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, 2001 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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 851-0500
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]. No [ ].
As of close of business on May 1, 2001, Registrant had outstanding
19,229,119 shares of Common Stock, Par Value $1 per Share.
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
ELCOR CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited, $ in thousands)
March 31, June 30,
ASSETS 2001 2000
- ------ --------- ---------
CURRENT ASSETS
Cash and cash equivalents $ 1,444 $ 4,702
Trade receivables, less allowance of $958 and $963 63,333 71,712
Inventories -
Finished goods 47,656 29,249
Work-in-process 113 259
Raw materials 12,985 11,457
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Total inventories 60,754 40,965
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Prepaid expenses and other 8,191 4,312
Deferred income taxes 3,032 2,822
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Total current assets 136,754 124,513
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PROPERTY, PLANT AND EQUIPMENT, AT COST 311,359 279,028
Less - accumulated depreciation (93,961) (83,924)
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Property, plant and equipment, net 217,398 195,104
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OTHER ASSETS 2,838 2,957
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$ 356,990 $ 322,574
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES
Accounts payable $ 31,481 $ 36,034
Accrued liabilities 10,530 12,253
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Total current liabilities 42,011 48,287
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LONG-TERM DEBT 130,700 91,300
DEFERRED INCOME TAXES 23,259 21,083
SHAREHOLDERS' EQUITY -
Common stock, $1 par 19,988 19,988
Paid-in-capital 58,228 58,480
Retained earnings 94,630 90,641
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172,846 169,109
Less - Treasury stock (759,910 and 436,395 shares, at cost) (11,826) (7,205)
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Total shareholders' equity 161,020 161,904
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$ 356,990 $ 322,574
========= =========
See accompanying notes to consolidated financial statements
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ELCOR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited, $ in thousands
except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
SALES $ 76,063 $ 90,448 $ 230,884 $ 267,973
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COST AND EXPENSES
Cost of sales 61,993 70,607 182,237 201,023
Selling, general and administrative 11,665 10,002 35,652 29,352
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INCOME FROM OPERATIONS 2,405 9,839 12,995 37,598
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OTHER INCOME (EXPENSE)
Gain from involuntary conversion -- 403 -- 1,292
Interest expense, net (903) (239) (2,031) (760)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 1,502 10,003 10,964 38,130
Provision for income taxes 565 3,792 4,078 14,439
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NET INCOME $ 937 $ 6,211 $ 6,886 $ 23,691
========= ========= ========= =========
NET INCOME PER SHARE-BASIC $ .05 $ .32 $ .36 $ 1.21
========= ========= ========= =========
NET INCOME PER SHARE-DILUTED $ .05 $ .31 $ .35 $ 1.18
========= ========= ========= =========
DIVIDENDS PER COMMON SHARE $ .05 $ .05 $ .15 $ .15
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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ELCOR CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, $ in thousands)
Nine Months Ended
March 31,
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,886 $ 23,691
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 10,283 7,930
Deferred income taxes 1,966 1,335
Gain from involuntary conversion -- (1,292)
Changes in assets and liabilities:
Trade receivables 8,379 (5,781)
Inventories (19,789) (9,217)
Prepaid expenses and other (3,879) 4,398
Accounts payable and accrued liabilities (6,276) 3,270
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Net cash provided by (used for) operating activities (2,430) 24,334
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (32,555) (49,816)
Insurance proceeds from involuntary conversion -- 2,310
Other 97 504
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Net cash used for investing activities (32,458) (47,002)
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CASH FLOWS FROM FINANCING ACTIVITIES
Long-term borrowings, net 39,400 25,700
Dividends on common stock (2,897) (2,936)
Treasury stock transactions and other, net (4,873) 570
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Net cash provided by financing activities 31,630 23,334
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,258) 666
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,702 4,186
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,444 $ 4,852
======== ========
See accompanying notes to consolidated financial statements.
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ELCOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The attached condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. As a result, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. The company believes that the disclosures
included herein are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and
related notes included in the company's fiscal 2000 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, 2001 and 2000, 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 accordance with the requirements of FASB SFAS No. 131, the company
is segregated into the following segments: Roofing Products,
Electronics Manufacturing Services and Industrial Products. The Roofing
Products segment 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 Electronics Manufacturing Services segment consists of the various
operating subsidiaries of Cybershield, Inc. (collectively Cybershield).
These companies are engaged in the shielding of plastic electronics
enclosures by the use of electroless metallic chemicals, vacuum
metalization, robotic spray metallic paints and conductive dispense
gaskets, application of pad print and/or decorative paint finishes,
installation of antenna components, light tubes, battery connections,
inserts, subassembly operations and other value added services for the
telecommunications, computer and electronic equipment industries. Due
to the increasing materiality of the Electronics Manufacturing Services
business to the company, its operations have been segregated into a
separate segment as of June 30, 2000. These operations were previously
included in the Industrial Products segment.
The Industrial Products segment is comprised of: (1) surface finishing
of original equipment and remanufactured reciprocating diesel engine
components used in the railroad and marine transportation industries;
and (2) technology licensing and consulting services for the natural
gas processing industry.
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Financial information by company segment is summarized as follows (in
thousands):
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- ----------------------
2001 2000 2001 2000
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SALES
Roofing products $ 65,693 $ 80,479 $ 197,534 $ 232,248
Electronics manufacturing services 6,820 7,743 23,556 26,752
Industrial products 3,520 2,186 9,705 8,844
Corporate and eliminations 30 40 89 129
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$ 76,063 $ 90,448 $ 230,884 $ 267,973
========= ========= ========= =========
OPERATING PROFIT (LOSS)
Roofing products $ 3,908 $ 13,271 $ 18,270 $ 40,866
Electronics manufacturing services 556 1,069 2,172 4,681
Industrial products (171) (2,430) (1,119) (3,106)
Corporate and other (1,888) (2,071) (6,328) (4,843)
--------- --------- --------- ---------
2,405 9,839 12,995 37,598
Gain from involuntary conversion -- 403 -- 1,292
Interest expense, net (903) (239) (2,031) (760)
--------- --------- --------- ---------
Income before income taxes $ 1,502 $ 10,003 $ 10,964 $ 38,130
========= ========= ========= =========
IDENTIFIABLE ASSETS
Roofing products $ 293,886 $ 251,018 $ 293,886 $ 251,018
Electronics manufacturing services 32,270 25,135 32,270 25,135
Industrial products 10,421 6,538 10,421 6,538
Corporate 20,413 21,381 20,413 21,381
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$ 356,990 $ 304,072 $ 356,990 $ 304,072
========= ========= ========= =========
DEPRECIATION AND AMORTIZATION
Roofing products $ 2,380 $ 2,122 $ 6,776 $ 6,333
Electronics manufacturing services 363 428 1,153 1,218
Industrial products 148 88 298 265
Corporate 693 38 2,056 114
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$ 3,584 $ 2,676 $ 10,283 $ 7,930
========= ========= ========= =========
CAPITAL EXPENDITURES
Roofing products $ 5,904 $ 16,395 $ 28,136 $ 41,767
Electronics manufacturing services 192 762 3,531 3,577
Industrial products 351 690 721 1,254
Corporate 60 639 167 3,218
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$ 6,507 $ 18,486 $ 32,555 $ 49,816
========= ========= ========= =========
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3. 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 (dollars and share
totals, in thousands):
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ ------------------
2001 2000 2001 2000
------- ------- ------- -------
Net income $ 937 $ 6,211 $ 6,886 $23,691
======= ======= ======= =======
Denominator for basic earnings
per share - weighted average
shares outstanding 19,220 19,603 19,353 19,565
Effect of dilutive securities:
Employee stock options 169 599 174 520
------- ------- ------- -------
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 19,389 20,202 19,527 20,085
======= ======= ======= =======
Basic earnings per share $ .05 $ .32 $ .36 $ 1.21
======= ======= ======= =======
Diluted earnings per share $ .05 $ .31 $ .35 $ 1.18
======= ======= ======= =======
4. On November 30, 2000, the company increased its revolving credit
facility from $125,000,000 to $175,000,000 and extended its term to
November 30, 2005. Effective March 31, 2001, the company amended the
facility in order to make certain financial covenants less restrictive
and agreed to collateralize the facility with certain trade receivables
and inventories if specified financial ratios are not met beginning
June 30, 2001. The pricing level for base rate loans, Eurodollar rate
loans and commitment fees are determined on the company's leverage
ratio, as defined, at each quarter end. Based on the leverage ratio at
March 31, 2001, the base rate for borrowings, as amended, will be prime
plus .625%, the Eurodollar borrowing rate will be LIBOR plus 2.5% and
the commitment fee will be .5% of the average unused portion of the
line.
The facility, as amended, among other things, requires that the company
maintain a specified minimum consolidated net worth, a minimum fixed
charge coverage ratio and a maximum capitalization ratio, all based on
defined terms. The facility also contains restrictions that limit the
payment of cash dividends and stock repurchases based on defined
criteria.
5. During the second quarter of fiscal 2001, management determined that
the useful lives of certain buildings and equipment utilized in the
Electronics Manufacturing Services segment were longer than originally
established. A change in accounting estimate was recognized to reflect
this decision, resulting in an increase in pretax income of $150,000
per fiscal quarter beginning in the quarter ended December 31, 2000.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
CHANGES IN THE THREE-MONTH PERIOD ENDED MARCH 31, 2001 COMPARED TO THE
THREE-MONTH PERIOD ENDED MARCH 31, 2000.
During the three-month period ended March 31, 2001, net income
decreased to $937,000 compared to $6,211,000 for the same prior year period.
Sales decreased 16% to $76,063,000 in the third quarter of fiscal 2001 compared
to $90,448,000 in the same period of fiscal 2000. Decreased sales and income
were reported in the Roofing Products and Electronics Manufacturing Services
segments. However, the Industrial Products segment achieved higher sales and
much improved operating results. During the three-month period ended March 31,
2000, the company recorded $403,000 gain from involuntary conversion as a result
of insurance proceeds exceeding the book value of assets destroyed in a plant
explosion in September 1998 at its nonwoven fiberglass roofing mat plant in
Ennis, Texas. Final settlement with the company's insurance company was reached
in fiscal 2000.
Sales for the Roofing Products segment decreased 18% to $65,693,000 for
the three months ended March 31, 2001 compared to $80,479,000 in the same prior
year quarter. The decrease in sales reflected a decline in shipments of both
laminated asphalt shingles and nonwoven fiberglass roofing mat sold to other
roofing manufacturers. Lower demand for residential asphalt roofing products in
many regions of the country resulted from weakening industry conditions. Demand
in the current year quarter was also adversely effected by heavy winter and
spring rains in many parts of the country and unusually harsh winter weather in
the Northern region of the United States.
Operating income for the Roofing Products segment decreased 71% to
$3,908,000 for the three months ended March 31, 2001 compared to $13,271,000 in
the prior year quarter. The decrease in operating income compared to the prior
year is primarily the result of the decrease in shipments of premium laminated
fiberglass shingles and nonwoven fiberglass mats, combined with higher costs for
raw materials and higher expenses relating to the start-up of new facilities and
products. Asphalt costs, which account for about 24% of cost of goods sold for
laminated asphalt shingles, were higher in the quarter ended March 31, 2001
compared to the same quarter last year. Average selling prices for laminated
shingles were slightly lower in the current year quarter compared to the same
prior year period. Marketing and promotion costs were much higher in the current
year quarter compared to the same quarter last year in part due to Elk expanding
its distribution network in conjunction with construction of the new Myerstown,
Pennsylvania roofing plant. Sales and operating income in last year's third
quarter also included $1,700,000 of income relating to the final settlement of a
business interruption claim.
Sales for the Electronics Manufacturing Services segment decreased 12%
to $6,820,000 in the third quarter of fiscal 2001 compared to $7,743,000 in the
same period last year. Operating income decreased 48% to $556,000 in the
three-month period ended March 31, 2001 from $1,069,000 in the same three-month
period last year. The current year's third quarter results reflect lower demand
resulting from the significant reduction in the production of telecommunications
equipment as the industry focused on reducing inventories in response to slowing
end-user demand.
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Sales for the Industrial Products Group increased 61% to $3,520,000 in
the three-month period ending March 31, 2001 compared to $2,186,000 in the same
prior year quarter. A $171,000 operating loss was reported in the current year
quarter compared to a $2,430,000 operating loss in the prior year quarter.
Significantly improved results were due primarily to Chromium Corporation's
turnaround after consolidating all manufacturing operations into its Cleveland,
Ohio facility. The prior year operating loss included about $1,650,000 of
nonrecurring costs to relocate equipment and other consolidation related items.
Ortloff Engineers, the company's patent licensing and engineering consulting
services business, reported operating results in the current year quarter
comparable to the same prior year quarter. However, negotiations on some new
technology licensing opportunities were substantially completed during the
quarter but definitive contracts had not been executed by quarter end.
Overall selling, general and administrative costs (SG&A) in the
three-month period ending March 31, 2001 were 17% higher than in the same period
in the prior fiscal year. Increased costs compared to the prior year period
included higher sales and marketing costs in the Roofing Products segment and
higher depreciation at corporate relating to a new enterprise resource system.
Net interest expense in the third quarter of fiscal 2001 was $903,000
compared to $239,000 in the same prior year period. The company capitalized
$1,298,000 of interest in the current year quarter compared to $748,000 in the
prior year quarter. Capitalized interest expense in both years primarily related
to the construction of the new Myerstown, Pennsylvania shingle plant.
CHANGES IN THE NINE-MONTH PERIOD ENDED MARCH 31, 2001 COMPARED TO THE NINE-MONTH
PERIOD ENDED MARCH 31, 2000.
During the nine-month period ended March 31, 2001, net income decreased
to $6,886,000 from $23,691,000 in last year's period. Sales decreased 14% to
$230,884,000 in the current year period from $267,973,000 in the same prior year
period. Decreased sales and income were reported in the Roofing Products and
Electronics Manufacturing Services segments. The Industrial Products segment
reported increased sales and a much smaller operating loss for the first nine
months of fiscal 2001 compared to the same prior year period. 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 a property claim whereby
the company received replacement value payments in excess of the net book value
of destroyed assets on a claim that was settled in February 2000.
Sales for the Roofing Products segment decreased 15% to $197,534,000
for the nine months ended March 31, 2001 compared to $232,248,000 in the same
period last year. During the first nine months of fiscal 2001, sales of the
company's laminated asphalt shingles and nonwoven fiberglass mat sold to other
roofing manufacturers declined in many regions of the country as a result of a
combination of factors, including overall weakened economic conditions, harsh
winter weather conditions in the Northern United States, heavy winter and spring
rains in many parts of the country, and actions by competitors in the early part
of fiscal 2001 to increase their production of laminated shingles to compensate
for lower demand for commodity shingles.
Operating income for the Roofing Products segment decreased
significantly to $18,270,000 for the first nine months of fiscal 2001 compared
to $40,866,000 for the same period in the prior fiscal year. Average selling
prices for laminated shingles were slightly lower in the current year period
compared to the same period last year and the company incurred much higher raw
material costs, particularly asphalt and glass fiber costs, and higher expenses
relating to start-up of the new Myerstown, Pennsylvania roofing plant and
development of new products. Operating income for the nine months ended March
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31, 2000 included $3,478,000 of income relating to a business interruption claim
that was settled in February 2000. These factors, combined with lower shipments
of roofing products, resulted in a 55% reduction in operating profit compared to
the prior year.
Management is cautiously optimistic that the roofing business is poised
for recovery. The heavy winter and spring rains experienced in many parts of the
country and the unusually harsh winter weather experienced in the Northern
regions of the United States should result in increased roofing demand during
the summer roofing season, which will benefit both the shingle and mat
businesses. Management also believes that industry manufacturing capacity and
inventory levels have tightened as a result of a competitor's permanent closure
of three roofing plants and a reduced level of production at some other plants
this winter. Most major roofing manufacturers have recently implemented modest
price increases. Asphalt raw material prices have stabilized, and in some cases
are falling moderately. Management further believes that Elk's winter sales
program was successful and its Prestique premium laminated shingle line is well
stocked in distribution channels moving into the roofing season. Finally, the
new Myerstown plant gives Elk the production capacity to fully participate in
any market recovery and to expand Elk's product development efforts.
Sales for the Electronics Manufacturing Services segment decreased 12%
to $23,556,000 in the nine-month period ended March 31, 2001 compared to
$26,752,000 in the same period in the prior fiscal year. Lower sales were
primarily the result of reduced demand for digital cell phone models and
infrastructure equipment served by Cybershield as the telecommunications
equipment industry focused on reducing inventories in response to slowing
end-user demand. This resulted in a significant reduction in production
requirements for new models and products. Operating income decreased 54% to
$2,172,000 in the first nine months of fiscal 2001 from $4,681,000 in the
nine-month period ended March 31, 2000. Decreased operating income is primarily
attributable to reduced sales and higher costs incurred earlier in the current
fiscal year for initial production ramp-ups on new digital wireless handset
products, which were subsequently curtailed.
Management believes the sales growth and operating margins in the
Electronics Manufacturing Services segment will continue under pressure until
inventories in the wireless telecommunication industry are reduced to a more
appropriate level in relation to current demand. Management cannot currently
predict the duration of this correction with any degree of confidence.
Sales for the Industrial Products segment increased 10% in the
nine-month period ended March 31, 2001 to $9,705,000 from $8,844,000 for the
same period in the prior fiscal year. An operating loss of $1,119,000 was
reported in the current year period compared to a $3,106,000 operating loss in
the prior year period. The current year included an operating loss in July 2000
that was the result of the consolidation of manufacturing operations and initial
production of products new to Chromium Corporation's Cleveland, Ohio plant.
Excluding the results for July 2000, Chromium has generated an operating profit
for each month of current year period and the outlook appears good for
continuing improvement during the remainder of fiscal 2001. The prior year
period operating loss included a significant amount of nonrecurring items
relating to the consolidation of Chromium's manufacturing operations. Excluding
these costs, Chromium's operating results were near break-even in the first nine
months of fiscal 2000. Ortloff Engineers experienced lower sales and operating
results in the first nine months of fiscal 2001 compared to the same prior year
period. However, its outlook for awards of significant licenses of the company's
leading edge patented cryogenic gas processing technology appears good in the
months ahead.
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Overall S,G&A costs in the nine-month period ending March 31, 2001 were
21% higher than in the same period in the prior fiscal year, primarily as a
result of higher sales and marketing costs primarily related to the new
Myerstown plant expansion in the Roofing Products segment and higher
depreciation at corporate relating to a new enterprise resource system.
Net interest expense in the first nine months of fiscal 2001 was
$2,031,000 compared to $760,000 in the same prior year period. The company
capitalized $3,965,000 of interest in the current year period compared to
$1,532,000 of interest in the prior year period in connection with the
construction of its new Myerstown, Pennsylvania shingle plant and other major
products. Interest expense is expected to be higher for the remainder of fiscal
2001, primarily due to increased debt levels relating to the seasonally higher
levels of working capital.
FINANCIAL CONDITION
During the first nine months of fiscal 2001, the company utilized cash
flows of $2,430,000. Overall working capital at March 31, 2001 (excluding cash
and cash equivalents) was $21,775,000 higher than at June 30, 2000. Trade
receivables were $8,379,000 lower at March 31, 2001 compared to June 30, 2000,
due to decreased product shipments. Receivables at March 31, 2001 include
amounts with extended payment terms to certain customers for products shipped
during the late winter and early spring months, with most payments generally due
during the spring. The decrease in receivables was more than offset by higher
inventories, higher prepaid expenses and lower current liabilities.
Higher inventories of premium laminated fiberglass shingles and roofing
mats reflect increases in both units and cost per unit, as well as building an
initial base level of inventory at the new Myerstown, Pennsylvania roofing
plant. Inventory levels have been increased so as to enter the roofing season
with ample roofing inventories in order to take full advantage of a potential
rebound in the roofing market. Management intends to significantly reduce
inventories before winter by increased sales levels and/or reduced production
rates. The current ratio at March 31, 2001 was 3.2:1 compared to 2.6:1 at the
end of fiscal 2000. 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 $32,458,000 for net investing activities in the first
nine months of fiscal 2001. Most expenditures were for additions to property,
plant and equipment. About $23,000,000 of capital expenditures in the first nine
months of fiscal 2001 were for construction costs relating to the new Myerstown,
Pennsylvania premium laminated fiberglass asphalt shingle plant. Construction of
this new facility has been completed, start-up is underway and limited
manufacturing operations began in the December 2000 quarter. The Myerstown plant
is expected to increase the company's overall laminated shingle capacity by
about 38%. The company currently plans to continue its expansion plan over the
next several years in accordance with its assessment of growth in market demand,
primarily by improving productivity at existing plants, developing new products
and installing production lines for new products.
Cash flows from financing activities were $31,630,000 during the first
nine months of fiscal 2001, primarily resulting from a $39,400,000 increase in
long-term debt. Long-term debt represented almost 45% of the $291,720,000 of
invested capital (long-term debt plus shareholders' equity) at March 31, 2001.
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In September 1998, the company's Board of Directors authorized the
purchase of up to $10,000,000 of common shares from time to time on the open
market to be used for general corporate purposes. On August 28, 2000, the Board
of Directors authorized the repurchase of up to an additional $10,000,000 of
common stock. As of March 31, 2001, 600,590 shares with cumulative cost of
$9,366,000 had been repurchased under these authorizations.
On November 30, 2000, the company increased its revolving credit
facility from $125,000,000 to $175,000,000 to support its capital expansion
program. Management believes that current cash and cash equivalents, projected
cash flows from operations and the increased revolving credit facility should be
sufficient during fiscal 2001 and beyond to fund its expansion plans, working
capital needs, dividends, stock repurchases and other cash requirements.
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 and electronics manufacturing services 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.
FORWARD-LOOKING STATEMENTS
In an effort to give investors a well-rounded view of the company's
current condition and future opportunities, management's discussion and analysis
of the results of operations and financial condition and other sections of this
Form 10-Q contain "forward-looking statements" 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, the company'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.
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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 plans to continue its significant expansion plan
over the next several years, including the construction of new
facilities. 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 electronics manufacturing
services and 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 Elk's defense of purported
class action lawsuits, 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 or borrowings under its available
credit facilities, 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
shielding 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.
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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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PART II. OTHER INFORMATION
ITEM 5: Other Information
On February 6, 2001, the company announced that the Board of Directors
elected Thomas D. Karol, a member of the Board, as President and Chief Executive
Officer, to succeed Harold K. Work, effective March 26, 2001. Mr. Work will
continue as Chairman of the Board of Directors for a transition period before
retiring.
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit (4.13): First Amendment to Credit Agreement dated as
of March 31, 2001 among Elcor Corporation, Bank One, N.A., as
Documentation Agent, First Union National Bank, as Syndication
Agent, and Bank of America, N.A., as Administrative Agent,
Swing Line Lender and L/C Issuer.
(b) The registrant filed three reports on Form 8-K during the
quarter ended March 31, 2001. The registrant filed Forms 8-K
on January 12, 2001, January 18, 2001 and March 15, 2001
relating to press releases containing "forward-looking
statements" about its prospects for the future and certain
other information concerning the company's disclosures under
Regulation F-D.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELCOR CORPORATION
DATE: May 14, 2001 /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
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
Exhibit (4.13): First Amendment to Credit Agreement dated as of March 31, 2001
among Elcor Corporation, Bank One, N.A., as Documentation
Agent, First Union National Bank, as Syndication Agent, and
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C Issuer.