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. -0-
*T 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 ======== ======= ======== ======== *T
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