UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year 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 0-3041
JUSTIN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Texas 75-0102185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2821 West 7th Street, Fort Worth, Texas 76107
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 336-5125
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2.50 Par Value
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 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 ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
$294,294,720 as of March 10, 1997
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
26,453,458 Common Shares as of March 10, 1997
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II, and IV incorporate certain information by reference from the
Annual Report to Shareholders for the year ended December 31, 1996. Part III
incorporates information by reference from the Proxy Statement for the Annual
Meeting of Shareholders held on March 28, 1997.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business 2
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters 7
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 7
PART III
Item 10. Directors and Executive Officers of the Registrant 8
Item 11. Executive Compensation 8
Item 12. Security Ownership of Certain Beneficial Owners
and Management 8
Item 13. Certain Relationships and Related Transactions 8
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 9
Signatures 13
Page 1
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PART I
Item 1. Business
Justin Industries, Inc. and its subsidiaries are herein collectively
referred to as the "Company", unless the context indicates otherwise. The
Company, where specifically indicated, has incorporated by reference certain
information contained in its 1996 Annual Report to Shareholders. Other
references made to that report are for information purposes only and the
information in the Annual Report to Shareholders is not deemed incorporated in
this Form 10-K.
General Development of Business
The Company was incorporated under the laws of the State of Texas on April
26, 1916, as Acme Brick Company. In 1972, after merger with Justin Boot Company
("Justin Boot") in 1968, the Company changed its name to Justin Industries, Inc.
In 1981, Justin purchased Nocona Boot Company ("Nocona"). On October 15, 1990,
the Company acquired Tony Lama Company, Inc. ("Tony Lama"). Effective August 1,
1994, the Company purchased American Tile Supply Company ("American Tile").
Justin's continuing operations are in two principal business areas: (i)
manufacture and sale of building materials, which includes the operations of
Acme, American Tile, Featherlite Building Products Corporation, and Tradewinds
Technologies, Inc. ("Tradewinds"), and (ii) manufacture and sale of footwear
products, which includes the operations of Justin Boot, Nocona and Tony Lama.
Financial Information about Industry Segments
A five year analysis of sales and operating profit contribution by industry
segment is presented on page 17 of the company's 1996 Annual Report to
Shareholders and additional financial information, including identifiable
assets, by industry segment is included in Note 8 of Notes to Consolidated
Financial Statements on page 26 of the Shareholders' Report. Such information
is hereby incorporated by reference.
Narrative Description of Business
The following information is presented in addition to the information
included in the Report on Operations contained on pages 5 through 11 of the
company's 1996 Annual Report to Shareholders, which is incorporated herein by
reference.
Manufacture and Sale of Building Materials
The building materials segment includes clay brick manufactured and sold
under the name Acme Brick for use in residential and commercial construction.
The primary market for Acme Brick is the Central and Southwest United States
where distribution is mainly through company operated sales offices. Acme also
distributes through independent dealerships in other parts of the United States.
Acme is one of the largest manufacturers of face brick in the United States.
Other products in the company's building materials segment include concrete
block manufactured and sold under the trade name Featherlite Building Products
and cut limestone manufactured under the name Texas Quarries. The primary
markets for these products are in Texas and its neighboring states.
Acme and Featherlite also represent other manufacturers as distributors of
such items as clay brick, glass block, glazed and unglazed tile and masonry
units, fireplace equipment, masonry cleaners, masonry saws, wall reinforcements,
masonry tools, masonry cement, and purchased used brick for resale.
Since August, 1994, this segment also includes the sale of ceramic and
marble floor and wall tile through American Tile distribution centers in Texas.
Tradewinds manufactures a unique line of premium quality evaporative
coolers used primarily for central residential cooling and light commercial and
spot cooling.
In the states of Texas, Louisiana, Arkansas, Oklahoma, New Mexico, Kansas,
Tennessee, and Missouri, Acme, American Tile, and Featherlite market their
building materials through approximately 480 full-time company sales employees
serving architects, contractors, home builders, and others in the construction
market. These direct sales comprise the majority of the company's building
materials sales. In the other states, sales are made principally through
independent distributors and dealers. The majority of the building materials
manufactured by the company are utilized within a 250 mile radius of the plant
where they are produced. Tradewinds' coolers are sold by direct sales personnel
in selected major markets and by distribution elsewhere.
Page 2
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Manufacture and Sale of Footwear Products
Footwear operations include the design, manufacture and distribution of
men's, women's, and children's western style, safety, work and sports boots and
shoes, primarily for sale in the United States under the primary trade names of
"Justin(R)", "Nocona(R)", "Tony Lama(R)", "Chippewa(R)", "Sport Lace-R(R)", and
"Diamond J(R)".
Justin Boot Company, headquartered in Fort Worth, Texas, started business
in 1879 as H. J. Justin & Sons, Inc. The company owns and operates footwear
manufacturing plants in Fort Worth, Texas, Cassville, Sarcoxie (currently
closed), and Carthage, Missouri. Nocona Boot Company, headquartered in Nocona,
Texas, started business in 1925 and owns and operates its boot manufacturing
plant in Nocona. Tony Lama Company, Inc., headquartered in El Paso, Texas, was
established in 1911. The company owns and operates a western boot manufacturing
plant in El Paso, Texas. Administrative functions of the three companies are
centralized in Fort Worth, Texas.
The company's footwear products are marketed by company salesmen and
independent sales representatives who are compensated on a commission basis.
Sales are made throughout the United States to a network of approximately 6,500
authorized retail outlets and dealers such as western goods stores, department
stores, chain stores, and mail order houses. Footwear products are sold in the
general price range of other medium to high quality lines and are manufactured
using a wide range of leathers.
Other
The company, through Northland Publishing Company ("Northland"), is also in
the publishing business. Northland's primary activity is publishing books about
the history and art of the West. Many of these books have won awards for fine
design, printing, and binding in major book competitions including the Western
Heritage Awards at the National Cowboy Hall of Fame. Northland's books are
marketed by company personnel throughout the United States.
Raw Materials
The principal raw materials for the company's brick are clay and shale
mined from company-owned or leased properties. The company has developed
adequate clay reserves located at or near plant sites to supply its needs for
the foreseeable future. Other raw materials used in the building materials
operations, such as cement, aggregate, and additives, are purchased by the
company in the open market and appear to be readily available for the
foreseeable future from numerous domestic suppliers. Materials for evaporative
coolers are purchased in the open market or manufactured to the company's
specifications and all appear to be readily available for the foreseeable future
from numerous suppliers.
The company consumes large quantities of natural gas and other combustible
fuels in the drying and firing of its clay products. In periods of severe cold
weather and occasionally at other times, the company's natural gas supplies have
been limited by its suppliers at certain locations. In addition, during winter
months, index pricing of natural gas can be somewhat volatile. The company
believes it will be able to obtain an adequate supply of energy in the future to
meet its requirements.
The primary raw material used in the footwear product line is finished
leather. Finished leather, which is readily available, is purchased from
various tanneries in the United States and from tanneries in foreign countries
and their representatives in the United States. Inventories are maintained to
meet production requirements. Other raw materials incidental to the production
of these products such as thread, tacks, staples, buckles, and clasps appear to
be readily available for the foreseeable future from numerous domestic
suppliers.
Patents and Trademarks
Many of the company's products and processes are patented. In addition,
most of the company's products are marketed under registered trademarks.
Page 3
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Seasonal Nature of Business
Demand for building materials and evaporative coolers is seasonal, with
sales during periods of warm weather representing a higher than average
proportion of total yearly sales while sales of footwear products are generally
highest in the fourth quarter.
Working Capital Requirements
It is the company's policy to increase inventory levels during periods when
production capabilities exceed sales. The company may also from time to time
increase its inventory of raw materials in its footwear business segment to
assure itself of an adequate supply of such raw materials.
Historically, funds required for working capital have been generated from
operations and from borrowings from commercial banks.
Significant Customers
No material part of the company's business is dependent upon a single
customer or upon a few customers, the loss of any one or more of whom would have
a material adverse effect on the company's business.
Backlog of Orders at End of Fiscal Year
An analysis of backlog orders is presented on page 16 of the company's 1996
Annual Report to Shareholders, which is incorporated herein by reference. In
accordance with industry practice, unfilled orders for clay brick and footwear
products are generally cancelable by customers at any time and for this reason
may not be considered firm backlog in the traditional sense, despite the fact
that in the past, orders have been canceled only infrequently. Substantially
all unfilled orders are expected to be filled within one year.
Competition
The business environment in which the company operates is highly
competitive in the areas of price, service, and product quality. Unless
otherwise indicated below, the company's relative competitive position within
its product lines and market areas is not readily available due to constant
changes in the number and identity of competitors and types of competitive
products.
In the building materials segment, competition includes other suppliers of
brick and concrete products, as well as suppliers of diverse alternative
building materials such as stucco, steel, aluminum, glass, plastic, and wood
products. There are numerous manufacturers of various types of brick and
concrete products in the United States, virtually all of which operate on a
regional or local basis. In every geographical area served by the company,
there are numerous competitors in all significant building product lines. The
company is one of the largest face brick manufacturers in the United States and
the largest in the Southwest. There are numerous plants manufacturing concrete
products in the area in which the company owns and operates plants. Tradewinds'
evaporative coolers compete with approximately five other major manufacturers,
two of which currently have approximately 70 percent of the market. None of the
competition, however, manufactures coolers constructed of injection molded
polypropylene material.
The company's western style boots and other footwear products compete with
approximately 20 other major manufacturers of high quality merchandise, and many
more manufacturers of lesser quality footwear.
Research Activities
In the normal course of business, the company conducts research and
development activities to improve existing products and to develop new products
within its current product lines. These activities include developing new
styles, effective use of new materials, and developing new manufacturing
techniques. The amount spent during each of the last three fiscal years on
these activities did not exceed one percent of the company's total operating
revenues.
Page 4
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Environment
There are numerous federal, state, and local statutes, regulations and
ordinances regulating discharge of materials into the environment or otherwise
relating to the protection of the environment, including those concerning clean
air, water, and waste disposal. In management's opinion, none of these will
materially affect the company's earnings or competitive position and should not
require any material increase in capital expenditures.
Employees
The company had 3,943 employees in its operations as of December 31, 1996.
The number of employees by job position at December 31, 1996, was as
follows:
Building
Materials Footwear Parent Total
--------- --------- --------- -------
Production 1,463 1,134 2,597
Sales 544 231 775
Administrative,
Engineering,
Clerical, and Other 358 187 26 571
------- ------- ------- -------
2,365 1,552 26 3,943
======= ======= ======= =======
Foreign Operations
Footwear products are marketed in foreign countries, primarily Canada,
Western Europe, and Japan. Foreign operations are not material to consolidated
operations.
Item 2. Properties
Information concerning the company's principal production facilities is as
follows:
The company's current annual brick manufacturing capacity is approximately
840 million brick. The company's 17 operating brick plants are located on
approximately 8,000 acres of land, which includes associated clay mining
operations. The plants have individual production capacities ranging from 14.5
million to 128 million brick each year.
The company's tile distribution centers operate out of 12 leased
facilities, consisting of approximately 278,000 square feet of showroom, office
and warehouse space, and two owned showroom/warehouse facilities containing
48,000 square feet.
The company's concrete operations include 7 concrete block plants operated
by Featherlite and one plant operated by Acme on tracts of land ranging from 5
acres to 24 acres. In addition, Featherlite operates a limestone mill on a 36
acre tract of land and owns 62 acres of volcanic cinder mines and leases mining
rights on 2,100 acres of land for quarrying architectural limestone.
Tradewinds manufactures its evaporative coolers in Phoenix, Arizona, in a
leased facility containing approximately 90,000 square feet.
The footwear manufacturing facilities consist of 7 plants, two of which are
currently not operating, and related warehouses containing approximately 777,000
square feet, located on land owned by the company. These plants have a designed
capacity to produce in excess of 3 million pair of footwear annually.
The company's corporate administrative headquarters in Fort Worth, Texas,
is contained in 26,000 square feet of modern office facilities.
The company owns various interests in oil and gas mineral leases in Texas,
Oklahoma, Louisiana, and Arkansas. Revenues received to date from these
interests have not and are not anticipated to have a material effect on
consolidated revenues.
Page 5
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Item 3. Legal Proceedings
The company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, these claims and lawsuits in the
aggregate will not have a material adverse effect on the company's consolidated
financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the company's security holders
during the last quarter of its fiscal year ended December 31, 1996.
Executive Officers of Registrant
Certain information regarding the executive officers is as follows:
Employed Date First
by Company Appointed an
Name Age In Officer Title
- --------------------- --- ---------- --------------- --------------------
John Justin 80 1936 December 1969 Chairman of the
Board and Chief
Executive Officer
J. T. Dickenson 67 1974 September 1983 President and Chief
Operating Officer
Richard J. Savitz 50 1979 March 1982 Vice President-
Finance, Treasurer
and Secretary
Edward L. Stout, Jr. 71 1949 March 1974 Vice President-Brick
Operations
Judy B. Hunter 38 1990 October 1990 Controller,
Assistant
Treasurer
There are no family relationships among any of the above officers and there
are no known arrangements or understandings between any executive officer and
any other person pursuant to which any of the above named persons was selected
as an officer.
Page 6
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PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
Incorporated by reference from the 1996 Annual Report to Shareholders,
pages 28, 29, and 30.
As of February 28, 1997, there were 1,712 common shareholders of record.
In addition, approximately 2,355 shareholders are participants in the Justin
Industries, Inc. Employee Stock Ownership Plan.
Dividends declared for the most recent two fiscal years are as follows:
Quarter Ended Cash Dividend Declared
------------- ----------------------
3/31/95 $.04
6/30/95 $.04
9/30/95 $.04
12/31/95 $.04
3/31/96 $.04
6/30/96 $.04
9/30/96 $.04
12/31/96 $.04
Item 6. Selected Financial Data
Incorporated by reference from the 1996 Annual Report to Shareholders,
pages 28 and 29.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Incorporated by reference from the 1996 Annual Report to Shareholders,
pages 13 through 17.
Item 8. Financial Statements and Supplementary Data
The consolidated balance sheets of the company at December 31, 1996 and
1995 and the consolidated statements of income, shareholders' equity, and cash
flows for the years 1996, 1995, and 1994 and the report of independent auditors
thereon, and the company's unaudited quarterly financial data for the two-year
period ended December 31, 1996 are incorporated by reference from the 1996
Annual Report to Shareholders, pages 18 through 27 and page 30.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Page 7
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PART III
Item 10. Directors and Executive Officers of Registrant
Incorporated herein by reference from the company's definitive proxy
statement for the Annual Meeting of Shareholders held March 28, 1997 ("Proxy
Statement"), pages 2 through 5.
Information regarding the executive officers is included in Part I.
Item 11. Executive Compensation
Incorporated herein by reference from the Proxy Statement, pages 6 through
12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required as to security ownership is incorporated herein by
reference from the Proxy Statement, pages 2 and 3.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference from the Proxy Statement, page 13.
Page 8
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
Reference
------------------------------
Annual Report
to Shareholders
Form 10-K (page)
--------- ---------------
Data incorporated by reference from
attached Annual Report to Shareholders
of Justin Industries, Inc.:
Report of independent auditors 27
Consolidated balance sheet at
December 31, 1996 and 1995 18
For the years ended December 31, 1996,
1995, and 1994:
Consolidated statement of income 19
Consolidated statement of
shareholders' equity 19
Consolidated statement of cash flows 20
Notes to consolidated financial statements 21-26
2. Financial Statement Schedules
Report of Independent Auditors and Consent
of Independent Auditors S-1
Schedules for years ended December 31,
1996, 1995, and 1994:
II - Valuation and qualifying accounts S-2
All other schedules and compliance information have been omitted since the
required information is not present or is not present in amounts sufficient to
require submission of the schedule, or because the information required is
included in the financial statements and the notes thereto.
Page 9
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3. Exhibits
Exhibit
No. Description
- ------- -----------
3.1 Articles of Incorporation of Registrant, as amended (incorporated by
reference to the Registrant's Registration Statement on Form S-8
dated April 27, 1993)
3.2 By-Laws of Registrant, as amended (incorporated by reference to the
Registrant's Current Report on Form 8-K dated September 7, 1990)
4.1 Rights Agreement dated as of October 6, 1989 between Registrant and
Team Bank, as Rights Agent (incorporated by reference to
Registrant's Registration Statement on Form 8-A dated October 10,
1989)
4.2 First Amendment to Rights Agreement dated as of October 4, 1990
between Registrant and Ameritrust Texas, N.A., as successor Rights
Agent (incorporated by reference to Registrant's Amendment No. 1 on
Form 8 to Registration Statement on Form 8-A dated October 4, 1990)
10.1 Registrant's 1981 Stock Option Plan*
10.2 Registrant's 1984 Incentive Stock Option Plan*
10.3 Registrant's Justin Industries, Inc. 1996 Non-Employee Director Stock
Option Plan (incorporated by reference from the company's definitive
proxy statement for the Annual Meeting of Shareholders held on April
11, 1996)
10.4 Registrant's 1992 Stock Option Plan (incorporated by reference from
the company's definitive proxy statement for the Annual Meeting of
Shareholders held on April 3, 1992)
10.5 Registrant's Deferred Compensation Plan*
10.6 Form of Registrant's Special Executive Benefit Program*
10.7 Registrant's Supplemental Executive Retirement Plan of 1992
(incorporated by reference to Registrant's 1992 Annual Report on Form
10-K)
10.8 Registrant's Employee Stock Ownership Plan, as restated January 1,
1989 (incorporated by reference to Registrant's 1994 Annual Report on
Form 10-K)
10.9 First Amendment to the Registrant's Restated Employee Stock Ownership
Plan, effective July 1, 1995 (incorporated by reference to
Registrant's 1994 Annual Report on Form 10-K)
10.10 Second Amendment to the Registrant's Restated Employee Stock
Ownership Plan, effective August 1, 1995 (incorporated by reference
to Registrant's 1994 Annual Report on Form 10-K)
10.11 Employment Agreement dated as of December 14, 1995 between Registrant
and John S. Justin, Jr. (incorporated by reference to Registrant's
1994 Annual Report on Form 10-K)
10.12 Form of Severance Agreement dated March 23, 1990 between Registrant
and certain of its executive officers*
10.13 Form of Severance Agreement dated March 23, 1990 between Registrant
and certain of its officers and employees*
10.14 Revolving Loan Agreement between Registrant, NationsBank of Texas,
N.A. (formerly NCNB Texas National Bank) as Administrative Lender and
the several banks listed on the signature pages thereof, as amended
in the First and Second Amendments through June 9, 1990*
10.15 Third Amendment to the Revolving Loan Agreement dated as of December
3, 1990 among Registrant, NationsBank of Texas, N.A. (formerly NCNB
Texas National Bank), Bank One, Texas, N.A. (formerly Team Bank),
Citibank, N.A., The Bank of New York and Texas Commerce Bank--Fort
Worth, N.A. (incorporated by reference to Registrant's Current Report
on Form 8-K dated December 3, 1990)
10.16 Fourth Amendment to the Revolving Loan Agreement dated as of December
31, 1991 among Registrant, certain subsidiaries of the Registrant,
NationsBank of Texas, N.A., as Administrative Lender, NationsBank of
Texas, N.A., Bank One, Texas, N.A. (formerly Team Bank), Citibank,
N.A., The Bank of New York and Texas Commerce Bank, National
Association (successor by merger to Texas Commerce Bank--Fort Worth,
N.A.) (incorporated by reference to Registrant's 1991 Annual Report
on Form 10-K)
10.17 Fifth Amendment to the Revolving Loan Agreement dated as of May 1,
1992 among Registrant, certain subsidiaries of the Registrant,
NationsBank of Texas, N.A., as Administrative Lender, NationsBank of
Texas, N.A., Bank One, Texas, N.A. (formerly Team Bank), Citibank,
N.A., The Bank of New York and Texas Commerce Bank, National
Association (successor by merger to Texas Commerce Bank--Fort Worth,
N.A.) (incorporated by reference to Registrant's 1992 Annual Report
on Form 10-K)
10.18 Sixth Amendment to the Revolving Loan Agreement dated as of December
31, 1993 among Registrant, certain subsidiaries of the Registrant,
NationsBank of Texas, N.A., as Administrative Lender, NationsBank of
Texas, N.A., Bank One, Texas, N.A., Citibank, N.A., The Bank of New
York and Texas Commerce Bank, National Association (incorporated by
reference to Registrant's 1993 Annual Report on Form 10-K)
10.19 Seventh Amendment to the Revolving Loan Agreement dated as of July
24, 1995 among Registrant, certain subsidiaries of the Registrant,
NationsBank of Texas, N.A., as Administrative Lender, NationsBank of
Texas, N.A., Bank One, Texas, N.A., The Bank of New York, and Texas
Commerce Bank, National Association (incorporated by reference to
Registrant's 1995 Annual Report on Form 10-K)
10.20 Term Loan Agreement dated as of December 3, 1990 among the
Registrant, NationsBank of Texas, N.A. (formerly NCNB Texas National
Bank), Bank One, Texas, N.A. (formerly Team Bank), Citibank, N.A. and
Texas Commerce Bank--Fort Worth, N.A. (incorporated by reference to
Amendment No. 4 to Registrant's Schedule 14D-9 dated December 6,
1990)
10.21 First Amendment to the Term Loan Agreement dated as of December 31,
1991 among Registrant, certain subsidiaries of the Registrant,
NationsBank of Texas, N.A., as Administrative Lender, NationsBank of
Texas, N.A., Bank One, Texas, N.A. (formerly Team Bank), Citibank,
N.A. and Texas Commerce Bank, National Association (successor by
merger to Texas Commerce Bank--Fort Worth, N.A.) (incorporated by
reference to Registrant's 1991 Annual Report on Form 10-K)
10.22 Second Amendment to the Term Loan Agreement dated as of May 1, 1992
among Registrant, certain subsidiaries of the Registrant, NationsBank
of Texas, N.A., as Administrative Lender, NationsBank of Texas, N.A.,
Bank One, Texas, N.A. (formerly Team Bank), Citibank, N.A. and Texas
Commerce Bank, National Association (successor by merger to Texas
Commerce Bank--Fort Worth, N.A.) (incorporated by reference to
Registrant's 1992 Annual Report on Form 10-K)
10.23 Third Amendment to the Term Loan Agreement dated as of December 31,
1993 among Registrant, certain subsidiaries of the Registrant,
NationsBank of Texas, N.A., as Administrative Lender, NationsBank of
Texas, N.A., Bank One, Texas, N.A., Citibank, N.A. and Texas Commerce
Bank, National Association (incorporated by reference to Registrant's
1993 Annual Report on Form 10-K)
10.24 Fourth Amendment to the Term Loan Agreement dated as of July 24, 1995
among Registrant, certain subsidiaries of the Registrant, NationsBank
of Texas, N.A., as Administrative Lender, NationsBank of Texas, N.A.,
Bank One, Texas, N.A., and Texas Commerce Bank, National
Association (incorporated by reference to Registrant's 1995 Annual
Report on Form 10-K)
13 Annual report to shareholders for the year ended December 31, 1996
21 Subsidiaries of the Registrant
23 Report of Independent Auditors and Consent of Independent Auditors
(included herein at page S-1)
27 Financial Data Schedules
* Incorporated by reference to Registrant's Amendment No. 1 on Form 8 to Annual
Report on Form 10-K dated August 23, 1990.
(b) Reports on Form 8-K
None.
Pages 10, 11, and 12
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
JUSTIN INDUSTRIES, INC.
(Registrant)
By: /S/ JOHN JUSTIN
John Justin
Chairman of the Board and Chief Executive Officer
March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
/S/ JOHN JUSTIN /S/ BAYARD H. FRIEDMAN
John Justin Bayard H. Friedman
Chairman of the Board and Director, March 28, 1997
Chief Executive Officer
March 28, 1997
/S/ J. T. DICKENSON /S/ DEE J. KELLY
J. T. Dickenson Dee J. Kelly
Director, President and Chief Director, March 28, 1997
Operating Officer
March 28, 1997
/S/ RICHARD J. SAVITZ /S/ JOSEPH R. MUSOLINO
Richard J. Savitz Joseph R. Musolino
Vice President-Finance, Principal Director, March 28, 1997
Finance and Accounting Officer
March 28, 1997
/S/ MARVIN GEARHART /S/ JOHN V. ROACH
Marvin Gearhart John V. Roach
Director, March 28, 1997 Director, March 28, 1997
/S/ ROBERT E. GLAZE /S/ WILLIAM E. TUCKER
Robert E. Glaze William E. Tucker
Director, March 28, 1997 Director, March 28, 1997
Page 13
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REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Justin Industries, Inc.
as of December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, and have issued our report thereon dated January 29,
1997, incorporated by reference in this Annual Report (Form 10-K). Our audits
also included the financial statement schedule listed in Item 14(a) of the
Annual Report (Form 10-K). This schedule is the responsibility of the company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/S/ ERNST & YOUNG LLP
Fort Worth, Texas
January 29, 1997
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Justin Industries, Inc. of our report dated January 29, 1997, included in the
1996 Annual Report to Shareholders of Justin Industries, Inc.
We also consent to the incorporation by reference in the a) Registration
Statement (Form S-8 No. 33-11915) pertaining to the Justin Industries, Inc. 1981
Stock Option Plan and the Justin Industries, Inc. 1984 Incentive Stock Option
Plan and in the related Prospectus; b) Registration Statement (Form S-8 No. 33-
52783) pertaining to the Justin Industries, Inc. Employee Stock Ownership Plan
and in the related Prospectus; and c) Registration Statement (Form S-8 No. 33-
61776) pertaining to the Justin Industries, Inc. 1992 Stock Option Plan and in
the related Prospectus of our reports dated January 29, 1997, with respect to
the consolidated financial statements and schedule of Justin Industries, Inc.
included or incorporated by reference in this Annual Report (Form 10-K) for the
year ended December 31, 1996.
/S/ ERNST & YOUNG LLP
Fort Worth, Texas
March 24, 1997
Page S-1
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JUSTIN INDUSTRIES, INC.
CONSOLIDATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31,
(in thousands of dollars)
Balance at Additions Balance at
Beginning Charged to Deductions End of
of Year Income (1) Year (2)
---------- ---------- --------- ----------
Reserve Deducted from
Related Assets:
1994
- ----
Doubtful Accounts $ 3,014 $ 866 $ 661 $ 3,219
1995
- ----
Doubtful Accounts $ 3,219 $ 1,347 $ 1,226 $ 3,340
1996
- ----
Doubtful Accounts $ 3,340 $ 2,707 $ 2,978 $ 3,069
(1) Accounts written off, less recoveries.
(2) The reserve for doubtful accounts is deducted from
accounts receivable in the financial statements.
Page S-2
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(Front cover - picture of boot, brick and building block.)
JUSTIN INDUSTRIES
1996
Annual Report
================================================================================
(Picture of boots and brick house)
CONTENTS
2 Letter to Shareholders
5 Report on Operations
13 Management's Discussion and Analysis
18 Consolidated Financial Statements
28 Eleven-Year Financial Summary
30 Shareholder Information
31 Directors and Officers
32 Manufacturing and Distribution Locations
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
1996 % Change 1995 % Change 1994 % Change
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $447,772 - .3 $461,448 - 4.5 $483,009 + 1.7
Net Income 23,365 - 8.9 25,651 - 30.5 36,905 - .6
Earnings Per Share .87 - 7.4 .94 - 29.3 1.33 -
Return on Shareholders' Equity 9.9% - 14.7 11.6% - 40.5 19.5% - 15.9
Capital Expenditures 24,738 - 4.9 26,020 + 39.7 18,627 + 7.8
Working Capital 165,053 - 9.0 181,385 - 2.3 185,722 + .3
Total Assets 360,078 - 4.3 376,409 + .4 374,921 + 8.1
Long-Term Debt 32,890 - 42.4 57,137 - 12.5 65,323 - 26.2
Shareholders' Equity 252,856 + 6.9 236,489 + 6.6 221,900 + 17.5
Book Value Per Share 9.56 + 7.7 8.88 + 9.0 8.15 + 17.3
Cash Dividends Per Share .16 - .16 - .16 -
Average Number of Shares Outstanding 26,997 - 1.5 27,411 - 1.4 27,810 - .5
- ------------------------------------------------------------------------------------------------------
in thousands, except per share data
</TABLE>
(Inside front cover)
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(Picture of boot, brick, tile, and building block)
1996 CORPORATE PROFILE
Justin Industries, headquartered in Fort Worth, Texas, is a leader in each of
its principal businesses:
BUILDING MATERIALS -- including Acme Brick Company, one of the nation's
largest producers of face brick; Featherlite Building Products Corporation, the
Southwest leader in manufactured concrete building products; American Tile
Supply Company, a major Texas distributor of ceramic and marble floor and wall
tile; and Tradewinds Technologies, Inc., producer of Tradewinds evaporative
coolers for home and light commercial applications.
FOOTWEAR -- consisting of Justin Boot Company, Tony Lama Company, Nocona
Boot Company, and Chippewa Shoe Company, whose products give Justin Industries a
national identity as the preeminent producer of western boots, and quality work
and sport footwear.
Northland Publishing, a distinguished publisher of western and southwestern
Americana, art, and Native American culture, is also part of Justin Industries.
Justin Industries common stock is traded in the Nasdaq National Market
System using the symbol "JSTN."
(Page 1)
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TO OUR SHAREHOLDERS
January 29, 1997
The general business trends of the last few years continued for Justin
Industries in 1996. We expected the year to have relatively stable interest
rates and low inflation, providing a good economic environment for our Building
Materials operations. These conditions prevailed, and construction levels
increased in the Company's markets. As a result, sales of our building materials
products grew to record levels in 1996, and earnings from those operations were
the second highest in our history.
The Building Materials segment was again led by Acme Brick Company. In
1996, Acme sold over three-quarters of a billion bricks, a total greater than
any previous year in its 105-year history. In addition to shipping record
amounts of brick, Acme saw double-digit revenue gains in its purchased products
business. American Tile Supply Company, acquired in 1994, completed its second
year as a member of Justin Industries' Building Materials group. Sales at
American Tile also reached new highs in 1996, and the prospects are very good
for further gains in 1997 as new locations are added to their network.
Featherlite Building Products Corporation completed an outstanding year as
earnings reached a record high in 1996. Featherlite has expanded its line by
offering a variety of profitable products to its customers to complement its
basic concrete block business.
While we anticipated improved results in Justin Industries' Building
Materials businesses, we entered 1996 concerned about the prospects for our
Footwear companies. Since the peak periods of 1992 and 1993, when record sales
and profitability were achieved, revenues have fallen 37 percent, with an even
greater decline in earnings.
The year began slowly for our western boot business. Many of our dealers
had large inventories due to a soft Christmas 1995 selling season. Apparel sales
in general have been weak, with consumers spending more on automobiles and homes
due to low interest rates and unemployment levels. The downward sales trend
continued throughout the year, although the rate of decline was not as great in
the just-completed fourth quarter.
Because of the diminished sales of western boots, additional adjustments
were made to the Footwear operations to further lower the break-even level and
reduce expenses. When the business stabilizes and historical growth patterns
resume, our companies will be positioned to capitalize on their strength as
industry leaders. Our adjustments included plant and warehouse shutdowns,
extensive production cutbacks that lowered inventories by over $30 million,
further major decreases in employment, and elimination of the Western European
sales facility. While the costs associated with these actions were significant,
the Footwear group managed to record a modest profit for the year.
Overall, the Company's earnings were less than our forecast because gains
in Building Materials did not offset the Footwear decline. We were extremely
pleased, however, with the significant improvement in the Company's financial
condition. Net cash provided by operating activities exceeded $63 million in
1996, an amount greater by far than in any previous year. A significant portion
of this total was from the Footwear inventory reduction. After investing
$25 million in capital assets to expand production and upgrade operations, and
paying $8 million for dividends to shareholders and stock buy-backs, interest-
bearing debt was reduced over $31 million during the year. At year-end 1996,
borrowings made up only 14 percent of total capital. Share-holders' equity
climbed past the $250 million mark and book value per share of common stock
increased to $9.56.
(Page 2)
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(Picture of John Justin and J. T. Dickenson)
We are well positioned in both of our business segments to realize earnings
improvements in 1997. The major challenge continues to be in the footwear area.
With western boot sales currently concentrated in the core market, we have
diversified our product line to add new styles of footwear that will appeal to a
broader consumer group, and we have expanded advertising and promotional
activities. We enter 1997 with greater manufacturing and distribution capacity
in our building materials operations following eight consecutive years of
revenue growth. While our success is somewhat dependent on factors beyond our
control, including fashion trends and general economic conditions, we believe
that the groundwork has been laid for gains in 1997 and future years.
/S/ John Justin
JOHN JUSTIN
Chairman and Chief Executive Officer
/S/ J. T. Dickenson
J. T. DICKENSON
President and Chief Operating Officer
(Page 3)
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(Picture of brick, tile, and block)
(Page 4)
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BUILDING MATERIALS SEGMENT
REPORT ON OPERATIONS
JUSTIN INDUSTRIES' BUILDING MATERIALS companies completed another outstanding
year in 1996. Revenues increased 9 percent to a record high as a strong regional
economy led to further growth in residential and commercial construction.
ACME BRICK COMPANY completed one of the most successful years in its 105-year
history, establishing new records for the sale of brick and purchased products.
Higher natural gas costs and the anticipated start-up expenses of a new brick
plant kept profits only slightly below the all-time high achieved in 1994.
An increase in residential housing starts in Acme's market area enabled the
company to sell 12 percent more brick than in 1995, while maintaining or
improving prices to generate very good profit margins. The housing market has
been fairly good over the last few years, despite earlier predictions of a
decline in residential construction in the 1990s. Forecasters had predicted that
the rate of housing starts would fall as the aging baby boom generation was
replaced by a much smaller population group. This has not occurred nationally,
and particularly in Acme's home territory, for two major reasons. First,
immigration and migration in the `90s is at the highest level since the turn of
the century; and second, the highest percentage of home ownership is found among
the country's older population (those over 65), with this age group growing
rapidly. So far in the 1990s, these factors have created a stronger demand than
anticipated.
Acme's strategic plan calls for improving its distribution network by
adding new sales offices and expanding existing locations. In the last year, new
showrooms, warehouses, and/or sales offices were either completed or under
construction in Little Rock and Fort Smith, Arkansas; Monroe, Louisiana; and
Lubbock, Midland, and Corpus Christi, Texas. Additional expansion is planned for
1997.
In 1996, Acme concentrated advertising efforts on reinforcing Acme brand
awareness, and promoting the one hundredDyear limited guarantee for homeowners,
the Acme reputation for quality, and Acme's tremendous 105-year history. For the
fourth consecutive year, radio ads, billboards, print ads, and point-of-sale
pieces featured Troy Aikman, quarterback for the Dallas Cowboys. In 1996, seven
thousand architects within Acme's primary territory received a series of
thirteen separate mailings promoting the beauty and versatility of Acme brick.
In Acme's major markets, these messages served to reinforce Acme brick as the
building material of preference. Acme again received publicity through many
local and national publications, which is invaluable to the development of a
national identity for Acme Brick. Acme also continued its participation in
numerous brick marketing councils throughout the United States. Employees of
the company proudly hold key positions in several of these organizations.
In addition to the expansion and upgrade of sales facilities, a major
capital project in 1996 was completed with the start-up of a totally new brick
plant at Bennett, Texas-the site of Acme's original plant, opened in 1891. This
plant will add over 8 percent to Acme's total production capacity and will
strengthen the company's position in the important DallasDFort Worth and North
Texas markets.
(Page 5)
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(Picture of tile)
Control of manufacturing costs and concern for the environment are
important to Acme Brick Company. As part of an on-going program to focus
attention on areas that may have environmental impact, Acme began the use of
plastic strap to package brick, which will allow for total recycling. This strap
has the additional advantage of keeping the brick packaged tighter, improving
the quality of products delivered to customers.
AMERICAN TILE SUPPLY COMPANY, acquired in 1994, operates as a subsidiary of Acme
Brick Company. American Tile and Acme work closely together in all areas related
to ceramic and marble floor and wall tile. Sales of those products reached an
all-time high in 1996, as the per-capita use of ceramic tile in the United
States continued its rapid growth. American Tile's business should see further
growth in 1997. A third Houston, Texas, location is planned for the coming year,
as well as a new warehouse/ showroom in Little Rock, Arkansas. American Tile
Supply Company is currently developing aggressive new marketing programs to
target major home builders and the retail market. Tile outlet stores have proven
to be a profitable vehicle for disposing of discontinued styles. The company
plans to open three new outlet locations in 1997.
With brick backlogs 34 percent higher than year-end 1995 and exciting new
programs for expansion and growth of the purchased products and tile business,
the prospects for another outstanding year in 1997 appear bright.
FEATHERLITE BUILDING PRODUCTS CORPORATION completed another year of solid volume
and profit contribution in 1996. Declines in non-residential construction
activity in Featherlite's smaller West Texas territories were offset by the
continued strong market in the larger metropolitan areas of DallasDFort Worth,
Austin, and San Antonio. Price improvements and sales of more profitable
specialty products helped raise overall gross profit margins.
A key to Featherlite's success is its program of maintaining efficient up-
to-date production facilities. In 1996, a new block machine was installed at the
Lubbock plant. The new equipment, with increased capacity and reduced operating
cost, will more profitably service the Lubbock, Midland, and Amarillo markets.
The old Amarillo production facility was closed when the Lubbock expansion was
completed. Work also began on Featherlite's Dallas plant expansion in 1996. The
new operation will dramatically increase production efficiency, volume, and
flexibility. It will now be possible to produce a wide assortment of concrete
masonry products including block, pavers, concrete brick, and landscape
products, and Featherlite will be able to more aggressively pursue the large
dealer and residential markets in the DallasDFort Worth metroplex. Planning is
under way for similar improvements in San Antonio.
(Page 6)
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(Picture of block)
Featherlite is dedicated to maintaining excellent customer service and has
strived to complement its core business with a wide variety of quality products,
such as bagged masonry items, steel reinforcing material, insulation, and
surface coatings. Most of these products are purchased for resale, but when
feasible, Featherlite manufactures them itself. In West Texas, Featherlite has
been successful in manufacturing its own line of masonry mixes. A new bagging
plant was installed in Lubbock in 1996, and the existing operation in El Paso
was enlarged in order to expand capacity and reduce costs.
Texas Quarries, Featherlite's architectural limestone division, continued
to set sales and production records in 1996. This division's reputation as a
producer of quality limestone products allowed it to attain record-high sales
volume and profits. With the continued modernization of production facilities,
manufacturing costs were lowered and margins were improved. In addition, Texas
Quarries expanded its production capacity for residential stone products in
1996, and those products have become a major source of revenue.
The outlook for Featherlite appears to be good. With the expanded product
line, aggressive marketing programs, and excellent customer service, Featherlite
should experience continued success in 1997.
(Page 7)
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(Picture of boots)
(Page 8)
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FOOTWEAR SEGMENT
REPORT ON OPERATIONS
JUSTIN INDUSTRIES' FOOTWEAR OPERATIONS experienced further declines in 1996, as
continued softness in the western apparel business impacted revenues and
profitability for the third year in a row. During this challenging year,
measures were taken to reduce costs in order to maintain profitability and to
significantly reduce inventories. Early in the year, the Justin factory in
Sarcoxie, Missouri, was closed, and in April, production at two factories in
Cassville, Missouri, was combined to reduce overhead costs. Production at all
other facilities was significantly reduced and employment levels were brought
down an additional 30 percent. Costs were further reduced by closing one of four
finished goods warehouses. These changes helped to lower inventories by over
500,000 pairs in 1996, a 40 percent reduction. In addition, break-even levels
were lowered and cash flow was improved.
The Company's European operations were discontinued in mid-1996 because the
level of sales did not support the cost of doing business with a physical
presence in Europe. Direct sales to European customers were maintained by mail
campaigns and did improve in the second half of the year.
Western footwear remains very popular in the core markets of Texas and the
southern and southwestern states. Among the goals of the Footwear group in 1997
is developing products that find favor with consumers rather than those that are
driven just by price. The focus will be on a quality product with improved
margins. Comfort, functionality, and quality are the market trends. Justin, Tony
Lama, and Nocona plan to capitalize on these trends by providing quicker
response time and better styling, and maintaining lower costs to be competitive.
New products and advertising programs have been developed and are ready to
make 1997 a successful year. Newer technology will be used in several areas.
Product development is aided by computer systems in pattern and design
development. Electronic data interface (EDI) will be available to all customers
in 1997. Salesmen's laptop computers will be upgraded, and the information
available will be improved to better service customers.
The Company's Footwear brands - Justin, Nocona, Tony Lama and Chippewa -
are concentrating on market niches that they can control and operate profitably,
and they are planning to introduce products that will compete successfully in
new markets.
The Justin boot division had the most significant reduction in inventory in
1996 and will benefit greatly in 1997 from reduced unit costs as production
levels are increased to meet demands. A broader marketing approach is planned in
1997 to capitalize on the brand equity and to position Justin Boot Company as a
premier manufacturer and trendsetter in western, leisure, and work footwear.
Justin will continue to control inventory and maximize market delivery by
releasing new styles three times a year, coinciding with seasonal styling and
awareness.
In 1997, Justin will introduce a new footwear product designed to compete
against work boots in the western markets as well as non-traditional Justin
markets. This product is designed to take advantage of new technology to enhance
comfort and durability. An advertising program is being developed for
introduction in late spring. Justin will also continue to seek additional areas
of potential growth. Specifically, crepe soles with double-stitched welts are
expanding beyond the equestrian circles, and footwear profiles resembling boots
made in the 1940s and 1950s are resurfacing. Other advertising programs will
include timely events tied to Father's Day and the back-to-school and holiday
seasons. Brand awareness will be maintained by event
marketing at a broad spectrum of events. Additional brand awareness will be
created through newspapers, broadcast news stories, and exposure through
strategically placed signs and logos at events such as the National Finals Rodeo
and the Professional Bullfighter Association Finals, which are televised on ESPN
and TNN.
(Page 9)
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(Picture of boots)
(Page 10)
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Nocona Boot Company will capitalize on its ability to be the boot company
that offers the retail industry the largest availability of toes and heels, the
largest selection of sizes (3-16), and the widest selection of widths
(AAAA-EEE), delivered in a short period of time. Nocona provides the retailers
the opportunity to fit every foot. In 1997, Nocona will continue to market this
concept through its "fit centers" and expand the message that Nocona Boot
Company "fits any foot."
In 1997, Nocona will also introduce a new Mobile Fit Center, a 35-foot
self-contained customized trailer. A sample of all styles, sizes, and widths
manufactured will be on display. This fit center will be marketed as a company-
sponsored traveling trunk show specializing in fitting, and will be driven to
pre-approved retail locations to participate in special promotions. Fitting
seminars, conducted by a Nocona boot specialist, will be held with store owners
and employees prior to the event. The mission of this program is to educate the
consumer and retailer about proper fit in western footwear. Nocona also plans to
institute a telemarketing program in 1997 to reach small, remote customers.
Tony Lama Company believes that its greatest strength is in its brand name,
along with its reputation for producing a high-quality product. In 1997, the
company's marketing efforts will be focused on these strengths. Early in the
year, Tony Lama will introduce the "Cushion Comfort" line of boots, which have
been engineered to preserve all the quality of a hand-crafted 3U4-welt boot
while providing an unparalleled level of comfort and ease of fit. This line of
boots was test marketed in 1996 and received an enthusiastic reception from
dealers and their customers.
Tony Lama is also developing a new line of non-western footwear for mid-
year release. This product will feature new toe styles and bonded unit bottoms
and will be made along the lines of traditional footwear.
The Company's Chippewa Shoe line fared much better in 1996 than the western
boot divisions. Chippewa manufactures premier quality footwear for work and
outdoor sports and is the chosen boot for today's rugged individual. Sales of
Chippewa products grew modestly in 1996, but major improvements were realized in
gross profit margins. These boots and shoes also grew in popularity in Japan and
Western Europe because of their quality and durability, and Chippewa plans to
further penetrate those markets in 1997.
While 1996 was a disappointing year in many respects, the adjustments made
to lower costs and thus reduce the break-even point for profitability will prove
beneficial in 1997 and future years.
(Page 11)
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(Picture of office equipment)
(Page 12)
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MANAGEMENT'S DISCUSSION AND ANALYSIS
JUSTIN INDUSTRIES' NET INCOME fell for the second consecutive year in 1996 as
the Company experienced further declines in revenue and profitability from its
Footwear operations. While the Building Materials segment posted record sales
and solid gains in earnings, overall softness in the apparel industry, and in
particular in the western fashion segment, adversely affected the performance of
the Company's Footwear businesses. For the year, consolidated net income was
$23.4 million, a decline of 8.9% from 1995. Operating profit for the Building
Materials group improved approximately 5%, while Footwear's profits were down
83% from 1995.
OPERATIONS
In 1996, consolidated net sales totaled $447.8 million, a decrease of 3.0% from
1995. Revenues of $461.4 million in 1995 were 4.5% below those of 1994.
Building Materials net sales were a record high $261.3 million, an increase
of 8.8% from 1995 revenues of $240.1 million. Revenues in 1995 were 7.1% greater
than 1994's total of $224.2 million. Included in the Building Materials segment
for 1996, 1995, and 1994 were Acme Brick Company and its subsidiary, American
Tile Supply Company (acquired in August 1994); Featherlite Building Products
Corporation; and Tradewinds Technologies, Inc. Sales of Acme bricks comprise
just over one-half of total Building Materials revenues, and in 1996, Acme's
unit brick shipments increased 12.5% to an all-time high. The average price of
brick sold in 1996 remained unchanged from the 1995 price. In 1995, Acme sold
10.3% fewer bricks than in 1994 due to lower levels of residential construction;
however, the average selling price in 1995 was 3.6% greater than in 1994, as
price increases in mid- and late-1994 were fully realized in 1995. Sales of
purchased products at Acme increased 14.8% in 1996 over 1995, in contrast to a
4% decline in 1995 from the previous year. In 1996, American Tile Supply
revenues were 7.3% higher than in 1995. The sales contribution from American
Tile in 1995 was significantly greater than 1994, since its operations were only
included in total revenues for the last five months of 1994.
Revenues at Featherlite in 1996 were virtually unchanged from 1995. In
1996, the company sold 7.9% fewer concrete blocks. This unit decline was offset
by an average price increase of 3.2% and an increase in revenues from
Featherlite's Texas Quarries limestone division. Featherlite's 1995 net sales
exceeded those of 1994 by 7.6%. This increase was attributable to greater unit
sales of all products as well as improved pricing over 1994.
Tradewinds Technologies represents less than 1% of Justin Industries'
consolidated net sales. In 1996, Tradewinds' sales were approximately 14% below
those of 1995.
Revenues in the Company's Footwear operations fell from $221.4 million in
1995 to $186.5 million in 1996-a drop of 15.8%. Sales in 1995 were 14.5% less
than in 1994. Unit sales of Footwear products in 1996 declined 10.4% from 1995,
and the average selling price per unit fell 8%. The decline in average selling
price is due primarily to the mix of products sold. Higher-priced western boots
comprised a smaller percentage of total sales in 1996, as sales of the lower-
priced Chippewa, Diamond J, and Sport Lace-R lines either improved over 1995 or
declined at a lower rate. In addition, the average price was affected by
discounts given in order to sell slower-moving styles and reduce inventories. In
1995, unit sales of footwear products were 19.8% below those of 1994, while the
average selling price was 6.5% greater. Change in product mix was also the
reason for this price fluctuation.
(Graph - Net Sales by Line of Business)
(Page 13)
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(Graph - Net Income)
Justin Industries' Building Materials business operates primarily in a
seven-state region in the central and southwestern United States, while Footwear
segment sales are made to customers nationwide.
As a percentage of sales, cost of sales company-wide was 65.4% in 1996
compared to 65.2% in 1995 and 65.1% in 1994. The Building Materials businesses
have overall higher gross profit margins, and the growth in this segment's
revenues over the last few years as a percentage of consolidated sales has
tended to offset the Footwear decline in gross profit margins.
The gross profit margin in Building Materials was 41.2% in 1996 and 1995,
and 41.7% in 1994. Acme Brick Company margins declined slightly in 1996 from
those of 1995, as gains from the increase in brick unit sales were offset by
increased fuel costs and start-up expenses associated with the new brick plant.
The company generally buys natural gas on the spot market for fueling its brick
plants. The last year was unusually volatile for spot market gas pricing,
resulting in an average increase in the company's fuel costs of about 37% over
1995, or an average increase of 4% in the total cost of manufactured brick. The
company is evaluating various measures to reduce the impact of higher-than-
normal fuel costs. As noted above, brick selling prices were virtually unchanged
from 1995. Both American Tile and Featherlite realized improvements in gross
profit margins in 1996. American Tile's gain was attributed to increased volume,
while Featherlite's improvement came from higher block selling prices and sales
of cut limestone products. Tradewinds' margins were lower due to reduced volume.
The decline in the segment gross profit margin in 1995 from 1994 was due to
variations in product mix. Brick is the company's most profitable product, and
in 1995, brick sales were a smaller percentage of total Building Materials
revenues than in 1994.
Footwear gross profit margins were 25.4% in 1996, compared to 27.9% in 1995
and 29.0% in 1994. As noted above, Footwear revenues have declined since 1993,
and the reduced volume has been the primary reason for the margin deterioration.
Production levels were lowered dramatically in 1996 in order to bring down
inventories. The additional per-unit overhead-resulting from reduced production
as well as discounts given in order to sell slower-moving styles-adversely
affected profit margins. Realignment of manufacturing operations also impacted
gross profits. In 1995, margins were also weakened by $700,000 in expenses
associated with the reconfiguration of the Fort Worth Justin boot plant. These
expenses were related to the temporary closure of the plant, layoffs, and
changes to production lines to accommodate more efficient manufacturing
techniques.
Selling, general, and administrative expenses as a percentage of net sales
were 25.7% in 1996, compared to 25.0% in 1995 and 22.1% in 1994. The increase in
1996 was due primarily to the reduced level of revenues, as the total spent on
these costs declined slightly in 1996. In the Building Materials segment,
selling, general, and administrative expenses increased in 1996 primarily due to
revenue growth at Acme and expansion at American Tile. Footwear expenses were
significantly lower in 1996 due to reduced sales commissions and lower
administrative expenses resulting from consolidation programs completed in late
1995. Also impacting Footwear expenses in 1996 were additional provisions to the
allowance for doubtful accounts, as the western-wear industry continues to be
weak. In 1995, selling, general, and administrative expenses were $8.6 million
greater than 1994. Approximately $6 million of the increase was from the
inclusion of American Tile for the full year, versus the five months of 1994.
Also in 1995, advertising expenses were $2.8 million more than in 1994, and the
Footwear group spent approximately $2 million to complete the consolidation of
administrative departments.
(Page 14)
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(Graph - Interest-Bearing Debt)
Interest expense in 1996 was $3.37 million, compared to $5.03 million in
1995 and $4.06 million in 1994. The decline in 1996 was due to both lower
average interest rates and lower borrowing levels throughout the year. Based on
the average month-end borrowings outstanding, the average effective interest
rate was 5.5% in 1996, 6.3% in 1995, and 4.7% in 1994. Note 4 to the
Consolidated Financial Statements on page 22 describes the Company's borrowing
arrangements.
Income tax expense, as a percentage of pre-tax income, was 36.2% in 1996
and 1995, and 35.8% in 1994. The federal statutory rate was 35% for all three
years. See Note 7 to the Consolidated Financial Statements on page 25 for a
reconciliation of the actual tax rate to the federal statutory tax rate, and
other information relating to income tax.
The table on page 30, Quarterly Financial Data, presents summarized
operating results for each quarter in the two years ended December 31, 1996. The
Company's businesses are seasonal in nature, with Building Materials operations
generating greater activity in the second and third quarters and Footwear
operations accelerating in the third and fourth. As a result, first quarter
earnings are generally the lowest, which was the case in 1996. Quarterly net
income in 1996 was less than the comparable quarters of the prior year in the
first, second, and fourth quarter, while third quarter earnings in 1996 exceeded
those of 1995.
The Company's Building Materials operations are dependent on levels of
construction activity that are influenced somewhat by interest rates. Changes in
interest rates, therefore, can affect the Company's future earnings prospects.
Inflation has not had a significant impact on the Company's operations in
recent years; however, the Company attempts to recover any cost increases
through improvements to its manufacturing processes and through increases in
price where competitively feasible.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Justin Industries' financial condition improved further in 1996. In addition to
earnings and depreciation, a significant amount of cash was generated from
reductions in working capital, primarily from reducing inventories in the
Footwear operations. In 1996, total interest-bearing debt declined $31.3 million
and shareholders' equity grew $16.4 million. The year ended with a ratio of
total interest-bearing debt to equity of .17:1 compared to .31:1 at December 31,
1995. The ratio of long-term debt to equity was lowered from .24:1 at December
31, 1995 to .13:1 at year-end 1996.
(Graph - Capital Expenditures)
(Page 15)
================================================================================
(Graph - Book Value Per Share)
The Balance Sheet Trends table on page 17 presents the percentage
relationship of the major asset, liability, and equity accounts to total assets.
Total assets declined 4.3% in 1996 to $360.1 million. Working capital of $165.1
million at December 31, 1996, was 9% less than the prior year-end. The declines
in total assets and working capital were due to the significant inventory
reductions. The current ratio at year-end improved to 3.7:1 from 3.6:1 at
December 31, 1995.
Net cash provided by operating activities in 1996 was $63.8 million, an
amount significantly greater than in any previous year. In 1995 and 1994, net
cash provided from operating activities was $38.5 million and $46.2 million,
respectively. The reduction in inventory was a major component of the 1996
amount. The Company expended $24.7 million in 1996 investing in property, plant,
and equipment. Of this total, 95% was spent by the Building Materials
operations, with the most significant expenditures of approximately $10.4
million for the completion of Acme's new brick plant. Other fixed asset
expenditures were primarily for equipment replacement and upgrades. During the
year, the Company spent $3.8 million to purchase treasury stock, completing the
one million-share buy-back program begun in 1995. Dividends per share were
unchanged from 1995 at $.16, for total payments of $4.2 million.
The Company's primary source of cash is from operations. In addition, the
Company has credit facilities available from commercial banks. The Company
believes that its borrowing arrangements are adequate to support its
requirements for the foreseeable future. Unused lines of credit available to the
Company at December 31, 1996, totalled $75 million.
BACKLOGS
The Company maintains information on sales backlogs in order to plan for future
production levels and to project sales volume. At December 31, 1996, the backlog
for clay brick was $22.1 million, compared with $16.5 million at year-end 1995.
The sales backlog for Footwear products at year-end 1996 was $7.4 million,
compared with $8.3 million in 1995.
SAFE HARBOR PROVISIONS
In accordance with the recently enacted safe harbor provisions of the securities
law regarding forward-looking statements, except for the historical information
contained herein, this Annual Report contains forward-looking statements that
involve risks and uncertainties. Justin's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences could include, but are not limited to, changes in demand, prices,
and raw materials costs; changes in the economic conditions of the various
markets the company serves; and changes in the amount and severity of inclement
weather; as well as the other risks detailed herein and in the Company's reports
filed with the Securities and Exchange Commission.
(Graph - Shareholders' Equity)
(Page 16)
================================================================================
<TABLE>
BALANCE SHEET TRENDS
<CAPTION>
Percent of Total Assets
ASSETS: 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Receivables 22% 21% 22% 22% 26%
Inventories 36 42 43 42 41
Property, plant, and equipment 29 26 23 23 24
All other assets 13 11 12 13 9
----- ----- ----- ----- -----
100% 100% 100% 100% 100%
===== ===== ===== ===== =====
LIABILITIES AND EQUITY:
- ------------------------------------------------------------------------
Interest-bearing debt 12% 19% 21% 27% 35%
All other liabilities 18 18 20 19 16
Equity 70 63 59 54 49
----- ----- ----- ----- -----
100% 100% 100% 100% 100%
===== ===== ===== ===== =====
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
OPERATING TRENDS
<CAPTION>
Percent of Net Sales
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 65.4 65.2 65.1 66.2 69.3
------ ------ ------ ------ ------
Gross profit 34.6 34.8 34.9 33.8 30.7
Operating expenses 26.4 26.1 23.0 22.0 21.4
Income taxes 3.0 3.1 4.3 4.2 3.3
------ ------ ------ ------ ------
Income before accounting change 5.2 5.6 7.6 7.6 6.0
Cumulative effect on prior years of
change in accounting for income - - - .2 -
taxes
------ ------ ------ ------ ------
Net income 5.2% 5.6% 7.6% 7.8% 6.0%
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
FIVE-YEAR ANALYSIS OF SALES AND OPERATING PROFIT BY PRODUCT LINES
(in thousands of dollars)
<CAPTION>
1996 1995 1994 1993 1992
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Building Materials:
Net sales $261,315 58% $240,094 52% $224,213 46% $179,740 38% $158,808 35%
Operating profit 44,233 97 42,107 82 44,600 66 31,445 48 16,423 31
Footwear:
Net sales 186,457 42 221,354 48 258,796 54 295,191 62 294,459 65
Operating profit 1,591 3 9,234 18 22,871 34 34,168 52 36,054 69
- ---------------------------------------------------------------------------------------------------------------------
Totals:
Net sales $447,772 100% $461,448 100% $483,009 100% $474,931 100% $453,267 100%
Operating profit $ 45,824 100% $ 51,341 100% $ 67,471 100% $ 65,613 100% $ 52,477 100%
Less interest
and parent
company operations 9,202 11,137 9,995 9,583 10,080
- ---------------------------------------------------------------------------------------------------------------------
Income before income
taxes $ 36,622 $ 40,204 $ 57,476 $ 56,030* $ 42,397
- ---------------------------------------------------------------------------------------------------------------------
* before cumulative effect on prior years of change in accounting for income taxes
</TABLE>
(Page 17)
================================================================================
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
In Thousands of Dollars, Except Share Data, at December 31, 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ---------------------------------------------------------------------------------
Current assets:
Cash $ 3,215 $ 2,180
Accounts receivable, less allowance for doubtful
accounts of $3,069 and $3,340, respectively 80,315 78,213
Inventories 129,146 158,330
Federal and state income taxes 11,758 9,800
Prepaid expenses 1,527 2,155
- ---------------------------------------------------------------------------------
Total current assets 225,961 250,678
Other assets, at cost 25,815 24,195
Assets held for sale 2,805 4,879
Property, plant, and equipment, at cost:
Land 19,908 18,558
Buildings and equipment 247,285 222,576
Construction in progress 3,902 11,069
- ---------------------------------------------------------------------------------
271,095 252,203
Less accumulated depreciation 165,598 155,546
- ---------------------------------------------------------------------------------
Net property, plant, and equipment 105,497 96,657
- ---------------------------------------------------------------------------------
$360,078 $376,409
=================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------
Current liabilities:
Notes payable to banks $ 2,000 $ 10,000
Trade accounts payable 14,056 14,152
Accrued payroll items 11,393 11,786
Accrued insurance 11,818 15,283
Accrued state and local taxes 1,822 2,141
Other accrued expenses 11,366 8,424
Dividends payable 1,058 1,071
Current portion of long-term debt 7,395 6,436
- ---------------------------------------------------------------------------------
Total current liabilities 60,908 69,293
Long-term debt, less current portion 32,890 57,137
Deferred income taxes 13,424 13,490
Shareholders' equity:
Voting preferred stock, $2.50 par value;
1,000,000 shares authorized -- Series Two
convertible, 100 shares issued and outstanding - -
Common stock, $2.50 par value; 100,000,000
shares authorized, 27,869,888 shares issued 69,674 69,674
Capital in excess of par value 16,477 16,800
Retained earnings 181,068 161,932
Treasury stock, at cost, 1,416,800 and 1,234,585
shares, respectively (14,363) (11,917)
- ---------------------------------------------------------------------------------
Total shareholders' equity 252,856 236,489
- ---------------------------------------------------------------------------------
$360,078 $376,409
=================================================================================
<FN>
See accompanying notes.
</TABLE>
(Page 18)
================================================================================
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
In Thousands of Dollars, Except Per Share
Data, for Years Ending on December 31, 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $447,772 $461,448 $483,009
Costs and expenses:
Cost of goods sold 292,858 300,842 314,661
Selling, general, and
administrative expenses 114,925 115,370 106,814
Interest expense 3,367 5,032 4,058
- ----------------------------------------------------------------------------
411,150 421,244 425,533
- ----------------------------------------------------------------------------
Income before income taxes 36,622 40,204 57,476
Income taxes 13,257 14,553 20,571
- ----------------------------------------------------------------------------
Net income $ 23,365 $ 25,651 $ 36,905
============================================================================
Earnings per share $ .87 $ .94 $ 1.33
============================================================================
<FN>
See accompanying notes.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<CAPTION> Capital in
In Thousands of Dollars, Except Share Data, for Preferred Common excess of Retained Treasury
Years Ending on December 31, 1996, 1995, and 1994 stock stock par value earnings stock
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1994 $ - $69,674 $17,047 $108,038 $(5,956)
- ---------------------------------------------------------------------------------------------------------------
Issuance of 76,165 shares of stock from treasury
upon exercise of stock options - - (88) - 630
Net income - - - 36,905 -
Cash dividends declared -- $.16 per share - - - (4,350) -
- ---------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 $ - $69,674 $16,959 $140,593 $(5,326)
- ---------------------------------------------------------------------------------------------------------------
Purchase of 677,000 shares of stock for treasury - - - - (7,259)
Issuance of 79,652 shares of stock from treasury
upon exercise of stock options - - (159) - 668
Net income - - - 25,651 -
Cash dividends declared -- $.16 per share - - - (4,312) -
- ---------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 $ - $69,674 $16,800 $161,932 $(11,917)
- ---------------------------------------------------------------------------------------------------------------
Purchase of 323,000 shares of stock for treasury - - - - (3,821)
Issuance of 140,785 shares of stock from treasury
upon exercise of stock options - - (323) - 1,375
Net income - - - 23,365 -
Cash dividends declared -- $.16 per share - - - (4,229) -
- ---------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 $ - $69,674 $16,477 $181,068 $(14,363)
===============================================================================================================
<FN>
See accompanying notes.
</TABLE>
(Page 19)
================================================================================
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
In Thousands of Dollars
for Years Ending on December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $23,365 $25,651 $36,905
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 15,792 14,742 13,852
Amortization 496 689 569
Provision for losses on accounts receivable 2,707 1,347 866
Gain on sale of property, plant, and equipment (238) (167) (122)
Deferred income taxes 411 (1,198) (3,190)
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable (4,809) 2,706 (1,624)
(Increase) decrease in inventories 29,184 2,564 (7,398)
Increase in other current assets (1,807) (776) (240)
Increase (decrease) in accounts payable and
accrued expenses (1,331) (7,043) 6,628
- ----------------------------------------------------------------------------------
Net cash provided by operating activities 63,770 38,515 46,246
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property, plant,
and equipment 710 261 841
Purchase of property, plant, and equipment (24,738) (26,020) (18,627)
(Increase) decrease in other long-term assets (408) 114 (684)
Payment for purchase of business, net of
cash acquired - - (9,332)
- ----------------------------------------------------------------------------------
Net cash used in investing activities (24,436) (25,645) (27,802)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 43,000 41,000 57,500
Repayment of borrowings (74,288) (46,681) (76,655)
Dividends paid (4,242) (4,330) (4,347)
Purchase of treasury stock (3,821) (7,259) -
Proceeds from exercise of stock options 1,052 509 542
- ----------------------------------------------------------------------------------
Net cash used in financing activities (38,299) (16,761) (22,960)
- ----------------------------------------------------------------------------------
Net increase (decrease) in cash 1,035 (3,891) (4,516)
Cash at beginning of year 2,180 6,071 10,587
- ----------------------------------------------------------------------------------
Cash at end of year $3,215 $2,180 $6,071
==================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH INFORMATION:
Cash paid during the year for:
Interest $3,296 $5,129 $4,105
Income taxes, net of refunds $15,242 $16,140 $23,286
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Purchase of business:
Fair value of assets acquired $ - $ - $17,757
Cash paid for assets and related costs - - (9,332)
Subordinated debt issued - - (5,000)
- ----------------------------------------------------------------------------------
Liabilities assumed $ - $ - $3,425
==================================================================================
<FN>
See accompanying notes.
</TABLE>
(Page 20)
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING ON DECEMBER 31
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. Justin Industries, Inc. (the "Company") is a manufacturing
and distribution company whose principal lines of business are 1) building
materials-including face brick, concrete block, and floor and wall tile; and 2)
footwear products, primarily western-style boots. In 1996, revenues in the
building materials segment were 58% of consolidated net sales, and the footwear
segment comprised 42% of the total. Building materials are sold directly through
company sales offices primarily in a seven-state area consisting of Texas,
Oklahoma, Arkansas, Louisiana, Kansas, Missouri, and Tennessee. Approximately
67% of Building Materials' sales are in Texas. Building Materials' sales are
dependent upon construction levels within market areas served, with face brick
sales specifically influenced by housing starts. Footwear products are sold
primarily through independent western-wear retailers in the United States, with
sales in Texas of approximately 36%.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its subsidiaries. All material intercompany
accounts and transactions are eliminated upon consolidation. Certain
reclassifications have been made in December 31, 1995 and 1994, amounts to
conform with the 1996 presentation.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INVENTORIES. Inventories are valued at the lower of cost or market.
Finished products and work-in-process are costed using an average cost method,
while raw materials and manufacturing supplies are costed on the first-in,
first-out method.
PROPERTY, PLANT, AND EQUIPMENT. Depreciation is computed principally by the
straight-line method for financial reporting purposes. The annual depreciation
provision has been based upon the following estimated lives:
Buildings 10 to 20 years
Equipment 3 to 15 years
INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS. Intangible assets
resulting from business acquisitions consist of trademarks/tradenames and the
excess of the acquisition cost over the fair value of the net assets of
businesses acquired. Intangibles are amortized on a straight-line basis over 40
years. As of December 31, 1996 and 1995, intangibles were $14.4 million and
$14.9 million, respectively, net of accumulated amortization of $1.8 million and
$1.3 million, respectively.
REVENUE RECOGNITION. Revenue from sale of manufactured products is
recognized primarily upon passage of title to the customer, which generally
coincides with physical delivery and acceptance.
ADVERTISING. The Company's policy is to expense advertising costs as
incurred. Total advertising expense for the years ended December 31, 1996, 1995,
and 1994, was $15,989,000, $16,999,000, and $14,242,000, respectively.
EARNINGS PER SHARE. Earnings per share is determined by dividing net income
by the average number of common shares outstanding, plus common stock
equivalents. Common stock equivalents include shares issuable under outstanding
stock options reduced by shares assumed to be purchased from the proceeds of
such options upon exercise and the effect of the possible conversion of the
voting preferred stock. Earnings per share, as presented,
is both primary and fully diluted.
PENSION AND EMPLOYEE BENEFIT PLANS. The Company and its subsidiaries have
pension plans for the benefit of substantially all employees. Benefits are
primarily based on years of service and the employees' average compensation
during the last five years of employment. The Company's policy is to fund
pension cost accrued, but not in excess of the maximum allowable deduction for
federal income tax purposes.
(Page 21)
================================================================================
The Company grants stock options for a fixed number of shares to employees
and non-employee directors with an exercise price equal to the fair value of the
underlying common stock at the date of grant. The Company has elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25"), and related interpretations in accounting for its employee
stock options because, as discussed in Note 5, the alternative fair value
accounting provided for under Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS 123"), requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized. Proceeds from common stock
issued pursuant to the Company's employee stock option plans are credited to
common stock or treasury stock and capital in excess of par value at the time an
option is exercised.
The Company has no postretirement health benefits and, therefore, realized
no effect from accounting requirements under Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions.
STATEMENT OF CASH FLOWS. For purposes of reporting cash flows, cash
includes cash on hand and unrestricted time deposits that have an original
maturity of three months or less.
2. ACQUISITION
Effective August 1, 1994, the Company purchased American Tile Supply Company and
its related companies ("American Tile") for a total purchase price of
approximately $16,000,000. American Tile distributes floor and wall tile
primarily in Texas. Operations of the business are included in the Consolidated
Statement of Income from date of acquisition.
3. INVENTORIES
Inventories include the following:
(in thousands of dollars)
1996 1995
--------- ---------
Finished products $ 99,401 $ 121,835
Work-in-process 5,246 6,068
Raw materials and supplies 24,499 30,427
--------- ---------
$ 129,146 $ 158,330
========= =========
4. BORROWINGS
Long-term debt consists of the following:
(in thousands of dollars)
1996 1995
--------- ---------
Revolving credit loans $ 6,000 $ 22,000
Term loan 15,000 21,000
Industrial Revenue Bonds 17,285 17,515
Note payable to bank 2,000 3,000
Other, unsecured - 58
--------- ---------
40,285 63,573
Less current portion 7,395 6,436
--------- ---------
$ 32,890 $ 57,137
========= =========
The Company may borrow up to a total of $52,000,000 in revolving credit
loans pursuant to an agreement among four commercial banks originally entered
into in May 1989. The revolving credit loans are repayable beginning in April
1999 when outstanding amounts are converted to term loans payable over three
years. The conversion date may be extended annually for an additional twelve
months by consent of all participating banks.
The $15,000,000 term loan is an agreement among three commercial banks
providing for annual principal reductions that began in November 1992 of
$2,000,000, increasing $1,000,000 each year thereafter until 1998, when the
final payment is due.
Borrowings under the revolving credit and term loan agreements bear
interest at rates determined on certain margins based on prime, certificates of
deposit, and the London Interbank Offered Rate ("LIBOR"). Interest on all of
these borrowings at December 31, 1996, was based on LIBOR in effect at the time
of origination plus 50 basis points, and averaged 6%. Interest rate margins may
fluctuate in increments of 12.5 basis points based on attaining certain
quarterly funded debt-to-equity ratios stipulated in the loan agreements. The
loans are unsecured; however, the loan agreements contain certain minimum
requirements as to working capital, cash flow from operations, and tangible net
worth, redemption of outstanding stock, and change in control of the Company. As
of December 31, 1996, the Company was in compliance with all such requirements
and restrictions.
(Page 22)
================================================================================
The Industrial Revenue Bonds are payable in varying amounts through 2014,
plus interest at fixed rates of 6.7% and varying rates based on certain indices
(approximately 4.2% at December 31, 1996), secured by property, plant, and
equipment with a net book value of approximately $13,073,000. In certain
circumstances, the Company may be required to purchase up to $16,250,000 of its
Industrial Revenue Bonds prior to their maturity. In such circumstances, the
Company may borrow the purchase price under long-term standby letter of credit
agreements and also has the right to resell the bonds.
Note payable to bank is an unsecured borrowing due in 1998. Interest is
based on LIBOR plus 50 basis points and was 6.1% at December 31, 1996.
Notes payable to bank included in current liabilities in 1996 are unsecured
borrowings due in 1997 pursuant to a $10,000,000 one year credit facility from a
commercial bank. Interest is based on LIBOR plus 50 basis points and was 6.4% at
December 31, 1996.
The aggregate maturities of long-term debt through 2001 are as follows:
1997, $7,395,000; 1998, $10,160,000; 1999, $1,160,000; 2000, $2,160,000; and
2001, $2,160,000.
At December 31, 1996, unused lines of credit for short-term, revolving, and
term credit agreements were approximately $75,000,000. Out-standing standby
letters of credit at December 31, 1996, amounted to approximately $21,303,000.
Interest rates on the majority of the Company's borrowings float with
prevailing market rates; therefore, the fair value of such debt approximates
carrying value at December 31, 1996 and 1995. Based on fixed interest rates
currently available to the Company for bank loans and industrial revenue bonds
with similar terms and maturities, the fair value of fixed rate borrowings
approximates carrying value at December 31, 1996 and 1995.
5. SHAREHOLDERS' EQUITY
The average number of common shares outstanding plus common stock equivalents
used to calculate earnings per share was 26,997,000 in 1996, 27,411,000 in 1995,
and 27,810,000 in 1994.
The Company has outstanding options to purchase its common stock under
qualified incentive stock option plans and non-qualified stock option agreements
with certain of its employees and non-employee directors. The plans for
employees, as amended, provide for the granting of either incentive stock
options or stock options which are not qualified under the Internal Revenue
Code, at the discretion of the Compensation Committee of the Board of Directors.
In addition, they provide for exercise of stock options without regard to the
sequence of dates of original grants. All outstanding stock options are non-
qualified and expire over a period of ten years. Options are granted at the fair
market value of the underlying common stock at the date of grant. Employee-
granted options vest over a five-year period while director options vest after
one year. Currently, the Board has authorized 778,890 shares for future grants
of options. A summary of the Company's stock option activity and related
information for the years ended December 31, 1996, 1995, and 1994, is as
follows:
1996 1995 1994
---------------------- --------- ---------
Weighted-
Average
Exercise
Shares Price Shares Shares
--------- --------- --------- ---------
Outstanding at January 1 1,524,067 $8.72 1,481,286 1,406,877
Granted 201,400 $11.51 160,600 155,300
Canceled (68,060) $15.03 (25,370) (2,680)
Exercised (141,155) $5.33 (92,449) (78,211)
--------- --------- ---------
Outstanding at December 31 1,516,252 $9.12 1,524,067 1,481,286
========= ========= =========
Exercisable at end of year 1,027,152 $7.92 1,001,717 841,394
========= ========= =========
Weighted-average fair value of
options granted during the year $ 4.43
=========
$2.42- $2.42-
Exercise price per share $18.00 $18.00
========= =========
Aggregate purchase price
(in thousands of dollars) $ 13,283 $ 12,376
========= =========
(Page 23)
================================================================================
The following table segregates outstanding options into groups based on
exercise price ranges of less than and more than $10 per share.
Price Ranges
-------------------------------------
$2.42 to $10.00 $10.00 to $18.00
----------------- - -----------------
All Outstanding Options:
Number of shares 713,012 803,240
Weighted-average
exercise price $4.71 $13.03
Weighted-average
remaining
contractual life 3.5 years 7.9 years
Exercisable Options:
Number of shares 698,312 328,840
Weighted-average
exercise price $4.69 $14.78
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a binomial
option pricing model with the following weighted-average assumptions for 1996
and 1995, respectively: risk-free interest rates of 6.2% and 5.6%; dividend
yields of 1.6% for both years; volatility factors of the expected market price
of the Company's common stock of .342 and .377; and a weighted-average expected
life of the option of 6 years.
Binomial option valuation models are used in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because the
Company's stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense on a straight-line basis over the options'
vesting period. The pro forma effects on net income for 1996 and 1995 are not
representative of the pro forma effect on net income in future years because
they do not take into consideration pro forma compensation expense related to
grants made prior to 1995. The Company's pro forma information follows: (in
thousands of dollars, except for earnings per share information)
1996 1995
-------- --------
Pro forma net income $23,208 $25,629
======== ========
Pro forma earnings per share
(primary and fully diluted) $.86 $.93
======== ========
The preferred stock is convertible into 2,826 shares of common stock at
December 31, 1996. The Board of Directors is empowered to set the dividend,
redemption, and liquidation rights pertaining to the preferred stock and to
establish the voting rights and any special rights or restrictions.
One Common Stock Purchase Right is outstanding for each share of common
stock. Following Board of Directors approval, a) the rights will be exercisable
at an exercise price of $13.33 if a person or group acquires 20% or more of the
Company's common stock or announces a tender offer that would result in
ownership of 30% or more of the common stock; or b) the rights may be redeemed
at $.05 per right at any time before a 20% position has been acquired. The
rights expire on October 6, 1999.
6. RETIREMENT PLANS
The following table sets forth the plans' funded status and amounts recognized
in the Company's balance sheet at December 31, 1996 and 1995, related to the
Company's pension plans: (in thousands of dollars)
(Page 24)
================================================================================
1996 1995
--------- ---------
Actuarial present value of benefit obligations:
Vested $ 47,802 $ 46,768
Non-Vested 2,214 2,742
--------- ---------
$ 50,016 $ 49,510
========= =========
Projected benefit obligations for service
rendered to date $ (56,458) $(56,629)
Plan assets at fair value 90,572 80,717
--------- ---------
Plan assets in excess of projected benefit
obligations 34,114 24,088
Unrecognized net gain from past experience
different from that assumed and effect
of changes in assumptions (23,347) (13,282)
Prior service cost not yet recognized in net
periodic pension cost (1,053) (1,114)
Unrecognized net asset at January 1, 1985, being
recognized over 15 years (2,365) (3,163)
--------- ---------
$ 7,349 $ 6,529
========= =========
Plan assets at December 31, 1996, are invested primarily in listed stocks
and bonds or cash equivalents. The Company's own common stock (1,011,400 shares)
accounts for approximately $11,631,000, or 12.8%, of the fair value of plan
assets at December 31, 1996. Dividends paid to the pension trust related to
these shares amounted to approximately $162,000 in 1996.
Net pension credit includes the following components: (in thousands of
dollars)
1996 1995 1994
--------- --------- ---------
Service cost - benefits earned
during the period $ 2,184 $ 1,903 $ 2,347
Interest cost on projected
benefit obligation 3,883 3,864 3,531
Actual (return) loss on plan
assets (12,514) (16,590) 4,125
Net amortization and deferral 5,638 10,048 (10,180)
--------- --------- ---------
Net pension credit $ (809) $ (775) $ (177)
========= ========= =========
The weighted-average discount rates used in determining the actuarial
present value of the projected benefit obligations were 7.75% in 1996 and 7.25%
in 1995. The rate of increase in future compensation was 4.25% in 1996 and 4% in
1995. The expected long-term rate of return on assets was 9% for all years
above.
Contributions to the plans, limited by federal income tax regulations, were
$11,000 in 1996 and zero in 1995 and 1994.
The Company also has an Employee Stock Owner-ship Plan (ESOP) for the
benefit of substantially all employees. Eligible employees may contribute up to
the lesser of 15% of their compensation or the maxi-mum amount authorized by the
Company ($9,500 in 1996 and $9,240 in 1995 and 1994). In 1996, 1995, and 1994,
50% of the amount contributed by all employees was matched by the Company, up to
5% of total compensation. Pursuant to Internal Revenue Service Regulation
401(k), the employees' contributions are on a pre-tax basis. For 1997, employees
may contribute up to the lesser of 15% of their compensation or the maximum
allowable amount under IRS regulations ($9,500).
The amount of Company contributions made to the ESOP and charged to expense
was $1,181,000, $1,239,000, and $1,260,000 in 1996, 1995 and 1994, respectively.
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 1996 and
1995, are as follows: (in thousands of dollars)
1996 1995
------- -------
Deferred tax assets:
Insurance accruals $ 5,473 $ 6,495
Asset valuation allowances 5,638 5,092
Employee benefit plans 127 216
Other 918 830
------- -------
$12,156 $12,633
======= =======
Deferred tax liabilities:
Intangible assets $ 4,116 $ 4,265
Depreciation 7,586 7,716
Employee benefit plans 1,722 1,509
------- -------
$13,424 $13,490
======= =======
(Page 25)
================================================================================
Significant components of the provision for income taxes are as follows:
(in thousands of dollars)
1996 1995 1994
------- ------- -------
Current $12,846 $15,751 $23,761
Deferred 411 (1,198) (3,190)
------- ------- -------
Total income tax expense $13,257 $14,553 $20,571
======= ======= =======
In addition, the Company recognized income tax benefits of $304,000,
$192,000, and $221,000 in 1996, 1995, and 1994, respectively, upon the exercise
by employees of non-qualified stock options. Such benefits were recognized as an
increase in shareholders' equity when realized.
A reconciliation of the statutory federal income tax rate and the effective
tax rate follows:
1996 1995 1994
------- ------- -------
Statutory tax rate 35.0% 35.0% 35.0%
State taxes 1.6 1.8 1.2
Other (0.4) (0.6) (0.4)
------- ------- -------
Effective tax rate 36.2% 36.2% 35.8%
======= ======= =======
In connection with the acquisition of Tony Lama, the Company acquired a tax
net operating loss carryforward. None of the tax net operating carry forward was
utilized in 1996, 1995, or 1994. Approximately $802,000 of the acquired carry
forward is available to offset future taxable income. The carryforward will
expire in 2004. Future utilization of such carryforward will be recognized
through adjustment of the value of acquired net assets.
8. FINANCIAL INFORMATION BY PRODUCT LINES
The five-year analysis of sales and operating profit by product lines on page
17, as it pertains to the last three years, is an integral part of the Company's
consolidated financial statements. A discussion of the Company's products and
business is located on pages 5 to 11. The following additional information is
presented by industry segments: (in thousands of dollars)
Identifiable Depreciation Capital
Assets Expense Expenditures
------------ ------------ ------------
1996
Building Materials $ 171,587 $ 11,082 $ 23,519
Footwear 159,981 4,325 1,174
Corporate assets 25,705 385 45
Assets held for sale 2,805 - -
--------- --------- ---------
Total $ 360,078 $ 15,792 $ 24,738
========= ========= =========
1995
Building Materials $ 150,440 $ 9,595 $ 23,013
Footwear 198,870 4,910 2,990
Corporate assets 22,220 237 17
Assets held for sale 4,879 - -
--------- --------- ---------
Total $ 376,409 $ 4,742 $ 26,020
========= ========= =========
1994
Building Materials $ 135,857 $ 8,616 $ 14,725
Footwear 211,126 5,008 3,825
Corporate assets 22,415 228 77
Assets held for sale 5,523 - -
--------- --------- ---------
Total $ 374,921 $ 13,852 $ 18,627
========= ========= =========
Assets held for sale relate primarily to raw land that is being marketed by
third parties on behalf of the Company.
9. COMMITMENTS
At December 31, 1996, approximate future minimum rental commitments for all
noncancellable operating leases are as follows: (in thousands of dollars)
1997 $ 3,440
1998 2,119
1999 1,102
2000 679
2001 546
Thereafter 510
-------
$ 8,396
=======
Total rent expense for all operating leases amounted to approximately
$4,063,000, $4,682,000, and $3,976,000 in 1996, 1995,
and 1994, respectively.
(Page 26)
================================================================================
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
Board of Directors
Justin Industries, Inc.
We have audited the accompanying consolidated balance sheets of Justin
Industries, Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Justin Industries,
Inc. at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Fort Worth, Texas
January 29, 1997
MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The Consolidated Financial Statements for Justin Industries, Inc. and its
subsidiaries are prepared by the Company in conformity with consistently
applied, generally accepted accounting principles. Management selects
appropriate accounting principles, makes necessary estimates, and uses its
judgment to ensure the objectivity, accuracy, and integrity of the data
presented. The Company has established and maintains systems of management
reporting and internal controls that are designed to provide reasonable
assurance that Company policies are followed and that Company assets are
safeguarded. These systems are constantly monitored and revised where necessary
to meet changing requirements and to strengthen controls while maintaining a
cost-effective method of providing credible and timely information necessary to
the operations of Justin Industries.
The Board of Directors carries out its oversight responsibility for the
financial statements through its Audit Committee. This committee is composed of
directors who are neither officers nor employees of the Company. The committee
meets periodically with the independent auditors and representatives of
management to assure that each is carrying out its responsibilities. To ensure
the integrity of the Audit Committee function, the Company's outside auditors
have complete access to the committee, without company representatives present.
The results of their audits and their reviews of the adequacy of internal
controls and the quality of financial reporting are freely discussed during
these conferences.
(Page 27)
================================================================================
<TABLE>
ELEVEN-YEAR FINANCIAL SUMMARY
<CAPTION>
Years ending on December 31, 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS: (see note)
(in thousands of dollars)
Net sales:
Building Materials 261,315 240,094 224,213 179,740 158,808 123,004
Footwear 186,457 221,354 258,796 295,191 294,459 245,346
- ----------------------------------------------------------------------------------------------------------------------
447,772 461,448 483,009 474,931 453,267 368,350
- ----------------------------------------------------------------------------------------------------------------------
Operating profit:
Building Materials 44,233 42,107 44,600 31,445 16,423 4,979
Footwear 1,591 9,234 22,871 34,168 36,054 22,934
- ----------------------------------------------------------------------------------------------------------------------
45,824 51,341 67,471 65,613 52,477 27,913
- ----------------------------------------------------------------------------------------------------------------------
Selected costs and expenses:
Cost of goods sold 292,858 300,842 314,661 314,431 313,961 260,968
Selling, general, and administrative 114,925 115,370 106,814 100,465 91,695 84,167
Interest 3,367 5,032 4,058 4,005 5,214 9,482
Depreciation 15,792 14,742 13,852 13,473 13,837 12,338
Income taxes 13,257 14,553 20,571 19,995 15,304 5,280
- ----------------------------------------------------------------------------------------------------------------------
Income:
From continuing operations (before
accounting change in 1993) 23,365 25,651 36,905 36,035 27,093 8,453
Net income 23,365 25,651 36,905 37,141 27,093 19,233
- ----------------------------------------------------------------------------------------------------------------------
Income per share:
From continuing operations (before
accounting change in 1993) .87 .94 1.33 1.29 .98 .32
Net income .87 .94 1.33 1.33 .98 .73
- ----------------------------------------------------------------------------------------------------------------------
Dividends declared per share .16 .16 .16 .16 .14 .135
Capital expenditures* 24,738 26,020 18,627 17,278 12,006 10,666
- ----------------------------------------------------------------------------------------------------------------------
YEAR-END STATISTICS: (in thousands of dollars)
Working capital 165,053 181,385 185,722 185,193 164,822 151,588
Net property, plant, and equipment 105,497 96,657 85,460 80,270 76,544 78,750
Total assets 360,078 376,409 374,921 346,680 316,368 295,947
Long-term debt 32,890 57,137 65,323 88,504 100,362 116,040
Shareholders' equity 252,856 236,489 221,900 188,803 155,270 127,549
KEY FINANCIAL RATIOS:
Pre-tax profit margin (%)* 8.18 8.71 11.90 11.80 9.35 3.73
Income-return on sales (%)* 5.22 5.56 7.64 7.59 5.98 2.29
Return on shareholders' equity (%)* 9.88 11.56 19.55 23.21 21.24 7.61
Return on assets (%)* 6.34 6.83 10.23 10.87 8.85 2.87
Effective income tax rate (%)* 36.2 36.2 35.8 35.7 36.1 38.4
Ratio of long-term debt to shareholders' equity .13:1 .24:1 .29:1 .47:1 .65:1 .91:1
Ratio of total interest-bearing debt to
shareholders' equity .17:1 .31:1 .36:1 .49:1 .70:1 .93:1
Ratio of current assets to current liabilities 3.7:1 3.6:1 3.5:1 4.4:1 4.0:1 4.4:1
OTHER STATISTICS:
Average number of shares outstanding (in thousands) 26,997 27,411 27,810 27,953 27,772 26,382
Book value per share 9.56 8.88 8.15 6.95 5.75 4.92
Dividends as a percent of net income 18.1 16.8 11.8 11.7 13.7 17.9
Market price of common stock:
High 13 1/2 12 1/8 16 3/4 25 3/8 19 6
Low 9 3/4 9 1/2 9 3/4 11 3/4 5 5/8 3 5/8
======================================================================================================================
<FN>
*Continuing Operations (before accounting change in 1993)
Note: Per share income amounts have been computed on the average number of
common and common equivalent shares outstanding during each year and
include preferred stock as common share equivalents. Book value per
equivalent share of common stock has been computed on the number of common
shares outstanding at December 31. All per share information has been
adjusted for the 3-for-2 stock splits in 1989 and 1992, and a 2-for-1 stock
split in 1993. Operating profit for the business segments is income before
interest, allocation of parent-company overhead expenses, and income taxes.
ELEVEN-YEAR FINANCIAL SUMMARY (Continued)
<CAPTION>
Years ending on December 31, 1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS: (see note)
(in thousands of dollars)
Net sales:
Building Materials 118,943 113,662 108,864 113,204 119,104
Footwear 181,370 142,707 123,455 109,662 101,195
- -----------------------------------------------------------------------------------------------------------
300,313 256,369 232,319 222,866 220,299
- -----------------------------------------------------------------------------------------------------------
Operating profit:
Building Materials 3,698 604 4,369 6,685 7,437
Footwear 17,748 15,650 12,223 10,184 9,946
- -----------------------------------------------------------------------------------------------------------
21,446 16,254 16,592 16,869 17,383
- -----------------------------------------------------------------------------------------------------------
Selected costs and expenses:
Cost of goods sold 211,559 182,365 164,596 154,600 148,503
Selling, general, and administrative 70,666 60,251 54,590 53,590 57,682
Interest 6,815 6,402 4,574 4,369 4,140
Depreciation 10,164 10,003 10,263 10,152 10,218
Income taxes 3,697 2,432 2,696 3,121 4,131
- -----------------------------------------------------------------------------------------------------------
Income:
From continuing operations (before
accounting change in 1993) 7,576 5,281 5,954 7,382 5,843
Net income 7,293 7,198 7,469 752 5,033
- -----------------------------------------------------------------------------------------------------------
Income per share:
From continuing operations (before
accounting change in 1993) .29 .21 .24 .29 .22
Net income .28 .28 .30 .03 .19
- -----------------------------------------------------------------------------------------------------------
Dividends declared per share .135 .10 .09 .09 .09
Capital expenditures* 12,646 7,405 8,681 4,540 5,922
- -----------------------------------------------------------------------------------------------------------
YEAR-END STATISTICS: (in thousands of dollars)
Working capital 147,307 97,983 105,114 90,206 87,407
Net property, plant, and equipment 84,653 64,261 67,682 75,205 80,362
Total assets 292,923 211,308 214,403 219,013 224,608
Long-term debt 124,724 56,238 69,590 70,509 69,489
Shareholders' equity 111,135 106,431 98,687 92,938 96,321
KEY FINANCIAL RATIOS:
Pre-tax profit margin (%)* 3.75 3.01 3.72 4.71 3.47
Income-return on sales (%)* 2.52 2.06 2.56 3.31 2.08
Return on shareholders' equity (%)* 7.12 5.35 6.41 7.66 4.81
Return on assets (%)* 3.00 2.48 2.75 3.33 2.01
Effective income tax rate (%)* 32.8 31.5 31.2 29.7 40.0
Ratio of long-term debt to shareholders' equity 1.12:1 .53:1 .71:1 .76:1 .72:1
Ratio of total interest-bearing debt to
shareholders' equity 1.14:1 .56:1 .73:1 .79:1 .75:1
Ratio of current assets to current liabilities 4.1:1 3.5:1 3.9:1 2.9:1 2.8:1
OTHER STATISTICS:
Average number of shares outstanding (in thousands) 26,412 25,668 25,134 25,408 26,218
Book value per share 4.31 4.15 3.98 3.76 3.78
Dividends as a percent of net income 47.1 35.1 29.5 296.7 45.5
Market price of common stock:
High 5 7/8 5 5/8 3 5/8 3 7/8 4 5/8
Low 3 5/8 3 3/8 2 5/8 2 1/4 2 7/8
===========================================================================================================
<FN>
*Continuing Operations (before accounting change in 1993)
Note: Per share income amounts have been computed on the average number of
common and common equivalent shares outstanding during each year and
include preferred stock as common share equivalents. Book value per
equivalent share of common stock has been computed on the number of common
shares outstanding at December 31. All per share information has been
adjusted for the 3-for-2 stock splits in 1989 and 1992, and a 2-for-1 stock
split in 1993. Operating profit for the business segments is income before
interest, allocation of parent-company overhead expenses, and income taxes.
</TABLE>
(Pages 28 and 29)
================================================================================
SHAREHOLDER INFORMATION
ANNUAL MEETING
The annual meeting of shareholders will be held on Friday, March 28, 1997, at
the Fort Worth Club Building, twelfth floor, 306 West Seventh Street, Fort
Worth, Texas, at 10:30 a.m. All shareholders are cordially invited to attend and
are urged to be represented by proxy if unable to attend.
DIVIDEND REINVESTMENT AND SHAREHOLDER SAVINGS PROGRAM
Any shareholder of record may have dividends automatically reinvested, or make
voluntary investments in the Company's common stock through a service offered by
The Bank of New York. For additional information, contact Investor Relations,
Justin Industries, Inc., P. O. Box 425, Fort Worth, Texas 76101 (817) 336-5125.
FORM 10-K /10-Q
Investors who wish to receive a copy of the Company's annual report on Form 10-K
or quarterly 10-Q reports filed with the Securities and Exchange Commission, or
other shareholder mailings, may obtain them upon request to Investor Relations,
Justin Industries, Inc., P. O. Box 425, Fort Worth, Texas 76101 (817) 336-5125.
STOCK LISTING
Justin Industries, Inc., common stock trades on the Nasdaq National Market tier
of The Nasdaq Stock Market under the symbol "JSTN."
STOCK TRANSFER AND DIVIDEND DISBURSING AGENT
The Bank of New York, Shareholder Relations Department-11E, Church Street
Station, P. O. Box 11258, New York, New York 10286 (800) 524-4458.
INDEPENDENT AUDITORS
Ernst & Young LLP, 500 Throckmorton Street, Suite 2200, Fort Worth, Texas 76102.
EXECUTIVE OFFICES
Justin Industries, Inc., 2821 West Seventh Street, Fort Worth, Texas 76107 (817)
336-5125.
<TABLE>
QUARTERLY FINANCIAL DATA
The following table presents summarized quarterly operating results for the two-
year period ending December 31, 1996.
Unaudited - In thousands, except per share data
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
1996 1995
------------------------------------------ ------------------------------------------
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $104,339 $110,672 $110,379 $122,382 $113,654 $109,918 $112,421 $125,455
Gross profit 34,636 38,771 37,926 43,581 38,951 39,276 39,811 42,568
Net income 3,794 5,659 5,940 7,972 5,268 6,034 5,778 8,571
Per share:
Net income .14 .21 .22 .30 .19 .22 .21 .32
Dividends paid .04 .04 .04 .04 .04 .04 .04 .04
</TABLE>
MARKET MAKERS
as of January 29, 1997
Dean Witter Reynolds, Inc.
Gruntal & Co. Incorporated
Herzog, Heine, Geduld, Inc.
Jefferies & Company, Inc.
Knight Securities L.P.
Mayer & Schweitzer Inc.
Merrill Lynch, Pierce, Fenner
and Smith, Inc.
PaineWebber Inc.
Parker/Hunter Inc.
Principal Financial Securities
Sherwood Securities Corp.
Smith Barney Inc.
Southwest Securities Inc.
Troster Singer Corp.
MARKET PRICE OF COMMON STOCK
Price
Year ---------------------------------
Quarter High Low Close
- ------- ------- ------- -------
1994
1 16 3/4 13 14
2 15 11 1/2 12
3 13 3/4 10 12 7/8
4 13 3/4 9 3/4 11 7/8
1995
1 12 1/8 9 1/2 9 5/8
2 12 9 5/8 11
3 11 5/8 10 1/2 11
4 11 3/8 9 7/8 11
1996
1 11 7/8 10 11/16 11 5/8
2 13 1/2 11 1/4 13 1/8
3 13 3/8 10 1/2 10 7/8
4 12 1/8 9 3/4 11 1/2
(Page 30)
================================================================================
DIRECTORS
John Justin
Chairman and Chief Executive Officer of Justin Industries
J. T. Dickenson
President and Chief Operating Officer of Justin Industries
Bayard H. Friedman
Investment Advisor
Marvin Gearhart
Chairman of the Board of Rock Bit International, Inc.
Robert E. Glaze
Personal Investments
Dee J. Kelly
Shareholder and Director of the law firm of
Kelly, Hart & Hallman
Joseph R. Musolino
Vice Chairman of NationsBank of Texas
John V. Roach
Chairman and Chief Executive Officer of
Tandy Corporation
Dr. William E. Tucker
Chancellor of Texas Christian University
COMMITTEES
Audit Committee
BAYARD H. FRIEDMAN
MARVIN GEARHART
ROBERT E. GLAZE
Compensation Committee
JOHN V. ROACH
DR. WILLIAM E. TUCKER
OFFICERS
John Justin
Chairman of the Board and Chief Executive Officer
J. T. Dickenson
President and Chief Operating Officer
Richard J. Savitz
Vice President Finance, Treasurer and Secretary
Edward L. Stout, Jr.
Vice President Brick Operations
Judy B. Hunter
Controller
W. O. Burrough
Assistant Treasurer
(Page 31)
================================================================================
MANUFACTURING AND DISTRIBUTION LOCATIONS
Acme Brick Company
Manufacturing-Brick
Bennett, Texas (2)
Bridgeport, Texas
Denton, Texas
Elgin, Texas
Garrison, Texas
McQueeney, Texas
San Felipe (Houston), Texas
Fort Smith, Arkansas
Malvern, Arkansas
Perla, Arkansas (2)
Kanopolis, Kansas
Weir, Kansas
Jamestown, Louisiana
Oklahoma City, Oklahoma
Tulsa, Oklahoma
Manufacturing-Concrete Block
Baton Rouge, Louisiana
Distribution
Abilene, Texas
Amarillo, Texas
Austin, Texas
Beaumont, Texas
Corpus Christi, Texas
Dallas, Texas
Denton, Texas
Fort Worth, Texas
Houston, Texas
Longview, Texas
Lubbock, Texas
Midland, Texas
San Antonio, Texas
Texarkana, Texas
Wichita Falls, Texas
Alexandria, Louisiana
Baton Rouge, Louisiana
Lafayette, Louisiana
Lake Charles, Louisiana
Monroe, Louisiana
New Orleans, Louisiana
Shreveport, Louisiana
Fort Smith, Arkansas
Little Rock, Arkansas
Russellville, Arkansas
Springdale, Arkansas
Joplin, Missouri
Springfield, Missouri
St. Louis, Missouri
Oklahoma City, Oklahoma
Tulsa, Oklahoma
Kansas City, Kansas
Wichita, Kansas
Memphis, Tennessee (2)
American Tile Supply Company
Distribution
Austin, Texas
Dallas, Texas, area (9)
Fort Worth, Texas, area (2)
Houston, Texas, area (2)
Longview, Texas
San Antonio, Texas
Featherlite Building Products Corporation
Manufacturing-Concrete Block
Abilene, Texas
Austin, Texas, area
Beaumont/Port Arthur, Texas
Dallas, Texas
El Paso, Texas
Lubbock, Texas
San Antonio, Texas
Manufacturing-Architectural Stone
Cedar Park, Texas
(d/b/a Texas Quarries)
Distribution
Amarillo, Texas
Corpus Christi, Texas
Las Cruces, New Mexico
Tradewinds Technologies, Inc.
Phoenix, Arizona
Justin Boot Company
Manufacturing
Fort Worth, Texas
Carthage, Missouri
Cassville, Missouri
Nocona Boot Company
Manufacturing
Nocona, Texas
Tony Lama Company
Manufacturing
El Paso, Texas
Northland Publishing Company, Inc.
Flagstaff, Arizona
(Page 32)
================================================================================
(Inside back cover - World Globe picture)
================================================================================
(Back cover - picture of boot, brick and building block)
JUSTIN INDUSTRIES, INC.
2821 WEST SEVENTH STREET - BOX 425
FORT WORTH, TEXAS 76101 - 817-336-5125
================================================================================
LISTING OF SUBSIDIARIES
Percentage
of Voting
Place of Securities
Name Organization Owned
- ------------------------------------------- ------------ ----------
Significant subsidiaries of the company:
Acme Brick Company Delaware 100%
American Tile Supply, Inc. Delaware 100%
Featherlite Building Products Corporation Delaware 100%
Footwear Management Company Delaware 100%
d/b/a Justin Boot Company
d/b/a Nocona Boot Company
d/b/a Tony Lama Company, Inc.
Justin Management Company Delaware 100%
d/b/a Justin Management Company
d/b/a Northland Publishing Company, Inc.
Tradewinds Technologies, Inc. Delaware 100%
All other subsidiaries are omitted from this list because they do not,
considered in the aggregate as a single subsidiary, constitute a significant
subsidiary. All wholly-owned subsidiaries are included in the consolidated
financial statements.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
December 31, 1996 Financial Statements included in the Company's Form 10-K
and is qualified in its entirety by reference to such Form 10-K.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3215
<SECURITIES> 0
<RECEIVABLES> 83384
<ALLOWANCES> 3069
<INVENTORY> 129146
<CURRENT-ASSETS> 225961
<PP&E> 271095
<DEPRECIATION> 165598
<TOTAL-ASSETS> 360078
<CURRENT-LIABILITIES> 60908
<BONDS> 0
0
0
<COMMON> 69674
<OTHER-SE> 183182
<TOTAL-LIABILITY-AND-EQUITY> 360078
<SALES> 447772
<TOTAL-REVENUES> 447772
<CGS> 292858
<TOTAL-COSTS> 292858
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2707
<INTEREST-EXPENSE> 3367
<INCOME-PRETAX> 36622
<INCOME-TAX> 13257
<INCOME-CONTINUING> 23365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23365
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
