<PAGE> 1
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
---------------
For Quarter Ended December 31, 1996 Commission File number 1-5341
----------------- ------
ELCOR CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 75-1217920
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14643 DALLAS PARKWAY
SUITE 1000, WELLINGTON CENTRE, DALLAS, TEXAS 75240-8871
- -------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 851-0500
----------------
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 .
--- ---
As of close of business on February 3, 1997, Registrant had
outstanding 8,804,969 shares of Common Stock, Par Value $1 per Share.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
ELCOR CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited, $ in thousands)
<TABLE>
<CAPTION>
ASSETS 12-31-96 6-30-96
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,917 $ 3,744
Trade receivables, less allowance of $516 and $477 29,207 42,482
Inventories -
Finished goods 14,259 20,512
Work-in-process 767 604
Raw materials 6,419 5,632
--------- ---------
Total inventories 21,445 26,748
--------- ---------
Prepaid expenses and other 2,483 1,956
Deferred income taxes 2,647 2,734
--------- ---------
Total current assets 58,699 77,664
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST 176,031 163,053
Less - accumulated depreciation (57,884) (52,846)
--------- ---------
Property, plant and equipment, net 118,147 110,207
--------- ---------
NET ASSETS OF DISCONTINUED OPERATIONS 3,012 2,942
OTHER ASSETS 1,285 1,315
--------- ---------
$ 181,143 $ 192,128
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 11,769 $ 15,503
Accrued liabilities 12,912 13,091
--------- ---------
Total current liabilities 24,681 28,594
--------- ---------
LONG-TERM DEBT 39,000 53,000
DEFERRED INCOME TAXES 10,009 8,336
SHAREHOLDERS' EQUITY -
Common stock 8,805 8,802
Paid-in-capital 71,302 71,555
Retained earnings 27,346 22,499
--------- ---------
107,453 102,856
Less - Treasury stock, at cost, 33,949 shares at 6-30-96 (0) (658)
--------- ---------
Total shareholders' equity 107,453 102,198
--------- ---------
$ 181,143 $ 192,128
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
ELCOR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited, $ in thousands
except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- -------------------
12-31-96 12-31-95 12-31-96 12-31-95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SALES $ 50,636 $ 45,362 $115,172 $ 93,890
-------- -------- -------- --------
COST AND EXPENSES
Cost of sales 39,242 33,965 89,766 69,821
Selling, general and administrative 7,680 7,353 15,577 14,105
Reduction in value of assets 0 558 0 558
-------- -------- -------- --------
INCOME FROM OPERATIONS 3,714 3,486 9,829 9,406
-------- -------- -------- --------
OTHER EXPENSE
Interest expense, net 52 19 213 44
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 3,662 3,467 9,616 9,362
Provision for income taxes 1,353 1,343 3,539 3,575
-------- -------- -------- --------
NET INCOME $ 2,309 $ 2,124 $ 6,077 $ 5,787
======== ======== ======== ========
INCOME PER COMMON AND COMMON EQUIVALENT
SHARE $ .26 $ .24 $ .69 $ .65
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE $ .07 $ .06 $ .14 $ .12
======== ======== ======== ========
AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 8,843 8,838 8,818 8,840
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
ELCOR CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, $ in thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
12-31-96 12-31-95
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,077 $ 5,787
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 3,872 1,509
Reduction in value of assets 0 558
Deferred income taxes 1,760 1,715
Changes in assets and liabilities:
Trade receivables 13,275 6,718
Inventories 5,303 (5,396)
Prepaid expenses and other (527) 1,498
Accounts payable and accrued liabilities (3,913) 3,309
--------- ---------
Net cash provided by operating activities 25,847 15,698
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant & equipment (11,794) (19,782)
Other (57) (401)
--------- ---------
Net cash provided by (used for) investing
activities (11,851) (20,183)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term borrowings (reductions), net (14,000) 6,600
Dividends on common stock (1,230) (1,048)
Treasury stock transactions and other, net 407 370
--------- ---------
Net cash provided by (used for) financing activities (14,823) 5,922
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (827) 1,437
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,744 3,731
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,917 $ 5,168
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
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 1996 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 six-month periods ended
December 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 or other
interim reporting period 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 October 31, 1996, the Company increased its unsecured
revolving credit facility from $70 million to $80 million, the term
was extended by one year to October 31, 1999, and certain financial
covenants were adjusted. There were no changes to the interest rate
the Company currently pays for either LIBOR based borrowings or prime
rate based borrowings.
5
<PAGE> 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
CHANGES IN THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1996 COMPARED TO THE
THREE-MONTH PERIOD ENDED DECEMBER 31, 1995.
During the three-month period ended December 31, 1996, net income increased to
$2,309,000 from $2,124,000 for the same three-month period last year. Sales
increased 12% compared to the same prior year quarter. Increased growth in
demand for the Company's patented Enhanced High Definition(R) and Raised
Profile(TM) Prestique(R) premium laminated fiberglass asphalt shingles
accounted for most of the increase in sales. Overall gross margin, as a
percentage of sales, was 22.5% during the quarter ended December 31, 1996
compared to 23.9% during the same prior year quarter. However, the current
quarter margin percentage improved from the 21.7% achieved during the first
quarter ended September 30, 1996 as the new roofing plant at Shafter,
California achieved a break-even level of operations for the quarter ended
December 31, 1996.
Selling, general and administrative (S,G&A) expenses increased 4% during the
quarter ended December 31, 1996 compared to the same prior year quarter.
However, as a percentage of sales, S,G&A costs were 15% of sales in the current
year quarter compared to 16% of sales in the prior year quarter.
Start-up operations at the Company's new nonwoven fiberglass mat plant at
Ennis, Texas were underway during the quarter ended December 31, 1996. During
the quarter ended December 31, 1996, $88,000 of deferred start-up costs at the
new Ennis facility were included in capital expenditures.
The Company's industrial products businesses, which accounts for less than 10%
of consolidated sales and earnings, achieved increased sales and operating
income during the quarter ended December 31, 1996 as compared to the same prior
year quarter.
The Company's roofing products business is cyclical and is affected by some of
the same economic factors that affect the housing industry generally, including
interest rates, the availability of financing and general economic conditions.
However, reroofing and remodeling, which now constitute about 85% of industry
unit sales, are generally less severely affected by economic downturns than
product demand for new residential construction.
6
<PAGE> 7
CHANGES IN THE SIX-MONTH PERIOD ENDED DECEMBER 31, 1996, AS COMPARED TO THE
SIX-MONTH PERIOD ENDED DECEMBER 31, 1995.
During the six-month period ended December 31, 1996, net income increased to
$6,077,000 from $5,787,000 in the same period last year. Sales increased 23%
compared to the comparable prior year period. The increases in sales and
income were primarily attributable to increased shipments of premium laminated
fiberglass shingles during the six-month period ended December 31, 1996.
A significant part of the increased shipments were from the new roofing plant
at Shafter, California. The ability of this new plant to better serve
customers in the Western United States has permitted the Company to expand its
sales and marketing efforts to better serve customers in the Midwestern and
Northeastern United States with products from the other roofing plants.
Overall gross margin, as a percentage of sales, was 22.1% during the first half
of fiscal 1997 compared to 25% during the same period in the prior fiscal year.
The reduction in gross margin is primarily attributable to higher sales with
operating losses at Shafter, California during the first quarter of fiscal
1997. As a result of certain planned changes in the plant's production line
towards the end of the first quarter of fiscal 1997, the plant achieved a
break-even level of operations during the second quarter of fiscal 1997.
Selling, general and administrative expenses increased 10% during the first
half of fiscal 1997 compared to the same prior year period. However, S,G&A
costs were only 13.5% of sales in the current year period compared to 15% of
sales in the prior year period. The Company has established a larger sales
organization to better serve growing market areas. This larger organization
has been able to service the significant increase in sales orders without a
proportionate increase in overall selling costs.
During the six-month period ended December 31, 1996, approximately $1,800,000
of deferred start-up costs at the new Ennis facility were capitalized and
included in capital expenditures.
FINANCIAL CONDITION
The Company's financial condition at December 31, 1996 continued to be very
strong. Total invested capital was $146,453,000. Long-term debt represented
27% of total capitalization. At December 31, 1996, $39,000,000 was available
under the Company's unsecured revolving line of credit. Effective October 31,
1996, the revolving credit facilities were increased from $70 million to $80
million to provide additional financial resources to support the Company's
growth strategies.
Cash generated by operations for the six months ended December 31, 1996 was
$25,847,000. Working capital requirements (excluding cash and cash
equivalents) decreased $14,225,000. The current ratio was 2.4 to 1 at December
31, 1996. The reduction in working capital primarily related to a seasonal
reduction in trade receivables and inventories, partially offset by lower
accounts payable. 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. In addition, receivables are
expected to further increase during the late winter and spring months due to
extended payment terms to certain customers during these months with payment
generally due during the summer months.
The Company used $11,851,000 for investing activities in the first half of
fiscal 1997. The majority of these expenditures were for capital expenditures
and related deferred preoperating expenses
7
<PAGE> 8
incurred in connection with the new nonwoven fiberglass mat plant at the Ennis,
Texas facility, which was in start-up during the period ended December 31,
1996, and changes in the production line at the Shafter, California plant to
enhance the plant's overall performance. Total capital expenditures are
expected to be less in fiscal 1997 than in recent years, which included
significant capital expenditures relating to the construction of the two new
major manufacturing facilities. Capital expenditures are presently expected to
be about of $16,000,000 during the current fiscal year.
The Company utilized $14,823,000 for financing activities in the first half of
fiscal 1997, primarily as a result of the seasonal reduction in long-term debt
and payment of dividends on common stock.
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 December 31, 1996,
118,800 shares with a cumulative cost of $1,848,000 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 Board of
Directors increased the regular quarterly cash dividend 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 establishes and maintains reserves for such
remediation activities, when appropriate, in accordance with Statement of
Financial Accounting Standards No. 5, "Accounting for Contingencies." Current
reserves established for known or probable remediation activities are not
material to the Company's financial position or results of operations.
Management believes that cash and cash equivalents, cash flows from operations
and its revolving credit facility should be sufficient during fiscal 1997 and
beyond to fund its currently projected capital expenditure requirements,
working capital needs, dividends, stock repurchases and other cash
requirements.
OUTLOOK
At the present time, we expect that strong demand for our patented Enhanced
High Definition and Raised Profile Prestique shingles will increase shipments
and sales to record levels for fiscal 1997. We continue to believe that
earnings per share during the third quarter should be in the general range of,
or possibly lower than, the fiscal 1996 comparable quarter. We expect that
fourth quarter earnings will benefit from the seasonal increase in demand for
products produced by the two new major facilities. Our current forecast for
earnings per share for fiscal year ending June 30, 1997 remains in the range of
$1.30 to $1.50 per share, up from $1.16 per share in fiscal 1996.
8
<PAGE> 9
FORWARD-LOOKING STATEMENTS
In an effort to give investors a well-rounded view of the Company's current
condition and future opportunities, this Form 10-Q contains "forward-looking
statements" about the Company's prospects for the future. Because they are
forward- looking, 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:
1. The Company's roofing products business is cyclical and is
affected by weather and some of the same economic factors that
affect the housing and home improvement industries generally,
including interest rates, the availability of financing and
general economic conditions. In addition, the asphalt roofing
products manufacturing business is highly competitive.
Actions of competitors, including changes in pricing, or
slowing demand for asphalt roofing products due to general or
industry economic conditions or the amount of inclement
weather could result in decreased demand for the Company's
products, lower prices received or reduced utilization of
plant facilities.
2. In the asphalt roofing products business, the significant raw
materials are ceramic coated granules, asphalt, glass fibers,
resins and mineral filler. Increased costs of raw materials
can result in reduced margins, as can higher trucking and rail
costs. Historically, the Company has been able to pass some
of the higher raw material and transportation costs through to
the customer. Should the Company be unable to recover higher
raw material and transportation costs from price increases of
its products, operating results could be lower than projected.
3. The Company has completed a $100 million expansion program
which included a new roofing plant in Shafter, California and
the construction of a new plant at the Company's Ennis, Texas
facility to manufacture nonwoven fiberglass roofing mat and
industrial facer products for the construction industry. As
new facilities, their progress in achieving anticipated
operating efficiencies and financial results is difficult to
predict. If such progress is slower than anticipated, or if
demand for products produced at either of these new plants
does not meet current expectations, operating results could be
adversely affected.
4. Certain facilities of the Company's industrial products
subsidiaries must utilize hazardous materials in their
production process. As a result, the Company could incur
costs for remediation activities at its facilities or
off-site, and other related exposures from time to time in
excess of established reserves for such activities.
5. The Company's litigation, including its patent infringement
suits against GAF Building Materials Corporation and certain
affiliates, 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.
9
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings
GAF Patent Litigation
On December 9-10, 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. A bench trial on the inequitable conduct
defenses alleged by GAF in the design patent case commenced on February 3,
1997. Trial for the remaining issues in the design patent case remains
scheduled for April 21, 1997, and trial in the utility patent case has not been
scheduled as yet.
For further information and background on the GAF Patent Litigation and other
legal proceedings involving the Company, see "Part I, Item 3. Legal
Proceedings" in the Company's Annual Report on Form 10-K for the year ended
June 30, 1996, and "Part II, Item 1. Legal Proceedings" in the Company's
Quarterly Report on 10-Q for the quarter ended September 30, 1996.
ITEM 4: Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders
was held on October 22, 1996 for the purpose of
electing three directors and ratifying the appointment
of the Company's independent auditors.
(b) Directors Elected:
<TABLE>
<CAPTION>
NUMBER OF VOTES
---------------
AUTHORITY
FOR WITHHELD
--- --------
<S> <C> <C> <C>
F.H. Callaway 7,129,621 64,664
David W. Quinn 7,150,858 43,427
Richard J. Rosebery 7,145,560 48,725
</TABLE>
Other Directors Whose Term Continued After the Meeting:
Robert M. Leibrock
W.F. Ortloff
Roy E. Campbell
James E. Hall
Harold K. Work
10
<PAGE> 11
(C) Other matters voted upon at the meeting and the number of
affirmative votes, negative votes and abstentions.
<TABLE>
<CAPTION>
NUMBER OF VOTES
-------------------------------------
AFFIRMATIVE AGAINST ABSTENTIONS
----------- ------- ------------
<S> <C> <C> <C>
Ratification of Arthur 7,142,638 30,016 21,631
Andersen LLP as
independent auditors of
the Company for the fiscal
year ending June 30, 1997
</TABLE>
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) The Registrant filed a Form 8-K on October 20, 1996 relating
to a press release containing an announcement of first quarter
earnings, including "forward-looking statements" about its
prospects for the future.
11
<PAGE> 12
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: February 13, 1997 /s/ Richard J. Rosebery
------------------------- -----------------------------------------
Richard J. Rosebery
Executive Vice President,
Chief Administrative & Financial Officer,
and Treasurer
/s/ Leonard R. Harral
-----------------------------------------
Leonard R. Harral
Vice President and Chief
Accounting Officer
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
Exhibit (11): Computation of Income Per Common and Common Equivalent Share
Exhibit (27): Financial Data Schedule (EDGAR submission only)
</TABLE>
<PAGE> 1
EXHIBIT (11)
Elcor Corporation and Subsidiaries
Computation of Income Per Common and Common Equivalent Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1. Three Months Ended December 31, 1996 Three Months Ended
and December 31, 1995 -----------------------
12-31-96 12-31-95
---------- ----------
<S> <C> <C>
Net Income $ 2,309 $ 2,124
========== ==========
Shares:
Weighted average common shares 8,780 8,739
outstanding
Adjustments:
(a) Assumed issuance of shares purchased
under incentive stock option plan using
the treasury stock method 63 99
---------- ----------
Total Common and Common Equivalent Shares 8,843 8,838
========== ==========
Income per Common and Common Equivalent Share $ .26 $ .24
========== ==========
<CAPTION>
2. Six Months Ended December 31, 1996 Six Months Ended
and December 31, 1995 -----------------------
12-31-96 12-31-95
---------- ----------
<S> <C> <C>
Net Income $ 6,077 $ 5,787
========== ==========
Shares:
Total Common and Common Equivalent Shares
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
---------- ----------
Average six months ended 12/31/96 and 12/31/95 8,818 8,840
========== ==========
Income per Common and Common Equivalent Share $ .69 $ .65
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,917
<SECURITIES> 0
<RECEIVABLES> 29,723
<ALLOWANCES> 516
<INVENTORY> 21,445
<CURRENT-ASSETS> 58,699
<PP&E> 176,031
<DEPRECIATION> 57,884
<TOTAL-ASSETS> 181,143
<CURRENT-LIABILITIES> 24,681
<BONDS> 39,000
<COMMON> 8,805
0
0
<OTHER-SE> 98,648
<TOTAL-LIABILITY-AND-EQUITY> 181,143
<SALES> 115,172
<TOTAL-REVENUES> 115,172
<CGS> 89,766
<TOTAL-COSTS> 105,343
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 213
<INCOME-PRETAX> 9,616
<INCOME-TAX> 3,539
<INCOME-CONTINUING> 6,077
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,077
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
