<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, 1997
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)
DELAWARE 75-1155922
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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)
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 April 30, 1997, there were 11,713,188 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, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Reference is made to pages 2 through 10 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
Republic Group Incorporated and its wholly owned subsidiaries
(collectively referred to as the "Company").
<PAGE> 3
REPUBLIC GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Quarters Ended March 31, 1997 and 1996 (Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Gross sales $ 35,747,000 $ 33,860,000
------------------------------------------------------
Less freight and discounts 5,019,000 4,674,000
--------------------------------------- ------------- ------------
Net sales 30,728,000 29,186,000
--------------------------------------------------------
Costs and expenses:
Cost of sales 19,650,000 18,407,000
------------------------------------------------
Selling and administrative expenses 3,646,000 3,504,000
-------------------------- ------------- ------------
23,296,000 21,911,000
------------- ------------
Operating profit 7,432,000 7,275,000
-------------------------------------------------
Other expense, net (152,000) (365,000)
----------------------------------------------- ------------- ------------
Income before income taxes 7,280,000 6,910,000
---------------------------------------
Provision for income taxes 2,604,000 2,752,000
--------------------------------------- ------------- ------------
Net income $ 4,676,000 $ 4,158,000
------------------------------------------------------- ============= ============
Income per common and common equivalent share $ 0.40 $ 0.35
-------------------- ============= ============
Weighted average shares outstanding 11,724,000 11,749,000
------------------------------
</TABLE>
See accompanying notes.
2
<PAGE> 4
REPUBLIC GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended March 31, 1997 and 1996 (Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Gross sales $105,913,000 $104,438,000
------------------------------------------------------
Less freight and discounts 15,212,000 13,252,000
--------------------------------------- ------------ ------------
Net sales 90,701,000 91,186,000
--------------------------------------------------------
Costs and expenses:
Cost of sales 56,500,000 60,973,000
------------------------------------------------
Selling and administrative expenses 10,604,000 10,189,000
-------------------------- ------------ ------------
67,104,000 71,162,000
------------ ------------
Operating profit 23,597,000 20,024,000
-------------------------------------------------
Other expense, net (581,000) (1,131,000)
----------------------------------------------- ------------ ------------
Income before income taxes 23,016,000 18,893,000
---------------------------------------
Provision for income taxes 8,392,000 7,437,000
--------------------------------------- ------------ ------------
Net income $ 14,624,000 $ 11,456,000
------------------------------------------------------- ============ ============
Income per common and common equivalent share $ 1.25 $ 0.98
-------------------- ============ ============
Weighted average shares outstanding 11,735,000 11,722,000
------------------------------
</TABLE>
See accompanying notes.
3
<PAGE> 5
REPUBLIC GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and June 30, 1996
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1996
-------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,576,000 $ 2,243,000
------------------------------------
Investments and marketable securities, at market 21,875,000 12,325,000
-------------
Accounts receivable, net 12,967,000 11,727,000
-------------------------------------
Income tax refunds receivable 378,000 902,000
--------------------------------
Inventories:
-------------------------------------------------
Finished goods 2,370,000 2,095,000
------------------------------------------
Raw materials and supplies 5,187,000 4,638,000
------------------------------ ------------- -------------
7,557,000 6,733,000
Prepaid expenses 361,000 557,000
---------------------------------------------
Net assets held for sale 26,000 26,000
-------------------------------------
Deferred income taxes 790,000 790,000
---------------------------------------- ------------- -------------
Total current assets 47,530,000 35,303,000
------------------------------------
Property, plant and equipment, at cost 115,851,000 110,243,000
---------------------------
Less accumulated depreciation, amortization
and depletion 45,155,000 40,134,000
------------------------------------------- ------------- -------------
70,696,000 70,109,000
Other assets 820,000 712,000
----------------------------------------------------- ------------- -------------
Total assets $ 119,046,000 $ 106,124,000
----------------------------------------------------- ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,596,000 $ 5,114,000
---------------------------------------------
Accrued payroll and employee benefits 3,377,000 2,666,000
------------------------
Income taxes payable 179,000 --
-----------------------------------------
Other current liabilities 1,800,000 1,628,000
------------------------------------
Current portion of long-term debt 3,540,000 3,410,000
---------------------------- ------------- -------------
Total current liabilities 14,492,000 12,818,000
-------------------------------
Long-term debt due after one year 19,630,000 21,430,000
--------------------------------
Deferred income taxes 9,735,000 8,592,000
--------------------------------------------
Other long-term liabilities 620,000 620,000
--------------------------------------
Stockholders' equity:
Common stock, $1 par value 11,713,000 10,607,000
-----------------------------------
Additional paid-in capital 27,830,000 12,462,000
-----------------------------------
Retained earnings 35,026,000 39,595,000
-------------------------------------------- ------------- -------------
Total stockholders' equity 74,569,000 62,664,000
------------------------------ ------------- -------------
Total liabilities and stockholders' equity $ 119,046,000 $ 106,124,000
----------------------- ============= =============
</TABLE>
See accompanying notes.
4
<PAGE> 6
REPUBLIC GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1997 and 1996 (Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,624,000 $ 11,456,000
-------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and depletion 5,172,000 4,521,000
--------------------
Deferred income taxes 1,143,000 265,000
---------------------------------------
Loss on sale of assets 13,000 63,000
--------------------------------------
Changes in current assets and liabilities:
Accounts receivable (1,240,000) (998,000)
-------------------------------------
Income tax refunds receivable 524,000 134,000
---------------------------
Inventories (824,000) 673,000
---------------------------------------------
Prepaid expenses 196,000 147,000
----------------------------------------
Accounts payable and accrued liabilities 1,365,000 (94,000)
----------------
Income taxes payable 179,000 1,280,000
------------------------------------
Other assets and liabilities (108,000) 25,000
-------------------------------- ------------ -------------
Net cash provided by operating activities 21,044,000 17,472,000
------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (5,827,000) (6,204,000)
-----------------------
Proceeds from sale of property, plant and equipment 55,000 224,000
--------------
Purchases of investments (18,860,000) (14,550,000)
-----------------------------------------
Proceeds from sale of investments 9,310,000 4,425,000
--------------------------------
Other -- 1,000
------------------------------------------------------------ ------------ -------------
Net cash used by investing activities (15,322,000) (16,104,000)
----------------------------
Cash flows from financing activities:
Dividends paid (2,966,000) (2,222,000)
---------------------------------------------------
Reduction of long-term debt (1,670,000) (1,550,000)
--------------------------------------
Proceeds from exercised stock options 247,000 196,000
---------------------------- ------------ -------------
Net cash used by financing activities (4,389,000) (3,576,000)
---------------------------- ------------ -------------
Net increase (decrease) in cash and cash equivalents 1,333,000 (2,208,000)
-----------------
Cash and cash equivalents at beginning of year 2,243,000 3,631,000
----------------------- ------------ -------------
Cash and cash equivalents at end of period $ 3,576,000 $ 1,423,000
--------------------------- ============ =============
</TABLE>
See accompanying notes.
5
<PAGE> 7
REPUBLIC GROUP INCORPORATED
Notes to Consolidated Financial Statements
March 31, 1997 and 1996 (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, 1997, and the results of operations and cash flows for the periods
ended March 31, 1997 and 1996. 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, 1996.
(2) Per share computations are based on the weighted average number of
common and common equivalent shares outstanding during each period. Income per
common and common equivalent share on a diluted basis is substantially the same
as primary income per share as presented. The number of shares used in the per
share computations was 11,724,000 and 11,735,000 for the three-month and
nine-month periods ended March 31, 1997 and 11,749,000 and 11,722,000 for the
comparable 1996 periods. The Company will adopt the provisions of SFAS No.
128, "Earnings Per Share," in the second quarter of fiscal 1998. SFAS No. 128,
issued in February 1997, replaces the primary earnings per share calculation
with a basic earnings per share calculation. Had the Company adopted the
provisions of SFAS No. 128 during the third quarter of fiscal 1997, the impact
of the adoption on the calculation of net income per share would have been
insignificant.
(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
has conducted its own investigations, and the adjacent property owner has
conducted its own investigations. Additionally, the Company and the adjacent
property owner have jointly sponsored investigations. 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) Subsequent Event: On April 22, 1997, the Company declared a quarterly
cash dividend of $.09 per share payable to the stockholders of record on May
30, 1997, to be paid on June 16, 1997. Dividend payments of approximately
$1,054,000 will be paid from existing cash balances.
(6) 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
(7) On January 28, 1997, the Company declared a 10% stock dividend (the
"Stock Dividend") and a quarterly cash dividend of $.09 per share of common
stock payable to the stockholders of record on February 28, 1997 to be paid on
March 14, 1997. Cash dividend payments of approximately $1,054,000 were paid
from existing cash balances. The issuance of the Stock Dividend did not affect
the stockholders' proportionate interests in the Company. The Company's common
stock outstanding was restated this quarter for all periods presented to
reflect the Stock Dividend including per share calculations. Additionally,
each additional share of common stock issued pursuant to the Stock Dividend was
accompanied by one common stock purchase right issued pursuant to the Company's
Rights Agreement dated May 1, 1996, as amended, and such rights were
represented by the stock certificates for such common shares. Pursuant to the
Rights Agreement, the number of shares of common stock purchasable upon
exercise of rights outstanding at the record date for the Stock Dividend and
the exercise price of such rights were proportionately adjusted in accordance
with the Rights Agreement to reflect the stock dividend.
(8) Commitments: The Company had outstanding commitments to purchase
property, plant and equipment of approximately $5,000,000 at March 31, 1997.
7
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Quarters Ended March 31, 1997 and 1996. Consolidated net income for
the third fiscal quarter ended March 31, 1997, was $4,676,000 or $.40 per share
on net sales of $30,728,000. This compares to net income of $4,158,000 or $.35
per share on net sales of $29,186,000 reported for the same period one year
ago. Operating profits were up 2% to $7,432,000 in the March quarter from
$7,275,000 recorded in the 1996 March quarter.
The 12% improvement in net income and 5% increase in net sales from
the March 1996 quarter to the March 1997 quarter were primarily the result of a
4% increase in shipments and a 23% rise in net selling prices of gypsum
wallboard. The improvements realized in the gypsum wallboard segment were
mitigated by an overall 10% increase in the per unit variable cost of producing
wallboard. Utilities cost, principally natural gas, increased significantly
when comparing the two quarters. The Company previously hedged against the
potential for higher gas prices during the winter months by contracting a
portion of its requirements. Because of the harsh winter experienced
throughout the country, natural gas prices on the spot market are still high
when compared to recent years. Even though the Company has a significant
percentage of its natural gas requirements presently under contract, the
Company could continue to experience higher fuel costs at all of its facilities
in future periods. Shipments of recycled paperboard were essentially unchanged
from a strong March 1996 quarter to the 1997 quarter. A 7% decrease in average
net selling prices of recycled paperboard coupled with a 4% increase in the
variable per unit cost of production, principally due to higher reclaimed paper
fiber costs, caused operating profit margins to retreat from 28% in the March
1996 quarter to historical levels in the March 1997 quarter (19%).
Consolidated selling and administrative expenses as a percent of net sales
decreased slightly and other expenses decreased $213,000 from the March 1996
quarter to the March 1997 quarter. Other expenses are primarily the net result
of interest expense on the Company's long-term debt and interest income earned
on the Company's investments.
Nine Months Ended March 31, 1997 and 1996. Consolidated net income
for the nine months ended March 31, 1997, was $14,624,000 or $1.25 per share on
net sales of $90,701,000. This compares favorably to net income of $11,456,000
or $.98 per share on net sales of $91,186,000 during the same period of 1996.
Operating profits increased 18% from $20,024,000 to $23,597,000 from period to
period.
In the nine months ended March 31, 1997, consolidated net income
increased 28% with net sales essentially flat when compared to the same period
in 1996. Key factors which influenced the results were a 14% increase in net
selling prices and an 8% increase in shipments of gypsum wallboard. Net
selling prices of recycled paperboard decreased 10%; however, this decrease was
substantially off-set by a 13% decrease in variable per unit cost of production
of which a majority of the decrease was due to a decline in the cost of
reclaimed paper fiber, the principal raw material utilized in the production of
recycled paperboard. Shipments of recycled paperboard through March 31, 1997,
were essentially unchanged from the record levels achieved in the same period
of 1996. Operating margins of 23% in the Company's recycled paperboard mills
for the nine months ended March 1997 exceeded historical margins, but were down
from the 24% operating margin experienced during the same period of 1996.
8
<PAGE> 10
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 has
conducted its own investigations, and the adjacent property owner has conducted
its own investigations. Additionally, the Company and the adjacent owner have
jointly sponsored investigations. 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 March 31, 1997, and at June 30, 1996.
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1996
-------------- -------------
<S> <C> <C>
Cash, cash equivalents and investments $25,451,000 $14,568,000
Working Capital $33,038,000 $22,485,000
Ratio of current assets to current liabilities 3.3:1 2.8:1
Interest-bearing debt (including current portion) $23,170,000 $24,840,000
Interest-bearing debt as a percent of total capital employed 21% 26%
</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 matures in June 2002. The Halltown facility
was used as collateral for the loan.
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.
The revolving credit facility expires June 30, 1998. 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.
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
9
<PAGE> 11
required to adhere to several financial covenants some of which involve working
capital, current ratio, net worth and fixed charge coverage minimums.
The Board of Directors of the Company approved budgeted capital
expenditures of $8.6 million for fiscal 1997. There have been approximately
$5.8 million in fixed asset additions through March 31, 1997. On February 20,
1997, the Company announced a plan to upgrade and expand its gypsum wallboard
production facilities in Duke, Oklahoma. Expenditures of approximately $26
million will double the annual productive capacity of the facility and maintain
it as one of the country's lowest cost producers of gypsum wallboard. The
project will require about eighteen months to complete. In addition,
management of the Company anticipates spending approximately $5 million for
additional rail cars to service the gypsum wallboard expansion. The Company
expects cash provided by operations, existing cash balances and the revolving
credit facility to be sufficient to fund the expenditures.
On April 22, 1997, the Board of Directors of the Company declared a
quarterly cash dividend of $.09 per share on its outstanding common stock to
be paid on June 16, 1997 to stockholders of record on May 30, 1997. The
dividend payment will amount to approximately $1,054,000 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
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
May 6, 1997 /s/ Doyle R. Ramsey
-------------------
Doyle R. Ramsey
Vice President and Chief
Financial Officer
May 6, 1997 /s/ John W. McCracken
---------------------
John W. McCracken
Controller and Principal
Accounting Officer
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- --------- -----------
<S> <C>
27 Article 5 of Regulation S-X-Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,576,000
<SECURITIES> 21,875,000
<RECEIVABLES> 13,737,000
<ALLOWANCES> 770,000
<INVENTORY> 7,557,000
<CURRENT-ASSETS> 47,530,000
<PP&E> 115,851,000
<DEPRECIATION> 45,155,000
<TOTAL-ASSETS> 119,046,000
<CURRENT-LIABILITIES> 14,492,000
<BONDS> 0
0
0
<COMMON> 11,713,000
<OTHER-SE> 62,856,000
<TOTAL-LIABILITY-AND-EQUITY> 119,046,000
<SALES> 35,747,000
<TOTAL-REVENUES> 35,747,000
<CGS> 19,650,000
<TOTAL-COSTS> 19,650,000
<OTHER-EXPENSES> 9,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 417,000
<INCOME-PRETAX> 7,280,000
<INCOME-TAX> 2,604,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,676,000
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
