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 March 31, 1998
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.
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(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: 26,393,082 shares of the
Company's Common Stock ($2.50 par value) were outstanding as of March 31, 1998.
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JUSTIN INDUSTRIES, INC.
Table of Contents
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet
March 31, 1998 and December 31, 1997 3
Consolidated Statement of Income
Three Months Ended March 31, 1998 and 1997 4
Consolidated Statement of Shareholders' Equity
Three Months Ended March 31, 1998 and 1997 4
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1998 and 1997 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
March 31, December 31,
1998 1997
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash $ 6,386 $ 5,113
Accounts receivable, less allowance for doubtful
accounts of $3,162 and $3,097, respectively 69,020 73,153
Inventories:
Finished goods 110,719 105,100
Work-in-process 6,153 6,040
Raw materials 32,671 30,508
-------- --------
Total inventories 149,543 141,648
Income taxes 3,894 7,946
Prepaid expenses 2,860 2,454
-------- --------
Total current assets 231,703 230,314
Other assets, at cost 33,661 32,740
Assets held for sale 2,829 2,829
Property, plant, and equipment, at cost:
Land 20,062 20,062
Buildings and equipment 268,737 266,988
Construction-in-progress 4,939 3,000
-------- --------
293,738 290,050
Less accumulated depreciation 183,950 179,866
-------- --------
Net property, plant, and equipment 109,788 110,184
-------- --------
$377,981 $376,067
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 16,343 $ 18,412
Other accrued items 35,352 37,505
Current portion of long-term debt 8,000 8,000
-------- --------
Total current liabilities 59,695 63,917
Long-term debt, less current portion 26,750 23,750
Deferred income taxes 15,421 15,420
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 16,034 16,040
Retained earnings 205,781 202,645
Treasury stock, at cost, 1,489,456 and 1,490,915
shares, respectively (15,374) (15,379)
-------- --------
Total shareholders' equity 276,115 272,980
-------- --------
$377,981 $376,067
======== ========
<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
March 31,
-----------------------
1998 1997
-----------------------
(Unaudited)
<S> <C> <C>
Net sales:
Building materials $ 63,915 $ 57,141
Footwear 39,865 40,465
-------- --------
103,780 97,606
Costs and expenses:
Cost of goods sold 67,183 64,235
Selling, general, and administrative expenses 29,194 28,153
Interest expense 387 416
-------- --------
96,764 92,804
-------- --------
Income before income taxes 7,016 4,802
Provision for income taxes 2,561 1,753
-------- --------
Net income $ 4,455 $ 3,049
======== ========
Earnings per share:
Basic $ .17 $ .12
======== ========
Diluted $ .17 $ .11
======== ========
</TABLE>
<TABLE>
JUSTIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three Months Ended March 31, 1998 and 1997
<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, 1998 $ - $69,674 $16,040 $202,645 $(15,379)
Net income - - - 4,455 -
Exercise of stock options - - (6) - 5
Cash dividend declared
($.05 per share) - - - (1,319) -
-------- -------- ---------- -------- --------
Balance March 31, 1998 $ - $69,674 $16,034 $205,781 $(15,374)
======== ======== ========== ======== ========
Balance January 1, 1997 $ - $69,674 $16,477 $181,068 $(14,363)
Net income - - - 3,049 -
Exercise of stock options - - (34) - 109
Cash dividend declared
($.04 per share) - - - (1,059) -
-------- -------- ---------- -------- --------
Balance March 31, 1997 $ - $69,674 $16,443 $183,058 $(14,254)
======== ======== ========== ======== ========
<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
Three Months Ended
March 31,
----------------------
1998 1997
----------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,455 $ 3,049
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 4,349 4,109
Amortization 123 199
Provision for losses on accounts receivable 418 456
Gain on sale of property, plant, and equipment (27) (70)
Changes in assets and liabilities:
Decrease in accounts receivable 3,715 13,307
Increase in inventories (7,895) (4,830)
Decrease in other current assets 3,646 3,295
Increase in accounts payable
and accrued expenses (4,222) (444)
--------- ---------
Net cash provided from operating activities 4,563 19,071
Cash flows from investing activities:
Proceeds from the sale of property, plant,
and equipment 57 110
Capital expenditures (3,989) (3,770)
Increase in other long-term assets (1,038) (116)
Acquisition of IBP, net of cash acquired - (2,073)
--------- ---------
Net cash used in investing activities (4,970) (5,849)
Cash flows from financing activities:
Borrowings 6,000 -
Repayment of borrowings (3,000) (10,300)
Dividends paid (1,319) (1,058)
Proceeds from exercise of stock options (1) 75
--------- ---------
Net cash provided from (used in) financing
activities 1,680 (11,283)
--------- ---------
Net increase in cash 1,273 1,939
Cash at beginning of period 5,113 3,215
--------- ---------
Cash at end of period $ 6,386 $ 5,154
========= =========
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 5
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JUSTIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
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 28 of its 1997 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 1998.
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 March 31, 1998, 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 26,650,000 in
1998 and 26,889,000 in 1997.
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 three months ended March 31, 1998, of
$103.8 million were 6.3% over the $97.6 million in 1997's first quarter.
Building Materials Segment Sales - Sales in the Building Materials
segment increased approximately 11.9% from the first quarter of 1997. A
strong regional economy and mild weather led to double-digit percentage
gains in housing starts. In this environment, Acme Brick Company ("Acme")
was able to sell 14.8% more brick in 1998's first quarter than the previous
year while average pricing per unit increased 4.2%. Acme also realized
impressive gains in revenue from other product lines, particularly its glass
block grid systems.
American Tile Supply Company's ("American Tile") revenues were comparable
to last year's first three months; however, a new discount showroom called
"Tile Warehouse" was opened in the latter part of the first quarter. Two
new American Tile warehouses will be opened during the remainder of 1998.
Healthy commercial construction activity in most of Featherlite Building
Products Corporation's ("Featherlite") market areas, allowed the company to
show a 6% increase in sales over the same period a year ago. Both units
shipped and average price per unit were higher. The expansion of
Featherlite's Dallas plant helped contribute to the volume increase.
Tradewinds Technologies, Inc.'s ("Tradewinds") sales, which comprise less
than 2% of consolidated sales, were near the same level as in 1997.
Footwear Segment Sales - Total Footwear sales for the three months ended
March 31, 1998, declined 1.5% to $39.9 million from 1997's first quarter.
Justin Boot Company's ("Justin") revenues were up more than 17% due to
revenues generated by the Justin Original Workboot; a very promising product
that has continued to gain momentum since its introduction in the second
quarter of 1997. Western boot sales declined in the first quarter at
Justin, as well as at Nocona Boot Company and Tony Lama Company who are
heavily dependent on the cowboy boot market. Chippewa posted a
disappointing 40% sales decline for the first quarter of 1998 compared to
the same period a year ago. Since moving all of its production into another
facility in the fall of 1997, Chippewa has had difficulty meeting customer
delivery requirements. However, backlogs remain good, and the production
transition problems appear to be near an end. Overall, footwear units
shipped declined 3.5% while average pricing improved 1.5%, comparing the
first quarter of 1998 to the same period in 1997.
Costs and Expenses - The consolidated ratio of cost of goods sold to sales
declined to 64.7% in the first quarter of 1998 versus 65.8% in the 1997
comparable period. Both Building Materials and Footwear posted improvements
in margin. Building Materials' ratio of cost of sales to sales was 61.3% in the
first quarter of 1998, compared to 62.1% in the first quarter of 1997. Higher
volume coupled with higher average brick prices provided the gain. The ratio of
cost of goods sold to sales in the Footwear business was 70.3% versus 71.3% in
1997. This Footwear improvement resulted from sale of higher margin products
during the quarter.
Selling, general and administrative expenses were 28.1% of sales in the first
quarter of 1998 compared to 28.8% in the first quarter of 1997. The improvement
in 1998 resulted primarily from the increase in revenues of Building Materials.
Average debt levels declined in the first quarter of 1998 compared to the
first quarter of 1997, resulting in a 7% decrease in interest expense to
$387,000 from $416,000 in the first three months of 1997.
Page 7
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Provision for Income Taxes - The Company's provision for income tax was 36.5%
of pre-tax income in the first quarter of 1998 and 1997, which is the current
estimated effective rate for the full year.
FINANCIAL CONDITION AND LIQUIDITY
At March 31, 1997, working capital amounted to $172 million versus $166.4
million at December 31, 1997. Cash increased from $5.1 million at year-end to
$6.4 million at the end of 1998's first quarter. The normal seasonal changes
occurred between year-end and the end of the first quarter resulting in reduced
accounts receivable, primarily due to payments by Footwear customers early in
the year, and an increase in inventories caused by the seasonal build-up of
inventories in both segments.
Cash provided by operating activities in the first quarter of 1998 totaled
$4.6 million. These funds were used primarily to purchase capital assets and
pay dividends.
In the first quarter of 1998, total interest-bearing debt increased to $34.8
million from $31.8 million at year-end 1997, and the ratio of long-term debt-to-
equity was increased to .10 to 1 from .09 to 1 at year end. Borrowings may
increase over the next two quarters to finance seasonal working capital needs.
At March 31, 1998, unused credit facilities approximated $68 million, an amount
well above the company's estimated requirements.
Cash dividends declared in the first quarter of 1998 and 1997 amounted to
$.05 and $.04 a share, respectively.
Page 8
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The company is not presently involved in any lawsuits seeking damages
relating to the normal conduct of its business that if adversely determined
would have a material effect on the consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders was held on April 10, 1998.
(b) The only matter submitted to a vote of security holders was for the
election of directors. Each of the persons named in the Proxy Statement as a
nominee for director was elected. Following are the voting results on each of
the nominees for director:
-----------------------------------------------
Votes Votes
Election of Directors For Withheld
-----------------------------------------------
John Justin 23,979,479 186,084
J. T. Dickenson 23,981,732 183,831
Bayard H. Friedman 23,973,629 191,934
Marvin Gearhart 23,980,895 184,668
Robert E. Glaze 23,954,841 210,722
Dee J. Kelly 23,806,656 358,907
Joseph R. Musolino 23,831,306 334,257
John V. Roach 23,982,556 183,007
Dr. William E. Tucker 23,958,348 207,215
-----------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule for the period ended March 31, 1998.
(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 6th day of May 1998.
Page 10
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the March
31, 1998 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6386
<SECURITIES> 0
<RECEIVABLES> 72182
<ALLOWANCES> 3162
<INVENTORY> 149543
<CURRENT-ASSETS> 231703
<PP&E> 293738
<DEPRECIATION> 183950
<TOTAL-ASSETS> 377981
<CURRENT-LIABILITIES> 59695
<BONDS> 0
0
0
<COMMON> 69674
<OTHER-SE> 206441
<TOTAL-LIABILITY-AND-EQUITY> 377981
<SALES> 103780
<TOTAL-REVENUES> 103780
<CGS> 67183
<TOTAL-COSTS> 67183
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 418
<INTEREST-EXPENSE> 387
<INCOME-PRETAX> 7016
<INCOME-TAX> 2561
<INCOME-CONTINUING> 4455
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4455
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
