Elkcorp (NYSE:ELK)
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ElkCorp (NYSE:ELK) announced today financial results for
its fourth quarter and fiscal year ended June 30, 2006. Income from
continuing operations for the fourth quarter was $13.8 million or
$0.67 per diluted share, and $45.5 million, or $2.21 per diluted share
for fiscal 2006. These results include after tax stock-based
compensation expense of $2.2 million, or $0.10 per diluted share, for
the fourth fiscal quarter and $5.9 million, or $0.28 per diluted share
for fiscal year 2006.
Fourth Quarter Overview
ElkCorp Consolidated
-- ElkCorp recorded revenue of $241.8 million for the fourth
quarter of fiscal 2006, a 19% increase over the $202.7 million
reported in the fourth quarter of fiscal 2005. The increase is
due to a substantial improvement in pricing, RGM sales and
higher roofing volumes.
-- On a GAAP (generally accepted accounting principles) basis,
the company reported income from continuing operations of
$13.8 million, or $0.67 per diluted share, compared to $6.7
million, or $0.33 per diluted share reported for the fourth
quarter of fiscal 2005.
-- The results for the fourth quarter of fiscal 2006 include
stock-based compensation expense of $2.2 million, or $0.10 per
diluted share compared to $185,000 or $0.01 per diluted share
for the same period in the prior fiscal year.
-- On a non-GAAP basis, income from continuing operations, which
excludes stock-based compensation, was $15.9 million, or $0.77
per diluted share, compared to $6.9 million, or $0.34 per
diluted share, for the fourth quarter of fiscal 2005. A
reconciliation of GAAP to non-GAAP income from continuing
operations is included with this press release.
-- Operating income for the quarter was $23.7 million, a 79%
increase over the $13.2 million reported for the fourth
quarter of fiscal 2005. The significant increase was due to
improved pricing and volume, substantial margin improvement in
the specialty fabrics division and improved results in the
composite building products segment.
-- The tax rate for the quarter was 32.5% due to benefits from
changes in the Texas state franchise tax law in May 2006. The
revised law allowed Elk to reduce its deferred tax liability
by approximately $1.5 million. Going forward the expected tax
rate should be approximately 36.5%.
Premium Roofing Products
-- Revenue in the premium roofing products segment for the fourth
quarter of fiscal 2006 was $215.7 million, a 19% increase over
the $180.7 million reported in the year ago quarter. The
increase in revenue was primarily attributable to a 10%
improvement in pricing, and increased volume including RGM
Products, which was acquired in August 2005.
-- Quarterly operating income in the roofing segment was $28.3
million, or 13.1% of sales, a 30% increase over the $21.7
million, or 12% of sales, recorded in the fourth quarter of
fiscal 2005. Operating margins in the roofing business
improved primarily due to increased volume of higher margin
ridge and accessory products, improved manufacturing expenses
and higher pricing on all products, which substantially offset
the increases in asphalt and transportation for the quarter.
The year ago quarter was negatively impacted by a silo failure
in the Myerstown, PA facility and unexpected machine
maintenance at the Tuscaloosa, AL facility.
-- Asphalt and transportation costs continued to rise in the
quarter. Asphalt increased approximately 43% and
transportation costs increased 17% over the same period in the
prior year. In an effort to offset these significant
increases, the company implemented a 7% to 9% price increase
effective June 12. Additionally, Elk has announced a $50.00
per truckload freight surcharge after August 1, 2006 and a 3%
to 4% price increase effective August 14, 2006.
Composite Building Products
-- Sales in the composites business for the fourth quarter were
$10.1 million, an increase of 19% over the $8.5 million
reported in the same quarter of fiscal 2005. The improvement
in sales was due to improved pricing of approximately 8% and
an 11% improvement in volume versus the same period in the
prior fiscal year.
-- The product platform experienced an operating loss of $239,000
for the quarter compared to a loss of $5.5 million in the
fourth quarter of fiscal 2005. The improvement was primarily
due to increased volume and pricing, reduced manufacturing
expenses, improved raw material utilization and no returned
material in the quarter compared to the $1.1 million write-off
of returned product in the fourth quarter of fiscal 2005.
Specialty Fabric Technologies
-- Sales in the specialty fabric technologies segment improved
21% to $13.6 million from $11.2 million in the fourth quarter
of fiscal 2005. The improvement is attributable to increased
volume and pricing in all product categories.
-- Operating income for the quarter improved to $2.1 million, or
15.1% of sales, from $0.6 million, or 5.0% of sales in the
fourth quarter of fiscal 2005. This significant improvement in
operating margin is due to increased sales and a shift in
sales mix to higher margin products such as carpet tile
backing and air filtration.
Fiscal 2006 Overview
ElkCorp Consolidated
-- For fiscal 2006, revenue from continuing operations increased
22% to $929.8 million from the $761.7 million reported in the
previous fiscal year. The improvement was primarily due to
increased volumes and pricing in all major product platforms
and the added sales from RGM.
-- On a GAAP basis, income from continuing operations was $45.5
million, or $2.21 per diluted share, compared to $42.7
million, or $2.11 per diluted share reported in fiscal 2005.
-- The results for fiscal 2006 include after tax stock-based
compensation expense of $5.9 million, or $0.28 per diluted
share, compared to $1.6 million, or $0.08 per diluted share,
for fiscal 2005.
-- Non-GAAP income from continuing operations, which excludes
stock-based compensation, was $51.4 million, or $2.49 per
diluted share, compared to $44.3 million or $2.19 per diluted
share for fiscal 2005. A reconciliation of GAAP to non-GAAP
income from continuing operations is included with this press
release.
-- Operating income for fiscal 2006 was $82.7 million compared to
$77.8 million reported for fiscal 2005.
Premium Roofing Products
-- Premium roofing revenue increased 21% to $836.2 million from
the $693.6 million reported in fiscal year 2005. The increase
was due to the addition of RGM sales, a 7% improvement in
pricing and a 6% improvement in volume for the year.
-- Operating profits for the fiscal year were $107 million, or
12.8% of sales, compared to $104.2 million, or 15% of sales,
reported for fiscal 2005. Operating margins decreased from
last year's record levels largely due to the significant
increases in raw material and transportation costs that were
not offset by price increases during the year and lower
shipment volume into the Florida storm area, which is a
relatively higher margin market. Asphalt costs increased 27%
and transportation costs increased 16% over fiscal 2005.
Composite Building Products
-- Revenues in the composite building products platform were
$31.4 million, a 62% improvement from the $19.4 million
reported in fiscal year 2005. The increase was due to a 48%
increase in unit volumes and a 14% improvement in pricing.
-- The operating loss for the year was $7.8 million, an
improvement from the loss of $11.8 million reported for fiscal
2005. Improvements in volume, pricing and raw material
utilization more than offset increased operating expenses.
Operating income improved by more than $7.0 million for fiscal
2006 over the prior year before taking into account the $3.5
million of costs associated with the expansion of operations
in Lenexa.
Specialty Fabric Technologies
-- Sales in the specialty fabric technologies segment improved
35% to $53.3 million from $39.5 million in fiscal 2005. The
improvement is largely attributable to increased volume and
pricing in all product categories.
-- Operating income improved to $6.3 million, or 11.9% of sales,
from $2.1 million, or 5.3% of sales for fiscal 2005. This
significant improvement in operating margin is due to a shift
in sales mix to higher margin products and improvements in
pricing over the prior fiscal year.
Financial Condition
At June 30, 2006, the contractual principal amount of ElkCorp's
long-term debt, including $5.8 million of debt related to
acquisitions, was $200.8 million. Net debt (contractual principal debt
minus cash and short-term investments) was $163.8 million, and the net
debt to capital ratio was 33.7%. Liquidity consisted of $37 million of
cash, cash equivalents and short-term investments and $121.1 million
of borrowing availability under a $125 million committed revolving
credit facility expiring November 30, 2008. Long-term debt of $199.7
million includes a $1.0 million reduction for the fair value of two
interest rate swap agreements.
Business Outlook
"We are pleased with the results for fiscal 2006. We were able to
increase revenues 22% over fiscal 2005. On a GAAP basis we increased
our diluted earnings per share from continuing operations 5% but on a
non-GAAP basis, which excludes the $0.28 per diluted share for
stock-based compensation, we achieved 14% earnings per share growth.
We also see our ability to attain 12.8% operating margins in our
roofing business, despite a dramatic jump in raw material and
transportation costs over the prior year, as a significant
accomplishment. Improvements in productivity, sales and pricing helped
offset increased raw material costs," said Thomas Karol, chairman and
chief executive officer of ElkCorp. "During the year we experienced
strong demand for our shingle products enabling us to attain record
shingle shipments. The increased volume, combined with improved
pricing and the addition of RGM were the keys to success in roofing.
The national awareness and excitement in the market for RGM products
has increased significantly over the last year. RGM has been an
excellent addition to Elk and we look forward to many great things to
come for this business as we continue to gain national exposure for
the RGM products."
Mr. Karol continued, "We continue to make progress toward
profitability in our composites business. Our sales for fiscal 2006
increased by 62% over the prior year and we are very close to
profitability in this segment for the quarter. We continued to gain
exposure in the industry and are confident in our ability to be a
major player in the wood plastic composites market. Our railing lines,
including our new Signature Series, offer our customers a beautiful
railing system that is quick and easy to install. We believe that we
are on a solid foundation with this platform and are poised to further
increase our position in the market during the next decking season."
"Additionally, our specialty fabric technologies business
continues to perform well with significant improvements in sales and
operating margins. Our focus on higher-margin applications for our
fabrics resulted in significant margin improvement for the year and we
continue to roll out new products to address these higher-margin
markets."
Mr. Karol concluded, "We are excited about the possibilities that
lie ahead in the next fiscal year. We remain focused on ways to better
utilize our raw materials and will continue to raise prices as needed
to offset escalating costs. We believe growth in fiscal 2007 will be
fueled by improvements in efficiencies at our plants and continued
improvement in our specialty fabrics and composites businesses. We
anticipate fiscal 2007 will continue to be challenging due to
continued rising petroleum-related costs but we believe we have the
right people, the right products and a strategy for growth that will
position ElkCorp to achieve its goal of double-digit growth again next
year."
Earnings Outlook
The Company expects earnings for the first quarter of fiscal 2007
to be in the range of $0.51 to $0.54 per diluted share, and to be in
the range of $2.35 to $2.55 per diluted share for fiscal 2007.
Factored into the guidance for fiscal 2007 is an increase in
roofing sales volume as the company continues productivity improvement
initiatives throughout the year. The company expects asphalt and
transportation costs to remain challenging in fiscal 2007. The
estimates assume continued increases in raw materials and other
related costs. In order to offset these costs the company will
continue to implement aggressive price increases as needed. Finally,
the company expects the composite building products platform to
improve its performance in fiscal 2007 although operating losses are
expected until buying for the 2007 decking season begins in the March
quarter. The key to profitability in this platform is increased volume
which should be achieved through improved market awareness, the
addition of new composite market specialists, the roll out of the Elk
Peak Performance Contractor Program for decking and additional
consumer marketing.
Conference Call
The ElkCorp management team will host a conference call on August
18, 2006, at 11:00 a.m. ET to further discuss its earnings and
operations for the fourth quarter and fiscal year 2006 as well as
expectations for its first quarter and fiscal year 2007.
Investors and other interested parties may listen to the live
webcast by visiting the investor relations section of the ElkCorp
website at www.elkcorp.com. A replay of the conference call will be
available for 24 hours beginning at 1:00 p.m. ET. and may be accessed
by dialing 1-800-642-1687 and entering passcode 3608474. The webcast
replay also will be available on the investor relations section of
Company's website.
Use of Non-GAAP Financial Metrics
Effective in fiscal 2006, the company adopted Statement of
Financial Accounting standards (SFAS) No. 123R, which requires the
company to begin recognizing compensation expense relating to stock
options and changes the accounting for certain other elements of
stock-based payments. The press release contains income from
continuing operations and earnings per share information that exclude
stock-based compensation and have not been calculated in accordance
with GAAP. The company has provided these metrics in addition to GAAP
financial results because it believes they provide a consistent basis
for comparison between the fourth quarter and fiscal years ended June
30, 2005 and 2006 as expensing certain elements of stock-based
compensation was not included in these results for fiscal 2005.
Therefore we believe comparing the results on a non-GAAP basis is
important to understanding the Company's underlying operational
results. However, these metrics should not be considered an
alternative to GAAP and these non-GAAP measures may not be comparable
to information provided by other companies.
Safe Harbor Provisions
In accordance with the safe harbor provisions of the securities
law regarding forward-looking statements, in addition to the
historical information contained herein, the above discussion contains
forward-looking statements that involve risks and uncertainties. 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 "optimistic," "vision," "outlook," "believe," "estimate,"
"potential," "forecast," "goal," "project," "expect," "anticipate,"
"plan," "predict," "position," "could," "should," "may," "likely," or
similar words that convey the uncertainty of future events or outcomes
and include the earnings outlook for the first quarter and fiscal year
2007. These statements are based on judgments the company believes are
reasonable; however, ElkCorp's actual results could differ materially
from those discussed here. Factors that could cause or contribute to
such differences could include, but are not limited to, changes in
demand, prices, raw material costs, transportation costs, changes in
economic conditions of the various markets the company serves, failure
to achieve expected efficiencies in new operations, changes in the
amount and severity of inclement weather, acts of God, war or
terrorism, as well as the other risks detailed herein, and in the
company's reports filed with the Securities and Exchange Commission,
including but not limited to, its Form 10-K for the fiscal year ended
June 30, 2005. ElkCorp undertakes no obligation to update or revise
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
ElkCorp, through its subsidiaries, manufactures Elk(TM) brand
premium roofing and decking products and provides technologically
advanced products and services to other industries. Its common stock
is listed on the New York Stock Exchange (NYSE:ELK). See
www.elkcorp.com for more information.
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Condensed Results of Operations
($ in thousands)
Three Months Ended Fiscal Year Ended
June 30, June 30,
2006 2005 2006 2005
--------- --------- --------- ---------
Sales $241,792 $202,737 $929,792 $761,719
--------- --------- --------- ---------
Costs and Expenses:
Cost of sales 195,393 169,667 759,251 613,925
Selling, general &
administrative 22,714 19,881 87,817 69,946
--------- --------- --------- ---------
Operating Income from
Continuing Operations 23,685 13,189 82,724 77,848
Interest expense and other,
net 3,299 3,275 11,824 10,365
--------- --------- --------- ---------
Income from Continuing
Operations Before Income Taxes 20,386 9,914 70,900 67,483
Provision for income taxes 6,635 3,199 25,395 24,787
--------- --------- --------- ---------
Income from Continuing
Operations 13,751 6,715 45,505 42,696
Income (Loss) from Discontinued
Operations, Net (26) 3,720 (92) 4,171
--------- --------- --------- ---------
Net Income $13,725 $10,435 $45,413 $46,867
========= ========= ========= =========
Income (Loss) Per Common Share
- Basic
Continuing Operations $0.67 $0.34 $2.25 $2.16
Discontinued Operations (0.00) 0.18 (0.01) 0.21
--------- --------- --------- ---------
$0.67 $0.52 $2.24 $2.37
========= ========= ========= =========
Income (Loss) Per Common Share
- Diluted
Continuing Operations $0.67 $0.33 $2.21 $2.11
Discontinued Operations (0.00) 0.18 (0.01) 0.20
--------- --------- --------- ---------
$0.67 $0.51 $2.20 $2.31
========= ========= ========= =========
Average Common Shares
Outstanding
Basic 20,335 20,000 20,275 19,788
========= ========= ========= =========
Diluted 20,549 20,466 20,607 20,254
========= ========= ========= =========
Financial Information by Company Segments
($ in thousands)
Three Months Ended Fiscal Year Ended
June 30, June 30,
2006 2005 2006 2005
--------- --------- --------- ---------
Sales
Premium Roofing Products $215,735 $180,669 $836,208 $693,634
Composite Building Products 10,120 8,457 31,423 19,425
Specialty Fabric Technologies 13,620 11,214 53,316 39,451
Surface Finishes 2,317 2,397 8,845 9,209
--------- --------- --------- ---------
$241,792 $202,737 $929,792 $761,719
========= ========= ========= =========
Operating Profit (Loss)
Premium Roofing Products $28,295 $21,748 $107,004 $104,232
Composite Building Products (239) (5,481) (7,816) (11,822)
Specialty Fabric Technologies 2,054 560 6,320 2,083
Surface Finishes 377 372 1,033 144
Corporate & Other (6,802) (4,010) (23,817) (16,789)
--------- --------- --------- ---------
$23,685 $13,189 $82,724 $77,848
========= ========= ========= =========
Condensed Balance Sheet
($ in thousands)
June 30,
Assets 2006 2005
-------------------------------------------------- --------- ---------
Cash and cash equivalents $4,056 $9,261
Short-term investments 32,960 69,160
Receivables, net 181,123 148,928
Inventories 107,929 71,467
Deferred income taxes 9,317 7,849
Prepaid expenses and other 10,209 8,223
Discontinued operations 2,675 1,193
--------- ---------
Total Current Assets 348,269 316,081
Property, plant and equipment, net 302,140 284,088
Other assets 29,512 9,682
Discontinued operations - noncurrent 1,939 3,718
--------- ---------
Total Assets $681,860 $613,569
========= =========
June 30,
Liabilities and Shareholders' Equity 2006 2005
-------------------------------------------------- --------- ---------
Accounts payable and accrued liabilities $105,815 $87,913
Discontinued operations 560 937
Current maturities on long-term debt 1,088 381
--------- ---------
Total Current Liabilities 107,463 89,231
Long-term debt, net 199,689 200,146
Deferred income taxes 52,282 53,382
Shareholders' equity 322,426 270,810
--------- ---------
Total Liabilities and Shareholders' Equity $681,860 $613,569
========= =========
Condensed Statement of Cash Flows
($ in thousands)
Fiscal Year Ended
June 30,
2006 2005
--------- ---------
Cash Flows From Operating Activities:
Net income $45,413 $46,867
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of discontinued assets 0 (6,484)
Depreciation and amortization 26,819 23,859
Impairment of discontinued assets 0 651
Deferred income taxes (2,740) 7,282
Stock-based compensation 9,237 2,544
Excess tax benefits of stock option exercises 0 1,662
Changes in assets and liabilities, net of
acquisition (53,750) (22,234)
--------- ---------
Net cash from operating activities 24,979 54,147
--------- ---------
Cash Flows from Investing Activities
Additions to property, plant and equipment (30,702) (38,251)
Other investing activities, net 8,533 (51,304)
--------- ---------
Net cash from investing activities (22,169) (89,555)
--------- ---------
Cash Flows from Financing Activities (8,015) 44,396
--------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents (5,205) 8,988
Cash and Cash Equivalents at Beginning of Year 9,261 273
--------- ---------
Cash and Cash Equivalents at End of Year $4,056 $9,261
========= =========
Reconciliation of GAAP to Non-GAAP Income from Continuing Operations
($ in thousands, except per share data)
Three Months Twelve Months
Ended Ended
June 30, June 30,
2006 2005 2006 2005
-------- ------- -------- --------
GAAP Income from Continuing
Operations $13,751 $6,715 $45,505 $42,696
Stock-Based Compensation 2,159 185 5,924 1,611
-------- ------- -------- --------
Non-GAAP Income From Continuing
Operations $15,910 $6,900 $51,429 $44,307
======== ======= ======== ========
GAAP Income per Diluted Share From
Continuing Operations $0.67 $0.33 $2.21 $2.11
Stock-Based Compensation 0.10 0.01 0.28 0.08
-------- ------- -------- --------
Non-GAAP Income per Diluted Share
From Continuing Operations $0.77 $0.34 $2.49 $2.19
======== ======= ======== ========
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