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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 1934For quarterly period ended March 31, 2004
 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from_________to_______
 Commission File Number 1-5341 ELKCORP 
  DELAWARE
    
    75-1217920(State or other jurisdiction of
    
    (I.R.S. Employerincorporation 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 o. Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes x. No o. As of close of business on May 3, 2004, the Registrant had
outstanding 19,710,659 shares of Common Stock, par value $1 per share.




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##### Table of Contents



ELKCORP AND SUBSIDIARIES FOR THE QUARTER ENDED MARCH 31, 2004 INDEX PagePart I. FINANCIAL INFORMATION (unaudited)Item 1. Financial StatementsConsolidated Balance Sheets as of
March 31, 2004 and June 30, 2003
    
    
    1Consolidated Statements of Operations for the Three Months and
Nine Months Ended March 31, 2004 and 2003
    
    
    2Consolidated Statements of Cash Flows for the Nine Months Ended
March 31, 2004 and 2003
    
    
    3Notes to Consolidated Financial Statements
    
    
    4-13Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    14-22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23Part II. OTHER INFORMATIONItem 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities
    
    
    24Item 5. Other Information
    
    
    24Item 6. Exhibits and Reports on Form 8-K
    
    
    25SIGNATURES
    
    
    26Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906




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PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements ELKCORP AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
 March 31,
    
    June 30,2004
    
    2003AssetsCurrent AssetsCash and cash equivalents
    
    $
    321
    
    
    $
    5,056Trade receivables, less allowance of $829 and $935
    
    
    112,600
    
    
    
    118,252Inventories Finished goods
    
    
    52,484
    
    
    
    44,606Work-in-process
    
    
    118
    
    
    
    89Raw materials
    
    
    8,349
    
    
    
    8,826Total inventories
    
    
    60,951
    
    
    
    53,521Prepaid expenses and other
    
    
    8,871
    
    
    
    6,689Deferred income taxes
    
    
    5,405
    
    
    
    2,808Discontinued operations
    
    
    5,408
    
    
    
    19,369Total current assets
    
    
    193,556
    
    
    
    205,695Property, Plant and Equipment, at Cost
    
    
    389,333
    
    
    
    348,888Less  accumulated depreciation
    
    
    (128,955
    )
    
    
    (122,626
    )Property, plant and equipment, net
    
    
    260,378
    
    
    
    226,262Other Assets
    
    
    9,387
    
    
    
    10,334$
    463,321
    
    
    $
    442,291Liabilities and Shareholders EquityCurrent LiabilitiesAccounts payable
    
    $
    22,277
    
    
    $
    35,369Accrued liabilities
    
    
    22,235
    
    
    
    18,958Discontinued operations
    
    
    922
    
    
    
    1,212Total current liabilities
    
    
    45,434
    
    
    
    55,539Long-Term Debt
    
    
    167,422
    
    
    
    152,526Deferred Income Taxes
    
    
    42,583
    
    
    
    37,698Shareholders Equity -Common stock ($1 par, 19,988,078 shares issued)
    
    
    19,988
    
    
    
    19,988Paid-in-capital
    
    
    57,543
    
    
    
    57,331Unearned compensation  unvested restricted stock
    
    
    (550
    )
    
    
    (385
    )Accumulated other comprehensive income
    
    
    9
    
    
    
    Retained earnings
    
    
    136,371
    
    
    
    126,969213,361
    
    
    
    203,903Less  Treasury stock (294,415 and 451,185 shares, at cost)
    
    
    (5,479
    )
    
    
    (7,375
    )Total shareholders equity
    
    
    207,882
    
    
    
    196,528$
    463,321
    
    
    $
    442,291
 See accompanying notes to consolidated financial statements. - 1 -




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ELKCORP AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Sales
    
    $
    131,947
    
    
    $
    123,616
    
    
    $
    414,894
    
    
    $
    341,639Cost and ExpensesCost of sales
    
    
    105,332
    
    
    
    100,134
    
    
    
    327,873
    
    
    
    274,790Selling, general and administrative:Other selling, general and administrative
    
    
    15,435
    
    
    
    14,911
    
    
    
    45,515
    
    
    
    41,327Noncash stock option compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,378
    )Income from Operations
    
    
    11,180
    
    
    
    8,571
    
    
    
    41,506
    
    
    
    30,900Interest Expense, Net
    
    
    1,185
    
    
    
    1,469
    
    
    
    3,899
    
    
    
    4,522Income From Continuing OperationsBefore Income Taxes
    
    
    9,995
    
    
    
    7,102
    
    
    
    37,607
    
    
    
    26,378Provision for income taxes
    
    
    3,748
    
    
    
    2,707
    
    
    
    14,289
    
    
    
    9,887Income From Continuing Operations
    
    
    6,247
    
    
    
    4,395
    
    
    
    23,318
    
    
    
    16,491Income (Loss) From DiscontinuedOperations, Net of Income Taxes
    
    
    (2,189
    )
    
    
    67
    
    
    
    (10,966
    )
    
    
    (217
    )Net Income
    
    $
    4,058
    
    
    $
    4,462
    
    
    $
    12,352
    
    
    $
    16,274Income (Loss) Per Share  BasicIncome from continuing operations
    
    $
    .32
    
    
    $
    .23
    
    
    $
    1.19
    
    
    $
    .85Discontinued operations
    
    
    (.11
    )
    
    
    
    
    
    
    (.56
    )
    
    
    (.01
    )Net income
    
    $
    .21
    
    
    $
    .23
    
    
    $
    .63
    
    
    $
    .84Income (Loss) Per Share  DilutedIncome from continuing operations
    
    $
    .31
    
    
    $
    .23
    
    
    $
    1.17
    
    
    $
    .84Discontinued operations
    
    
    (.11
    )
    
    
    
    
    
    
    (.55
    )
    
    
    (.01
    )Net income (loss)
    
    $
    .20
    
    
    $
    .23
    
    
    $
    .62
    
    
    $
    .83Dividends Per Common Share
    
    $
    .05
    
    
    $
    .05
    
    
    $
    .15
    
    
    $
    .15Average Common Shares Outstanding (000s)Basic
    
    
    19,633
    
    
    
    19,477
    
    
    
    19,588
    
    
    
    19,474Diluted
    
    
    20,009
    
    
    
    19,570
    
    
    
    19,914
    
    
    
    19,581
 See accompanying notes to consolidated financial statements. - 2 -




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ELKCORP AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months EndedMarch 31,2004
    
    2003Cash Flows From Operating ActivitiesIncome from continuing operations
    
    $
    23,318
    
    
    $
    16,491Adjustments to reconcile income from continuing
operations to net cash provided by continuing
operations:Depreciation and amortization
    
    
    13,332
    
    
    
    12,751Deferred income taxes
    
    
    2,288
    
    
    
    3,984Changes in assets and liabilities:Trade receivables
    
    
    5,652
    
    
    
    (6,774
    )Inventories
    
    
    (7,430
    )
    
    
    (12,674
    )Prepaid expenses and other
    
    
    (2,182
    )
    
    
    1,071Accounts payable and accrued liabilities
    
    
    (9,815
    )
    
    
    (2,205
    )Net cash provided by continuing operations
    
    
    25,163
    
    
    
    12,644Net cash provided by (used for)
discontinued operations
    
    
    2,706
    
    
    
    (104
    )Net cash provided by operating activities
    
    
    27,869
    
    
    
    12,540Cash Flows From Investing ActivitiesAdditions to property, plant and equipment
    
    
    (47,449
    )
    
    
    (32,705
    )Acquisition of business
    
    
    
    
    
    
    (2,224
    )Other
    
    
    (357
    )
    
    
    (249
    )Net cash used for investing activities
    
    
    (47,806
    )
    
    
    (35,178
    )Cash Flows From Financing ActivitiesProceeds from sale of Senior Notes
    
    
    
    
    
    
    25,000Borrowings on Revolving Credit Facility, net
    
    
    16,200
    
    
    
    Dividends on common stock
    
    
    (2,950
    )
    
    
    (2,923
    )Proceeds from stock option purchases
    
    
    1,952
    
    
    
    158Net cash provided by financing activities
    
    
    15,202
    
    
    
    22,235Net Decrease in Cash and Cash Equivalents
    
    
    (4,735
    )
    
    
    (403
    )Cash and Cash Equivalents at Beginning of Year
    
    
    5,056
    
    
    
    12,436Cash and Cash Equivalents at End of Period
    
    $
    321
    
    
    $
    12,033
 See accompanying notes to consolidated financial statements. - 3 -




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ELKCORP AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 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 nine-month periods ended March 31, 2004 and 2003. 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 94% 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. - 4 -




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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. In December 2003, the company made the decision to discontinue
Cybershield, Inc. (Cybershield) and to sell Cybershield or its assets no later
than December 2004. 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. Financial information by company segment is summarized as follows: (In thousands)
    
    (In thousands)Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Sales from Continuing OperationsBuilding Products
    
    $
    127,804
    
    
    $
    116,981
    
    
    $
    404,213
    
    
    $
    328,919Other, Technologies
    
    
    4,143
    
    
    
    6,635
    
    
    
    10,681
    
    
    
    12,720$
    131,947
    
    
    $
    123,616
    
    
    $
    414,894
    
    
    $
    341,639Operating Profit from Continuing
OperationsBuilding Products
    
    $
    13,517
    
    
    $
    8,092
    
    
    $
    50,329
    
    
    $
    30,081Other, Technologies
    
    
    814
    
    
    
    2,902
    
    
    
    1,516
    
    
    
    3,439Corporate and other, excluding
noncash stock option
compensation
    
    
    (3,151
    )
    
    
    (2,423
    )
    
    
    (10,339
    )
    
    
    (7,998
    )Noncash stock option
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,37811,180
    
    
    
    8,571
    
    
    
    41,506
    
    
    
    30,900Interest expense, net
    
    
    1,185
    
    
    
    1,469
    
    
    
    3,899
    
    
    
    4,522Income from continuing
operations before income
taxes
    
    $
    9,995
    
    
    $
    7,102
    
    
    $
    37,607
    
    
    $
    26,378
 - 5 -




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(In thousands)
    
    (In thousands)Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Depreciation and AmortizationBuilding Products
    
    $
    3,654
    
    
    $
    3,409
    
    
    $
    10,826
    
    
    $
    10,237Other, Technologies
    
    
    195
    
    
    
    181
    
    
    
    520
    
    
    
    518Corporate
    
    
    686
    
    
    
    638
    
    
    
    1,986
    
    
    
    1,996$
    4,535
    
    
    $
    4,228
    
    
    $
    13,332
    
    
    $
    12,751Capital ExpendituresBuilding Products
    
    $
    12,679
    
    
    $
    13,225
    
    
    $
    43,253
    
    
    $
    31,789Other, Technologies
    
    
    46
    
    
    
    44
    
    
    
    186
    
    
    
    182Corporate
    
    
    1,346
    
    
    
    144
    
    
    
    4,010
    
    
    
    734$
    14,071
    
    
    $
    13,413
    
    
    $
    47,449
    
    
    $
    32,705
 March 31,
    
    June 30,Identifiable Assets
    
    2004
    
    2003Building Products
    
    $
    409,322
    
    
    $
    376,110Other, Technologies
    
    
    20,279
    
    
    
    18,772Corporate
    
    
    28,312
    
    
    
    28,040Discontinued Operations
    
    
    5,408
    
    
    
    19,369$
    463,321
    
    
    $
    442,291
 Note 3  Product Sales The following table summarizes sales from continuing operations by product
category, excluding intercompany sales, for the three-month and nine-month
periods ended March 31, 2004 and March 31, 2003: (In thousands)
    
    (In thousands)Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Premium roofing
    
    $
    117,700
    
    
    $
    109,251
    
    
    $
    376,499
    
    
    $
    307,072Performance nonwoven fabrics
    
    
    8,007
    
    
    
    7,484
    
    
    
    23,474
    
    
    
    21,518Composite building products
    
    
    2,097
    
    
    
    246
    
    
    
    4,240
    
    
    
    329Technology licensing and consulting fees
    
    
    1,811
    
    
    
    4,936
    
    
    
    4,698
    
    
    
    7,189Hard chrome and other surface finishes
    
    
    2,289
    
    
    
    1,696
    
    
    
    5,938
    
    
    
    5,528Fire-retardant fabrics
    
    
    43
    
    
    
    3
    
    
    
    45
    
    
    
    3$
    131,947
    
    
    $
    123,616
    
    
    $
    414,894
    
    
    $
    341,639
 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 restricted shares. - 6 -




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In accordance with SFAS No. 128, Earnings per Share, diluted earnings per share from discontinued
operations presented on the Consolidated Statements of Operations were
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)
    
    ($ In thousands)Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Income from continuing
operations
    
    $
    6,247
    
    
    $
    4,395
    
    
    $
    23,318
    
    
    $
    16,491Denominator for basic earnings
per share  weighted average
shares outstanding
    
    
    19,633
    
    
    
    19,477
    
    
    
    19,588
    
    
    
    19,474Effect of dilutive securities:Restricted shares and
employee stock options
    
    
    376
    
    
    
    93
    
    
    
    326
    
    
    
    107Denominator 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
    
    
    20,009
    
    
    
    19,570
    
    
    
    19,914
    
    
    
    19,581Basic earnings per share
from continuing operations
    
    $
    .32
    
    
    $
    .23
    
    
    $
    1.19
    
    
    $
    .85Diluted earnings per share
from continuing operations
    
    $
    .31
    
    
    $
    .23
    
    
    $
    1.17
    
    
    $
    .84Stock options excluded from
computation of diluted
earnings per share due to
anti-dilutive effect
    
    
    727,240
    
    
    
    1,666,000
    
    
    
    727,500
    
    
    
    1,623,815
 - 7 -




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Note 5  Accounting for Stock-Based Compensation The company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and its related interpretations to measure compensation expense for
stock-based compensation plans. Refer to Note 6  Noncash Stock Option
Compensation on page 9 of this Form 10-Q for a more detailed description of the
companys application of APB No. 25. If compensation cost for stock-based
compensation plans had been determined under SFAS No. 123, pro forma net
income, stock option compensation expense, and basic and diluted earnings per
common share for the three-month and nine-month periods ended March 31, 2004
and 2003, assuming all options granted in 1996 and thereafter were valued at
grant date using the Black-Scholes model, would have been as follows (in
thousands, except per share amounts): Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Net income as reported
    
    $
    4,058
    
    
    $
    4,462
    
    
    $
    12,352
    
    
    $
    16,274Add: Stock-based
employee compensation
expense (benefit)
included in reported net
income, net of related
tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,496
    )Deduct: Total
stock-based compensation
expense determined under
fair value based method
for all awards granted
since January 1, 1996,
net of related tax
effects
    
    
    (585
    )
    
    
    (550
    )
    
    
    (1,936
    )
    
    
    (1,717
    )Pro forma earnings
    
    $
    3,473
    
    
    $
    3,912
    
    
    $
    10,416
    
    
    $
    11,061Earnings per common share:Basic  as reported
    
    $
    .21
    
    
    $
    .23
    
    
    $
    .63
    
    
    $
    .84Basic  pro forma
    
    $
    .18
    
    
    $
    .20
    
    
    $
    .53
    
    
    $
    .57Diluted  as reported
    
    $
    .20
    
    
    $
    .23
    
    
    $
    .62
    
    
    $
    .83Diluted  pro forma
    
    $
    .17
    
    
    $
    .20
    
    
    $
    .52
    
    
    $
    .56
 - 8 -




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Note 6  Noncash Stock Option Compensation The companys 1998 Incentive Stock Option Plan contained a cashless
exercise provision that permitted an optionee to relinquish vested options to
the company in exchange for common shares having a current market value equal
to the net exercised market value of the relinquished options. Under APB No.
25, the aforementioned cashless relinquishment feature can cause options issued
under the 1998 Plan to be considered stock appreciation rights (SARs) in
substance, if not in form, unless past experience and economic incentives
indicate that optionees are more likely to exercise, rather than relinquish,
the options. Under APB No. 25, SARs are accounted for using variable
accounting whereby income is charged (or credited) during each accounting
period to reflect any excess of the market value of shares underlying vested
SARs, over the exercise price of vested SARs. It was never the companys intention to issue SARs under the 1998 Plan.
In keeping with the companys original intent, effective August 13, 2002, the
Compensation Committee of the Board of Directors terminated the availability of
the relinquishment alternative under the 1998 Plan. Based on this action,
together with a decline in the companys share price subsequent to June 30,
2002, the company recorded a reversal of fiscal 2002 noncash stock option
compensation expense of $5,378,000 in the first quarter of fiscal 2003.
Subsequent to August 13, 2002, the company is again utilizing the fixed
method of stock option accounting. Note 7  Comprehensive Income Total comprehensive income for the three-month and nine-month periods
ended March 31, 2004 and 2003 was as follows: (In thousands)
    
    (In thousands)Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    4,058
    
    
    $
    4,462
    
    
    $
    12,352
    
    
    $
    16,274Derivative
transactions
    
    
    (64
    )
    
    
    
    
    
    
    9
    
    
    
    Total comprehensive
income
    
    $
    3,994
    
    
    $
    4,462
    
    
    $
    12,361
    
    
    $
    16,274
 Note 8  Long-Term Debt At March 31, 2004 the company had $110,000,000 of primary credit available
under a Revolving Credit Facility (Facility), including up to a maximum of
$10,000,000 in letters of credit through November 30, 2008. On May 5, 2004,
the Facility was increased by $15,000,000 to $125,000,000, with no change in
terms, covenants or maturity. At March 31, 2004, $16,200,000 of borrowings and
$3,079,000 of letters of credit were outstanding on the Facility. No
borrowings were outstanding on the Facility at June 30, 2003, although letters
of credit totaling $2,597,000 were outstanding at that date. Senior Notes (Notes) having a principal balance of $145,000,000 were
outstanding at March 31, 2004 and June 30, 2003. In June 2002, the company
entered into an interest rate swap to effectively convert the interest rate
from fixed to floating on $60,000,000 of debt - 9 -




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through 2012. For this fair value hedge, both the fair value of the
derivative and the underlying hedged item are reported in the balance sheet.
Changes in the fair value of the derivative and the underlying hedged item
offset and are recorded each period in other income or expense, as applicable.
Accordingly, long-term debt reflected on the balance sheet is summarized as
follows: March 31,
    
    June 30,(In thousands)
    
    2004
    
    2003Senior Notes  principal balance
    
    $
    145,000
    
    
    $
    145,000Revolving credit facility
    
    
    16,200
    
    
    
    Fair value of interest rate swap
    
    
    6,222
    
    
    
    7,526$
    167,422
    
    
    $
    152,526
 Note 9  Product Warranties The company provides its customers with limited warranties on certain
products. Limited warranties relating to products sold by the Building
Products segment generally range from 20 to 50 years. Warranties relating to
the Other, Technologies companies are not significant to their operations.
Warranty reserves are established based on known or probable claims, together
with historical experience factors. The company periodically assesses the
adequacy of its recorded warranty liability and adjusts the amount as
necessary. Changes in the companys warranty liability during the current year
period were as follows: Warranty(In thousands)
    
    LiabilityBalance at June 30, 2003
    
    $
    2,675Amounts charged to expense
    
    
    2,011Warranty settlements
    
    
    (1,886
    )Balance at March 31, 2004
    
    $
    2,800
 - 10 -




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Note 10  Environmental Risk Chromium has engaged in limited remediation activities at its former
plating operation, which is located on the site of Cybershields Lufkin,
Texas manufacturing facility. Soil sampling results from a pre-closing
environmental evaluation of the site indicated the necessity of localized
cleanup. Chromium has entered the property into the Texas Voluntary
Cleanup Program (VCP). Under this program, the Texas Commission on
Environmental Quality (TCEQ) reviews the voluntary cleanup plan the
applicant submits, and, when the work is complete, issues a certificate of
completion, evidencing cleanup to levels protective of human health and the
environment and releasing prospective purchasers and lenders from liability
to the state. Properties entered into the VCP are protected from TCEQ
enforcement actions. Under the VCP, Chromium submitted a testing program, which the TCEQ
has approved, for a supplemental groundwater and soil assessment at the
facility. This program was designed to, among other things, further define
the cleanup requirements at the site. Once the investigation is complete,
Chromium intends to clean up the site under the VCP to a site specific
risk-based cleanup standard as prescribed by the Texas Risk Reduction
Program. Preliminary results from recent groundwater and soil assessments
indicate that there has been no environmental impairment beyond company
property boundaries or to any aquifer. However, until Chromium has the
final results from its supplemental assessment and completes its cleanup
plan, the estimate of costs to remediate the site are not determinable, nor
can the company determine at this point in time if it is reasonably
possible that it will incur material additional costs at the site. If a
remediation plan similar to a plan successfully used at another Chromium
plant is approved by TCEQ, remediation costs will be immaterial to the
companys consolidated results of operations, financial position and
liquidity. However, other potential scenarios, none of which are
reasonably expected at this time, could potentially result in material
costs to the company. It is not possible to estimate potential
environmental exposure until this testing is complete and a remediation
plan is developed for submission to the TCEQ. The company believes that
sufficient information for establishing a reserve for this environmental
exposure in accordance with SFAS No. 5, Accounting for Contingencies, may
be available by the end of the first half of fiscal 2005, and further
anticipates that it may be in a position at that time to determine if it is
reasonably possible that the company will incur material additional costs
with regard to this site. The companys operations are subject to extensive federal, state and
local laws and regulations relating to environmental matters. Other than the
possible costs associated with the previously described Chromium matter, 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 manufacturing operations utilize hazardous materials in their
production processes. As a result, the company incurs costs for recycling or
disposal of such materials and may incur costs for remediation activities at
its facilities and off-site from time to time. The company establishes and
maintains reserves for such known or probable remediation activities in
accordance with SFAS No. 5. - 11 -




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Note 11  Income Taxes In August 2003, the Internal Revenue Service (IRS) completed audits of the
companys consolidated tax returns through fiscal 2001. A notice of proposed
adjustment disallowing the timing of certain deductions for tax years 1998
through 2001 was rendered in connection with these audits. In December 2003,
the company reached a tentative agreement with the local office of the IRS.
The tentative agreement had no impact on net income or earnings per share. The
deferred tax balance and income tax receivable were each reduced by
approximately $400,000 to reflect the tentative agreement. The tentative
agreement has been submitted to the Joint Committee of the IRS for final review
and approval. Note 12  Discontinued Operations In December 2003, company management and the Board of Directors concluded
that the risk and prospects for future success of Cybershield do not justify
the additional investment of capital and other resources that would be required
to continue Cybershields operations. Progress towards replacing lost cellular
revenue with revenue from other sources was progressing slower than
anticipated, and the profit contribution from new commercial production of
EXACT business was lower than originally contemplated. Accordingly, the
decision was made to discontinue Cybershield and to sell its operations or its
assets. The company had previously decided to sell Cybershields Canton,
Georgia facility. Therefore, the Canton, Georgia facility is included as a
component of discontinued operations. The company expects that the sale of
Cybershield or its assets will be completed no later than December 2004. As a
result of these actions, Cybershield is classified as a discontinued operation
in the Condensed Consolidated Financial Statements pursuant to SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. Cybershield
had previously been included in Other, Technologies for segment reporting
purposes, and prior periods have been restated to present Cybershield as a
discontinued operation in all periods presented. In the three-month and nine-month periods ended March 31, 2004, the
company reported losses from discontinued operations of $2,189,000 and
$10,966,000, net of tax. Included in these losses are write-downs of
Cybershields net assets to fair market value. Write-down of assets of
Cybershields Lufkin facility totaling $10,496,000 were recorded in the quarter
ended December 31, 2003, and write-downs totaling $1,850,000 relating to the
Canton facility were recorded in the quarter ended March 31, 2004 as a result
of market conditions and an updated fair value analysis performed by
independent valuation experts. In accordance with SFAS No. 146, Accounting
for Costs Associated with Exit or Disposal Activities, other costs to exit or
dispose of Cybershield, including severance costs, termination of contractual
obligations, and ongoing plant costs will be recorded as liabilities are
incurred, most of which are expected to be incurred during the remainder of
fiscal 2004. - 12 -




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##### Table of Contents



Net assets of discontinued operations at March 31, 2004 ($000) are
summarized as follows: Current Assets:Trade receivables
    
    $
    528Inventory
    
    
    636Long-lived assets held for sale
    
    
    4,098Other
    
    
    1465,408Current Liabilities:Accounts payable and accrued liabilities
    
    
    922Net Assets
    
    $
    4,486
 Summary operating results of discontinued operations are summarized as follows: (In thousands)
    
    (In thousands)Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Sales
    
    $
    1,773
    
    
    $
    6,156
    
    
    $
    6,445
    
    
    $
    17,278Cost of sales
    
    
    2,592
    
    
    
    5,416
    
    
    
    8,934
    
    
    
    15,320Selling, general and
administrative
    
    
    699
    
    
    
    637
    
    
    
    2,036
    
    
    
    2,292Write-down of assets
    
    
    1,850
    
    
    
    
    
    
    
    12,346
    
    
    
    Operating income (loss)
    
    
    (3,368
    )
    
    
    103
    
    
    
    (16,871
    )
    
    
    (334
    )Provision (credit) for income
taxes
    
    
    (1,179
    )
    
    
    36
    
    
    
    (5,905
    )
    
    
    (117
    )Net income (loss) from
discontinued operations
    
    $
    (2,189
    )
    
    $
    67
    
    
    $
    (10,966
    )
    
    $
    (217
    )
 Note 13  New Accounting Standards SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities, amends and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments embedded
in other contracts and for hedging activities under SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. It is effective for
contracts entered into or modified after June 30, 2003, except as stated within
the statement, and should be applied prospectively. The company does not
expect this statement to have a material effect on its financial statements. - 13 -




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Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations Results of Operations This discussion summarizes the significant factors affecting the
consolidated results of operations and financial condition of the company for
the periods ended March 31, 2004 and March 31, 2003. The discussion should be
read in conjunction with the Consolidated Condensed Financial Statements and
Notes to Consolidated Condensed Financial Statements included in this quarterly
report on Form 10-Q. For further information, refer to the Consolidated
Financial Statements and Notes to Consolidated Financial Statements included in
the companys annual report on Form 10-K for the year ended June 30, 2003. The following table and subsequent discussions set forth operating data
from continuing operations of the company as a percentage of net sales for the
periods indicated. The following discussion and analysis should be read in
conjunction with the Consolidated Condensed Financial Statements and Notes to
Consolidated Condensed Financial Statements included elsewhere herein. Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    79.8
    
    
    
    81.0
    
    
    
    79.0
    
    
    
    80.5Gross margin
    
    
    20.2
    
    
    
    19.0
    
    
    
    21.0
    
    
    
    19.5Selling, general and
administrative:Other selling, general and
administrative
    
    
    11.8
    
    
    
    12.1
    
    
    
    11.0
    
    
    
    12.1Noncash stock option
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Income from operations
    
    
    8.4
    
    
    
    6.9
    
    
    
    10.0
    
    
    
    9.0Interest expense, net
    
    
    .9
    
    
    
    1.2
    
    
    
    .9
    
    
    
    1.3Income from continuing
operations before income taxes
    
    
    7.5
    
    
    
    5.7
    
    
    
    9.1
    
    
    
    7.7Provision for income taxes
    
    
    2.8
    
    
    
    2.2
    
    
    
    3.5
    
    
    
    2.9Income from continuing operations
    
    
    4.7
    %
    
    
    3.5
    %
    
    
    5.6
    %
    
    
    4.8
    %
 - 14 -




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CHANGES IN THE THREE-MONTH PERIOD ENDED MARCH 31, 2004 COMPARED TO THE
THREE-MONTH PERIOD ENDED MARCH 31, 2003. Overall Performance Sales from continuing operations of $131,947,000 during the three-month
period ended March 31, 2004 were 6.7% higher than $123,616,000 in the same
period of the prior fiscal year. During the three-month period ended March 31,
2004, operating income from continuing operations of $11,180,000 was 30.4%
higher than $8,571,000 for the same period last year. The relationship of cost of sales to sales improved during the current
year quarter compared to the prior year, as improved shingle pricing was
achieved relative to the cost of asphalt and other raw materials. Other
selling, general and administrative costs (Other SG&A) increased 3.5%
year-to-year. Higher Other SG&A costs in the current year period from
increased business activity were partially offset by lower compensation
expenses compared to the prior year period relating to technology licensing
fees. The overall relationship of Other SG&A to sales improved in the current
year quarter compared to the same period in the prior fiscal year. Interest expense, net, was $1,185,000 in the third quarter of fiscal 2004
compared to $1,469,000 in the same prior year period. In the third quarter of
fiscal 2004, interest expense of $798,000 was capitalized related to the
construction of an additional shingle plant in Tuscaloosa, Alabama, and other
significant capital projects. In the third quarter of fiscal 2003, $273,000 of
interest was capitalized. The companys effective tax rate for continuing operations was 37.5%
during the third quarter of fiscal 2004 compared to 38.1% for the same period
in fiscal 2003. For the full fiscal year 2004, the company expects the
effective tax rate from continuing operations to approximate 38.0%. In December 2003, the companys management and Board of Directors made the
decision to exit Cybershields plastic metallization business as progress
towards replacing lost cellular revenue with revenue from other sources was
progressing slower than anticipated, and the profit contribution from the new
commercial production of EXACT business was lower than originally contemplated.
Cybershields Canton facility is also included as a component of the
Cybershield disposal group, as the company had previously decided to sell that facility. Cybershields results for all periods presented
are reported as discontinued operations. Discontinued operations for the three-month period
ended March 31, 2004 included a $1,518,000 pretax loss from operations,
combined with a pretax, noncash write-down of $1,850,000 to reduce the book
value of the Canton, Georgia facility to fair value based on current market
conditions. For the three-month period ended March 31, 2003, Cybershield
reported a $103,000 operating profit. Results of Business Segments Sales in the Building Products segment increased 9.3% to $127,804,000 for
the three months ended March 31, 2004 compared to $116,981,000 in the same
prior year period. The year-to-year increase in sales is primarily the result
of an $8,449,000, or 7.7%, increase in premium roofing products sales.
Compared to the same quarter last year, unit shingle shipments increased 2.9%.
Average shingle pricing increased approximately 2.4% compared to the year-ago
quarter. For the three-month period ended March 31, 2004, external sales of
performance nonwoven fabrics increased $523,000, or 7.0%, compared to the third
quarter last year. Sales of composite building products were $2,097,000 in the
third quarter of fiscal 2004. The company entered the composite wood business
during the second quarter of fiscal 2003, and reported only $246,000 of sales
in the quarter ended March 31, 2003. - 15 -




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Operating income for the Building Products segment of $13,517,000 for the
three-month period ended March 31, 2004 increased 67.0% compared to $8,092,000
achieved in the same three-month period of fiscal 2003. In addition to the
aforementioned increase in shipments and pricing, unit asphalt costs in the
current year quarter were 6.0% lower compared to the same quarter last year.
Total unit production increased 15.0% in the quarter ended March 31, 2004
compared to the same quarter in the prior fiscal year, lowering the per unit
cost. This increased production reflects capacity additions completed earlier
this fiscal year at the roofing plants located in Shafter, California and
Myerstown, Pennsylvania. Management expects favorable roofing market
conditions to continue into the fourth quarter of fiscal 2004. Although
asphalt costs in the fourth quarter of fiscal 2004 are expected to be lower
than in the fourth quarter of fiscal 2003, such costs are expected to be higher
than those incurred in the first nine months of fiscal 2004. Further, upward
pressure also continues on transportation costs due to higher fuel prices and
lower driver productivity due to new regulatory restrictions on working hours.
To offset these expected higher costs, the company announced a 5% price
increase, effective on June 1, 2004 on all roofing and accessory products. The composite wood business incurred an operating loss of approximately
$350,000 during the third quarter of fiscal 2004, compared to an operating loss
of approximately $1,000,000 in last years third quarter. Higher sales,
improved yields and throughput allowed this business to achieve operating
profitability in the month of March 2004. This business is expected to achieve
profitable operations in the fourth quarter of fiscal 2004. Operating income for performance nonwoven fabrics increased during the
third quarter of fiscal 2004 compared to the same period last year, primarily
as a result of increased sales volumes and lower glass fiber costs. The Other, Technologies companies reported combined sales of $4,143,000 in
the three months ended March 31, 2004 compared to $6,635,000 in the same period
last year. Ortloff recognized license fee and consulting income of $1,811,000
in the three-month period ended March 31, 2004 compared to $4,936,000 in the
comparable period last year. In the prior year, Ortloffs proprietary gas
processing technology was selected for use in several large international
projects. Licensing revenues can vary significantly between reporting periods
since this business is largely project driven. Chromiums sales were
$2,289,000, or 35% higher, in the third quarter of fiscal 2004 compared to
$1,696,000 in the same period last year. Elk Technologies began shipping
modest amounts of fire retardant mattress fabrics during the third quarter of
fiscal 2004. In addition, three other bedding makers chose the companys
fire-barrier technology for fire-resistant mattresses. Other, Technologies companies had combined operating income of $814,000 in
the three-month period ended March 31, 2004, compared to $2,902,000 in the same
period last year. The lower level of profitability achieved in the current
year period is primarily the result of the aforementioned lower license and
consulting fees. Chromiums operating income was higher in the third quarter
of fiscal year 2004 than in the third quarter of fiscal 2003, primarily due to
higher sales. - 16 -




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CHANGES IN THE NINE-MONTH PERIOD ENDED MARCH 31, 2004 COMPARED TO THE
NINE-MONTH PERIOD ENDED MARCH 31, 2003. Overall Performance Sales from continuing operations of $414,894,000 during the nine-month
period ended March 31, 2004 were 21.4% higher than $341,639,000 in the first
nine months of the prior fiscal year. During the nine-month period ended March
31, 2004, income from continuing operations of $23,318,000 was 41.4% higher
than $16,491,000 for the same period last year. Included in income from
continuing operations in the prior year period was $3,496,000 of benefit, net
of tax, from the reversal of noncash stock option compensation (see note 6 
Noncash Stock Option Compensation). Income from continuing operations in the
first nine months of fiscal 2004 was 79.4% higher than pro forma income from
continuing operations of $12,995,000 in the year-ago period (which excludes the
$3,496,000 after tax stock option compensation benefit in the year-ago period).
For comparative purposes, management believes this comparison is appropriate,
since the fiscal 2003 benefit resulted solely from changes in the companys
stock price and not from operations. Consolidated operating income from continuing operations of $41,506,000 in
the period ended March 31, 2004 was 34.3% higher than $30,900,000 in the same
period in the prior fiscal year. Operating income from continuing operations
in the prior year period included a $5,378,000 pretax benefit as a result of
the aforementioned noncash stock option compensation. Consolidated operating
income from continuing operations in the first nine months of fiscal 2004 was
62.6% higher than pro forma consolidated operating income from continuing
operations of $25,522,000 (which excludes the $5,378,000 noncash stock option
compensation benefit in the year-ago period). For comparative purposes,
management believes this comparison is appropriate, since the fiscal 2003
benefit resulted solely from changes in the companys stock price and not from
operations. As a percentage of sales, operating income from continuing operations was
10.0% in the first nine months of fiscal 2004 compared to 9.0% (7.4% on a pro
forma basis which excludes the noncash stock option compensation benefit of
1.6% of sales) for the same period in fiscal 2003. Cost of sales was 79.0% of
sales in the first nine months of fiscal 2004 compared to 80.5% in the prior
year period. Higher asphalt and other raw material costs during much of the
current year period were largely offset by better shingle pricing and increased
shingle production, which reduced per unit manufacturing costs. Other selling,
general and administrative (Other SG&A) costs in the nine-month period ended
March 31, 2004 were 10.1% higher than in the first nine months of the prior
fiscal year, primarily as a result of increased business activity; however, as
a percentage of sales, the relationship between sales and Other SG&A costs was
significantly better in the current year. Interest expense, net, was $3,899,000 in the first nine months of fiscal
2004 compared to $4,522,000 in the same prior year period. In the first nine
months of fiscal 2004, interest expense of $2,110,000 was capitalized related
to the construction of an additional shingle plant in Tuscaloosa, Alabama, and
other significant capital projects. In the comparable period in fiscal 2003,
$521,000 of interest was capitalized. - 17 -




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The companys effective tax rate from continuing operations was 38.0%
during the first nine months of fiscal 2004 compared to 37.5% for the same
period in fiscal 2003. The difference between years primarily relates to the
impact of noncash stock option compensation benefit on the effective tax rate
in fiscal 2003. In December 2003, the companys management and Board of Directors made the
decision to exit Cybershields plastic metallization business. Cybershields
results for all periods presented are reported as discontinued operations.
Discontinued operations for the nine-month period ended March 31, 2004 included
a $4,525,000 pretax loss from operations, combined with pretax, noncash
write-downs of $12,346,000 to reduce the book value of Cybershields assets to
fair value. For the nine-month period ended March 31, 2003, Cybershield
reported a $217,000 operating loss, net of tax. Results of Business Segments Sales in the Building Products segment increased 22.9% to $404,213,000 for
the nine months ended March 31, 2004 compared to $328,919,000 in the same prior
year period. The significant year-to-year increase in sales is primarily the
result of a $69,427,000, or 22.6% increase in premium roofing products sales.
Compared to the same period last year, unit shingle shipments increased 16.0%,
with most regions of the United States of America experiencing strong
year-to-year growth. A significant portion of the unit volume increase,
particularly during the early part of fiscal 2004, was attributable to strong
roof replacement demand in hail-damaged Texas markets. Average shingle pricing
increased about 4.5% compared to the year-ago period. For the nine-month
period ended March 31, 2004, external sales of performance nonwoven fabrics
increased $1,956,000, or 9.1%, compared to the same period last year. Sales of
composite building products were $4,240,000 in the first nine months of fiscal
2004. The company entered the composite wood business in the second quarter of
fiscal 2003 and reported $329,000 in sales during the comparable period last
year. Operating income for the Building Products segment of $50,329,000 for the
nine-month period ended March 31, 2004 increased 67.3% compared to $30,081,000
achieved in the first nine months of fiscal 2003. Higher operating income from
premium roofing products resulted primarily from higher unit volumes, combined
with an improved relationship between shingle pricing and asphalt costs.
Operating income gains attributable to higher premium roofing product sales
were partially offset by an operating loss of approximately $2,500,000 for the
composite wood business during the first nine months of fiscal 2004. The
composite wood business had an approximate $1,500,000 operating loss in the
nine-month period ended March 31, 2003. The Other, Technologies companies reported combined sales of $10,681,000
in the first nine months of fiscal 2004 compared to $12,720,000 in the same
period in fiscal 2003. Ortloff recognized lower license fee and consulting
income in the nine-month period ended March 31, 2004 compared to the same
period last year. Chromiums sales were 7.4% higher in the first nine months
of fiscal 2004 compared to the same period last year. During the first quarter
of fiscal 2004, Chromium and the Electro-Motive Division of General Motors (GM
EMD) signed a manufacturers representation agreement whereby GM EMD will
promote and market Chromiums reciprocating engine components through the
extensive GM EMD sales network in international and specific domestic markets.
Elk Technologies had a modest level of sales of fire retardant mattress fabrics
during the first nine months of fiscal 2004. - 18 -




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Other, Technologies companies had combined operating income of $1,516,000
in the nine month period ended March 31, 2004, compared to $3,439,000 in the
same period last year. Chromium was modestly profitable in the first nine
months of fiscal year 2004 compared to incurring a small operating loss in the
first nine months of fiscal 2003. Ortloff had an operating income of
approximately $1,700,000 in the fiscal 2004 period, compared to approximately
$3,500,000 operating income in the fiscal 2003 period. Elk Technologies
incurred approximately $500,000 in marketing and development costs in the first
nine months of fiscal 2004 compared to a small operating loss in the same
fiscal 2003 period. Financial Condition Cash flows from operating activities are generally the result of income
from operations, deferred taxes, depreciation and amortization, and changes in
working capital. During the first nine months of fiscal 2004, the company
generated cash flows from operating activities of $27,869,000, compared to
$12,540,000 for the first nine months in fiscal 2003. Due primarily to
seasonal factors, trade receivables at March 31, 2004 were $5,652,000 lower
than at June 30, 2003. The current ratio was 4.3 to 1 at March 31, 2004
compared to 3.7 to 1 at June 30, 2003. Overall working capital requirements at
the end of fiscal 2004 are not expected to be significantly different than at
March 31, 2004. However, 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. Cash flows from investing activities primarily reflect the companys
capital expenditure strategy. Net cash used for investing activities was
$47,806,000 in the first nine months of fiscal 2004 compared to $35,178,000 in
the same period last year. Approximately $33,720,000 of current year capital
expenditures relate to construction of a second shingle manufacturing plant at
the Tuscaloosa, Alabama facility, including the installation of certain
infrastructure and material handling improvements designed to enhance the
overall efficiency of the expanded facility. Construction of the new facility
was completed in March 2004. Testing of the production equipment will continue
through the quarter ending June 30, 2004. Capital expenditures are projected
to be approximately $60,000,000 in fiscal 2004, including approximately
$37,000,000 (inclusive of the aforementioned $33,720,000) relating to the new
Tuscaloosa plant, approximately $6,000,000 for productivity enhancement
projects, and approximately $6,000,000 to upgrade certain key information
technology platforms. After fiscal 2004, capital expenditures are currently
expected to be approximately $10,000,000  $15,000,000 per year, excluding any
future major capacity initiatives that may be undertaken. Cash flows from financing activities generally reflect changes in the companys
borrowings during the period, together with dividends paid on common stock,
treasury stock transactions and exercises of stock options. Net cash provided
by financing activities was $15,202,000 in the first nine months of fiscal 2004
compared to $22,235,000 in the same period in fiscal 2003. The increase in
long-term debt during the first nine months of fiscal 2004 was primarily the
result of $16,200,000 of seasonal borrowings under the Revolving Credit
Facility and a $1,304,000 adjustment in the fair value of long-term debt
resulting from a decline in the value of the interest rate swap to effectively
convert the interest rate from fixed to floating on $60,000,000 of long- - 19 -




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term debt through 2012. The decline in the value of the swap was the
result of swap payments received and an increase in market interest rates since
June 30, 2003. This fair market adjustment to the carrying amount of long-term
debt is offset by recording a corresponding amount in other assets for the
value of the interest rate swap instrument. At March 31, 2004, liquidity consisted of $321,000 of cash and cash
equivalents and $90,721,000 of available borrowings under the companys
Revolving Credit Facility (Facility). On May 5, 2004, the Facility was
expanded by an additional $15,000,000, which increased the commitment on the
Facility to $125,000,000. The debt to capital ratio (after deducting cash and
cash equivalents from $161,200,000 of principal debt) was 43.6%. The company
has no off-balance sheet arrangements or transactions with unconsolidated,
special purpose entities. The companys Board of Directors has authorized the purchase of common
stock from time to time on the open market. As of March 31, 2004, the company
has repurchase authority of approximately $10,600,000 remaining. See footnote 10 on page 11 of this Form 10-Q for a summary of the
companys environmental risk and footnote 13 on page 13 for a discussion of new
accounting standards. Management believes that current cash and cash equivalents, projected cash
flows from operations, and its existing debt capacity should be sufficient
during fiscal 2004 and beyond to fund planned capital expenditures, working
capital needs, dividends, stock repurchases and other cash requirements. Due
to the current low interest rate environment, the company is evaluating
alternative debt strategies to fund future growth activities. Should
additional debt capacity be determined to be desirable, management believes it
will be able to secure such additional funds at favorable rates and terms. Critical Accounting Policies The companys condensed consolidated financial statements were prepared in
conformity with accounting principles generally accepted in the United States
of America. As such, management is required to make certain estimates,
judgments and assumptions it believes are reasonable based on the information
available. The accounting policies which management believes are the most
critical to fully understanding and evaluating the companys reported financial
results are:  -
    
    Collectibility of Accounts Receivable-
    
    Accruals for Loss Contingencies, including product
warranties, litigation, environmental exposure and self-insurance
reserves-
    
    Inventories-
    
    Revenue Recognition-
    
    Impairment of Long-Lived Assets These critical accounting policies are described in Managements
Discussion and Analysis of Financial Condition and Results of Operations on
pages 24 through 26 in the companys Form 10-K for its fiscal year ended June
30, 2003. There were no significant changes in critical accounting policies
during the nine-month period ended March 31, 2004. - 20 -




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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 that involve
risks and uncertainties 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 optimistic, outlook, believe,
estimate, potential, project, expect, anticipate, plan, predict,
could, should, may, likely, possible, or similar words that convey
the uncertainty of future events or outcomes. These statements are based on
judgments the company believes are reasonable; however, actual results could
differ materially from those discussed in these forward-looking statements.
Factors that could cause or contribute to such differences could include, but
are not limited to:  1.
    
    The companys building products business is substantially
non-cyclical, but can be affected by weather, the availability of
financing, insurance claims-paying practices, 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 and insurance 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.2.
    
    In the building 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 energy, trucking and rail costs. Historically,
the company has been able to pass some of the higher raw material,
energy and transportation costs through to the customer. Should the
company be unable to recover higher raw material, energy and/or
transportation costs, including higher trucking costs resulting from
recent regulatory changes in the trucking industry, from price
increases of its products, operating results could be adversely
affected and/or lower than projected.3.
    
    Temporary shortages or disruption in supply of raw materials or
transportation do result from time to time from a variety of causes.
If the company experiences temporary shortages or disruption of supply
of raw materials, operating results could be adversely affected and/or
lower than projected.4.
    
    The company has been involved in a significant expansion plan over the
past several years, including the construction of new facilities and the
expansion of existing facilities. Construction of the new Tuscaloosa,
Alabama facility was completed in March 2004. Testing of the production
equipment will continue through the June 2004 quarter. The company
expects that fixed operating costs will increase approximately
$14,000,000 annually as a result of this new facility. However, the
company also believes that during fiscal 2005, higher asphalt shingle
sales resulting from growth in market demand and expanded manufacturing
capacity will offset these higher operating costs. Progress in
achieving anticipated operating efficiencies and financial results is - 21 -




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difficult to predict for new and expanded plant facilities. If such
progress is slower than anticipated, or if demand for products produced
at new or expanded plants does not meet current expectations, operating
results could be adversely affected.5.
    
    Certain facilities of the companys 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.6.
    
    The companys litigation is subject to inherent and case-specific
uncertainty. The outcome of such litigation depends on numerous
interrelated factors, many of which cannot be predicted.7.
    
    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 or its cost of alternative sources of capital.8.
    
    Each of the companys businesses is subject to the risks of
technological changes and competition that is based on technology
improvement or labor savings. These factors could affect the demand
for or the relative cost of the companys technology, products and
services, or the method and profitability of the method of
distribution or delivery of such technology, 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.9.
    
    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 these or other
events, including but not limited to acts of God, war or terrorism.10.
    
    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.
Products using VersaShield fire retardant coatings have not yet
produced significant commercial sales. Its market potential may be
dependent on the stringency of federal and state regulatory
requirements, which are difficult to predict. Further, the companys
composite decking and fencing products operation is producing and
selling a new generation of voided embossed products. The company
believes that this new generation of products will allow this business
to achieve sustained operating profitability. If such development
activities are not successful, regulatory requirements are less
stringent than currently predicted, market demand is less than
expected, 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. - 22 -




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Item 3. Quantitative and Qualitative Disclosures About Market Risk In addition to the risks inherent in its operations, the company is
exposed to financial, market, political and economic risks. The following
discussion provides additional detail regarding the companys exposure to the
risks of changing commodity prices and interest rates. The company has no
significant foreign exchange risk. Derivatives are held from time to time only
as part of a formally documented risk management program. Derivatives are held
to mitigate uncertainty, volatility or to cover underlying exposures. No
derivatives are held for trading purposes. The company has entered into
derivative transactions related to interest rate risk and its exposure to
natural gas used in its manufacturing plants, as summarized in the following
paragraphs. The company is required to purchase natural gas for use in its
manufacturing facilities. These purchases expose the company to the risk of
higher natural gas prices. To hedge this risk, in November 2003, the company
entered into a hedge transaction to fix the price on 50% of its projected
natural gas usage from December 1, 2003 through April 30, 2004. It is
anticipated that similar hedging strategies will be utilized in the future.
The fair value of the hedge for natural gas was $13,000 ($9,000 net of tax) at
March 31, 2004. The company uses interest rate swaps to help maintain a reasonable balance
between fixed and floating rate debt. The company has entered into an interest
rate swap to effectively convert the interest rate from fixed to floating on
$60,000,000 of its outstanding debt at March 31, 2004. The fair value of this
swap was $6,222,000 at March 31, 2004. Based on outstanding debt at March 31,
2004, the companys interest costs would increase or decrease $600,000 for each
theoretical 1% increase or decrease in the floating interest rate. 
 Item 4. Controls and Procedures  a)
    
    Evaluation of Disclosure Controls and ProceduresThe company completed an evaluation, under the supervision and with the
participation of management, including the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation
of the companys disclosure controls and procedures pursuant to Exchange
Act Rules 13a-15 and 15d-15(e) as of the end of the period covered by this
report. Based upon that evaluation, the Chief Executive Officer and the
Chief Financial Officer concluded that the companys disclosure controls
and procedures are effective to timely alert them to any material
information relating to the company (including its consolidated
subsidiaries) that must be included in the companys periodic SEC filings.b)
    
    Changes in Internal ControlIn connection with the evaluation described above, we identified no change
in our internal control over financial reporting that occurred during our
fiscal quarter ended March 31, 2004 and that has materially affected, or
is reasonably likely to materially affect, our internal control over
financial reporting. - 23 -




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PART II. OTHER INFORMATION 
 Item 2: Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities Issuer Purchase of Equity Securities for Quarter Ended March 31, 2004 Total Number of
    
    Maximum Number (orShares Purchased
    
    Approximate DollarTotal
    
    
    
    
    
    as Part of
    
    Value) of Shares ThatNumber
    
    Average
    
    Publicly
    
    May yet be Purchasedof Shares
    
    Price Paid
    
    Announced Plans
    
    Under the Plans orPeriod
    
    Purchased
    
    per Share
    
    or Programs
    
    Programs (Note 1)January, 2004
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    10,600,000February, 2004
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    10,600,000March, 2004
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    10,600,000Total
    
    
    
    
    
    $
    
    
    
    $
    
  (1)
    
    On September 28, 1998, the companys Board of Directors authorized the
purchase of up to $10,000,000 of common stock 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 an additional
$10,000,000 of common stock. The most recent share repurchase under these
authorizations was December 4, 2000. The authorizations did not specify
an expiration date. Purchases may be increased, decreased or discontinued
by the Board of Directors at any time without prior notice. 
 Item 5: Other Information Effective March 15, 2004, Gregory J. Fisher, Senior Vice President and
Controller succeeded Harold R. Beattie, Jr. as Chief Financial Officer, in
addition to maintaining his current responsibilities. Leonard R. Harral, Vice
President and Chief Accounting Officer, assumed the additional position of
Treasurer. Mr. Beattie resigned his duties as an officer of the company to
pursue other business opportunities. He will continue to serve as an employee
and financial advisor to the company for a transition period until July 15,
2004. - 24 -




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Item 6: Exhibits and Reports on Form 8-K  (a)
    
    Exhibits: 31.1
    
    Certification of Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certificate of the Chief Executive Officer of
ElkCorp Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.32.2
    
    Certificate of the Chief Financial Officer of
ElkCorp Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
  (b)
    
    The company filed one report on Form 8-K during the quarter ended
March 31, 2004. The company filed a Form 8-K on January 16, 2004
relating to a press release containing consolidating operating results
and other financial information for the second quarter of fiscal 2004,
including forward-looking statements about its prospects for the
future and certain other information concerning the companys
disclosures under Regulation FD. - 25 -




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. ElkCorpDATE: May 14, 2004
    /s/ Gregory J. FisherGregory J. FisherSenior Vice President,
Chief Financial Officer and Controller /s/ Leonard R. HarralLeonard R. HarralVice President,
Chief Accounting Officer and Treasurer - 26 -




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INDEX TO EXHIBITS 31.1
    
    Certification of Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certificate of the Chief Executive Officer of
ElkCorp Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.32.2
    
    Certificate of the Chief Financial Officer of
ElkCorp Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.