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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-K
_______________
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM .................... TO ......................
COMMISSION FILE NUMBER 1-7210
REPUBLIC GYPSUM COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(State or other jurisdiction of incorporation or organization)
811 EAST 30TH AVENUE, HUTCHINSON, KANSAS 67502-4341
(Address of principal executive offices) (Zip Code)
POST OFFICE BOX 1307, HUTCHINSON, KANSAS 67504-1307
(Mailing address) (Zip Code)
75-1155922
(I.R.S. Employer Identification No.)
Registrant's telephone number, including area code: (316) 727-2700
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------- -----------------------------------------
<S> <C>
COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
COMMON STOCK SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE, INC.
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
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. /X/ YES / / NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO
THIS FORM 10-K. /X/
ON AUGUST 31, 1995, THERE WERE 10,557,694 SHARES OF THE REGISTRANT'S COMMON
STOCK AND COMMON STOCK SHARE PURCHASE RIGHTS OUTSTANDING. THE AGGREGATE MARKET
VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT (BASED UPON THE CLOSING PRICE) ON AUGUST 31, 1995, WAS APPROXIMATELY
$86,320,597.
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE 1995 ANNUAL
STOCKHOLDERS MEETING ARE INCORPORATED BY REFERENCE INTO PARTS III AND IV.
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<PAGE> 2
REPUBLIC GYPSUM COMPANY
FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
PART I
ITEM 1. BUSINESS.
GENERAL
Republic Gypsum Company (the "Company") was incorporated in Delaware
in August of 1961. Regular operations began at its gypsum wallboard
manufacturing plant in Duke, Oklahoma in January 1965. References to the
Company herein, unless the context requires otherwise, include Republic Gypsum
Company and its subsidiaries.
The Company manufactures and sells recycled paperboard, reclaimed
paper fiber, and gypsum wallboard. The Company sells recycled paperboard to
converter customers that manufacture composite cans, cores, tubes and other
consumer and industrial packaging products. It also uses its recycled
paperboard as a raw material in the production of gypsum wallboard, as well as
selling gypsum-grade paperboard to other gypsum wallboard manufacturers.
Reclaimed paper fiber is a raw material sold to and used by other recycled
paper and paperboard mills as well as the Company's mills. It is the principal
component used in the production of recycled paper and recycled paperboard.
Gypsum wallboard is a primary building material used by the residential and
commercial construction industries.
The strategic direction of the Company began shifting to the recycled
paperboard industry when, in December 1983, the Company purchased two recycled
paperboard mills to ensure a supply of quality gypsum-grade paperboard for its
gypsum wallboard operations. The Company is now a manufacturer of recycled
paperboard products with an integrated gypsum wallboard manufacturing
operation. By increasing the emphasis on its recycled paperboard business, the
Company has attempted to become less subject to the cyclical influences of the
construction and housing industries.
During 1994, the Company purchased two paper recycling centers in
Kansas City, Missouri and Topeka, Kansas. The Company recently began a paper
recycling production operation in Denver, Colorado. These facilities ensure
additional supplies of paper fiber for its paperboard mills.
On June 30, 1995, the Company purchased from Old Dominion Box Company
substantially all of the operating assets of Halltown Paperboard Company,
Halltown, West Virginia for $26.2 million. Funding for the purchase was
provided by long-term bank borrowing. Halltown operates a recycled paperboard
mill with a rated productive capacity of 70,000 tons per year, increasing
Republic s recycled paperboard production capacity from 143,500 tons to 213,500
tons. The acquisition of Halltown furthers the Company's strategic objective
to add new operations which will complement its current business. The mill
manufactures various uncoated grades of recycled paperboard exclusively from
100% reclaimed paper fiber. Halltown's products are used in a variety of
consumer and industrial products such as automobiles, tubes, cans, puzzles,
games, glassware packaging, packaging for confectionery products, as well as
food and dry goods dividers, and partitions. Because Halltown does not make
paperboard for the gypsum wallboard industry, the facility will further
strengthen the portion of the Company's recycled paperboard operations that
target manufacturers of packaging and similar products as well as providing
geographical diversification.
The Company has completed the third year of a five-year strategic plan
to expand and develop its recycled paperboard business, while maintaining its
presence in the gypsum industry and evaluating expansion opportunities into
other integrated manufacturing operations. The Company's initial plan included
spending $14,000,000 to $18,000,000 for capital improvements and expansion at
two of its recycled paperboard mills in Hutchinson, Kansas and Denver, Colorado
during the five fiscal years ending June 30, 1997.
<PAGE> 3
In the fiscal year ended June 30, 1995, the Company spent approximately
$3,396,000 pursuant to this strategy. The improvements from the Company's
strategic capital improvements and expansion are expected to increase the
productive capacity of the Hutchinson and Denver mills approximately one-third
by June, 1997. The Company is still on target to reach its goals by 1997, but
business conditions could influence the timetable in the future. See NOTE 2 OF
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR INFORMATION CONCERNING THE
COMPANY'S (I) WALLBOARD AND (II) RECYCLED PAPERBOARD BUSINESS SEGMENTS.
RECYCLED PAPERBOARD OPERATIONS
Manufacturing. The Company's recycled paperboard manufacturing
operations are conducted at mills located near Hutchinson, Kansas, Commerce
City, Colorado, a suburb of Denver, and Halltown, West Virginia. The rated
productive capacity of the Company's paperboard mills has been adjusted to
reflect new equipment installations and modifications, current operating
procedures and product mix, as well as the recent addition of the Halltown,
West Virginia paperboard mill. New equipment installations, coupled with the
acquisition of the Halltown mill, has increased the rated capacity of the mills
to approximately 213,500 tons per year. All of the paperboard products
manufactured at the Company's mills are produced from 100% reclaimed secondary
paper fiber and are classified by the industry as recycled paperboard. These
recycled paperboard products include the facing paper used in the manufacture
of wallboard, and recycled paperboard utilized by manufacturers of consumer and
industrial paperboard products such as fiber cans, fiber tubes, fiber cores,
partitions, puzzles and games.
Recycled paperboard is manufactured in a continuous process during
which waste paper is mixed with water and pulped to separate the individual
fibers. The slurry is then applied to a series of rotating wire-covered
cylinders, not unlike making a sandwich, so that a multi-ply sheet of paper is
formed as excess water is drained through the rotating wire. The multi-ply
paper mat is then mechanically pressed, dried, trimmed to size and packaged.
Sales, Marketing and Distribution. The recycled paperboard products
manufactured by the Company are sold to wallboard manufacturers and to
converters that manufacture composite cans, cores, tubes and other packaging
products. During fiscal 1995, approximately 16% of the paperboard manufactured
and shipped by the mills was consumed by the Company's wallboard manufacturing
operations, another 18% was purchased by other wallboard manufacturers, and the
balance was purchased by over 100 different converter customers. During fiscal
1995, Sonoco Products Company accounted for approximately 10.5% of consolidated
gross sales. The loss of this customer could have a materially adverse effect
on the Company. However, the Company sells several different products to over
25 different Sonoco locations in two operating divisions.
The Company has attempted to diversify its operations from the
construction industry by increasing paperboard sales to converters that
manufacture composite cans, cores, tubes and other consumer and industrial
packaging products. Additionally, the Company's primary acquisition focus has
been in the paperboard segment. This is evidenced by the acquisition of the
recycling centers in Kansas City, Missouri and Topeka, Kansas during 1994, the
recent startup of a Denver recycling center, and the acquisition of the assets
of Halltown Paperboard Company, Halltown, West Virginia on June 30, 1995. The
Halltown recycled paperboard mill does not market products to the construction
industry.
Sales of paperboard are typically made on credit terms in accordance
with normal industry practice. Production normally occurs after an order is
received. Paperboard is rarely produced for general inventory purposes. The
backlog of orders for paperboard is usually not significant. Deliveries of
paperboard are made to customers by common carriers, as well as by rail. Some
customers pick up paperboard at the mills.
Raw Materials. The principal raw materials utilized by the Company's
paperboard mills are reclaimed paper fiber, water and chemicals. Reclaimed
paper fiber is currently purchased from several sources. Management believes
that adequate supplies of reclaimed paper fiber will continue to be available
from wholesalers located in cities near the paperboard mills and from its own
recycling centers. There has been unprecedented growth in the demand for
reclaimed paper fiber during 1995, and this has caused sharp increases in the
cost of this raw material. As of late, the industry has seen, if not a slight
decrease in demand and pricing, perhaps a stabilization in both.
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Since reclaimed paper fiber is a commodity, pricing for the product is subject
to quick pricing corrections due to supply and demand.
Chemicals, including size, retention aids and bactericides, used by
the paperboard operations, are also readily available from several
manufacturers at competitive prices. Size is used principally as a water
resisting agent or strength enhancer in the production of paperboard.
Retention aids are agents used to retain fiber and chemicals in the process and
not lose them into the waste stream. Bactericides are agents used to control
bacteria and other organisms in the process.
The manufacture of recycled paperboard involves the use of large
volumes of water for the production process and for cooling purposes. In the
areas of Kansas and Colorado, where two of the Company's paperboard mills are
located, the appropriation of water is regulated by state laws. The Hutchinson
paperboard mill uses large volumes of water pumped from wells located on owned
or controlled property near the Company's plant. The Company is authorized to
appropriate water from those wells for beneficial use, subject to vested rights
and prior appropriations, under state permits and orders. Paperboard
production at the Commerce City paperboard mill uses water pumped from wells
located on, or adjacent to, the Company's property. In connection with the
purchase of the Commerce City mill, the Company acquired an 80% interest in
certain water wells as tenant-in-common with Packaging Corporation of America
and the right to use up to 80% of the water produced by the wells. Most of
these wells have been in use by the mill for more than 20 years. The Company's
water rights are subject, however, to the legal rights of prior appropriators
from the same water resource and to limitations on the permitted uses for such
water, as decreed by the Colorado courts. The Company's West Virginia mill
uses water from a stream running through its property and has done so for over
100 years. The Company's rights to use the water from the stream is subject to
the riparian rights of other property owners in the area. Although adequate
sources of water have historically been available to all of the Company's
mills, an extended period of general water shortages, legal curtailment of
either mill's current water sources or uses, or deterioration of the current
quality of water sources could affect that mill's operations and limit its
productive capacity. See "ENVIRONMENTAL REGULATION."
Electricity, natural gas and other utilities are available to the
plants at standard industrial rates in adequate supplies, subject to standard
industrial curtailment provisions. There are adequate supplies of coal
available to the Halltown mill on either a contracted or spot basis. The
Company's Hutchinson paperboard mill generates approximately one-half of the
electricity it uses, and the Company's West Virginia mill generates
approximately one- third of its total requirements. During periods of natural
gas curtailment, the Hutchinson and Denver mills are equipped to use fuel oil,
and the Halltown mill can use either coal or fuel oil.
The prevailing market price for natural gas was stable if not slightly
lower during the Company's last fiscal year, compared to fiscal 1994. It
appears that adequate supplies of natural gas helped to stabilize fuel prices.
The price of coal increased slightly from year to year. All plants
periodically contract fuel supplies in advance for varying time limits to hedge
against fluctuations in the market. The Company has been successful at
contracting future supplies at favorable rates. However, there is always the
possibility of contracting future requirements at higher than actual spot
prices because natural gas and coal are commodities.
Competition. In selling the portion of its production not consumed by
its own wallboard manufacturing operations, the Company competes with nine
other manufacturers of gypsum-grade paperboard, six of which have wallboard
manufacturing operations. Substantially all of these competitors have greater
financial resources than the Company. During periods of peak demand for
wallboard, the demand for paperboard typically matches or exceeds the
productive capacities of the gypsum-grade paperboard producers. During periods
of reduced demand for wallboard, the demand for gypsum-grade paperboard falls,
and selling prices may decrease. In selling paperboard to the packaging
industry, the Company competes with approximately 75 producers, many of whom
have substantially greater financial resources than the Company. Management of
the Company believes that its sales constitute less than 5% of total sales of
recycled paperboard nationally.
Price, quality and personal relationships are the principal methods of
competition among paperboard producers. The locations of the paperboard mills
allows the Company's paperboard operations to serve a variety of markets,
including several gypsum wallboard plants in the central and southwestern
United States. The central location of two of the Company's mills also make
some of the Company's operations farther from packaging, fiber
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tube, fiber can and fiber core customers located in or near the population
centers of the east and west coasts. However, the acquisition of the Halltown,
West Virginia recycled paperboard mill should be a good step in mitigating this
disadvantage. Another negative factor is that many competitors are more
vertically integrated than the Company and produce end-use products utilizing
paperboard manufactured from their own recycled paperboard mills. See ITEM 7.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - RECYCLED PAPERBOARD."
GYPSUM WALLBOARD OPERATIONS
Manufacturing. The Company's wallboard manufacturing operations are
conducted at its plant located in Duke in southwest Oklahoma near the Company's
principal gypsum deposit. Based on the Company's historical product mix, the
Duke plant's current rated productive capacity is 511 million square feet of
wallboard per year, when operating three shifts per day and six and two-thirds
days per week. This is an increase from 480 million square feet of rated
capacity during fiscal 1994 due to upgrading and lengthening the gypsum
wallboard production line. Shipments from the plant were approximately 97% of
the current rated productive capacity during fiscal 1995, as compared to 99% of
the then-current capacity (480 million square feet) during fiscal 1994. See
"SALES, MARKETING AND DISTRIBUTION."
The Company manufactures gypsum wallboard by the method common to most
gypsum wallboard plants. Initially, crude gypsum is quarried by open-face
mining methods and crushed on site by an impact crusher. The raw gypsum is
hauled to the plant and pulverized. The powdered gypsum is then placed in
kettles for a continuous calcining process that converts it into plaster of
Paris. The plaster of Paris is cooked and then mixed with chemicals, other raw
materials and water to produce a slurry that is placed on the production line
between two continuous sheets of recycled paperboard and allowed to harden
while in motion. After the slurry hardens between the paperboard, the sheet is
cut into appropriate lengths, dried in kilns and packaged for sale. The
Company has historically produced wallboard in standard industry thicknesses
and varieties.
Sales, Marketing and Distribution. During the past fiscal year,
approximately 58% of the Company's shipments of wallboard products were to
customers located in its historical primary market in Texas, Oklahoma, Colorado
and Kansas. The remaining 42% were made in other states, with an emphasis on
the midwestern and southeastern regions of the United States. See
"COMPETITION."
Wallboard is sold directly to building materials dealers and, in areas
where custom of the trade dictates, to contractors and applicators. The
Company's largest gypsum wallboard customer accounted for less than 5% of the
Company's consolidated sales in fiscal 1995. Sales representatives, working in
separate territories, market wallboard for the Company. Most of these sales
representatives have significant experience in the building materials industry.
Sales are made on credit terms allowing a cash discount for prompt
payment in accordance with normal industry practice. Typically, orders are
filled upon receipt. The Company does produce to inventory, but does balance
inventories with orders. The backlog of orders for the Company's wallboard
generally is not significant.
The Company owns the Hollis & Eastern Railroad Company, a short-line
railroad, which connects its wallboard plant with three major rail lines that
are 15 miles from the plant. The Company also owns 75 rail cars, which are
operating in, and dispatched through, the national rail system. The Company
receives car hire revenues from these rail cars.
The Company once operated a fleet of leased tractors and leased
trailers for making a significant percentage of deliveries to its customers.
This fleet was eliminated during 1993. Now, contract and common carriers have
dedicated tractors and trailers to meet the majority of the Company's trucking
delivery requirements. The Company supplements the services provided by these
dedicated carriers with other common carriers in the same manner that it
historically supplemented its own fleet with common carriers. The Company's
strategy has enabled the Company to ship economically without affecting the
timeliness of deliveries.
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The Company also ships wallboard by rail to public warehouses located
in Birmingham, Alabama and Cincinnati, Ohio. The warehouses unload and store
the wallboard until the Company instructs them to arrange deliveries by truck
to customers located in the region surrounding the warehouses. Freight cost
savings can be achieved to many destinations in this manner because the
majority of the shipping distance is by rail which is typically cheaper, but
slower than truck delivery.
Gypsum Supply. The Company owns in fee simple all surface rights and
mineral rights to gypsum, gypsite and anhydrite with respect to 1,439 acres of
land, located within six miles of its manufacturing plant. The Company
estimates that the reserves of these gypsum deposits should be sufficient to
supply the plant operating at capacity for approximately 15 years. The land on
which the deposits are located is adjacent either to paved or rock-surfaced
roads and near a paved state highway which can be used during inclement weather
for transporting the raw gypsum to the plant site. In the Company's opinion,
other gypsum deposits are located in the immediate area and may be obtained at
a reasonable cost. Ordinarily, a four to six-week supply of crushed raw gypsum
is maintained at the Duke plant. The Company also owns substantial
non-producing gypsum reserves in Nova Scotia.
Other Raw Materials, Utilities and Fuel. Other than gypsum, the
principal raw material used by the Company in manufacturing wallboard is
recycled paperboard, which is manufactured by the Company's two paperboard
mills. See "RECYCLED PAPERBOARD OPERATIONS."
Water, electricity and natural gas are also required for the Company's
manufacturing process. Water wells located on the site produce sufficient
quantities of water for current and anticipated plant requirements. A 125,000
gallon overhead water storage tank is situated adjacent to the plant. The
plant can also purchase water from the public water supply system at Duke,
Oklahoma. Electric power is supplied to the Company at standard industrial
rates by an electric cooperative. Although the Company has experienced only
brief curtailments of its natural gas supply, the Company has an auxiliary
system using liquefied propane gas to power operations during periods of
curtailment. However, the cost of liquefied propane gas instead of natural gas
is considerably higher per MMBTU.
Competition. Each of the products sold by the Company competes with
several different brands of the same product and with different products
designed for the same purposes. There is very little differentiation between
wallboard produced by the Company and its competitors. The Company believes
that price, personal relationships with customers, quality, and timely
deliveries are the principal methods of competition among wallboard producers.
There are approximately 13 manufacturers of gypsum wallboard in the
United States, many of which have significantly greater total financial
resources than the Company. Four of these companies, USG Corporation, National
Gypsum Company, Georgia-Pacific Corporation and Domtar Industries Inc. sell, in
the aggregate, an estimated 80% of the wallboard in the United States. The
Company believes that its sales represent approximately 2.0% nationally and
approximately 10% of total wallboard sold in its primary markets. (See "SALES,
MARKETING AND DISTRIBUTION" FOR PRIMARY MARKET INFORMATION.)
In many cases, the larger, multiple plant gypsum wallboard
manufacturers have a competitive advantage in markets outside the Company's
primary historical markets due to the strategic location of their plants, which
results in lower costs. In addition, the larger producers may have other cost
efficiencies available to them, such as spreading selling and administrative
overhead across several plants. See ITEM 7. "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - GYPSUM WALLBOARD."
ENVIRONMENTAL REGULATION
The manufacture of paperboard involves the discharge of large volumes
of waste water and solid waste. In addition, the Company quarries gypsum by
open-face mining methods. The Company believes it is in compliance with
applicable federal, state and local environmental laws and regulations
governing the discharge of waste from its recycled paperboard mills and surface
quarrying and reclamation of quarried property near its gypsum plant.
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Environmental laws, rules and policies are changing constantly and the
technology available to address matters of pollution control is developing
rapidly. Accordingly, it is difficult to estimate the costs of future capital
expenditures, if any, for environmental control facilities at the Company's
manufacturing plants. Management currently anticipates that it will have
adequate capital resources available to fund such capital expenditures.
The effect of compliance with environmental laws, rules and policies
on the Company's operating results is also difficult to project. In general,
management believes that such ongoing compliance is a cost of manufacturing
which has widespread applicability to members of the industries in which the
Company is competing. Historically, the Company has not incurred material
costs or penalties with respect to the remediation of environmental problems;
however, changing laws and requirements, unknown practices by prior owners,
spills by neighboring facilities and numerous other factors can result in
material environmental problems. There can be no assurance that such matters
will not affect the Company's operating results or competitive position in the
future.
In connection with the Company's preparation for a warehouse addition
to its paperboard mill located in Commerce City, Colorado, a suburb of Denver,
the Company discovered and has been investigating the presence of subsurface
petroleum hydrocarbons. The Company retained an environmental consultant who
concluded that fuel oil, jet fuel, and gasoline additives had migrated in the
subsurface of the Company's property from an adjacent property. The Company
and the adjacent owner have sponsored additional investigations, and
discussions between the parties continue. The Company has completed the
construction of the warehouse addition under approval of the Colorado
Department of Health.
At this time, the Company has not ascertained the future liability, if
any, of the above matter. Environmental expenditures directly related to this
matter were $32,000 in fiscal 1995, $37,000 in fiscal 1994, and $111,000 in
fiscal 1993. These costs are included in selling and administrative expenses.
Due to the complexity of the environmental laws, rules and policies currently
applicable to the Company and the uncertainty about future changes in such laws
and regulations, the Company maintains accounting reserves for future
unexpected expenses of the nature and magnitude incurred during the past three
years.
SEASON AND CYCLICAL NATURE OF BUSINESS
Inclement weather anytime during the year can have an effect on
construction activity in the Company's markets and, consequently, an effect on
revenues and results of the Company's wallboard and recycled paperboard
manufacturing operations.
EMPLOYEES AND EMPLOYEE RELATIONS
Republic Gypsum Company employs approximately 600 people,
approximately 465 of whom are covered by collective bargaining agreements with
four labor unions. The expirations of current collective bargaining agreements
range from 1995 to 1997. The Company believes that its relations with
employees are satisfactory.
ITEM 2. PROPERTIES.
The Company operates a gypsum wallboard manufacturing plant located
near Duke, Oklahoma, three recycled paperboard mills located near Commerce
City, Colorado, Hutchinson, Kansas, and Halltown, West Virginia, and three
reclaimed paper recycling centers located in Kansas City, Missouri, Topeka,
Kansas, and Denver, Colorado. In addition, the Company owns an office building
in Hutchinson, Kansas, in which its corporate offices are located. The Company
leases office space in Irving, Texas, for its Chairman. The table on Page 7
sets forth certain information with respect to such significant properties.
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PROPERTIES
The Company's principal properties are shown below.
<TABLE>
<CAPTION>
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Annual
Nature of Date Company's Approx. Productive Type
Location Business Acquired Interest No. of Acres Capacity Construction
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
30th Avenue Corporate 1992 Owned 3 - Open span,
Hutchinson, Kansas Offices steel and
concrete
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Greenway Drive Chairman's 1993 Leased - - Open span,
Irving, Texas Office steel and
concrete
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Highway 62 Manufacture 1964 Owned 197 plant 511,000,000 (1) Open span,
Duke, Oklahoma gypsum site; 1,439 sq. ft. steel
wallboard gypsum
deposits
------------------------------------------------------------------------------------------------------------------------
Baddeck, Nova Scotia Gypsum 1971 Owned 450 N/A N/A
deposit
------------------------------------------------------------------------------------------------------------------------
Halstead and Sherman Manufacture 1983 Owned 29 plant site 91,000 (2) Open span,
Hutchinson, Kansas recycled 40 other sites tons steel and
paperboard concrete
------------------------------------------------------------------------------------------------------------------------
Brighton Boulevard Manufacture 1983 Owned 9 52,500 (2) Open span,
Commerce City, recycled tons steel and
Colorado paperboard concrete
------------------------------------------------------------------------------------------------------------------------
Main Street Recycle 1994 Owned 2 30,000 (3) Open span,
Kansas City, Missouri waste paper tons brick and
concrete
------------------------------------------------------------------------------------------------------------------------
Adams Street Recycle 1994 Owned 1/2 15,000 (3) Open span,
Topeka, Kansas waste paper tons steel and
concrete
------------------------------------------------------------------------------------------------------------------------
Ironton Street Recycle 1995 Owned 1.7 10,000 (3) Open span,
Denver, Colorado waste paper tons steel and
concrete
------------------------------------------------------------------------------------------------------------------------
Old Route 340 Manufacture 1995 Owned 48 70,000 (2) Open span,
Halltown, West recycled tons steel,
Virginia paperboard concrete,
and concrete
block
------------------------------------------------------------------------------------------------------------------------
</TABLE>
______________
(1) Based on the Company's historical normal product mix operating a
modified single production line 6-2/3 days per week, 24 hours per
day. See Item 1. Business - Gypsum Wallboard Operations --
Manufacturing.
(2) Estimated capacity during current fiscal year, based on 350 production
days, 24 hours per day.
(3) Based on a one shift operation, 6 days per week.
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ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings involving the Company
or any of its subsidiaries, other than ordinary routine litigation incidental
to the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of stockholders of the Company
during the fourth quarter of fiscal year 1995.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information concerning the
executive officers of the Company. All of the officers, except Stephen L.
Gagnon and James M. Britz, have been employed by the Company during the past
five years. Each officer has continually served as an officer of the Company
from the time he or she first became an officer. All officers were elected by
the Board of Directors of the Company to serve until the next annual meeting of
the Board of Directors. No family relationship exists between any of the
officers.
<TABLE>
<CAPTION>
First
Position with Became an
Name the Company Age Officer
---- ------------ --- ---------
<S> <C> <C> <C>
Phil Simpson Chairman of the 60 1961
Board, President,
Chief Executive
Officer and Director
Stephen L. Gagnon Executive Vice 42 1990
President and Director
Doyle R. Ramsey Vice President and 44 1992
Chief Financial
Officer
Todd T. Brown Vice President 41 1992
Geary D. Cribbs Vice President 52 1992
Susan G. Hall Vice President 49 1993
Larry N. Montague Vice President 40 1992
James M. Britz Vice President 44 1994
John W. McCracken Controller and 34 1993
Principal Accounting
Officer
</TABLE>
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<PAGE> 10
Mr. Simpson has been Chairman of the Board of Directors, President and
Chief Executive Officer for more than five years.
Mr. Gagnon joined the Company in December 1990 as Vice President -
Administration and Chief Financial Officer. He served as Senior Vice President
and Chief Financial Officer from January 1992 to September 1992 when he was
elected Executive Vice President. In October 1992 Mr. Gagnon became a Director
of the Company. Mr. Gagnon continued to hold the additional title of Chief
Financial Officer until October 1992. Prior to joining the Company, he was a
stockholder in the law firm of Locke Purnell Rain Harrell, a Professional
Corporation.
Mr. Ramsey was elected Vice President in September 1992 and was
appointed to the additional post of Chief Financial Officer in October 1992.
He served as Mill Manager of the Company's Hutchinson recycled paperboard mill
from October 1991 to January 1993. Prior thereto, he was office manager and
plant controller of the mill.
Mr. Brown was elected Vice President in September 1992. He is
responsible for recycled paperboard operations. Prior thereto, he served as
Mill Manager of the Company's Commerce City recycled paperboard mill.
Mr. Cribbs was elected Vice President in September 1992. He is
responsible for gypsum operations. Mr. Cribbs has served as General Manager of
the Company's Duke, Oklahoma complex, which includes gypsum wallboard
manufacturing, quarrying and calcining operations and short-line railroad
operations for more than five years.
Ms. Hall was elected Vice President in October 1993. She is
responsible for gypsum sales. She served as Gypsum Sales Manager from October
1991 to October 1993. Prior thereto, she held various positions in the sales
department since joining the Company in 1975.
Mr. Montague was elected Vice President in September 1992. He is
responsible for recycled paperboard sales and the recycling center operations.
Prior thereto, he served as General Paperboard Sales Manager.
Mr. Britz was elected Vice President in August 1994. He is
responsible for environmental compliance, safety and human resource functions
of the Company. He served as Director of Environmental, Safety and Health, and
Human Resources from February 1993 to August 1994. Prior thereto, he held
similar positions with the Genlyte Group, Inc.
Mr. McCracken was elected Controller and Principal Accounting Officer
in June 1993. He served as Accounting Manager from September 1991 until June
1993 and as Assistant Controller from September 1990 to September 1991.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PER SHARE MARKET PRICE AND DIVIDENDS
FISCAL YEARS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
==================================================================================================================
Price Range Dividends Price Range Dividends
High Low Paid High Low Paid
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First quarter $ 10.38 $ 8.00 $ 0.05 $ 9.25 $ 7.13 $ 0.03
------------------------------------------------------------------------------------------------------------------
Second quarter 10.38 7.25 0.06 11.13 7.38 0.04
------------------------------------------------------------------------------------------------------------------
Third quarter 11.75 9.88 0.06 15.25 10.75 0.05
------------------------------------------------------------------------------------------------------------------
Fourth quarter 10.50 9.50 0.06 13.38 8.50 0.05
------------------------------------------------------------------------------------------------------------------
$ 0.23 $ 0.17
==================================================================================================================
</TABLE>
Republic Gypsum Company common stock is traded on the New York Stock Exchange
under the symbol "RGC". At August 16, 1995, the number of stockholders of
record was approximately 968.
9
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA.
FINANCIAL REVIEW
In thousands, except per share, ratio and percent data
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
=================================================================================================================
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
Net sales $ 96,413 $ 63,200 $ 49,189 $ 42,064 $ 41,124
-----------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes
and change in accounting (1) 19,158 12,436 4,450 2,915 (792)
-----------------------------------------------------------------------------------------------------------------
Net income (loss) (1) 11,677 7,739 3,235 1,946 (99)
-----------------------------------------------------------------------------------------------------------------
Total capital employed (2) 85,094 46,551 38,861 36,800 34,372
-----------------------------------------------------------------------------------------------------------------
Stockholders' equity, at year-end 50,569 41,173 35,058 33,631 31,811
-----------------------------------------------------------------------------------------------------------------
Total assets 95,442 53,796 44,097 41,296 38,946
-----------------------------------------------------------------------------------------------------------------
Interest-bearing debt (including
current portion) 28,000 -- -- -- --
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
PER SHARE DATA
-----------------------------------------------------------------------------------------------------------------
Income (loss) per common and
common equivalent share (1) $ 1.10 $ 0.73 $ 0.31 $ 0.18 $ (0.01)
-----------------------------------------------------------------------------------------------------------------
Common dividends (3) 0.23 0.17 0.21 0.02 --
-----------------------------------------------------------------------------------------------------------------
Stockholders' equity, at year end 4.77 3.88 3.32 3.19 3.00
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
RATIO AND PERCENT DATA
-----------------------------------------------------------------------------------------------------------------
Net operating profit (loss) after-tax
as a percent of net sales (4) 13% 13% 6% 3% (2)%
-----------------------------------------------------------------------------------------------------------------
Return on average capital
employed (percent) (4) 25 19 8 4 (2)
-----------------------------------------------------------------------------------------------------------------
Return on average stockholders
equity (percent) (5) 26 20 9 6 0
-----------------------------------------------------------------------------------------------------------------
Interest-bearing debt as a percent
of total capital employed 33 -- -- -- --
-----------------------------------------------------------------------------------------------------------------
Ratio of current assets to
current liabilities 2.0 2.1 3.0 3.4 2.6
-----------------------------------------------------------------------------------------------------------------
Ratio of year-end market value per
common share to income
per common and common 9.1 12.5 24.6 29.9 --
equivalent share
-----------------------------------------------------------------------------------------------------------------
Ratio of average market value per share
to average book value per share 2.2 3.1 2.1 1.8 1.3
-----------------------------------------------------------------------------------------------------------------
AVERAGE COMMON AND
COMMON EQUIVALENT
SHARES 10,608 10,606 10,561 10,568 10,605
-----------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) The comparability of the fiscal 1991 results of operations is affected by
the adoption of SFAS No. 96, and three non-recurring accounting adjustments
related to prior years.
(2) Total capital employed is equivalent to total assets less
noninterest-bearing current liabilities.
(3) The Company paid a special dividend of $ .10 per share during fiscal 1993.
(4) Net operating profit (loss) after-tax is equivalent to operating profit
(loss) reduced/increased by taxes computed using statutory tax rates.
Return on average capital employed relates net operating profit (loss)
after-tax to average total capital employed.
(5) Return on average stockholders' equity is net income (loss) divided by
average stockholders' equity employed during the year.
10
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General - Consolidated Results
The Company's consolidated results of operations improved
significantly in 1995, continuing four years of progressively higher levels of
consolidated net sales, operating profits, and net income. Net sales increased
53% and net income 51% from 1994 to 1995, and 28% and 139%, respectively, from
1993 to 1994.
The following selected consolidated financial data illustrate the
consistent year-to-year improvements of the Company:
<TABLE>
<CAPTION>
($ in thousands) 1995 1994 1993
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 96,413 $ 63,200 $ 49,189
Operating profit $ 19,008 $ 11,961 $ 4,269
Operating margin 20% 19% 9%
Net income $ 11,677 $ 7,739 $ 3,235
Income per share $ 1.10 $ .73 $ .31
Return on average
capital employed 25% 19% 8%
--------------------------------------------------------------------------------------------------------
</TABLE>
Recycled Paperboard - Paperboard Manufacturing
Net sales of recycled paperboard increased 28% from 1994 to 1995,
principally due to rising selling prices in response to sharp increases in the
cost of reclaimed paper fiber. Although total shipments only increased 2% from
1994 to 1995, shipments to unaffiliated customers increased 10% as a result of
higher shipments to converter customers engaged in the manufacture of composite
cans, tubes, cores and other consumer and industrial packaging products and to
unaffiliated gypsum wallboard manufacturers. The Company's wallboard segment
purchased more recycled gypsum paperboard from outside suppliers in 1995 than
1994, which reduced inter-company sales. Net sales and total shipments each
increased 12% from 1993 to 1994 due to improved sales to outside gypsum
wallboard manufacturers and higher intercompany sales to the Company's
wallboard segment.
There was an unprecedented 45% overall rise in per unit variable
production costs from 1994 to 1995 primarily due to a 122% increase in the per
unit cost of materials, principally reclaimed paper fiber. From June 1994
through May 1995, quoted prices (as reported by an industry publication) for
old corrugated containers (OCC) and double lined kraft (DLK), two major grades
utilized by the recycled paperboard mills, increased from $85 per ton and $110
per ton, respectively, to $195 per ton and $270 per ton. The Company was
generally able to increase the selling prices of its recycled paperboard
products to offset the rise in raw material costs, but there typically was a 30
to 90 day lag between rising costs and subsequent selling price increases.
This resulted in reduced margins for the recycled paperboard mills during
fiscal 1995. Although, there has been a decline in reclaimed paper costs since
May 1995, reclaimed paper fiber costs may rise again in the near future. To
date, the Company has been able to secure adequate supplies of reclaimed paper
fiber to operate its mills. However, both raw material costs and adequate
supplies of reclaimed paper fiber are important uncertainties the recycled
paperboard mills face in the future. From 1993 to 1994, there was only a 2%
increase in variable costs from year to year. This was due to an 8% rise in
raw material costs, principally reclaimed paper fiber, which was partially
offset by lower per unit costs for utilities, payroll, and selling and
administrative expenses from 1993.
Increasing environmental awareness continues to elevate demand for
recycled paperboard products. The public views recycling as a way to conserve
natural resources and as a means of reducing waste sent to landfills. Recycled
paperboard capacity grew from 10.2 million tons in 1991 to 12.7 million tons in
1994. According to the American Forest & Paper Association, capacity is
expected to increase an additional 2.4 million tons by 1997. Most of this
additional capacity was built and is being built to manufacture recycled
containerboard, which historically had not been an important product for the
Company. Nonetheless, excess productive capacity from this segment of the
industry could compete in the Company's traditional product markets, if a
condition of excess containerboard capacity were to develop. Additionally, the
increased use of reclaimed paper fiber by traditional
11
<PAGE> 13
wood pulp mills also may compete for already tight supplies and increase the
cost of this raw material. Another possible result of increased costs of
reclaimed paper fiber to the recycled paperboard industry, is attempted
substitution of other products, such as plastic and virgin paperboard, for
recycled paperboard.
The cost of fuel, principally natural gas, is another important issue
for this segment because it is a major cost component in the production of
recycled paperboard. From 1994 to 1995, the recycled paperboard mills enjoyed
a small decrease in utility costs, principally due to a reduction in gas
acquisition costs. There was also a slight reduction in utility costs from
1993 to 1994, due to the same reasons. The Company does periodically contract
future fuel supplies for extended periods to hedge against fluctuations in the
market place, however, by securing long-term supplies, one is not able to take
advantage of short-term market price decreases.
The Company has completed the third year of its five year plan to
spend $14.0 million to $18.0 million for capital expansion and upgrades at its
two recycled paperboard mills. This is part of a strategic plan to increase
the productive capacity of the Hutchinson, Kansas and Denver, Colorado recycled
paperboard mills by approximately one-third and to enhance product quality and
production efficiencies.
On June 30, 1995, the Company purchased from Old Dominion Box Company
substantially all of the operating assets of Halltown Paperboard Company,
Halltown, West Virginia for $26.2 million. Funding for the purchase was
provided by long-term bank borrowing. Halltown operates a recycled paperboard
mill with a rated productive capacity of 70,000 tons per year, increasing
Republic's recycled paperboard production capacity from 143,500 tons to 213,500
tons. The acquisition of Halltown furthers the Company's strategic objective to
add new operations which will complement its current businesses. The mill
manufactures various uncoated grades of recycled paperboard exclusively from
100% reclaimed paper fiber. Halltown's products are used in a variety of
consumer and industrial products such as automobiles, tubes, cans, puzzles,
games, glassware packaging, packaging for confectionery products, as well as
food and dry goods dividers, and partitions. Because Halltown does not make
paperboard for the gypsum wallboard industry, the facility will further
strengthen the portion of the Company's recycled paperboard operations that
target manufacturers of packaging and similar products as well as providing
geographical diversification. The Company will continue to evaluate possible
acquisitions in the recycled paperboard industry, if and when appropriate
opportunities arise.
Recycled Paperboard - Reclaimed Fiber Collection Centers
The reclaimed paper recycling centers acquired in Kansas City,
Missouri and Topeka, Kansas during the last quarter of fiscal 1994, contributed
significantly to the net sales and operating profit of the recycled paperboard
segment during fiscal 1995. The economic factors that caused the cost of
reclaimed paper fiber to the Company's paperboard mills to rise dramatically
during the year also resulted in strong demand for reclaimed paper fiber
collected by the Company's collection centers at attractive profit margins.
The Company's collection centers, which now include a third center
located in Denver, Colorado, are intended to support and complement the
Company's recycled paperboard mills by ensuring raw material supplies and
reducing the net cost of paper fiber to the integrated operations of the
Company. During fiscal 1995, more than 70% of net sales by the Company's
collection centers were to outside purchasers of reclaimed paper fiber.
Management anticipates that a major portion of the Company's reclaimed fiber
sales will continue to be to such unaffiliated customers. Outside sales permit
the Company to exercise control over more tons of reclaimed paper fiber, while
any profits from sales to unaffiliated customers effectively reduce the net
cost of raw materials to Republic's recycled paperboard mills.
During the three fiscal years ended June 30, 1995, total net sales of
the Company's recycled paperboard segment were $63.1 million in 1995, $41.2
million in 1994 and $35.9 million in 1993. Of these amounts, the Company's
reclaimed fiber collection operations contributed net sales of $11.6 million in
1995, as compared to $1.1 million in 1994.
Total operating profit for the entire recycled paperboard segment was
$8.9 million in 1995, $8.1 million in 1994 and $7.3 million in 1993. During
1995, profits from reclaimed fiber collection operations mitigated the negative
impact of higher raw material costs on the profitability of the Company's
recycled paperboard mills.
12
<PAGE> 14
Increased overall demand for reclaimed paper fiber also could
adversely impact the Company's reclaimed fiber collection operations.
Competition for collections is likely to increase, and the collection centers
may have to accept reduced margins in order to successfully maintain collection
volumes. In addition, the commodity nature of reclaimed fiber pricing can
result in selling prices falling after commitments to purchase already have
been made.
Gypsum Wallboard
From 1994 to 1995, total shipments of gypsum wallboard increased 4%;
shipments increased 19% from 1993 to 1994. Net selling prices were up 30% from
1994 to 1995. This compares to a 26% increase in net selling prices from 1993
to 1994. The gypsum wallboard industry parallels the construction industry,
and particularly housing starts. The construction industry continued to expand
during fiscal 1995 as reflected by the table below:
<TABLE>
<CAPTION>
(in millions)
-----------------------------------------------------------------
Year Ended Housing
December 31 Starts
----------- ----------
<S> <C>
1992 1.20
1993 1.29
1994 1.46
</TABLE>
Forecasters generally estimate that housing starts for calendar year
1995 will fall to a level somewhere between the 1993 rate and the 1994 rate.
If this holds true, the industry should experience a good year of sales and
profits, if selling prices hold firm at, or near present levels. The repair
and remodel sections of the industry have continued to grow and expand during
this same period.
The gypsum wallboard segment enjoyed a substantial rise in operating
profits from $7.8 million in 1994 to $14.9 million in 1995. Operating profit
in 1993 was $542,000 for this division. This significant rise in operating
profits illustrates the correlation of gypsum segment profitability to
improvements in the construction industry and housing starts, in particular, as
represented in the above table.
Variable per unit production costs for the gypsum wallboard segment
increased 12% from 1994 to 1995. This compares to a slight decrease from 1993
to 1994. Recycled gypsum paperboard, or the facing paper used in the
manufacture of gypsum wallboard, is the largest single cost component in the
production of gypsum wallboard. Recycled paperboard , as a percent of the
total per unit cost of producing wallboard, climbed from 40% in 1993, to 41% in
1994, and to 45% in 1995. The Company's recycled paperboard segment supplies
virtually all of the paperboard used by the gypsum segment in the manufacture
of wallboard.
Another significant cost component in the production of gypsum
wallboard is natural gas. From 1994 to 1995, total utility costs (principally
electricity and natural gas) decreased 9% on a per unit basis. From 1993 to
1994, the reduction was 4%. This reflects Republic's recent success at
acquiring adequate supplies at favorable rates.
Due to the rapid growth in demand for gypsum wallboard, there exists
the possibility that new manufacturing facilities could be built, existing
plants could be upgraded or previously idled plants could be reconditioned and
restarted. There has been some significant instances of plant upgrades and
plants being reopened during the last two years. Supply and demand can be
affected adversely by the reopening or upgrading of existing plants and the
construction of new gypsum wallboard manufacturing plants, as well as rising
interest rates. Interest rates have been favorable for the construction
industry in recent periods.
During fiscal 1995, the Company's gypsum wallboard plant underwent a
significant capital upgrade. New, more efficient production equipment was
installed in key areas of the calcining mill and the board plant as part of a
lengthening of the board production line. The improvements were designed
primarily for product quality enhancement, however, an improvement in
production efficiency was also achieved. It is the intention of the Company to
continue this effort to gain production efficiencies and product quality.
13
<PAGE> 15
Other
Selling and administrative expenses as a percent of net sales
decreased from 12% in fiscal 1994 to 10% in 1995. This compares to 15% in
1993. Total selling and administrative dollars were $7.3 million in 1993, $7.6
million in 1994 and $9.4 million in 1995. The large increase in 1995 was due
to several factors. The acquisition of the recycling centers in the last
quarter of fiscal 1994 added overhead to the Company. Also, certain costs were
incurred as a result of the 53% increase in net sales from 1994 to 1995 such as
additional sales commissions and incentives. Additionally, Republic installed
an upgraded computer system in fiscal 1995, which added to overhead expense.
The Company's effective income tax rate in fiscal 1995 was 39%. This
compares to 38% in 1994 and 27% in 1993. The fiscal 1993 rate was lower due to
the availability of federal alternative minimum tax credits.
Environmental Matters
In connection with the Company's preparation for a warehouse addition
to its paperboard mill located in Commerce City, Colorado, a suburb of Denver,
the Company discovered and has been investigating the presence of subsurface
petroleum hydrocarbons. The Company retained an environmental consultant who
concluded that fuel oil, jet fuel, and gasoline additives had migrated in the
subsurface of the Company's property from an adjacent property. The Company
and the adjacent owner have sponsored additional investigations, and
discussions between the parties continue. The Company has completed the
construction of the warehouse addition under approval of the Colorado
Department of Health.
At this time, the Company has not ascertained the future liability, if
any, of the above matter. Environmental expenditures directly related to this
matter were $32,000 in fiscal 1995, $37,000 in fiscal 1994, and $111,000 in
fiscal 1993. These costs are included in selling and administrative expenses.
Due to the complexity of the environmental laws, rules, and policies currently
applicable to the Company and the uncertainty about future changes in such laws
and regulations, the Company maintains accounting reserves for future
unexpected expenses of the nature and magnitude incurred during the past three
years.
Effect of Inflation
Management believes that general inflation has not had a material
impact on the Company's net sales or operating income the last three fiscal
years. The cost of reclaimed paper fiber, which is the principle raw material
component utilized in the manufacture of recycled paperboard rose significantly
during the last half of fiscal 1994 and continued rising throughout much of
fiscal 1995. The Company believes this rise in raw material costs and
subsequent increases in selling prices of its products were due to the supply
and demand of recycled paper fiber and not general inflation.
14
<PAGE> 16
Liquidity and Capital Resources
The following is a summary of certain financial statistics related to the
liquidity and financial condition of the Company for the three fiscal years
ended June 30, 1995.
<TABLE>
<CAPTION>
($ in thousands) 1995 1994 1993
================================================================================================================
<S> <C> <C> <C>
Working capital $ 13,520 $ 8,170 $ 10,596
----------------------------------------------------------------------------------------------------------------
Current ratio 2.0:1 2.1:1 3.0:1
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
plus investments & marketable
securities $ 6,131 $ 1,410 $ 5,617
----------------------------------------------------------------------------------------------------------------
Net cash provided by
operating activities $ 14,038 $ 9,981 $ 6,692
----------------------------------------------------------------------------------------------------------------
Additions to property,
plant and equipment $ 33,553 $ 13,318 $ 5,589
----------------------------------------------------------------------------------------------------------------
Dividends paid $ 2,426 $ 1,791 $ 2,211
----------------------------------------------------------------------------------------------------------------
Long-term debt (including
current portion) $ 28,000 -- --
----------------------------------------------------------------------------------------------------------------
Total capital employed $ 85,094 $ 46,551 $ 38,861
----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's working capital increased $5.4 million from fiscal 1994
to fiscal 1995. Cash, cash equivalents, investments and marketable securities
increased $4.7 million from 1994 to 1995. Net cash provided by operations
increased from $10.0 million in 1994 to $14.0 million in 1995. Additions to
plant, property and equipment, excluding the acquisitions of the Kansas City,
Missouri and Topeka, Kansas recycling centers in fiscal 1994 and Halltown
Paperboard Company, Halltown, West Virginia in fiscal 1995, decreased from
$11.8 million in 1994 to $8.8 million in fiscal 1995.
On June 30, 1995, the Company purchased substantially all the assets
of Halltown Paperboard Company, Halltown, West Virginia and financed the
acquisition by securing $28.0 million in long-term bank financing, which is to
be repaid in semiannual installments over the next seven years. At the same
time, the Company entered into a $7.0 million revolving credit facility. To
date, no amounts have been borrowed against the credit facility which expires
June 30, 1997. Management believes that cash and investments, internally
generated funds, supplemented as needed by advances under the working capital
line of credit, will be sufficient to meet the Company's short-term working
capital requirements.
Cash dividends paid to common stockholders were $2.4 million in fiscal
1995, $1.8 million in fiscal 1994, and $2.2 million in fiscal 1993 (including a
special, one-time, $.10 per share dividend). Quarterly dividends have
historically been paid in the months of September, December, March, and June,
but are, in each case, subject to Board approval.
The Board of Directors of the Company has approved budgeted capital
expenditures of $9.4 million for fiscal 1996. Cash provided by operations and
existing cash balances should be sufficient to fund these expenditures.
15
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements, along with the Financial Statement Schedule
filed herewith, are listed in the Index below.
<TABLE>
<CAPTION>
Page Reference
--------------
<S> <C>
Consolidated Statements of Income for the years ended 17
June 30, 1995, 1994 and 1993
Consolidated Balance Sheets at June 30, 1995 and 1994 18
Consolidated Statements of Cash Flows for the years 19
ended June 30, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity for the 20
years ended June 30, 1995, 1994 and 1993
Notes to Consolidated Financial Statements 21-30
Report of Independent Public Accountants - Consolidated 31
Financial Statements
Report of Management 32
Report of Independent Public Accountants - Report on S-1
Form 10-K
Schedule II - Valuation and Qualifying Accounts and Reserves S-2
</TABLE>
16
<PAGE> 18
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
================================================================================================================
<S> <C> <C> <C>
Gross sales $112,400,000 $ 77,131,000 $ 61,720,000
Less freight and discounts 15,987,000 13,931,000 12,531,000
----------------------------------------------------------------------------------------------------------------
Net sales 96,413,000 63,200,000 49,189,000
Costs and expenses:
Cost of sales 67,966,000 43,603,000 37,591,000
Selling and administrative expenses 9,439,000 7,636,000 7,329,000
----------------------------------------------------------------------------------------------------------------
77,405,000 51,239,000 44,920,000
----------------------------------------------------------------------------------------------------------------
Operating profit 19,008,000 11,961,000 4,269,000
Other income (expense):
Interest expense (7,000) (22,000) (10,000)
Interest income 131,000 271,000 324,000
Miscellaneous, net 26,000 226,000 (133,000)
----------------------------------------------------------------------------------------------------------------
150,000 475,000 181,000
----------------------------------------------------------------------------------------------------------------
Income before income taxes 19,158,000 12,436,000 4,450,000
Provision for income taxes 7,481,000 4,697,000 1,215,000
----------------------------------------------------------------------------------------------------------------
Net income $ 11,677,000 $ 7,739,000 $ 3,235,000
================================================================================================================
Income per common and common
equivalent share $ 1.10 $ 0.73 $ 0.31
----------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 10,608,000 10,606,000 10,561,000
----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
17
<PAGE> 19
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
===================================================================================================================
<S> <C> <C>
ASSETS
-------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 3,631,000 $ 910,000
Investments and marketable securities, at market 2,500,000 500,000
Accounts receivable, less allowance for doubtful
accounts of $614,000 in 1995 and $255,000 in 1994 11,223,000 7,986,000
Income tax refunds receivable 177,000 219,000
Inventories:
Finished goods 2,752,000 997,000
Raw materials and supplies 5,505,000 3,396,000
-------------------------------------------------------------------------------------------------------------------
8,257,000 4,393,000
Prepaid expenses 491,000 366,000
Net assets held for sale -- 264,000
Deferred income taxes 749,000 777,000
-------------------------------------------------------------------------------------------------------------------
Total current assets 27,028,000 15,415,000
Property, plant and equipment, at cost:
Land, land improvements and mineral deposits 3,958,000 3,259,000
Buildings and leasehold improvements 11,540,000 9,747,000
Equipment 84,124,000 53,073,000
Construction in progress 3,010,000 4,087,000
-------------------------------------------------------------------------------------------------------------------
102,632,000 70,166,000
Less accumulated depreciation, amortization and depletion 35,020,000 32,433,000
-------------------------------------------------------------------------------------------------------------------
67,612,000 37,733,000
Other assets 802,000 648,000
-------------------------------------------------------------------------------------------------------------------
Total assets $ 95,442,000 $ 53,796,000
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 7,441,000 $ 4,838,000
Accrued payroll and employee benefits 1,810,000 1,339,000
Other current liabilities 1,097,000 1,068,000
Current portion of long-term debt 3,160,000 --
-------------------------------------------------------------------------------------------------------------------
Total current liabilities 13,508,000 7,245,000
Long-term debt 24,840,000 --
Deferred income taxes 5,765,000 4,492,000
Other long-term liabilities 760,000 886,000
Contingent liabilities and commitments
Stockholders' equity:
No par preferred stock issuable in series; 487,000 shares
authorized; none issued and outstanding -- --
Common stock, $1 par value; 25,000,000 shares authorized;
issued 10,560,000 in 1995 and 10,538,000 in 1994 10,560,000 10,538,000
Additional paid-in capital 12,308,000 12,211,000
Retained earnings 27,701,000 18,450,000
Less pension liability adjustment -- (26,000)
-------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 50,569,000 41,173,000
-------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 95,442,000 $ 53,796,000
===================================================================================================================
</TABLE>
See accompanying notes.
18
<PAGE> 20
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
==================================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 11,677,000 $ 7,739,000 $ 3,235,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, amortization and depletion 3,633,000 2,809,000 2,360,000
Write down of property, plant and equipment -- 45,000 82,000
Deferred income taxes 1,301,000 456,000 397,000
(Gain) loss on sale of assets 38,000 (120,000) (37,000)
Gain on sale of investments -- (41,000) --
Changes in current assets and liabilities
net of effects from acquisition:
Accounts receivable (3,237,000) (2,457,000) (796,000)
Income tax refunds receivable 42,000 (204,000) 29,000
Inventories (2,609,000) (474,000) 395,000
Prepaid expenses 26,000 (97,000) (14,000)
Accounts payable and accrued liabilities 3,103,000 2,009,000 740,000
Other noncurrent assets and liabilities 64,000 316,000 301,000
------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 14,038,000 9,981,000 6,692,000
------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of Halltown Paperboard Company:
Working capital (1,271,000) -- --
Property, plant and equipment (24,753,000) -- --
Other assets (215,000) -- --
------------------------------------------------------------------------------------------------------------------
(26,239,000) -- --
Additions to property, plant and equipment (8,800,000) (13,318,000) (5,589,000)
Proceeds from sale of property, plant
and equipment 3,000 737,000 285,000
Purchases of investments (2,500,000) (500,000) (227,000)
Proceeds from sales of investments 500,000 3,162,000 610,000
Other -- (2,000) 5,000
------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (37,036,000) (9,921,000) (4,916,000)
------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Dividends paid (2,426,000) (1,791,000) (2,211,000)
Proceeds from issuance of debt 28,000,000 -- --
Pension liability adjustment 26,000 (26,000) --
Purchases of treasury stock -- -- (32,000)
Unearned compensation -- 186,000 375,000
Proceeds from exercised stock options 119,000 7,000 60,000
------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 25,719,000 (1,624,000) (1,808,000)
------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 2,721,000 (1,564,000) (32,000)
Cash and cash equivalents at beginning of year 910,000 2,474,000 2,506,000
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,631,000 $ 910,000 $ 2,474,000
==================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes, net of refunds $ 6,032,000 $ 4,473,000 $ 787,000
Interest 10,000 22,000 1,000
------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
19
<PAGE> 21
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Additional Pension Common
stock, $1 paid-in Retained Unearned liability shares in
In Thousands of Dollars par value capital earnings compensation adjustment treasury Total
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1992 $ 10,803 $ 13,955 $ 11,478 $ (561) $ -- $ (2,044) $ 33,631
Net income -- -- 3,235 -- -- -- 3,235
Cash dividends on common
stock, $.21 per share -- -- (2,211) -- -- -- (2,211)
Exercise of stock options 13 47 -- -- -- -- 60
Retirement of debt -- -- -- 375 -- -- 375
Purchase of treasury stock -- -- -- -- -- (32) (32)
--------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1993 10,816 14,002 12,502 (186) -- (2,076) 35,058
Net income -- -- 7,739 -- -- -- 7,739
Cash dividends on common
stock, $.17 per share -- -- (1,791) -- -- -- (1,791)
Exercise of stock options 3 4 -- -- -- -- 7
Retirement of debt -- -- -- 186 -- -- 186
Pension liability -- -- -- -- (26) -- (26)
adjustment
Retirement of treasury stock (281) (1,795) -- -- -- 2,076 --
--------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 10,538 12,211 18,450 -- (26) -- 41,173
Net income -- -- 11,677 -- -- -- 11,677
Cash dividends on common
stock, $.23 per share -- -- (2,426) -- -- -- (2,426)
Exercise of stock options 22 97 -- -- -- -- 119
Pension liability adjustment -- -- -- -- 26 -- 26
--------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 $ 10,560 $ 12,308 $ 27,701 $ -- $ -- $ -- $ 50,569
==========================================================================================================================
</TABLE>
See accompanying notes
20
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995, 1994, AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Republic
Gypsum Company and its subsidiaries. All intercompany accounts and transactions
have been eliminated.
CASH EQUIVALENTS
Short-term investments that are highly liquid and have original
maturity dates of three months or less are considered cash equivalents for the
purpose of the Consolidated Statements of Cash Flows. These investments are
carried at market.
CONCENTRATION OF CREDIT RISK
The majority of the Company's sales are to retailers, manufacturers
and wholesalers. The Company conducts ongoing credit evaluations of its
customers financial conditions and limits the amount of trade credit extended
when necessary. The Company maintains allowances for expected credit losses.
INVENTORIES
Inventories are stated at the lower of cost (average or first-in,
first-out) or market and include the appropriate elements of materials, labor
and manufacturing overhead expenses.
PROPERTY, PLANT AND EQUIPMENT
Plant and equipment assets are recorded at cost and depreciated
generally by the straight-line method over the estimated useful lives of the
assets. Expenditures for additions and improvements are capitalized, and costs
for repairs and maintenance are charged to operations as incurred.
REVENUE RECOGNITION
Revenue is recognized at the time products are shipped to the customer
or, in the case of rail services, at the time service is rendered.
INCOME TAXES
The provision for income taxes includes federal and state taxes
currently payable (receivable) and deferred taxes arising from temporary
differences in determining income for financial statement and tax purposes.
The Company files a consolidated federal return which includes the results for
all of its subsidiaries. Deferred tax assets, liabilities and related expense
accounts are adjusted annually for any changes in statutory tax rates.
PER SHARE COMPUTATIONS
Per share computations are based on the weighted average number of
common shares outstanding during the year, adjusted for the effect of dilutive
common share equivalents (i.e., common stock options). Earnings per common
share on a fully diluted basis are substantially the same as earnings per share
as presented.
RECLASSIFICATION
Certain prior year balances have been reclassified to conform with the
current year presentation.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE
Environmental expenditures are expensed or capitalized, as
appropriate. Liabilities are recorded when assessments and/or remedial efforts
are probable and the cost can be reasonably estimated.
21
<PAGE> 23
2. INDUSTRY SEGMENTS
Certain information with regard to industry segments, within which the
Company operates, is as follows (in thousands):
<TABLE>
<CAPTION>
Recycled Eliminations
Gypsum Paperboard and other Consolidated
===========================================================================================================================
<S> <C> <C> <C> <C>
1995
Sales to unaffiliated customers $ 54,748 $ 57,642 $ 10 $ 112,400
Intersegment sales -- 8,738 (8,738) --
---------------------------------------------------------------------------------------------------------------------------
54,748 66,380 (8,728) 112,400
Less freight and discounts 12,683 3,304 -- 15,987
---------------------------------------------------------------------------------------------------------------------------
Net sales $ 42,065 $ 63,076 $ (8,728) $ 96,413
===========================================================================================================================
Operating profit (loss) $ 14,939 $ 8,907 $ (4,838) $ 19,008
Identifiable assets 23,747 59,823 11,872 95,442
Capital expenditures 2,364 29,810 1,379 33,553
Depreciation, depletion and amortization 1,274 1,994 365 3,633
===========================================================================================================================
1994
Sales to unaffiliated customers $ 42,643 $ 34,481 $ 7 $ 77,131
Intersegment sales -- 9,169 (9,169) --
---------------------------------------------------------------------------------------------------------------------------
42,643 43,650 (9,162) 77,131
Less freight and discounts 11,497 2,434 -- 13,931
---------------------------------------------------------------------------------------------------------------------------
Net sales $ 31,146 $ 41,216 $ (9,162) $ 63,200
===========================================================================================================================
Operating profit (loss) $ 7,829 $ 8,141 $ (4,009) $ 11,961
Identifiable assets 22,152 25,781 5,863 53,796
Capital expenditures 2,556 9,328 1,434 13,318
Depreciation, depletion and amortization 1,183 1,427 199 2,809
===========================================================================================================================
1993
Sales to unaffiliated customers $ 30,750 $ 30,951 $ 19 $ 61,720
Intersegment sales 394 7,350 (7,744) --
---------------------------------------------------------------------------------------------------------------------------
31,144 38,301 (7,725) 61,720
Less freight and discounts 10,512 2,413 (394) 12,531
---------------------------------------------------------------------------------------------------------------------------
Net sales $ 20,632 $ 35,888 $ (7,331) $ 49,189
===========================================================================================================================
Operating profit (loss) $ 542 $ 7,294 $ (3,567) $ 4,269
Identifiable assets 18,907 17,224 7,966 44,097
Capital expenditures 367 4,019 1,203 5,589
Depreciation, depletion and amortization 1,096 1,059 205 2,360
===========================================================================================================================
</TABLE>
Operations within the gypsum industry consist of the manufacture and
sale of gypsum wallboard. Operations within the paperboard industry consist of
(i) the manufacture and sale of recycled paperboard to the gypsum industry and
other paperboard converters which manufacture composite cans, cores, tubes and
other packaging products, and (ii) the collection and sale of recovered paper
fiber.
Operating profit (loss) is net sales less operating expenses. Sales
between segments are made at approximately market price. Identifiable assets
by industry segment are those used in each segment at year-end. Eliminations
and other include general corporate assets, principally cash, securities,
property and equipment and expenses.
22
<PAGE> 24
3. EMPLOYEE STOCK OWNERSHIP PLAN
In February 1986, the Company guaranteed a $2,996,000 bank note on
behalf of its Employee Stock Ownership Plan (the "ESOP"), in which salaried
employees participate. The ESOP used the proceeds to purchase the Company's
common stock. In February 1991, the Company purchased the note for the
outstanding principal balance. Because the Company was the payee of the note,
such contributions did not require cash outlays. Compensation expense was
recognized as the note principal was retired. The note was retired during
fiscal 1994. During 1995, the board of directors of the Company approved an
ESOP contribution of $187,000 and the compensation expense was recognized in
the financial statements.
The following table presents the ESOP contributions for the years
ended June 30, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Compensation expense - loan repayment $ -- $ 186,000 $ 375,000
Compensation expense 187,000 -- --
Other 10,000 49,000 13,000
Trustee's fees 29,000 38,000 37,000
-----------------------------------------------------------------------------------------------------------------
Company contributions $ 226,000 $ 273,000 $ 425,000
-----------------------------------------------------------------------------------------------------------------
</TABLE>
4. ACQUISITION - HALLTOWN PAPERBOARD COMPANY
On June 30, 1995, the Company acquired substantially all of the assets
of Halltown Paperboard Company of Halltown, West Virginia for $26.2 million.
Halltown Paperboard Company manufactures products of 100% recycled paperboard
made from reclaimed paper fiber which are similar to the Company's other
recycled paperboard mills. Since the acquisition occurred on the last day of
the fiscal year, and only one day of results are included in the Company's
fiscal 1995 Consolidated Income Statements, proforma statements of income would
be essentially the same as the Company's Consolidated Income Statements for the
fiscal years 1995 and 1994. Therefore, no proforma statements of income are
necessary this fiscal year as they would distort year-to-year comparisons. The
acquisition was financed by a term bank loan. The Company accounted for this
acquisition as a purchase. The cost of the acquired assets which are reflected
in the Consolidated 1995 Balance Sheets has been allocated on the basis of
their estimated fair value. The allocation of the purchase price will be
finalized during fiscal 1996 upon completion of asset valuations. No goodwill
was recorded in this transaction.
5. MISCELLANEOUS OTHER INCOME (EXPENSE)
The components of miscellaneous other income (expense) for the years
ended June 30, 1995, 1994, and 1993 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gain on sale of net assets held for sale $ -- $ 101,000 $ --
Gain on sale of investments -- 41,000 --
Gross rental income 99,000 69,000 58,000
Other (73,000) 15,000 (191,000)
------------------------------------------------------------------------------------------------------------------
$ 26,000 $ 226,000 $ (133,000)
==================================================================================================================
</TABLE>
23
<PAGE> 25
6. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY
The Company's long-term debt and revolving credit facility consists of
the following:
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------------------------------------------------------------
<S> <C>
Term loan $ 28,000,000
Revolving credit facility --
-----------------------------------------------------------------------------------------------------------------
Total long-term debt 28,000,000
-----------------------------------------------------------------------------------------------------------------
Less: current maturities 3,160,000
Long-term debt, net of current maturities $ 24,840,000
=================================================================================================================
</TABLE>
Amounts of long-term maturities for each of the next seven fiscal
years 1996 through 2002, respectively, are: $3,160,000, $3,410,000,
$3,670,000, $3,955,000, $4,260,000, $4,595,000, and $4,950,000.
The Company obtained a $28,000,000 term loan from a commercial bank
for the purchase of Halltown Paperboard Company pursuant to a loan agreement
dated June 30, 1995. The term loan matures in June 2002. The Halltown facility
was used as collateral for the loan. The net book value of the assets
collateralized was $24,753,000 at year-end. The interest rate at year-end was
7.25%.
The Company also obtained a $7,000,000 line of credit from a
commercial bank pursuant to a loan agreement dated June 30, 1995. The
revolving credit facility is for two years, renewable every year for an
additional year. To date, no amounts have been borrowed against the revolving
credit facility.
Outstanding principal amounts on both the term loan and revolving
credit facility bear interest at a variable rate equal to (i) the London
Interbank Offered Rate, plus an agreed margin (ranging from 75 to 175 basis
points for the term loan and 50 to 150 points for the revolving credit
facility), which is to be established annually based upon the Company's
coverage of fixed charges or (ii) the bank's corporate prime rate, less 0.5%
for the term loan and less 0.75% for the revolving credit facility. Under the
term loan and revolving credit facility, the Company is required to adhere to
several financial covenants some of which involve working capital, current
ratio, net worth and fixed charge coverage minimums. The revolving credit
facility expires June 30, 1997.
7. PENSION AND OTHER BENEFIT PLANS
Republic Gypsum Company maintains pension plans (the "Plans") for its
hourly employees at its paperboard mills. Normal monthly retirement benefits
are based on negotiated benefit levels and the employee's years of credited
service. Contributions to the Plans are based on actuarial calculations of
amounts necessary to cover normal costs and to amortize prior service costs.
24
<PAGE> 26
<TABLE>
<CAPTION>
Years Ended June 30
-------------------------------------------------------------------------------------------------------------------------
1995 1994
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested Portion $ (1,417,000) $ (1,422,000)
Non-vested portion (78,000) (99,000)
-------------------------------------------------------------------------------------------------------------------------
Total (1,495,000) (1,521,000)
Effect of future compensation -- --
-------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation (1,495,000) (1,521,000)
Fair value of plan assets 1,417,000 1,204,000
-------------------------------------------------------------------------------------------------------------------------
Excess of projected benefit obligation
over fair value of plan assets (78,000) (317,000)
Unrecognized obligation at transition 64,000 92,000
Unrecognized prior service costs 245,000 310,000
Unrecognized net gain (178,000) (6,000)
Minimum liability (131,000) (396,000)
-------------------------------------------------------------------------------------------------------------------------
Net accrued pension cost $ (78,000) $ (317,000)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
The actuarial assumptions used to determine pension expense and the
funded status of the Plans were a settlement rate on benefit obligations of
7.25% for 1995 and 6.75% for 1994 and an expected long-term rate of return on
plan assets of 6.0% for 1995 and 1994. The unrecognized prior service costs
and unrecognized net gain are being amortized over approximately 15 years.
The assets of the Plans at June 30, 1995, consist mostly of bonds,
both corporate and government, and also stocks and cash or cash equivalents.
Pension expense included the following components:
<TABLE>
<CAPTION>
Years Ended June 30
-------------------------------------------------------------------------------------------------------------------------
1995 1994
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Benefits earned by employees $ 63,000 $ 72,000
Interest cost on projected benefit obligation 101,000 84,000
Actual return on plan assets (107,000) 30,000
Net amortization and deferral 69,000 (69,000)
-------------------------------------------------------------------------------------------------------------------------
Net pension cost $ 126,000 $ 117,000
=========================================================================================================================
</TABLE>
Effective December 31, 1994, Republic Gypsum Company changed the
retirement benefits at its Commerce City, Colorado paperboard mill, resulting
in the freezing of benefits under the defined pension plan. The Duke, Oklahoma
facility employee savings plan was also discontinued on December 31, 1994 and
benefits were frozen. Such benefits will be paid in accordance with the terms
of each plan. These plans were replaced with a voluntary 401(K) Plan (the
"401(K) Plan"). Additionally, the same 401(K) Plan was installed at the
Company's Topeka, Kansas, and Kansas City, Missouri facility locations on
January 1, 1995.
25
<PAGE> 27
The participants in the 401(K) Plan include eligible employees at the
above locations, as well as all salaried employees company-wide. Although there
is one 401(K) Plan for all Company locations, there are various employee and
employer contribution limits, employer matching percentages, and employer
vesting schedules for each location.
Contributions to the 401(K) and employee savings plan were:
<TABLE>
<CAPTION>
Years Ended June 30
-------------------------------------------------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee savings plan $ 15,000 $ 28,000 $ 40,000
401(K) Plan contributions 354,000 225,000 --
-------------------------------------------------------------------------------------------------------------
Total contributions $ 369,000 $ 253,000 $ 40,000
=============================================================================================================
</TABLE>
8. OTHER COMMITMENTS AND CONTINGENT LIABILITIES
In connection with the Company's preparation for a warehouse addition
to its paperboard mill located in Commerce City, Colorado, a suburb of Denver,
the Company discovered and has been investigating the presence of subsurface
petroleum hydrocarbons. The Company retained an environmental consultant who
concluded that fuel oil, jet fuel and gasoline additives had migrated in the
subsurface of the Company's property from an adjacent property. The Company
and the adjacent property owner have jointly sponsored additional
investigations, and discussions between the parties continue. The Company has
completed the construction of the warehouse addition under approval of the
Colorado Department of Health.
At this time, the Company has not ascertained the future liability, if
any, of the above matter. Environmental expenditures directly related to this
matter were $32,000 in fiscal 1995, $37,000 in fiscal 1994, and $111,000 in
fiscal 1993. These costs were included in selling and administrative expenses.
Due to the complexity of the environmental laws, rules and policies currently
applicable to the Company and the uncertainty about future changes in such laws
and regulations, the Company maintains accounting reserves for future
unexpected expenses of the nature and magnitude incurred during the past three
years.
9. STOCK OPTIONS
Options have been granted to key employees at prices which represent
fair market value at dates of grant, have terms ranging from five to ten years
and are exercisable at 20% to 25% per year on a cumulative basis beginning one
year from date of grant. In addition, some grants are only exercisable if
certain Company performance targets are attained. The Company is authorized to
grant 420,000 shares of common stock to key employees in the 1989 Plan, and
105,000 shares to directors in the Director Plan. A summary of transactions
for the years ended June 30, 1995 and 1994, is set forth in the following
table:
26
<PAGE> 28
<TABLE>
<CAPTION>
Shares Rounded to Thousands 1979 Plan 1989 Plan Director Plan
----------------------------------------------------------------------------------------------------------------------
Number Option Number Option Number Option
of price of price of price
shares range shares range shares range
======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Options:
Outstanding at
June 30, 1993 2,000 $ 5.23 54,000 $ 4.75 - 5.50 63,000 $ 3.75 - 5.11
Granted -- -- 102,000 9.00 11,000 13.88
Cancelled -- -- (3,000) 4.88 - 5.50 -- --
Expired -- -- -- -- -- --
Exercised (2,000) 5.23 (3,000) 4.76 - 5.50 -- --
----------------------------------------------------------------------------------------------------------------------
Outstanding at
June 30, 1994 -- -- 150,000 $ 4.75 - 9.00 74,000 $ 3.75 -13.88
Granted -- -- 65,000 8.88 -- --
Cancelled -- -- (5,000) 5.50 - 9.00 -- --
Expired -- -- -- -- -- --
Exercised -- -- (19,000) 4.88 - 9.00 (3,000) 5.12
----------------------------------------------------------------------------------------------------------------------
Outstanding at
June 30, 1995 -- -- 191,000 $ 4.76 - 9.00 71,000 $ 3.75 - 13.88
Exercisable at
June 30, 1995 -- -- 38,000 61,000
======================================================================================================================
</TABLE>
The 1979 Stock Option Plan terminated June 30, 1989. All remaining options
expired in October 1993.
The 1989 Long-Term Incentive Plan (the "Incentive Plan") was approved
by stockholders at the Company's Annual Meeting held October 26, 1989. The
Incentive Plan is unlimited in duration and, unless it is modified or
terminated, will remain in effect as long as any options, restricted stock
awards, or performance unit awards remain outstanding. The Incentive Plan is
administered by the Board of Directors.
On August 7, 1989, the Board of Directors approved the Non-Employee
Director Stock Option Plan (the "Director Plan"). Each non-employee member of
the Board of Directors was granted an option to purchase 10,500 shares of
Common Stock. The options do not have fixed terms but will automatically
terminate 12 months after the director ceases to be a director by reason of his
death or permanent disability or 6 months after he ceases to be a director for
any other reason. On the date any new non-employee director becomes a member
of the Board of Directors, such director will be granted an option (exercisable
after completion of three calendar years of service on the Board of Directors)
to purchase 10,500 shares of Common Stock at a price equal to the fair market
value on the date of grant. The Director Plan is administered by a committee
of the Board of Directors composed of all employee directors.
On May 6, 1986, the Board of Directors of the Company declared a
dividend distribution of one Common Stock Share Purchase Right (the "Right") on
each outstanding share of its common stock. Each Right will entitle
stockholders to buy one share of common stock at an exercise price of $38.10.
The Rights are not exercisable until a person or group acquires 35% or more of
the Company's common stock or announces a tender offer which, if consummated,
would result in ownership by a person or group of 35% or more of the common
stock. The Rights are non-voting and will expire on May 16, 1996, unless they
are redeemed at an earlier date. The Company will be entitled to redeem the
Rights at five cents per Right at any time before ten days after a person or
group has acquired a 35% position. Board members not affiliated with such an
acquiring person or group may also extend the time period during which the
Rights may be redeemed under certain limited circumstances.
27
<PAGE> 29
If the Company is acquired in a merger or other business combination
after the acquisition of a 35% position by a person or group, each Right will
entitle its holder to purchase, at the Right s exercise price, that number of
the acquiring company's common shares having a market value at that time of
twice the Right's exercise price. The Rights also provide for protection
against self-dealing transactions by a control stockholder.
10. INCOME TAXES
The components of the provision for income taxes are:
<TABLE>
<CAPTION>
1995 1994 1993
====================================================================================================================
<S> <C> <C> <C>
Current:
Federal $ 5,631,000 $ 3,651,000 $ 1,020,000
State 549,000 398,000 78,000
--------------------------------------------------------------------------------------------------------------------
6,180,000 4,049,000 1,098,000
--------------------------------------------------------------------------------------------------------------------
Deferred - federal 1,301,000 648,000 117,000
--------------------------------------------------------------------------------------------------------------------
Total Provision $ 7,481,000 $ 4,697,000 $ 1,215,000
====================================================================================================================
</TABLE>
The differences between income taxes computed using the statutory
federal income tax rate and that shown in the Consolidated Statements of Income
are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
====================================================================================================================
<S> <C> <C> <C>
Computed federal tax at statutory rate $ 6,705,000 $ 4,229,000 $ 1,513,000
Tax credits realized -- -- (310,000)
State taxes, net of federal tax benefit 356,000 263,000 51,000
Other 420,000 205,000 (39,000)
--------------------------------------------------------------------------------------------------------------------
$ 7,481,000 $ 4,697,000 $ 1,215,000
====================================================================================================================
</TABLE>
Deferred income taxes reflect the tax consequences on future years of
temporary differences between the tax basis of assets and liabilities and their
financial reporting basis.
As of June 30, 1995 and 1994, deferred tax assets (liabilities) as
determined under the provisions of SFAS 109, were comprised of the following:
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1994
====================================================================================================================
<S> <C> <C>
Gross deferred tax liability:
Depreciation/amortization $ (5,765,000) $ (4,492,000)
Gross deferred tax assets:
Employee benefit accruals 125,000 145,000
Accounts receivable reserves 209,000 80,000
Other accrued reserves 411,000 284,000
Other 4,000 268,000
--------------------------------------------------------------------------------------------------------------------
Gross deferred assets 749,000 777,000
--------------------------------------------------------------------------------------------------------------------
Deferred tax assets valuation reserve -- --
--------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ (5,016,000) $ (3,715,000)
====================================================================================================================
</TABLE>
The Company does not provide for a valuation reserve on deferred tax
assets based on the assumption of future taxable income.
28
<PAGE> 30
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", was issued in May 1993 for fiscal years beginning after December
15, 1993. The Company adopted the new standard effective July 1, 1994. The
effect to the Company by adopting the new standard was insignificant. The
following table summarizes the carrying amounts and estimated fair values of
the Company's financial instruments as of June 30, 1995.
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
================================================================================================================
<S> <C> <C>
Cash and cash equivalents $ 3,631,000 $ 3,631,000
----------------------------------------------------------------------------------------------------------------
Current investments and marketable securities 2,500,000 2,500,000
----------------------------------------------------------------------------------------------------------------
Long-term investments 122,000 122,000
----------------------------------------------------------------------------------------------------------------
Notes receivable 142,000 154,000
----------------------------------------------------------------------------------------------------------------
Long-term debt 28,000,000 28,000,000
----------------------------------------------------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument:
CASH AND CASH EQUIVALENTS
The estimated fair value of current investments and marketable
securities is based on quoted market prices for those or similar investments.
CURRENT INVESTMENTS AND MARKETABLE SECURITIES
The estimated fair value of current investments and marketable
securities is based on quoted market prices for those or similar investments.
LONG-TERM INVESTMENTS
The estimated fair value of long-term investments is based on quoted
market prices for those or similar investments.
NOTES RECEIVABLE
The estimated fair value of notes receivable is based on discounting
future cash flows using current interest rates at which similar loans would be
made to borrowers with similar credit ratings for the same remaining
maturities.
LONG-TERM DEBT
All the Company's long-term debt is at a short-term variable rate;
therefore the carrying value approximates market prices.
29
<PAGE> 31
12. SELECTED QUARTERLY FINANCIAL DATA
The following tabulation presents selected unaudited results of
operations for the years ended June 30, 1995 and 1994 (in thousands, except for
per share data):
<TABLE>
<CAPTION>
Quarters ended
======================================================================================================================
Sept. 30 Dec. 31 Mar. 31 June 30
======================================================================================================================
<S> <C> <C> <C> <C>
1995
Gross Sales $ 24,781 $ 26,297 $ 30,881 $ 30,441
Less freight and discounts 3,928 3,951 4,350 3,758
----------------------------------------------------------------------------------------------------------------------
Net sales $ 20,853 $ 22,346 $ 26,531 $ 26,683
======================================================================================================================
Operating profit $ 4,364 $ 4,823 $ 5,264 $ 4,557
Net income 2,676 2,846 3,232 2,923
Income per common and common
equivalent share 0.25 0.27 0.30 0.27
======================================================================================================================
1994
Gross sales $ 17,772 $ 18,116 $ 20,427 $ 20,816
Less freight and discounts 3,294 3,299 3,623 3,715
----------------------------------------------------------------------------------------------------------------------
Net sales $ 14,478 $ 14,817 $ 16,804 $ 17,101
======================================================================================================================
Operating profit $ 2,320 $ 2,353 $ 4,033 $ 3,255
Net income 1,532 1,474 2,620 2,113
Income per common and common
equivalent share 0.14 0.14 0.25 0.20
======================================================================================================================
</TABLE>
30
<PAGE> 32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Republic Gypsum Company:
We have audited the accompanying consolidated balance sheets of
Republic Gypsum Company (a Delaware corporation) and subsidiaries as of June
30, 1995 and 1994, and the related consolidated statements of income, cash
flows and stockholders equity for each of the three years in the period ended
June 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Republic Gypsum
Company and subsidiaries as of June 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
August 8, 1995
31
<PAGE> 33
REPORT OF MANAGEMENT
The management of Republic Gypsum Company is responsible for preparing
the consolidated financial statements and other information contained in this
report. Management believes that the consolidated financial statements fairly
reflect, in all material respects, the form and substance of events and
transactions and that the consolidated financial statements present the
Company's financial position and results of operations in conformity with
generally accepted accounting principles. Management has included in the
Company's consolidated financial statements amounts that are based on informed
judgments and estimates which it believes are reasonable under the
circumstances.
Republic Gypsum Company maintains a system of internal accounting
policies, procedures and controls intended to provide reasonable assurance, at
appropriate cost, that transactions are processed in accordance with Company
authorization and are properly recorded and reported in the consolidated
financial statements, and that assets are adequately safeguarded.
Arthur Andersen LLP, the Company's independent public accountants,
audits the Company's consolidated financial statements in accordance with
generally accepted auditing standards, which provide the basis of its report on
the consolidated financial statements.
The Board of Directors of the Company has an Audit Committee composed
of outside directors. The Committee meets with financial management and the
independent public accountants to review internal accounting controls and
accounting, auditing and financial reporting matters. In addition, Arthur
Andersen LLP has full and free access to the Audit Committee, without
management present, to discuss the results of its audits, the adequacy of the
Company's internal accounting controls and the quality of its financial
reporting.
Phil Simpson Doyle R. Ramsey
Chairman of the Board Vice President-Finance and
and President Chief Financial Officer
August 24, 1995 August 24, 1995
32
<PAGE> 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The sections entitled "Nominees for Directors" and "Compliance with
Section 16(a) of the Exchange Act" appearing in the Registrant's proxy
statement for the annual meeting of the stockholders to be held on October 26,
1995 sets forth certain information with respect to the directors of the
Registrant and is incorporated herein by reference. Certain information with
respect to persons who are or may be deemed to be executive officers of the
Registrant is set forth under the caption "Executive Officers of the
Registrant" in Item 4A of Part I of this report and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The sections entitled "Executive Compensation" and "Compensation of
Directors" appearing in the Registrant's proxy statement for the annual meeting
of stockholders to be held on October 26, 1995 sets forth certain information
with respect to the compensation of management of the Registrant and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
There is incorporated herein by reference the information in the
Company's 1995 Proxy Statement regarding beneficial ownership of shares of the
Company's Common Stock as of August 31, 1995 by each person known by the
Company to own beneficially more than 5% of the outstanding shares of such
Common Stock, by each director of the Company, and by certain executive
officers of the Company and by all directors and executive officers as a group
under the caption "Security Ownership".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the captions "Nominees for Directors" in the
Company's 1995 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
See Index to Financial Statements and Schedules of Registrant contained in Item
8, page 16.
2. Financial Statement Schedules
See Index to Financial Statements and Schedules of Registrant contained in Item
8, page 16.
3. The following documents are filed or incorporated by
reference as exhibits to this Report as required by Item 601 of Regulation S-K:
3(a) Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1988, SEC File Number 1-7210).
3(b) Bylaws of the Company, as amended (incorporated by reference
to Exhibit 3(b) to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1994, SEC File Number
1-7210).
33
<PAGE> 35
4(a) Revolving and Term Credit Agreements (with related Promissory
Notes, Security Agreement, Mortgage, Deed of Trust, Guaranties
attached as Exhibits hereto) dated as of June 30, 1995, among
Republic Gypsum Company, Republic Paperboard Company, and
Republic Paperboard Company of West Virginia and Boatmen's
First National Bank of Kansas City (incorporated by reference
to Exhibit 4(i) of the Company's current report on Form 8-K
filed July 17, 1995, SEC File Number 1-7210).
10(a) The 1989 Long-Term Incentive Plan (incorporated by reference to
Exhibit 10(b) to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30,1989, SEC File Number 1-7210),
which is a "management contract or compensatory plan or
arrangement."
10(b) Non-Employee Director Stock Option Plan (incorporated by
reference to Exhibit 10(c) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1989, SEC File
Number 1-7210), which is a "management contract or
compensatory plan or arrangement."
10(c) Non-Employee Directors' Retirement Compensation Arrangement
(incorporated by reference to the description set forth under
the caption "Executive Compensation - Director Retirement
Compensation Arrangement" in the Company's Proxy Statement for
the Annual Meeting of Stockholders held October 26, 1989, SEC
File Number 1-7210), which is a "management contract or
compensatory plan or arrangement."
10(d) Tenancy in Common Agreement dated December 29, 1983, between
Packaging Corporation of America and Republic Paperboard
Company (incorporated by reference to Exhibit 10(d) to the
Company's Annual Report on 10-K for the year ended June 30,
1994, SEC File Number 1-7210).
10(e) Shared Facilities and Shared Service Agreement dated December
28, 1983, between Packaging Corporation of America and Republic
Paperboard Company (incorporated by reference to Exhibit 10(e)
to the Company's Annual Report on 10-K for the year ended June
30, 1994, SEC File Number 1-7210).
10(f) Key Employee Continuation Plan (incorporated by reference to
Exhibit 10(i) to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1992, SEC File Number 1-7210),
which is a "management contract or compensatory plan or
arrangement".
10(g) Asset Purchase Agreement, dated as of June 30, 1995, between
Old Dominion Box Company, Inc., Halltown Paperboard Company,
Dillard Investment Corporation, and Republic Gypsum Company and
Republic Paperboard Company of West Virginia (incorporated by
reference to Exhibit 2(i) and 2(ii) to the Company's Current
Report on Form 8-K, dated July 17, 1995, SEC File Number
1-7210).
21 Significant Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants.
24 Power of Attorney on Page 35 of this Report.
27 Article 5 of Regulation S-X.
(b) Reports on Form 8-K. The Company filed a form 8-K, dated July
17, 1995, stating that on June 30, 1995, the Company acquired substantially all
the assets of Halltown Paperboard Company, Halltown, West Virginia. The form
8- K includes Item 2, Acquisition or Disposition of Assets, and Item 7, Pro
Forma Financial Information (and Exhibits) in support of Item 2 and the audited
financials of Halltown Paperboard Company.
34
<PAGE> 36
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned directors
and officers of Republic Gypsum Company hereby constitutes Phil Simpson,
Stephen L. Gagnon and Doyle R. Ramsey his true and lawful attorneys-in-fact and
agents, for his and in his name, place and stead, in any and all capacities,
with full power to act alone, to sign any and all amendments to this Annual
Report on Form 10-K, and to file each such amendment to the Report, with all
exhibits thereto, and any and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto said
attorneys-in-fact and agents full power and authority to do and perform any and
all acts and things requisite and necessary to be done in and about the
premises as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has fully caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: September 11, 1995
REPUBLIC GYPSUM COMPANY
By: /s/ Phil Simpson
------------------------------------
Phil Simpson, Chairman of the
Board and President
35
<PAGE> 37
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Phil Simpson Chairman of the Board, September 11, 1995
------------ President and Director
(principal executive
officer)
/s/ Stephen L. Gagnon Executive Vice September 11, 1995
----------------- President and
Director
/s/ Doyle R. Ramsey Vice President and September 12, 1995
--------------- Chief Financial
Officer (principal
financial officer)
/s/ John W. McCracken Controller (principal September 12, 1995
----------------- accounting officer)
/s/ Bert A. Nelson Director September 11, 1995
--------------
/s/ Talbot Rain Director September 11, 1995
-----------
/s/ Gerald L. Ray Director September 11, 1995
-------------
/s/ Robert F. Sexton Director September 11, 1995
----------------
/s/ David P. Simpson Director September 11, 1995
----------------
/s/ L. L. Wallace Director September 11, 1995
-------------
/s/ David B. Yarbrough Director September 11, 1995
------------------
</TABLE>
36
<PAGE> 38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: The Stockholders and Board of Directors of
Republic Gypsum Company
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Republic Gypsum Company and subsidiaries
included in this Form 10-K and have issued our report thereon dated August 8,
1995. Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements and consolidated financial statement
schedule is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic consolidated financial statements. This schedule has
been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas
August 8, 1995
S-1
<PAGE> 39
REPUBLIC GYPSUM COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years ended June 30, 1993, 1994, and 1995
<TABLE>
<CAPTION>
Additions Charged to
Balance at ------------------------ Balance
beginning Cost and Other at end
of year expenses accounts Deductions (A) of year
---------- --------- ---------- -------------- --------
<S> <C> <C> <C> <C> <C>
1993:
Allowance for
doubtful
accounts $290,000 $370,000 $ -- $283,000 $377,000
======== ======== ========== ======== ========
1994:
Allowance for
doubtful
accounts $377,000 $159,000 $ -- $281,000 $255,000
======== ======== ========== ======== ========
1995:
Allowance for
doubtful
accounts $255,000 $428,000 $ -- $ 69,000 $614,000
======== ======== ========== ========= ========
</TABLE>
(A) Uncollectible accounts charged off, net of recoveries.
<PAGE> 40
Index to Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
3(a) Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1988, SEC File Number 1-7210).
3(b) Bylaws of the Company, as amended (incorporated by reference
to Exhibit 3(b) to the Company s Annual Report on Form 10-K
for the fiscal year ended June 30, 1994, SEC File Number
1-7210).
4(a) Revolving and Term Credit Agreements (with related Promissory
Notes, Security Agreement, Mortgage, Deed of Trust, Guaranties
attached as Exhibits hereto) dated as of June 30, 1995, among
Republic Gypsum Company, Republic Paperboard Company, and
Republic Paperboard Company of West Virginia and Boatmen s
First National Bank of Kansas City (incorporated by reference
to Exhibit 4(i) of the Company s current report on Form 8-K
filed July 17, 1995, SEC File Number 1-7210).
10(a) The 1989 Long-Term Incentive Plan (incorporated by reference to
Exhibit 10(b) to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30,1989, SEC File Number 1-7210),
which is a "management contract or compensatory plan or
arrangement."
10(b) Non-Employee Director Stock Option Plan (incorporated by
reference to Exhibit 10(c) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1989, SEC File
Number 1-7210), which is a "management contract or
compensatory plan or arrangement."
10(c) Non-Employee Directors' Retirement Compensation Arrangement
(incorporated by reference to the description set forth under
the caption "Executive Compensation - Director Retirement
Compensation Arrangement" in the Company's Proxy Statement for
the Annual Meeting of Stockholders held October 26, 1989, SEC
File Number 1-7210), which is a "management contract or
compensatory plan or arrangement."
10(d) Tenancy in Common Agreement dated December 29, 1983, between
Packaging Corporation of America and Republic Paperboard
Company (incorporated by reference to Exhibit 10(d) to the
Company s Annual Report on 10-K for the year ended June 30,
1994, SEC File Number 1-7210).
10(e) Shared Facilities and Shared Service Agreement dated December
28, 1983, between Packaging Corporation of America and Republic
Paperboard Company (incorporated by reference to Exhibit 10(e)
to the Company s Annual Report on 10-K for the year ended June
30, 1994, SEC File Number 1-7210).
10(f) Key Employee Continuation Plan (incorporated by reference to
Exhibit 10(i) to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1992, SEC File Number 1-7210),
which is a "management contract or compensatory plan or
arrangement".
10(g) Asset Purchase Agreement, dated as of June 30, 1995, between
Old Dominion Box Company, Inc., Halltown Paperboard Company,
Dillard Investment Corporation, and Republic Gypsum Company and
Republic Paperboard Company of West Virginia (incorporated by
reference to Exhibit 2(i) and 2(ii) to the Company s Current
Report on Form 8-K, dated July 17, 1995, SEC File Number
1-7210).
21 Significant Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants.
24 Power of Attorney on Page 35 of this Report.
27 Article 5 of Regulation S-X.
(b) Reports on Form 8-K. The Company filed a form 8-K, dated July
1995, stating that on June 30, 1995, the Company acquired substantially all
assets of Halltown Paperboard Company, Halltown, West Virginia. The form
K includes Item 2, Acquisition or Disposition of Assets, and Item 7, Pro
ma Financial Information (and Exhibits) in support of Item 2 and the audited
ancials of Halltown Paperboard Company.
<PAGE> 1
Exhibit 21
SIGNIFICANT SUBSIDIARIES OF REGISTRANT
The following list indicates each subsidiary of the Company; all are
wholly-owned by the Company, except for the Hollis & Eastern Railroad Company,
of which the Company owns 99.3% of the Common Stock. Republic Paperboard
Company of West Virginia is a subsidiary of Republic Paperboard Company.
Republic Paperboard Company of West Virginia does business under the name
Halltown Paperboard Company. Each other subsidiary does business under its
corporate name. The Consolidated financial statements filed herewith include
the accounts of each of such subsidiaries.
<TABLE>
<CAPTION>
Subsidiaries State of Incorporation
------------ ----------------------
<S> <C>
Republic Paperboard Company Kansas
Republic Paperboard Company of West Virginia West Virginia
Hollis & Eastern Railroad Company Oklahoma
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K and incorporated by reference into the
Company's previously filed Post-Effective Amendment No. 5 to the Form S-8
Registration Statement File No. 2-69991, into the Company's previously filed
Post-Effective Amendment No. 3 to the Form S-8 Registration Statement File No.
2-66025, into the Company's previously filed Form S-8 Registration Statement
File No. 33-37366 and into the Company's previously filed Form S-8 Registration
Statement File No. 33-37367.
ARTHUR ANDERSEN LLP
Dallas, Texas,
September 11, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 3,631,000
<SECURITIES> 2,500,000
<RECEIVABLES> 11,837,000
<ALLOWANCES> 614,000
<INVENTORY> 8,257,000
<CURRENT-ASSETS> 27,028,000
<PP&E> 102,632,000
<DEPRECIATION> 35,020,000
<TOTAL-ASSETS> 95,442,000
<CURRENT-LIABILITIES> 13,508,000
<BONDS> 0
<COMMON> 10,560,000
0
0
<OTHER-SE> 40,009,000
<TOTAL-LIABILITY-AND-EQUITY> 95,442,000
<SALES> 26,683,000
<TOTAL-REVENUES> 26,683,000
<CGS> 22,126,000
<TOTAL-COSTS> 22,126,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,595,000
<INCOME-TAX> 1,672,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,923,000
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
