<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 March 31, 1996
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 March 31, 1996, there were 10,605,603 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 March 31, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Reference is made to pages 2 through 6 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 March 31, 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Gross sales _______________________________________ $ 33,860,000 $ 30,881,000
Less freight and discounts _____________________________ 4,674,000 4,350,000
------------ ------------
Net sales __________________________________________ 29,186,000 26,531,000
Costs and expenses:
Cost of sales ____________________________________ 18,407,000 18,671,000
Selling and administrative expenses __________________ 3,504,000 2,596,000
------------ ------------
21,911,000 21,267,000
------------ ------------
Operating profit _____________________________________ 7,275,000 5,264,000
Other income (expense), net ____________________________ (365,000) 54,000
------------ ------------
Income before income taxes ____________________________ 6,910,000 5,318,000
Provision for income taxes _____________________________ 2,752,000 2,086,000
------------ ------------
Net income _________________________________________ $ 4,158,000 $ 3,232,000
============ ============
Net income per share _________________________________ $ 0.39 $ 0.30
============ ============
Dividends per share __________________________________ $ .075 $ .06
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
REPUBLIC GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended March 31, 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Gross sales ________________________________________ $ 104,438,000 $ 81,959,000
Less freight and discounts _____________________________ 13,252,000 12,229,000
------------- ------------
Net sales __________________________________________ 91,186,000 69,730,000
Costs and expenses:
Cost of sales ____________________________________ 60,973,000 48,191,000
Selling and administrative expenses __________________ 10,189,000 7,088,000
------------- ------------
71,162,000 55,279,000
------------- ------------
Operating profit _____________________________________ 20,024,000 14,451,000
Other income (expense), net ____________________________ (1,131,000) 112,000
------------- ------------
Income before income taxes ____________________________ 18,893,000 14,563,000
Provision for income taxes _____________________________ 7,437,000 5,809,000
------------- ------------
Net income _________________________________________ $ 11,456,000 $ 8,754,000
============= ============
Net income per share _________________________________ $ 1.08 $ 0.83
============= ============
Dividends per share __________________________________ $ .21 $ .17
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
REPUBLIC GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and June 30, 1995
<TABLE>
<CAPTION>
March 31, June 30,
ASSETS 1996 1995
-------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents _________________________________ $ 1,423,000 $ 3,631,000
Investments and marketable securities, at market _______________ 12,625,000 2,500,000
Accounts receivable, net __________________________________ 12,221,000 11,223,000
Income tax refunds receivable ______________________________ 43,000 177,000
Inventories:
Finished goods _________________________________________ 2,315,000 2,752,000
Raw materials and supplies ________________________________ 5,269,000 5,505,000
-------------- -------------
7,584,000 8,257,000
Prepaid expenses ________________________________________ 344,000 491,000
Net assets held for sale ____________________________________ 26,000 --
Deferred income taxes _____________________________________ 749,000 749,000
-------------- -------------
Total current assets ______________________________________ 35,015,000 27,028,000
Property, plant and equipment, at cost _________________________ 108,332,000 102,632,000
Less accumulated depreciation, amortization
and depletion ___________________________________________ 39,325,000 35,020,000
-------------- -------------
69,007,000 67,612,000
Other assets ______________________________________________ 753,000 802,000
-------------- -------------
Total assets ______________________________________________ $ 104,775,000 $ 95,442,000
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ________________________________________ $ 5,293,000 $ 7,441,000
Accrued payroll and employee benefits _______________________ 2,860,000 1,810,000
Income tax payable _______________________________________ 1,375,000 95,000
Other current liabilities ____________________________________ 2,006,000 1,002,000
Current portion of long-term debt 3,280,000 3,160,000
-------------- -------------
Total current liabilities __________________________________ 14,814,000 13,508,000
Long-term debt due after one year ____________________________ 23,170,000 24,840,000
Deferred income taxes _____________________________________ 6,030,000 5,765,000
Other long-term liabilities ___________________________________ 762,000 760,000
Stockholders' equity:
Common stock, $1 par value _______________________________ 10,606,000 10,560,000
Additional paid-in capital __________________________________ 12,458,000 12,308,000
Retained earnings ________________________________________ 36,935,000 27,701,000
-------------- -------------
Total stockholders' equity ________________________________ 59,999,000 50,569,000
-------------- -------------
Total liabilities and stockholders' equity _______________________ $ 104,775,000 $ 95,442,000
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
REPUBLIC GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income ___________________________________________ $ 11,456,000 $ 8,754,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and depletion ___________________ 4,521,000 2,561,000
Deferred income taxes _________________________________ 265,000 (175,000)
Loss on sale of assets __________________________________ 63,000 29,000
Changes in current assets and liabilities:
Accounts receivable __________________________________ (998,000) (4,480,000)
Income tax refunds receivable _________________________ 134,000 76,000
Inventories _________________________________________ 673,000 (1,134,000)
Prepaid expenses _____________________________________ 147,000 45,000
Accounts payable and accrued liabilities __________________ (94,000) 4,235,000
Income tax payable ________________________________ 1,280,000 1,052,000
Other non-current assets and liabilities _____________________ 25,000 (17,000)
--------------- --------------
Net cash provided by operating activities ____________________ 17,472,000 10,946,000
Cash flows from investing activities:
Additions to property, plant and equipment _________________ (6,204,000) (5,975,000)
Proceeds from sale of property, plant and equipment __________ 224,000 --
Purchases of investments _______________________________ (14,550,000) (1,500,000)
Proceeds from sale of investments _________________________ 4,425,000 500,000
Other _______________________________________________ 1,000 --
--------------- --------------
Net cash used by investing activities _______________________ (16,104,000) (6,975,000)
Cash flows from financing activities:
Dividends paid _______________________________________ (2,222,000) (1,793,000)
Reduction of long-term debt _____________________________ (1,550,000) --
Stock options exercised _______________________________ 196,000 111,000
--------------- --------------
Net cash used by financing
activities ____________________________________________ (3,576,000) (1,682,000)
--------------- --------------
Net increase (decrease) in cash and cash
equivalents_____________________ (2,208,000) 2,289,000
Cash and cash equivalents at beginning of year ________________ 3,631,000 910,000
--------------- --------------
Cash and cash equivalents at end of period ___________________ $ 1,423,000 $ 3,199,000
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
REPUBLIC GROUP INCORPORATED
Notes to Consolidated Financial Statements
March 31, 1996 and 1995 (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 March 31, 1996, and the results of operations and cash flows for the periods
ended March 31, 1996 and 1995. 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. Net income per common and common
equivalent share, on a fully diluted basis, is substantially the same as
primary earnings per share as presented. The number of shares used in the per
share computations were 10,681,000 and 10,656,000 for the three month and nine
month periods ended March 31, 1996 and 10,633,000 and 10,604,000 for the
comparable 1995 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 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>
Nine Months Ended March 31, 1996 and 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $91,186,000 $88,169,000
Net income 11,456,000 9,590,000
Net income per share 1.08 .90
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(6) Subsequent Event: On April 30, 1996, the Company declared a cash
dividend of $.075 per share payable to the stockholders of record on May 30,
1996 to be paid on June 15, 1996. Dividend payments of approximately $795,000
will be paid out of existing cash balances.
(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.
6
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Quarters Ended March 31, 1996 and 1995. Consolidated net income for
the third quarter ended March 31, 1996 was $4,158,000 or $.39 per share on net
sales of $29,186,000 compared to net income of $3,232,000 or $.30 per share on
net sales of $26,531,000 for the same quarter of 1995. The Company experienced
a 10% increase in net sales and a 29% improvement in net income in the quarter
from last year. Shipments of recycled paperboard increased 35% and shipments
of wallboard 6% during the 1996 quarter from the 1995 quarter.
In the quarter just ended, operating profits were $7,275,000 compared
to $5,264,000 in 1995. Operating margins for both segments of the Company were
above historical averages. The consolidated average operating margin for the
quarter just ended equaled 25%. The increase in net sales was primarily
attributable to the acquisition of Halltown Paperboard Company in June of 1995.
Principal factors contributing to the improvement in consolidated net income
for the quarter were increased sales, a decline in reclaimed paper raw material
costs, and lower utilities costs. Both segments of the Company operated at
near capacity during the quarter.
Nine Months Ended March 31, 1996 and 1995. Consolidated net income
for the nine months ended March 31, 1996 was 11,456,000 or $1.08 per share on
net sales of $91,186,000. This compares favorably to the $8,754,000 or $.83
earned on net sales of $69,730,000 for the same period last year. Earnings of
$1.08 per share year-to-date nearly equals the $1.10 earned during all of
fiscal year 1995.
Operating profits were $20,024,000 for the nine months ended March 31,
1996 and $14,451,000 for the comparable 1995 period. Average operating margins
realized year-to-date for both segments were above historical averages just as
they were in the quarterly results.
The causes for the identical 31% increases in both net income and net
sales for the nine months just ended compared to the same period last year were
similar to those outlined for the quarter. Shipments of recycled paperboard
were up 48%, and gypsum wallboard 4%, during the 1996 period over the
comparable period in 1995. The increase in recycled paperboard shipments was
primarily attributable to Halltown Paperboard Company. Selling prices of
recycled paperboard were 14% higher, whereas net selling prices of gypsum
wallboard were basically unchanged from 1995 to 1996. The cost of raw
materials used in the production of recycled paperboard, principally reclaimed
paper fiber, was down 10% from year to year.
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
7
<PAGE> 9
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 March 31, 1996, and at June 30, 1995.
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
------------- -------------
<S> <C> <C>
Working Capital $ 20,201,000 $ 13,520,000
Current Ratio 2.4:1 2.0:1
Cash and investments $ 14,048,000 $ 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 April 30, 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 June 15, 1996, to stockholders of record on May 30, 1996. The
dividend payment will total approximately $795,000 and will be paid from
existing cash balances.
8
<PAGE> 10
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.
9
<PAGE> 11
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
May 8, 1996 /s/ Doyle R. Ramsey
----------------------------------
Doyle R. Ramsey
Vice President and Chief
Financial Officer
May 8, 1996 /s/ John W. McCracken
----------------------------------
John W. McCracken
Controller and Principal
Accounting Officer
10
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- --------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,423,000
<SECURITIES> 12,625,000
<RECEIVABLES> 13,121,000
<ALLOWANCES> 900,000
<INVENTORY> 7,584,000
<CURRENT-ASSETS> 35,015,000
<PP&E> 108,332,000
<DEPRECIATION> 39,325,000
<TOTAL-ASSETS> 104,775,000
<CURRENT-LIABILITIES> 14,814,000
<BONDS> 0
<COMMON> 10,606,000
0
0
<OTHER-SE> 49,393,000
<TOTAL-LIABILITY-AND-EQUITY> 104,775,000
<SALES> 33,860,000
<TOTAL-REVENUES> 33,860,000
<CGS> 18,407,000
<TOTAL-COSTS> 18,407,000
<OTHER-EXPENSES> 365,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,910,000
<INCOME-TAX> 2,752,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,158,000
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
