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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 FISCAL YEAR ENDED JUNE 30, 1997 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 9, 1997, was $244,711,571. This amount is based on the closing price
of the Registrant's Common Stock on the New York Stock Exchange on September 9,
1997. 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 1993, as amended.
As of the close of business on September 9, 1997, the Registrant had
8,802,532 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 19, 1997
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. During fiscal 1997, Elk completed its three-year $100
million expansion program to significantly increase its manufacturing capacity
for premium laminated fiberglass asphalt shingles and nonwoven fiberglass mats.
Elk's premium laminated asphalt fiberglass 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 previous 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 independent roofing wholesale distributors, delivery being made by common
carrier or by customer vehicles from the manufacturing plants or warehouses.
Elk's products are distributed nationwide with Texas, California and Florida
representing the largest market areas. During fiscal 1997, Elk continued to
expand its marketing and sales efforts throughout the United States. The
Roofing Products segment accounted for approximately 90% of consolidated sales
of the Registrant in fiscal 1997. One customer, ABC Supply Co. Inc., the
largest roofing wholesale distributor in the United States, accounted for 14%
of consolidated sales in fiscal 1997, 13% of consolidated sales in fiscal 1996,
and 11% of consolidated sales in fiscal 1995.
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The company's new nonwoven fiberglass roofing mat facility at its
Ennis, Texas plant was in start-up operations during the first nine months of
fiscal 1997. This new plant achieved its performance test level of operations
effective April 1, 1997. The new facility operates in parallel to the existing
fiberglass mat manufacturing facility at the Ennis, Texas plant and produces
nonwoven fiberglass roofing mats and other mats for a variety of industrial
uses. The new plant was designed to more than triple Elk's previous
manufacturing capacity for nonwoven fiberglass mats. Capital expenditures,
including deferred preoperating and start-up costs for the new plant addition,
were about $45 million.
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.
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 ten 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. Although Ortloff
has had three patents expire in the last year and one important patent will
expire in fiscal 1999, Ortloff continues to develop and patent improved
processes for natural gas processing. Moreover, Ortloff offers significant
expertise and other nonpatented technology associated with its processes that
is difficult for customers to obtain on a cost effective basis from others. One
new patent was allowed and several new patent applications were filed in fiscal
1997. These efforts reflect Ortloff's commitment to continually update and
advance its technological position.
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.
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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 significant orders from major
telecommunications, medical electronic and other electronic equipment
manufacturers has enabled it to become a market leader.
The Registrant believes that it holds significant state-of-the-art
patents covering some of the most competitive processes for the cryogenic
processing of refinery and natural gas streams to remove the higher value
components, such as ethane and propane, which are primarily used as
petrochemical feedstocks. The Registrant believes that Ortloff has widely
recognized expertise in the design and operation of facilities for natural gas
and refinery gas processing and sulfur recovery.
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
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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. Freight
rates and raw material costs, including asphalt, increased during fiscal 1997.
However, the Registrant was generally unable to fully offset the impact of
higher freight rates and raw material costs with price increases during fiscal
1997.
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 potential 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 patent
litigation against GAF Building Materials Corporation and related GAF entities
concerning design and utility patents covering certain 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 hazardous wastes, and protection of the
public health and the environment generally (collectively, Environmental Laws).
Certain facilities of the Registrant's subsidiaries ship waste products to
various waste management facilities for treatment or disposal. 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 for damages and/or 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)
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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 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 to comply 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, 1997, the Registrant and its subsidiaries had 783
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, 1997, $2,139,000 in receivables relating to such
shipments were outstanding, the majority of which were collected in the first
quarter of fiscal 1998.
Seasonal Business
The Registrant's industrial products businesses are substantially
nonseasonal. 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 limit 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 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
36 of this Annual Report on Form 10-K.
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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 1997
- ------------------------ -------------------------- ---------- -----------------
Harold K. Work Chairman of the Board, 15 years 64
Chief Executive Officer and
President of Elcor Corporation;
Chief Executive Officer, President
and Director of Elk Corporation
of Dallas, a subsidiary, and Chief
Executive Officer, President and
Director of its subsidiaries
Richard J. Rosebery Vice Chairman, 22 years 62
Chief Financial and
Administrative Officer, and
Treasurer of Elcor Corporation;
Officer of all subsidiaries
and President and/or Director of
certain subsidiaries
Leonard R. Harral Vice President and Chief 4 years 45
Accounting Officer of
Elcor Corporation
Raul G. Holguin Vice President Information Systems of; - 40
Elcor Corporation; Vice President of
Chromium Corporation, and General
Manager of Chromium's Conductive
Coatings Division
David G. Sisler Vice President, General Counsel and 2 years 39
Secretary of Elcor Corporation; Officer
of all subsidiaries
James J. Waibel Vice President Administration 4 years 53
of Elcor Corporation
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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 Administrative and Financial Officer.
Mr. Work was Vice President. In July 1996, Mr. Rosebery and Mr Work were
appointed as Directors of the Registrant. On August 18, 1997, Mr. Work and Mr.
Rosebery were each elected as Vice Chairman. On August 26, 1997, Mr. Work was
elected as Chairman of the Board, President and Chief Executive Officer of the
Registrant following the death on August 22, 1997 of Mr. Roy E. Campbell, who
previously held these positions. 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. In June
1997, Mr. Holguin was elected as Vice President, Information Systems.
Previously Mr. Holguin was Assistant Vice President, Information Systems.
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, which manufactures nonwoven fiberglass roofing mats and other
mats for a variety of industrial uses, achieved its performance test level of
operations effective April 1, 1997.
Corporate headquarters and 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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Corporate headquarters and administrative offices are located in the
same leased facility as the Registrant's corporate offices in Dallas, Texas.
The Ortloff engineering and process 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,
Florida currently held for sale. Negotiations are in
process for the sale of this facility.
(b) Land and buildings in Waco, Texas, formerly used in the
solid waste handling equipment manufacturing business. This
facility is currently subject to a lease/purchase
agreement.
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 GAF 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 judgment 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 April 1996, a court ordered mediation was held but did not result
in resolution of the cases. In December 1996, the District Court for the
Northern District of Texas conducted a hearing to interpret the claims of Elk's
design and utility patents, but has yet to issue a ruling in that matter, which
essentially will determine the scope of the patents. The court also conducted a
bench trial on the inequitable conduct defenses alleged by GAF in the design
patent case in February 1997. A decision in that matter is pending. Trial for
the remaining issues in the design patent case, which was
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scheduled for April 21, 1997, has been continued to a date not yet determined,
and trial in the utility patent case has not been scheduled as yet.
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
counter claims. 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.
Gibraltar Tort Litigation
Chromium Corporation is a defendant in three 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. The Court in Marti Williams, et
al v. Akzo Nobel Chemicals, Inc., et al. in Smith County, Texas has entered a
dismissal of Chromium and certain other defendants, and the plaintiffs are
taking steps to carry forward an appeal. Chromium remains a party in Tangee
Daniels, et al. v. Akzo Nobel Chemicals, Inc., et al., pending in Dallas County
District Court, and in Adams v. American Ecology Environmental Services
Corporation, pending in Tarrant County District Court.
In the Daniels case, 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 ("Generator Defendants"). One plaintiff has non-suited in
this case. In August 1996, approximately 650 plaintiffs filed the Adams case
against the facility owners, operators, the Generator Defendants named in the
Daniels case and against several additional generator defendants. Discovery is
stayed in both the Daniels and the Adams cases pending rulings related to case
management orders. The Daniels court vacated a June 2, 1997 trial date and
re-set the trial for October 27, 1997. That date may be reset due to a delay by
the Court in ruling on certain dispositive motions. No trial date has been set
in the Adams case.
In connection with these cases, Chromium has entered into joint
defense agreements with more than twenty other Generator Defendants. Chromium
also has 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.
Management believes that the claims brought against Chromium in these
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.
Chromium/TWC Settlement
In May 1993, Chromium entered into an Agreed Order with the Texas
Water Commission ("TWC") in settlement of an enforcement proceeding. Pursuant
to the Agreed Order, the TWC
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assessed $60,000 in penalties and agreed to defer and forgive $74,800 in
penalties contingent on Chromium's completion of certain technical and remedial
activities at the Lufkin facility ("Technical Recommendations"). Chromium has
paid the assessed penalties, has completed the Technical Recommendations, and
is working with the Texas Natural Resource Conservation Commission, TWC's
successor, to obtain confirmation that all requirements of the Agreed Order
have been satisfied.
Management believes that the activities remaining to demonstrate
satisfaction of the terms of the Agreed Order will not have a material adverse
effect on the consolidated results of operations, financial position, or
liquidity of the Registrant.
Frontier Chemical Site
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
at the Frontier Chemical Royal Avenue Site (Site), a former state-permitted
waste processing and management facility in Niagara Falls, New York. In
September 1993, Chromium entered into an Administrative Order on Consent with
USEPA under which Chromium and other PRPs agreed 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 Phase I work was concluded in May 1994. Chromium was
assessed a total of $109,250 of the $4 million cost estimate assessed to all
Phase I PRPs. Chromium has not been and does not expect to be named as a PRP in
Phase II or any subsequent phases of cleanup.
Certain Phase I and Phase II PRPs intervened in a suit brought by the
New York Attorney General seeking recovery of approximately $1.2 million in
proceeds from a closure bond relating to the Site. If such intervention is
successful, participating Phase I and Phase II PRPs will share in any recovery
with the State of New York. In February 1997, a court hearing was conducted on
the motion for summary judgment of the PRPs, including Chromium, in the suit. A
ruling on the motion is pending.
In March 1997, the USEPA issued its demand for future costs pursuant
to the Administrative Order on Consent. The PRPs have objected to this cost
demand and have demanded an accounting. Resolution of this dispute still is
pending, but even if the USEPA demand remains at the current amount, no further
assessments from Chromium will be necessary to meet it; moreover, Chromium
received a refund of a small portion of its original assessment on the basis of
the existing demand.
Chromium's final assessment in this matter net of all recoveries
cannot be calculated until its PRP group determines which assessments are
uncollectible, and the closure bond action and USEPA cost reimbursement are
resolved. 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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Other
There are various other lawsuits and claims pending against the
Registrant and its subsidiaries arising in the ordinary course of their
businesses. 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 1,031 holders of record of the Registrant's Common
Stock at September 9, 1997.
The quarterly dividend declared per share and the high and low prices
in dollars per share on Registrant's Common Stock for each quarter during
fiscal year 1997 and fiscal year 1996 are set forth in the following tables:
Period Dividend High Low
------ -------- ---- ---
Fiscal 1997
First Quarter $ .07 19 5/8 16 1/2
Second Quarter $ .07 22 5/8 18 1/2
Third Quarter $ .07 26 20 3/4
Fourth Quarter $ .07 28 3/8 24 3/8
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
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, 1997, 136,300
shares with cumulative cost of $2,271,000 had been repurchased under this
program. In September 1995, the Board of Directors reinstated the Registrant's
regular quarterly cash dividend at six cents per common share. In September
1996, the regular quarterly cash dividend was increased by 17% to seven cents
per common share.
The limitations affecting the future payment of dividends by
Registrant imposed as a part of the Registrant's revolving credit agreement are
discussed under the caption "Notes to Consolidated Financial Statements" under
the heading "Long-Term Debt" on page 28 of this Annual Report on Form 10-K.
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Item 6. Selected Financial Data
The following selected consolidated financial data for each of the
five years in the period ended June 30, 1997 have been derived from the audited
consolidated financial statements of the Registrant included herein. The
selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this report.
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
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($ In thousands, except per share data) Year Ended June 30,
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1997 1996(1) 1995 1994(2) 1993(2)
- -----------------------------------------------------------------------------------------------------------------
SALES $ 230,756 $ 196,462 $ 159,061 $ 157,031 $ 161,431
========= ========= ========= ========= =========
INCOME:
From continuing operations $ 13,002 $ 10,284 $ 9,558 $ 15,571 $ 15,366
From discontinued operations -- -- -- (1,494) (606)
--------- --------- --------- --------- ---------
Before extraordinary item and
cumulative effect of accounting
change 13,002 10,284 9,558 14,077 14,760
Extraordinary item and cumulative
effect of accounting change -- -- -- 668 3,017
--------- --------- --------- --------- ---------
NET INCOME $ 13,002 $ 10,284 $ 9,558 $ 14,745 $ 17,777
========= ========= ========= ========= =========
INCOME PER SHARE:
From continuing operations $ 1.47 $ 1.16 $ 1.08 $ 1.75 $ 2.00
From discontinued operations -- -- -- (.17) (.08)
--------- --------- --------- --------- ---------
Before extraordinary item and
cumulative effect of accounting
change 1.47 1.16 1.08 1.58 1.92
Extraordinary item and
cumulative effect of accounting
change -- -- -- .07 .39
--------- --------- --------- --------- ---------
NET INCOME PER SHARE $ 1.47 $ 1.16 $ 1.08 $ 1.65 $ 2.31
========= ========= ========= ========= =========
TOTAL ASSETS $ 207,243 $ 192,128 $ 137,133 $ 108,233 $ 89,737
========= ========= ========= ========= =========
LONG-TERM DEBT $ 52,600 $ 53,000 $ 18,400 $ -- $ --
========= ========= ========= ========= =========
SHAREHOLDERS' EQUITY $ 112,780 $ 102,198 $ 93,616 $ 85,229 $ 69,747
========= ========= ========= ========= =========
CASH DIVIDENDS PER SHARE $ .28 $ .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 and 1993 results include $1,706 and $238 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 1997 COMPARED TO FISCAL 1996
During the fiscal year ended June 30, 1997, sales grew to
$230,756,000, a 17% increase over fiscal 1996 sales of $196,462,000. Both the
Roofing Products and Industrial Products Groups contributed to the increase in
sales. Net income in fiscal 1997 increased 26% to $13,002,000 from the
$10,284,000 achieved in fiscal 1996. Higher net income was primarily
attributable to the Industrial Products Group, which achieved substantially
improved operating results in fiscal 1997 as compared to the prior fiscal year.
In addition, in fiscal 1996 the company incurred $1,595,000 in pretax charges
in connection with a provision for the adoption of Statement of Financial
Accounting Standards (SFAS) 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 that fiscal year.
Sales for the Roofing Products Group increased 16% in fiscal 1997 to
$207,017,000 from $178,378,000 in fiscal 1996. The Roofing Products Group
accounted for approximately 90% of consolidated sales in fiscal 1997 and 91% in
fiscal 1996. Higher sales were primarily due to an increase in shipments of
premium laminated fiberglass asphalt shingles. Sales from the new plant in
Shafter, California accounted for a significant part of the increased
shipments. Average selling prices were about the same in fiscal 1997 compared
to fiscal 1996.
Operating profit for the Roofing Products Group increased slightly to
$22,440,000 in fiscal 1997 from $22,124,000 in fiscal 1996. The Shafter,
California plant achieved profitable operations in fiscal 1997 after incurring
a significant operating loss in the prior fiscal year. Although both of the
other roofing plants were very profitable, operating income at these facilities
was lower in the current fiscal year, primarily as a result of higher freight
rates, higher raw materials costs and costs of implementing a fourth shift
operation at the Tuscaloosa, Alabama roofing plant to increase that facility's
production capacity.
The company's new nonwoven fiberglass roofing mat plant at its Ennis,
Texas facility achieved its performance test level of operations effective
April 1, 1997. Although overall mat plant operations were profitable in fiscal
1997, operating income from mat plant operations was significantly lower in
fiscal 1997 compared to fiscal 1996 due primarily to higher costs associated
with the new plant in its start-up year of operations.
Sales for the Industrial Products Group increased 31% in fiscal 1997
to $23,542,000 from $17,930,000 in fiscal 1996. Operating income for this
business segment increased to $3,262,000 in fiscal 1997 compared to an
operating loss of $302,000 in fiscal 1996. Chromium Corporation achieved
significantly higher revenues and operating results relating to conductive
coatings of plastic enclosures for electronic equipment. Improved operating
conditions in this area more than offset decreased demand for Chromium's hard
chrome plated diesel engine cylinder liners for the railroad, marine and
stationary power industries during the first half of fiscal 1997. In addition,
in fiscal 1996, Chromium recorded $1,037,000 in pretax charges relating to a
reduction in value of assets at its Cleveland, Ohio plant upon the adoption of
SFAS No. 121.
14
16
Ortloff Engineers achieved much higher revenues in fiscal 1997 from
licensing the company's process technology for construction of both new natural
gas processing plants and retrofits to upgrade existing gas processing plants.
Selling, general and administrative (SG&A) costs as a percentage of
sales were 13% for fiscal 1997 compared to 15% in fiscal 1996. In fiscal 1995,
the company established a larger sales organization to better serve growing
market areas. During fiscal 1997, this larger organization has continued to be
able to service the increase in sales orders without a proportionate increase
in overall selling costs.
Interest expense was higher in fiscal 1997 as a result of the
company's completion of its three year major facilities expansion program which
was completed in March 1997. Subsequent to that date, all interest was expensed
as incurred.
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 was 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 SFAS No. 121, and the reduction in value of certain other
assets during that fiscal 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
fiscal 1996 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.
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 and
$1,037,000 in charges relating to the reduction in value of assets at
Chromium's Cleveland plant upon adoption of SFAS No. 121 in the fourth quarter
of fiscal 1996.
15
17
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 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.
LIQUIDITY AND CAPITAL RESOURCES
The company generated cash flows from operating activities of
$17,834,000 in fiscal 1997, despite an $8,931,000 increase in working capital
in fiscal 1997. The significant increase in working capital was primarily the
result of higher inventories, which increased $6,679,000 during fiscal 1997.
The majority of this increase related to finished goods inventories which were
increased at all roofing plants in anticipation of higher demand during the
summer and fall months. Receivables increased $696,000 during the year
primarily as a result of higher sales generated during fiscal 1997, partially
offset by a decrease in deferred payment term receivables. At June 30, 1997,
deferred payment term receivables from promotional programs to certain
customers were $2,139,000 compared to $6,861,000 in receivables from these
programs at June 30, 1996. Deferred receivables outstanding at June 30, 1997,
are primarily due during the first quarter of fiscal 1998.
The current ratio at June 30, 1997, was 3.1 to 1 compared to 2.7 to 1
at June 30, 1996. 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 $16,005,000 for investing activities in fiscal 1997.
The majority of these expenditures were for capital expenditures and related
deferred start-up costs incurred in connection with the completion 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. During
fiscal 1997, the company completed its three-year major new facilities
expansion program. Capital expenditures are expected to be in the range of
$18,000,000 to $20,000,000 in fiscal 1998. The majority of currently planned
capital expenditures are for productivity, capacity and cost improvement
projects at the three current roofing plants. In addition, the company
anticipates an expansion of capacity in Chromium Corporation's Conductive
Coatings Division in order to meet growing demand for its Compushield process
for conductive coatings of plastic enclosures for electronic equipment.
Cash flows used for financing activities were $2,820,000 in fiscal
1997, primarily resulting from the payment of dividends and a $400,000 decrease
in long-term debt at June 30, 1997. Long-term debt represented only 32% of the
$165,380,000 of invested capital (long-term debt plus shareholders' equity) at
June 30, 1997. In October 1996, the company increased its unsecured revolving
line of credit from $70,000,000 to $80,000,000 and extended the term to October
31, 1999. As of June 30, 1997, $25,810,000 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, 1997, 136,300 shares
with cumulative cost of $2,271,000 had been repurchased under this program. In
September 1995, the Board of Directors reinstated the company's regular
quarterly cash dividend. In September 1996, the regular quarterly cash dividend
was increased by 17% to seven 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 SFAS 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 1998 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.
PENDING ACCOUNTING PRONOUNCEMENT
The Accounting Standards Executive Committee (AcSEC) of the American
Institute of Certified Public Accountants has issued an exposure draft on
"Reporting on the Costs of Start-Up Activities." If the exposure draft were to
be finalized in its proposed form, it would require companies to expense
previously capitalized start-up costs. At June 30, 1997, the company had
$8,967,000 of unamortized capitalized start-up costs. While the company does
not agree with the accounting treatment proposed in the AcSEC exposure draft
and believes that capitalizing costs incurred in constructing major new
facilities provides a better matching of revenues and expenses, the company
will adopt this statement of position if and when it is finalized.
FORWARD-LOOKING STATEMENTS
In an effort to give investors a well-rounded view of the company's
current condition and future opportunities, management's discussion and
analysis of the results of operations and financial condition and other
sections of this annual report contain "forward-looking statements" about its
prospects for the future. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected. Such risks and uncertainties include, but are not limited to the
following:
17
19
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. During fiscal 1997, the company completed a three-year $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 mats and
other mats for a variety of industrial uses. 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 its 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, 1997 and 1996 21
Consolidated Statement of Operations for the years ended
June 30, 1997, 1996, and 1995 22
Consolidated Statement of Cash Flows for the years ended
June 30, 1997, 1996, and 1995 23
Consolidated Statement of Shareholders' Equity for the years
ended June 30, 1997, 1996, and 1995 24
Notes to Consolidated Financial Statements 25
Financial Statement Schedule:
Independent Auditors' Report 37
Schedule II - Consolidated Valuation and Qualifying Accounts and Reserves 38
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, 1997 and
1996, and the related consolidated statements of operations, cash flows and
shareholders' equity for each of the three years in the period ended June 30,
1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.
As discussed in the Summary of Significant Accounting Policies, 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" in fiscal 1996.
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Dallas, Texas
August 18, 1997
20
22
CONSOLIDATED BALANCE SHEET
($ In thousands) June 30,
- -----------------------------------------------------------------------------------------------------
ASSETS 1997 1996
- -----------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 3,601 $ 3,744
Trade receivables, less allowance of $545 and $477 43,178 42,482
Inventories 33,427 26,748
Prepaid expenses and other 3,572 1,956
Deferred income taxes 2,508 2,734
--------- ---------
Total current assets 86,286 77,664
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land 2,065 2,065
Buildings 30,873 22,157
Machinery and equipment 145,881 98,668
Construction in progress 1,296 40,163
--------- ---------
180,115 163,053
Less - Accumulated depreciation (62,648) (52,846)
--------- ---------
Property, plant and equipment, net 117,467 110,207
--------- ---------
OTHER ASSETS 3,490 4,257
--------- ---------
$ 207,243 $ 192,128
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 15,899 $ 15,503
Accrued liabilities 12,386 13,091
--------- ---------
Total current liabilities 28,285 28,594
--------- ---------
LONG-TERM DEBT 52,600 53,000
--------- ---------
DEFERRED INCOME TAXES 13,578 8,336
--------- ---------
COMMITMENTS AND CONTINGENCIES (See Note)
SHAREHOLDERS' EQUITY
Common stock ($1 par, 8,814,079 shares issued at
June 30, 1997; 8,802,066 shares issued at June 30, 1996) 8,814 8,802
Paid-in capital 71,350 71,555
Retained earnings 33,039 22,499
--------- ---------
113,203 102,856
Less - Treasury stock (17,500 shares at June 30, 1997;
33,949 shares at June 30, 1996; at cost) (423) (658)
--------- ---------
Total shareholders' equity 112,780 102,198
--------- ---------
$ 207,243 $ 192,128
========= =========
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,
- ---------------------------------------------------------------------------------------
1997 1996 1995
--------- --------- ---------
SALES $ 230,756 $ 196,462 $ 159,061
--------- --------- ---------
COSTS AND EXPENSES
Cost of goods sold 178,229 149,080 116,799
Selling, general and administrative 30,969 29,121 27,103
Reduction in value of assets -- 1,595 --
--------- --------- ---------
INCOME FROM OPERATIONS 21,558 16,666 15,159
--------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense (1,136) (394) (153)
Other income 215 211 275
--------- --------- ---------
INCOME BEFORE INCOME TAXES 20,637 16,483 15,281
Provision for income taxes 7,635 6,199 5,723
--------- --------- ---------
NET INCOME $ 13,002 $ 10,284 $ 9,558
========= ========= =========
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 1.47 $ 1.16 $ 1.08
========= ========= =========
AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING 8,871 8,857 8,844
========= ========= =========
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,
- -------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 13,002 $ 10,284 $ 9,558
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 8,664 4,689 3,603
Reduction in value of assets -- 1,595 --
Deferred income taxes 5,468 4,018 2,845
Changes in assets and liabilities:
Trade receivables (696) (9,572) 627
Inventories (6,679) (15,047) 5,192
Prepaid expenses and other (1,616) 975 (1,328)
Accounts payable 396 4,654 1,558
Accrued liabilities (705) 2,043 (1,830)
--------- --------- ---------
Net cash provided by
operating activities 17,834 3,639 20,225
--------- --------- ---------
Cash provided by sale of discontinued assets 848 4,233 684
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (15,896) (40,669) (46,252)
Proceeds from sale of investments -- -- 5,378
Other, net (109) (88) 548
--------- --------- ---------
Net cash used for investing activities (16,005) (40,757) (40,326)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt borrowings (repayments) (400) 34,600 18,400
Dividends paid on common stock (2,462) (2,101) --
Treasury stock transactions and
exercises of stock options, net 42 399 (1,171)
--------- --------- ---------
Net cash provided by (used for) financing activities (2,820) 32,898 17,229
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (143) 13 (2,188)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,744 3,731 5,919
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,601 $ 3,744 $ 3,731
========= ========= =========
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)
- --------------------------------------------------------------------------------------------
Total
Common Paid-in Retained Treasury Shareholders'
Stock Capital Earnings Stock Equity
--------- --------- --------- --------- ---------
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
Net income -- -- 13,002 -- 13,002
Treasury stock transactions
and exercises of stock
options, net 12 (205) -- 235 42
Dividends, $.28 per share -- -- (2,462) -- (2,462)
--------- --------- --------- --------- ---------
BALANCE, June 30, 1997 $ 8,814 $ 71,350 $ 33,039 $ (423) $ 112,780
========= ========= ========= ========= =========
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 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 14%, 13% and 11% of consolidated sales in fiscal years
1997, 1996 and 1995, respectively. 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
27
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,
---------------------
1997 1996
--------- ---------
Raw Materials $ 6,586 $ 5,632
Work-In-Process 441 604
Finished Goods 26,400 20,512
--------- ---------
$ 33,427 $ 26,748
========= =========
If the first-in, first-out (FIFO) method had been used at June 30,
1997 and 1996, inventories would have been lower by $1,221,000 in fiscal 1997
and by $69,000 in fiscal 1996, primarily as a result of productivity
improvements and declining costs of raw materials subsequent to the adoption of
the LIFO method. 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 $977,000, $4,772,000 and $3,864,000 in fiscal years 1997, 1996, and 1995,
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
1997, 1996 and 1995, $1,784,000, $1,459,000 and $326,000 of interest cost was
capitalized, respectively.
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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
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.
IMPAIRMENT OF LONG-LIVED ASSETS
During the fourth quarter of fiscal 1996, the company adopted
Statement of Financial Accounting Standards (SFAS) 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 assets of Chromium
Corporation's Cleveland plant and 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.
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,
------------------------------
1997 1996 1995
-------- -------- --------
Interest paid $ 2,951 $ 1,739 $ 436
Income taxes paid $ 3,115 $ 1,105 $ 5,588
PENDING ACCOUNTING PRONOUNCEMENT
The Accounting Standards Executive Committee (AcSEC) of the American
Institute of Certified Public Accountants has issued an exposure draft on
"Reporting on the Costs of Start-Up Activities." If the exposure draft were to
be finalized in its proposed form, it would require companies to expense on a
current basis previously capitalized start-up costs. At June 30, 1997, the
company had $8,967,000 of unamortized capitalized start-up costs. While the
company does not agree with the accounting treatment proposed in the AcSEC
exposure draft and believes that capitalizing costs incurred in constructing
major new facilities provides a better matching of revenues and expenses, the
company will adopt this statement of position if and when it is finalized.
27
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LONG-TERM DEBT
Effective October 31, 1996 the company increased its unsecured
revolving credit facility (Facility) to $80,000,000 of primary credit,
including up to a maximum of $5,000,000 in letters of credit, through October
31, 1999 with a provision for annual extensions upon approval of the lenders.
At June 30, 1997, letters of credit totaling $1,590,000 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, 1997, 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, 1997, total cumulative dividend payments and stock repurchased
since July 1, 1993 were subject to a $26,656,000 limitation. Actual
expenditures for these items as of June 30, 1997 have been $6,834,000.
SHAREHOLDERS' EQUITY
Authorized common stock, par value $1.00, is 50,000,000 shares, of
which 8,814,079 shares were issued at June 30, 1997 and 8,802,066 shares were
issued at June 30, 1996. 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
28
30
certain other modifications. The Rights will separate from the associated
shares of common stock 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 of 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:
Weighted Average
Number Option Price Option Price
of Shares Range per Share Per Share
--------- --------------- ---------
Outstanding at June 30, 1994 301,076 $ 6.00 - $24.13 $ 11.56
Granted 57,195 $ 17.25 - $19.88 $ 19.42
Canceled (4,886) $ 7.00 - $24.13 $ 12.14
Exercised (35,546) $ 6.00 - $12.13 $ 8.39
--------
Outstanding at June 30, 1995 317,839 $ 7.00 - $24.13 $ 13.37
Granted 73,751 $ 21.50 - $22.38 $ 21.96
Canceled (6,910) $ 7.00 - $24.13 $ 18.37
Exercised (43,900) $ 7.00 - $24.13 $ 9.70
--------
Outstanding at June 30, 1996 340,780 $ 7.00 - $24.13 $ 15.60
Granted 101,750 $ 17.00 - $19.00 $ 18.68
Canceled (2,652) $ 8.75 - $24.13 $ 18.54
Exercised (49,093) $ 7.00 - $19.88 $ 8.58
--------
Outstanding at June 30, 1997 390,785 $ 7.00 - $24.13 $ 17.26
========
29
31
The following table summarizes information about options outstanding
at June 30, 1997:
Options Outstanding Options Exercisable
-------------------------------------------------- ----------------------------------
Number Weighted-Average Number Weighted
Range of Outstanding Remaining Exercise Exercisable Average
Exercise Prices At June 30, 1997 Contractual Life Price At June 30, 1997 Exercise Price
---------------------------------------------------------------------------------------------------------------
$ 7.00 - $ 9.88 61,693 1.87 $ 8.01 52,375 $ 7.88
$10.00 - $14.88 55,598 2.53 $11.77 36,368 $11.52
$15.00 - $19.88 155,677 7.59 $18.93 33,814 $18.30
$20.00 - $24.13 117,817 5.87 $22.54 22,930 $22.78
At June 30, 1997, 1996 and 1995, 145,487, 115,796 and 106,089 shares
were exercisable, respectively. A total of 264,847, 364,849 and 435,305 shares
were reserved for future grants at June 30, 1997, 1996 and 1995, respectively.
In fiscal 1997, the company adopted the disclosure-only provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized with respect to the company's stock
option plan. Pro forma information regarding net income and income per share
has been determined as if the company had accounted for its stock options under
the fair value methodology prescribed by SFAS No. 123. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions for fiscal
1997 and 1996; dividend yields of 1.5% and 1.1%; risk-free interest rates of
6.5% and 6.2%; expected market price volatility of .429 and .450; and expected
lives of options of 6.9 and 7.5 years. The weighted average fair value of stock
options granted in fiscal 1997 and 1996 was $8.67 and $11.22, respectively.
(Dollar amounts in thousands,
except per share data) 1997 1996
------------------------ ------- ------
Net income, as reported $13,002 $10,284
Net income, pro forma $12,671 $ 9,974
Income per share, as reported $ 1.47 $ 1.16
Income per share, pro forma $ 1.43 $ 1.13
The pro forma amounts presented above may not be representative of the
effects on reported net income for future years.
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 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
30
32
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 $1,245,000, $1,120,000, and $839,000 in 1997, 1996
and 1995, 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, 1997 and
1996 totaling $1,078,000 and $1,174,000, 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 2002. Total rental expense was $1,295,000 in 1997, $1,167,000 in 1996,
and $1,117,000 in 1995. At June 30, 1997, future minimum rental commitments
under noncancellable operating leases, payable over the remaining lives of the
leases, are:
(In thousands)
Minimum Rental
Fiscal Year Commitments
----------- -----------
1998 $1,127
1999 770
2000 141
2001 80
2002 8
Thereafter --
------
Total $2,126
======
The company provides certain warranties for its products which are
generally limited to being free from defect in materials or workmanship or
meeting specified manufacturing and material specifications. During 1997, 1996
and 1995, the company recorded to expense approximately $1,566,000, $1,637,000
and $1,462,000, respectively, in warranty claim settlements and reserves. The
company has established reserves for estimated probable future claims in
accordance with SFAS No. 5, "Accounting for Contingencies."
31
33
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
April 1996, a court-ordered mediation was held but did not result in resolution
of the cases. In December 1996, the District Court for the Northern District of
Texas conducted a hearing to interpret the claims of Elk's design and utility
patents, but has yet to issue a ruling in that matter, which essentially will
determine the scope of the patents. The court also conducted a bench trial on
the inequitable conduct defenses alleged by GAF in the design patent case in
February 1997. A decision in that matter is pending. Trial for the remaining
issues in the design patent case, which was scheduled for April 21, 1997, has
been continued to a date not yet determined, and trial in the utility patent
case has not been scheduled as yet.
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 such 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 SFAS No. 5, "Accounting for Contingencies."
32
34
ACCRUED LIABILITIES
Accrued liabilities consist of the following:
(In thousands)
June 30,
1997 1996
--------- ---------
Product warranty reserves $ 1,968 $ 2,168
Self-insurance reserves 1,531 1,856
Compensation and employee benefits 3,291 3,019
All other 5,596 6,048
--------- ---------
$ 12,386 $ 13,091
========= =========
INCOME TAXES
The company's effective tax rate was 37.0% in 1997, 37.6% in 1996 and
37.5% in 1995. The difference between the federal statutory tax rate and the
effective tax rate is reconciled as follows:
1997 1996 1995
-------- -------- --------
Federal statutory tax rate 35.0% 35.0% 35.0%
Increase in tax rate resulting from:
State income taxes, net of
federal tax effect 1.6% 2.1% 2.5%
Miscellaneous items .4% .5% --
-------- -------- --------
37.0% 37.6% 37.5%
======== ======== ========
Components of the income tax provisions consist of the following:
(In thousands)
1997 1996 1995
-------- -------- --------
Federal:
Current $ 1,709 $ 1,826 $ 2,302
Deferred, net 5,427 3,834 2,845
State 499 539 576
-------- -------- --------
$ 7,635 $ 6,199 $ 5,723
======== ======== ========
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35
The significant components of the company's deferred tax assets and
liabilities are summarized below:
(In thousands)
June 30
--------------------------------
1997 1996 1995
-------- -------- --------
Deferred tax assets:
Accrued liabilities, difference in
expense recognition $ 2,269 $ 2,314 $ 1,963
Receivables, bad debt reserve 191 246 186
Discontinued asset reductions -- 292 292
Other 48 141 --
-------- -------- --------
2,508 2,993 2,441
-------- -------- --------
Deferred tax liabilities:
Fixed assets, primarily depreciation method
differences and deferred preoperating costs . (13,578) (8,595) (3,976)
Other -- -- (49)
-------- -------- --------
(13,578) (8,595) (4,025)
-------- -------- --------
Net deferred tax liability $(11,070) $ (5,602) $ (1,584)
======== ======== ========
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36
QUARTERLY SUMMARY OF OPERATIONS (UNAUDITED)
($ In thousands, except per share data)
First Quarter Second Quarter Third Quarter Fourth Quarter
----------------- ----------------- ----------------- -----------------
1997 1996 1997 1996 1997 1996 1997 1996
------- ------- ------- ------- ------- ------- ------- -------
Sales $64,536 $48,528 $50,636 $45,362 $57,120 $50,048 $58,464 $52,524
Gross Profit 14,012 12,672 11,394 10,839 11,773 11,173 15,348 11,103
Net Income 3,768 3,663 2,309 2,124 2,612 2,321 4,313 2,176
Net Income Per Share .43 .41 .26 .24 .29 .26 .48 .25
35
37
FINANCIAL INFORMATION BY COMPANY SEGMENTS
(In thousands)
1997 1996 1995
--------- --------- ---------
SALES
Roofing products $ 207,017 $ 178,378 $ 138,991
Industrial products 23,542 17,930 19,960
Corporate and eliminations 197 154 110
--------- --------- ---------
$ 230,756 $ 196,462 $ 159,061
========= ========= =========
OPERATING PROFIT
Roofing products $ 22,440 $ 22,124 $ 18,015
Industrial products 3,262 (302) 2,099
Corporate and other (4,144) (5,156) (4,955)
--------- --------- ---------
21,558 16,666 15,159
Interest and other income (expense), net (921) (183) 122
--------- --------- ---------
Income before income taxes $ 20,637 $ 16,483 $ 15,281
========= ========= ---------
IDENTIFIABLE ASSETS(1)
Roofing products $ 185,246 $ 173,747 $ 112,145
Industrial products 9,361 6,689 8,256
Corporate 10,541 8,750 9,557
Discontinued assets 2,095 2,942 7,175
--------- --------- ---------
$ 207,243 $ 192,128 $ 137,133
========= ========= =========
DEPRECIATION AND AMORTIZATION
Roofing products $ 7,704 $ 3,554 $ 2,440
Industrial products 727 927 981
Corporate 233 208 182
--------- --------- ---------
$ 8,664 $ 4,689 $ 3,603
========= ========= =========
CAPITAL EXPENDITURES
Roofing products $ 14,222 $ 40,046 $ 45,803
Industrial products 1,400 507 322
Corporate 274 116 127
--------- --------- ---------
$ 15,896 $ 40,669 $ 46,252
========= ========= =========
(1) Consists principally of cash and cash equivalents, trade receivables,
inventories, and net property, plant and equipment.
36
38
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 18, 1997. 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 herein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Dallas, Texas
August 18, 1997
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39
ELCOR CORPORATION AND SUBSIDIARIES
SCHEDULE II
(In thousands)
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1996, AND 1995
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, 1997
CONSOLIDATED:
Allowance for doubtful accounts $ 477 $ 78 $ -- $ (10) $ 545
=========== =========== =========== =========== ===========
Allowance for inventory obsolescence $ 673 $ 47 $ -- $ (519) $ 201
=========== =========== =========== =========== ===========
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
=========== =========== =========== =========== ===========
38
40
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 pages 5, 6 and 14 of the Registrant's Proxy
Statement dated September 19, 1997. 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 19,
1997.
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 19, 1997. The referenced
information was provided as of September 9, 1997. 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
except for certain dispositions of the company's Common Stock by Mrs. Wanda P.
Campbell, in her capacity as independent executrix of the estate of Roy E.
Campbell, which have reduced her beneficial ownership of Common Stock to an
aggregate of 466,471 shares, or approximately 5.27% of shares outstanding. Such
information is based on a Schedule 13D filed by Mrs. Campbell with the
Securities and Exchange Commission on September 17, 1997, after the company's
Proxy Statement had gone to print.
Item 13. Certain Relationships and Related Transactions.
There are no reportable transactions, business relationships or
indebtedness between the Registrant and any covered party.
39
41
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports of 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, 1997, and 1996
Consolidated Statement of Operations for the years ended
June 30, 1997, 1996 and 1995
Consolidated Statement of Cash Flows for the years ended
June 30, 1997, 1996, and 1995
Consolidated Statement of Shareholders' Equity for the years
ended June 30, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Independent Auditors' Report
Schedule II - Consolidated 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 April 16, 1997 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.
40
42
****4.6 Loan Agreement dated September 19, 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, Administrative Lender, and Lender; and
Bank of America - Texas, N.A. and Comerica Bank -
Texas as Lenders.
*******4.9 Third Amendment dated October 31, 1996 to Loan
Agreement dated dated September 29, 1993 among
Elcor Corporation, NationsBank of Texas, N.A., As
Issuer, 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, (File No. 1-5341).
*** Incorporated by reference to Exhibit 3 to the
Registrant's Annual Report on 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, (File No. 1-5341).
**** Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993, (File No. 1-5341).
41
43
***** Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994, (File No. 1-5341).
****** Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995, (File No. 1-5341).
******* Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, (File No. 1-5341).
42
44
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
Vice Chairman,
Chief Financial and Administrative
Officer, and Treasurer
By /s/ Leonard R. Harral
----------------------------------------
Leonard R. Harral
Vice President and Chief
Accounting Officer
43
45
SIGNATURES
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/ Harold K. Work Chairman of the Board, September 26, 1997
--------------------------- President, Chief
Harold K. Work Executive Officer
/s/ Richard J. Rosebery Vice Chairman, Chief September 26, 1997
--------------------------- Financial and Administrative
Richard J. Rosebery Officer, and Treasurer
/s/ Leonard R. Harral Vice President and September 26, 1997
--------------------------- Chief Accounting
Leonard R. Harral Officer
/s/ F.H. Callaway Director September 26, 1997
---------------------------
F.H. Callaway
/s/ James E. Hall Director September 26, 1997
---------------------------
James E. Hall
/s/ Robert M. Leibrock Director September 26, 1997
---------------------------
Robert M. Leibrock
/s/ W.F. Ortloff Director September 26, 1997
---------------------------
W.F. Ortloff
/s/ David W. Quinn Director September 26, 1997
---------------------------
David W. Quinn
44
46
INDEX TO EXHIBITS
EXHIBIT
NUMBER 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 19, 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, Administrative Lender, and Lender; and
Bank of America - Texas, N.A. and Comerica Bank -
Texas as Lenders.
*******4.9 Third Amendment dated October 31, 1996 to Loan
Agreement dated dated September 29, 1993 among
Elcor Corporation, NationsBank of Texas, N.A., As
Issuer, 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 (File No. 1-5341).
*** Incorporated by reference to Exhibit 3 to the
Registrant's Annual Report on 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 (File No. 1-5341).
**** Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993 (File No. 1-5341).
***** Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994 (File No. 1-5341).
****** Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995 (File No. 1-5341).
******* Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 (File No. 1-5341).