1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) NOVEMBER 16, 2000 (NOVEMBER 10, 2000) CENTEX CONSTRUCTION PRODUCTS, INC. (Exact name of registrant as specified in its charter) DELAWARE 1-12984 75-2520779 (State of other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 2728 N. HARWOOD, DALLAS, TEXAS 75201 (Address of principal executive offices) (Zip code) Registrant's telephone number including area code: (214) 981-5000 3710 RAWLINS, SUITE 1600, LB 78, DALLAS, TEXAS 75219 (Former name or former address if changed from last report) ================================================================================
2 The undersigned Registrant hereby amends the following items, financial statements, exhibits and other portions of its Current Report on Form 8-K, which was originally filed with the Securities and Exchange Commission on November 16, 2000, relating to the acquisition by a subsidiary of Centex Construction Products, Inc., a Delaware corporation ("CXP"), from Republic Group LLC, a Delaware limited liability company (formerly Republic Group Incorporated, a Delaware corporation, prior to the conversion of such corporation into a Delaware limited liability company on November 9, 2000) (the "Seller"), of the outstanding equity interests in certain limited liability companies that were subsidiaries of the Seller. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Business Acquired CXP is filing as Exhibit 99.2 to this Current Report the financial statements for the acquired business required to be filed pursuant to Item 7 of Form 8-K, which consist of the following: Consolidated Statements of Income of Republic Group Incorporated for the years ended June 30, 2000, 1999 and 1998 Consolidated Balance Sheets of Republic Group Incorporated as of June 30, 2000 and 1999 Consolidated Statements of Cash Flows of Republic Group Incorporated for the years ended June 30, 2000, 1999 and 1998 Consolidated Statements of Stockholders' Equity of Republic Group Incorporated for the years ended June 30, 2000, 1999 and 1998 Notes to consolidated financial statements (b) Pro Forma Financial Information CXP is filing as Exhibit 99.3 to this Current Report the pro forma financial information required to be filed pursuant to Item 7 of Form 8-K, which consists of the following: Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2000 Unaudited Pro Forma Consolidated Statement of Earnings for the year ended March 31, 2000 Unaudited Pro Forma Consolidated Statement of Earnings for the six months ended September 30, 2000 Notes to unaudited pro forma consolidated financial data 2
3 (c) Exhibits Exhibit Number Description - ------ ----------- 2.1 Securities Purchase Agreement, entered into as of November 10, 2000, among Republic Group LLC, Centex Construction Products, Inc., and Republic Holding Corporation. Exhibits and schedules to the Securities Purchase Agreement are omitted in accordance with Item 601(d)(2) of Regulation S-K. Upon request from the Securities and Exchange Commission, the registrant will furnish supplementally a copy of any omitted exhibits or schedules.* 23.1 Consent of Arthur Andersen LLP with respect to the financial statements of Republic Group Incorporated filed as Exhibit 99.2. 99.1 Press Release dated November 10, 2000.* 99.2 Audited financial statements of Republic Group Incorporated as of June 30, 2000 and 1999 and for the years ended June 30, 2000, 1999 and 1998. 99.3 Unaudited pro forma consolidated balance sheet as of September 30, 2000 and unaudited pro forma consolidated statements of earnings for the year ended March 31, 2000 and the six months ended September 30, 2000. - ---------------------------- * Previously filed. 3
4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned, hereunto duly authorized. CENTEX CONSTRUCTION PRODUCTS, INC. By: /s/ Arthur R. Zunker, Jr. ------------------------------ Name: Arthur R. Zunker, Jr. Title: Senior Vice President - Finance and Treasurer Date: January 22, 2001 4
5 EXHIBIT INDEX Exhibit Number Description - ------ ----------- 2.1 Securities Purchase Agreement, entered into as of November 10, 2000, among Republic Group LLC, Centex Construction Products, Inc., and Republic Holding Corporation. Exhibits and schedules to the Securities Purchase Agreement are omitted in accordance with Item 601(d)(2) of Regulation S-K. Upon request from the Securities and Exchange Commission, the registrant will furnish supplementally a copy of any omitted exhibits or schedules.* 23.1 Consent of Arthur Andersen LLP with respect to the financial statements of Republic Group Incorporated filed as Exhibit 99.2. 99.1 Press Release dated November 10, 2000.* 99.2 Audited financial statements of Republic Group Incorporated as of June 30, 2000 and 1999 and for the years ended June 30, 2000, 1999 and 1998. 99.3 Unaudited pro forma consolidated balance sheet as of September 30, 2000 and unaudited pro forma consolidated statements of earnings for the year ended March 31, 2000 and the six months ended September 30, 2000. - ---------------------------- * Previously filed.
1 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report included in this Form 8-K/A, into Centex Construction Products, Inc.'s previously filed registration statements on Form S-8 (No. 33-82820; No. 33-82928; No. 33-84394; No. 333-54102). /s/ ARTHUR ANDERSEN LLP Dallas, Texas January 19, 2001
1 EXHIBIT 99.2 REPUBLIC GROUP INCORPORATED CONSOLIDATED STATEMENTS OF INCOME Years Ended June 30, 2000, 1999 and 1998 2000 1999 1998 ------------ ------------ ------------ Gross sales......................... $219,411,000 $158,886,000 $148,627,000 Less freight and discounts.......... 28,901,000 20,944,000 20,342,000 ------------ ------------ ------------ Net sales........................... 190,510,000 137,942,000 128,285,000 Costs and expenses: Cost of sales..................... 142,197,000 92,128,000 85,339,000 Selling and administrative expenses......................... 21,979,000 18,953,000 15,941,000 Asset write-down.................. 16,724,000 -- -- ------------ ------------ ------------ 180,900,000 111,081,000 101,280,000 ------------ ------------ ------------ Operating profit.................... 9,610,000 26,861,000 27,005,000 Interest expense.................. (5,189,000) (4,271,000) (5,000) Interest income................... 203,000 2,410,000 182,000 Other income (expense), net....... (21,000) (60,000) 1,000,000 ------------ ------------ ------------ (5,007,000) (1,921,000) 1,177,000 ------------ ------------ ------------ Income before income taxes.......... 4,603,000 24,940,000 28,182,000 Provision for income taxes.......... 1,842,000 9,708,000 10,383,000 ------------ ------------ ------------ Net income.......................... $ 2,761,000 $ 15,232,000 $ 17,799,000 ------------ ------------ ------------ Basic earnings per share............ $ 0.23 $ 1.29 $ 1.52 ------------ ------------ ------------ Basic weighted-average shares outstanding........................ 11,825,000 11,771,000 11,705,000 ------------ ------------ ------------ Diluted earnings per share.......... $ 0.23 $ 1.29 $ 1.51 ------------ ------------ ------------ Diluted weighted-average shares outstanding........................ 11,852,000 11,851,000 11,798,000 ------------ ------------ ------------ See accompanying notes.
2 REPUBLIC GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS June 30, 2000 and 1999 2000 1999 ------------ ------------ ASSETS Current assets: Cash and cash equivalents.......................... $ 7,414,000 $ 6,192,000 Accounts receivable, less allowance for doubtful accounts of $574,000 in 2000 and $520,000 in 1999.............................................. 22,020,000 18,838,000 Income tax refunds receivable...................... 16,945,000 491,000 Inventories: Finished goods................................... 7,200,000 3,396,000 Raw materials and supplies....................... 12,774,000 7,538,000 ------------ ------------ 19,974,000 10,934,000 Prepaid expenses and other......................... 811,000 902,000 Deferred income taxes.............................. 952,000 630,000 ------------ ------------ Total current assets........................... 68,116,000 37,987,000 Property, plant and equipment, at cost: Land, land improvements and mineral deposits....... 12,922,000 5,055,000 Buildings and leasehold improvements............... 52,451,000 20,621,000 Equipment.......................................... 264,721,000 141,052,000 Construction in progress........................... 2,292,000 119,210,000 ------------ ------------ 332,386,000 285,938,000 Less accumulated depreciation, amortization and depletion......................................... 64,896,000 61,989,000 ------------ ------------ 267,490,000 223,949,000 Unamortized debt issue costs......................... 4,476,000 4,780,000 Other assets......................................... 9,081,000 1,452,000 ------------ ------------ Total assets......................................... $349,163,000 $268,168,000 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................... $ 14,483,000 $ 14,021,000 Accrued payroll and employee benefits.............. 3,742,000 3,475,000 Income taxes payable............................... -- 1,333,000 Accrued interest payable........................... 4,741,000 4,448,000 Other current liabilities.......................... 1,412,000 1,584,000 Short-term notes payable........................... 1,500,000 -- Current portion of long-term debt.................. 7,500,000 -- ------------ ------------ Total current liabilities...................... 33,378,000 24,861,000 Long-term debt due after one year.................... 191,000,000 125,000,000 Deferred income taxes................................ 21,431,000 13,695,000 Other long-term liabilities.......................... 442,000 597,000 Commitments and contingencies--see notes Stockholders' equity: No par preferred stock issuable in series; 487,000 shares authorized; none issued and outstanding.... -- -- Common stock, $1 par value; 35,000,000 authorized; issued 11,842,000 in 2000 and 11,800,000 in 1999... 11,842,000 11,800,000 Additional paid-in capital......................... 28,898,000 28,568,000 Unrealized gain on marketable securities........... 190,000 169,000 Retained earnings.................................. 61,982,000 63,478,000 ------------ ------------ Total stockholders' equity..................... 102,912,000 104,015,000 ------------ ------------ Total liabilities and stockholders' equity........... $349,163,000 $268,168,000 ============ ============ See accompanying notes.
3 REPUBLIC GROUP INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended June 30, 2000, 1999 and 1998 2000 1999 1998 ------------ ------------ ------------ Cash flows from operating activities: Net income......................... $ 2,761,000 $ 15,232,000 $ 17,799,000 Adjustments to reconcile net income to net cash provided by operating activities: Income receivable--life insurance proceeds........................ -- -- (1,000,000) Depreciation, amortization and depletion....................... 14,451,000 9,706,000 7,738,000 Write down of property, plant and equipment....................... 16,724,000 -- -- Non-cash compensation expense.... -- 3,000 320,000 Deferred income taxes............ 7,414,000 2,187,000 1,616,000 Loss on sale of assets........... 24,000 124,000 52,000 Changes in assets and liabilities: Accounts receivable............ (3,182,000) (5,227,000) 282,000 Income tax refunds receivable.. (16,454,000) 161,000 (158,000) Inventories.................... (9,040,000) (2,484,000) (1,109,000) Prepaid expenses............... 91,000 (51,000) (191,000) Accounts payable and accrued liabilities................... 557,000 3,819,000 3,353,000 Income taxes payable........... (1,333,000) 1,333,000 (203,000) Accrued interest payable....... 293,000 4,448,000 -- Other assets and liabilities... (212,000) (220,000) (200,000) ------------ ------------ ------------ Net cash provided by operating activities........................ 12,094,000 29,031,000 28,299,000 ------------ ------------ ------------ Cash flows from investing activities: Additions to property, plant and equipment......................... (81,674,000) (135,471,000) (31,191,000) Proceeds from sale of property, plant and equipment............... 104,000 128,000 56,000 Proceeds from life insurance policy............................ -- 1,000,000 -- Purchases of investments........... -- -- (11,470,000) Proceeds from sale of investments.. -- -- 12,120,000 ------------ ------------ ------------ Net cash used by investing activities........................ (81,570,000) (134,343,000) (30,485,000) ------------ ------------ ------------ Cash flows from financing activities: Dividends paid..................... (4,257,000) (4,238,000) (4,215,000) Net proceeds under lines of credit............................ 75,000,000 19,050,000 5,950,000 Proceeds from issuance of debt..... -- 100,000,000 -- Payments for debt issue costs...... (417,000) (5,105,000) (291,000) Issuance of common treasury stock.. -- 150,000 128,000 Proceeds from exercised stock options........................... 372,000 523,000 302,000 ------------ ------------ ------------ Net cash provided by financing activities........................ 70,698,000 110,380,000 1,874,000 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents.................... 1,222,000 5,068,000 (312,000) Cash and cash equivalents at beginning of year................... 6,192,000 1,124,000 1,436,000 ------------ ------------ ------------ Cash and cash equivalents at end of year................................ $ 7,414,000 $ 6,192,000 $ 1,124,000 ------------ ------------ ------------ Supplemental disclosure of cash flow information: Cash paid during the year for Income taxes, net of refunds....... $ 12,215,000 $ 6,027,000 $ 9,127,000 Interest........................... $ 14,479,000 $ 5,172,000 $ 5,000 See accompanying notes.
4 REPUBLIC GROUP INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended June 30, 2000, 1999 and 1998 Treasury Stock ------------- Common Additional Unrealized Gain Amount Total Stock, $1 Paid-In Retained On Marketable at Stockholders' Comprehensive In thousands Par Value Capital Earnings Securities Shares cost Equity Income - ------------ --------- ---------- -------- --------------- ------ ------ ------------- ------------- Balance at June 30, 1997................... $11,716 $27,827 $38,995 $-- 33 $(693) $ 77,845 ------- ------- ------- ---- --- ----- -------- Net income.............. -- -- 17,799 -- -- -- 17,799 $17,799 Cash dividends on common stock, $.36 per share.. -- -- (4,215) -- -- -- (4,215) -- Issuance of treasury shares................. -- -- (35) -- (23) 483 448 -- Exercise of stock options................ 33 269 -- -- -- -- 302 -- ------- Total comprehensive income................. -- -- -- -- -- -- -- $17,799 ------- ------- ------- ---- --- ----- -------- ------- Balance at June 30, 1998................... $11,749 $28,096 $52,544 $-- 10 $(210) $ 92,179 ------- ------- ------- ---- --- ----- -------- Net income.............. -- -- 15,232 -- -- -- 15,232 $15,232 Cash dividends on common stock, $.36 per share.. -- -- (4,238) -- -- -- (4,238) -- Issuance of treasury shares................. -- -- (60) -- (10) 210 150 -- Exercise of stock options................ 51 472 -- -- -- -- 523 -- Unrealized gain on marketable securities.. -- -- -- 169 -- -- 169 169 ------- Total comprehensive income................. -- -- -- -- -- -- -- $15,401 ------- ------- ------- ---- --- ----- -------- ------- Balance at June 30, 1999................... $11,800 $28,568 $63,478 $169 -- $ -- $104,015 ------- ------- ------- ---- --- ----- -------- Net income.............. -- -- 2,761 -- -- -- 2,761 $ 2,761 Cash dividends on common stock, $.36 per share.. -- -- (4,257) -- -- -- (4,257) -- Exercise of stock options................ 42 330 -- -- -- -- 372 -- Unrealized gain on marketable securities.. -- -- -- 21 -- -- 21 21 ------- Total comprehensive income................. -- -- -- -- -- -- -- $ 2,782 ------- ------- ------- ---- --- ----- -------- ------- Balance at June 30, 2000................... $11,842 $28,898 $61,982 $190 -- $ -- $102,912 ======= ======= ======= ==== === ===== ======== See accompanying notes.
5 REPUBLIC GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000, 1999 and 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The consolidated financial statements include the accounts of Republic Group Incorporated, a Delaware corporation, and its subsidiaries (the "Company"). All intercompany accounts and transactions have been eliminated. Use of Estimates in Financial Statements The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from these estimates. Cash Equivalents Short-term investments that are highly liquid and have original maturity dates of three months or less are considered cash equivalents for the purpose of the Consolidated Statements of Cash Flows. These investments are carried at market. Concentration of Credit Risk The majority of the Company's sales are to retailers, manufacturers and wholesalers. The Company conducts ongoing credit evaluations of its customers' financial conditions and limits the amount of trade credit extended when necessary. The Company maintains allowances for expected credit losses. Inventories Inventories are stated at the lower of cost (average or first-in, first-out) or market and include the appropriate elements of materials, labor and manufacturing overhead expenses. Property, Plant and Equipment Plant and equipment assets are recorded at cost and depreciated generally by the straight-line method over the estimated useful lives of the assets. Expenditures for additions and improvements are capitalized, and costs for repairs and maintenance are charged to operations as incurred. The estimated useful lives for buildings range from 15 to 40 years. The estimated useful lives for equipment range from 3 to 20 years. Revenue Recognition Revenue is recognized at the time products are shipped to the customer or, in the case of rail services, at the time service is rendered. Investments in Marketable Securities The Company's investments in marketable securities are classified as available-for-sale securities and are reported at fair value with unrealized gains excluded from earnings and reported as a separate component of stockholders' equity, net of tax.
6 Income Taxes The provision for income taxes includes federal and state taxes currently payable (receivable) and deferred taxes arising from temporary differences in determining income for financial statement and tax purposes. The Company files a consolidated federal return which includes the results for all of its subsidiaries. Deferred tax assets, liabilities and related expense accounts are adjusted annually for any changes in statutory tax rates. State income tax credits earned in conjunction with plant construction or expansion are recognized ratably over the average life of the related property. Reclassification Certain prior year balances have been reclassified to conform with the current year presentation. Environmental Remediation and Compliance Environmental expenditures are expensed or capitalized, as appropriate. Liabilities are recorded when assessments and/or remedial efforts are probable and the cost can be reasonably estimated. Impairment The carrying value of property, plant and equipment is evaluated periodically in relation to the operating performance and future undiscounted cash flows of the underlying business. Adjustments are made if the sum of expected future cash flows is less than book value. New Accounting Standard In 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued to establish accounting and reporting standards for derivative instruments and hedging activities. The Company does not utilize derivative instruments nor does it perform hedging activities as defined in the new pronouncement. Consequently, the impact of adopting this pronouncement is expected to be insignificant.
7 2. INDUSTRY SEGMENTS Certain information with regard to industry segments, within which the Company operates, is as follows: Recycled Eliminations Gypsum Paperboard and other Consolidated -------- ---------- ------------ ------------ 2000 Shipment units: Gypsum wallboard (MSF).......... 725,885 -- -- 725,885 Recycled paperboard (tons)...... -- 213,033 (19,691) 193,342 Recovered paper fiber (tons).... -- 313,085 (204,230) 108,855 -------- -------- --------- -------- Gross sales (in thousands) Gypsum wallboard................ $127,878 $ -- $ -- $127,878 Recycled paperboard............. -- 78,890 -- 78,890 Recovered paper fiber........... -- 35,513 (22,883) 12,630 Intrasegment fiber sales........ -- (22,883) 22,883 -- Intersegment paperboard sales... -- 8,431 (8,431) -- Other........................... -- -- 13 13 -------- -------- --------- -------- Gross sales..................... 127,878 99,951 (8,418) 219,411 Less freight and discounts...... 22,312 6,589 -- 28,901 -------- -------- --------- -------- Net sales....................... $105,566 $ 93,362 $ (8,418) $190,510 -------- -------- --------- -------- Operating profit (loss) (1)..... $ 44,738 $(26,380) $ (8,748) $ 9,610 Total assets.................... 78,519 234,203 36,441 349,163 Capital expenditures............ 10,962 69,302 1,410 81,674 Depreciation, depletion and amortization................... 4,533 8,252 1,666 14,451 1999 Shipment units: Gypsum wallboard (MSF).......... 589,894 -- -- 589,894 Recycled paperboard (tons)...... -- 185,793 (27,567) 158,226 Recovered paper fiber (tons).... -- 179,286 (84,125) 95,161 -------- -------- --------- -------- Gross sales (in thousands) Gypsum wallboard................ $ 89,678 $ -- $ -- $ 89,678 Recycled paperboard............. -- 62,927 -- 62,927 Recovered paper fiber........... -- 11,556 (5,281) 6,275 Intrasegment fiber sales........ -- (5,281) 5,281 -- Intersegment paperboard sales... -- 10,095 (10,095) -- Other........................... -- -- 6 6 -------- -------- --------- -------- Gross sales..................... 89,678 79,297 (10,089) 158,886 Less freight and discounts...... 16,121 4,823 -- 20,944 -------- -------- --------- -------- Net sales....................... $ 73,557 $ 74,474 $ (10,089) $137,942 -------- -------- --------- -------- Operating profit (loss)......... $ 28,478 $ 6,530 $ (8,147) $ 26,861 Total assets.................... 70,497 181,258 16,413 268,168 Capital expenditures............ 22,732 112,285 454 135,471 Depreciation, depletion and amortization................... 2,981 5,239 1,486 9,706
8 Recycled Eliminations Gypsum Paperboard and other Consolidated ------- ---------- ------------ ------------ 1998 Shipment units: Gypsum wallboard (MSF)........... 566,424 -- -- 566,424 Recycled paperboard (tons)....... -- 190,614 (27,108) 163,506 Recovered paper fiber (tons)..... -- 145,553 (67,112) 78,441 ------- ------- -------- -------- Gross sales (in thousands) Gypsum wallboard................. $74,755 $ -- $ -- $ 74,755 Recycled paperboard.............. -- 67,677 -- 67,677 Recovered paper fiber............ -- 12,415 (6,227) 6,188 Intrasegment fiber sales......... -- (6,227) 6,227 -- Intersegment paperboard sales.... -- 10,412 (10,412) -- Other............................ -- -- 7 7 ------- ------- -------- -------- Gross sales...................... 74,755 84,277 (10,405) 148,627 Less freight and discounts....... 15,293 5,049 -- 20,342 ------- ------- -------- -------- Net sales........................ $59,462 $79,228 $(10,405) $128,285 ------- ------- -------- -------- Operating profit (loss).......... $24,342 $ 9,658 $ (6,995) $ 27,005 Total assets..................... 43,993 73,212 8,270 125,475 Capital expenditures............. 16,612 13,979 600 31,191 Depreciation, depletion and amortization.................... 1,641 5,301 796 7,738 - -------- (1) Operating loss for the Recycled Paperboard segment includes a $16,724,000 asset impairment write-down for the Company's Halltown mill. See--Notes to Consolidated Financial Statements--Assets Held For Sale. 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 reclaimed paper fiber. The Company's gypsum wallboard operations are located at 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 at Hutchinson, Kansas, Commerce City, Colorado, Halltown, West Virginia and Lawton, Oklahoma. The Lawton mill began commercial production in March 2000. The Company's primary markets for recycled paperboard generally lie within a 600 mile radius of each facility. The Company operates reclaimed paper fiber recycling centers at Kansas City, Missouri, Topeka, Kansas, and Denver, Colorado. During fiscal 2000, approximately 9% of the recycled paperboard shipped by the mills was consumed by the Company's wallboard operations compared to 15% and 14% respectively in fiscal 1999 and 1998. Another 22% was shipped to other unaffiliated gypsum wallboard manufacturers in fiscal 2000 compared to 23% and 20%, respectively, in fiscal 1999 and 1998. An adverse change in the construction industry could have a material effect on the earnings of the Company. The Company has no customer in either the gypsum segment or the paperboard segment who accounted for more than 10% of consolidated gross sales in fiscal 2000. Over 50% of the Company's employees are covered by collective bargaining units with four labor unions. The expirations of current bargaining agreements range from 2002 to 2004. 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. Total 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 3. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY On July 15, 1998, the Company received proceeds from the sale of $100,000,000 of 9.5% Senior Subordinated Notes (the "Notes") with a maturity date of July 15, 2008. The proceeds from the Notes, along with a credit facility of up to $85,000,000 entered into with a bank syndicate on July 15, 1998, were used primarily to finance the construction of the Lawton mill and for general and corporate purposes. On July 15, 1998, the Company used a portion of the proceeds from the sale of the Notes to repay the outstanding principal balance ($5,950,000) of a then existing revolving credit facility along with accrued interest. Upon repayment, the Company terminated the revolving credit facility. Due to the recently expanded scope of the Company's business and increased working capital requirements, the Company signed amendments to the existing credit facility on March 1, 2000 and June 27, 2000, increasing the amount available to $115,000,000. Interest payment dates on the Notes are January 15 and July 15, and commenced on January 15, 1999. Each semi-annual interest payment is $4,750,000. The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after July 15, 2003, at a redemption price of 104.75% which reduces to 100% on or after July 15, 2005. In addition, prior to July 15, 2001, the Company may redeem up to 35% of the principal amount of the Notes with the net cash proceeds received by the Company from one or more public equity offerings, at a redemption price of 109.50%. The Notes include financial and other covenants of the kind generally included in such indebtedness. The amended $115,000,000 credit facility includes a $60,000,000 term loan effective March 1, 2000 and a $55,000,000 revolving credit facility. The principal of the term loan is being paid quarterly over four years and commenced on June 1, 2000 with payments of $1,500,000; $7,500,000; $13,500,000; $19,500,000 and $18,000,000 due during fiscal years 2000, 2001, 2002, 2003 and 2004, respectively. As of June 30, 2000, the Company had borrowed $41,500,000 under the revolving credit facility. Borrowings in excess of $40,000,000 are payable on April 2, 2001 and the balance will mature on March 1, 2004. Consequently, the $1,500,000 payable on April 2, 2001 has been reflected as a short-term note payable in the accompanying balance sheet. Availability under the credit facility is not subject to a borrowing base. The borrowings under the credit facility are guaranteed by each of the Company's material subsidiaries and are secured by a mortgage on the Lawton mill, a pledge of stock of the Company's subsidiaries and security interests in substantially all other personal property of the Company and its subsidiaries. During any period that outstanding loans under the credit facility exceed $50,000,000, the lenders may require that other real property and improvements of the Company and its subsidiaries be mortgaged as security for the credit facility. Outstanding principal amounts on the credit facility bear interest at a variable rate equal to, at the election of the Company, (i) LIBOR, plus an agreed margin (ranging from 75 to 225 basis points), which is to be established quarterly based upon the Company's leverage ratio or (ii) the higher of (a) Bank of America corporate prime rate and (b) the sum of 1/2 of 1% plus the federal funds rate, plus, in each case, an agreed margin (ranging from 0 to 100 basis points). Interest payments under the credit facility are payable quarterly. Under the credit facility, the Company is required to adhere to a number of financial and other covenants, including covenants relating to excess cash flow, debt to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio, interest coverage ratio, minimum EBITDA, and limitations on capital expenditures and dividends. The credit facility does not restrict the transfer of funds to the parent by the subsidiaries. The Company had borrowings outstanding of $100,000,000 under the credit facility at June 30, 2000 at a weighted-average interest rate of 9.00%. Interest expense for the years ending June 30, 2000, 1999 and 1998 was $5,189,000, $4,271,000 and $5,000 respectively. Additionally, the Company capitalized interest of approximately $10,304,000 and $5,904,000 for the years ended June 30, 2000 and 1999, respectively, and none in fiscal year 1998. The components of interest include interest associated with the Notes and credit facility, commitment fees based on the unused portion of the credit facility and amortization of debt issue costs. Debt issue costs are being amortized over the lives of the Notes and the credit facility.
10 4. EMPLOYEE STOCK OWNERSHIP PLAN The Company has an Employee Stock Ownership Plan (the "Plan") for all salaried employees of the Company. They become eligible to participate in the Plan on July 1 following the calendar year in which they are hired. The Plan is a defined contribution stock bonus plan. The Board of Directors of the Company determines if a contribution will be made and the amount of the contribution. The Company is not obligated or required to contribute for any particular year. Participants are neither required nor permitted to make contributions under the Plan. The Company contribution for a particular year is allocated to the Company Stock Account of each participant who is employed on the last day of that plan year and each participant whose employment terminated during that plan year because of death, retirement at or after age 65, or disability. All contributions to the Plan are subject to a vesting schedule based on years of service. During fiscal years 2000, 1999 and 1998, the Board of Directors of the Company approved contributions of $333,000, $348,000 and $320,000 respectively, and the compensation expense was recognized in the financial statements. The 2000 and 1999 contributions were cash contributions. The contribution for 1998 consisted of common stock issued from treasury shares valued at $320,000. 5. ASSETS HELD FOR SALE Due to poor operating results and continued weakness in East Coast paperboard markets, the Company, in the fourth quarter of fiscal 2000, initiated a process to sell its Halltown, West Virginia recycled paperboard mill. Pursuant to SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company recorded a $16.7 million asset write-down to reflect the property and equipment associated with the Halltown mill at its estimated fair value, less selling costs. The carrying amount of such assets was reduced to $7.6 million. During fiscal year 2000, the Halltown paperboard mill experienced an operating loss of $5.7 million, before any related income tax benefit. The Company expects to complete the sale of such assets in fiscal year 2001. 6. PENSION AND OTHER BENEFIT PLANS The Company maintains a pension plan (the "Plan") for its hourly employees at its Hutchinson, Kansas paperboard mill. Normal monthly retirement benefits are based on negotiated benefit levels and the employee's years of credited service. Contributions to the Plan, historically, have been based on the maximum tax deductible contribution; however, the Company was not required and elected not to make a contribution for fiscal year 2000. The following tables, in accordance with Financial Accounting Standard ("FAS") 132, present financial statement disclosures associated with the Plan. Years Ended June 30 ------------------------------ 2000 1999 1998 --------- --------- -------- Components of Net Periodic Cost Service cost................................. $ 64,000 $ 65,000 $ 54,000 Interest cost................................ 134,000 114,000 99,000 Expected return on assets.................... (156,000) (104,000) (87,000) Amortization of unrecognized net asset at compliance.................................. 9,000 9,000 9,000 Amortization of unrecognized prior service cost........................................ 35,000 28,000 27,000 Amortization of net gain..................... (6,000) -- (7,000) --------- --------- -------- Net periodic cost.......................... $ 80,000 $ 112,000 $ 95,000 ========= ========= ========
11 Years Ended June 30 ------------------------ 2000 1999 ----------- ----------- Change in Benefit Obligation Benefit obligation at beginning of year............ $ 1,655,000 $ 1,655,000 Service cost....................................... 64,000 65,000 Interest cost...................................... 134,000 114,000 Plan amendments.................................... 161,000 -- Actuarial gain..................................... (10,000) (126,000) Benefits paid...................................... (54,000) (53,000) ----------- ----------- Benefit obligation at end of year.................. $ 1,950,000 $ 1,655,000 =========== =========== Change in Plan Assets Fair value of assets at beginning of year.......... $ 1,972,000 $ 1,762,000 Actual return on assets............................ 288,000 164,000 Employer contributions............................. -- 99,000 Benefits paid...................................... (54,000) (53,000) ----------- ----------- Fair value of assets at end of year................ $ 2,206,000 $ 1,972,000 =========== =========== Funded Status Accumulated and projected benefit obligation....... $(1,950,000) $(1,655,000) Fair value of assets............................... 2,206,000 1,972,000 Unrecognized net asset............................. 21,000 29,000 Unrecognized prior service cost.................... 382,000 257,000 Unrecognized net gain.............................. (435,000) (299,000) ----------- ----------- Prepaid pension cost............................... $ 224,000 $ 304,000 =========== =========== Weighted-average assumptions as of June 30 Discount rate...................................... 7.50% 7.50% Expected return on plan assets..................... 8.00% 8.00% The unrecognized prior service costs and unrecognized net gain are being amortized over approximately 15 years. The assets of the Plan at June 30, 2000 were invested in corporate and government bonds, equities, cash, and cash equivalents. Additionally, the Company has a voluntary 401(k) Plan at all Company facilities, excluding the Hutchinson, Kansas paperboard mill. The 401(k) Plan also includes all salaried employees company-wide. Although there is one 401(k) Plan for all Company locations, there are various employee and employer contribution limits, employer matching percentages, and employer vesting schedules for each location. Contributions to the 401(k) Plan were $786,000, $516,000, and $493,000 during 2000, 1999 and 1998, respectively. Effective July 1, 1997, the Company adopted the "Republic Group Incorporated Employee Stock Purchase Plan." All salaried and hourly employees are eligible to participate in the plan after meeting the eligibility requirements. Percentage limitations and dollar limitations are in effect for each calendar year. The price per share for which common stock is sold to participants is 90% of the fair market value on the exercise date. The Company also has severance, retention, and key employee continuation plans in which certain amounts are payable to eligible employees in the event of a change in control of the Company.
12 7. STOCK OPTIONS Options have been granted to key employees at prices which represent fair market value at dates of grant, have terms ranging from five to ten years and are exercisable at 20% to 25% per year on a cumulative basis beginning one year from date of grant. In addition, some grants are only exercisable if certain Company performance targets are attained. The Company is authorized to grant 1,265,000 shares of common stock to key employees in the 1989 Plan of which 512,000 common shares were unissued as of June 30, 2000, and is authorized to grant 219,000 shares to directors in the Non-Employee Director Plan of which 57,000 common shares were unissued as of June 30, 2000. A summary of transactions for the years ended June 30, 2000, 1999 and 1998 is set forth in the following table: Non-Employee Shares Rounded to Thousands 1989 Plan Director Plan - --------------------------- ------------------------ ------------------------ Weighted- Weighted- Number of Average Number of Average Options: Shares Exercise Price Shares Exercise Price - -------- --------- -------------- --------- -------------- Outstanding at June 30, 1997....................... 284,000 $11.07 67,000 $ 9.86 Granted..................... 112,000 19.05 15,000 18.94 Cancelled................... (52,000) 13.73 -- -- Exercised................... (46,000) 8.94 (1,000) 4.65 ------- ------ ------- ------ Outstanding at June 30, 1998....................... 298,000 $13.95 81,000 $11.70 ------- ------ ------- ------ Granted..................... 204,000 15.79 15,000 14.63 Cancelled................... (24,000) 16.19 (2,000) 18.94 Exercised................... (44,000) 9.78 (16,000) 12.84 ------- ------ ------- ------ Outstanding at June 30, 1999....................... 434,000 $15.11 78,000 $11.84 ------- ------ ------- ------ Granted..................... 175,000 17.50 15,000 17.25 Cancelled................... (55,000) 16.76 (4,000) 17.25 Exercised................... (19,000) 8.69 (11,000) 3.41 ------- ------ ------- ------ Outstanding at June 30, 2000....................... 535,000 $16.00 78,000 $13.86 ------- ------ ------- ------ Exercisable options--June 30, 2000................... 196,000 $14.27 67,000 $13.30 ======= ====== ======= ======
13 The following tables summarize information about stock options outstanding at June 30, 2000. 1989 Plan ------------------------------------------------------------------------ Options Outstanding Options Exercisable ---------------------------- ---------------------------- Outstanding Range of as of Weighted-Average Weighted- Exercisable Weighted- Exercise June 30, Remaining Average as of Average Prices 2000 Contractual Life Exercise Price June 30, 2000 Exercise Price -------- ----------- ---------------- -------------- ------------- -------------- $ 6.23 - $ 8.31......... 34,000 1.0 $ 8.18 34,000 $ 8.18 10.38 - 12.46......... 30,000 0.3 10.91 30,000 10.91 14.53 - 16.61......... 176,000 2.7 15.03 73,000 15.06 16.61 - 18.69......... 212,000 4.8 17.56 20,000 17.33 18.69 - 20.76......... 83,000 3.0 19.12 39,000 19.13 ------- ---- ------ ------- ------ 535,000 3.3 $16.00 196,000 $14.27 ======= ==== ====== ======= ====== Non-Employee Director Plan ------------------------------------------------------------------------ Options Outstanding Options Exercisable ---------------------------- ---------------------------- Outstanding Weighted- Range of as of Average Weighted- Exercisable Weighted- Exercise June 30, Remaining Average as of Average Prices 2000 Contractual Life Exercise Price June 30, 2000 Exercise Price -------- ----------- ---------------- -------------- ------------- -------------- $ 2.08 - $ 4.15......... 12,000 19.1 $ 3.41 12,000 $ 3.41 12.46 - 14.53......... 13,000 10.7 12.84 13,000 12.84 14.53 - 16.61......... 29,000 10.0 14.90 29,000 14.90 16.61 - 18.69......... 11,000 14.3 17.25 -- -- 18.69 - 20.76......... 13,000 10.8 18.94 13,000 18.94 ------- ---- ------ ------- ------ 78,000 12.2 $13.86 67,000 $13.30 ======= ==== ====== ======= ====== The weighted-average fair value at date of grant for options granted during 2000, 1999 and 1998 was $5.76, $5.21 and $5.97 per option, respectively. The fair value of options at grant date was estimated using the Black-Scholes model with the following weighted-average assumptions: Years Ended June 30 ------------------------- 2000 1999 1998 ------- ------- ------- Risk free interest rate.............................. 6.45% 5.75% 5.58% Expected life........................................ 4 years 4 years 3 years Expected volatility.................................. 45% 45% 43% Dividend yield....................................... 4.0% 1.9% 1.8%
14 The Company has adopted the disclosure only provisions of FAS 123, Accounting for Stock-Based Compensation. Accordingly, no compensation expense has been recognized for the stock options granted in years ended June 30, 2000, 1999 and 1998. Had compensation been determined based on fair value at grant date consistent with the provisions of this statement, the Company's pro forma net income and earnings per share would have been as follows (in thousands, except per share amounts): Years Ended June 30 ---------------------- 2000 1999 1998 ------ ------- ------- Net income: As reported........................................... $2,761 $15,232 $17,799 Pro forma............................................. 2,319 14,885 17,579 Basic earnings per share: As reported........................................... 0.23 1.29 1.52 Pro forma............................................. 0.20 1.26 1.50 Diluted earnings per share: As reported........................................... 0.23 1.29 1.51 Pro forma............................................. 0.20 1.26 1.49 The Non-Employee Director Plan provides each non-employee member of the Board of Directors an annual grant on the day following the Annual Meeting, options to purchase 2,200 shares of common stock, exercisable 12 months from date of grant. The options do not have fixed terms but will automatically terminate 12 months after the director ceases to be a director by reason of his death or permanent disability or 6 months after he ceases to be a director for any other reason. On the date any new non-employee director becomes a member of the Board of Directors, such director will be granted an option (exercisable after completion of three calendar years of service on the Board of Directors) to purchase 11,550 shares of Common Stock at a price equal to the fair market value on the date of grant. On May 16, 1996, the Board of Directors of the Company declared a dividend distribution of one Common Stock Share Purchase Right (the "Right") on each outstanding share of its common stock. The Rights will be exercisable only if a person or group acquires 15% or more of the Company's common stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 15% or more of the common stock. Each Right will entitle stockholders to buy one share of common stock of the Company at an exercise price of $40.91. If the Company is acquired in a merger or other business combination transaction after a person has acquired 15% or more of the Company's outstanding common stock, each Right will entitle its holder to purchase, at the Right's then-current exercise price, a number of the acquiring company's common shares having a market value of twice such price. In addition, if a person or group acquires 15% or more of the Company's outstanding common stock, each Right will entitle its holder (other than such person or members of such group) to purchase at the Right's then-current exercise price, a number of the Company's common shares having a market value of twice such price. The Rights exempt from the 15% threshold the current ownership, which exceeds such threshold, by Phil Simpson, members of his family, family trusts and entities controlled by them. Prior to the acquisition by a person or group of beneficial ownership of 15% or more of the Company's common stock, the Rights are redeemable for $.01 per Right at the option of the Board of Directors. The Rights will expire on May 16, 2006. 8. OTHER COMMITMENTS AND CONTINGENT LIABILITIES In connection with the Company's construction of a warehouse addition to its paperboard mill located at 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 owners have conducted their own investigations. Also, the Company and the adjacent owners have
15 jointly sponsored investigations. As a result of the most recent jointly sponsored investigation, the Company again substantially verified the results obtained in earlier investigations. Additionally, the investigation uncovered newly discovered environmental conditions that appear to stem from historical underground storage tank use on the Company's property. The Company notified the Oil Inspection Section of the Colorado Department of Labor and Employment of the most recent results. The Company and a former owner of the Commerce City paper mill have entered into a participation agreement to respond to those conditions that appear to stem from historical underground storage tank use. Under the participation agreement, Republic and the former owner will share costs associated with the underground storage tank including studies and remediation, if any, 25% and 75%, respectively. At this time, the Company has not ascertained the future liability, if any, of the above matters. Environmental expenditures directly related to these matters were not material during the last three fiscal years. With the completion of the Lawton recycled paperboard mill, the Company has a ten year supply agreement with James Hardie Gypsum, Inc. to supply at least 90% of their requirements of gypsum-grade recycled paperboard from the Lawton mill beginning in the period between October 2000 and January 2001. This represents approximately 40% to 50% of the Lawton mill's estimated annual productive capacity of 220,000 tons. 9. INCOME TAXES The components of the provision for income taxes are as follows: Years Ended June 30 ----------------------------------- 2000 1999 1998 ----------- ---------- ----------- Current: Federal................................... $(4,656,000) $6,039,000 $ 7,955,000 State..................................... (916,000) 1,482,000 812,000 ----------- ---------- ----------- (5,572,000) 7,521,000 8,767,000 ----------- ---------- ----------- Deferred income tax......................... 7,414,000 2,187,000 1,616,000 ----------- ---------- ----------- Total provision............................. $ 1,842,000 $9,708,000 $10,383,000 =========== ========== =========== The differences between income taxes computed using the statutory federal income tax rate and that shown in the Consolidated Statements of Income are summarized as follows: Years Ended June 30 ---------------------------------- 2000 1999 1998 ---------- ---------- ----------- Computed federal tax at statutory rate..... $1,611,000 $8,729,000 $ 9,864,000 State taxes, net of federal tax benefit.... 168,000 1,108,000 815,000 Other...................................... 63,000 (129,000) (296,000) ---------- ---------- ----------- $1,842,000 $9,708,000 $10,383,000 ========== ========== ===========
16 Deferred income taxes reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their financial reporting basis. The Company does not provide for a valuation reserve on deferred tax assets based on the assumption of future taxable income. As of June 30, 2000 and 1999, deferred tax assets (liabilities) as determined under the provisions of FAS 109, were comprised of the following: Years Ended June 30 -------------------------- 2000 1999 ------------ ------------ Gross deferred tax liability: Depreciation and amortization................. $(21,431,000) $(13,695,000) Gross deferred tax assets: Employee benefit accruals..................... 378,000 301,000 Accounts receivable reserves.................. 161,000 102,000 Other......................................... 413,000 227,000 ------------ ------------ Gross deferred assets....................... 952,000 630,000 ------------ ------------ Net deferred tax liability...................... $(20,479,000) $(13,065,000) ============ ============ 10. 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: Years Ended June 30 ------------------------ Per-Share Income Shares Amount ------- ------ --------- (in thousands, except per share amounts) 2000 Basic earnings......................................... $ 2,761 11,825 $0.23 Effects of dilutive securities-options................. -- 27 -- ------- ------ ----- Diluted earnings....................................... $ 2,761 11,852 $0.23 ------- ------ ----- 1999 Basic earnings......................................... $15,232 11,771 $1.29 Effects of dilutive securities-options................. -- 80 -- ------- ------ ----- Diluted earnings....................................... $15,232 11,851 $1.29 ------- ------ ----- 1998 Basic earnings......................................... $17,799 11,705 $1.52 Effects of dilutive securities-options................. -- 93 (.01) ------- ------ ----- Diluted earnings....................................... $17,799 11,798 $1.51 ------- ------ ----- Options to purchase 524,705 shares of common stock at prices ranging from $14.63 to $20.76 were outstanding for the year ended June 30, 2000. Options to purchase 152,425 shares of common stock at prices ranging from $17.75 to $20.76 were outstanding for the year ended June 30, 1999. Options to purchase 10,541 shares of common stock at the price of $20.76 were outstanding for the year ended June 30, 1998. These shares were not included in the calculation of diluted earnings per share due to the options exercise price being greater than the average market price of the common shares for the above periods.
17 11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following tabulation presents selected results of operations for the years ended June 30, 2000 and 1999 (in thousands, except per share amounts): Quarters Ended -------------------------------- Sept. 30 Dec. 31 Mar. 31 June 30 -------- ------- ------- ------- 2000 Gross sales.................................. $53,232 $53,042 $53,911 $ 59,226 Less freight and discounts................... 6,744 6,563 7,103 8,491 ------- ------- ------- -------- Net sales.................................... $46,488 $46,479 $46,808 $ 50,735 ======= ======= ======= ======== Operating profit............................. $10,612 $ 9,938 $ 5,396 $(16,336) Net income................................... 6,341 6,034 2,818 (12,432) Basic earnings per share..................... 0.54 0.51 0.24 (1.05) Diluted earnings per share................... 0.53 0.51 0.24 (1.05) 1999 Gross sales.................................. $38,196 $36,722 $35,576 $ 48,392 Less freight and discounts................... 5,011 4,477 4,686 6,770 ------- ------- ------- -------- Net sales.................................... $33,185 $32,245 $30,890 $ 41,622 ======= ======= ======= ======== Operating profit............................. $ 6,076 $ 6,633 $ 4,234 $ 9,918 Net income................................... 3,285 3,778 2,394 5,775 Basic earnings per share..................... 0.28 0.32 0.20 0.49 Diluted earnings per share................... 0.28 0.32 0.20 0.49 12. SUBSEQUENT EVENT (UNAUDITED) On August 11, 2000, the Company entered into a definitive merger agreement to be acquired by Premier Construction Products Statutory Trust, an affiliate of Integrated Capital Associates, Inc. Under terms of the merger agreement, Stockholders of the Company will receive cash in the amount of $19.00 per share for all outstanding shares at closing, which is expected to occur prior to December 31, 2000.
18 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Republic Group Incorporated: We have audited the accompanying consolidated balance sheets of Republic Group Incorporated (a Delaware corporation) and subsidiaries as of June 30, 2000 and 1999, and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended June 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Republic Group Incorporated and subsidiaries as of June 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Dallas, Texas July 28, 2000
1 EXHIBIT 99.3 UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION The following statements set forth unaudited pro forma consolidated financial data which give effect to the acquisition of strategic assets previously owned by Republic Group Incorporated ("Republic"). On November 10, 2000, Centex Construction Products, Inc. ("CXP") and its wholly owned subsidiary, Republic Holding Corporation, entered into a Securities Purchase Agreement with Republic Group LLC ("RG LLC"), a Delaware limited liability company and successor to Republic, under which Republic Holding acquired the outstanding equity interests in certain limited liability companies owned by RG LLC. The acquisition is accounted for in accordance with the purchase method of accounting. Accordingly, the assets and liabilities of the purchased companies will be recorded at fair market value and the excess of the purchase price over the fair market value of the assets and liabilities acquired will be recorded as goodwill. The following statements have been prepared on the basis of the assumptions described in the accompanying notes, which include assumptions relating to the allocation of the consideration paid. The balance sheet data as of September 30, 2000 assumes that the acquisition was completed on September 30, 2000. The income statement data for the six months ended September 30, 2000, and the fiscal year ended March 31, 2000, assumes that the acquisition was completed on April 1, 1999. The unaudited pro forma consolidated financial data is not necessarily indicative of the results of operations or the financial position that would have occurred had the acquisition been consummated on the dates, or at the beginning of the periods, for which the acquisition is being given effect, nor is it necessarily indicative of future results of operations or financial position. The unaudited pro forma consolidated financial data should be read in conjunction with the historical financial statements of CXP, including the notes thereto.
2 CENTEX CONSTRUCTION PRODUCTS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2000 (DOLLARS IN THOUSANDS) (UNAUDITED) Adjustments --------------------------------- Republic Assets ASSETS CXP Republic and Liabilities To Give Effect CXP - ------ Historical Historical Not Acquired(a) To Acquisition Pro Forma ---------- ---------- --------------- --------------- --------- CURRENT ASSETS: Cash and Cash Equivalents $ 146,910 $ 7,403 $ (7,403) $ (145,000)(c) $ 1,910 Accounts & Notes Receivable, net 51,639 18,312 (4,018) 49,300 (c) 115,233 Inventories 35,485 21,190 (7,018) -- 49,657 Deferred Income Taxes -- 7,554 (7,554) -- -- Prepaid Assets -- 827 (252) -- 575 ---------- ---------- --------------- --------------- --------- Total Current Assets 234,034 55,286 (26,245) (95,700) 167,375 PROPERTY, PLANT & EQUIPMENT, NET 232,262 264,472 (15,886) 119,757 (c) 600,605 GOODWILL, NET -- -- -- 14,031 (c) 14,031 UNAMORTIZED DEBT COST -- -- -- 2,065 (b) 2,065 OTHER ASSETS 18,893 13,355 (12,944) (10,830)(b) 8,474 ---------- ---------- --------------- --------------- --------- TOTAL ASSETS $ 485,189 $ 333,113 $ (55,075) $ 29,323 $ 792,550 ========== ========== =============== =============== ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Income Taxes Payable $ 8,426 $ -- $ -- $ -- $ 8,426 Current Maturities of Long-term Debt 80 10,500 (10,500) -- 80 Accounts Payable and Accrued Liabilities 70,856 18,968 (3,880) 2,383 (i) 93,327 5,000 (c) ---------- ---------- --------------- --------------- --------- Total Current Liabilities 79,362 29,468 (14,380) 7,383 101,833 LONG-TERM DEBT 320 188,000 (88,000) 184,435 (b) 284,755 DEFERRED INCOME TAXES 25,819 17,743 (17,743) -- 25,819 OTHER LIABILITIES -- 455 -- -- 455 ---------- ---------- --------------- --------------- --------- Total Liabilities 105,501 235,666 (120,123) 191,818 412,862 STOCKHOLDERS' EQUITY: Common Stock 183 11,849 (11,849) -- 183 Capital in Excess of Par Value 14,438 28,967 (28,967) -- 14,438 Retained Earnings 364,169 56,430 (56,430) -- 364,169 Accumulated Other Comprehensive Earnings 898 201 (201) -- 898 ---------- ---------- --------------- --------------- --------- Total Stockholders' Equity 379,688 97,447 (97,447) -- 379,688 ---------- ---------- --------------- --------------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 485,189 $ 333,113 $ (217,570) $ 191,818 $ 792,550 ========== ========== =============== =============== =========
3 CENTEX CONSTRUCTION PRODUCTS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS FOR THE YEAR ENDED MARCH 31, 2000 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Adjustments ------------------------------ CXP Republic Republic Assets To Give Historical Historical and Liabilities Effect To CXP 3/31/00 6/30/00 Not Acquired(a) Acquisition Pro Forma ---------- ---------- --------------- ----------- --------- REVENUES Cement $ 158,966 $ -- $ -- $ -- $ 158,966 Gypsum Wallboard 209,320 105,566 -- -- 314,886 Paperboard -- 93,362 (52,448) -- 40,914 Concrete and Aggregates 55,490 -- -- -- 55,490 Other, net 1,231 -- -- -- 1,231 Less: Intersegment Sales (6,312) (8,418) 4,583 (10,787)(h) (20,934) ---------- ---------- --------------- ----------- --------- 418,695 190,510 (47,865) (10,787) 550,553 COSTS AND EXPENSES Cement 105,961 -- -- -- 105,961 Gypsum Wallboard 101,696 60,828 -- 4,290 (d) 166,814 Paperboard -- 119,742 (73,749) 542 (d) 46,535 Concrete and Aggregates 46,227 -- -- -- 46,227 Less: Intersegment Purchases (6,312) (8,418) 4,583 (10,787)(h) (20,934) Corporate General & Administrative 4,683 8,769 (6,749) -- 6,703 Goodwill Amortization -- -- -- 702 (d) 702 Interest (Income) Expense, net (3,737) 4,986 -- 10,520 (e) 6,576 (1,249)(g) (3,944)(j) ---------- ---------- --------------- ----------- --------- 248,518 185,907 (75,915) 74 358,584 ---------- ---------- --------------- ----------- --------- EARNINGS BEFORE INCOME TAXES 170,177 4,603 28,050 (10,861) 191,969 Income Taxes (61,945) (1,842) (11,220) 4,344 (f) (70,663) ---------- ---------- --------------- ----------- --------- NET EARNINGS $ 108,232 $ 2,761 $ 16,830 $ (6,517) $ 121,306 ========== ========== =============== =========== ========= EARNINGS PER SHARE: BASIC $ 5.66 -- -- -- $ 6.34 DILUTED $ 5.63 -- -- -- $ 6.31 AVERAGE SHARES OUTSTANDING: BASIC 19,130 -- -- -- 19,130 DILUTED 19,211 -- -- -- 19,211
4 CENTEX CONSTRUCTION PRODUCTS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Adjustments ------------------------------- CXP Republic Republic Assets To Give Historical Historical and Liabilities Effect To CXP 9/30/00 9/30/00 Not Acquired(a) Acquisition Pro Forma ---------- ---------- --------------- ------------ --------- REVENUES Cement $ 89,818 $ -- $ -- $ -- $ 89,818 Gypsum Wallboard 80,416 37,766 -- -- 118,182 Paperboard -- 61,129 (25,448) -- 35,681 Concrete and Aggregates 32,296 -- -- -- 32,296 Other, net 1,192 -- -- -- 1,192 Less: Intersegment Sales (3,625) (6,707) -- (6,687)(h) (17,019) ---------- ---------- --------------- ------------ --------- 200,097 92,188 (25,448) (6,687) 260,150 COSTS AND EXPENSES Cement 58,198 -- -- -- 58,198 Gypsum Wallboard 49,736 29,579 -- 2,145 (d) 81,460 Paperboard -- 86,061 (43,609) 271 (d) 42,723 Concrete and Aggregates 27,594 -- -- -- 27,594 Less: Intersegment Purchases (3,625) (6,707) -- (6,687)(h) (17,019) Corporate General & Administrative 2,362 4,105 (3,105) -- 3,362 Goodwill Amortization -- -- -- 351 (d) 351 Interest (Income) Expense, net (3,729) 9,121 -- 9,732 (e) 7,760 (5,392)(g) (1,972)(j) ---------- ---------- --------------- ------------ --------- 130,536 122,159 (46,714) (1,552) 204,429 ---------- ---------- --------------- ------------ --------- EARNINGS BEFORE INCOME TAXES 69,561 (29,971) 21,266 (5,135) 55,721 Income Taxes (25,320) 11,987 (8,506) 2,054 (f) (19,785) ---------- ---------- --------------- ------------ --------- NET EARNINGS $ 44,241 $ (17,984) $ 12,760 $ (3,081) $ 35,936 ========== ========== =============== ============ ========= EARNINGS PER SHARE: BASIC $ 2.39 -- -- -- $ 1.94 DILUTED $ 2.39 -- -- -- $ 1.94 AVERAGE SHARES OUTSTANDING: BASIC 18,480 -- -- -- 18,480 DILUTED 18,536 -- -- -- 18,536
5 CENTEX CONSTRUCTION PRODUCTS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS) (UNAUDITED) (a) To eliminate the Hutchinson, Kansas and Halltown, West Virginia paperboard mills and certain Republic Group Corporate assets and liabilities not acquired. (b) To record debt issued in conjunction with the purchase. Bank Borrowings $193,200 Cash received for Republic Stock owned by CXP (10,830) Loan Costs 2,065 -------- New Debt $184,435 ======== (c) To record the fair value of assets acquired, including goodwill, and liabilities assumed: Cash Consideration Paid - Existing Cash $ 145,000 Bank Borrowings 193,200 Transaction Costs 5,000 --------- Total Cash Consideration Paid 343,200 Add: Net Book Value of Liabilities Assumed 115,543 Less: Net Book Value of Identifiable Assets Acquired (278,038) Step-up of PP&E (119,757) Note Receivable Issued (49,300) Acquisition Accruals (Severance) 2,383 --------- Adjustment to Goodwill $ 14,031 ========= (d) To recognize additional depreciation and goodwill amortization. (e) To record net interest expense as a result of the new bank borrowings and Republic's debt assumed (net of $10.3 million of interest capitalized in fiscal year 2000 relating to construction of the Lawton Papermill). The interest rate on CXP's new bank borrowings is based on LIBOR plus a margin (which varies with the ratio of CXP's total debt to EBITDA) up to a maximum margin of 175 basis points. (f) To recognize the change in federal and state income taxes resulting from the increase in interest and depreciation expenses, using an effective rate of approximately 40%. (g) To eliminate CXP's actual interest income and Republic's actual interest expense. (h) To eliminate paperboard sales from Republic to CXP. (i) To record accrual for Republic severance payments assumed by CXP. (j) To record interest income on the $49.3 million note acquired.