UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
________________________
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended September 30, 1997
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 76107
(Address of principal (Zip Code)
executive office)
(817) 336-5125
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 XX NO ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 26,356,312 shares of the
Company's Common Stock ($2.50 par value) were outstanding as of November 4,
1997.
================================================================================
JUSTIN INDUSTRIES, INC.
Table of Contents
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet
September 30, 1997 and December 31, 1996 3
Consolidated Statement of Income
Three Months and Nine Months Ended
September 30, 1997 and 1996 4
Consolidated Statement of Shareholders' Equity
Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION 9
Item 1. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURE 10
All other schedules and compliance information called for by the instructions to
Form 10-Q have been omitted since the required information is not present or not
present in amounts sufficient to require submission.
Page 2
===============================================================================
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
JUSTIN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
In Thousands of Dollars
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash $4,209 $3,215
Accounts receivable, less allowance for doubtful
accounts of $3,409 and $3,069, respectively 78,937 80,315
Inventories:
Finished goods 105,967 99,401
Work-in-process 5,980 5,246
Raw materials 31,036 24,499
-------- --------
Total inventories 142,983 129,146
Income taxes 7,292 11,758
Prepaid expenses 2,538 1,527
-------- --------
Total current assets 235,959 225,961
Other assets, at cost 27,594 25,815
Assets held for sale 2,805 2,805
Property, plant, and equipment, at cost:
Land 20,268 19,908
Buildings and equipment 256,184 247,285
Construction-in-progress 11,113 3,902
-------- --------
287,565 271,095
Less accumulated depreciation 176,642 165,598
-------- --------
Net property, plant, and equipment 110,923 105,497
-------- --------
$377,281 $360,078
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable to banks $2,000 $2,000
Trade accounts payable 21,062 14,056
Other accrued items 40,262 37,457
Current portion of long-term debt 7,235 7,395
-------- --------
Total current liabilities 70,559 60,908
Long-term debt, less current portion 27,750 32,890
Deferred income taxes 13,412 13,424
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 16,154 16,477
Retained earnings 195,318 181,068
Treasury stock, at cost, 1,514,076 and 1,416,800
shares, respectively (15,586) (14,363)
-------- --------
Total shareholders' equity 265,560 252,856
-------- --------
$377,281 $360,078
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 3
===============================================================================
<TABLE>
JUSTIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
In Thousands of Dollars (Except Per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- --------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales:
Building materials $ 72,568 $ 68,622 $200,726 $197,277
Footwear 41,589 41,757 121,923 128,113
-------- -------- -------- --------
114,157 110,379 322,649 325,390
Costs and expenses:
Cost of goods sold 71,850 72,453 205,219 214,057
Selling, general, and
administrative expenses 30,670 27,774 88,282 84,384
Interest expense 451 798 1,307 2,708
-------- -------- -------- --------
102,971 101,025 294,808 301,149
-------- -------- -------- --------
Income before income taxes 11,186 9,354 27,841 24,241
Provision for income taxes 4,083 3,414 10,162 8,848
-------- -------- -------- --------
Net income $ 7,103 $ 5,940 $ 17,679 $ 15,393
======== ======== ======== ========
Earnings per share $ .27 $ .22 $ .66 $ .57
======== ========= ========= ========
</TABLE>
<TABLE>
JUSTIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Nine Months Ended September 30, 1997 and 1996
<CAPTION>
In Thousands of Dollars (Except Share and Per Share Data)
Capital In
Preferred Common Excess of Retained Treasury
Stock Stock Par Value Earnings Stock
- ------------------------------ ---------- ---------- ---------- ---------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance January 1, 1997 $ - $ 69,674 $ 16,477 $181,068 $(14,363)
Net income - - - 17,679 -
Purchase of 231,700 shares
of stock for treasury - - - - (2,562)
Exercise of stock options - - (323) - 1,339
Cash dividends declared
($.13 per share) - - - (3,429) -
-------- -------- -------- -------- --------
Balance September 30, 1997 $ - $ 69,674 $ 16,154 $195,318 $(15,586)
======== ======== ======== ======== ========
Balance January 1, 1996 $ - $ 69,674 $ 16,800 $161,932 $(11,917)
Net income - - - 15,393 -
Purchase of 323,000 shares
of stock for treasury - - - - (3,821)
Exercise of stock options - - (256) - 1,190
Cash dividends declared
($.12 per share) - - - (3,186) -
-------- -------- -------- -------- --------
Balance September 30, 1996 $ - $ 69,674 $ 16,544 $174,139 $(14,548)
======== ======== ======== ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 4
===============================================================================
<TABLE>
JUSTIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
In Thousands of Dollars
Nine Months Ended
September 30,
-------------------
1997 1996
-------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 17,679 $ 15,393
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 12,515 11,010
Amortization 539 478
Provision for losses on accounts receivable 1,326 1,662
Gain on sale of property, plant, and equipment (299) (198)
Deferred federal income tax 8 -
Changes in assets and liabilities:
Decrease in accounts receivable 137 4,824
(Increase) decrease in inventories (13,544) 11,724
(Increase) decrease in other current assets 3,455 (3,226)
Increase in accounts payable
and accrued expenses 9,373 4,105
-------- --------
Net cash provided from operating activities 31,189 45,772
Cash flows from investing activities:
Proceeds from the sale of property, plant,
and equipment 375 562
Capital expenditures (17,966) (20,113)
Increase in other long-term assets (516) (181)
Acquisition of IBP, net of cash acquired (2,073) -
-------- --------
Net cash used in investing activities (20,180) (19,732)
Cash flows from financing activities:
Borrowings 5,000 12,000
Repayment of borrowings (10,300) (30,058)
Dividends paid (3,169) (3,200)
Purchase of treasury stock (2,562) (3,821)
Proceeds from exercise of stock options 1,016 934
-------- --------
Net cash used in financing activities (10,015) (24,145)
-------- --------
Net increase in cash 994 1,895
Cash at beginning of period 3,215 2,180
-------- --------
Cash at end of period $ 4,209 $ 4,075
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 5
===============================================================================
JUSTIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Interim results are not necessarily indicative of results for a full year.
A summary of the company's significant accounting policies is presented on
page 21 of its 1996 Annual Report to Shareholders. Users of financial
information produced for interim periods are encouraged to refer to the
footnotes contained in the Annual Report to Shareholders when reviewing interim
financial results. There has been no material change in the accounting policies
followed by the company during 1997.
In the opinion of management, the accompanying interim financial statements
contain all material adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations, cash flows, and shareholders' equity of Justin
Industries, Inc. for interim periods.
Long-Term Debt
Certain loan agreements contain 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 September 30, 1997, the
company was in compliance with all such requirements and restrictions.
Earnings Per Share
Earnings per share are based on the average number of shares of common stock
outstanding during each period and such shares issuable upon assumed exercise of
stock options, using the treasury stock method, adjusted for stock splits. The
number of shares used in the calculation of earnings per share was 26,730,000 in
1997 and 27,029,000 in 1996.
Litigation
On April 23, 1997, the Company and two of its subsidiaries, Tradewinds
Technologies, Inc. ("Tradewinds") and Justin Management Company ("JMC"), were
named as defendants in a complaint sought to be certified as a class action in
federal district court in San Francisco, California, Tommie B. Peyer et al. v.
Tradewinds Technologies, Inc., Justin Industries, Inc. and Justin Management
Company, Case No. C-97-1466 (SC). The plaintiff alleges on behalf of herself
and the purported class (consisting of all owners of a Tradewinds evaporative
cooler or persons who live in a house or building to which a Tradewinds cooler
is attached) that Tradewinds has designed, manufactured and sold defective
evaporative coolers that have a propensity to start or spread fires. The
plaintiff is seeking an order certifying the class, injunctive relief,
unspecified actual and consequential damages, statutory damages under consumer
protection statutes, punitive damages, and attorney's fees and costs. The Court
has set a discovery and case disposition schedule to deal with outstanding
issues of class certification and jurisdiction.
Page 6
================================================================================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Sales - Consolidated net sales for the third quarter of 1997 were $114.2
million versus $110.4 million for the same quarter in 1996, an increase of 3.4%.
Consolidated net sales for the first nine months of 1997 were $322.6 million
compared to $325.4 million for the nine months ended September 30, 1996.
Building Materials Segment Sales - Sales in the Building Materials
segment for 1997's third quarter increased 5.8% to $72.6 million
compared to the same quarter of 1996. For the nine months ended
September 30, 1997, net sales increased 1.7% to $200.7 million compared
to the same period in 1996. Sales for Acme Brick Company ("Acme") grew
approximately 5.5% in the third quarter and 2.4% for the nine month
period of 1997, compared to the same periods a year ago. Record levels
of brick shipments produced most of the gains, while floor and wall tile
sales at both Acme and American Tile Supply Company posted good
improvements over 1996's third quarter and nine month periods.
Featherlite Building Products Corporation's sales for the third quarter
were up 6.5% and year-to-date were up about 1%. Average pricing
improvements and gains in cut limestone products have provided the
increase as the number of block units shipped is about the same in 1997
as compared to 1996. Tradewinds Technologies, Inc., manufacturer of
evaporative cooling units, had declines in revenues for the 1997 periods
compared to a year ago. This company contributes approximately 1% of
consolidated revenues.
Footwear Segment Sales - Total Footwear sales for the quarter ended
September 30, 1997, were down slightly to $41.6 million from 1996's
third quarter of $41.8 million. For the nine month period ended
September 30, 1997, revenues were 4.8% behind the same period a year
ago. Justin Boot Company recorded improved sales in the third quarter,
primarily as a result of its newest product line, the Justin Original
Workboot. The new work boots, introduced in the second quarter, are
still only offered in limited markets; however, this product produced
impressive sales contributions for the quarter. Nocona Boot Company
posted sales volumes close to those of 1996, while Tony Lama Company
continues to experience declines in demand for its western footwear.
Chippewa Shoe Company sales posted gains once again for the quarter and
year-to-date.
Costs and Expenses - The consolidated gross profit margin improved in the
third quarter of 1997 to 37.1% compared to 34.4% in the same quarter of 1996.
For the nine month periods ended September 30, 1996 and 1997, the gross profit
margins improved from 34.2% in 1996 to 36.4% in 1997. Building Materials'
margins improved from 41% in 1996's third quarter to 41.7% in the third quarter
of 1997. During the first nine months of 1997, the ratio for Building Materials
improved to 40.8% from 40% for the same period in 1996. Brick gross profit
margins improved during the quarter due to volume and selling price increases as
well as the absence of new plant start-up expenses, which were incurred in 1996.
These benefits were offset somewhat by higher than anticipated natural gas
costs. Gross profit margins in the Footwear business were greatly improved to
29% for the third quarter and 29.2% for the first nine months of 1997, versus
23.5% for the third quarter and 25.3% the first nine months of 1996. Higher
production levels as well as reductions in selling discounts have improved
margins.
Selling, general and administrative expenses increased to 26.9% of sales in
the third quarter of 1997 compared to 25.2% in the third quarter of 1996. For
the first nine months of 1997, such expenses were 27.4% of sales compared to
25.9% during the first nine months of 1996. The Building Materials segment
posted higher costs primarily due to increased sales volume. Although
Footwear's general and administrative costs are lower than the same period in
1996, advertising and marketing costs, primarily for new products, were
approximately $1 million more in the third quarter of 1997 compared to 1996.
Also in the third quarter, approximately $500,000 of expenses were incurred as a
result of the Tradewinds litigation discussed elsewhere herein..
Page 7
================================================================================
Interest expense decreased 43.5% in 1997's third quarter to $451,000 from
$798,000 in the same three month period of 1996. During the nine months ended
September 30, 1997, compared to the same period in 1996, interest expense
decreased $1,401,000 or 51.7%. These decreases are primarily attributable to
significantly lower debt levels due to earnings and Footwear's inventory
reduction strategies, in spite of slightly higher average effective interest
rates.
Provision for Income Taxes - The Company's provision for income tax was 36.5%
of pre-tax income in the third quarter and for the first nine months of 1997 and
1996, which is the current estimated effective rate for the full year.
FINANCIAL CONDITION AND LIQUIDITY
At September 30, 1997, working capital amounted to $165.4 million versus
$165.1 million at December 31, 1996. Cash increased from $3.2 million at year-
end 1996 to $4.2 million at the end of 1997's third quarter. During the first
nine months of 1997, net cash of $31.2 million was provided from operations.
The company was able to reduce debt levels by $5.3 million during the 1997 nine
month period. Other uses of cash during the nine month period include the
purchase of 231,700 shares of treasury stock at a cost of $2.6 million, purchase
of $18 million of capital equipment; and payment of $3.2 million in cash
dividends to shareholders.
Total interest-bearing debt decreased to $37 million from $42.3 million at
year-end 1996. The ratio of long-term debt-to-equity was .10 to 1 at September
30, 1997, compared to .13 to 1 at year-end 1996. Borrowings should decrease
further during the next quarter as receivables from Footwear's seasonal sales
become due. At September 30, 1997, unused credit facilities exceeded $75
million, an amount well above the company's estimated requirements.
Cash dividends declared in the third quarter of 1997 amounted to $.05 a share
compared to $.04 a share in the third quarter of 1996. During the nine month
period ending September 30, 1997, dividends were declared amounting to $.13 a
share and for the same period ending September 30, 1996, dividends amounted to
$.12 a share.
Page 8
================================================================================
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 23, 1997, the Company and two of its subsidiaries, Tradewinds
Technologies, Inc. ("Tradewinds") and Justin Management Company ("JMC"), were
named as defendants in a complaint sought to be certified as a class action in
federal district court in San Francisco, California, Tommie B. Peyer et al. v.
Tradewinds Technologies, Inc., Justin Industries, Inc. and Justin Management
Company, Case No. C-97-1466 (SC). The plaintiff alleges on behalf of herself
and the purported class (consisting of all owners of a Tradewinds evaporative
cooler or persons who live in a house or building to which a Tradewinds cooler
is attached) that Tradewinds has designed, manufactured and sold defective
evaporative coolers that have a propensity to start or spread fires. The
plaintiff is seeking an order certifying the class, injunctive relief,
unspecified actual and consequential damages, statutory damages under consumer
protection statutes, punitive damages, and attorney's fees and costs. The Court
has set a discovery and case disposition schedule to deal with outstanding
issues of class certification and jurisdiction.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information required by this item has been provided in the company's Form
10-Q for the quarter ended March 31, 1997.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule for the period ended September 30, 1997.
(b) Reports on Form 8-K
None.
Page 9
================================================================================
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, The
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JUSTIN INDUSTRIES, INC.
/S/ RICHARD J. SAVITZ
Richard J. Savitz
Vice President-Finance/
Chief Financial Officer
Dated this 7th day of November 1997.
Page 10
================================================================================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1997 Financial Statements included in the Company's Form 10-Q and
is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4209
<SECURITIES> 0
<RECEIVABLES> 82346
<ALLOWANCES> 3409
<INVENTORY> 142983
<CURRENT-ASSETS> 235959
<PP&E> 287565
<DEPRECIATION> 176642
<TOTAL-ASSETS> 377281
<CURRENT-LIABILITIES> 70559
<BONDS> 0
0
0
<COMMON> 69674
<OTHER-SE> 195886
<TOTAL-LIABILITY-AND-EQUITY> 377281
<SALES> 322649
<TOTAL-REVENUES> 322649
<CGS> 205219
<TOTAL-COSTS> 205219
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1326
<INTEREST-EXPENSE> 1307
<INCOME-PRETAX> 27841
<INCOME-TAX> 10162
<INCOME-CONTINUING> 17679
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17679
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
</TABLE>
