<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, 1998
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 Identification No.)
incorporation or organization)
811 East 30th Avenue, Hutchinson, Kansas 67502-4341
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Post Office Box 1307, Hutchinson, Kansas 67504-1307
- ---------------------------------------- ----------
(Mailing Address) (Zip code)
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, 1998, there were 11,723,224 shares of the registrant's Common
Stock, $1.00 par value outstanding.
<PAGE> 2
REPUBLIC GROUP INCORPORATED
FORM 10-Q
Quarterly Report
For The Three Months And Nine Months Ended March 31, 1998
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Reference is made to pages 2 through 9 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, 1998 and 1997 (Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Gross sales $ 37,018,000 $ 35,747,000
---------------------------------------------------------
Less freight and discounts 5,105,000 5,019,000
------------------------------------------
---------------- ----------------
Net sales 31,913,000 30,728,000
-----------------------------------------------------------
Costs and expenses:
Cost of sales 20,917,000 19,650,000
--------------------------------------------------
Selling and administrative expenses 4,187,000 3,646,000
----------------------------
---------------- ----------------
25,104,000 23,296,000
---------------- ----------------
Operating profit 6,809,000 7,432,000
----------------------------------------------------
Other income (expense), net 23,000 (152,000)
-----------------------------------------
---------------- ----------------
Income before income taxes 6,832,000 7,280,000
------------------------------------------
Provision for income taxes 2,596,000 2,604,000
------------------------------------------
---------------- ----------------
NET INCOME $ 4,236,000 $ 4,676,000
----------------------------------------------------------
================ ================
Basic earnings per share $ 0.36 $ 0.40
--------------------------------------------
================ ================
Basic weighted average shares outstanding 11,715,000 11,704,000
---------------------------
================ ================
Diluted earnings per share $ 0.36 $ 0.40
------------------------------------------
================ ================
Diluted weighted average shares outstanding 11,820,000 11,795,000
-------------------------
================ ================
</TABLE>
See accompanying notes.
2
<PAGE> 4
REPUBLIC GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended March 31, 1998 and 1997 (Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Gross sales $ 111,450,000 $ 105,913,000
---------------------------------------------------------
Less freight and discounts 15,219,000 15,212,000
------------------------------------------
---------------- ----------------
Net sales 96,231,000 90,701,000
-----------------------------------------------------------
Costs and expenses:
Cost of sales 64,354,000 56,500,000
--------------------------------------------------
Selling and administrative expenses 11,829,000 10,604,000
----------------------------
---------------- ----------------
76,183,000 67,104,000
---------------- ----------------
Operating profit 20,048,000 23,597,000
----------------------------------------------------
Other income (expense), net 158,000 (581,000)
-----------------------------------------
---------------- ----------------
Income before income taxes 20,206,000 23,016,000
------------------------------------------
Provision for income taxes 7,677,000 8,392,000
------------------------------------------
---------------- ----------------
NET INCOME $ 12,529,000 $ 14,624,000
----------------------------------------------------------
================ ================
Basic earnings per share $ 1.07 $ 1.25
--------------------------------------------
================ ================
Basic weighted average shares outstanding 11,699,000 11,697,000
---------------------------
================ ================
Diluted earnings per share $ 1.06 $ 1.24
------------------------------------------
================ ================
Diluted weighted average shares outstanding 11,801,000 11,776,000
-------------------------
================ ================
</TABLE>
See accompanying notes.
3
<PAGE> 5
REPUBLIC GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and June 30, 1997
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
------------------- ------------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,962,000 $ 1,436,000
--------------------------------
Investments and marketable securities, at market 1,295,000 650,000
--------
Accounts receivable, net 12,304,000 13,893,000
--------------------------------
Income tax refunds receivable 580,000 494,000
---------------------------
Inventories:
Finished goods 2,810,000 2,246,000
----------------------------------------
Raw materials and supplies 5,732,000 5,095,000
----------------------------
---------------- ---------------
8,542,000 7,341,000
Prepaid expenses and other 394,000 660,000
-------------------------------
Deferred income taxes 576,000 576,000
-----------------------------------
---------------- ---------------
TOTAL CURRENT ASSETS 28,653,000 25,050,000
----------------------------------
Property, plant and equipment, at cost 135,127,000 121,460,000
---------------------
Less accumulated depreciation, amortization
and depletion 52,220,000 46,985,000
-----------------------------------------
----------------- ---------------
82,907,000 74,475,000
Other assets 873,000 875,000
-----------------------------------------------
----------------- ---------------
TOTAL ASSETS $ 112,433,000 $ 100,400,000
-----------------------------------------------
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,330,000 $ 7,534,000
----------------------------------------
Accrued payroll and employee benefits 3,768,000 2,986,000
-------------------
Income taxes payable 2,484,000 203,000
------------------------------------
Other current liabilities 1,469,000 1,388,000
-------------------------------
----------------- ---------------
TOTAL CURRENT LIABILITIES 14,051,000 12,111,000
-----------------------------
Deferred income taxes 10,379,000 9,838,000
--------------------------------------
Other long-term liabilities 609,000 606,000
--------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value 11,748,000 11,716,000
------------------------------
Additional paid-in capital 27,889,000 27,827,000
------------------------------
Retained earnings 48,342,000 38,995,000
---------------------------------------
Less: Treasury stock, at cost, 28,000 shares at
March 31, 1998, and 33,000 shares at June 30, 1997 (585,000) (693,000)
----------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 87,394,000 77,845,000
----------------------------
----------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 112,433,000 $ 100,400,000
-----------------
================= ===============
</TABLE>
See accompanying notes.
4
<PAGE> 6
REPUBLIC GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1998 and 1997 (Unaudited)
<TABLE>
<CAPTION>
1998 1997
-------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 12,529,000 $ 14,624,000
---------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and depletion 5,593,000 5,172,000
-----------------
Deferred income taxes 541,000 1,143,000
------------------------------------
Loss on sale of assets 20,000 13,000
-----------------------------------
Changes in current assets and liabilities:
Accounts receivable 1,589,000 (1,240,000)
---------------------------------
Income tax refunds receivable (86,000) 524,000
-----------------------
Inventories (1,201,000) (824,000)
-----------------------------------------
Prepaid expenses 266,000 196,000
------------------------------------
Accounts payable and accrued liabilities (341,000) 1,365,000
------------
Income taxes payable 2,281,000 179,000
--------------------------------
Other assets and liabilities 5,000 (108,000)
-----------------------------
-------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 21,196,000 21,044,000
--------------------
-------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (14,090,000) (5,827,000)
-------------------
Proceeds from sale of property, plant and equipment 44,000 55,000
----------
Purchases of investments (7,615,000) (18,860,000)
-------------------------------------
Proceeds from sale of investments 6,970,000 9,310,000
----------------------------
-------------- ----------------
NET CASH USED BY INVESTING ACTIVITIES (14,691,000) (15,322,000)
------------------------
-------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (3,159,000) (2,966,000)
-----------------------------------------------
Reduction of long-term debt -- (1,670,000)
----------------------------------
Issuance of common treasury stock 85,000 --
----------------------------
Proceeds from exercised stock options 95,000 247,000
------------------------
-------------- ----------------
NET CASH USED BY FINANCING ACTIVITIES (2,979,000) (4,389,000)
------------------------
-------------- ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,526,000 1,333,000
-------------------------
Cash and cash equivalents at beginning of year 1,436,000 2,243,000
--------------------
-------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,962,000 $ 3,576,000
------------------------
============== ================
</TABLE>
See accompanying notes.
5
<PAGE> 7
REPUBLIC GROUP INCORPORATED
Notes to Consolidated Financial Statements
March 31, 1998 and 1997 (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, 1998, and the results of operations and cash flows for the
periods ended March 31, 1998 and 1997. 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
Annual Report on Form 10-K as of June 30, 1997.
(2) Effective October 1, 1997 the Company adopted SFAS No. 128, "Earnings
Per Share".
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share are computed by dividing net income by the
sum of the weighted average number of shares and the number of
equivalent shares assumed outstanding under the Company's stock-based
compensation plans. Diluted earnings per share are computed as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------------------------------------------------------------------------------------
March 31, 1998 March 31, 1997
------------------------------------------------------------- ------------------------------------------
(in thousands) (in thousands)
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings
per share $ 4,236 11,715 $ .36 $ 4,676 11,704 $ .40
Effects of
dilutive
securities-options -- 105 -- 91
---------------------------------------- ------------------------------------------
Diluted earnings
per share $ 4,236 11,820 $ .36 $ 4,676 11,795 $ .40
------------------------------------------------------------ ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
---------------------------------------------------------------------------------------------------------
March 31, 1998 March 31, 1997
---------------------------------------------------------------------------------------------------------
(in thousands) (in thousands)
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings
per share $ 12,529 11,699 $ 1.07 $ 14,624 11,697 $ 1.25
Effects of
dilutive
securities-options -- 102 -- 79
---------------------------------------- ------------------------------------------
Diluted earnings
per share $ 12,529 11,801 $ 1.06 $ 14,624 11,776 $ 1.24
------------------------------------------------------------ ------------------------------------------
</TABLE>
All periods prior to October 1, 1997 have been restated to conform with
the requirements of SFAS No. 128.
Options to purchase 10,541 shares of common stock at the price of
$20.763 were outstanding for the three months ended and nine months
ended March 31, 1998. Options to purchase 109,450 shares of common
stock at prices ranging from $15.227 to $15.228 were outstanding for
the nine months ended March 31, 1997. These shares were not included in
the diluted earnings per share because the options exercise price was
greater than the average market price of the common shares for the
above periods.
6
<PAGE> 8
(3) Other Commitments and Contingent Liabilities: 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.
On October 17, 1997, the West Virginia Division of Environmental
Protection ("DEP") filed a complaint against Republic Paperboard
Company of West Virginia (the "West Virginia Subsidiary") in the
Circuit Court of Jefferson County, West Virginia. The complaint alleges
that the West Virginia Subsidiary has violated and continues to violate
a previous order entered into between the West Virginia Subsidiary and
DEP on January 17, 1995 and further alleges that the West Virginia
Subsidiary has violated and continues to violate certain provisions of
its wastewater discharge permit. The West Virginia Subsidiary
discharges treated process wastewater into a creek running through its
Halltown, West Virginia facility (the "Facility") pursuant to a permit
issued to the West Virginia Subsidiary by DEP. The permit requires that
the quality of the water that may be discharged into the creek under
the permit comply with certain effluent limitations. The complaint
alleges that the West Virginia Subsidiary has violated this permit by
discharging wastewater into the creek that contained effluents in
excess of the permit limitations. The complaint alleges 33 violations
over a time period from October 1995 to March 1997. The complaint also
alleges that the earlier administrative order has been violated because
of the failure of the West Virginia Subsidiary to pay a stipulated
penalty of $1,000 for two alleged violations of the permit that
occurred between January 1995 and October 1995. DEP is seeking by
virtue of the complaint to require the West Virginia Subsidiary to
enter into a consent agreement that sets forth a compliance schedule
for correcting the alleged deficiencies in the wastewater treatment
facilities of the West Virginia Subsidiary that have led to the alleged
effluent exceedances. DEP is also requesting a civil monetary penalty
of an unspecified amount but which, according to the complaint, may not
exceed $10,000 per day for each of the alleged violations many of which
involved monthly limitations and may be treated as involving the entire
number of days in the month in question. DEP is also seeking to recover
all of its costs of court including attorneys fees. The West Virginia
Subsidiary has responded in a timely manner to the allegations of the
complaint. At this time, the Company has not ascertained the future
liability, if any, of the above matter.
Other commitments of the Company include non-cancelable contracts to
purchase property, plant, and equipment relating to the expansion of
the Duke, Oklahoma wallboard facility. These commitments totaled
approximately $13,000,000 as of March 31, 1998.
(4) Reclassification: Certain prior year balances have been reclassified to
conform with current year presentation.
(5) Subsequent Event: On April 21, 1998, the Board of Directors of the
Company declared a quarterly cash dividend of $0.09 per share of common
stock to be paid on June 15, 1998 to stockholders of record on May 29,
1998. Dividend payments will total approximately $1,055,000.
7
<PAGE> 9
(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.
(7) All references to share amounts, per share amounts and stock prices
reflect a 10% stock dividend distributed in March 1997.
(8) Effective January 1, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
<TABLE>
<CAPTION>
QUARTERS
ENDED MARCH 31 (Unaudited) 1998 1997
- --------------------------------------------------------------------------------------------------------------------
Gypsum Recycled Elim's. Consoli- Gypsum Recycled Elim's. Consoli-
Wallboard Paperboard And Other dated Wallboard Paperboard And Other dated
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shipment Units:
Wallboard (MSF) 140,982 140,982 141,011 141,011
Recycled paperboard(Tons) 47,654 (7,371) 40,283 45,747 (7,278) 38,469
Recovered paper fiber(Tons) 34,004 (16,655) 17,349 37,074 (14,535) 22,539
- --------------------------------------------------------------------------------------------------------------------
Gross Sales (in thousands):
Gypsum wallboard $ 18,748 $ $ $ 18,748 $ 18,230 $ $ $ 18,230
Recycled paperboard 16,870 16,870 15,889 15,889
Recovered paper fiber 2,948 (1,549) 1,399 2,817 (1,191) 1,626
Intrasegment fiber sales (1,549) 1,549 -- (1,191) 1,191 --
Intersegment paperboard
sales 2,918 (2,918) -- 2,914 (2,914) --
Other 1 1 2 2
- --------------------------------------------------------------------------------------------------------------------
Gross Sales 18,748 21,187 (2,917) 37,018 18,230 20,429 (2,912) 35,747
Less freight and discounts 3,912 1,193 -- 5,105 3,794 1,225 -- 5,019
- --------------------------------------------------------------------------------------------------------------------
Net sales $ 14,836 $ 19,994 $ (2,917) $ 31,913 $ 14,436 $ 19,204 $ (2,912) $ 30,728
- --------------------------------------------------------------------------------------------------------------------
Operating profit $ 6,025 $ 2,745 $ (1,961) $ 6,809 $ 6,090 $ 2,769 $ (1,427) $ 7,432
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31 (Unaudited) 1998 1997
- --------------------------------------------------------------------------------------------------------------------
Gypsum Recycled Elim's. Consoli- Gypsum Recycled Elim's. Consoli-
Wallboard Paperboard And Other dated Wallboard Paperboard And Other dated
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shipment Units:
Wallboard (MSF) 429,073 429,073 426,068 426,068
Recycled paperboard(Tons) 140,931 (19,218) 121,713 138,163 (23,922) 114,241
Recovered paper fiber(Tons) 108,328 (49,900) 58,428 114,644 (45,215) 69,429
- --------------------------------------------------------------------------------------------------------------------
Gross Sales (in thousands):
Gypsum wallboard $ 56,145 $ $ $ 56,145 $ 52,381 $ $ $ 52,381
Recycled paperboard 50,547 50,547 48,592 48,592
Recovered paper fiber 9,738 (4,985) 4,753 8,307 (3,374) 4,933
Intrasegment fiber sales (4,985) 4,985 -- (3,374) 3,374 --
Intersegment paperboard
sales 7,511 (7,511) -- 9,456 (9,456) --
Other 5 5 7 7
- --------------------------------------------------------------------------------------------------------------------
Gross Sales 56,145 62,811 (7,506) 111,450 52,381 62,981 (9,449) 105,913
Less freight and discounts 11,593 3,626 -- 15,219 11,322 3,890 -- 15,212
- --------------------------------------------------------------------------------------------------------------------
Net sales $ 44,552 $ 59,185 $ (7,506) $ 96,231 $ 41,059 $ 59,091 $ (9,449) $ 90,701
- --------------------------------------------------------------------------------------------------------------------
Operating profit $ 18,576 $ 6,744 $ (5,272) $ 20,048 $ 16,424 $ 11,799 $ (4,626) $ 23,597
Identifiable assets 36,367 62,754 13,312 112,433 24,712 62,272 32,062 119,046
Capital Expenditures 9,303 3,587 1,200 14,090 1,160 4,220 447 5,827
Depreciation, depletion &
amortization 1,180 3,845 568 5,593 1,090 3,545 537 5,172
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 10
The Company's operations within the gypsum industry consist of the manufacture
and sale of gypsum wallboard. Operations within the paperboard industry consist
of (i) the manufacture and sale of recycled paperboard to the gypsum industry
and other paperboard converters which manufacture composite cans, cores, tubes
and other packaging products, and (ii) the collection and sale of recovered
paper fiber. The Company's gypsum wallboard operations are located in Duke,
Oklahoma. The Company's primary markets for gypsum wallboard are Texas,
Oklahoma, Colorado and Kansas with additional secondary emphasis in the
midwestern and southeastern regions of the United States. The Company operates
recycled paperboard mills in Hutchinson, Kansas, Commerce City, Colorado, and
Halltown, West Virginia. The Company's primary markets for recycled paperboard
are generally within a 600 mile radius of the facilities. The Company operates
reclaimed paper fiber recycling centers in Kansas City, Missouri, Topeka,
Kansas, and Denver, Colorado with the corresponding markets within a 600 mile
radius of the centers.
Republic Group Incorporated employs approximately 745 people, approximately 500
of whom are covered by collective bargaining units with four labor unions. The
expirations of current bargaining agreements range from 1998 to 2003. The
Company believes its relations with employees are satisfactory.
Operating profit is net sales less operating expenses. Sales between segments
are made at approximately market price. Identifiable assets by industry segment
are those used in each segment at year-end. Eliminations and other include
general corporate assets, principally cash, securities, property and equipment
and expenses.
9
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
General
During the quarter ended March 31, 1998, demand for both gypsum
wallboard and recycled paperboard continued to be strong. The Company's ongoing
$26 million capital expansion project, of which approximately $14 million has
been expended through March 31, 1998, to effectively double the production
capacity to 1.2 billion square feet at the Company's wallboard manufacturing
operations in Duke, Oklahoma is progressing satisfactorily and is on schedule to
be completed this summer.
Segment results for the Company's recycled paperboard operations
include the Company's recycled paperboard mills and reclaimed paper fiber
recycling operations. Segment results for the Company's gypsum wallboard
operations include gypsum wallboard manufacturing facilities in Duke, Oklahoma
and public warehouses located in Birmingham, Alabama and Cincinnati, Ohio.
Additionally, included in the gypsum wallboard segment the Company owns a
short-line railroad that connects to major carriers 15 miles from the Duke,
Oklahoma facility, enabling the Company to ship to distant markets economically.
(See Note 8, Segment Results -- Notes to Consolidated Financial Statements)
Quarters ended March 31, 1998 and 1997
For the fiscal quarter ended March 31, 1998, net sales were
$31,913,000, net income was $4,236,000, and diluted earnings per share were
$.36. In comparison, the Company had net sales of $30,728,000, net income of
$4,676,000 and diluted earnings per share of $.40 for the same quarter of 1997.
Operating profits were $6,809,000 in the 1998 quarter compared to $7,432,000 in
the same quarter of 1997.
The 4% increase in net sales was attributable primarily to a 5%
increase in shipments of recycled paperboard to unaffiliated customers and a 3%
increase in net selling prices of gypsum wallboard. Operating margins of the
recycled paperboard segment were lower compared to the March 1997 quarter
primarily as a result of higher variable per unit costs of raw materials,
principally reclaimed paper fiber, and utilities, principally natural gas, but
improved, nevertheless, from 8% in the December 1997 quarter to 14% in the March
1998 quarter. Operating margins of the gypsum wallboard segment were similar to
those experienced one year ago. Selling and administrative expenses, as a
percent of net sales, increased from 12% in the 1997 quarter to 13% in the 1998
quarter, due, in part, to increasing non-capital infrastructure and other costs
associated with the expansion of the Company's gypsum wallboard operations.
Additionally, the average tax rate in the 1998 quarter was 38%, up from 36% in
the 1997 quarter, primarily due to income tax refunds reducing the 1997
provision. As a result of the foregoing, net income for the quarter decreased 9%
compared to the comparable quarter in the prior year.
RECYCLED PAPERBOARD SEGMENT RESULTS. Shipments of recycled paperboard
to unaffiliated customers increased 5% from the March quarter of 1997 compared
to the same quarter of 1998. The improvement in paperboard shipments was
attributable primarily to a 31% increase in shipments from the Company's
Halltown mill due to the Company's concentrated sales efforts during the year.
The Halltown mill operated at 93% of capacity in the 1998 quarter compared to
72% in the 1997 quarter. Shipments of reclaimed paper fiber to unaffiliated
customers declined 23% during the same period. The decline was caused primarily
by the loss of two large suppliers of reclaimed paper fiber to the recycling
operations. Net sales for the recycled paperboard segment, after inter-company
eliminations, increased 5% from $16.3 million in the 1997 quarter to $17.1
million in the 1998 quarter due primarily to the aforementioned increase in
shipments of recycled paperboard as well as a slight increase in net selling
prices of the same.
10
<PAGE> 12
Prior to inter-company eliminations, total costs for the
segment, which includes both cost of sales and selling and administrative
expenses, increased 5% from $16.4 million to $17.2 million during the same
period. The increase in total costs from the 1997 quarter to the 1998 quarter
was due primarily to the 5% increase in shipments of recycled paperboard, and
variable per unit cost increases for recycled paperboard of 10% and 12% for raw
materials, principally reclaimed paper fiber, and utilities, principally natural
gas, respectively. As a result of the foregoing, operating profit for the
segment as a percentage of net sales remained flat compared to the prior year at
14%.
GYPSUM WALLBOARD SEGMENT RESULTS. Shipments of gypsum wallboard in the
March quarter of 1998 were almost equal to the high shipment levels achieved in
the same quarter one year ago. Because of increased demand for the Company's
products, net selling prices of gypsum wallboard increased 3% from the 1997
quarter to the 1998 quarter. The increase in net selling prices caused net sales
to increase 3% from $14.4 million to $14.8 million in the same periods. Prior to
inter-company eliminations, total costs for the segment increased from $8.3
million to $8.8 million from the 1997 quarter to the 1998 quarter. The increase
in total costs was caused primarily by a variable per unit increase of 26% for
labor costs and increases in selling and administrative expenses related to
staffing for the new production line and, to a lesser degree, increased sales
and administrative staffing in advance of the completion of the Company's
capital expansion project at its gypsum wallboard facility in Duke, Oklahoma. As
a result of the foregoing, operating profit for the segment, as a percent of net
sales, decreased nominally to 41% during the March 1998 quarter from 42% during
the same period in 1997.
Nine Months Ended March 31, 1998 and 1997
For the nine months ended March 31, 1998, consolidated net sales were
$96,231,000, net income was $12,529,000 and diluted earnings per share were
$1.06. In comparison, the Company had consolidated net sales of $90,701,000, net
income of $14,624,000 and diluted earnings per share of $1.24 for the nine
months ended March 31, 1997. Operating profits were $20,048,000 in the 1998
period compared to $23,597,000 in the 1997 period.
The 6% increase in consolidated net sales for the nine month period was
caused primarily by a 7% increase in shipments of recycled paperboard to
unaffiliated customers and a 8% increase in net selling prices of gypsum
wallboard. Operating margins of the recycled paperboard segment for the 1998
period were 11% compared to 20% in the same period of 1997. This was primarily a
result of higher variable per unit costs for raw materials, principally
reclaimed paper fiber, and utilities, principally natural gas, and downtime
associated with a boiler outage experienced at the Company's Hutchinson, Kansas
recycled paperboard mill during the first half of the fiscal year. Operating
margins of the gypsum wallboard segment were similar when compared to the same
period of 1997. As a result of the foregoing, operating profits and net income
for the nine months ended March 31, 1998 decreased 15% and 14%, respectively,
compared to the same period one year ago.
RECYCLED PAPERBOARD SEGMENT RESULTS. For the nine months ended March
31, 1998, shipments of recycled paperboard to unaffiliated customers increased
7% compared to the same period in 1997. The increase resulted primarily from a
20% increase in shipments from the Company's Halltown mill. Reclaimed paper
fiber operating results improved during the period but shipments to unaffiliated
customers decreased 16% in the March, 1998 period when compared to the same
period one year ago (see quarterly segment results.) Net sales for the segment,
after inter-company eliminations, increased 4% from $49.6 million in 1997 to
$51.7 million in 1998 due primarily to the aforementioned increase in shipments
of recycled paperboard. Prior to inter-company eliminations, total costs for the
segment increased 11% from $47.3 million to $52.4 million during the same
period. The increase in total costs was caused primarily by the aforementioned
7% increase in shipments of recycled paperboard and increases in variable per
unit costs for recycled paperboard of 24% and 13% for raw materials, principally
reclaimed paper fiber, and
11
<PAGE> 13
utilities, principally natural gas, respectively. As a result of the foregoing,
operating profits, as a percentage of net sales, decreased from 20% for the nine
months ended March 31, 1997 to 11% in the comparable period of 1998.
GYPSUM WALLBOARD SEGMENT RESULTS. For the nine months ended March 31,
1998, shipments of gypsum wallboard increased 1% compared to the same period of
1997. Because of strong demand, net selling prices, after inter-company
eliminations, increased 8% during 1998 causing net sales to increase 9% from
$41.1 million in 1997 to $44.6 in 1998. Prior to inter-company eliminations,
total costs for the segment increased from $24.6 million in 1997 to $26.0
million in 1998. The increase in total costs resulted primarily from the
aforementioned 1% increase in shipments and the gypsum wallboard expansion
project. As a result of the foregoing, operating profits as a percentage of net
sales increased to 42% for the nine months ended March 31, 1998, from 40% for
the comparable period in 1997.
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.
On October 17, 1997, the West Virginia Division of Environmental
Protection ("DEP") filed a complaint against Republic Paperboard Company of West
Virginia (the "West Virginia Subsidiary") in the Circuit Court of Jefferson
County, West Virginia. The complaint alleges that the West Virginia Subsidiary
has violated and continues to violate a previous order entered into between the
West Virginia Subsidiary and DEP on January 17, 1995 and further alleges that
the West Virginia Subsidiary has violated and continues to violate certain
provisions of its wastewater discharge permit. The West Virginia Subsidiary
discharges treated process wastewater into a creek running through its Halltown,
West Virginia facility (the "Facility") pursuant to a permit issued to the West
Virginia Subsidiary by DEP. The permit requires that the quality of the water
that may be discharged into the creek under the permit comply with certain
effluent limitations. The complaint alleges that the West Virginia Subsidiary
has violated this permit by discharging wastewater into the creek that contained
effluents in excess of the permit limitations. The complaint alleges 33
violations over a time period from October 1995 to March 1997. The complaint
also alleges that the earlier administrative order has been violated because of
the failure of the West Virginia Subsidiary to pay a stipulated penalty of
$1,000 for two alleged violations of the permit that occurred between January
1995 and October 1995. DEP is seeking by virtue of the complaint to require the
West Virginia Subsidiary to enter into a consent agreement that sets forth a
compliance schedule for correcting the alleged deficiencies in the wastewater
treatment facilities of the West Virginia Subsidiary that have led to the
alleged effluent exceedances. DEP is also requesting a civil monetary penalty of
an unspecified amount but which, according to the complaint, may not exceed
$10,000 per day for each of the alleged violations many of which involved
monthly limitations and may be treated as involving the entire number of days in
the month in question. DEP is also seeking to recover all of its costs of court
including attorneys fees. The West Virginia Subsidiary has responded in a timely
manner to the allegations of the complaint. At this time, the Company has not
ascertained the future liability, if any, of the above matter.
12
<PAGE> 14
Other commitments of the Company include non-cancelable contracts to
purchase property, plant, and equipment relating to the expansion of the Duke,
Oklahoma wallboard facility. These commitments totaled approximately $13,000,000
at March 31, 1998.
Liquidity and Capital Resources
The following is a summary of certain financial statistics related to
the liquidity of the Company at March 31, 1998, and at June 30, 1997.
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
----------------- ------------------
<S> <C> <C>
Cash, cash equivalents and investments $ 6,257,000 $ 2,086,000
Working capital $ 14,602,000 $ 12,939,000
Ratio of current assets to current liabilities 2.0:1 2.1:1
</TABLE>
On June 30, 1995, the Company purchased substantially all the assets of
Halltown Paperboard Company, Halltown, West Virginia and financed the
acquisition through $28.0 million in long-term bank financing, which was
scheduled to mature in the year 2002. However, all interest-bearing debt was
repaid during June, 1997. Also, on June 30, 1995, the Company entered into a
$7.0 million revolving line of credit. As of March 31, 1998, no amounts were
borrowed against the revolving line of credit facility, which expires June 30,
1998. Outstanding principal amounts on the revolving credit facility bear
interest at a variable rate equal to (i) the London Interbank Offered Rate, plus
an agreed margin (ranging from 50 to 150 points), which is to be established
annually based upon the Company's coverage of fixed charges, or (ii) the bank's
corporate prime rate, less 0.75%. Under the 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. In the near future, the Company plans to increase its revolving line
of credit limit primarily due to the ongoing expansion at the Company's
wallboard production facilities. This expansion will double the productive
capacity of the facilities at an estimated cost of $26,000,000.
The Board of Directors of the Company approved budgeted capital
expenditures of $8.0 million, not including the expansion project at the Duke,
Oklahoma wallboard facility, for fiscal 1998. Fixed asset additions for fiscal
1998 totaled $14.1 million through March 31, 1998, with approximately $9.3
million of this total associated with improvements and expansion of the Duke,
Oklahoma facility. These amounts include some capital projects carried over from
fiscal 1997. Management believes that cash, cash equivalents and investments,
internally generated funds, cash provided by operations, and existing cash
balances, supplemented as needed by advances under the increased revolving line
of credit, should be sufficient to meet the Company's capital requirements.
On April 21, 1998, the Board of Directors of the Company declared a
quarterly cash dividend of $0.09 per share of common stock to be paid on June
15, 1998 to stockholders of record on May 29, 1998. This dividend payment will
total approximately $1,055,000.
Forward-Looking Statements
Certain matters discussed in this Securities and Exchange Commission
Report on Form 10-Q may constitute forward-looking statements within the meaning
of the federal securities laws. These forward-looking statements are based on
current expectations and entail various risks and uncertainties that could cause
actual results to differ materially from those contemplated by the
forward-looking statements due to a number of factors, including general
economic conditions, competition, market acceptance of selling price increases,
raw material costs, facility fuel costs and other risks detailed from time to
time in the Company's filings with the Securities and Exchange Commission,
including its annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K.
13
<PAGE> 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding legal proceedings is set forth in Item 1 of
Part II of the Company's previously filed Securities and Exchange
Commission Report on 10-Q for the quarterly period ended December
31, 1997 and is incorporated herein by reference.
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.
14
<PAGE> 16
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 13, 1998 /s/ Doyle R. Ramsey
--------------------------------------
Doyle R. Ramsey
Vice President and Chief
Financial Officer
May 13, 1998 /s/ Larry F. Huser
--------------------------------------
Larry F. Huser
Controller and Principal
Accounting Officer
15
<PAGE> 17
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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,962,000
<SECURITIES> 1,295,000
<RECEIVABLES> 13,061,000
<ALLOWANCES> 757,000
<INVENTORY> 8,542,000
<CURRENT-ASSETS> 28,653,000
<PP&E> 135,127,000
<DEPRECIATION> 52,220,000
<TOTAL-ASSETS> 112,433,000
<CURRENT-LIABILITIES> 14,051,000
<BONDS> 0
0
0
<COMMON> 11,748,000
<OTHER-SE> 75,646,000
<TOTAL-LIABILITY-AND-EQUITY> 112,433,000
<SALES> 111,450,000
<TOTAL-REVENUES> 111,450,000
<CGS> 64,354,000
<TOTAL-COSTS> 64,354,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 20,206,000
<INCOME-TAX> 7,677,000
<INCOME-CONTINUING> 12,529,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,529,000
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.06
</TABLE>
