##### 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 1934For the quarterly period ended December 31, 2004ORo
    
    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 þ. No o. Indicate by check mark whether the Registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act). Yes þ. No o. As of the close of business on January 31, 2005, the Registrant had outstanding
19,945,318 shares of Common Stock, par value $1 per share.




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ElkCorp and Subsidiaries For The Quarter Ended December 31, 2004 Table of Contents PagePart I. FINANCIAL INFORMATION (unaudited)Item 1. Financial
StatementsConsolidated
Balance Sheets as of December 31, 2004 and June 30, 2004
    
    
    1Consolidated
Statements of Operations for the Three Months and Six Months Ended
December 31, 2004 and 2003
    
    
    2Consolidated
Statements of Cash Flows for the Six Months Ended December 31, 2004
and 2003
    
    
    3Notes to Consolidated Financial Statements
    
    
    4-13Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations,
    
    
    14-24Item 3. Quantitative and
Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25Part II. OTHER INFORMATIONItem 2. Unregistered Sales
of Equity Securities and Use of Proceeds
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26-27Item 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




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##### Table of Contents



PART I. FINANCIAL INFORMATION 
 Item 1. Financial
Statements ELKCORP AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    June 30,2004
    
    
    2004AssetsCurrent AssetsCash and cash equivalents
    
    $
    40,343
    
    
    $
    273Trade receivables, less allowance of $539 and $605
    
    
    143,519
    
    
    
    121,091Inventories Finished goods
    
    
    52,578
    
    
    
    49,800Work-in-process
    
    
    191
    
    
    
    160Raw materials
    
    
    14,515
    
    
    
    12,169Total inventories
    
    
    67,284
    
    
    
    62,129Prepaid expenses and other assets
    
    
    8,672
    
    
    
    8,587Deferred income taxes
    
    
    4,894
    
    
    
    7,359Discontinued operations
    
    
    2,985
    
    
    
    5,096Total current assets
    
    
    267,697
    
    
    
    204,535Property, Plant and Equipment, at Cost
    
    
    425,939
    
    
    
    404,743Less - accumulated depreciation
    
    
    (145,094
    )
    
    
    (133,635
    )Property, plant and equipment, net
    
    
    280,845
    
    
    
    271,108Other Assets
    
    
    11,968
    
    
    
    5,065$
    560,510
    
    
    $
    480,708Liabilities and Shareholders EquityCurrent LiabilitiesAccounts payable
    
    $
    47,386
    
    
    $
    37,247Accrued liabilities
    
    
    29,000
    
    
    
    25,419Discontinued operations
    
    
    185
    
    
    
    531Total current liabilities

    
    
    76,571
    
    
    
    63,197Long-Term Debt
    
    
    199,094
    
    
    
    156,858Deferred Income Taxes
    
    
    48,654
    
    
    
    45,611Shareholders Equity -Common stock ($1 par, 19,988,078 shares issued)
    
    
    19,988
    
    
    
    19,988Paid-in capital
    
    
    63,851
    
    
    
    57,852Unearned compensation  unvested restricted stock
and performance stock awards
    
    
    (7,485
    )
    
    
    (628
    )Retained earnings
    
    
    162,680
    
    
    
    143,540239,034
    
    
    
    220,752Less  - Treasury stock (107,251 and 288,220
shares, at cost)
    
    
    (2,843
    )
    
    
    (5,710
    )Total shareholders equity

    
    
    236,191
    
    
    
    215,042$
    560,510
    
    
    $
    480,708
 See accompanying notes to consolidated financial statements. -1-




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ELKCORP AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Sales
    
    $
    195,158
    
    
    $
    123,208
    
    
    $
    358,543
    
    
    $
    282,947Cost and ExpensesCost of sales
    
    
    152,974
    
    
    
    95,917
    
    
    
    286,452
    
    
    
    222,472Selling, general and
administrative
    
    
    16,615
    
    
    
    14,514
    
    
    
    32,692
    
    
    
    30,080Income from Operations
    
    
    25,569
    
    
    
    12,777
    
    
    
    39,399
    
    
    
    30,395Interest Expense, Net
    
    
    2,382
    
    
    
    1,331
    
    
    
    4,476
    
    
    
    2,714Income From Continuing OperationsBefore Income Taxes
    
    
    23,187
    
    
    
    11,446
    
    
    
    34,923
    
    
    
    27,681Provision for income taxes
    
    
    8,835
    
    
    
    4,410
    
    
    
    13,271
    
    
    
    10,565Income From Continuing Operations
    
    
    14,352
    
    
    
    7,036
    
    
    
    21,652
    
    
    
    17,116Loss From DiscontinuedOperations, Net of Income Taxes
    
    
    (26
    )
    
    
    (7,879
    )
    
    
    (517
    )
    
    
    (8,822
    )Net Income (Loss)
    
    $
    14,326
    
    
    $
    (843
    )
    
    $
    21,135
    
    
    $
    8,294Income (Loss) Per Share  BasicIncome from continuing
operations
    
    $
    .73
    
    
    $
    .36
    
    
    $
    1.10
    
    
    $
    .87Discontinued operations
    
    
    
    
    
    
    (.40
    )
    
    
    (.03
    )
    
    
    (.45
    )Net income (Loss)
    
    $
    .73
    
    
    $
    (.04
    )
    
    $
    1.07
    
    
    $
    .42Income (Loss) Per Share  DilutedIncome from continuing
operations
    
    $
    .71
    
    
    $
    .35
    
    
    $
    1.08
    
    
    $
    .86Discontinued operations
    
    
    
    
    
    
    (.39
    )
    
    
    (.03
    )
    
    
    (.44
    )Net income (Loss)
    
    $
    .71
    
    
    $
    (.04
    )
    
    $
    1.05
    
    
    $
    .42Dividends Per Common Share
    
    $
    .05
    
    
    $
    .05
    
    
    $
    .10
    
    
    $
    .10Average Common Shares Outstanding
(000s)Basic
    
    
    19,697
    
    
    
    19,587
    
    
    
    19,684
    
    
    
    19,566Diluted
    
    
    20,154
    
    
    
    19,909
    
    
    
    20,035
    
    
    
    19,866
 See accompanying notes to consolidated financial statements. -2-




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ELKCORP AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedDecember 31,2004
    
    
    2003Cash Flows From Operating ActivitiesIncome from continuing operations
    
    $
    21,652
    
    
    $
    17,116Adjustments to reconcile income from continuing
operations to net cash provided by continuing operations:Depreciation and amortization
    
    
    11,475
    
    
    
    8,797Deferred income taxes
    
    
    5,508
    
    
    
    898Stock-based
compensation
    
    
    1,399
    
    
    
    39Changes in assets and liabilities:Trade receivables
    
    
    (25,879
    )
    
    
    37,135Inventories
    
    
    (5,155
    )
    
    
    1,561Prepaid expenses and other
    
    
    (85
    )
    
    
    (809
    )Accounts payable and accrued liabilities
    
    
    13,720
    
    
    
    (6,788
    )Net cash provided by continuing operations
    
    
    22,635
    
    
    
    57,949Net cash provided by discontinued operations
    
    
    1,248
    
    
    
    2,942Net cash provided by operating activities
    
    
    23,883
    
    
    
    60,891Cash Flows From Investing ActivitiesAdditions to property, plant and equipment
    
    
    (21,197
    )
    
    
    (33,378
    )Other, net
    
    
    (932
    )
    
    
    (245
    )Net cash used for investing activities
    
    
    (22,129
    )
    
    
    (33,623
    )Cash Flows From Financing ActivitiesProceeds from sale of Senior Notes
    
    
    50,000
    
    
    
    Repayments on Revolving Credit Facility, net
    
    
    (10,300
    )
    
    
    Dividends on common stock
    
    
    (1,995
    )
    
    
    (1,962
    )Proceeds from stock option exercises and other, net
    
    
    611
    
    
    
    710Net cash
provided by (used for) financing activities
    
    
    38,316
    
    
    
    (1,252
    )Net Increase in Cash and Cash Equivalents
    
    
    40,070
    
    
    
    26,016Cash and Cash Equivalents at Beginning of Year
    
    
    273
    
    
    
    5,056Cash and Cash Equivalents at End of Period
    
    $
    40,343
    
    
    $
    31,072
 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, 2004. The unaudited
financial information contained herein has been prepared in conformity with accounting principles
generally accepted in the United States of America on a consistent basis and does reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion of management,
necessary for a fair presentation of the results of operations for the three-month and six-month
periods ended December 31, 2004 and 2003. Because of, among other things, seasonal,
weather-related conditions in some of the companys market areas, sales can vary at times, and
results of any one quarter or other interim reporting period should not necessarily be considered
as indicative of results for a full fiscal year. Note 2  Company Segments The Building Products segment consists of Elk Premium Building Products, Inc. and its
operating subsidiaries (collectively Elk). These companies manufacture (1) premium laminated
fiberglass asphalt shingles, (2) coated and non-coated nonwoven fabrics used in asphalt shingles
and other applications in the building and construction, filtration, floor coverings and other
industries, and (3) composite wood decking, marine dock, and fencing products. Building Products
accounted for 98% of consolidated sales in the six-month periods ended December 31, 2004 and 2003. Other, Technologies consists of the companys other operations. These dissimilar operations
are combined, as none individually meets the materiality criteria for separate segment reporting.
Other, Technologies includes (1) Chromium Corporation (Chromium), which is a leading provider of
hard chrome and other surface finishes designed to extend the life of steel machinery components
operating in abrasive environments, (2) Ortloff Engineers, LTD (Ortloff), which provides
proprietary technologies and selected engineering services to the natural gas processing industry,
and (3) Elk Technologies, Inc., which develops and markets fabrics featuring VersaShield fire
retardant coatings designed for use outside of traditional building products applications,
including home furnishings and other consumer products. -4-




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Financial information by company segment is summarized as follows: (In thousands)
    
    
    (In thousands)Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Sales from Continuing OperationsBuilding Products
    
    $
    191,821
    
    
    $
    119,042
    
    
    $
    352,385
    
    
    $
    276,409Other, Technologies
    
    
    3,337
    
    
    
    4,166
    
    
    
    6,158
    
    
    
    6,538$
    195,158
    
    
    $
    123,208
    
    
    $
    358,543
    
    
    $
    282,947Operating Profit from
Continuing OperationsBuilding Products
    
    $
    29,632
    
    
    $
    14,908
    
    
    $
    47,649
    
    
    $
    36,812Other, Technologies
    
    
    (70
    )
    
    
    1,350
    
    
    
    (579
    )
    
    
    702Corporate
    
    
    (3,993
    )
    
    
    (3,481
    )
    
    
    (7,671
    )
    
    
    (7,119
    )25,569
    
    
    
    12,777
    
    
    
    39,399
    
    
    
    30,395Interest expense, net
    
    
    2,382
    
    
    
    1,331
    
    
    
    4,476
    
    
    
    2,714Income from continuing
operations before income taxes
    
    $
    23,187
    
    
    $
    11,446
    
    
    $
    34,923
    
    
    $
    27,681Depreciation and AmortizationBuilding Products
    
    $
    4,757
    
    
    $
    3,621
    
    
    $
    9,515
    
    
    $
    7,172Other, Technologies
    
    
    179
    
    
    
    139
    
    
    
    355
    
    
    
    325Corporate
    
    
    911
    
    
    
    670
    
    
    
    1,605
    
    
    
    1,300$
    5,847
    
    
    $
    4,430
    
    
    $
    11,475
    
    
    $
    8,797Capital ExpendituresBuilding Products
    
    $
    10,963
    
    
    $
    15,006
    
    
    $
    20,096
    
    
    $
    30,574Other, Technologies
    
    
    34
    
    
    
    24
    
    
    
    242
    
    
    
    140Corporate
    
    
    354
    
    
    
    1,238
    
    
    
    859
    
    
    
    2,664$
    11,351
    
    
    $
    16,268
    
    
    $
    21,197
    
    
    $
    33,378
 December 31,
    
    
    June 30,2004
    
    
    2004Identifiable AssetsBuilding Products
    
    $
    468,823
    
    
    $
    428,246Other, Technologies
    
    
    20,058
    
    
    
    19,860Corporate
    
    
    68,644
    
    
    
    27,506Discontinued Operations
    
    
    2,985
    
    
    
    5,096$
    560,510
    
    
    $
    480,708
 -5-




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Note 3  Product Sales The following table summarizes sales from continuing operations by product category, excluding
intercompany sales, for the three-month and six-month periods ended December 31, 2004 and 2003: (In thousands)
    
    
    (In thousands)Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Premium roofing
    
    $
    179,462
    
    
    $
    111,139
    
    
    $
    326,439
    
    
    $
    258,800Performance nonwoven fabrics
    
    
    9,099
    
    
    
    6,492
    
    
    
    19,704
    
    
    
    15,466Composite building products
    
    
    3,260
    
    
    
    1,411
    
    
    
    6,242
    
    
    
    2,143Technology licensing and consulting fees
    
    
    1,059
    
    
    
    2,437
    
    
    
    1,432
    
    
    
    2,887Hard chrome and other surface finishes
    
    
    2,226
    
    
    
    1,729
    
    
    
    4,660
    
    
    
    3,651Other
    
    
    52
    
    
    
    
    
    
    
    66
    
    
    
    $
    195,158
    
    
    $
    123,208
    
    
    $
    358,543
    
    
    $
    282,947
 Note 4  Earnings Per Share Basic earnings per share is computed based on the average number of common shares
outstanding. Diluted earnings per share includes outstanding stock options and unvested
restricted shares. In accordance with SFAS No. 128, Earnings Per Share, diluted earnings per
share from discontinued operations presented on the Consolidated Statements of Operations was
computed utilizing the same number of potential common shares used in computing the diluted per
share amount for income from continuing operations, regardless of whether those amounts were
antidilutive to their respective basic per share amounts. The following table sets forth the
computation of basic and diluted earnings per share from continuing operations: (In thousands except per share amounts)Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Income from continuing operations
    
    $
    14,352
    
    
    $
    7,036
    
    
    $
    21,652
    
    
    $
    17,116Denominator for basic earnings per share
 weighted average shares outstanding
    
    
    19,697
    
    
    
    19,587
    
    
    
    19,684
    
    
    
    19,566Effect of dilutive securities:Unvested restricted shares and employee
stock options
    
    
    457
    
    
    
    322
    
    
    
    351
    
    
    
    300Denominator for dilutive earnings per
share  adjusted weighted average shares
and assumed issuance of shares purchased
under incentive stock option plan and
vesting of restricted shares using the
treasury stock method
    
    
    20,154
    
    
    
    19,909
    
    
    
    20,035
    
    
    
    19,866Basic earnings per share from continuing
operations
    
    $
    .73
    
    
    $
    .36
    
    
    $
    1.10
    
    
    $
    .87Diluted earnings per share from
continuing operations
    
    $
    .71
    
    
    $
    .35
    
    
    $
    1.08
    
    
    $
    .86Stock options excluded from computation
of diluted earnings per share due to
antidilutive effect
    
    
    -0-
    
    
    
    729
    
    
    
    365
    
    
    
    728
 -6-




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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. 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 six-months periods ended December 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)
    
    
    (In thousands)Three Months Ended
    
    
    Six Months EndedDecember 31
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Net income (loss) as reported
    
    $
    14,326
    
    
    $
    (843
    )
    
    $
    21,135
    
    
    $
    8,294Add: Stock-based employee
compensation expense included in
reported net income, net of
related tax effects
    
    
    525
    
    
    
    
    
    
    
    525
    
    
    
    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
    
    
    (1,075
    )
    
    
    (797
    )
    
    
    (1,683
    )
    
    
    (1,351
    )Pro forma earnings (loss)
    
    $
    13,776
    
    
    $
    (1,640
    )
    
    $
    19,977
    
    
    $
    6,943Earnings (loss) per common share:Basic  as reported
    
    $
    .73
    
    
    $
    (.04
    )
    
    $
    1.07
    
    
    $
    .42Basic  pro forma
    
    $
    .70
    
    
    $
    (.08
    )
    
    $
    1.01
    
    
    $
    .35Diluted  as reported
    
    $
    .71
    
    
    $
    (.04
    )
    
    $
    1.05
    
    
    $
    .42Diluted  pro forma
    
    $
    .68
    
    
    $
    (.08
    )
    
    $
    1.00
    
    
    $
    .35
 Note 6  Long-Term Debt (In thousands)December 31,
    
    
    June 30,2004
    
    
    2004Senior Notes
    
    $
    195,000
    
    
    $
    145,000Revolving Credit Facility
    
    
    
    
    
    
    10,300Fair value of interest rate swaps
    
    
    4,094
    
    
    
    1,558$
    199,094
    
    
    $
    156,858
 -7-




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##### Table of Contents



The company has issued $195,000,000 of Senior Notes (Notes). This amount includes $50,000,000
in Notes that were issued on November 15, 2004. 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
December 31, 2004, the fair value of the derivative was $3,807,000 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 new interest rate swap is also a fair value hedge
with the same accounting and reporting as the aforementioned interest rate swap. At December 31,
2004, the fair value of the derivative was $287,000 and is recorded in other assets and as an
increase in the fair value of long-term debt. At December 31, 2004, 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 December 31, 2004, there were no borrowings outstanding on the
Facility and $3,422,000 of letters of credit were outstanding. 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 December 31, 2004, the
company was in compliance with all requirements. Note 7  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
    
    
    2,685Warranty settlements
    
    
    (1,974
    )Balance at December 31, 2004
    
    $
    3,814
 -8-




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Note 8  Environmental Risk Chromium has engaged in limited remediation activities at its former plating operation, which
is located 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 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. Chromium completed a supplemental groundwater and soil assessment at the 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 cleanup the site under the VCP to a site specific risk-based cleanup 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. Accordingly, the company has recorded
$400,000 in estimated costs at December 31, 2004. Certain other scenarios, none of which are
reasonably expected at this time, could potentially result in
material costs to the company. 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. -9-




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##### Table of Contents



Note 9  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 tentative
agreement has been submitted to the Joint Committee of the IRS for final review and approval. The
deferred tax balance and income tax receivable were each reduced by approximately $400,000 to
reflect the tentative agreement. 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. Management had previously decided to sell Cybershields
Canton, Georgia facility. Therefore, the Canton, Georgia facility is included as a component of
discontinued operations. As a result of these actions, Cybershield is classified as a discontinued
operation in the consolidated financial statements. On August 10, 2004, 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. The
only remaining assets in discontinued operations are property, plant and equipment related to the
Canton, Georgia facility. In the first quarter of fiscal 2005, the company recorded a pretax
impairment charge of $651,000 on the remaining Canton assets. The company has reached an agreement
to sell the Canton land, building and certain equipment for $2,750,000. The sales price
approximates the book value of the assets to be sold. Subsequent to this sale, the only remaining
assets of discontinued operations will be immaterial amounts of equipment held for sale. Summary operating results of discontinued operations are summarized as follows: (In thousands)
    
    
    (In thousands)Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Sales
    
    $
    
    
    
    $
    3,066
    
    
    $
    643
    
    
    $
    4,671Cost of Sales
    
    
    27
    
    
    
    4,017
    
    
    
    706
    
    
    
    6,412Selling, General and Administrative
    
    
    13
    
    
    
    675
    
    
    
    81
    
    
    
    1,335Impairment of Assets
    
    
    
    
    
    
    10,496
    
    
    
    651
    
    
    
    10,496Operating loss
    
    
    (40
    )
    
    
    (12,122
    )
    
    
    (795
    )
    
    
    (13,572
    )Credit for income taxes
    
    
    (14
    )
    
    
    (4,243
    )
    
    
    (278
    )
    
    
    (4,750
    )Net loss from discontinued operations
    
    $
    (26
    )
    
    $
    (7,879
    )
    
    $
    (517
    )
    
    $
    (8,822
    )
 -10-




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Note 11  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, the performance criteria for 70%
of the total PSA is based on the companys return on equity (ROE) for the performance cycle
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, for
the performance period 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 period ended December 31, 2004, $808,000 was charged to compensation expense based
on the estimated number of shares that will be issued at the end of the performance period ending
June 30, 2007. -11-




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##### Table of Contents



Following is a table of shareholders equity activity from June 30, 2004 to December 31, 2004
that identifies, among other things, the impact of restricted stock, stock options and performance
stock on the companys equity accounts. TotalCommon
    
    
    Paid-in
    
    
    Unearned
    
    
    Retained
    
    
    Treasury
    
    
    Stockholders($ In thousands)
    
    Stock
    
    
    Capital
    
    
    Compensation
    
    
    Earnings
    
    
    Stock
    
    
    EquityBalance, June 30, 2004
    
    $
    19,988
    
    
    $
    57,852
    
    
    $
    (628
    )
    
    $
    143,540
    
    
    $
    (5,710
    )
    
    $
    215,042Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,135
    
    
    
    
    
    
    
    21,135Exercises of stock options
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    1,220
    
    
    
    1,197Restricted stock grants
    
    
    
    
    
    
    1,223
    
    
    
    (3,450
    )
    
    
    
    
    
    
    2,227
    
    
    
    Restricted stock vesting
    
    
    
    
    
    
    
    
    
    
    591
    
    
    
    
    
    
    
    
    
    
    
    591Performance stock grants
    
    
    
    
    
    
    4,806
    
    
    
    (4,806
    )
    
    
    
    
    
    
    
    
    
    
    Performance stock
amortization
    
    
    
    
    
    
    
    
    
    
    808
    
    
    
    
    
    
    
    
    
    
    
    808Purchases of treasury
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (587
    )
    
    
    (587
    )Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,995
    )
    
    
    
    
    
    
    (1,995
    )Other
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    Balance, December 31, 2004
    
    $
    19,988
    
    
    $
    63,851
    
    
    $
    (7,485
    )
    
    $
    162,680
    
    
    $
    (2,843
    )
    
    $
    236,191
 -12-




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##### Table of Contents



Note 12  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-




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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 six-month periods ended December 31,
2004 and 2003. This discussion should be read in conjunction with the Consolidated Condensed
Financial Statements and Notes to Consolidated Condensed Financial Statements included elsewhere
herein and in our annual report on Form 10-K for the year ended June 30, 2004. The second fiscal quarter was marked by a company record for laminated shingle unit volume,
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 results 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 four 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 is significantly better than our
expectations for this new facility. We are nearing completion on a project to significantly
increase the composite building products line with an investment of approximately $22,000,000 to
expand the capabilities of our current composite lumber operations in Lenexa, Kansas. Limited
production began at this expanded facility in December 2004. Start-up of this expanded facility
will negatively impact operating results initially, but operating income is expected to improve as
the second half of fiscal 2005 progresses. Chromium and Ortloff each reported small operating losses in the first half of fiscal 2005.
These companies do not fit into our focus on Building Products platforms, and are currently being
offered for sale. We have received interest from several parties for each of the businesses
although we intend to be selective in evaluating potential buyers as we do not have an immediate
need to sell either business. 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 August 10, 2004. An agreement to sell the idle Canton, Georgia facility has
been reached and finalization of the sale is in progress. The transaction is subject to several
conditions, including satisfactory due diligence and the negotiation of a definitive purchase
agreement. -14-




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##### 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 Condensed
Financial Statements and Notes to Consolidated Condensed Financial Statements included elsewhere
herein. Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    78.4
    
    
    
    77.8
    
    
    
    79.9
    
    
    
    78.6Gross margin
    
    
    21.6
    
    
    
    22.2
    
    
    
    20.1
    
    
    
    21.4Selling, general and
administrative
    
    
    8.5
    
    
    
    11.8
    
    
    
    9.1
    
    
    
    10.6Income from operations
    
    
    13.1
    
    
    
    10.4
    
    
    
    11.0
    
    
    
    10.8Interest expense, net
    
    
    1.2
    
    
    
    1.1
    
    
    
    1.3
    
    
    
    1.0Income from continuing
operations before income taxes
    
    
    11.9
    
    
    
    9.3
    
    
    
    9.7
    
    
    
    9.8Provision for income taxes
    
    
    4.5
    
    
    
    3.6
    
    
    
    3.7
    
    
    
    3.8Income from continuing
operations
    
    
    7.4
    %
    
    
    5.7
    %
    
    
    6.0
    %
    
    
    6.0
    %
 Changes in the Three-Month Period Ended December 31, 2004 Compared to the Three-Month Period Ended
December 31, 2003 Overall Performance Sales from continuing operations of $195,158,000 during the three-month period ended December
31, 2004 were 58.4% higher than $123,208,000 in the same period in the prior fiscal year. During
the three-month period ended December 31, 2004, operating income from continuing operations of
$25,569,000 was double the $12,777,000 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 and higher
average selling prices. The percentage of cost of sales to sales increased to 78.4% in the
three-month period ended December 31, 2004 compared to 77.8% 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 recycling of inventory
at the Lenexa, Kansas composite lumber operation, were the primary factors causing the lower gross
margin in the current year period. Selling, general and administrative (S,G&A) costs in the second
quarter of fiscal 2005 were 14.4% higher than in the same period last year due primarily to
increased selling expense, together with performance based compensation expense. However, due to
substantially increased business activity, S,G&A was only 8.5% of sales in the second quarter of
fiscal 2005 compared to 11.8% in the same prior year quarter. -15-




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##### Table of Contents



Interest expense, net, was $2,382,000 in the second quarter of fiscal 2005 compared to
$1,331,000 in the same prior year period. In the period ended December 31, 2004, $237,000 of
interest was capitalized related to the expansion of the Lenexa, Kansas facility and other
significant capital projects. In the second quarter of fiscal 2004, $735,000 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 $250,000 year-to-year increase in total interest cost. Our effective tax rate for continuing operations was 38.1% during the second quarter of fiscal
2005 compared to 38.5% for the same period in fiscal 2004. For the full fiscal year 2005, we
expect the effective tax rate from continuing operations to approximate 38.0% compared to 37.4% for
the full fiscal year 2004. The expected increase of the effective tax rate in fiscal 2005 is
primarily attributable to higher state income taxes. 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 December
31, 2004, the company recorded a $40,000 pretax loss relating to the discontinued operation. In
the second quarter of fiscal 2004, Cybershield reported a $1,626,000 pretax loss from discontinued
operations, combined with pretax noncash writedowns of $10,496,000 to reduce the book value of
Cybershields assets to fair value. Results of Business Segments Sales in the Building Products segment increased 61.1% to $191,821,000 for the three months
ended December 31, 2004 compared to $119,042,000 in the same prior year period. Compared to the
same period in fiscal 2004, unit shingle shipments increased 44%. In the current year period,
shingle unit volume surged as a result of increased demand in most regions of the United States,
led by unusually high activity in 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 10.4% compared to the year-ago period, primarily as a result of price
increases that were effective in October 2004 and November 2004. These increases were consistent
with industry trends. An additional 1-2% price increase was implemented in January 2005 to allow
us to continue to offset increased asphalt and transportation costs. In the second quarter of
fiscal 2005, external sales of performance nonwoven fabrics increased 40.1% primarily as a result
of sales of specialty fabrics products, such as roofing mat, facer and filtration products. Sales
of composite lumber products increased 131% to $3,260,000 in the quarter ended December 31, 2004
compared to $1,411,000 the same three-month period in the prior fiscal year. We anticipate sales
for this product platform to significantly increase throughout the remainder of fiscal 2005. Operating income for the Building Products segment of $29,632,000 for the three-month period
ended December 31, 2004 increased 98.8% from $14,908,000 achieved in the same period in the prior
fiscal year. This significant improvement in operating income was primarily attributable to the
aforementioned increase in unit shingle shipments. We were also 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 15% in the three-month
period ended December 31, 2004 from the same period in fiscal 2004 and about 3% compared to the
first quarter of fiscal 2005. Transportation costs have increased 17% over the year- -16-




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##### Table of Contents



ago quarter and 5% over the prior quarter. The new Tuscaloosa, Alabama roofing plant continued to
improve its productivity and achieved profitability during the quarter ended December 31, 2004.
During the quarter, this new plant operated above 50% of capacity. We incurred an approximate
$3,200,000 operating loss at our composite lumber business in the quarter ended December 31, 2004
compared to an approximate $1,000,000 loss for this business in the same prior year period. During
the second quarter of fiscal 2005, this business continued to recycle old product that was not up
to current specifications. We do not anticipate requiring any additional reserves for the
recycling of this inventory. Had we not incurred these inventory adjustments, the composites
business would have achieved profitability in the month of December 2004 from record shipments of
decking, fencing, railing and OEM products. In December 2004, the composite building products company signed a letter of intent to acquire
Railwayz Inc., a privately held composite railing company. The purchase price is is not material
to our financial position. Railwayz manufactures railing product that will complement our
CrossTimbers decking product and allow us to offer our distributors a more diverse decking and
railing product line. This transaction is subject to several conditions, including satisfactory
due diligence and the negotiation of a definitive purchase agreement. The Other, Technologies companies reported combined sales of $3,337,000 in the second quarter
of fiscal 2005 compared to $4,166,000 in the same period in fiscal 2004. Ortloff
recognized lower 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 $2,226,000, or 28.7% higher in the current year
period compared to $1,729,000 in the same fiscal 2004 period as a result of increased demand for
plating and finishing services in existing locomotive and marine markets. Other, Technologies companies had a combined operating loss of $70,000 in the three-month
period ended December 31, 2004, compared to a $1,350,000 operating profit in the same three-month
period last year. Chromium recorded an operating loss of $184,000 for the three-month period ended
December 31, 2004, which included a $400,000 reserve for estimated environmental clean-up at its
former plating operation located in Lufkin, Texas. This operating loss compares to a nominal
operating profit achieved in the same quarter last year. Ortloff had a $247,000 operating profit
in the quarter ended December 31, 2004 compared to a $1,482,000 operating profit in the same period
last year. This year-to-year reduction was primarily the result of lower licensing fees. Elk
Technologies incurred an operating loss of $133,000 in the quarter ended December 31, 2004,
compared to an operating loss of $189,000 in the same period last year. The year-to-year reduction
is the result of increased sales to additional regional mattress manufacturers and reduced
marketing expenses. We anticipate sales of fire barrier products to continue to increase as
California mattress manufacturers adjust to recently adopted TB 603 legislation and other
manufacturers begin to produce and distribute mattresses with flame retardant components
nationwide. -17-




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##### Table of Contents



Changes in the Six-Month Period Ended December 31, 2004 Compared to the Six-Month Period Ended
December 31, 2003 Overall Performance Sales from continuing operations of $358,543,000 during the six-month period ended December
31, 2004 were 26.7% higher than $282,947,000 in the same period in the prior fiscal year. During
the six-month period ended December 31, 2004, operating income from continuing operations of
$39,399,000 was 29.6% higher than $30,395,000 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
increased to 79.9% in the six-month period ended December 31, 2004 compared to 78.6% for the same
period last year. Higher costs at the new Tuscaloosa, Alabama roofing plant, together with
escalating raw material and transportation costs for all roofing plant operations, were the primary
factors causing the lower gross margin in the current year period. Selling, general and
administrative (S,G&A) costs in the first half of fiscal 2005 were 8.7% 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 9.1% of sales in the first half of fiscal 2005 compared to 10.6% in
the same period last year as a result of a substantial increase in business activity. Interest expense, net, was $4,476,000 in the first half of fiscal 2005 compared to $2,714,000
in the same prior year period. In the period ended December 31, 2004, $396,000 of interest was
capitalized related to the expansion of the Lenexa, Kansas facility and other significant capital
projects. In the first half of fiscal 2004, $1,312,000 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. Our effective tax rate for continuing operations was 38.0% during the first half of fiscal
2005 compared to 38.2% for the same period in fiscal 2004. In the first half of fiscal 2005, we incurred a $795,000 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 six-month
period ended December 31, 2003 reflected a $13,572,000 pretax operating loss, which included a
pretax noncash writedown of $10,496,000 to reduce the book value of the Lufkin, Texas assets to
fair value and a $3,076,000 pretax loss from operating activities. Results of Business Segments Sales in the Building Products segment increased 27.5% to $352,385,000 for the six months
ended December 31, 2004 compared to $276,409,000 in the same period in fiscal 2004. On a
year-to-year basis shingle unit volume increased 16%. 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 6.5% for the first half of fiscal 2005 as compared to the same
period last year. For the six-month period ended December 31, 2004, external sales of performance -18-




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nonwoven fabrics increased 27.4% to $19,704,000 in the current year quarter compared to $15,466,000
in the same period last year, primarily as a result of higher demand of outside roofing,
filtration and facer products. For the first six months of fiscal 2005, sales of composite
building products of $6,242,000 were 191.3% higher than in the same period last year as we continue
to develop this business platform by improving and increasing our product line, and 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 $47,649,000 for the six-month period
ended December 31, 2004 increased 29.4% compared to $36,812,000 achieved in the first half 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 half of fiscal
2005, we expect higher asphalt and transportation costs to continue to provide challenging industry
conditions throughout the remainder of the fiscal year. Although oil prices have declined slightly
from their high, it often takes 60 to 90 days for this to be reflected in the price of asphalt.
Asphalt costs can also be affected by supply and demand issues which can be difficult to predict.
We believe that our current pricing structure should enable us to maintain our margins in this
business. Operating income gains in the premium roofing and performance nonwoven fabrics platforms
were partially offset by an operating loss of $3,900,000 for the wood composite business during the
first half of fiscal 2005. This operating loss compares to an operating loss of approximately
$2,100,000 in the first half of fiscal 2004. However, a significant amount of the fiscal 2005 loss
is attributable to the recycling of old inventory and increased costs associated with the ramp-up
of a new two-sided embossed finish product. These are not expected to be recurring costs. Other, Technologies companies reported combined sales of $6,158,000 in the first six-months of
fiscal 2005, compared to $6,538,000 in the same period last year. Chromiums sales of $4,660,000
were 27.6% higher in the fiscal 2005 period as compared to $3,651,000
in the first six-months of
fiscal 2004 as a result of increased demand for plating and finishing services in existing
locomotive and marine markets. Ortloff recognized lower licensing fees in the six-month period
ended December 31, 2004 compared to the same period last year. License fees can vary significantly
between reporting periods as this business is largely project driven. Other, Technologies companies had a combined operating loss of $579,000 in the six-month
period ended December 31, 2004, compared to a $702,000 operating profit in the same period last
year. Chromium reported a $143,000 operating profit in the current year period, which included a
$400,000 charge for estimated environmental costs at its former Lufkin, Texas plating operation.
In the first half of fiscal 2004, Chromium was modestly profitable. Due to decreased license fee
income, Ortloff had a $332,000 operating loss in the fiscal 2005 period, compared to a $976,000
operating profit in the fiscal 2004 period. Elk Technologies incurred an operating loss of
$390,000 in the first half of fiscal 2005, compared to an operating loss of $350,000 in the same
period last year. -19-




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Financial Condition Overview Our liquidity needs generally arise principally from working capital requirements, capital
expenditures, dividends, and interest payments. During the first six 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, depreciation and amortization. Cash flows from operating
activities also either increase or decrease by changes in working capital requirements. In the six
months ended December 31, 2004, we generated cash of $23,883,000 from operating activities,
compared to $60,891,000 in the same six-month period last year. In most fiscal years, trade receivables at December 31 are significantly lower than at the
June 30 fiscal year end due to a normal seasonal slowdown in roofing activity. However, trade
receivables, including long-term receivables, at December 31, 2004 were $25,879,000 higher than at
June 30, 2004 due primarily to unusually high shipments of premium roofing products. 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 June 30, 2004, receivables from customer programs with extended
due dates were $5,662,000, all of which were collected in the first three months of fiscal 2005.
At December 31, 2004, inventories were $5,155,000 higher than at June 30, 2004. Much of the
increase related to seasonal inventory buildup in the areas of the United States not affected by
the hurricane related demand. We believe our inventories are being maintained at appropriate
levels. The current ratio was 3.5 to 1 at December 31, 2004 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 $22,129,000 in the first six months of fiscal 2005 compared
to $33,623,000 in the same period in fiscal 2004. Approximately $14,602,000 of current year
capital expenditures relate to the expansion of our composite lumber facility in Lenexa, Kansas,
which is nearing completion. As previously discussed, the new Tuscaloosa Alabama roofing plant has
been completed and placed in service. We also invested approximately $800,000 in the first six
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 November 1, 2004.
Excluding major capacity initiatives such as the Lenexa expansion, consolidated ordinary levels of
capital expenditures are generally expected to be approximately $10,000,000 to $15,000,000 per
year. -20-




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Financing Activities Cash flows from financing activities generally reflect changes in our borrowings, together
with dividends paid on common stock, treasury stock transactions and exercises of stock options.
Net cash generated from financing activities was $38,316,000 in the first six months of fiscal
2005, compared to $1,252,000 used for financing activities 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
December 31, 2004, liquidity consisted of $40,343,000 of cash
and cash equivalents (which are highly liquid investments purchased
with an original maturity of, or which are subject to redemption in
three months or less) and
$121,578,000 of available borrowings under the $125,000,000 committed line of credit facility. The
debt to capital ratio (after deducting cash of $40,343,000 from $195,000,000 of principal debt) was
39.6%. 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 December 31, 2004, we have repurchase authority of approximately $10,600,000
remaining. We did not make any open market purchases of common stock in the six-month period ended
December 31, 2004. All purchases of equity securities in the
first six months of fiscal 2005 related to repurchases from officers
and employees in connection with stock option exercises and
restricted shares, or from the ElkCorp ESOP as a result of
participant diversification directives. 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 December 31, 2004. 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 granted for
the first time in December 2004. These awards are more fully described in Note 11  Restricted
Stock, Stock Options and Performance Stock. Compensation expense for Performance Stock Awards is
based on our estimate of the number of 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 in fiscal 2006, 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. -21-




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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 recent
regulatory changes in the trucking industry, through price increases of our products, operating
results could be adversely affected and/or lower than projected. 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. -22-




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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 nearing completion. 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. 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. 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. -23-




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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, and explosions, 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. 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 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. -24-




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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
are no natural gas hedge transactions in effect at December 31, 2004. 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 at December 31, 2004. The fair value of these swaps was $4,094,000 at December
31, 2004. Based on outstanding debt at December 31, 2004, 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 December 31, 2004 and that has materially affected, or is reasonably likely to
materially affect, the Companys internal controls over financial reporting. -25-




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PART II. OTHER INFORMATION 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Issuer Purchase of Equity Securities for Quarter Ended December 31, 2004 Maximum Number (orApproximate DollarTotal Number of
    
    
    Value) of SharesShares Purchased as
    
    
    That May yet beTotal Number of
    
    
    
    
    
    
    Part of Publicly
    
    
    Purchased Under theShares Purchased
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    Plans or ProgramsPeriod
    
    (Note 1)
    
    
    per Share
    
    
    Programs
    
    
    (Note 2)October, 2004
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    10,600,000November, 2004
    
    
    18,034
    
    
    $
    30.02
    
    
    $
    
    
    
    $
    10,600,000December, 2004
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    10,600,000Total
    
    
    18,034
    
    
    $
    30.02
    
    
    $
    
   (1)
    Includes repurchases of 3,034 shares from officers and employees in connection with stock
option exercises and repurchased restricted shares for income tax withholding payments, and
15,000 shares purchased from ElkCorp ESOP as a result of participant diversification
directives.(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. 
 Item 4: Submission of Matters to a Vote of Security Holders  (a)
    The companys Annual Meeting of Shareholders was held on October 26, 2004 for the
purpose of electing two directors, approving the 2004 ElkCorp Amended and Restated Equity
Incentive Compensation Plan, and ratifying the appointment of the companys independent
auditors.(b)
    Directors Elected NUMBER OF VOTESFOR
    
    
    AGAINST
    
    
    WITHHELDJames E. Hall
    
    
    17,102,984
    
    
    
    895,324
    
    
    
    1,076,754Shauna R. King
    
    
    17,948,234
    
    
    
    50,074
    
    
    
    1,076,754
 -26-




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(c)
    Other Directors Whose Term Continued After the Meeting: Thomas D. Karol
Dale V. Kesler
Richard A. Nowak
Michael L. McMahan
David W. Quinn Effective October 26, 2004, Mr. Harold Work retired from the Board of Directors.  (d)
    Other matters voted upon at the meeting and the number of affirmative votes, negative
votes, abstentions, and broker non votes. NUMBER OF VOTESBROKERFOR
    
    
    AGAINST
    
    
    ABSENTIONS
    
    
    NON VOTESApproval of the
2004 Elkcorp
Amended
and Restated Equity
Incentive
Compensation Plan
    
    
    14,591,304
    
    
    
    2,480,454
    
    
    
    200,724
    
    
    
    1,802,580Ratification of
Grant Thornton LLP
as independent
auditors of the
company for the
fiscal year ending
June 30, 2005
    
    
    18,735,291
    
    
    
    124,533
    
    
    
    215,238
    
    
    
    
 -27-




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Item 6. Exhibits (a)
    
    Exhibits:10.1**
    
    2004 Amended and Restated ElkCorp Equity Incentive Compensation Plan
(incorporated by reference to Exhibit B to the companys Proxy Statement filed
September 15, 2004).10.2**
    
    Form of Performance Stock Award Agreement (incorporated by reference to Exhibit
10.1 to the companys Form 8-K filed on December 16, 2004).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.
    ** Incorporated by
reference -28-




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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: February 8, 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-




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Index to Exhibits Item 6. Exhibits (a)
    
    Exhibits:10.1**
    
    2004 Amended and Restated ElkCorp Equity Incentive Compensation Plan
(incorporated by reference to Exhibit B to the companys Proxy Statement filed
September 15, 2004).10.2**
    
    Form of Performance Stock Award Agreement (incorporated by reference to Exhibit
10.1 to the companys Form 8-K filed on December 16, 2004).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.
    ** Incorporated by
reference