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, 2000
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, TX 76107
----------------------------------------
(Address of principal executive officers)
(Zip Code)
(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: 25,735,733 shares of the
Company's Common Stock ($2.50 par value) were outstanding as of April 28, 2000.
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JUSTIN INDUSTRIES, INC.
Table of Contents
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet
March 31, 2000 and December 31, 1999 3
Consolidated Statement of Income
Three Months Ended March 31, 2000 and 1999 4
Consolidated Statement of Shareholders' Equity
Three Months Ended March 31, 2000 and 1999 4
Consolidated Statement of Cash Flows
Three Months Ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 13
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,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash $ 7,424 $ 5,720
Accounts receivable, less allowance for doubtful
accounts of $3,081 and $3,203, respectively 78,071 83,988
Inventories:
Finished goods 100,492 95,678
Work-in-process 5,129 3,930
Raw materials 19,937 20,732
------------ ------------
Total inventories 125,558 120,340
Income taxes 3,882 10,113
Prepaid expenses 2,371 2,488
------------ ------------
Total current assets 217,306 222,649
Other assets, at cost 35,247 35,427
Assets held for sale 2,797 2,797
Property, plant, and equipment, at cost:
Land 24,339 23,688
Buildings and equipment 342,453 334,947
Construction-in-process 10,926 13,639
------------ ------------
377,718 372,274
Less accumulated depreciation 203,778 199,840
------------ ------------
Net property, plant, and equipment 173,940 172,434
------------ ------------
$ 429,290 $ 433,307
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable to banks $ - $ 4,000
Trade accounts payable 17,872 21,976
Other accrued items 38,228 39,158
------------ ------------
Total current liabilities 56,100 65,134
Long-term debt 35,750 39,750
Deferred income taxes 20,243 20,243
Shareholders' equity 317,197 308,180
------------ ------------
$ 429,290 $ 433,307
============ ============
<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,
------------------------
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Net sales $ 124,026 $ 111,909
Cost and expenses:
Cost of goods sold 76,238 71,227
Selling, general, and administrative expenses 32,776 31,300
Interest expense 454 471
----------- -----------
109,468 102,998
----------- -----------
Income before income taxes 14,558 8,911
Provision for income taxes 5,241 3,253
----------- -----------
Net income $ 9,317 $ 5,658
=========== ===========
Earnings per share:
Basic $ .36 $ .22
=========== ===========
Diluted $ .36 $ .22
=========== ===========
</TABLE>
<TABLE>
JUSTIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three Months Ended March 31, 2000 and 1999
<CAPTION>
In Thousands of Dollars (Except Share and Per Share Data)
Capital in Unearned
Preferred Common Excess of Retained Compen- Treasury
Stock Stock Par Value Earnings sation Stock
- ---------------------------- --------- ---------- ----------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 2000 $ - $ 69,849 $ 16,822 $247,133 $ (1,140) $(24,484)
Net income - - - 9,317 - -
Exercise of stock options - - 117 - - 568
Non-cash compensation - - - - 496
Cash dividends declared
($.06 per share) - - 62 (1,543) - -
--------- ---------- ----------- ---------- ---------- ----------
Balance March 31, 2000 $ - $ 69,849 $ 17,001 $254,907 $ (644) $(23,916)
========= ========== =========== ========== ========== ==========
Balance January 1, 1999 $ - $ 69,674 $ 15,685 $223,915 $ - $(16,706)
Net income - - - 5,658 - -
Purchase of 887,800 shares of
stock for treasury - - - - - (9,636)
Exercise of stock options - - (12) - - 10
Cash dividends declared
($.05 per share) - - - (1,270) - -
--------- ---------- ----------- ---------- ---------- ----------
Balance March 31, 1999 $ - $ 69,674 $ 15,673 $228,303 $ - $(26,332)
========= ========== =========== ========== ========== ==========
<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,
-----------------------
2000 1999
---------- ----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,317 $ 5,658
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 5,598 4,348
Amortization 544 555
Provision for losses on accounts receivable 348 424
Gain on sale of property, plant, and equipment (64) (127)
Non-cash compensation expense 558 -
Changes in assets and liabilites:
Decrease in accounts receivable 5,569 4,877
(Increase) decrease in inventories (5,218) 293
Decrease in other current assets 6,348 3,278
Decrease in accounts payable and accrued expenses (5,292) (5,318)
---------- ----------
Net cash provided from operating activities 17,708 13,988
Cash flows from investing activities:
Proceeds from the sale of property, plant, and equipment 86 130
Capital expenditures (6,896) (9,215)
(Increase) decrease in other long-term assets (594) 708
Acquisition of Texas Clay in 1999, net of cash acquired - (12,070)
---------- ----------
Net cash used in investing activities (7,404) (20,447)
Cash flows from financing activities:
Borrowings - 21,000
Repayment of borrowings (8,000) (6,000)
Dividends paid (1,285) (1,317)
Purchase of treasury stock - (9,636)
Proceeds from exercise of stock options 685 (2)
---------- ----------
Net cash provided from (used in) financing activities (8,600) 4,045
---------- ----------
Net increase (decrease) in cash 1,704 (2,414)
Cash at beginning of period 5,720 5,100
---------- ----------
Cash at end of period $ 7,424 $ 2,686
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 5
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JUSTIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
1. 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
and Article 10 of Regulation S-X. 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 26 of its 1999 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 2000. Certain reclassifications have been
made in March 31, 1999 amounts to conform to the 2000
presentation.
Assets held for sale are carried at the lower of cost or
fair value less cost to sell.
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.
2. 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, 2000, the company
was in compliance with all such requirements and
restrictions.
3. EARNINGS PER SHARE
The following table sets forth the computation of basic
and diluted earnings per share: (in thousands, except per
share data)
Three Months Ended
March 31
--------------------
2000 1999
--------- ---------
Numerator for basic and diluted
earnings per share $ 9,317 $ 5,658
========= =========
Denominator for basic earnings per share--
weighted average shares 25,660 25,753
Effect of dilutive securities:
Employee stock options 283 185
Convertible preferred stock 3 3
--------- ---------
Dilutive potential common shares 286 188
--------- ---------
Denominator for diluted earnings per share--
adjusted weighted average shares
and assumed conversions 25,946 25,941
========= =========
Basic earnings per share $ .36 $ .22
========= =========
Diluted earnings per share $ .36 $ .22
========= =========
Page 6
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4. SEGMENT DISCLOSURES
The following information is presented as required by Statement No. 131: (in
thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Building
March 31, 2000 Products Footwear All Other Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 82,906 $ 41,120 $ - $124,026
Operating profit (loss) 16,030 1,103 (2,121) 15,012
Depreciation and amortization expense 4,838 1,086 115 6,039
Identifiable assets 254,767 153,092 21,431 429,290
Expenditures for long-lived assets 6,809 29 58 6,896
- -------------------------------------------------------------------------------------------
Three Months Ended
March 31, 1999
- --------------------------------------------
Net sales $ 76,774 $ 35,135 $ - $111,909
Operating profit (loss) 13,757 (2,725) (1,650) 9,382
Depreciation and amortization expense 3,652 1,187 64 4,903
Identifiable assets 215,867 154,444 31,662 401,973
Expenditures for long-lived assets 8,473 591 151 9,215
Expenditures for acquisition of Texas Clay 12,070 - - 12,070
- -------------------------------------------------------------------------------------------
</TABLE>
Three Months Ended
March 31
----------------------
2000 1999
---------- ----------
Reconciliation
Total operating profit above $ 15,012 $ 9,382
Interest expense 454 471
---------- ----------
Consolidated income before income taxes $ 14,558 $ 8,911
========== ==========
5. ACQUISITION
Effective June 30, 1999, Acme Brick Company acquired Eureka Brick and Tile
for a total purchase price, net of cash acquired, of approximately $11.1
million. The assets acquired consisted of approximately $1 million in accounts
receivable, $1.3 million in inventory and supplies, $.9 in other assets, and
$7.9 million in land, buildings, and equipment related to one brick plant and
associated clay reserves in Clarksville, Arkansas. The plant added about 5% to
Acme's annual production capacity. The acquisition was accounted for as a
purchase in 1999, and as such, the results of operations of the plant, which are
immaterial to consolidated operations, are included with that of the Company
from June 30, 1999.
6. COMMITMENTS
At March 31, 2000, the Company and its subsidiaries had contractual
commitments for purchases of property, plant, and equipment of approximately
$7 million. In addition, Justin Brands had commitments to purchase footwear
that totaled $4.6 million as of March 31, 2000.
Page 7
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7. FOOTWEAR'S 1999 RESTRUCTURING CHARGE
In July 1999, the Company's Footwear division committed to specific steps to
be taken as part of its new strategic planning initiatives to improve Footwear
operating results. These steps include repositioning certain product lines,
reducing the number of stock items, expanding distribution channels, plant
closings, and other administrative realignments. A restructuring charge for
exit costs of $5.5 million was recognized during the third quarter of 1999. The
following chart describes the remaining components of the restructuring charge
accrual and the activity in the restructuring charge accrual during the first
quarter of 2000. (in thousands of dollars)
Footwear Restructuring December 31, March 31,
Charge Accrual 1999 Payments 2000
- ------------------------------------------------------------------------
Termination benefits $ 623 $ (371) $ 252
Other plant closure costs 302 (71) 231
------------ ----------- -----------
$ 925 $ (442) $ 483
============ =========== ===========
The remaining accrual for termination benefits relates to severance for
certain employees terminated near the end of 1999 that will be paid over the
remainder of 2000. Other plant closure costs remaining at March 31, 2000 will
also be paid during 2000. The Company will continue to pursue the disposal of
related real property during 2000. There have been no adjustments to the
restructuring accrual during the first quarter of 2000 other than reductions for
payments.
8. FOOTWEAR'S COMPUTER SYSTEMS IMPLEMENTATION
As reported in previous filings, Justin Brands had significant difficulties
with new computer systems activated in the fourth quarter of 1998. These
problems caused a significant slow-down in shipping during the last quarter of
1998, and a less severe, but noticeable slow-down in shipping during the first
quarter of 1999. In addition, while these problems were solved during 1999,
higher than normal amounts were spent on warehousing and information technology
during 1999.
Page 8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SALES - Consolidated net sales for the three months ended March 31, 2000 of
$124 million were 10.8% over the $111.9 million in 1999's first quarter.
BUILDING PRODUCTS SALES - Sales in the Building Products segment were
up approximately 6.4% over the first quarter of 1999. Brick sales,
comprising 75% of total building products sales, provided all of the
improvement as 4.7% more brick units were shipped and average unit
pricing improved 12% compared to the same quarter in 1999. Higher brick
volumes are attributable to strong market conditions coupled with
increased manufacturing capacity. Two brick plants were acquired during
1999, and construction of a new molded brick plant was completed in
January 2000. Improved pricing was also achieved as demand for brick
continued to outstrip available supplies. At the end of March 2000,
brick backlogs were at an all-time high--52% higher than a year ago and
13% higher than at December 31, 1999.
Block and tile sales were down approximately 3% from the previous
year primarily due to the consolidation of Acme and Featherlite
locations and closure of certain unprofitable retail tile locations.
Both of these strategic initiatives are expected to produce improved
operational efficiencies.
FOOTWEAR SALES - Total Footwear net sales for the three months ended
March 31, 2000 increased 17.1% from 1999's first quarter. The Justin
Original Workboot continued to show significant growth quarter over
quarter as sales in 2000's first quarter were up 30.9% over the same
period in 1999. Approximately $1.4 million of sales in the first
quarter of 2000 were related to liquidation of inventory written-down in
the third quarter of 1999. This inventory was sold at prices well below
normal wholesale prices. Excluding these sales, net sales for the
Justin, Tony Lama, and Chippewa lines increased significantly compared
to 1999. Overall, excluding sales of written-down inventory, units sold
were up 28.1% while average unit pricing was 10.9% lower. Nocona
experienced a decline in sales due to new strategic initiatives to
realign the brands into distinct niches. These results reflect a
continuing change in sales product mix as new lower price-point product
lines were introduced during 1999 and 2000. In 1999's first quarter,
the company experienced product shortages related to new western
products manufactured by third parties in Mexico; unusually high
returns; and computer system problems that hampered normal shipping.
COSTS AND EXPENSES - The consolidated gross profit margin improved in the
first quarter of 2000 to 38.5% compared to 36.4% in the same quarter of 1999.
Building Products' gross margin improved from 40.2% in 1999's first quarter to
42.1% in the first quarter of 2000. Higher brick selling prices produced the
gain which more than offset increases in average manufacturing costs. Gross
profit margins in the Footwear business increased to 31.4% for the first quarter
of 2000 versus 28% for the first quarter of 1999, an improvement of 12%. This
improvement was provided by higher sales volumes in 2000 along with increased
operational efficiencies associated with the implementation of strategic
initiatives.
Selling, general and administrative expenses were 26.4% of sales in the first
quarter of 2000 compared to 28% in the first quarter of 1999. Building
Products' percentage was higher in 2000's first quarter primarily due to
accruals related to incentive programs, while Footwear's percentage improved
almost 20% in 2000 due to higher sales volumes, reduced advertising, and
elimination of costs associated with computer problems experienced in 1999 's
first quarter. Included in 2000 operating expenses was non-cash compensation of
$558,000 resulting from the vesting of restricted stock grants to the Chairman
of the Board and other executive officers.
Page 9
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During mid-1999, Justin Brands adopted new strategic initiatives aimed at
stimulating growth and returning to profitability. As a result, two
manufacturing facilities were closed during the second half of 1999, and other
administrative consolidations were completed resulting in recognition of a
restructuring charge of $5.5 million during the third quarter of 1999. The
restructuring charge consisted primarily of termination benefits for plant and
administrative employees and impairments realized on facilities closed. Note 7
to the March 31, 2000 financial statements further describes the remaining
components of and activity in the restructuring accrual during the first quarter
of 2000. Management continues to estimate that closing these two plants and
moving production to other facilities will not affect future revenues but will
improve gross profit in the second through fourth quarters of 2000, compared to
1999, as follows: $280,000; $430,000; and $430,000, respectively, including an
associated reduction in depreciation of $29,000 each quarter. In addition,
consolidation of other administrative operations is estimated to save $345,000
in each quarter of 2000, including a $54,000 quarterly reduction in amortization
expense. The previously estimated savings for the first quarter of 2000 were
achieved.
While average effective interest rates increased about one percentage point
in the first quarter of 2000 compared to 1999, average debt levels decreased
compared to the same period, resulting in a decrease in interest expense of
3.6%, from $471,000 in 1999's first quarter to $454,000 in the first three
months of 2000.
PROVISION FOR INCOME TAXES - The Company's provision for income tax was 36%
of pre-tax income in the first quarter of 2000, the current estimated effective
rate for the full year, versus 36.5% in 1999.
FINANCIAL CONDITION AND LIQUIDITY
At March 31, 2000, working capital amounted to $161.2 million versus $157.5
million at December 31, 1999. Cash increased from $5.7 million at year-end to
$7.4 million at the end of 2000's first quarter. Normal seasonal changes
occurred between year-end and the end of the first quarter resulting in reduced
accounts receivable. An increase in inventories was due to the seasonal build-
up of Footwear inventories and start-up of a new brick plant during January
2000.
Cash provided by operating activities in the first quarter of 2000 totaled
$17.7 million. These funds were used primarily to reduce bank debt by $8
million; purchase $6.9 million of capital assets; and pay $1.3 million in
dividends.
In the first quarter of 2000, total interest-bearing debt decreased $8
million to $35.8 million from $43.8 million at year-end 1999. The ratio of
total interest-bearing debt-to-equity decreased from .14 to 1 at December 31,
1999 to .11 to 1 at March 31, 2000, and the ratio of long-term debt-to-equity
decreased to .11 to 1 from .13 to 1 at year-end. Borrowings may increase over
the next two quarters to finance capital additions and seasonal working capital
needs. At March 31, 2000, unused credit facilities approximated $61 million, an
amount well above the company's estimated requirements.
Cash dividends declared in the first quarter of 2000 were $.06 a share
compared to $.05 a share in 1999.
The Company completed all Year 2000 readiness work and experienced no
significant problems.
Page 10
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FORWARD LOOKING INFORMATION
Certain statements in this Item and elsewhere in this report are forward-
looking in nature and relate to trends and events that may affect the Company's
future financial position and operating results. Such statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "expect," "anticipate," "intend," and "project"
and similar words or expressions are intended to identify forward-looking
statements. These statements speak only as of the date of this report. The
statements are based on current expectations, are inherently uncertain, are
subject to risks, and should be viewed with caution. Actual results and
experience may differ materially from the forward-looking statements as a result
of many factors, including changes in economic conditions in the markets served
by the Company, increasing competition, fluctuations in raw materials and energy
prices, increases in interest rates, and other unanticipated events and
conditions. It is not possible to foresee or identify all such factors. The
Company makes no commitment to update any forward-looking statement or to
disclose any facts, events, or circumstances after the date hereof that may
affect the accuracy of any forward-looking statement.
Page 11
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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
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule for the period ended March 31, 2000
(b) Reports on Form 8-K
None.
Page 12
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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
Senior Vice President/
Chief Financial Officer
Dated this 12th day of May 2000.
Page 13
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the March
31, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7424
<SECURITIES> 0
<RECEIVABLES> 81152
<ALLOWANCES> 3081
<INVENTORY> 125558
<CURRENT-ASSETS> 217306
<PP&E> 377718
<DEPRECIATION> 203778
<TOTAL-ASSETS> 429290
<CURRENT-LIABILITIES> 56100
<BONDS> 35750
0
0
<COMMON> 69849
<OTHER-SE> 247348
<TOTAL-LIABILITY-AND-EQUITY> 429290
<SALES> 124026
<TOTAL-REVENUES> 124026
<CGS> 76238
<TOTAL-COSTS> 76238
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 348
<INTEREST-EXPENSE> 454
<INCOME-PRETAX> 14558
<INCOME-TAX> 5241
<INCOME-CONTINUING> 9317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9317
<EPS-BASIC> .36
<EPS-DILUTED> .36
</TABLE>
