<PAGE> 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 September 30, 1999 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
- ------------------------------- -------------------
(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 November 1, 1999, Registrant had outstanding
19,565,743 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>
September 30, June 30,
ASSETS 1999 1999
------------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,261 $ 4,186
Trade receivables, less allowance of $968 and $967 68,581 72,866
Inventories -
Finished goods 13,579 15,377
Work-in-process 246 180
Raw materials 10,083 10,213
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Total inventories 23,908 25,770
---------- ----------
Prepaid expenses, insurance receivable and other 6,573 8,352
Deferred income taxes 2,274 2,111
---------- ----------
Total current assets 103,597 113,285
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT COST 225,315 212,704
Less - accumulated depreciation (79,585) (76,984)
---------- ----------
Property, plant and equipment, net 145,730 135,720
---------- ----------
OTHER ASSETS 3,283 3,177
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$ 252,610 $ 252,182
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 23,649 $ 18,067
Accrued liabilities 19,937 15,817
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Total current liabilities 43,586 33,884
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LONG-TERM DEBT 44,200 63,000
DEFERRED INCOME TAXES 18,399 18,047
SHAREHOLDERS' EQUITY -
Common stock, $1 par 19,988 19,988
Paid-in-capital 59,356 59,586
Retained earnings 73,663 64,632
---------- ----------
153,007 144,206
Less - Treasury stock (442,862 and 465,149 shares, at cost) (6,582) (6,955)
---------- ----------
Total shareholders' equity 146,425 137,251
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$ 252,610 $ 252,182
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
ELCOR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited, $ in thousands
except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
SALES $ 95,789 $ 85,868
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COST AND EXPENSES
Cost of sales 69,742 63,063
Selling, general and administrative 9,512 10,272
---------- ----------
INCOME FROM OPERATIONS 16,535 12,533
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OTHER EXPENSE
Interest expense, net 417 559
---------- ----------
INCOME BEFORE INCOME TAXES 16,118 11,974
Provision for income taxes 6,109 4,448
---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 10,009 7,526
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE -- (4,340)
---------- ----------
NET INCOME $ 10,009 $ 3,186
========== ==========
INCOME PER COMMON SHARE-BASIC:
Before cumulative effect of
change in accounting principle $ .51 $ .38
Cumulative effect of change
in accounting principle -- (.22)
---------- ----------
NET INCOME PER SHARE-BASIC $ .51 $ .16
========== ==========
INCOME PER COMMON SHARE-DILUTED:
Before cumulative effect of change
in accounting principle $ .50 $ .38
Cumulative effect of change in
accounting principle -- (.22)
---------- ----------
NET INCOME PER SHARE-DILUTED $ .50 $ .16
========== ==========
DIVIDENDS PER COMMON SHARE $ .05 $ .0467
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
ELCOR CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, $ in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,009 $ 3,186
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,607 2,230
Deferred income taxes 190 580
Cumulative effect of change in accounting principle -- 4,340
Changes in assets and liabilities:
Trade receivables 4,285 (9,117)
Inventories 1,862 6,351
Prepaid expenses, insurance receivable and other 1,779 428
Accounts payable and accrued liabilities 9,702 5,107
---------- ----------
Net cash provided by operating activities 30,434 13,105
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (12,610) (5,037)
Other (114) (134)
---------- ----------
Net cash used for investing activities (12,724) (5,171)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term borrowings, net (18,800) (4,700)
Dividends on common stock (977) (909)
Treasury stock transactions and other, net 142 (4,355)
---------- ----------
Net cash used for financing activities (19,635) (9,964)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,925) (2,030)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,186 5,240
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,261 $ 3,210
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<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 1999 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 periods ending September 30, 1999 and
1998, 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. In the first quarter of fiscal 1999, the company adopted Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities," issued
by the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants. This Statement of Position
requires, among other things, companies to expense on a current basis
previously capitalized start-up costs. Adoption of this Statement of
Position resulted in a $4,340,000 charge, net of tax, and is reported
as a cumulative effect of change in accounting principle on the
Consolidated Statement of Operations for fiscal 1999.
3. On September 15, 1998, the company experienced an explosion at its
fiberglass roofing mat plant in Ennis, Texas. The explosion
significantly damaged a drying oven and caused less extensive damage to
the remainder of the mat manufacturing line. There was no damage to a
separate mat line that runs in parallel to the damaged line, nor was
there any damage to the company's Ennis, Texas shingle manufacturing
plant. There were no injuries from the explosion. The damaged line was
restored to partial operation in December 1998. By March 1999, the
damaged section had been replaced. In June 1999, the line was operating
at line speeds equivalent to line speeds at the time of the explosion.
The company carries both property damage and business interruption
insurance. The $100,000 deductible portion of the loss was recorded
during the quarter ended September 30, 1998. The company has submitted
claims totaling $17,492,000. As of September 30, 1999, the company had
received insurance advances of $9,687,000. Claimed but unpaid amounts
are currently under review by the insurance company. Operating income
from the lost shingle sales portion of the business interruption claim
have been accounted for as a contingent receivable, and accordingly
have not been recorded to income as of September 30, 1999, pending
settlement with the insurance company. Assets with net book value of
$3,990,000 were destroyed in the explosion and were insured for
replacement value. When the insurance claim is settled, any difference
between insurance proceeds received and net book value of destroyed
assets, if any, will be recorded as a nonrecurring gain.
4
<PAGE> 6
4. In the fourth quarter of fiscal 1999, management approved a
consolidation plan for Chromium Corporation's reciprocating engine
components business. All operations for this business activity at
Chromium's Lufkin, Texas facility will be transferred to its Cleveland,
Ohio plant. Costs to relocate equipment and other consolidation items
with an estimated cost of $1,145,000 are expected to be incurred and
recorded to expense in fiscal 2000, with the majority of the
consolidation costs being incurred in the December 1999 quarter.
Subsequent to the completion of this business consolidation, the
Lufkin, Texas facility will be used exclusively for Cybershield's
conductive coatings operations.
5. In June 1999, the Board of Directors declared a three-for-two stock
split payable in the form of a stock dividend, which was distributed on
August 11, 1999 to shareholders of record on July 15, 1999. Appropriate
references to number of shares and to per share information in the
consolidated financial statements as of September 30, 1998 have been
adjusted to reflect the stock split on a retroactive basis.
6. The company anticipates increasing its unsecured revolving credit
facility from $100,000,000 to $125,000,000 and extending its term to
November 2004. It is not anticipated that there will be any significant
changes to the financial covenants or to the interest rate the company
pays for either LIBOR based borrowings or prime rate based borrowings
or to the commitment fee paid for any unused portion of the line.
7. In accordance with the requirements of FASB SFAS No. 131, the company
is segregated into two segments: Roofing Products and Industrial
Products. The Roofing Products Group consists of the various operating
subsidiaries of Elk Corporation of Dallas (collectively Elk). These
companies manufacture and sell premium laminated fiberglass asphalt
residential and accessory roofing products, together with nonwoven mats
used in manufacturing asphalt roofing products and various industrial
applications.
The Industrial Products Group is comprised of three businesses: (1)
conductive coatings used in digital wireless cellular phones and in
other electronic equipment; (2) remanufactured reciprocating engine
components used in the railroad and marine transportation industries;
and (3) technology licensing and consulting services for the natural
gas processing industry. None of the three Industrial Products
businesses individually account for more than 10% of consolidated
sales, operating income or assets.
Historically, the first two businesses in the Industrial Products Group
were operated as separate divisions of Chromium Corporation. Effective
July 1, 1999, Chromium's operations were segregated into separate
companies. Reciprocating engine components will continue to do business
as Chromium Corporation (Chromium) and conductive coatings will be
operated as subsidiaries of Cybershield, Inc. (Cybershield). The
technology licensing and consulting services business will continue to
be conducted as Ortloff Engineers, LTD (OEL).
5
<PAGE> 7
Financial information by company segment is summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended
September 30,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
SALES
Roofing products $ 82,939 $ 76,914
Industrial products 12,806 8,939
Corporate and eliminations 44 15
---------- ----------
$ 95,789 $ 85,868
========== ==========
OPERATING PROFIT
Roofing products $ 16,277 $ 13,470
Industrial products 1,529 1,542
Corporate and other (1,271) (2,479)
---------- ----------
16,535 12,533
Interest expense, net (417) (559)
---------- ----------
Income before income taxes $ 16,118 $ 11,974
========== ==========
IDENTIFIABLE ASSETS
Roofing products $ 207,728 $ 184,547
Industrial products 30,707 15,742
Corporate 14,175 13,248
---------- ----------
$ 252,610 $ 213,537
========== ==========
DEPRECIATION AND AMORTIZATION
Roofing products $ 2,101 $ 1,939
Industrial products 468 246
Corporate 38 45
---------- ----------
$ 2,607 $ 2,230
========== ==========
CAPITAL EXPENDITURES
Roofing products $ 9,242 $ 2,203
Industrial products 1,923 1,436
Corporate 1,445 1,398
---------- ----------
$ 12,610 $ 5,037
========== ==========
</TABLE>
6
<PAGE> 8
8. Basic earnings per share is computed based on the average number of
common shares outstanding. Diluted earnings per share includes
outstanding stock options. The following table sets forth the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended
September 30,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Net income $ 10,009 $ 3,186
======== ========
Denominator for basic earnings
per share - weighted average
shares outstanding 19,528 19,691
Effect of dilutive securities:
Employee stock options 454 309
-------- --------
Denominator for dilutive earnings per share - adjusted weighted
average shares and assumed issuance of shares purchased under
incentive stock option plan using the treasury stock method 19,982 20,000
======== ========
Basic earnings per share $ .51 $ .16
======== ========
Diluted earnings per share $ .50 $ .16
======== ========
</TABLE>
7
<PAGE> 9
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
During the three-month period ended September 30, 1999, net income before
the cumulative effect of a change in accounting principle in fiscal 1999
increased 33% to $10,009,000 in the current year period from $7,526,000 in the
same prior year period. Sales increased 12% to $95,789,000 in the first three
months of fiscal 2000 compared to $85,868,000 in the prior year period. The
increases in sales and income before last year's accounting change were
primarily the result of a record level of shipments of Elk's Prestique(R)
premium laminated fiberglass asphalt shingles and continued accelerating demand
for Cybershield's products used in digital wireless cellular phones. In the
first quarter of fiscal 1999, the company adopted Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities," issued by the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants, which resulted in a $4,340,000 charge, net of tax, for the
cumulative effect of this accounting change. This one-time cumulative charge
reduced net income for the first quarter last year to $3,186,000.
Sales for the Roofing Products Group increased 8% to $82,939,000 for the
three months ended September 30, 1999 compared to $76,914,000 in the same prior
year quarter. The increase in sales was primarily the result of record shipments
of premium laminated fiberglass asphalt shingles. However, shipments were held
down during the first quarter of fiscal 2000 by lower laminated shingle
inventories at the beginning of the current fiscal year as a result of a 24%
increase in demand during the preceding nine months. Strong sales increases were
also achieved for nonwoven mats used in manufacturing asphalt roofing products
and various industrial applications. Operating income for the Roofing Products
Group increased 21% to $16,277,000 in the three months ended September 30, 1999
compared to $13,470,000 in the prior year quarter, primarily as a result of
increased shipments of premium laminated fiberglass shingles and nonwoven
fiberglass mats, together with improved margins from increased manufacturing
output. Average selling prices were also slightly higher in the first quarter of
fiscal 2000 compared to the same prior year quarter.
Sales for the Industrial Products Group increased 43% in the three-month
period ending September 30, 1999 to $12,806,000 from $8,939,000 in the same
prior year quarter. Operating income for the Industrial Products Group was
virtually unchanged at $1,529,000 in the current year quarter compared to
$1,542,000 in the prior year quarter. During the first three months of fiscal
2000, Cybershield continued to benefit from strong demand for its conductive
coatings and formed-in-place dispense gaskets used in digital wireless cellular
phones and other electronic products. Cybershield's sales more than doubled in
the first quarter of fiscal 2000 compared to the same quarter in the prior
fiscal year. Further, Cybershield's Canton, Georgia operation, which was
acquired in January 1999 as YDK America. Inc., generated positive operating
income during the first quarter of fiscal 2000 after incurring initial operating
losses in the latter half of fiscal 1999. Presently, we expect that Cybershield
may have sufficient opportunity with the potential in fiscal 2000 to about
double the level of sales and operating profits achieved in fiscal 1999, and
further achieve continuing strong growth in fiscal 2001 and beyond.
8
<PAGE> 10
Significantly higher sales and operating results for conductive coatings,
however, were offset by lower sales and reduced operating income at Chromium,
which experienced lower demand for remanufactured large diesel engine components
used in the railroad and marine transportation industries. Lower demand for
Chromium's products was due primarily to further consolidation of the railroad
industry and a reduction in maintenance requirements by some of its customers.
Chromium is in process of consolidating its operations to its Cleveland, Ohio
facility. Estimated costs to relocate equipment and other consolidation items of
$1,145,000 are expected to be incurred and expensed in fiscal 2000, with the
majority of the consolidation costs being incurred in the December 1999 quarter.
OEL's patent licensing and engineering consulting services revenues and
operating income improved in the first quarter of fiscal 2000 compared to the
same prior year period primarily because of higher demand for its services
resulting from higher oil prices.
Overall selling, general and administrative costs (SG&A) in the three-month
period ending September 30, 1999 were significantly lower than in the same
period in the prior fiscal year. In the first quarter last year, the company
adjusted its medical and casualty self-insurance reserves to reflect escalating
cost trends and recorded a write-off of certain computer related items. As a
percentage of sales, SG&A costs were 9.9% of sales in the current year quarter
compared to 12.0% in the prior year quarter.
Interest expense in the first quarter of fiscal 2000 was lower than in the
same quarter last year. The company capitalized $275,000 of interest in the
current year quarter in connection with the construction of its new Myerstown,
Pennsylvania shingle plant and other major projects.
FINANCIAL CONDITION
During the first three months of fiscal 2000, the company generated cash
flows of $30,434,000 from operating activities. Of this total, $17,465,000 was
the result of the significantly reduced level of working capital. The decrease
in working capital was primarily due to increased current liabilities, together
with decreases in trade receivables, inventories, and prepaid expenses. The
significantly higher level of current liabilities was primarily attributable to
the normal timing of vendor payments and higher accrued income tax liability
from increasing taxable income. Trade receivables were lower despite increased
sales. The trade receivable balance at the end of fiscal 1999 was unusually high
as a result of a 28% year-to-year increase in sales during the last two months
of fiscal 1999 (the period to which most outstanding receivables at June 30,
1999 apply). Lower inventories were primarily attributable to increased business
activities and record shipments during the quarter ended September 30, 1999. The
reduction in prepaid expenses primarily reflects a prepayment on a purchase of
raw materials in fiscal 1999 in anticipation of a price increase. The purchase
of raw materials was received into inventory during the first quarter of fiscal
2000.
The current ratio at September 30, 1999 was 2.4:1 compared to 3.3:1 at June
30, 1999. 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.
9
<PAGE> 11
The company used $12,724,000 for investing activities in the first three
months of fiscal 2000. Most expenditures were for additions to property, plant
and equipment. About $8,000,000 of capital expenditures in the first three
months of fiscal 2000 were for the purchase of land and construction costs
relating to the new $70,000,000 Myerstown, Pennsylvania premium laminated
fiberglass asphalt shingle plant. This new facility is expected to be completed
next fall with manufacturing operations beginning in the December quarter of
calendar year 2000. The Myerstown plant is expected to increase the company's
overall laminated shingle capacity by about 38%. The company plans to invest
about $137,000,000 over a three-year period beginning in fiscal 2000, including
the costs to build the new roofing plant, together with expenditures to expand
capacity and improve productivity at existing plants, to install production
lines for new products and to increase capacity for Cybershield's conductive
coatings business. The company expects to incur about $75,000,000 of these
capital expenditures in fiscal 2000.
Cash flows used for financing activities were $19,635,000 during the first
three months of fiscal 2000, primarily resulting from dividend payments and a
$18,800,000 decrease in long-term debt. Long-term debt represented 23% of the
$190,625,000 of invested capital (long-term debt plus shareholders' equity) at
September 30, 1999.
In September 1998, the company's Board of Directors authorized the purchase
of up to $10,000,000 of common stock from time to time on the open market to be
used for general corporate purposes. As of September 30, 1999, 129,992 shares
with a cumulative cost of $1,771,000 had been repurchased under this program.
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
result 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. Current reserves established
for known or probable remediation activities are not material to the company's
financial position or results of operations.
The company anticipates increasing its revolving credit facility from
$100,000,000 to $125,000,000 and extending the facility to November 2004 to
support its capital expansion program. Management believes that current cash and
cash equivalents, cash flows from operations and its unsecured revolving credit
facility should be sufficient during fiscal 2000 and beyond to fund its planned
capital expenditures, working capital needs, dividends, stock repurchases and
other cash requirements.
10
<PAGE> 12
YEAR 2000 ISSUE
The company is currently developing a new information system for most of
its critical financial, distribution and manufacturing applications. While the
primary purpose of the new information system is to modernize and improve the
company's operations, it is also expected to resolve the Year 2000 issues in
these critical computer systems. The system is scheduled for completion and
implementation at all but one location before December 31, 1999 at an estimated
total cost of about $12,000,000. Implementation at one operating location has
been deferred until the first quarter of calendar year 2000. This location will
continue to utilize the company's existing information system until the new
system is implemented. The company has completed all testing and remedial
programming for the existing computer system and believes this existing system
to be Year 2000 compliant. Costs to develop the new information system are being
capitalized. Other costs relating to Year 2000 readiness projects have been less
than $400,000. At this time, other than the cost of developing and implementing
its new information system, the company does not believe that the costs of
addressing the Year 2000 issue will be material. The company does not believe
that other critical information systems work has been deferred due to its Year
2000 efforts.
Using teams of employees and consultants, the company performed a review
and conducted tests of other computer applications and systems not included in
the scope of the new information system, including embedded technology, for Year
2000 readiness. The company has substantially completed the required
remediation. Remaining remediation is expected to be complete before January 1,
2000.
The company has made inquiries of key suppliers and other third parties
with whom it has significant business relationships to assess their state of
readiness in addressing Year 2000 issues that could adversely impact the
company. The company has requested and received written responses from most key
third parties that they will be Year 2000 compliant by the end of calendar 1999.
The company has no means of ensuring that its business partners will be fully
Year 2000 compliant. Contingency plans for what the company determines to be the
most reasonably and most likely worst case scenarios have been developed and are
in process of being reviewed and finalized. Disruptions of financial markets or
computer system failure at government agencies, financial institutions,
utilities and others on which the company is dependent could adversely affect
the company. The effects of a potential disruption at these entities cannot be
determined at this time.
Based on a current assessment of risks relating to its Year 2000 readiness,
the company does not believe that the Year 2000 issue will result in uncertainty
that is reasonably likely to materially affect future financial results or
operating performance.
11
<PAGE> 13
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains "forward-looking statements" about the company's
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:
1. The company's roofing products business is substantially
non-cyclical, but can be affected by weather, 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. Further, changes in building
codes and other standards from time to time can cause changes
in demand, or increases in costs that may not be passed
through to customers.
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/or transportation costs from price increases
of its products, operating results could be adversely affected
and/or lower than projected.
3. The company expects to make up to $137 million in new
investments to expand capacity and improve productivity at
existing plants and to build new plants over a three-year
period beginning in fiscal 2000. Progress in achieving
anticipated operating efficiencies and financial results is
difficult to predict for new plant facilities. If such
progress is slower than anticipated, if substantial cost
overruns occur in building new plants, or if demand for
products produced at 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.
12
<PAGE> 14
6. Even with fully developed action and contingency plans for
Year 2000 readiness, it is possible that the company will not
achieve full internal readiness. Further, the company's
business may be adversely affected by external Year 2000
disruption that the company is not in position to control,
including but not limited to potential disruptions in power
and other energy supplies, telecommunications or other
infrastructure, potential disruptions in transportation and
the supply of raw materials, and potential disruptions in
financial and banking systems. Year 2000 problems therefore
could result in unanticipated expenses or liabilities,
production or disruption delays or other adverse effects on
the company.
7. Although the company currently anticipates that most of its
needs for new capital in the near future will be met with
internally generated funds, significant increases in interest
rates could substantially affect its borrowing costs under its
existing loan facility, or its cost of alternative sources of
capital.
8. Each of the company's businesses, especially its Cybershield's
conductive coatings business, is subject to the risks of
technological changes that could affect the demand for or the
relative cost of the company's products and services, or the
method and profitability of the method of distribution or
delivery of such products and services. In addition, the
company's businesses each could suffer significant setbacks in
revenues and operating income if it lost one or more of its
largest customers, or if its customers' plans and/or markets
should change significantly.
9. Although the company insures itself against physical loss to
its manufacturing facilities, including business interruption
losses, natural or other disasters and accidents, including
but not limited to fire, earthquake, damaging winds and
explosions, operating results could be adversely affected if
any of its manufacturing facilities became inoperable for an
extended period of time due to such events.
10. Each of the company's businesses is actively involved in the
development of new products, processes and services which are
expected to contribute to the company's ongoing long-term
growth and earnings. If such development activities are not
successful, or the company cannot provide the requisite
financial and other resources to successfully commercialize
such developments, the growth of future sales and earnings may
be adversely affected.
Parties are cautioned not to rely on any such forward-looking beliefs or
judgments in making investment decisions.
13
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings
GAF Patent Litigation
On October 4, 1999, the United States Supreme Court denied Elk's
petition for certiorari in its design patent case against GAF. Trials on Elk's
trade dress claim in the design case and in the utility patent case, including
GAF's counterclaims in those cases, are unscheduled but pending. GAF's motion
for attorneys fees also is pending.
While management can give no assurances regarding the ultimate outcome
of the remaining litigation, even if the outcome were to be adverse to Elk, it
is not expected to have a material adverse effect on the Registrant's financial
position or liquidity.
ITEM 5: Other Information
On October 27, 1999, Mr. W.F. Ortloff, a founder, director and retired
former Executive Vice President and Vice Chairman of the company passed away.
The size of the Board of Directors will be reduced to six directors pending a
search for Mr. Ortloff's replacement.
ITEM 6: Exhibits and Reports of Form 8-K
(a) Exhibit:
Exhibit (27): Financial Data Schedule (EDGAR submission only).
(b) The registrant filed two reports on Form 8-K during the quarter
ended September 30, 1999. The registrant filed a Form 8-K on
August 17, 1999 and a Form 8-K on September 8, 1999, both
relating to press releases containing "forward-looking
statements" about its prospects for the future.
14
<PAGE> 16
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: November 12, 1999 /s/ Richard J. Rosebery
------------------------------ ------------------------------------
Richard J. Rosebery
Vice Chairman, Chief Financial &
Administrative Officer and Treasurer
/s/ Leonard R. Harral
------------------------------------
Leonard R. Harral
Vice President and Chief
Accounting Officer
15
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule (EDGAR submission only).
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,261
<SECURITIES> 0
<RECEIVABLES> 69,549
<ALLOWANCES> 968
<INVENTORY> 23,908
<CURRENT-ASSETS> 103,597
<PP&E> 225,314
<DEPRECIATION> 79,584
<TOTAL-ASSETS> 252,610
<CURRENT-LIABILITIES> 43,586
<BONDS> 44,200
0
0
<COMMON> 19,988
<OTHER-SE> 126,437
<TOTAL-LIABILITY-AND-EQUITY> 252,610
<SALES> 95,789
<TOTAL-REVENUES> 95,789
<CGS> 69,742
<TOTAL-COSTS> 79,254
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 417
<INCOME-PRETAX> 16,118
<INCOME-TAX> 6,109
<INCOME-CONTINUING> 10,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,009
<EPS-BASIC> .51
<EPS-DILUTED> .50
</TABLE>
