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 June 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: 26,323,467 shares of the
Company's Common Stock ($2.50 par value) were outstanding as of August 13, 1997.
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JUSTIN INDUSTRIES, INC.
Table of Contents
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet
June 30, 1997 and December 31, 1996 3
Consolidated Statement of Income
Three Months and Six Months Ended June 30,
1997 and 1996 4
Consolidated Statement of Shareholders' Equity
Six Months Ended June 30, 1997 and 1996 4
Consolidated Statement of Cash Flows
Six Months Ended June 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
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
JUSTIN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
In Thousands of Dollars
June 30, December 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash $ 5,863 $ 3,215
Accounts receivable, less allowance for doubtful
accounts of $3,298 and $3,069, respectively 71,587 80,315
Inventories:
Finished goods 104,652 99,401
Work-in-process 5,524 5,246
Raw materials 25,745 24,499
-------- --------
Total inventories 135,921 129,146
Income taxes 7,781 11,758
Prepaid expenses 2,369 1,527
-------- --------
Total current assets 223,521 225,961
Other assets, at cost 27,329 25,815
Assets held for sale 2,805 2,805
Property, plant, and equipment, at cost:
Land 20,231 19,908
Buildings and equipment 252,125 247,285
Construction-in-progress 8,046 3,902
-------- --------
280,402 271,095
Less accumulated depreciation 173,050 165,598
-------- --------
Net property, plant, and equipment 107,352 105,497
-------- --------
$361,007 $360,078
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable to banks $ - $ 2,000
Trade accounts payable 15,739 14,056
Other accrued items 37,451 37,457
Current portion of long-term debt 7,235 7,395
-------- --------
Total current liabilities 60,425 60,908
Long-term debt, less current portion 27,750 32,890
Deferred income taxes 13,404 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 16,251 16,477
Retained earnings 189,533 181,068
Treasury stock, at cost, 1,561,591 and 1,416,800
shares, respectively (16,030) (14,363)
-------- --------
Total shareholders' equity 259,428 252,856
-------- --------
$361,007 $360,078
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 3
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<TABLE>
JUSTIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
In Thousands of Dollars (Except Per Share Data)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales:
Building materials $ 71,017 $ 70,797 $128,158 $128,655
Footwear 39,869 39,875 80,334 86,356
-------- -------- -------- --------
110,886 110,672 208,492 215,011
Costs and expenses:
Cost of goods sold 69,134 71,901 133,369 141,604
Selling, general, and
administrative expenses 29,459 28,942 57,612 56,610
Interest expense 440 920 856 1,910
-------- -------- -------- --------
99,033 101,763 191,837 200,124
-------- -------- -------- --------
Income before income taxes 11,853 8,909 16,655 14,887
Provision for income taxes 4,326 3,250 6,079 5,434
-------- -------- -------- --------
Net income $ 7,527 $ 5,659 $ 10,576 $ 9,453
======== ======== ======== ========
Earnings per share $ .28 $ .21 $ .39 $ .35
======== ======== ======== ========
</TABLE>
<TABLE>
JUSTIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Six Months Ended June 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 - - - 10,576 -
Purchase of 231,700 shares
of stock for treasury - - - - (2,562)
Exercise of stock options - - (226) - 895
Cash dividends declared
($.08 per share) - - - (2,111) -
-------- -------- -------- -------- --------
Balance June 30, 1997 $ - $ 69,674 $ 16,251 $189,533 $ (16,030)
======== ======== ======== ======== ========
Balance January 1, 1996 $ - $ 69,674 $ 16,800 $ 161,932 $ (11,917)
Net income - - - 9,453 -
Purchase of 195,000 shares
of stock for treasury - - - - (2,349)
Exercise of stock options - - (185) - 765
Cash dividends declared
($.08 per share) - - - (2,129) -
-------- -------- -------- -------- --------
Balance June 30, 1996 $ - $ 69,674 $ 16,615 $ 169,256 $ (13,501)
======== ======== ======== ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 4
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<TABLE>
JUSTIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
In Thousands of Dollars
Six Months Ended
June 30,
-------------------
1997 1996
-------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $10,576 $ 9,453
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 8,279 7,321
Amortization 397 318
Provision for losses on accounts receivable 873 1,024
Gain on sale of property, plant, and equipment (141) (108)
Changes in assets and liabilities:
Decrease in accounts receivable 7,940 7,723
(Increase) decrease in inventories (6,482) 2,957
Decrease in other current assets 3,135 146
Increase (decrease) in accounts payable
and accrued expenses 1,505 (255)
------- -------
Net cash provided from operating activities 26,082 28,579
Cash flows from investing activities:
Proceeds from the sale of property, plant,
and equipment 208 449
Capital expenditures (10,117) (15,123)
(Increase) decrease in other long-term assets (142) 747
Acquisition of IBP, net of cash acquired (2,073) -
------- -------
Net cash used in investing activities (12,124) (13,927)
Cash flows from financing activities:
Borrowings 3,000 8,000
Repayment of borrowings (10,300) (16,058)
Dividends paid (2,117) (2,137)
Purchase of treasury stock (2,562) (2,349)
Proceeds from exercise of stock options 669 580
------- -------
Net cash used in financing activities (11,310) (11,964)
------- -------
Net increase in cash 2,648 2,688
Cash at beginning of period 3,215 2,180
------- -------
Cash at end of period $ 5,863 $ 4,868
======= =======
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 5
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JUSTIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 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 26,810,000 in
1997 and 27,089,000 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.
Preliminary motions to dismiss the complaint filed by Tradewinds and JMC have
been denied by the court. A similar motion filed by the Company has been denied
without prejudice to refiling after certain discovery has been conducted. The
plaintiff's motions for emergency class notice or, in the alternative, for
preliminary injunctive relief and for class certification have been denied by
the court pending discovery on the matters raised by those motions.
Page 6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Sales - Consolidated net sales for the second quarter of 1997 were $110.9
million versus $110.7 million for the same quarter in 1996, an increase of .2%.
For the first six months of 1997, consolidated net sales were $208.5 million, 3%
less than 1996's first half sales of $215 million.
Building Materials Segment Sales - Sales for the second quarter of
1997 in the Building Materials segment were $71 million, .3% greater
than the 1996 second quarter amount of $70.8 million. For the first six
months of 1997, segment sales were $128.2 million, down .4% from 1996.
As noted, total Building Material sales have remained virtually
unchanged in 1997's second quarter and first six month's periods
compared to 1996. There has, however, been some changes in the
components of total segment revenues in 1997. Unit brick shipments were
4% lower in 1997's second quarter compared to 1996 and are off 5% for
the first six months of the current year. Reduced brick shipments
resulted from lower levels of residential construction in the company's
markets, primarily due to wetter weather in 1997. Offsetting the
decline in brick unit volume has been an increase in brick selling
prices and higher revenues from the tile distribution and cut limestone
businesses.
Footwear Segment Sales - Net sales in the Footwear operations of
$39.9 million for the three months ended June 30, 1997 equaled those of
the same quarterly period in 1996. For the first six months of 1997,
however, segment sales of $80.3 million were 7% below those of 1996.
Western boot sales in the second quarter were again less than the
comparable quarter in 1996. Gains in the Chippewa line of sport and
utility footwear and sales of the new Justin Original Workboot offset
the western decline. Chippewa has seen steady growth over the last few
years, while the Workboot was first introduced to limited markets during
the second quarter.
Costs and Expenses - The consolidated ratio of cost of goods sold to sales
was 62.3% in the second quarter of 1997 versus 65% in the same quarter in 1996.
For the six month periods ended June 30, 1997 and 1996, the cost of goods sold
to sales percentage was 64% and 65.9%, respectively.
Building Materials' ratio was 57.9% in the second quarter of 1997 compared to
59.9% in 1996's second quarter. For the first six months of 1997 and 1996, the
ratio for Building Materials was 59.8% and 60.6%, respectively. Acme Brick
Company and Featherlite Building Products Corporation both realized improved
gross profit margins. While unit brick volume has been less in 1997 than in
1996, margins in the current year are better due to the higher average pricing
mentioned above as well as the absence of start-up expenses which were incurred
in 1996's second quarter at the company's new brick plant west of Fort Worth.
Improvements at Featherlite have resulted from higher selling prices.
The ratio of cost of goods sold to sales in the Footwear business was 70.3%
for the second quarter of 1997 versus 73.9% for the second quarter of 1996. For
the six months periods ended June 30, the ratios were 70.7% in 1997 and 73.8% in
1996. Margins in 1996 were adversely affected by costs associated with reducing
production levels. Price increases in 1997 have improved margins also. In
addition, reductions in inventory levels, merchandise returns from customers and
selling discounts in the current year have boosted gross profit margins.
Selling, general and administrative expenses were 26.6% of sales in the
second quarter of 1997 compared to 26.2% in the second quarter of 1996. For the
first six months of 1997, these expenses were 27.6% of net sales compared to
26.3% for the first six months of 1996. While operating expenses were down in
the Footwear group due to previously implemented cost reductions, Building
Materials expenses have increased due to higher expenditures for advertising and
planned growth at American Tile Supply Company.
Page 7
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Interest expense for the second quarter of 1997 and first six months of the
year was less than half of the amounts incurred during the comparable periods of
1996. The reductions were due to reduced borrowing levels as interest rates
have had very little fluctuation over the last year.
Provision for Income Taxes - The Company's provision for income tax was 36.5%
of pre-tax income in the second quarter and for the first six months of 1997 and
1996, which is the current estimated effective rate for the full year.
FINANCIAL CONDITION AND LIQUIDITY
At June 30, 1997, working capital was $163.1 million, compared to $165.1
million at year end 1996. Cash increased to $5.9 million at June 30, 1997 from
$3.2 million at year end. Net cash provided from operating activities in the
first six months of 1997 totalled $26.1 million compared to $28.6 million last
year. Major uses of these funds were for capital expenditures of $10.1 million,
reductions in borrowings of $7.3 million, the payment of $2.1 million in
dividends and the purchase of $2.6 million of treasury stock.
Total interest-bearing debt decreased to $35 million from $42.3 million at
year end 1996. This decrease reduced the ratio of long-term debt-to-equity to
.11 to 1 from .13 to 1 at year end. Borrowings may increase during the next
quarter to finance additional seasonal working capital needs. At June 30, 1997,
unused credit facilities were in excess of $80 million, an amount well above the
company's estimated requirements.
Cash dividends of $.04 a share were declared in the second quarter of 1997
and 1996. During each of the six month periods ended June 30 in 1997 and 1996,
dividends were declared amounting to $.08 a share.
Page 8
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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.
Preliminary motions to dismiss the complaint filed by Tradewinds and JMC have
been denied by the court. A similar motion filed by the Company has been denied
without prejudice to refiling after certain discovery has been conducted. The
plaintiff's motions for emergency class notice or, in the alternative, for
preliminary injunctive relief and for class certification have been denied by
the court pending discovery on the matters raised by those motions.
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 June 30, 1997.
(b) Reports on Form 8-K
None.
Page 9
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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 14th day of August 1997.
Page 10
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the June 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5863
<SECURITIES> 0
<RECEIVABLES> 74885
<ALLOWANCES> 3298
<INVENTORY> 135921
<CURRENT-ASSETS> 223521
<PP&E> 280402
<DEPRECIATION> 173050
<TOTAL-ASSETS> 361007
<CURRENT-LIABILITIES> 60425
<BONDS> 0
0
0
<COMMON> 69674
<OTHER-SE> 189754
<TOTAL-LIABILITY-AND-EQUITY> 361007
<SALES> 208492
<TOTAL-REVENUES> 208492
<CGS> 133369
<TOTAL-COSTS> 133369
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 873
<INTEREST-EXPENSE> 856
<INCOME-PRETAX> 16655
<INCOME-TAX> 6079
<INCOME-CONTINUING> 10576
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10576
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
