FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________to__________________
Commission File Number___________________________0-9790_________________
Thermal Industries, Inc.__________________________
(Exact name of registrant as specified in its charter)
__________Pennsylvania__________________________________25-1145753______
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
_______301 Brushton Avenue__________Pittsburgh, Pennsylvania 15221____
(Address of principal executive offices) (Zip Code)
__________________________________(412) 244-6400_______________________
(Registrant's telephone number, including area code)
________________________________________N/A_____________________________
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (l) 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 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________
Number of shares outstanding of issuer's common stock, as of December
31, 1996 was 1,961,712.
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
Index
Page
Number
Part I. Financial Information
Condensed Consolidated Balance Sheets -
December 31, 1996 and June 30, 1996 1
Condensed Consolidated Statements of Income -
Three Months ended December 31, 1996 and 1995
Six Months ended December 31, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1996 and 1995 3
Notes to Condensed Consolidated Financial
Statements 4,5
Management's Discussion and Analysis of
the Financial Condition and Results
of Operations 6,7
Part II. Other Information
Item l. Legal Proceedings 8
Item 6. Exhibits and Reports on Form 8-K 8,9
Signature 10
<PAGE>
PART I - FINANCIAL INFORMATION
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31 JUNE 30,
1996 1996
(UNAUDITED) (AUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 5,070,241 $ 2,083,260
Temporary investments 5,393,256 5,153,783
Accounts receivable - net 3,859,117 4,252,434
Inventories 4,848,654 5,083,556
Prepaid expenses 516,673 333,791
Prepaid taxes 64,955
Other receivables 103,183 59,357
TOTAL CURRENT ASSETS 19,791,124 17,031,136
PROPERTY AND EQUIPMENT - NET 5,587,922 5,987,436
OTHER ASSETS
Trade accounts receivable - long term 1,102,851 862,931
Miscellaneous 77,422 82,364
TOTAL OTHER ASSETS 1,180,273 945,295
TOTAL ASSETS $26,559,319 $23,963,867
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt $ 173,545 $ 172,452
Accounts payable 913,948 993,344
Accrued wages 508,878 567,236
Accrued profit sharing contribution 309,152 614,800
Accrued payroll and sales taxes 188,477 260,844
Customers' deposits 137,942 285,222
Accrued income taxes 903,900
Other payables 7,853 4,757
TOTAL CURRENT LIABILITIES 3,143,695 2,898,655
LONG TERM DEBT 1,922,669 2,059,717
SHAREHOLDERS' EQUITY
Common stock - par value $.01 per share 41,205 41,205
Paid in capital 430,601 420,509
Retained earnings 21,021,149 18,543,781
TOTAL SHAREHOLDERS' EQUITY 21,492,955 19,005,495
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $26,559,319 $23,963,867
See notes to condensed consolidated financial statements.
-1-<PAGE>
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
SALES $12,771,831 $11,637,165 $26,248,760 $22,146,797
COSTS AND EXPENSES
Manufacturing costs
of product sold 6,709,241 6,521,251 14,321,951 12,428,293
Administrative and
selling expenses 3,838,859 2,989,884 7,252,500 6,247,445
Depreciation and
amortization 395,607 319,738 778,737 614,378
Interest expense 19,524 22,837 41,172 47,310
TOTAL COSTS
AND EXPENSES 10,963,231 9,853,710 22,394,360 19,337,426
1,808,600 1,783,455 3,854,400 2,809,371
OTHER INCOME
Investment income 130,425 111,938 241,832 223,615
Gain on disposal
of assets 4,051 100 4,928 4,035
134,476 112,038 246,760 227,650
Income before income
taxes 1,943,076 1,895,493 4,101,160 3,037,021
Provision for income
taxes 765,500 746,600 1,625,200 1,198,100
NET INCOME $ 1,177,576 $ 1,148,893 $ 2,475,960 $ 1,838,921
Average number of
shares outstanding 1,959,579 1,957,112 1,959,579 1,955,812
Earnings per share
of common stock $ .60 $ .59 $ 1.26 $ .94
See notes to condensed consolidated financial statements.
-2-<PAGE>
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31,
1996 1995
NET CASH PROVIDED
BY OPERATING ACTIVITIES $3,960,182 $2,111,232
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant
and equipment (374,673) (622,509)
Proceeds from sale or redemption
of temporary investments 735,389 880,705
Additions to temporary investments (974,730) (518,396)
(Increase) Decrease in accounts
receivable - long term (239,920) 60,509
Other 5,198 3,935
NET CASH USED IN INVESTING ACTIVITIES (848,746) (195,756)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in notes payable (135,955) (134,893)
Proceeds from sale of treasury stock 11,500 17,950
NET CASH USED IN FINANCING ACTIVITIES (124,455) (116,943)
Net increase in cash and cash equivalents 2,986,981 1,798,533
Cash and cash equivalents at beginning
of period 2,083,260 1,873,405
Cash and cash equivalents at end of period $5,070,241 $3,671,938
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 41,172 $ 47,310
Income taxes $ 682,746 $ 740,865
Non cash financing activities:
Dividends paid and accrued
None - 1996
$.10 per share - 1995 $ 194,720
See notes to condensed consolidated financial statements.
-3-<PAGE>
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - In the opinion of management, all adjustments, consisting
only of normal recurring adjustments necessary for a fair
presentation of (a) the condensed consolidated results of
operations for the three months ended December 31,
1996 and 1995, (b) the condensed consolidated financial
position at Decmber 31, 1996 and June 30, 1996, and
(c) the condensed consolidated statements of cash flows
for the six months ended December 31, 1996 and 1995,
have been made. For further information, refer to the
consolidated financial statements and notes thereto
included in the Company's Annual Report and its report on
Form 10-K for the year ended June 30, 1996. The results
for the six months ended December 31, 1996 are not
necessarily indicative of the results that may be expected
for the year ended June 30, 1997.
Note 2 - Inventories consisted of the following:
December 31, June 30,
1996___ __1996_
Finished Goods $1,889,749 $2,398,771
Work in Process 28,737 51,976
Raw Materials and Supplies _2,930,168 _2,632,809
$4,848,654 $5,083,556
Inventories are stated at actual cost which is lower than
market. Cost is determined substantially by the first-in,
first-out method of inventory valuation.
Note 3 - Accounts receivable - long term
Trade accounts receivable - long term consists of two
unsecured trade accounts, receivable in monthly installments
of $15,000 and $20,000 respectively, which includes interest
at 8%, commencing January 1995 and July 1996 respectively.
Total account balance as of December 31, 1996 is $1,398,677
of which $1,102,851 is long term.
-4-<PAGE>
Note 4 - Long Term Debt
Long term debt consists of:
1989 Pennsylvania Economic Development Financing
Authority (PEDFA) bonds, variable interest rate
(recent interest rates ranging from 3.60 to 4.262
percent), principal payable $100,000 per year
plus interest for fifteen years beginning in
November 1990 and a balloon payment of $500,000
at the end of the fifteen year term $1,300,000
Pennsylvania Industrial Development Authority
(PIDA) mortgage note, payable in monthly
installments of $8,035.50, including interest
at 3% through July 2006 796,214
2,096,214
Less current portion 173,545
$1,922,669
Note 5 - The calculation of earnings per share is based upon the
average number of shares outstanding during the period.
Note 6 - On January 6, l997 Thermal's board of directors unanimously
approved a definitive merger agreement which provides that
H.I.G. Investment Group acquire all Thermal outstanding stock
for $15 per share in cash. Appropriate documents have been
filed with the Federal Trade Commission and the Securities and
Exchange Commission. Upon approval of these documents, a
stockholders' meeting will be called to vote on the merger.
Earliest anticipated date for completion of this transaction
is March 31, 1997.
-5-<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Three months ended December 31, 1996 versus
Three months ended December 31, 1995
Sales for the second quarter of fiscal 1997 were $12.8 million, a
9.8% increase over the $11.6 million reported in the second quarter of
fiscal 1996. Unit sales increased approximately 16% for the same
comparative time periods. Incoming order units for January 1997 are
about 13% higher than those of the previous year. Projected unit orders
for the quarter ended March 31, 1997 are approximately 9% higher than
those of the previous year's comparative period.
Manufacturing costs, which include depreciation and interest, were
approximately 55.2% of sales compared to 58.1% of sales for the
corresponding prior year period. Product mix resulted in a decrease in
material costs from 28.8% of sales in 1995 to 26% of sales in 1996.
Manufacturing labor as a percentage of sales decreased from 17.9% to
17.l%.
Overhead costs increased from 11.4% to 12.1% of sales for the
comparative second quarters.
Selling and administrative expenses as a percentage of sales increased
from 26.6% to 30.3%. Contributing primarily to this increase
were payroll and related costs (payroll taxes and insurance) which
increased from 14.4% to 16.2% of sales and dealer promotion costs which
increased from 1.3% to 3.8% of sales for the respective second quarters.
Investment income, comprised of interest, dividends and gains from
sales of marketable securities increased approximately 17% over last
year's second quarter.
Net income after taxes for the current year's second quarter was $1.2
million or 9.2% of sales compared to $1.1 million or 9.9% of sales
for the previous year's second quarter.
Six months ended December 31, 1996 versus
Six months ended December 31, 1995
Sales for the current year's first six months were $26.2 million, an
18.5% increase over last year's volume of $22.1 million for the same
period. Unit sales rose 13.8% over last year's similar six month period.
Manufacturing costs decreased from 58.4% to 57.1% of sales for the
corresponding six month periods. Material costs decreased from 28.3% to
27.9% of sales. Manufacturing labor also decreased from 18.2% to 17.3%
of sales, while overhead costs as a percentage of sales remained the same.
-6-<PAGE>
Selling and administrative expenses rose approximately $1 million, but
as a percentage of sales decreased from 28.9% to 28.2%. Payroll and
related costs (payroll taxes and insurance) increased approximately
$480,000 but decreased as a percentage of sales from 16.8% to 16.0%.
Dealer promotion costs increased approximately $330,000 and as a
percentage of sales increased from 1% to 2.1%.
Investment income increased approximately 8% over last year's
corresponding period.
Net income after taxes for the first six months of fiscal 1997 was
$2.5 million or $9.4% of sales compared to $1.8 million or 8.3% of sales
for the previous year's six month period.
Thermal normally operates at a loss in the third quarter of its fiscal
year due to the seasonal nature of the business. The Company does not
expect a departure from this cyclical loss.
Liquidity and Capital Resources
Net cash flow showed approximately a $3 million increase for the first
six months of fiscal 1997. Cash provided by operating activities was due
primarily to a positive cash flow generated from earnings, decreases in
current accounts receivable and inventories and increases in accounts
payable, all of which were partially offset by increases in prepaid
expenses and miscellaneous receivables.
Investing activities used cash in the amount of $848,746 primarily from
capital expenditures and an increase in long term trade accounts receivable
of $239,920. Capital expenditures for the current six months
were $374,673 compared to $622,509 for last year's six month period.
Total expenditures for equipment are expected to be approximately $2
million for fiscal 1997.
The Company believes that the cash flows provided from operating and
investing activities will be sufficient to meet all of its anticipated
fiscal 1997 needs for capital expenditures, debt retirement and operating
activities.
-7-<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of Form 10-K for the
year ended June 30, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Report on Review by Independent
Certified Public Accountant
(b) Report on Form 8-K - On January 7, 1997 Form 8-K was
filed reporting under Item 5 a press
release issued by Thermal announcing an
agreement and plan of merger with H.I.G.
Investment Group providing for the
acquisition of all Thermal outstanding
stock for $15 per share in cash.
-8-<PAGE>
Item 6(a). REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Thermal Industries, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Thermal Industries, Inc. and subsidiaries (a Pennsylvania corporation) as
of December 31, 1996, and the related condensed consolidated statements of
income and cash flows for the three-month and six-month periods then ended.
These financial statements are the responsibility of the company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
February 5, 1997
-9-<PAGE>
SIGNATURE
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.
THERMAL INDUSTRIES, INC.
(REGISTRANT)
___/s/ Eric Rascoe_________
Eric Rascoe
Secretary-Treasurer
(Principal Financial and
Accounting Officer)
DATE:__February 14, 1997___
-10-<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 5,070,241
<SECURITIES> 5,393,256
<RECEIVABLES> 4,042,224
<ALLOWANCES> 183,107
<INVENTORY> 4,848,654
<CURRENT-ASSETS> 19,791,124
<PP&E> 14,200,624
<DEPRECIATION> 8,612,702
<TOTAL-ASSETS> 26,559,319
<CURRENT-LIABILITIES> 3,143,695
<BONDS> 1,922,667
0
0
<COMMON> 41,205
<OTHER-SE> 21,451,750
<TOTAL-LIABILITY-AND-EQUITY> 26,559,319
<SALES> 26,248,760
<TOTAL-REVENUES> 26,248,760
<CGS> 13,694,651
<TOTAL-COSTS> 13,694,651
<OTHER-EXPENSES> 7,106,005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,172
<INCOME-PRETAX> 4,101,160
<INCOME-TAX> 1,625,200
<INCOME-CONTINUING> 2,475,960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,475,960
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 0
</TABLE>
