-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MbM/xVj8OR4Uw9Hm8NUH2xn43N1ySLAzpHEf8x3GFJ0uzvWX4682AZ+uSP7RNiwA 34EwyhDnCod7CBAGoyhR1w== 0000950134-95-002353.txt : 19951002 0000950134-95-002353.hdr.sgml : 19951002 ACCESSION NUMBER: 0000950134-95-002353 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950926 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELCOR CORP CENTRAL INDEX KEY: 0000032017 STANDARD INDUSTRIAL CLASSIFICATION: ASPHALT PAVING & ROOFING MATERIALS [2950] IRS NUMBER: 751217920 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05341 FILM NUMBER: 95576198 BUSINESS ADDRESS: STREET 1: 14643 DALLAS PKWY STE 1000 STREET 2: WELLINGTON CTR CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2148510500 MAIL ADDRESS: STREET 1: WELLINGTON CENTRE STE 1000 STREET 2: 14643 DALLAS PKWY CITY: DALLAS STATE: TX ZIP: 75240-8871 FORMER COMPANY: FORMER CONFORMED NAME: ELCOR CHEMICAL CORP DATE OF NAME CHANGE: 19761119 10-K 1 FORM 10-K FOR 6/30/95 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-K --------------------- ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1995 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: (214) 851-0500 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED - -------------------------------------------------------------------------------- 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 ---------------- (TITLE OF CLASS) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The aggregate market value of Common Stock held by nonaffiliates as of September 5, 1995, was $155,758,728. This amount is based on the closing price of the Registrant's Common Stock on The New York Stock Exchange on September 5, 1995. Shares of stock held by directors and officers of the Registrant as well as shares allocated to such persons under the Employee Stock Ownership Plan of the Registrant were not included in the above computation; however, the Registrant has made no determination that such entities are "Affiliates" within the meaning of Rule 405 under the Securities Act of 1933, as amended. As of the close of business on September 5, 1995, the Registrant had 8,722,908 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: ELCOR CORPORATION 1995 ANNUAL REPORT TO SHAREHOLDERS PROXY STATEMENT DATED SEPTEMBER 19, 1995 PARTS I THROUGH IV OF FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 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 products. Elk also manufactures and sells nonwoven fiberglass mats for use as a substrate material in manufacturing asphalt roofing products, and nonwoven mats for use in other industrial applications. Elk is spending about $80 million over a three-year period to significantly increase its manufacturing capacity for premium laminated fiberglass asphalt shingles and nonwoven fiberglass mats. As of June 30, 1995, cumulative capital expenditures for this expansion program have been approximately $54 million. Elk's premium laminated fiberglass asphalt shingle manufacturing plants are located in Tuscaloosa, Alabama, Ennis, Texas and a new plant in Shafter, California was in start-up operations at the end of fiscal 1995. Capital expenditures for the new plant are expected to be about $45 million. The new plant has the potential to increase Elk's present 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). Late in the first quarter of fiscal 1995, Elk introduced Prestique premium laminated fiberglass asphalt shingle product lines with the patented new enhanced High Definition(R) and Raised Profile(TM) look. In addition, Elk also manufactures premium fiberglass asphalt hip and ridge products: Seal-a-Ridge(R) and Z(R) ridge brands. Elk's roofing products are sold by employee sales personnel primarily to non-owned distributors, delivery being made by common carrier or by customer vehicles from the manufacturing plants. Elk's products are distributed in about 40 states with Texas, California and Florida representing the largest market areas. The Roofing Products segment accounted for approximately 87% of consolidated sales of the Registrant's in fiscal 1995. One customer, ABC Supply Co. Inc., accounted for 11% of consolidated sales in fiscal 1995. 3 Elk is constructing a major new fiberglass mat manufacturing facility, which will be installed in parallel to its existing fiberglass mat manufacturing facility at its Ennis, Texas plant. It will manufacture nonwoven fiberglass mats for use as a roofing substrate material and for industrial facer products. The new plant will have the potential to more than triple present manufacturing capacity for nonwoven fiberglass mats. Capital expenditures for the new plant addition are estimated to be about $35 million. The new plant is scheduled to begin operations in the spring of 1996. Elk's nonwoven fiberglass mats are used in the production of its premium roofing products and are sold by employee sales personnel to other asphalt roofing products manufacturers, 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 telecommunications, medical electronic and other electronic equipment which is designed to control the level of electromagnetic and radio frequency interference (EMI/RFI) emissions generated by electronic components. Sales are generated by employee sales personnel, with delivery made primarily by common carrier. Chromium's sales accounted for 11% of consolidated sales of the Registrant in fiscal 1995. Another unit of the Registrant, OEL, LTD., d/b/a Ortloff Engineers, Ltd. (Ortloff), is engaged in providing patent licensing and engineering support services and providing consulting engineering services to the oil and gas production, gas processing and sulfur recovery industries. Ortloff licenses patents owned by the Registrant for use in new or redesigned natural gas and refinery gas processing facilities and utilizes technology licenses from others and its own expertise in the performance of consulting engineering assignments. Ortloff continues to develop and patent improved processes for natural gas processing. Three new patent applications were filed in fiscal 1995 and work is continuing on additional applications to be filed in fiscal 1996. 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. Consulting engineering assignments are performed under consulting services agreements at negotiated rates. 2 4 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, service and price. Industrial Products The Registrant believes that Chromium is the leading remanufacturer of diesel engine cylinder liners and pistons for the railroad and marine transportation industries and is the primary supplier of hard chrome plated finishes for original equipment diesel engine cylinder liners to all of the major domestic locomotive manufacturers. The Registrant believes it has smaller competitors in the locomotive diesel engine cylinder liner remanufacturing market. The Registrant also believes that Chromium is one of the leading hard chrome platers of recycled and original equipment large bore cylinder liners for stationary power applications. Chromium has achieved a leading position in these markets through competition on the basis of product performance, quality, service and price. The Registrant, through the Conductive Coatings Division of Chromium, is engaged in electroless shielding of plastic enclosures for telecommunications, medical electronic and other electronic equipment. The Registrant believes the success of Chromium's Conductive Coatings Division in becoming a qualified supplier for and obtaining orders from major telecommunications, medical electronic and other electronic equipment manufacturers will enable it to successfully compete in this market niche with the potential of becoming a leader in the future. The Registrant believes that it holds significant state-of-the-art patents covering some of the most competitive processes for the separation of ethane and heavier hydrocarbon liquids from refinery and natural gas streams. The Registrant believes it has widely recognized expertise in the design and operation of facilities for natural gas liquids recovery, sulfur recovery and field processing of sour crude oil and natural gas production. 3 5 Backlog. Backlog was not significant, nor is it material, in the Registrant's operations. Raw Materials. Roofing Products In the asphalt roofing products manufacturing business, the significant raw materials are ceramic coated granules, asphalt, glass fibers, resins and mineral filler. All of these materials are presently available from several sources and are in adequate supply. Historically, the Registrant has been able to pass some of the higher raw material and transportation costs through to the customer. Costs of asphalt and glass fibers increased during the latter half of fiscal 1995 resulting in reduced margins. The Company implemented three modest price increases during the March through July 1995 period to offset the impact of higher raw material costs. Industrial Products In the Registrant's business of hard chrome plating and remanufacturing diesel engine cylinder liners and large bore cylinder liners, chromic acid is a significant raw material which is presently available from a number of domestic suppliers. The Registrant believes these domestic suppliers obtain the ore for manufacturing chromic acid principally from sources outside the United States, some of which are subject to political uncertainty. The Registrant has been advised by its suppliers that they maintain substantial inventories of chromic acid in order to minimize the potential effects of foreign interruption in ore supply. No raw materials are utilized in the Registrant's consulting engineering and technology licensing business. Patents, Licenses, Franchises and Concessions. The Registrant holds certain patents, particularly in its consulting engineering and licensing business, which are significant to its operations. However, the Registrant does not believe that the loss of any one of these patents or of any license, franchise or concession would have a material adverse effect on the Registrant's overall business operations. The Registrant, through its subsidiary, Elk Corporation of Dallas, is involved in litigation against GAF Building Materials Corporation concerning design and utility patents covering aspects of Elk's High Definition shingles. Refer to Item 3 "Legal Proceedings" for a more detailed discussion of this matter. Environmental Matters. The Registrant and its subsidiaries are subject to federal, state and local requirements regulating the discharge of materials into the environment, the handling and disposal of solid and hazardous wastes, and protection of the public health and the environment generally (collectively, 4 6 Environmental Laws). Governmental authorities have the power to require compliance with these Environmental Laws, and violators may be subject to civil or criminal penalties, injunctions or both. Third parties may also have the right to sue to enforce compliance and to require remediation of contamination. The Registrant and its subsidiaries are also subject to Environmental Laws that impose liability for the costs of cleaning up contamination resulting from past spills, disposal, and other releases of hazardous substances. In particular, an entity may be subject to liability under the Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) and similar state laws that impose liability -- without a showing of fault, negligence, or regulatory violations -- for the generation, transportation or disposal of hazardous substances that have caused, or may cause, environmental contamination. In addition, an entity could be liable for cleanup of property it owns or operates even if it did not contribute to the contamination of such property. From time to time, the Registrant or its subsidiaries may incur such remediation and related costs at the company owned plants and at certain offsite locations. The Registrant anticipates that its subsidiaries will incur costs to comply with Environmental Laws, including correcting existing non-compliance with such laws and achieving compliance with anticipated future standards for air emissions and reduction of waste streams. Such subsidiaries expend funds to minimize the discharge of materials into the environment and to comply with governmental regulations relating to the protection of the environment. Neither these expenditures nor other activities initiated in compliance with Environmental Laws is expected to have a material impact on the consolidated financial position, net earnings or liquidity of the Company. Persons Employed. At June 30, 1995, the Registrant and its subsidiaries had 704 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 due during the summer months. As of June 30, 1995, $884,000 in receivables relating to such shipments were outstanding, with payments due primarily in July 1995. Seasonal Business. The Registrant's industrial products businesses are substantially nonseasonal. However, the Registrant's roofing products manufacturing business is seasonal to the extent that cold, wet or icy weather conditions during the late fall and winter months in its marketing area typically cause sales to decrease during such periods. 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. 5 7 Information as to Lines of Business and Industry Segments. For Lines of Business Information and Financial Information by Company Segments, see the tables under such captions on pages 13 and 24, respectively, in the Registrant's 1995 Annual Report to Shareholders. The information in such tables is incorporated herein by reference. Executive Officers of the Registrant. Certain information concerning the Registrant's executive officers is set forth below:
Period Age as of Served as Sept. 1, Name Title Officer 1995 - ---------------------- ------------------------------------------------- ---------- --------- Roy E. Campbell Chairman of the Board, Chief Executive Officer 30 years 69 and President of Elcor Corporation; Director of all subsidiaries and Chairman of certain subsidiaries Richard J. Rosebery Executive Vice President, Treasurer, Chief 20 years 60 Administrative and Financial Officer of Elcor Corporation; Officer of all subsidiaries and President and/or Director of certain subsidiaries Harold K. Work Executive Vice President of Elcor Corporation; 13 years 62 Chief Executive Officer, President and Director of Elk Corporation of Dallas, a subsidiary, and Director and Officer of its subsidiaries James L. Dow II Vice President, General Counsel and Secretary of 3 years 40 Elcor Corporation; Officer of all subsidiaries. Mr. Dow has resigned all positions effective July 16, 1995.
6 8 David G. Sisler Vice President, General Counsel and Secretary of -- 37 Elcor Corporation; Officer of all subsidiaries (effective August 14, 1995) Leonard R. Harral Vice President and Chief Accounting Officer of 2 years 43 Elcor Corporation James J. Waibel Vice President Administration of Elcor 2 years 51 Corporation
All of the executive officers except Mr. Dow and Mr. Sisler have been employed by the Registrant or its subsidiaries in responsible management positions for more than the past five years. In October 1993, Mr. Rosebery and Mr. Work were elected as Executive Vice Presidents of the Registrant. Previously Mr. Rosebery was Vice President, Treasurer and Chief Financial Officer. Mr. Work was Vice President. Also 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. Mr. Dow was previously employed by Kaneb Services, Inc. as Counsel and Assistant Secretary. He served in that capacity from 1990 until he joined the Registrant on February 1, 1992. Mr. Dow resigned from all positions effective July 16, 1995. 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 as a Senior Attorney from 1993 to 1995 and as an Attorney from 1991 to 1993. 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 except as discussed herein and under the caption "Notes to Consolidated Financial Statements" under the heading "Long-Term Debt" on page 22 of the Registrant's 1995 Annual Report to Shareholders. Roofing Products Asphalt roofing products are manufactured at plants located at Tuscaloosa, Alabama and Ennis, Texas with a new plant at Shafter, California in start-up operations. Fiberglass mat, industrial nonwoven and reinforcement products are manufactured at a plant located at Ennis, Texas. A new plant at the Ennis, Texas facility to manufacture nonwoven fiberglass substrate materials and 7 9 industrial facer products for the construction industry is under construction. This plant is scheduled to begin operations in the spring of 1996. 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. Administrative offices are located in the same leased facility as the Registrant's corporate offices in Dallas, Texas. The engineering and licensing group is located in leased offices in Midland, Texas. Corporate Offices The Registrant's corporate headquarters are located in leased offices in Dallas, Texas. In addition, the Registrant or its subsidiaries owns the following properties which are being held for sale or lease: (a) Former concrete roof tile plants in North Miami, Boca Raton and Pompano Beach, Florida. The Boca Raton and Pompano Beach plants have been leased for a term of 50 years with an option to purchase through July 10, 1996. The North Miami facility is being held for sale. (b) Land and buildings in Waco, Texas, formerly used in the solid waste baler manufacturing business. (c) Land in Tulsa, Oklahoma, purchased for use by the former engineering and construction business. (d) Land and buildings in Midland, Texas, formerly used in the engineering and construction business. 8 10 Item 3. Legal Proceedings. GAF Patent Litigation In February 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. In December 1994, Elk of Dallas was granted a utility patent on the functional aspects of the High Definition and Raised Profile shingles. Elk of Dallas filed lawsuits in federal court in Dallas, Texas, against GAF Building Materials Corporation and related entities (collectively, GAF) for infringement of these patents. Elk of Dallas contends that the GAF Timberline(R) Natural Shadow(TM) and Timberline Ultra(R) Natural Shadow(TM) shingles infringe the 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. Elk of Dallas in its actions has also sought to enjoin GAF from making or selling infringing shingles. In the design patent case, GAF filed a motion to bifurcate the issue of liability from that of damages. On August 21, 1995, the court denied GAF's motion. GAF seeks a declaratory judgement that the Elk patents are not infringed and are either invalid or unenforceable. GAF has also asserted claims for alleged 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. The parties are engaged in discovery and pretrial motion practice. The design patent case is set for trial on May 6, 1996. The utility patent case is set for trial on September 16, 1996. Management believes Elk's position is meritorious and intends vigorously to enforce its intellectual property rights. No assurances regarding the outcome of these cases may be given, but their outcome is not expected to have a material adverse effect on the Registrant's results of operations, financial position, or liquidity. Frontier Chemical Site Certain facilities of the Registrant's subsidiaries ship waste products to various waste disposal facilities for disposal. In May 1993, Chromium received a Notification Letter from the United States Environmental Protection Agency (USEPA) informing Chromium that USEPA had reason to believe that Chromium was a Potentially Responsible Party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) at the Frontier Chemical Royal Avenue Site (Site), a state-permitted waste processing and management facility located on 9.7 acres in Niagara Falls, New York. After receiving shipments from PRP's, the facility was closed by state regulators leaving all products shipped there on-site. USEPA identified 438 generators, including Chromium, 9 11 as being responsible for Phase I of the response action. Phase I involved primarily the removal of 4,086 drums from the Site. Chromium is alleged to have sent 96 drums of waste to the Site. In September 1993, Chromium entered into an Administrative Order on Consent with USEPA without admitting any liability or USEPA findings or determinations. Chromium agreed along with the other parties to the order to perform Phase I response activities at the Site and to reimburse USEPA for response costs incurred by USEPA at the Site. All of the PRP drums were removed from the Frontier Chemical Royal Avenue Site. The work was concluded in May 1994 and the PRP group of which Chromium was a part filed its final report on May 30, 1995. Chromium was assessed a total of $109,250 under the final assessment dated July 7, 1995, an additional amount of approximately $21,000 above what it had already paid. The assessment was based on an estimated total cost of approximately $4 million. Chromium's total obligation cannot be calculated until its PRP group can determine what portion of its assessments are uncollectible. Phase II of the response action involves the removal of waste from process tanks at the Site. USEPA has issued Notice Letters to additional PRPs for Phase II. To date, the Company has not been named as a PRP in Phase II. Estimated costs have been provided for Phase II but have not been provided for any additional phases of cleanup. Management of the Company 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. Chromium/TWC Settlement In October 1991, the Texas Water Commission ("TWC") sent Chromium a Notice of Executive Director's Preliminary Report and Petition for a TWC Order Assessing administrative Penalties and Requiring Certain Actions of Chromium (the "Petition"). This Petition alleged several violations of TWC rules and recommended that Chromium be assessed $134,800 in penalties and ordered to perform technical, procedural, assessment and remedial activities at Chromium's Lufkin, Texas facility only ("Technical Recommendations"). Chromium timely answered this notice and negotiated an Agreed Order in settlement of this case, which the Commission executed on May 19, 1993. Under the Agreed Order, $74,800 of Chromium's penalties will be deferred and forgiven contingent on completion of the Technical Recommendations. The remaining $60,000 penalty is being paid in installments over a three year period. Chromium already has complied with many of the Technical Recommendations, and, working with the Texas Natural Resource Conservation Commission ("TNRCC"), TWC's successor, will implement the remainder on a schedule set forth in the Agreed Order. Management believes that this settlement will not have a material adverse effect on the consolidated results of operations, financial position, or liquidity of the Registrant. 10 12 Other There are various other lawsuits and claims pending against the Registrant and its subsidiaries arising in the ordinary course of their business. In the opinion of the Registrant's management based in part on advice of counsel, none of these actions should have a material adverse effect on the Registrant's consolidated results of operations, financial position, or liquidity. Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable. 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 1,204 holders of record of the Registrant's Common Stock at September 5, 1995. The remaining information required by this item is incorporated by reference to the information under the caption "Stock Prices" on page 1 of the Registrant's 1995 Annual Report to Shareholders. No cash dividends were paid in fiscal 1995 or 1994. 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 22 of the Registrant's 1995 Annual Report to Shareholders. Item 6. Selected Financial Data. The information required by this item is incorporated herein by reference to the information under the caption "Five-Year Summary of Selected Financial Data" on page 16 of the Registrant's 1995 Annual Report to Shareholders. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information required by this item is incorporated herein by reference to the information under the caption "Management's Discussion and Analysis of the Results of Operations and Financial Condition" on pages 14 and 15 of the Registrant's 1995 Annual Report to Shareholders. 11 13 Item 8. Financial Statements and Supplementary Data. The information required by this item is incorporated herein by reference to the information under the caption "Quarterly Summary of Operations" and the financial statements and notes thereto on page 13 and pages 18 through 24, respectively, of Registrant's 1995 Annual Report to Shareholders. Item 9. Disagreements on Accounting and Financial Disclosure. The Registrant has retained its independent public accountants for over 25 years. There have been no disagreements with the independent public accountants on accounting or financial disclosure matters. PART III Item 10. Directors and Executive Officers of the Registrant. Information concerning the Directors of the Registrant required by this item is incorporated herein by reference to the material under the caption "Election of Directors" on page 4 of the Registrant's Proxy Statement dated September 19, 1995. 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 6 through 13 of the Registrant's Proxy Statement dated September 19, 1995. 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, 1995. The referenced information was provided as of September 5, 1995. Registrant is aware of no material change since such date in the beneficial ownership of any officer, director or beneficial owner of five percent of any class of its voting stock. Item 13. Certain Relationships and Related Transactions. There are no reportable transactions, business relationships or indebtedness between the Registrant and any covered party. 12 14 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a)1. Financial Statements The financial statements and notes thereto, together with the report of independent public accountants dated August 14, 1995, appearing on pages 17 through 24 of the Registrant's 1995 Annual Report to Shareholders, are incorporated herein by reference. With the exception of such information and other information incorporated herein by reference, the 1995 Annual Report to Shareholders is furnished for the information of the Commission and is not to be deemed filed as part of this report. Such financial statements include: -- Report of Independent Public Accountants; -- Consolidated Statement of Operations, years ended June 30, 1995, 1994, and 1993; -- Consolidated Balance Sheet, years ended June 30, 1995 and 1994; -- Consolidated Statement of Cash Flows, years ended June 30, 1995, 1994, and 1993; -- Consolidated Statement of Shareholders' Equity, years ended June 30, 1995, 1994, and 1993; -- Summary of Significant Accounting Policies; and -- Notes to Consolidated Financial Statements. 2. Financial Statement Schedule for the Years Ended June 30, 1995, 1994, and 1993
PAGE ---- Report on Financial Statement Schedule by Independent Public Accountants......................................................... 17 Schedule II -- Consolidated Valuation and Qualifying Accounts......... 18
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. (b) Reports on Form 8-K There were no Form 8-K's filed by the Registrant during the fourth quarter of the fiscal year ended June 30, 1995. 13 15 (c) Exhibits **3.1 The Articles of Incorporation of the Registrant. ***3.2 Amended and Restated Bylaws of the Registrant. ****4.6 Loan Agreement dated September 29, 1993 among Elcor Corporation, Certain Lenders, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A., as Administrative Lender. *****4.7 First Amendment dated October 31, 1994 to Loan Agreement dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A., as Administrative Lender. *11 Computation of Income Per Common and Common Equivalent Share. *13 1995 Annual Report to Shareholders of the Registrant. *21 Subsidiaries of the Registrant. *23 Consent of Independent Public Accountants. *27 Financial Data Schedule
- --------------- * Filed herewith. ** Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 1O-K for the year ended June 30, 1994. *** Incorporated by reference to Exhibit 3 to the Registrant's Annual Report on Form 1O-K for the year ended June 30, 1981 and to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1988 originally filed with the Securities and Exchange Commission on February 11, 1989. **** Incorporated by reference to the Registrant's Quarterly Report on Form 1O-Q for the quarter ended September 30, 1993. ***** Incorporated by reference to the Registrant's Quarterly Report on Form 1O-Q for the quarter ended September 30, 1994. 14 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ELCOR CORPORATION By /s/ Richard J. Rosebery Richard J. Rosebery Executive Vice President, Treasurer, Chief Administrative and Financial Officer By /s/ Leonard R. Harral Leonard R. Harral Vice President and Chief Accounting Officer 15 17 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below in multiple counterparts by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date - ----------------------------------------------- ------------------------- ------------------- /s/ Roy E. Campbell Chairman of the Board, September 25, 1995 Roy E. Campbell President, Chief Executive Officer /s/ F. H. Callaway Director September 25, 1995 F. H. Callaway /s/ James E. Hall Director September 25, 1995 James E. Hall /s/ Robert M. Leibrock Director September 25, 1995 Robert M. Leibrock /s/ W. F. Ortloff Director September 25, 1995 W. F. Ortloff /s/ Phil Simpson Director September 25, 1995 Phil Simpson /s/ Richard J. Rosebery Executive Vice President, September 25, 1995 Richard J. Rosebery Treasurer, Chief Administrative and Financial Officer /s/ Leonard R. Harral Vice President and Chief September 25, 1995 Leonard R. Harral Accounting Officer
16 18 REPORT OF INDEPENDENT PUBLIC ACCOUNTANT ON SUPPLEMENTAL SCHEDULE To the Shareholders and Board of Directors of Elcor Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Elcor Corporation's annual report to shareholders incorporated by reference in this Form 10-K and have issued our report thereon dated August 14, 1995. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The Supplemental Schedule II is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Arthur Andersen LLP Dallas, Texas August 14, 1995 17 19 SCHEDULE II (in thousands) ELCOR CORPORATION AND SUBSIDIARIES SCHEDULE II -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JUNE 30, 1995, 1994, AND 1993
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, 1995 CONSOLIDATED: Allowance for doubtful accounts $610 $ (146) $-- $ (158) $306 ==== ===== ==== ===== ==== Allowance for inventory obsolescence $323 $ 33 $-- $ -- $356 ==== ===== ==== ===== ==== YEAR ENDED JUNE 30, 1994 CONSOLIDATED: Allowance for doubtful accounts $898 $ 84 $-- $ (372) $610 ==== ===== ==== ===== ==== Allowance for inventory obsolescence $247 $ 71 $-- $ (5) $323 ==== ===== ==== ===== ==== YEAR ENDED JUNE 30, 1993 CONSOLIDATED: Allowance for doubtful $963 $ 182 $-- $ (247) $898 ==== ===== ==== ===== ==== Allowance for inventory obsolescence $174 $ 73 $-- $ -- $247 ==== ===== ==== ===== ====
18 20 Index to Exhibits **3.1 The Articles of Incorporation of the Registrant. ***3.2 Amended and Restated Bylaws of the Registrant. ****4.6 Loan Agreement dated September 29, 1993 among Elcor Corporation, Certain Lenders, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A., as Administrative Lender. *****4.7 First Amendment dated October 31, 1994 to Loan Agreement dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A., as Administrative Lender. *11 Computation of Income Per Common and Common Equivalent Share. *13 1995 Annual Report to Shareholders of the Registrant. *21 Subsidiaries of the Registrant. *23 Consent of Independent Public Accountants. *27 Financial Data Schedule
- --------------- * Filed herewith. ** Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 1O-K for the year ended June 30, 1994. *** Incorporated by reference to Exhibit 3 to the Registrant's Annual Report on Form 1O-K for the year ended June 30, 1981 and to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1988 originally filed with the Securities and Exchange Commission on February 11, 1989. **** Incorporated by reference to the Registrant's Quarterly Report on Form 1O-Q for the quarter ended September 30, 1993. ***** Incorporated by reference to the Registrant's Quarterly Report on Form 1O-Q for the quarter ended September 30, 1994. EX-11 2 COMPUTATION OF INCOME PER SHARE 1 EXHIBIT 11 Elcor Corporation and Subsidiaries Computation of Income Per Common and Common Equivalent Share (In thousands, except per share amounts)
Three Months Ended -------------------- 6-30-95 6-30-94 ------ ------- 1. Three Months Ended June 30, 1995 and June 30, 1994 Income per Common and Common Equivalent Share: Net Income $3,621 $ 4,918 ====== ======= Shares: Weighted average common shares outstanding 8,717 8,750 Adjustments: (a) Assumed issuance of shares purchased under incentive stock option plan using treasury stock method 105 183 ------ ------- Total Common and Common Equivalent Shares 8,822 8,933 ====== ======= Income per Common and Common Equivalent Share $ .41 $ .55 ====== ======= Fiscal Year Ended -------------------- 6-30-95 6-30-94 ------ ------- 2. Fiscal Year Ended June 30, 1995 and June 30, 1994 Income per Common and Common Equivalent Share: Net Income $9,558 $14,745 ====== ======= Shares: Total Common and Common Equivalent Shares Three months ended 9/30/94 and 9/30/93 8,925 8,932 Three months ended 12/31/94 and 12/31/93 8,849 8,899 Three months ended 3/31/95 and 3/31/94 8,782 8,920 Three months ended 6/30/95 and 6/30/94 8,822 8,933 ------ ------- Average Fiscal Year Ended 6/30/95 and 6/30/94 8,844 8,921 ====== ======= Income Per Common and Common Equivalent Share $ 1.08 $ 1.65 ====== =======
EX-13 3 1995 ANNUAL REPORT 1 [PICTURE] Inside of new asphalt roofing plant in Shafter, California ELCOR 1995 ________ Annual Report 2 CORPORATE PROFILE ================================================================================ ELCOR'S MISSION IS TO ACHIEVE EXCELLENCE IN: - - Meeting our present and evolving Quality Requirements for our Customers, our Employees, our Shareholders, our Suppliers and our Community. - - Continually improving everything we do to assure perpetuation of success and excellence in the future. - -------------------------------------------------------------------------------- Elcor's principal subsidiaries manufacture roofing products and industrial products. Each is a leader within its particular market niche.
ROOFING PRODUCTS MARKETS OUTLOOK - ------------------------------------------------------------------------------------------------------------------------------------ ELK A low-cost manufacturer of premium Premium laminated asphalt shingles Continuing growth due to periodic laminated fiberglass asphalt shingles and account for approximately 21% of all resi- replacement of a growing number of a leader in quality, service, market-share, dential sloped roofing. About 80% of roofs and trend toward value-added pre- pricing, product innovation, manufactur- asphalt shingles are used in reroofing and mium roofing products. Premium lami- ing technology, marketing and sales. remodeling and 20% are used in new con- nated asphalt market niche has doubled struction. Homes are reroofed about every about every five years. Manufacturing plants: 17 years, and the national housing stock Ennis, Texas grows each year as the number of newly Shafter, California constructed homes exceeds the number of Tuscaloosa, Alabama homes removed from the stock. ==================================================================================================================================== INDUSTRIAL PRODUCTS MARKETS OUTLOOK - ------------------------------------------------------------------------------------------------------------------------------------ CHROMIUM CORPORATION A leader in plating proprietary finishes Railroad, marine, and stationary power Diesel engine growth opportunities for large diesel engine cylinder liners industries; telecommunications, medical through broadening product lines and and pistons, plus shielding plastic enclo- equipment, computer peripherals, expanding export markets. Shielding sures from electromagnetic and radio aerospace, and electronic equipment market growing very rapidly. frequency interference. industries. Manufacturing plants: Cleveland, Ohio Lufkin, Texas - ------------------------------------------------------------------------------------------------------------------------------------ ORTLOFF ENGINEERS A leader in consulting engineering ser- New and updated facilities for the natural Market for Elcor's patented technology is vices and licensing of certain patented gas processing and sulfur recovery good for new plants and growing for technologies. industries. retrofitting applications in existing plants. Office: Midland, Texas ==================================================================================================================================== ABOUT THE COVER: TRADEMARKS TABLE OF CONTENTS Elk's new state-of-the-art asphalt Elcor subsidiary Financial Highlights..................... 1 roofing products plant in Shafter, trademarks used in Letter to Shareholders................... 2 California uses advanced automation this report include: Investors' Questions and Answers......... 4 and process control systems to Investing for Growth..................... 6 assure production of consistently Capstone(R) Roofing Products......................... 8 high quality premium laminated COMPUSHIELD(R) Industrial Products...................... 12 fiberglass asphalt shingles at low High Definition(R) Lines of Business........................ 13 manufacturing costs. Prestique(R) Management's Discussion and Analysis..... 14 Raised Profile(TM) Five-Year Summary........................ 16 Seal-a-Ridge(R) Auditor and Management Reports........... 17 The Premium Choice(R) Financial Statements..................... 18 Ultra-Mat(R) Umbrella Coverage(SM) Z(R) ridge - ------------------------------------------------------------------------------------------------------------------------------------
3 FINANCIAL HIGHLIGHTS
================================================================================================== ($ in thousands, except per share data) June 30, - -------------------------------------------------------------------------------------------------- For the Year 1995 1994 % Change - -------------------------------------------------------------------------------------------------- Sales $159,061 $157,031 1% Income From Continuing Operations 9,558 15,571 -39% Net Income 9,558 14,745 -35% Income Per Common and Common Equivalent Share: From Continuing Operations 1.08 1.75 -38% Net 1.08 1.65 -35% Average Shares Outstanding 8,844 8,921 -1% Cash Flows From Continuing Operating Activities 20,225 6,016 236% Capital Expenditures 42,388 17,181 147% Depreciation and Amortization 3,603 4,212 -14% Average Invested Capital(1) 94,644 77,146 23% Return on Average Invested Capital(2) 10% 18% Average Shareholders' Equity 89,021 77,146 15% Return on Average Shareholders' Equity 11% 18% - -------------------------------------------------------------------------------------------------- AT YEAR-END - -------------------------------------------------------------------------------------------------- Working Capital $ 32,012 $ 39,508 -19% Current Ratio 2.5 to 1 2.8 to 1 Long-Term Debt 18,400 -0- Shareholders' Equity 93,616 85,229 10% Book Value Per Common Share 10.73 9.70 11% Total Invested Capital(1) 112,016 85,229 31% Net Property, Plant and Equipment 69,546 30,777 126% Shareholders 1,246 1,331 -6% Employees 704 623 13% ==================================================================================================
(1) Sum of long-term debt and shareholders' equity (2) Income before cumulative effect of change in accounting principle, plus interest expense, net of tax, divided by average invested capital. [ELK LOGO] STOCK PRICES ================================================================================ New York Stock Exchange high and low stock sales prices by quarter for fiscal years ending June 30, 1995 and 1994, were:
1995 1994 - -------------------------------------------------------------------------------- High Low High Low - -------------------------------------------------------------------------------- QUARTER First 25 1/2 15 3/4 29 3/8 19 7/8 Second 17 5/8 14 1/8 25 17 Third 17 5/8 13 24 1/2 18 5/8 Fourth 22 7/8 16 25 3/4 20 ================================================================================
- -------------------------------------------------------------------------------- 1 4 FELLOW SHAREHOLDERS [PHOTO] In fiscal 1995, we successfully implemented several strategic moves which have strengthened our foundation for growth in sales and earnings in the years ahead. It was an especially important year for our core Roofing Products business. Successful introduction of and strong demand for our new Enhanced High Definition Prestique I and Prestique Plus and our new Raised Profile Prestique II premium laminated fiberglass asphalt shingles were major factors in boosting fourth quarter sales by 19% over the prior year period. Our new Shafter, California plant was in start-up operations near the end of the fiscal year, and construction of our new nonwoven fiberglass mat facility at Ennis, Texas continues on schedule for start-up in the spring of 1996. Our Industrial Products Group achieved a strong turnaround in both sales and profitability, and the outlook is good for further improvement in the years ahead. The $80 million capital investment program begun in 1993 should also make major contributions to future earnings growth. FISCAL 1995 RESULTS While fiscal 1995 results were among our best, earnings were below the record levels of the last two fiscal years. Fiscal 1995 became a transition year for our core Roofing Products business. When several modest price increases implemented by Elk exceeded those of its competitors and supply caught up with demand, we began to lose some volume in the June and September quarters of 1994. In order to restore volume levels, we adjusted our price premiums to smaller amounts above competitors' prices for similar types of products. This action, together with the introduction of our substantially enhanced product lines, boosted sales volumes to record levels in the June 1995 quarter. However, these pricing adjustments and higher transportation costs were the principal reasons that kept fiscal 1995 sales and earnings below the record levels of the last two fiscal years. On the plus side, Elk implemented three modest price increases during the March through July 1995 period which offset the impact of increased asphalt and fiberglass raw material costs. Fiscal 1995 results benefitted from a turnaround executed by our Industrial Products group. Its fiscal year sales were up 16% from last year, while operating profit of $2.1 million represented a $4.9 million improvement from a $2.8 million loss last year. For the fourth quarter ending June 30, 1995, Elcor's sales rose 19% to $46,795,000 from $39,256,000 last year. Income from continuing operations and net income were $3,621,000, or $.41 per share, compared to $4,918,000, or $.55 per share, in the year-ago quarter. For the fiscal year ending June 30, 1995, sales were $159,061,000, compared to $157,031,000 in fiscal 1994. Income from continuing operations and net income were $9,558,000, or $1.08 per share, compared with income from continuing operations of $15,571,000, or $1.75 per share, and net income of $14,745,000, or $1.65 per share, in the prior fiscal year. FINANCIAL POSITION Elcor's financial position remains strong. During fiscal 1995, net cash flows from continuing operating activities more than tripled to $20.2 million from $6.0 million last year, primarily as a result of working capital changes. At June 30, 1995, the company had $18.4 million of long-term debt, $93.6 million of shareholders' equity, and $112 million of total capital. Long-term debt, as a percent of total capital, was a modest 16%, and shareholders' equity was more than five times greater than long-term debt. In fiscal 1995, capital expenditures were $42.4 million, compared to $17.2 million last year. The current ratio was a strong 2.5 to 1 at June 30, 1995. - -------------------------------------------------------------------------------- 2 5 ================================================================================ NEW FACILITIES Our new Shafter, California laminated shingle plant was in start-up operations and began shipping limited quantities of Elk Prestique II Raised Profile shingles during the fourth quarter. The new plant should boost our total production capacity by more than 65% when operating at design levels. In addition, fabrication of production equipment and construction activities are progressing well for Elk's new nonwoven fiberglass mat production facility at our Ennis, Texas plant. This additional production line will be capable of producing about 7.5 billion square feet per year (75 million squares per year) of high quality nonwoven fiberglass mats, which will more than triple our current capacity. Also, the new production facility will allow the existing facilities to be committed to higher-margin specialty nonwoven mat products and to the development of new products. BUSINESS STRATEGIES The strategic moves and investments we are making are consistent with our goals for growth and our business strategies which guide how we conduct our business to create greater value for our shareholders. Elcor's business strategy is to develop niche markets where we can be a leader. In each case, we will use our technical strengths to create products and services having superior features and benefits which can be sold at premium prices and to develop new production processes and systems to maintain our position as a low-cost producer. By differentiating our products and services and by using our marketing and selling strengths, we secure premium prices consistent with the superior value of our products and services. We strongly emphasize continuous improvement in all aspects of our businesses to assure continuing success in the future. OUTLOOK Opportunities for growth are excellent throughout the company. The $80 million investment program we began in 1993 will start to contribute to earnings in the year ahead and will be a major contributor in the future. Other growth plans are now in the early stages of development. For example, in about three or four years, we believe the growing demand for our company's premium roofing products will provide an attractive investment opportunity for building a new laminated shingle plant in the northeast quadrant of the United States. At this time, a new plant similar to our Shafter, California plant would cost about $45 million. Our strong financial position and cash flow should support our aggressive growth plans. The new Shafter, California plant is expected to cross the break-even point toward the end of the year ahead. Based on current market conditions, we expect improvements throughout the company should enable us to report growing sales and earnings for fiscal year 1996. On behalf of our Board of Directors, I wish to express our appreciation to all employees for their commitment to achieve our objectives, and to our customers, vendors and communities for their support and assistance during the year. /s/ ROY E. CAMPBELL Roy E. Campbell Chairman, President and Chief Executive Officer September 1, 1995 - -------------------------------------------------------------------------------- 3 6 QUESTIONS & ANSWERS ================================================================================ IN ASSESSING ELCOR'S EXCELLENT GROWTH PROSPECTS, INVESTMENT PROFESSIONALS FREQUENTLY RAISED THE FOLLOWING QUESTIONS REGARDING THE COMPANY'S BUSINESS AND OUTLOOK. HERE'S HOW WE RESPONDED: Q. WITH YOUR STRONG FINANCIAL POSITION, WILL YOU CONSIDER RESUMING CASH DIVIDEND PAYMENTS? A. Elcor's regular quarterly cash dividend payments were suspended in 1991, following payment of 62 consecutive quarterly cash dividends. Since then, the Board of Directors has regularly reevaluated its dividend policy, taking into consideration the company's financial position, as well as financial resources that may be needed to pursue attractive growth opportunities and to improve shareholder values. The Board realizes that many shareholders would favor a resumption of quarterly cash dividends and is reviewing the dividend question each quarter. Q. HOW DOES ELK MARKET ITS PRODUCTS? A. Elk Prestique shingles are primarily sold to roofing wholesale supply houses. Most roofing contractors deal with roofing wholesale supply houses because they carry all the supplies, tools, equipment, materials and provide services that the contractors need. Elk's District Sales Managers also work closely with roofing contractors, builders and architects to create strong brand loyalty for our products. In addition, Elk conducts extensive seminars for roofing contractors and distributors to keep them up-to-date on Elk Prestique's superior features and benefits. [CHART] *************************************************************************** * * * CAPTION: About 80% of asphalt shingles are used to replace existing * * roofs, and only about 20% are used in new construction. Roofs are now * * being replaced about every 17 years. So, even though housing starts * * were declining in the latter 1980's, asphalt shipments continued * * growing. * * * *************************************************************************** Q. WHAT LEVELS OF CAPITAL EXPENDITURES ARE EXPECTED FOR YOUR FISCAL YEARS 1996 AND 1997? A. Presently, capital expenditures for these periods are expected to be about $28 million and $7 million, respectively. Q. WHY ARE ELK PRESTIQUE SHINGLES REGARDED AS THE PREMIUM CHOICE? A. Many customers tell us that Elk provides consistently superior quality products and services, plus Elk more frequently differentiates its products, so they always provide some of the best looking roofs in the industry. These customers say that they consider Elk Prestique products the best buy, because they provide significantly more value, even though Elk Prestique products command a higher price than competitive products. Q. HOW WILL ELK'S RESULTS BE AFFECTED BY FORECASTS OF LOWER HOUSING STARTS FOR CALENDAR YEAR 1995? A. Moderately lower housing starts in 1995 are not expected to affect Elk's results for two reasons: (1) We understand that the reduction in forecasted housing starts is expected in the starter home category, which normally would not use premium laminated shingles; and (2) Since the spring of 1995, the strong demand for Elk Prestique products has made it necessary to allocate supply to customers. - -------------------------------------------------------------------------------- 4 7 ================================================================================ Q. HOW MUCH OF THE COMPANY'S PERFORMANCE IS DEPENDENT ON RESULTS OF SEVERE WEATHER ACTIVITY? A. Severe storms with large hail can cause significant damage to roofs, as do hurricanes. The repair or replacement of roofs damaged by major storms in large populated areas often takes from 12 to 18 months to complete. In recent years, Elk has not directly benefited from the increased demand created by such storms because Elk's customers were already on allocation before the storm demand developed. However, Elk may benefit from better pricing during periods when demand is greater than the industry's ability to supply. In future years, Elk should be in a better position to take advantage of such increases in demand because our new Shafter plant will increase our production capacity by over 65%. Q. HOW IS CHROMIUM PROGRESSING, AND WHAT IS ITS OUTLOOK? A. Chromium executed a strong turnaround in fiscal 1995 with sales up 28% and a $5.4 million improvement in operating profits. We expect continued improvement in Chromium's results in the year ahead. Q. WHAT IS THE STATUS OF THE PATENT LITIGATION BETWEEN ELK AND GAF? A. Three separate actions in Federal Court involving our patent dispute with GAF are still pending. These patents are important to Elk, so it is pursuing the litigation vigorously. The litigation is not expected to be resolved for some time. [CHART] *************************************************************************** * * * CAPTION: During the last decade, industry shipments of premium * * laminated shingles have grown at a compound rate of 18% per year from * * 5.4 million squares, or 6.8% of the total asphalt shingle market in * * 1984, to 28.1 million squares, or 23.4% of the total asphalt shingle * * market in 1994. * * * *************************************************************************** Q. HOW DOES ELK DIFFERENTIATE ITSELF FROM ITS COMPETITORS? A. Elk focuses all its resources on the premium laminated niche in the market. This has enabled Elk to become the technological leader in the development and successful introduction of both new products and new manufacturing technologies which have made Elk one of the low-cost producers in the industry. In addition, Elk has developed advanced automation and process controls that assure the production of consistently high quality products. Superior quality and service, combined with value added marketing and sales programs, have enabled Elk to command higher prices for its Elk Prestique products than competitors receive for similar types of products. Q. HOW MUCH OF A STAKE DO MANAGEMENT AND EMPLOYEES HAVE IN THE SUCCESS OF THE COMPANY? A. Officers and directors own about 18% of the total outstanding stock, and our employees own about 8% of the stock through an Employee Stock Ownership Plan. Over 80% of our employees are shareholders. Q. WHY IS DEMAND FOR LAMINATED SHINGLES GROWING SO RAPIDLY? A. On average, homes need a new roof about every 17 years. If one homeowner in a neighborhood installs a laminated shingle roof, the neighbors generally follow suit because the laminated shingle roof looks so much nicer than the other asphalt shingle roofs. Time and again, throughout the country, we see entire neighborhoods convert to laminated shingle roofs in this fashion. Q. WHO ARE YOUR COMPETITORS IN THE PREMIUM LAMINATED FIBERGLASS ASPHALT SHINGLE BUSINESS? A. Significant competitors include GAF, GS Roofing, Tamko and Owens Corning Fiberglas and, to a lesser degree, Celotex, CertainTeed, Atlas and Bird. - -------------------------------------------------------------------------------- 5 8 INVESTING FOR GROWTH ================================================================================ Elcor's financial strength and resources have positioned Elk to take advantage of excellent growth opportunities in our core business, where industry shipments of premium laminated fiberglass asphalt shingles have grown at an 18% compound annual rate over the last decade. To better serve its customers, Elk is investing about $80 million in two new plants to keep up with the market growth and to further improve its competitive position. When these new facilities are operating near capacity, they should have the potential to substantially increase Elk's earnings and cash flow and further strengthen Elcor's financial position. [CHART] PRODUCTION UNDERWAY AT NEW SHAFTER, CALIFORNIA PLANT Elk's new Shafter, California premium laminated fiberglass asphalt shingle manufacturing plant began start-up operations with limited production of Elk's patented Raised Profile look Prestique II shingles this spring. Customer acceptance of this new product has been excellent, and the large volume of orders for these shingles has out-paced our ability to supply customers' needs during this start-up period. The new plant is situated on an 85-acre site with ample room to optimize material flow in the production process. The use of sophisticated automation and process control systems will assure consistent production of superior quality products at the lowest production costs. This major new plant will increase Elk's laminated shingle manufacturing capacity by more than 65%. Elk's patented Enhanced High Definition look Prestique I and Prestique Plus laminated shingles and its proprietary Z ridge hip and ridge shingles will also be produced at the Shafter plant. The Shafter facility will primarily service customers in California and other Western States, where premium laminated fiberglass asphalt shingles are rapidly replacing existing wood shingled roofs as well as many commodity asphalt shingled roofs. In the Western States, the laminated shingle market has grown at a compound rate of more than 20% per year during the last decade and has steadily increased the laminated share of the total asphalt shingle market. The new Shafter plant will have the capacity to satisfy continuing growth in demand in the Western States market for high quality laminated shingles. As Shafter production levels rise, Elk's Ennis, Texas plant will be able to better serve the rapidly growing demand of its customers in the Southwestern, Midwestern and Northern States. [PHOTO] - -------------------------------------------------------------------------------- 6 9 ================================================================================ CONSTRUCTION OF ELK'S NEW NONWOVEN FIBERGLASS MAT MANUFACTURING FACILITY UNDERWAY Elk's new $35 million state-of-the-art nonwoven fiberglass mat manufacturing facility should be completed by the spring of 1996 at Elk's Ennis, Texas plant. The new facilities will be installed in parallel to Elk's existing nonwoven fiberglass mat manufacturing facilities. [MAP] This new plant will have the capacity to produce about 7.5 billion square feet per year (75 million squares per year) of high quality nonwoven fiberglass mats, having significantly improved physical properties. The new plant will more than triple Elk's nonwoven manufacturing capacity and will supply all of Elk's internal needs for nonwoven fiberglass mat roofing substrate materials. In addition, the new plant will manufacture industrial facer products for the construction industry and will supply nonwoven fiberglass mat roofing substrate materials to other manufacturers of roofing products. This major expansion of Elk's nonwoven fiberglass mat capacity should be especially timely, as we are entering a period when the expected demand for nonwoven fiberglass roofing mat substrates may exceed the industry's capacity. This will be the first new nonwoven fiberglass mat plant built in over a decade. During this period, total consumption of fiberglass mats for roofing shingles increased about 55%. For the last few years, quality fiberglass mats have been in short supply during the peak roofing seasons. The new Elk facility should have ample capacity to supply Elk's growing needs, as well as the growing needs of the industry. It will be capable of producing nonwoven fiberglass mats with superior physical properties at lower conversion cost. When the plant comes on line, the existing nonwoven fiberglass mat plant at Ennis will concentrate on expanding our growing specialty nonwoven materials business serving other industries and on developing new nonwoven products. The superior physical properties of the nonwoven fiberglass mat roofing substrates to be manufactured by the new plant will further enhance Elk's competitive position in the rapidly growing premium laminated fiberglass asphalt shingle niche. When the new nonwoven fiberglass mat plant is operating near its design capacity in the years ahead, it should be able to produce products valued at more than $80 million per year. [PHOTO] *************************************************************************** * * * CAPTION: The new Shafter, California plant (pictured below), will * * increase Elk's premium laminated fiberglass asphalt shingle * * manufacturing capacity by more than 65%. * * * *************************************************************************** - -------------------------------------------------------------------------------- 7 10 ROOFING PRODUCTS ================================================================================ Roofing Products shipments surged to record levels in the fourth quarter of fiscal year 1995. Strong demand for Elk Prestique premium laminated fiberglass asphalt shingles with the patented new Enhanced High Definition and Raised Profile look, combined with modest price increases in March and June, boosted sales for the quarter to record levels. However, lower volume and lower prices in the first half kept fiscal 1995 sales of $139 million slightly below the prior year sales of $139.7 million. Fiscal 1995 operating profits of $18 million were significantly lower than $31.4 million last year, primarily as a result of lower prices and higher transportation costs. The Roofing Products Group accounted for 87% of Elcor's sales and 90% of Elcor's operating profit in fiscal 1995. FISCAL 1995 -- A TRANSITION YEAR Following five modest price increases over the last two fiscal years, when its roofing products customers were on allocation from March 1992 to March 1994, this core business finally found the point at which price began to limit volume, and volume decreased somewhat in the June and September 1994 quarters. During the first half of fiscal 1995, Elk implemented pricing revisions which basically brought its product prices back into a range of about four to seven percent higher than competitors' prices for similar types of products. In addition, Elk rolled out a significant enhancement of its Prestique shingles with the patented High Definition look, and introduced a new Prestique II mid-weight laminated fiberglass asphalt shingle with the patented Raised Profile look. With Elk's pricing premium restored to normal levels, volume picked up to record levels in the fourth quarter. Elk's new major laminated fiberglass asphalt shingle manufacturing plant in Shafter, California is designed to have the highest capacity and one of the lowest manufacturing costs in the industry for producing premium laminated fiberglass asphalt shingles. Start-up operations at the plant began during the latter part of the March quarter, and limited quantities of Prestique II Raised Profile shingles were shipped in June 1995. Continuing strong demand for Elk Prestique products, combined with increasing production volumes from the new Shafter plant, should boost results in fiscal 1996 and the years ahead. MARKET OVERVIEW Asphalt shingles have long been the most favored roofing product in the United States and comprise about 89% of the total sloped roof shingle market. In 1994, it is estimated that about 80% of asphalt shingles were used to reroof existing homes and about 20% of asphalt shingles were used for roofing newly constructed homes. In recent years, roofs have been replaced about every 16 to 17 years on average, and most wood shingled roofs are replaced about every 10 to 14 years. Laminated fiberglass asphalt shingles have become a popular choice for reroofing wood shingled homes because they provide a similar look and are much safer than most wood shingles due to their superior fire resistance qualities. In fact, laminated fiberglass asphalt shingles carry the highest rating given by Underwriters Laboratory for resisting flame spread. Much of the upscale housing stock in the Western and Southwestern States from Texas to the West Coast have wood shingled roofs, creating a large existing housing base with wood shingled roofs that will likely use the safer premium laminated fiberglass asphalt shingles as they are reroofed over a period of years. In addition, fiberglass laminated asphalt shingles offer a much better value than wood shingles and are also replacing commodity single-ply asphalt shingles in many areas. Laminated fiberglass asphalt shingles are one of the fastest growing segments of the asphalt shingle market, having grown at a compound annual growth rate of 18.0% over the last decade and accounting for 23.4% of the total asphalt shingles shipped in 1994. [PHOTO] *************************************************************************** * * * CAPTION: A successful new addition to Elk's Prestique Plus line of * * premium laminated asphalt shingles was its new "select color" Forest * * Green. This new color was created to take advantage of the growing * * popularity of green as an exterior color. Forest Green Prestique Plus * * Enhanced High Definition, shown here with Elk's Seal-a-Ridge hip and * * ridge, is available throughout the North, Midwest and Southeast. * * * *************************************************************************** - -------------------------------------------------------------------------------- 8 11 [PHOTO] *************************************************************************** * * * CAPTION: Today's steeper roof lines have made builders and homeowners * * aware of the importance of choosing a shingle that adds texture and * * visual appeal. Applying Prestique Plus premium laminated fiberglass * * asphalt shingles and Z-ridge hip and ridge, as shown here in The new * * Enhanced High Definition Shakewood, is one of the best ways to * * improve any roof's visual appeal. * * * *************************************************************************** 9 12 [PHOTO] *************************************************************************** * * * CAPTION: Prestique 1, pictured here in Antique Slate, with its new * * Enhanced High Definition look has more impressive definition and * * texture than ever, for even more dramatic visual impact. * * * *************************************************************************** 10 13 ================================================================================ NEW PRODUCTS For over 15 years, Elk has been a leader in successfully developing and introducing new and enhanced laminated fiberglass asphalt shingle products. Elk is the only company in the industry that focuses all its resources on the premium laminated shingle niche. Elk's strategy is to frequently differentiate its products as a part of providing added value to its customers. In recent years, demand for many of its new products has been so strong that Elk has had difficulty supplying all of its customers' needs. In fact, it has been necessary for Elk to allocate available supplies of its Prestique products to customers in three of the last four years. Strong demand for Elk's Prestique laminated shingles, combined with overall strong demand and growth in the laminated shingle segment of the market will provide an opportunity for Elk to boost its overall manufacturing capacity for laminated shingles by 65% with the new Shafter, California plant. New Elk Prestique products successfully introduced to the market during fiscal 1995 include: PRESTIQUE PLUS ENHANCED HIGH DEFINITION -- Elk's new super heavyweight premium laminated fiberglass asphalt shingle is designed for customers who demand the very best. The patented new Enhanced High Definition look offers the most impressive dimensionality in the industry. Prestique Plus provides the thickness and visual feel of wood, with the safety and durability of fiberglass, and is covered by Elk's 40-year limited warranty. PRESTIQUE I ENHANCED HIGH DEFINITION -- This heavyweight premium laminated fiberglass asphalt shingle features Elk's new patented Enhanced High Definition look, for natural visual depth and shadows much like wood shingles. Prestique I is the premium roofing product that offers affordability, and it is backed by Elk's 30-year limited warranty. PRESTIQUE II RAISED PROFILE -- Elk's laminated fiberglass asphalt mid-weight shingle is the ideal way to upgrade for a modest price. The new patented Raised Profile look creates a richer dimensional appearance, providing an expensive look for little more than the cost of regular commodity single-ply three tab asphalt shingles. Prestique II is covered by Elk's 25-year limited warranty. Other new products successfully introduced by Elk over the last two fiscal years include: CAPSTONE SHINGLES -- Capstone is one of the newest premium roofing products from Elk, designed for homes with more prominent steep roofs. Offered in two unique color blends, Capstone creates an indelible impression of deep shadows. Elk backs Capstone with its Umbrella Coverage, a 30-year limited warranty with transfer option. Capstone has its own ridge product as well, to make a roof look even more distinctive. PRESTIQUE HIGH DEFINITION ROOF ACCESSORY PAINT -- Prestique High Definition roof accessory paint is designed to help vents, and other accessories blend in with the roof. Sold in easy-to-use spray paint cans, it is formulated in six colors, which complement the subtle hues of Prestique shingles. For the finishing touches on a beautiful new Prestique roof, two other Elk products are very popular: Z RIDGE -- Z ridge premium hip and ridge shingles put an end to boring roof lines. Elk's unique multi layer design adds a distinctive finishing touch to a roof with an Ultra-Mat reinforced fiberglass base that resists rotting, warping and curling, and Z ridge keeps hips and ridges snug and attractive. SEAL-A-RIDGE PLUS -- Seal-a-Ridge Plus hip and ridge shingles provide extra protection against leaks and wind blow-offs. They are 12" x 12", the perfect size for standard ridges and to cover ridge vents. With an Ultra-Mat reinforced fiberglass base to resist rotting, warping and curling, Seal-a-Ridge Plus forms a wind and rain resistant cover. [PHOTO] *************************************************************************** * * * CAPTION: In 1994, Elk successfully introduced its Enhanced High * * Definition Prestique I and Prestique Plus shingles. The new Enhanced * * High Definition gave Prestique an even more natural textured wood * * look. The Weatheredwood Prestique Plus shown here includes Elk's * * high profile Z ridge on the hips and ridges to add a finishing touch. * * * *************************************************************************** - -------------------------------------------------------------------------------- 11 14 INDUSTRIAL PRODUCTS ================================================================================ The Industrial Products Group achieved a strong turnaround in fiscal 1995. Sales rose 16% to $20 million from $17.2 million in the prior year. In fiscal 1995, operating income improved $4.9 million to $2.1 million, compared with a $2.8 million loss in the year-ago period. The Industrial Products group accounted for 13% of Elcor's sales and 10% of Elcor's operating profit in fiscal 1995. [PHOTO] *************************************************************************** * * * CAPTION: Chromium Corporation's Conductive Coatings Division is a * * leader in shielding plastic electronic enclosures from * * electromagnetic and radio frequency interference generated by * * microchips and other electronic components. Shown here are some * * typical applications for the telecommunications, medical and * * aerospace industries. * * * *************************************************************************** CHROMIUM CORPORATION Chromium Corporation is a technological and quality leader in plating certain proprietary finishes for large diesel engine components and plastic enclosures for telecommunications and other electronic equipment. Chromium is the sole supplier of original equipment hard chrome plated diesel engine cylinder liners and is the major supplier of tin-plated pistons to the domestic locomotive manufacturers. Chromium also has a dominant position in remanufacturing these diesel engine components for the railroad, marine and stationary power industries. The strengthened economy in fiscal 1995 boosted railroad demand for both remanufactured diesel engine cylinder liners and pistons, as well as very large cylinder liners for the stationary power industry. In addition, Chromium experienced strong growth in demand for its remanufactured electron beam welded liners in domestic and international markets. During fiscal 1995, Chromium completed the consolidation of its diesel engine cylinder liner business at its Lufkin, Texas plant, while the Cleveland, Ohio plant focused its resources on remanufacturing large diesel engine pistons and water jackets. Strong demand for its high quality large diesel engine components, combined with productivity improvements and better pricing, enabled Chromium to achieve a strong turnaround in this portion of its business. Chromium's Conductive Coatings Division also saw strong growth in demand for its COMPUSHIELD process. COMPUSHIELD is a chemical coating for plastic electronic enclosures which can substantially reduce the emission of electromagnetic and radio frequency interference given off by microchips and components. COMPUSHIELD is now being used in a wide variety of consumer, retail and industrial applications, such as telecommunications, computer peripherals, medical electronics, aerospace and other electronic equipment. A substantial increase in the number of customers and applications, plus higher volume and productivity, contributed to a strong turnaround in this area of Chromium's business as well. ORTLOFF ENGINEERS Ortloff Engineers continues as a leader in the development and licensing of state-of-the-art patented technology for the cryogenic processing of refinery and natural gas streams and sulfur recovery processes; and in performing conceptual plant design consulting engineering services for the petroleum industry. Ortloff Engineers licenses Elcor's ten leading edge patents pertaining to the recovery of higher value components, such as ethane and propane, from natural gas and refinery gas streams, primarily for use as petrochemical feedstocks. During fiscal 1995, strong emphasis was placed on developing new cryogenic processing technology to assure that Ortloff Engineers maintains and extends its leadership position in these markets. Three new patent applications were filed in fiscal 1995, and work is continuing on additional applications to be filed in fiscal 1996. These patented processes can provide superior returns on investment compared to alternative processes. During the last two and one-half years, more than 80% of the turbo-expander plant projects contracted in North America that we have identified have used Elcor's patented technology. At the present time, the outlook continues to be good in both domestic and foreign markets for licensing Elcor's technology in new gas processing facilities, as well as updating existing cryogenic facilities to increase efficiency and effectiveness in the recovery of natural gas liquids. - -------------------------------------------------------------------------------- 12 15 ELCOR CORPORATION LINES OF BUSINESS INFORMATION
- --------------------------------------------------------------------------------------------------------------------------- ($ In thousands) Year Ended June 30, - --------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------- ANALYSIS OF SALES Roofing Products $138,991 $139,735 $137,611 $116,214 $ 97,396 % of Total 87% 89% 85% 84% 84% Industrial Products $ 19,960 $ 17,198 $ 24,152 $ 22,262 $ 18,733 % of Total 13% 11% 15% 16% 16% Other Lines and Eliminations $ 110 $ 98 $ (332) $ (167) $ (227) % of Total -- -- -- -- -- Total $159,061 $157,031 $161,431 $138,309 $115,902 100% 100% 100% 100% 100% - --------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------- ANALYSIS OF OPERATING PROFIT (LOSS)(1) Roofing Products(2) $ 18,015 $ 31,415 $ 29,335 $ 16,198 $ 5,978 % of Total 90% 110% 101% 110% 237% Industrial Products(3) $ 2,099 $ (2,804) $ (307) $ (1,514) $ (3,457) % of Total 10% (10)% (1)% (10)% (137)% Total $ 20,114 $ 28,611 $ 29,028 $ 14,684 $ 2,521 100% 100% 100% 100% 100% ===========================================================================================================================
- --------------- (1) Operating profit (loss) is before general corporate expenses, interest, federal and state income taxes and extraordinary items. (2) 1991 results include a $3,200 charge for an increase in product warranty reserves relating to products manufactured from 1982 to 1985 at a commodity asphalt shingle plant that was closed effective June 30, 1985. QUARTERLY SUMMARY OF OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------------- (Unaudited, $ in thousands, except per share data) - --------------------------------------------------------------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter - --------------------------------------------------------------------------------------------------------------------------------- 1995 1994 1995 1994 1995 1994 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- SALES $38,477 $42,846 $35,973 $36,968 $37,816 $37,961 $46,795 $39,256 GROSS PROFIT 10,908 12,621 9,013 10,919 10,080 11,304 12,261 14,628 INCOME (LOSS): From continuing operations 3,156 4,366 1,167 2,833 1,614 3,454 3,621 4,918 From discontinued operations -- (294) -- (495) -- (705) -- -- Cumulative effect of accounting change -- 668 -- -- -- -- -- -- NET INCOME 3,156 4,740 1,167 2,338 1,614 2,749 3,621 4,918 INCOME (LOSS) PER SHARE: From continuing operations .35 .49 .13 .32 .18 .39 .41 .55 From discontinued operations -- (.03) -- (.06) -- (.08) -- -- Cumulative effect of accounting change -- .07 -- -- -- -- -- -- NET INCOME PER SHARE .35 .53 .13 .26 .18 .31 .41 .55 =================================================================================================================================
- -------------------------------------------------------------------------------- 13 16 ELCOR CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS FISCAL 1995 COMPARED TO FISCAL 1994 During the fiscal year ended June 30, 1995, income from continuing operations decreased to $9,558,000 from the $15,571,000 achieved in the prior fiscal year despite a 1% increase in sales in fiscal 1995. Increased sales and a significant turnaround in operating results in the Industrial Products Group were offset by slightly lower sales and lower operating profit for the Roofing Products Group. Fiscal year 1994 included a $1,494,000 loss relating to its discontinued solid waste baler manufacturing subsidiary and a $668,000 gain from adopting Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Sales for the Roofing Products Group were slightly lower in fiscal 1995 than for fiscal 1994 despite a 6% increase in shipments of premium laminated fiberglass asphalt shingles in fiscal 1995. Average selling prices were 5% lower in the current fiscal year. Operating profit in fiscal 1995 was $18,015,000 compared to $31,415,000 in the prior year. Late in the first quarter of fiscal 1995, the Company introduced Elk Prestique premium laminated fiberglass asphalt shingle product lines with the patented new Enhanced High Definition and Raised Profile look. The higher cost of introducing these new products, together with pricing adjustments, higher transportation costs and lower production to reduce inventory levels during the seasonally slower winter months significantly reduced operating results during fiscal 1995 as compared to the prior year. Revenues for the Industrial Products Group increased 16% in fiscal year 1995 to $19,960,000 from $17, 198,000 in the prior fiscal year. Increased sales volume was achieved for many of Chromium Corporation's product lines, including hard chrome plated diesel engine cylinder liners and remanufactured pistons for the railroad, marine and stationary power industries and conductive coatings of plastic enclosures for electronic equipment. An operating profit of $2,099,000 was achieved by the Industrial Products Group in fiscal 1995 compared to a $2,804,000 operating loss in the prior year as a result of higher sales volumes and reduced operating costs at Chromium. Costs of $1,706,000 incurred in connection with a closed Chromium plant were included in the prior year operating loss for the Industrial Products Group. Operating income from consulting and licensing of patents in the cryogenic processing of natural gas and refinery gas streams by Ortloff Engineers was lower in fiscal 1995 than in the prior year. Selling, general and administrative expenses (SG&A) increased 9% during fiscal 1995 as compared to the prior year, primarily as a result of increased selling and marketing expenses in the Roofing Products Group due to increased promotional activities and establishing a larger sales organization to better serve growing markets. As a percentage of sales, SG&A costs were 17% in fiscal 1995 compared to 16% in fiscal 1994. FISCAL 1994 COMPARED TO FISCAL 1993 During the fiscal year ended June 30, 1994, income from continuing operations of $15,571,000 exceeded by 1% the $15,366,000 amount achieved in the prior fiscal year. Sales decreased by 3% in fiscal 1994 compared to the prior year. Increased sales and higher operating margins for the core Roofing Products Group were offset by significantly reduced demand and lower operating results for the Industrial Products Group. On March 31, 1994, the Company completed the sale of substantially all operating assets of its solid waste baler manufacturing subsidiary. This discontinued business was disposed of at a $82,000 net loss after reporting $1,412,000 in operating losses for the year, compared to a $606,000 net operating loss in the prior fiscal year. Fiscal year 1994 included a $668,000 gain from adopting Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Net income for fiscal year 1993 included $3,017,000 of extraordinary income related to tax loss carryforwards, which were fully utilized in that fiscal year. Sales for the Roofing Products Group increased 2% in fiscal 1994 compared to the prior year primarily as a result of increased prices. Product demand was very strong during the summer and fall months of the current fiscal year before returning to a historically normal seasonal slowdown in demand for roofing products in certain markets during the winter months. Although industry shipments in the quarter ended June 30, 1994 were up 18% from the same quarter in fiscal 1993, shipments of the Company's premium laminated fiberglass shingles were lower. During fiscal years 1994 and 1993 the Company implemented five general price increases, which were only partially followed by competitors. Some of the fiscal 1994 increases began to limit volume. Operating profit for fiscal 1994 improved to $31,415,000 compared to $29,335,000 in fiscal 1993. Improved margins throughout the year were primarily the result of higher prices, together with increased manufacturing effectiveness and plant utilization. Revenue for the Industrial Products Group declined 29% in fiscal 1994 to $17,198,000 from $24,152,000 in the prior fiscal year. Sales at Chromium Corporation were adversely affected by reduced demand for its electron beam-welded cylinder liners and changing requirements of some Conductive Coatings Division customers. The $2,804,000 operating loss was significantly higher than the prior year loss of $307,000 as a result of reduced sales, together with $1,706,000 in charges incurred in connection with the closed Chicago plant. Operating income from consulting and licensing of patents in the cryogenic processing of natural gas and refinery gas streams by Ortloff Engineers was slightly lower than the prior year level. - -------------------------------------------------------------------------------- 14 17 - -------------------------------------------------------------------------------- Selling, general and administrative expenses (SG&A) increased 9% during fiscal 1994 as compared to fiscal 1993, primarily as a result of increased sales and marketing promotional activities in the Roofing Products Group. As a percentage of sales, SG&A costs were 16% in fiscal 1994 compared to 14% in fiscal 1993. The Company had no debt during fiscal 1994. Interest income was generated by investing the Company's available cash resources. Interest expense in fiscal 1994 represents commitment fees paid on the Company's revolving line of credit. LIQUIDITY AND CAPITAL RESOURCES The Company's financial position at June 30, 1995 remains very strong. Total invested capital of the Company (long-term debt plus shareholders' equity) was $112,016,000 at June 30, 1995. Long-term debt represented only 16% of total capitalization. In October 1994, the Company increased its unsecured revolving line of credit from $30 million to $50 million and extended the term to October 31, 1997. As of June 30, 1995, $29,318,000 was available under this facility. On September 27, 1994, the Company's Board of Directors authorized the purchase of up to $10 million of the Company's common shares from time to time on the open market to be used for general corporate purposes, including employee stock compensation and benefit plans. As of June 30, 1995, 91,300 shares with cumulative cost of $1,360,000 had been repurchased under this program. Cash generated by continuing operating activities was $20,225,000, despite a $6,013,000 reduction in income, primarily as a result of deferred taxes and a $5,308,000 reduction in working capital (excluding cash and cash equivalents). Lower inventory levels accounted for $5,192,000 of the reduction. Finished goods inventories decreased from the unusually high levels at the prior year end that occurred from lower than anticipated demand during the fourth quarter of fiscal 1994. However, raw materials inventory increased as a result of purchase requirements for the new Shafter, California roofing plant. Despite a 19% increase in fourth quarter net sales, receivables decreased $627,000 due to lower deferred payment term receivables. At June 30, 1995, deferred payment term receivables from promotional programs to certain customers were $884,000 compared to $7,157,000 in receivables from these programs at June 30, 1994. The Company used $40,326,000 for investing activities in fiscal 1995. Capital expenditures during fiscal 1995 were $42,388,000 and related deferred preoperating expenses were $3,864,000. The majority of these expenditures relate to the construction of a roofing plant in Shafter, California to manufacture premium laminated fiberglass asphalt shingles, which is currently in startup, together with beginning construction of a new plant at the Company's Ennis, Texas facility to manufacture nonwoven fiberglass substrate materials and industrial facer products for the construction industry. This new plant is scheduled to start-up during the spring of 1996. Total capital expenditures for the two new plants when completed are estimated to be about $80 million of which about $45 million relates to the Shafter plant and $35 million relates to the Ennis, Texas facility. Total cumulative capital expenditures have been approximately $54 million on the two new plants to date. The new plants should provide the potential to significantly increase the Company's sales, earnings and cash flow when completed and operating at near capacity in the years ahead. On April 24, 1995, the Company received $5,378,000 from the sale of its investment in convertible preferred stock of Amdura Corporation. Cash flows provided by financing activities were $17,229,000 as a result of $18,400,000 in long-term borrowings under the $50 million unsecured line of credit, offset primarily by funds used to acquire the Company's common stock under the authorized repurchase program. Historically, working capital and debt requirements 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's operations are subject to extensive federal, state and local laws and regulations relating to environmental matters. Although the Company is not aware of any requirements to expend amounts which will have a material adverse affect 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 from time to time. The Company established and maintains reserves for such remediation activities when appropriate, in accordance with Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies." Current reserves established for known or probable remediation activities are not material to the Company's financial position or results of operation. Management believes that current cash and cash equivalents, cash flows from operations and borrowings under its $50 million revolving credit facility should be sufficient during fiscal 1996 and beyond to support its capital investment plan, working capital needs, stock repurchases and other cash requirements. - -------------------------------------------------------------------------------- 15 18 ELCOR CORPORATION FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------- ($ In thousands, except per share data) Year Ended June 30, - ---------------------------------------------------------------------------------------------------- 1995 1994(1) 1993(1) 1992(1) 1991(1) - ---------------------------------------------------------------------------------------------------- SALES $159,061 $157,031 $161,431 $138,309 $115,902 ======== ======== ======== ======== ======== INCOME (LOSS): From continuing operations $ 9,558 $ 15,571 $ 15,366 $ 6,057 $ (5,576) From discontinued operations -- (1,494) (606) (1,713) (9,875) -------- -------- -------- -------- -------- Before extraordinary items and cumulative effect of accounting change 9,558 14,077 14,760 4,344 (15,451) EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- 668 3,017 3,974 -- -------- -------- -------- -------- -------- NET INCOME (LOSS) $ 9,558 $ 14,745 $ 17,777 $ 8,318 $(15,451) ======== ======== ======== ======== ======== INCOME (LOSS) PER SHARE: From continuing operations $ 1.08 $ 1.75 $ 2.00 $ .83 $ (.77) From discontinued operations -- (.17) (.08) (.24) (1.37) -------- -------- -------- -------- -------- Before extraordinary items and cumulative effect of accounting change 1.08 1.58 1.92 .59 (2.14) Extraordinary items and cumulative effect of accounting change -- .07 .39 .54 -- -------- -------- -------- -------- -------- NET INCOME (LOSS) $ 1.08 $ 1.65 $ 2.31 $ 1.13 $ (2.14) ======== ======== ======== ======== ======== TOTAL ASSETS $137,133 $108,233 $ 89,737 $ 69,554 $ 74,573 ======== ======== ======== ======== ======== LONG-TERM DEBT $ 18,400 $ -- $ -- $ 23,257 $ 40,800 ======== ======== ======== ======== ======== SHAREHOLDERS' EQUITY $ 93,616 $ 85,229 $ 69,747 $ 20,586 $ 11,802 ======== ======== ======== ======== ======== CASH DIVIDENDS PER SHARE $ -- $ -- $ -- $ -- $ .165 ======== ======== ======== ======== ======== ====================================================================================================
- --------------- (1) 1991 results include $3,200 in charges for an increase in product warranty reserves relating to products manufactured from 1982 to 1985 at a commodity asphalt shingle plant that was closed effective June 30, 1985. 1994, 1993, 1992 and 1991 results also include $1,706, $238, $1,472 and $1,300 in charges, respectively, incurred in connection with the closed Chromium Chicago plant. 1994 and 1991 results include $82 and $3,429 in losses, net of tax, respectively, on disposals of discontinued operations. - -------------------------------------------------------------------------------- 16 19 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- 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, 1995 and 1994, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the three years in the period ended June 30, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1995, in conformity with generally accepted accounting principles. As discussed in the Notes to the Consolidated Financial Statements -- "Income Taxes," as required by generally accepted accounting principles, effective July 1, 1993, the Company changed its method of accounting for income taxes. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Dallas, Texas August 14, 1995 - -------------------------------------------------------------------------------- REPORT OF MANAGEMENT - -------------------------------------------------------------------------------- Management is responsible for the preparation, presentation, and reliability of the financial information and representations contained in this annual report. Management has prepared these financial statements in conformity with generally accepted accounting principles. In preparing the statements and notes, estimates must necessarily be made based upon currently available information and judgments of current conditions and circumstances. To provide reasonable assurance of the reliability of the statements, the Company depends upon its system of internal accounting controls and upon the examination of the Company's financial statements by its independent public accountants. The internal accounting controls are intended to assure that transactions are executed in accordance with management authorization and properly recorded to permit the preparation of financial statements in accordance with generally accepted accounting principles. Management recognizes that errors or irregularities may occur under any control system, but it also believes that material errors or irregularities in its financial information and representations would be prevented or detected on a timely basis. The Board of Directors pursues its responsibilities for the accompanying financial statements through its Audit Committee, composed of Directors who are not officers or employees of the Company. The Committee meets periodically with both management and the independent auditors to assure that each is carrying out its responsibilities. The independent auditors have full and free access to the Audit Committee and regularly meet with it to discuss auditing and financial reporting matters. /s/ ROY E. CAMPBELL Roy E. Campbell Chairman, President and Chief Executive Officer /s/ RICHARD J. ROSEBERY Richard J. Rosebery Executive Vice President, Treasurer and Chief Administrative and Financial Officer /s/ LEONARD R. HARRAL Leonard R. Harral Vice President and Chief Accounting Officer August 14, 1995 - -------------------------------------------------------------------------------- 17 20 ELCOR CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------------------------- ($ In thousands, except per share data) Year Ended June 30, - ------------------------------------------------------------------------------------------------- 1995 1994 1993 -------- -------- -------- SALES $159,061 $157,031 $161,431 -------- -------- -------- COSTS AND EXPENSES Cost of goods sold 116,799 107,559 112,339 Selling, general and administrative 27,103 24,936 22,902 -------- -------- -------- INCOME FROM OPERATIONS 15,159 24,536 26,190 -------- -------- -------- OTHER INCOME (EXPENSE) Interest expense (153) (186) (1,384) Interest and dividend income 275 590 32 -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 15,281 24,940 24,838 Provision for income taxes 5,723 9,369 9,472 -------- -------- -------- INCOME FROM CONTINUING OPERATIONS 9,558 15,571 15,366 DISCONTINUED OPERATIONS Operating loss, net of applicable tax benefits of $760 in 1994 and $311 in 1993 -- (1,412) (606) Loss on disposal, net of applicable tax benefit of $44 in 1994 -- (82) -- -------- -------- -------- LOSS FROM DISCONTINUED OPERATIONS -- (1,494) (606) -------- -------- -------- INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 9,558 14,077 14,760 Cumulative effect of change in accounting principle -- 668 -- Tax benefit from utilization of net operating losses -- -- 3,017 -------- -------- -------- NET INCOME $ 9,558 $ 14,745 $ 17,777 ======== ======== ======== INCOME PER COMMON AND COMMON EQUIVALENT SHARE Income from continuing operations $ 1.08 $ 1.75 $ 2.00 Loss from discontinued operations -- (.17) (.08) -------- -------- -------- Income before extraordinary item and cumulative effect of change in accounting principle 1.08 1.58 1.92 Extraordinary item -- -- .39 Cumulative effect of change in accounting principle -- .07 -- -------- -------- -------- NET INCOME $ 1.08 $ 1.65 $ 2.31 ======== ======== ======== AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 8,844 8,921 7,682 ======== ======== ======== =================================================================================================
The Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 18 21 ELCOR CORPORATION CONSOLIDATED BALANCE SHEET
- ---------------------------------------------------------------------------------------------------------------- ($ In thousands) June 30, - ---------------------------------------------------------------------------------------------------------------- ASSETS 1995 1994 - ---------------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 3,731 $ 5,919 Trade receivables, less allowance of $306 and $610 32,910 33,537 Inventories 11,701 16,893 Prepaid expenses and other 2,931 1,603 Deferred income taxes 2,136 2,596 Net assets of discontinued operations - current - 629 -------- -------- Total current assets 53,409 61,177 -------- -------- PROPERTY, PLANT AND EQUIPMENT, AT COST Land 2,155 2,155 Buildings 9,385 8,792 Machinery and equipment 58,236 57,013 Construction in progress 53,693 13,367 -------- -------- 123,469 81,327 Less - Accumulated depreciation (53,923) (50,550) -------- -------- Property, plant and equipment, net 69,546 30,777 -------- -------- INVESTMENTS - 5,378 -------- -------- NET ASSETS OF DISCONTINUED OPERATIONS - NONCURRENT 7,175 7,230 -------- -------- OTHER ASSETS 7,003 3,671 -------- -------- $137,133 $108,233 ======== ======== - ---------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY - ---------------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Accounts payable $ 10,849 $ 9,291 Accrued liabilities 10,548 12,378 -------- -------- Total current liabilities 21,397 21,669 -------- -------- LONG-TERM DEBT 18,400 - -------- -------- DEFERRED INCOME TAXES 3,720 1,335 -------- -------- COMMITMENTS AND CONTINGENCIES (See Note) SHAREHOLDERS' EQUITY Common stock ($1 par, 8,802,066 shares issued at June 30, 1995; 8,785,711 shares issed at June 30, 1994) 8,802 8,786 Paid-in capital 71,680 71,685 Retained earnings 14,316 4,758 -------- -------- 94,798 85,229 Less - Treasury stock (79,063 shares at June 30, 1995; at cost) (1,182) - -------- -------- Total shareholders' equity 93,616 85,229 -------- -------- $137,133 $108,233 ======== ======== ================================================================================================================
The Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 19 22 ELCOR CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------------------------ ($ In thousands) Year Ended June 30, - ------------------------------------------------------------------------------------------------ 1995 1994 1993 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Income from continuing operations $ 9,558 $ 15,571 $ 15,366 Adjustments to reconcile income from continuing operations to net cash from operating activities: Depreciation and amortization 3,603 4,212 4,217 Write-off of assets -- 478 -- Deferred income taxes 2,845 547 (1,140) Changes in assets and liabilities: Trade receivables 627 (7,519) (1,260) Inventories 5,192 (8,568) (1,003) Prepaid expenses and other (1,328) (384) 496 Accounts payable 1,558 1,969 154 Accrued liabilities (1,830) (290) 1,325 -------- -------- -------- Net cash provided by continuing operating activities 20,225 6,016 18,155 -------- -------- -------- Cash provided by (used for) discontinued operations 684 (728) (2,148) -------- -------- -------- Cash provided by extraordinary item -- -- 3,017 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (42,388) (17,181) (3,234) Deferred preoperating costs (3,864) (1,639) -- Proceeds from sale of investments 5,378 -- -- Change in assets held for future sale, net 569 420 (473) Other, net (21) (222) (433) -------- -------- -------- Net cash used for investing activities (40,326) (18,622) (4,140) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Long-term debt borrowings (reductions) 18,400 -- (30,457) Proceeds from public offering of common stock, net -- -- 30,350 Treasury stock transactions and exercises of stock options, net (1,171) 737 1,034 -------- -------- -------- Net cash provided by financing activities 17,229 737 927 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,188) (12,597) 15,811 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,919 18,516 2,705 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,731 $ 5,919 $ 18,516 ======== ======== ======== ================================================================================================
The Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 20 23 ELCOR CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------- ($ In thousands) - -------------------------------------------------------------------------------------------------------------------------- Retained Total Common Paid-In Earnings Treasury Shareholders' Stock Capital (Deficit) Stock Equity - -------------------------------------------------------------------------------------------------------------------------- BALANCE, June 30, 1992 $7,560 $42,112 $(27,764) $(1,322) $20,586 Net income -- -- 17,777 -- 17,777 Public offering of common stock 1,150 29,200 -- -- 30,350 Treasury stock transactions and exercises of stock options, net -- 174 -- 860 1,034 - -------------------------------------------------------------------------------------------------------------------------- BALANCE, June 30, 1993 $8,710 $71,486 $(9,987) $ (462) $69,747 Net income -- -- 14,745 -- 14,745 Treasury stock transactions and exercises of stock options, net 76 199 -- 462 737 - -------------------------------------------------------------------------------------------------------------------------- BALANCE, June 30, 1994 $8,786 $71,685 $ 4,758 $ -- $85,229 Net income -- -- 9,558 -- 9,558 Treasury stock transactions and exercises of stock options, net 16 (5) -- (1,182) (1,171) - -------------------------------------------------------------------------------------------------------------------------- BALANCE, June 30, 1995 $8,802 $71,680 $14,316 $(1,182) $93,616 ======= ======= ======= ======= ======= ==========================================================================================================================
The Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of this statement. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Elcor Corporation (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 financial information has been reclassified for consistency of presentation. REVENUE RECOGNITION Revenue is recognized at the time products are shipped to the customer or at the time services are rendered. CONCENTRATION OF CREDIT RISK The majority of the Company's sales are in the roofing products segment, whose primary customers are distributors. During fiscal 1995, one customer accounted for 11% of consolidated sales. No customer accounted for greater than 10% of consolidated sales in 1994 or 1993. The Company performs ongoing credit evaluations and maintains reserves for potential credit losses. 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, 1995 1994 ------- ------- Raw Materials $ 4,952 $ 3,325 Work-In-Process 658 807 Finished Goods 6,091 12,761 ------- ------- $11,701 $16,893 ======= =======
If the first-in, first-out (FIFO) method had been used at June 30, 1995 and 1994, inventories would have been lower by $698,000 and $1,527,000, respectively, primarily as a result of declining costs of certain 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. 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. Preoperating and start-up costs are included in Other Assets. 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 1995, $326,000 of interest cost was capitalized. No interest was capitalized in 1994 or 1993. EARNINGS PER SHARE Earnings per common and common equivalent share are based on the weighted average number of common and common equivalent shares outstanding for the fiscal year. Common equivalent shares include incentive stock options and were calculated using the treasury stock method. INCOME TAXES Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" and reported the cumulative effect of that accounting change in fiscal 1994. Deferred income taxes are provided to reflect temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities using presently enacted tax rates. 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, 1995 1994 1993 ------ ------ ------ Interest paid $ 436 $ 193 $1,551 Income taxes paid $5,588 $7,130 $5,669
In March 1994, the Company sold operating assets of a discontinued subsidiary in exchange for $5,378,000 of convertible preferred stock. In April 1995, the Company received cash proceeds in full from the redemption of this convertible preferred stock. - -------------------------------------------------------------------------------- 21 24 ELCOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- LONG-TERM DEBT Effective October 31, 1994, the Company amended its unsecured loan agreement (Facility) to provide up to $50,000,000 of primary credit, including up to a maximum of $5,000,000 in letters of credit, through October 31, 1997 with a provision for annual extensions upon approval of the lender. At June 30, 1995, letters of credit totaling $2,282,000 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 current financial ratios, the LIBOR borrowing rate is LIBOR plus .625% and the commitment fee is .25% of the average unused portion of the line. The 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, 1995, total cumulative dividend payments and stock repurchased since July 1, 1993 could not have exceeded $18,506,000. Actual expenditures for these items as of June 30, 1995 were $1,360,000. SHAREHOLDERS' EQUITY Authorized common stock, par value $1.00, is 50,000,000 shares, of which 8,802,066 shares were issued at June 30, 1995 and 8,785,711 were issued at June 30, 1994. 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. On June 23, 1993, the Company issued 1,150,000 shares of common stock in a public offering, receiving net proceeds of $30,350,000 primarily for use in construction of a new roofing plant in California. SHAREHOLDER RIGHTS PLAN On June 28, 1988, the Company's Board of Directors declared a dividend distribution of one Series A Preferred Stock Purchase Right (the Rights) on each outstanding share of the Company's common stock as of July 8, 1988 and all outstanding shares of common stock issued thereafter, pursuant to the terms and conditions of the Plan. The Rights, which will expire on July 8, 1998, will have no voting power. Each Right will entitle the holder to buy one-hundredth of a share of a new series of nonvoting preferred stock at an exercise price of $50. On January 30, 1991, the Company's Board of Directors amended the Plan. As amended, if certain events occur, Rights "flip-in" and entitle holders to buy Elcor common stock at one-half market value or "flip-over" and entitle holders to buy common stock in an acquiring entity at one-half market value. This amendment reduces the threshold of beneficial ownership at which the Rights separate from the common stock and flip-in, provides an exchange option provision, and makes certain other modifications. The Rights will separate from the associated shares of common stock 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 officers and key employees of the Company for purchase of the Company's common stock. Information relating to options is as follows:
Number Option Price of Shares Range per Share --------- --------------- Outstanding at June 30, 1993 387,683 $ 4.38 - $14.00 Granted 52,530 $20.00 - $24.13 Cancelled (2,567) $ 8.75 - $24.13 Exercised (136,570) $ 4.38 - $24.13 -------- Outstanding at June 30, 1994 301,076 $ 6.00 - $24.13 Granted 57,195 $17.25 - $19.88 Cancelled (4,886) $ 7.00 - $24.13 Exercised (35,546) $ 6.00 - $12.13 -------- Outstanding at June 30, 1995 317,839 $ 6.00 - $24.13 ========
At June 30, 1995 and 1994, 106,089 and 80,538 shares were exercisable, respectively. A total of 435,305 and 492,500 shares were reserved for future grants at June 30, 1995 and 1994, respectively. The Company's Employee Stock Ownership Plan (ESOP) became effective January 1, 1981. Under the Plan, the Company contributes a percentage of each participant's annual compensation into a trust, either as treasury stock contributions or cash, which is then used to purchase Elcor common stock. Employees vest 20% after three years of employment and 20% per year thereafter, with the stock distributed at retirement, death, disability, or as authorized by the Plan Administrative Committee. Effective January 1, 1990, the Company established an Employee Savings Plan under Internal Revenue Code section 401(k). All employees, except those covered by plans established through collective bargaining, are eligible for participation. Under this Plan, the Company contributes a percentage of each participant's annual compensation into a Plan to be invested among various defined alternatives at the participants' direction. Vesting of Company contributions is in accordance with the same schedule as that of the ESOP. The Board of Directors has authorized total contributions of 4.6% of each participant's annual compensation, as defined, including forfeitures, split equally between the ESOP and 401(k) Plans. Total contributions charged to expense for these Plans were $839,000, $973,000 and $926,000 in 1995,1994 and 1993, respectively. - -------------------------------------------------------------------------------- 22 25 - -------------------------------------------------------------------------------- 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, 1995 and 1994 totaling $1,315,000 and $1,408,000, 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 2000. Total rental expense was $1,117,000 in 1995, $1,032,000 in 1994, and $960,000 in 1993. At June 30, 1995, future minimum rental commitments under noncancellable operating leases, payable over the remaining lives of the leases, are:
(In thousands) Minimum Rental Fiscal Year Commitments ----------- -------------- 1996 $ 985 1997 919 1998 869 1999 577 2000 12 Thereafter -- ------ Total $3,362 ======
The Company provides certain warranties for its products which are generally limited to the products being free from defect in materials or workmanship or meeting agreed-upon manufacturing and material specifications. During 1995, 1994, and 1993 the Company recorded expenses of approximately $1,462,000, $1,441,000 and $2,672,000, respectively, in warranty claim settlements. The Company has established reserves for estimated probable future claims in accordance with Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies." 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 and Raised Profile shingles. On December 6, 1994, Elk was granted a utility patent on the functional aspects of the High Definition and Raised Profile shingles. Elk has sued GAF Building Materials Corporation and related GAF entities (collectively "GAF") in federal court for infringement of both its design patent and its utility patent. In the design patent case, Elk seeks to recover as damages the total profit that GAF has made from sale of the infringing shingles. In the utility patent case, Elk seeks to recover as damages a reasonable royalty. In both cases, Elk seeks a permanent injunction prohibiting GAF from making or selling its infringing shingles. GAF has asserted claims against Elk seeking declaratory judgment that the Elk patents are not infringed and are either invalid or unenforceable. GAF has also asserted claims for unfair competition, violation of the Lanham Act, and fraud, generally alleging damages of not less than $25 million. Elk disputes GAF's claims, and management intends vigorously to defend itself against these claims and to enforce its intellectual property rights. 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 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 affect 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 from time to time. The Company establishes and maintains reserves for such remediation activities, when appropriate, in accordance with Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies." DISCONTINUED OPERATIONS On March 31, 1994, the Company completed the sale of substantially all operating assets of its solid waste baler manufacturing subsidiary. The Company retained the real property of the subsidiary, which is being held for sale. At June 30, 1995, noncurrent assets of discontinued operations include $531,000 of assets relating to the discontinued solid waste baler manufacturing business and $6,644,000 relating to previously discontinued business segments. At June 30, 1994, the comparable balances were $536,000 for the discontinued solid waste baler manufacturing business and $6,694,000 for previously discontinued segments. INVESTMENTS In March 1994, the Company sold substantially all operating assets of its solid waste baler manufacturing subsidiary in exchange for $5,378,000 of convertible preferred stock of Amdura Corporation. On April 24, 1995, these securities were sold pursuant to a tender offer by another company for Amdura Corporation's common stock. There was no gain or loss to the Company on the sale of these securities. ACCRUED LIABILITIES Accrued liabilities consist of the following:
(In thousands) June 30, ------------------- 1995 1994 ------- ------- Product warranty reserves $ 2,278 $ 2,789 Self-insurance reserves 1,747 1,381 Compensation and employee benefits 2,715 3,502 State franchise taxes 711 847 All other 3,097 3,859 ------- ------- $10,548 $12,378 ======= =======
- -------------------------------------------------------------------------------- 23 26 - -------------------------------------------------------------------------------- INCOME TAXES Effective July 1, 1993 the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The cumulative effect of adopting this change in accounting for income taxes was an increase in earnings of $668,000 in fiscal 1994. The statutory federal tax rate was 35% for fiscal years 1995 and 1994 and 34% for fiscal year 1993. The Company's effective tax rate was 37.5% in 1995, 37.8% in 1994 and 38.3% in 1993. The difference between the federal statutory tax rate and the effective tax rate is reconciled as follows:
1995 1994 1993 ----- ----- ----- Federal statutory tax rate 35.0% 35.0% 34.0% Increase (decrease) in tax rate resulting from: State income taxes, net of federal tax effect 2.5% 3.5% 4.1% Miscellaneous items -- (.7%) .2% ----- ----- ----- 37.5% 37.8% 38.3% ===== ===== =====
Components of the income tax provisions consist of the following:
(In thousands) 1995 1994 1993 ------ ------ ------ Federal: Current $2,302 $6,823 $4,824 Deferred, net 2,845 528 2,835 State 576 1,214 1,502 ------ ------ ------ $5,723 $8,565 $9,161 ====== ====== ======
The current tax provision represents estimated taxes to be paid for those years. The offsetting income tax benefit resulting from the utilization of the operating loss carryforwards in 1993 is reported as an extraordinary item in the Consolidated Statement of Operations. The significant components of the Company's deferred tax assets and liabilities are summarized below:
(In thousands) June 30, ----------------- 1995 1994 ------- ------ Deferred tax assets: Accrued liabilities, difference in expense recognition $ 1,963 $2,313 Receivables, bad debt reserve 186 319 Discontinued asset writedowns 292 292 ------- ------ 2,441 2,924 ------- ------ Deferred tax liabilities: Fixed assets, primarily depreciation method differences 2,050 1,587 Deferred preoperating costs 1,926 -- Other 49 76 ------- ------ 4,025 1,663 ------- ------ Net deferred tax asset (liability) $(1,584) $1,261 ======= ======
Prior to the change in accounting methods, the deferred tax provision resulted from timing differences relating to the following:
(In thousands) 1993 -------------- State franchise taxes $ (322) Product warranty reserve 345 Self-insurance reserves (189) Depreciation (357) Other items 70 ------ Deferred provision before credits (453) General business credits and operating loss carryforwards 3,288 ------ Deferred provision, net $2,835 ======
QUARTERLY SUMMARY OF OPERATIONS (UNAUDITED) See page 13 for schedule containing the Quarterly Summary of Operations. FINANCIAL INFORMATION BY COMPANY SEGMENTS
(In thousands) 1995 1994 1993 -------- -------- -------- SALES Roofing products $138,991 $139,735 $137,611 Industrial products 19,960 17,198 24,152 Corporate and eliminations 110 98 (332) -------- -------- -------- $159,061 $157,031 $161,431 ======== ======== ======== OPERATING PROFIT (LOSS) Roofing products $ 18,015 $ 31,415 $ 29,335 Industrial products 2,099 (2,804) (307) Corporate and other (4,955) (4,075) (2,838) -------- -------- -------- 15,159 24,536 26,190 Interest and dividend income (expense), net 122 404 (1,352) -------- -------- -------- Income before income taxes $ 15,281 $ 24,940 $ 24,838 ======== ======== ======== IDENTIFIABLE ASSETS(1) Roofing products $112,145 $ 75,849 $ 43,804 Industrial products 8,256 9,103 10,350 Corporate 9,557 15,422 21,580 Discontinued operations 7,175 7,859 14,003 -------- -------- -------- $137,133 $108,233 $ 89,737 ======== ======== ======== DEPRECIATION AND AMORTIZATION Roofing products $ 2,440 $ 3,050 $ 2,961 Industry products 981 1,009 1,115 Corporate 182 153 141 -------- -------- -------- $ 3,603 $ 4,212 $ 4,217 ======== ======== ======== CAPITAL EXPENDITURES Roofing products $ 41,939 $ 16,614 $ 2,276 Industrial products 322 363 810 Corporate 127 204 148 -------- -------- -------- $ 42,388 $ 17,181 $ 3,234 ======== ======== ========
(1) Consists principally of cash and cash equivalents, trade receivables, inventories, and net property, plant and equipment. - -------------------------------------------------------------------------------- 24 27
PRINCIPAL OPERATING SHAREHOLDER DIRECTORS OFFICERS SUBSIDIARIES INFORMATION - -------------------------------------------------------------------------------------------------------------------- ROY E. CAMPBELL(1) ROY E. CAMPBELL ROOFING PRODUCTS STOCK EXCHANGES Chairman of the Board, Chairman, President and ELK CORPORATION Elcor Corporation's common President and Chief Executive Officer OF DALLAS stock is listed on The New Chief Executive Officer HAROLD K. WORK York Stock Exchange, and is Elcor Corporation RICHARD J. ROSEBERY President and also traded on the Boston, Dallas, Texas Executive Vice President, Chief Executive Officer Midwest, Philadelphia and Treasurer Toronto Stock Exchanges. F. H. CALLAWAY(1)(3) Chief Administrative and INDUSTRIAL PRODUCTS Ticker Symbol -- ELK Partner, Callaway Financial Officer Oil & Gas Co. CHROMIUM CORPORATION TRANSFER AGENT AND REGISTRAR (Oil and gas exploration HAROLD K. WORK MICHAEL G. TATSCH Chemical Shareholder Services and production) Executive Vice President President and Group, Inc. Midland, Texas Chief Executive Officer 450 West 33rd Street, 8th LEONARD R. HARRAL Floor JAMES E. HALL(2)(3) Vice President and OEL, LTD. New York, NY 10001 President Chief Accounting Officer ARTHUR R. LAENGRICH 1-800-635-9270 Chaparral Cars, Inc. President and and Manager DAVID G. SISLER Chief Executive Officer AUDITORS Condor Operating Company Vice President, Arthur Andersen LLP (Independent oil operator) General Counsel 901 Main Street, Suite 5600 Midland, Texas and Secretary Dallas, TX 75202 FORM 10-K REPORT ROBERT M. LEIBROCK JAMES J. WAIBEL Elcor Corporation will (1)(2) Vice President furnish to any shareholder, Partner, Amerind Oil Co. Administration without charge, a copy of its (Oil and gas exploration Form 10-K Report, as filed and production) THOMAS W. CAVE with the Securities and Midland, Texas Controller Exchange Commission. Written requests should be directed W. F. ORTLOFF(1)(3) RAUL G. HOLGUIN to Richard J. Rosebery, Midland, Texas Assistant Vice President Executive Vice President, at Management Information the following address: PHIL SIMPSON(2) Systems Chairman of the Board, CORPORATE OFFICE President and Elcor Corporation Chief Executive Officer Wellington Centre, Suite 1000 Republic Gypsum Company and 14643 Dallas Parkway Republic Paperboard Company Dallas, TX 75240-8871 Dallas, Texas (214) 851-0500 ANNUAL MEETING The next annual meeting of shareholders will be held on Tuesday, October 24, 1995, at 10:00 a.m. in the Derrick Room of the Midland Petroleum Club, 501 W. Wall Street, Midland, Texas. This Annual Report is submitted for the general information of the shareholders of Elcor Corporation and is not intended for use in connection with any sale or purchase of, or as an offer or solicitation of offers to buy or sell, any securities.
- --------------- (1) Executive Committee (2) Audit Committee (3) Compensation Committee Design: Creative Design Board, Chicago IL Printing: Colotone Riverside, Inc., Dallas, TX - -------------------------------------------------------------------------------- 28 [PICTURE] ELCOR WELLINGTON CENTRE Suite 1000 14643 Dallas Parkway Dallas, Texas 75240-8871 EX-21 4 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT 1. Elk Corporation of Dallas, a Delaware corporation, which owns all of the outstanding stock of (a) Elk Corporation of America, a Nevada corporation, (b) Elk Corporation of Alabama, a Delaware corporation (c) Elk Corporation of Texas, a Nevada corporation, and (d) Elk Corporation of Arkansas, an Arkansas corporation. 2. Chromium Corporation, a Delaware corporation. 3. M Machinery Company (formerly known as Mosley Machinery Company, Incorporated), a Delaware corporation, which owns all of the outstanding stock of M Service Corporation, (formerly known as Mosley Service Corporation), a Delaware corporation. 4. GA Industries Corporation (formerly known as Gory Associated Industries, Inc.), a Delaware corporation. 5. OEL, LTD., d/b/a Ortloff Engineers, Ltd., a Nevada corporation. 6. Ortloff de Venzuela, S.A., a Republic of Venezuela corporation. 7. Elcor Service Corporation, a Nevada corporation. EX-23 5 CONSENT OF INDEPENDANT ACCOUNTANTS 1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated August 14, 1995, included and incorporated by reference in Elcor Corporation's Form 10-K for the year ended June 30, 1995, into Elcor Corporation's previously filed Registration Statements on Form S-8 (File No. 2-87437) and Form S-3 (File No. 2-87436). /s/ Arthur Andersen LLP Arthur Andersen LLP Dallas, Texas September 25, 1995 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10K FOR FISCAL YEAR ENDED JUNE 30, 1995. 1,000 YEAR JUN-30-1995 JUL-01-1994 JUN-30-1995 3,731 0 33,216 306 11,701 53,409 123,469 53,923 137,133 21,397 18,400 8,802 0 0 84,814 137,133 159,061 159,061 116,799 143,902 0 0 153 15,281 5,723 9,558 0 0 0 9,558 1.08 1.08
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