for the nine months ended December 31, 1996 increased by 13.2% from the
same nine month period in 1995. This increase is explained in part by a surge in
the manufactured housing industry which resulted in a 6.0% increase in the
number of fireplaces sold to 81,819 from 77,176. Additionally there was a 6.7%
or $19.51 increase in selling price per fireplace unit for the nine months ended
December 31, 1996 compared to the nine months ended December 31, 1995. A
number of factors affected the selling price, the Company decreased the number
of special discounts available to customers, raised the price of the product and
increased sales of non fireplace items such as pipe, accessories and logsets.
Sales for the three months ended December 31, 1996 decreased by 7.2% from the
same three month period in 1995. The decrease is due to a decrease in the number
of fireplaces sold for the three months ended December 31, 1996 compared to the
three months ended December 31, 1995 of 3,929 or 13.4%, offset by a 7% increase
in the average selling price of a fireplace unit.
Cost of sales as a percent of sales decreased for the nine months ended December
31, 1996 to 76.3% from 83.3% for the same period in 1995. Cost of sales as a
percent of sales decreased for the three months ended December 31, 1996 to 73.5%
from 82.2% for the same period in 1995. These decreases are due to higher
selling prices coupled with an improved steel purchasing program.
Selling, general, and administrative expenses were 18.1% of sales for the nine
months ended December 31, 1996 compared to 14.9% for the same period in 1995.
Selling, general, and administrative expenses were 19.5% of sales for the three
months ended December 31, 1996 compared to 14.2% for the same period in 1995.
These increases are due to higher insurance costs, and higher bonus expense
related to the higher pre tax net profit.
Interest and other expense as a percent of sales decreased .3% for the nine
months ended December 31, 1996 and .6% for the three months ended December 31,
1996 from the same periods in 1995. This decrease is due to interest calculated
on lower borrowings.
Net income increased by 2.6% of sales for the nine months ended December 31,
1996 and 2.3% for the three months ended December 31, 1996 compared to the same
periods in 1995. This increase is due to the increased sales price per unit,
offset against the higher insurance costs and bonus expense.
9
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(3) NEW ACCOUNTING PRONOUNCEMENTS
In 1996, the Company adopted SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The adoption of
this Statement did not have a material effect on the Company's financial
statements.
The Financial Accounting Standards Board (FASB) has issued Statement No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities, and Statement No. 127, Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125 (an amendment of FASB Statement No. 125)
which becomes effective for transactions occurring after December 31, 1996 and
certain transactions after December 31, 1997. These Statements do not permit
earlier or retroactive application. The Company does not believe the adoption
of these two statements will have a material effect on the financial
statements.
PART II - OTHER INFORMATION
(a) Exhibits
(27) Financial Data Schedule:
Incorporated by reference from the Electronic filing of this report.
(b) Reports on Form 8-K
No Form 8-K was filed during this quarter.
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.
Date: February 10, 1997
FIREPLACE MANUFACTURERS, INC.
BY: WILLARD P. HARRIS
-------------------------
Willard P. Harris
Chief Executive Officer
JANE ANN IOVINE
-------------------------
Jane Ann Iovine
Vice President of Finance
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 182,000
<SECURITIES> 0
<RECEIVABLES> 3,392,000
<ALLOWANCES> 255,000
<INVENTORY> 2,087,000
<CURRENT-ASSETS> 5,836,000
<PP&E> 5,176,000
<DEPRECIATION> 3,355,000
<TOTAL-ASSETS> 7,707,000
<CURRENT-LIABILITIES> 4,565,000
<BONDS> 0
0
0
<COMMON> 33,000
<OTHER-SE> 2,226,000
<TOTAL-LIABILITY-AND-EQUITY> 7,707,000
<SALES> 8,215,000
<TOTAL-REVENUES> 8,215,000
<CGS> 6,039,000
<TOTAL-COSTS> 7,641,000
<OTHER-EXPENSES> 47,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 527,000
<INCOME-TAX> 211,000
<INCOME-CONTINUING> 316,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 316,000
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
