10
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, 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.
-----------------------------------------------------
(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: 26,427,490 shares of the
Company's Common Stock ($2.50 par value) were outstanding as of August 13, 1998.
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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, 1998 and December 31, 1997 3
Consolidated Statement of Income
Three Months and Six Months Ended June 30, 1998 and 1997 4
Consolidated Statement of Shareholders' Equity
Six Months Ended June 30, 1998 and 1997 4
Consolidated Statement of Cash Flows
Six Months Ended June 30, 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
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash $ 6,008 $ 5,113
Accounts receivable, less allowance for doubtful
accounts of $3,531 and $3,097, respectively 78,072 73,153
Inventories:
Finished goods 108,690 105,100
Work-in-process 5,293 6,040
Raw materials 29,098 30,508
---------- ----------
Total inventories 143,081 141,648
Income taxes 6,997 7,946
Prepaid expenses 3,132 2,454
---------- ----------
Total current assets 237,290 230,314
Other assets, at cost 35,658 32,740
Assets held for sale 2,829 2,829
Property, plant, and equipment, at cost:
Land 20,062 20,062
Buildings and equipment 270,701 266,988
Construction-in-progress 8,276 3,000
---------- ----------
299,039 290,050
Less accumulated depreciation 186,485 179,866
---------- ----------
Net property, plant, and equipment 112,554 110,184
---------- ----------
$ 388,331 $ 376,067
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 11,691 $ 18,412
Other accrued items 37,976 37,505
Current portion of long-term debt 8,000 8,000
---------- ----------
Total current liabilities 57,667 63,917
Long-term debt, less current portion 31,750 23,750
Deferred income taxes 15,420 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 15,985 16,040
Retained earnings 212,724 202,645
Treasury stock, at cost, 1,442,398 and 1,490,915
shares, respectively (14,889) (15,379)
---------- ----------
Total shareholders' equity 283,494 272,980
---------- ----------
$ 388,331 $ 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 Six Months Ended
June 30, June 30,
---------- ---------- ---------- ----------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales:
Building materials $ 77,326 $ 71,017 $ 141,241 $ 128,158
Footwear 41,764 39,869 81,629 80,334
---------- ---------- ---------- ----------
119,090 110,886 222,870 208,492
Costs and expenses:
Cost of goods sold 74,698 69,134 141,881 133,369
Selling, general, and 30,876 29,459 60,070 57,612
administrative expenses
Interest expense 502 440 889 856
---------- ---------- ---------- ----------
106,076 99,033 202,840 191,837
---------- ---------- ---------- ----------
Income before income taxes 13,014 11,853 20,030 16,655
Provision for income taxes 4,750 4,326 7,311 6,079
---------- ---------- ---------- ----------
Net income $ 8,264 $ 7,527 $ 12,719 $ 10,576
========== ========== ========== ==========
Earnings per share:
Basic $ .31 $ .29 $ .48 $ .40
========== ========== ========== ==========
Diluted $ .31 $ .28 $ .48 $ .39
========== ========== ========== ==========
</TABLE>
<TABLE>
JUSTIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF
SHAREHOLDERS' EQUITY
Six Months Ended June 30, 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 - - - 12,719 -
Exercise of stock options - - (55) - 490
Cash dividends declared
($.10 per share) - - - (2,640) -
--------- --------- --------- --------- ---------
Balance June 30, 1998 $ - $ 69,674 $ 15,985 $ 212,724 $ (14,889)
========= ========= ========= ========= =========
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)
========= ========= ========= ========= =========
<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,
--------------------
1998 1997
--------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,719 $ 10,576
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 8,683 8,279
Amortization 428 397
Provision for losses on accounts receivable 875 873
Gain on sale of property, plant, and equipment (83) (141)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (5,794) 7,940
Increase in inventories (1,433) (6,482)
Decrease in other current assets 271 3,135
Increase (decrease) in accounts payable
and accrued expenses (6,252) 1,505
-------- --------
Net cash provided from operating activities 9,414 26,082
Cash flows from investing activities:
Proceeds from the sale of property, plant,
and equipment 129 208
Capital expenditures (11,102) (10,117)
Increase in other long-term assets (3,343) (142)
Acquisition of IBP, net of cash acquired - (2,073)
-------- --------
Net cash used in investing activities (14,316) (12,124)
Cash flows from financing activities:
Borrowings 15,000 3,000
Repayment of borrowings (7,000) (10,300)
Dividends paid (2,638) (2,117)
Purchase of treasury stock (36) (2,562)
Proceeds from exercise of stock options 471 669
-------- --------
Net cash provided from (used in) financing activities 5,797 (11,310)
-------- --------
Net increase in cash 895 2,648
Cash at beginning of period 5,113 3,215
-------- --------
Cash at end of period $ 6,008 $ 5,863
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 5
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JUSTIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 June 30, 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 diluted earnings per share was
26,770,000 in 1998 and 26,710,000 in 1997.
Page 6
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Sales - Consolidated net sales for the second quarter of 1998 increased to
$119.1 million compared to $110.9 million for the same quarter in 1997, an
improvement of 7.4%. For the first six months of 1998, consolidated net sales
were $222.9 million, 6.9% greater than 1997's first half sales of $208.5
million.
Building Materials Segment Sales - Sales for the second quarter of
1998 in the Building Materials segment were $77.3 million, 8.9% greater
than the 1997 second quarter amount of $71 million. For the first six
months of 1998, segment sales were $141.2 million, an increase of 10.2%
over 1997.
Acme Brick Company ("Acme") and Featherlite Building Products
("Featherlite") each posted excellent sales gains for the 1998 second
quarter and six month periods compared to the same time a year ago.
Unit brick shipments at Acme increased 10.7% in the second quarter and
12.5% for the first six months in 1998 compared to 1997. In addition,
brick pricing improved on average 3.8% in the first half of 1998
compared to the same period in 1997. Acme's and American Tile Supply's
sales of floor and wall tile, marble, and other masonry products were up
.5% in 1998's first half. Additional competition in the tile
distribution business coupled with a deliberate decision to maintain
pricing has hampered plans for larger increases at American Tile.
However, American Tile will be opening five new strategic locations in
1998, which will enhance the company's ability to offer superior service
to its customers.
Footwear Segment Sales - Net sales in the Footwear operations of
$41.8 million for the three months ended June 30, 1998 were almost 5%
greater than those of the same quarterly period in 1997, a positive
reversal of the trend for the last several years. Sales were up almost
2% during the first six months of 1998 compared to 1997. The
introduction in May 1997 of the highly successful Justin Original
Workboot boosted revenues to offset a decline in sales in both periods
of western products for the combined western operations of Justin Boot
Company, Tony Lama Company, and Nocona Boot Company. Although the
western apparel market continues to be weak, the workboot product
promises improving outlooks for the company. Additional workboot
products are being introduced and opportunities for expanded
distribution are being explored. As reported in 1998's first quarter
report, since moving all of Chippewa Shoe Company's production into
another facility in the fall of 1997, Chippewa has had difficulty
meeting customer delivery requirements. As a result, Chippewa recorded
a 40% decline in first quarter 1998 sales. Due to production
improvements and sourcing additional product from third parties,
however, Chippewa posted a 12% increase in 1998's second quarter
compared to the same period in 1997. Chippewa is continuing to enhance
its sourcing opportunities for many of its products to improve product
availability for its customers.
Costs and Expenses - The consolidated ratio of cost of goods sold-to-sales
was 62.7% in the second quarter of 1998 versus 62.3% in the same quarter in
1997. For the six month period ended June 30, 1998, the cost of goods sold-to-
sales percentage improved to 63.7% from 64% in 1997.
Building Materials' ratio was 58.2% in the second quarter of 1998 compared to
57.9% in 1997's second quarter. For the first six months of 1998 and 1997,
the ratio for Building Materials was 59.6% and 59.8%, respectively. Acme's
ratio improved in both the three and six month periods due to higher sales
volumes and unit pricing. Featherlite experienced an increase in product
costs during both periods as a shortage in cement increased raw material
costs negatively impacting margins.
The ratio of cost of goods sold to sales in the Footwear business increased
to 71.2% for the second quarter of 1998 versus 70.3% for the second quarter
of 1997. For the six-month periods ended June 30, the ratio was 70.7%
Page 7
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for both 1998 and 1997. Margins for the second quarter were adversely
affected by higher production costs in the Tony Lama plant and writedowns of
certain raw materials due to market conditions. As the manufacture of
Chippewa products is assimilated into the Tony Lama plant, production costs
per unit should go down due to higher production volumes. The Diamond J
product line has been discontinued and the disposal of the remaining
inventory and other discontinued products also negatively impacted margins.
Selling, general and administrative expenses were 25.9% of sales in the
second quarter of 1998 compared to 26.6% in the second quarter of 1997. For the
first six months of 1998, these expenses were 27.0% of net sales compared to
27.6% for the first six months of 1997. Building Materials' and Footwear's
operating expenses for the quarter decreased as a percentage of sales due to
higher sales volumes.
Interest expense for the second quarter of 1998 and first six months of the
year was slightly higher than 1997 comparable periods. The increase is
primarily due to higher borrowing levels due to increased working capital as
interest rates have had very little fluctuation during the same periods.
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 1998 and
1997, which is the current estimated effective rate for the full year.
FINANCIAL CONDITION AND LIQUIDITY
At June 30, 1998, working capital was $179.6 million, compared to $166.4
million at year-end 1997. Cash increased to $6 million at June 30, 1998 from
$5.1 million at year end. Net cash provided from operating activities in the
first six months of 1998 totalled $9.4 million compared to $26.1 million last
year. Major uses of funds in 1998 were for capital expenditures of $11.1
million, implementation costs for new computer systems as Footwear, additional
working capital and payment of $2.6 million in dividends. Total interest-
bearing debt increased from $31.8 million at year-end 1997 to $39.8 million to
help fund these expenditures. This increased the ratio of long-term debt-to-
equity to .11 to 1 from .09 to 1 at year-end. Borrowings may increase during
the next quarter to finance additional seasonal working capital needs. At June
30, 1998, unused credit facilities were more than $60 million; an amount well
above the company's estimated requirements.
Cash dividends declared in the second quarter of 1998 and 1997 amounted to
$.05 and $.04 a share, respectively. During each of the six month periods ended
June 30 in 1998 and 1997, dividends were declared amounting to $.10 and $.08 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 June 30, 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 14th day of August 1998.
Page 10
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the June 30,
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 6008
<SECURITIES> 0
<RECEIVABLES> 81603
<ALLOWANCES> 3531
<INVENTORY> 143081
<CURRENT-ASSETS> 237290
<PP&E> 299039
<DEPRECIATION> 186485
<TOTAL-ASSETS> 388331
<CURRENT-LIABILITIES> 57667
<BONDS> 0
0
0
<COMMON> 69674
<OTHER-SE> 213820
<TOTAL-LIABILITY-AND-EQUITY> 388331
<SALES> 222870
<TOTAL-REVENUES> 222870
<CGS> 141881
<TOTAL-COSTS> 141881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 875
<INTEREST-EXPENSE> 889
<INCOME-PRETAX> 20030
<INCOME-TAX> 7311
<INCOME-CONTINUING> 12719
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12719
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
