<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 March 31, 2000 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 May 1, 2000, Registrant had outstanding
19,610,514 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>
March 31, June 30,
ASSETS 2000 1999
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,852 $ 4,186
Trade receivables, less allowance of $963 and $967 78,647 72,866
Inventories -
Finished goods 21,295 15,377
Work-in-process 355 180
Raw materials 13,337 10,213
--------- ---------
Total inventories 34,987 25,770
--------- ---------
Prepaid expenses, insurance receivable and other 2,936 8,352
Deferred income taxes 2,371 2,111
--------- ---------
Total current assets 123,793 113,285
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST 262,520 212,704
Less - accumulated depreciation (84,892) (76,984)
--------- ---------
Property, plant and equipment, net 177,628 135,720
--------- ---------
OTHER ASSETS 2,651 3,177
--------- ---------
$ 304,072 $ 252,182
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 25,437 $ 18,067
Accrued liabilities 11,717 15,817
--------- ---------
Total current liabilities 37,154 33,884
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LONG-TERM DEBT 88,700 63,000
DEFERRED INCOME TAXES 19,642 18,047
SHAREHOLDERS' EQUITY -
Common stock, $1 par 19,988 19,988
Paid-in-capital 58,834 59,586
Retained earnings 85,387 64,632
--------- ---------
164,209 144,206
Less - Treasury stock (379,367 and 465,149 shares, at cost) (5,633) (6,955)
--------- ---------
Total shareholders' equity 158,576 137,251
--------- ---------
$ 304,072 $ 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 Nine Months Ended
---------------------- ----------------------
3-31-00 3-31-99 3-31-00 3-31-99
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES $ 90,448 $ 70,735 $ 267,973 $ 227,802
--------- --------- --------- ---------
COST AND EXPENSES
Cost of sales 70,607 53,132 201,023 169,506
Selling, general and administrative 10,002 8,898 29,352 28,982
--------- --------- --------- ---------
INCOME FROM OPERATIONS 9,839 8,705 37,598 29,314
--------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Gain from involuntary conversion 403 -- 1,292 --
Interest expense, net (239) (464) (760) (1,468)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 10,003 8,241 38,130 27,846
Provision for income taxes 3,792 3,126 14,439 10,527
--------- --------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 6,211 5,115 23,691 17,319
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE -- -- -- (4,340)
--------- --------- --------- ---------
NET INCOME $ 6,211 $ 5,115 $ 23,691 $ 12,979
========= ========= ========= =========
INCOME PER COMMON SHARE-BASIC:
Before cumulative effect of
change in accounting principle $ .32 $ .26 $ 1.21 $ .89
Cumulative effect of change
in accounting principle -- -- -- (.22)
--------- --------- --------- ---------
NET INCOME PER SHARE-BASIC $ .32 $ .26 $ 1.21 $ .67
========= ========= ========= =========
INCOME PER COMMON SHARE-DILUTED:
Before cumulative effect of change
in accounting principle $ .31 $ .26 $ 1.18 $ .87
Cumulative effect of change in
accounting principle -- -- -- (.22)
--------- --------- --------- ---------
NET INCOME PER SHARE-DILUTED $ .31 $ .26 $ 1.18 $ .65
========= ========= ========= =========
DIVIDENDS PER COMMON SHARE $ .05 $ .0467 $ .15 $ .14
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
ELCOR CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, $ in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 23,691 $ 12,979
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 7,930 6,825
Deferred income taxes 1,335 4,340
Gain from involuntary conversion (1,292) --
Cumulative effect of change in accounting principle -- 4,340
Changes in assets and liabilities:
Trade receivables (5,781) (3,101)
Inventories (9,217) (1,355)
Prepaid expenses, insurance receivable and other 4,398 (7,131)
Accounts payable and accrued liabilities 3,270 3,157
-------- --------
Net cash provided by operating activities 24,334 20,054
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (49,816) (22,236)
Business acquisition, net of cash acquired -- (5,298)
Insurance proceeds from involuntary conversion 2,310 3,187
Other 504 (304)
-------- --------
Net cash used for investing activities (47,002) (24,651)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term borrowings, net 25,700 9,500
Dividends on common stock (2,936) (2,729)
Treasury stock transactions and other, net 570 (5,970)
-------- --------
Net cash provided by financing activities 23,334 801
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 666 (3,796)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,186 5,240
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,852 $ 1,444
======== ========
</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 and nine-month periods ending
March 31, 2000 and 1999, 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 nonrecurring $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 nonwoven
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 submitted claims totaling $17,492,000 for property damage and
business interruption. In February 2000 the company reached final
settlement with its insurance company. In total, the company received
insurance proceeds of $17,017,000 on the claim. Assets with net book value
of $3,990,000 were destroyed in the explosion and were insured for
replacement value. Overall, the company received replacement value payments
on the property claim in excess of the net book value of destroyed assets
in the amount of $1,292,000. This amount was recorded as a gain from
involuntary conversion.
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 the Lufkin, Texas facility
have been transferred to the Cleveland, Ohio plant. Costs to relocate
equipment and other nonrecurring consolidation items of about $2,600,000
were incurred and recorded to expense in fiscal 2000. The Lufkin, Texas
facility will be used for Cybershield's products for digital wireless
cellular phones and other electronic equipment.
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 March 31, 1999 have been adjusted to reflect the
stock split on a retroactive basis.
6. Effective January 5, 2000, the company increased its unsecured revolving
credit facility from $100,000,000 to $125,000,000 and extended its term to
December 15, 2004. There were no 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
the 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)
products used in digital wireless cellular phones and other electronic
equipment; (2) remanufactured large diesel reciprocating engine components
used in the railroad and marine transportation industries; and (3)
technology licensing and consulting services for the natural gas processing
and sulfur recovery industries.
Historically, the two businesses described above under (1) and (2) 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. The reciprocating engine components business will
continue to do business as Chromium Corporation (Chromium) and the digital
wireless cellular phones and other electronic equipment business 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 (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES
Roofing products $ 80,479 $ 60,335 $ 232,248 $ 199,615
Industrial products 9,928 10,356 35,595 28,092
Corporate and eliminations 41 44 130 95
--------- --------- --------- ---------
$ 90,448 $ 70,735 $ 267,973 $ 227,802
========= ========= ========= =========
OPERATING PROFIT (LOSS)
Roofing products $ 12,621 $ 9,365 $ 40,216 $ 31,526
Industrial products (1,361) 961 1,575 3,593
Corporate and other (1,421) (1,621) (4,193) (5,805)
--------- --------- --------- ---------
9,839 8,705 37,598 29,314
Gain from involuntary conversion 403 -- 1,292 --
Interest expense, net (239) (464) (760) (1,468)
--------- --------- --------- ---------
Income before income taxes $ 10,003 $ 8,241 $ 38,130 $ 27,846
========= ========= ========= =========
IDENTIFIABLE ASSETS
Roofing products $ 251,018 $ 197,602 $ 251,018 $ 197,602
Industrial products 31,673 26,163 31,673 26,163
Corporate 21,381 12,367 21,381 12,367
--------- --------- --------- ---------
$ 304,072 $ 236,132 $ 304,072 $ 236,132
========= ========= ========= =========
DEPRECIATION AND AMORTIZATION
Roofing products $ 2,122 $ 1,958 $ 6,333 $ 5,913
Industrial products 516 298 1,483 787
Corporate 38 36 114 125
--------- --------- --------- ---------
$ 2,676 $ 2,292 $ 7,930 $ 6,825
========= ========= ========= =========
CAPITAL EXPENDITURES
Roofing products $ 16,395 $ 6,857 $ 41,767 $ 13,581
Industrial products 1,452 1,143 4,831 3,791
Corporate 639 2,174 3,218 4,864
--------- --------- --------- ---------
$ 18,486 $ 10,174 $ 49,816 $ 22,236
========= ========= ========= =========
</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 adjustments for the
number of shares subject to outstanding stock options. The following table
sets forth the computation of basic and diluted earnings per share (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 6,211 $ 5,115 $23,691 $12,979
======= ======= ======= =======
Denominator for basic earnings
per share - weighted average
shares outstanding 19,603 19,494 19,565 19,557
Effect of dilutive securities:
Employee stock options 599 459 520 384
------- ------- ------- -------
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 20,202 19,953 20,085 19,941
======= ======= ======= =======
Basic earnings per share $ .32 $ .26 $ 1.21 $ .67
======= ======= ======= =======
Diluted earnings per share $ .31 $ .26 $ 1.18 $ .65
======= ======= ======= =======
</TABLE>
7
<PAGE> 9
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
CHANGES IN THE THREE-MONTH PERIOD ENDED MARCH 31, 2000 COMPARED TO THE
THREE-MONTH PERIOD ENDED MARCH 31, 1999.
During the three-month period ended March 31, 2000, net income increased
21% to $6,211,000 from $5,115,000 in the three-month period ended March 31,
1999. Sales increased 28% to $90,448,000 in the current year quarter compared to
$70,735,000 in the prior year period. The increase in sales was primarily the
result of record shipments for Elk's Prestique(R) premium laminated fiberglass
asphalt shingles and roofing mat products, combined with increasing demand for
Cybershield's products used in digital wireless cellular phones. The increase in
income reflects the significant increase in sales in the roofing products
segment and income recognition from settlement of the business interruption
insurance claim. During the three-month period ended March 31, 2000, the company
recorded a $403,000 gain from involuntary conversion as a result of final
settlement on the property claim whereby the company received replacement value
payments in excess of the net book value of destroyed assets. See Note 3 on page
4 of this Form 10-Q for further information on the settlement of the business
interruption and property claims.
Sales for the Roofing Products Group increased 33% to $80,479,000 for the
three months ended March 31, 2000 compared to $60,335,000 in the same prior year
quarter. Elk continued to benefit from strong demand for Elk's premium laminated
fiberglass asphalt shingles and its nonwoven mats used in manufacturing asphalt
roofing products and various industrial applications. Operating income increased
35% to $12,621,000 in the current year quarter compared to $9,365,000 in the
prior year quarter. The current year quarter included $1,700,000 of income
relating to the final settlement of the company's business interruption
insurance claim. However, during the third quarter of fiscal 2000, asphalt costs
were up about $3,100,000 and glass fiber costs were up about $600,000 compared
to the same prior year quarter. Elk was not able to recover these higher raw
material costs through higher prices during the current year quarter. Elk has
implemented a 4% to 5% increase in laminated shingle prices, effective March 27,
2000, and has announced a further 5% to 6% price increase, effective May 1,
2000. These price increases are expected to offset higher raw material costs,
provided that raw materials costs stabilize at current levels.
Sales for the Industrial Products Group decreased 4% to $9,928,000 in the
current year quarter compared to $10,356,000 in the prior year third quarter.
The Industrial Products Group had an operating loss of $1,361,000 in the
three-month period ended March 31, 2000 compared to a $961,000 operating profit
in the same period last year. The reduction in sales in the current year period
and the operating loss were primarily attributable to the relocation and
consolidation of Chromium's operations to the Cleveland, Ohio facility. Chromium
was unable to fulfill demand for its remanufactured diesel engine components
used in the railroad and marine transportation industries during this period
when its facilities were being consolidated. As a result, its sales were lower
and it incurred a significant operating loss in the three-month period ended
March 31, 2000, including about $1,650,000 of nonrecurring relocation and
consolidation costs. This consolidation is expected to reduce Chromium's
operating expenses by about $1,000,000 per year.
8
<PAGE> 10
Cybershield's sales and operating profit in the three-month period ended
March 31, 2000 were adversely affected by a temporary slowdown in Cybershield's
production of digital wireless handsets in the first two months of the quarter
to make engineering changes in production systems and equipment. Cybershield
recorded a 9% increase in sales for the third quarter ended March 31, 2000 as
compared to the year-ago quarter. However Cybershield's operating profit in the
third quarter of the current year was lower than the prior year's third quarter.
OEL, the company's patent licensing and engineering consulting services
business, reported slightly higher sales than in the prior year quarter and a
small operating loss for the three months ended March 31, 2000, as no patent
license fees were booked during the current year quarter. OEL expects to benefit
from increased demand for its services as a result of higher oil prices.
Overall selling, general and administrative costs (SG&A) in the three-month
period ending March 31, 2000 were 12.4% higher than in the same period in the
prior fiscal year, primarily as a result of selling expenses necessary to
achieve the 28% increase in revenues. As a percentage of sales, SG&A costs were
11.1% of sales in the current year quarter compared to 12.6% in the prior year
quarter.
Interest expense for the three months ended March 31, 2000 was lower than
in the same quarter last year. The company capitalized $748,000 of interest in
the current year quarter in connection with the construction of its new
Myerstown, Pennsylvania shingle plant and other major projects.
CHANGES IN THE NINE-MONTH PERIOD ENDED MARCH 31, 2000 COMPARED TO THE NINE-MONTH
PERIOD ENDED MARCH 31, 1999.
During the nine-month period ended March 31, 2000, net income before last
year's cumulative effect of a change in accounting principle increased 37% to
$23,691,000 from $17,319,000 in last year's nine month period. Sales increased
18% to $267,973,000 in the current year nine-month period compared to
$227,802,000 in the prior year period. The increases in sales and net income
before the accounting change were primarily the result of strong shipments of
roofing mat products and premium laminated fiberglass asphalt shingles, combined
with increasing demand for Cybershield's products used in digital wireless
cellular phones. During the nine-month period ended March 31, 2000, the company
recorded a $1,292,000 gain from involuntary conversion as a result of payments
on the property claim whereby the company received replacement value payments in
excess of the net book value of destroyed assets. 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
nonrecurring $4,340,000 charge, net of tax, for the cumulative effect of this
accounting change. This one-time cumulative charge reduced last year's
nine-month net income to $12,979,000 compared to $23,691,000 for the nine-month
period in the current fiscal year.
Sales for the Roofing Products Group increased 16% to $232,248,000 for the
nine months ended March 31, 2000 compared to $199,615,000 in the same period
last year primarily as a result of strong demand for Elk's premium laminated
fiberglass asphalt shingles. 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 28% in the first nine months of fiscal 2000 to $40,216,000 from
$31,526,000 in the prior year period, primarily as a result of strong sales of
premium laminated fiberglass asphalt shingles and nonwoven fiberglass mats.
9
<PAGE> 11
Operating income for the nine months ended March 31, 2000 included
$3,478,000 of income relating to the company's business interruption claim
caused by an explosion at Elk's nonwoven fiberglass roofing mat plant in Ennis,
Texas in September 1998. However, in early fiscal 2000, shipments of Elk's
premium laminated fiberglass asphalt shingles were held down by lower laminated
shingle inventories. The inventory shortage was partially due to manufacturing
inefficiencies related to Elk's use of alternative sources of nonwoven
fiberglass mat in its manufacturing process as a result of the nonwoven mat
plant accident referred to above.
Sales for the Industrial Products Group increased 27% in the first nine
months of fiscal 2000 to $35,595,000 from $28,092,000 in the same period in the
prior fiscal year. Operating income for the Industrial Products Group decreased
in the nine-month period ended March 31, 2000 to $1,575,000 compared to
$3,593,000 in the same period last year. Sales of Cybershield's advanced
shielding products and related services for the digital wireless cellular phone
industry increased 72% in the first nine months of fiscal 2000 and Cybershield's
operating profit increased 42% compared to the first nine months in the prior
fiscal year. The current year results include Cybershield's Canton, Georgia
operation, which was acquired in January 1999. This new company generated
positive operating income during the first nine months of fiscal 2000 after
incurring initial operating losses in the latter half of fiscal 1999.
Cybershield plans to expand its digital wireless cellular phone business to
serve the European, Asian and Latin American markets over the next few years
through acquisition or other business arrangements to better serve its
customers' growing markets for digital wireless cellular phones and other
digital wireless electronic products. Cybershield is planning to establish
operations in Europe by the summer of calendar year 2000 before pursuing other
global growth opportunities.
For the first nine months of fiscal 2000, Chromium Corporation's sales
decreased 33% compared to the same prior year period as a result of the
relocation of manufacturing facilities for remanufactured diesel engine
components used in the railroad and marine transportation industries and the
impact of the consolidation of its manufacturing operations. Primarily as a
result of about $2,600,000 nonrecurring expenses relating to the consolidation
of its manufacturing operations, Chromium recorded a significant operating loss
in the first nine months of fiscal 2000 compared to a small operating profit
achieved in the same period last year. Revenues and operating income for OEL's
patent licensing and engineering consulting services were about the same in the
first nine months of fiscal 2000 compared to the same nine-month period last
year.
Overall SG&A costs in the nine-month period ending March 31, 2000 were
about 1% higher than in the same period in the prior fiscal year. However, in
the prior year period, the company adjusted its medical and casualty
self-insurance reserves and recorded a write-off of certain computer related
items. As a percentage of sales, SG&A costs were 11.0% of sales in the first
nine months of fiscal 2000 compared to 12.7% in the prior year period.
Interest expense in the first nine months of fiscal 2000 was lower than in
the same period last year, as the company capitalized $1,532,000 of interest in
the current year period in connection with the construction of its new
Myerstown, Pennsylvania shingle plant and other major projects.
10
<PAGE> 12
FINANCIAL CONDITION
During the first nine months of fiscal 2000, the company generated cash
flows of $24,334,000 from operating activities. Increased working capital
requirements primarily relate to higher trade receivables and inventory levels
at March 31, 2000, which are primarily due to seasonal increases in business
activity. In addition, trade receivables generally increase during the late
winter and early spring months resulting from extended payment terms to certain
customers during these months, with payment generally due during the summer
months. Increased trade receivables and inventories were partially offset by
lower other current assets and higher current liabilities. Lower current assets
primarily reflect collections from and final settlement with an insurance
company related to the explosion at its fiberglass roofing mat plant in Ennis,
Texas in September 1998. The higher level of current liabilities was primarily
attributable to the increased levels of operating activities and payables
associated with the construction of a new roofing plant. The current ratio was
3.3:1 at both March 31, 2000 and 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.
The company used $47,002,000 for investing activities in the first nine
months of fiscal 2000. Most expenditures were for additions to property, plant
and equipment. About $36,000,000 of capital expenditures in the first nine
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
in fall 2000 with manufacturing operations scheduled to begin in the December
2000 quarter. 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 digital
wireless cellular phone business. The company expects to incur about $75,000,000
of these capital expenditures in fiscal 2000.
Cash flows from financing activities were $23,334,000 during the first nine
months of fiscal 2000, primarily resulting from a $25,700,000 increase in
long-term debt. Long-term debt represented 36% of the $247,276,000 of invested
capital (long-term debt plus shareholders' equity) at March 31, 2000.
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 March 31, 2000, 129,992 shares with a
cumulative cost of $1,771,000 had been repurchased under this authorization.
Effective January 5, 2000, the company increased its revolving credit
facility from $100,000,000 to $125,000,000 and extended the facility to December
15, 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 currently planned capital expenditures, working capital needs,
dividends, stock repurchases and other cash requirements. However, management
believes it could secure additional capital at favorable rates, if needed, to
support its growth and international expansion plans.
11
<PAGE> 13
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 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.
YEAR 2000 ISSUE
As of May 11, 2000, the company has experienced no significant problems
relating to its Year 2000 readiness. Activities within the company and with its
suppliers and other third parties are continuing to be monitored.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains "forward-looking statements" that involve risks and
uncertainties about its prospects for the future. The statements that are not
historical facts are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements usually are
accompanied by words such as "outlook," "believe," "estimate," "plan,"
"project," "expect," "anticipate," "predict," "could," "should," "may," or
similar words that convey the uncertainty of future events or outcomes. These
statements are based on judgments the company believes are reasonable; however,
Elcor's actual results could differ materially from those discussed here. 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.
12
<PAGE> 14
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 trade dress litigation against
GAF Building Materials Corporation and certain affiliates, and its
defense of the purported class action brought by Wedgewood Knolls
Condominium Association, is subject to inherent and case-specific
uncertainty. The outcome of such litigation depends on numerous
interrelated factors, many of which cannot be predicted.
6. Although the company currently anticipates that most of its needs for
new capital in the near future will be met with internally generated
funds and borrowings under its existing loan facility, significant
increases in interest rates could substantially affect its borrowing
costs under its existing loan facility, or its cost of alternative
sources of capital.
7. Each of the company's businesses, especially Cybershield's digital
wireless cellular phone 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.
8. 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.
9. 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.
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<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings
GAF Patent Litigation
On March 8, 2000, the district court in Elk's design patent case denied
GAF's motion for attorneys fees.
Trial on Elk's trade dress claim in the design case, including GAF's
counterclaims, is unscheduled but pending. Also pending is GAF's motion for
attorneys fees in the utility patent case which was recently dismissed by
stipulation of the parties.
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.
For further information and background on the GAF Patent Litigation see
Part I, Item 3 of the Registrant's Annual Report on Form 10-K for the year ended
June 30, 1999, and Part II, Item 1 of the Quarterly Reports on Form 10-Q for the
quarters ended September 30, 1999 and December 31, 1999.
Wedgewood Knolls Litigation
On February 25, 2000, Wedgewood Knolls Condominium Association filed a
purported class action against the Registrant and Elk Corporation in the United
States District Court in Newark, New Jersey. The purported nationwide class
would include purchasers or current owners of buildings with certain Elk asphalt
shingles installed between January 1, 1980 and present. The suit alleges, among
other things, that the shingles were uniformly defective. It seeks reformation
of the limited warranty applicable to the shingles, and unspecified damages for
breach of implied and written warranties and alleged unfair or deceptive trade
practices on behalf of the plaintiff and the purported class.
The Registrant and Elk intend to vigorously defend the suit, and believe
the claims and the purported class are totally without merit.
ITEM 6: Exhibits and Reports of Form 8-K
(a) Exhibit:
Exhibit (27): Financial Data Schedule (EDGAR submission only).
(b) The registrant filed one report on Form 8-K during the quarter ended
March 31, 2000. The registrant filed a Form 8-K on January 20, 2000
relating to a press release containing "forward-looking statements"
about its prospects for the future.
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<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: May 11, 2000 /s/ Richard J. Rosebery
----------------- -----------------------------------
Richard J. Rosebery
Vice Chairman, Chief Financial &
Administrative Officer
/s/ Leonard R. Harral
-----------------------------------
Leonard R. Harral
Vice President and Chief
Accounting Officer
15
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 4,852
<SECURITIES> 0
<RECEIVABLES> 79,611
<ALLOWANCES> 964
<INVENTORY> 34,987
<CURRENT-ASSETS> 123,793
<PP&E> 262,520
<DEPRECIATION> 84,892
<TOTAL-ASSETS> 304,072
<CURRENT-LIABILITIES> 37,154
<BONDS> 88,700
0
0
<COMMON> 19,988
<OTHER-SE> 138,588
<TOTAL-LIABILITY-AND-EQUITY> 304,072
<SALES> 267,973
<TOTAL-REVENUES> 267,973
<CGS> 201,023
<TOTAL-COSTS> 230,375
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 760
<INCOME-PRETAX> 38,130
<INCOME-TAX> 14,439
<INCOME-CONTINUING> 23,691
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,691
<EPS-BASIC> 1.21
<EPS-DILUTED> 1.18
</TABLE>
