-----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, PmNbKRj9hMSRVb5T3uMowY4i+PQCNm5U1yNPZI3jGkY5n3tF54JCF0r/bN0uxXyy Br81JzhSaaLyrF/3N5jGpg== 0000950134-97-007042.txt : 19970929 0000950134-97-007042.hdr.sgml : 19970929 ACCESSION NUMBER: 0000950134-97-007042 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970926 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: SEC FILE NUMBER: 001-05341 FILM NUMBER: 97685994 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 FISCAL YEAR END JUNE 30, 1997 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 FISCAL YEAR ENDED JUNE 30, 1997 COMMISSION FILE NUMBER 1-5341 ELCOR CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 75-1217920 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 14643 DALLAS PARKWAY 75240-8871 WELLINGTON CENTRE, SUITE 1000 (Zip Code) DALLAS, TEXAS (Address of principal executive offices)
Registrant's telephone number, including area code: (972) 851-0500 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ 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 9, 1997, was $244,711,571. This amount is based on the closing price of the Registrant's Common Stock on the New York Stock Exchange on September 9, 1997. Shares of stock held by directors and officers of the Registrant as well as shares allocated to such persons under the Employee Stock Ownership Plan of the Registrant were not included in the above computation; however, the Registrant has made no determination that such entities are "Affiliates" within the meaning of Rule 405 under the Securities Act of 1993, as amended. As of the close of business on September 9, 1997, the Registrant had 8,802,532 shares of Common Stock outstanding. Documents incorporated by reference. Listed below are the documents, any portion of which are incorporated by reference and the parts of this report into which such portions are incorporated: PROXY STATEMENT DATED SEPTEMBER 19, 1997 PART III OF FORM 10-K ================================================================================ 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 shingles and accessory products. Elk also manufactures and sells nonwoven fiberglass roofing mats for use in manufacturing asphalt roofing products, and nonwoven mats for use in other industrial applications. During fiscal 1997, Elk completed its three-year $100 million expansion program to significantly increase its manufacturing capacity for premium laminated fiberglass asphalt shingles and nonwoven fiberglass mats. Elk's premium laminated asphalt fiberglass shingle manufacturing plants are located in Tuscaloosa, Alabama, Ennis, Texas, and a new plant in Shafter, California, which achieved its performance test level of operations effective March 1, 1996. Capital expenditures, including deferred preoperating and start-up costs for the new plant, were about $55 million. The new plant has the potential to increase Elk's previous capacity for manufacturing premium laminated fiberglass asphalt shingles by more than 65%. The major products manufactured at Elk's roofing plants are premium laminated fiberglass asphalt shingles sold under its brand names: Prestique(R) Plus, Prestique(R) I, Prestique(R) II and Capstone(R). In fiscal 1995, Elk introduced Prestique premium laminated fiberglass asphalt shingle product lines with the patented Enhanced High Definition(R) and Raised Profile(TM) look. In addition, Elk also manufactures premium fiberglass asphalt hip and ridge products: Seal-a-Ridge(R) and Z(R) ridge brands. Elk's roofing products are sold by employee sales personnel primarily to independent roofing wholesale distributors, delivery being made by common carrier or by customer vehicles from the manufacturing plants or warehouses. Elk's products are distributed nationwide with Texas, California and Florida representing the largest market areas. During fiscal 1997, Elk continued to expand its marketing and sales efforts throughout the United States. The Roofing Products segment accounted for approximately 90% of consolidated sales of the Registrant in fiscal 1997. One customer, ABC Supply Co. Inc., the largest roofing wholesale distributor in the United States, accounted for 14% of consolidated sales in fiscal 1997, 13% of consolidated sales in fiscal 1996, and 11% of consolidated sales in fiscal 1995. 1 3 The company's new nonwoven fiberglass roofing mat facility at its Ennis, Texas plant was in start-up operations during the first nine months of fiscal 1997. This new plant achieved its performance test level of operations effective April 1, 1997. The new facility operates in parallel to the existing fiberglass mat manufacturing facility at the Ennis, Texas plant and produces nonwoven fiberglass roofing mats and other mats for a variety of industrial uses. The new plant was designed to more than triple Elk's previous manufacturing capacity for nonwoven fiberglass mats. Capital expenditures, including deferred preoperating and start-up costs for the new plant addition, were about $45 million. Elk's nonwoven fiberglass roofing mats are used in the production of its premium roofing products and are sold by employee sales personnel to other asphalt roofing products manufacturers. In addition, nonwoven mats are sold to manufacturers of construction and industrial products which use such mats in their products, and to distributors of industrial filtration products. Elk's nonwoven mats are shipped by common carrier to its other roofing plants and to its customers' locations. Industrial Products The Registrant, through Chromium Corporation (Chromium), is engaged in the remanufacture of diesel engine cylinder liners and tin plating of pistons, including hard chrome plating of cylinder bores, primarily for the railroad, marine, and stationary power industries; and hard chrome plating of original equipment cylinder liners and tin plating of pistons for major domestic locomotive manufacturers and stationary power equipment manufacturers. Chromium is also engaged in electroless shielding of plastic enclosures for telecommunications, medical electronic and other electronic equipment which is designed to control the level of electromagnetic and radio frequency interference (EMI/RFI) emissions generated by electronic components. Sales are generated by employee sales personnel, with delivery made primarily by common carrier. Another unit of the Registrant, OEL, LTD., d/b/a Ortloff Engineers, Ltd. (Ortloff) is engaged in providing technology licensing and engineering support services and in providing engineering consulting services to the oil and gas production, gas processing and sulfur recovery industries. Ortloff licenses technology covered by and related to ten patents owned by the Registrant for use in new or redesigned natural gas and refinery gas processing facilities, and utilizes technology licensed from others and its own expertise in the performance of consulting and engineering assignments. Although Ortloff has had three patents expire in the last year and one important patent will expire in fiscal 1999, Ortloff continues to develop and patent improved processes for natural gas processing. Moreover, Ortloff offers significant expertise and other nonpatented technology associated with its processes that is difficult for customers to obtain on a cost effective basis from others. One new patent was allowed and several new patent applications were filed in fiscal 1997. These efforts reflect Ortloff's commitment to continually update and advance its technological position. Patent license fees are calculated by standard formulas that take into account both specific project criteria and market conditions, adjusted for special conditions that exist in a project. Engineering consulting assignments are performed under consulting services agreements at negotiated rates. 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 and service. Typically, the Registrant is able to sell its roofing products at higher prices than its competitors. Industrial Products The Registrant believes that Chromium is the leading remanufacturer of diesel engine cylinder liners and pistons for the railroad and marine transportation industries and is the primary supplier of hard chrome plated finishes for original equipment diesel engine cylinder liners to all of the major domestic locomotive manufacturers. The Registrant believes it has smaller competitors in the locomotive diesel engine cylinder liner remanufacturing market. The Registrant also believes that Chromium is one of the leading hard chrome platers of recycled and original equipment large bore cylinder liners for stationary power applications. Chromium has achieved a leading position in these markets through competition on the basis of product performance, quality, service and price. The Registrant, through the Conductive Coatings Division of Chromium, is engaged in electroless shielding of plastic enclosures for telecommunications, medical electronic and other electronic equipment. The Registrant believes the success of Chromium's Conductive Coatings Division in becoming a qualified supplier for and obtaining significant orders from major telecommunications, medical electronic and other electronic equipment manufacturers has enabled it to become a market leader. The Registrant believes that it holds significant state-of-the-art patents covering some of the most competitive processes for the cryogenic processing of refinery and natural gas streams to remove the higher value components, such as ethane and propane, which are primarily used as petrochemical feedstocks. The Registrant believes that Ortloff has widely recognized expertise in the design and operation of facilities for natural gas and refinery gas processing and sulfur recovery. Backlog Backlog was not significant, nor is it material, in the Registrant's operations. Raw Materials Roofing Products In the asphalt roofing products manufacturing business, the significant raw materials are 3 5 ceramic coated granules, asphalt, glass fibers, resins and mineral filler. All of these materials are presently available from several sources and are in adequate supply. Historically, the Registrant has been able to pass some of the higher raw material and transportation costs through to the customer. Freight rates and raw material costs, including asphalt, increased during fiscal 1997. However, the Registrant was generally unable to fully offset the impact of higher freight rates and raw material costs with price increases during fiscal 1997. Industrial Products In the Registrant's business of hard chrome plating and remanufacturing diesel engine cylinder liners and large bore cylinder liners, chromic acid is a significant raw material which is presently available from a number of domestic suppliers. The Registrant believes these domestic suppliers obtain the ore for manufacturing chromic acid principally from sources outside the United States, some of which may be subject to potential uncertainty. The Registrant has been advised by its suppliers that they maintain substantial inventories of chromic acid in order to minimize the potential effects of foreign interruption in ore supply. In the electroless shielding business, copper and nickel are the significant raw materials. These materials are presently available and are in adequate supply. No raw materials are utilized in the Registrant's engineering consulting and technology licensing business. Patents, Licenses, Franchises and Concessions The Registrant holds certain patents, particularly in its engineering consulting and licensing business, which are significant to its operations. However, the Registrant does not believe that the loss of any one of these patents or of any license, franchise or concession would have a material adverse effect on the Registrant's overall business operations. The Registrant, through its subsidiary, Elk Corporation of Dallas, is involved in patent litigation against GAF Building Materials Corporation and related GAF entities concerning design and utility patents covering certain aspects of Elk's High Definition shingles. Refer to Item 3 "Legal Proceedings" for a more detailed discussion of this matter. Environmental Matters The Registrant and its subsidiaries are subject to federal, state and local requirements regulating the discharge of materials into the environment, the handling and disposal of solid and hazardous wastes, and protection of the public health and the environment generally (collectively, Environmental Laws). Certain facilities of the Registrant's subsidiaries ship waste products to various waste management facilities for treatment or disposal. Governmental authorities have the power to require compliance with these Environmental Laws, and violators may be subject to civil or criminal penalties, injunctions or both. Third parties may also have the right to sue for damages and/or to enforce compliance and to require remediation of contamination. The Registrant and its subsidiaries are also subject to Environmental Laws that impose liability for the costs of cleaning up contamination resulting from past spills, disposal, and other releases of hazardous substances. In particular, an entity may be subject to liability under the Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) 4 6 and similar state laws that impose liability -- without a showing of fault, negligence, or regulatory violations -- for the generation, transportation or disposal of hazardous substances that have caused or may cause, environmental contamination. In addition, an entity could be liable for cleanup of property it owns or operates even if it did not contribute to the contamination of such property. From time to time, the Registrant or its subsidiaries may incur such remediation and related costs at the company owned plants and certain offsite locations. The Registrant anticipates that its subsidiaries will incur costs to comply with Environmental Laws, including correcting existing non-compliance with such laws and achieving compliance with anticipated future standards for air emissions and reduction of waste streams. Such subsidiaries expend funds to minimize the discharge of materials into the environment and to comply with governmental regulations relating to the protection of the environment. Neither these expenditures nor other activities initiated to comply with Environmental Laws is expected to have a material impact on the consolidated financial position, net earnings or liquidity of the Registrant. Persons Employed At June 30, 1997, the Registrant and its subsidiaries had 783 employees. Extended Payment Terms In some years, the Registrant's roofing products business grants extended payment terms to certain customers for some product shipments during the late winter and early spring months, with payment generally due during the summer months. As of June 30, 1997, $2,139,000 in receivables relating to such shipments were outstanding, the majority of which were collected in the first quarter of fiscal 1998. Seasonal Business The Registrant's industrial products businesses are substantially nonseasonal. The Registrant's roofing products manufacturing business is seasonal to the extent that cold, wet or icy weather conditions during the late fall and winter months in its marketing areas typically limit the installation of residential roofing products which causes sales to decrease during such periods. Damage to roofs from extreme weather such as severe wind, hurricanes and hail storms can result in higher demand for periods up to eighteen months depending upon the extent of roof damage. Working capital requirements and related borrowings fluctuate during the year because of seasonality. Generally, working capital requirements and borrowings are higher in the spring and summer months, and lower in the fall and winter months. Information as to Industry Segments For Financial Information by Company Segments, see the table on page 36 of this Annual Report on Form 10-K. 5 7 Executive Officers of the Registrant Certain information concerning the Registrant's executive officers is set forth below:
Period Age as of Served Sept. 1, Name Title As Officer 1997 - ------------------------ -------------------------- ---------- ----------------- Harold K. Work Chairman of the Board, 15 years 64 Chief Executive Officer and President of Elcor Corporation; Chief Executive Officer, President and Director of Elk Corporation of Dallas, a subsidiary, and Chief Executive Officer, President and Director of its subsidiaries Richard J. Rosebery Vice Chairman, 22 years 62 Chief Financial and Administrative Officer, and Treasurer of Elcor Corporation; Officer of all subsidiaries and President and/or Director of certain subsidiaries Leonard R. Harral Vice President and Chief 4 years 45 Accounting Officer of Elcor Corporation Raul G. Holguin Vice President Information Systems of; - 40 Elcor Corporation; Vice President of Chromium Corporation, and General Manager of Chromium's Conductive Coatings Division David G. Sisler Vice President, General Counsel and 2 years 39 Secretary of Elcor Corporation; Officer of all subsidiaries James J. Waibel Vice President Administration 4 years 53 of Elcor Corporation
6 8 All of the executive officers except Mr. Sisler have been employed by the Registrant or its subsidiaries in responsible management positions for more than the past five years. In October 1993, Mr. Rosebery and Mr. Work were elected as Executive Vice Presidents of the Registrant. Previously Mr. Rosebery was Vice President, Treasurer and Chief Administrative and Financial Officer. Mr. Work was Vice President. In July 1996, Mr. Rosebery and Mr Work were appointed as Directors of the Registrant. On August 18, 1997, Mr. Work and Mr. Rosebery were each elected as Vice Chairman. On August 26, 1997, Mr. Work was elected as Chairman of the Board, President and Chief Executive Officer of the Registrant following the death on August 22, 1997 of Mr. Roy E. Campbell, who previously held these positions. In October 1993, Mr. Harral and Mr. Waibel were elected as Vice Presidents. Previously Mr. Harral was Chief Accounting Officer and Mr. Waibel was Assistant Vice President, Administration. In June 1997, Mr. Holguin was elected as Vice President, Information Systems. Previously Mr. Holguin was Assistant Vice President, Information Systems. On August 14, 1995, Mr. Sisler was appointed by the Board of Directors as Vice President, General Counsel and Secretary of the Registrant. Mr. Sisler was employed by Central and South West Corporation from 1991 to 1995, most recently as a Senior Attorney. From 1989 to 1991, Mr. Sisler was employed by Johnson & Gibbs, a private law firm. Mr. Sisler's responsibilities included corporate, securities and other business legal matters in several industries. Officers are elected annually by the Board of Directors. Item 2. Properties All significant facilities are owned and unencumbered by liens in favor of nonaffiliates except as discussed herein. Roofing Products Asphalt roofing products are manufactured at plants located at Tuscaloosa, Alabama, Ennis, Texas and Shafter, California. Fiberglass roofing mat, nonwoven industrial, reinforcement and filtration products are manufactured at a plant located at Ennis, Texas. A new plant at the Ennis, Texas facility, which manufactures nonwoven fiberglass roofing mats and other mats for a variety of industrial uses, achieved its performance test level of operations effective April 1, 1997. Corporate headquarters and administrative offices for the asphalt roofing products operations are located in the same leased facility as the Registrant's corporate offices in Dallas, Texas. Industrial Products Plants for the hard chrome plating of original equipment and remanufactured diesel engine cylinder liners and related equipment are located in Cleveland, Ohio and Lufkin, Texas. The Conductive Coatings Division's EMI/RFI shielding facility is located at the Lufkin, Texas plant. 7 9 Corporate headquarters and administrative offices are located in the same leased facility as the Registrant's corporate offices in Dallas, Texas. The Ortloff engineering and process licensing group is located in leased offices in Midland, Texas. Corporate Offices The Registrant's corporate headquarters is located in leased offices in Dallas, Texas. In addition, the Registrant or its subsidiaries own the following properties which are being held for sale or lease: (a) Former concrete roof tile plant site in North Miami, Florida currently held for sale. Negotiations are in process for the sale of this facility. (b) Land and buildings in Waco, Texas, formerly used in the solid waste handling equipment manufacturing business. This facility is currently subject to a lease/purchase agreement. Item 3. Legal Proceedings GAF Patent Litigation On February 8, 1994, Elk Corporation of Dallas (Elk of Dallas) was granted a design patent covering the ornamental aspects of its High Definition(R) and Raised Profile(TM) shingles. On December 6, 1994, Elk of Dallas was granted a utility patent on the functional aspects of the High Definition and Raised Profile shingles. Elk of Dallas has sued GAF Building Materials Corporation and related GAF entities (collectively GAF) in federal court for infringement of these patents. In the design patent case, Elk of Dallas seeks to recover as damages the total profit that GAF has made from the infringing shingles. In the utility patent case, Elk of Dallas seeks to recover as damages a reasonable royalty on GAF's sales of infringing shingles and certain lost profits. GAF seeks a declaratory judgment that the Elk of Dallas patents are not infringed and are either invalid or unenforceable. GAF has also asserted claims for unfair competition, Lanham Act violations based on alleged false advertising, and common law fraud, generally praying for damages of not less than $25 million including actual and punitive damages, plus interest, costs, and reasonable attorneys' fees. Elk of Dallas disputes GAF's claims, and management intends vigorously to defend them and to enforce its intellectual property rights. In April 1996, a court ordered mediation was held but did not result in resolution of the cases. In December 1996, the District Court for the Northern District of Texas conducted a hearing to interpret the claims of Elk's design and utility patents, but has yet to issue a ruling in that matter, which essentially will determine the scope of the patents. The court also conducted a bench trial on the inequitable conduct defenses alleged by GAF in the design patent case in February 1997. A decision in that matter is pending. Trial for the remaining issues in the design patent case, which was 8 10 scheduled for April 21, 1997, has been continued to a date not yet determined, and trial in the utility patent case has not been scheduled as yet. While management can give no assurances regarding the ultimate outcome of the litigation, outside counsel believe that Elk of Dallas will prevail on its patent and trade dress claims and that Elk of Dallas will defeat GAF's counter claims. Even if the outcome were to be adverse to Elk of Dallas, it is not expected to have a material effect on the Registrant's financial position or liquidity. Gibraltar Tort Litigation Chromium Corporation is a defendant in three separate tort lawsuits brought by the same attorneys on behalf of plaintiffs who allege unspecified personal injuries and property damages associated with the operation of a licensed hazardous waste treatment, storage and disposal facility in Smith County, Texas known as the Gibraltar facility. The Court in Marti Williams, et al v. Akzo Nobel Chemicals, Inc., et al. in Smith County, Texas has entered a dismissal of Chromium and certain other defendants, and the plaintiffs are taking steps to carry forward an appeal. Chromium remains a party in Tangee Daniels, et al. v. Akzo Nobel Chemicals, Inc., et al., pending in Dallas County District Court, and in Adams v. American Ecology Environmental Services Corporation, pending in Tarrant County District Court. In the Daniels case, seven plaintiffs originally sued the current and former owners and operators of the facility, and later joined 51 defendants, including Chromium and several Fortune 500 companies, as generators of waste sent to the facility ("Generator Defendants"). One plaintiff has non-suited in this case. In August 1996, approximately 650 plaintiffs filed the Adams case against the facility owners, operators, the Generator Defendants named in the Daniels case and against several additional generator defendants. Discovery is stayed in both the Daniels and the Adams cases pending rulings related to case management orders. The Daniels court vacated a June 2, 1997 trial date and re-set the trial for October 27, 1997. That date may be reset due to a delay by the Court in ruling on certain dispositive motions. No trial date has been set in the Adams case. In connection with these cases, Chromium has entered into joint defense agreements with more than twenty other Generator Defendants. Chromium also has demanded a defense and indemnity from the facility owners pursuant to the waste disposal contract and from Chromium's insurers. To date, the facility owners have not responded and the insurers have declined or failed to accept the defense and indemnity obligation. Chromium intends to pursue its defenses vigorously. Management believes that the claims brought against Chromium in these cases are without merit. While management can give no assurances regarding the ultimate outcome of this litigation, it believes that it will not have a material adverse effect on the consolidated results of operations, financial position or liquidity of the Registrant. Chromium/TWC Settlement In May 1993, Chromium entered into an Agreed Order with the Texas Water Commission ("TWC") in settlement of an enforcement proceeding. Pursuant to the Agreed Order, the TWC 9 11 assessed $60,000 in penalties and agreed to defer and forgive $74,800 in penalties contingent on Chromium's completion of certain technical and remedial activities at the Lufkin facility ("Technical Recommendations"). Chromium has paid the assessed penalties, has completed the Technical Recommendations, and is working with the Texas Natural Resource Conservation Commission, TWC's successor, to obtain confirmation that all requirements of the Agreed Order have been satisfied. Management believes that the activities remaining to demonstrate satisfaction of the terms of the Agreed Order will not have a material adverse effect on the consolidated results of operations, financial position, or liquidity of the Registrant. Frontier Chemical Site In May 1993, Chromium received a Notification Letter from the United States Environmental Protection Agency (USEPA) informing Chromium that USEPA had reason to believe that Chromium was a Potentially Responsible Party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act at the Frontier Chemical Royal Avenue Site (Site), a former state-permitted waste processing and management facility in Niagara Falls, New York. In September 1993, Chromium entered into an Administrative Order on Consent with USEPA under which Chromium and other PRPs agreed to perform Phase I response activities at the Site and to reimburse USEPA for response costs incurred by USEPA at the Site. All of the Phase I work was concluded in May 1994. Chromium was assessed a total of $109,250 of the $4 million cost estimate assessed to all Phase I PRPs. Chromium has not been and does not expect to be named as a PRP in Phase II or any subsequent phases of cleanup. Certain Phase I and Phase II PRPs intervened in a suit brought by the New York Attorney General seeking recovery of approximately $1.2 million in proceeds from a closure bond relating to the Site. If such intervention is successful, participating Phase I and Phase II PRPs will share in any recovery with the State of New York. In February 1997, a court hearing was conducted on the motion for summary judgment of the PRPs, including Chromium, in the suit. A ruling on the motion is pending. In March 1997, the USEPA issued its demand for future costs pursuant to the Administrative Order on Consent. The PRPs have objected to this cost demand and have demanded an accounting. Resolution of this dispute still is pending, but even if the USEPA demand remains at the current amount, no further assessments from Chromium will be necessary to meet it; moreover, Chromium received a refund of a small portion of its original assessment on the basis of the existing demand. Chromium's final assessment in this matter net of all recoveries cannot be calculated until its PRP group determines which assessments are uncollectible, and the closure bond action and USEPA cost reimbursement are resolved. Management of the Registrant believes that the final disposition of this matter will not have a material adverse effect on the consolidated results of operations, financial position, or liquidity of the Registrant. 10 12 Other There are various other lawsuits and claims pending against the Registrant and its subsidiaries arising in the ordinary course of their businesses. In the opinion of the Registrant's management based in part on advice of counsel, none of these actions should have a material adverse effect on the Registrant's consolidated results of operations, financial position, or liquidity. Item 4. Submission of Matters to a Vote of Security Holders Inapplicable. 11 13 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters The principal market on which the Registrant's Common Stock is traded is the New York Stock Exchange. The Boston, Midwest, Philadelphia and Toronto Stock Exchanges have granted unlisted trading privileges for the Registrant's Common Stock. There were 1,031 holders of record of the Registrant's Common Stock at September 9, 1997. The quarterly dividend declared per share and the high and low prices in dollars per share on Registrant's Common Stock for each quarter during fiscal year 1997 and fiscal year 1996 are set forth in the following tables:
Period Dividend High Low ------ -------- ---- --- Fiscal 1997 First Quarter $ .07 19 5/8 16 1/2 Second Quarter $ .07 22 5/8 18 1/2 Third Quarter $ .07 26 20 3/4 Fourth Quarter $ .07 28 3/8 24 3/8 Fiscal 1996 First Quarter $ .06 23 7/8 18 3/4 Second Quarter $ .06 21 3/4 18 7/8 Third Quarter $ .06 25 1/2 21 1/8 Fourth Quarter $ .06 24 3/8 17 1/8
The Registrant's Board of Directors has authorized the purchase of up to $10,000,000 of the Registrant's common shares from time to time on the open market to be used for general corporate purposes. As of June 30, 1997, 136,300 shares with cumulative cost of $2,271,000 had been repurchased under this program. In September 1995, the Board of Directors reinstated the Registrant's regular quarterly cash dividend at six cents per common share. In September 1996, the regular quarterly cash dividend was increased by 17% to seven cents per common share. The limitations affecting the future payment of dividends by Registrant imposed as a part of the Registrant's revolving credit agreement are discussed under the caption "Notes to Consolidated Financial Statements" under the heading "Long-Term Debt" on page 28 of this Annual Report on Form 10-K. 12 14 Item 6. Selected Financial Data The following selected consolidated financial data for each of the five years in the period ended June 30, 1997 have been derived from the audited consolidated financial statements of the Registrant included herein. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto included elsewhere in this report.
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA - ----------------------------------------------------------------------------------------------------------------- ($ In thousands, except per share data) Year Ended June 30, - ----------------------------------------------------------------------------------------------------------------- 1997 1996(1) 1995 1994(2) 1993(2) - ----------------------------------------------------------------------------------------------------------------- SALES $ 230,756 $ 196,462 $ 159,061 $ 157,031 $ 161,431 ========= ========= ========= ========= ========= INCOME: From continuing operations $ 13,002 $ 10,284 $ 9,558 $ 15,571 $ 15,366 From discontinued operations -- -- -- (1,494) (606) --------- --------- --------- --------- --------- Before extraordinary item and cumulative effect of accounting change 13,002 10,284 9,558 14,077 14,760 Extraordinary item and cumulative effect of accounting change -- -- -- 668 3,017 --------- --------- --------- --------- --------- NET INCOME $ 13,002 $ 10,284 $ 9,558 $ 14,745 $ 17,777 ========= ========= ========= ========= ========= INCOME PER SHARE: From continuing operations $ 1.47 $ 1.16 $ 1.08 $ 1.75 $ 2.00 From discontinued operations -- -- -- (.17) (.08) --------- --------- --------- --------- --------- Before extraordinary item and cumulative effect of accounting change 1.47 1.16 1.08 1.58 1.92 Extraordinary item and cumulative effect of accounting change -- -- -- .07 .39 --------- --------- --------- --------- --------- NET INCOME PER SHARE $ 1.47 $ 1.16 $ 1.08 $ 1.65 $ 2.31 ========= ========= ========= ========= ========= TOTAL ASSETS $ 207,243 $ 192,128 $ 137,133 $ 108,233 $ 89,737 ========= ========= ========= ========= ========= LONG-TERM DEBT $ 52,600 $ 53,000 $ 18,400 $ -- $ -- ========= ========= ========= ========= ========= SHAREHOLDERS' EQUITY $ 112,780 $ 102,198 $ 93,616 $ 85,229 $ 69,747 ========= ========= ========= ========= ========= CASH DIVIDENDS PER SHARE $ .28 $ .24 $ -- $ -- $ -- ========= ========= ========= ========= =========
(1) 1996 results include $1,595 in pretax charges in connection with a provision for the adoption of SFAS No. 121 and a previous reduction in value of certain other assets. (2) 1994 and 1993 results include $1,706 and $238 in pretax charges, respectively, incurred in connection with the closed Chromium Chicago plant. 1994 results include $82 in losses, net of tax, on the disposal of a discontinued operation. 13 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS FISCAL 1997 COMPARED TO FISCAL 1996 During the fiscal year ended June 30, 1997, sales grew to $230,756,000, a 17% increase over fiscal 1996 sales of $196,462,000. Both the Roofing Products and Industrial Products Groups contributed to the increase in sales. Net income in fiscal 1997 increased 26% to $13,002,000 from the $10,284,000 achieved in fiscal 1996. Higher net income was primarily attributable to the Industrial Products Group, which achieved substantially improved operating results in fiscal 1997 as compared to the prior fiscal year. In addition, in fiscal 1996 the company incurred $1,595,000 in pretax charges in connection with a provision for the adoption of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and the reduction in value of certain other assets during that fiscal year. Sales for the Roofing Products Group increased 16% in fiscal 1997 to $207,017,000 from $178,378,000 in fiscal 1996. The Roofing Products Group accounted for approximately 90% of consolidated sales in fiscal 1997 and 91% in fiscal 1996. Higher sales were primarily due to an increase in shipments of premium laminated fiberglass asphalt shingles. Sales from the new plant in Shafter, California accounted for a significant part of the increased shipments. Average selling prices were about the same in fiscal 1997 compared to fiscal 1996. Operating profit for the Roofing Products Group increased slightly to $22,440,000 in fiscal 1997 from $22,124,000 in fiscal 1996. The Shafter, California plant achieved profitable operations in fiscal 1997 after incurring a significant operating loss in the prior fiscal year. Although both of the other roofing plants were very profitable, operating income at these facilities was lower in the current fiscal year, primarily as a result of higher freight rates, higher raw materials costs and costs of implementing a fourth shift operation at the Tuscaloosa, Alabama roofing plant to increase that facility's production capacity. The company's new nonwoven fiberglass roofing mat plant at its Ennis, Texas facility achieved its performance test level of operations effective April 1, 1997. Although overall mat plant operations were profitable in fiscal 1997, operating income from mat plant operations was significantly lower in fiscal 1997 compared to fiscal 1996 due primarily to higher costs associated with the new plant in its start-up year of operations. Sales for the Industrial Products Group increased 31% in fiscal 1997 to $23,542,000 from $17,930,000 in fiscal 1996. Operating income for this business segment increased to $3,262,000 in fiscal 1997 compared to an operating loss of $302,000 in fiscal 1996. Chromium Corporation achieved significantly higher revenues and operating results relating to conductive coatings of plastic enclosures for electronic equipment. Improved operating conditions in this area more than offset decreased demand for Chromium's hard chrome plated diesel engine cylinder liners for the railroad, marine and stationary power industries during the first half of fiscal 1997. In addition, in fiscal 1996, Chromium recorded $1,037,000 in pretax charges relating to a reduction in value of assets at its Cleveland, Ohio plant upon the adoption of SFAS No. 121. 14 16 Ortloff Engineers achieved much higher revenues in fiscal 1997 from licensing the company's process technology for construction of both new natural gas processing plants and retrofits to upgrade existing gas processing plants. Selling, general and administrative (SG&A) costs as a percentage of sales were 13% for fiscal 1997 compared to 15% in fiscal 1996. In fiscal 1995, the company established a larger sales organization to better serve growing market areas. During fiscal 1997, this larger organization has continued to be able to service the increase in sales orders without a proportionate increase in overall selling costs. Interest expense was higher in fiscal 1997 as a result of the company's completion of its three year major facilities expansion program which was completed in March 1997. Subsequent to that date, all interest was expensed as incurred. FISCAL 1996 COMPARED TO FISCAL 1995 During the fiscal year ended June 30, 1996, sales increased 24% and net income increased to $10,284,000 from the $9,558,000 achieved in the prior fiscal year. The significant increase in sales was primarily attributable to increased shipments in the Roofing Products Group. Net income was 8% higher in fiscal 1996 as compared to the prior fiscal year despite an operating loss at the new Shafter, California roofing plant, which achieved its performance test level of operations effective March 1, 1996, and a $1,595,000 pretax provision for the adoption of SFAS No. 121, and the reduction in value of certain other assets during that fiscal year. Sales for the Roofing Products Group increased 28% in fiscal 1996 compared to fiscal 1995, primarily as a result of a 23% increase in shipments of premium laminated fiberglass asphalt shingles in fiscal 1996. Sales from the new plant at Shafter, California accounted for a significant part of the increased shipments. Average selling prices were slightly higher nationally in fiscal 1996 and transportation costs in the Western states were lower due to shipments originating from the Shafter plant. Operating profit in fiscal 1996 was $22,124,000 compared to $18,015,000 in the prior fiscal year despite incurring a significant operating loss in fiscal 1996 at the Shafter facility in its start-up year. Asphalt and glass fiber raw material costs were higher in fiscal 1996 than in fiscal 1995. However, the company was able to implement price increases to offset these higher raw material costs. Revenues for the Industrial Products Group decreased 10% in fiscal 1996 to $17,930,000 from $19,960,000 in the prior fiscal year as a result of Chromium Corporation's customers reducing orders during fiscal 1996 due to model changes and inventory adjustments. Shipments of hard chrome plated diesel engine cylinder liners and remanufactured pistons for the railroad, marine and stationary power industries were significantly reduced in fiscal 1996 compared to the prior fiscal year. Revenues relating to conductive coatings of plastic enclosures for electronic equipment did not significantly change in fiscal 1996 compared to fiscal 1995. The Industrial Products Group reported a $302,000 operating loss in fiscal 1996 compared to a $2,099,000 operating profit in fiscal 1995 as a result of the reduction in revenues, lower operating income from engineering consulting services and licensing of patents in the cryogenic processing of natural gas and refinery gas streams by Ortloff Engineers and $1,037,000 in charges relating to the reduction in value of assets at Chromium's Cleveland plant upon adoption of SFAS No. 121 in the fourth quarter of fiscal 1996. 15 17 The company's overall gross margin on sales was 23% in fiscal 1996 compared to 27% in fiscal 1995. The reduction in the gross margin percentage is primarily attributable to significantly higher sales with operating losses at the new Shafter facility. Selling, general and administrative costs as a percentage of sales were 15% for fiscal 1996 compared to 17% in fiscal 1995. During fiscal 1995, the Company established a larger sales organization to better serve growing market areas. This larger organization has been able to service a significant increase in sales orders without a proportionate increase in overall selling costs. LIQUIDITY AND CAPITAL RESOURCES The company generated cash flows from operating activities of $17,834,000 in fiscal 1997, despite an $8,931,000 increase in working capital in fiscal 1997. The significant increase in working capital was primarily the result of higher inventories, which increased $6,679,000 during fiscal 1997. The majority of this increase related to finished goods inventories which were increased at all roofing plants in anticipation of higher demand during the summer and fall months. Receivables increased $696,000 during the year primarily as a result of higher sales generated during fiscal 1997, partially offset by a decrease in deferred payment term receivables. At June 30, 1997, deferred payment term receivables from promotional programs to certain customers were $2,139,000 compared to $6,861,000 in receivables from these programs at June 30, 1996. Deferred receivables outstanding at June 30, 1997, are primarily due during the first quarter of fiscal 1998. The current ratio at June 30, 1997, was 3.1 to 1 compared to 2.7 to 1 at June 30, 1996. Historically, working capital requirements and associated borrowings fluctuate during the year because of seasonality in some market areas. Generally, working capital requirements and borrowings are higher in the spring and summer months, and lower in the fall and winter months. The company used $16,005,000 for investing activities in fiscal 1997. The majority of these expenditures were for capital expenditures and related deferred start-up costs incurred in connection with the completion of a new plant at the company's Ennis, Texas facility to manufacture nonwoven fiberglass roofing mat and industrial facer products for the construction industry. During fiscal 1997, the company completed its three-year major new facilities expansion program. Capital expenditures are expected to be in the range of $18,000,000 to $20,000,000 in fiscal 1998. The majority of currently planned capital expenditures are for productivity, capacity and cost improvement projects at the three current roofing plants. In addition, the company anticipates an expansion of capacity in Chromium Corporation's Conductive Coatings Division in order to meet growing demand for its Compushield process for conductive coatings of plastic enclosures for electronic equipment. Cash flows used for financing activities were $2,820,000 in fiscal 1997, primarily resulting from the payment of dividends and a $400,000 decrease in long-term debt at June 30, 1997. Long-term debt represented only 32% of the $165,380,000 of invested capital (long-term debt plus shareholders' equity) at June 30, 1997. In October 1996, the company increased its unsecured revolving line of credit from $70,000,000 to $80,000,000 and extended the term to October 31, 1999. As of June 30, 1997, $25,810,000 was available under this facility. 16 18 The company's Board of Directors has authorized the purchase of up to $10,000,000 of the company's common shares from time to time on the open market to be used for general corporate purposes. As of June 30, 1997, 136,300 shares with cumulative cost of $2,271,000 had been repurchased under this program. In September 1995, the Board of Directors reinstated the company's regular quarterly cash dividend. In September 1996, the regular quarterly cash dividend was increased by 17% to seven cents per common share. The company's operations are subject to extensive federal, state and local laws and regulations relating to environmental matters. Although the company does not believe it will be required to expend amounts which will have a material adverse effect on the company's consolidated financial position or results of operations by reason of environmental laws and regulations, such laws and regulations are frequently changed and could result in significantly increased cost of compliance. Further, certain of the company's industrial products operations utilize hazardous materials in their production process. As a result, the company incurs costs for remediation activities off-site and at its facilities from time to time. The company established and maintains reserves for remediation activities, when appropriate, in accordance with SFAS No. 5, "Accounting for Contingencies." Current reserves established for known or probable remediation activities are not material to the company's financial position or results of operations. Management believes that current cash and cash equivalents, cash flows from operations and its unsecured revolving credit facility should be sufficient during fiscal 1998 and beyond to fund its planned capital expenditures, working capital needs, dividends, stock repurchases and other cash requirements. Management also believes its revolving credit facility could be amended to provide additional cash resources. PENDING ACCOUNTING PRONOUNCEMENT The Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants has issued an exposure draft on "Reporting on the Costs of Start-Up Activities." If the exposure draft were to be finalized in its proposed form, it would require companies to expense previously capitalized start-up costs. At June 30, 1997, the company had $8,967,000 of unamortized capitalized start-up costs. While the company does not agree with the accounting treatment proposed in the AcSEC exposure draft and believes that capitalizing costs incurred in constructing major new facilities provides a better matching of revenues and expenses, the company will adopt this statement of position if and when it is finalized. FORWARD-LOOKING STATEMENTS In an effort to give investors a well-rounded view of the company's current condition and future opportunities, management's discussion and analysis of the results of operations and financial condition and other sections of this annual report contain "forward-looking statements" about its prospects for the future. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. Such risks and uncertainties include, but are not limited to the following: 17 19 1. The company's roofing products business is cyclical and is affected by weather and some of the same economic factors that affect the housing and home improvement industries generally, including interest rates, the availability of financing and general economic conditions. In addition, the asphalt roofing products manufacturing business is highly competitive. Actions of competitors, including changes in pricing, or slowing demand for asphalt roofing products due to general or industry economic conditions or the amount of inclement weather could result in decreased demand for the company's products, lower prices received or reduced utilization of plant facilities. 2. In the asphalt roofing products business, the significant raw materials are ceramic coated granules, asphalt, glass fibers, resins and mineral filler. Increased costs of raw materials can result in reduced margins, as can higher trucking and rail costs. Historically, the company has been able to pass some of the higher raw material and transportation costs through to the customer. Should the company be unable to recover higher raw material and transportation costs from price increases of its products, operating results could be lower than projected. 3. During fiscal 1997, the company completed a three-year $100 million expansion program which included a new roofing plant in Shafter, California and the construction of a new plant at the company's Ennis, Texas facility to manufacture nonwoven fiberglass roofing mats and other mats for a variety of industrial uses. As new facilities, their progress in achieving anticipated operating efficiencies and financial results is difficult to predict. If such progress is slower than anticipated, or if demand for products produced at either of these new plants does not meet current expectations, operating results could be adversely affected. 4. Certain facilities of the company's industrial products subsidiaries must utilize hazardous materials in their production process. As a result, the company could incur costs for remediation activities at its facilities or off-site, and other related exposures from time to time in excess of established reserves for such activities. 5. The company's litigation, including its patent infringement suits against GAF, is subject to inherent and case-specific uncertainty. The outcome of such litigation depends on numerous interrelated factors, many of which cannot be predicted. Parties are cautioned not to rely on any such forward-looking beliefs or judgments in making investment decisions. 18 20 Item 8. Financial Statements and Supplemental Data Index to Financial Statements and Financial Statement Schedule
Financial Statements: Page ---- Independent Auditors' Report 20 Consolidated Balance Sheet at June 30, 1997 and 1996 21 Consolidated Statement of Operations for the years ended June 30, 1997, 1996, and 1995 22 Consolidated Statement of Cash Flows for the years ended June 30, 1997, 1996, and 1995 23 Consolidated Statement of Shareholders' Equity for the years ended June 30, 1997, 1996, and 1995 24 Notes to Consolidated Financial Statements 25 Financial Statement Schedule: Independent Auditors' Report 37 Schedule II - Consolidated Valuation and Qualifying Accounts and Reserves 38
All other schedules are omitted because they are not required, are not applicable, or the information is included in the financial statements or notes thereto. 19 21 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors, Elcor Corporation We have audited the accompanying consolidated balance sheets of Elcor Corporation (a Delaware corporation) and subsidiaries as of June 30, 1997 and 1996, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the three years in the period ended June 30, 1997. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Elcor Corporation and subsidiaries as of June 30, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1997, in conformity with generally accepted accounting principles. As discussed in the Summary of Significant Accounting Policies, the company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" in fiscal 1996. /s/ Arthur Andersen LLP ----------------------- Arthur Andersen LLP Dallas, Texas August 18, 1997 20 22 CONSOLIDATED BALANCE SHEET
($ In thousands) June 30, - ----------------------------------------------------------------------------------------------------- ASSETS 1997 1996 - ----------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 3,601 $ 3,744 Trade receivables, less allowance of $545 and $477 43,178 42,482 Inventories 33,427 26,748 Prepaid expenses and other 3,572 1,956 Deferred income taxes 2,508 2,734 --------- --------- Total current assets 86,286 77,664 --------- --------- PROPERTY, PLANT AND EQUIPMENT, AT COST Land 2,065 2,065 Buildings 30,873 22,157 Machinery and equipment 145,881 98,668 Construction in progress 1,296 40,163 --------- --------- 180,115 163,053 Less - Accumulated depreciation (62,648) (52,846) --------- --------- Property, plant and equipment, net 117,467 110,207 --------- --------- OTHER ASSETS 3,490 4,257 --------- --------- $ 207,243 $ 192,128 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 15,899 $ 15,503 Accrued liabilities 12,386 13,091 --------- --------- Total current liabilities 28,285 28,594 --------- --------- LONG-TERM DEBT 52,600 53,000 --------- --------- DEFERRED INCOME TAXES 13,578 8,336 --------- --------- COMMITMENTS AND CONTINGENCIES (See Note) SHAREHOLDERS' EQUITY Common stock ($1 par, 8,814,079 shares issued at June 30, 1997; 8,802,066 shares issued at June 30, 1996) 8,814 8,802 Paid-in capital 71,350 71,555 Retained earnings 33,039 22,499 --------- --------- 113,203 102,856 Less - Treasury stock (17,500 shares at June 30, 1997; 33,949 shares at June 30, 1996; at cost) (423) (658) --------- --------- Total shareholders' equity 112,780 102,198 --------- --------- $ 207,243 $ 192,128 ========= =========
The Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of this statement. 21 23 CONSOLIDATED STATEMENT OF OPERATIONS
($ In thousands, except per share data) Year Ended June 30, - --------------------------------------------------------------------------------------- 1997 1996 1995 --------- --------- --------- SALES $ 230,756 $ 196,462 $ 159,061 --------- --------- --------- COSTS AND EXPENSES Cost of goods sold 178,229 149,080 116,799 Selling, general and administrative 30,969 29,121 27,103 Reduction in value of assets -- 1,595 -- --------- --------- --------- INCOME FROM OPERATIONS 21,558 16,666 15,159 --------- --------- --------- OTHER INCOME (EXPENSE) Interest expense (1,136) (394) (153) Other income 215 211 275 --------- --------- --------- INCOME BEFORE INCOME TAXES 20,637 16,483 15,281 Provision for income taxes 7,635 6,199 5,723 --------- --------- --------- NET INCOME $ 13,002 $ 10,284 $ 9,558 ========= ========= ========= NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 1.47 $ 1.16 $ 1.08 ========= ========= ========= AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 8,871 8,857 8,844 ========= ========= =========
The Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of this statement. 22 24 CONSOLIDATED STATEMENT OF CASH FLOWS
($ In thousands) Year Ended June 30, - ------------------------------------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 13,002 $ 10,284 $ 9,558 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 8,664 4,689 3,603 Reduction in value of assets -- 1,595 -- Deferred income taxes 5,468 4,018 2,845 Changes in assets and liabilities: Trade receivables (696) (9,572) 627 Inventories (6,679) (15,047) 5,192 Prepaid expenses and other (1,616) 975 (1,328) Accounts payable 396 4,654 1,558 Accrued liabilities (705) 2,043 (1,830) --------- --------- --------- Net cash provided by operating activities 17,834 3,639 20,225 --------- --------- --------- Cash provided by sale of discontinued assets 848 4,233 684 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (15,896) (40,669) (46,252) Proceeds from sale of investments -- -- 5,378 Other, net (109) (88) 548 --------- --------- --------- Net cash used for investing activities (16,005) (40,757) (40,326) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Long-term debt borrowings (repayments) (400) 34,600 18,400 Dividends paid on common stock (2,462) (2,101) -- Treasury stock transactions and exercises of stock options, net 42 399 (1,171) --------- --------- --------- Net cash provided by (used for) financing activities (2,820) 32,898 17,229 --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (143) 13 (2,188) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,744 3,731 5,919 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,601 $ 3,744 $ 3,731 ========= ========= =========
The Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of this statement. 23 25 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------- ($ In thousands, except per share data) - -------------------------------------------------------------------------------------------- Total Common Paid-in Retained Treasury Shareholders' Stock Capital Earnings Stock Equity --------- --------- --------- --------- --------- BALANCE, June 30, 1994 $ 8,786 $ 71,685 $ 4,758 $ -- $ 85,229 Net income -- -- 9,558 -- 9,558 Treasury stock transactions and exercises of stock options, net 16 (5) -- (1,182) (1,171) --------- --------- --------- --------- --------- BALANCE, June 30, 1995 8,802 71,680 14,316 (1,182) 93,616 Net income -- -- 10,284 -- 10,284 Treasury stock transactions and exercises of stock options, net -- (125) -- 524 399 Dividends, $.24 per share -- -- (2,101) -- (2,101) --------- --------- --------- --------- --------- BALANCE, June 30, 1996 8,802 71,555 22,499 (658) 102,198 Net income -- -- 13,002 -- 13,002 Treasury stock transactions and exercises of stock options, net 12 (205) -- 235 42 Dividends, $.28 per share -- -- (2,462) -- (2,462) --------- --------- --------- --------- --------- BALANCE, June 30, 1997 $ 8,814 $ 71,350 $ 33,039 $ (423) $ 112,780 ========= ========= ========= ========= =========
The Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of this statement. 24 26 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Elcor Corporation (the company), through subsidiaries, is engaged in two lines of business: Roofing Products and Industrial Products. The Roofing Products segment, which accounts for 90% of consolidated sales, manufactures and sells premium laminated fiberglass asphalt residential roofing products, together with nonwoven mats used in manufacturing asphalt roofing products and various industrial applications. The Industrial Products group of companies is engaged in the plating of proprietary finishes for large diesel engine cylinder liners and pistons, the shielding of plastic enclosures from electromagnetic and radio frequency interference, and engineering consulting services and licensing of certain patented technologies. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the company and all subsidiaries after elimination of significant intercompany balances and transactions. Service revenues and related expenses are not disaggregated in the Consolidated Statement of Operations due to immateriality. Certain prior year information has been reclassified for consistency of presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATION OF CREDIT RISK The majority of the company's sales are in the Roofing Products segment and its primary customers are building materials distributors. One customer accounted for 14%, 13% and 11% of consolidated sales in fiscal years 1997, 1996 and 1995, respectively. The company performs ongoing credit evaluations and maintains reserves for potential credit losses. REVENUE RECOGNITION Revenue is recognized at the time products are shipped to the customer or at the time services are rendered. 25 27 INVENTORIES Inventories are stated at the lower of cost (including direct materials, labor, and applicable overhead) or market, using the last-in, first-out (LIFO) method. Inventories were comprised of:
(In thousands) June 30, --------------------- 1997 1996 --------- --------- Raw Materials $ 6,586 $ 5,632 Work-In-Process 441 604 Finished Goods 26,400 20,512 --------- --------- $ 33,427 $ 26,748 ========= =========
If the first-in, first-out (FIFO) method had been used at June 30, 1997 and 1996, inventories would have been lower by $1,221,000 in fiscal 1997 and by $69,000 in fiscal 1996, primarily as a result of productivity improvements and declining costs of raw materials subsequent to the adoption of the LIFO method. The LIFO inventory adjustment was determined on an overall basis and, accordingly, each class of inventory reflects an allocation based on FIFO amounts. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Major renewals and improvements are capitalized, while maintenance and repairs are expensed when incurred. Depreciation is computed over the estimated useful lives of depreciable assets using the straight-line method. Useful lives for property and equipment are as follows: Buildings and improvements 10 - 40 years Machinery and equipment 5 - 20 years Computer equipment 3 - 6 years Office furniture and equipment 5 - 12 years
The cost and accumulated depreciation for property, plant and equipment sold, retired, or otherwise disposed of are relieved from the accounts, and resulting gains or losses are reflected in income. Preoperating and start-up costs incurred in connection with the construction of major new manufacturing facilities are capitalized until such facilities become operational. These costs are then amortized over a five-year period. Capitalized preoperating and start-up costs included in capital expenditures were $977,000, $4,772,000 and $3,864,000 in fiscal years 1997, 1996, and 1995, respectively. Interest is capitalized in connection with the construction of major facilities. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset's estimated useful life. In 1997, 1996 and 1995, $1,784,000, $1,459,000 and $326,000 of interest cost was capitalized, respectively. 26 28 EARNINGS PER SHARE Earnings per common and common equivalent share are based on the weighted average number of common and common equivalent shares outstanding for the fiscal year. Common equivalent shares include incentive stock options and were calculated using the treasury stock method. INCOME TAXES Deferred income taxes are provided to reflect temporary differences between the financial reporting basis and the tax basis of the company's assets and liabilities using presently enacted tax rates. IMPAIRMENT OF LONG-LIVED ASSETS During the fourth quarter of fiscal 1996, the company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The company recorded a provision of $1,037,000 to reduce the assets of Chromium Corporation's Cleveland plant and provide for related environmental remediation in the Industrial Products segment relating to the new accounting standard. The company had previously reduced the value of certain equipment in the Roofing Products segment by $558,000. SUPPLEMENTAL CASH FLOWS The company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Supplemental cash flow amounts were as follows:
(In thousands) June 30, ------------------------------ 1997 1996 1995 -------- -------- -------- Interest paid $ 2,951 $ 1,739 $ 436 Income taxes paid $ 3,115 $ 1,105 $ 5,588
PENDING ACCOUNTING PRONOUNCEMENT The Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants has issued an exposure draft on "Reporting on the Costs of Start-Up Activities." If the exposure draft were to be finalized in its proposed form, it would require companies to expense on a current basis previously capitalized start-up costs. At June 30, 1997, the company had $8,967,000 of unamortized capitalized start-up costs. While the company does not agree with the accounting treatment proposed in the AcSEC exposure draft and believes that capitalizing costs incurred in constructing major new facilities provides a better matching of revenues and expenses, the company will adopt this statement of position if and when it is finalized. 27 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LONG-TERM DEBT Effective October 31, 1996 the company increased its unsecured revolving credit facility (Facility) to $80,000,000 of primary credit, including up to a maximum of $5,000,000 in letters of credit, through October 31, 1999 with a provision for annual extensions upon approval of the lenders. At June 30, 1997, letters of credit totaling $1,590,000 were outstanding. Borrowings under the Facility bear interest at (1) the higher of the federal funds rate plus .5% or the lender's prime rate, or (2) at the company's option, LIBOR, in each case plus specified basis points based on the ratio of the company's total indebtedness to total capital. The Facility also provides for a commitment fee on the average unused portion of the line and is also based on the ratio of the company's total indebtedness to total capital. Based on financial ratios at June 30, 1997, the LIBOR borrowing rate was LIBOR plus .5% and the commitment fee was .25% of the average unused portion of the line. The loan agreement, among other things, limits the sale or pledging of assets of subsidiaries involved in manufacturing asphalt roofing products, and requires maintenance of specified current ratios, capitalization ratios and cash flow levels. Dividend payments and stock repurchases are limited to certain specified levels providing no default or event of default would occur. At June 30, 1997, total cumulative dividend payments and stock repurchased since July 1, 1993 were subject to a $26,656,000 limitation. Actual expenditures for these items as of June 30, 1997 have been $6,834,000. SHAREHOLDERS' EQUITY Authorized common stock, par value $1.00, is 50,000,000 shares, of which 8,814,079 shares were issued at June 30, 1997 and 8,802,066 shares were issued at June 30, 1996. The Board of Directors is authorized to issue up to 1,000,000 shares of preferred stock, without par value, in one or more series and to determine the rights, preferences, and restrictions applicable to each series. No preferred stock has been issued. SHAREHOLDER RIGHTS PLAN On June 28, 1988, the company's Board of Directors declared a dividend distribution of one Series A Preferred Stock Purchase Right (the Rights) on each outstanding share of the company's common stock as of July 8, 1988 and all outstanding shares of common stock issued thereafter, pursuant to the terms and conditions of the Plan. The Rights, which will expire on July 8, 1998, will have no voting power. Each Right will entitle the holder to buy one-hundredth of a share of a new series of nonvoting preferred stock at an exercise price of $50. On January 30, 1991, the company's Board of Directors amended the Plan. As amended, if certain events occur, Rights "flip-in" and entitle holders to buy Elcor common stock at one-half market value or "flip-over" and entitle holders to buy common stock in an acquiring entity at one-half market value. This amendment reduces the threshold of beneficial ownership at which the Rights separate from the common stock and flip-in, provides an exchange option provision, and makes 28 30 certain other modifications. The Rights will separate from the associated shares of common stock and a flip-in event will now occur if a person acquires 15% or more of the common stock of Elcor. Prior to the amendment, the Rights did not separate from the common stock until a person acquired 20% or more of the common stock of Elcor and, absent the occurrence of other flip-in events, a flip-in event did not occur until a person acquired 30% or more of the common stock of Elcor. The exchange option provides that, at any time after any person becomes the beneficial owner of 15% or more of the common stock and prior to the acquisition by such person of 50% or more of the common stock, the company's Board of Directors may exchange the Rights (other than Rights owned by such person) at an exchange ratio of one share of common stock per Right. On December 5, 1991 the Rights Plan was amended to increase the threshold of certain specified shareholders' permitted beneficial ownership from 15% to 20% of the outstanding shares of common stock before triggering the provisions of the plan. The certain specified shareholders affected by this amendment are limited to certain institutions holding stock for the benefit of third parties or in customer or fiduciary accounts in the ordinary course of business so long as such shares are acquired without the purpose or effect of changing or influencing control of the company. EMPLOYEE BENEFIT PLANS The company's Incentive Stock Option Plan provides for the granting of incentive and non-qualified stock options to directors, officers and key employees of the company for purchase of the company's common stock. Information relating to options is as follows:
Weighted Average Number Option Price Option Price of Shares Range per Share Per Share --------- --------------- --------- Outstanding at June 30, 1994 301,076 $ 6.00 - $24.13 $ 11.56 Granted 57,195 $ 17.25 - $19.88 $ 19.42 Canceled (4,886) $ 7.00 - $24.13 $ 12.14 Exercised (35,546) $ 6.00 - $12.13 $ 8.39 -------- Outstanding at June 30, 1995 317,839 $ 7.00 - $24.13 $ 13.37 Granted 73,751 $ 21.50 - $22.38 $ 21.96 Canceled (6,910) $ 7.00 - $24.13 $ 18.37 Exercised (43,900) $ 7.00 - $24.13 $ 9.70 -------- Outstanding at June 30, 1996 340,780 $ 7.00 - $24.13 $ 15.60 Granted 101,750 $ 17.00 - $19.00 $ 18.68 Canceled (2,652) $ 8.75 - $24.13 $ 18.54 Exercised (49,093) $ 7.00 - $19.88 $ 8.58 -------- Outstanding at June 30, 1997 390,785 $ 7.00 - $24.13 $ 17.26 ========
29 31 The following table summarizes information about options outstanding at June 30, 1997:
Options Outstanding Options Exercisable -------------------------------------------------- ---------------------------------- Number Weighted-Average Number Weighted Range of Outstanding Remaining Exercise Exercisable Average Exercise Prices At June 30, 1997 Contractual Life Price At June 30, 1997 Exercise Price --------------------------------------------------------------------------------------------------------------- $ 7.00 - $ 9.88 61,693 1.87 $ 8.01 52,375 $ 7.88 $10.00 - $14.88 55,598 2.53 $11.77 36,368 $11.52 $15.00 - $19.88 155,677 7.59 $18.93 33,814 $18.30 $20.00 - $24.13 117,817 5.87 $22.54 22,930 $22.78
At June 30, 1997, 1996 and 1995, 145,487, 115,796 and 106,089 shares were exercisable, respectively. A total of 264,847, 364,849 and 435,305 shares were reserved for future grants at June 30, 1997, 1996 and 1995, respectively. In fiscal 1997, the company adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized with respect to the company's stock option plan. Pro forma information regarding net income and income per share has been determined as if the company had accounted for its stock options under the fair value methodology prescribed by SFAS No. 123. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for fiscal 1997 and 1996; dividend yields of 1.5% and 1.1%; risk-free interest rates of 6.5% and 6.2%; expected market price volatility of .429 and .450; and expected lives of options of 6.9 and 7.5 years. The weighted average fair value of stock options granted in fiscal 1997 and 1996 was $8.67 and $11.22, respectively.
(Dollar amounts in thousands, except per share data) 1997 1996 ------------------------ ------- ------ Net income, as reported $13,002 $10,284 Net income, pro forma $12,671 $ 9,974 Income per share, as reported $ 1.47 $ 1.16 Income per share, pro forma $ 1.43 $ 1.13
The pro forma amounts presented above may not be representative of the effects on reported net income for future years. The company's Employee Stock Ownership Plan (ESOP) became effective January 1, 1981. Under the plan, the company contributes a percentage of each participant's annual compensation into a trust, either as treasury stock contributions or cash, which is then used to purchase Elcor common stock. Employees vest 20% after three years of employment and 20% per year thereafter, with the stock distributed at retirement, death, disability, or as authorized by the Plan Administrative Committee. Effective January 1, 1990, the company established an Employee Savings Plan under Internal Revenue Code section 401(k). All employees, except those covered by plans established 30 32 through collective bargaining, are eligible for participation. Under this Plan, the company contributes a percentage of each participant's annual compensation into a Plan to be invested among various defined alternatives at the participants' direction. Vesting of company contributions is in accordance with the same schedule as that of the ESOP. The Board of Directors has authorized total contributions of 4.6% of each participant's annual compensation, as defined, including forfeitures, split equally between the ESOP and 401(k) Plans. Total contributions charged to expense for these plans were $1,245,000, $1,120,000, and $839,000 in 1997, 1996 and 1995, respectively. The company has a Stock/Loan Plan which allows certain key employees to borrow an amount, based on a percentage of their salaries and the performance of their operating units, for the purpose of purchasing the company's common stock. Under the Stock/Loan Plan, the loans, which are unsecured and noninterest-bearing, are forgiven and amortized as compensation over five years of continuing service with the company. If employment is terminated for any reason except death, disability or retirement, the balance of the loan becomes due and payable. Loans outstanding at June 30, 1997 and 1996 totaling $1,078,000 and $1,174,000, respectively, are included in Other Assets. COMMITMENTS AND CONTINGENCIES The company and its subsidiaries lease certain office space, facilities, and equipment under operating leases, expiring on various dates through 2002. Total rental expense was $1,295,000 in 1997, $1,167,000 in 1996, and $1,117,000 in 1995. At June 30, 1997, future minimum rental commitments under noncancellable operating leases, payable over the remaining lives of the leases, are:
(In thousands) Minimum Rental Fiscal Year Commitments ----------- ----------- 1998 $1,127 1999 770 2000 141 2001 80 2002 8 Thereafter -- ------ Total $2,126 ======
The company provides certain warranties for its products which are generally limited to being free from defect in materials or workmanship or meeting specified manufacturing and material specifications. During 1997, 1996 and 1995, the company recorded to expense approximately $1,566,000, $1,637,000 and $1,462,000, respectively, in warranty claim settlements and reserves. The company has established reserves for estimated probable future claims in accordance with SFAS No. 5, "Accounting for Contingencies." 31 33 On February 8, 1994, a wholly owned subsidiary, Elk Corporation of Dallas (Elk) was granted a design patent covering the ornamental aspects of its High Definition(R) and Raised Profile(TM) shingles. On December 6, 1994, Elk was granted a utility patent on the functional aspects of the High Definition(R) and Raised Profile(TM) shingles. Elk has sued GAF Building Materials Corporation and related GAF entities (collectively GAF) in federal court for infringement of these patents. In the design patent case, Elk seeks to recover as damages the total profit that GAF has made from the infringing shingles. In the utility patent case, Elk seeks to recover as damages a reasonable royalty on GAF's sales of infringing shingles and certain lost profits. GAF seeks a declaratory judgment that the Elk patents are not infringed and are either invalid or unenforceable. GAF has also asserted claims for unfair competition, Lanham Act violations based on alleged false advertising, and common law fraud, generally praying for damages of not less than $25 million including actual and punitive damages, plus interest, costs, and reasonable attorney fees. Elk disputes GAF's claims, and management intends vigorously to defend them and to enforce its intellectual property rights. In April 1996, a court-ordered mediation was held but did not result in resolution of the cases. In December 1996, the District Court for the Northern District of Texas conducted a hearing to interpret the claims of Elk's design and utility patents, but has yet to issue a ruling in that matter, which essentially will determine the scope of the patents. The court also conducted a bench trial on the inequitable conduct defenses alleged by GAF in the design patent case in February 1997. A decision in that matter is pending. Trial for the remaining issues in the design patent case, which was scheduled for April 21, 1997, has been continued to a date not yet determined, and trial in the utility patent case has not been scheduled as yet. While management can give no assurances regarding the ultimate outcome of the litigation, outside counsel believe that Elk will prevail on its patent and trade dress claims and that Elk will defeat GAF's counterclaims. Even if the outcome were to be adverse to Elk, it is not expected to have a material effect on the company's financial position or liquidity. The company and its subsidiaries are involved in other legal actions and claims arising in the ordinary course of business. Based on advice from legal counsel, management believes such litigation and claims will be resolved without material adverse effect on the consolidated financial statements. On December 1, 1985, the company became self-insured for its products and completed operations liability exposure because the cost of insurance for such risks was believed to be excessive for the coverage to be provided. Reserves for estimated potential losses of this type have been established. The company's operations are subject to extensive federal, state and local laws and regulations relating to environmental matters. Although the company does not believe it will be required to expend amounts which will have a material adverse effect on the company's consolidated financial position or results of operations by reason of environmental laws and regulations, such laws and regulations are frequently changed and could result in significantly increased cost of compliance. Further, certain of the company's industrial products operations utilize hazardous materials in their production processes. As a result, the company incurs costs for remediation activities at its facilities and off-site from time to time. The company establishes and maintains reserves for such remediation activities, when appropriate, in accordance with SFAS No. 5, "Accounting for Contingencies." 32 34 ACCRUED LIABILITIES Accrued liabilities consist of the following:
(In thousands) June 30, 1997 1996 --------- --------- Product warranty reserves $ 1,968 $ 2,168 Self-insurance reserves 1,531 1,856 Compensation and employee benefits 3,291 3,019 All other 5,596 6,048 --------- --------- $ 12,386 $ 13,091 ========= =========
INCOME TAXES The company's effective tax rate was 37.0% in 1997, 37.6% in 1996 and 37.5% in 1995. The difference between the federal statutory tax rate and the effective tax rate is reconciled as follows:
1997 1996 1995 -------- -------- -------- Federal statutory tax rate 35.0% 35.0% 35.0% Increase in tax rate resulting from: State income taxes, net of federal tax effect 1.6% 2.1% 2.5% Miscellaneous items .4% .5% -- -------- -------- -------- 37.0% 37.6% 37.5% ======== ======== ========
Components of the income tax provisions consist of the following:
(In thousands) 1997 1996 1995 -------- -------- -------- Federal: Current $ 1,709 $ 1,826 $ 2,302 Deferred, net 5,427 3,834 2,845 State 499 539 576 -------- -------- -------- $ 7,635 $ 6,199 $ 5,723 ======== ======== ========
33 35 The significant components of the company's deferred tax assets and liabilities are summarized below:
(In thousands) June 30 -------------------------------- 1997 1996 1995 -------- -------- -------- Deferred tax assets: Accrued liabilities, difference in expense recognition $ 2,269 $ 2,314 $ 1,963 Receivables, bad debt reserve 191 246 186 Discontinued asset reductions -- 292 292 Other 48 141 -- -------- -------- -------- 2,508 2,993 2,441 -------- -------- -------- Deferred tax liabilities: Fixed assets, primarily depreciation method differences and deferred preoperating costs . (13,578) (8,595) (3,976) Other -- -- (49) -------- -------- -------- (13,578) (8,595) (4,025) -------- -------- -------- Net deferred tax liability $(11,070) $ (5,602) $ (1,584) ======== ======== ========
34 36 QUARTERLY SUMMARY OF OPERATIONS (UNAUDITED) ($ In thousands, except per share data)
First Quarter Second Quarter Third Quarter Fourth Quarter ----------------- ----------------- ----------------- ----------------- 1997 1996 1997 1996 1997 1996 1997 1996 ------- ------- ------- ------- ------- ------- ------- ------- Sales $64,536 $48,528 $50,636 $45,362 $57,120 $50,048 $58,464 $52,524 Gross Profit 14,012 12,672 11,394 10,839 11,773 11,173 15,348 11,103 Net Income 3,768 3,663 2,309 2,124 2,612 2,321 4,313 2,176 Net Income Per Share .43 .41 .26 .24 .29 .26 .48 .25
35 37 FINANCIAL INFORMATION BY COMPANY SEGMENTS
(In thousands) 1997 1996 1995 --------- --------- --------- SALES Roofing products $ 207,017 $ 178,378 $ 138,991 Industrial products 23,542 17,930 19,960 Corporate and eliminations 197 154 110 --------- --------- --------- $ 230,756 $ 196,462 $ 159,061 ========= ========= ========= OPERATING PROFIT Roofing products $ 22,440 $ 22,124 $ 18,015 Industrial products 3,262 (302) 2,099 Corporate and other (4,144) (5,156) (4,955) --------- --------- --------- 21,558 16,666 15,159 Interest and other income (expense), net (921) (183) 122 --------- --------- --------- Income before income taxes $ 20,637 $ 16,483 $ 15,281 ========= ========= --------- IDENTIFIABLE ASSETS(1) Roofing products $ 185,246 $ 173,747 $ 112,145 Industrial products 9,361 6,689 8,256 Corporate 10,541 8,750 9,557 Discontinued assets 2,095 2,942 7,175 --------- --------- --------- $ 207,243 $ 192,128 $ 137,133 ========= ========= ========= DEPRECIATION AND AMORTIZATION Roofing products $ 7,704 $ 3,554 $ 2,440 Industrial products 727 927 981 Corporate 233 208 182 --------- --------- --------- $ 8,664 $ 4,689 $ 3,603 ========= ========= ========= CAPITAL EXPENDITURES Roofing products $ 14,222 $ 40,046 $ 45,803 Industrial products 1,400 507 322 Corporate 274 116 127 --------- --------- --------- $ 15,896 $ 40,669 $ 46,252 ========= ========= =========
(1) Consists principally of cash and cash equivalents, trade receivables, inventories, and net property, plant and equipment. 36 38 INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE To the Shareholders and Board of Directors of Elcor Corporation: We have audited in accordance with generally accepted auditing standards, the accompanying consolidated financial statements of Elcor Corporation and have issued our report thereon dated August 18, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The Supplemental Schedule II is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth herein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP ----------------------- Arthur Andersen LLP Dallas, Texas August 18, 1997 37 39 ELCOR CORPORATION AND SUBSIDIARIES SCHEDULE II (In thousands) SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JUNE 30, 1997, 1996, AND 1995
Column A Column B Column C Column D Column E ----------- -------------------------- ----------- ----------- Additions Deductions -------------------------- ----------- Balance at Charged to For Purposes For Balance at Beginning Costs and Which Reserves End Description of Period Expenses Other Were Created of Period ----------- ----------- ----------- ----------- ----------- YEAR ENDED JUNE 30, 1997 CONSOLIDATED: Allowance for doubtful accounts $ 477 $ 78 $ -- $ (10) $ 545 =========== =========== =========== =========== =========== Allowance for inventory obsolescence $ 673 $ 47 $ -- $ (519) $ 201 =========== =========== =========== =========== =========== YEAR ENDED JUNE 30, 1996 CONSOLIDATED: Allowance for doubtful accounts $ 306 $ 201 $ -- $ (30) $ 477 =========== =========== =========== =========== =========== Allowance for inventory obsolescence $ 356 $ 317 $ -- $ -- $ 673 =========== =========== =========== =========== =========== YEAR ENDED JUNE 30, 1995 CONSOLIDATED: Allowance for doubtful accounts $ 610 $ (146) $ -- $ (158) $ 306 =========== =========== =========== =========== =========== Allowance for inventory obsolescence $ 323 $ 33 $ -- $ -- $ 356 =========== =========== =========== =========== ===========
38 40 Item 9. Disagreements on Accounting and Financial Disclosure. The Registrant has retained its independent public accountants for over 30 years. There have been no disagreements with the independent public accountants on accounting or financial disclosure matters. PART III Item 10. Directors and Executive Officers of the Registrant. Information concerning the Directors of the Registrant required by this item is incorporated herein by reference to the material under the caption "Election of Directors" on pages 5, 6 and 14 of the Registrant's Proxy Statement dated September 19, 1997. Information concerning the Executive Officers of the Registrant is contained in Item 1 of this report under the caption "Executive Officers of the Registrant." Item 11. Executive Compensation. The information required by this item is incorporated herein by reference to the information under the caption "Executive Compensation" on pages 7 through 14 of the Registrant's Proxy Statement dated September 19, 1997. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by this item is incorporated herein by reference to the information under the caption "Stock Ownership" on pages 2 and 3 of the Registrant's Proxy Statement dated September 19, 1997. The referenced information was provided as of September 9, 1997. Registrant is aware of no material change since such date in the beneficial ownership of any officer, director or beneficial owner of five percent of any class of its voting stock except for certain dispositions of the company's Common Stock by Mrs. Wanda P. Campbell, in her capacity as independent executrix of the estate of Roy E. Campbell, which have reduced her beneficial ownership of Common Stock to an aggregate of 466,471 shares, or approximately 5.27% of shares outstanding. Such information is based on a Schedule 13D filed by Mrs. Campbell with the Securities and Exchange Commission on September 17, 1997, after the company's Proxy Statement had gone to print. Item 13. Certain Relationships and Related Transactions. There are no reportable transactions, business relationships or indebtedness between the Registrant and any covered party. 39 41 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports of Form 8-K. (a) 1. Financial Statements The following financial statements of Elcor Corporation are set forth in Item 8 of this Annual Report on Form 10-K: Financial Statements: Independent Auditors' Report Consolidated Balance Sheets at June 30, 1997, and 1996 Consolidated Statement of Operations for the years ended June 30, 1997, 1996 and 1995 Consolidated Statement of Cash Flows for the years ended June 30, 1997, 1996, and 1995 Consolidated Statement of Shareholders' Equity for the years ended June 30, 1997, 1996, and 1995 Notes to Consolidated Financial Statements Financial Statement Schedule: Independent Auditors' Report Schedule II - Consolidated Valuation and Qualifying Accounts and Reserves All other schedules are omitted because they are not required, are not applicable, or the information is included in the financial statements or notes thereto. (b) Reports on Form 8-K The Registrant filed a Form 8-K on April 16, 1997 relating to a press release containing "forward-looking statements" about its prospects for the future. (c) Exhibits -------- **3.1 The Articles of Incorporation of the Registrant. ***3.2 Amended and Restated Bylaws of the Registrant. 40 42 ****4.6 Loan Agreement dated September 19, 1993 among Elcor Corporation, Certain Lenders, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A., as Administrative Lender. *****4.7 First Amendment dated October 31, 1994 to Loan Agreement dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A. as Administrative Lender. ******4.8 Second Amendment dated December 15, 1995 to Loan Agreement dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., As Issuer, Administrative Lender, and Lender; and Bank of America - Texas, N.A. and Comerica Bank - Texas as Lenders. *******4.9 Third Amendment dated October 31, 1996 to Loan Agreement dated dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., As Issuer, Administrative Lender, and Lender; and Bank of America - Texas, N.A. and Comerica Bank - Texas as Lenders. * 11 Computation of Income Per Common and Common Equivalent Share. * 21 Subsidiaries of the Registrant. * 23 Consent of Independent Public Accountants. * 27 Financial Data Schedule (EDGAR submission only). - ------------------------ * Filed herewith. ** Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1994, (File No. 1-5341). *** Incorporated by reference to Exhibit 3 to the Registrant's Annual Report on Report on Form 10-K for the year ended June 30, 1981 and to Exhibit 3.2 To the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1988 originally filed with the Securities and Exchange Commission on February 11, 1989, (File No. 1-5341). **** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, (File No. 1-5341). 41 43 ***** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, (File No. 1-5341). ****** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995, (File No. 1-5341). ******* Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, (File No. 1-5341). 42 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ELCOR CORPORATION By /s/ Richard J. Rosebery ---------------------------------------- Richard J. Rosebery Vice Chairman, Chief Financial and Administrative Officer, and Treasurer By /s/ Leonard R. Harral ---------------------------------------- Leonard R. Harral Vice President and Chief Accounting Officer 43 45 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below in multiple counterparts by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date ---------------------- ----------------------- ------------------- /s/ Harold K. Work Chairman of the Board, September 26, 1997 --------------------------- President, Chief Harold K. Work Executive Officer /s/ Richard J. Rosebery Vice Chairman, Chief September 26, 1997 --------------------------- Financial and Administrative Richard J. Rosebery Officer, and Treasurer /s/ Leonard R. Harral Vice President and September 26, 1997 --------------------------- Chief Accounting Leonard R. Harral Officer /s/ F.H. Callaway Director September 26, 1997 --------------------------- F.H. Callaway /s/ James E. Hall Director September 26, 1997 --------------------------- James E. Hall /s/ Robert M. Leibrock Director September 26, 1997 --------------------------- Robert M. Leibrock /s/ W.F. Ortloff Director September 26, 1997 --------------------------- W.F. Ortloff /s/ David W. Quinn Director September 26, 1997 --------------------------- David W. Quinn
44 46 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------ ----------- **3.1 The Articles of Incorporation of the Registrant. ***3.2 Amended and Restated Bylaws of the Registrant. ****4.6 Loan Agreement dated September 19, 1993 among Elcor Corporation, Certain Lenders, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A., as Administrative Lender. *****4.7 First Amendment dated October 31, 1994 to Loan Agreement dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A. as Administrative Lender. ******4.8 Second Amendment dated December 15, 1995 to Loan Agreement dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., As Issuer, Administrative Lender, and Lender; and Bank of America - Texas, N.A. and Comerica Bank - Texas as Lenders. *******4.9 Third Amendment dated October 31, 1996 to Loan Agreement dated dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., As Issuer, Administrative Lender, and Lender; and Bank of America - Texas, N.A. and Comerica Bank - Texas as Lenders. * 11 Computation of Income Per Common and Common Equivalent Share. * 21 Subsidiaries of the Registrant. * 23 Consent of Independent Public Accountants. * 27 Financial Data Schedule (EDGAR submission only).
- ------------------------ * Filed herewith. ** Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1994 (File No. 1-5341). *** Incorporated by reference to Exhibit 3 to the Registrant's Annual Report on Report on Form 10-K for the year ended June 30, 1981 and to Exhibit 3.2 To the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1988 originally filed with the Securities and Exchange Commission on February 11, 1989 (File No. 1-5341). **** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 (File No. 1-5341). ***** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 (File No. 1-5341). ****** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995 (File No. 1-5341). ******* Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (File No. 1-5341). EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 Elcor Corporation and Subsidiaries Computation of Income Per Common and Common Equivalent Share (In thousands, except per share amounts) 1. Three Months Ended June 30, 1997 and June 30, 1996
Three Months Ended 6-30-97 6-30-96 -------- -------- Income per Common and Common Equivalent Share: Net Income $ 4,313 $ 2,176 ======== ======== Shares: Weighted average common shares outstanding 8,795 8,767 Adjustments: (a) Assumed issuance of shares purchased under incentive stock option plan using treasury stock method 144 104 -------- -------- Total Common and Common Equivalent Shares 8,939 8,871 ======== ======== Income per Common and Common Equivalent Share $ .48 $ .25 ======== ========
2. Fiscal Year Ended June 30, 1997 and June 30, 1996
Fiscal Year Ended 6-30-97 6-30-96 ------- ------- Income per Common and Common Equivalent Share: Net Income $13,002 $10,284 ======= ======= Shares: Total Common and Common Equivalent Share Three months ended 9/30/96 and 9/30/95 8,793 8,843 Three months ended 12/31/96 and 12/31/95 8,843 8,838 Three months ended 3/31/97 and 3/31/96 8,908 8,875 Three months ended 6/30/97 and 6/30/96 8,939 8,871 -------- -------- Average for Fiscal Year Ended 6/30/97 and 6/30/96 8,871 8,857 ======== ======== Income Per Common and Common Equivalent Share $ 1.47 $ 1.16 ======== ========
EX-21 3 SUBSIDIARIES OF THE 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 Venezuela, S.A., a Republic of Venezuela corporation. 7. Elcor Service Corporation, a Nevada corporation. EX-23 4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of reference of our report dated August 18, 1997, included and incorporated by reference in Elcor Corporation's Form 10-K for the year ended June 30, 1997, into Elcor Corporation's previously filed Registration Statement on Form S-8 (File No. 2087437) and Form S-3 (File No. 2-87436). /s/Arthur Andersen LLP ----------------------- Arthur Andersen LLP Dallas, Texas September 26, 1997 EX-27 5 FINANCIAL DATA SCHEDULE
5 YEAR JUN-30-1997 JUL-01-1996 JUN-30-1997 3,601 0 43,723 545 33,427 86,286 180,115 62,648 207,243 28,285 52,600 8,814 0 0 103,966 207,243 230,756 230,756 178,229 209,198 0 0 1,136 20,637 7,635 13,002 0 0 0 13,002 1.47 1.47
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