1
SECURITIES AND EXCHANGE
COMMISSION
Washington, D. C. 20549
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FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
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For Quarter Ended March 31, 1996 Commission File number 1-5341
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ELCOR CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE 75-1217920
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14643 DALLAS PARKWAY
SUITE 1000, WELLINGTON CENTRE, DALLAS, TEXAS 75240-8871
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 851-0500
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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 .
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As of close of business on May 1, 1996, Registrant had outstanding
8,765,535 shares of Common Stock, Par Value $1 per Share.
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
ELCOR CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited, $ in thousands)
ASSETS 3-31-96 6-30-95
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CURRENT ASSETS
Cash and cash equivalents $ 2,708 $ 3,731
Trade receivables, less allowance of $427 and $306 39,710 32,910
Inventories -
Finished goods 15,737 6,091
Work-in-process 769 658
Raw materials 5,710 4,952
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Total inventories 22,216 11,701
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Prepaid expenses and other 2,739 2,931
Deferred income taxes 2,168 2,136
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Total current assets 69,541 53,409
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PROPERTY, PLANT AND EQUIPMENT, AT COST 149,140 123,469
Less - accumulated depreciation (54,103) (53,923)
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Property, plant and equipment, net 95,037 69,546
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DEFERRED PREOPERATING COSTS 10,189 5,640
NET ASSETS OF DISCONTINUED OPERATIONS 7,175 7,175
OTHER ASSETS 2,341 1,363
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$ 184,283 $ 137,133
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 13,447 $ 10,849
Accrued liabilities 12,392 10,548
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Total current liabilities 25,839 21,397
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LONG-TERM DEBT 50,400 18,400
DEFERRED INCOME TAXES 7,503 3,720
SHAREHOLDERS' EQUITY-
Common stock 8,802 8,802
Paid-in-capital 71,577 71,680
Retained earnings 20,849 14,316
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101,228 94,798
Less - Treasury stock, at cost, 36,531 and 74,063 shares (687) (1,182)
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Total shareholders' equity 100,541 93,616
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$ 184,283 $ 137,133
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See accompanying notes to consolidated financial statements.
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ELCOR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited, $ in thousands
except per share data)
Three Months Ended Nine Months Ended
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3-31-96 3-31-95 3-31-96 3-31-95
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SALES $ 50,048 $ 37,816 $143,938 $112,266
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COST AND EXPENSES
Cost of sales 38,875 27,736 109,254 82,265
Selling, general and administrative 7,312 7,388 21,417 20,433
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INCOME FROM OPERATIONS 3,861 2,692 13,267 9,568
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OTHER (INCOME) EXPENSE
Interest expense (income), net 61 39 105 (115)
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INCOME BEFORE INCOME TAXES 3,800 2,653 13,162 9,683
Provision for income taxes 1,479 1,039 5,054 3,746
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NET INCOME $ 2,321 $ 1,614 $ 8,108 $ 5,937
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INCOME PER COMMON AND COMMON EQUIVALENT
SHARE $ .26 $ .18 $ .92 $ .67
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DIVIDENDS PER COMMON SHARE $ .06 $ -- $ .18 $ --
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AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 8,875 8,782 8,852 8,852
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See accompanying notes to consolidated financial statements.
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ELCOR CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, $ in thousands)
Nine Months Ended
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3-31-96 3-31-95
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,108 $ 5,937
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 2,655 2,858
Write-off of assets 558 --
Deferred income taxes 3,751 456
Changes in assets and liabilities:
Trade receivables (6,800) 3,424
Inventories (10,515) 3,280
Prepaid expenses and other 192 (52)
Accounts payable and accrued liabilities 4,442 (4,613)
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Net cash provided by continuing operations 2,391 11,290
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Net cash provided by discontinued
operations -- 635
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant & equipment (28,528) (28,366)
Deferred preoperating costs (4,705) (4,230)
Other (999) 395
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Net cash provided by (used for) investing
activities (34,232) (32,201)
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CASH FLOWS FROM FINANCING ACTIVITIES
Long-term borrowings 32,000 17,800
Dividends on common stock (1,575) --
Treasury stock transactions and other, net 393 (1,149)
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Net cash provided by financing activities 30,818 16,651
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,023) (3,625)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,731 5,919
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,708 $ 2,294
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See accompanying notes to consolidated financial statements.
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ELCOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The attached condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. As a result, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
The Company believes that the disclosures included herein are adequate to
make the information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company's 1995
Annual Report on Form 10-K. The unaudited financial information contained
herein has been prepared in conformity with generally accepted accounting
principles on a consistent basis and does reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
results of operations for the three-month and nine-month periods ended
March 31, 1996, and 1995, but are, however, subject to year-end audit by
the Company's independent auditors. Because of seasonal, weather-related
conditions in some of the Company's market areas, sales can vary at times,
and results of any one quarter should not necessarily be considered as
indicative of results for a full fiscal year.
2. Net income per common and common equivalent share is computed based on the
average number of common and common equivalent shares outstanding. Common
equivalent shares include outstanding stock options. There is no material
difference between primary and fully diluted earnings per share.
3. Effective December 15, 1995, the Company increased its unsecured revolving
credit facility from $50 million to $70 million and the term was extended
by one year to October 31, 1998. The rate the Company pays on LIBOR
borrowings, based on current financial ratios, was lowered from LIBOR
plus.625% to LIBOR plus.5%. There was no change to the interest rate for
any borrowings based on the lender's prime rate.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
CHANGES IN THE THREE-MONTH PERIOD ENDED MARCH 31, 1996 COMPARED TO
THE THREE-MONTH PERIOD ENDED MARCH 31, 1995.
During the three-month period ended March 31, 1996, net income increased 44% to
$2,321,000 from $1,614,000 for the same three-month period last year. Sales
increased 32% compared to the same prior year quarter. The increases in sales
and income were primarily attributable to increased production and shipments of
premium laminated fiberglass asphalt shingles in the Roofing Products Group.
Roofing Products
Sales and operating profit in the Roofing Products Group for the three-month
period ended March 31, 1996 were significantly higher compared to the same
period in the prior year, primarily as a result of increased production and
shipments of the Company's patented Enhanced High Definition(R) and Raised
Profile(TM) Prestique(R) premium laminated fiberglass asphalt shingles. In
addition, average selling prices improved over the prior year quarter and
transportation costs were lower. Although sales from existing plants increased,
the new plant at Shafter, California accounted for a significant part of the
sales increase. This major new plant achieved its production performance
criteria in February 1996. Accordingly, the Company ended capitalizing startup
costs for this plant. During the three-month period ended March 31, 1996, costs
of $584,000 were capitalized at the Shafter facility prior to the plant
reaching its production performance criteria.
Demand is expected to remain good in the Company's major market areas for the
remainder of fiscal 1996. However, quarterly earnings are expected to be
affected by operating losses at the new Shafter facility until the plant's
operating level and product mix reach its break-even point.
The Company's roofing products business is cyclical and is affected by some of
the same economic factors that effect the housing industry generally, including
interest rates, the availability of financing and general economic conditions.
However, reroofing and remodeling, which constitute about 80% of industry unit
sales, are generally less severely affected by economic downturns than product
demand for new residential construction.
Industrial Products
Sales in the Industrial Products Group for the three months ended March 31,
1996 decreased compared to the prior year quarter. The Group reported a small
operating loss for the three months ended March 31, 1996 compared to an
operating profit in the prior year quarter. Chromium Corporation's customers
have reduced shipment orders due to model changes and inventory adjustments.
These factors have resulted in decreased sales at Chromium, which led to a
small operating loss for this subsidiary during the three months ended March
31, 1996. These trends are expected to continue to result in reduced sales and
lower operating results for Chromium in the fourth quarter of fiscal 1996 as
compared to the prior year.
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Ortloff Engineers LTD. recorded lower patent licensing income during the three
month period ended March 31, 1996, as compared to the same quarter in the prior
year. However, this subsidiary expects a significant improvement in patent
licensing revenues in the fourth quarter of fiscal 1996 which should result in
an overall improvement in profitability for the Industrial Products Group in
the fourth quarter of fiscal 1996 as compared to the fourth quarter of fiscal
1995.
CHANGES IN THE NINE-MONTH PERIOD ENDED MARCH 31, 1996, AS COMPARED TO THE
NINE-MONTH PERIOD ENDED MARCH 31, 1995.
During the nine-month period ended March 31, 1996, net income increased 37% to
$8,108,000 from $5,937,000 in the same period last year. Sales increased 28%
compared to the comparable prior year period. The increases in sales and income
were primarily attributable to increased shipments in the Roofing Products
Group during the nine-month period ended March 31, 1996.
Roofing Products
Sales in the Roofing Products Group for the first nine months of fiscal 1996
increased compared to the same period last year and operating profit was
substantially higher. Increased shipments, higher prices and lower
transportation costs improved both sales and operating profit for the Roofing
Products Group. Sales from the new plant at Shafter, California accounted for a
significant part of the sales increase. During the nine-month period ended
March 31, 1996, costs of $3,913,000 were capitalized as deferred preoperating
costs for the Shafter facility before this plant reached its production
performance criteria in February 1996.
Asphalt and glass fiber raw material costs were significantly higher in the
first nine months of fiscal 1996 as compared to the same period in the prior
year. However, the Company was able to implement price increases to offset
these higher raw material costs.
Industrial Products
Sales in the Industrial Products Group for the first nine months of fiscal 1996
decreased and the Group reported lower operating profit compared to the same
prior year period due to reduced shipments at Chromium Corporation as a result
of Chromium's customers reducing orders due to model changes and inventory
adjustments. In addition, Ortloff Engineers LTD. recorded lower patent licensing
income.
Operating Costs
The Company's overall gross margin on sales was 24.1% in the fiscal 1996 period
compared to 26.7% in the same fiscal 1995 period. The reduction in gross margin
percentage to sales is primarily attributable to significantly higher sales with
losses during the first year at the new Shafter facility. Selling, general and
administrative costs as a percentage of sales were 14.9% for the fiscal 1996
period compared to 18.2% for the same fiscal 1995 period. During fiscal 1995,
the Company established a larger sales organization to better serve growing
market areas. This larger organization has been able to service the increase in
sales orders without a proportionate increase in overall selling costs.
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FINANCIAL CONDITION
Total invested capital at March 31, 1996 was $150,941,000. Long-term debt
represented 33% of total capitalization. At March 31, 1996, $17,318,000 was
available under the Company's $70 million unsecured revolving line of credit.
In September 1994, the Company's Board of Directors authorized the purchase of
up to $10 million of the Company's common shares from time to time on the open
market to be used for general corporate purposes. As of March 31, 1996, 94,800
shares with a cumulative cost of $1,440,000 had been repurchased under this
program. In September 1995, the Board of Directors reinstated the Company's
regular quarterly cash dividend at six cents per common share.
Cash generated by operations for the nine month period ended March 31, 1996 was
$2,391,000. Working capital increased $11,690,000 primarily as a result of a
$6,800,000 increase in receivables and a $10,515,000 increase in inventory
since June 30, 1995. The increase in receivables at March 31, 1996 is primarily
due to the higher level of sales and seasonal marketing programs to certain
customers that provided deferred payment terms. The deferred receivables are
primarily due in the May 1996 through July 1996 timeframe. The significant
increase in finished goods inventories is primarily due to higher production
during the quarter with the addition of the new Shafter plant and building
inventories for the seasonally stronger months from spring through fall.
The current ratio was 2.7 to 1 at March 31, 1996. Historically, working capital
requirements fluctuate during the year because of seasonality in some market
areas. Generally, working capital requirements and related borrowings are
higher in the spring and summer months, and lower in the fall and winter
months.
The Company used $34,232,000 for investing activities in the first nine months
of fiscal 1996. The majority of these expenditures were for capital
expenditures and related deferred preoperating expenses incurred in connection
with the completion of the new roofing plant in Shafter, California, and the
construction of a new plant at the Company's Ennis, Texas facility to
manufacture nonwoven fiberglass substrate materials for roofing products and
industrial facer products for the construction industry. The new nonwoven plant
is nearing completion, and initial testing should be underway before the end of
fiscal 1996. The new facility is expected to begin supplying the Company's
three manufacturing plants with its nonwoven fiberglass mats this summer.
The Company is spending about $100,000,000 in capital expenditures and related
deferred pre-operating startup costs over a three-year period on the two new
facilities. As of March 31, 1996, cumulative total expenditures for this
expansion program have been about $92,000,000. The new plants should provide
the potential to significantly increase the Company's sales, earnings and cash
flow when completed and operating at expected levels in the years ahead.
Net financing activities provided $30,818,000 in the first nine months of
fiscal 1996, primarily resulting from a $32,000,000 increase in long-term
borrowings to finance the expansion program, partially offset by dividends on
common stock.
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The Company's operations are subject to extensive federal, state and local laws
and regulations relating to environmental matters. Although the company does
not believe it will be required to expend amounts which will have a material
adverse affect on the Company's consolidated financial position or results of
operations by reason of environmental laws and regulations, such laws and
regulations are frequently changed and could result in significantly increased
cost of compliance.
Further, certain of the Company's industrial products operations utilize
hazardous materials in their production process. As a result, the Company
incurs costs for remediation activities at its facilities from time to time.
The Company establishes and maintains reserves for remediation activities, when
appropriate, in accordance with Statement of Accounting Standards No. 5,
Accounting for Contingencies. Current reserves established for known or
probable remediation activities are not material to the Company's financial
position or results of operation.
Management believes that current cash and cash equivalents, cash flows from
operations and its unsecured revolving credit facility should be sufficient
during fiscal 1996 and beyond to fund the remainder of its current expansion
program, other 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.
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PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings
GAF Patent Litigation
The District Court for the Northern District of Texas ordered GAF and Elk
Corporation of Dallas to submit the design and utility patent cases to
mediation. In mid-April 1996, the mediation was held but did not result
in a resolution of the cases.
The May 6, 1996 trial date for the design patent case has been continued
to be reset at a later date. The utility patent case remains set for
trial on September 16, 1996.
Frontier Chemical Site
Certain Phase I and Phase II PRPs have instituted proceedings seeking
recovery of approximately $1.2 million in proceeds from a closure bond
posted with the State of New York by the operators of the Frontier Site.
If such proceedings are successful, participating Phase I and Phase II
PRPs will share in any recovery.
For further information and background on the above matters, see "Part I,
Item 3. Legal Proceedings" in the Company's Annual Report on Form 10K for
the year ended June 30, 1995.
ITEM 6: Exhibits and Reports of Form 8-K
(a) Exhibits:
Exhibit (11): Computation of Income Per Common and Common
Equivalent Share
Exhibit (27): Financial Data Schedule (EDGAR Submission only)
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities and 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
DATE: May 13, 1996 /s/ Richard J. Rosebery
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Richard J. Rosebery
Executive Vice President,
Chief Administrative & Financial Officer,
and Treasurer
/s/ Leonard R. Harral
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Leonard R. Harral
Vice President and Chief
Accounting Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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11 Computation of Income per Common and Common Equivalent Share
27 Financial Data Schedule