ELKCORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
		THE SECURITIES EXCHANGE ACT OF 1934

		For quarterly period ended December 31, 2003

		OR

[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
		OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from ________ to ________

		Commission File Number 1-5341

ELKCORP

(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.)

14911 QUORUM DRIVE, SUITE 600, DALLAS, TEXAS		75254-1491

(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 [ ].

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] . No [ ].

As of close of business on January 30, 2004, the Registrant had outstanding 19,634,067 shares of Common Stock, par value $1 per share.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 4: Submission of Matters to a Vote of Security Holders
	Item 5: Other Information
	Item 6: Exhibits and Reports on Form 8-K
SIGNATURES
Index to Exhibits
Fifth Amendment to Credit Agreement
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certificate of CEO Pursuant to Section 906
Certificate of CFO Pursuant to Section 906

ELKCORP AND SUBSIDIARIES

FOR THE QUARTER ENDED DECEMBER 31, 2003

INDEX


			Page

Part I. FINANCIAL INFORMATION (unaudited)
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of December 31, 2003 and June 30, 2003		1
		Consolidated Statements of Operations for the Three Months and Six Months Ended December 31, 2003 and 2002		2
		Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2003 and 2002		3
		Notes to Consolidated Financial Statements		4-13
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14-22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23
	Item 4.	Controls and Procedures		23
Part II. OTHER INFORMATION
	Item 4.	Submission of Matters to a Vote of Security Holders		24
	Item 5.	Other Information		24
	Item 6.	Exhibits and Reports on Form 8-K		25
SIGNATURES				26

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ELKCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, $ in thousands)


			December 31,			June 30,
			2003			2003

Assets
Current Assets
Cash and cash equivalents			$	31,072		$	5,056
Trade receivables, less allowance of $838 and $935				81,117			118,252
Inventories –
	Finished goods			43,305			44,606
	Work-in-process			232			89
	Raw materials			8,423			8,826

	Total inventories			51,960			53,521

Prepaid expenses and other				7,498			6,689
Deferred income taxes				3,812			2,372
Discontinued operations				2,641			13,958

		Total current assets		178,100			199,848

Property, Plant and Equipment, at Cost				378,254			348,888
	Less - accumulated depreciation			(127,379	)		(122,626	)

		Property, plant and equipment, net		250,875			226,262

Other Assets				11,832			15,745

			$	440,807		$	441,855

Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable			$	25,557		$	35,369
Accrued liabilities				21,982			18,958
Discontinued operations				1,657			1,212

		Total current liabilities		49,196			55,539

Long-Term Debt				148,402			152,526
Deferred Income Taxes				39,601			37,262
Shareholders’ Equity -
	Common stock ($1 par, 19,988,078 shares issued)			19,988			19,988
	Paid-in-capital			57,058			57,331
	Unearned compensation – unvested restricted stock			(490	)		(385	)
	Accumulated other comprehensive income			73			—
	Retained earnings			133,301			126,969

				209,930			203,903
	Less - Treasury stock (366,139 and 451,185 shares, at cost)			(6,322	)		(7,375	)

		Total shareholders’ equity		203,608			196,528

			$	440,807		$	441,855

See accompanying notes to consolidated financial statements.

- 1 -

ELKCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, $ in thousands
except per share data)


				Three Months Ended					Six Months Ended
				December 31,					December 31,

				2003			2002		2003			2002

Sales				$	123,208		$	102,545	$	282,947		$	218,023

Cost and Expenses
		Cost of sales			95,950			83,688		222,541			174,911
		Selling, general and administrative:
			Other selling, general and administrative		14,514			13,239		30,080			26,480
			Noncash stock option compensation		—			—		—			(5,378	)

Income from Operations					12,744			5,618		30,326			22,010

Interest Expense, Net					1,331			1,373		2,714			3,053

Income From Continuing Operations
	Before Income Taxes				11,413			4,245		27,612			18,957
		Provision for income taxes			4,399			1,652		10,541			7,068

Income From Continuing Operations					7,014			2,593		17,071			11,889
Income (Loss) From Discontinued
	Operations, Net of Income Taxes				(7,857	)		223		(8,777	)		(77	)

Net Income (Loss)				$	(843	)	$	2,816	$	8,294		$	11,812

Income (Loss) Per Share – Basic
			Income from continuing operations	$	.36		$	.13	$	.87		$	.61
			Discontinued operations		(.40	)		.01		(.45	)		—

			Net income (loss)	$	(.04	)	$	.14	$	.42		$	.61

Income (Loss) Per Share – Diluted
			Income from continuing operations	$	.35		$	.13	$	.86		$	.60
			Discontinued operations		(.39	)		.01		(.44	)		—

			Net income (loss)	$	(.04	)	$	.14	$	.42		$	.60

Dividends Per Common Share				$	.05		$	.05	$	.10		$	.10

Average Common Shares Outstanding (000’s)
		Basic			19,587			19,484		19,566			19,473

		Diluted			19,909			19,580		19,866			19,587

See accompanying notes to consolidated financial statements.

- 2 -

ELKCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, $ in thousands)


				Six Months Ended
				December 31,

				2003			2002

Cash Flows From Operating Activities
	Income from continuing operations			$	17,071		$	11,889
	Adjustments to reconcile income from continuing operations to net cash provided by continuing operations:
		Depreciation and amortization			8,797			8,523
		Deferred income taxes			898			3,358
		Changes in assets and liabilities:
			Trade receivables		37,135			27,401
			Inventories		1,561			(15,067	)
			Prepaid expenses and other		(809	)		1
			Accounts payable and accrued liabilities		(6,788	)		(8,191	)

		Net cash provided by continuing operations			57,865			27,914
		Net cash provided by discontinued operations			2,987			1,101

		Net cash provided by operating activities			60,852			29,015

Cash Flows From Investing Activities
	Additions to property, plant and equipment				(33,378	)		(19,292	)
	Acquisition of business				—			(2,224	)
	Other				(245	)		(324	)

		Net cash used for investing activities			(33,623	)		(21,840	)

Cash Flows From Financing Activities
	Dividends on common stock				(1,962	)		(1,948	)
	Proceeds from stock option purchases				749			141

		Net cash used for financing activities			(1,213	)		(1,807	)

Net Increase in Cash and Cash Equivalents					26,016			5,368
Cash and Cash Equivalents at Beginning of Year					5,056			12,436

Cash and Cash Equivalents at End of Period				$	31,072		$	17,804

See accompanying notes to consolidated financial statements.

- 3 -

ELKCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 – General

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 accounting principles generally accepted in the United States of America 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 Annual Report on Form 10-K for the fiscal year ended June 30, 2003. The unaudited financial information contained herein has been prepared in conformity with accounting principles generally accepted in the United States of America on a consistent basis and does reflect all adjustments (consisting of normal recurring accruals) 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 ended December 31, 2003 and 2002. 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.

Note 2 – Company Segments

The Building Products segment consists of Elk Premium Building Products, Inc. and its operating subsidiaries (collectively Elk). These companies manufacture (1) premium laminated fiberglass asphalt shingles, (2) coated and non-coated nonwoven fabrics used in asphalt shingles and other applications in the building and construction, filtration, floor coverings and other industries, and (3) nontoxic composite wood decking, marine dock, and fencing products. Building Products accounted for 96% or more of consolidated sales during all periods presented in this Form 10-Q.

Other, Technologies consists of the company’s other operations. These dissimilar operations are combined, as none individually meets the materiality criteria for separate segment reporting. In fiscal 2003, operating profit from the company’s Engineering, Technologies business, which provides proprietary technologies and related engineering services to the natural gas processing industry as Ortloff Engineers, LTD (Ortloff), exceeded 10% of consolidated operating profit. In accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information,” this business was presented as a separate segment in fiscal 2003 because it exceeded this quantitative threshold. However, this business has not historically met the 10% reporting test, is not expected to in fiscal 2004, nor will it typically be expected to in the future. Accordingly, this business is included in Other, Technologies in fiscal 2004. During the three-month period ended December 2003, the company made the decision to discontinue Cybershield Inc. (Cybershield) and to sell Cybershield or its assets no later than December 2004.

- 4 -

Cybershield had previously been included in Other, Technologies for segment reporting purposes. Prior periods have been restated to present Cybershield as a discontinued operation in all periods presented. Other, Technologies also includes Chromium Corporation (Chromium), which is a leading provider of hard chrome and other surface finishes designed to extend the life of steel machinery components operating in abrasive environments. An additional operation, Elk Technologies, Inc., develops and markets fabrics featuring VersaShield fire retardant coatings designed for use outside of traditional building products applications, including home furnishings and other consumer products. This business has not yet produced significant commercial sales.

Financial information by company segment is summarized as follows:


	(In thousands)						(In thousands)
	Three Months Ended						Six Months Ended
	December 31,						December 31,

	2003			2002			2003			2002

Sales from Continuing Operations
Building Products	$	119,042		$	98,622		$	276,409		$	211,938
Other, Technologies		4,166			3,923			6,538			6,085

	$	123,208		$	102,545		$	282,947		$	218,023

Operating Profit from Continuing Operations
Building Products	$	14,908		$	7,491		$	36,812		$	21,989
Other, Technologies		1,315			1,099			702			537
Corporate and other, excluding noncash stock option compensation		(3,479	)		(2,972	)		(7,188	)		(5,894	)
Noncash stock option compensation		—			—			—			5,378
												&nb

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