ELKCORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

		For the quarterly period ended December 31, 2004

		OR

o		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 þ. No o.

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

As of the close of business on January 31, 2005, the Registrant had outstanding 19,945,318 shares of Common Stock, par value $1 per share.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ELKCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Unaudited, $ in thousands, except share and per share data)


	December 31,			June 30,
	2004			2004
Assets
Current Assets
Cash and cash equivalents	$	40,343		$	273
Trade receivables, less allowance of $539 and $605		143,519			121,091
Inventories –
Finished goods		52,578			49,800
Work-in-process		191			160
Raw materials		14,515			12,169

Total inventories		67,284			62,129


Prepaid expenses and other assets		8,672			8,587
Deferred income taxes		4,894			7,359
Discontinued operations		2,985			5,096

Total current assets		267,697			204,535


Property, Plant and Equipment, at Cost		425,939			404,743
Less - accumulated depreciation		(145,094	)		(133,635	)

Property, plant and equipment, net		280,845			271,108


Other Assets		11,968			5,065

	$	560,510		$	480,708

Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	47,386		$	37,247
Accrued liabilities		29,000			25,419
Discontinued operations		185			531

Total current liabilities		76,571			63,197

Long-Term Debt		199,094			156,858
Deferred Income Taxes		48,654			45,611

Shareholders’ Equity -
Common stock ($1 par, 19,988,078 shares issued)		19,988			19,988
Paid-in capital		63,851			57,852
Unearned compensation – unvested restricted stock and performance stock awards		(7,485	)		(628	)
Retained earnings		162,680			143,540

		239,034			220,752

Less - Treasury stock (107,251 and 288,220 shares, at cost)		(2,843	)		(5,710	)

Total shareholders’ equity		236,191			215,042

	$	560,510		$	480,708

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,
	2004			2003			2004			2003
Sales	$	195,158		$	123,208		$	358,543		$	282,947


Cost and Expenses
Cost of sales		152,974			95,917			286,452			222,472
Selling, general and administrative		16,615			14,514			32,692			30,080


Income from Operations		25,569			12,777			39,399			30,395


Interest Expense, Net		2,382			1,331			4,476			2,714


Income From Continuing Operations
Before Income Taxes		23,187			11,446			34,923			27,681
Provision for income taxes		8,835			4,410			13,271			10,565

Income From Continuing Operations		14,352			7,036			21,652			17,116

Loss From Discontinued
Operations, Net of Income Taxes		(26	)		(7,879	)		(517	)		(8,822	)


Net Income (Loss)	$	14,326		$	(843	)	$	21,135		$	8,294


Income (Loss) Per Share – Basic
Income from continuing operations	$	.73		$	.36		$	1.10		$	.87
Discontinued operations		—			(.40	)		(.03	)		(.45	)

Net income (Loss)	$	.73		$	(.04	)	$	1.07		$	.42


Income (Loss) Per Share – Diluted
Income from continuing operations	$	.71		$	.35		$	1.08		$	.86
Discontinued operations		—			(.39	)		(.03	)		(.44	)

Net income (Loss)	$	.71		$	(.04	)	$	1.05		$	.42


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


Average Common Shares Outstanding (000’s)
Basic		19,697			19,587			19,684			19,566

Diluted		20,154			19,909			20,035			19,866

See accompanying notes to consolidated financial statements.

-2-

ELKCORP AND SUBSIDIARIES

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


	Six Months Ended
	December 31,
	2004			2003
Cash Flows From Operating Activities

Income from continuing operations	$	21,652		$	17,116
Adjustments to reconcile income from continuing operations to net cash provided by continuing operations:

Depreciation and amortization		11,475			8,797
Deferred income taxes		5,508			898
Stock-based compensation		1,399			39
Changes in assets and liabilities:
Trade receivables		(25,879	)		37,135
Inventories		(5,155	)		1,561
Prepaid expenses and other		(85	)		(809	)
Accounts payable and accrued liabilities		13,720			(6,788	)


Net cash provided by continuing operations		22,635			57,949
Net cash provided by discontinued operations		1,248			2,942

Net cash provided by operating activities		23,883			60,891


Cash Flows From Investing Activities

Additions to property, plant and equipment		(21,197	)		(33,378	)
Other, net		(932	)		(245	)

Net cash used for investing activities		(22,129	)		(33,623	)


Cash Flows From Financing Activities

Proceeds from sale of Senior Notes		50,000			—
Repayments on Revolving Credit Facility, net		(10,300	)		—
Dividends on common stock		(1,995	)		(1,962	)
Proceeds from stock option exercises and other, net		611			710

Net cash provided by (used for) financing activities		38,316			(1,252	)


Net Increase in Cash and Cash Equivalents		40,070			26,016

Cash and Cash Equivalents at Beginning of Year		273			5,056


Cash and Cash Equivalents at End of Period	$	40,343		$	31,072

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, 2004. 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, 2004 and 2003. Because of, among other things, 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) composite wood decking, marine dock, and fencing products. Building Products accounted for 98% of consolidated sales in the six-month periods ended December 31, 2004 and 2003.

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. Other, Technologies includes (1) 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, (2) Ortloff Engineers, LTD (Ortloff), which provides proprietary technologies and selected engineering services to the natural gas processing industry, and (3) Elk Technologies, Inc., which 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.

-4-

Financial information by company segment is summarized as follows:


	(In thousands)						(In thousands)
	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2004			2003			2004			2003
Sales from Continuing Operations
Building Products	$	191,821		$	119,042		$	352,385		$	276,409
Other, Technologies		3,337			4,166			6,158			6,538

	$	195,158		$	123,208		$	358,543		$	282,947


Operating Profit from Continuing Operations
Building Products	$	29,632		$	14,908		$	47,649		$	36,812
Other, Technologies		(70	)		1,350			(579	)		702
Corporate		(3,993	)		(3,481	)		(7,671	)		(7,119	)

		25,569			12,777			39,399			30,395
Interest expense, net		2,382			1,331			4,476			2,714

Income from continuing operations before income taxes	$	23,187		$	11,446		$	34,923		$	27,681


Depreciation and Amortization
Building Products	$	4,757		$	3,621		$	9,515		$	7,172
Other, Technologies		179			139			355			325
Corporate		911			670			1,605			1,300

	$	5,847		$	4,430		$	11,475		$	8,797


Capital Expenditures
Building Products	$	10,963		$	15,006		$	20,096		$	30,574
Other, Technologies		34			24			242			140
Corporate		354			1,238			859			2,664

	$	11,351		$	16,268		$	21,197		$	33,378


	December 31,		June 30,
	2004		2004
Identifiable Assets
Building Products	$	468,823	$	428,246
Other, Technologies		20,058		19,860
Corporate		68,644		27,506
Discontinued Operations		2,985		5,096

	$	560,510	$	480,708

-5-

Note 3 – Product Sales

The following table summarizes sales from continuing operations by product category, excluding intercompany sales, for the three-month and six-month periods ended December 31, 2004 and 2003:


	(In thousands)				(In thousands)
	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2004		2003		2004		2003
Premium roofing	$	179,462	$	111,139	$	326,439	$	258,800
Performance nonwoven fabrics		9,099		6,492		19,704		15,466
Composite building products		3,260		1,411		6,242		2,143
Technology licensing and consulting fees		1,059		2,437		1,432		2,887
Hard chrome and other surface finishes		2,226		1,729		4,660		3,651
Other		52		—		66		—

	$	195,158	$	123,208	$	358,543	$	282,947

Note 4 – Earnings Per Share

Basic earnings per share is computed based on the average number of common shares outstanding. Diluted earnings per share includes outstanding stock options and unvested restricted shares. In accordance with SFAS No. 128, “Earnings Per Share,” diluted earnings per share from discontinued operations presented on the Consolidated Statements of Operations was computed utilizing the same number of potential common shares used in computing the diluted per share amount for income from continuing operations, regardless of whether those amounts were antidilutive to their respective basic per share amounts. The following table sets forth the computation of basic and diluted earnings per share from continuing operations:


	(In thousands except per share amounts)
	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2004		2003		2004		2003
Income from continuing operations	$	14,352	$	7,036	$	21,652	$	17,116

Denominator for basic earnings per share – weighted average shares outstanding		19,697		19,587		19,684		19,566
Effect of dilutive securities:
Unvested restricted shares and employee stock options		457		322		351		300

Denominator for dilutive earnings per share – adjusted weighted average shares and assumed issuance of shares purchased under incentive stock option plan and vesting of restricted shares using the treasury stock method		20,154		19,909		20,035		19,866

Basic earnings per share from continuing operations	$	.73	$	.36	$	1.10	$	.87


			Page
Part I. FINANCIAL INFORMATION (unaudited)

	Item 1. Financial Statements

		Consolidated Balance Sheets as of December 31, 2004 and June 30, 2004		1
		Consolidated Statements of Operations for the Three Months and Six Months Ended December 31, 2004 and 2003		2
		Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2004 and 2003		3
		Notes to Consolidated Financial Statements		4-13

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,			14-24

	Item 3. Quantitative and Qualitative Disclosures About Market Risk			25

	Item 4. Controls and Procedures			25

Part II. OTHER INFORMATION

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			26

	Item 4. Submission of Matters to a Vote of Security Holders			26-27

	Item 6. Exhibits			28

SIGNATURES				29
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

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