<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . . . . . . . . . to . . . . . . . . .
Commission file number 1-7210
REPUBLIC GROUP INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-1155922
-------- ----------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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)
</TABLE>
316-727-2700
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
On December 31, 1995, there were 10,577,491 shares of the registrant's Common
Stock, $1.00 par value outstanding.
<PAGE> 2
REPUBLIC GROUP INCORPORATED
FORM 10-Q
Quarterly Report
For the Quarter Ended December 31, 1995
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Reference is made to pages 2 through 7 hereof which set forth
certain consolidated financial statements of Registrant in
accordance with Part I of Form 10-Q.
The consolidated financial statements include the accounts of
the Registrant and its subsidiaries, Republic Paperboard
Company, Halltown Paperboard Company, Republic Gypsum Company,
Hollis & Eastern Railroad Company, Delta Roofing Mills, Inc.
and LaPorte Minerals Corporation.
<PAGE> 3
REPUBLIC GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Quarters Ended December 31, 1995 and 1994 (Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Gross sales ........................................ $ 33,955,000 $ 26,297,000
Less freight and discounts ............................. 4,227,000 3,951,000
------------- -------------
Net sales .......................................... 29,728,000 22,346,000
Costs and expenses:
Cost of sales .................................... 19,144,000 15,251,000
Selling and administrative expenses .................. 3,350,000 2,272,000
------------- -------------
22,494,000 17,523,000
------------- -------------
Operating profit ..................................... 7,234,000 4,823,000
Other income (expense), net ............................ (351,000) 42,000
------------- -------------
Income before income taxes ............................ 6,883,000 4,865,000
Provision for income taxes ............................. 2,753,000 2,019,000
------------- -------------
Net income ......................................... $ 4,130,000 $ 2,846,000
============= =============
Net income per share ................................. $ 0.39 $ 0.27
============= =============
Dividends per share .................................. $ .075 $ .06
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
REPUBLIC GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended December 31, 1995 and 1994 (Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Gross sales ........................................ $ 70,578,000 $ 51,078,000
Less freight and discounts ............................. 8,578,000 7,879,000
------------ ------------
Net sales .......................................... 62,000,000 43,199,000
Costs and expenses:
Cost of sales .................................... 42,566,000 29,528,000
Selling and administrative expenses .................. 6,685,000 4,492,000
------------ ------------
49,251,000 34,020,000
------------ ------------
Operating profit ..................................... 12,749,000 9,179,000
Other income (expense), net ............................ (766,000) 66,000
------------ ------------
Income before income taxes ............................ 11,983,000 9,245,000
Provision for income taxes ............................. 4,685,000 3,723,000
------------ ------------
Net income ......................................... $ 7,298,000 $ 5,522,000
============ ============
Net income per share ................................. $ .69 $ 0.52
============ ============
Dividends per share .................................. $ .135 $ .11
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
REPUBLIC GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and June 30, 1995
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1995 1995
-------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................. $ 6,145,000 $ 3,631,000
Investments and marketable securities, at market ............... 5,425,000 2,500,000
Accounts receivable, net .................................. 11,472,000 11,223,000
Income tax refunds receivable .............................. 101,000 177,000
Inventories:
Finished goods ......................................... 2,203,000 2,752,000
Raw materials and supplies ................................ 5,106,000 5,505,000
-------------- -------------
7,309,000 8,257,000
Prepaid expenses ........................................ 375,000 491,000
Net assets held for sale .................................... 26,000 --
Deferred income taxes ..................................... 749,000 749,000
-------------- -------------
Total current assets ...................................... 31,602,000 27,028,000
Property, plant and equipment, at cost ......................... 106,343,000 102,632,000
Less accumulated depreciation, amortization
and depletion ........................................... 37,809,000 35,020,000
-------------- -------------
68,534,000 67,612,000
Other assets .............................................. 791,000 802,000
-------------- -------------
Total assets .............................................. $ 100,927,000 $ 95,442,000
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ 5,872,000 $ 7,441,000
Accrued payroll and employee benefits ....................... 2,056,000 1,810,000
Income tax payable ....................................... 1,828,000 95,000
Other current liabilities .................................... 1,634,000 1,002,000
Current portion of long-term debt 3,280,000 3,160,000
-------------- -------------
Total current liabilities .................................. 14,670,000 13,508,000
Long-term debt due after one year ............................ 23,170,000 24,840,000
Deferred income taxes ..................................... 5,765,000 5,765,000
Other long-term liabilities ................................... 764,000 760,000
Stockholders' equity:
Common stock, $1 par value ............................... 10,579,000 10,560,000
Additional paid-in capital .................................. 12,407, 000 12,308,000
Retained earnings ........................................ 33, 572,000 27,701,000
-------------- -------------
Total stockholders' equity ................................ 56,558,000 50,569,000
-------------- -------------
Total liabilities and stockholders' equity ....................... $ 100,927,000 $ 95,442,000
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
REPUBLIC GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1995 and 1994 (Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 7,298,000 $ 5,522,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, amortization and depletion .................. 2,879,000 1,658,000
Write down of property, plant and equipment ............... -- 20,000
Deferred income taxes ................................. -- 44,000
Loss on sale of assets ............................... 2,000 8,000
Changes in current assets and liabilities:
Accounts receivable .................................. (249,000) (1,706,000)
Income tax refunds receivable 76,000 --
Inventories ......................................... 948,000 (1,102,000)
Prepaid expenses ..................................... 116,000 (109,000)
Accounts payable and accrued liabilities .................. (691,000) 1,216,000
Income taxes payable ................................. 1,733,000 460,000
Other assets and liabilities .............................. 11,000 29,000
------------ -----------
Net cash provided by operating activities .................... 12,123,000 6,040,000
Cash flows from investing activities:
Additions to property, plant and equipment ................. (3,996, 000) (2,729,000)
Proceeds from sale of property, plant and equipment ........... 168,000 --
Purchases of investments ................................ (2,950,000) (500,000)
Proceeds from sale of investments ......................... 25,000 500,000
Other ............................................... 3,000 --
------------ -----------
Net cash used by investing activities ....................... (6,750, 000) (2,729,000)
Cash flows from financing activities:
Dividends paid ....................................... (1,427,000) (1,160,000)
Reduction of long-term debt .............................. (1,550,000) --
Stock options exercised ................................. 118,000 76,000
------------ -----------
Net cash used by financing
activities ............................................ (2,859,000) (1,084,000)
------------ -----------
Net increase in cash and cash equivalents .................... 2,514,000 2,227,000
Cash and cash equivalents at beginning of year ................ 3,631,000 910,000
------------ -----------
Cash and cash equivalents at end of period ................... $ 6,145,000 $ 3,137,000
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
REPUBLIC GROUP INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1995 and 1994 (Unaudited)
(1) In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements reflect all adjustments, of a normal
recurring nature, to fairly present the Company's financial position as of
December 31, 1995, and the results of operations and cash flows for the periods
ended December 31, 1995 and 1994. The operating results for the interim
periods are not necessarily indicative of the results to be expected for a full
year. It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Form 10-K as of June 30, 1995.
(2) Per share computations are based on the weighted average number of common
shares outstanding during each period. Earnings per common and common
equivalent share, on a fully diluted basis, are substantially the same as
primary earnings per share as presented. The number of shares used in the per
share computations were 10,666,000 and 10,647,000 for the three month and six
month periods ended December 31, 1995 and 10,602,000 and 10,590,000 for the
comparable 1994 periods.
(3) In connection with its preparations 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.
(4) Reclassification: Certain prior year balances may have been reclassified
to conform with current year presentation.
(5) On June 30, 1995 the Company purchased substantially all of the assets of
Halltown Paperboard Company, Halltown, West Virginia from Old Dominion Box
Company for $26.2 million. The following unaudited pro forma information shows
consolidated operating results for the period presented as though the Company's
Halltown operations had been operating at the beginning of the period:
<TABLE>
<CAPTION>
Six Months Ended December 31, 1995 and 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $62,000,000 $55,273,000
Net income 7,298,000 5,735,000
Net income per share .69 .54
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(6) Subsequent Event: On January 23, 1996, the Company declared a cash
dividend of $.075 per share payable to the stockholders of record on February
29, 1996 to be paid on March 15, 1996. Dividend payments of approximately
$793,000 will be paid out of existing cash balances.
6
<PAGE> 8
(7) Income Taxes: The provisions for income taxes are based on estimated
annual effective tax rates, which differ from the federal statutory rates
principally due to state income taxes and certain non-deductible expenses.
These estimates are updated quarterly.
7
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operation
Quarters Ended December 31, 1995 and 1994. Consolidated net income for the
second quarter ended December 31, 1995 was $4,130,000 or $.39 per share on net
sales of $29,728,000 compared to net income of $2,846,000 or $.27 per share on
net sales of $22,346,000 for the same quarter one year ago. The 33% increase
in quarterly consolidated net sales and 45% increase in net income were
primarily attributable to a 54% increase in shipments of recycled paperboard
coupled with a 13% increase in net selling prices of recycled paperboard
products.
Operating profits were $7,234,000 for the quarter ended December 31, 1995
compared to $4,823,000 in 1994. The acquisition of Halltown Paperboard Company
in June of 1995 significantly contributed to the increases in consolidated net
income, sales, and operating profits. Halltown Paperboard Company accounted
for approximately four-fifths of the increase in recycled paperboard shipments
from quarter to quarter. The five-year capital expansion program begun in 1992
to increase the capacity of the Company's Hutchinson, Kansas and Commerce City,
Colorado recycled paperboard mills by approximately one-third also contributed
favorably to the improved results.
The Company's recycled paperboard mills experienced an 8% reduction in
variable raw material costs on a per unit basis in the quarter ended December
31, 1995 from the 1994 quarter. This reduction was primarily attributable to
lower recovered paper fiber costs. Lower recovered paper fiber prices
negatively impacted the operating results of the Company's recycling centers.
The gypsum wallboard segment operated at near capacity during the quarter
just ended. Shipments were 4% greater than in the same quarter of 1994. Net
selling prices of delivered gypsum wallboard products were relatively stable
from quarter to quarter.
Six Months Ended December 31, 1995 and 1994. Consolidated net income for
the six months ended December 31, 1995 was $7,298,000 or $.69 per share on net
sales of $62,000,000, as compared to consolidated net income of $5,522,000 or
$.52 per share on net sales of $43,199,000 for the same period in 1994.
Operating profits were $12,749,000 for the six months ended December 31,
1995 and $9,179,000 in operating profits for the comparable period in 1994. The
19.5% operating margin realized in the recycled paperboard segment approximated
the historical average for that segment prior to last fiscal year when margins
were severely restricted due to a sharp rise in reclaimed paper costs.
The causes for the 32% increase in consolidated net income and 44% increase
in net sales were similar to those stated for the quarterly improvements.
Shipments of recycled paperboard were 56% higher during the 1995 period than
the comparable period of 1994. The year to date average net selling price for
recycled paperboard was 22% higher in 1995 than 1994, however, raw material
costs at the Company's recycled paperboard mills also were 19% higher during
the six months ended December 31, 1995 due to higher recovered paper fiber
costs.
8
<PAGE> 10
Environmental Matters
In connection with its preparations 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.
Liquidity and Capital Resources
The following is a summary of certain financial statistics related to
the liquidity of the Company at December 31, 1995, and at June 30, 1995.
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
------------ ------------
<S> <C> <C>
Working Capital $ 16,932,000 $ 13,520,000
Current Ratio 2.2:1 2.0:1
Cash and investments $ 11,570,000 $ 6,131,000
Long-term debt (including current portion) $ 26,450,000 $ 28,000,000
</TABLE>
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 is to be repaid in semiannual installments
over the next seven years maturing in 2002. At the same time, the Company
entered into a two year, $7.0 million revolving credit facility, which is
renewable every year for an additional year. To date, no amounts have been
borrowed against the credit facility which expires June 30, 1997. Both the
term loan and the revolving credit facility bear interest at a London Interbank
Offered Rate plus an agreed upon margin. The agreed upon margin, which may
range from 75 to 175 basis points for the term loan and 50 to 150 basis points
for the revolving credit facility, is to be established annually based upon the
Company's coverage of fixed charges. Management believes that cash and
investments, and 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.
The Board of Directors of the Company 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.
On January 23, 1996, the Board of Directors of the Company declared a
quarterly cash dividend of $.075 per share on its outstanding common stock to
be paid on March 15, 1996, to
9
<PAGE> 11
stockholders of record on February 29, 1996. The dividend payment will total
approximately $793,000 and will be paid from existing cash balances.
10
<PAGE> 12
PART II. OTHER INFORMATION
Item 1. 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 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Article 5 of Regulation S-X - Financial
Data Schedule.
(b) Reports on Form 8-K
None.
11
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REPUBLIC GROUP INCORPORATED
January 26, 1996 /s/ Doyle R. Ramsey
---------------------------
Doyle R. Ramsey
Vice President and Chief
Financial Officer
January 26, 1996 /s/ John W. McCracken
---------------------------
John W. McCracken
Controller and Principal
Accounting Officer
12
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 6,145,000
<SECURITIES> 5,425,000
<RECEIVABLES> 12,370,000
<ALLOWANCES> 898,000
<INVENTORY> 7,309,000
<CURRENT-ASSETS> 31,602,000
<PP&E> 106,343,000
<DEPRECIATION> 37,809,000
<TOTAL-ASSETS> 100,927,000
<CURRENT-LIABILITIES> 14,670,000
<BONDS> 0
<COMMON> 10,579,000
0
0
<OTHER-SE> 45,979,000
<TOTAL-LIABILITY-AND-EQUITY> 100,927,000
<SALES> 29,728,000
<TOTAL-REVENUES> 29,728,000
<CGS> 19,144,000
<TOTAL-COSTS> 19,144,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 111,000
<INTEREST-EXPENSE> 520,000
<INCOME-PRETAX> 6,883,000
<INCOME-TAX> 2,753,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,130,000
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
