##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-Q þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2005
 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 1-5341 ELKCORP 
  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 þ. No o. Indicate by check mark whether the Registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act). Yes þ. No o. As of the close of business on April 29, 2005, the Registrant had outstanding 20,162,741
shares of Common Stock, par value $1 per share.




---



ElkCorp and Subsidiaries For The Quarterly Period Ended March 31, 2005 Index PagePart I. FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheets as of March 31, 2005 and June 30, 2004
    
    
    1Consolidated Statements of Operations for the Three Months and Nine Months Ended March 31, 2005 and 2004
    
    
    2Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2005 and 2004
    
    
    3Notes to Consolidated Financial Statements
    
    
    4-13Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14-25Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4.
    
    Controls and Procedures
    
    
    26Part II. OTHER INFORMATIONItem 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 6.
    
    Exhibits
    
    
    28SIGNATURES
    
    
    29Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906




---



##### Table of Contents



PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements ELKCORP AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    June 30,2005
    
    
    2004AssetsCurrent AssetsCash and cash equivalents
    
    $
    39,157
    
    
    $
    273Trade receivables, less allowance of $695 and $605
    
    
    162,358
    
    
    
    121,091Inventories Finished goods
    
    
    55,206
    
    
    
    49,800Work-in-process
    
    
    159
    
    
    
    160Raw materials
    
    
    15,290
    
    
    
    12,169Total inventories
    
    
    70,655
    
    
    
    62,129Prepaid expenses and other assets
    
    
    10,045
    
    
    
    8,587Deferred income taxes
    
    
    3,721
    
    
    
    7,359Discontinued operations
    
    
    404
    
    
    
    5,096Total current assets
    
    
    286,340
    
    
    
    204,535Property, Plant and Equipment, at Cost
    
    
    436,964
    
    
    
    404,743Less  accumulated depreciation
    
    
    (151,081
    )
    
    
    (133,635
    )Property, plant and equipment, net
    
    
    285,883
    
    
    
    271,108Other Assets
    
    
    12,046
    
    
    
    5,065$
    584,269
    
    
    $
    480,708Liabilities and Shareholders EquityCurrent LiabilitiesAccounts payable
    
    $
    48,769
    
    
    $
    37,247Accrued liabilities
    
    
    32,241
    
    
    
    25,419Current maturities on long-term debt
    
    
    385
    
    
    
    Discontinued operations
    
    
    159
    
    
    

    531Total current liabilities
    
    
    81,554
    
    
    
    63,197Long-Term Debt
    
    
    198,000
    
    
    
    156,858Deferred Income Taxes
    
    
    49,908
    
    
    
    45,611Shareholders Equity -Common stock ($1 par, 20,023,161 and 19,988,078
shares issued, respectively)
    
    
    20,023
    
    
    
    19,988Additional paid-in capital
    
    
    65,230
    
    
    
    57,852Unearned compensation  unvested restricted stock
and performance stock awards
    
    
    (7,308
    )
    
    
    (628
    )Retained earnings
    
    
    176,965
    
    
    
    143,540254,910
    
    
    
    220,752Less   Treasury stock (2,484 and 288,220
shares, respectively, at cost)
    
    
    (103
    )
    
    
    (5,710
    )Total shareholders equity
    
    
    254,807
    
    
    
    215,042$
    584,269
    
    
    $
    480,708
 See accompanying notes to consolidated financial statements. - 1 -




---



##### Table of Contents



ELKCORP AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Sales
    
    $
    204,976
    
    
    $
    131,947
    
    
    $
    563,519
    
    
    $
    414,894Cost and ExpensesCost of sales
    
    
    158,010
    
    
    
    105,401
    
    
    
    444,462
    
    
    
    327,873Selling, general and
administrative
    
    
    20,109
    
    
    
    15,435
    
    
    
    52,801
    
    
    
    45,515Income from Operations
    
    
    26,857
    
    
    
    11,111
    
    
    
    66,256
    
    
    
    41,506Interest Expense, Net
    
    
    2,614
    
    
    
    1,185
    
    
    
    7,090
    
    
    
    3,899Income From Continuing Operations
Before Income Taxes
    
    
    24,243
    
    
    
    9,926
    
    
    
    59,166
    
    
    
    37,607Provision for income taxes
    
    
    8,916
    
    
    
    3,724
    
    
    
    22,187
    
    
    
    14,289Income From Continuing Operations
    
    
    15,327
    
    
    
    6,202
    
    
    
    36,979
    
    
    
    23,318Loss From Discontinued
Operations, Net of Income Taxes
    
    
    (30
    )
    
    
    (2,144
    )
    
    
    (547
    )
    
    
    (10,966
    )Net Income
    
    $
    15,297
    
    
    $
    4,058
    
    
    $
    36,432
    
    
    $
    12,352Income (Loss) Per Share  BasicIncome from continuing
operations
    
    $
    .77
    
    
    $
    .32
    
    
    $
    1.88
    
    
    $
    1.19Discontinued operations
    
    
    
    
    
    
    (.11
    )
    
    
    (.03
    )
    
    
    (.56
    )Net income
    
    $
    .77
    
    
    $
    .21
    
    
    $
    1.85
    
    
    $
    .63Income (Loss) Per Share  DilutedIncome from continuing
operations
    
    $
    .75
    
    
    $
    .31
    
    
    $
    1.83
    
    
    $
    1.17Discontinued operations
    
    
    
    
    
    
    (.11
    )
    
    
    (.03
    )
    
    
    (.55
    )Net income
    
    $
    .75
    
    
    $
    .20
    
    
    $
    1.80
    
    
    $
    .62Dividends Per Common Share
    
    $
    .05
    
    
    $
    .05
    
    
    $
    .15
    
    
    $
    .15Average Common Shares Outstanding
(000s)Basic
    
    
    19,784
    
    
    
    19,633
    
    
    
    19,718
    
    
    
    19,588Diluted
    
    
    20,482
    
    
    
    20,009
    
    
    
    20,184
    
    
    
    19,914
 See accompanying notes to consolidated financial statements. - 2 -




---



##### Table of Contents



ELKCORP AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months EndedMarch 31,2005
    
    
    2004Cash Flows From Operating ActivitiesIncome from continuing operations
    
    $
    36,979
    
    
    $
    23,318Adjustments to reconcile income from continuing
operations to net cash provided by continuing operations:Depreciation and amortization
    
    
    17,451
    
    
    
    13,332Deferred income taxes
    
    
    7,934
    
    
    
    2,288Stock based compensation
    
    
    2,272
    
    
    
    75Changes in assets and liabilities, net of acquisition:Trade receivables
    
    
    (44,914
    )
    
    
    5,652Inventories
    
    
    (8,476
    )
    
    
    (7,430
    )Prepaid expenses and other
    
    
    (1,458
    )
    
    
    (2,182
    )Accounts payable and accrued liabilities
    
    
    18,344
    
    
    
    (9,815
    )Net cash provided by continuing operations
    
    
    28,132
    
    
    
    25,238Net cash provided by discontinued operations
    
    
    3,773
    
    
    
    2,706Net cash provided by operating activities
    
    
    31,905
    
    
    
    27,944Cash Flows From Investing ActivitiesAdditions to property, plant and equipment
    
    
    (32,157
    )
    
    
    (47,449
    )Acquisition of company
    
    
    (471
    )
    
    
    Other, net
    
    
    (1,154
    )
    
    
    (357
    )Net cash used for investing activities
    
    
    (33,782
    )
    
    
    (47,806
    )Cash Flows From Financing ActivitiesProceeds from sale of Senior Notes
    
    
    50,000
    
    
    
    Borrowings (repayments) on Revolving Credit Facility, net
    
    
    (10,300
    )
    
    
    16,200Dividends on common stock
    
    
    (3,007
    )
    
    
    (2,950
    )Proceeds from stock option exercises and other, net
    
    
    4,068
    
    
    
    1,877Net cash provided by financing activities
    
    
    40,761
    
    
    
    15,127Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    38,884
    
    
    
    (4,735
    )Cash and Cash Equivalents at Beginning of Year
    
    
    273
    
    
    
    5,056Cash and Cash Equivalents at End of Period
    
    $
    39,157
    
    
    $
    321
 See accompanying notes to consolidated financial statements. - 3 -




---



##### Table of Contents



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, 2004. The unaudited
financial information contained herein has been prepared in conformity with accounting principles
generally accepted in the United States of America on a consistent basis and does reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion of management,
necessary for a fair presentation of the results of operations for the three-month and nine-month
periods ended March 31, 2005 and 2004. Because of, among other things, seasonal, weather-related
conditions in some of the companys market areas, sales can vary at times, and results of any one
quarter or other interim reporting period should not necessarily be considered as indicative of
results for a full fiscal year. Note 2  Company Segments The Building Products segment consists of Elk Premium Building Products, Inc. and its
operating subsidiaries (collectively Elk). These companies manufacture (1) premium laminated
fiberglass asphalt shingles, (2) coated and non-coated nonwoven fabrics used in asphalt shingles
and other applications in the building and construction, filtration, floor coverings and other
industries, and (3) composite wood decking, marine dock, fencing and railing products. Building
Products accounted for 98% and 97% of consolidated sales in the nine-month periods ended March 31,
2005 and 2004, respectively. Other, Technologies consists of the companys other operations. These dissimilar operations
are combined, as none individually meets the materiality criteria for separate segment reporting.
Other, Technologies includes (1) Chromium Corporation (Chromium), which is a leading provider of
hard chrome and other surface finishes designed to extend the life of steel machinery components
operating in abrasive environments, (2) Ortloff Engineers, LTD (Ortloff), which provides
proprietary technologies and selected engineering services to the natural gas processing industry,
and (3) Elk Technologies, Inc., which develops and markets fabrics featuring VersaShield fire
retardant coatings designed for use outside of traditional building products applications,
including home furnishings and other consumer products. - 4 -




---



##### Table of Contents



Financial information by company segment is summarized as follows: (In thousands)
    
    
    (In thousands)Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Sales from Continuing OperationsBuilding Products
    
    $
    199,529
    
    
    $
    127,804
    
    
    $
    551,914
    
    
    $
    404,213Other, Technologies
    
    
    5,447
    
    
    
    4,143
    
    
    
    11,605
    
    
    
    10,681$
    204,976
    
    
    $
    131,947
    
    
    $
    563,519
    
    
    $
    414,894Operating Profit from
Continuing OperationsBuilding Products
    
    $
    31,044
    
    
    $
    13,517
    
    
    $
    78,693
    
    
    $
    50,329Other, Technologies
    
    
    921
    
    
    
    814
    
    
    
    342
    
    
    
    1,516Corporate
    
    
    (5,108
    )
    
    
    (3,220
    )
    
    
    (12,779
    )
    
    
    (10,339
    )26,857
    
    
    
    11,111
    
    
    
    66,256
    
    
    
    41,506Interest expense, net
    
    
    2,614
    
    
    
    1,185
    
    
    
    7,090
    
    
    
    3,899Income from continuing
operations before income taxes
    
    $
    24,243
    
    
    $
    9,926
    
    
    $
    59,166
    
    
    $
    37,607Depreciation and AmortizationBuilding Products
    
    $
    4,791
    
    
    $
    3,654
    
    
    $
    14,306
    
    
    $
    10,826Other, Technologies
    
    
    184
    
    
    
    195
    
    
    
    539
    
    
    
    520Corporate
    
    
    1,001
    
    
    
    686
    
    
    
    2,606
    
    
    
    1,986$
    5,976
    
    
    $
    4,535
    
    
    $
    17,451
    
    
    $
    13,332Capital ExpendituresBuilding Products
    
    $
    10,185
    
    
    $
    12,679
    
    
    $
    30,281
    
    
    $
    43,253Other, Technologies
    
    
    32
    
    
    
    46
    
    
    
    274
    
    
    
    186Corporate
    
    
    743
    
    
    
    1,346
    
    
    
    1,602
    
    
    
    4,010$
    10,960
    
    
    $
    14,071
    
    
    $
    32,157
    
    
    $
    47,449
 March 31,
    
    
    June 30,2005
    
    
    2004Identifiable AssetsBuilding Products
    
    $
    497,189
    
    
    $
    428,246Other, Technologies
    
    
    22,490
    
    
    
    19,860Corporate
    
    
    64,186
    
    
    
    27,506Discontinued Operations
    
    
    404
    
    
    
    5,096$
    584,269
    
    
    $
    480,708
 - 5 -




---



##### Table of Contents



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, 2005 and 2004: (In thousands)
    
    
    (In thousands)Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Premium roofing
    
    $
    185,309
    
    
    $
    117,700
    
    
    $
    511,749
    
    
    $
    376,499Performance nonwoven fabrics
    
    
    9,494
    
    
    
    8,007
    
    
    
    29,197
    
    
    
    23,474Composite building lumber
    
    
    4,726
    
    
    
    2,097
    
    
    
    10,968
    
    
    
    4,240Technology licensing and consulting fees
    
    
    3,105
    
    
    
    1,811
    
    
    
    4,537
    
    
    
    4,698Hard chrome and other surface finishes
    
    
    2,153
    
    
    
    2,289
    
    
    
    6,813
    
    
    
    5,938Fire retardant coatings
    
    
    189
    
    
    
    43
    
    
    
    255
    
    
    
    45$
    204,976
    
    
    $
    131,947
    
    
    $
    563,519
    
    
    $
    414,894
 Note 4  Earnings Per Share Basic earnings per share is computed based on the average number of common shares
outstanding. Diluted earnings per share includes outstanding stock options and unvested
restricted shares. In accordance with SFAS No. 128, Earnings Per Share, diluted earnings per
share from discontinued operations presented on the Consolidated Statements of Operations was
computed utilizing the same number of potential common shares used in computing the diluted per
share amount for income from continuing operations, regardless of whether those amounts were
antidilutive to their respective basic per share amounts. The following table sets forth the
computation of basic and diluted earnings per share from continuing operations: (In thousands except per share amounts)Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Income from continuing operations
    
    $
    15,327
    
    
    $
    6,202
    
    
    $
    36,979
    
    
    $
    23,318Denominator for basic earnings per share
 weighted average shares outstanding
    
    
    19,784
    
    
    
    19,633
    
    
    
    19,718
    
    
    
    19,588Effect of dilutive securities:Unvested restricted shares and employee
stock options
    
    
    698
    
    
    
    376
    
    
    
    466
    
    
    
    326Denominator 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
    
    
    20,482
    
    
    
    20,009
    
    
    
    20,184
    
    
    
    19,914Basic earnings per share from continuing
operations
    
    $
    .77
    
    
    $
    .32
    
    
    $
    1.88
    
    
    $
    1.19Diluted earnings per share from
continuing operations
    
    $
    .75
    
    
    $
    .31
    
    
    $
    1.83
    
    
    $
    1.17Stock options excluded from computation
of diluted earnings per share due to
antidilutive effect
    
    
    -0-
    
    
    
    727
    
    
    
    243
    
    
    
    728
 - 6 -




---



##### Table of Contents



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. If
compensation cost for stock-based compensation plans had been determined under SFAS No. 123 using
the Black-Scholes model, pro forma net income, stock option compensation expense, and basic and
diluted earnings per common share for the three-month and nine-months periods ended March 31, 2005
and 2004 would have been as follows: (In thousands)
    
    
    (In thousands)Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income as reported
    
    $
    15,297
    
    
    $
    4,058
    
    
    $
    36,432
    
    
    $
    12,352Add: Stock-based employee
compensation expense
included in reported net
income, net of related
tax effects
    
    
    355
    
    
    
    
    
    
    
    880
    
    
    
    Deduct: Total stock-based
compensation expense
determined under fair
value based method, net
of related tax effects
    
    
    (1,005
    )
    
    
    (585
    )
    
    
    (2,688
    )
    
    
    (1,936
    )Pro forma earnings
    
    $
    14,647
    
    
    $
    3,473
    
    
    $
    34,624
    
    
    $
    10,416Earnings per common share:Basic  as reported
    
    $
    .77
    
    
    $
    .21
    
    
    $
    1.85
    
    
    $
    .63Basic  pro forma
    
    $
    .74
    
    
    $
    .18
    
    
    $
    1.76
    
    
    $
    .53Diluted  as reported
    
    $
    .75
    
    
    $
    .20
    
    
    $
    1.80
    
    
    $
    .62Diluted  pro forma
    
    $
    .72
    
    
    $
    .17
    
    
    $
    1.72
    
    
    $
    .52
 Note 6  Cash and Cash Equivalents Cash equivalents are highly liquid investments purchased with a maturity of, or which are
subject to redemption in, three months or less. Cash equivalents were $38,945,000 at March 31,
2005. - 7 -




---



##### Table of Contents



Note 7  Long-Term Debt (In thousands)March 31,
    
    
    June 30,2005
    
    
    2004Senior Notes
    
    $
    195,000
    
    
    $
    145,000Revolving Credit Facility
    
    
    
    
    
    
    10,300Fair Value of Notes Payable
    
    
    1,155
    
    
    
    Fair Value of Interest Rate Swaps
    
    
    2,230
    
    
    
    1,558198,385
    
    
    
    156,858Less: Current Maturities
    
    
    (385
    )
    
    
    $
    198,000
    
    
    $
    156,858
 The company has issued $195,000,000 of Senior Notes (Notes). Of the Notes, $25,000,000 mature
in fiscal 2008 and carry a coupon rate of 4.69%, $60,000,000 mature in fiscal 2009 and carry a
coupon rate of 6.99%, $60,000,000 mature in fiscal 2012 and carry a coupon rate of 7.49%, and
$50,000,000 mature in fiscal 2015 and carry a coupon note of 6.28%. The company entered into an interest rate swap to effectively convert the interest rate from
fixed to floating on $60,000,000 of Notes 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. At March
31, 2005, the fair value of the derivative was $2,514,000 and this amount was included in other
assets and as an increase in the carrying value of long-term debt. Changes in the fair value of
the derivative and the underlying hedged item offset. In July 2004, the company entered into a
second interest rate swap to effectively convert the interest rate from fixed to floating on
$25,000,000 of Notes through July 15, 2007. This interest rate swap is also a fair value hedge
with the same accounting and reporting as the aforementioned interest rate swap. At March 31,
2005, the fair value of the derivative was a liability of $284,000 and is recorded in accrued
liabilities and as a decrease in the fair value of long-term debt. At March 31, 2005, the company had $125,000,000 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. At March 31, 2005, there were no borrowings outstanding on the Facility and
$3,022,000 of letters of credit were outstanding. In March 2005, the company issued $1,250,000 of notes payable in connection with an
acquisition. The notes, which are payable in equal quarterly installments through March 2008 are
non-interest bearing and have been recorded in the balance sheet at a fair value of $1,155,000. Both the Notes and the Facility require that the company maintain a specified minimum
consolidated net worth and a maximum debt to capitalization ratio, based on defined terms. The
Facility also contains a minimum fixed charge coverage ratio and the Notes contain a minimum
interest coverage ratio, also based on defined terms. Dividend payments and stock repurchases are
also limited to certain specified levels by the Facility agreement. At March 31, 2005, the company
was in compliance with all requirements. - 8 -




---



##### Table of Contents



Note 8  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, 2004
    
    $
    3,103Amounts charged to expense
    
    
    3,930Warranty settlements
    
    
    (2,860
    )Balance at March 31, 2005
    
    $
    4,173
 Note 9  Environmental Risk Chromium has engaged in limited remediation activities at the site of its former plating
operation in Lufkin, Texas. 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 clean up 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. Chromium completed a supplemental groundwater and soil assessment at the Lufkin facility. The
assessment further defined the horizontal and vertical extent of metals in soils, assessed the
horizontal extent of metals in groundwater, and estimated the direction of groundwater movement.
Chromium submitted its Affected Property Assessment Report (APAR) to the TCEQ. In June 2004, the
TCEQ issued a letter accepting Chromiums APAR in substantially all respects, indicating that no
further assessment of the extent of contamination was necessary. Chromium is finalizing a proposed
Remedial Action Plan (RAP) to the TCEQ in which it will propose activities and engineering controls
to clean up the site under the VCP to a site specific risk-based clean up standard as prescribed by
the Texas Risk Reduction Program. The company believes that current findings indicate that remediation activities will be
similar to a plan utilized at another Chromium plant. This assessment, in conjunction with
projections developed in finalizing the proposed RAP that are site specific, resulted in the
company recording an accrued liability of $700,000 as of March 31, 2005. Of this
total, $300,000 was recorded in the quarter ended March 31, 2005. Certain other scenarios, none of
which are reasonably expected at this time, could potentially result in material costs to the
company. - 9 -




---



##### Table of Contents



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 Accounting for Contingencies and AICPA Statement of
Position 96-1. Note 10  Discontinued Operations In December 2003, the company concluded that the risk and prospects for future success of
Cybershield did not justify the additional investment of capital and other resources required to
continue Cybershields operations. Accordingly, the decision was made to discontinue Cybershield
and to sell its operations or its assets. Cybershield is classified as a discontinued operation in
the consolidated financial statements. In the first quarter of fiscal 2005, the company sold substantially all assets of Cybershield,
excluding the Canton, Georgia facility, to the Cybershield management group for $1,293,000 in cash.
The sale price approximated the book value of assets, net of assumed liabilities, at the date of
sale. Also in the first quarter of fiscal 2005, the company recorded a pretax impairment charge of
$651,000 on the remaining Canton assets. In the quarter ended March 31, 2005 the Canton land,
building and certain equipment were sold for $2,750,000. The sales price approximated the book
value of the assets sold. The only remaining assets of discontinued operations are immaterial
amounts of equipment held for sale. Summary operating results of discontinued operations are summarized as follows: (In thousands)
    
    
    (In thousands)Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Sales
    
    $
    
    
    
    $
    1,773
    
    
    $
    643
    
    
    $
    6,445Cost of sales
    
    
    37
    
    
    
    2,522
    
    
    
    743
    
    
    
    8,934Selling, general and administrative
    
    
    9
    
    
    
    699
    
    
    
    90
    
    
    
    2,036Impairment of assets
    
    
    
    
    
    
    1,850
    
    
    
    651
    
    
    
    12,346Operating loss
    
    
    (46
    )
    
    
    (3,298
    )
    
    
    (841
    )
    
    
    (16,871
    )Credit for income taxes
    
    
    (16
    )
    
    
    (1,154
    )
    
    
    (294
    )
    
    
    (5,905
    )Net loss from discontinued operations
    
    $
    (30
    )
    
    $
    (2,144
    )
    
    $
    (547
    )
    
    $
    (10,966
    )
 - 10 -




---



##### Table of Contents



Note 11  Acquisition In March 2005, a subsidiary of the company purchased the principal assets of Railwayz, Inc.
(Railwayz), a privately-held composite railing company, whose products are complementary to the
companys composite decking and traditional wood decks. The total purchase price was approximately
$1,625,000, plus contingent future earn-out payments based on revenues for the first five years
after acquisition with a maximum potential payment of $375,000. Existing cash resources of
$471,000 and a three-year non-interest bearing note with a fair value of $1,155,000 were used to
finance the acquisition. The purchase price was allocated to the assets acquired, including
current assets, property, plant and equipment and goodwill. Sales of Railwayz products in its most
recent fiscal year prior to acquisition were not significant in amount. Note 12  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 IRS. The deferred tax
balance and income tax receivable were each reduced by approximately $400,000 to reflect the
tentative agreement. The tentative agreement had no impact on net income or earnings per share.
As required by the 1986 Internal Revenue Code, the findings of the examination have been submitted
by the IRS to the Congressional Joint Committee on Taxation for final review and approval. Note 13  Restricted Stock, Stock Options and Performance Stock During fiscal 2004, the Compensation Committee of the Board of Directors, in conjunction with
an independent third party compensation consultant, conducted an evaluation of the companys
long-term incentive compensation strategy in light of the Boards pay for performance philosophy
and current developments, including without limitation, emerging accounting issues and shareholder
preferences. A detailed description and analysis of the Compensation Committees evaluation and
conclusions is contained in ElkCorps Proxy Statement for the October 26, 2004 Annual Meeting of
Shareholders, which has been filed with the Securities and Exchange Commission. Effective July 1, 2004, the Compensation Committee awarded the corporate officers 75% of a
long-term incentive compensation award in the form of restricted stock with a three-year vesting
period and 25% in the form of stock options, with three-year vesting and a ten-year term. Other
key employees received their long-term incentive compensation in the form of awards of restricted
stock and stock loan grants in lieu of stock option grants. In December 2004, the company entered into Performance Stock Award agreements (PSA Agreements)
granting performance stock awards (PSAs) to certain of the companys officers and other key
employees under the 2004 ElkCorp Amended and Restated Equity Incentive Compensation Plan (2004
Plan), which was approved by shareholders in connection with the Annual Meeting of Shareholders on
October 26, 2004. The PSAs consist of a contingent right to receive whole shares of the companys
common stock if the company meets specified performance criteria. For the initial performance
period, which is for the three-year period ending June 30, 2007, - 11 -




---



##### Table of Contents



the performance criteria for 70% of the total PSA is based on the companys return on equity (ROE)
measured against all New York Stock Exchange (NYSE) listed companies, and 30% of the total PSA is
based on the companys total shareholder return (TSR), or stock appreciation plus dividends,
measured against all NYSE listed companies. If the company achieves a predefined target during the three year performance period ending
June 30, 2007, a total of 140,440 shares will be issued. The maximum number of shares that can be
issued for this performance period is 210,660 shares. These awards are accounted for using
variable accounting as prescribed by APB No. 25, Accounting for Stock Issued to Employees, and
related interpretations, and the disclosure-only provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. Under APB 25, performance shares are accounted for by charging a
ratable portion of compensation expense during each accounting period based on the expected number
of shares to be issued times the price of ElkCorp common stock at the end of each period. During
the three-month and nine-month periods ended March 31, 2005, $545,000 and $1,353,000 was charged to
compensation expense, respectively, based on the estimated number of shares that will be issued at
the end of the performance period ending June 30, 2007. Following is a table of shareholders equity activity from June 30, 2004 to March 31, 2005
that identifies, among other things, the impact of restricted stock, stock options and performance
stock on the companys equity accounts. Additional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-in
    
    
    Unearned
    
    
    Retained
    
    
    Treasury
    
    
    Shareholders($ In thousands)
    
    Stock
    
    
    Capital
    
    
    Compensation
    
    
    Earnings
    
    
    Stock
    
    
    EquityBalance, June 30, 2004
    
    $
    19,988
    
    
    $
    57,852
    
    
    $
    (628
    )
    
    $
    143,540
    
    
    $
    (5,710
    )
    
    $
    215,042Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,432
    
    
    
    
    
    
    
    36,432Exercises of stock options
    
    
    35
    
    
    
    717
    
    
    
    
    
    
    
    
    
    
    
    4,079
    
    
    
    4,831Restricted stock grants
    
    
    
    
    
    
    1,260
    
    
    
    (3,551
    )
    
    
    
    
    
    
    2,291
    
    
    
    Restricted stock vesting
    
    
    
    
    
    
    
    
    
    
    919
    
    
    
    
    
    
    
    
    
    
    
    919Performance stock grants
    
    
    
    
    
    
    5,401
    
    
    
    (5,401
    )
    
    
    
    
    
    
    
    
    
    
    Performance stock
amortization
    
    
    
    
    
    
    
    
    
    
    1,353
    
    
    
    
    
    
    
    
    
    
    
    1,353Purchases of treasury
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (763
    )
    
    
    (763
    )Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,007
    )
    
    
    
    
    
    
    (3,007
    )Balance, March 31, 2005
    
    $
    20,023
    
    
    $
    65,230
    
    
    $
    (7,308
    )
    
    $
    176,965
    
    
    $
    (103
    )
    
    $
    254,807
 - 12 -




---



##### Table of Contents



Note 14  New Accounting Standards In October 2004, the American Jobs Creation Act of 2004 (the Act) was signed into law. The
Act provides tax relief to U.S. domestic manufacturers. The Financial Accounting Standards Board
(FASB) directed its staff to issue Financial Staff Position (FSP) FAS 109-1, Application of FASB
Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004. FSP FAS 109-1 states that a
manufacturers deduction provided for under the Act should be accounted for as a special deduction
in accordance with SFAS 109 and not as a tax rate reduction. The special deduction should be
considered by a company in measuring deferred taxes when the company is subject to graduated tax
rates, and assessing whether a valuation allowance is necessary as required by SFAS 109. The
adoption of this FSP will not have a material impact on our results of operations or financial
position for fiscal 2005. The company is currently evaluating the effect that the FSP will have on
its financial position and results of operations in subsequent years and believes the effect of FSP
FAS 109-1 will be to lower income tax expense beginning in fiscal 2006. In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of Accounting
Research Bulletin No. 43, Inventory Pricing. SFAS No. 151 requires all companies to recognize a
current-period charge for abnormal amounts of idle facility expense, freight, handling costs and
wasted materials. The statement also requires that the allocation of fixed production overhead to
the costs of conversion be based on the normal capacity of the production facilities. This new
standard will be effective for the company beginning in fiscal 2006. The company is currently
evaluating the effect that the accounting change will have on its financial position and results of
operations but does not expect SFAS No. 151 to have a material impact on its results of operations
or financial position when implemented. During December 2004, the FASB issued Statement of Financial Accounting Standards No. 123
(Revised 2004), Share-Based Payments (SFAS 123R), which amends SFAS No. 123, Accounting for
Stock-Based Compensation and SFAS 95, Statement of Cash Flows. SFAS 123R requires all companies
to measure compensation cost for all share-based payments (including employee stock options) at
fair value, and will be effective for the company beginning in fiscal 2006. This new standard may
be adopted in one of two ways  the modified prospective transition method or the modified
retrospective transition method. The company is currently evaluating the effect that the accounting
change will have on its financial position and results of operations, and believes the effect of
the adoption of SFAS 123R will result in higher compensation expense comparable to that being
disclosed on a pro forma basis in Note 5  Accounting for Stock-Based Compensation. - 13 -




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations Executive Overview This discussion summarizes the significant factors affecting our consolidated results of
operations and financial condition for the three-month and nine-month periods ended March 31, 2005
and 2004. This discussion should be read in conjunction with the Consolidated Financial Statements
and Notes to Consolidated Financial Statements included elsewhere herein and in our annual report
on Form 10-K for the year ended June 30, 2004. The third fiscal quarter was marked by a continuation of company record levels of demand for
laminated shingles, particularly in the Southeast region and other areas of the United States that
were affected by four hurricanes in the Summer and early Fall of calendar 2004. In addition,
higher overall demand led to improved pricing in the majority of our markets throughout the
country, particularly the Southeast United States. Higher sales prices allowed us to offset
increasing raw material and transportation costs. These trends are consistent with market
conditions in the second fiscal quarter of 2005, but are in contrast to an extremely challenging
first quarter of fiscal 2005, when our Building Products business experienced lower than expected
sales in regions affected by storms in the same prior fiscal year period, competitive pricing
pressures, and delays in shipments in certain regions of the United States due to the
aforementioned hurricanes. Our new Tuscaloosa, Alabama facility was placed in service on July 1, 2004 and even though the
new plant has increased our operating costs, productivity continues to be better than our
expectations for this new facility. The ramp up of the composites business platform and the
expansion of production capacity has been more challenging than expected, resulting in higher than
anticipated raw material costs, slower than expected ramp up of production, and delays in the
initiation of certain products into the marketplace. Chromium and Ortloff do not fit into our focus on Building Products platforms, and are
currently being offered for sale. We have received interest from potential acquirers for both of
these businesses, although we do not have an immediate need to sell either business. If either or
both of the businesses are not sold, they will continue as company business platforms. In December
2003, we made the decision to discontinue Cybershield, Inc. (Cybershield) and to sell Cybershield
or its assets. The Lufkin, Texas facility and its operations were sold in the first quarter of
fiscal 2005. The sale of the idle Canton, Georgia facility was completed in the third quarter of
fiscal 2005. - 14 -




---



##### Table of Contents



Performance Data The following table and subsequent discussion set forth performance data from our continuing
operations, expressed as a percentage of net sales for the periods indicated. This data and the
accompanying discussion and analysis should be read in conjunction with the Consolidated Financial
Statements and Notes to Consolidated Financial Statements included elsewhere herein. Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    77.1
    
    
    
    79.9
    
    
    
    78.9
    
    
    
    79.0Gross margin
    
    
    22.9
    
    
    
    20.1
    
    
    
    21.1
    
    
    
    21.0Selling, general and
administrative
    
    
    9.8
    
    
    
    11.7
    
    
    
    9.4
    
    
    
    11.0Income from operations
    
    
    13.1
    
    
    
    8.4
    
    
    
    11.7
    
    
    
    10.0Interest expense, net
    
    
    1.3
    
    
    
    .9
    
    
    
    1.2
    
    
    
    .9Income from continuing
operations before income taxes
    
    
    11.8
    
    
    
    7.5
    
    
    
    10.5
    
    
    
    9.1Provision for income taxes
    
    
    4.3
    
    
    
    2.8
    
    
    
    3.9
    
    
    
    3.5Income from continuing
operations
    
    
    7.5
    %
    
    
    4.7
    %
    
    
    6.6
    %
    
    
    5.6
    %
 Changes in the Three-Month Period Ended March 31, 2005 Compared to the Three-Month Period Ended
March 31, 2004 Overall Performance Sales from continuing operations of $204,976,000 during the three-month period ended March 31,
2005 were 55.3% higher than $131,947,000 in the same period in the prior fiscal year. During the
three-month period ended March 31, 2005, operating income from continuing operations of $26,857,000
was 141.7% higher than the $11,111,000 for the same period last year. Sales of premium roofing products increased substantially in the current year period compared
to the same period last year, due to a significant increase in shingle unit volume, which was aided
by shipments from the new Tuscaloosa production facility, overall improvements in production
performance, and higher average selling prices. The percentage of cost of sales to sales decreased
to 77.1% in the three-month period ended March 31, 2005 compared to 79.9% for the same period last
year. Higher costs (including increased depreciation) at the new Tuscaloosa, Alabama roofing
plant, escalating raw material and transportation costs for all roofing plant operations, and
higher than expected start-up costs at the Lenexa, Kansas composite lumber operation, were offset
by higher average selling prices, resulting in improved margins during the third quarter of fiscal
2005. Selling, general and administrative (S,G&A) costs of $20,109,000 in the third quarter of
fiscal 2005 were 30.3% higher than $15,435,000 in the same period last year due primarily to
increased selling expense and performance based compensation expense. However, due to substantially
increased business activity, S,G&A was only 9.8% of sales in the third quarter of - 15 -




---



##### Table of Contents



fiscal 2005 compared to 11.7% in the same prior year quarter. Interest expense, net, was $2,614,000 in the third quarter of fiscal 2005 compared to
$1,185,000 in the same prior year period due primarily to higher net debt levels, increasing
interest rates and less capitalized interest. In the period ended March 31, 2005, $272,000 of
interest was capitalized related to the expansion of the Lenexa, Kansas facility and other
significant capital projects. In the third quarter of fiscal 2004, $798,000 of interest was
capitalized, much of which related to construction of the new roofing plant in Tuscaloosa, Alabama,
which is now in service. Increased interest rates on variable rate debt accounted for an
approximate $450,000 year-to-year increase in total interest cost. Average borrowings, net of cash
equivalents, were approximately $23,300,000 higher in the third quarter of fiscal 2005 compared to
the same quarter in fiscal 2004. Our effective tax rate for continuing operations was 36.8% during the third quarter of fiscal
2005 compared to 37.5% for the same period in fiscal 2004. The lower current year rate was
primarily attributable to lower state income taxes due to state investment tax credits from
expansion programs. For the full fiscal year 2005, we expect the effective tax rate from
continuing operations to approximate 37.5% compared to 37.4% for the full fiscal year 2004. In December 2003, we made the decision to exit Cybershields business. Cybershields results
for each period presented are reported as discontinued operations. In the quarter ended March 31,
2005, the company recorded an immaterial pretax loss relating to the discontinued operations. In
the third quarter of fiscal 2004, Cybershield reported a $1,448,000 pretax loss from discontinued
operations, and pretax noncash writedowns of $1,850,000 to reduce the book value of Cybershields
Canton, Georgia facility to fair value. Results of Business Segments Sales in the Building Products segment increased 56.1% to $199,529,000 for the three months
ended March 31, 2005 compared to $127,804,000 in the same prior year period. Compared to the same
period in fiscal 2004, unit volume increased 41%. In the current year period, shingle demand
continued at extremely high levels as a result of increased demand in most regions of the United
States, led by the Southeast United States and other areas affected by four hurricanes in the
Summer and early Fall of calendar 2004. We were able to benefit significantly from increased
production capacity related to the new Tuscaloosa, Alabama roofing plant and productivity
enhancements at all of our roofing facilities. Average shingle prices in the current year quarter
increased 12.7% compared to the year-ago period, primarily as a result of price increases achieved
in the Fall and Winter months of fiscal 2005. These increases were consistent with industry
trends. In the third quarter of fiscal 2005, external sales of performance nonwoven fabrics
increased 18.6% to $9,494,000 in the current year quarter, compared to $8,007,000 in the same
quarter last year, primarily as a result of sales of specialty fabrics products, such as roofing
mat, facer and filtration products. Sales of composite lumber products more than doubled to
$4,726,000 in the quarter ended March 31, 2005 compared to $2,097,000 the same three-month period
in the prior fiscal year. Operating income for the Building Products segment of $31,044,000 for the three-month period
ended March 31, 2005 increased 129.7% from $13,517,000 achieved in the same period in the prior
fiscal year. This significant improvement in operating income was primarily attributable to the
aforementioned increases in unit volume and average selling prices. We were able to improve
margins on premium asphalt shingle products as a result of higher average sales prices despite
continuing increases in asphalt and transportation costs. Asphalt costs increased approximately
6.3% in the three-month period ended March 31, 2005 from the same period in fiscal - 16 -




---



##### Table of Contents



2004 but decreased about 5.4% compared to the second quarter of fiscal 2005. However, we believe
asphalt prices will begin to increase again in the fourth quarter of fiscal 2005 due to continued
volatility in oil prices. Transportation costs have also continued to increase and were
approximately 14.5% higher in the current year quarter than in the same quarter in the prior fiscal
year. The new Tuscaloosa, Alabama roofing plant continued to improve its productivity, reaching
its initial rated capacity in the quarter ended March 31, 2005. We incurred a $2,441,000 operating
loss at our composite lumber business in the third quarter of fiscal 2005 compared to $348,000 loss
for this business in the same prior year period. This higher operating loss was primarily
attributable to slower
than expected ramp up of new production, higher than anticipated raw material costs, longer than anticipated code approval in various areas of the country and slower
than projected initiation of new products for non-decking markets. Because of these challenges, we
do not expect the composite lumber business to meet prior expectations for the remainder of fiscal
2005. However, we remain confident in this new platforms ability to meet its long-term goals. We
have made enhancements, to the composite lumber platforms organizational structure. These
enhancements in combination with capacity additions as new extruders are placed in service and
finalizing new agreements for our non-decking products, are expected to allow us to take advantage
of significant growth opportunities in this business platform. In March 2005, the composite building products subsidiary completed the acquisition of
Railwayz Inc. (Railwayz), a privately held composite railing company. Railwayz manufactures
railing product that will complement our CrossTimbers decking products and allow us to offer our
distributors a more diverse decking and railing product line. The total purchase price was
$1,625,000, plus contingent future earn-out payments based on revenues for the first
five years after acquisition with a maximum potential payment of $375,000. For further discussion
of the acquisition of Railwayz, see the Notes to Consolidated Financial statements  Note 11 
Acquisition, included elsewhere herein. The Other, Technologies companies reported combined sales of $5,447,000 in the third quarter
of fiscal 2005 compared to $4,143,000 in the same period in fiscal 2004. Ortloff
recognized higher license fees in the fiscal 2005 period compared to the same fiscal 2004 three
month period. License fees can vary significantly between reporting periods since this business is
largely project driven. Chromiums sales were $2,153,000, or 5.9% lower in the current year period
compared to $2,289,000 in the same fiscal 2004 period as a result of slightly lower demand for
plating and finishing services in existing locomotive and marine markets. Other, Technologies companies had a combined operating profit of $921,000 in the three-month
period ended March 31, 2005, compared to an $814,000 operating profit in the same three-month
period last year. Chromium recorded an operating loss of $371,000 for the three-month period ended
March 31, 2005, which included an additional $300,000 reserve for estimated environmental clean-up
at its former plating operation located in Lufkin, Texas and a $210,000 provision for bad debt
expenses. This operating loss compares to a $233,000 operating profit achieved in the same quarter
last year. Ortloff had a $1,928,000 operating profit in the quarter ended March 31, 2005 compared
to a $706,000 operating profit in the same period last year. This year-to-year increase was
primarily the result of higher licensing fees. Elk Technologies incurred an operating loss of
$636,000 in the quarter ended March 31, 2005, compared to an operating loss of $125,000 in the same
period last year. The current year operating loss included a $350,000 inventory write-down. - 17 -




---



##### Table of Contents



Changes in the Nine-Month Period Ended March 31, 2005 Compared to the Nine-Month Period Ended March
31, 2004 Overall Performance Sales from continuing operations of $563,519,000 during the nine-month period ended March 31,
2005 were 35.8% higher than $414,894,000 in the same period in the prior fiscal year. During the
nine-month period ended March 31, 2005, operating income from continuing operations of $66,256,000
was 59.6% higher than $41,506,000 for the same period last year. The year-to-year increase in sales is primarily due to increased demand for premium asphalt
shingles, together with higher average sales prices. The percentage of cost of sales to sales
decreased to 78.9% in the nine-month period ended March 31, 2005 compared to 79.0% for the same
period last year. Higher average selling prices allowed us to offset higher costs relating to
ramping up of the composite lumber business platform, higher costs associated with the new
Tuscaloosa, Alabama roofing plant, and escalating raw material and transportation costs for all
roofing plant operations. S,G&A costs in the first nine months of fiscal 2005 were 16.0% higher
than in the same period last year, primarily as a result of higher selling costs and performance
based compensation expense. SG&A costs were only 9.4% of sales in the first nine months of fiscal
2005 compared to 11.0% in the same period last year as a result of a substantial increase in
business activity. Interest expense, net, was $7,090,000 in the first nine months of fiscal 2005 compared to
$3,899,000 in the same prior year period due primarily to higher net debt levels, increasing
interest rates and less interest that was capitalized. In the nine-month period ended March 31,
2005, $668,000 of interest was capitalized related to the expansion of the Lenexa, Kansas facility
and other significant capital projects. In the first nine months of fiscal 2004, $2,110,000 of
interest was capitalized, much of which related to construction of the new roofing plant in
Tuscaloosa, Alabama which is now in service. Increased interest rates on variable rate debt
accounted for an approximate $950,000 year-to-year increase in total interest cost. Additionally,
average borrowings, net of cash equivalents, were approximately $23,500,000 higher in the first
nine months of fiscal 2005 compared to the same period in fiscal 2004. Our effective tax rate for continuing operations was 37.5% during the first nine months of
fiscal 2005 compared to 38.0% for the same period in fiscal 2004. For the fiscal year ending June
30, 2005, we expect the effective tax rate from continuing operations to approximate 37.5% compared
to 37.4% for the full fiscal year 2004. In the first nine months of fiscal 2005, we incurred a $841,000 pretax loss from discontinued
operations, which included a pretax noncash writedown of $651,000 to reduce the book value of
Cybershields Canton, Georgia assets to fair value. Discontinued operations for the nine-month
period ended March 31, 2004 reflected a $16,871,000 pretax operating loss, which included pretax
noncash writedowns of $12,346,000 to reduce the book value of the Lufkin, Texas and Canton, Georgia
assets to fair value and a $4,525,000 pretax loss from operating activities. Results of Business Segments Sales in the Building Products segment increased 36.5% to $551,914,000 for the nine months
ended March 31, 2005 compared to $404,213,000 in the same period in fiscal 2004. On a - 18 -




---



##### Table of Contents



year-to-year basis unit volume increased 24%. Increased demand for roofing products, particularly
in the Southeast United States and other areas affected by four hurricanes in the Summer and early
Fall of calendar 2004, was primarily responsible for the increased sales. Stronger market
conditions, led by the increased demand resulting from these hurricanes, allowed us to increase our
average shingle prices 8.6% for the first nine months of fiscal 2005 as compared to the same period
last year. For the nine-month period ended March 31, 2005, external sales of performance nonwoven
fabrics increased 24.4% to $29,197,000 in the current year period compared to $23,474,000 in the
same period last year, primarily as a result of higher demand of outside roofing, filtration and
facer products. For the first nine months of fiscal 2005, sales of composite building lumber
products of $10,968,000 were 158.7% higher than $4,240,000 in the same period last year as we
continue to develop this business platform by improving and increasing our product line, so that we
are in a position to take advantage of better demand as consumers become more aware of the benefits
of composite lumber compared to wood. Operating income for the Building Products segment of $78,693,000 for the nine-month period
ended March 31, 2005 increased 56.4% compared to $50,329,000 achieved in the first nine months of
fiscal 2004. Higher operating income from premium roofing products resulted primarily from higher
unit volumes, combined with an improved relationship between shingle pricing and asphalt and
transportation costs. Despite achieving higher average selling prices in the first nine months of
fiscal 2005, we expect continuing volatility in oil prices that is likely to result in higher
asphalt and transportation costs throughout the remainder of the fiscal year. Asphalt costs can be
affected by supply and demand issues which can be difficult to predict. To offset the expected
rising costs relating to asphalt and transportation costs, we initiated an additional low single
digit price increase effective in April 2005. Operating income gains in the premium roofing and
performance nonwoven fabrics platforms were partially offset by an operating loss of $6,341,000 for
the composite lumber business during the first nine months of fiscal 2005. This operating loss
compares to an operating loss of $2,468,000 in the first nine months of fiscal 2004. A significant
amount of the fiscal 2005 loss is attributable to inventory valuation
adjustments for product that did not meet current specifications and higher than
expected costs associated with the ramp-up of this business platform. Other, Technologies companies reported combined sales of $11,605,000 in the first nine months
of fiscal 2005, compared to $10,681,000 in the same period last year. Chromiums sales of
$6,813,000 were 14.7% higher in the fiscal 2005 period as compared to $5,938,000 in the first nine
months of fiscal 2004 as a result of increased demand for plating and finishing services in
existing locomotive and marine markets through the second quarter of fiscal 2005. Ortloff
licensing and consulting fees in the nine-month period ended March 31, 2005 were slightly less than
revenues generated in the same period last year. License fees can vary significantly between
reporting periods as this business is largely project driven. Other, Technologies companies had combined operating income of $342,000 in the nine-month
period ended March 31, 2005, compared to a $1,516,000 operating income in the same period last
year. Chromium reported a $228,000 operating loss in the current year period, which included
$700,000 of charges for estimated environmental costs at its former Lufkin, Texas plating operation
and a $210,000 increase in the bad debt reserve. In the first nine months of fiscal 2004, Chromium
reported $308,000 of operating income. Ortloff recorded a $1,597,000 operating profit in the
fiscal 2005 period, compared to $1,682,000 of operating profit in the fiscal 2004 period. Elk
Technologies incurred an operating loss of $1,027,000 in the first nine months of fiscal 2005,
compared to an operating loss of $474,000 in the same period last year. The current year amount
included a $350,000 write-down of inventory. - 19 -




---



##### Table of Contents



Financial Condition Overview Our liquidity needs generally arise principally from working capital requirements, capital
expenditures, dividends, and interest payments. During the first nine months of fiscal 2005, we
relied primarily on internally generated funds to finance our cash requirements. Our working
capital requirements fluctuate significantly during the year because of seasonality in some market
areas. Generally, working capital requirements are higher in the spring and summer months and
lower in the fall and winter months. Operating Activities We determine cash flows from operating activities primarily from income from operations, after
consideration of deferred taxes, stock based compensation, depreciation and amortization. Cash
flows from operating activities also either increase or decrease by changes in working capital
requirements. In the nine months ended March 31, 2005, we generated cash of $31,905,000 from
operating activities, compared to $27,944,000 in the same nine-month period last year. Trade receivables, including long-term receivables, at March 31, 2005 were $44,914,000 higher
than at June 30, 2004 due primarily to unusually high shipments of premium roofing products, and
shipments of products with seasonally extended payment terms. In accordance with normal industry
practices, extended payment terms are granted to certain customers for roofing products shipped
during the late winter and early spring months, with payments generally due during the spring and
early summer. At March 31, 2005, manufactured inventories were $8,476,000 higher than at June 30,
2004. Much of the increase related to higher inventories for the composite lumber business platform resulting from increasing production capacity. The
current ratio was 3.5 to 1 at March 31, 2005 compared to 3.2 to 1 at June 30, 2004. Investing Activities Cash flows from investing activities primarily reflect our capital expenditure strategy. Net
cash used for investing activities was $33,782,000 in the first nine months of fiscal 2005 compared
to $47,806,000 in the same period in fiscal 2004. Approximately $20,847,000 of current year
capital expenditures relate to the expansion of our composite lumber facility in Lenexa, Kansas. As
previously discussed, the new Tuscaloosa Alabama roofing plant has been completed and placed in
service. We also invested approximately $1,200,000 in the first nine months of fiscal 2005 relating
to a major project to upgrade certain key information technology platforms. This project was
completed and the platforms placed in service on November 1, 2004. Excluding major capacity
initiatives such as the Lenexa expansion, consolidated capital expenditures are generally expected
to be approximately $14,000,000 to $18,000,000 per year. - 20 -




---



##### Table of Contents



Financing Activities Cash flows from financing activities generally reflect changes in our borrowings, together
with dividends paid on common stock, and exercises of stock options. Net cash generated from
financing activities was $40,761,000 in the first nine months of fiscal 2005, compared to
$15,127,000 in the same period last year. In November 2004, we closed an agreement to issue an additional $50,000,000 in senior
unsecured notes in a private placement transaction with a group of institutional investors. This
transaction was initiated in a historically low interest rate environment to provide funds for
growth and expansion initiatives. We are continuing to evaluate possible acquisitions to extend
our premium building products line of business. At March 31, 2005, liquidity consisted of $39,157,000 of cash and cash equivalents, and
$121,978,000 of available borrowings under the $125,000,000 committed line of credit facility. The
debt to capital ratio (after deducting cash of $39,157,000 from $196,155,000 of principal debt) was
38.1%. We have no off-balance sheet arrangements or transactions with unconsolidated, limited
purpose entities. Our Board of Directors has authorized our repurchase of common stock from time to time on the
open market. As of March 31, 2005, we have repurchase authority of approximately $10,600,000
remaining. We did not make any open market purchases of common stock in the nine-month period
ended March 31, 2005. All purchases of equity securities in the first nine months of fiscal 2005
related to repurchases in connection with stock option exercises and restricted shares, and from
the ElkCorp ESOP as a result of participant diversification directives and account balance
distributions. Critical Accounting Policies Our condensed consolidated financial statements were prepared in conformity with accounting
principles generally accepted in the United States of America. As such, we are required to make
certain estimates, judgments and assumptions we believe are reasonable based on the information
available. The accounting policies that were identified at June 30, 2004 were:  -
    Collectibility of Accounts Receivable-
    Accruals for loss contingencies, product warranties, 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 in our Form 10-K for the fiscal year ended June 30,
2004. We believe that these accounting policies are still critical to fully understanding and
evaluating our reported financial results at March 31, 2005. However, we believe Accounting for
Stock-Based Compensation is also now a critical accounting policy. Included in our Stock-Based Compensation are Performance Stock Awards, which were made for
the first time in December 2004. These awards are more fully described in Note 13  Restricted
Stock, Stock Options and Performance Stock to our Consolidated Financial Statements. Compensation
expense for Performance Stock Awards is based on our estimate of the number of - 21 -




---



##### Table of Contents



shares that will be issued at the end of the performance period. The estimated number of shares
that will be issued and the related compensation expense will be adjusted periodically based on our
judgment of facts, circumstances and forecasted performance. Upon the adoption of SFAS 123R,
Share-Based Payments, discussed below under New Accounting Pronouncements, variable accounting
for Performance Stock will no longer be utilized. Rather, compensation expense will be determined
based on the fair value of Performance Stock at the date of grant. New Accounting Pronouncements In October 2004, the American Jobs Creation Act of 2004 (the Act) was signed into law. The
Act provides tax relief to U.S. domestic manufacturers. The Financial Accounting Standards Board
(FASB) directed its staff to issue Financial Staff Position (FSP) FAS 109-1, Application of FASB
Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004. FSP FAS 109-1 states that a
manufacturers deduction provided for under the Act should be accounted for as a special deduction
in accordance with SFAS 109 and not as a tax rate reduction. The special deduction should be
considered by a company in measuring deferred taxes when the company is subject to graduated tax
rates, and assessing whether a valuation allowance is necessary as required by SFAS 109. The
adoption of this FSP will not have a material impact on our results of operations or financial
position for fiscal 2005. The Company is currently evaluating the effect that the FSP will have on
its financial position and results of operations in subsequent years and believes the effect of FSP
FAS 109-1 will be to lower income tax expense beginning in fiscal 2006. In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of Accounting
Research Bulletin No. 43, Inventory Pricing. SFAS No. 151 requires all companies to recognize a
current-period charge for abnormal amounts of idle facility expense, freight, handling costs and
wasted materials. The statement also requires that the allocation of fixed production overhead to
the costs of conversion be based on the normal capacity of the production facilities. This new
standard will be effective for the company beginning in fiscal 2006. The company is currently
evaluating the effect that the accounting change will have on its financial position and results of
operations but does not expect SFAS No. 151 to have a material impact on its results of operations
or financial position when implemented. During December 2004, the FASB issued Statement of Financial Accounting Standards No. 123
(Revised 2004), Share-Based Payments (SFAS 123R), which amends SFAS No. 123, Accounting for
Stock-Based Compensation and SFAS 95, Statement of Cash Flows. SFAS 123R requires all companies
to measure compensation cost for all share-based payments (including employee stock options) at
fair value, and will be effective for the company beginning in fiscal 2006. This new standard may
be adopted in one of two ways  the modified prospective transition method or the modified
retrospective transition method. The company is currently evaluating the effect that the accounting
change will have on its financial position and results of operations, and believes the effect of
the adoption of SFAS 123R will result in higher compensation expense comparable to that being
disclosed on a pro forma basis in Note 5  Accounting for Stock-Based Compensation. - 22 -




---



##### Table of Contents



Business Risks and Forward-Looking Statements In an effort to give investors a well-rounded view of our current condition and future
opportunities, Managements Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q contain forward-looking statements that involve
risks and uncertainties about our 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, forecast, project, expect, anticipate, plan,
predict, could, should, may, likely, or similar words that convey the uncertainty of
future events or outcomes. These statements are based on judgments we believe are reasonable;
however, ElkCorps actual results could differ materially from those discussed here. We disclaim
any intention or obligation to update or revise any forward-looking statements whether as a result
of new information, future events or otherwise, except as may be required by law. Risks that could
cause or contribute to actual results differing materially from those projected in the
forward-looking statements could include, but are not limited to: Competitive Conditions - Our building products businesses can be affected by weather, the availability of customer
and/or end-user 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 our 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. Higher Raw Materials, Energy and Transportation Costs - In our building products businesses, the significant raw materials are ceramic-coated
granules, asphalt, glass fibers, resins, mineral filler, polypropylene and wood particles.
Increased costs of raw materials can result in reduced margins, as can higher energy, trucking and
rail costs. Historically, we have been able to pass some of the higher raw material, energy and
transportation costs through to the customer. Should we be unable to recover higher raw material,
energy and/or transportation costs, including higher trucking costs resulting from regulatory
changes in the trucking industry, through price increases of our products, operating results could
be adversely affected and/or lower than projected. - 23 -




---



##### Table of Contents



Temporary Shortages or Disruptions - Temporary shortages or disruptions in the supply of raw materials or the availability of
transportation do result from time to time from a variety of causes. If we experience temporary
shortages or disruptions in the supply of raw materials or the availability of transportation,
operating results could be lower than projected. Productivity of New Facilities - We have been involved in a significant expansion plan over the past several years, including
the construction of new facilities and the expansion of existing facilities. The new Tuscaloosa,
Alabama facility was placed in service at the beginning of fiscal 2005 and expansion of the Lenexa,
Kansas composite lumber facility is in progress. Progress in achieving anticipated operating
efficiencies and financial results is 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 lower than projected. Utilization of Hazardous Materials - Certain facilities of our subsidiaries must utilize hazardous materials in their production
process. As a result, we could incur costs for remediation activities at our facilities or
off-site and other related exposures from time to time in excess of established reserves for such
activities. Litigation and Claims - We are involved in various legal proceedings and claims, including claims arising in the

ordinary course of business. Our litigation and claims are subject to inherent and case-specific
uncertainty. The outcome of such litigation and claims depends on numerous interrelated factors,
many of which cannot be predicted. Higher Interest Rates - We currently anticipate that most of our needs for new capital in the near future will be met
with current amounts of cash and cash equivalents, internally generated funds and borrowings under
our available credit facilities. Significant increases in interest rates could substantially
affect our borrowing costs or our cost of alternative sources of capital. Loss of Key Customers - The majority of our sales are in the Building Products segment, and our primary customers are
building materials distributors. The ten largest Building Products customers typically account for
approximately 50% of annual consolidated sales and one customer generally accounts for 18%  20% of
consolidated sales. Our businesses each could suffer significant setbacks in revenues and
operating income if we lost one or more of our largest customers, or if our customers plans and/or
markets should change significantly. - 24 -




---



##### Table of Contents



Physical Loss to Manufacturing Facilities - Although we insure ourselves against physical loss to our manufacturing facilities, including
business interruption losses, natural or other disasters and accidents, including but not limited
to fire, earthquake, damaging winds, explosions and other casualties, operating results could be adversely affected
if any of our manufacturing facilities became inoperable for an extended period of time due to
these insured events or other non-insured events, including but not limited to acts of God, war or
terrorism. Development of New Products - Each of our businesses is actively involved in the development of new products, processes and
services which are expected to contribute to our ongoing long-term growth and earnings. Consumer
products using VersaShield fire retardant coatings have produced nominal commercial sales to date.
Its market potential may be dependent on the stringency of federal and state regulatory
requirements, which are difficult to predict. Further, our composite decking and fencing products
operation is producing and selling a new generation of voided embossed products. We believe that
this new generation of products will allow this business to achieve sustained operating
profitability. Our composite lumber subsidiary is also developing products for use in various industrial applications. If such developmental activities are not successful, regulatory requirements are
less stringent than currently predicted, market demand is less than expected, we experience
unanticipated product performance issues or delays in achieving target product specifications, or we cannot provide the requisite financial and other
resources to successfully commercialize such developments, the growth of future sales and earnings
may be adversely affected. Technological Changes - Each of our 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 our
technology, products and services, or the method and profitability of distribution or delivery of such technology, products and services. - 25 -




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk In addition to the risks inherent in our operations, we are exposed to financial, market,
political and economic risks. The following discussion provides additional detail regarding our
exposure to the risks of changing commodity prices and interest rates. We have no significant
foreign exchange risk. Derivatives are held 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. We have from time to time entered into
derivative transactions related to interest rate risk and our exposure to fluctuating prices of
natural gas used in our manufacturing plants, as summarized in the following paragraphs. We are required to purchase natural gas for use in our manufacturing facilities. These
purchases expose us to the risk of higher natural gas prices. To hedge this risk, we may enter
into hedge transactions to fix the price on a portion of our projected natural gas usage. There
were no natural gas hedge transactions in effect at March 31, 2005. However, it is anticipated
that hedging strategies will likely be utilized in the future. We use interest rate swaps to help maintain a reasonable balance between fixed and floating
rate debt. We currently have two interest rate swaps in effect. We have entered into interest
rate swaps to effectively convert the interest rate from fixed to floating on $85,000,000 of our
outstanding debt. The net fair value of these swaps was $2,230,000 at March 31, 2005. Based on
outstanding debt, our annual interest costs would increase or decrease $850,000 for each
theoretical 1% increase or decrease in the floating interest rate. 
 Item 4. Controls and Procedures  a)
    Evaluation of Disclosure Controls and ProceduresWe 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 our disclosure controls and procedures pursuant to Exchange Act
Rules 13a-15(b) and 15d-15(b) 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 our disclosure controls and procedures are effective to timely alert them to any
material information relating to ElkCorp (including its consolidated subsidiaries) that must
be included in our periodic SEC filings.b)
    Changes in Internal Control Over Financial ReportingIn connection with the evaluation described above, the companys management, including the
Chief Executive Officer and Chief Financial Officer, identified no change in the companys
internal control over financial reporting that occurred during the companys fiscal quarter
ended March 31, 2005, that has materially affected, or is reasonably likely to materially
affect, the companys internal controls over financial reporting. - 26 -




---



##### Table of Contents



PART II. OTHER INFORMATION 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Issuer Purchase of Equity Securities for Quarter Ended March 31, 2005 Total Number ofTotal
    
    
    
    
    
    
    Shares
    
    
    Maximum Number (orNumber of
    
    
    
    
    
    
    Purchased as
    
    
    Approximate DollarShares
    
    
    
    
    
    
    Part of Publicly
    
    
    Value) of Shares ThatPurchased
    
    
    Average
    
    
    Announced
    
    
    May yet be Purchasedor Surrendered
    
    
    Price Paid
    
    
    Plans or
    
    
    Under the Plans orPeriod
    
    (Note 1)
    
    
    per Share
    
    
    Programs
    
    
    Programs (Note 2)January, 2005
    
    
    1,526
    
    
    $
    32.73
    
    
    $
    
    
    
    $
    10,600,000February, 2005
    
    
    919
    
    
    
    38.89
    
    
    $
    
    
    
    $
    10,600,000March, 2005
    
    
    2,216
    
    
    
    40.64
    
    
    $
    
    
    
    $
    10,600,000Total
    
    
    4,661
    
    
    $
    37.71
    
    
    $
    
   (1)
    
    Includes surrender of 4,661 shares in connection with stock option exercises and restricted
shares for income tax withholding payments.(2)
    
    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. - 27 -




---



##### Table of Contents



Item 6. Exhibits 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.
   *
    
    Filed herewith - 28 -




---



##### Table of Contents



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 6, 2005
    
    

    
    /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
 - 29 -




---



##### Table of Contents



INDEX TO EXHIBITS ExhibitNumber
    
    Description31.1*
    
    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.
   *
    
    Filed herewith