10-Q 1 d83840e10-q.txt FORM 10-Q FOR QUARTER ENDED DECEMBER 31, 2000 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 ---------- For Quarter Ended December 31, 2000 Commission File number 1-5341 ELCOR CORPORATION ------------------------------------------------------ (Exact name of Registrant as specified in its charter) DELAWARE 75-1217920 --------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14643 DALLAS PARKWAY SUITE 1000, WELLINGTON CENTRE, DALLAS, TEXAS 75240-8871 -------------------------------------------- ---------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 851-0500 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- As of close of business on February 1, 2001, Registrant had outstanding 19,213,953 shares of Common Stock, Par Value $1 per Share. 2 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements ELCOR CORPORATION CONSOLIDATED BALANCE SHEET (Unaudited, $ in thousands)
December 31, June 30, ASSETS 2000 2000 ----------- --------- CURRENT ASSETS Cash and cash equivalents $ 3,461 $ 4,702 Trade receivables, less allowance of $958 and $963 48,429 71,712 Inventories - Finished goods 43,258 29,249 Work-in-process 535 259 Raw materials 14,411 11,457 --------- --------- Total inventories 58,204 40,965 --------- --------- Prepaid expenses and other 4,127 4,312 Deferred income taxes 2,937 2,822 --------- --------- Total current assets 117,158 124,513 --------- --------- PROPERTY, PLANT AND EQUIPMENT, AT COST 304,851 279,028 Less - accumulated depreciation (90,385) (83,924) --------- --------- Property, plant and equipment, net 214,466 195,104 --------- --------- OTHER ASSETS 2,797 2,957 --------- --------- $ 334,421 $ 322,574 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 33,824 $ 36,034 Accrued liabilities 9,404 12,253 --------- --------- Total current liabilities 43,228 48,287 --------- --------- LONG-TERM DEBT 108,000 91,300 DEFERRED INCOME TAXES 22,474 21,083 SHAREHOLDERS' EQUITY - Common stock, $1 par 19,988 19,988 Paid-in-capital 58,155 58,480 Retained earnings 94,654 90,641 --------- --------- 172,797 169,109 Less -- Treasury stock (776,334 and 436,395 shares, at cost) (12,078) (7,205) --------- --------- Total shareholders' equity 160,719 161,904 --------- --------- $ 334,421 $ 322,574 ========= =========
See accompanying notes to consolidated financial statements. 1 3 ELCOR CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited, $ in thousands except per share data)
Three Months Ended Six Months Ended December 31, December 31, ---------------------- ---------------------- 2000 1999 2000 1999 --------- --------- --------- --------- SALES $ 68,620 $ 81,736 $ 154,821 $ 177,525 --------- --------- --------- --------- COST AND EXPENSES Cost of sales 53,825 60,674 120,244 130,416 Selling, general and administrative 12,548 9,838 23,987 19,350 --------- --------- --------- --------- INCOME FROM OPERATIONS 2,247 11,224 10,590 27,759 --------- --------- --------- --------- OTHER INCOME (EXPENSE) Gain from involuntary conversion -- 889 -- 889 Interest expense, net (623) (104) (1,128) (521) --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 1,624 12,009 9,462 28,127 Provision for income taxes 619 4,538 3,513 10,647 --------- --------- --------- --------- NET INCOME $ 1,005 $ 7,471 $ 5,949 $ 17,480 ========= ========= ========= ========= NET INCOME PER SHARE-BASIC $ .05 $ .38 $ .31 $ .89 ========= ========= ========= ========= NET INCOME PER SHARE-DILUTED $ .05 $ .37 $ .30 $ .87 ========= ========= ========= ========= DIVIDENDS PER COMMON SHARE $ .05 $ .05 $ .10 $ .10 ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 2 4 ELCOR CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, $ in thousands)
Six Months Ended December 31, -------------------- 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 5,949 $ 17,480 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,699 5,254 Deferred income taxes 1,276 401 Gain from involuntary conversion -- (889) Changes in assets and liabilities: Trade receivables 23,283 21,607 Inventories (17,239) (9,257) Prepaid expenses and other 185 2,672 Accounts payable and accrued liabilities (5,059) 6,987 -------- -------- Net cash provided by operating activities 15,094 44,255 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (26,048) (31,330) Insurance proceeds from involuntary conversion -- 1,651 Other 147 (72) -------- -------- Net cash used for investing activities (25,901) (29,751) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Long-term borrowings, net 16,700 (13,700) Dividends on common stock (1,936) (1,956) Treasury stock transactions and other, net (5,198) 236 -------- -------- Net cash provided by (used for) financing activities 9,566 (15,420) -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (1,241) (916) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,702 4,186 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,461 $ 3,270 ======== ========
See accompanying notes to consolidated financial statements. 3 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 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 six-month periods ending December 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 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. 4 6 Financial information by company segment is summarized as follows (in thousands):
Three Months Ended Six Months Ended December 31, December 31, ---------------------- ---------------------- 2000 1999 2000 1999 --------- --------- --------- --------- SALES Roofing products $ 56,623 $ 68,830 $ 131,841 $ 151,769 Electronics manufacturing services 8,347 9,865 16,736 19,009 Industrial products 3,621 2,996 6,185 6,658 Corporate and eliminations 29 45 59 89 --------- --------- --------- --------- $ 68,620 $ 81,736 $ 154,821 $ 177,525 ========= ========= ========= ========= OPERATING PROFIT Roofing products $ 3,363 $ 11,318 $ 14,362 $ 27,595 Electronics manufacturing services 919 2,252 1,616 3,612 Industrial products 297 (845) (948) (676) Corporate and other (2,332) (1,501) (4,440) (2,772) --------- --------- --------- --------- 2,247 11,224 10,590 27,759 Gain from involuntary conversion -- 889 -- 889 Interest expense, net (623) (104) (1,128) (521) --------- --------- --------- --------- Income before income taxes $ 1,624 $ 12,009 $ 9,462 $ 28,127 ========= ========= ========= ========= IDENTIFIABLE ASSETS Roofing products $ 273,872 $ 212,863 $ 273,872 $ 212,863 Electronics manufacturing services 31,303 24,096 31,303 24,096 Industrial products 9,742 7,524 9,742 7,524 Corporate 19,504 17,449 19,504 17,449 --------- --------- --------- --------- $ 334,421 $ 261,932 $ 334,421 $ 261,932 ========= ========= ========= ========= DEPRECIATION AND AMORTIZATION Roofing products $ 2,203 $ 2,110 $ 4,396 $ 4,211 Electronics manufacturing services 330 413 790 790 Industrial products 65 86 150 177 Corporate 682 38 1,363 76 --------- --------- --------- --------- $ 3,280 $ 2,647 $ 6,699 $ 5,254 ========= ========= ========= ========= CAPITAL EXPENDITURES Roofing products $ 8,490 $ 16,130 $ 22,232 $ 25,372 Electronics manufacturing services 1,109 912 3,339 2,815 Industrial products 118 544 370 564 Corporate 33 1,134 107 2,579 --------- --------- --------- --------- $ 9,750 $ 18,720 $ 26,048 $ 31,330 ========= ========= ========= =========
5 7 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 Six Months Ended December 31, December 31, ------------------ ----------------- 2000 1999 2000 1999 ------- ------- ------- ------- Net income $ 1,005 $ 7,471 $ 5,949 $17,480 ======= ======= ======= ======= Denominator for basic earnings per share - weighted average shares outstanding 19,317 19,564 19,420 19,546 Effect of dilutive securities: Employee stock options 121 507 177 481 ------- ------- ------- ------- 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 19,438 20,071 19,597 20,027 ======= ======= ======= ======= Basic earnings per share $ .05 $ .38 $ .31 $ .89 ======= ======= ======= ======= Diluted earnings per share $ .05 $ .37 $ .30 $ .87 ======= ======= ======= =======
4. On November 30, 2000, the company increased its unsecured revolving credit facility from $125,000,000 to $175,000,000 and extended its term to November 30, 2005. The pricing level for prime rate loans, Eurodollar rate loans and commitment fees were increased and are based on the company's leverage ratio, as defined, at each quarter end. Based on the leverage ratio at December 31, 2000, the Eurodollar borrowing rate was LIBOR plus 1.125% and the commitment fee was .25% of the average unused portion of the line. The facility, among other things, requires that the company maintain a specified minimum consolidated net worth, a minimum interest 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. 6 8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS CHANGES IN THE THREE-MONTH PERIOD ENDED DECEMBER 31, 2000 COMPARED TO THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1999. During the three-month period ended December 31, 2000, net income decreased 87% to $1,005,000 compared to $7,471,000 for the same prior year period. Sales decreased 16% to $68,620,000 in the second quarter of fiscal 2001 compared to $81,736,000 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 December 31, 1999, the company recorded $889,000 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 $56,623,000 for the three months ended December 31, 2000 compared to $68,830,000 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 resulting from weakening industry conditions was exacerbated by unusually harsh weather conditions in some areas of the United States in the current year quarter, as compared to prior year record demand levels. Operating income for the Roofing Products segment decreased 70% to $3,363,000 for the three months ended December 31, 2000 compared to $11,318,000 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 significantly higher costs for raw materials and higher expenses relating to the start-up of new facilities and products. While asphalt costs have remained relatively stable in fiscal 2001, the price of asphalt, which accounts for about 24% of cost of goods sold for laminated asphalt shingles, increased 32% in the quarter ended December 31, 2000 compared to the same quarter last year. Average selling prices for laminated shingles were about flat in the current year quarter compared to the same prior year period. Sales for the Electronics Manufacturing Services segment decreased 15% to $8,347,000 in the second quarter of fiscal 2001 compared to $9,865,000 in the same period last year. Prior year quarter sales benefited from higher production levels of components for more mature digital cell phone models. Operating income decreased 59% to $919,000 in the three-month period ended December 31, 2000 from $2,252,000 in the same three-month period last year. The current year's second quarter results reflect lower production volumes of these mature phone components and higher costs associated with ramping up production of components for several new phone models. Sales for the Industrial Products Group increased 21% to $3,621,000 in the three-month period ending December 31, 2000 compared to $2,996,000 in the same prior year quarter. A $297,000 operating profit was reported in the current year quarter compared to an $845,000 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 7 9 year operating loss included about $800,000 of nonrecurring costs to relocate equipment and other consolidation related items. Ortloff Engineers, the company's patent licensing and engineering consulting services business, also reported improved operating results in the current year quarter compared to the same prior year quarter. Overall selling, general and administrative costs (SG&A) in the three-month period ending December 31, 2000 were significantly 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 the new enterprise resource system. Net interest expense in the second quarter of fiscal 2001 was $623,000 compared to $104,000 in the same prior year period. The company capitalized $1,419,000 of interest in the current year quarter compared to $509,000 in the prior year quarter. Capitalized interest expense in both years related to the construction of the new Myerstown, Pennsylvania shingle plant and other major projects. CHANGES IN THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2000 COMPARED TO THE SIX-MONTH PERIOD ENDED DECEMBER 31, 1999. During the six-month period ended December 31, 2000, net income decreased to $5,949,000 from $17,480,000 in last year's first half. Sales decreased 13% to $154,821,000 in the current year period from $177,525,000 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 a small reduction in sales and a slightly higher operating loss for the first half of fiscal 2001 compared to the same prior year period. Sales for the Roofing Products segment decreased 13% to $131,841,000 for the six months ended December 31, 2000 compared to $151,769,000 in the same period last year. During the first half 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, particularly in the Western United States, as a result of a combination of factors, including overall weakened economic conditions, unusually harsh winter weather conditions and actions by competitors 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 $14,362,000 for the first six months of fiscal 2001 compared to $27,595,000 for the same period in the prior fiscal year. Although average selling prices for laminated shingles were slightly higher in the current year period compared to the same period last year, the increased sales prices did not offset the significantly higher costs for raw materials, particularly asphalt costs, and higher expenses relating to start-up of the new Myerstown, Pennsylvania roofing plant and development of new products. These factors, combined with lower shipments of roofing products, resulted in a 48% reduction in operating profit compared to the prior year. Management is cautiously optimistic that recent heavy rains in the Western United States and harsh winter weather conditions in the Midwestern and Northern regions of the United States may provide the impetus for increased demand in the months ahead. Further, recent actions of competitors to close inefficient roofing plants and to curtail production at selected roofing plants may reduce industry wide excess inventories which have restricted the industry's ability to recover sharply higher raw material and transportation costs through increased pricing. 8 10 Sales for the Electronics Manufacturing Services segment decreased 12% to $16,736,000 in the six-month period ended December 31, 2000 compared to $19,009,000 in the same period in the prior fiscal year. Lower sales were primarily the result of reduced demand for mature digital cell phone models served by Cybershield as new models are being introduced into the market. Operating income decreased 55% to $1,616,000 in the first half of fiscal 2001 from $3,612,000 in the six-month period ended December 31, 1999. Decreased operating income is primarily attributable to reduced sales and higher costs during initial production ramp-ups on new digital wireless handset products. Sales and operating profit for the Electronics Manufacturing Services segment are expected to increase in the third and fourth quarters of fiscal 2001 due to the scheduled ramp-up of new cellular handset components and other new products. Although there are many uncertainties in the market, if Cybershield's telecom customers maintain current production schedules, full year fiscal 2001 sales and operating income could exceed fiscal 2000 results by about a third. Sales for the Industrial Products segment decreased 7% in the six-month period ended December 31, 2000 to $6,185,000 from $6,658,000 for the same period in the prior fiscal year. A $948,000 operating loss was reported in the current year period compared to a $676,000 operating loss in the prior year period. However, the current year operating loss occurred in July 2000 and 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 the current year period and the outlook appears good for continuing improvement as fiscal 2001 progresses. 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 six-months of fiscal 2000. Ortloff Engineers experienced lower sales and operating results in the first half 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 for the remainder of fiscal 2001. Overall S,G&A costs in the six-month period ending December 31, 2000 were significantly higher than in the same period in the prior fiscal year, primarily as a result of higher sales and marketing costs in the Roofing Products segment and higher depreciation at corporate relating to its new enterprise resource system. Net interest expense in the first half of fiscal 2001 was $1,128,000 compared to $521,000 in the same prior year period. The company capitalized $2,667,000 of interest in the current year period compared to $784,000 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 in the second half of fiscal 2001, primarily due to higher borrowing rates and increased debt levels relating to the seasonal increases in working capital requirements. FINANCIAL CONDITION During the first six months of fiscal 2001, the company generated cash flows of $15,094,000. Overall working capital at December 31, 2000 (excluding cash and cash equivalents) was $1,055,000 lower than at June 30, 2000. Trade receivables were $23,283,000 lower at December 31, 2000 compared to June 30, 2000, primarily due to seasonality in the roofing business. However, the decrease in receivables was almost totally offset by higher inventories and lower current liabilities. 9 11 Higher inventories of premium laminated fiberglass shingles and roofing mats reflect increases in both units and cost per unit basis, as well as building an initial base level of inventory at the new Myerstown, Pennsylvania roofing plant. Although inventories are higher than planned due to lower shipments of residential asphalt roofing products in the December 2000 quarter, management does not believe the current level of inventory to be excessive. Inventory levels are being closely monitored in relation to current and projected sales levels. The current ratio at December 31, 2000 was 2.7:1 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 $25,901,000 for net investing activities in the first six months of fiscal 2001. Most expenditures were for additions to property, plant and equipment. About $19,100,000 of capital expenditures in the first six 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 progressing very smoothly 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 plans to continue its expansion plan over the next several years in accordance with its assessment of growth in market demand, primarily by expanding capacity and improving productivity at existing plants, developing new products, installing production lines for new products, and increasing capacity for Cybershield's digital wireless cellular phone business, including international expansion. Cash flows from financing activities were $9,566,000 during the first half of fiscal 2001, primarily resulting from a $16,700,000 increase in long-term debt. Long-term debt represented 40% of the $268,719,000 of invested capital (long-term debt plus shareholders' equity) at December 31, 2000. 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 December 31, 2000, 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 unsecured 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 10 12 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. 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 has completed construction and is in process of starting up its new roofing plant in Myerstown, Pennsylvania. Progress in achieving anticipated operating efficiencies and financial results is difficult to predict for new facilities. If such progress is slower than anticipated or if demand for products produced at the new facilities does not meet current expectations, operating results could be adversely affected. 11 13 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. 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. 12 14 PART II. OTHER INFORMATION ITEM 4: Submission of Matters to a Vote of Security Holders (a) The company's Annual Meeting of Shareholders was held on October 24, 2000 for the purpose of electing two directors and ratifying the appointment of the company's independent auditors. (b) Directors Elected:
NUMBER OF VOTES --------------- FOR AGAINST --- ------- Thomas D. Karol 17,911,495 415 Dale V. Kesler 17,835,794 76,116 Other Directors Whose Term Continued After the Meeting: James E. Hall Harold K. Work David W. Quinn Richard J. Rosebery
(c) Other matters voted upon at the meeting and the number of affirmative votes, negative votes and abstentions.
NUMBER OF VOTES ----------------------------------------------------------- AFFIRMATIVE AGAINST ABSTENTIONS ----------- ------- ----------- Ratification of Arthur Andersen LLP as Independent auditors of the company for the fiscal year ending June 30, 2001 17,971,779 50,332 24,437
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 (4.12): Credit Agreement dated as of November 30, 2000 among Elcor Corporation, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Bank One, Texas, N.A., as Documentation Agent, First Union National Bank, as Syndication Agent, The Other Lenders Party Hereto, and Bank of America Securities LLC, as Sole Lead Arranger and Sole Book Manager. 13 15 (b) The registrant filed one report on Form 8-K during the quarter ended December 31, 2000. The registrant filed a Form 8-K on October 17, 2000 relating to a press release containing "forward-looking statements" about its prospects for the future and certain other information concerning the company's disclosures under Regulation F-D. 14 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: February 13, 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 17 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION -------- ----------- 4.12 Credit Agreement dated as of November 30, 2000 among Elcor Corporation, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Bank One, Texas, N.A., as Documentation Agent, First Union National Bank, as Syndication Agent, The Other Lenders Party Hereto, and Bank of America Securities LLC, as Sole Lead Arranger and Sole Book Manager.