10-Q 1 d86818e10-q.txt FORM 10-Q FOR QUARTER ENDED MARCH 31, 2001 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 March 31, 2001 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 May 1, 2001, Registrant had outstanding 19,229,119 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)
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 --------- --------- Total inventories 60,754 40,965 --------- --------- Prepaid expenses and other 8,191 4,312 Deferred income taxes 3,032 2,822 --------- --------- Total current assets 136,754 124,513 --------- --------- PROPERTY, PLANT AND EQUIPMENT, AT COST 311,359 279,028 Less - accumulated depreciation (93,961) (83,924) --------- --------- Property, plant and equipment, net 217,398 195,104 --------- --------- OTHER ASSETS 2,838 2,957 --------- --------- $ 356,990 $ 322,574 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Accounts payable $ 31,481 $ 36,034 Accrued liabilities 10,530 12,253 --------- --------- Total current liabilities 42,011 48,287 --------- --------- 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 --------- --------- 172,846 169,109 Less - Treasury stock (759,910 and 436,395 shares, at cost) (11,826) (7,205) --------- --------- Total shareholders' equity 161,020 161,904 --------- --------- $ 356,990 $ 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 Nine Months Ended March 31, March 31, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- SALES $ 76,063 $ 90,448 $ 230,884 $ 267,973 --------- --------- --------- --------- 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 --------- --------- --------- --------- INCOME FROM OPERATIONS 2,405 9,839 12,995 37,598 --------- --------- --------- --------- 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 --------- --------- --------- --------- 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. 2 4 ELCOR CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, $ in thousands)
Nine Months Ended March 31, -------------------- 2001 2000 -------- -------- 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 -------- -------- Net cash provided by (used for) operating activities (2,430) 24,334 -------- -------- 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 -------- -------- Net cash used for investing activities (32,458) (47,002) -------- -------- 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 -------- -------- Net cash provided by financing activities 31,630 23,334 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,258) 666 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,702 4,186 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,444 $ 4,852 ======== ========
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 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. 4 6 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 --------- --------- --------- --------- 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 --------- --------- --------- --------- $ 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 --------- --------- --------- --------- $ 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 --------- --------- --------- --------- $ 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 --------- --------- --------- --------- $ 6,507 $ 18,486 $ 32,555 $ 49,816 ========= ========= ========= =========
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 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. 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 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. 7 9 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 8 10 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. 9 11 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. 10 12 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. 11 13 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. 12 14 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. 13 15 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. 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: 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 15 17 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.