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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996 COMMISSION FILE NUMBER 1-5341
ELCOR CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 75-1217920
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14643 DALLAS PARKWAY 75240-8871
WELLINGTON CENTRE, SUITE 1000 (Zip Code)
DALLAS, TEXAS
(Address of principal
executive offices)
Registrant's telephone number, including area code: (972) 851-0500
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock Par Value $1 Per Share The New York Stock Exchange
Rights to Purchase Series A Preferred Stock The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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 ____
The aggregate market value of Common Stock held by nonaffiliates as of
September 5, 1996, was $138,720,615. This amount is based on the closing price
of the Registrant's Common Stock on the New York Stock Exchange on September 5,
1996. Shares of stock held by directors and officers of the Registrant as well
as shares allocated to such persons under the Employee Stock Ownership Plan of
the Registrant were not included in the above computation; however, the
Registrant has made no determination that such entities are "Affiliates" within
the meaning of Rule 405 under the Securities Act of 1933, as amended.
As of the close of business on September 5, 1996, the Registrant had
8,757,117 shares of Common Stock outstanding.
Documents incorporated by reference. Listed below are the documents, any
portion of which are incorporated by reference and the parts of this report into
which such portions are incorporated:
PROXY STATEMENT DATED SEPTEMBER 20, 1996
PART III OF FORM 10-K
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PART I
Item 1. Business.
Elcor Corporation (Registrant), incorporated in 1965 as a Delaware
corporation, is a publicly held corporation headquartered in Dallas, Texas.
Shares of the Registrant's common stock are traded on the New York Stock
Exchange with the ticker symbol - ELK.
Lines of Business.
Roofing Products
The Registrant, through Elk Corporation of Dallas and its subsidiaries
(Elk), is engaged in the manufacture and sale of premium laminated fiberglass
asphalt residential roofing shingles and accessory products. Elk also
manufactures and sells nonwoven fiberglass roofing mats for use in
manufacturing asphalt roofing products, and nonwoven mats for use in other
industrial applications. Elk is nearing completion of a $100 million expansion
program to significantly increase its manufacturing capacity for premium
laminated fiberglass asphalt shingles and nonwoven fiberglass mats.
Elk's premium laminated fiberglass asphalt shingle manufacturing
plants are located in Tuscaloosa, Alabama, Ennis, Texas, and a new plant in
Shafter, California, which achieved its performance test level of operations
effective March 1, 1996. Capital expenditures, including deferred preoperating
and start-up costs, for the new plant were about $55 million. The new plant
has the potential to increase Elk's capacity for manufacturing premium
laminated fiberglass asphalt shingles by more than 65%.
The major products manufactured at Elk's roofing plants are premium
laminated fiberglass asphalt shingles sold under its brand names: Prestique(R)
Plus, Prestique(R) I, Prestique(R) II and Capstone(R). In fiscal 1995, Elk
introduced Prestique premium laminated fiberglass asphalt shingle product lines
with the patented Enhanced High Definition(R) and Raised Profile(TM) look. In
addition, Elk also manufactures premium fiberglass asphalt hip and ridge
products: Seal-a-Ridge(R) and Z(R) ridge brands.
Elk's roofing products are sold by employee sales personnel primarily
to non-owned distributors, delivery being made by common carrier or by customer
vehicles from the manufacturing plants. Elk's products are distributed in more
than 40 states with Texas, California and Florida representing the largest
market areas. During fiscal 1996, Elk expanded its marketing and sales efforts
in the Northwestern and Midwestern United States. Elk expects these regions to
provide significant growth opportunities in fiscal 1997 and beyond. The
Roofing Products segment accounted for approximately 91% of consolidated sales
of the Registrant in fiscal 1996. One customer, ABC
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Supply Co. Inc., accounted for 13% of consolidated sales in fiscal 1996 and 11%
of consolidated sales in fiscal 1995.
At June 30, 1996, Elk had begun start-up operations of a major new
fiberglass mat manufacturing facility, which will operate in parallel to its
existing fiberglass mat manufacturing facility at its Ennis, Texas plant. It
will manufacture nonwoven fiberglass roofing mats and industrial mats for facer
products. The new plant will have the potential to more than triple present
manufacturing capacity for nonwoven fiberglass mats. Capital expenditures,
including deferred preoperating and start-up costs for the new plant addition,
are estimated to be about $45 million. The new plant is expected to achieve
its performance test level of operations in the first half of fiscal 1997.
Elk's nonwoven fiberglass roofing mats are used in the production of
its premium roofing products and are sold by employee sales personnel to other
asphalt roofing products manufacturers. In addition, nonwoven mats are sold to
manufacturers of construction and industrial products which use such mats in
their products, and to distributors of industrial filtration products. Elk's
nonwoven mats are shipped by common carrier to its other roofing plants and to
its customers' locations.
Industrial Products
The Registrant, through Chromium Corporation (Chromium), is engaged in
the remanufacture of diesel engine cylinder liners and tin plating of pistons,
including hard chrome plating of cylinder bores, primarily for the railroad,
marine, and stationary power industries; and hard chrome plating of original
equipment cylinder liners and tin plating of pistons for major domestic
locomotive manufacturers and stationary power equipment manufacturers.
Chromium is also engaged in electroless shielding of plastic enclosures for
telecommunications, medical electronic and other electronic equipment which is
designed to control the level of electromagnetic and radio frequency
interference (EMI/RFI) emissions generated by electronic components. Sales are
generated by employee sales personnel, with delivery made primarily by common
carrier. Chromium's sales accounted for less than 10% of consolidated sales of
the Registrant in fiscal 1996.
Another unit of the Registrant, OEL, LTD., d/b/a Ortloff Engineers,
LTD. (Ortloff), is engaged in providing technology licensing and engineering
support services, and in providing engineering consulting services to the oil
and gas production, gas processing and sulfur recovery industries. Ortloff
licenses technology covered by and related to eleven patents owned by the
Registrant for use in new or redesigned natural gas and refinery gas processing
facilities and utilizes technology licensed from others and its own expertise
in the performance of consulting and engineering assignments. Ortloff
continues to develop and patent improved processes for natural gas processing.
One new patent was issued in the first quarter of fiscal 1997 and two
additional new patents are expected to issue during fiscal 1997. Some new
patent applications are currently being developed for submittal in fiscal 1997.
These efforts reflect Ortloff's commitment to continually update and advance
its technological position.
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Patent license fees are calculated by standard formulas that take into
account both specific project criteria and market conditions, adjusted for
special conditions that exist in a project. Engineering consulting assignments
are performed under consulting services agreements at negotiated rates.
Competitive Conditions.
Roofing Products
Even though the asphalt roofing products manufacturing business is
highly competitive, the Registrant believes that Elk is a leading manufacturer
of premium laminated fiberglass asphalt shingles. Elk has been able to compete
successfully with its competitors, some of which are larger in size and have
greater financial resources.
There are a number of major national and regional manufacturers
marketing their products in a portion or all of the market areas served by the
Registrant's plants. The Registrant competes primarily on the basis of product
quality, design and service. Typically, the Registrant is able to sell its
roofing products at higher prices than its competitors.
Industrial Products
The Registrant believes that Chromium is the leading remanufacturer of
diesel engine cylinder liners and pistons for the railroad and marine
transportation industries and is the primary supplier of hard chrome plated
finishes for original equipment diesel engine cylinder liners to all of the
major domestic locomotive manufacturers. The Registrant believes it has
smaller competitors in the locomotive diesel engine cylinder liner
remanufacturing market. The Registrant also believes that Chromium is one of
the leading hard chrome platers of recycled and original equipment large bore
cylinder liners for stationary power applications. Chromium has achieved a
leading position in these markets through competition on the basis of product
performance, quality, service and price. The Registrant, through the
Conductive Coatings Division of Chromium, is engaged in electroless shielding
of plastic enclosures for telecommunications, medical electronic and other
electronic equipment. The Registrant believes the success of Chromium's
Conductive Coatings Division in becoming a qualified supplier for and obtaining
orders from major telecommunications, medical electronic and other electronic
equipment manufacturers will enable it to successfully compete in this market
niche with the potential of becoming a leader in the future.
The Registrant believes that it holds significant state-of-the-art
patents covering some of the most competitive processes for the separation of
ethane and heavier hydrocarbon liquids from refinery and natural gas streams.
The Registrant believes that Ortloff has widely recognized expertise in the
design and operation of facilities for natural gas liquids recovery, sulfur
recovery and field processing of sour crude oil and natural gas production.
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Backlog.
Backlog was not significant, nor is it material, in the Registrant's
operations.
Raw Materials.
Roofing Products
In the asphalt roofing products manufacturing business, the
significant raw materials are ceramic coated granules, asphalt, glass fibers,
resins and mineral filler. All of these materials are presently available from
several sources and are in adequate supply. Historically, the Registrant has
been able to pass some of the higher raw material and transportation costs
through to the customer. Costs of raw materials, including asphalt and glass
fibers, increased during fiscal 1996. The Registrant implemented modest price
increases during the year to offset the impact of higher raw material costs.
Industrial Products
In the Registrant's business of hard chrome plating and
remanufacturing diesel engine cylinder liners and large bore cylinder liners,
chromic acid is a significant raw material which is presently available from a
number of domestic suppliers. The Registrant believes these domestic suppliers
obtain the ore for manufacturing chromic acid principally from sources outside
the United States, some of which may be subject to political uncertainty. The
Registrant has been advised by its suppliers that they maintain substantial
inventories of chromic acid in order to minimize the potential effects of
foreign interruption in ore supply. In the electroless shielding business,
copper and nickel are the significant raw materials. These materials are
presently available and are in adequate supply.
No raw materials are utilized in the Registrant's engineering
consulting and technology licensing business.
Patents, Licenses, Franchises and Concessions.
The Registrant holds certain patents, particularly in its engineering
consulting and licensing business, which are significant to its operations.
However, the Registrant does not believe that the loss of any one of these
patents or of any license, franchise or concession would have a material
adverse effect on the Registrant's overall business operations. The
Registrant, through its subsidiary, Elk Corporation of Dallas, is involved in
litigation against GAF Building Materials Corporation concerning design and
utility patents covering aspects of Elk's High Definition shingles. Refer to
Item 3 "Legal Proceedings" for a more detailed discussion of this matter.
Environmental Matters.
The Registrant and its subsidiaries are subject to federal, state and
local requirements regulating the discharge of materials into the environment,
the handling and disposal of solid and
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hazardous wastes, and protection of the public health and the environment
generally (collectively, Environmental Laws). Governmental authorities have
the power to require compliance with these Environmental Laws, and violators
may be subject to civil or criminal penalties, injunctions or both. Third
parties may also have the right to sue to enforce compliance and to require
remediation of contamination.
The Registrant and its subsidiaries are also subject to Environmental
Laws that impose liability for the costs of cleaning up contamination resulting
from past spills, disposal, and other releases of hazardous substances. In
particular, an entity may be subject to liability under the Federal
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or
Superfund) and similar state laws that impose liability -- without a showing of
fault, negligence, or regulatory violations -- for the generation,
transportation or disposal of hazardous substances that have caused, or may
cause, environmental contamination. In addition, an entity could be liable for
cleanup of property it owns or operates even if it did not contribute to the
contamination of such property. From time to time, the Registrant or its
subsidiaries may incur such remediation and related costs at the company owned
plants and at certain offsite locations.
The Registrant anticipates that its subsidiaries will incur costs to
comply with Environmental Laws, including correcting existing non-compliance
with such laws and achieving compliance with anticipated future standards for
air emissions and reduction of waste streams. Such subsidiaries expend funds to
minimize the discharge of materials into the environment and to comply with
governmental regulations relating to the protection of the environment.
Neither these expenditures nor other activities initiated in compliance with
Environmental Laws is expected to have a material impact on the consolidated
financial position, net earnings or liquidity of the Registrant.
Persons Employed.
At June 30, 1996, the Registrant and its subsidiaries had 715
employees.
Extended Payment Terms.
In some years, the Registrant's roofing products business grants
extended payment terms to certain customers for some product shipments during
the late winter and early spring months, with payment generally due during the
summer months. As of June 30, 1996, $6,861,000 in receivables relating to such
shipments were outstanding, the majority of which were collected in the first
quarter of fiscal 1997.
Seasonal Business.
The Registrant's industrial products businesses are substantially
nonseasonal. However, the Registrant's roofing products manufacturing business
is seasonal to the extent that cold, wet or icy weather conditions during the
late fall and winter months in its marketing areas typically limits the
installation of residential roofing products which causes sales to decrease
during such periods. Damage to roofs from extreme weather such as severe wind,
hurricanes and hail storms can result
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in higher demand for periods up to eighteen months depending upon the extent of
roof damage. Working capital requirements and related borrowings fluctuate
during the year because of seasonality. Generally, working capital
requirements and borrowings are higher in the spring and summer months, and
lower in the fall and winter months.
Information as to Industry Segments.
For Financial Information by Company Segments, see the table on page
35 of this Annual Report on Form 10-K.
Executive Officers of the Registrant.
Certain information concerning the Registrant's executive officers is
set forth below:
Period Age as of
Served Sept. 1,
Name Title as Officer 1996
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Roy E. Campbell Chairman of the Board, 31 years 70
Chief Executive Officer
and President of Elcor
Corporation; Director of
all subsidiaries and
Chairman of certain
subsidiaries
Richard J. Rosebery Executive Vice President, 21 years 61
Treasurer, Chief Administrative
and Financial Officer of Elcor
Corporation; Director of Elcor
Corporation; Officer of all subsidiaries
and President and/or Director of
certain subsidiaries
Harold K. Work Executive Vice President 14 years 63
of Elcor Corporation; Director of
Elcor Corporation; Chief Executive
Officer, President and Director of
Elk Corporation of Dallas, a subsidiary,
and Director and Chief Executive Officer
of its subsidiaries
David G. Sisler Vice President, General Counsel and 1 year 38
Secretary of Elcor Corporation; Officer
of all subsidiaries
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Leonard R. Harral Vice President and Chief 3 years 44
Accounting Officer of
Elcor Corporation
James J. Waibel Vice President Administration 3 years 52
of Elcor Corporation
All of the executive officers except Mr. Sisler have been employed by
the Registrant or its subsidiaries in responsible management positions for more
than the past five years. In October 1993, Mr. Rosebery and Mr. Work were
elected as Executive Vice Presidents of the Registrant. Previously Mr.
Rosebery was Vice President, Treasurer and Chief Financial Officer. Mr. Work
was Vice President. In July 1996, Mr. Rosebery and Mr. Work were appointed as
Directors of the Registrant. In October 1993, Mr. Harral and Mr. Waibel were
elected as Vice Presidents. Previously Mr. Harral was Chief Accounting Officer
and Mr. Waibel was Assistant Vice President Administration.
On August 14, 1995, Mr. Sisler was appointed by the Board of Directors
as Vice President, General Counsel and Secretary of the Registrant. Mr. Sisler
was employed by Central and South West Corporation from 1991 to 1995, most
recently as a Senior Attorney. From 1989 to 1991, Mr. Sisler was employed by
Johnson & Gibbs, a private law firm. Mr. Sisler's responsibilities included
corporate, securities and other business legal matters in several industries.
Officers are elected annually by the Board of Directors.
Item 2. Properties.
All significant facilities are owned and unencumbered by liens in
favor of nonaffiliates except as discussed herein.
Roofing Products
Asphalt roofing products are manufactured at plants located at
Tuscaloosa, Alabama, Ennis, Texas and Shafter, California. Fiberglass roofing
mat, nonwoven industrial, reinforcement and filtration products are
manufactured at a plant located at Ennis, Texas. A new plant at the Ennis,
Texas facility to manufacture nonwoven fiberglass roofing mats, nonwoven
fiberglass and industrial facer material for the construction industry has
begun start-up operations and is expected to achieve its performance test level
of operations in the first half of fiscal 1997.
Administrative offices for the asphalt roofing products operations are
located in the same leased facility as the Registrant's corporate offices in
Dallas, Texas.
Industrial Products
Plants for the hard chrome plating of original equipment and
remanufactured diesel engine cylinder liners and related equipment are located
in Cleveland, Ohio and Lufkin, Texas. The Conductive Coatings Division's
EMI/RFI shielding facility is located at the Lufkin, Texas plant.
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Administrative offices are located in the same leased facility as the
Registrant's corporate offices in Dallas, Texas.
The Ortloff engineering and licensing group is located in leased
offices in Midland, Texas.
Corporate Offices
The Registrant's corporate headquarters is located in leased offices
in Dallas, Texas.
In addition, the Registrant or its subsidiaries own the following
properties which are being held for sale or lease:
(a) Former concrete roof tile plant site in North Miami currently
held for sale.
(b) Land and buildings in Waco, Texas, formerly used in the solid
waste baler manufacturing business. This facility is
currently subject to a lease/purchase agreement.
(c) Land in Tulsa, Oklahoma, purchased for use by the former
engineering and construction business. This property has a
pending contract for sale.
(d) Land and buildings in Midland, Texas, formerly used in the
engineering and construction business currently held for sale.
Item 3. Legal Proceedings.
GAF Patent Litigation
On February 8, 1994, Elk Corporation of Dallas (Elk of Dallas) was
granted a design patent covering the ornamental aspects of its High
Definition(R) and Raised Profile(TM) shingles. On December 6, 1994, Elk of
Dallas was granted a utility patent on the functional aspects of the High
Definition and Raised Profile shingles. Elk of Dallas has sued GAF Building
Materials Corporation and related entities (collectively, GAF) in federal court
for infringement of these patents. In the design patent case, Elk of Dallas
seeks to recover as damages the total profit that GAF has made from the
infringing shingles. In the utility patent case, Elk of Dallas seeks to
recover as damages a reasonable royalty on GAF's sales of infringing shingles
and certain lost profits.
GAF seeks a declaratory judgement that the Elk of Dallas patents are
not infringed and are either invalid or unenforceable. GAF has also asserted
claims for unfair competition, Lanham Act violations based on alleged false
advertising, and common law fraud, generally praying for damages of not less
than $25 million including actual and punitive damages, plus interest, costs,
and reasonable attorneys' fees. Elk of Dallas disputes GAF's claims, and
management intends vigorously to defend them and to enforce its intellectual
property rights. In mid-April 1996, a court ordered mediation was held but did
not result in resolution of the cases. No dates have been set for trial in the
design patent case or the utility patent case, but trials are expected in the
first half of calendar 1997.
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While management can give no assurances regarding the ultimate outcome
of the litigation, outside counsel believe that Elk of Dallas will prevail on
its patent and trade dress claims and that Elk of Dallas will defeat GAF's
counterclaims. Even if the outcome were to be adverse to Elk of Dallas, it is
not expected to have a material effect on the Registrant's financial position
or liquidity.
Frontier Chemical Site
Certain facilities of the Registrant's subsidiaries ship waste
products to various waste disposal facilities for disposal. In May 1993,
Chromium received a Notification Letter from the United States Environmental
Protection Agency (USEPA) informing Chromium that USEPA had reason to believe
that Chromium was a Potentially Responsible Party (PRP) under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) at the Frontier
Chemical Royal Avenue Site (Site), a state-permitted waste processing and
management facility located on 9.7 acres in Niagara Falls, New York. After
receiving shipments from PRP's, the facility was closed by state regulators
leaving all products shipped there on-site. USEPA identified 438 generators,
including Chromium, as being responsible for Phase I of the response action.
Phase I involved primarily the removal of 4,086 drums from the Site. Chromium
is alleged to have sent 96 drums of waste to the Site.
In September 1993, Chromium entered into an Administrative Order on
Consent with USEPA without admitting any liability for USEPA findings or
determinations. Chromium agreed along with the other parties to the order to
perform Phase I response activities at the Site and to reimburse USEPA for
response costs incurred by USEPA at the Site. All of the PRP drums were
removed from the Frontier Chemical Royal Avenue Site. The work was concluded
in May 1994 and the PRP group of which Chromium was a part filed its final
report on May 30, 1995. Chromium was assessed a total of $109,250 under the
final assessment dated July 7, 1995, an additional amount of approximately
$21,000 above what it had already paid. The assessment was based on an
estimated total cost of approximately $4 million. Chromium's total obligation
cannot be calculated until its PRP group can determine what portion of its
assessments are uncollectible. Further, USEPA cost reimbursement has not been
resolved and is the subject of review.
Phase II of the response action involves the removal of waste from
process tanks at the Site. USEPA has issued Notice Letters to additional PRPs
for Phase II. To date, the Registrant has not been named as a PRP in Phase II
and does not expect to be. Estimated costs have been provided for Phase II but
have not been provided for any additional phases of cleanup.
Certain Phase I and Phase II PRP's instituted proceedings to intervene
in a suit brought by the New York Attorney General seeking recovery of
approximately $1.2 million in proceeds from a closure bond posted with the State
of New York by the operators of the Frontier Site. If such proceedings are
successful, participating Phase I and Phase II PRP's will share in any recovery
with the State of New York.
Management of the Registrant believes that the final disposition of
this matter will not have a material adverse effect on the consolidated results
of operations, financial position, or liquidity of the Registrant.
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Gibraltar Tort Litigation
In December 1995 through August 1996, Chromium Corporation was named a
defendant in four separate tort lawsuits brought by the same attorneys on
behalf of plaintiffs who allege unspecified personal injuries and property
damages associated with the operation of a licensed hazardous waste treatment,
storage and disposal facility in Smith County, Texas known as the Gibraltar
facility. In Tangee Daniels, et al. v. Akzo Nobel Chemicals, Inc. et al.,
which is pending in Dallas County District Court, seven plaintiffs originally
sued the current and former owners and operators of the facility, and later
joined 51 defendants, including Chromium and several Fortune 500 companies, as
generators of waste sent to the facility. Marti Williams, et al. v. Akzo Nobel
Chemicals, Inc. et al., is a related action pending in Smith County, Texas
brought by four plaintiffs against the facility owners and operators and the
"generator" defendants. The Williams plaintiffs have made class action
allegations but have not filed a motion to certify the class. The third case,
Steich v. Akzo Nobel Chemicals, Inc. et al., also was brought on behalf of
several plaintiffs in Smith County, Texas and involved the same defendants as
the other two cases. In June 1996, however, the plaintiffs in Steich
voluntarily dismissed the "generator" defendants, including Chromium, from the
case without prejudice to refile. In August 1996, Chromium and the other
"generator" defendants were named in Adams v. American Ecology Environmental
Services Corporation, a suit brought in Tarrant County, Texas on behalf of
approximately 650 plaintiffs.
In connection with the four cases, Chromium has entered into joint
defense agreements with more than twenty other generator defendants. Chromium
has also demanded a defense and indemnity from the facility owners pursuant to
the waste disposal contract and from Chromium's insurers. To date, the
facility owners have not responded and the insurers have declined or failed to
accept the defense and indemnity obligation. Chromium intends to pursue its
defenses vigorously.
The three cases naming Chromium are in the early stages of discovery.
The court in Daniels has approved an agreed trial date of June 2, 1997, but no
trial date has been set in the Williams or Adams cases. Management believes
that the claims brought against Chromium in the three cases are without merit.
While management can give no assurances regarding the ultimate outcome of this
litigation, it believes that it will not have a material adverse effect on the
consolidated results of operations, financial position or liquidity of the
Registrant.
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Chromium/TWC Settlement
In October 1991, the Texas Water Commission ("TWC") sent Chromium a
Notice of Executive Director's Preliminary Report and Petition for a TWC Order
Assessing administrative Penalties and Requiring Certain Actions of Chromium
(the "Petition"). This Petition alleged several violations of TWC rules and
recommended that Chromium be assessed $134,800 in penalties and ordered to
perform technical, procedural, assessment and remedial activities at Chromium's
Lufkin, Texas facility only ("Technical Recommendations"). Chromium timely
answered this notice and negotiated an Agreed Order in settlement of this case,
which the Commission executed on May 19, 1993. Under the Agreed Order, $74,800
of Chromium's penalties will be deferred and forgiven contingent on completion
of the Technical Recommendations. The remaining $60,000 penalty has been paid.
Chromium already has complied with many of the Technical Recommendations, and,
working with the Texas Natural Resource Conservation Commission ("TNRCC"),
TWC's successor, will implement the remainder on a schedule set forth in the
Agreed Order.
Management believes that this settlement will not have a material
adverse effect on the consolidated results of operations, financial position,
or liquidity of the Registrant.
Other
There are various other lawsuits and claims pending against the
Registrant and its subsidiaries arising in the ordinary course of their
business. In the opinion of the Registrant's management based in part on
advice of counsel, none of these actions should have a material adverse effect
on the Registrant's consolidated results of operations, financial position, or
liquidity.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
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PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
The principal market on which the Registrant's Common Stock is traded
is the New York Stock Exchange. The Boston, Midwest, Philadelphia and Toronto
Stock Exchanges have granted unlisted trading privileges for the Registrant's
Common Stock. There were 1,113 holders of record of the Registrant's Common
Stock at September 5, 1996.
The high and low prices in dollars per share and quarterly dividends
per share on Registrant's Common Stock for each quarter during fiscal year 1996
and fiscal year 1995 are set forth in the following tables:
Period Dividend High Low
------ -------- ---- ---
Fiscal 1996
First Quarter $ .06 23 7/8 18 3/4
Second Quarter .06 21 3/4 18 7/8
Third Quarter .06 25 1/2 21 1/8
Fourth Quarter .06 24 3/8 17 1/8
Fiscal 1995
First Quarter $ - 25 1/2 15 3/4
Second Quarter - 17 5/8 14 1/8
Third Quarter - 17 5/8 13
Fourth Quarter - 22 7/8 16
The Registrant's Board of Directors has authorized the purchase of up
to $10,000,000 of the Registrant's common shares from time to time on the open
market to be used for general corporate purposes. As of June 30, 1996, 94,800
shares with cumulative cost of $1,440,000 had been repurchased under this
program. In September 1995, the Board of Directors reinstated the Registrant's
regular quarterly cash dividend at six cents per common share. No cash
dividends were paid in fiscal 1995.
The limitations affecting the future payment of dividends by
Registrant imposed as a part of the Registrant's revolving credit agreement,
are discussed under the caption "Notes to Consolidated Financial Statements"
under the heading "Long-Term Debt" on page 28 of this Annual Report on Form
10-K.
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Item 6. Selected Financial Data.
The following selected consolidated financial data for each of the
five years in the period ended June 30, 1996 have been derived from the audited
consolidated financial statements of the Registrant included herein. The
selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this report.
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
($ In thousands, except per share data) Year Ended June 30,
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1996(1) 1995 1994(2) 1993(2) 1992(2)
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SALES . . . . . . . . . . . . . . . . . . . $196,462 $159,061 $157,031 $161,431 $138,309
======== ======== ======== ======== ========
INCOME (LOSS):
From continuing operations . . . . . . $ 10,284 $ 9,558 $ 15,571 $ 15,366 $ 6,057
From discontinued operations . . . . . - - (1,494) (606) (1,713)
-------- -------- -------- -------- --------
Before extraordinary items and
cumulative effect of accounting
change . . . . . . . . . . . . . 10,284 9,558 14,077 14,760 4,344
EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE . . . . . - - 668 3,017 3,974
-------- -------- -------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . $ 10,284 $ 9,558 $ 14,745 $ 17,777 $ 8,318
======== ======== ======== ======== ========
INCOME (LOSS) PER SHARE:
From continuing operations . . . . . . $ 1.16 $ 1.08 $ 1.75 $ 2.00 $ .83
From discontinued operations . . . . . - - (.17) ( .08) (.24)
-------- -------- -------- -------- --------
Before extraordinary items and
cumulative effect of accounting
change . . . . . . . . . . . . . 1.16 1.08 1.58 1.92 .59
Extraordinary items and
cumulative effect of
accounting change . . . . . . . . - - .07 .39 .54
-------- -------- ------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . $ 1.16 $ 1.08 $ 1.65 $ 2.31 $ 1.13
======== ======== ======== ======== ========
TOTAL ASSETS . . . . . . . . . . . . . . . $192,128 $137,133 $108,233 $ 89,737 $ 69,554
======== ======== ======== ======== ========
LONG-TERM DEBT . . . . . . . . . . . . . . $ 53,000 $ 18,400 $ - $ - $ 23,257
======== ======== ======== ======== ========
SHAREHOLDERS' EQUITY . . . . . . . . . . . $102,198 $ 93,616 $ 85,229 $ 69,747 $ 20,586
======== ======== ======== ======== ========
CASH DIVIDENDS PER SHARE . . . . . . . . . $ .24 $ - $ - $ - $ -
======== ======== ======== ======== ========
(1) 1996 results include $1,595 in pretax charges in connection with a
provision for the adoption of SFAS No. 121 and a previous reduction in
value of certain other assets.
(2) 1994, 1993 and 1992 results include $1,706, $238 and $1,472 in pretax
charges, respectively, incurred in connection with the closed Chromium
Chicago plant. 1994 results include $82 in losses, net of tax, on the
disposal of a discontinued operation.
13
15
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
During the fiscal year ended June 30, 1996, sales increased 24% and net income
increased to $10,284,000 from the $9,558,000 achieved in the prior fiscal year.
The significant increase in sales is primarily attributable to increased
shipments in the Roofing Products Group. Net income was 8% higher in fiscal
1996 as compared to the prior fiscal year despite an operating loss at the new
Shafter, California roofing plant, which achieved its performance test level of
operations effective March 1, 1996 and a $1,595,000 pretax provision for the
adoption of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of " and the reduction in value of certain other assets during the
year.
Sales for the Roofing Products Group increased 28% in fiscal 1996 compared to
fiscal 1995, primarily as a result of a 23% increase in shipments of premium
laminated fiberglass asphalt shingles in fiscal 1996. Sales from the new plant
at Shafter, California accounted for a significant part of the increased
shipments. Average selling prices were slightly higher nationally in the
current fiscal year and transportation costs in the Western states were lower
due to shipments originating from the Shafter plant. Operating profit in
fiscal 1996 was $22,124,000 compared to $18,015,000 in the prior fiscal year
despite incurring a significant operating loss in fiscal 1996 at the Shafter
facility in its start-up year. Asphalt and glass fiber raw material costs
were higher in fiscal 1996 than in fiscal 1995. However, the Company was able
to implement price increases to offset these higher raw material costs.
Demand is expected to remain good in the Company's major market areas in fiscal
1997. However, earnings are expected to be affected by operating losses at the
new Shafter facility until the plant's operating level and product mix reach
its break-even point. The Company's new plant at its Ennis, Texas facility to
manufacture nonwoven fiberglass roofing mat and industrial facer products for
the construction industry is expected to become operational in the first half
of fiscal 1997 but is not expected to have a significant effect on
profitability in fiscal 1997.
Revenues for the Industrial Products Group decreased 10% in fiscal 1996 to
$17,930,000 from $19,960,000 in the prior fiscal year as a result of Chromium
Corporation's customers reducing orders during fiscal 1996 due to model changes
and inventory adjustments. Shipments of hard chrome plated diesel engine
cylinder liners and remanufactured pistons for the railroad, marine and
stationary power industries were significantly reduced in fiscal 1996 compared
to the prior fiscal year. Revenues relating to conductive coatings of plastic
enclosures for electronic equipment did not significantly change in fiscal 1996
compared to fiscal 1995. The Industrial Products Group reported a $302,000
operating loss in fiscal 1996 compared to a $2,099,000 operating profit in
fiscal 1995 as a result of the reduction in revenues, lower operating income
from engineering consulting services and licensing of patents in the cryogenic
processing of natural gas and refinery gas streams by Ortloff Engineers, Ltd.,
and $1,037,000 in charges relating to the reduction in value of assets at
Chromium's Cleveland
14
16
plant upon adoption of Statement of Financial Accounting Standards No. 121 in
the fourth quarter of fiscal 1996.
The Company's overall gross margin on sales was 23% in fiscal 1996 compared to
27% in fiscal 1995. The reduction in the gross margin percentage is primarily
attributable to significantly higher sales with operating losses at the new
Shafter facility. Selling, general and administrative costs (SG&A) as a
percentage of sales were 15% for fiscal 1996 compared to 17% in fiscal 1995.
During fiscal 1995, the Company established a larger sales organization to
better serve growing market areas. This larger organization has been able to
service a significant increase in sales orders without a proportionate increase
in overall selling costs.
FISCAL 1995 COMPARED TO FISCAL 1994
During the fiscal year ended June 30, 1995, income from continuing operations
decreased to $9,558,000 from the $15,571,000 achieved in the prior fiscal year
despite a 1% increase in sales in fiscal 1995. Increased sales and a
significant turnaround in operating results in the Industrial Products Group
were offset by slightly lower sales and lower operating income for the Roofing
Products Group. Fiscal year 1994 included a $1,494,000 loss relating to its
discontinued solid waste baler manufacturing subsidiary and a $668,000 gain
from adopting Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."
Sales for the Roofing Products Group were slightly lower in fiscal 1995 than
for fiscal 1994 despite a 6% increase in shipments of premium laminated
fiberglass asphalt shingles in fiscal 1995. Average net selling prices were 5%
lower in fiscal 1995. Operating profit in fiscal 1995 was $18,015,000 compared
to $31,415,000 in the prior year. Late in the first quarter of fiscal 1995,
the Company introduced enhanced versions of its patented High Definition(R)
Prestique(R) Plus and Prestique(R) I product lines and Raised Profile(TM)
Prestique(R) II premium laminated fiberglass asphalt shingles. The higher cost
of introducing these new products, together with pricing adjustments, higher
transportation costs and lower production to reduce inventory levels during the
seasonally slower winter months significantly reduced operating results during
fiscal 1995 as compared to the prior year.
Revenues for the Industrial Products Group increased 16% in fiscal year 1995 to
$19,960,000 from $17,198,000 in the prior fiscal year. Increased sales volume
was achieved for many of Chromium Corporation's product lines, including hard
chrome plated diesel engine cylinder liners and remanufactured pistons for the
railroad, marine and stationary power industries and conductive coatings of
plastic enclosures for electronic equipment. An operating profit of $2,099,000
was achieved by the Industrial Products Group in fiscal 1995 compared to a
$2,804,000 operating loss in the prior year as a result of higher sales volumes
and reduced operating costs at Chromium. Costs of $1,706,000 incurred in
connection with a closed Chromium plant were included in the fiscal 1994
operating loss. Operating income from consulting and licensing of patents in
the cryogenic processing of natural gas and refinery gas streams by Ortloff
Engineers, Ltd. was lower in fiscal 1995 than in the prior year.
15
17
Selling, general and administrative expenses increased 9% during fiscal 1995 as
compared to the prior year, primarily as a result of increased selling and
marketing expenses in the Roofing Products Group due to increased promotional
activities and establishing a larger sales organization to better serve growing
markets. As a percentage of sales, SG&A costs were 17% in fiscal 1995 compared
to 16% in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash flows from operating activities of $3,639,000,
despite a $17,058,000 increase in working capital in fiscal 1996. The
significant increase in working capital was primarily the result of higher
accounts receivable and inventories, partially offset by higher current
liabilities. Receivables increased $9,572,000 during the year primarily as a
result of higher sales generated during fiscal 1996, together with increased
deferred payment term receivables. At June 30, 1996, deferred payment term
receivables from promotional programs to certain customers were $6,861,000
compared to $884,000 in receivables from these programs at June 30, 1995.
These deferred receivables are primarily due during the first quarter of fiscal
1997. Inventories increased $15,047,000 during fiscal 1996. The majority of
this increase related to finished goods inventories which were substantially
increased as a result of inventory stocking requirements at the new roofing
plant in Shafter, California and building inventories in anticipation of
increased demand during the summer and early fall.
The current ratio at June 30, 1996 was 2.7 to 1 compared to 2.5 to 1 at June
30, 1995. Historically, working capital requirements and associated borrowings
fluctuate during the year because of seasonality in some market areas.
Generally, working capital requirements and borrowings are higher in the spring
and summer months, and lower in the fall and winter months.
The Company used $40,757,000 for investing activities in fiscal 1996. The
majority of these expenditures were for capital expenditures and related
deferred preoperating costs incurred in connection with the completion of a new
roofing plant in Shafter, California and construction of a new plant at the
Company's Ennis, Texas facility to manufacture nonwoven fiberglass roofing mat
and industrial facer products for the construction industry. These new plants
should provide the potential to significantly increase the Company's sales,
earnings and cash flows when operating at expected levels in the years ahead.
The Company is nearing the end of its three-year major new facilities expansion
program. Capital expenditures are expected to be substantially less in fiscal
1997, with planned expenditures in the range of $10,000,000 to $12,000,000.
Cash flows provided by financing activities were $32,898,000 in fiscal 1996,
primarily resulting from a $34,600,000 increase in long-term borrowings to
finance the expansion program and higher working capital requirements. Despite
the significant increase in fiscal 1996, long-term debt represented only 34%
of the $155,198,000 of invested capital (long- term debt plus shareholders'
equity) at June 30, 1996. In December 1995, the Company increased its
unsecured revolving line of credit from $50,000,000 to $70,000,000 and extended
the term to October 31, 1998. As of June 30, 1996, $14,982,000 was available
under this facility.
16
18
The Company's Board of Directors has authorized the purchase of up to
$10,000,000 of the Company's common shares from time to time on the open market
to be used for general corporate purposes. As of June 30, 1996, 94,800 shares
with cumulative cost of $1,440,000 had been repurchased under this program. In
September 1995, the Board of Directors reinstated the Company's regular
quarterly cash dividend at six cents per common share.
The Company's operations are subject to extensive federal, state and local laws
and regulations relating to environmental matters. Although the Company does
not believe it will be required to expend amounts which will have a material
adverse effect on the Company's consolidated financial position or results of
operations by reason of environmental laws and regulations, such laws and
regulations are frequently changed and could result in significantly increased
cost of compliance.
Further, certain of the Company's industrial products operations utilize
hazardous materials in their production process. As a result, the Company
incurs costs for remediation activities off-site and at its facilities from
time to time. The Company established and maintains reserves for remediation
activities, when appropriate, in accordance with Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies." Current reserves
established for known or probable remediation activities are not material to
the Company's financial position or results of operations.
Management believes that current cash and cash equivalents, cash flows from
operations and its unsecured revolving credit facility should be sufficient
during fiscal 1997 and beyond to fund its planned capital expenditures, working
capital needs, dividends, stock repurchases and other cash requirements.
Management also believes its revolving credit facility could be amended to
provide additional cash resources.
OUTLOOK
At the present time, management expects that strong demand for its
patented Enhanced High Definition and Raised Profile shingles will increase
shipments and sales to record levels in the first quarter of fiscal 1997, a
trend that should also result in substantially higher sales for fiscal year
1997 as well. Management currently expects fiscal 1997 earnings per share to
range between $1.30 to $1.50 per share compared to $1.16 per share in fiscal
1996. The earlier quarters are expected to be challenging, and management
believes earnings will be in the general range of, or possibly lower than,
comparable quarters in fiscal 1996, until the Company completes certain
modifications at the Shafter plant and both new plants get manufacturing
output, product mix and sales above the break-even point. Longer term,
management believes it has made the investments to expand capacity that should
enable the Company to achieve strong growth in sales, earnings and cash flows
in the years ahead.
FORWARD - LOOKING STATEMENTS
Management's discussion and analysis of the results of operations and financial
condition and other sections of this Annual Report on Form 10-K contain
"forward-looking statements" about its prospects for the future. Such
statements are subject to certain risks and uncertainties which could
17
19
cause actual results to differ materially from those projected. Such risks and
uncertainties include, but are not limited to the following:
1. The Company's roofing products business is cyclical and is affected by
weather and some of the same economic factors that affect the housing
and home improvement industries generally, including interest rates,
the availability of financing and general economic conditions. In
addition, the asphalt roofing products manufacturing business is
highly competitive. Actions of competitors, including changes in
pricing, or slowing demand for asphalt roofing products due to general
or industry economic conditions or the amount of inclement weather
could result in decreased demand for the Company's products, lower
prices received or reduced utilization of plant facilities.
2. In the asphalt roofing products business, the significant raw
materials are ceramic coated granules, asphalt, glass fibers, resins
and mineral filler. Increased costs of raw materials can result in
reduced margins, as can higher trucking and rail costs. Historically,
the Company has been able to pass some of the higher raw material and
transportation costs through to the customer. Should the Company be
unable to recover higher raw material and transportation costs from
price increases of its products, operating results could be lower than
projected.
3. The Company is nearing completion of a $100 million expansion program
which included a new roofing plant in Shafter, California and the
construction of a new plant at the Company's Ennis, Texas facility to
manufacture nonwoven fiberglass roofing mat and industrial facer
products for the construction industry. As new facilities, their
progress in achieving anticipated operating efficiencies and financial
results is difficult to predict. If such progress is slower than
anticipated, or if demand for products produced at either of these new
plants does not meet current expectations, operating results could be
adversely affected.
4. Certain facilities of the Company's industrial products subsidiaries
must utilize hazardous materials in their production process. As a
result, the Company could incur costs for remediation activities at
its facilities or off-site, and other related exposures from time to
time in excess of established reserves for such activities.
5. The Company's litigation, including it's patent infringement suits
against GAF, is subject to inherent and case-specific uncertainty.
The outcome of such litigation depends on numerous interrelated
factors, many of which cannot be predicted.
Parties are cautioned not to rely on any such forward-looking beliefs
or judgments in making investment decisions.
18
20
Item 8. Financial Statements and Supplemental Data
Index to Financial Statements and Financial Statement Schedule
Financial Statements:
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Consolidated Balance Sheet at June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Consolidated Statement of Operations for the years ended
June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Statement of Cash Flows for the years ended
June 30, 1996, 1995, and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Statement of Shareholders' Equity for the years
ended June 30, 1996, 1995, and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Financial Statement Schedule:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Schedule II - Valuation and Qualifying Accounts and Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
All other schedules are omitted because they are not required, are
not applicable, or the information is included in the financial
statements or notes thereto.
19
21
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors,
Elcor Corporation
We have audited the accompanying consolidated balance sheets of Elcor
Corporation (a Delaware corporation) and subsidiaries as of June 30, 1996 and
1995, and the related consolidated statements of operations, cash flows and
shareholders' equity for each of the three years in the period ended June 30,
1996. 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 generally accepted auditing
standards. 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 Elcor Corporation
and subsidiaries as of June 30, 1996, and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
As discussed in the Notes to the Consolidated Financial Statements -
"Income Taxes," as required by generally accepted accounting principles,
effective July 1, 1993, the Company changed its method of accounting for income
taxes. In addition, as discussed in the Summary of Significant Accounting
Policies, - "Adoption of New Accounting Standards," the Company adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Term Assets to be Disposed Of" in
fiscal 1996.
/s/Arthur Andersen LLP
----------------------
Arthur Andersen LLP
Dallas, Texas
August 19, 1996
20
22
CONSOLIDATED BALANCE SHEET
($ In thousands) June 30,
- ---------------------------------------------------------------------------------------------------------------------
ASSETS 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,744 $ 3,731
Trade receivables,
less allowance of $477 and $306 . . . . . . . . . . . . . . . . . . . . . . 42,482 32,910
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,748 11,701
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,956 2,931
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,734 2,136
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,664 53,409
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,065 2,155
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,157 9,385
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,668 58,236
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,163 59,333
-------- --------
163,053 129,109
Less - Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . (52,846) (53,923)
-------- --------
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . 110,207 75,186
-------- --------
NET ASSETS OF DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . . . . 2,942 7,175
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,315 1,363
-------- --------
$192,128 $137,133
======== ========
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,503 $ 10,849
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,091 10,548
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 28,594 21,397
-------- --------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,000 18,400
-------- --------
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,336 3,720
-------- --------
COMMITMENTS AND CONTINGENCIES (See Note)
SHAREHOLDERS' EQUITY
Common stock ($1 par, 8,802,066 shares issued) . . . . . . . . . . . . . . . . 8,802 8,802
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,555 71,680
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,499 14,316
-------- --------
102,856 94,798
Less - Treasury stock (33,949 shares at
June 30, 1996, 79,063 shares at
June 30, 1995; at cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . (658) (1,182)
-------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 102,198 93,616
-------- --------
$192,128 $137,133
======== ========
- ---------------------------------------------------------------------------------------------------------------------
The Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements are an integral part of this statement.
21
23
CONSOLIDATED STATEMENT OF OPERATIONS
($ In thousands, except per share data) Year Ended June 30,
- ------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $196,462 $159,061 $157,031
-------- -------- --------
COSTS AND EXPENSES
Cost of goods sold . . . . . . . . . . . . . . . . . . . . 149,080 116,799 107,081
Selling, general and administrative . . . . . . . . . . . 29,121 27,103 24,936
Reduction in value of assets . . . . . . . . . . . . . . . 1,595 - 478
-------- -------- --------
INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . 16,666 15,159 24,536
-------- -------- --------
OTHER INCOME (EXPENSE)
Interest expense . . . . . . . . . . . . . . . . . . . . . (394) (153) (186)
Investment income . . . . . . . . . . . . . . . . . . . . 211 275 590
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . 16,483 15,281 24,940
Provision for income taxes . . . . . . . . . . . . . . . . 6,199 5,723 9,369
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS . . . . . . . . . . . . . . . 10,284 9,558 15,571
DISCONTINUED OPERATIONS
Operating loss, net of applicable tax
benefit of $760 in 1994 . . . . . . . . . . . . . . . . . - - (1,412)
Loss on disposal, net of applicable
tax benefit of $44 in 1994 . . . . . . . . . . . . . . . . - - (82)
-------- -------- --------
LOSS FROM DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . - - (1,494)
-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE . . . . . . . . . . . . . . . . 10,284 9,558 14,077
Cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . - - 668
-------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,284 $ 9,558 $ 14,745
======== ======== ========
INCOME PER COMMON AND COMMON
EQUIVALENT SHARE
Income from continuing operations . . . . . . . . . . . . $ 1.16 $ 1.08 $ 1.75
Loss from discontinued operations . . . . . . . . . . . . - - (.17)
-------- -------- --------
Income before cumulative effect of
change in accounting principle . . . . . . . . . . . . . 1.16 1.08 1.58
Cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . - - .07
-------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.16 $ 1.08 $ 1.65
======== ======== ========
AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . 8,857 8,844 8,921
======== ======== ========
- ------------------------------------------------------------------------------------------------------------------
The Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements are an integral part of this statement.
22
24
CONSOLIDATED STATEMENT OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------
($ In thousands) Year Ended June 30,
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . $10,284 $ 9,558 $15,571
Adjustments to reconcile income from continuing
operations to net cash from operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 4,689 3,603 4,212
Reduction in value of assets . . . . . . . . . . . . . . . . . . . . . . . 1,595 - 478
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,018 2,845 547
Changes in assets and liabilities:
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 9,572) 627 (7,519)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,047) 5,192 (8,568)
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . 975 (1,328) ( 384)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,654 1,558 1,969
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 2,043 (1,830) ( 290)
------- ------ ------
Net cash provided by
continuing operating activities . . . . . . . . . . . . . . . . . . . . . 3,639 20,225 6,016
------- ------- ------
Cash provided by (used for)
discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . 4,233 684 ( 728)
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment . . . . . . . . . . . . . . . . . (40,669) (46,252) (18,820)
Proceeds from sale of investments . . . . . . . . . . . . . . . . . . . . . . - 5,378 -
Change in assets held for future sale, net . . . . . . . . . . . . . . . . . . - 569 420
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 88) ( 21) ( 222)
------- ------- -------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . (40,757) (40,326) (18,622)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 34,600 18,400 -
Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . ( 2,101) - -
Treasury stock transactions and
exercises of stock options, net . . . . . . . . . . . . . . . . . . . . . . . . 399 ( 1,171) 737
-------- ------- -------
Net cash provided by
financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,898 17,229 737
------- ------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 (2,188) (12,597)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,731 5,919 18,516
------- ------- -------
CASH AND CASH EQUIVALENTS
AT END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,744 $ 3,731 $ 5,919
======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------------
The Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements are an integral part of this statement.
23
25
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
($ In thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------------
Retained Total
Common Paid-In Earnings Treasury Shareholders'
Stock Capital (Deficit) Stock Equity
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1993 . . . . $ 8,710 $ 71,486 $( 9,987) $ ( 462) $ 69,747
Net income . . . . . . . . . . -- -- 14,745 -- 14,745
Treasury stock transactions
and exercises of stock
options, net . . . . . . . . 76 199 -- 462 737
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1994 . . . . $ 8,786 $ 71,685 $ 4,758 $ -- $ 85,229
Net income . . . . . . . . . . -- -- 9,558 -- 9,558
Treasury stock transactions
and exercises of stock
options, net . . . . . . . . 16 (5) -- (1,182) ( 1,171)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1995 . . . . $ 8,802 $ 71,680 $ 14,316 $ (1,182) $ 93,616
Net income . . . . . . . . . . -- -- 10,284 -- 10,284
Treasury stock transactions
and exercises of stock
options, net . . . . . . . . -- (125) -- 524 399
Dividends, $.24 per share . . . -- -- (2,101) -- (2,101)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1996 . . . . $ 8,802 $ 71,555 $ 22,499 $ ( 658) $102,198
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
The Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements are an integral part of this statement.
24
26
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Elcor Corporation (the Company), through subsidiaries, is engaged in
two lines of business: Roofing Products and Industrial Products. The Roofing
Products segment, which accounts for over 90% of consolidated sales,
manufactures and sells premium laminated fiberglass asphalt residential roofing
products, together with nonwoven mats used in manufacturing asphalt roofing
products and various industrial applications. The Industrial Products group of
companies is engaged in the plating of proprietary finishes for large diesel
engine cylinder liners and pistons, the shielding of plastic enclosures from
electromagnetic and radio frequency interference, and engineering consulting
services and licensing of certain patented technologies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all subsidiaries after elimination of significant intercompany
balances and transactions. Service revenues and related expenses are not
disaggregated in the Consolidated Statement of Operations due to immateriality.
Certain prior year information has been reclassified for consistency of
presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The majority of the Company's sales are in the Roofing Products
segment and its primary customers are building materials distributors. One
customer accounted for 13% and 11% of consolidated sales in fiscal years 1996
and 1995, respectively. No customer accounted for greater than 10% of
consolidated sales in 1994. The Company performs ongoing credit evaluations
and maintains reserves for potential credit losses.
REVENUE RECOGNITION
Revenue is recognized at the time products are shipped to the customer
or at the time services are rendered.
25
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INVENTORIES
Inventories are stated at the lower of cost (including direct
materials, labor, and applicable overhead) or market, using the last-in,
first-out (LIFO) method. Inventories were comprised of:
(In thousands)
June 30,
----------------------------
1996 1995
---- ----
Raw Materials $ 5,632 $ 4,952
Work-In-Process 604 658
Finished Goods 20,512 6,091
-------- --------
$ 26,748 $ 11,701
======== ========
If the first-in, first-out (FIFO) method had been used at June 30,
1996 and 1995, inventories would have been lower by $69,000 in fiscal 1996 and
by $698,000 in fiscal 1995. The LIFO inventory adjustment was determined on an
overall basis and, accordingly, each class of inventory reflects an allocation
based on FIFO amounts.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Major renewals and
improvements are capitalized, while maintenance and repairs are expensed when
incurred. Depreciation is computed over the estimated useful lives of
depreciable assets using the straight-line method.
Useful lives for property and equipment are as follows:
Buildings and improvements 10 - 40 years
Machinery and equipment 5 - 20 years
Computer equipment 3 - 6 years
Office furniture and equipment 5 - 12 years
The cost and accumulated depreciation for property, plant and
equipment sold, retired, or otherwise disposed of are relieved from the
accounts, and resulting gains or losses are reflected in income. Preoperating
and start-up costs incurred in connection with the construction of major new
manufacturing facilities are capitalized until such facilities become
operational. These costs are then amortized over a five-year period.
Capitalized preoperating and start-up costs included in capital expenditures
were $4,772,000, $3,864,000 and $1,639,000 in fiscal years 1996, 1995, and
1994, respectively. Interest is capitalized in connection with the
construction of major facilities. The capitalized interest is recorded as part
of the asset to which it relates and is amortized over the asset's estimated
useful life. In 1996 and 1995, $1,459,000 and $326,000 of interest cost was
capitalized, respectively. No interest was capitalized in 1994.
26
28
EARNINGS PER SHARE
Earnings per common and common equivalent share are based on the
weighted average number of common and common equivalent shares outstanding for
the fiscal year. Common equivalent shares include incentive stock options and
were calculated using the treasury stock method.
INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" and reported the
cumulative effect of that accounting change in fiscal 1994. Deferred income
taxes are provided to reflect temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities using
presently enacted tax rates.
ADOPTION OF NEW ACCOUNTING STANDARDS
During the fourth quarter of fiscal 1996, the Company adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The Company recorded a provision of $1,037,000 to reduce the value of assets of
Chromium Corporation's Cleveland plant and to provide for related environmental
remediation in the Industrial Products segment relating to the new accounting
standard. The Company had previously reduced the value of certain equipment in
the Roofing Products segment by $558,000.
The Company is required to implement Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" in fiscal 1997.
The Company anticipates adopting only the disclosure provisions of this new
accounting standard and this adoption will not have a material effect on the
financial statements.
SUPPLEMENTAL CASH FLOWS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Supplemental cash
flow amounts were as follows:
(In thousands)
June 30,
-----------------------------------------
1996 1995 1994
---- ---- ----
Interest paid $1,739 $ 436 $ 193
Income taxes paid $1,105 $5,588 $7,130
In March 1994, the Company sold operating assets of a discontinued subsidiary
in exchange for $5,378,000 of convertible preferred stock. In April 1995, the
Company received cash proceeds in full from the redemption of this convertible
preferred stock.
27
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LONG-TERM DEBT
Effective December 15, 1995 the Company increased its unsecured
revolving credit facility (Facility) to $70,000,000 of primary credit,
including up to a maximum of $5,000,000 in letters of credit, through October
31, 1998 with a provision for annual extensions upon approval of the lenders.
At June 30, 1996, letters of credit totaling $2,008,450 were outstanding.
Borrowings under the Facility bear interest at (1) the higher of the
federal funds rate plus .5% or the lender's prime rate, or (2) at the Company's
option, LIBOR, in each case plus specified basis points based on the ratio of
the Company's total indebtedness to total capital. The Facility also provides
for a commitment fee on the average unused portion of the line and is also
based on the ratio of the Company's total indebtedness to total capital. Based
on financial ratios at June 30, 1996, the LIBOR borrowing rate was LIBOR plus
.5% and the commitment fee was .25% of the average unused portion of the line.
The loan agreement, among other things, limits the sale or pledging of
assets of subsidiaries involved in manufacturing asphalt roofing products, and
requires maintenance of specified current ratios, capitalization ratios and
cash flow levels. Dividend payments and stock repurchases are limited to
certain specified levels providing no default or event of default would occur.
At June 30, 1996, total cumulative dividend payments and stock repurchased
since July 1, 1993 could not have exceeded $22,105,000. Actual expenditures
for these items as of June 30, 1996 have been $3,541,000.
SHAREHOLDERS' EQUITY
Authorized common stock, par value $1.00, is 50,000,000 shares, of
which 8,802,066 shares were issued at both June 30, 1996 and June 30, 1995.
The Board of Directors is authorized to issue up to 1,000,000 shares of
preferred stock, without par value, in one or more series and to determine the
rights, preferences, and restrictions applicable to each series. No preferred
stock has been issued.
SHAREHOLDER RIGHTS PLAN
On June 28, 1988, the Company's Board of Directors declared a dividend
distribution of one Series A Preferred Stock Purchase Right (the Rights) on
each outstanding share of the Company's common stock as of July 8, 1988 and all
outstanding shares of common stock issued thereafter, pursuant to the terms and
conditions of the Plan. The Rights, which will expire on July 8, 1998, will
have no voting power. Each Right will entitle the holder to buy one-hundredth
of a share of a new series of nonvoting preferred stock at an exercise price of
$50.
On January 30, 1991, the Company's Board of Directors amended the
Plan. As amended, if certain events occur, Rights "flip-in" and entitle
holders to buy Elcor common stock at one-half market value or "flip-over" and
entitle holders to buy common stock in an acquiring entity at one-half market
value. This amendment reduces the threshold of beneficial ownership at which
the Rights separate from the common stock and flip-in, provides an exchange
option provision, and makes certain other modifications. The Rights will
separate from the associated shares of common stock
28
30
and a flip-in event will now occur if a person acquires 15% or more of the
common stock of Elcor. Prior to the amendment, the Rights did not separate
from the common stock until a person acquired 20% or more of the common stock
of Elcor and, absent the occurrence of other flip-in events, a flip-in event
did not occur until a person acquired 30% or more of the common stock of Elcor.
The exchange option provides that, at any time after any person
becomes the beneficial owner of 15% or more of the common stock and prior to
the acquisition by such person of 50% or more of the common stock, the
Company's Board or Directors may exchange the Rights (other than Rights owned
by such person) at an exchange ratio of one share of common stock per Right.
On December 5, 1991 the Rights Plan was amended to increase the
threshold of certain specified shareholders' permitted beneficial ownership
from 15% to 20% of the outstanding shares of common stock before triggering the
provisions of the plan. The certain specified shareholders affected by this
amendment are limited to certain institutions holding stock for the benefit of
third parties or in customer or fiduciary accounts in the ordinary course of
business so long as such shares are acquired without the purpose or effect of
changing or influencing control of the Company.
EMPLOYEE BENEFIT PLANS
The Company's Incentive Stock Option Plan provides for the granting of
incentive and non-qualified stock options to directors, officers and key
employees of the Company for purchase of the Company's common stock.
Information relating to options is as follows:
Number Option Price
of Shares Range per Share
--------- ---------------
Outstanding at June 30, 1994 301,076 $ 6.00 - $24.13
Granted 57,195 $ 17.25 - $19.88
Cancelled ( 4,886) $ 7.00 - $24.13
Exercised ( 35,546) $ 6.00 - $12.13
--------
Outstanding at June 30, 1995 317,839 $ 7.00 - $24.13
Granted 73,751 $ 21.50 - $22.38
Cancelled ( 6,910) $ 7.00 - $24.13
Exercised ( 43,900) $ 7.00 - $24.13
--------
Outstanding at June 30, 1996 340,780 $ 7.00 - $24.13
========
At June 30, 1996, and 1995, 115,796 and 106,089 shares were
exercisable, respectively. A total of 364,849 and 435,305 shares were reserved
for future grants at June 30, 1996 and 1995, respectively.
The Company's Employee Stock Ownership Plan (ESOP) became effective
January 1, 1981. Under the plan, the Company contributes a percentage of each
participant's annual compensation into a trust, either as treasury stock
contributions or cash, which is then used to purchase Elcor common stock.
Employees vest 20% after three years of employment and 20% per year thereafter,
with the stock distributed at retirement, death, disability, or as authorized
by the Plan Administrative
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31
Committee. Effective January 1, 1990, the Company established an Employee
Savings Plan under Internal Revenue Code section 401(k). All employees, except
those covered by plans established through collective bargaining, are eligible
for participation. Under this Plan, the Company contributes a percentage of
each participant's annual compensation into a Plan to be invested among various
defined alternatives at the participants' direction. Vesting of Company
contributions is in accordance with the same schedule as that of the ESOP.
The Board of Directors has authorized total contributions of 4.6% of
each participant's annual compensation, as defined, including forfeitures,
split equally between the ESOP and 401(k) Plans. Total contributions charged
to expense for these plans were $1,120,000, $839,000 and $973,000 in 1996,
1995, and 1994, respectively.
The Company has a Stock/Loan Plan which allows certain key employees
to borrow an amount based on a percentage of their salaries and the performance
of their operating units, for the purpose of purchasing the Company's common
stock. Under the Stock/Loan Plan, the loans, which are unsecured and
noninterest-bearing, are forgiven and amortized as compensation over five years
of continuing service with the Company. If employment is terminated for any
reason except death, disability or retirement, the balance of the loan becomes
due and payable. Loans outstanding at June 30, 1996 and 1995 totaling
$1,174,000 and $1,315,000, respectively, are included in Other Assets.
COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease certain office space,
facilities, and equipment under operating leases, expiring on various dates
through 2001. Total rental expense was $1,167,000 in 1996, $1,117,000 in 1995,
and $1,032,000 in 1994. At June 30, 1996, future minimum rental commitments
under noncancellable operating leases, payable over the remaining lives of the
leases are:
(In thousands)
Minimum Rental
Fiscal Year Commitments
----------- ----------------
1997 $ 1,074
1998 1,015
1999 687
2000 90
2001 28
Thereafter -
-------
Total $ 2,894
=======
The Company provides certain warranties for its products which are
generally limited to being free from defect in materials or workmanship or
meeting agreed-upon manufacturing and material specifications. During 1996,
1995, and 1994, the Company recorded to expense approximately $1,637,000,
$1,462,000 and $1,441,000, respectively, in warranty claim settlements and
reserves. The Company has established reserves for estimated probable future
claims in accordance with Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies."
30
32
On February 8, 1994, a wholly owned subsidiary, Elk Corporation of
Dallas ("Elk") was granted a design patent covering the ornamental aspects of
its High Definition(R) and Raised Profile(TM) shingles. On December 6, 1994,
Elk was granted a utility patent on the functional aspects of the High
Definition(R) and Raised Profile(TM) shingles. Elk has sued GAF Building
Materials Corporation and related GAF entities (collectively "GAF") in federal
court for infringement of these patents. In the design patent case, Elk seeks
to recover as damages the total profit that GAF has made from the infringing
shingles. In the utility patent case, Elk seeks to recover as damages a
reasonable royalty on GAF's sales of infringing shingles and certain lost
profits.
GAF seeks a declaratory judgment that the Elk patents are not
infringed and are either invalid or unenforceable. GAF has also asserted
claims for unfair competition, Lanham Act violations based on alleged false
advertising, and common law fraud, generally praying for damages of not less
than $25 million including actual and punitive damages, plus interest, costs,
and reasonable attorney fees. Elk disputes GAF's claims, and management
intends vigorously to defend them and to enforce its intellectual property
rights. In mid-April 1996, a court-ordered mediation was held but did not
result in resolution of the cases. No dates have been set for trial in the
design patent case or the utility patent case, but trials are expected in the
first half of calendar 1997.
While management can give no assurances regarding the ultimate outcome
of the litigation, outside counsel believe that Elk will prevail on its patent
and trade dress claims and that Elk will defeat GAF's counterclaims. Even if
the outcome were to be adverse to Elk, it is not expected to have a material
effect on the Company's financial position or liquidity.
The Company and its subsidiaries are involved in other legal actions
and claims arising in the ordinary course of business. Based on advice from
legal counsel, management believes all of its litigation and claims will be
resolved without material adverse effect on the consolidated financial
statements.
On December 1, 1985, the Company became self-insured for its products
and completed operations liability exposure because the cost of insurance for
such risks was believed to be excessive for the coverage to be provided.
Reserves for estimated potential losses of this type have been established.
The Company's operations are subject to extensive federal, state and
local laws and regulations relating to environmental matters. Although the
Company does not believe it will be required to expend amounts which will have
a material adverse effect on the Company's consolidated financial position or
results of operations by reason of environmental laws and regulations, such
laws and regulations are frequently changed and could result in significantly
increased cost of compliance. Further, certain of the Company's industrial
products operations utilize hazardous materials in their production processes.
As a result, the Company incurs costs for remediation activities at its
facilities and off-site from time to time. The Company establishes and
maintains reserves for such remediation activities, when appropriate, in
accordance with Statement of Financial Accounting Standards No. 5, "Accounting
for Contingencies."
31
33
DISCONTINUED OPERATIONS
On March 31, 1994, the Company completed the sale of substantially all
operating assets of its solid waste baler manufacturing subsidiary. At June
30, 1996, the Company had assets from discontinued operations of $2,942,000,
which primarily represents real property held for sale. At June 30, 1995,
assets from discontinued operations totaled $7,175,000. These totals include
nonoperating assets from previously discontinued operations.
ACCRUED LIABILITIES
Accrued liabilities consist of the following:
(In thousands)
June 30,
-----------------------------
1996 1995
---- ----
Product warranty reserves $ 2,168 $ 2,278
Self-insurance reserves 1,856 1,747
Compensation and employee benefits 3,019 2,715
All other 6,048 3,808
--------- --------
$ 13,091 $ 10,548
========= =========
INCOME TAXES
Effective July 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The cumulative
effect of adopting this change in accounting for income taxes was an increase
in earnings of $668,000 in fiscal 1994.
The Company's effective tax rate was 37.6% in 1996, 37.5% in 1995 and
37.8% in 1994. The difference between the federal statutory tax rate and the
effective tax rate is reconciled as follows:
1996 1995 1994
---- ---- ----
Federal statutory tax rate 35.0% 35.0% 35.0%
Increase (decrease) in tax rate
resulting from:
State income taxes, net of
federal tax effect 2.1% 2.5% 3.5%
Miscellaneous items .5% - ( .7%)
---- ---- -----
37.6% 37.5% 37.8%
==== ==== =====
32
34
Components of the income tax provisions consist of the following:
(In thousands)
1996 1995 1994
---- ---- ----
Federal:
Current $1,826 $2,302 $6,823
Deferred, net 3,834 2,845 528
State 539 576 1,214
------ ------ ------
$6,199 $5,723 $8,565
====== ====== ======
The significant components of the Company's deferred tax assets and
liabilities are summarized below:
(In thousands)
June 30,
----------------------------------------
1996 1995 1994
---- ---- ----
Deferred tax assets:
Accrued liabilities, difference in
expense recognition $ 2,314 $ 1,963 $ 2,313
Receivables, bad debt reserve 246 186 319
Discontinued asset reductions 292 292 292
Other 141 - -
------- ------- -------
2,993 2,441 2,924
------- ------- -------
Deferred tax liabilities:
Fixed assets, primarily depreciation
method differences and deferred
preoperating costs 8,595 3,976 1,587
Other - 49 76
------- ------- -------
8,595 4,025 1,663
------- ------- -------
Net deferred tax asset (liability) $(5,602) $(1,584) $ 1,261
======= ======= =======
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35
QUARTERLY SUMMARY OF OPERATIONS (UNAUDITED)
($ In thousands, except per share data)
First Quarter Second Quarter Third Quarter Fourth Quarter
------------------- ----------------------- -------------------- --------------------
1996 1995 1996 1995 1996 1995 1996 1995
-------- ------- -------- ------ -------- -------- -------- --------
Sales $48,528 $38,477 $45,362 $35,973 $50,048 $37,816 $52,524 $46,795
Gross Profit 12,672 10,908 10,839 9,013 11,173 10,080 11,103 12,261
Net Income 3,663 3,156 2,124 1,167 2,321 1,614 2,176 3,621
Net Income Per Share .41 .35 .24 .13 .26 .18 .25 .41
34
36
FINANCIAL INFORMATION BY COMPANY SEGMENTS
(In thousands)
1996 1995 1994
---------- ----------- -----------
SALES
Roofing products . . . . . . . . . . . . . . . . . . . $178,378 $ 138,991 $139,735
Industrial products . . . . . . . . . . . . . . . . . . 17,930 19,960 17,198
Corporate and eliminations . . . . . . . . . . . . . . 154 110 98
-------- --------- --------
$196,462 $ 159,061 $157,031
======== ========= ========
OPERATING PROFIT (LOSS)
Roofing products . . . . . . . . . . . . . . . . . . . $ 22,124 $ 18,015 $ 31,415
Industrial products . . . . . . . . . . . . . . . . . . ( 302) 2,099 ( 2,804)
Corporate and other . . . . . . . . . . . . . . . . . . (5,156) (4,955) ( 4,075)
-------- --------- --------
16,666 15,159 24,536
Interest and investment income (expense), net . . . . . ( 183) 122 404
-------- --------- --------
Income before income taxes . . . . . . . . . . . . . . $ 16,483 $ 15,281 $ 24,940
======== ========= ========
IDENTIFIABLE ASSETS(1)
Roofing products . . . . . . . . . . . . . . . . . . . $173,747 $112,145 $ 75,849
Industrial products . . . . . . . . . . . . . . . . . . 6,689 8,256 9,103
Corporate . . . . . . . . . . . . . . . . . . . . . . . 8,750 9,557 15,422
Discontinued operations . . . . . . . . . . . . . . . . 2,942 7,175 7,859
-------- --------- --------
$192,128 $137,133 $108,233
======== ========= ========
DEPRECIATION AND AMORTIZATION
Roofing products . . . . . . . . . . . . . . . . . . . $ 3,554 $ 2,440 $ 3,050
Industrial products . . . . . . . . . . . . . . . . . . 927 981 1,009
Corporate . . . . . . . . . . . . . . . . . . . . . . . 208 182 153
-------- --------- --------
$ 4,689 $ 3,603 $ 4,212
======== ========= ========
CAPITAL EXPENDITURES
Roofing products . . . . . . . . . . . . . . . . . . . $ 40,046 $ 45,803 $ 18,253
Industrial products . . . . . . . . . . . . . . . . . . 507 322 363
Corporate . . . . . . . . . . . . . . . . . . . . . . . 116 127 204
-------- --------- --------
$ 40,669 $ 46,252 $ 18,820
======== ========= ========
(1) Consists principally of cash and cash equivalents, trade receivables,
inventories, and net property, plant and equipment.
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INDEPENDENT AUDITORS' REPORT
ON SUPPLEMENTAL SCHEDULE
To the Shareholders and Board of Directors of Elcor Corporation:
We have audited in accordance with generally accepted auditing
standards, the accompanying consolidated financial statements of Elcor
Corporation and have issued our report thereon dated August 19, 1996. Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The Supplemental Schedule II is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Dallas, Texas
August 19, 1996
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SCHEDULE II
(in thousands)
ELCOR CORPORATION AND SUBSIDIARIES
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS
ENDED JUNE 30, 1996, 1995, AND 1994
Column A Column B Column C Column D Column E
-------- -------- ------------------------- ---------------- -----------
Additions Deductions
------------------------- ----------------
Balance at Charged to For Purposes For Balance at
Beginning Costs and Which Reserves End
Description of Period Expenses Other Were Created of Period
----------- ---------- ---------- ---------- ---------------- ----------
YEAR ENDED JUNE 30, 1996
- ------------------------
CONSOLIDATED:
Allowance for doubtful accounts $ 306 $ 201 $ -- $ (30) $ 477
======== ========= =========== =========== ========
Allowance for inventory obsolescence $ 356 $ 317 $ -- $ -- $ 673
======== ========= =========== =========== ========
YEAR ENDED JUNE 30, 1995
- ------------------------
CONSOLIDATED:
Allowance for doubtful accounts $ 610 $ (146) $ -- $ (158) $ 306
======== ======== =========== ========== ========
Allowance for inventory obsolescence $ 323 $ 33 $ -- $ -- $ 356
======== ======== =========== ========== ========
YEAR ENDED JUNE 30, 1994
- ------------------------
CONSOLIDATED:
Allowance for doubtful accounts $ 898 $ 84 $ -- $ (372) $ 610
======== ======== =========== ========== ========
Allowance for inventory obsolescence $ 247 $ 81 $ -- $ (5) $ 323
======== ======== =========== ========== ========
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Item 9. Disagreements on Accounting and Financial Disclosure.
The Registrant has retained its independent public accountants for
over 30 years. There have been no disagreements with the independent public
accountants on accounting or financial disclosure matters.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information concerning the Directors of the Registrant required by
this item is incorporated herein by reference to the material under the caption
"Election of Directors" on page 4 of the Registrant's Proxy Statement dated
September 20, 1996. Information concerning the Executive Officers of the
Registrant is contained in Item 1 of this report under the caption "Executive
Officers of the Registrant."
Item 11. Executive Compensation.
The information required by this item is incorporated herein by
reference to the information under the caption "Executive Compensation" on
pages 7 through 14 of the Registrant's Proxy Statement dated September 20,
1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated herein by
reference to the information under the caption "Stock Ownership" on pages 2 and
3 of the Registrant's Proxy Statement dated September 20, 1996. The referenced
information was provided as of September 5, 1996. Registrant is aware of no
material change since such date in the beneficial ownership of any officer,
director or beneficial owner of five percent of any class of its voting stock.
Item 13. Certain Relationships and Related Transactions.
There are no reportable transactions, business relationships or
indebtedness between the Registrant and any covered party.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The following financial statements of Elcor Corporation are set forth
in Item 8 of this Annual Report on Form 10-K:
Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets at June 30, 1996 and 1995
Consolidated Statement of Operations for the years ended
June 30, 1996, 1995 and 1994
Consolidated Statement of Cash Flows for the years ended
June 30, 1996, 1995, and 1994
Consolidated Statement of Shareholders' Equity for the years
ended June 30, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Independent Auditors' Report
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not required, are
not applicable, or the information is included in the financial
statements or notes thereto.
(b) Reports on Form 8-K
The Registrant filed a Form 8-K on June 20, 1996 relating to a
press release containing "forward-looking statements" about its prospects for
the future.
(c) Exhibits
** 3.1 The Articles of Incorporation of the Registrant.
*** 3.2 Amended and Restated Bylaws of the Registrant.
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**** 4.6 Loan Agreement dated September 29, 1993 among Elcor Corporation, Certain Lenders, NationsBank
of Texas, N.A., as Issuer, and NationsBank of Texas, N.A., as Administrative Lender.
***** 4.7 First Amendment dated October 31, 1994 to Loan Agreement dated September 29, 1993 among Elcor
Corporation, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A., as
Administrative Lender.
****** 4.8 Second Amendment dated December 15, 1995 to Loan Agreement dated September 29, 1993 among Elcor
Corporation, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A., as
Administrative Lender, and Lender; and Bank of America - Texas, N.A. and Comerica Bank - Texas
as Lenders.
* 11 Computation of Income Per Common and Common Equivalent Share.
* 21 Subsidiaries of the Registrant.
* 23 Consent of Independent Public Accountants.
* 27 Financial Data Schedule (EDGAR submission only).
- ----------------------
* Filed herewith.
** Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the
year ended June 30, 1994.
*** Incorporated by reference to Exhibit 3 to the Registrant's Annual Report on Form 10-K for the
year ended June 30, 1981 and to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1988 originally filed with the Securities and Exchange
Commission on February 11, 1989.
**** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.
***** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994.
****** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ELCOR CORPORATION
By /s/ Richard J. Rosebery
-------------------------------------
Richard J. Rosebery
Executive Vice President,
Treasurer, Chief Administrative
and Financial Officer
By /s/ Leonard R. Harral
-------------------------------------
Leonard R. Harral
Vice President and Chief
Accounting Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below in multiple counterparts by the following
persons on behalf of the Registrant and in the capacities and on the date
indicated.
Signature Title Date
- ------------------------ ---------------------------------- -----------------
/s/ Roy E. Campbell Chairman of the Board, September 30, 1996
- ------------------------- President, Chief
Roy E. Campbell Executive Officer
/s/ F. H. Callaway Director September 30, 1996
- -------------------------
F. H. Callaway
/s/ James E. Hall Director September 30, 1996
- -------------------------
James E. Hall
/s/ Robert M. Leibrock Director September 30, 1996
- -------------------------
Robert M. Leibrock
/s/ W. F. Ortloff Director September 30, 1996
- -------------------------
W. F. Ortloff
/s/ David W. Quinn Director September 30, 1996
- -------------------------
David W. Quinn
/s/ Harold K. Work Director September 30, 1996
- ------------------------
Harold K. Work
/s/ Richard J. Rosebery Executive Vice September 30, 1996
- ----------------------- President, Treasurer,
Richard J. Rosebery Chief Administrative
and Financial Officer,
and Director
/s/ Leonard R. Harral Vice President and September 30, 1996
- ------------------------ Chief Accounting
Leonard R. Harral Officer
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INDEX TO EXHIBITS
Exhibit No. Description
------------- -----------
** 3.1 The Articles of Incorporation of the Registrant.
*** 3.2 Amended and Restated Bylaws of the Registrant.
**** 4.6 Loan Agreement dated September 29, 1993 among Elcor Corporation, Certain Lenders, NationsBank
of Texas, N.A., as Issuer, and NationsBank of Texas, N.A., as Administrative Lender.
***** 4.7 First Amendment dated October 31, 1994 to Loan Agreement dated September 29, 1993 among Elcor
Corporation, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A., as
Administrative Lender.
****** 4.8 Second Amendment dated December 15, 1995 to Loan Agreement dated September 29, 1993 among Elcor
Corporation, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A., as
Administrative Lender, and Lender; and Bank of America - Texas, N.A. and Comerica Bank - Texas
as Lenders.
* 11 Computation of Income Per Common and Common Equivalent Share.
* 21 Subsidiaries of the Registrant.
* 23 Consent of Independent Public Accountants.
* 27 Financial Data Schedule (EDGAR submission only).
- ----------------------
* Filed herewith.
** Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the
year ended June 30, 1994.
*** Incorporated by reference to Exhibit 3 to the Registrant's Annual Report on Form 10-K for the
year ended June 30, 1981 and to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1988 originally filed with the Securities and Exchange
Commission on February 11, 1989.
**** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.
***** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994.
****** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995.