<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, 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)
DELAWARE 75-1155922
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of 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 January 31, 1997, there were 10,629,178 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, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Reference is made to pages 2 through 8 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 December 31, 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Gross sales $ 36,286,000 $ 33,955,000
----------------------------------
Less freight and discounts 5,317,000 4,227,000
------------------- ------------- ------------
Net sales 30,969,000 29,728,000
------------------------------------
Costs and expenses:
Cost of sales 19,239,000 19,144,000
----------------------------
Selling and administrative expenses 3,809,000 3,350,000
------ ------------- ------------
23,048,000 22,494,000
------------- ------------
Operating profit 7,921,000 7,234,000
-----------------------------
Other expense, net (100,000) (351,000)
--------------------------- ------------- ------------
Income before income taxes 7,821,000 6,883,000
-------------------
Provision for income taxes 2,892,000 2,753,000
------------------- ------------- ------------
Net income $ 4,929,000 $ 4,130,000
----------------------------------- ============= ============
Income per common and common equivalent share $ 0.46 $ 0.39
- ============= ============
Weighted average shares outstanding 10,732,000 10,666,000
-----------
</TABLE>
See accompanying notes.
2
<PAGE> 4
REPUBLIC GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended December 31, 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Gross sales $ 70,166,000 $ 70,578,000
----------------------------------
Less freight and discounts 10,193,000 8,578,000
------------------- ------------- -------------
Net sales 59,973,000 62,000,000
------------------------------------
Costs and expenses:
Cost of sales 36,850,000 42,566,000
----------------------------
Selling and administrative expenses 6,958,000 6,685,000
------ ------------- -------------
43,808,000 49,251,000
------------- -------------
Operating profit 16,165,000 12,749,000
-----------------------------
Other expense, net (429,000) (766,000)
--------------------------- ------------- -------------
Income before income taxes 15,736,000 11,983,000
-------------------
Provision for income taxes 5,788,000 4,685,000
------------------- ------------- -------------
Net income $ 9,948,000 7,298,000
----------------------------------- ============= =============
Income per common and common equivalent share $ 0.93 $ 0.69
- ============= =============
Weighted average shares outstanding 10,714,000 10,647,000
----------
</TABLE>
See accompanying notes.
3
<PAGE> 5
REPUBLIC GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and June 30, 1996
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1996 1996
------------------ -------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,870,000 $ 2,243,000
----------------------------------------
Investments and marketable securities, at market 19,310,000 12,325,000
-----------------
Accounts receivable, net 12,724,000 11,727,000
-----------------------------------------
Income tax refunds receivable 585,000 902,000
------------------------------------
Inventories:
Finished goods 2,027,000 2,095,000
-------------------------------------------------
Raw materials and supplies 4,806,000 4,638,000
------------------------------------- ---------------- ----------------
--
6,833,000 6,733,000
Prepaid expenses 390,000 557,000
-------------------------------------------------
Net assets held for sale 26,000 26,000
-----------------------------------------
Deferred income taxes 790,000 790,000
-------------------------------------------- ---------------- ----------------
Total current assets 43,528,000 35,303,000
-------------------------------------------
Property, plant and equipment, at cost 113,635,000 110,243,000
-----------------------------
Less accumulated depreciation, amortization
and depletion 43,399,000 40,134,000
-------------------------------------------------- ---------------- ----------------
70,236,000 70,109,000
Other assets 844,000 712,000
------------------------------------------------------- ---------------- ----------------
-----
Total assets $ 114,608,000 $ 106,124,000
------------------------------------------------------- ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,617,000 $ 5,114,000
-------------------------------------------------
Accrued payroll and employee benefits 2,966,000 2,666,000
----------------------------
Income taxes payable 107,000 --
--------------------------------------------
Other current liabilities 1,614,000 1,628,000
----------------------------------------
Current portion of long-term debt 3,540,000 3,410,000
-------------------------------- ---------------- ----------------
Total current liabilities 13,844,000 12,818,000
-------------------------------------
Long-term debt due after one year 19,630,000 21,430,000
----------------------------------
Deferred income taxes 9,628,000 8,592,000
----------------------------------------------
Other long-term liabilities 618,000 620,000
----------------------------------------
Stockholders' equity:
Common stock, $1 par value 10,631,000 10,607,000
---------------------------------------
Additional paid-in capital 12,626,000 12,462,000
---------------------------------------
Retained earnings 47,631,000 39,595,000
------------------------------------------------ ---------------- ----------------
Total stockholders' equity 70,888,000 62,664,000
------------------------------------- ---------------- ----------------
Total liabilities and stockholders' equity $ 114,608,000 $ 106,124,000
------------------------- ================ ================
</TABLE>
See accompanying notes.
4
<PAGE> 6
REPUBLIC GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,948,000 $ 7,298,000
------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and depletion 3,372,000 2,879,000
----------------------
Deferred income taxes 1,036,000 --
-----------------------------------------
Loss on sale of assets 12,000 2,000
----------------------------------------
Changes in current assets and liabilities:
Accounts receivable (997,000) (249,000)
-----------------------------------------
Income tax refunds receivable 317,000 76,000
-------------------------------
Inventories (100,000) 948,000
-------------------------------------------------
Prepaid expenses 167,000 116,000
--------------------------------------------
Accounts payable and accrued liabilities 789,000 (691,000)
--------------------
Income taxes payable 107,000 1,733,000
----------------------------------------
Other assets and liabilities (134,000) 11,000
---------------------------------- -------------- -------------
Net cash provided by operating activities 14,517,000 12,123,000
-----------------------
Cash flows from investing activities:
Additions to property, plant and equipment (3,550,000) (3,996,000)
---------------------
Proceeds from sale of property, plant and equipment 39,000 168,000
------------
Purchases of investments (14,890,000) (2,950,000)
---------------------------------------
Proceeds from sale of investments 7,905,000 25,000
------------------------------
Other -- 3,000
---------------------------------------------------------- -------------- -----------
Net cash used by investing activities (10,496,000) (6,750,000)
--------------------------
Cash flows from financing activities:
Dividends paid (1,912,000) (1,427,000)
-------------------------------------------------
Reduction of long-term debt (1,670,000) (1,550,000)
------------------------------------
Proceeds from exercised stock options 188,000 118,000
-------------------------- -------------- -------------
Net cash used by financing activities (3,394,000) (2,859,000)
-------------------------- -------------- -------------
Net increase in cash and cash equivalents 627,000 2,514,000
-------------------------
Cash and cash equivalents at beginning of year 2,243,000 3,631,000
-------------------- -------------- -------------
Cash and cash equivalents at end of period $ 2,870,000 $ 6,145,000
------------------------ ============== =============
</TABLE>
See accompanying notes.
5
<PAGE> 7
REPUBLIC GROUP INCORPORATED
Notes to Consolidated Financial Statements
December 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 December 31, 1996, and the results of operations and cash flows for the
periods ended December 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, 1996.
(2) Per share computations are based on the weighted average number of
common shares outstanding during each period. Income per common and common
equivalent share on a fully diluted basis is substantially the same as primary
income per share as presented. The number of shares used in the per share
computations were 10,732,000 and 10,714,000 for the three-month and six-month
periods ended December 31, 1996 and 10,666,000 and 10,647,000 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
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 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
$1,060,000 will be paid from existing cash balances. The issuance of the Stock
Dividend will not affect the stockholders' proportionate interests in the
Company. Had the Stock Dividend been issued as of December 31, 1996, the
Company's outstanding common shares would have been restated for all periods
presented and income per common and common equivalent share would have been
$0.42 and $0.35 for the quarters ended December 31, 1996 and 1995,
respectively, and $0.84 and $0.62 for the six months ended December 31, 1996
and 1995, respectively. The Company's common stock outstanding will be restated
in the Third Quarter of fiscal 1997 for all periods presented to reflect the
Stock Dividend. Additionally, each additional share of common stock issued
pursuant to the Stock Dividend will be accompanied by one common stock purchase
right issued pursuant to the Company's Rights Agreement dated May 1, 1996, as
amended, and such rights will be 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 will be proportionately
adjusted in accordance with the Rights Agreement to reflect the stock dividend.
(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
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Quarters Ended December 31, 1996 and 1995. Consolidated net income
was $4,929,000 or $.46 per share on net sales of $30,969,000 for the second
quarter ended December 31, 1996. This compares favorably to net income of
$4,130,000 or $.39 per share on net sales of $29,728,000 for the same quarter
of 1995. Operating profits were up 10% to $7,921,000 from $7,234,000 recorded
in the December 1995 quarter.
Net income improved 19% and net sales 4% between the 1995 and 1996
December quarters. This was principally due to a 14% increase in shipments and
a 15% increase in average net selling prices of gypsum wallboard. There was
essentially no change in recycled paperboard shipments from the December 1995
quarter to the 1996 quarter. Recycled paperboard operating results were
affected by an 8% decline in per unit net selling prices from the December 1995
quarter to the 1996 quarter. This decline was partially offset by a decrease in
raw materials costs, principally reclaimed paper fiber. Additionally, the
decline in net selling prices of recycled paperboard benefited the gypsum
wallboard segment causing a 5% decrease in raw material per unit costs.
Recycled paperboard facing paper is the largest cost component in the
manufacturing of gypsum wallboard. The Company's gypsum wallboard segment
results were affected adversely by higher natural gas prices when comparing the
two quarters. However, the Company previously hedged against the potential for
higher natural gas prices during the winter months by contracting a portion of
its requirements. Because of the harsh winter experienced to date throughout
much of the country, natural gas prices on the spot market are extremely high.
Even though the Company has a significant percentage of its natural gas
requirements presently under contract, the Company could realize higher fuel
costs in fiscal 1998. Selling and administrative expenses, as a percent of net
sales, rose 1% from 1995 to 1996, due primarily to higher payroll costs and
commissions.
Six Months Ended December 31, 1996 and 1995. Consolidated net income
for the six months ended December 31, 1996 was $9,948,000 or $.93 per share on
net sales of $59,973,000 as compared to consolidated net income of $7,298,000
or $.69 per share on net sales of $62,000,000 for the same period in 1995.
Operating profits were similarly up 27% to $16,165,000 from $12,749,000
recorded in the six months ended December 31, 1995.
In the six months ended December 31, 1996 net income increased 36% due
primarily to those same trends which influenced the quarter. Operating profit
margins increased 4% at the recycled paperboard mills from 1995 to 1996,
primarily due to a significant decrease in raw materials costs. Selling and
administrative expenses, as a percent of net sales, increased from 10.8% in
1995 to 11.6% in 1996, essentially caused by those same reasons as outlined in
the quarterly comparisons.
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.
7
<PAGE> 9
Liquidity and Capital Resources
The following is a summary of certain financial statistics related to
the liquidity of the Company at December 31, 1996, and at June 30, 1996.
<TABLE>
<CAPTION>
Dec. 31, 1996 June 30, 1996
------------- --------------
<S> <C> <C>
Cash, cash equivalents and investments $22,180,000 $14,568,000
Working capital $29,684,000 $22,485,000
Ratio of current assets to current liabilities 3.1:1 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 22% 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 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 has approved new budgeted
capital expenditures of $8.6 million for fiscal 1997. There have been
approximately $3.6 million in fixed asset additions through December 31, 1996.
Cash provided by operations and existing cash balances should be sufficient to
fund these expenditures.
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 $1,060,000 will be
paid from existing cash balances. The issuance of the Stock Dividend will not
affect the stockholders' proportionate interests in the Company. Had the Stock
Dividend been issued as of December 31, 1996, the Company's outstanding common
shares would have been restated for all periods presented and income per common
and common equivalent share would have been $0.42 and $0.35 for the quarters
ended December 31, 1996 and 1995, respectively, and $0.84 and $0.62 for the six
months ended December 31, 1996 and 1995, respectively. The Company's common
stock outstanding will be restated in the Third Quarter of fiscal 1997 for all
periods presented to reflect the Stock Dividend. Additionally, each additional
share of common stock issued pursuant to the Stock Dividend will be accompanied
by one common stock purchase right issued pursuant to the Company's Rights
Agreement dated May 1, 1996, as amended, and such rights will be 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 will be proportionately adjusted in accordance with the
Rights Agreement to reflect the stock dividend.
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
Information regarding the submission of matters to a vote of
security holders is set forth in Item 4 of Part II of the
Company's previously filed Securities and Exchange Commission
Report on 10-Q for the quarterly period ended September 30, 1996
and is incorporated herein by reference.
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. The Company filed an Amended and
Restated Rights Plan on Form 8-K, dated September 19, 1996
(date of earliest event reported) on November 22, 1996, which
amends and restates the previously filed Rights Plan.
<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
February 10, 1997 /s/ Doyle R. Ramsey
-------------------
Doyle R. Ramsey
Vice President and Chief
Financial Officer
February 10, 1997 /s/ John W. McCracken
---------------------
John W. McCracken
Controller and Principal
Accounting Officer
<PAGE> 12
INDEX TO EXHIBITS
Exhibit Description
- --------- -----------
27 Article 5 of Regulation S-X-Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 2,870,000
<SECURITIES> 19,310,000
<RECEIVABLES> 13,489,000
<ALLOWANCES> 765,000
<INVENTORY> 6,833,000
<CURRENT-ASSETS> 43,528,000
<PP&E> 113,635,000
<DEPRECIATION> 43,399,000
<TOTAL-ASSETS> 114,608,000
<CURRENT-LIABILITIES> 13,844,000
<BONDS> 0
12,626,000
0
<COMMON> 10,631,000
<OTHER-SE> 47,631,000
<TOTAL-LIABILITY-AND-EQUITY> 114,608,000
<SALES> 36,286,000
<TOTAL-REVENUES> 36,286,000
<CGS> 19,239,000
<TOTAL-COSTS> 19,239,000
<OTHER-EXPENSES> 100,000
<LOSS-PROVISION> 78,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,821,000
<INCOME-TAX> 2,892,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,929,000
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
